With New Tax Savings, Drug Companies Start by Rewarding

Shareholders, Not Patients Struggling with Skyrocketing Prices

An Investigative Analysis by the Office of Senator Cory A. Booker
 April 9, 2018

Dear Friends:

In recent years, the cost of prescription drugs in the United States has skyrocketed, forcing many Americans into a state of
crisis as they struggle to obtain the medications they need to live and stay healthy. Since my time on the city council in
Newark, New Jersey, I have spoken to many people who often have to decide between paying for their prescription
medications or other necessities like rent, food, childcare, and utilities. People like these New Jerseyans:

If my prescription drugs were less expensive, I would not cut the doses of drugs in half to make them
last longer. It would change my life by having better blood sugar control, plus I wouldn’t have to work
two jobs. – Harper

I’m being tested for cancer, and I have rheumatoid arthritis. I cannot afford the medicine they want me to
take. It’s impossible to both pay for these medicines and afford to eat. – Kennedy

I’m a type 1 diabetic. It’s hard to afford my insulin I need to live! I’m a single mom who works two jobs
in order to pay for my high insurance and prescriptions. – Easton

I can’t afford my inhaler, which is the one thing that keeps me out of the hospital. With my inhaler, I can
breathe easier. It would be nice to not worry about whether I can afford it, or have to do without it. – Peyton

My husband was very ill for the last six years of his life and he was taking many prescriptions for all of
his illnesses. Two of them alone cost $1,000 each per month. When he passed away I had to claim
bankruptcy because I had to use a lot of credit cards to pay for all of the debt.
Prescriptions need to be more affordable. – Adrian

These individuals live in different areas of New Jersey, but they all share the same pain of struggling to afford the
prescription medications they or their loved ones need. For each of their stories, there are countless others throughout the
country.

The recently passed Tax Cuts and Jobs Act offers a unique opportunity for pharmaceutical companies to transmit their
newfound tax benefits directly to consumers in the form of lower drug prices. As part of my effort to assess the impact of
the Tax Cuts and Jobs Act on working families, including patients struggling to afford their prescription medications, I
asked my staff to review public information about the pharmaceutical industry to examine early indications of how
companies plan to deploy their tax benefits. The following report provides an overview of the tax law and pharmaceutical
companies’ initial stated plans for the tax benefits they will receive as a result of the law.

This early snapshot is discouraging. Given the windfall that pharmaceutical companies are anticipating as a result of the
Tax Cuts and Jobs Act, there is no excuse but to act to lower the cost of prescription medications; however, based on this
analysis, there is no evidence that this is being done.

It is incumbent upon all of us to ensure transparency in how companies utilize the tax benefits they will receive as a result
of the Tax Cuts and Jobs Act. Therefore, as policymakers, consumers, researchers, advocates, and others continue to work
to lower the cost of prescription drugs and to assess the impact of the new tax law, I hope this report serves as a useful
resource.

Sincerely,

Cory A. Booker
United States Senator

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INTRODUCTION

In December 2017, President Trump and the Republican-led Congress enacted the Tax Cuts and
Jobs Act, a $1.5 trillion bill that delivers massive tax cuts to the nation’s largest corporations and wealthiest
families. The legislation cuts the corporate tax rate permanently from 35 percent to 21 percent, repeals the
corporate alternative minimum tax, moves toward a territorial tax system that largely exempts future foreign
profits from taxation, and sets a 15.5 percent repatriation rate for cash held overseas.1

In anticipation of tax savings, companies have responded mainly by forecasting significant benefits
for their shareholders. Over the course of three months, public companies announced more than $200
billion in stock buybacks, doubling the pace of the previous year.2 All told, companies are expected to
spend some $450 billion of their tax savings on stock buybacks.3 A recent Morgan Stanley survey further
projects that 43 percent of companies’ savings from the new tax law will be devoted to buying back stock
and issuing dividends, actions that help companies and their predominantly wealthy shareholders.4

The nation’s largest drug companies in particular are poised to reap tremendous gains from the new
tax law, including through lower effective tax rates and through repatriation of billions of dollars stored
overseas. The critical question that this report endeavors to answer is: how will pharmaceutical companies
spend this tax windfall?

* * *

This analysis from the office of Senator Booker provides an overview of the fourth-quarter 2017
shareholder calls—the first since passage of the Republican tax plan—of the 10 largest U.S.-headquartered
pharmaceutical companies,5 as well as relevant public statements and press releases over the same time
period. The earnings calls were the first opportunity for companies to communicate to their shareholders
and the public how they plan to use the tax benefits delivered by the recently passed tax law.

Early indications provide cause for concern. Not a single company has forecast lowering
prescription drug prices as a direct result of the tax law, even though such actions could provide immediate
relief to millions of Americans. By contrast, these companies have announced $45 billion in new stock
buyback programs, with more buybacks expected to come. Out of the more than $200 billion in recent
buyback announcements across all industries, five pharmaceutical companies alone accounted for
approximately one-fifth of the total.

This analysis did find limited mentions of investments in economically productive uses that could
benefit patients and workers, including: increases in research and development, support for employee pay
and benefits, capital investments to build new facilities and create jobs, and charitable contributions.

1 Congressional Research Service, Tax Cuts and Jobs Act (H.R. 1): Conference Agreement, Dec. 19, 2017, http://www.crs.gov/reports/pdf/IF10792.
2 Akane Otani, Richard Rubin & Theo Francis, Boom in Share Buybacks Renews Question of Who Wins from Tax Cuts, Wall Street Journal,
Mar. 1, 2018, https://www.wsj.com/articles/boom-in-share-buybacks-renews-question-of-who-wins-from-tax-cuts-1519900200.
3 Matt Egan & Danielle Wiener-Bronne, Tax Law To Spark $450 Billion Buyout Bonanza for Wall Street, CNN Money, Jan. 7, 2018,

http://money.cnn.com/2018/01/07/investing/stocks-week-ahead-tax-law-wall-street/index.html.
4 David Goldman & Jeanne Sahadi, Only 13% of Business’ Tax Cuts Are Going to Workers, Survey Says, CNN Money, Feb. 9, 2018,

http://money.cnn.com/2018/02/09/news/companies/tax-cut-bonuses-buybacks/index.html.
5 Based on 2016 global prescription drug sales. Pharmaceutical Executive, Pharm Exec’s Top 50 Companies 2017, June 28, 2017,

http://www.pharmexec.com/pharm-execs-top-50-companies-2017.

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However, while some companies have announced initiatives along those lines, stock buybacks appear to be
the primary repository of tax savings at this juncture. Of course, this report offers a snapshot of
announcements to date; this issue deserves careful and continued monitoring in the coming months,
especially as pharmaceutical companies hold their next quarterly earnings calls and convene their annual
shareholder meetings.

RISING PRESCRIPTION DRUG PRICES ARE CAUSING PAIN TO WORKING FAMILIES

Like the five New Jerseyans whose stories appear at the beginning of this report, millions of
Americans across the country struggle to afford their medications. Spending on prescription drugs
continues to rise, placing a heavy burden on patients, taxpayers, and the entire U.S. health care system. In
2015 alone, prescription drug prices increased by more than 10 percent on average, while prices of branded
drugs rose by 15 percent—and by even more for many individual drugs.6 By contrast, the rate of inflation
of consumer prices across the economy in 2015 was around 0.1 percent.7

Drug price increases have forced more and more Americans either to go without filling a
prescription or to sacrifice other necessities, such as food and utilities, in order to afford their prescription
medications. In fact, more than 25 percent of Americans who take prescription drugs report having difficulty
affording their medicine, according to the December 2017 Peterson-Kaiser Health System Tracker.8

Price increases on individual drugs can have significant consequences for patients and for the health
care system. For example, AbbVie and Amgen are each increasing the price of their respective anti-
inflammatory medications used to treat rheumatoid arthritis, Humira and Enbrel, by 9.7 percent.9 One
analysis calculates that AbbVie’s price increase on the widely used Humira, by itself, could add $1.2 billion
in drug costs to the American health care system this year.10 The price of Humira has doubled in recent
years, from $19,000 for a year’s treatment for a patient in 2012, after rebates, to $38,000 today.11 As another
example, shortly before the passage of the tax law, Celgene increased the price of two major cancer drugs
by 9 percent, making for a cumulative 20 percent increase for the year.12

PHARMACEUTICAL COMPANIES HAVE LONG PRIORITIZED SHAREHOLDERS

Across all sectors, many corporations buy back their own shares from the market to bolster the
company’s stock price and return money to shareholders. These gains mainly go to the wealthiest
Americans and foreign investors: the richest 10 percent of Americans controlled 84 percent of stocks in

6 Brady Dennis, Prescription Drug Prices Jumped More Than 10 Percent in 2015, Analysis Finds, Washington Post, Jan. 11, 2016,
https://www.washingtonpost.com/news/to-your-health/wp/2016/01/11/prescription-drug-prices-jumped-more-than-10-percent-in-2015.
7 Federal Reserve Bank of St. Louis, Inflation, Consumer Prices for the United States, Feb. 22, 2018,

https://fred.stlouisfed.org/series/FPCPITOTLZGUSA.
8 Rabah Kamal & Cynthia Cox, What Are the Recent and Forecasted Trends in Prescription Drug Spending?, Peterson-Kaiser Health System

Tracker, Dec. 20, 2017, https://www.healthsystemtracker.org/chart-collection/recent-forecasted-trends-prescription-drug-spending.

9 Bob Herman, The Drug Companies That Rang In 2018 with Price Hikes, Axios, Jan. 3, 2017, https://www.axios.com/the-drug-companies-

that-rang-in-2018-with-price-hikes-1515111007-482dc950-2387-4c1c-ac32-58ba78c5ab2f.html.
10 Eric Sagonowsky, Pfizer, Novartis and More Post Price Hikes on Dozens of Drugs, but AbbVie’s Is Worth the Most, FiercePharma, Jan. 4,

2018, https://www.fiercepharma.com/pharma/drug-price-hikes-a-few-bad-actors-or-widespread-pharma.
11 Danny Hakim, Humira’s Best-Selling Drug Formula: Start at a High Price. Go Higher, New York Times, Jan. 6, 2018,

https://www.nytimes.com/2018/01/06/business/humira-drug-prices.html.
12 Emma Court, Top Celgene Cancer Drugs Now 20% More Expensive After Latest Price Hikes, MarketWatch, Oct. 26, 2017,

https://www.marketwatch.com/story/top-celgene-cancer-drugs-now-20-more-expensive-after-latest-price-hikes-2017-10-23.

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2016,13 and foreign investors own more than one-third of U.S. corporate stock.14 Buybacks by major
corporations also benefit CEOs and other executives, who typically receive much of their compensation in
the form of stock options and awards based on share price.15 In the case of the pharmaceutical industry,
buybacks do little to help working families who struggle to afford expensive prescription drugs.

Publicly traded pharmaceutical companies have long devoted substantial resources to rewarding
shareholders. From 2006 to 2015, the 18 pharmaceutical companies on the S&P 500 Index devoted a total
of $516 billion to stock buybacks and dividends—11 percent more than the $465 billion sum they expended
during that time on research and development.16 Based on early news reports and this review of fourth-
quarter 2017 shareholder calls, this weighting of shareholder rewards appears to be continuing or even
intensifying in the wake of the new tax law.

The tax law’s repatriation provisions will be particularly beneficial to the nation’s largest drug
companies, many of which have stored substantial sums offshore. At the end of 2016, 10 of the
pharmaceutical companies on the S&P 500 collectively had more than $185 billion—nearly 90 percent of
their total cash and marketable securities—in cash held overseas.17 Across all industries, five of the top 10
companies on the S&P 500 with the most cash held overseas were pharmaceutical companies. 18 Much of
the cash that firms like these have accumulated overseas is the result of using tax-avoidance strategies, such
as shifting the reporting of profits to lower-tax foreign locations.19

13 Edward N. Wolff, Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?, National Bureau of
Economic Research, Nov. 2017, http://www.nber.org/papers/w24085.pdf.
14 Steven M. Rosenthal, Foreign Investors Win Big, Tax-Free, Tax Policy Center, Oct. 31, 2017,

http://www.taxpolicycenter.org/taxvox/foreign-investors-win-big-tax-free.
15 Matteo Tonello, CEO and Executive Compensation Practices: 2017 Edition, Harvard Law School Forum on Corporate Governance and

Financial Regulation, Oct. 4, 2017, https://corpgov.law.harvard.edu/2017/10/04/ceo-and-executive-compensation-practices-2017-edition.

16 Gretchen Morgenson, Big Pharma Spends on Share Buybacks, but R&D? Not So Much, New York Times, July 14, 2017,

https://www.nytimes.com/2017/07/14/business/big-pharma-spends-on-share-buybacks-but-rd-not-so-much.html; see William Lazonick et al.,

US Pharma’s Financialized Business Model, Institute for New Economic Thinking, July 13, 2017 (rev. Sept. 8, 2017),
https://www.ineteconomics.org/uploads/papers/Final-WP_60-Lazonick-et-al.-US-Pharma-Business-Model-sept-8.pdf.
17 Credit Suisse, US Biopharma Tax Analysis, Nov. 29, 2017, https://plus.credit-suisse.com/r/V7afe22AF-WEr8Cu.
18 Id.
19 Kimberly A. Clausing, Profit Shifting and U.S. Corporate Tax Policy Reform, Washington Center for Equitable Growth, May 10, 2016,

http://cdn.equitablegrowth.org/wp-content/uploads/2017/09/27115444/051016-clausing-profit-shifting.pdf.

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 Pharmaceutical Companies’ Cash Previously Stored Outside the United States20

Company Overseas Cash Percent of Total Cash

(End of 2016) Held Overseas
Pfizer $22.5 billion 90%
Merck & Co. $21.9 billion 85%
Johnson & Johnson $41.3 billion 96%
Gilead Sciences $27.4 billion 85%
AbbVie $7.4 billion 90%
Amgen $35.9 billion 94%
Bristol-Myers Squibb $8.0 billion 88%
Eli Lilly & Co. $9.8 billion 87%
Celgene $6.1 billion 77%
Mylan (Not estimated) (Not estimated)21

The federal government’s recent experience implementing another tax repatriation policy, contained
in the American Jobs Creation Act of 2004, could offer an indication of how companies will react to the
new tax law’s repatriation provisions. Empirical studies have shown that a great deal of the money held
overseas that was repatriated under the 2004 law—by one estimate as much as 60 to 92 cents out of every
repatriated dollar—also supported shareholder payouts.22 At the same time, many companies that
repatriated billions of dollars under the 2004 law also eliminated thousands of jobs in the years immediately
following enactment.23

Pharmaceutical companies will benefit from many other provisions in the new tax law as well.
While measuring the complete impact of the tax law is complex, many companies are already projecting
lower effective tax rates for 2018 and/or ensuing years as a result of this legislation.

20 Credit Suisse, US Biopharma Tax Analysis, Nov. 29, 2017, https://plus.credit-suisse.com/r/V7afe22AF-WEr8Cu.

21 Mylan was not included in the Credit Suisse report’s analysis.
22 Dhammika Dharmapala, C. Fritz Foley & Kristin J. Forbes, Watch What I Do, Not What I Say: The Unintended Consequences of the

Homeland Investment Act, National Bureau of Economic Research, Apr. 2010, http://www.people.hbs.edu/ffoley/hia.pdf.
23 Jeff Cox, The Last Time Companies Got a Break on Overseas Profits, It Didn’t Work Out Well, CNBC, Apr. 26, 2017,

https://www.cnbc.com/2017/04/26/what-happened-the-last-time-companies-got-a-break-on-overseas-profits.html.

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 Expected Changes in Pharmaceutical Companies’ Effective Tax Rates from New Tax Law24

Company Estimated Change in Effective Tax Rate (2017 to 2018)

Pfizer 20% to approximately 17%
19.1% to 19-20%
Merck & Co.
(but down from the “better” comparison rate of around 22% in 2016)
17.2% to 16.5-18%
Johnson & Johnson
(but the tax law still had a 1.5-2.5% “positive impact”)
Gilead Sciences 24.5% to 21-23%
18.9% to 9%
AbbVie
(increasing to 13% over the next 5 years)
Amgen 18% to 14-15%
21% to 20-21%
Bristol-Myers Squibb
(falling to the “high teens” in coming years)
Eli Lilly & Co. 20.5% to 18%
Celgene Approximately 16% to approximately 18%
18% to 17.5-19%
Mylan (“potential slight upward pressure” for 2018 relating to
implementation of the tax law and portfolio changes)

To be sure, large corporations across the economy are reaping benefits from the new tax law, and
the spate of recent stock buyback announcements is not limited to the pharmaceutical industry. In many
industries, companies are devoting their tax savings to buybacks at the expense of other important
investments. So far in 2018, major corporations have already announced a total of more than $235 billion
in buybacks, compared with only $5 billion in one-time bonuses for workers.25 One survey predicted that
just 13 percent of companies’ savings from the tax law will support pay increases, bonuses, and benefits for
employees.26 But the issue of how companies use their tax savings is especially acute in the pharmaceutical
industry—because these companies are responsible for lifesaving medications on which so many
Americans rely.

24 Transcripts of earnings calls and corresponding press releases available at https://seekingalpha.com.

25 Senate Democrats, Since the Republican Tax Bill Passed, Corporations Have Announced More Than $235 Billion in Share Buybacks,
https://www.democrats.senate.gov/goptaxscam.
26 David Goldman & Jeanne Sahadi, Only 13% of Business’ Tax Cuts Are Going to Workers, Survey Says, CNN Money, Feb. 9, 2018,

http://money.cnn.com/2018/02/09/news/companies/tax-cut-bonuses-buybacks/index.html.

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FINDINGS: SO FAR, DRUG COMPANIES ARE PASSING TAX SAVINGS ALONG TO SHAREHOLDERS, AND ARE
NOT USING THAT MONEY TO HELP WORKING FAMILIES AFFORD MEDICATIONS

From January to March 2018, the office of Senator Booker reviewed the quarterly shareholder
calls—the first since the passage of the Tax Cuts and Jobs Act—of each of the 10 largest pharmaceutical
companies headquartered in the United States.

10 Largest U.S.-Headquartered Pharmaceutical Companies by Global Prescription Sales27

Company Global Prescription Sales (2016) Q4 2017 Earnings Call Date

Pfizer $45.9 billion January 30, 201828
Merck & Co. $35.6 billion February 2, 201829
Johnson & Johnson $31.7 billion January 23, 201830
Gilead Sciences $30.0 billion February 6, 201831
AbbVie $25.3 billion January 26, 201832
Amgen $21.9 billion February 1, 201833
Bristol-Myers Squibb $18.2 billion February 5, 201834
Eli Lilly & Co. $17.2 billion January 31, 201835
Celgene $11.1 billion January 25, 201836
Mylan $10.8 billion February 28, 201837

The analysis included announcements and public mentions by each of the 10 aforementioned
companies. It considered any specific indications of forward-looking spending, including on (1) stock
buybacks and dividends (including relevant announcements made before or after the call dates);
(2) reductions in the price of prescription drugs specifically linked to pharmaceutical companies’ new tax
savings; and (3) other intended uses of the tax law’s benefits that the companies discussed during these
calls. The analysis relied exclusively on publicly available information; companies may have taken other
actions that they did not disclose on their shareholder calls or in other public forums, and they may be
preparing to make additional announcements in the near future about how they plan to use their tax savings.

The earnings calls and affiliated announcements represent only a first glimpse at how these major
drug companies will allocate their tax savings, but they are a powerful indicator of how these and other
major pharmaceutical companies intend to deploy their tax benefits. So far, the anticipated influx of money

27 Pharmaceutical Executive, Pharm Exec’s Top 50 Companies 2017, June 28, 2017, http://www.pharmexec.com/pharm-execs-top-50-
companies-2017 (using data from Evaluate Ltd.’s EvaluatePharma Service).
28 Transcript available at https://seekingalpha.com/article/4141479-pfizers-pfe-ceo-ian-read-q4-2017-results-earnings-call-transcript.
29 Transcript available at https://seekingalpha.com/article/4142710-mercks-mrk-ceo-ken-frazier-q4-2017-results-earnings-call-transcript.
30 Transcript available at https://seekingalpha.com/article/4139545-johnson-and-johnsons-jnj-ceo-alex-gorsky-q4-2017-results-earnings-call-transcript.
31 Transcript available at https://seekingalpha.com/article/4143778-gilead-sciences-gild-q4-2017-results-earnings-call-transcript.
32 Transcript available at https://seekingalpha.com/article/4140615-abbvies-abbv-ceo-richard-gonzalez-q4-2017-results-earnings-call-transcript.
33 Transcript available at https://seekingalpha.com/article/4142515-amgens-amgn-ceo-bob-bradway-q4-2017-results-earnings-call-transcript.
34 Transcript available at https://seekingalpha.com/article/4143270-bristol-myers-squibbs-bmy-giovanni-caforio-q4-2017-results-earnings-call-transcript.
35 Transcript available at https://seekingalpha.com/article/4141906-eli-lillys-lly-ceo-david-ricks-q4-2017-results-earnings-call-transcript.
36 Transcript available at https://seekingalpha.com/article/4140282-celgenes-celg-ceo-mark-alles-q4-2017-results-earnings-call-transcript.
37 Transcript available at https://seekingalpha.com/article/4152081-mylan-nv-myl-q4-2017-results-earnings-call-transcript.

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as a result of tax savings has been associated primarily with stock buybacks, and not with lowering the
prices of lifesaving drugs or supporting other productive uses.

Finding 1: Shareholder Payouts

On the fourth-quarter 2017 earnings calls, the companies highlighted plans to increase the return of
capital to shareholders through share repurchases and corporate dividends. Pfizer and Merck each
announced $10 billion in buybacks shortly before the tax law was passed, and, in the wake of the law’s final
passage, AbbVie and Amgen each announced their own $10 billion buyback plans. Those four programs,
at $10 billion apiece, are among the largest new buyback plans across the entire U.S. economy. Only five
other companies (Cisco, Wells Fargo, Home Depot, PepsiCo, and Oracle) have revealed larger new buyback
authorizations during this period. Another pharmaceutical company, Celgene, has announced a $5 billion
buyback plan that is also among the largest so far across all industries. Other pharmaceutical companies
suggested that more buyback plans were forthcoming.

The recent buyback announcements by these pharmaceutical companies total $45 billion—
21 percent of the more than $200 billion in buyback announcements made over the initial three months
during and after final passage of the tax law.38 In other words: just five pharmaceutical companies were
responsible for about one-fifth of the value of all the new buyback announcements made across the economy.

38From December 2017 to February 2018, stock buybacks announced by major companies totaled $201.94 billion, according to an analysis
by the Wall Street Journal. In addition, Merck announced its $10 billion buyback plan three days before the start of that survey period, on
November 28, 2017. Akane Otani, Richard Rubin & Theo Francis, Boom in Share Buybacks Renews Question of Who Wins from Tax Cuts,
Wall Street Journal, Mar. 1, 2018, https://www.wsj.com/articles/boom-in-share-buybacks-renews-question-of-who-wins-from-tax-cuts-1519900200.

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 Largest Recent Stock Buyback Announcements39

Company Buyback Plan Amount Date

Cisco $25 billion February 14, 2018
Wells Fargo $22.572 billion January 23, 2018
Home Depot $15 billion December 6, 201840
PepsiCo $15 billion February 13, 2018
Oracle $12 billion February 1, 2018
AbbVie $10 billion February 15, 2018
Amgen $10 billion February 1, 2018
Pfizer $10 billion December 18, 201741
Merck & Co. $10 billion November 28, 201742
Alphabet (Google) $8.59 billion February 1, 2018
Booking (Priceline) $8 billion February 27, 2018
Visa $7.5 billion February 1, 2018
Honeywell $6.5 billion December 8, 201843
Applied Materials $6 billion February 14, 2018
Mondelēz Int’l $6 billion January 31, 2018
eBay $6 billion February 1, 2018
Celgene $5 billion February 14, 2018
Anthem $5 billion December 7, 201744
Bank of America $5 billion December 5, 201745
Lowe’s $5 billion January 26, 2018
Boeing $4 billion December 11, 201746
Mastercard $4 billion December 6, 201747
NetApp, Inc. $4 billion April 5, 2018

39 Senate Democrats, Since the Republican Tax Bill Passed, Corporations Have Announced More Than $235 Billion in Share Buybacks,
https://www.democrats.senate.gov/goptaxscam.
40 Home Depot, The Home Depot Updates Strategic Priorities, Dec. 6, 2017, http://ir.homedepot.com/news-releases/2017/12-06-2017-110035522.
41 Pfizer, Pfizer Declares First-Quarter 2018 Dividend, Dec. 18, 2017, https://www.pfizer.com/news/press-release/press-release-

detail/pfizer_declares_first_quarter_2018_dividend.
42 Merck & Co., Merck Announces Increased Quarterly Dividend and $10 Billion Share Repurchase Authorization, Nov. 28, 2017,

http://investors.merck.com/news/press-release-details/2017/Merck-Announces-Increased-Quarterly-Dividend-and-10-Billion-Share-
Repurchase-Authorization/default.aspx.
43 Honeywell announced an $8 billion buyback program that includes “approximately $1.5 billion of remaining availability” from an existing

authorization. Honeywell International, Inc., SEC Form 8-K, Dec. 8, 2017, https://seekingalpha.com/filings/pdf/12421877.pdf.
44 Anthem announced a $5 billion buyback program, making a total of $7.3 billion available for buybacks. Anthem Inc., SEC Form 8-K,

Dec. 7, 2017, https://www.sec.gov/Archives/edgar/data/1156039/000119312517363937/d503259d8k.htm.

45 Bank of America announced a $5 billion buyback plan in addition to an existing $12 billion plan, “plus repurchases to offset shares

awarded under equity-based compensation plans during the same period, estimated to be approximately $0.9 billion.” Bank of America,
Bank of America Increases Planned Common Stock Repurchase Program, Dec. 5, 2017, http://newsroom.bankofamerica.com/press-
releases/corporate-and-financial-news/bank-america-increases-planned-common-stock-repurchase-p.
46 Boeing announced an $18 billion buyback program that “replaces” an existing $14 billion authorization, from which the company had

repurchased $9.2 billion at that time. Boeing, Boeing Board Raises Dividend 20 Percent, Establishes $18 Billion Share Repurchase
Authorization, Dec. 11, 2017, http://investors.boeing.com/investors/investor-news/press-release-details/2017/Boeing-Board-Raises-Dividend-
20-Percent-Establishes-18-Billion-Share-Repurchase-Authorization/default.aspx.
47 Mastercard, Mastercard Board of Directors Announces Quarterly Dividend, Dec. 4, 2017, http://investor.mastercard.com/investor-

relations/investor-news/press-release-details/2017/Mastercard-Board-of-Directors-Announces-Quarterly-Dividend-1242017/default.aspx.

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 Pharmaceutical Companies’ Stock Buyback and Dividend Announcements48

Company Buybacks Dividends

$10 billion stock buyback plan, including $5 billion in stock Increased quarterly dividend to $0.34 per
buybacks anticipated in 2018, announced days before final share announced at the same time
Pfizer
passage of the tax law, on top on an existing authorization with
$6.4 billion remaining
$10 billion stock buyback plan announced less than a month Increased quarterly dividend by 2% to $0.47
Merck & Co.
before final passage of the tax law per share announced at the same time
Stock buybacks not specified (“We are always looking for the Quarterly dividend change from $0.84 per
right opportunities to deploy our capital to create greater value share not specified, but the company has
Johnson & for shareholders following our disciplined capital allocation increased its dividend for 55 consecutive years
Johnson strategy.”) (“[D]elivering a competitive dividend” is a
“top priority” in the company’s capital
allocation strategy.)
Stock buybacks not specified (“Our capital allocation priorities Increased quarterly dividend by 10% to $0.57
going forward include . . . continued growth of our dividend per share (“This increase underscores the
Gilead Sciences
over time and share repurchases to maintain our current share confidence of the board and management in the
count.”) strength of the business and future cash flows.”)
$10 billion stock buyback plan announced after the Q4 2017 Increased quarterly dividend by 35% to $0.96
earnings call (at least partly linked to the tax law: “Based on our per share announced after the Q4 2017
strong cash flow generation, we also anticipate an increase in earnings call (“[A]s we’ve said now several
our return of capital to our shareholders.”) times, pre[-]tax reform, if there was tax reform
AbbVie
then we would look for a way to be able to
return additional capital to shareholders,”
including through “a strong commitment to
our dividend and growing that dividend.”)
$10 billion stock buyback plan announced alongside the Q4 Increased quarterly dividend by 15% to $1.32
2017 earnings call (directly linked to the tax law: “Based on our per share (directly linked to the tax law:
confidence and the long-term outlook for the business . . . “[T]ax reform also provides us with more
Amgen enhanced by the benefits of tax reform . . . .”), on top of an flexibility for capital deployment,” including
existing authorization with $4.4 billion remaining “being able to return excess capital to our
shareholders in the form of growing dividends
and share buybacks.”)
Bristol-Myers Stock buyback plans not specified (The company highlighted its Increased quarterly dividend by 3% to $0.40
Squibb nearly $2.5 billion in buybacks in 2017.) per share (not explicitly linked to tax law)
“Some level” of stock buybacks expected, but not yet specified Increased quarterly dividend by 8% to $0.56
(linked to the tax law: “Since the new tax legislation in the U.S. per share shortly before final passage of tax
Eli Lilly & Co. reduces our reliance on debt to fund U.S. cash needs, we will law
adjust our cash and debt levels going forward.”), on top of an
existing authorization with $2 billion remaining
$5 billion stock buyback plan announced after Q4 2017 earnings (No dividend)
call (implicitly linked to the tax law: “[I]f you look at our
current situation, . . . and then the benefit of tax reform with the
ongoing access to offshore cash, . . . we really remain in a great
Celgene
place to be able to take advantage of opportunities to make
investments . . . and at the same time still maintain share
repurchase program consistent with our historic practice. . . .
[T]hat’s largely due to the access to offshore cash.”)
Completion of previously announced $1 billion in stock (No dividend)
buybacks before the Q4 2017 earnings call (not explicitly linked
Mylan to the tax law) (The company is “returning capital to our
shareholders at a time when we recognize our shares as being
substantially undervalued.”)

48 Transcripts of earnings calls and corresponding press releases available at https://seekingalpha.com.

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Finding 2: Drug Price Changes

None of the reviewed pharmaceutical companies announced or forecast lowering prescription drug
prices as a result of anticipated tax savings. Instead, some companies discussed pricing concerns at a
general level during their earning calls, expressed caution about providing specific pricing guidance, or
acknowledged that patients struggle with affordability. None indicated that the massive tax windfall would
prompt them to lower prices and ease the heavy cost burden on patients.

In fact, many companies have actually instituted drug price increases for 2018. One survey of drug
pricing data from December 15, 2017, to January 3, 2018, documented an array of increases by major drug
companies, including: 116 price increases by Pfizer, ranging from 3 percent to 9.46 percent; five price
increases by AbbVie, ranging from 8 percent and 9.7 percent; six price increases by Bristol-Myers Squibb,
ranging from 1.5 percent and 7.9 percent; and 12 price increases by Eli Lilly, ranging from 1.5 percent to
9.91 percent—among many others.49 Merck did not raise prices during this period, and Mylan raised the
prices of 24 drugs while lowering the prices of 11 others, apparently based on competitive pressures. 50
Another report found more than 1,300 drug price increases imposed on January 1.51 To be sure, a multitude
of factors can influence drug pricing. In addition, the price increases identified in these analyses are limited
to a particular timeframe and are not necessarily representative of broader trends. Still, by comparison,
overall consumer price inflation was below 2 percent in 2017.52

Pharmaceutical Companies’ Drug Price Announcements in the Wake of the Tax Law

Company Drug Price Reduction

Linked to Tax Law
Pfizer No
Merck & Co. No
Johnson & Johnson No
Gilead Sciences No
AbbVie No
Amgen No
Bristol-Myers Squibb No
Eli Lilly & Co. No
Celgene No
Mylan No

49 Eric Sagonowsky, Pfizer, Novartis and More Post Price Hikes on Dozens of Drugs, but AbbVie’s Is Worth the Most, FiercePharma, Jan. 4,
2018, https://www.fiercepharma.com/pharma/drug-price-hikes-a-few-bad-actors-or-widespread-pharma.
50 Id.
51 Michael Rea, Higher Drug Prices Ring in the New Year—Again!, Rx Savings Solutions, Jan. 4, 2018,

https://rxsavingssolutions.com/blog/higher-drug-prices-ring-in-the-new-year-again.
52 Board of Governors of the Federal Reserve System, Monetary Policy Report—February 2018: Summary, Feb. 23, 2018,

https://www.federalreserve.gov/monetarypolicy/2018-02-mpr-summary.htm.

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 Earnings Call Statements by Pharmaceutical Companies About Drug Affordability53

Company Affordability Statement

“I don’t see that the pricing risk has dramatically changed from where it was 10 years ago or five years
ago. I believe that we need to be in a constant dialogue with society and with payers and the government
over the value of pharmaceuticals. I think that dialogue is ongoing with both the administration and
Congress. And I think the dialogue is being informed by facts. And we are looking for ways . . . to lower
the cost, the out-of-pocket cost of patients. The fundamental problem is not, I believe, the pricing of
products . . . because to be able to fund and run a modern innovative pharmaceutical company, there’s a
certain level of resources necessary. And unless we see a breakthrough in innovation and a breakthrough
Pfizer in the process, this is the cost of bringing products to market. The question is does society want to
continue to support that innovation? I think the answer is absolutely yes. The next question is how will
society ensure access to those products? So, this is really about how you ensure people, do rebates, get to
the point-of-sale, where we think they ought to be. How do you make drugs affordable? Right now the
system is set up adversely to transfer the costs of lowering premiums to healthy people on the sick people.
I don’t think that’s a good policy and we’re in discussions with the government to change that. So, I think
this pricing risk is reversed. I think it remains reversed, and it’s a constant issue that the industry needs to
deal with given the nature of the marketplace.”
“[W]e remain dedicated to finding innovative ways to demonstrate the value of our products and to
Merck & Co.
increase patient access.”54
The company discussed its focus on “being competitive always via . . . transparent pricing, all with the
consumer top of mind”: “We are also committed to responsible pricing. When we price a new medicine,
we consider the value of the patients and society, the importance of maintaining affordable access to
medicines for people who need them and the importance of preserving our ability to develop future
groundbreaking cures and treatments. . . . [W]e have maintained responsible approach to pharmaceutical
Johnson &
pricing generally limiting our aggregate annual price increase to single-digit percentages below those of
Johnson
our competitive set. For 2017, the net price for pharmaceuticals in the U.S. is negative, a topic you’ll see
more details on when we issue our 2017 U.S. Transparency Report later this quarter. Transparency is just
one of the ways we can demonstrate how serious we are about responsible pricing. We look forward to
continuing our work with government officials, our customers and other stakeholders to ensure we
continue to provide differentiated, value-based and affordable healthcare to people around the world.”55
“[W]e’ve seen multiple competitors come to market and we’ve launched three of our own new [hepatitis
Gilead C virus] therapies. . . . [T]he launch of each new product was disruptive, leading to lower prices and
Sciences shortened treatment duration, both highly beneficial to patients and payers. Going forward, we don’t see
any new HCV product launches disrupting the market.”
AbbVie (No general discussion of affordability on the earnings call was identified.)
“Amgen has made it pretty clear that we disagree with the concept of the [copayment] accumulator
[program used by pharmacy benefit managers]. That fundamentally, our systems is, a, to assist patients
who can’t afford their co-pays that the agreements and contracts we have with these organizations is
around making sure if patients get access.” “[W]e are in constant debate and discussion with payers and
Amgen providers around the value of this drug [Repatha], about the value-based pricing we have and the rebates
that are being offered in the marketplace to ensure improved levels of access. . . . Quite dramatically, we
have with worked hard to ensure that we can assist patients where appropriate with co-pays that they are
not able to afford or deductibles and unable to afford. And I don’t think that work is going to stop for a
while as we go forward.”
Bristol-Myers (No general discussion of affordability on the earnings call was identified.)
Squibb

53 Transcripts of earnings calls and corresponding press releases available at https://seekingalpha.com.

54 See also Merck & Co., Pricing Action Transparency Report 2017, Feb. 2018, https://s3.amazonaws.com/msd17-assets/wp-
content/uploads/2018/02/23073614/Report-on-Pricing-Practices-in-the-US-2010-2017.pdf.
55 See also Janssen Pharmaceutical Companies of Johnson & Johnson, 2017 Janssen U.S. Transparency Report, Mar. 5, 2018,

https://jnj-janssen.brightspotcdn.com/b9/96/70c52ba14482a97c48bdfebf0471/2017-janssen-us-transparency-report-march2018.PDF.

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 “I would expect a busy year regulatory-wise in Washington as they look to introduce market mechanisms
and lower costs at the pharmacy counter for patients, and we’re for both of those things, so we’ll partner
closely with the administration to try to make positive progress in a pro-innovation way that actually
affects patients’ pocketbooks.” The company expressed support for the Centers for Medicare & Medicaid
Services’ proposal to require Medicare Part D plans to pass certain rebates through to consumers: “That
Eli Lilly & Co.
could have an immediate and very positive impact on seniors who are struggling to cover their donut
hole-exposed prescriptions, and we think this is a good idea that the administration should act on
immediately. . . . [T]he bigger issue for the country is how do we make chronic medications patients need
more affordable for them, and again we go back to the rebate pass-through issue. That increasing spread
is a big issue for patients paying list price with a deductible plan.”56
Celgene (No general discussion of affordability on the earnings call was identified.)
“[O]ur customer base continues consolidating and concentrating and as competitive pressures persist.
Given this dynamic, we’ll no longer provide guidance around pricing as it will put us at a competitive
disadvantage.” “This product [planned generics for Restasis, and also for Advair] has been another
example of Mylan leading the fight for access to affordable medicine.” On February 2, 2018, before the
Q4 2017 earnings call, the company announced the introduction of a generic drug used to treat HIV:
Mylan
“[O]ur commitment to ste[m]ming the tide of HIV is Mylan’s most compelling example to-date of our
commitment to breaking down barriers to access. . . . [Y]ou can count on us to do next for cancer and
diabetes what we’ve already done for HIV, as we dramatically expand the number of patients served.”
On March 2, 2018, after the Q4 2017 earnings call, the company announced the introduction of two
different HIV drugs at discounted prices, unrelated to the tax law.

Finding 3: Other Projects

On their most recent quarterly shareholder calls, many of the top pharmaceutical companies
highlighted the substantial benefits they have received, and will receive, from the new tax legislation. They
detailed their plans for spending those savings with varying degrees of specificity. Stock buybacks, as
noted, were a major focus of many companies. But they also announced various other projects, including
capital investments, research and development, one-time benefits to workers, charitable contributions, and
business development. Still, for many of the announcements, it is unclear how much of the outlays are
actually attributable to the tax cuts, and how much would have been spent independent of the tax cuts.

Pharmaceutical Companies’ Other Projects Discussed on Earnings Calls57

Company Other Projects Discussed Stated Change in Approach

on Q4 2017 Earnings Calls to Allocating Capital
$5 billion in capital projects in the U.S. over the “[W]e are continuing reviewing our capital
next 5 years; $500 million to U.S. pension plan; allocation opportunities under the new tax code. We
Pfizer $100 million for a one-time bonus to all will remain disciplined in our approach with value
nonexecutive employees; $200 million to the creation for shareholders remaining our compass.”
Pfizer Foundation
$12 billion in capital projects over the next 5 “While tax reform does not fundamentally change
years, with $8 billion of that amount in the U.S.; our capital allocation priorities, it does improve our
one-time, long-term incentive award for eligible flexibility and enhances our ability to deploy capital
nonexecutive employees; contribution to the in support of our strategy to invent new medicines
Merck & Co. Merck Foundation; unspecified increase in R&D that address key unmet medical needs, benefiting
and business development projects (“funding patients and driving sustainable long-term
our growing investment in R&D as well as shareholder value. . . . [T]o the extent we don’t
seeking value-creating business development deploy capital towards business development deals
opportunities”) over time, we look to return it to the shareholders.”

56 See also Eli Lilly & Co., 2017 Integrated Summary Report, Mar. 19, 2018, https://assets.contentful.com/hadumfdtzsru
/2Ayd5rsLd2AyMsQ8wY8wO0/79e2398c034863923b99098b53762406/2017_Lilly_Integrated_Summary_Report.pdf.
57 Transcripts of earnings calls and corresponding press releases available at https://seekingalpha.com.

13
 Unspecified increase in R&D (“expect[ing], as a “Regarding tax reform, . . . one of the major reasons
result of the lower tax rate on U.S. earnings, that in addition to lowering the rate is just frankly the
we will see increased investment in R&D”); flexibility that it provides us and we think it actually
paying down debt (and accompanying reduction helps make us more competitive, particularly on an
in borrowing “for U.S. purposes”) international level . . . . [R]egarding the more
immediate tax reform impact, we think that the wise
Johnson & thing to do is to invest a good portion of that back
Johnson into R&D. . . . As far as any change to our capital
allocation strategy, as a result of having more readily
access to the cash, . . . our strategy remains the
same. . . . [W]e’ll evaluate our opportunities on a
case-by-case basis and make the best decision that
we think promotes the long-term growth and benefit
for our shareholders.”
Unspecified increase in R&D (“expect[ing] our “While the Tax Cuts and Jobs Act does not
non-GAAP R&D expenses to be in the range of fundamentally change our capital allocation
$3.4 billion to $3.6 billion” in 2018, up from priorities, it does enable Gilead to invest in
$3.3 billion in 2017); unspecified expansion of sustainable long-term value-creating opportunities,
U.S.-based manufacturing; unspecified creation which include investing in R&D, expanding U.S.-
of additional U.S. jobs; unspecified mergers, based manufacturing, and creating additional jobs in
Gilead Sciences acquisitions, and partnerships for the the U.S. . . . Our capital allocation priorities going
development pipeline forward include[:] investment in research and
development along with M&A and partnerships to
augment our pipeline, delevering our capital
structure, continued growth of our dividend over
time and share repurchases to maintain our current
share count.”
$2.5 billion in capital projects in the U.S. over “[W]e have a business to generate a tremendous
the next 5 years (and “currently evaluating amount of cash flow . . . . So as we look at capital
additional expansion of our U.S. facilities”); deployment, I can tell you our philosophy is always
$350 million in one-time charitable that the first priority for us is continuing to invest
contributions (to U.S.-based nonprofits, back in the business in order to make sure that we
AbbVie including for Puerto Rico rebuilding, children’s can drive long-term sustainable top-tier growth. . . .
health care access, and local charities); $750 [T]here’s an interrelationship between what you
million to accelerate pension funding; would do [with the tax benefits] from an M&A
“enhancing” nonexecutive employee standpoint. So if you were to acquire something, that
compensation; increase in R&D level to 16% of had a significant R&D burn going forward . . . ,
sales obviously you would dial in those R&D expenses.”
$3.5 billion in capital expenditures over the next “We intend to use our resources to continue to invest
5 years, approximately 75% of which will be in our people and the attractive long-term growth
spent in the U.S. (including $300 million to opportunities we see in our industry, including M&A
build a new U.S. plant, which the company where it fits our focus while also returning capital to
expects will employ 300 full-time employees); our shareholders.” The tax law “provides us with
$300 million of growth capital made available more flexibility for capital deployment.” It also puts
through Amgen Ventures, for early-stage U.S. the company “on a more level playing field
ventures; unspecified increased commitment to strategically,” and it enables the company “to invest
Amgen
reach $100 million over 4 years to the Amgen heavily in innovation and advanced technologies
Foundation for community education programs; here in the U.S.” and to “build new manufacturing
“enhancing base wages” for nonexecutive U.S. capacity and add highly skilled jobs here in the U.S.”
staff members; possible deals to expand the “[T]he benefits of tax reform for our shareholders do
development pipeline; “continu[ing]” to make not come at the expense of others, but come in
investments in R&D as well as “innovation- addition to the investments that we are making for
based acquisitions and long-term oriented our staff, the patients we are seeking to serve and our
capital expenditures” communities.”
(Relevant new project announcements made on “With tax reform in mind, . . . we see no change to
Bristol-Myers
the earnings call were not identified, though our balanced approach to capital allocation.”
Squibb
“continued prioritization in R&D” was discussed)

14
 Unspecified spending on “our existing marketed “While tax reform does provide ready access to
products and pipeline, including capital additional funds, it does not alter our business
investments, in line with our current strategy” as development priorities.”
well as opportunities to “bolster our commercial
Eli Lilly & Co.
presence in core therapeutic areas”; unspecified
spending on business development; $2 billion in
repatriated cash to be used to reduce the
company’s gross debt level
Acquisition of Impact Biomedicines for $1.1 “Our capital allocation priorities and financial policy
billion upfront, as much as $7 billion contingent remain unchanged. . . . Consistent with our past
on various milestones (not explicitly linked to practices, we continue to focus on building and
the tax law); acquisition of Juno Therapeutics, diversifying our portfolio of products that address
Inc., for approximately $9 billion (not explicitly significant, unmet patient needs while
Celgene linked to tax law); R&D increase possible but opportunistically returning excess capital to
not specified (“We will continue to aggressively shareholders.”58 “[O]ur first priority is strategic
invest in research and development and to pipeline next-generation. And then our second
deploy capital to acquire or license the most priority is just make sure we do have a strong
promising science, technology, and products.”) financial capacity to return cash to shareholders in
the most advantaged way possible.”
Paying down debt, as “[o]ne of the primary “[W]e’re not looking at large transformational assets
areas for capital redeployment” (not explicitly and businesses to bring into the portfolio. But we do
Mylan linked to the tax law) have this large, healthy and growing cash flow
stream and cash flow bucket that we’ll continue to
look at product additions in certain gaps . . . .”

CONCLUSION

Recent earnings calls provided top drug companies their first significant opportunity to demonstrate
how they would spend their windfall from the Tax Cuts and Jobs Act. So far, the influx of tax benefits from
the new law has been associated mainly with a slew of stock buyback announcements—with $45 billion in
new buyback programs by just five pharmaceutical companies. They are some of the largest buyback plans
announced during this initial period across all industries, amounting to approximately one-fifth of the
cumulative economy-wide total. Aside from stock buybacks, which predominantly benefit executives and
company shareholders, some pharmaceutical companies did announce other initiatives that could help
patients and workers, such as expansions of research and development, employee pay and benefit support,
capital projects, and charitable contributions.

On the earnings calls, while some pharmaceutical companies did acknowledge that many patients
struggle to afford the high prices of essential prescription medications, no company announced plans to
specifically use its tax savings to reduce drug prices.

Going forward, it will be important to monitor these and other pharmaceutical companies as they
continue to make decisions regarding how to allocate their tax savings. The companies will have new
opportunities to make further announcements soon, in forums such as their first-quarter 2018 earnings
calls and their annual shareholder meetings. Although drug companies have already committed billions
of dollars to stock buybacks, billions more dollars in uncommitted savings will be flowing to these
companies in the months and years ahead.

58Celgene, Celgene Announces Additional $5 Billion Share Repurchase Authorization, Feb. 14, 2018, http://ir.celgene.com/releasedetail.cfm
?releaseid=1057467.

15