PhRMA expected to weed out some members with new R&D rules: Bloomberg

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As criticism in Washington, D.C., continues to focus on rising drug prices, lobby group PhRMA will vote on new membership rules that are said to require a minimum level of R&D investment.

PhRMA, which has already rid itself of a couple of members who had brought unwanted attention to the industry for their practice of jacking up prices, will vote Tuesday on new membership rules that are expected to trim its membership, and hopefully criticism, even further.

PhRMA spokeswoman Holly Campbell said today she could not discuss details of the new rules ahead of tomorrow's vote. The group began reviewing its bylaws to focus on “research-based biopharmaceutical companies who take significant risks to bring new treatments and cures to patients,” as public criticism over drug pricing has escalated.

Sources have told Bloomberg that PhRMA's new rules will require members to invest at least $200 million a year on average over three years on research and development. Their R&D budgets would also have to equal at least 10% of their global sales.

The changes would be expected to force out some smaller companies whose business model is built more on buying drugs and then jacking up prices significantly. The change follows the departure from PhRMA this year of two members, Marathon Pharmaceuticals and Mallinckrodt, whose pricing practices put them in the public spotlight.

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

Marathon drew congressional criticism after managing to snag an FDA orphan drug designation for a cheap, decades-old steroid and then releasing it as Emflaza with an $89,000-a-year price tag. It was believed to have invested very little on the clinical work for the drug application, much of which had been done before it got the rights to the med.

RELATED: Marathon halts launch of DMD drug as $89K price attracts congressional heat

The blowback was particularly embarrassing for PhRMA because Marathon CEO Jeff Aronin sat on PhRMA’s board. To blunt that criticism, PhRMA issued a statement that said Marathon's "recent actions are not consistent with the mission of our organization.” The drugmaker then resigned from PhRMA and within weeks washed its hands of the scandal by selling the drug to another company for $140 million in cash. Its new owner has cut the price to $35,000, still far more than the $1,000 a year the steroid costs in other countries. 

Even as the Marathon drama was unfolding, another drugmaker also made its exit from PhRMA as the heat was turned up on it for a couple of issues. Ireland-based Mallinckrodt inherited a pricing scandal when it picked up H.P. Acthar gel with the $5.6 billion acquisition of Questcor Pharmaceuticals in 2014. When Questcor first bought the anti-inflammatory drug in 2001, it was priced at $40 a vial, but Questor began a series of huge price jumps for the drug, raising price to about $32,000 before selling out to Mallinckrodt. The drug runs about $34,000 a vial now. 

Earlier this year, Mallinckrodt agreed to pay a $100 million fine and license away one of its products to settle an FTC probe into the H.P. Acthar price hikes. But Mallinckrodt’s legal problems didn’t end there. It is also facing a DEA investigation into some of its opioid sales practices.

RELATED: Mallinckrodt to settle oxycodone diversion case for $35M with Justice Department

Mallinckrodt resigned from PhRMA in April, saying the time commitment was greater than the value it derived from being a member.

Bloomberg reported today that another change that might be included is that PhRMA would eliminate its tiered membership that allowed small companies to join as associates at reduced membership rates.