The Illinois Pharmaceutical Industry

Transcription

1 The Illinois Pharmaceutical Industry Survey of Economic Impact and Importance Research Report by Ross DeVol, Rob Koepp, Kevin Klowden and Armen Bedroussian February 2004

2 The Illinois Pharmaceutical Industry Survey of Economic Impact and Importance February 2004 Ross C. DeVol Director, Regional Economics, Milken Institute Rob Koepp Research Fellow, Milken Institute Kevin Klowden Research Economist, Milken Institute Armen Bedroussian Research Analyst, Milken Institute All rights reserved. Copyright 2004

3 The Illinois Pharmaceutical Industry Survey of Economic Impact and Importance Contents 1. Introduction Industry Concentration Industry Performance Multiplier Impacts Innovation Pipeline Occupational Performance Conclusion Appendix Introduction The pharmaceutical industry is one of the largest, longest standing and most knowledgeintensive sectors in the United States economy. It directly and indirectly supports millions of jobs and pays above average-level wages to pharmaceutical industry workers. Its economic and scientific contributions propel many key states and regions. Yet, for many, what comes to mind when the pharmaceutical industry is mentioned, is the growing cost of prescription drugs. The pharmaceutical industry is a major component of the Illinois economy. In addition to providing more than 22,600 1 direct jobs to Illinois in 2002 (and this estimate appears to be conservative based upon industry sources), the industry is an important contributor to the fiscal position of the state and its local governments, including the corporate taxes it generates, the personal income taxes that its knowledge workers contribute, the sales taxes generated by purchases of its products and the taxes collected by the industry s ripple effects on employment and income in other sectors. 1 Source: Bureau of Labor Statistics. 1

4 Pharmaceuticals and related activities are among the most research-intensive sectors in the economy, seeding its future discoveries by investing over $27.4 billion in research and development in the United States. 2 The pharmaceutical industry accounted for almost 8 percent of total industrial research and development investment in the United States in 1999 and that probably approached 10 percent in The end result of consuming its products better health has an immeasurable value for the national economy and the citizens of Illinois. This paper documents many of the major economic impacts of the pharmaceutical industry on the state of Illinois. 2. Industry Concentration The presence of the pharmaceutical industry (officially classified under the Standard Industrial Classification, or SIC, system as industry code 283: the drugs industry) in Illinois, is substantial. Since the 1990s, employment in the state s pharmaceutical industry has represented close to 7 percent of all pharmaceutical employment nationwide. Illinois pharmaceutical employment concentration ranks it 8 th highest in the nation. Although it experienced peaks and troughs, Illinois current percentage of national employment in the industry is trending upward. With 0.38 percent share of total state employment, pharmaceuticals may not rank among the absolute largest industrial employers in the state, but its overall economic and strategic value cannot be ignored. As Professor Robert Resek of the University of Illinois observes: While nondurable manufacturing generally provides lower wages, chemicals and specifically pharmaceuticals pay quite well. Real wages have been consistently high in this sector and have grown in the past couple years. the pharmaceutical industry is a clear success story for Illinois manufacturing. Though relatively few in Illinois work in this industry, employment is growing and wages are rising, to the benefit of workers and the state economy. 3 Since 1990 pharmaceutical employment in Illinois has risen by more than 40 percent whereas overall employment for the state has grown around 10 percent. Employment growth for the industry in Illinois has also generally outpaced that for pharmaceuticals in the U.S. as a whole. 2 According to an annual survey conducted by industry experts, U.S.-owned PhRMA member companies in 2003 invested an estimated $27.4 billion in R&D. This survey of member organizations includes R&D activity in pharmaceuticals and closely-related areas. The National Science Foundation reports a number of $12.6 billion for 1998, the most recent available figure, in total funds invested by the pharmaceutical industry, as represented by SIC code 283. The R&D figure for 1998 from PhRMA member companies was $17.1 billion. Due to differences in definition however, the NSF figures are not directly comparable. 3 Robert Resek, Economic Edge, September 1999: econedge/sept99/article4.html. 2

5 Pharmaceutical vs. Total Employment, Since 1990 Index 1990= Pharmaceutical Employment Total Employment Illinois Pharmaceutical Employment Looked at from the dimension of location quotients (LQs), the impact of the pharmaceutical industry in Illinois is also apparent. Location quotients measure the percentage that an industry contributes to a regional economy relative to that industry s contribution to a larger territory. In terms of Illinois employment LQ for the pharmaceuticals industry vis-à-vis the U.S., the state has an LQ of This signifies that pharmaceutical employment in Illinois is 50 percent above the national average. One could also say that this is a measure of the state s relatively higher benefits from, as well as reliance upon, pharmaceutical industrial activities in the state. Since 1985, this disproportionate contribution of the pharmaceutical industry in Illinois has approximately doubled, from being a little more than 25 percent above the national average LQ to more than 50 percent above. Employment Concentration, Location Qoutient Illinois Pharmaceutical Industry High employment concentration suggests, ceteris paribus, that a state probably enjoys a strategically advantageous position in a given industry. In the case of Illinois 3

6 pharmaceutical industry, the importance of the industry s high LQ is underscored by its placing among the 10 highest ranking major industries in the state by employment concentration. Among this select industrial cohort, pharmaceuticals ranks 7 th in terms of the number of people employed (22,600) and 4 th in terms of the value of its industrial output ($4.0 billion) in It also has the 2 nd highest rate of employment growth (4.7 percent) during the otherwise recessionary time period. 3. Industry Performance Illinois pharmaceutical industry performance is described by a set of mixed indicators. At one level, the news is highly encouraging: for almost 20 years, the share of pharmaceutical industrial output as a percentage of total state output has been steadily rising, climbing from a base of about 0.5 percent in 1985 to almost 0.9 percent in Yet at another level, the news is less sanguine: for the same period of time, the state s pharmaceutical industrial output as a percentage of U.S. pharmaceutical industrial output has gone in the opposite direction, declining from just over 7 percent in 1985 to 6 percent in What this means for the citizens of Illinois is that while the pharmaceutical industry has become an increasingly valuable source of state production, that production conversely has been slipping in value relative to U.S. pharmaceutical industrial output. Large international firms, like Novartis, have relocated their R&D headquarters to the U.S. Other states, however, have attracted and received most of the international R&D inflow. In light of its contributions to employment and job growth in the state especially, finding ways to bolster Illinois performance in the pharmaceuticals industry deserves attention. Illinois Pharmaceutical Output As Percent of U.S. Pharmaceutical Output, Percent Share The situation described above is also revealed by other measures. Using 1990 as a base year, Illinois pharmaceutical output has leapt by around 90 percent more than double the rate of the state s growth of total output. 4

7 Pharmaceutical vs. Total Output, Since 1990 Index 1990= Pharmaceutical Output Total Output Illinois Pharmaceutical Output As remarkable as this is, the output growth in the Illinois pharmaceutical industry has been unable to keep pace with that of the rest of the nation since 1998, and the gap that represents this underperformance has been widening. These downward trends are further reflected in the state s declining location quotient for output (the value that Illinois pharmaceutical industry produces relative to the value of output from the nation s pharmaceutical industry overall). Although still above the national average, since the late 1980s, the state s output LQ has dropped from a high of 1.6 (i.e., 60 percent above the national average) to around 1.25 (25 percent above the national average) in the first years of the 21 st century. This slippage is a sign of increasing competitive challenges for Illinois pharmaceutical industry as other leading states manage to capture more of the value of U.S. pharmaceutical output. Location Qoutient 1.70 Illinois Pharmaceutical Industry Output Concentration, Among Illinois biggest firms, the state is home to two major global pharmaceutical manufacturers: Abbott Laboratories and Baxter International. Within the Fortune 500 5

8 rankings, Abbott registers as the 10 th largest company in Illinois and 100 th largest in the nation (based on revenue); Baxter registers as the 19 th largest in the state and 222 nd largest in the nation. Together earning more than $26 billion in worldwide annual sales in 2002, they are also important innovators. Abbott, for example, in December 2002 received FDA approval for the first human monoclonal antibody for rheumatoid arthritis, and has been a leader in HIV/AIDS research since the early years of the AIDS epidemic. In 2002, the company spent 9 percent of its total revenues on research and development for the company overall, and nearly 14 percent of pharmaceutical sales on pharmaceutical R&D. It is also an important magnet for highly skilled human capital in the state. The October 2003 edition of Science magazine rates the firm as one of the nation s top 20 employers of scientists. (Further data on the creative capacity of Illinois pharmaceutical industry is detailed in the 5 th section of this report on the state s Innovation Pipeline.) Top Companies in Illinois Based on Fortune 500 Rankings State Rank Fortune 500 Rank Company, Headquarters 2002 Revenues $ Bill Boeing, Chicago $ State Farm Insurance, Bloomington $ Sears Roebuck, Hoffman Estates $ Allstate, Northbrook $ Walgreen, Deerfield $ Motorola, Schaumburg $ Archer Daniels Midland, Decatur $ Bank One, Chicago $ Caterpillar, Peoria $ Abbott Laboratories, Abbott Park $ Sara Lee, Chicago $ McDonald's, Oak Brook $ Exelon, Chicago $ Household International, Prospect Heights $ UAL, Elk Grove Township $ Deere, Moline $ Illinois Tool Works, Glenview $ Aon, Chicago $ Baxter International, Deerfield $ Smurfit-Stone Container, Chicago $8.21 Source: 2003 Fortune 500 Abbott Laboratories along with Takeda Chemical Industries serve as parent companies to TAP Pharmaceutical Products Inc. Takeda, a research-based global company headquartered in Japan, develops and manufactures some of the highest class of pharmaceutical products worldwide. While its research is conducted in Japan, some of its development and marketing operations take place in the U.S., Europe, and Asia. Takeda also has a pharmaceutical division based in Illinois which employs 1,100 workers. This joint venture has placed TAP among the nation s leading pharmaceutical companies and wholesalers, based upon net sales of Prevacid and Lupron Depot, both of which are known for being leaders in their class. TAP has managed to more than double its net sales since 1997, growing by 158 percent. In 2002, TAP earned more than $4 billion in revenue, and employed 900 people in its Illinois headquarters. 6

9 Baxter Healthcare, a subsidiary of Baxter International, primarily engages in the manufacturing of medical instruments and supplies. The firm is known for manufacturing intravenous (IV) supplies and solutions, as well as other blood products used in treating certain blood related disorders. Baxter, through its pharmaceutical preparations unit, is also involved in developing drug treatments for those suffering from cancer and various immune deficiencies. The table below displays the employment and relative sales figures of pharmaceutical manufacturing companies located within Illinois: Illinois Pharmaceutical Manufacturing and Related Activities Companies* Top 20 Ranked by Illinois State Employment, 2002 Rank Company Name State Employment Global Sales 1 Abbott Laboratories** $17,684,663,000 2 Baxter Healthcare Corporation*** 1700 $29,300,000 3 Baxter International Inc 1500 $8,110,000,000 4 Takeda Pharmaceuticals N Amer 1100 $332,400,000 5 Aventis Behring L.L.C $55,100,000 6 Tap Pharmaceutical Pdts Incdel**** 900 $4,034,000,000 7 Amersham Corporation (del) 650 $177,400,000 8 Ondeo Nalco Company 550 $63,700,000 9 Fujisawa Healthcare, Inc 515 $127,400, Stepan Company 363 $748,539, Akorn, Inc 292 $51,419, Dade Behring Inc 250 $1,727,900, Morton Grove Pharmaceuticals 250 $30,800, Mgp Holding Corp (del) 245 $50,000, Akzo Nobel Inc. 225 $3,551,606, Blistex Inc 175 $24,800, Milex Products, Inc. 150 $14,700, Optimum Nutrition, Inc. 120 $28,500, Ferro Pfanstiehl Labs Inc 115 $23,900, Axiom Pharmaceutical Corp 100 $29,000,000 Sources: Dun & Bradstreet(D&B), Milken Institute. *Note: Firms engaged in either primary or secondary SIC 283(Pharmaceutical Industry) are accounted for by D&B. **Note: State Employment based on Crain's Chicago Business Survey of 16,851 plus 399 full-time equivalents as reported by Abbott. ***Note: Primarily engaged in medical devices. ****Note: Primarily engaged in wholesale distribution of drugs. Since these companies in Illinois are located within a specific zip code, it is possible to map them by their relevant congressional district. When sorted by congressional district, the largest portion of pharmaceutical manufacturing employment is captured within the 10 th district which accounts for 78 percent of Illinois pharmaceutical employment. Abbott, Baxter, TAP and Takeda are all located within the 10 th congressional district which explains the high employment base there. Other companies with a significant employment base include Amersham and Aventis Behring, located in the 10 th and 11 th districts, respectively. 7

10 The 1 st, 2 nd, 12 th, 18 th, and 19 th congressional districts in Illinois do not report having any pharmaceutical manufacturing employment. Meanwhile, the 9 th, 10 th and 11 th districts together employed more than 26,300 people in pharmaceutical and related activities in With Abbott s significant presence, most of the pharma employment is concentrated within the Chicago metropolitan area. Hence, it is safe to conclude that much of Illinois pharma employment is centered in the northeastern part of the state. The table below summarizes Illinois pharmaceutical manufacturing employment by congressional district: Illinois Pharmaceutical Mfg. & Related Activities Employment By Congressional District Congressional District Pharmaceutical Employment , , Sources: Dun & Bradstreet, Milken Institute Percent of Total Pharma Employment The map below illustrates the geographic distribution of Illinois pharmaceutical employment by congressional district. The darker shade implies a larger pharmaceutical employment base. (For an enlarged version of map, see the appendix) 8

11 The Illinois Pharmaceutical Industry Survey of Economic Impact and Importance Illinois Pharma Mfg. & Related Activities Employment Hancock Adams Pike Mercer Henderson Rock Island Warren 17 McDonough Schuyler Brown Calhoun Scott Henry Knox Fulton Cass Greene Jersey Pharma Employment ,000-9,999 10,000 + By Congressional District Stephenson Jo Daviess Winnebago Morgan Whiteside Peoria Mason 16 Bureau 18 Ogle Lee Logan Macoupin Montgomery Monroe Carroll Stark Menard Madison St. Clair Tazewell Sangamon Randolph Putnam Marshall Woodford Christian Bond Clinton Washington Perry Jackson 12 Union Lake 10 Cook 04 Kane De Kalb Du Page La Salle McLean De Witt Macon Fayette Boone Marion Livingston Piatt Shelby Jefferson Franklin Williamson Pulaski Alexander Sources: Dun & Bradstreet, Milken Institute. McHenry Kendall Moultrie Grundy Effingham Clay Johnson Pope Ford Wayne Will Iroquois Edgar 02 Champaign Vermilion Douglas Coles Kankakee Jasper Richland White Saline Gallatin Massac Cumberland Hardin Clark Crawford Wabash Edwards Chicago Area Lake Cook Du Page Multiplier Impacts To better understand the importance of the pharmaceutical industry in Illinois, it is critical to analyze its impact on the overall economy. The income that the pharmaceutical industry generates provides important stimuli for other sectors of the state economy by circulating wealth and thereby amplifying the net jobs and output specifically contributed by the industry. The ripple effects of a key industry like pharmaceuticals can be seen across a state s employment spectrum, from additional jobs created in such diverse sectors as construction, transportation, utilities and communications, finance, insurance and real estate, wholesale and retail trade, services, and even state and local government. In the Institute s research, we have used an input/output model to estimate the total impact or multiplier effect that the pharmaceutical industry has on the Illinois economy. A multiplier, as the name implies, is a measure of the multiple effects produced by a given economic activity. Within the concept of multiplier impacts, three key forces are at play. The first is what is known as the direct impact, which measures how an industry s employment, wages and output immediately translate into economic stimulus for other sectors of the economy that support the industry (for example, suppliers of legal, financial, and advertising services). The second multiplier force relates to indirect impact, which represents a further 9

12 extenuation of stimulus, the sort given to tertiary economic activity that, although not directly interacting with the studied industry, nevertheless is supported by it through a state s overarching economic framework. An example of an indirect impact of the pharmaceutical industry is the wholesale and retail distribution of drug products in the state. The cumulative employment and wages generated by all of this tightly and extensively interconnected economic activity ripples throughout the state economy. The wealth created leads to greater purchases of goods and services. This, in turn, produces still more income that becomes available to a state s residents who recycle their earnings back to their local economies. The net result of this latter process is known as induced impact. In 2002, the pharmaceutical industry in Illinois employed nearly 23,000 workers who produced some $4.3 billion worth of industrial output for the state. Pharmaceutical industry sources believe that these are conservative estimates. These figures represent the direct impact of the pharmaceutical industry on the state economy. When the full extent of multiplicative dynamics are accounted for by incorporating total impact multipliers, the pharmaceutical industry can be recognized as responsible for 107,000 jobs and $9 billion worth of output in the state. Direct, Indirect, and Induced Impacts - Employment, 2002 Employment (Ths.) 120 Direct Indirect 100 Induced 80 Total Impact of Illinois' Pharmaceutical Industry Sources: Milken Insittute, BEA. Total Impact The additional 84,000 jobs and $4.7 billion in these total impact figures stem from the indirect and induced impacts that the pharmaceutical industry brings to the rest of the economy. The indirect impact generates an additional 46,000 jobs and $2.5 billion worth of output, while the induced effect adds another 38,000 jobs and $2.2 billion worth of output. Together they contribute to the total impact that the industry provides to Illinois. 10

13 Direct, Indirect, and Induced Impacts - Output, 2002 Output (Bill. of US$) 10 8 Total Impact of Illinois' Pharmaceutical Industry Direct Indirect Induced Sources: Milken Insittute, BEA. Total Impact In the aggregate, the total pharmaceutical employment multiplier in Illinois is 4.7. In other words, each job in the state s pharmaceutical industry produces an additional 3.7 jobs in other sectors. 11

14 5. Innovation Pipeline An innovation pipeline refers to the support infrastructure and outcome measures that reflect the ability of a state to capitalize on its strengths in knowledge and inventiveness. For scientifically based industries like pharmaceuticals, a healthy innovation pipeline is especially essential to sustaining long-term growth. Indeed, research, development and innovation capacities will play an increasingly important role in determining which states and regions dominate the pharmaceutical industrial landscape of the future. Knowledge and discovery derived from basic medical and health research can lead to new innovations and be converted into economic value more effectively at the location of its development. A good indicator of the strength of Illinois innovation pipeline comes from data on pharmaceutical patents. The most basic measure in this regard concerns the number of pharmaceutical patents issued in the state. Overall momentum in the number of pharmaceutical patents issued each year to Illinois-based applicants is trending upward: since a low point of some 80 patents issued in 1994, the state has achieved nearly twice that level with about 150 patent issuances for 2002 (the most recent year on record). According to data provided by CHI Research, there are also positive indicators relating to the leading-edge scientific quality of these same patents. The science linkages of Illinois pharmaceutical patents has been marching upward from a level of 5.62 in 1993 to 18 in CHI defines the science linkages measure as [t]he average number of science papers referenced on the front page of the company s patents and further explains: High science linkage indicates that a company is building its technology based on advances in science. Companies at the forefront of a technology tend to have higher science linkage than their competitors. This type of referencing is growing rapidly. The average is roughly 1 per patent; drug & medicine patents often have 5 or more, leading edge biotechnology patents 15 or more... 4 Based on the categorizations mentioned above, Illinois pharmaceutical innovation pipeline is clearly operating at the leading-edge of scientific linkages in patents. 4 CHI Research, Tech-Line Background Paper: 12

15 Number Patents' Science Linkage and Strength Illinois, Science Strength (R) Science Linkage (L) Number Source: CHI Research 0 Other pipeline indicators are less optimistic. For example, CHI s Current Impact Index (CII) for Illinois pharmaceutical patents a measure of patent portfolio quality that is based on the number of times a company s most recent five years of patents are cited in a given year shows an evident decline. In this index, a value of 1.0 represents average citation frequency a level that Illinois maintained in the early 1990s. Since then the state s patent impact index level has dropped, recovering slightly over the last two years. For 2002, Illinois CII was.62, meaning its pharmaceutical company patent portfolios have an impact that is 62 percent of the national average. Taken in the context of the state s upward momentum in the number of patents issued and the scientific strength of those patents, the CII numbers suggest that pharmaceutical innovation in the state may not be converted into as much commercial relevance as in the past. The weakening of ties to the state s pharmaceutical manufacturing base might help explain this paradox. Index 1.20 Patent Portfolio Quality Current Impact Index, Illinois, Source: CHI Research 13

16 6. Occupational Performance 81 percent of Illinois pharmaceutical manufacturing occupations are described in the following table on the Performance of Largest Occupations. As one would expect, the highest paying occupations are in management. The good news for the Illinois pharmaceutical industry is that these high-paying job categories are also enjoying strong growth. Managers of Office & Administrative Support Workers, for example, have average salaries of $40,000 and a growth rate the highest among all major pharmaceutical occupations of some 37 percent, far in excess of the 8 percent national growth rate in this profession. In Illinois, pharmaceutical industry jobs for General & Operations Managers, who earn an average of $68,000 per year, have enjoyed a robust industry growth rate of 10 percent, 20 percent better than the pace of national growth for this occupational category (which has actually been declining at the rate of 10.5 percent). Managers of Production & Operating Workers, who typically generate income of more than $43,000 per year, have seen their job opportunities in the Illinois pharmaceutical sector expand by nearly 10 percent, while nationally these jobs have been shrinking at a rate of almost 4 percent. In combination, these fast growing, high-paying management occupations in the pharmaceutical industry represent 12.5 percent of all pharmaceutical jobs in Illinois. Performance of Largest Occupations Ranked by Occupational Share within Pharmaceutical Industry Occupation Absolute Change Percent Change U.S. Percent Change Occupational Share Annual Wage Team Assemblers % -8.7% 23.1% $25,850 Maintenance & Repair Workers, General % 2.5% 7.1% $34,350 General & Operations Managers % -10.5% 5.8% $68,110 Janitors & Cleaners % -0.9% 5.6% $21,950 Office Clerks, General % 9.0% 5.4% $23,110 Managers of Production & Operating Workers % -3.5% 5.1% $43,250 Packaging & Filling Machine Operators & Tenders % 0.0% 5.0% $23,290 Customer Service Representatives % 4.8% 4.4% $28,140 Executive Secretaries & Administrative Assistants % 5.2% 4.1% $32,320 Secretaries, Except Legal, Medical, & Executive % 13.8% 3.7% $27,300 Laborers & Freight, Stock, & Material Movers % 3.1% 3.1% $20,610 Shipping, Receiving, & Traffic Clerks % -9.4% 2.9% $25,310 Stock Clerks & Order Fillers % -6.7% 2.5% $21,280 Packers & Packagers % -14.6% 1.8% $18,400 Managers of office & Administrative Support Workers % 8.0% 1.6% $40,150 Sources: BLS, Milken Institute. A sign of how occupational benefits are spread across the spectrum of job opportunities in Illinois pharmaceutical sector, other growth-leading occupations come from the area of support functions: Executive Secretaries & Administrative Assistants (18.0 percent growth), Maintenance & Repair Workers (13.7 percent), and Secretaries (10.8 percent). Although lower skilled jobs, the average annual pay in these occupations is higher than what one might expect: $32,320 for Executive Secretaries & Administrative Assistants, $34,350 for Maintenance & Repair Workers, and $27,300 for Secretaries. Moreover, with the exception of secretaries, the growth rate of each of these occupations exceeds the national average by at least 10 percent. In combination, these jobs represent 15 percent of all pharmaceutical occupations in Illinois. 14

17 The less reassuring news from the picture of occupational performance in Illinois pharmaceutical industry is the above-average rate of job losses for Team Assemblers. This blue-collar occupational category, one in which a worker earns an average of almost $26,000 annually, holds the single largest share of pharmaceutical jobs: 23.1 percent. Although jobs in this category have been declining nationally, the rate of decline in the Illinois pharmaceutical industry is about 15 percent, more than 6 percent steeper than the national rate of decline. Other declining job categories include Janitors & Cleaners (with a 14.3 percent rate of decline); Laborers & Freight, Stock & Material Movers (13.2 percent); Shipping, Receiving & Traffic Clerks (12.6 percent); Packers & Packagers (12 percent); and Stock Clerks & Order Fillers (11.3 percent). In combination, these jobs represent 39 percent of the largest occupations of the Illinois pharmaceutical industry. Although a significant enough percentage, it in fact does not reflect all the declining categories within the largest occupations of the Illinois pharmaceutical industry. These the fastest declining of Illinois pharmaceutical jobs are by-and-large manufacturing related and, in conjunction with other measures already discussed, further point to a declining pharmaceutical manufacturing base in the state primarily due to consolidations within the industry. For example, G.D. Searle & Co., which once employed 1,700 employees in the state, was acquired by New Jersey-based giant Pharmacia Corp. Pharmacia was then acquired by Pfizer, who closed the Searle facilities and laid off its workers. 7. Conclusion The pharmaceutical industry in Illinois continues to hold an important position in the economy of the state. Its direct and indirect contributions to the state s economy can be measured at around 107,000 jobs and $9 billion in industrial output. Additionally, these estimates should be considered conservative due to possible under-reporting of pharmaceutical industry employment by government surveys. Although there are some industries with higher absolute employment totals, few can match pharmaceuticals for the tremendous contribution of high paying jobs, growing labor pool, and contributions to research that it provides to Illinois. However, pharmaceuticals, like any other industry, are only able to fully contribute to a local economy when the local manufacturers are able to stay competitive. As other states continue to develop their concentrations of pharmaceutical research and manufacturing, Illinois moderating importance in the industry means that future benefits and innovations from the drug industry may be located elsewhere. Pharmaceuticals have been a strong source of growth for Illinois over the past decade, particularly in job creation. This employment growth has even sustained itself during the recent downturn in the economy. However, declines in pharmaceutical jobs directly relating to manufacturing suggest that while overall employment remains high, the jobs that are most able to add value to the state s economy are shifting to other locations. 15

18 The innovation pipeline in Illinois has been a keen factor in the state s continued strong presence in the pharmaceutical industry. The number of pharmaceutical patents produced by the state remains high, bolstered by the strong scientific and research linkages within the state. However, without a competitive manufacturing base to actually utilize the research, the state will be unable to fully translate the innovations into commercial returns. This will clearly impact the long term tax revenues Illinois is able to derive from the industry. The key to Illinois holding an important position in the pharmaceutical industry rests with the overall concentration of pharmaceutical manufacturing and research within the state. The presence of some of the largest drug companies in the country within the state has certainly helped to maintain this position over the last several years. However, as the industry has consolidated in certain key locations over the past several years, Illinois has become consistently less important in economic output even as employment levels have risen. Without incentives and beneficial policies to boost output, the state will be increasingly unable to capitalize on the strong presence of the pharmaceutical industry within its borders. 16

19 8. Appendix 17

20 Illinois Pharmaceutical Industry As Percent of Total State Employment, Percent Share Illinois Pharmaceutical Employment As Percent of U.S. Pharmaceutical Employment, Percent Share Illinois Pharmaceutical Employment Pharmaceutical vs. Total Employment, Since 1990 Index 1990= Pharmaceutical Employment Total Employment Illinois Pharmaceutical Employment Index 1990= Illinois Pharmaceutical Employment U.S. Growth Comparison Since 1990 Illinois United States Illinois Pharmaceutical Employment U.S. Growth Comparison, Percent Change, Year Ago 8 Illinois Pharmaceutical Industry Employment Concentration, Location Qoutient Illinois United States

21 Illinois Pharmaceutical Industry Illinois Pharmaceutical Output As Percent of Total State Output, Percent Share 0.90 Illinois Pharmaceutical Output As Percent of U.S. Pharmaceutical Output, Percent Share Pharmaceutical vs. Total Output, Since 1990 Index 1990= Pharmaceutical Output Total Output Illinois Pharmaceutical Output Index 1990= Illinois Pharmaceutical Output U.S. Growth Comparison Since 1990 Illinois United States U.S. Growth Comparison, Percent Change, Year Ago 25 Illinois United States Illinois Pharmaceutical Output Location Qoutient Illinois Pharmaceutical Industry Output Concentration,

22 Illinois Pharmaceutical Industry As Compared to U.S., US$ Thousands 80 Illinois United States Illinois Pharmaceutical Wage Income Vs. Wages in Manufacturing & Services, US$ Thousands 80 Pharmaceutical Manufacturing Manufacturing 70 Services Illinois Pharmaceutical Wage Income Location Quotient (Emp) Emp. Level (Thous.) GDP Level (Mill.) Emp. Growth '92-'02 Emp. Growth '97-'02 Emp. Growth '00-'01 Rank Industry 1 Communications Equipment % -5.1% -2.8% 2 Misc. General Merchandise Stores % 55.0% 6.7% 3 Misc. Fabricated Metal Products % 6.7% -1.2% 4 Metalworking Machinery % -23.4% -7.3% 5 Misc. Industrial & Commercial Machinery % -3.4% -3.1% 6 Metal Forgings & Stampings % -11.3% -4.2% 7 Fire, Marine, & Casualty Insurance % 1.0% 0.4% 8 Railroads % -12.1% -0.5% 9 Management & Public Relations % 35.9% 0.5% 10 Drugs (Pharmaceuticals) % 19.1% 4.7% Key Industries By Employment Concentration Based on the Top 75 Industries by Employment Size, Illinois, 2002 Pharmaceuticals (SIC Drugs Industry) Ranked by Employment Concentration, 2002 Rank State Location Quotient % of State Total Emp. Emp. (Ths.) 1 New Jersey Delaware Indiana Connecticut Pennsyvania Utah North Carolina llinois Massachusetts Michigan Sources: Economy.com, BLS, Milken Institute Industry R&D Funds in "Pharma" Top R&D Performing States, 2000 State $'s Per Capita New Jersey Pennsylvania Illinois Massachusetts New York California* All Other States-Avg US Average Sources: NSF, Milken Institute. *Indicates Data for

23 Illinois Pharmaceutical Industry R&D Expenditures on Biomedical Sciences Per Capita, 2001 R&D Expenditures on Life Sciences Per Capita, 2001 Top Ten 2nd Tier 3rd Tier Bottom Tier Top Ten 2nd Tier 3rd Tier Bottom Tier Intensity of Medical Scientists Per 100,000 Workforce, 2001 Intensity of Biochemists & Biophysicists Per 100,000 Workforce, 2001 Top Ten 2nd Tier Bottom Tier Top Ten 2nd Tier Bottom Tier Intensity of Microbiologists Per 100,000 Workforce, 2001 Intensity of Biomedical Engineers Per 100,000 Workforce, 2001 Top Ten 2nd Tier 3rd Tier Bottom Tier Top Ten 2nd Tier Bottom Tier 21

24 Illinois Pharmaceutical Industry Direct, Indirect, and Induced Impacts - Employment, 2002 Employment (Ths.) 120 Direct Indirect 100 Induced Total Impact of Illinois' Pharmaceutical Industry Direct, Indirect, and Induced Impacts - Output, 2002 Output (Bill. of US$) 10 Direct Indirect 8 Induced Total Impact of Illinois' Pharmaceutical Industry 0 Sources: Milken Insittute, BEA. Total Impact 0 Sources: Milken Insittute, BEA. Total Impact Pharmaceutical Patents Issued Illinois, of Patents Percent Change, Year Ago Patent Growth (R) Pharma Patents (L) Index Patent Portfolio Quality Current Impact Index, Illinois, Source: CHI Research Source: CHI Research Number Patents' Science Linkage and Strength Illinois, Science Strength (R) Science Linkage (L) Number Number Patents' Tech Cycle Time and Strength Illinois, Tech Cycle Time (R) Tech Strength (L) Years Source: CHI Research Source: CHI Research

25 Illinois Pharmaceutical Industry Occupation Absolute Change Percent Change U.S. Percent Change Occupational Share Annual Wage Team Assemblers % -8.7% 23.1% $25,850 Maintenance & Repair Workers, General % 2.5% 7.1% $34,350 General & Operations Managers % -10.5% 5.8% $68,110 Janitors & Cleaners % -0.9% 5.6% $21,950 Office Clerks, General % 9.0% 5.4% $23,110 Managers of Production & Operating Workers % -3.5% 5.1% $43,250 Packaging & Filling Machine Operators & Tenders % 0.0% 5.0% $23,290 Customer Service Representatives % 4.8% 4.4% $28,140 Executive Secretaries & Administrative Assistants % 5.2% 4.1% $32,320 Secretaries, Except Legal, Medical, & Executive % 13.8% 3.7% $27,300 Laborers & Freight, Stock, & Material Movers % 3.1% 3.1% $20,610 Shipping, Receiving, & Traffic Clerks % -9.4% 2.9% $25,310 Stock Clerks & Order Fillers % -6.7% 2.5% $21,280 Packers & Packagers % -14.6% 1.8% $18,400 Managers of office & Administrative Support Workers % 8.0% 1.6% $40,150 Sources: BLS, Milken Institute. Performance of Largest Occupations Ranked by Occupational Share within Pharmaceutical Industry Top 15 Growing Occupations in Pharmaceutical Industry Ranked by Absolute Change Occupation Absolute Change Percent Change U.S. Percent Change Occupational Share Annual Wage Maintenance & Repair Workers, General % 2.5% 7.1% $34,350 Executive Secretaries & Administrative Assistants % 5.2% 4.1% $32,320 General & Operations Managers % -10.5% 5.8% $68,110 Managers of Production & Operating Workers % -3.5% 5.1% $43,250 Managers of Office & Administrative Support Workers % 8.0% 1.6% $40,150 Secretaries, Except Legal, Medical, & Executive % 13.8% 3.7% $27,300 Computer Systems Analysts % 4.7% 0.7% $68,960 Industrial Machinery Mechanics % 6.6% 0.4% $37,510 Receptionists & Information Clerks % 6.0% 0.5% $21,390 Managers of Mechanics, Installers, & Repairers % 14.4% 0.3% $47,150 Truck Drivers, Light Or Delivery Services % -8.2% 0.5% $29,740 Extruding, Forming, Pressing, & Compacting Machine Setters % 3.4% 0.1% $31,150 Security Guards 8 4.9% -8.5% 0.7% $21,400 Biological Technicians % 10.1% 0.1% $33,520 Sales Reps, Whole. & Manufacturing, Tech. & Scientific Prod % 2.8% 1.1% $45,260 Sources: BLS, Milken Institute Occupation Absolute Change Percent Change U.S. Percent Change Occupational Share Annual Wage Team Assemblers % -8.7% 23.1% $25,850 Janitors & Cleaners % -0.9% 5.6% $21,950 Mixing & Blending Machine Setters, Operators, & Tenders % -2.6% 0.7% $28,420 Laborers & Freight, Stock, & Material Movers % 3.1% 3.1% $20,610 Shipping, Receiving, & Traffic Clerks % -9.4% 2.9% $25,310 Chemical Technicians % -9.8% 0.3% $36,930 Stock Clerks & Order Fillers % -6.7% 2.5% $21,280 Customer Service Representatives % 4.8% 4.4% $28,140 Packers & Packagers % -14.6% 1.8% $18,400 Chemists % 14.9% 0.8% $57,870 Packaging & Filling Machine Operators & Tenders % 0.0% 5.0% $23,290 Sales Reps, Whole. & Manufacturing, Tech. & Scientific Prod % 8.3% 0.9% $54,560 Production, Planning, & Expediting Clerks % 1.2% 0.7% $31,570 Order Clerks % -10.1% 0.6% $26,270 Computer Programmers % -5.1% 0.2% $58,960 Sources: BLS, Milken Institute. Top 15 Declining Occupations in Pharmaceutical Industry Ranked by Absolute Change 23

26 Illinois Pharmaceutical Industry Please note: Data from Fortune 500 and Dun & Bradstreet may exhibit slight variations. Top Companies in Illinois Based on Fortune 500 Rankings State Rank Fortune 500 Rank Company, Headquarters 2002 Revenues $ Bill Boeing, Chicago $ State Farm Insurance, Bloomington $ Sears Roebuck, Hoffman Estates $ Allstate, Northbrook $ Walgreen, Deerfield $ Motorola, Schaumburg $ Archer Daniels Midland, Decatur $ Bank One, Chicago $ Caterpillar, Peoria $ Abbott Laboratories, Abbott Park $ Sara Lee, Chicago $ McDonald's, Oak Brook $ Exelon, Chicago $ Household International, Prospect Heights $ UAL, Elk Grove Township $ Deere, Moline $ Illinois Tool Works, Glenview $ Aon, Chicago $ Baxter International, Deerfield $ Smurfit-Stone Container, Chicago $8.21 Source: 2003 Fortune 500 Illinois Pharmaceutical Manufacturing and Related Activities Companies* Top 20 Ranked by Illinois State Employment, 2002 Rank Company Name State Employment Global Sales 1 Abbott Laboratories** $17,684,663,000 2 Baxter Healthcare Corporation*** 1700 $29,300,000 3 Baxter International Inc 1500 $8,110,000,000 4 Takeda Pharmaceuticals N Amer 1100 $332,400,000 5 Aventis Behring L.L.C $55,100,000 6 Tap Pharmaceutical Pdts Incdel**** 900 $4,034,000,000 7 Amersham Corporation (del) 650 $177,400,000 8 Ondeo Nalco Company 550 $63,700,000 9 Fujisawa Healthcare, Inc 515 $127,400, Stepan Company 363 $748,539, Akorn, Inc 292 $51,419, Dade Behring Inc 250 $1,727,900, Morton Grove Pharmaceuticals 250 $30,800, Mgp Holding Corp (del) 245 $50,000, Akzo Nobel Inc. 225 $3,551,606, Blistex Inc 175 $24,800, Milex Products, Inc. 150 $14,700, Optimum Nutrition, Inc. 120 $28,500, Ferro Pfanstiehl Labs Inc 115 $23,900, Axiom Pharmaceutical Corp 100 $29,000,000 Sources: Dun & Bradstreet(D&B), Milken Institute. *Note: Firms engaged in either primary or secondary SIC 283(Pharmaceutical Industry) are accounted for by D&B. **Note: State Employment based on Crain's Chicago Business Survey of 16,851 plus 399 full-time equivalents as reported by Abbott. ***Note: Primarily engaged in medical devices. ****Note: Primarily engaged in wholesale distribution of drugs. 24

27 Illinois Pharmaceutical Industry Illinois Pharma Mfg. & Related Activities Employment Adams Pike Rock Island Henry Mercer Henderson Warren 17 McDonough Hancock Schuyler Brown Pharma Employment ,000-9,999 10,000 + Stephenson Jo Daviess Winnebago McHenry Boone Knox Fulton Cass Morgan Scott Carroll Whiteside Stark Peoria Mason Menard 16 Bureau 18 Sangamon Ogle Lee Logan La Salle McLean Livingston 19 Clay 08 Ford Cook Kane 06 De Kalb Du Page Macon Piatt Lake Will 03 Iroquois Edgar Wayne Wabash Edwards 02 Champaign Vermilion Coles Shelby Greene Clark Macoupin Cumberland Calhoun Montgomery Effingham Crawford Jersey Fayette Jasper Madison Tazewell Christian Bond Clinton Perry Marion St. Clair Washington Monroe Jefferson Randolph Sources: Dun & Bradstreet, Milken Institute. By Congressional District Putnam Marshall Woodford De Witt Franklin Kendall Moultrie Grundy Douglas White Jackson Williamson Saline Gallatin Johnson Hardin Union Pope Pulaski Alexander Massac Kankakee Richland Chicago Area 08 Lake Cook Du Page

28 About the Authors Ross C. DeVol is Director of Regional Economics at the Milken Institute. He oversees the Institute s research on the dynamics of comparative regional growth performance, and technology and its impact on regional and national economies. DeVol is an expert on the intangible economy and how regions can prepare themselves to compete in it. He authored the ground-breaking study, America s High-Tech Economy: Growth, Development, and Risks for Metropolitan Areas, an examination of how clusters of high-technology industries across the country affect economic growth in those regions. He also created the Best Performing Cities Index, an annual ranking of U.S. metropolitan areas that shows where jobs are being created and economies are growing. Prior to joining the Institute, DeVol was senior vice president of Global Insight, Inc. (formerly Wharton Econometric Forecasting), where he supervised their Regional Economic Services group. DeVol supervised the respecification of Global Insight s regional econometric models and played an instrumental role on similar work on its U.S. Macro Model originally developed by Nobel Laureate Lawrence Klein. DeVol earned his M.A. in economics at Ohio University. Rob Koepp is a Research Fellow in Regional Economics at the Milken Institute. His research interests center on the topics of innovation, entrepreneurship and regional economic development, especially in the context of global technology businesses. His recent work at the Institute includes contributions to Manufacturing Matters: California's Performance and Prospects and the State Technology and Science Index: Comparing and Contrasting California. Koepp is also author of the book Clusters of Creativity: Enduring Lessons on Innovation and Entrepreneurship from Silicon Valley and Europe's Silicon Fen (John Wiley & Sons, 2002). Fluent in Japanese and Chinese, Koepp served in various senior positions with Western and Japanese technology firms before joining the Institute. Koepp earned his BA in Asian Studies at Pomona College and his MBA with an emphasis in venture capital financing at Cambridge University. Kevin Klowden is a Research Economist at the Milken Institute. His research focuses on the roles played in regional economics by demographic and spatial factors including distribution of resources, business locations and movement of labor, and how these factors are affected by and interact with public policy. He also has a strong interest in how cities and regions can develop and maintain comparative advantages over other economic centers. Klowden previously worked in the field of developing interactive electronic entertainment and served as an Adjunct Professor of Geography at Santa Monica College. He was on the editorial board of Millenium, an international affairs journal. Klowden earned his MS in Politics of the World Economy from the London School of Economics and his MA at the University of Chicago in Economic Geography. Armen Bedroussian is a Research Analyst in Regional Economics at the Milken Institute. Bedroussian has extensive graduate training in econometrics, statistical methods and other modeling techniques. Before joining the Institute he was an economics teaching assistant at U.C. Riverside where he taught intermediate micro and macro economics to undergraduates. Since coming to the Institute, Bedroussian has contributed in several projects including Butler County s Economic Impact Assessment, The Impact of an Entertainment Industry Strike on the Los Angeles Economy, Los Angeles Mayors Task Force Study on the Assessment of Post Sept.11 Economic Conditions. He also co-authored Manufacturing Matters: California s Performance and Prospects and The Economic Contributions of Health Care to New England. Bedroussian earned his bachelor of science in applied mathematics and a master s in economics at the University of California, Riverside. 26