Top 5 largest US pharma firms’ net earnings topped $81.9 billion last year: watchdog

The five largest U.S. pharmaceutical companies by market cap — Eli Lilly, Johnson & Johnson, Merck, AbbVie and Pfizer — reported combined earnings of $81.9 billion in 2022, an $8 billion increase from 2021, according to a new analysis by Accountable.US.

The left-leaning corporate watchdog found the firms’ combined stock buybacks and dividends increased by $4.4 billion and $2.5 billion, respectively, from 2021 to 2022. 

The report comes as major players in the pharmaceutical industry try to buck provisions in the Inflation Reduction Act (IRA) that would allow Medicare to directly negotiate the prices of certain drugs with manufacturers in an effort to cut costs for older Americans.

An analysis by the nonpartisan Congressional Budget Office found the IRA drug pricing provisions will reduce the federal deficit by $237 billion from 2022 to 2031.

The Centers for Medicare & Medicaid Services (CMS) is set to announce the first 10 drugs by Sept. 1, and their newly negotiated prices will take effect in 2026. 

Pharmaceutical Research and Manufacturers of America (PhRMA), the U.S. Chamber of Commerce, Merck and Johnson & Johnson have sued to block the implementation of the Medicare Drug Price Negotiation program, saying there will be negative outcomes for patients, including decreased investment in research and development.

PhRMA and the Chamber of Commerce were two of the top three federal lobbying spenders in 2022, spending $29.2 million and $81 million, respectively, to lobby on a range of issues including drug price negotiations, according to federal lobbying disclosures analyzed by the nonpartisan money-in-politics sleuths at OpenSecrets. 

“Our advocacy continues to be focused on advancing meaningful reforms that lower what patients pay out of pocket for medicines and protect the development of future cures and treatments,” PhRMA spokesperson Brian Newell said in a statement.

“All the facts show — including the government’s own inflation data — that Rx prices are not fueling inflation,” Newell continued. “Biased reports like these ignore the real reasons why people can’t afford their medicines and don’t offer any solutions that would provide lower costs for patients at the pharmacy.”

Another PhRMA spokesperson noted the CBO study measures government savings, not the impact on the pharmaceutical industry. An analysis by the healthcare consulting firm Avalere estimates the drug price negotiation program could reduce pharmaceutical company revenue by at least $455 billion over the next decade.

Vital Transformation — which lists PhRMA, Johnson & Johnson and AbbVie among its clients — estimated that up to 139 drugs may not be developed over the next decade due to the pricing provisions in the IRA.

A Merck spokesperson pointed to estimates that it takes an average of one decade and $2.5 billion to develop one new drug, and the company says it invested $102.3 billion into new medication development in 2021.

“The Program […] uses the threat of enormous monetary penalties to compel manufacturers to provide Medicare beneficiaries with ‘access’ to their drugs at whatever discounted price the Government, in its unreviewable discretion, selects,” Merck said in a summary judgment motion on the case. 

“It then disguises those forced transfers as the product of a negotiated agreement, to deceive the public into thinking the manufacturers have ‘agreed’ that these prices are ‘fair,’ and thereby to conceal the reality of the Program’s radical central-planning approach,” the motion continues, adding the harm this could have on future drug innovations.

A Pfizer spokesperson pointed to public comments filed with CMS in which it characterized the drug price negotiation guidance as a “dangerous price setting policy” that’s already shifting how the pharmaceutical industry invests its resources.

Pfizer’s net income skyrocketed past $31.4 billion during fiscal 2022, a 42.5 percent increase from 2021 according to Accountable.US’s analysis, which also found shareholders received more than $10.9 billion in stock dividends and buybacks. Last year, Merck’s net income climbed to more than $14.5 billion, and the company spent more than $7 billion on shareholder dividends.

Liz Zelnick, director of Accountable.US’s program on economic security and corporate power, said she finds claims about research and development (R&D) expenses “unconvincing” given the billions of dollars paid to investors last year.

A previous Accountable.US report found that the $125 billion the top five pharmaceutical companies — which included Thermo Fisher instead of Merck — spent on stock buybacks and dividends from 2019 through 2021 outpaced the $112 billion they spent on R&D through the same period.

AbbVie spent over $4.6 billion more on shareholder returns than it did on research and development, according to the latest Accountable.US report, which also found the Humira manufacturer’s net earnings climbed to more than $11.8 billion and that shareholders received more than $11.1 billion in stock buybacks and dividends.

When contacted about the report, AbbVie declined to comment.

Johnson & Johnson gave shareholders more than $17.7 billion in combined stock buybacks and dividends in 2022, according to the Accountable.US analysis, a 22 percent increase from the previous fiscal year even as the company’s profits decreased by 14 percent.

Eli Lilly saw its net income jump to more than $6.2 billion in 2022, and shareholders received more than $5 billion in stock buybacks and dividends.