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PhRMA Changes Formulary With Castellani

The drug industry reached for a steady hand Tuesday to run its downtown operation, enlisting veteran K Street executive John Castellani, a Republican, to be the next president of the Pharmaceutical Research and Manufacturers of America.

Castellani will replace former Rep. Billy Tauzin (R-La.), the charismatic Cajun who worked closely to forge the drug industry’s $80 billion deal with the White House on health care reform. The one-time Democrat, who switched parties after the 1994 GOP takeover, endured criticism toward the end of his tenure that he had lost institutional control inside PhRMA’s Chinatown headquarters.

According to drug industry sources, the selection of Castellani by the association’s board was a move to re-exert managerial discipline at PhRMA, a contrast to Tauzin’s light touch that chafed drug company executives during his five years there. Tauzin once famously allowed an underling to install at PhRMA headquarters a multimillion-dollar television studio, which was used to produce a promotional television program featuring the former Member.

“John is a seasoned person who knows how to manage an organization,” said Democratic lobbyist Steve Elmendorf, who represents PhRMA. “He’s managed a lot of egos and personalities.”

Castellani arrives at PhRMA from the Business Roundtable, where he was hired as president in 2001. He has also lobbied for Tenneco Inc. and the National Association of Manufacturers. In picking Castellani, PhRMA’s board also chose a known quantity, a lobbyist who has worked closely with executives from Abbott Laboratories, Merck & Co., Johnson & Johnson, Pfizer Inc. and other drug industry players that are members of both PhRMA and the roundtable.

A pharmaceutical industry source said Castellani’s hiring will offset the political impulses of PhRMA Chairman Jeffrey Kindler, Pfizer’s CEO, who is a Democrat.

“This actually gives you a little bit of balance,” an industry source said. “The bottom line is that all of those CEOs are members of the Business Roundtable. … It’s an old shoe kind of thing; they know [Castellani], they’re comfortable with him.”

Another downtown consultant agreed that the Castellani era at PhRMA will be marked by a more top-down approach to how the organization is run. It may also wind up being dramatically less political than in recent years, preferring a more bipartisan bent than during Tauzin’s tenure, a time when the group was trying to make amends with Democrats after years of GOP coziness.

In an interview Tuesday, Castellani suggested that drug executives can read the November tea leaves and that PhRMA’s recent close relationship with Democrats is over. So far this cycle, the drug lobby has given more than 70 percent of its political action committee contributions to Democrats, according to CQ MoneyLine. In contrast, the group gave 56 percent of its PAC gifts to Democrats in the 2008 cycle and just 21 percent two years prior.

“My style and PhRMA’s style will be to be politically relevant, not to be partisan,” Castellani said. “We’re not a rubber stamp for either of the political parties.”

The drug lobby’s incoming president also confirmed that no personnel changes are afoot at PhRMA, whose employees were summoned Tuesday morning to hear Senior Operating Officer Chip Davis announce Castellani’s hire, according to a source. With regards to the organization’s team of lobbyists, who pulled off an impressive coup during the health care debate, many sources say it’s not a question of whether the legislative foot soldiers will lose their jobs, it’s whether the new PhRMA chief can entice them to stay.

According to a drug industry source, Castellani was on a short list of possible candidates that also included former Wisconsin Gov. Tommy Thompson (R), a one-time Secretary of Health and Human Services; Federation of American Hospitals CEO Chip Kahn; and Colorado Gov. Bill Ritter (D). The search to replace Tauzin was conducted by Russell Reynolds Associates.

“They weren’t looking to send a big message to Republicans or Democrats,” the source said. “If they’d hired a Tommy Thompson … they’d be sending a [partisan] signal.”

As for the Business Roundtable, its executive director, Larry Burton, is expected to manage the day-to-day activities until Castellani’s replacement is named, according to two sources familiar with the situation.

The Business Roundtable spent
$14.5 million on lobbying in 2009, according to Senate lobbying records. During the first quarter of 2010, the business group spent an additional $2.3 million. PhRMA, by contrast, spent $26.2 million on federal lobbying in 2009 and $7 million in the first quarter of this year.

Castellani leaves the roundtable as it has begun to take a higher profile in policy debates. The group met with the Obama administration late last month and has compromised with Democrats on financial regulatory reform despite being critical of many White House proposals.

Democratic lobbyists said Republicans may not so soon forget that he’s made nice with their political opponents.

“The question is, what if the House flips?” one drug company lobbyist said. “Here’s a guy who cut a number of deals on financial reform with the White House.”

Clearly it’s a big job, but Castellani declined to discuss how much he’ll get paid to run the drug lobby.

“My compensation is determined by the compensation committee and the board of PhRMA,” he said. “That’s going to be disclosed” in tax forms.

Although Internal Revenue Service records may not be available for a year or more, an analysis of past tax records of both organizations suggests that Castellani may easily get paid more than Tauzin. In PhRMA’s 2008 form, the organization’s most recent available filing, the former Member was making roughly $4.5 million in total compensation (with a base salary of $2.1 million). The same year, Business Roundtable tax documents show that Castellani was paid about $5.6 million a year in total compensation (with a base salary of $690,000).

Regardless of his salary, drug industry sources say Castellani is likely to earn his keep. Tax documents also show that he will take over an organization more than 10 times the size of the one he previously led. In 2008, the Business Roundtable had $21.3 million in revenue, while PhRMA’s 2008 revenue was $255 million.

“He’s got a heck of a learning curve,” a drug industry source said. “He ran a small operation with a small budget.”

Anna Palmer contributed to this report.

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