The astronomical prices of new medicines make some treatments increasingly inaccessible for patients as they are unaffordable for national healthcare reimbursement systems. Meanwhile, the pharmaceutical industry makes billions in profits, often using taxpayers’ money to research and develop new drugs.

Most of the pharmaceutical companies’ profit goes on dividends and buybacks for their shareholders instead of further research and development.

For public returns on public investments in the pharmaceutical industry

It is becoming increasingly clear that taxpayers are bearing the costs of new medicines’ research and development, rather than the pharmaceutical companies themselves. Much of the early stages of research for drugs available on the market is done in public institutions, using public funding. Taxpayers’ money also gets funnelled off and used to fund public venture capital or offshoot companies from universities.

Because of a lack of overview on the amount of public money invested in these ways and a lack of information from capital venture funds set up with public money, there is no transparency regarding the total public funding of medicine development.

However, our case studies and research show that public funding in the Netherlands helped to develop medicines that are, or will be, sold at a very high price. Pharmaceutical companies like AstraZeneca, MSD, Novartis, and their shareholders, make huge profits when their new drugs come onto the market. Taxpayers receive little financial return on those public investments. Instead, they pay increasingly high prices for medicines, either directly or through their health insurance.

A perfect example of this phenomenon is the development of COVID-19 vaccines.

Governments around the world spent at least US$5.8 billion to support the research and production of COVID-19 vaccines during the pandemic. Studies of seven pharmaceutical companies showed that vaccines and medicines generated at least US$90 billion in profits. And according to the US think tank Public Citizen, Moderna’s COVID-19 vaccine was entirely paid for by taxpayers. Yet, most of these profits get divided between the companies and their private shareholders.

Our work at SOMO exposes why companies should provide transparency about the nature and the amounts of public funding dedicated to new drug development. It also shows why attaching conditions to public financing would help to maximise general investment returns.

On top of this, we believe that the pharmaceutical industry should provide transparency about their high-priced drugs’ research costs and the share of public funding in their development.

Shareholders’ profits prioritised over pharmaceutical research

Our research at SOMO into the world’s 27 largest pharmaceutical companies shows that, over the past 20 years, more money was invested in financial activities than in medicine production and research. Borrowed money failed to reach investments in the research and development of new drugs or production capacity. Instead, it has been mainly paid to shareholders as dividends and spent on buying back company shares.

In total, US$1,540 billion was paid out to shareholders between 2000 and 2018. At the ten largest pharmaceutical companies, the overall distribution of funds to shareholders was 142 per cent higher than what was spent on research and development in a given year.

Dodging taxes: pharmaceutical tax avoidance methods

Around 75 per cent of the pharmaceutical industry’s income is reported offshore for tax purposes. Even compared to other multinationals, the pharmaceutical industry’s profit shifting is extreme. These companies now commonly pay lower tax rates than small business owners, schoolteachers, and firefighters.

Once again, there is evidence that pharmaceutical companies profited massively from the COVID-19 pandemic and work done in public research institutes. A leaked contract between Moderna and the European Commission indicates that the company’s vaccine profits will end up in Basel, Switzerland. Moderna is likely to pay little in taxes in this low-tax jurisdiction. Additionally, Moderna holds many patents in the US tax haven state of Delaware, where income from patents is exempt from taxation.

Another example of a company avoiding paying taxes while receiving public funding lies with the biotech giant Qiagen, one of the leading producers of Coronavirus testing kits. Our research shows how Qiagen has used intercompany loans between its branches in the tax havens of Malta, Ireland, and Luxembourg to avoid corporate income tax in the Netherlands. Based on an in-depth investigation, SOMO estimates the company has avoided paying €142 million in Dutch corporate income tax.

Big Tech, Big Pharma and public health systems

The healthcare sector is one of the next growth frontiers for Big Tech companies. Amazon, Google, and Microsoft are quickly expanding to public healthcare systems across the globe. Among other developments, tech companies have invested substantially in developing new digital health infrastructures and data storage, collection, and analysis.

These developments raise significant concerns. A few large and wealthy multinational corporations will gain operational control over public health systems and data by developing and maintaining digital infrastructure. In time, this may cause societies and governments to lose control of their public healthcare systems.

Through our research, we focus on the monopoly power of tech companies over public health data infrastructures and health datasets.