Big Pharma Spent More on Stock Buybacks than R&D

This is important research showing that the pharmaceutical corporations are much more committed to profits than positive human values. I disagree somewhat with one of the authors when they say there’s not a shortage of R&D spending in the U.S., as I consider the antibiotic resistance problem and various other problems insufficiently addressed compared to their impact. Perhaps the spending could be focused better, but even so, I’d prefer to see the NIH spend more than $30 billion on medical research annually.

The argument pharmaceutical companies make in attempts to justify high drug prices aren’t that compelling anymore either. The academic study notes how stock buybacks began increasing after the neoliberal assault — beginning mostly in the 1980s — started to come more and more into effect. And in relation to the financialization aspect, corporations are technically created by state charters, not shareholders. If the corporations are a significant force against the public interest, perhaps their state charters should be revoked, in what has been referred to before as the corporate death penalty.

Under fire for skyrocketing drug prices, pharmaceutical companies often offer this response: The high costs of their products are justified because the proceeds generate money for crucial research on new cures and treatments.

It’s a compelling argument, but only partly true. As a revealing new academic study shows, big pharmaceutical companies have spent more on share buybacks and dividends in a recent 10-year period than they did on research and development. The working paper, published on Thursday by the Institute for New Economic Thinking, is entitled “U.S. Pharma’s Financialized Business Model.”

The paper’s five authors concluded that from 2006 through 2015, the 18 drug companies in the Standard & Poor’s 500 index spent a combined $516 billion on buybacks and dividends. This exceeded by 11 percent the companies’ research and development spending of $465 billion during these years.

The authors contend that many big pharmaceutical companies are living off patents that are decades-old and have little to show in the way of new blockbuster drugs. But their share buybacks and dividend payments inoculate them against shareholders who might be concerned about lackluster research and development.

A few companies have spent more money repurchasing shares than they allocated to research over the period, the study found. They included Gilead Sciences, which spent $27 billion on buybacks versus $17 billion on research, and Biogen Idec, which repurchased $14.6 billion in stock and spent $13.8 billion on research and development.

“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 study’s authors concluded.

This concept, the authors said, is actually “an ideology of value extraction.” And chief among the beneficiaries of the extraction are drug company executives, whose pay packages, based in part on stock prices, are among the lushest in corporate America.

“There’s no shortage of spending on R&D in the U.S. economy, and no shortage of spending on life sciences, even though it has declined somewhat in real terms,” one of the authors, William Lazonick, a professor of economics at the University of Massachusetts, Lowell, said in an interview. “But there really is very little drug development going on in companies showing the highest profits and capturing much of the gains.”

(The other authors are: Matt Hopkins, Ken Jacobson, Mustafa Erdem Sakinç and Öner Tulum, all researchers at the Academic-Industry Research Network, a nonprofit organization.)

While stock buybacks appear to be particularly troublesome among drugmakers, big companies in other industries — in sectors like banking, retail, technology and consumer goods, among others — are also buying back boatloads of their shares. Through May, some $390 billion in buybacks have been announced this year, $13 billion more than at this time in 2016, according to figures compiled by Jeffrey Yale Rubin at Birinyi Associates, a stock market research firm.

June 28 was the biggest single buyback announcement day in history. That was when 26 banks disclosed buybacks worth $92.8 billion, largely a response to having just passed the stress tests administered by the Federal Reserve Board. That figure blew past the previous record of $56.4 billion announced on July 20, 2006.