Reimportation could eliminate R&D jobs, revenue in Mass

Drug Store News, Oct 11, 2004 by Michelle L. Kirsche

BOSTON -- Reimporting drugs from Canada could eliminate 4,000 jobs, many in high-paying research positions, and could cost $247 million annually in lost revenue for the state of Massachusetts by the year 2010, according to a study from the Beacon Hill Institute and the Institute for Policy Innovation.

Massachusetts, a hotbed generating 10 percent of the nation's pharmaceutical and biotech research and development spending, is home to reimportation advocates, such as Boston Mayor Thomas Menino, who plans on launching a pilot program to import drugs from Canada for employees and retirees enrolled in Blue Cross Blue Shield; Sen. Edward Kennedy, co-sponsor of a bill that would allow imports of prescription drugs from Canada; and presidential candidate John Kerry, who favors legalizing reimportation.

Massachusetts also is home to 280 biotech companies that have generated about 90,000 jobs and more than $2.3 billion annually in research and development spending.

At a Sept. 22 press conference at Suffolk University, Merrill Matthews Jr., visiting scholar with the Institute for Policy Innovation, said Massachusetts was the genesis of the study because of its strong pharmaceutical and biotech sector.

"Reimportation is a safety issue," Matthews said, "but it is also a jobs issue. Biotech and pharmaceutical industries are a 'brain gain' for the United States, creating good jobs in local communities across the country. Reimportation ultimately outsources those jobs, giving them to Canadians and others who may not be as concerned about the safety of American patients as are U.S. pharmacists, drug manufacturers and the Food and Drug Administration."

Also focused on the Massachusetts economy, Mark Trusheim, interim president of the Massachusetts Biotechnology Council, said the vast majority of biotech companies in the state currently have no revenue streams, and a loss of investors in the face of reimportation or price controls ultimately would mean new jobs will not be created or filled, and new medicines never will reach patients' bedsides.

"During the first Clinton administration, just the mention of drug price controls as part of a proposed national health care plan sent the biotech index reeling," Trusheim said. It took the industry years to recover. And just last year, a Bain & Co. report ... showed how drug price controls have decimated the European pharmaceutical and biotech industries and caused Europe to lose its traditional global leadership on drug development to the United States. It shouldn't become a policy goal to repeat Europe's mistakes and help kill the Massachusetts biotechnology industry.

In addition to effects on the Massachusetts economy and biotech sector, Matthews and other researchers looked at macro effects on the U.S. economy.

In the report "The Impact of Drug Reimportation and Price, Controls: the U.S. and Massachusetts released last month, researchers found that price controls and reimportation would shrink the pipeline for new prescription drugs. If reimportation were legalized, estimates show that, in 2005, the impact would be the equivalent of losing 21.8 total years worth of drug discovery, as U.S. manufacturers would pull the plug on clinical trials and research that wouldn't provide enough return on investment to justify the expenses. The financial hit that first year would reach $310.9 million.

And that is really just the tip of the iceberg. Under that model, the impact over the next 12 years would rise to about 128.5 total lost years of drug R&D and a loss of about $14.8 billion. Measured in actual drugs dropped from the R&D pipeline, about 262 drugs would be abandoned in that period, resulting in only about nine new-drug approvals per year--a decrease of more than 70 percent from the current average of 31.

The problem, said David Tuerck, executive director for the Beacon Hill Institute, is that it costs $800 million to develop a drug, but only 1-in-5 drugs entering the pipeline make it to market to help recoup those costs.

Broken down in 2000 dollars, the monetary and time investment to develop a drug includes:

* $121 million for pre-clinical trials (average time lost: four years).

* $15.2 million for phase I trials (average time lost: one year).

* $23.5 million for phase II trials (average time lost: two years).

* $86.3 million for phase III trials (average time lost: three years).

Current statistics indicate there is a 31.4 percent chance a drug will make it to phase III trials. If it does, then there is a $5.2 million cost associated with the regulatory phase, which lasts about 1.5 years. Finally, once a drug is approved, post-marketing studies can cost $32.9 million for an average of one year.

About 7-out-of-10 drugs that make it to market do not recover the costs of R&D, said John Barrett, Beacon Hill Institute director of research. If expenses cannot be recouped, drug makers may look to places like India, where R&D can be up to one-fifth less costly than in the United States, or they may abandon research altogether. Another likely scenario, Barrett said, is that pharmaceutical makers that do bring a drug to market could delay the launch of that drug in Canada, which hypothetically could drive Canadians across the border looking for those drugs here in the United States.