The High Cost of Shareholder Power in Big Pharma

New Roosevelt brief illustrates the magnitude of Big Pharma spending on shareholders

NEW YORK, NY – At a time when Americans pay record prices for medications, pharmaceutical companies generate record profits devoted largely to rewarding shareholders and pharma executives. Highlighting how these profits could go toward lowering the inflated costs of life-saving drugs, today the Roosevelt Institute released “Profit over Patients: Americans are Paying for a Financialized Pharmaceutical Industry” by Roosevelt Fellow Katy Milani. The brief explores the extent to which the rules of our economy enable the pharmaceutical industry to engage in corporate practices like stock buybacks—which artificially increase stock prices—at the expense of productive investments, such as research and development (R&D) or lowering the price of life-saving medicines.

The report comes amid policymakers’ renewed attention to the issue of stock buybacks. Today, Congressman Chuy Garcia (D-IL) will introduce the Reward Work Act, legislation that bans stock buybacks and gives workers representation on corporate boards. A Senate version of the bill was introduced by Senator Tammy Baldwin (D-WI) in March. The Reward Work Act seeks to reverse many of the trends described in “Profit Over Patients” by eliminating open-market stock buybacks and giving workers a voice on corporate boards in order to encourage better investments in the future.

Key insights from the brief

The leading 10 pharmaceutical companies’ spending on payments to shareholders, including stock buybacks and dividends, increased almost 75 percent from 2017 to 2018, totaling $115 billion or roughly 167 percent of these companies’ total net income. This number outpaced firm-reported spending on R&D, which totaled almost $71.7 billion. Additionally:

  • Seven out of the 10 Big Pharma companies featured in this analysis spent over 100 percent of their profits to reward shareholders, such as AbbVie (318 percent), Eli Lilly (202 percent), Merck (232 percent), and Pfizer (182 percent);
  • Eli Lilly spent $6.5 billion on payments to shareholders in the form of buybacks and dividends combined, the same year its diabetes medication earned over $9 billion; and
  • AbbVie spent $18.1 billion to reward shareholders in the form of buybacks and dividends combined or 91 percent of the money the company made on its best-selling arthritis drug, Humira.

“Across the board, the research found that drug companies raise prices on blockbuster medicines to benefit their executives and shareholders,” said Milani. “By comparing Eli Lilly and AbbVie spending on buybacks and dividends against the revenue from their leading drugs, we expose the Pharma myth that high drug prices are needed to fund innovation.”

Commenting on the introduction of the Reward Work Act, Roosevelt Senior Economist Lenore Palladino said: “Stock buybacks are extractive and allow corporate executives and insiders to enrich themselves at the expense of all other corporate stakeholders. Through our research, we know that workers should be part of corporate governance, and the Reward Work Act provides the real world applications of that.”

This brief is the third in a series of papers on how the pharmaceutical industry, like all sectors and markets, is structured by economic policy choices—from antitrust to patent law to corporate governance. Additional Roosevelt research on the role of shareholder primacy and financialization in our economy, “Ending Shareholder Primacy in Corporate Governance” by Palladino examines how outsized shareholder power exacerbates the growing wealth gap.

About the Roosevelt Institute

The Roosevelt Institute, a New York-based think tank, promotes bold policy reforms that would redefine the American economy and our democracy. With a focus on curbing corporate power and reclaiming public power, Roosevelt is helping people understand that the economy is shaped by choices—via institutions and the rules that structure markets—while also exploring the economics of race and gender and the changing 21st-century economy. Roosevelt is armed with a transformative vision for the future, working to move the country toward a new economic and political system: one built by many for the good of all.

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