A biotechnology powerhouse. An importer of prescription drugs from Canada. Boston Mayor Thomas M. Menino says that his city can be both.

In July, Boston, which rivals San Francisco as the world capital of the biotechnology industry, is set to become the largest and most influential city to make it easier for public employees to buy imported pharmaceuticals. The effort is part of a nationwide movement that its architects say will make medicine more affordable for Americans, who pay among the highest drug prices in the world.

The city's initiative comes as state lawmakers are considering a bill that would allow Massachusetts to seek federal permission for a Web site with links to Canadian Internet pharmacies.

But the proposals have drawn the ire of biotechnology executives. They say importing cheaper drugs will eat into profit and divert funding from funding fledgling drug companies.

"Some people here seem to think they can have it both ways. Our view is that they can't," said Mark Trusheim, interim president of the Massachusetts Biotechnology Council (MBC).

In a nation that demands both cutting-edge medicines and affordable access to them, this city and state are at the center of an emerging tug-of-war between the pursuit of lower drug prices and the desire to remain a hospitable business climate for biotech companies.

Because many drugs sell for 20 to 80 percent less in Canada due largely to government price controls there, several U.S. cities already import drugs for residents or employees. Springfield, Mass., has done so for a year, saving taxpayers $2 million, according to a recent study. Montgomery, Ala., and Burlington, Vt., also have importation programs.

The Food and Drug Administration considers such programs illegal, citing concerns over the safety of drugs manufactured abroad that may not be approved for use in the United States.

A statewide importation plan in Illinois is on hold pending a change in the FDA's stance. But Minnesota and Wisconsin have set up Web sites that guide residents to approved Canadian pharmacies, while Rhode Island's state Web site links to Wisconsin's.

Other cities and states are considering a range of importation proposals; in Maryland, for instance, the Montgomery County Council is considering legislation that would add an option to county government health plans allowing employees to purchase prescription drugs from Canada.

Such efforts rankle biotech leaders, perhaps none more so than those who set up shop in the biotech hub around Boston.

"To have the economic and political leaders of the Boston area actually asking for this gives, as it were, license to the rest of the country, which may not have a stake in this industry, to say, 'Well maybe they know better.' This has the potential to be a major trendsetter," said Joshua Boger, chief executive of Cambridge, Mass.-based Vertex Pharmaceuticals Inc., which makes medicines for cancer, HIV, and hepatitis.

Biotechnology is a cornerstone of this state's economy -- it now accounts for one-sixth of all public companies here and 18 percent of venture-capital investment. More National Institutes of Health research money flows into the Boston area than any other city in the United States.

A steady stream of Boston's banks and old-line companies -- notably giants FleetBoston Financial Corp. and John Hancock Financial Services Inc. -- have folded, been sold, or merged with out-of-state partners in recent years. With five of the nation's top hospitals and a host of major research universities, the city boasts an attractive synergy of resources for biotech companies.

Massachusetts is home to more than 280 biotechnology companies -- three times as many as 10 years ago -- with the vast majority concentrated in Boston and Cambridge, where start-ups such as Genzyme Corp. and Biogen Inc. have grown to become some of the industry's largest and most profitable firms. Drug giant Novartis AG moved its research headquarters to Cambridge, the city across the Charles River from Boston that is home to Harvard University and the Massachusetts Institute of Technology.

Trusheim said between 8 percent and 9 percent of the worldwide medicine pipeline is under development in this state, second only to California.

Massachusetts Gov. Mitt Romney (R) and state House Speaker Thomas M. Finneran (D) have expressed reservations about the impact of importation on the drug industry. "Drug importation is not the solution to America's health care problems," Romney told the MBC's annual meeting last month.

But as mayor of a city that is a national health care leader, Menino argues that he is obligated to play a leading role in discussions of drug pricing, a hot-button political issue because of the high cost of pharmaceuticals in the United States, particularly for the more than 40 million people without health insurance.

Boston's pilot importation program -- which is expected to begin July 1 and last a year, followed by a three-month evaluation period -- could save the city $1.5 million by buying in bulk from low-cost distributors, according to recent estimates. Boston's program is designed to be safer than some others because it does not cover certain categories of drugs deemed risky.

Menino has been a strong supporter of the biotech industry, said Mark Reynolds, a city hall adviser. "The mayor serves a wide range of constituencies and the biotechnology industry is an important one," Reynolds said. "So are the uninsured."

The biotechnology industry is largely fueled by investors who are taking out long-shot bets on small companies that have never turned a profit. The gamble is that these companies will one day produce a blockbuster drug. But for each drug eventually approved by the FDA, many others will never make the cut.

Investment capital for biotech companies has been growing rapidly -- the amount of venture capital raised by Massachusetts biotech companies rose by 21 percent a year from 1995 to 2001.

But industry experts say the investment capital that fuels biotech companies' research and development is likely to dwindle if the importation movement accelerates. Because the goal of importation is to drive down prices paid by Americans for pharmaceuticals, they say, such plans cut into the potential profit of a successful new drug.

David K. Stone, managing director of Flagship Ventures, a Cambridge-based $600 million venture-capital group that invests heavily in biotech companies, points to the early 1990s, when a Clinton administration proposal to revamp the nation's health care system -- and control drug prices -- spooked investors.

"The money just dried up," Stone said. "The vast majority of the products the companies develop will never see market. You are basically taking a shot that they will strike it big once, but if the possibility of really cashing in on that is taken away, people will put their money elsewhere."

Sensing an opportunity, rival biotech hubs -- such as North Carolina, Maryland and Pennsylvania -- are seeking to capitalize on the Massachusetts companies' discontent.

The letters that arrived in March at the offices of some of this city's biotechnology powerhouses began innocuously enough, but the recruiting pitch that followed got right to the point.

"Greetings from North Carolina," wrote Marc Basnight, the president pro tempore of that state's Senate. "I am writing to invite you to consider moving your operation or initiating your next expansion project in our great state."

A trade organization in North Carolina ran a full-page "Open Letter to Massachusetts Biotechnology Companies" in the Boston Globe in December, declaring that "governments in one of America's leading hotbeds of biotechnology research, development and manufacturing have launched program after program to push prices for your products to artificial and economically harmful lows," and stating that "it doesn't have to be that way."

Several other states have also made pitches to companies in Massachusetts. So far, no major companies have bit at the offers. Reynolds said that Boston's inherent advantages more than outweigh any concern over the importation policy.

Boger of Vertex, which was founded in 1989 but has yet to turn a profit, acknowledges as much, with a caveat. "As satisfying as it would be, we are not in a position to move," he said. After a pause added, "At least not yet."