Critics of high drug prices are launching a new line of attack against manufacturers of the medicines, faulting the firms for using savings from the tax overhaul to buy back shares rather than lower prices.
The attacks began in October, when more than a dozen Democrats in the House of Representatives sent letters to five big pharmaceutical companies saying they had benefited from recent tax cuts but kept charging high prices. The letters singled out certain drugs whose list prices had increased and asked their manufacturers for details about price changes and the costs of research and advertising.
Rep. Jan Schakowsky, one of the 16 letter writers, said Democrats plan to seek additional information from the companies and eventually hold hearings.
Drug makers “benefited greatly from the tax cut and we want to know what they’re doing with that money, and what’s happening with their drug prices,” Ms. Schakowsky (D., Ill.) said.
“We’re going to have in-depth hearings about pharmaceuticals and I think you’re going to see some legislative action dealing with transparency and actually lower drug prices.”
Drug companies responded to the letters by saying they had used their tax savings in a variety of ways beyond share buybacks, such as boosting employee compensation, investing in U.S. facilities and making donations, while also cutting the prices of some drugs.
“We view the legislation as providing us with more flexibility to deploy capital in support of our strategy to invent new medicines that address key unmet medical needs, ultimately benefiting patients,” Merck
& Co. Chief Executive Kenneth Frazier wrote in a letter to members of Congress reviewed by The Wall Street Journal.
The congressional scrutiny is the latest sign that drug pricing is emerging as a leading issue in Washington, and drug companies could have a big bull’s-eye on their backs as both Republicans and Democrats respond to popular discontent with how much drugs cost.
Drug makers reacted to the criticism by dialing back how much they raised prices this year. In July,
rolled back some planned increases after President Trump admonished the company.
Yet the companies are expected to raise prices more next year. Republicans and Democrats have made noise about taking further action in the next Congress.Reining in drug prices could become a rare area of agreement in a divided Washington, lobbyists say.
Merging the tax overhaul with drug pricing gives Democrats, in particular, an opportunity to score points with voters on two unpopular fronts.
The tax overhaul, called the Tax Cuts and Jobs Act, took effect Jan. 1 and slashed the U.S. corporate income-tax rate to 21% from 35% and reduced taxes on foreign earnings. It didn’t require companies to use the savings on specific actions.
Multinational drug companies were big beneficiaries from the changes, because they generate a good chunk of their sales outside the U.S. and had been keeping billions of dollars overseas to avoid having to pay U.S. taxes on the sums.
The 10 biggest U.S. drug makers by sales together bought back about $52.4 billion of their own shares in the first nine months of the year, more than double the $21.7 billion they repurchased in the year-earlier period, according to a Wall Street Journal review of securities filings.
Inc., which got a letter from the Democrats, boosted its repurchases by one of the largest amounts, to $15.67 billion from $2.37 billion.
Amgen, of Thousand Oaks, Calif., said it chose to build a new plant in Rhode Island rather than overseas due to the tax changes, according to the response letter viewed by the Journal.
The company also said it has been taking steps to reduce drug costs, lowering the price of its cholesterol-lowering therapy Repatha while entering into 30 contracts with health plans in the U.S. that tie Amgen’s reimbursement to the value provided by its medicines.
Enbrel, a rheumatoid-arthritis treatment from Amgen, was among the drugs singled out by the lawmakers. Amgen raised the cost of Enbrel by more than 70% between 2011 and 2015, according to the letter the Democrats sent to the company.
Drug-company profits have also risen with taxes falling, according to the Journal’s review. Companies reported their income-tax expenses fell 24% to $10.97 billion altogether for the first nine months of the year.
This helped boost their combined net income by 8.8% to $59.97 billion, despite a 1% decline in total sales to $228.4 billion.
AbbVie Inc., maker of the world’s top-selling drug Humira, reported one of the biggest drops in its income-tax expense. It plunged 95% to $57 million for the first nine months of 2018 from $1.28 billion in the year-earlier period. Meantime, its effective tax rate dropped to 1% from 20%.
The changes helped fuel a 43% increase in AbbVie’s net income to $7.51 billion, while revenues were up 19.4% to $24.45 billion.
The company repurchased $9.96 billion of its shares in the first nine months of the year, versus $905 million in repurchases in the year-earlier period.
In a letter responding to the Democrats, AbbVie, of North Chicago, Ill., said it gave each of its nonexecutive employees a $1,000 salary increase as a result of the tax changes. AbbVie has about 29,000 total employees. The company also said it planned to invest $2.5 billion in capital projects in the U.S. over the next five years and to donate $100 million to health care and housing in Puerto Rico, and $100 million to the Ronald McDonald House to fund lodging for pediatric cancer patients and their families.
The company said in a recent securities filing that its tax rate is low so far this year because of the timing of provisions of the law related to the earnings from certain foreign subsidiaries. The company has said it expects its effective tax rate to be 9% for the full year, and to inch up to about 13% over the next five years.
AbbVie raised the price of Humira by 9.7% in January, according to the Democrats’ letter to the company. Humira, a treatment for rheumatoid arthritis, costs $4,872 for a pack of two syringes, which can add up to more than $50,000 a year for some dosing regimens.
Corrections & Amplifications
raised the price of its drug Humira by 9.7% in January, according to a letter from Democratic members of Congress to the company. An earlier version of this article incorrectly attributed the information to a letter from the company to the Democrats. (Dec. 6, 2018)
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