The pharmaceutical industry’s trade group ousted 22 companies earlier this week after it revised membership rules. The move comes as lawmakers in Washington have pressed the pharma industry about U.S. drug prices.
The updated membership rules for the Pharmaceutical Research and Manufacturers of America (PhRMA) group mandates that members spend at least $200 million each year on R&D. The rules also say that companies’ global R&D to global sales ratio must be 10% or more.
A 3 month review of membership rules sent some companies packing preemptively, including Mallinckrodt Pharmaceuticals (NYSE:MNK) and Marathon Pharmaceuticals.
Many pharmaceutical companies use price increases to raise revenue, arguing that they funnel their sales back into R&D spending. But critics point out that often the money is instead used for marketing.
Some smaller companies, like AMAG Pharmaceuticals (NSDQ:AMAG), reportedly said that while it already exceeds the 10% mark for R&D spending, it cannot spend $200 million each year on research. The changes leave behind a trade group made up of large, established companies like Pfizer (NYSE:PFE) and GlaxoSmithKline (NYSE:GSK).
“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,”PhRMA chairman Joaquin Duato said in prepared remarks. Duato is also Johnson & Johnson’s global chairman for pharmaceuticals.
The pharmaceutical industry is a powerful lobby in Washington. Last year, the Center for Responsive Politics noted that PhRMA spent almost $20 million on lobbying.
Among the companies ousted by the group’s membership rule change is Aerie Pharmaceuticals (NSDQ:AERI), Jazz Pharmaceuticals and The Medicines Co. (NSDQ:MDCO).