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Drug makers often argue that innovation would suffer whenever they are attacked for high prices. But a new analysis finds many of these companies have actually spent more on buying back stock and paying dividends than on research and development.

From 2006 through 2015, the 18 drug makers in the Standard & Poor’s 500 index spent $516 billion on buybacks and dividends, outpacing the $465 billion spent on R&D. This pattern helped deflect criticism from shareholders that drug makers are not doing enough to replace patented medicines.

And so, the authors argue drug makers should be banned from buybacks. In their view, buybacks are a manipulative scheme to boost executive compensation with profits that could be distributed more broadly to Americans in the form of lower drug prices, and without impacting R&D spending or dividends. Fodder for a reader poll, yes?

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“The key cause of high drug prices, restricted access to medicines, and stifled innovation, we submit, is a social disease called ‘maximizing shareholder value,’ ” the authors wrote in a paper published last week by the Institute for New Economic Thinking. They contend MSV is “actually an ideology of value extraction.”

Gilead Sciences is singled out. From 2006 through 2015, Gilead buybacks totaled $27 billion, but R&D spending was $17 billion. Meanwhile, former Gilead chief executive John Martin was one of the highest-paid pharma execs — and between 90 percent and 98 percent of his compensation was based on some type of stock award.

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The authors claim MSV is “a global problem, but the U.S. pharmaceutical industry is where the ideology operates unconstrained.” Of course, some investors may disagree. After all, buybacks reduce the number of outstanding shares, which can boost earnings per share. And when that happens, stock prices can rise.

But what do you think?

 

  • Sadly, the question as written ‘banned from buying back stock,’ is slanted to get a NO vote. “Never” is always risky in the Gxp world. ‘Severely limited in buyback of stock simply for MSV’ would allow a better choice. BUT “it’s not my blog” ….

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