Source : Investigate Europe

Pharma firms maximise profits in Ireland as patients struggle with drug prices

Investigate Europe reveals how big pharma funnels billions of profits through Ireland while high drug prices mean life-threatening delays for Irish patients.

By Maxence Peigné

WHEN DOCTORS REMOVED Miriam Staunton’s tumour from her armpit six years ago, they told the 51-year-old Irish woman that she had a 70% chance of relapse.

In the months following the operation, she was offered local radiation and regular check-ups, but no drug treatment. Yet, in other parts of Europe, new medicines would have been available.

“I remember when I met the oncologist and he said that he wasn’t in a position to offer me anything systemic at that point,” Staunton recalls. “I didn’t really understand exactly what he meant by it at that time.”

What Staunton did not realise is that she would have to wait for her melanoma to spread to the rest of her body one year later before she could be entitled to effective but expensive medicines.

In February 2019, she started a course of Opdivo combined with Yervoy, breakthrough drugs known as immunotherapy.

Their development was such a game changer that the scientists behind them were awarded a Nobel Prize. But at the time, their high cost meant that Ireland was restricting them to stage four cancer, the last and most serious phase of the disease.

In other parts of Europe, Staunton could have taken Opdivo alone shortly after her surgery. In July 2018, the European Medicines Agency (EMA) opened the therapy to stage 3 melanoma patients. France immediately made it available for free, but Ireland did not. Staunton, who is now cancer-free, says:

It’s one thing when there is no cure, but when the treatment exists and people can’t access it, that’s fundamentally wrong.

The reason for this delay is that Ireland and the American drugmaker, Bristol-Myers Squibb (BMS), could not agree on Opdivo’s price.

When the EMA approves new medicines for use in the EU, each member state has to strike reimbursement deals with producers individually. Negotiations can be lengthy, as companies often prioritise rich markets and governments seek confidential discounts.

Meanwhile, the pharmaceutical industry maximises eye-watering gains in tax-friendly territories.

St V2 Miriam Staunton had to wait until her cancer reached stage 4 to access treatment.
Source: Investigate Europe

Noteworthy, the crowdfunded community-led investigative platform from The Journal, supports independent and impactful public interest journalism.

Ireland included in profit-shifting destinations 

Investigate Europe can reveal that the 15 largest European and US drugmakers, including BMS, publicly disclose over 1,300 subsidiaries in low-tax jurisdictions.

The investigation team examined such tax-friendly territories as commonly defined by the EU Tax Observatory and the Tax Justice Network.

These jurisdictions offer corporations low taxes or ways to shift profits (sometimes both).

In Europe, researchers and activists generally agree that they include Ireland, the Netherlands, Switzerland and Luxembourg. They are among the top five profit-shifting destinations globally, according to this year’s EU Tax Observatory report, an EU-funded think-tank.

This authors of the report state that their approach to analysing profit shifting “is not a legal one but an economic one”. They write that the Tax Observatory is interested in quantifying the consequences “for government revenue, inequality, and the level of economic activity”.

Profits outweigh R&D spend

While relying on their myriads of structures in low-tax jurisdictions, the 15 pharmaceutical groups amassed profits of €580 billion in the last five years.

This amount outweighs their research and development (R&D) costs of €572 billion, despite the industry’s frequent claim that high drug prices allow them to innovate and design new drugs.

The returns are in keeping with the large profits that are synonymous with the wider sector.

Some of the groups’ Irish affiliates have racked up hundreds of billions of dollars and still rely on a version of the ‘Double Irish’ tax avoidance scheme, the analysis finds.

“Corporate tax avoidance is not victimless, fewer taxes mean less investment in healthcare in Ireland and also negative impacts for countries in the Global South,” says Aideen Elliott of Oxfam Ireland. She adds:

Nothing these companies are doing is illegal. They are taking advantage of corporate tax rules.

All corporations cited in this article were contacted for comments. Only AstraZeneca, Bayer, Eli Lilly, Novartis, Novo Nordisk, Roche and Sanofi specifically replied on tax issues to say that they comply with all rules.

A spokesperson for Bayer says that the multinational is “very transparent” about its operations.

On countries that the Bayer spokesperson called “so-called ‘tax havens’”, such as in the Caribbean, they say that “a presence in such domiciles without any business substance does not offer tax advantages for German-based companies” due to heavy restrictions in German law. Taxes of at least 15% apply to companies headquartered in the EU “in any case at any time”, they add in their response to Investigate Europe’s queries.

Eli Lilly says it is “committed to complying with all applicable tax laws” and other requirements of the jurisdictions they operate in.

Novo Nordisk says it is “committed to managing taxes in a responsible way”. They add: “In recognition of this, we for instance do not use artificial structures or tax havens to reduce our tax payments.”

Novartis, who is headquartered in Switzerland, says the country has implemented the OECD minimum tax rate.

A spokesperson for Roche says that it “has implemented a robust and compliant worldwide tax structure”.

Sanofi says that it “is present in a limited number of countries that could be perceived as tax havens”, and add: “However, this is justified by its commitment to meet its patients’ and residents’ needs for medicines and vaccines around the world, as well as by substantive business transactions. Sanofi’s presence in such countries is therefore not operated to avoid tax.”

Covering high costing cancer drug

In Ireland, BMS entered negotiations with health authorities with a starting price of €1,311 for a 100 mg dose of Opdivo.

This is a stark contrast with academics’ estimates that similar antibodies can be manufactured for between $95 and $200 per gram (that is equivalent to between $9.50 (€8.85) and $20 (€18.60) per 100 mg).

In November 2019, the Irish healthcare system stressed the “substantial budget impact” of providing the drug for stage three cancer and noted that talks with the company were ongoing.

The State finally covered the cost of Opdivo in February 2021, two and a half years after France. The final discount remains a trade secret.

A HSE spokesperson says that it “progressed reimbursement at the first available opportunity when resources became available in 2021”. They add: “In 2020, the HSE was not provided with funding for new medicines in its annual budget due to financial challenges at that time but it received €50m in 2021.”

They add that the HSE considers nine specific criteria “prior to making any decision on pricing / reimbursement”, in line with Irish law. This includes health needs, cost effectiveness, availability, benefits and risks as well as resources available to the HSE.

Ironically, BMS makes Opdivo in Dublin, at a facility close to Staunton’s home. While the treatment wasn’t accessible to some Irish patients due to its cost, the supplier was running a lucrative business thanks to Ireland’s attractive tax rules.

BMS’s sprawling state-of-the-art campus in the Irish capital belongs to a subsidiary that boasted a $17 billion turnover in 2022, more than a third of the manufacturer’s global revenues that year. Yet despite being registered in Ireland, Swords Laboratories is a Swiss entity for tax purposes.

Its direct parent, Bristol-Myers Squibb Holdings Ireland, enjoys a similar double residency and owns patents for several BMS therapies.

In 2022, the holding valued the assets at more than $1 billion and pocketed $4.5 billion in royalties linked to drugs produced by Swords Laboratories, such as Eliquis, a bestselling blood thinner. In addition, the holding received $9 billion in dividends from the Dublin plant in just two years.

The arrangement resembles an infamous tax avoidance loophole that Ireland vowed to close in 2014. Dubbed “the Double Irish”, it has been a common tool for tech and pharma groups to slash their effective tax bill below Ireland’s 12.5% corporate tax rate.

The technique involved setting up two Irish companies: one for operational purposes and the other to hold intellectual property (IP). The first would pay royalties to the second, which would be a tax resident offshore, often in Bermuda.

A form of “these structures can continue to exist”, comments James Stewart, adjunct professor in finance at Trinity College Dublin. He says this is because of Ireland’s taxation treaty with Switzerland. “These firms have very large assets and flows of funds, generally have no employees and are very profitable.” He adds:

They are likely to be a source of profit extraction.

BMS Holdings Ireland’s main direct shareholder is also an Irish outfit with Swiss tax residency. The two holdings and Swords Laboratories don’t only funnel gains outside of Ireland, they also park them in their coffers. By the end of 2022, the trio had accumulated over $30 billion of equity.

Harbouring IP in tax-friendly territories is a common practice at BMS. Its patents on Opdivo and Yervoy sit in Delaware, an American state that levies no tax on royalties.

The two drugs amounted to a quarter of the group’s $45 billion revenue in 2023. That year, BMS listed 135 subsidiaries in low-tax jurisdictions: 81 in Delaware, 15 in Switzerland, 13 in Ireland and 12 in the Netherlands.

The structures helped the company reach an effective corporate tax rate of 4.7%, far below the US statutory rate of 21%. Part of it was due to a favourable tax ruling, but the largest reduction resulted from different fiscal treatments in Ireland, Switzerland and Puerto Rico, according to BMS’s annual report.

The company did not reply to requests for comments.

Multinational presence in low-tax jurisdictions

BMS is not a unique case. Investigate Europe analysed the last five years of accounts filed by the 15 largest American and European pharmaceutical groups. Together, they declared 1,300 subsidiaries in low-tax jurisdictions as of 2023.

The true number is likely much higher, as reporting rules only force multinationals to list those undertakings they consider “significant”.

Delaware took the top spot with over 700 entities. The Netherlands came second with almost 170. Switzerland and Ireland were next, with nearly 120 each.

Bayer contested the inclusion of a number of such countries as tax havens in this investigation. This included the Netherlands “because the Dutch tax rate is close to 26%”. Delaware in the United States was also highlighted by the spokesperson who says it is “a common misconception” that it is a tax haven.

Federal taxes of 21% are paid there, they add. The Sanofi spokesperson also refers to this tax rate in Delaware. Bayer continued that “exorbitantly high” costs of labour “offset potential benefits from the local tax environment” in Switzerland.

Like BMS, US giant Merck established a network of Irish subsidiaries with Swiss tax residency which held at least $44 billion of equity as of 2022.

Not all drugmakers rely on a type of Double Irish scheme, but many of their affiliates had still piled up considerable equity in Ireland by 2022′s close: $308 billion for Abbvie, over $102 billion for Johnson & Johnson, $20 billion for AstraZeneca and $17 billion for Gilead.

The subsidiaries of these multinationals that the investigative team analysed do not have a double residency or avail of this type of scheme for tax purposes.

A spokesperson for AstraZeneca says that it “operates policies and governance to ensure compliance with tax laws in the territories in which we operate and we are committed to transparent and constructive relationships with all relevant tax authorities”.

No comment was provided to the team before publication by Abbvie, Johnson & Johnson, Merck or Gilead.

“Ireland made changes to its corporate tax residence rules in Finance Act 2014 that are specifically designed to prevent such structures as the so-called ‘Double Irish’,” a Department of Finance spokesperson says. They add:

These rules ensure that it is not possible for companies to exploit mismatches in tax residency rules.

The Department also says that “the effective tax rate for all companies operating in Ireland is 10.5% which is quite close to our headline tax rate of 12.5%, this rises to 10.6% for foreign-owned multinational companies”.

As part of an OECD agreement, Ireland “introduced a 15% minimum effective tax rate for accounting periods” from last December. They add: “We have also fully implemented the Anti-tax Avoidance Directives within all agreed timelines.”

The investigative team queried the continued use of ‘Double Irish’ structures by subsidiaries of some companies who set up in Ireland and have tax residence in Switzerland but the spokesperson adds that they could not comment on specific cases.

Nine of the 10 biggest pharma groups in the world have operations in Ireland and the largest is “likely to be Pfizer,” suspects Stewart. “I say likely because there are no published accounts available for any Irish subsidiary. Nearly all Pfizer subsidiaries in Ireland operate as a branch of a Dutch entity.”

In the Netherlands, Pfizer booked three-quarters of its $100 billion global revenues with a Dutch holding at the helm of a myriad of subsidiaries.

CPPI CV, a limited partnership, is “fiscally transparent”, meaning its shareholders can draw profits untaxed. In the two years to the end of 2023, CPPI sent $35 billion to its parent companies in Delaware.

Follow the Money, an investigative outlet, published several articles on Pfizer’s Dutch affairs and described how the partnership became the most profitable company in the Netherlands. Pfizer did not respond to requests for comment.

“American companies have historically hoarded cash in low-tax jurisdictions to avoid taxes they would normally pay if they repatriated profits to the US,” explains Reuven Avi-Yonah, a Law professor at the University of Michigan.

“In 2018, a US reform sought to change this with a 10.5% tax on foreign income, but it actually encouraged big pharma to keep even more profits offshore, as they would be subject to this attractive rate rather than the US statutory rate of 21%.”

Paul Fehlner, former head of IP at Novartis, a Swiss pharma behemoth, says that “everyone who has income wants to limit the tax exposure that they have from that income, companies are no exception”.

“So by putting ownership of patent rights into a low-tax jurisdiction and then flowing funds internally into a patent holding entity, you’re able to reduce the overall tax burden,” he adds.


R&D costs often used to justify high prices

Patents are filed by corporations or inventors on new products to prevent competition. In exchange for sharing their discovery with the public, patent holders are granted exclusive rights to manufacture and market the drug for a certain period, usually 20 years.

Generics are typically 85% cheaper once rolled out, but as long as their monopolies last, drugmakers can impose high prices on governments and insurers. Pharmaceutical executives often cite expensive R&D costs to justify this.

However, data compiled by Investigate Europe shows that the industry when analysed collectively reaps more profits from the sales of existing drugs, than it invests in developing new ones, although the team noted that some individual companies, including AstraZeneca, Merck and Bayer did invest more in R&D than they made profits or paid shareholders.

Over the five years analysed, the 15 multinationals dedicated €572 billion to R&D. After these costs, other expenses and all taxes, they still raked in €580 billion in profits. The gains were mostly allotted to shareholders in dividends and other returns for a total €558 billion.

As a result, the following groups shelled out more on rewarding investors than on R&D: Abbvie, Johnson & Johnson, Novartis, BMS, Pfizer, Novo Nordisk and Amgen.

Big pharma’s fortune amassed in European low-tax jurisdictions contrasts with access inequality and struggling healthcare budgets locally.

Ireland can wait longer for drug access 

As much as Ireland lures drugmakers with its fiscal perks, Irish patients can often wait longer than their western European peers to get innovative drugs.

“Pharma companies make it clear that bigger markets are more important to them and that they wouldn’t want to give us a discount as a small member,” says a former Irish health official speaking on condition of anonymity.

“A lot of the companies take their own sweet time in even applying for market authorisation in Ireland.” They add:

Some have sometimes literally told me that Ireland is so insignificant that their bosses don’t really care whether their drugs are here or not.

Fehlner, who is now CEO of reVision Therapeutics, a biotech that repurposes existing drugs, confirms the strategy:

“Countries in the European Union are competing with each other for the best price, driving a lot of intransparency and difference in pricing,” he says. “That has a negative impact on patients in countries with slow reimbursement, as they’re not getting the medicines in a timely basis.”

The Irish Pharmaceutical Healthcare Association (IPHA), an industry lobby, estimates that over two years pass on average between the start of a new drug assessment by the Irish medicines watchdog and its reimbursement approval.

IQVIA, a global health data provider, says that Irish patients wait as long as Slovenians and Latvians for new pills to become available following EMA authorisation.

An important caveat is that not all new products are better than existing ones, so assessing their value against alternatives and negotiating their price can save public money. Another is that IQVIA “does not provide any details on the extent to which companies make such applications in a timely manner (or not)”, a HSE spokesperson says. They add:

The HSE is committed to providing access to as many medicines as possible, in as timely a fashion as possible, from the resources available.

“The HSE robustly assesses applications for pricing and reimbursement to make sure that it can stretch available resources as far as possible and to deliver the best value in relation to each medicine and ultimately more medicines to Irish citizens and patients from available budgets.”

This reduced the costs of medicines approved in 2023 by in excess of €200 over five years, the spokesperson adds. To aid with the negotiation, “additional staff resources have been approved under the National Service Plan 2024 and recruitment processes are underway”.

In its 2024 budget, the Irish government announced that there would be no fresh funds for new drugs before it made a U-turn and set aside €20 million for innovative medicines.

To beef up its bargaining power, Ireland teamed up with other nations as part of the “BeNeLuxA” initiative, an attempt by small Western EU states to extract better deals out of pharma firms.

“BeNeLuxA provides very useful co-operative opportunities in the area of horizon scanning, information sharing, health technology assessment processes, as well as pricing and reimbursement matters,” a HSE spokesperson says.

The Netherlands, Belgium, Luxembourg and Austria are also part of the coalition, which only landed deals for three drugs in nine years.

“On a scale from 1 to 10, I would give it a five,” says Clemens Auer, former director general at Austria’s Ministry of Health, reflecting on the endeavour’s outcome. Different national systems and bigger member states’ reluctance mean that “it would be impossible to roll that out for the whole European Union,” regrets Auer.

bucharest-romania-22nd-mar-2023-clemens-martin-auer-president-of-the-european-health-forum-gastein-attend-at-who-europe-high-level-regional-meeting-on-health-and-care-workforce-time-to-act-hel An EU-wide coalition for drug access 'would be impossible' due to reluctance by member states, Clemens Auer warns.
Source: Alamy Stock Photo

‘Governments should stand together’

This is not likely to change soon. The European Parliament recently adopted its position on the future EU pharma package, pushing for a joint procurement scheme.

Still, the programme would be voluntary and restricted to antimicrobials. Many larger member states oppose the idea of centralised drug negotiations.

“It frustrates me that we don’t take advantage of being members of the EU,” says Miriam Staunton, the Irish melanoma patient. Her Opdivo and Yervoy treatment was successful but she experienced known side-effects sometimes associated with the drugs.

Though she is now cancer-free, the lifelong passionate triathlete developed Addison’s disease, a rare condition in which the adrenal glands do not produce enough hormones.

“If I had been diagnosed in another country, I could potentially have had access to that treatment earlier, and maybe had a single agent with less long-term side effects,” says Staunton.

In the wake of her recovery, she retired early and dedicated her time to patient advocacy.

“I’d like to see governments standing together and saying we negotiate as a bloc and this is the price. But it never turns out that way because some countries are in a position to pay more.”

In the meantime, Staunton often advises new patients to join clinical studies. That’s one of the only alternatives, she reckons, to beat approval delays and benefit from the most recent treatments. 

 

Read more articles in this series >>

How big pharma feeds inequality in Europe

Reporter: Maxence Peigné • Editor: Chris Matthews

Deadly Prices is an investigation across 20 countries by Investigate Europe and its partners into how medicine prices are set and what determines access to them. Investigate Europe is a non-profit journalistic cooperative with members from 11 countries. Project illustration is by Alexia Barakou.

Noteworthy is the crowdfunded investigative journalism platform from The Journal, and is the Irish publication partner for this series.

Proposals
   Search for Proposals