Pharma Giant Pfizer Blocked From Tax Evasion
Big Pharma received $127 billion of our tax dollars in 2014 through the federal programs Medicare, Medicaid, VA, and TRICARE. But just because they live on our tax dollars, doesn't mean Pharma companies want to pay taxes. Increasingly, they seek tax inversions, reincorporating in countries like Britain, Ireland or the Netherlands, often merging with a European entity to duck U.S. taxes.
This week, Pfizer's $160 billion merger with Dublin-based Allergan was scrapped because of new Treasury Department rules to stop such tax dodges. Pfizer, which calls itself the "world's largest research-based pharmaceutical company," is known for the blockbusters Lipitor and Viagra. Allergan is known for Botox, the high-tech drugs Alphagan, Restasis and the artificial tears eye drug Refresh.
The new Treasury rules disregard the U.S. assets acquired quickly by “serial inverters” like Allergan which made the Dublin based Botox maker too small to serve as Pfizer’s inversion partner. Moreover, the new Treasury rules limit what is known as "earnings stripping" to lower companies’ effective tax rates so the inversion would not have given Pfizer the tax deductions it sought.
Pfizer is far from the first Pharma company to want to take the money and run. In 2014, Illinois-based AbbVie sought to merge with ADHD drug maker Shire which is based on a small island in the English Channel. The deal would have made the drug duo bigger than Boeing or McDonald’s but was scrapped because of imminent new tax rules from the U.S. Treasury Department to stop such tax dodges. The same year, the U.S.'s largest pharmacy chain, Illinois-based Walgreen, also sought a tax inversion, but changed its mind when customers and lawmakers termed the move unpatriotic and unfair to corporations that remain in the U.S. (Patriotism concerns did not stop device maker Medtronic from the successful acquisition of Dublin-based Covidien to dodge taxes last year.)
Still, Pfizer may have the worst track record among Pharma companies trying to dodge taxes. It has had to ink three Corporate Integrity Agreements (CIA), an enforcement tool used by the Office of the Inspector General to promote compliance with health care regulations after wrongdoing. One CIA was for withholding $20 million in Lipitor rebates owed to Medicaid and two were for off-label marketing of Neurontin, Lyrica and other drugs. Off-label marketing, claiming drug benefits that have not been identified or verified by the FDA, hiding risks that have and marketing drugs to patients for whom they have not been approved or found safe clearly can and does kill. Why even have an FDA if Pharma devises its own marketing package of benefits, risks and indications?
Some say Pfizer actually courts trouble. In 2000, it bought Warner-Lambert after its diabetes drug Rezulin was withdrawn and linked to deaths and while it was under criminal investigation. It then bought hormone maker Wyeth which was staggering under heart valve suits from its diet drug Fen-Phen and cancer lawsuits from its hormone drug Prempo.
In just one week in 2010, Pfizer
- agreed to pull its 10-year-old leukemia drug Mylotarg from the market because it caused more, not fewer patient deaths;
- suspended pediatric trials of Geodon two months after the FDA said children were being overdosed in the trials;
- suspended trials of tanezumab, an osteoarthritis pain drug, because patients got worse not better, some needing joint replacements;
- was investigated by the House of Representatives for off-label marketing of the kidney transplant drug Rapamune and targeting African-Americans;
- sitnessed its client researcher, Scott S. Reuben, who put Bextra, Celebrex and Lyrica on the map, trotted off to prison for research fraud;
- was sued by Blue Cross Blue Shield to recoup money it overpaid for Bextra and other drugs;
- received a letter from Sen. Charles Grassley (R-Iowa) requesting its whistleblower policy; and
- had its appeal to end lawsuits by Nigerian families who accused it of illegal trials of the antibiotic Trovan in which 11 children died, rejected by the Supreme Court.
As the National Enquirer might say, how was your week?
After Pfizer's very bad week, I asked Pfizer whistleblower Peter Rost, author of The Whistleblower: Confessions of a Healthcare Hitman, why Pfizer was not shut down, its officers tried and jailed or its profits blocked from Medicare and other federal health programs. In the sentencing memo for its third CIA, the Department of Justice wrote that “illegal conduct was pervasive throughout the company and stemmed from messages created at high levels within the national marketing team.”
Dr. Rost told me, “So many Medicaid, Medicare and VA drugs come from Pfizer, the government would never convict them. It would stop the drug flow.” In other words, Pfizer is too big to fail.
Jim Edwards, former managing editor of Adweek, agreed with the analysis. “Pfizer is the largest drug company in the world and if you include its generics unit it makes literally hundreds of different drugs. Getting tough would mean no Lipitor, no Viagra, no Bacitracin, no Cipro, no Zithromax, no Sutent, etc.,” he told me. “The government is not really in a position to be cutting itself off from all that medicine.”
Although Pfizer may be too big to fail (or regulate), it is apparently not too big to attempt to dodge taxes by relocating overseas.