The Tax Cuts and Jobs Act, a signature piece of legislation from President Donald Trump in 2017, has been a windfall for big business. It was supposed to be a job-creation and investment engine, too. But top drugmakers channeled most of their savings to investors, not R&D or price cuts.
Four pharma companies—Johnson & Johnson, Merck, Pfizer and Abbott Laboratories—reaped a combined $7 billion in savings from two provisions in the tax bill, according to a recent Oxfam report (PDF), and they plowed that money into stock buybacks and dividends.
“Despite promises that tax cuts would bring billions back onshore and create jobs, drug companies are still dodging their taxes, still charging sky-high prices and still paying off their wealthy executives and shareholders instead of boosting investments in life-saving research and development to lower drug costs,” said Paul O’Brien, vice president of policy and campaigns at Oxfam America, in a release.
Pharma companies benefited from the tax bill's cut to statutory tax rates—to 21% from 35%—and rebates on previously untaxed offshore earnings. Among the companies Oxfam examined, the single biggest beneficiary was J&J, which received a reported $2.48 billion in combined tax breaks in 2018, equivalent to about 13.8% of the company’s profits.
Merck—which enjoyed a $1.22 billion tax break in 2018 by Oxfam's count—said it used its savings to reinvest in R&D. The company spent $10 billion last year on drug research and development, and it plans to put $16 billion toward capital investments over the next five years, the company said in an emailed statement.
“The enactment of the U.S. tax legislation has enabled Merck to deploy capital in support of our strategy to invent new medicines that address key unmet medical needs, ultimately benefiting patients,” Merck said, adding that the planned investments will help Merck stay on "the cutting edge of science and meet growing demand for our human and animal health medicines and vaccines.”
But Merck’s R&D spending last year wasn't much different from its budgets in recent years. The company's R&D costs have hovered at around $10 billion a year since 2016. But payouts to investors jumped to about $14.26 billion last year from just over $9 billion in 2017, Oxfam noted.
Pfizer increased its investor payouts even more, though. The company boosted its buybacks and dividends by a whopping $7.5 billion in 2018, bringing its total to more than $20 billion. The same year, Pfizer spent less than half that amount, $8 billion, on R&D. The company did not respond to a request for comment by press time.
For their part, J&J and Abbott showed only slight increases in investor payouts in 2018, with annual increases of $61 million and $246 million, respectively.
But the four companies Oxfam singled out aren't the only beneficiaries of the Trump tax bill. For the first nine months of 2018, AbbVie reported a 96% tax break from the year before, reportedly owing just $57 million in year-to-date taxes compared with $1.28 billion the year before. According to patient access watchdogs at I-MAK, AbbVie's best-selling Humira racks up around $50 million in sales every day, meaning the company could cover that nine-month tax burden in about 28 hours.
In response to that massive tax windfall, AbbVie pledged $350 million in donations to charities in 2018. Its most recent donation of $40 million will help rebuild a school near its corporate headquarters in North Chicago, Illinois.
Other big winners from the corporate tax cut were Eli Lilly, Regeneron, Amgen, Roche and Gilead Sciences, while other companies including AstraZenca, Novartis, Allergan and Teva Pharmaceutical actually saw increases in their corporate rates.
Oxfam estimated the $7 billion the four companies saved in 2018 could cover the cost of two-thirds of U.S. children not covered under the Children’s Health and Insurance Program.