The pharmaceutical industry, in particular Big Pharma, has long been recognised as a remunerative investment option for those looking to generate sizeable returns.
So who are the investors? Who owns Big Pharma? Are there names that can be affixed next to the top five Big Pharma companies by revenue? Here they are ranked by 2020 revenue:
- Johnson & Johnson – $56.1bn
- Pfizer – $51.75bn
- Roche – $49.23bn
- Novartis – $47.45bn
- Merck & Co. – $46.84bn
The answer is no, names can’t be affixed. These are publicly traded companies, and ownership is shared between its shareholders. But, of course, not all shareholders are equal. In the world of finance capital, there are such things as investment management companies – so called institutional investors. These are powerful organisations that wield financial levers some nation-states could only dream of. One of these managements companies, Blackrock, has more than 10 trillion dollars under management. For reference, this is the 2021 GDP (Gross Domestic Product) scoring of the top four countries in the world.
|1||United States||$19.485 trillion|
This shows that 10 trillion dollars is a HUGE amount of money.
In order to answer the question regarding ownership, a recent paper looked at the large US pharmaceutical companies. Focusing on the years 2004-2014 (due to availability of data), the report noted that big pharma companies had become highly connected to each other through their shareholders. In response to questions from a journalist, the authors of the paper noted:
“Public companies are increasingly owned by a handful of large institutional investors so we expected to see many ownership links between companies — what was more surprising was the magnitude of common ownership… we frequently find that more than 50 percent of a company is owned by ‘common’ shareholders who also own stakes in rival pharma companies.”
This is not illegal. As long as individual investors keep their shareholding at less than 10%, they are classified as passive investors. Of course, this begs the question, how passive are they in practice? The report notes:
“Investors’ holdings in multiple firms give rise to what is known as “common ownership.” … In 2014, for instance, the largest investor in the three largest pharmaceutical companies (Johnson & Johnson, Merck & Co and Pfizer) was the same (BlackRock). This is the rule, not the exception. These three pharmaceutical companies share other large institutional investors, and are thus connected to each other, as well as to numerous other pharmaceutical companies, through so-called “common ownership links.”
Three institutional investors – with names that are not immediately recognisable: Blackrock, Vanguard and Statestreet – individually own less than 7% of any one Pharma company, but collectively, they own nearly 20%. This is a share that exceeds by a very large measure that of any other shareholder, giving them a level of influence that cannot be matched. Since they own such levels of shares in many similar Pharma companies, it begs the question: what is their degree of influence? And being collectively the largest shareholders, are they not the true face behind Big Pharma?
Looking more broadly at ownership within brand name pharmaceuticals, the report found that of the 86 top brand firms in 2014, BlackRock holds a stake of at least 1% in 79% of them. And 5% or more in 53% of these companies. The report notes:
“This is enough to place BlackRock as the largest shareholder in 14 companies in 2014. It is also evident that there has been very little change in the identity of the top five largest common owners for brand firms (apart from Barclays changing into Blackrock due to its merger). The top owners are BlackRock (Barclays), Fidelity Investments, State Street Global, Vanguard Group and Wellington Management.”
There is perhaps no single face behind Big Pharma, but on the other hand, it seems there aren’t thousands of faces either. It is much more concentrated than one would expect from publicly traded companies.
The question that naturally follows is: who then are the main shareholders of these institutional investors? Taking BlackRock as an example, it turns out that 44% of BlackRock is owned by the investment bank Merill Lynch. Among the remaining shareholders, the names of the same institutional investors mentioned previously are prominent (see below): BlackRock itself, State Street Global, Vanguard Group and Wellington Management. So they own each other, further locking them in a web of mutually beneficial incentives: if I do well, you do well; if you do well, I do well. The idea of market competition seems rather nominal in light of such mutual dependencies.
But who owns Merrill Lynch? Merrill Lynch was acquired by Bank of America in 2008. Going further, who owns Bank of America? The three top institutional shareholders are… surprise, surprise: Berkshire Hathaway, Vanguard Group and BlackRock.
This has been a glimpse at who owns Big Pharma, and – one could say – who owns those who own Big Pharma. In the end, it all seems rather circular. The least that can be said is that it is not a wholly transparent business structure. Any onlooker is thus compelled to ask the question: In this opaque block of investment firms – the main financial backers of Big Pharma – can we expect to find agents that hold the public’s best interest at heart when selecting which pharma companies to back and which ones to discard from their investment portfolios? Here’s a reminder of the top five pharma companies by 2020 revenue:
- Johnson & Johnson – $56.1bn
- Pfizer – $51.8bn
- Roche – $49.2bn
- Novartis – $47.5bn
- Merck & Co. – $46.8bn
With this in mind, here we find a chronology of psychotropic drug lawsuits going back to 2001. And that is only the tip of the iceberg.
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