The power to profit without producing

In this series of long reads, we examine the manifestation of monopoly power across various sectors and countries. We want to unravel the complex ties between corporate concentration and power, focusing on four key aspects:

• The power to extract profits.
• The power to distribute profits.
• The power to extract value from a value chain.
• The power to profit without producing

From factories to patents

This shift in the composition of capital—from physical assets to a growing share of intangible assets—is, as political economist Herman Schwartz observes, far from uniform(opens in new window) . It is most pronounced in the pharmaceutical and technology sectors. As discussed in the third article of this series, there is also a clear relationship between firm size and the share of intangibles: the largest and most powerful firms, representing the top 1 per cent globally in terms of market capitalisation, hold a significantly higher proportion of their capital in intangible assets (18.7 per cent of total assets) compared to the smallest 50 per cent of global firms (6.6 percent).

The concentration of intangible assets in some sectors and companies, and their ability to extract sizable revenues from them, prompted economist Ugo Pagano to coin the notion of “intellectual monopoly capitalism”. Pagano states that “the main characteristic of intellectual monopoly capitalism is that monopoly is not simply based on the market power due to the concentration of skills in machines and management. It also becomes a legal global monopoly on some pieces of knowledge.”

The legal protection of intellectual property enables firms to commodify knowledge (convert it into a marketable product). Therefore, the rise of intellectual monopoly capitalism cannot be divorced from the intellectual property regime that took shape since the 1990s, as part of the restructuring of the global trade and investment framework. The notion of intellectual monopoly capitalism describes an economic system where a small number of powerful companies increasingly control and monetise knowledge and intellectual property rights that are essential to society.

‘Intellectual monopoly capitalism’

Economist Cecilia Rikap uses the lens of intellectual monopoly capitalism(opens in new window) to understand the economic model that is most pronounced in today’s pharmaceutical and tech sectors. In these industries, intellectual monopolists do not simply dominate by selling products or competing in open markets. Their central strategy is to control the infrastructure of innovation itself—the production and circulation of knowledge. This control over innovation is their key asset and takes place through collaboration, partnerships and acquisitions of the firms within the innovation networks they operate in.

This process of subordination is most clearly visible in the world’s largest pharma and biotechnology innovation clusters, such as in Boston, the UK’s ‘Golden Triangle’ (Oxford–Cambridge–London), California (San Diego, San Francisco and Los Angeles), Basel, and Leiden. These agglomerations of universities, start-ups, and more established pharmaceuticals are often celebrated as examples of how public and private actors can work together to create engines of scientific discovery for the benefit of all. Yet these innovation clusters operate through a logic of ‘creative appropriation’(opens in new window) , as Rikap labels the process at work. This means that dominant firms co-opt and absorb innovations, thereby reinforcing their market dominance. In contrast, Joseph Schumpeter’s notion of ‘creative destruction’(opens in new window) sees capitalism as a process of industrial renewal and transformation in which innovation overturns existing firms and technologies, replacing them with new ones.

The pipeline of appropriation begins with publicly funded science. Then we find an ecosystem of biotech startups and finally, on top, pharmaceuticals that acquire promising knowledge, which they push through clinical trials and the regulatory approval process to monetise the intellectual property and reward their shareholders.

A study(opens in new window) showed that in the US, funding from the National Institutes of Health (NIH) contributed to every drug approved between 2010 and 2016 in the US, underscoring how public investment underpins pharmaceutical innovation. Another analysis estimated that NIH directly financed $8.1 billion in clinical trials tied to drug approvals from 2010 to 2019. It is estimated(opens in new window) that the total salaries of employees in the innovation cluster around Boston were $23 billion in 2023, while the annual funding by the NIH in this cluster was $3.5 billion in that same year, roughly 15%. Europe’s Horizon and IHI programs(opens in new window) play a similar role in funding foundational research. This public funding is not spread equally across space but is highly concentrated in the innovation clusters that are part of Big Pharma’s value chain.

Building on this publicly funded layer of foundational knowledge, biotech startups translate academic findings into early-stage drug candidates. Cambridge, Massachusetts, alone hosts more than 1,000 biotech firms(opens in new window) , many of which are spun out of MIT and Harvard. But these firms are not autonomous innovators. Their business models revolve around demonstrating a proof-of-concept and then selling or licensing assets to large pharmaceutical companies.

It is here that creative appropriation intensifies. Large pharmaceutical companies possess the capacity to transform these scientific leads into global products(opens in new window) . They finance late-stage clinical trials, navigate regulatory hurdles, and control production, distribution and marketing channels. They know how to move through a complex system of insurance and national health authorities to sell their products and make profits.

Another way large pharmaceutical companies subordinate university researchers is by embedding them in hierarchical collaboration networks. A bibliometric study(opens in new window) of R&D laboratories from 15 major pharmaceutical firms (1995–2009) found that their total publication output declined while coauthored papers with external partners rose. The authors conclude that there has been a gradual decrease in internal research and a growing reliance on external research.

These networks have become increasingly codified and formalised through collaboration agreements. An analysis(opens in new window) by political economist Marc-Andre Gagnon identified 296 active collaboration agreements among the 13 largest pharmaceutical companies in 2017, meaning each dominant firm had, on average, more than 20 cooperative deals. The study shows a dense web of cooperation, encompassing licensing, joint ventures and codevelopment deals. This allows Big Pharma to extract knowledge from publicly funded universities and smaller companies and shape research agendas. Gagnon states:

“In this cooperation web, there is no visible central knot, and we find ourselves clearly facing a network of cooperation, and not a pyramidal structure with a central decision-making process. Market competition in the pharmaceutical sector here becomes an elusive concept when compared to the reality of organized systematic cooperation. While there is no cartel agreement in the legal sense of the word, we find ourselves confronted with the multiplication of quasi-cartel agreements, which results in the same consequence: increased monopolistic capacities.”

What emerges is not an open ecosystem of innovation, but a state-subsidised pipeline in which universities and startups generate discoveries while large corporations consolidate ownership. It is a mechanism that socialises costs and privatises profits. Risks are dispersed and socialised, while the rewards of innovation—patents, monopoly rights, and extraordinary profits—are concentrated at the top.

This control over innovation networks allows intellectual monopolists to shape technological trajectories and dominate future markets. This is a crucial difference from conventional monopolies. By controlling the production, direction and commodification of knowledge, intellectual monopolists extend their dominance over markets once the legal protection of their intellectual property expires. Their dominance in knowledge-driven innovation allows these few companies to outpace other actors in innovation clusters, such as smaller biotech firms and academic institutions, which lack the resources to compete, thus consolidating market power. This is how temporal monopolies, based on patents that expire, are extended into perpetual monopolies.

Rikap states(opens in new window) : “Intellectual rents enjoyed by the innovator were supposed to disappear once the rest of the industry adopts the new technique. They disappeared if the secret was broken, the patent expired or when another firm innovated, overcoming the innovating firm’s advantage. The fundamental change of our epoch is the continuous reinforcement of knowledge monopolies leading to a perpetuation of the core, maximizing rentiership over time.”

A key driving force is the temporality of patents. As patents give the company exclusive rights to sell specific drugs, they are the key source of its income. As patents expire, companies must replace these patents to avoid a decline in revenue, the so-called patent cliff. One of the marked developments among large pharmaceutical firms has been the growing share of so-called blockbuster drugs that generate annual revenue of over $1 billion. As patent protection for these large drugs expires, large pharmaceutical firms face growing risks of sudden revenue losses resulting in declining market valuations.

The replacement of new high revenue-generating patents increasingly happens by acquiring start-ups, biotech and competitors, leveraging their power over knowledge value chains. Research from McKinsey(opens in new window) shows that revenue from big pharmaceutical companies derived from mergers and acquisitions (M&A) doubled from 25% in 2001 to 50% in 2016. Since then, the number of M&A deals in the pharmaceutical sector has increased dramatically.(opens in new window)

The case of Big Pharma and cancer medicines

To further explore this model based on acquisitions, we looked at cancer drugs. Compared to other therapeutic areas, cancer drugs have been the focus of the largest M&A deals and have the largest growth levels in revenue. In 2024, the total global sales of cancer medicines(opens in new window) were $ 252 billion.

To appreciate the differences, we compare financial indicators of the ten largest pharmaceuticals by revenue of cancer medicines (Top 10) with the rest of publicly listed pharmaceuticals worldwide and a third group, a benchmark of publicly listed firms worldwide (without Tech and Energy). The box below outlines the methodological note explaining the different groups of firms.

Table 1 shows that investment in physical capital (capital expenditure) is far lower in pharmaceuticals compared to the benchmark, while the ratio of investment in intangible assets (measured by R&D expenditure as a share of intangible assets) is much higher in pharmaceuticals. This supports the thesis that these firms expand less through tangible production and more through immaterial assets. In this context, M&A plays an outsized role: relative to capital and R&D expenditures combined, M&A activity is far higher among pharmaceutical firms specialising in cancer medication. Table 1 shows that, on average over 2005 to 2023, total M&A expenditure accounted for 51.6% of total capital expenditure and R&D for the top ten cancer medication firms. This percentage is significantly higher than the benchmark and other pharmaceutical firms. This shows that M&A activity is more central to the growth strategy of these firms than to that of other firms.

Debt is central to this acquisition-driven strategy. Among the top ten pharmaceutical companies specialising in cancer medication, debt as a share of sales stands at 50.4 per cent—well above the 40.8 per cent recorded for the rest of the pharmaceutical sector and the 32 per cent for benchmark firms. This reliance on leverage reflects how acquisitions are financed and how heavily indebted the leading firms have become.

The upward trajectory is particularly stark over time. For the top ten cancer medication firms, debt-to-sales ratios rose from 18 per cent in 2005 to 69 per cent in 2023. Over the same period, their combined debt expanded nearly tenfold, from USD 35 billion to USD 333 billion. While debt ratios for the benchmark group remained relatively stable, pharmaceuticals—and especially the top ten—significantly increased their leverage throughout this period.

Because all large pharmaceutical firms compete to acquire a limited number of smaller firms with promising patents, we see pressure towards competitive overbidding in M&A deals. The firms with the deepest pockets win. This pressure to buy companies before competitors do, to be ahead of a patent cliff, has led to a rise in the amount paid for the acquisition of companies. In turn, this has increased pressure to inflate the prices of drugs to match higher acquisition costs.

Oversized payouts to shareholders

Another distinctive marker (opens in new window) of the Big Pharma model is the oversized payouts to shareholders. This is where the pipeline, which started with publicly funded research, ends: in the pockets of shareholders. The largest and most profitable 1 per cent of globally listed firms (discussed in a previous monopoly blog) have, on average, for the period 2005 to 2023, annual payouts of 6.9 per cent of sales. The top ten pharma companies, based on cancer medication revenue, for the same period recorded an average annual payout of 19.6 per cent of sales, almost three times as high.

These extraordinary shareholder compensation levels are also high compared to R&D expenditure, wages and net profits. Table 2 indicates that while payouts for benchmark firms were 78.9 per cent of net profits for the period 2005 to 2023, for the top ten cancer companies, they were 106 per cent. Economist William Lazonick claims that these excessive payouts in the pharmaceutical sector are an integral part of big pharma’s financialised business model(opens in new window) , acting as an ATM for shareholders at the cost of very high medicine prices, growing debt and declining investments. This also raises serious questions about the long-term sustainability of this highly predatory system.

Giant patent cliff 2.0 is set to test the business model

Between 2025 and 2030, an extraordinary number of patents on blockbuster drugs will come to an end, stress testing the existing model as revenues may abruptly decline. Some observers have labelled the upcoming period ‘patent cliff 2.0’(opens in new window) . Starting in 2025, blockbuster drugs such as Keytruda(opens in new window) and others are set to lose exclusivity, threatening some $ 180 billion(opens in new window) in annual revenues by 2027–2028. This is roughly 12 per cent of annual global drug sales. The total accumulated reduction in revenue in these years could amount to $ 400 billion(opens in new window) .

This unprecedented decline in revenue will pressure Big Pharma to intensify its model to renew its pipeline through M&A activity. This is likely to push pharmaceutical firms to increase their debt-to-income levels even further. In turn, this will severely stress-test the current business model and intensify the process of creative appropriation in the world’s largest innovation clusters at the same time as public funding for fundamental research drops off a cliff in the US (NIH budget set to decline by at least 40 per cent in 2026)(opens in new window) .

Beyond markets: firms that states cannot function without

The particular type of monopoly power discussed in this article revolves around control over innovation networks that enable firms to control who captures revenues and when. It is about strategically positioned power brokers. Intellectual monopolies in tech and pharma represent a striking form of infrastructural power. As political economist Benjamin Braun has argued(opens in new window) in relation to finance, infrastructural power arises when private systems, products and services become the very channels through which public institutions operate. Infrastructural power is about strong mutual dependencies between the state and private actors.

This is evident in the dominance of firms such as Microsoft and Pfizer. Microsoft’s cloud services and operating systems, for instance, are not simply market products; they are embedded in education, government, and everyday communication, shaping how information circulates. This dependency means that their power does not stem solely from size or profit margins, but from the fact that critical societal functions have difficulties proceeding without them.

When access to knowledge, communication, or essential medicines flows through their platforms and patents, they acquire a power that is more fundamental than market(opens in new window) share. It is the power to set the terms on which societies function. It directly touches the sovereignty of states and democratic decision-making.

Antitrust law is ill-equipped to deal with this type of monopoly power

Antitrust law was designed to curb monopolies, but today it is too narrow to deal with intellectual monopolies. Since the rising dominance of the Chicago School in the 1970s and 1980s, enforcement has focused almost exclusively on the (opens in new window) consumer-welfare standard(opens in new window) . Enforcement revolves around prices or proving direct harm to consumers. This has created a subfield in economics for proving and disproving claims, making antitrust cases highly (opens in new window) technical, slow, and easy to fight in court(opens in new window) .

The dominance of intellectual monopolists, however, does not rest mainly on raising prices. Their strength lies in controlling data, patents, and platforms(opens in new window) that others depend on. This gives them infrastructural power. That kind of power cannot be checked by narrow legal tests of ‘consumer harm’. Tackling intellectual monopolies requires broader strategies: reforming intellectual property, creating public digital infrastructures(opens in new window) , and redefining competition policy around power and dependency, not just prices. It requires rethinking our economic system.

Decommodify to Democratise: Reversing monopoly control over essentials

A path forward must reclaim public sovereignty over essential products, services and infrastructures, redefining the public–private divide that evolved in the past 40 years. In the post‑war era, many governments decommodified necessities(opens in new window) such as housing, utilities, and healthcare, shielding citizens from market dependency through welfare regimes. We cannot go back to the post-war social contract, but we will have to find new ways to achieve similar outcomes.

This calls for a new type of industrial policies(opens in new window) built on cooperation, conditionalities, social justice and public purpose. In practice, this could mean public ownership or governance of digital platforms, pharmaceutical R&D, and the re-establishment of essential utilities outside a profit-driven logic.