AstraZeneca Charnwood Study: Economic Impact and Options Assessment

Transcription

1 AstraZeneca Charnwood Study: Economic Impact and Options Assessment Summary report to East Midlands Development Agency October, 2010

2 Summary report 1. SQW was commissioned together with Drivers Jonas Deloitte (DJD) by the East Midlands Development Agency (emda) in association with Charnwood Borough Council to undertake an independent study into the economic arising from the closure of AstraZeneca s (AZ) Research and Development (R&D) facility at Loughborough. The brief for the study identified two main requirements: an assessment of the economic of the closure on the local and wider East Midlands economy - in both quantitative and qualitative terms an assessment of potential future development options for the use of the site following AZ s withdrawal from Loughborough in late The study provides a best estimate of and best judgement on options at the time of writing. However, the situation remains fluid for two prime reasons: (i) staff within AZ are considering their own employment options and personal plans in the light of the upcoming closure; and (ii) AZ is engaged actively in the market to identify new owner/occupier(s) and/or developer/investor in the Charnwood site. The results of this study should be read with these points firmly in mind. Background 3. AstraZeneca s facility in Charnwood is a major private sector employer both in local and wider, regional terms. It presently occupies a c. 69 acre site which provides employment space presently for c. 1,110 AZ staff, many in highly skilled and specialised R&D jobs, together with around 200 on site contractors. In early March 2010 AZ announced that it will close its Charnwood facility in December 2011, with employment gradually phased out up to that date. 4. The closure results from a global review of AZ s R&D activities and facilities. Other AZ R&D sites, notably Lund in Sweden, are also being closed. This type of action by large pharmaceutical companies is not restricted to AZ: rationalisation of R&D facilities has been taking place internationally as the wider pharmaceuticals industry re-configures business models and approaches to drug discovery and development. Approach and methodology 5. The approach adopted for the economic assessment is summarised in Figure The methods used included substantial desk-based analysis of information and data provided by AZ, for which we are grateful. It has included a wide ranging review of literature on broadly comparable major site closures internationally and how their adverse effects have been mitigated. It has also included a wide ranging programme of consultations with management staff in AZ as well as local and regional stakeholders identified through discussion with emda and the Taskforce that has been established to address the challenges 1

3 posed by site closure. The Study Team has made several interim presentations to the Taskforce to report progress and respond to questions. Figure 1: Sources of economic 1 GROSS DIRECT: AZ EMPLOYMENT (wages & salaries) PURCHASING OF GOODS AND SERVICES (OPEX & CAPEX) SPEND BY BUSINESS VISITORS OTHER CONTRIBUTIONS TO ECONOMY AND COMMUNITY contract staff on site + INDIRECT/ INDUCED: the ripple or multiplier effect: through spend of AZ staff wages and demand within the AZ supply chain 7. In assessing (direct plus indirect and induced i.e. including knock-on effects), the study has considered two principal geographies the East Midlands area and the local authority areas of Blaby, Charnwood, Hinckley & Bosworth, NW Leicestershire, Ruschcliffe and Rutland. Throughout this document, these six areas are referred to collectively as the Local Areas. Impact of closure on employment 8. Of the 1093 AZ staff employed at Charnwood, we understand that 400 staff have applied to relocate to other AZ sites. However, it is AZ s current view that it is unlikely that opportunities will exist for all those who have applied and that the likely final scenario is that roles at other AZ locations will exist for around 250 Full Time Equivalent (FTE) positions. In relation to on site contractors, we understand that it is not expected that any positions will be retained. 9. Assuming that a maximum of 300 staff are redeployed within AZ, of the remaining 793, AZ consider, based upon current indications, that the majority of those employees will be seeking employment and furthermore that the majority could be viewed as re-skillable/re-trainable. However, around 15% of these staff are aged over 55 and therefore fall potentially within a retiring age range. In addition, a further 10% of staff are in the age range and within this group some may be considering part-time or reduced working hours. At present the firm intentions of individuals are not known. 1 The assessment of spend has including operating expenditure (OPEX) and capital expenditure (CAPEX). 2

4 10. Table 1 below summarises potential paths to future employment. These should not be regarded as absolute numbers. At this stage it would also be premature to view them as best estimates - rather they should be seen as best indicators at the time of writing. Table 1: Potential employment paths and career decisions for AstraZeneca Charnwood employees Route/occupation Redeployment within AstraZeneca at alternative locations Already secured employment elsewhere in the pharmaceuticals sector Staff allowed to take early release in order to take up other new jobs or access training Replacement occupations due to retirement within the sector Estimated or potential number (Full Time Equivalent) 250 c. 6 c. 32 c. 35 per year 2 Teaching c. 55 Self employment c. 55 Employment elsewhere through approaches made to AZ Not known at this time Part time working/reduced hours occupations c. 110? Early retirement c. 160? Source: collation of information from AZ Quantifying the of employment at AZ Charnwood - summary 11. In what follows we offer our best assessment of the employment based on modelling two scenarios: the of AZ Charnwood at full capacity before closure (current ) the remaining two years after the full closure, assuming that no alternative use has been found for the site. 12. Table 2 below summarises the results both in terms of the wage spend and also in terms of the Gross Value Added () contribution to the economy: the drop in shown in the table is a measure of the difference between the economic value of what is created for the areas specified by business activity at AZ Charnwood now and what is likely to be the case after closure, again assuming that no new additional economic activity takes place on the site (i.e. arguably a worst case scenario). Table 2: Summary of s of closure on employment Area Current annual wage spend Wages spend annual two years after closure wage Local areas 24.8m 39.9m 7.4m 17.4m 28m East Midlands 41.6m 67m 12.5m 29.1m 46.9m 2 Assuming a staff replacement requirement within the sector of around 33% per decade spread evenly over the next 10 years. 3

5 13. There are other points worth making here. Some highly skilled staff not offered positions elsewhere in AZ may be mobile and find employment in the same or similar industry elsewhere, but some may for personal reasons be unwilling to re-locate. Although a number of the non-mobile staff may find future employment locally, they may not necessarily be able to find employment in an R&D setting. This may mean working for lower salaries than were paid by AZ, with implications for the spend in the local economy in addition to the on personal circumstances. 14. According to government statistics published in , the UK s pharmaceutical industry employs c. 73,000 staff of which c. 27,000 are employed in R&D-related jobs. The loss of R&D jobs associated with the Charnwood closure on this basis amounts to c. 3.3% of the UK R&D total. Quantifying other s of closure 15. In a similar way, the study has estimated the likely of closure on companies locally and in the region that supply goods and services to AZ at Charnwood and it has also estimated the of business visitors to the Charnwood site and their personal spend in the area. What follows is our best judgment based on available data. The results are summarised in Tables 3 and 4. Table 3: Summary of s of closure on the supply chain Area Current annual wage spend Wages spend annual two years after closure wage spend Local areas 2.2m (+ 3m in 3.5m 0.3m 1.9m and 3m in rates East Midlands 3.5m (+ 3m in 5.6m 0.9m 2.6m and 3m in rates 3.1m and 3m in rates 4.2m and 3m in rates 16. It is important to note that management staff at AZ Charnwood confirm that the company purchases from certain local firms because of the specialised and high quality nature of their products, i.e. not just because of their proximity. AZ at other locations is likely to continue to purchase from these companies, i.e. the closure of Charnwood will not necessarily fracture all existing supply chain relationships with local firms. 4 3 See: 4 It is important to take into account that detailed information/data on OPEX was limited and consequently estimates for supply chain must be treated with caution. In this context, by far the largest outlay (a seven figure sum) by AZ with a company that has a business unit in the local area is described by AZ as location independent - in other words AZ is likely to continue to use this firm as a supplier. The supplier s on the local economy is not dependent on the presence of AZC but of AZ more widely. There are a number of other expenditures by AZC that are local and probably location dependent but these are on a relatively small scale in comparison with the overall s being modelled. 4

6 Table 4: Summary of s of closure on the visitor economy Area Current annual wage spend Wages spend annual two years after closure wage spend Local areas 0.11m 0.18m 0.02m 0.09m 0.14 East Midlands 0.19m 0.31m 0.4m 0.15m 0.24 Aggregated estimate 17. Table 5 shows the aggregate based on the sum of the figures provided in Tables 2, 3 and 4 above. Table 5 Total Current annual wage spend Wages spend annual two years after closure wage spend Local Areas Total 27.1m (+ 3m in 45.5m 7.7m 19.3m (+ 3m in 31.1m (+ 3m in East Midlands Total Source: SQW analysis of AZ data 45.3m (+ 3m in 72.6m 13.8m 31.9m (+ 3m in 51.4m (+ 3m in 18. For the East Midlands, the estimated drop in wage due to closure of AZ Charnwood is c. 0.08% of the regional total. 19. Taking the Local Areas figures and distributing them proportionally to Charnwood Borough provides some perspective on the scale of on Charnwood itself. The total population of Charnwood produces a net wage in Charnwood of c. 1,125m per annum and the closure of AZ will lead to a drop in this of c. 13.8m, equating to a 1.2% reduction in both wage and the resulting again assuming no new and additional economic activity takes place on the vacated site. Impact on innovation in the East Midlands 20. In this section, the of closure of the AZ site on the wider innovation system is considered. Although the of the closure on innovation in the region is difficult to quantify, qualitative assessment is possible: those existing relationships that have been formed because of the excellence of the third party organisation may well be continued: proximity whilst useful is not always essential to sustaining productive links whilst AZ has been represented on some regional or institutional structures such as the East Midlands Innovation Network, has engaged in regional initiatives such as judging annual small business awards at Medilink-sponsored events and interacted 5

7 with other innovation networks such as the relevant inet 5, these types of interaction seem to have diminished in frequency over time. 21. However, it is likely that the closure of the site will on the regional innovation system in other, more subtle ways. Considerable emphasis is placed on the emda web site on the role of innovation as a driver of productivity and its role in ensuring that businesses retain a competitive edge 6 : there is substantial emphasis on the area s tradition of innovation linked to the quality and value of its life sciences sector. Until now, it has been possible to use the presence of AZ Charnwood as a key strategic asset in marketing of the area. Wider on local communities 22. AZ is connected locally at differing levels and in various ways, one of the most visible being the company s commitment to supporting teaching and learning in local schools. Example contributions include: a large cohort of Science & Engineering Ambassadors 7 working with local schools to promote science, technology, engineering and mathematics (STEM) subjects and related careers. We understand that around 100 AZ staff participate in this scheme providing inputs of at least 1 day per person per year other engagement with local schools, including 3 Contact Schools (Garrendon High School, Burleigh Community College & Rawlins Community College) involvement in the Right to Read scheme in local Primary Schools (co-ordinated by Loughborough University) careers events held on site to promote STEM-type careers in general and in the pharmaceuticals sector in particular school visits to the AZ site to promote STEM and introduce school children to scientific facilities and working environments involvement in an annual Science Fair held at John Cleveland Science College The extent to which these interactions are critically dependant on AZ s continuing presence at Charnwood is likely to vary. Some undoubtedly are dependent on close proximity such as the Right to Read scheme and voluntary activities such as school governorships. Others activities may be difficult to sustain or have the same unless carried out under a wider corporate AZ umbrella e.g. Science Ambassadors. Impact on supply of land and employment space 24. Upon AZ vacating the site, an almost 70 acre prospect would become available to the market with buildings that probably cannot be fully utilised. The introduction of such a supply 5 Businesses in priority sectors identified by emda are supported to become more competitive and sustainably successful by four innovation Networks (inets), funded by emda and the European Regional Development Fund

8 of land would significantly alter the current volume of employment land available for use in the Borough. We note that Charnwood has struggled to deliver to the required total Structure Plan requirement. 25. Based upon our assessment of the employment land/space market in Loughborough and tacit knowledge of the region and prevailing market conditions, we would suggest that the AZ Charnwood site represents around a ten year land supply for a single location within Loughborough. Options for site development 26. Based on the findings of this study and including early indications of market prospects from AZ, the following set of four main options for the site can be proposed, with comments and initial assessments of potential. We understand that AZ is actively pursuing all options in parallel at present, and especially options 1 to 3. Table 6: Charnwood Site Options Option Activity Comments Likely Impact Option 1 Sell whole site to a Life Sciences Company Probably the ideal, but feedback indicates this seems less likely than the options below. High - high value employment and potential for relatively swift employment creation. Option 2 Sell to an Owner Occupier where single company occupies part of the site and exploits potential for leasing to other tenants This could be close to ideal if the owner occupier embraces an Open Innovation 9 campus concept to promote and facilitate growth of high value jobs in innovative firms. Medium - high value employment, but may be a lag time before tenants attracted, then ramping up. Option 3 Sell site - landlord leases facilities to multiple tenants that are dependant on AZ business initially (e.g. spin-off companies) and/or to tenants that have no dependence on AZ. Similar to above, this could be ideal if the landlord embraces the Open Innovation campus concept. Medium - high value employment, but may be a lag time before tenants attracted, then ramping up. Option 4 Real Estate where site is sold to property developer. This seems inherently much less desirable, but there may be potential to influence a developer as to type of use for the site Low - likely lower density, lower value employment created, plus likely lag time. 27. We consider options 2 and 3 to be the most feasible as well as attractive for the current workforce and for the local and regional economy, followed by option 1 which is attractive but presently regarded as less likely than the others. Option 4 is unlikely to offer much continuity of employment and is less desirable from the perspective of the local and regional knowledge economy. However, if option 4 does materialise, then there will still be potential for the Taskforce to influence a developer in a way that benefits both the developer and the local and regional economy. 9 Open innovation is an approach to innovation which acknowledges that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. It requires collaborative and exchange between firms, and can be facilitated by proximity of location. 7

9 28. Under option 3 in particular, there may be the option of using peripheral parts of the site following demolition of older/ less valuable employment space for the construction of accommodation for more general business use. This would address some of the general employment land constraints on Charnwood s economic development. Actions that are important for all Options 29. The following actions should be undertaken by the Taskforce in support of AZ and the future prospects for the site and for ex-az employees. They are important under all scenarios, including the relatively undesirable option 4: support AZ staff who are considering new career directions or setting up new ventures investigate whether the public sector can help by acting as a partner to (or customer of) the purchaser emda and UK Trade and Investment should offer to assist with marketing the site nationally and internationally continue to seek alternative users and support negotiations as required using public sector resources to help tip the balance of occupation through finding extra occupier/s to achieve critical mass develop supplementary information on the region, its research and industry asset base, its skills and support packages available for incoming investors consider infrastructure requirements relevant to the site (e.g. access) be prepared to address potential requirements for planning support if required any new occupiers of the site should be welcomed and encouraged to play a full role in the local and regional economy. 8