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For Release — Monday, December 23, 2002

STUDY: PHARMACEUTICAL INDUSTRY HELPS NYS ECONOMY, HEALTH CARE;
POLICIES SHOULD ENCOURAGE ITS GROWTH, NOT PUNISH ITS SUCCESS

ALBANY—The pharmaceutical industry has outperformed other manufacturing industries in New York and can grow even more. But it will realize its potential only if New York continues investing in biotech R&D and rejects any ill-advised punitive campaigns against the industry, a new report from The Public Policy Institute argues.

The report, A Pharm State, was released today by The Institute, the research arm of The Business Council. The report is at www.ppinys.org/reports/2002/pharmstate2002.pdf.

New York's manufacturing job-count fell 41 percent over the last 25 years—while pharmaceutical jobs grew 22 percent. New York's pharmaceutical industry has 26,300 jobs, and it accounts for almost 100,000 jobs in total, the report said. The report also noted that:

Encouraging pharmaceutical growth in New York: To fulfill this industry's potential in New York, the state must continue improving its business climate by cutting taxes, regulatory burdens, energy costs, lawsuit abuse, and costs of workers' compensation, the report said. It must also reject mounting political and media pressure to "target the industry for punitive measures directed at its prices, its profits, and ultimately its vitality," the report said. These campaigns reflect a failure to understand that industry profits fund pharmaceutical innovations, the report added.

Pharmaceutical development costs: The newest, best drugs emerge only after 10 to 15 years of costly research and testing, the report said. Developing a single new prescription drug cost an average of $802 million by 2000, up from $231 million in 1987 and from $54 million in 1976, the report said, citing Tufts University research. Of 5,000 compounds initially screened, only 250 are promising enough for preclinical testing, the report noted. Of those, only five make it to costly clinical testing that typically lasts 16-18 months; and, of those five compounds, only one makes it to market.

"That single new drug must bear the cost of all the R&D that led to it - including the cost of working on the 4,999 compounds that did not succeed," the report said. Even then, the manufacturer has little time to recoup its investment-because "the average effective patent life for a newly developed prescription drug is only 11 to 12 years," the report noted.

The health-care benefits of pharmaceuticals: Beyond its economic returns, the pharmaceutical industry also benefits health care, the report added. More than 1,000 new medicines are in development for such diseases as AIDS, congestive heart failure, Alzheimer's disease, stroke, cancer, diabetes, and asthma, the report noted. Newer, more advanced drugs produce better patient outcomes while reducing other health-care costs, the report noted, saying: "One study found that each dollar spent on pharmaceuticals was associated with a $3.65 reduction in hospital expenditures."

For example, a drug that prevents osteoporosis at a cost of about $15 dollar a week seems expensive-until these costs are contrasted with the costs of treating broken bones attributed to osteoporosis. Those costs are are estimated at $10-15 billion a year. "To prevent that, $15 for one little pill is clearly a bargain," the report said.

How drugs are priced here and in other countries: "Overall prescription drug prices in the U.S. are probably no higher than average among industrialized countries," the report said, citing research by the Wharton School of Business. Some countries use aggressive purchasing tactics to get lower prices on certain highly visible drugs. But that makes the newest, best drugs unavailable or available later in those countries, the report said.

"Only the opportunity to earn a fair return on new drugs in the U.S. market provides the incentive to invest the hundreds of millions of dollars required to develop those new drugs," the report said. That's why other countries' use of purchasing to interfere with prices actually benefits the U.S.—by driving their pharmaceutical jobs here.

"The global pharmaceutical industry is slowly but surely migrating away from those places where the rewards of innovation are limited, to the U.S., where they are not," the report said. "Pharmaceutical research and development spending in Europe was 27 percent higher than in the U.S. in 1990; by 2000, R&D spending in the U.S. was 14 percent higher than in Europe."

To capitalize on the strengths of its pharmaceutical industry, the report said, New York should "accelerate and institutionalize" the state's recent commitment to R&D in the biotech sector, even in the face of difficult budget times, because it is clear that investments in marketable research have a real economic payoff.

"The pharmaceutical industry is a huge asset to New York now," the report said. "But sustained investment in our research universities and institutions will be required to ensure that we capture its full potential in the years ahead."

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