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Pfizer Jacks Up Drug Costs, Pays Billions to Stockholders

Prescription Prices Ver5

Photo by Chris Potter via Flickr

Ever wonder why prescription drug costs are so high? Take a few minutes and read Bill Lazonick’s piece on Pfizer.

From January 2001 through September 2015, Pfizer paid out [to stockholders] $95.5 billion in buybacks and $87.1 billion in dividends.

That’s $182.6 billion paid to stockholders… compared to $37.1 billion paid in corporate taxes over the same time frame. Do the math. That’s almost five times more money paid to stockholders than paid in taxes.

Now, stop and think about this. Why are stockholders getting all that money? When shares are bought and sold on the stock exchange, none of that money goes back to the corporation. Instead, the money goes to the previous owner of the stock – who may have owned that stock for less than a second. (Read more about “high frequency trading” here.)

And yet, most corporations pay lots of money to their stockholders. For what? Passing stock from one owner to another isn’t investing in the corporation’s future. So far in 2015, Pfizer has paid more than twice as much to stockholders as it has invested in R&D.

Why are stockholders getting all that money?

— — — —

tieby Unsplash via PixabayPaying money to stockholders benefits corporate executives who are “paid for performance.” (How this works, using Verizon as a case study, is a previous NHLN post.) In the case of Pfizer’s CEO, “75% of his long-term equity awards are earned based on relative and absolute total shareholder return.” In other words, the CEO’s compensation depends on Pfizer paying money to shareholders. If stockholders don’t get enough money, the CEO doesn’t get that compensation. And it’s not just the CEO. All of Pfizer’s top corporate executives are paid according to whether they meet “shareholder return” targets.

Back to Bill Lazonick’s piece:

In 2014, [Ian C.] Read as [Pfizer] CEO had total direct compensation of $22.6 million, of which 27 percent came from exercising stock options and 50 percent from the vesting of stock awards. The other four highest-paid executives named on Pfizer’s 2015 proxy statement averaged $8.0 million, with 24 percent from stock options and 41 percent from stock awards.

Remember, a good chunk of that compensation was based on the amount of money paid to stockholders. Which probably explains why Pfizer is paying so much more to stockholders than it’s spending on R&D.

— — — —

dollar by TBIT via PixabayWhere does all that money come from, anyway?

From Bloomberg:

Pfizer Inc., the nation’s biggest drugmaker, has raised prices on 133 of its brand-name products in the U.S. this year, according to research from UBS, more than three-quarters of which added up to hikes of 10 percent or more. … In a note Friday, analysts at Morgan Stanley said Pfizer’s net prices grew 11 percent a year on average from 2012 to 2014.

The Wall Street Journal documented Pfizer’s three-year market research campaign to decide the price of a new breast cancer drug.

“[I]ts process yielded a price that bore little relation to the drug industry’s oft-cited justification for its prices, the cost of research and development. … Staff members put together a chart estimating the revenue and prescription numbers at various prices… The chart showed a 25% drop in doctors’ willingness to prescribe the new drug if it cost more than $10,000 a month.”

Two years ago, AARP investigated the pricing strategy for another Pfizer drug, with an expiring patent:

[T]he manufacturer of the popular anti-cholesterol drug Lipitor employed an unusually aggressive strategy — including a pay-for-delay agreement, a coupon program, and a substantial price increase — to try to maintain revenue and market share after Lipitor’s patent expired. … Several major U.S. retailers have filed lawsuits against Pfizer and Ranbaxy that accuse them of violating antitrust laws by striking a deal that kept generic versions of Lipitor off the market… Pfizer’s chief executive reported that they maintained three times more market share than what is traditionally seen when blockbusters lose patent protection, “add(ing) hundreds of millions of dollars of profitability to the company.”

And a bunch of Pfizer’s profits come from government spending. There isn’t a lot of available research into government spending on pharmaceuticals, but what I’ve found is enlightening. As of 2010, Pfizer’s Lipitor – in varying strengths – represented three of the top-20 drugs prescribed under both Medicare and Department of Defense health programs. As of 2003, Medicaid was spending almost $650 million a year just on Lipitor.

That’s a lot of taxpayer money going to Pfizer.  While the corporation is paying twice as much to shareholders as it’s spending on R&D. While it’s paying five times as much to shareholders as it’s spending on corporate taxes. While Pfizer is trying to use the US corporate tax rate to justify off-shoring profits through a merger with Allergan.

While Pfizer’s CEO is receiving millions in compensation based on the amount of money the corporation pays to stockholders.

— — — —

hands by Gaertringen via PixabayAnd where else does that money come from?

If you have family or friends on Medicare, you probably know that the price of prescription drug coverage is going up significantly next year – even though there will be no Social Security COLA.

If you’re a State of New Hampshire retiree, you know that your cost of drug coverage is going up significantly next year – even though there hasn’t been a retirement COLA for the past six years.

The billions being paid to Pfizer stockholders are coming out of a lot of pockets… including the pockets of people who are spending their “golden years” choosing between medicine and food.

One more time: why are stockholders getting all that money? What have they done to deserve it?

Bipartisan Spending Bill Will Promote Economic Growth, Includes Key NH Measures

Bill to fund government restores COLA funding for disabled veterans, includes $75 million for fishery disaster relief, investments in Shipyard

(Washington, DC) – U.S. Senator Jeanne Shaheen (D-NH) announced today that the bipartisan appropriations bill unveiled last night will both promote economic growth and include many key measures she has championed in recent months. The legislation will specifically keep the government funded through Fiscal Year 2014, repeal many of the reckless sequester budget cuts, and promote job creation and economic growth.

The bill builds on the bipartisan budget agreement passed in December and makes investments in many New Hampshire priorities, including:

  • Disaster relief funding for New England fisherman
  • A fix to a Cost of Living Adjustment (COLA) for disabled veterans
  • Military construction resources for the Portsmouth Naval Shipyard
  • Resources to complete the activation of the Federal Corrections Institution (FCI) in Berlin
  • Funding for the Low Income Home Energy Assistance Program (LIHEAP)

The legislation also rolls back wasteful spending including taxpayer funded expenditures on oil paintings of public officials. Senators Shaheen and Tom Coburn (R-OK) drew attention to this waste of taxpayer dollars by introducing bipartisan legislation last year designed to cut these expenditures. The legislation also requires all federal agencies to become better stewards of taxpayer dollars by implementing mandatory 10 percent cuts to overhead costs and by investing in Inspectors General offices as Shaheen has fought for. This effort will help agencies better identify waste and cut spending through audits and oversight.

“This bipartisan appropriations bill makes strategic investments in our economy that will help create jobs while also preventing another government shutdown and repealing some of the sequester cuts that hurt economic growth,” Shaheen said. “Now we have to keep up the bipartisan momentum to pass this bill and additional job-creating measures.”

The appropriations bill, negotiated by the House and Senate, includes a partial fix to COLA adjustments in order to protect disabled veterans. Last month Shaheen introduced the Military Retirement Restoration Act to protect all future military retirees from the COLA cuts passed in a bipartisan budget agreement in December. Shaheen’s legislation would restore the cuts and replace the savings by eliminating a tax loophole for American corporations that use offshore tax havens, a move that would generate an estimated $6.6 billion in savings.

“This bill also takes a good step toward correcting the cuts to military retiree benefits,” Shaheen said. “I hope we can continue in this direction and vote on my plan to restore all of the adjustments as soon as possible on behalf of the people who have served our country.”

The funding package also invests in New Hampshire defense priorities, authorizing $1.6 billion toward the continued development of the new KC-46A aerial refueling tanker to be based at Pease Air National Guard Base in New Hampshire as well as $11.5 million for new military construction at the Portsmouth Naval Shipyard. In addition, the bill funds the Beyond Yellow Ribbon Program, which connects servicemen and women and their families with community support, training, and other services, at $13 million. Also included in the package is funding for the Cooperative Threat Reduction Program, which will help modernize the way the U.S. meets challenges posed by the spread of weapons of mass destruction, at $500 million.

“New Hampshire plays an important role in our national defense and this bill rightfully makes strategic investments to support our shipyard, our economy, and our men and women in uniform,” said Shaheen, who chairs the Senate Armed Services Subcommittee on Readiness and Management Support.

Additional measures included in the funding bill are $75 million toward fishery disaster relief, $3.425 billion for LIHEAP, and $6.9 billion to the Bureau of Prisons, which is sufficient to complete the activation of the Berlin Prison that is expected to create 340 local jobs and provide a $40 million economic boost to Northern New Hampshire.

Shaheen has repeatedly advocated for Congress to support New Hampshire fishermen and other states affected by declining fish populations and consequent economic losses by authorizing disaster relief.

“Fishing is one of our state’s oldest industries and remains a critical engine of our economy,” said Shaheen. “The resources in this bill will provide necessary support for fishermen and coastal communities who are struggling during difficult times.”

Funding for LIHEAP in this bill is a $169 million increase from FY 2013 levels, for a total of $3.425 billion. The program helps seniors and low income households in New Hampshire with home heating costs and has become particularly critical in recent years as the struggling U.S. economy and high energy prices and reduced LIHEAP funding have forced more Americans to go without this critical assistance. Shaheen has been a strong supporter of LIHEAP throughout her time in the Senate and was recently part of a successful bipartisan effort to encourage Health and Human Service Secretary Kathleen Sebelius to expedite the release of LIHEAP funds, allowing those in need to receive assistance as soon as possible.

What The F&@#: Issa Proposes End To Six Day Delivery To Save Military Retirees COLA’s

Image from the Muskegon Chronicle http://www.mlive.com/news/muskegon/index.ssf/2010/03/no_saturday_mail_delivery_no_p.html

Image from the Muskegon Chronicle

The depth of Congressman Darrell Issa’s distain for the unionized workers at the US Postal Service knows no bounds.  Now he is pitting the USPS against the US Military.

Government Executive reported this morning:

A new bill would undo the recent cuts made to certain military retirees’ pensions, and in exchange allow the U.S. Postal Service to end Saturday mail delivery.

Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, on Thursday proposed legislation that would restore full cost-of-living adjustments for young military retirees.”

To recap, the bi-partisan budget deal that everyone was giddy over last month made cuts to Cost of Living Adjustments (COLA) for veterans who retire after twenty years of service, but have not reached the full retirement age of 62.  To put this into context, this would be a person who could be as young as 38 years old, receiving a military pension, who would receive 1% less in a COLA increase than those retiree’s over the age of 62.

I am against cutting benefits to any worker who has done their time and completed their service after the fact.  That is not the case here.  This change means that these working age retirees will not get the full cost of living increase, which does not mean they are going to see their paychecks go down, as some are implying.  Also nowhere does it say that a retired veteran cannot get another job after they leave the military.  Just look at all the government contractors like Lockheed Martin and Raytheon, who routinely hire veterans as military specialists.

You know who else hires a ton of veterans, especially those who have been medically discharged?  The US Postal Service, that is who.  In 2007 the USPS employed over 680,000 people and of that 25% were veterans. (Note 8% of total workforce is listed as disabled veterans).

While that information is great to have, it is not the true point of this post.  The fact that Congressman Issa is, yet again, proposing to cut the Postal Service to five-day delivery is a sham.  He is trying to pull the wool over your eyes, by saying that eliminating Saturday delivery will save the government enough money to offset the retiree’s COLA cuts.

The fact is that the USPS does not take any money from the US Government.  The USPS is a completely self-funded operation, paid in full by the postage on the parcel.  The real issue the USPS is facing is the pre-funding mandate set forth by Congress in 2006.  That mandate requires the USPS to pre-fund all retiree benefits for the next 75 years before 2016.

Congressman Issa and the Postmaster General have used this mandate to make claims that the USPS is going bankrupt.  It is true the USPS cannot afford to pre-pay retiree benefits at 7-times (7X) the normal rate. What corporation could afford that?  They are using this as a way to push the USPS, and its unionized workforce out, and replace it with private companies like UPS and FedEx, who make more money for the 1% on Wall Street.   Let us not forget how UPS and FedEx botched holiday deliveries, while the slow and steady postal service delivered all their packages on time.

This legislation is the biggest shell game I have ever seen.  Instead of just reinstating the cuts to retiree’s, Congressman Issa is suggesting that we steal money from the USPS (which he claims is going bankrupt), and give it to these retiree’s.

If the USPS is failing, as Congressman Issa has said over and over, how exactly is stealing more money from them going to save it?

Rep. Peter DeFazio: "There's no substitute for a universal postal system. The private sector can't fill that gap."  WATCH: http://on.msnbc.com/1dWH1vi  Image from the ED Show

Rep. Peter DeFazio:
There’s no substitute for a universal postal system. The private sector can’t fill that gap.”
WATCH: http://on.msnbc.com/1dWH1vi
Image from the ED Show

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