PhRMA expels 22 members with new R&D rules as it works to burnish its image

Johnson & Johnson exec Joaquin Duato, who is chairman of the pharma lobbying group PhRMA, explained the need for new membership rules that set minimum R&D requirements to be included in the organization.

Industry lobbying group PhRMA has cleared its decks of nearly two dozen members as it tries to distance itself from those companies most likely to catch heat over drug pricing practices. While not all of those who were dropped have price-pushing reputations, the practices of some are particularly notorious for their methods.

The organization did this with new bylaws that mandate members meet minimum R&D investment requirements, a move that was expected to force out smaller companies whose business model is built more on buying drugs and then jacking up prices significantly. The move comes as the lobbying group works to portray its membership as serious drugmakers that are investing heavily in innovative new medications.

According to a list provided by PhRMA, a couple of the expelled members who had been on the hot seat for drug pricing, Marathon and Mallinckrodt, were already known, but others include Horizon Pharma and Jazz Pharmaceuticals, whose practices have resulted in Justice Department subpoenas. 

Related: Horizon to fork over $65M to settle Express Scripts rebate clash

On Tuesday PhRMA said under its new criteria, which is “effective immediately,” members must invest at least 10% of their budgets on research and development and spend at least $200 million a year on average over three years on R&D. It also eliminated the lower tier of associate members.

“By putting in place new membership criteria, the board is sending a clear message that being a member of PhRMA means being committed to doing the time-intensive, scientifically sound research it takes to bring bold new advances in treatments and cures to patients,” Joaquin Duato, PhRMA board chairman and worldwide chairman, pharmaceuticals for Johnson & Johnson, said in a statement.

Of the 22 companies ousted, 15 were in the associates member tier that was dropped, and seven were full members but didn’t meet the organization’s new R&D threshold. PhRMA said that those who we eliminated could reapply when they met the new criteria.

Besides Mallinckrodt and Horizon, the seven full members that fell short of the R&D requirement are AMAG Pharmaceuticals, Leading Biosciences, Orexigen Therapeutics, The Medicines Co. and Jazz Pharmaceuticals.

PhRMA has been aggressive in trying to help its members fight the contention that they are the main contributors to the constantly rising drug prices that have drawn more and more public criticism from doctors, patients and politicians. President Trump lectured drug company execs about soaring drug prices during a meeting in January right after being inaugurated.

The lobbying group has pledged to spend tens of millions of dollars a year on an advertising and public affairs campaign that paints the pharma industry as the leaders in taking on the biggest health challenges of the world.

Related: PhRMA to apply big bucks to new theme in 2017 marketing campaign

But even as it has tried to repair the industry’s tattered image, its efforts have been hampered with each new story about pricing investigations and outrage expressed by members of Congress or disclosure of how companies have found a new way to game the system to push their products. And when those targeted are members of PhRMA, it makes that effort especially difficult.

Jazz Pharmaceuticals, for example, has been called out repeatedly for price hikes that exceeded 840% over seven years for its leading product, narcolepsy drug Xyrem. Jazz also has been among a host of big players–including PhRMA members in good standing like Biogen–that have been subpoenaed to provide to federal investigators info for an investigation into relationships between drugmakers and charities. There have been contentions that some drugmakers have tried to get disease support groups to push their medicationss to patients by making donations to the organizations.

Related: Feds ask Gilead, Biogen, Jazz for info on ties to charities

But the spotlight that landed on Marathon was particularly embarrassing for PhRMA. The drugmaker 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. The problem was that Marathon CEO Jeff Aronin sat on PhRMA’s board.

To counter the blowback, PhRMA issued a statement that said Marathon's "recent actions are not consistent with the mission of our organization” and the company made a quick exit from the organization. Within weeks Marathon distanced itself from the controversy by selling the drug to another company for $140 million in cash, all of which has kept the scandal fresh and stinging to the industry.