After admonishing AbbVie for Humira patent and pricing, Sen Ron Wyden takes Richard Gonzalez to task on tax practices
Little has changed since Senator Ron Wyden (D-OR) admonished AbbVie CEO Richard Gonzalez at a Senate Finance Committee hearing for guarding the Humira franchise with a thicket of patents like “Gollum with his ring” — and bagging hefty bonuses along the way. In fact, according to a recent report from the House Oversight Committee, the price of the drug is now 470% higher than when it first entered the market.
Two years after that public dressing down, Wyden is trying a new line of attack.
Wyden, who now chairs the Senate Finance Committee, is launching an investigation into AbbVie’s international tax practices. In short, he wants to know: How did a US-based company that makes most of its sales in the US manage to report net losses in the US, thereby paying much lower taxes than it should?
AbbVie has been in the hot seat for the billions of dollars it’s raked in from Humira, although that hasn’t stopped the 18-year-old TNF blocker to keep smashing the record as the highest-grossing drug of all time.
“Instead of using the massive tax cuts given to AbbVie by the 2017 tax law to reduce drug prices for American families, AbbVie has instead chosen to provide a $10 billion windfall to its investors by substantially increasing the amount of money it spent buying back its own stock,” he wrote.
The way his letter to Gonzalez is phrased, the probe is as much a hit on AbbVie as on the tax reform plan passed by Republicans during the Trump administration.
According to company documents, AbbVie’s effective tax rate fell to just 8.7 percent in 2018, the first year after the passage of the 2017 Republican tax law. AbbVie subsequently paid an effective tax rate of just 8.6 percent in 2019 and 11.2 percent in 2020, rates that are far lower than the statutory corporate income tax rate of 21 percent in the United States, and even far lower than what AbbVie paid just a few years before. Prior to the passage of the 2017 tax law, AbbVie paid effective tax rates of 20 percent in 2016 and 19 percent in 2017.
Despite generating $34.9 billion in net revenue in the US (accounting for 75% of global sales) in 2020, he goes on, AbbVie “has consistently reported net losses in the United States while reporting substantial foreign profits.” In 2020, the company reported a domestic pretax loss of $4.5 billion and foreign pretax profits of $7.9 billion — similar to $2.8 billion in loss and $11.2 in profits reported for 2019.
Humira, he made sure to add, made up $16 billion of that 2020 US sales while Imbruvica sales added up to $4.3 billion.
“It appears that AbbVie shifts profits offshore while reporting a domestic loss in the United States to avoid paying U.S. corporate income taxes, and that the current U.S. international tax system seems to encourage that,” Wyden wrote.
He is now demanding answers on things like how they reported negative profit margins despite generating billions in revenue, what the country-by-country breakdown of pretax earnings, profit margins, employee headcount and tax is, and how the sales of Humira is accounted for.
If previous committee investigations and public lashings are any indication, they aren’t likely to do actual damage to AbbVie’s bottom line or bring new Humira biosimilar competition before 2023 in the US. But it remains to be seen what the increased scrutiny might uncover.