How often do you hear about Dodge & Cox, SSgA Funds Management (Stae Street), BlackRock, Mawer Investment or The Vanguard Group? Well, if you recently popped a Tylenol for a headache, took a Lantus insulin shot or got your kid a flu shot at the local clinic - then you’ve probably come across these investment funds as they own the pharmaceutical firms that made those drugs.
In the last two decades, private equities and investment management companies — known as institutional investors — have mopped up the majority shareholding in the world’s largest medicine-makers.
Many of these investors simultaneously hold stakes in more than one large pharmaceutical company and their generic counterparts, something known as “common ownership”. This has raised concern that it undermines competition and as a result consumers end up paying more.
A recent paper co-authored by researchers Albert Banal-Estanol, Melissa Newham and Jo Seldeslachts for DIW Berlin found that large pharmaceutical companies have become connected to each other through their shareholders.
“Public companies are increasingly owned by a handful of large institutional investors so we expected to see many ownership links between companies — what was more surprising was the magnitude of common ownership,” the authors told TRT World in an emailed response.
“We frequently find that more than 50 percent of a company is owned by ‘common’ shareholders who also own stakes in rival pharma companies.”
For instance in 2014, the same investors collectively owned half the shares of Switzerland-based Novartis and Germany’s Bayer, the maker of Aspirin.
Things haven’t changed much since then.
The three largest shareholders of Pfizer, J&J and Merck are the same Big Three that dominate ownership of the military industrial complex: Vanguard, State Street (SSGA) and BlackRock, the multi-trillion dollar funds which make investments on behalf of their clients and keep a cut for their service.
What institutional investors do is perfectly legal. They are not even reviewed by competition authorities as long as an investor such as BlackRock keeps its shareholding at less than 10 percent in a pharma firm. They are classified as passive investors.
“The concern is how passive are they?” the DIW Berlin report authors said.
Institutional investors may not directly interfere in a pharma company’s day-to-day business. But knowing who the shareholders are and their stake in rival companies, the pharma executives can end up working in the interest of common institutional investors, they said.
“The increase in connectivity between brand firms (such as Pfizer and AstraZeneca) may also affect drug prices. This is because economic theory clearly indicates that intense price competition between firms that share the same owner, ultimately reduces the profits of the common owner.”
Institutional investors having a stake in multiple Big Pharma firms at the same time may hamper efforts to find new medicines for diseases. “This is potentially to the detriment of consumers if it means that fewer drug variants are available,” the authors said.
Pharmaceutical companies spend considerable sums of money on bringing new drugs to the market. They prefer monopolies and resist the entry of generic makers.
To counter such competition, large industry players such as J&J, Pfizer, Novartis and Merck have bought stakes in generic drug companies like Perrigo.
Where the Big Pharma faces difficulty in acquiring generic makers such as those in India, it refuses to share patents and knowhow even during a health emergency like was seen recently in the run-up to make Covid-19 vaccines.
The involvement of institutional investors might also be having an impact on how pharma companies reward their shareholders.
The moneymakers
Pharma companies have become money-making machines and this is evident from the massive increase in returns they have given to their shareholders in the past two decades.
“Payouts to shareholders have increased by almost 400 per cent — from $30 billion in 2000 to $146 billion in 2018,” the Amsterdam-based Centre for Research on Multinational Corporations said in a report last year.
Put another way, the return to shareholders went up from 88 percent of investment in R&D to 123 percent in the same period.
The authors of this report looked at the financial statements of 27 largest pharma companies and found that shareholders netted a total of $1.54 trillion in profits over the 18 year period. That’s more than $1.4 trillion the companies poured into R&D for new medicines.
The pharma industry has become hostage to what’s known as financialisation — a practice in which a company uses its resources to reward the shareholders instead of investing it in plants, machinery and labs.
For instance, companies use the strength of their balance sheets to borrow money from banks and then use the cash to buy their own shares from the stock market. Such share buybacks inflate the value of the remaining stock, consequently increasing the net worth of the largest shareholders.
“When you look at the financial statements of pharma companies and see Blackrock and other funds as shareholders it tells you something immediately,” said Gerlad Posner, the author of Pharma, a book on history of the industry.
“These are groups with big profit margins and they don't invest in industries which are not giving a return on the bottom line.”
Bernie Sanders, as Chairman of the Senate Committee on Health, Education, Labor, and Pensions (HELP), recently held a committee hearing to hold Big Pharma accountable and to help Americans understand why they pay, by far, the highest prices in the world for prescription drugs. He brought the CEOs of Johnson & Johnson, Merck, and Bristol Myers Squibb in to testify at the hearing. These three companies sell some of the most expensive and widely prescribed drugs in the U.S. and they sell their products there for far higher prices than in other countries.
At the hearing, he asked these CEOs that very simple question: Why is it that the United States pays, by far, the highest prices in the world for prescription drugs?
Shock of all shocks, the CEOs did their best to pass the buck and convince us that it was “not their fault.” But here is the truth:
- Merck charges Americans with cancer $191,000 a year for the medicine Keytruda. That same exact product can be purchased for $91,000 in France and $44,000 in Japan. AND YET, in 2022, Merck made $14.5 billion in profits, handed out over $7 billion in dividends to its wealthy stockholders, and paid its CEO over $52 million in compensation.
- Bristol Myers Squibb charges patients in America $7,100 a year for Eliquis, a blood thinner that helps prevent strokes. That same exact product can be purchased for just $900 in Canada and $650 in France. AND YET, in 2022, Bristol Myers Squibb made $6.3 billion in profits, while recently spending over $12 billion on stock buybacks and dividends and giving its CEO over $41 million in compensation.
- Johnson & Johnson charges Americans with arthritis $79,000 for the medicine Stelara. That same exact product can be purchased for just $20,000 in Canada and just $12,000 in France. AND YET, in 2022, Johnson & Johnson made nearly $18 billion in profits, paid its CEO over $27 million in compensation, and spent over $17 billion on stock buybacks and dividends.
Meanwhile, millions of Americans suffer – and some die – because they can’t afford the prescription drugs they need.
You might be wondering, how does this happen? How do they get away with all of that?
And here’s the answer: The United States government does not regulate drug companies. Big drug companies, through massive lobbying and campaign contributions, regulate Congress.
Over the past 25 years, the drug companies have spent $8.5 BILLION on lobbying. Today, they have some 1,800 well-paid lobbyists in Washington, D.C. – including former leaders of the Republican and Democratic parties. Unbelievably, that is more than three lobbyists for EVERY member of Congress.
The perception of "Big Pharma" as negative stems from various reasons. Here are ten major ones along with factual examples:
- Profit-driven motives: Many people criticize pharmaceutical companies for prioritizing profits over public health, leading to high drug prices and questionable marketing tactics.
Example: The case of Martin Shkreli, who infamously raised the price of Daraprim, a drug used to treat parasitic infections, by over 5,000%. - Influence on medical practices: Concerns exist regarding the influence of pharmaceutical companies on medical research, education, and prescribing practices.
Example: Studies have shown instances of biased research funded by pharmaceutical companies and conflicts of interest among medical professionals receiving industry payments. - Overmarketing and overprescribing: Critics argue that pharmaceutical companies aggressively market drugs, sometimes exaggerating benefits and downplaying risks, leading to overprescribing and unnecessary medication use.
Example: The marketing of opioids by companies like Purdue Pharma, which played a significant role in the opioid epidemic in the United States. - Lobbying and political influence: Big Pharma is often accused of exerting undue influence on government policies, regulations, and legislation, prioritizing its interests over public health.
Example: Spending millions of dollars on lobbying efforts to influence lawmakers and policymakers to protect their interests, such as extending patent exclusivity or delaying generic competition. - Patent abuse and monopolistic practices: Critics argue that pharmaceutical companies exploit patent laws to extend monopolies on drugs, limiting competition and keeping prices high.
Example: Pay-for-delay schemes, where brand-name drug manufacturers pay generic competitors to delay the release of cheaper generic versions of their drugs. - Safety and transparency concerns: Concerns about the safety of drugs and lack of transparency in clinical trials and adverse event reporting raise questions about the integrity of pharmaceutical companies.
Example: Instances where pharmaceutical companies have withheld or manipulated data about the safety and efficacy of their drugs, such as the case of Vioxx, a painkiller linked to increased risk of heart attacks. - Health disparities and access issues: High drug prices and unequal access to medications exacerbate health disparities, especially in low-income and marginalized communities.
Example: The high cost of life-saving drugs like insulin in the United States, leading some individuals to ration their medication or go without, resulting in adverse health outcomes. - Aggressive patenting of trivial modifications: Pharmaceutical companies are criticized for patenting minor modifications to existing drugs, known as "evergreening," to extend their patent exclusivity and delay generic competition.
Example: Pfizer's patenting of a slightly modified version of its blockbuster drug Lipitor, known as atorvastatin, to maintain market exclusivity and prevent generic competition. - Neglect of neglected diseases: Critics argue that pharmaceutical companies prioritize research and development of profitable drugs for common ailments over treatments for neglected diseases prevalent in low-income countries.
Example: The lack of investment in research and development for diseases like malaria, tuberculosis, and certain neglected tropical diseases that primarily affect impoverished populations. - Environmental impact: The pharmaceutical industry's manufacturing processes and disposal of drugs contribute to environmental pollution and antibiotic resistance.
Example: The discharge of pharmaceutical compounds into waterways, which can harm aquatic ecosystems and contribute to the spread of antibiotic resistance in bacteria.
These major reasons collectively contribute to the perception of Big Pharma as being detrimental to public health and societal well-being.
One of the most notorious incidents where a pharmaceutical company prioritized profits over patient health is the case of Purdue Pharma and their aggressive marketing of OxyContin, a powerful opioid painkiller.
In the late 1990s, Purdue Pharma heavily marketed OxyContin as a safe and effective treatment for chronic pain, downplaying its addictive potential. The company employed aggressive marketing tactics, including misleading promotional materials and incentives for doctors to prescribe the drug. Sales representatives were encouraged to promote OxyContin as a long-term solution for various types of pain, despite limited evidence supporting its safety and efficacy for long-term use.
As a result of Purdue's marketing efforts, OxyContin prescriptions surged, leading to widespread misuse, addiction, and a public health crisis. Many patients became addicted to the drug, while others transitioned to heroin when they could no longer afford or obtain OxyContin. Communities across the United States were devastated by opioid addiction, overdoses, and related fatalities.
Internal documents later revealed that Purdue Pharma executives were aware of OxyContin's addictive potential and the risks of misuse but chose to prioritize profits over patient safety. In 2007, Purdue Pharma and three of its top executives pleaded guilty to criminal charges of misleading the public about OxyContin's addiction risks and agreed to pay $634.5 million in fines.
The OxyContin crisis has had far-reaching consequences, with thousands of lives lost to addiction and overdose. It exposed the unethical practices of pharmaceutical companies in promoting addictive drugs for profit and highlighted the need for stricter regulation of opioid prescribing and marketing practices. The Purdue Pharma case remains one of the most egregious examples of Big Pharma prioritizing profits over patient health.
While Australia's pharmaceutical industry is highly regulated, there have been instances where pharmaceutical companies have faced criticism for actions that adversely affected patients. Here are some examples:
- Thalidomide: In the late 1950s and early 1960s, thalidomide, a drug marketed as a treatment for morning sickness and insomnia, caused severe birth defects in thousands of children worldwide, including in Australia. Although thalidomide was never approved for use in pregnant women in Australia, it was prescribed off-label, leading to tragic consequences for affected families.
- Vioxx: Merck withdrew the painkiller Vioxx from the market in 2004 due to safety concerns regarding an increased risk of heart attacks and strokes. The drug had been prescribed to thousands of Australians before its withdrawal, leading to calls for tighter regulation of drug safety and transparency in clinical trials.
- Selective Serotonin Reuptake Inhibitors (SSRIs): SSRIs, a class of antidepressant drugs, have been associated with adverse effects, including an increased risk of suicidal thoughts and behaviors, particularly in young people. Critics have accused pharmaceutical companies of downplaying these risks in their marketing efforts. While not exclusive to Australia, SSRIs have been prescribed to Australian patients, and concerns about their safety persist.
- Overpricing of Medications: Australia has faced issues with overpricing of medications, particularly with regards to patented drugs. Pharmaceutical companies have been accused of exploiting the Pharmaceutical Benefits Scheme (PBS) by setting high prices for patented drugs, leading to increased healthcare costs for patients and the government.
- Marketing Practices: Pharmaceutical companies in Australia, like elsewhere, have faced criticism for their marketing practices, including direct-to-consumer advertising and promotional activities targeting healthcare professionals. Critics argue that aggressive marketing tactics can influence prescribing practices and contribute to overprescribing and unnecessary medication use.
- Drug shortages: While not always directly caused by pharmaceutical companies, drug shortages have affected patients in Australia, leading to disruptions in treatment and potential health risks. Factors contributing to drug shortages may include manufacturing issues, regulatory challenges, and supply chain disruptions.
- Off-label marketing: There have been cases of pharmaceutical companies promoting drugs for off-label uses not approved by regulatory authorities in Australia. Off-label marketing can lead to inappropriate prescribing and potential harm to patients who are prescribed drugs for conditions they were not intended to treat.
The medicines we need to keep us healthy are increasingly controlled by a small number of wealthy
corporations. Between 1995 and 2015 in the US, 60 pharmaceutical companies merged into just ten.
These corporations enjoy patents, explicit monopolies over the drugs to which they own the intellectual
property rights. This doesn’t mean they discovered these drugs. In fact, we only have most breakthrough medicines because of enormous public sector funding, and the work of university departments and small biotech companies.
Contrary to what we’re told about private sector innovation, public sector funding is most important at the riskiest stage of development.
Big Pharma’s business model is to buy up the companies that have carried out vital research and live off the patents for many years into the future. In fact, Big Pharma spends a fortune on both lawyers to find ways to defend and extend these patents, and on lobbyists to push for laws even more friendly to their monopolies. They then charge whatever they can get away with for new medicines.
Both Pfizer and Moderna have recently announced they will jack up the price of already highly profitable Covid-19 vaccines by four times in the USA. The result of this model is, first, medicines are
only produced when they are highly profitable for monopolies. That means ignoring drugs which could
treat or cure diseases primarily suffered by poorer people in poorer countries. It also means ignoring
diseases which have the potential to cause epidemics or health crises in the future – like the
failure of Big Pharma to research new antibiotics, in spite of growing antimicrobial resistance that
threatens to cause millions of deaths a year.
Another area where we can see how inimical these monopolies are to innovation is vaccines. Vaccines
do make money, but tend to be less profitable than other drug research. This is partly because, in many areas, one or two jabs can provide a lifetime’s immunity. That’s why, in the US, the number of companies producing vaccines fell from 26 in 1955, to 18 in 1980, to a mere four in 2020. This left us
at a huge disadvantage when dealing with Covid-19, and hindered the world’s ability to rapidly produce
sufficient vaccines.
When new, important medicines are produced, they are often unaffordable – either adding to pressure
on public health services or unavailable due to cost, even in the richest countries. Meanwhile, pharmaceutical corporations routinely return far more profit to their rich shareholders than they plough back into research and development.
Medicines are only becoming more expensive. One example is the anti-inflammatory drug Humira,
used to treat Crohn’s disease and rheumatoid arthritis. Humira is owned by pharma giant AbbVie,
but it didn’t invent the medicine. Rather, AbbVie bought the rights to the medicine and massively
inflated the price in subsequent years despite making no real changes to the drug’s effectiveness.
In the US, Humira costs around $77,000 for a year’s supply – an incredible 470% more than when the
drug was launched in 2003. In Britain it’s cheaper, thanks to the ability of the NHS to effectively
negotiate medicine prices, but still close to £11,000 per year, making it the highest expenditure for a
single medicine in the NHS in 2014-16. In such cases, the NHS is forced to ration the medicine,
even while AbbVie makes enormous profits that it passes on to its wealthy shareholders.
Pharmaceutical firms have always had huge power. Back in 1958, a handful of companies cornered
the antibiotics market and worked to keep the prices of tetracycline high, provoking lawsuits and
inspiring the British government to override their monopolies and import generic antibiotics from
Italy. But the situation got much worse in the 1990s, when corporations, including Big Pharma,
pushed for new global trade rules, notably the TRIPS agreement, under which they could create
US-style monopolies across the whole world.
Big Pharma’s relentless pursuit of ever-higher profits corrupts medical knowledge—misleading doctors, misdirecting American health care, and harming health.
The United States spends an excess $1.5 trillion annually on health care compared to other wealthy countries—yet the amount of time that Americans live in good health ranks a lowly 68th in the world. At the heart of the problem is Big Pharma, which funds most clinical trials and therefore controls the research agenda, withholds the real data from those trials as corporate secrets, and shapes most of the information relied upon by health care professionals.
For example, one of pharma’s best-kept secrets is that the peer reviewers charged with ensuring the accuracy and completeness of the clinical trial reports published in medical journals do not even have access to complete data and must rely on manufacturer-influenced summaries. Likewise for the experts who write the clinical practice guidelines that define our standards of care.
A new report released on 1 February 2024 shows that in 2022, Big Pharma charged Americans two to three times more than what they charged people in other OECD countries for the same drugs, even when accounting for rebates and discounts. As one example, U.S. gross prices for insulin - a drug that has been around for 100 years and costs drug companies just $10 a vial to make - were on average almost ten times the price in the United States than in comparison countries.
This comes as large drug companies spent nearly $750 billion on self-enriching stock buybacks and dividends over the last decade. Big Pharma also executed over $135 billion in mergers and acquisitions in 2023 alone, while passing the cost to consumers. And six of ten of the drugs selected for this year's negotiation program raised their prices in the first month of 2024 - after all ten drugs were already priced three to eight times higher in the United States than in other countries.
At the same time, Big Pharma is litigating nine lawsuits against Medicare Drug Price Negotiation. They're hoping the courts will do what they could not get done in Congress: block Medicare from negotiating lower prices for seniors and families. And House Republicans are all too eager to come to drug companies' defense. House Republicans have pledged to eliminate the Inflation Reduction Act, have vowed to cut Medicare and Social Security benefits, are trying to kick millions of Americans off affordable health care, and would keep drug prices high for seniors and American families.
In Australia, Big Pharma replicates the model of the US-dominated military industrial complex ("MIC") and is engaging vast numbers of lobbyists and donating millions to both political parties, creating a level of influence that a former health department secretary has linked to Australia’s high medicine prices.
A Guardian Australia analysis of donations and lobbyist records has revealed the true extent of the industry’s influence.
About 72 separate pharmaceutical businesses engage paid lobbyists to influence government decisions and policy. They are represented by 29 separate lobbying firms, many of which have former ministerial or political advisers as staff.
The lobbying efforts of many others are hidden to the public because they employ in-house government relations staff, who are hidden from Australia’s weak oversight regime.
Big pharmaceuticals have a significant financial stake in the way government behaves, particularly in decisions or policy affecting medicine pricing or approval processes for new drugs.
A former federal health department secretary, Stephen Duckett, now a leading health researcher at the Grattan Institute, said the pharmaceutical industry was “extremely powerful” and exerted significant influence on government.
Last year Duckett published a report that found drug prices in Australia were significantly higher than abroad, and that Australians were paying about $500m too much each year for generics.
He said the influence of the pharmaceutical industry clearly contributed to high drug prices.
“I can’t tell how they do it, but they employ lots of people,” he said. “They are very, very active meeting people in parliament house and so on.
“All I can see is the result, where we end up paying more. We have policies that are designed to suit them rather than to suit the consumer or taxpayer.”
An earlier report by Duckett found the pharmaceutical industry was often given extraordinary access and influence over individual policies. In one example industry lobby groups were in the room as the federal government developed its therapeutic pricing policy, a policy aimed at stopping the government wasting money on over-priced drugs.
“It’s all very well for the industry groups, the stakeholders, to be consulted,” he said. “But in this particular case, not only were they consulted, but they basically held the pen and designed the policy.”
The issue of pharmaceutical influence is neither new nor unique to Australia. A University of Sydney research scientist, Barbara Mintzes, an expert in pharmaceutical policy, said there had been a global trend towards weakening evidence standards for new medicines. The changes had broadly made it easier for new drugs to get on to the market.
“We’ve seen a shift internationally to the lowering of standards, especially for effectiveness, evidence, and bringing in pathways to get a new drug to market, and very limited standards of evidence, especially for some of the newer cancer drugs and rare disease drugs that are coming in,” Mintzes said.
A University of Adelaide policy analyst and psychiatric epidemiologist, Melissa Raven, said there was also evidence that pharmaceutical companies engaged in astroturf lobbying – the masked use of supposedly “grassroots” consumer groups to lobby for a particular drug.
“They use those consumer organisations particularly for the really emotive issues, like a life-saving drug for teenagers with cancer,” Raven said.
“The pharmaceutical industry has been extraordinarily clever and strategic at doing that sort of emotive lobbying.”
In 2022 The Sydney Morning Herald stated that One in four Australian medical researchers fails to declare important conflicts of interest in medical trials, such as payments from big pharma companies, a new study claims.
Big pharma money has frequently been shown to influence trials – making them more likely to find what the companies want – but science continues to rely on an honour system by asking researchers to declare their conflicts of interest.
Australian medicos collected just over $11.5 million in payments from drug companies in the past year. But, in many cases, these payments are not declared when they should be, according to a new University of Sydney-led study.
The research, published in the Journal of General Internal Medicine, examined 120 clinical trials of new drugs, comparing the authors’ declared conflicts of interest in studies published in medical journals with a database of money they actually received.
In almost half of the trials, the team found undeclared conflicts of interest, with an average undeclared payment of about $9000 – with some ranging up to $97,600.
“This is not an issue of weeding out a few bad apples,” co-lead author Associate Professor Barbara Mintzes from the University of Sydney’s School of Pharmacy said. “Based on our findings, the issue of incomplete and inaccurate disclosure is widespread”.
“Disclosures are crucial to keeping research transparent. It is vital because pharma industry funding is associated with a bias towards study results that are more favourable towards the tested drug,” she said.
The researchers cross-checked drug company payments made to researchers, available on the Medicines Australia database, with the authors’ self-reported conflicts.
It found that of 323 Australian authors listed in the trials, one quarter had at least one “missing or incomplete conflict of interest declaration”.
Bond University researcher Dr Ray Moynihan, who studies the link between money and medicine, said the research showed a “lack of rigour from the journals and authors that these things aren’t being declared”.
“One of the fundamental problems for medicine and healthcare is that so much of science is funded by companies who have a vested interest in the outcome of the studies,” he said.
In 2016, Medicines Australia started publishing pharma company payments to medical practitioners for consultancy, advisory meetings and educational events.
But Dr Moynihan said the system needs to be regulated, with penalties, to enhance transparency and guarantee payments are disclosed.
“In the United States, disclosure is mandated by law with fines. The onus is on the company to disclose payments over $10 to doctors and medical researchers. In Australia, it’s self-regulatory,” he said.
“There is also a massive gap because food and drink payments don’t need to be disclosed. And so all that wining and dining is essentially happening in secret,” Dr Moynihan said.
Medicines Australia CEO, Elizabeth de Somer said the group is a “strong advocate for transparency”.
“Being transparent about payments and other activities means that everyone can easily understand the nature and extent of programs we support, including [those] that might lead to the discovery of a new medicine, vaccine or treatment.”
Guidelines from the International Committee of Medical Journal Editors asks authors to declare if they have any conflicts of interest when submitting manuscripts.
The declarations are meant to be broad: for example, a scientist studying a blood-pressure medicine should declare if they have received money from any other companies that make blood-pressure drugs.
Professor Paul Glasziou from Bond University said linking journal editors with the Medicines Australia database to cross-check potential conflicts would be helpful, especially in identifying “serious” conflicts, such as where an author has received payment from a drug company involved in a clinical trial.
“Better oversight is needed by journal editors, so they can be sure there are no possible conflicts,” he said.
Professor Wendy Lipman, a bioethicist from Macquarie University, said some authors may have not disclosed all payments because they “genuinely believe there is no conflict”.
“Some authors might not disclose payments due to inconvenience, little enforcement from the journals and, in some cases, the authors may think it is unnecessary,” she said.
While the study anonymised its results, the team did provide an example to the Herald and The Age: a trial paper published in recent years of a new cancer treatment manufactured by Roche, published in the Lancet Oncology.
The study was funded by Roche; it found the new treatment worked well.
Dr Mintzes team found nearly $150,000 in undeclared payments to five Australian authors on the paper. These undeclared payments came from a range of pharma companies who manufactured cancer drugs, and from Roche itself.
The team supplied these concerns to The Lancet. However, after an investigation, the Lancet’s editors found the disclosures were satisfactory.
Dr Mintzes said the research was not being done to name and shame individuals who do not disclose their conflicts completely.
“We did this research because we believe that full and accurate disclosure of conflicts of interest is important to scientific integrity and ultimately to public trust in science.”
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