The Economic Contribution of the US Biopharmaceutical Industry

Jul 14, 2011

The negotiations under way to control government spending and reduce the deficit have the potential to impact pharmaceutical revenues. A proposal is on the table to increase drug rebates under Medicare Part D as a means of controlling the overall costs of the Medicare program. The Pharmaceutical Research and Manufacturers of America (PhRMA) is opposed to such measures, concerned that a decrease in revenues could damage a healthy and growing industry and that the ripple-effects from a slowdown in biopharmaceutical growth could negatively impact an already fragile economy. In a press release, PhRMA president and CEO John J. Castellani issued the following statement:

“At a time when the [US] is facing a jobs crisis, evidenced by the terrible employment numbers from last Friday, it is critical that our policymakers embrace dynamic and innovative business sectors such as the biopharmaceutical research sector and refrain from stifling job growth through shortsighted proposals such as government-mandated price controls in Medicare Part D.”

PhRMA cited a newly released report to back its assertions. The report, commissioned by PhRMA and conducted by Battelle Technology, an independent research organization, examined the direct, indirect, and induced impacts of the biopharmaceutical industry on the US economy. Direct impacts are defined as the specific impact of biopharmaceutical sector expenditures in the first round of spending. Indirect impacts are the impact of expenditures by suppliers to the biopharmaceutical sector, and inducted impacts are the additional economic impact of the spending of biopharmaceutical sector employees and suppliers’ employees in the overall economy that can be attributed to the direct biopharmaceutical industry expenditures.

The report found that the industry directly creates 674,000 jobs and supports an additional 3.4 million indirect and induced jobs. It directly generates $19.8 billion in state, local, and federal taxes, and including indirect and induced sources, generates around $85 billion in tax revenue. The finding that there is a large multiplier effect, that expenditures and losses by the biopharmaceutical industry are magnified by impacts on the other industries it supports, leads to the report’s conclusions that a change in revenue (up or down) of $20 billion would result in a change in the economy as a whole of $58 billion.

According to Castellani, “The bottom line is we are at a critical time for our economy. We have to create jobs, not lose more. We have to support innovation, not interfere with the most innovative sectors of our economy. We must continue to improve the health of America’s seniors, not increase costs and erect barriers to promising scientific breakthroughs.”