Embattled Mallinckrodt exits PhRMA ahead of tough new R&D investment rules

Mallinckrodt's troubles may not line up with PhRMA's efforts to improve the drug industry's reputation.

As the trade group PhRMA embarks on a mission to polish up the drug industry’s damaged reputation, one of its most controversial members has decided to bow out. Mallinckrodt, which is facing a DEA investigation and an ongoing drug-pricing scandal, has resigned from PhRMA just 15 months after it joined the group and declared itself a “proud member” of it in a blog post.

The reason? PhRMA is set to vote on bylaw edits that would require its members to invest a certain amount of money in research and development, according to anonymous sources who spoke to the Wall Street Journal. Mallinckrodt opted to resign from the group before those changes go into effect, the sources said.

Holly Campbell, director of communications for PhRMA, confirmed Mallinckrodt’s departure in an email to FiercePharma, though she didn't elaborate on plans to change the group's bylaws. “The review of our membership criteria is still ongoing and we will have something to share on this in early May,” she added.

Mallinckrodt said in a statement that it routinely reviews its memberships in trade organizations and “concluded that the significant financial and time commitment required as a full PhRMA member outweighs its direct policy value to us at this time.”

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Despite Mallincrodt’s efforts to portray itself as an innovative drug developer, it has instead found itself a member of the Martin Shkreli price-hike club, thanks to Acthar, an anti-inflammatory drug it acquired in 2014 when it bought Questcor Pharmaceuticals. Acthar’s price has skyrocketed from $40 a vial in 2001 to more than $34,000 today. That has made Mallinckrodt subject to the same scorn Shkreli faced when his company, Turing Pharmaceuticals, bought the toxoplasmosis treatment Daraprim and increased its price 5,000%.

A spokesperson for Mallinckrodt tells Fierce in an email that since it acquired Achtar, price increases have been in the "low to mid-single digits," consistent with its corporate responsibility pledge.

When Mallinckrodt bought Questcor, it inherited a Federal Trade Commission investigation into allegations that the company bought a potential Acthar competitor so it could maintain monopoly pricing. In January, Mallinckrodt rid itself of the scandal by agreeing to pay a $100 million fine and to license the Acthar rival to Marathon Pharmaceuticals.

Now Mallinckrodt is facing a new scandal, this time over oxycodone, which it manufactures. On Monday, the Washington Post reported that the DEA has been investigating the company for allegedly violating laws designed to prevent legal narcotics from ending up in the hands of drug dealers. Mallinckrodt is in talks with the Justice Department to settle the case for $35 million, the paper reported. The company declined to comment on the paper’s report, saying only that it has developed programs to prevent opioid diversion.

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There’s little doubt that Mallinckrodt’s woes don’t quite fit the new image PhRMA is trying to portray. In January, the group rolled out a multiyear campaign to highlight drug companies’ efforts to combat “our most complex and devastating health conditions,” Campbell told FiercePharma at the time. “It’s not only going to be advertising, but also a big effort to convene conversations with different stakeholders on [issues, such as] how to make healthcare more responsive to patient needs.”

The new PhRMA campaign debuted just as newly elected President Donald Trump was attacking the industry for “getting away with murder” on drug prices. Since then, the pressure on the industry has strengthened. In late March, a coalition of senators led by Al Franken and Bernie Sanders introduced legislation that would require drug companies to publicly report their R&D, manufacturing and marketing costs. The bill would also allow Medicare to negotiate drug prices—one of Trump’s favorite suggestions.

As for Mallinckrodt, it spent less than 8% of its $3.4 billion in revenue on R&D last year. The spokesman says the company has plans to increase its investment in R&D. "We expect to increase our R&D spending in absolute dollars at least 50% by 2021, and we expect to more than double our R&D spending in absolute dollars over the next decade, with the vast majority of our spending taking place in the United States."

This year Mallinckrodt is forking over some of its profits on a new corporate ad campaign. The ads, airing in some local markets and on the company’s YouTube channel, feature stories from patients and caregivers who thank Mallinckrodt for making life-changing medicines. But clearly PhRMA doesn’t share that sentiment.

Editor's note: This story has been updated to incorporate comments from Mallinckrodt.