Life Sciences is an industry important to the Massachusetts economy and one in which the Commonwealth takes great pride. The Massachusetts government web site prominently notes that "The Massachusetts life sciences super cluster includes the activities of the state's world-class universities, teaching hospitals and research institutions, biotechnology, medical devices and pharmaceutical companies as well as a professional service industry, which contributes to the growth and vitality of our economy." Most of the "super cluster" of small, innovative companies are "virtual" manufacturers of pharmaceuticals, biologics, and devices. They do not actually manufacture or ship their own products, but rather, use contract manufacturers and third-party logistics provider to ship their products nationwide. But these companies now find themselves at a competitive disadvantage because they are based in Massachusetts.
Although these companies never actually handle products at their corporate headquarters, as the seller of the product, the corporate address appears on their invoices. In roughly half of the states, that act of selling requires the seller to obtain a non-resident distribution license for the invoicing address. Simple enough: fill out a few forms and get a license. But there is a catch. Generally, in order to get a non-resident license, the company must first demonstrate that they hold a license in their home state. Sounds simple so far. It would be, but for the fact that Massachusetts will not issue a license unless you actually manufacture or warehouse product. Massachusetts will not issue a license if the facility is only a corporate headquarters. Until recently, this has not been a problem. Massachusetts has posted on its web site that such companies do not require a license and other states have accepted that and issued a license. As problems with drug diversion continue, some states are refusing to issue licenses in the absence of a resident state license. New York, a key consumer of pharmaceuticals and medical devices, is one of those states. The New York statute requires an applicant for a non-resident permit to first have a resident permit. There are no exceptions. As the overwhelming majority of Massachusetts companies are "virtual," they cannot get a resident permit and New York will no longer issue a non-resident permit. New York's position not only impacts new companies; New York is refusing to renew the permits of Massachusetts companies that have been licensed for years unless they can produce the resident state license. As Massachusetts refuses to license them, their New York license will lapse. Georgia and New Mexico have taken a similar position, raising the number of states in which Massachusetts virtual manufacturers cannot obtain a license to three. That number is likely to increase.
This is a significant problem for both the life sciences companies and their customers in New York, New Mexico and Georgia. From the company standpoint, they lose the ability to directly sell their product to any customer in those states. They cannot sell directly to distributors, hospitals, doctors, pharmacies, or any of the other customers within that state's border. But, competitors headquartered in other states can sell directly to customers, putting the Massachusetts-based companies at a competitive disadvantage. It also puts the customers and patients in those states at a disadvantage. All sales into those states will have to come in through wholesalers with whatever price mark-up the wholesaler adds on to its cost. Small distributors in New York, New Mexico and Georgia will also suffer if they lose the ability to buy direct. Given this disadvantage, it will be difficult for Massachusetts to attract new life sciences companies. Why would a company set up headquarters in Massachusetts and lose the ability to make direct sales to New York, a key state, when they can set up in nearby Connecticut, Rhode Island, or New Hampshire, and quickly obtain a license?
This is not an issue that is getting much attention. As New York licenses renew only every three years, there are numerous companies in Massachusetts that do not yet know that their ability to renew is in jeopardy. If Massachusetts is interested in promoting itself as a good place for life science companies to set up shop, then it should also license its virtual pharmaceutical, biotech, and device companies. It is not difficult. A simple form requesting some basic information and the issuance of a certificate is all that is needed to put Massachusetts back on a level playing field and retain an industry that is key to its economy.