Manufacturers of 10 Drugs Slated for Medicare Price Negotiation Spent Billions More on Buybacks, Dividends and Executive Compensation than R&D

While the pharmaceutical industry says that the drug price negotiation provisions under the Inflation Reduction Act will harm research and development, a new report by Public Citizen and Protect our Care reveals that the manufacturers of the first 10 drugs selected for Medicare price negotiation spent $10 billion more on stock buybacks, dividends to shareholders, and executive compensation than they spent on research and development in 2022. According to the report, which analyzes SEC filings and company annual reports, manufacturers spent $107 billion on these activities compared to $97 billion on R&D in 2022. What’s more, executive compensation for these companies was approximately half a billion dollars in 2022.

“The industry tells us that Medicare price negotiations will make it hard to research and develop new drugs. What they leave out is that many are already spending far more to make their executives and shareholders rich than on R&D,” said Peter Maybarduk, Access to Medicines program director at Public Citizen. “When these corporations complain about the impact of price negotiations on innovation, we should be deeply skeptical.”

Additionally, the report notes that researchers and the Congressional Budget Office conclude there is no connection between a drug’s research and development cost and its future price, and that the current price of drugs reflects what companies believe the market will bear in response to their monopolistic pricing power. Additionally, the United States is an outlier that does little to protect its residents from the unfair pricing power of drug companies – and bringing American policy into alignment with those of other countries, including its high-income peers, would not destroy the incentive to innovate new medicines.

“These findings undermine industry claims that reducing corporate profits in Medicare price negotiation will impact capacity to invest in research and developing new drugs,” said Jishian Ravinthiran, researcher with Public Citizen and lead author of the report. “These companies are not strapped for resources, as they spend massive amounts of money on self-enriching activities.”

The report also reveals that manufacturers of the 10 drugs with the highest annual expenditures by payers in Maryland spent $9 billion more on stock buybacks, dividends, and executive compensation than on research and development expenses in 2022. Seven states, starting with Maryland in 2019, have established Prescription Drug Affordability Boards charged with analyzing the excessive costs of prescription drugs and identifying solutions to medicine inaccessibility. As other states consider creating their own Boards with the authority to limit the price of drug transactions, or consider expanding these Boards’ authority to deliver relief to more residents, they can rely on this report’s finding that industry has ample resources to invest in drug innovation.

At a press conference today, Maryland Healthcare for all will kick off a campaign to pass major legislation in 2024 to expand the authority of the Maryland Prescription Drug Affordability Board and continue the work of bringing down high costs for medications.