Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment Final Report
Commercial in Confidence
29 January 2014
Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment Contents
Executive Summary ...... i 1. Introduction ...... 1 2. Setting the Scene ...... 4 3. Research Method & Impact Parameters ...... 13 4. The Quantitative Contribution of AstraZeneca at Alderley Park – ‘pre-disinvestment ’ ...... 22 5. The Quantitative Contribution of AstraZeneca at Alderley Park – ‘post-disinvestment ’ ...... 33 6. The Wider Qualitative effects of disinvestment ...... 37 7. Perspectives on the Spatial Effects and Consequences of Disinvestment ...... 43 8. Conclusions & Recommendations ...... 47
Annex A: Key Assumptions and Method...... A-1 Annex B: Key Consultees ...... B-1
Contact: Joe Duggett Tel: 0161 475 2109 email: [email protected]
Approved by: Simon Pringle Date: 29 January 2014 Director
www.sqw.co.uk Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment Executive Summary
1. In March 2013, AstraZeneca announced its intention to relocate its R&D functions from its current site at Alderley Park in Cheshire East to a new site in Cambridge, by 2016. The Alderley Park site currently supports around 3,000 jobs directly, and is AstraZeneca’s largest R&D facility globally.
2. As one of the most significant knowledge-based economic drivers in Cheshire and the wider North West of the England economy, the effects of the relocation will be significant. In response, the Task Force established to mitigate the impacts of the relocation commissioned SQW Ltd to undertake an independent economic impact assessment of the quantitative and qualitative effects of the disinvestment.
3. This economic impact assessment covers the direct, indirect, and induced effects of the Alderley Park site . In characterising these effects, the assessment has been undertaken from a work-place (rather than resident) based perspective. The assessment does not cover local or national taxes, the likely future employment and locational intents of current AstraZeneca staff, or estimate the potential effects on local land and property markets.
4. The impact area covered by the assessment encompasses the functional economic geography of Cheshire, Warrington, Greater Manchester, and proximate areas to the east and south of the Alderley Park location . Over 90% of current permanent employees at Alderley Park reside in this impact area.
5. As such, this assessment is a key analytical element of the work that the Alderley Park Task Force, working through its Executive Group, has commissioned to deliver a vision and delivery plan for the Alderley Park site, both absolutely and in the context of the wider regional content within which the site sits.
6. This economic impact assessment has been separated explicitly from complementary work, reported in the Volume 2: Future Market Demand Assessment report, which reviews future market interest in the Alderley Park facility. The impact assessment does not, therefore, made any assumptions regarding the scale and nature of the future use of the site. The focus is on what the current economic contribution of AstraZeneca is at Alderley Park ‘now’ pre- disinvestment, what it will be post-disinvestment, and with the economic impact the difference between the two. Of course, should market demand proved to be high and take-up strong for the sites and premises subsequently vacated by AstraZeneca, the ‘net’ scale of the impact will be lower than this ‘gross’ AstraZeneca-focused assessment suggests.
The Quantitative Effects
7. The assessment of the quantitative effects of the relocation is based on two different scenarios:
• the pre-disinvestment economic contribution of AstraZeneca at Alderley Park, based on its current profile of employment and economic activity
i Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
• the post-disinvestment economic contribution of AstraZeneca at Alderley Park, based on the retention of 700 non-R&D roles at the site.
8. The pre-disinvestment annual contribution of AstraZeneca at Alderley Park to the impact area is estimated to be around £315m p. a. including direct effects (£270m), and indirect and induced effects (together comprising £45m).
9. This represents the best estimate of the potential maximum annual economic impact of the disinvestment by AstraZeneca at Alderley Park assuming full withdrawal and disinvestment, although some of this value is likely to be retained as some employees remain resident in the area. The site currently has around 3,000 jobs on site, with indirect and induced effects supporting a further 1,050 jobs in the impact area.
10. The post-disinvestment annual contribution of AstraZeneca at Alderley Park to the impact area is estimated to be around £70m p.a. including direct effects (£61.4m), and indirect and induced effects (together £8.5m). Under this scenario, the site would support 700 non-R&D jobs on site, and a suggested further 200 or so jobs in the impact area.
11. Subtracting the post-disinvestment contribution from the pre-disinvestment contribution provides an estimated economic impact of the relocation on the impact area of £245m per annum . The annual Gross Value Added (GVA) of the Cheshire and Warrington economy is around £20bn – the impact of disinvestment therefore would be a reduction in the size of the total sub-regional economy of around 1.2%. Over a 10-year period, the discounted aggregate effect of relocation on the impact area is estimated at £2.1bn .
12. A spatial analysis of Alderley Park shows that the majority of the employment impact will fall within Cheshire East, where 1,580 of the on-site AstraZeneca employees live, accounting for 1% of the total employment in the authority’s area. These employees also earn considerably more than the other Cheshire East residents, with salaries approaching two times the local average. Salaries of AstraZeneca employees across the impact area tend to be significantly higher than those of other residents, indicating the importance of the Alderley Park site in providing high value employment across this wider functional space.
13. The potential scale of employment impact at Alderley Park is of the order of recent comparators, including Pfizer’s disinvestment from its R&D facility in Sandwich. However, in the wider context of economic ‘shocks’, where supply chains are not locally concentrated or where suppliers are specialist (both of which apply at Alderley Park), the overall long-run scale of the shock on its immediate and proximate area is likely to be less intense than for some other occurrences of disinvestment . Further, in the case of Alderley Park, the economy of the impact area is resilient and well-placed to respond to the shock. This said, impacts will however be felt in local supply chains, such as hotels, catering establishments, taxis and other localised/personal service providers etc.
. . . and Wider Qualitative Effects?
14. The assessment of the qualitative effects of AstraZeneca ‘s decision on the future of Alderley Park, set against five identified routes to wider impact, reveals the following key messages:
• Adding value to existing business and research activity to drive improved business competitiveness . AstraZeneca currently provides financial support and
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sponsorship to a number of business groups including the NW Business Leadership Team, Cheshire Business Leaders, and Bionow. The evidence gathered from consultees suggests that some of this funding and capacity support is likely to be lost in the future, although its scale, in aggregate terms is limited.
• Acting as a focus around which new business and knowledge activity develops, boosting employment and economic resilience. It was reported by consultees that, with notable exceptions, AstraZeneca’s operations at Alderley Park have not been focussed directly on supporting new business formation or Open Innovation activity. However, Alderley Park has played a crucial role in attracting and retaining highly skilled people to the North West, which in turn has supported wider cluster development efforts. Were AstraZeneca to decide to retain some R&D ‘access’ on site which could support in-movers (as has happened, for example, at GSK Stevenage, albeit in a different context), this could be very powerful for the region.
• Influencing inward investment flows, giving rise to increased employment, economic diversification, and rebalancing . The Public Relations impact of the AstraZeneca disinvestment announcement has been very damaging for the region generally as a business location, and in terms of what it says about networking relationships. However, subsequent announcements about the success of the BioHub initiative and AstraZeneca’s investment into Macclesfield have been positive and welcomed by stakeholders.
• Enriching the sub-regional community, leading to an improved sense of cohesion and confidence . AstraZeneca supports a Science/Technology/Engineering/Mathematics (STEM) school programme and provides access to various leisure/sporting facilities at Alderley Park for community use. There is limited evidence, at present, from consultees that the AstraZeneca decision will have a significant impact on local land and property markets. However, the bringing forward of the Alderley Park offer to the market may result in some displacement from competitor sites, which will need to be managed through a clear differentiation of offer.
• Supporting R&D activity and innovative behaviour, resulting in improved business competitiveness and the development of the local knowledge economy . Consultees were of the view that whilst some R&D linkages are inevitably facilitated by geographical proximity, most relationships are based on commercial need. AstraZeneca has attracted significant expertise and talent to the North West. Staff who have left AstraZeneca have gone on to perform important roles in supporting the development of a wider innovation ecosystem in the North of England, and the wider UK. Similarly, existing AstraZeneca staff have made important contributions to regional/sub-regional strategic agendas, as well as representing the North West nationally/internationally. The Alderley Park BioHub initiative is widely perceived as positive, and it was observed that the wider region should work hard to drive this, and other emerging opportunities, to maximise the positive legacy potential.
15. Taken in the round, the key qualitative effects of disinvestment at Alderley Park relate to the reputational risk to the place as a high-quality location for knowledge-based
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activity, and the role that AstraZeneca’s Alderley Park operation has played in attracting, developing, and diffusing highly skilled workers (technically, commercially, and in terms of their networks) for North West benefit. Regional partners should think now about how this ‘hit’ to the regional skills pool will be addressed going forward.
16. The key qualitative spatial impacts are within the areas of Cheshire and Warrington and Greater Manchester , where Alderley Park is seen as a crucial asset to the reputation of the Life Science sector as well as an important employer.
Recommendations
17. The disinvestment of AstraZeneca from Alderley Park presents a major challenge to the economy. But the long-run experience of responding to economic shocks is that very significant results can be achieved in addressing the challenges that present with quality of strategic purpose, capacity, and capability of executive action, and a genuine commitment to positioning repurposed models as part of an effective and sustained response.
18. Within this context, and taking this assessment in the round, six recommendations are provided (with Lead Responsibility identified for each) :
• Whilst AstraZeneca’s relocation of its R&D activities to Cambridge will be disruptive to the supply chain, there will be opportunities for firms, especially for those in the impact area, to continue to supply the business at its new Cambridge HQ. Given this, it is recommended that the existing early work to alert suppliers to change be developed and progressed, this as a deliberate tactic to mitigate the loss of supplying activity in the impact area. [Task Force/successor body, AstraZeneca, regional sector and supply chain organisations ]
• When the specific roles to be transferred to Cambridge are known, and the scale of and the scope of retained and non-retained staff at Alderley Park are understood, it is recommended that this EIA should be refreshed formally to take into account the impact of the likely re-location of staff from the impact area from a residence-based perspective . [ Successor body to the Task Force , Cheshire East Council]
• Given the potentially disproportionate effect of the relocation on the economy of Cheshire East, it is recommended that particular effort be placed on providing re-employment services and enterprise development opportunities to staff in this area over the coming months and years, building on the work currently underway by AstraZeneca to ease the routes forward for the staff regarding new opportunities. [ Task Force/successor body, AstraZeneca, and Cheshire East Council ]
• Recognising the calibre and quality of staff that AstraZeneca has been able to attract to, and retain in, the North West, it is recommended that partners consider what alternative strategies and actions are now appropriate to ensure that ‘the regional skills pool’ is not permanently diminished. [ Task Force/successor bodies, and wider partners in the North West of England]
• With the change in business rates retention meaning that Local Authorities will retain a greater share of the rates generated in their local area, it is recommended that
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partners undertake a specific and focused review of the potential effects of the re-location (and subsequent re-use of the site for a science park facility) on business rates in the local area under the new rating regime . [ Cheshire East Council ]
• Given the importance of networks and the ‘alumni’ effect identified in this research, it is recommended that future assessments of the impact of major closures and relocations should consider including in their scope a specific focus on mapping the scale, nature, and intensity of these sorts of networks . [BIS, regional and sub- regional partners]
v Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 1. Introduction
Study Context and Purpose
1.1 In March 2013, AstraZeneca announced its intention to relocate its R&D functions from its current site at Alderley Park in Cheshire East to a new site in Cambridge (at the Cambridge Biomedical Campus) by 2016. Comprising a total footprint of around 300,000 sqm, Alderley Park currently supports around 3,000 staff and is AstraZeneca’s largest R&D facility globally. The Alderley Park site forms a core component of the economies of Cheshire and Warrington and the southern half of the Manchester City Region, and is one of the most significant commercial R&D assets in the UK.
1.2 Under the plans announced by AstraZeneca, R&D activity will no longer be carried out at Alderley Park, with around 1,600 roles relocated from Alderley Park to the new location in Cambridge. Around 700 non-R&D AstraZeneca roles are expected to remain at Alderley Park in support functions following the disinvestment.
1.3 In response to the announcement, a Task Force was formed involving representatives of Local Authorities (Cheshire East and Manchester City Council), the Cheshire and Warrington Local Enterprise Partnership, the University of Manchester, Bionow, the Department of Business, Innovation and Skills (BIS), and AstraZeneca, with the support of local MPs, to mitigate the effects of the disinvestment on Cheshire East, and the wider North West of England, and to ensure a sustainable economic future for the Alderley Park site.
1.4 On behalf of the Task Force, and to inform its work, Cheshire East Council commissioned SQW Ltd (SQW) in summer 2013 to undertake a study into the effects of AstraZeneca’s relocation decision. The study involves two complementary, work strands:
• Strand 1: Economic Impact Assessment (EIA) to identify the quantitative and qualitative effects of the relocation on the impact area, with a focus on the Gross Value Added (GVA) and employment effects
• Strand 2: Future Market Demand Assessment to inform the future development and use of the Alderley Park site post-AstraZeneca’s relocation, with a specific focus on its on-going role as a major location for knowledge-based economic activity and enterprise in the Cheshire and Warrington, and wider North West regional economy.
1.5 The study, and its complementary strands, has been overseen by an Executive Group comprising representatives from Cheshire East Council, Manchester City Council, the Cheshire and Warrington Local Enterprise Partnership, the University of Manchester, Bionow, BIS Local and AstraZeneca, with the Executive Group reporting to the Alderley Park Task Force.
1.6 This volume, Volume 1, sets out the findings of the first of the above strands of work ; as such, it should be seen alongside the separate ‘Volume 2: Future Market Demand Assessment’ report. Those economic impact assessments associated with redevelopment scenarios emerging from the Demand Review are presented as part of the Volume 2 Report.
1.7 The report is a key analytical element of the work that the Alderley Park Task Force, working through the Executive Group, has commissioned to deliver a vision and future delivery plan
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for the Alderley Park site, both absolutely, and in the context of the wider regional content within which the site sits.
This Report
1.8 The requirement of the EIA, as established in the study’s original Terms of Reference (ToR) was to undertake a technical assessment of the economic impact of AstraZeneca’s disinvestment at Alderley Park.
1.9 Specifically the requirements of the work were to:
• Identify the quantitative impact on the local (Local Authority and Local Enterprise Partnership) and regional economy expected as a result of the announced job losses from AstraZeneca’s Alderley Park operations, including effects on:
‹ direct employees
‹ second and lower tier businesses in the supply chain, and their employees (i.e. the indirect effects)
‹ wider multiplier impacts as a result of diminished spend by employees/residents (i.e. the induced effects)
‹ overall Gross Value Added.
• Identify the wider potential impacts resulting from the disinvestment by AstraZeneca (e.g. through the loss of Corporate and Social Responsibility activities, sponsorship, local community engagement, educational and environmental consequences).
1.10 Consistent with the ToR, this report provides a quantitative assessment of the potential gross economic impact on the impact area of AstraZeneca’s decision to re-locate its R&D functions from Alderley Park to Cambridge, both in terms of the direct effects through the loss of R&D activity at the site, and the wider indirect effects through supply-chain and local expenditure that are reliant on the facility.
1.11 To estimate the potential gross impact of the disinvestment, the report sets out an assessment of both the current ‘pre-disinvestment’ contribution of the facility to the impact area, and a ‘post- disinvestment’ scenario where only the 700 non-R&D roles stay at the site. To provide an indication of the long-term scale of the effects, the ‘pre-disinvestment‘ and ‘post- disinvestment’ gross economic contributions are modelled over a 10-year period, providing a discounted gross GVA assessment of the re-location.
1.12 Alongside the hard data, this EIA also provides a wider and richer qualitative perspective of the potential effects of the relocation. Drawing on consultations with relevant stakeholders, this qualitative depiction considers the potential effects of the relocation in terms of issues such as the reputation and profile of the area as an investment location, impacts on local business and innovation networks, and the effects on local community development and workforce skills.
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A Note of Caution . . .
1.13 Across both the quantitative and qualitative perspectives, it is important to highlight from the outset that the assessment has been undertaken at a time when a number of major decisions are still to be made, which could determine substantially the eventual scale of the impact of relocation.
1.14 Notably, final decisions on the scale, roles, and functions that will be retained at Alderley Park by AstraZeneca have yet to be made, and the company is engaged actively in the market to identify new owners/developers/investors for the site and its facilities. As such, this report provides a best estimate of the potential impact of AstraZeneca’s decision at the time of writing, in late 2013.
Structure
1.15 The remainder of this report is structured as follows:
• Section 2: Setting the Scene - the biomedical/Life Sciences sector in the UK, the North of England, and the North West, and the wider Cheshire/Warrington economic context
• Section 3: Research method and impact parameters
• Section 4: The quantitative contribution of AstraZeneca at Alderley Park – pre- disinvestment
• Section 5: The quantitative contribution of AstraZeneca at Alderley Park – post- disinvestment
• Section 6: The wider qualitative effects of disinvestment
• Section 7: Perspectives on the spatial effects and consequences of disinvestment
• Section 8: Conclusions and Recommendations.
1.16 Two Annexes are provided:
• Annex A sets out the bases and sources for those assumptions used in the quantitative aspects of the impact assessment
• Annex B provides details of those study stakeholders consulted for judgements on the likely qualitative aspects of impact arising from disinvestment.
3 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 2. Setting the Scene
2.1 Before getting into the detail of the Economic Impact Assessment, this Section provides three elements of context to the reader:
• A summary overview of the biomedical/Life Sciences sector in the UK
• A depiction of how this cascades down to the North of England, and the North West in particular
• Headline messages on the wider economic contexts within which the Alderley Park site is located.
2.2 Taken together, these elements are intended to provide a backdrop against which the scale, timing, and scope of disinvestment at Alderley Park can be assessed and framed.
The sector and its subdomains 1
2.3 The UK has one of the most significant and productive biomedical/Life Sciences industries globally, contributing to patient well-being, improving the sustainability of the economy, and supporting growth. The industry is high-tech, innovative and highly diverse, spanning pharmaceuticals, and biotechnology, through to analytics, diagnostics, and contract research, and on to contract manufacturing, medical devices and healthcare. These are supported by a specialist support chain of wider technology, materials, and supply companies. At the end of 2012, the UK biomedical/Life Sciences sector as a whole comprised some 4,500 companies, employing approximately 166,000 people, and generating a turnover of £50 billion 1.
2.4 The sector in the UK can be resolved into four broad subdomains:
• Medical Technologies 2: The medical technology sub-sector has exhibited continuous growth throughout the global financial crisis. Trend data show a 1% increase in turnover and 4% increase in employment between 2011 and 2012, although total company numbers have decreased by 6%; there were eight new companies formed, and 189 company closures (due mainly to mergers or acquisitions). However, between 2009 and 2012, the sector exhibited an increase in company numbers, a 36% increase in employment, and a 50% increase in turnover. The overwhelming majority of medical technology companies are small and medium size enterprises (SMEs), with 99% of firms in the sector employing fewer than 250 people.
Trend data for this sub-sector shows that the cardiovascular, neurology and radiotherapy segments exhibited the highest increases in turnover in 2012. This said, the number of companies in most segments decreased in 2012, with those providing
1 The material and data in this Chapter draw heavily on the recent work by Bionow for the Cheshire/Warrington, Greater Manchester, and Liverpool Local Enterprise partnerships. Bionow are working as SQW’s collaborators on the AstraZeneca dis-investment studies 2 For the purpose of this report, the BIS definition of Medical Technology companies is used, which includes the medical technology and diagnostics sector and those companies whose major business activity involves the development, manufacture, or distribution of medical devices as defined by European Union Medical Devices Directive (93/42/ECC) and companies who have significant activity, defined as more than 10% of their turnover, in supplying specialist services to the medical technology sector (i.e. the specialist supply chain).
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medical imaging, anaesthetic and respiratory and infection, radiotherapy equipment, ICT and e-health, in vitro diagnostic technology and implantable devices experiencing the greatest falls.
Table 2-1: Top 3 industry segments in the Medical Technology Sector By number of By turnover By employment companies Radiotherapy Equipment Professional Services Professional Services
Neurology Single Use Technology Assistive Technology
In Vitro Diagnostics Cardiovascular Devices Single Use Technology Source: Bionow, 2013 & BIS 2012
• Medical Biotechnology 3: In 2012, the UK Medical Biotechnology sub-sector comprised 980 companies, and employed close to 26,000 individuals generating a turnover of £3.7bn. Between 2011 and 2012, trend data show an increase of 5% in turnover and a small (0.3%) increase in employment. There was also a small overall fall in company numbers of 4%; three new companies were formed, and 48 ceased trading between 2011 and 2012. The sector is dominated by SMEs, with 98% of all companies employing less than 250 staff, indeed, 53% of companies in this sector have less than five employees. There is a healthy mix of young and older companies and a large percentage of companies (49%) are over 10 years old.
The sub-sector includes a large segment of almost 640 specialist services companies, employing over 6,410 people with a turnover of over £2bn - this equates to more than 50% of the total sector turnover. Within this segment, specialist consultants continue to be the largest sub-segment, while specialist suppliers are next. The medical biotechnology segments of advanced therapeutics, small molecules, and specialist services have all exhibited increased turnover in 2012 compared to 2011. The specialist services segment has also seen an increase in staff numbers but, more widely, employment has decreased in most segments by between 2% and 30%. The number of companies in all the parts of this sector fell in 2012, with the exception of blood and tissue products, which remained the same.
3 Based on BIS’ definition Medical Biotechnology Companies comprises those a) discovering or developing new therapeutics that achieve their principal action in or on the human body by pharmacological, immunological or metabolic means OR b) which offer specialised sector specific services; and drug companies with an annual turnover of less than $1bn
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Table 2-2: Top 3 industry segments in the Medical Biotechnology Sector By number of By turnover By employment companies Small Molecules Specialist Services Specialist Services
In Vitro Diagnostics Small Molecules Small Molecules
Antibodies Antibodies Therapeutic Proteins Source: Bionow, 2013 & BIS 2012
Industrial Biotechnology: The Industrial Biotechnology sub-sector is comprised of over 80 companies, which employ just short of 1,600 people and generate a turnover of £438m. These are companies whose principal activity is the development, manufacture and selling of products and services that use, or contain, biological material as catalysts or feedstock to make industrial products. Companies that use industrial biotechnology to make products or provide services which do not constitute a major proportion of their total turnover are not captured in BIS' data, which this report has accessed. This sector, therefore, contributes to a wider economic activity than that of the core 80 or so companies. Some studies have indicated that industrial biotechnology has the potential to make a significant impact to the sustainability strategies of industries such as Chemicals, Waste Treatment, Energy Production, and Plastics. Together, these industries have a combined turnover of £81bn, and employ 800,000 people.
Based on a sample of companies, there was a positive growth trend in the sector between 2011 and 2012, with 21% and 15% increases respectively in employment and turnover. Companies involved in biofuels, specialist services (contract suppliers, engineering, and consultancy) and fine and specialty chemicals have shown consistent growth over the last four years and remain the largest segments in the sector. The sector is dominated by SMEs with fewer than 250 employees, and 88% of companies are more than 4 years old.
• Pharmaceuticals 4: The UK Pharmaceutical sub-sector comprises about 400 companies, and is a major contributor to the UK economy, with a combined turnover of £30bn and employment of just below 70,000 people. It spends close to £5bn per annum on R&D and makes an important contribution to the UK's Trade Balance. Based on a sample of companies, the sector has seen an overall decrease in turnover and employment of 5.4% and 9.7%, respectively, between 2011 and 2012. These decreases have been concentrated in the top 20 global research-based pharmaceutical companies with presence in the UK, and reflect the global restructuring and financial challenges facing the sector. Collectively, these global companies have shown a fall of nearly 7% in annual turnover, and employment is now nearly some 5,000 people fewer.
The development of Small Molecules is the largest pharmaceutical segment, followed by specialist suppliers to the sector and Therapeutic Protein development.
4 BIS’ definition of Pharmaceutical Companies is used here i.e. companies with annual turnovers greater than $1bn who are either research-based companies producing drugs using a range of technologies, companies producing generic pharmaceuticals, providing clinical research, or contract manufacturing organisations.
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Spatial considerations – the sector in the North and North West of England
Business Base
2.5 The North of England (the North West, Yorkshire and the Humber, and the North East) represents between 21% and 23% of the UK biomedical/Life Science sector in terms of numbers of companies, employment, and turnover. The sector in the North of England generated £11bn in turnover in 2012 and has seen significant volume growth, in particular in the North West (where more detailed analysis and monitoring over a 10 year period is available), with company numbers increasing by 86% over the period 2002 to 2012, and with growth evidenced in each of these years. In the same studies, employment has been shown to increase by an average of 10% per annum in the North West region.
2.6 Using BIS’ national database figures, a more detailed decomposition of the split of companies active in 2012 across the North West, North East, and Yorkshire and Humber is presented below, together with employee numbers and turnover. The data are presented for the resolved domains as above i.e. Medical Technology, Medical Biotechnology, and Pharmaceuticals; given the relatively low numbers of companies in the Industrial Biotechnology domain, these are not included in this analysis. Numbers in parentheses show the percentage of the UK total.
Table 2-3: Company numbers and percentages of UK total (%), 2012 Company nos Med Tech Med Bio Pharma Total North West 275 (9%) 75 (8%) 41 (11%) 402 (9%)
North East 87 (3%) 42 (4%) 13 (3%) 142 (3%)
Yorkshire & 303 (10%) 60 (6%) 18 (5%) 381 (8%) Humber
North 668 (21%) 185 (19%) 72 (19%) 925 (21%)
UK 3,129 979 387 4,495 Source: Bionow, 2013
Table 2-4: Employee numbers and percentages of UK total (%), 2012 Company nos Med Tech Med Bio Pharma Total North West 6,480 (9%) 2,812 (11%) 10,213 (15%) 19,505 (12%)
North East 2,225 (3%) 1,509 (6%) 2,608 (4%) 6,342 (4%)
Yorkshire & 8,175 (11%) 1,110 (4%) 2,882 (4%) 12,167 (7%) Humber
North 16,880 (24%) 5,431 (21%) 15,703 (23%) 38,014 (23%)
UK 71,144 25,662 69 ,284 166,090 Source: Bionow, 2013
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Table 2-5: Turnover and percentage of UK total (%), 2012 Turnover (£k) Med Tech Med Bio Pharma Total North West 2,133,508 (13%) 369,205 (10%) 4,171,508 (14%) 6,674,221 (13%)
North East 538,176 (3%) 173,108 (5%) 279,508 (1%) 990,792 (2%)
Yorkshire & This 139,868 (4%) 1,143,475 (4%) 3,235,303 (7%) Humber
North 4,623,644 (29%) 682,181 (18%) 5,594,491 (19%) 10,900,316 (22%)
UK 16,031,574 3,735,147 30,045,591 49,812,312
2.7 Specialisms vary across the North, but there are particular areas of strength in Industrial Biotechnology, Biologics (antibodies, therapeutic proteins, and vaccines), Small Molecule Therapeutics, Wound Care, Orthopaedics, and Specialist Services. Given the importance of the Specialist Services sector there is a real opportunity to develop further this important supply chain sector. The North represents around 20% of all of the companies, employment and turnover in biomedical/Life Sciences sector the UK, but the contribution of the region is greater than this because of its distinctive strengths in key areas. For example, production and exports of Medicinal and Pharmaceutical Products demonstrate the economic importance of the North, and its contribution to the wider UK.
2.8 More specifically, the sector in the North encompasses companies operating across diverse areas, including:
• Pharmaceuticals - AstraZeneca, Bristol Myers Squibb, Eli Lilly, GSK, Novartis, Medimmune, Redx Pharma, and Teva
• Biotechnology - Ai2, Conformetrix, Evgen, Epistem, F2G, and Intercytex) analytics (e.g. Intertek, Kratos, LGC, Life Technologies, Shimadzu, Thermo Scientific, and Waters (recently consolidated at Wilmslow
• Diagnostics - Biofortuna, Forsite, Gen-Probe, Immunodiagnostic Systems, and Qiagen
• Contract Research - Covance, Cyprotex, Euprotec, ICON Development Solutions, Peakdale Molecular, Piramel Healthcare, and Shasun Pharma
• Contract Manufacturing - Cobra Biomanufacturing, Eden Biodesign, Fujifilm Diosynth, Recipharm, and SCM Pharma
• Medical Devices - DePuy, Microvisk, and Phagenesis
• Healthcare - Advanced Medical Solutions, Byotrol, ConvaTec, Procter & Gamble, and Unilever . . .
• . . . and a wide range of specialist support and supplier companies.
2.9 The sector is further characterised by its significant interaction with and reliance upon the basic and clinical research base (Higher Education Institutions, HEIs, and the NHS), its relatively high-risk nature, specialist skills requirements, and its venture capital requirements. Additionally and lately, larger companies are now outsourcing more and relying to ever-greater extents on smaller companies for new technology and innovation. This
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means that the whole ecosystem and accessible geography become critically important to the growth of all businesses and present an important opportunity to foster and support this growth.
2.10 International companies producing products such as laboratory supplies and bio-analytical equipment or those providing specialist contract services have to date chosen to locate and inwardly invest in the North in preference to other locations and use the strong local market and skill base to build a European presence. Recent examples include ICON Development Solutions, as well as Fujifilm Diosynth, Gen-Probe, Medimmune, Qiagen, Recipharm, and Waters.
2.11 The development of successful SMEs has been central to the success and growth of the biomedical sector in the North over recent years. To a great extent, the opportunities for these businesses have been due to larger companies seeking to de-risk key aspects of their work by outsourcing and collaborative working (Open Innovation), which has created new businesses opportunities and markets for smaller companies. In addition, the sector benefits from a unique combination of university-led development of early stage businesses intrinsically linked to medium and large sized commercial operations. This mutually beneficial relationship focuses on utilising skills and knowledge embedded in universities to leverage technological development in the smaller companies ultimately realised in commercial success through relationships with the larger multinationals.
2.12 As set out later in this report, the EIA indicates direct supply-chain or other linkages between AstraZeneca and the business base across the region have been limited, with an Open Innovation model not traditionally how AstraZeneca has worked up until this point. However, senior-level AstraZeneca staff have gone on to play significant roles in growing firms, and the company has played a valuable role in helping to build the Life Science sector across the region.
Research Base
2.13 There are 27 Universities in the North of England - 12 in the North West, five in the North East, and 10 in Yorkshire and the Humber. The North West universities alone produce 25,000 Science and Technical Graduates each year. In the 2013 University League Tables, both Manchester and Liverpool feature highly in Biological Sciences and Medicine, and are part of the elite Russell Group of top research led universities. The North is also home to the N8 Research Partnership, formed as an integral part of The Northern Way initiative, which is a collaboration of the eight most research-intensive universities in the North of England: Durham, Lancaster, Leeds, Liverpool, Manchester, Newcastle, Sheffield, and York. Working widely with industry, N8 aims to maximise the impact of this research base by identifying and coordinating powerful research collaborations across the North of England and beyond.
2.14 The sector, particularly in the North West, has benefited from a strategic and sustained public sector investment over the years to create an extensive infrastructure for the region. As well as the North West being recognised as one of the UK's Exemplar Regions for Clinical Trials, the region has 73 hospitals including Europe's largest cancer centre at The Christie, and the largest clinical campus in Europe at Central Manchester. In addition, the region hosts the UK Biobank, the largest tissue repository in the world for over 500,000 human samples, generating a unique database for future research into major diseases. As a whole, the North
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of England has over 60 Centres of Excellence supporting various aspects of clinical research and development, 29 in the North West, supporting activities in areas such as cancer research, new drug design, biopharmaceuticals, clinical trials, and drug safety.
The Economic Context
The immediate locality – Cheshire and Warrington . . .
2.15 The Cheshire and Warrington Local Enterprise Partnership’s area (which takes in the Alderley Park site) is a significant and strongly performing economy in England. As set out in the data dashboard over the page, across a range of measures Cheshire and Warrington outperforms the national level, and it performs well relative to many other Local Enterprise Partnership areas. Notably, the area has the third highest proportion of employees in senior/professional occupations nationally.
2.16 During the last growth cycle, pre-2008, employment growth in Cheshire and Warrington was stronger than many of the core city regions and in line with that experienced in parts of London and competitor locations such as Cambridge/Peterborough. The number of net additional jobs created in this period in Cheshire and Warrington was significant – some 42,000, with a peak employment of over 430,000 prior to the downturn.
Figure 2-1: Employment growth in Cheshire and Warrington over the last growth cycle 440,000
430,000
420,000
410,000
400,000 Employment Peak c.434,000 Jobs 390,000
380,000
370,000
360,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Cheshire and Warrington North West (trend line) England (trend line) Source: Annual Business Inquiry (taken from Cheshire and Warrington Economic Synthesis Report, July 2013)
2.17 Importantly, this net employment growth was achieved as jobs were lost in manufacturing owing to long-term structural change, with manufacturing job losses offset by service sector growth. This said, in more recent years, the area has felt particularly the harsh winds of globalisation and the consequences of new business processes, with the loss of activities at BAE Woodford, and now the major downsizing of AstraZeneca’s activity at Alderley Park as covered in this report.
10 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment Table 2-6: Cheshire and Warrington – key statistics
Cheshire and Warrington National comparator LEP ranking (out of 39)
Headline economic indicators
Prosperity - GVA per head 22,743 21,349 -
Productivity - GVA per employee* 34,490 34,980 -
GVA growth per annum (2000-2011) 3.5% 4.1% -
Labour ma rket engagement
Economic activity rate - aged 16-64 79.5 77.1 14
Employment rate - aged 16-64 74.7 70.9 13
Proportion of population claiming benefits 11.8 13.8 15
Employment characteristics
% all in employment who are - 1: managers, directors and senior officials 12.9 10.3 3
Proportion of work-based employees in private sector 83% 79% 6
Proportion of employed residents employed in private sector 78.2 77.2 16
Skills
% with NVQ4+ - aged 16-64 35.5 34.2 11
% with no qualifications - aged 16-64 7.9 9.5 12
Business base and enterprise
Enterprises per 10,000 population 369 337 17
New starts per 10,000 population 45.0 40.1 -
Demographics
Proportion of the population of working age 63.6 64.7 23
Change in working age population (2000-2011) 4.1% 9.1% 35 Source: National Statistics (unless otherwise stated) * Data based on Cambridge Econometrics (for 2011, expressed in 2005 prices), comparator data for UK
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2.18 Whilst the area is responding proactively to these challenges, both examples highlight the increasingly pervasive nature of change in the economy from global factors. Ensuring that Cheshire and Warrington retains a significant and increasingly high-value manufacturing sector on which to build and contribute to national rebalancing is front and centre in the LEP’s thinking as it develops its Strategic Economic Plan for government.
. . . but closely tied to the Manchester City Region
2.19 The Alderley Park site is also situated at the heart of a larger economic geography encompassing Greater Manchester and its extended city-region. Taken together, the Greater Manchester and Cheshire and Warrington Local Enterprise Partnership areas:
• generate an annual GVA of some £68.5 billion
• contain around 105,00 private sector enterprises
• support 1.6 million employees
• includes a working age population of around 2.3 million.
2.20 This area contains a concentration of economic and business-growth assets – research- oriented universities, major teaching hospitals, an international airport, and a growing city- centre with a strong knowledge-based business sector including a growing Life Sciences cluster. This position it as one of the key drivers of growth outside of the ‘Golden Triangle’ and the Greater South East.
Messages and Implications
The North West, and the wider North of England more widely, supports a significant biomedical/Life Science’s sector, representing over 20% of companies, employment, and turnover, nationally.
The North of England has over 60 Centres of Excellence supporting various aspects of clinical research and development, 29 in the North West, supporting activities in areas such as cancer research, new drug design, biopharmaceuticals, clinical trials, and drug safety.
The Cheshire and Warrington sub-region, in which Alderley Park is located, performs well economically relative to many other areas, with a high proportion of employees in senior/professional occupations.
The wider economic geography encompassing Greater Manchester and its extended city region contains a concentration of economic and business-growth assets – universities, teaching hospitals, an international airport, a growing city-centre including a growing Life Sciences cluster. This positions the City Region as one of the key drivers of growth outside of the ‘Golden Triangle’ and the Greater South East.
12 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 3. Research Method & Impact Parameters
3.1 This Section summarises the method and key parameters of the economic impact assessment.
Routes to Economic Impact – Quantitative & Qualitative
What the EIA includes . . .
3.2 The logic chain depicting how, and where, AstraZeneca and its Alderley Park operation contribute economically is summarised in Figure 3-1. Consistent with the requirements of the work set out in the ToR, the depiction includes both quantitative and qualitative elements. Both aspects are important to the impact consideration but, from the outset, it is important to recognise their different natures. Those quantitative impacts are largely ‘countable’ in their form and as such can be denominated straightforwardly in value metrics (for this report, GVA has been used as the measure). By contrast, the qualitative effects tend be of a more strategic nature in their form and contribution. As such, they are less easily subject to enumeration and denomination, being drawn primarily from consultation with study consultees rather than datasets. They are, nonetheless, significant in terms of the wider ecosystem of which AstraZeneca and Alderley Park are key components.
3.3 On the quantitative side in particular, impact – both pre-disinvestment, and post- disinvestment – has been estimated through the following routes:
• the direct employment effect associated with the site itself, in terms of the permanent staff employed and their associated wages, from which it is possible to derive estimates of work-based Gross Value Added (GVA)
• the indirect supply chain effect , in terms of the economic value generated by sales for firms through the supply of goods and services to the site, including visitor expenditure in local accommodation, and the employment of temporary contactor staff from local businesses; these sales are then converted to estimates of work-based GVA
• the induced effect , from the expenditure in the impact area (shops, restaurants, and leisure facilities etc.) of staff employed at the site; these sales can again be converted to estimates of work-based GVA.
3.4 As indicated above, and required from the ToR, GVA is the core ‘currency’ of the EIA. GVA, established as a key measure of value in an economy in national and sub-national contexts, at the level of a firm, comprises:
• Operating Profit + Employee Costs + Depreciation + Amortisation, where:
‹ Operating Profit = profit earned from the organisation’s operations
‹ Employee Costs = wages and salaries, and associated benefits
‹ Depreciation = annual decline in the value of tangible assets over useful life
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‹ Amortisation = annual apportionment (charging/writing off) of the cost of an intangible asset as an operational cost over its estimated useful life
3.5 Employee costs are generally the most significant factor in GVA, accounting for around 60% at the level of the UK as a whole, although the level varies by sector. For the purposes of this assessment, and given the challenges in seeking to allocate the profits of an international firm such as AstraZeneca to specific spatial locations, the employment costs (as provided by AstraZeneca) have been used as the core measure on which to base the direct GVA assessment.
3.6 The employment costs have been scaled-up to a GVA value based on the proportion of GVA accounted for by employment costs in the relevant sector in Cheshire and Warrington (as the relevant workplace location). This analysis therefore implicitly also accounts for profits, depreciation and amortisation, and these factors have not been dealt with separately in the impact analysis.
3.7 As indicated above, the assessment has been undertaken consistently from a workplace-based perspective. That is, the direct economic contribution counted (in GVA terms) is where the economic activity takes place (i.e. Alderley Park). Consistent with this, the indirect and induced effects are also workplace based, estimating the turnover (subsequently converted to GVA) generated for firms in the impact area by AstraZeneca purchases, and the expenditure of employees. 5
. . . and what it excludes
3.8 This section sets out what the assessment covers. At the same time, it is also important to note what this impact assessment does not do. Three considerations are key here:
• the assessment does not cover the future re-employment and re-location decisions of staff currently employed at the site post- disinvestment, nor the associated effects on local employment rates or other socio-economic factors (such as demographics, public service provision etc.); with the disinvestment still some two years away, and clarity on what roles will/will not be relocated not yet available, this form of analysis is not possible. Nor is it possible to model with any certainty the likely pattern of future employment of staff currently employed by AstraZeneca.
• the assessment does not cover the taxation implications (be they local or national, business or person-based) of the current operations at Alderley Park, or the re- location of activity from Cheshire to Cambridge.
• the assessment does not quantify the potential effects of the disinvestment on local/sub-regional markets (e.g. land, property etc.) directly or indirectly, although these are assessed in qualitative terms by drawing on evidence gained from the consultations from study stakeholders.
5 Note the impact assessment does not cover the expenditure of employees who live outside of the impact area. Given the spatial location and self-contained nature of the site, this is likely to be modest.
14 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment Figure 3-1: routes to economic impact - a conceptual depiction
Source: SQW
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3.9 The point regarding taxes is particularly important from a local perspective, given that the assessment therefore does not seek to analyse or quantify the potential Business Rates foregone to Cheshire East Council as a result of the disinvestment. National policy on Business Rates is currently changing, with Councils able to keep half of business rates growth from 2014/15 and beyond. Given that the intention is that the site will remain a strategic employment facility, how AstraZeneca’s move will impact on Business Rates, and particularly under the Business Rates Retention policy is not yet clear, and will need to be watched closely by Cheshire East Council and the Task Force. However, by way of context, the Business Rates contribution of AstraZeneca is over £3m per annum.
3.10 Two final points of navigation are important. First, the assessment focuses on AstraZeneca’s activities at Alderley Park solely and singly; the economic contribution of the firms and employees housed in the existing BioHub facility are not included in the impact assessment, given that they operate externally to the AstraZeneca R&D functions at the site. Further, the assessment does not include AstraZeneca’s manufacturing facility at Macclesfield, which will be retained post-disinvestment from Alderley Park, and where new corporate investment is being made currently by AstraZeneca. In this regard, the focus of this work is tighter than the previous impact study of the effects of AstraZeneca in the North West, and given that GVA in pharmaceuticals manufacturing is high, this will mean that the overall scale of the effects will be reduced substantially.
3.11 Second, this EIA report has been de-coupled explicitly from the Strand 2 work on the potential market demand for the site, in line with the requirements of the study’s Executive Group. That is, the impact assessment set out in this report has not sought to investigate the potential scale of economic contribution of any future use of the site away from AstraZeneca’s on-going commitment to retain 700 non-R&D support roles at Alderley Park. The focus here is on what the contribution of AstraZeneca is at Alderley Park pre-disinvestment, what it will be post- disinvestment with the 700 remaining staff, with the economic impact the difference between the two. Of course, should demand be high and take-up strong for the sites and premises vacated by AstraZeneca, the ‘net’ scale of the impact will be lower than this ‘gross’ AstraZeneca-focused assessment suggests.
Sources of Data
3.12 The impact assessment has drawn principally on two sources of information; data provided to SQW by AstraZeneca; and qualitative feedback and reflection provided through the programme of extended consultations with the study’s stakeholders.
Quantitative Sources
3.13 The information provided to SQW included data on all existing staff and contractors, levels of expenditure of goods and services over the past 10 years, and information on the scale of visitors to the site. All personnel and personal data provided came to SQW in anonymous form and, more generally, these data have been aggregated in this report to protect individual and corporate confidentialities.
3.14 Alongside the primary data provided to SQW by AstraZeneca, the work has also drawn on a range of recognised data and metrics used widely in impact assessment including data from
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the Office for National Statistics, and the 2011 Family Spending Survey. The assumptions used to underpin the numerical analyses are set out in Annex A.
Qualitative Sources
3.15 The qualitative aspects of the assessment are drawn from two principal sources:
• AstraZeneca’s inventory of activities, in the locality and wider, enabled by its ongoing programme of Corporate Social Responsibility. These range from local school sponsorships, through to wider charitable activities, and on to formal support for important regional networks such as the North West Business Leadership Team.
• Feedback and views from expert stakeholders consulted for this strand of work and the companion Future Demand Assessment activity. A list of consultees is presented in Annex B.
A previous assessment of impact
3.16 Finally, by way of context, in 2006 AstraZeneca published a report 6 that sought to quantify the firm’s economic contribution to the UK and it regions. The assessment for the North West of England covered the Alderley Park site, the manufacturing facility in Macclesfield (where there were, and remain, R&D activities undertaken), and satellite sites at Tytherington (Housing, Purchasing, Finance and Information Services functions), and Wilmslow (Corporate Information Services). The assessment estimated a total contribution to the North West region as a whole (a wider spatial footprint than this study’s impact area) of £1.2bn.
3.17 At the time of the assessment, AstraZeneca employed around 8,300 people at its sites across the North West, and generated expenditure within the North West region of some £172 million pa (both operational and capital). As such, the scale of the activity covered by that work was substantially larger, in terms of both employment levels and the purchases of goods and services, qualitatively different (including manufacturing activities at Macclesfield), and focused in terms of the indirect and induced effects on a larger (and administrative, rather than functional economic) geography. Given this, the previous work has been helpful as a contextual reference point, but it has not been used as a source of direct information or data.
Impact Area
3.18 A key consideration for the economic assessment is to construct an appropriate spatial area within which the contribution of AstraZeneca is captured – and notably the spatial distribution of the indirect (supply-chain) and induced (employee expenditure) effects. Crucially, this spatial area of impact needs to be based on a ‘real’ economic and functional footprint, rather than one driven by administrative boundaries.
3.19 Data provided by AstraZeneca on the residential locations of employees (in terms of Postcode District) were used as the principal source for the construction of the impact area.
6 The Economic Contribution of AstraZeneca to the UK and its Regions, 2006, Regeneris Consulting,
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3.20 This does not provide an indication on the location of firms providing goods and services to AstraZeneca that ideally would have been used to calibrate the impact area to ensure that the analysis of indirect effects was accurate.
3.21 However, it was not possible to access detailed information on the spatial location of suppliers for the impact assessment, whilst ensuring that the information requests were commensurate with the scale of the task in hand. Further, given the nature of AstraZeneca’s activities at Alderley Park, and the need for specialist equipment and services, the spatial location of suppliers is national, and international, not principally local in nature.
3.22 As shown in the first map in Figure 3-2 and Figure 3-3 overleaf, the residential spatial distribution of employees of AstraZeneca is broad, with individuals commuting to Alderley Park from a wide catchment area including North Wales, Lancashire, and the East Midlands. However, the concentration of movements is, as would be expected, focused largely on the Cheshire, Warrington, and Greater Manchester areas, as amplified in the second map, with those areas with at least five employees residents depicted.
3.23 The impact area presented in this second map accounts for 92% of all employees and has been used as the spatial definition for capturing the indirect and induced effects associated with AstraZeneca at Alderley Park. Note that there remains a concentration of employees who live in and around the former AstraZeneca R&D site at Charnwood; this area has not been included in the impact assessment.
3.24 Consistent with the ToR, as well as the functional assessment presented as the core case for the EIA, this report also provides a local assessment (at the level of relevant Local Authority Districts) to provide an indication of the differential spatial elements of impact. This analysis, both quantitative and qualitative, is set out at Section 7.
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Figure 3-2: Residential locations of AstraZeneca employees (i)
Source: Produced by SQW 2013. Contains Ordnance Survey data © Crown copyright and database right (2013) © CollinsBartholomew Limited 2013 Note that some individual staff members live further afield. However, for clarity the map has focused on the broad area surrounding Alderley Park rather than the UK as a whole
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Figure 3-3: Residential locations of AstraZeneca employees (ii)
Source: Produced by SQW 2013. Contains Ordnance Survey data © Crown copyright and database right (2013) © CollinsBartholomew Limited 2013
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Messages and Implications
The EIA covers the direct, indirect, and induced effects of the Alderley Park site, undertaken on a work-place based perspective. The assessment of the quantitative effects of the relocation is based on two different scenarios:
‹ the pre-disinvestment economic contribution of AstraZeneca at Alderley Park, based on its current profile of employment and economic activity ‹ the post-disinvestment economic contribution of AstraZeneca at Alderley Park, based on the retention of 700 non-R&D roles at the site.
The EIA does not cover the impact of changes to local or national taxes, including business rates, as a result of the disinvestment (contextually, AstraZeneca’s Business Rate at Alderley Park is over £3m per annum). With upcoming changes in business rates retention, a review of the potential effects of the disinvestment (and subsequent re-use of the Alderley Park site) on business rates is recommended.
With the disinvestment still two years away, and clarity on what roles will/will not be relocated not yet available, the EIA does not cover future employment and locational intents of current AstraZeneca staff. When the specific roles to be transferred to Cambridge are known, and the scale of and the scope of retained and non-retained staff at Alderley Park are understood, it is recommended that this EIA should be refreshed formally to take into account, from a residence-based perspective, the impact of the likely re-location of staff from the impact area.
The impact area, based on a functional economic area informed by commuting flows to the site, encompasses Cheshire, Warrington, Greater Manchester, and proximate areas to the east and south of the Alderley Park site. Over 90% of current permanent AstraZeneca employees at Alderley Park are resident in this impact area.
21 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 4. The Quantitative Contribution of AstraZeneca at Alderley Park – ‘pre- disinvestment ’
4.1 This Section sets out an estimate of the current quantitative contribution of AstraZeneca at Alderley Park. It begins with an overview of the site to dimension its scale and nature, followed by an assessment of the current economic contribution. Note that this Section focuses on the current contribution of the site not the economic impact following re-location (the latter is depicted in Chapter 4 drawing on the post-disinvestment scenario).
Site Profile
4.2 Data from AstraZeneca indicate that some 2,785 permanent staff are currently employed at Alderley Park – representing approaching 2% of all private sector employment in the Cheshire East Local Authority District. The profile of the workforce, by age and gender is set out below.
Table 4-1: Age and gender split of permanent employees Row Labels Female Male Total Under 30 81 43 124
30-49 1193 888 2081
50-64 293 287 580
Total 1567 1218 2785 Source: AstraZeneca
4.3 Staff numbers by Organisation Unit, set out in Table 4-2, indicate the highly skilled and specialised nature of activities at the site, in terms of both research/R&D functions, and supporting Finance, Procurement and Support Services.
Table 4-2: Number of permanent employees by organisation unit Organisation unit and number of staff Organisation unit and number of staff Personalised Healthcare and Drug Safety and Metabolism 294 Biomarkers 79
Finance 274 Clinical Development 79
iMed Oncology 240 Business Development 54
IS/IT 205 Global External Sourcing 52
Discovery Sciences 201 Global Medicines Development QS&P 50
GRA, Patient Safety and Quality 196 Global Supply Chain & Strategy 50
Clinical Development 146 Pharmaceutical Development 42
HR 145 GMED Oncology & New Opps 40
Compliance Strategy and Assurance 136 Innovative Medicines Operations 34
Facility Operations & Compliance 108 Legal 33
Global Medicines Development Operations 101 Intellectual Property 31
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Organisation unit and number of staff Organisation unit and number of staff Procurement 83 Other 112 Source: AstraZeneca
4.4 Reflective of this highly skilled employment, the average (mean) gross pay (excluding benefits, and before accounting for tax and National Insurance) at the site is around £53,000. Earnings at Alderley Park are, therefore, well above the mean across the Cheshire East Local Authority District of around £30,400. The average basic annual pay at Alderley Park, split by age and gender, is summarised in Table 4-3.
Table 4-3: Basic annual salary by age band and gender Female Male Total Under 30 29,700 32,300 30,600
30-49 45,000 58,900 50,900
50-64 53,900 75,900 64,800
Total 45,900 62,000 52,900 Source: AstraZeneca
4.5 Further to these permanent employees, the data from AstraZeneca identify an additional c.200 contractors working on-site. The contractors operate in highly varied roles, from research scientists and research students through to technicians and administrators. In total therefore, the site currently supports around 3,000 personnel.
Economic Impact
4.6 The paragraphs below set out an analysis and estimate of the current economic contribution of AstraZeneca at Alderley Park i.e. the pre-disinvestment scenario.
Direct Impact
4.7 As noted above, approaching 2,800 permanent staff are employed by AstraZeneca at Alderley Park. Taking into account both basic salaries and associated benefits (excluded from the data presented above in Table 3-3), the information provided indicate that the aggregate employment costs at the site to AstraZeneca are some £175m per annum. These aggregate data are set out in Table 4-4 cut by age-band of employees, with around 70% of employment costs accounted for by employees in the 30-49 age range.
Table 4-4: Salaries and benefits at Alderley Park Age band Aggregate compensation to employees – basic salary plus benefits (£k) Under 30 4,312
30-49 126,353
50+ 43,513
Total 174,1 78 Source: AstraZeneca
4.8 As noted above, employment costs account for the largest share of GVA and have been used as the core data point to identify the direct GVA of AstraZeneca at Alderley Park. Specifically, data from ONS indicate that compensation to employees in the Professional, Scientific and
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Technical Activities sector (the ‘best fit’ for the nature of economic activity undertaken at the Alderley Park) in Cheshire accounts for around 65% of GVA. 7 Applying this ratio to the costs of employment at AstraZeneca provides an estimated direct GVA contribution of AstraZeneca at Alderley Park of around £269.2m per annum.
Indirect Impact
4.9 In addition to the direct GVA associated with the site, AstraZeneca’s operations will generate additional economic value GVA in the supply chain through purchases of goods and services from businesses located in the impact area. These will include:
• revenue expenditure on energy and other utilities, general and specialist maintenance, catering and other support services, as well as expenditure by AstraZeneca and individuals on business visits to the site
• capital expenditure on general and scientific plant and machinery, and building/construction
• expenditure on contractors (separate from revenue costs above) providing specialist, technical or support services to AstraZeneca’s operations.
4.10 Given the scale and nature of the operations at Alderley Park, we have explored these supply chain effects explicitly, rather than simply applying multipliers to the direct GVA. However, given the scale of operations it was not feasible for AstraZeneca to provide information disaggregated at the level of individual purchases, from which it would be possible to identify in detail the spatial location of suppliers. This situation is also influenced by the procurement practices of large organisations like AstraZeneca which, to greater or lesser degrees, operate centralised procurement practices serving multiple sites. In addition, as noted above, given the specialised nature of AstraZeneca’s activity, a significant proportion of the purchases of goods and services are international, and are therefore likely to generate economic value extensively outside the impact area and in overseas markets: capturing these effects was not a focus of this work.
4.11 Indeed, the sophistication and spatial breadth of AstraZeneca’s purchases needs to be taken into account when considering the potential scale of the effects on the impact area: these are likely to be significantly lower, for example, than those that would generally be generated in manufacturing activity or other more standard research and development functions.
4.12 The study has made, therefore, a number of estimates (approved by AstraZeneca) on the likely proportion of expenditure that falls within the impact area for different types of expenditure.
4.13 Total data for revenue costs were provided for the latest financial year, with capital costs provided for the past 10 years with an average value taken over this period to identify a standard year in terms of capital investment. In aggregate the data indicate:
• revenue expenditure of around £29m p.a
7 Office for National Statistics, 2012. Data are for Cheshire in 2010 in the Professional, Scientific and Technical Activities sector
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• capital expenditure over the past 10-years of £600m providing an average value of £60m p.a
• expenditure on contractors of £12.1m p.a.
4.14 The split of revenue and capital expenditure across different elements is set out below. As indicated, utility costs (where only a limited value is likely to be retained in the impact area) accounts for the highest proportion of revenue expenditure, although significant expenditure is also present for both specialised and more general servicing and maintenance. On the capital side, over the past decade, approaching half of all expenditure by AstraZeneca at Alderley Park has been on scientific plant and machinery, again generally likely to fall within the impact area, with national and international firms supplying specialist equipment of this nature.
Figure 4-1: Revenue and capital expenditure – split by category Revenue expenditure – average £29 m Capital expenditure – average £60m p.a. p.a.
Source: SQW based on AstraZeneca data
4.15 Based on the assumptions made by the SQW team, and agreed with AstraZeneca, on the proportion of expenditure that will be retained within the impact area – in headline terms where the goods/services are more specialist the proportion of expenditure retained in the local impact area has been assessed as lower, see Annex A for details – Table 4-5 sets out the estimated indirect GVA effects of AstraZeneca. Note that in this case turnover has been converted to GVA using an appropriate sectoral value dependent on the nature of the expenditure (for example, the turnover generated for local hotels has been converted to GVA using data for the Accommodation sector).
25 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Table 4-5: Indirect effects of AstraZeneca at Alderley Park Estimated total Estimated expenditure Estimated GVA in expenditure (£k) in impact area (£k) impact area(£k) Revenue expenditure 29,046 12,306 6,947
Capital expenditure 60,030 20,156 9,259
Contractor expenditure 12,126 6,063 2,470
Total 101,201 38,525 18,675 Source: SQW based on AstraZeneca data
4.16 The analysis indicates a current annual indirect GVA contribution of AstraZeneca at Alderley Park of £18.7m per annum.
4.17 Put another way, over and above its direct economic contribution, the operation of the AstraZeneca R&D facility at Alderley Park generates an additional approaching £20m in GVA each year for the impact area through its use of local firms and suppliers, and turnover to those local firms of around £38m.
Induced economic impact
4.18 While the above analysis includes indirect supply chain impacts as well as direct impacts, there is one further contribution that needs to be taken into account in completing the view of quantifiable economic benefits: those induced effects resulting from the fact that employees of AstraZeneca spend their incomes in the impact area’s economy – thereby helping to create further economic activity (and employment) in un-related industries. Again, given the scale of employment at the site, we have explored these effects explicitly, rather than simply applying multipliers to the direct GVA.
4.19 Of the approaching 2,800 permanent employees, around 2,600 live within the impact area and can therefore be expected to spend a significant proportion of their wages in businesses within the impact area. Patterns of expenditure vary by age cohort, therefore using data from the ONS Family Spending Survey (from 2011), the study has identified the average level of expenditure per employee by broad age band drawing on the salary data provided by AstraZeneca, with levels of expenditure allocated to different categories dependent on age. The study has then estimated the proportion of this expenditure that is likely to fall within the impact area. Details of the assumptions used are set out in Annex A.
4.20 The findings are set out in the table below, suggesting that current AstraZeneca employees at Alderley Park generate an estimated turnover of around £65m in the impact area each year through expenditure in businesses located there (for example, shops, restaurants, local service providers etc.).
4.21 Again these turnover data have been converted to GVA (using an overall ratio of around 34% based on ONS data) to provide an estimate of the contribution of induced effects to the impact area.
26 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Table 4-6: Induced effects of AstraZeneca at Alderley Park Estimated expenditure in impact area Estimat ed GVA in impact area (£k) (£k) Aged under 30 1,738 708
Aged 30-49 47,487 19,348
Aged over 50 16,038 6,535
Total 65,263 26,591 Source: SQW based on AstraZeneca data Note that this analysis does not take into account the potential expenditure of partners/family members in other employment that will potentially be impacted by the disinvestment of the AstraZeneca site going forward.
4.22 The analysis indicates a current annual induced GVA contribution of AstraZeneca at Alderley Park of £26.6m per annum.
4.23 Put another way, over and above its direct and direct economic contribution, the operation of the AstraZeneca R&D facility at Alderley Park generates an additional approaching £27m GVA each year for the impact area through expenditure in the impact area of employees who work at the site, with turnover to those local firms of around £65m.
Indirect Employment Effects
4.24 Based on the indirect and induced GVA contribution of the site, it is also possible to estimate the additional employment generated in the impact area by AstraZeneca over and above its direct employment contribution. Applying the average GVA per employee in Cheshire and Warrington and Greater Manchester of around £43,000 in 2011, the estimated £45m of indirect and induced GVA supports a suggested additional 1,045 jobs in the impact area.
Overall Contribution
4.25 The key metrics from the assessment of the pre-disinvestment contribution are set out in Table 4-7.
Table 4-7: Total impact of AstraZeneca at Alderley Park
Current contr ibution of AstraZeneca at Alderley Park Direct employment (including contractors) 3,000 jobs
Indirect employment 1,050 jobs
Total employment 4,050 jobs
Direct GVA pa £269.1m
Indirect GVA pa £18.7m
Induced GVA pa £26.6m
Total GVA pa £314.4m Source: SQW based on AstraZeneca data Note: Jobs data rounded to nearest 50
4.26 This £314m represents both the current contribution, and at the same time the ‘worst case’ in terms of economic impact assuming a total withdrawal and disinvestment of the facility by AstraZeneca.
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4.27 It is important to note that the induced effects in particular will not necessarily be lost in full following AstraZeneca’s disinvestment, as some current AstraZeneca employees are likely to remain resident in the area, finding alternative employment. However, as noted above, with decisions still to be made on the roles that will be transferred to Cambridge (or potentially elsewhere such as to AstraZeneca’s retained facility in Macclesfield), as well as the uncertainty on whether staff will find new employment, take early-retirement etc. it is not possible to quantify the extent to which this expenditure may be retained going forward.
4.28 As such, the £314m represents the best estimate of the potential maximum annual economic impact of the disinvestment by AstraZeneca at Alderley Park, assuming full withdrawal and disinvestment.
Comparisons with elsewhere
4.29 The scale of the potential economic impact of AstraZeneca’s disinvestment at Alderley Park is significant, absolutely, for the impact area. However, the past decade has seen a number of examples of closures or relocations within/from the UK in the Pharmaceuticals sector. This, as part of a wider global restructuring of R&D in the sector, where research activities have been consolidated or outsourced as business models for the sector have changed over time. These examples can provide an important insight into the relative scale of impact of the disinvestment at Alderley Park.
Table 4-8: Examples of disinvestments/closures/relocations of UK Pharma R&D facilities Company Details AstraZeneca • Closure of the research facility at Charnwood in Leicestershire in 2011, at pre-closure point supporting around 1,200 staff.
GSK • Downsizing of research facility in Harlow Essex in 2010, involving reduction from over 1,000 staff to around 380. • Previously, and separately, in 2009, GSK had established the Stevenage BioScience Catalyst to make use of surplus land owned by the company adjacent to its R&D facility. This event was focused on premises release, rather than full-scale disinvestment or relocation, and was funded by regional and national public sector partners including the Technology Strategy Board, and the Wellcome Trust.
Merck, Sharp & • Closure of a research facility in Newhouse, Glasgow in 2011, at closure Dohme’s (MSD) point supporting around 250 staff. The site was re-launched subsequently as the BioCity Scotland science park.
Pfizer • Disinvestment from major R&D facility in facility in Sandwich, Kent in 2011, at pre-closure point supporting around 2,400 staff. The site was re-launched subsequently as Discovery Park.
Roche • Closure of R&D facilities in Welwyn Garden City, Hertfordshire in 2005 with facilities transferred to Switzerland. The site was transferred to the University of Hertfordshire and re-launched as BioPark thereafter. Source: SQW
4.30 As indicated in the table above, the examples range considerably in scale – from facilities supporting around 250 staff at the time of the announcement (MSD at Newhouse), up to around 2,400 (Pfizer at Sandwich). The extent of robust information available in the public domain also varies considerably for these cases, with limited information available for a number of the examples. Taking into account the scale, and level of information available, two examples can be used to provide an appropriate comparator of impact for Alderley Park:
28 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
• Pfizer’s disinvestment from Sandwich
• AstraZeneca’s disinvestment from Charnwood
4.31 Details on the economic effects of these examples are set out in the Table overleaf.
4.32 Comparing the Alderley Park disinvestment by AstraZeneca to similar events elsewhere needs to be undertaken with care: the scale and contexts are different, and the ‘currency’ of the evidence on impact varied (for example, with no GVA data for Pfizer). However, it is important to recognise that both the core driver underpinning the made decisions – changes in global trends in the sector and its business model – and the nature of the disinvestment – with some legacy activities on site as with Pfizer – are not unique to Alderley Park.
4.33 Further, as discussed at greater length in the accompanying Volume 2: Future Market Demand Assessment, separate research by SQW on economic ‘shocks’ more widely 8, the scale of the impact on a local economy of a major event such as AstraZeneca’s disinvestment from Alderley Park is driven by three key determinants, namely:
• The scale of the shock, and the period over which it is occurring – in this respect the parallel to Pfizer at Sandwich is important, with the scale of the two facilities at ‘decision’ point broadly similar (2,400 on-site jobs at Sandwich compared to around 3,000 at Alderley Park), and a similar lead-in time enabling the development of viable and knowledge based scenarios for the future use of the site. Positively, this site has been re-launched successfully as the science-based Discovery Park development.
• The extent of supply-chain linkages in the immediate area, driven largely by the specialist nature of the activity undertake – where supply chains are not locally concentrated or where major suppliers are specialist (as in the case of Alderley Park), the overall scale of the shock on the immediate and proximate area is likely to be less significant. So, for example, the scale of impact on local suppliers in both the Pfizer and Charnwood cases set out above was found to be limited in the wider scheme of things. This contrasts markedly with those closures, for example, in traditional engineering and ‘old-world’ automotive (notably Rover in the West Midlands), where the knock-on effects in the locality can be three or four times as great as that at the facility disinvesting or closing. This, because of supply chains, often with low levels of specialisation, having become steadily concentrated (and over-reliant) over time (for example, in the Rover case, in the Black Country).
8 Economic Shocks Research, SQW for BIS. See http://www.sqw.co.uk/services/economic-social-research- analysis/economic-shocks-research-services/
29 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Table 4-9: Comparable disinvestments in science and pharmaceuticals Example Context Nature of Disinvestment Evidence of Impact Pfizer at The company had had an Pfizer initially announced the total closure There have been various estimates of the scale of the full economic Sandwich established presence in R&D in and sale of the facility, but subsequently impact on East Kent. The Sandwich Economic Development Task Kent the area since the 1950s. decided to maintain 650 staff on site. Force identified that the initial announcement of 2,400 job losses could The site employed 2,400 people, The key cause of the disinvestment was the mean a total loss of 4,000 jobs once the effects on contractors, supply largely in research roles, in 36,200 changing model of R&D in the chains, and consumer spending were taken into account equal to 2.6% sqm of office space, laboratories Pharmaceuticals sector, which required a of jobs in East Kent. and ancillary facilities rationalisation of research operations. Taking account of the jobs Pfizer retained, reducing the 2,400 to 1,750 Reviews undertaken in the early The site was renamed the Discovery Park direct jobs, this would reduce the overall impact to just under 3,000 2000s found that the facility was and sold to developers, with Pfizer leasing jobs lost in East Kent, based on similar multipliers (SQW analysis]. failing to deliver significant returns space back from the new owners – around No GVA analysis has been undertaken. on investment. Its focus was on 23,200 sqm of offices and laboratories. Most of the effect on supply chains from Pfizer’s downsizing was on allergy and respiratory conditions – companies that provided services to the site, such as caterers and two relatively high-risk areas in other local service providers. which Pfizer’s activities were The effect on ‘place’ was arguably the most significant, with loss modest and where it had little of competitiveness, knowledge-based workers and business, and competitive advantage. household expenditure . The disinvestment signalled a reduction in size of a significant private sector employer in a relatively deprived area of East Kent. Generally, the duration of the impacts of disinvestment were seen as being for the long term.
AstraZeneca Around 1,300 staff were employed AstraZeneca announced in 2010 that the On closure of the facility , 1,200 direct jobs from AstraZeneca were lost, at at AstraZeneca’s site in Charnwood facility would be closed fully by although some positions were relocated to other positions in Charnwood Charnwood, making the firm the the end of December 2011, with AstraZeneca’s operations in the UK and overseas. (Leicester- largest private sector employer in employment gradually phased out up to that An economic impact assessment of the closure estimated (at an ex- shire) the area. date. ante stage i.e. prior to the closure) that the impact on the regional The facility supported highly skilled Following the withdrawal of AstraZeneca economy would be £53.4 million in GVA over a two-year period workers engaged in research into from Charnwood in 2011, the site was put following the closure of the site. medicines for respiratory diseases, on the market and repurposed as a depot The assessment also estimated that the loss in wages as a result of underpinned by support workers for a recycling company. Some staff the closure equated to a reduction of approaching 0.5% of the total and contractors. relocated to other facilities at Alderley Park wages in the local area, and approaching 0.1% in the region as a The closure resulted from a global or in Sweden. whole. review of AZ’s R&D activities and The assessment also found that the closure would impact on the facilities, with other sites outside of credibility of the life sciences sector within the East Midlands the UK (for example, in Sweden) region , and damage its ability to present an attractive ‘offer’ to also affected. potential inward investors. Source: 9 Economic Shocks Research, SQW for BIS and Vol 2 Case Study Research,’ AstraZeneca Charnwood Study, SQW for emda
30 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
• The resilience and absorptive capacity in the local economy to deal with shocks – the level of impact will be determined largely by the ability of individuals to find re- employment, and the capacity of the local economy to provide these opportunities. In the case of Alderley Park, the economic context is helpful, with opportunities in knowledge-based economic activity in Manchester and Liverpool, and other locations such as at Sci-Tech Daresbury, providing greater re-employment opportunities than shock occurring in more isolated or lower-skilled communities. In this respect, the impact area for Alderley Park is better placed than Charnwood, and in particular Sandwich in East Kent (a relatively deprived area) to respond elastically and flexibly to the challenges of the disinvestment.
31 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Messages and Implications
Some 2,785 permanent AstraZeneca staff are currently employed at Alderley Park – representing approaching 2% of all private sector employment in the Cheshire East Local Authority District. Staff at Alderley Park are highly paid relative to the local average, with an average gross salary of over £50,000. Including on-site contractors, Alderley Park currently supports around 3,000 personnel.
The pre-disinvestment annual economic contribution of AstraZeneca at Alderley Park to the impact area is estimated to be around £315m per annum, including direct effects (£270m), and indirect and induced effects (together £45m).
The estimated £315m pre-disinvestment annual economic contribution represents the potential maximum annual economic impact of the disinvestment by AstraZeneca at Alderley Park, assuming full withdrawal and disinvestment, although some of this value is likely to be retained, as some employees remain resident in the area.
In employment terms, as well as the around 3,000 direct and contractor employees, the EIA estimates that Alderley Park supports a further 1,045 jobs in the impact area, through indirect and induced effects (i.e. expenditure by AstraZeneca and its employees respectively, supporting employment in firms in the impact area).
The Alderley Park site generates expenditure in the supply chain in the impact area of an estimated £38.5m per annum. AstraZeneca’s disinvestment will undoubtedly be disruptive to the supply chain in the impact area, but there will be opportunities for firms, especially for those in the impact area, to continue to supply the business at its new Cambridge HQ. It is recommended that early further work to alert suppliers to change should be developed and progressed as a deliberate tactic to reduce the loss of supplying activity in the impact area.
The potential scale of employment impact at Alderley Park is of the order of recent comparators, including Pfizer’s disinvestment from its R&D facility in Sandwich. However, in the wider context of economic ‘shocks’, where supply chains are not locally concentrated or where suppliers are specialist (both of which apply at Alderley Park), the overall long run scale of the shock on its immediate and proximate area is likely to be less intense than for some other occurrences of disinvestment. Further, in the case of Alderley Park, the economy of the impact area is resilient and well placed to respond to the shock. This said, impacts will however be felt in local supply chains, such as hotels, catering establishments, taxis, and other localised/personal service providers etc.
32 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 5. The Quantitative Contribution of AstraZeneca at Alderley Park – ‘post- disinvestment ’
5.1 With the pre-disinvestment economic contribution of AstraZeneca at Alderley Park identified in Chapter 3, this Section sets out a parallel analysis to identify the post-disinvestment contribution, providing in turn the scale of the potential impact.
Profile
5.2 At the time of the announcement of the re-location to Cambridge in early-2013, AstraZeneca confirmed their intention to retain 700 staff at Alderley Park. The exact roles to be retained post-relocation are yet to be finalised by AstraZeneca. For the purpose of the impact assessment, and based on guidance from AstraZeneca, the 700 positions captured by this scenario have been assumed to include:
• 200 Information System/Technology (IS/IT) roles
• 150 Human Resources and Finance roles
• 350 Operations and Other Support Function roles.
5.3 Data on average salaries for these classes of role have been calculated based on the current information provided for aggregate staff currently within these functions (i.e. not at an individual level).
5.4 For the purposes of the assessment, the study has also assumed that the distribution of residence under post-disinvestment is consistent with the current picture i.e. if 90% of current employees in say IS/IT role live in the study area, we have assumed that 90% of the 200 roles in the future will also live in the study area 9.
5.5 We have also assumed that the scale of revenue and capital expenditure by AstraZeneca is reduced substantially. In headline terms, this includes no contractor or capital expenditure, and revenue expenditure on non-R&D activities only. The key assumptions regarding this scenario including for the indirect effects are set out at Annex A. Note that we have not included any estimates of the potential cost to AstraZeneca of rental of sites/premises.
5.6 Clearly, these assumptions are indicative only. However, in headline terms the post- disinvestment assumes:
• 700 AstraZeneca staff on site in IS/IT, HR/Finance and Operations/Support roles
• annual revenue expenditure on utilities, catering, services etc. of around £3.5m
• no additional capital or contractor expenditure.
9 This assumption is necessary as we do not which specific roles will be retained post-disinvestment
33 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Impact Assessment
5.7 Based on the same analysis and logic for that undertaken for the pre-disinvestment calculations, Table 5-1 below sets out the findings of the estimate of annual economic contribution of the site under the post-disinvestment scenario.
5.8 Again, the majority of the impact is through the direct employment effects, with the 700 staff generating GVA of around £61m (equivalent to 23% of the pre-disinvestment scenario).
Table 5-1: Assessment of annual contribution of 700-only scenario Rout e to impact Annual Notes contribution • 700 non-R&D staff, with estimated aggregate wages (based on the existing data provided by AstraZeneca) of Direct GVA 61,439 around £46m • Converted to GVA using a 75% ratio to reflect the lower value nature of the activity post-relocation i.e. non-R&D
• Non-R&D related revenue expenditure on-site including Indirect GVA 1,184 utilities, maintenance, catering
• Expenditure by implicated staff resident in the impact Induced GVA 7,365 area, assuming a consistent distribution of residential location from existing data
Total GVA 69,988 Source: SQW based on AstraZeneca data and modelling assumptions
5.9 The analysis suggests that post-disinvestment with the 700 non-R&D roles only, the annual economic contribution of AstraZeneca at Alderley Park will be around £70.0m. This equates to around 22% of the pre-disinvestment contribution, or put another way, around four fifths of the current economic contribution would be lost. Subtracting the post-disinvestment from the pre-disinvestment estimates provides a suggested economic impact of the re-location of around £245m per annum.
5.10 Again, using the average GVA per employee in Cheshire and Warrington and Greater Manchester of around £43,000 in 2011, the estimated £8.5m of indirect and induced GVA supports a suggested additional around 200 jobs in the economy of the impact area – compared to over 1,000 under the pre-disinvestment scenario.
The long-term effect of the disinvestment by AstraZeneca at Alderley Park
5.11 The data above provides a ‘snap-shot’ of the effects of the disinvestment in a single year – with a suggested difference between the pre- and post-disinvestment of around £245m per annum (£314m under the pre-disinvestment position, and £70m under the post-disinvestment position).
5.12 To provide a longer-term assessment of impact, the annual data for pre-disinvestment and post-disinvestment data have been modelled over a 10-year period, with the annual contribution discounted at 3.5% based on Treasury guidance. As set out in Figure 4-1, over a 10-year period the cumulative GVA of the pre-disinvestment scenario is around £2.7bn, and the cumulative GVA of the post-investment scenario is £600m.
34 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Figure 5-1: Discounted annual contribution of AstraZeneca at Alderley Park – pre-disinvestment and post-disinvestment scenarios
Source: SQW based on AstraZeneca data
5.13 Therefore, the analysis suggests a total economic impact for the impact area – essentially Cheshire and Warrington and Greater Manchester – over a 10-year period, as a result of the relocation of AstraZeneca’s R&D functions from Alderley Park to Cambridge of some £2.1bn (that is, the £2.7bn under the pre-disinvestment scenario minus the £600m under the post- investment scenario, to account for the fact that the 700 non-R&D staff will remain on-site.
Contextualising the impacts
5.14 The latest data from ONS indicate that the annual GVA of the Cheshire and Warrington economy is around £20bn. The impact of disinvestment, with an annual reduction from the pre- to post-disinvestment position is some £245m would therefore represent a reduction in the size of the sub-regional economy of around 1.2%.
5.15 Although this comparison is not perfect – with the impact area also encompassing the wider (and significantly larger) Greater Manchester economy – this does provide an indication of the scale of the economic effect that will be experienced post-disinvestment.
Messages and Implications
AstraZeneca has confirmed its intention to retain 700 staff at Alderley Park. The exact roles to be retained post-relocation are yet to be finalised. Taking the 700 staff as post- disinvestment scenario, the estimated annual economic contribution of AstraZeneca at Alderley Park to the impact area is estimated to be around £70.0m per annum, including direct effects (£61.4m), and indirect and induced effects (together £8.5m).
Under this scenario, the site would support 700 non-R&D jobs on site, and a suggested further 200 or so jobs in the impact area through indirect and induced effects. Subtracting
35 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment the post -disinvestment contribution (£70m) from the pre -disinvestment contribution (£315m) provides an estimated economic impact of the disinvestment on the impact area of £245m per annum.
The annual GVA of the Cheshire and Warrington economy is around £20bn – the impact of disinvestment therefore would be a reduction in the size of the total sub-regional economy of around 1.2%. Over a 10-year period, the discounted aggregate effect of the disinvestment at Alderley Park by AstraZeneca on the impact area is estimated at £2.1bn.
36 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 6. The Wider Qualitative effects of disinvestment
6.1 Against the quantitative assessment set out above, this section turns to the wider qualitative impacts of AstraZeneca’s disinvestment. The section draws on two main sources:
• information provided to SQW by AstraZeneca on the scope and nature of their current non-core business activities at Alderley Park
• feedback from consultations with stakeholders at local, sub-regional and more widely on the key interactions that AstraZeneca has developed with the local community, business base, and different aspects of the wider innovation ecosystem in the North West.
Different forms of Qualitative Impact
6.2 As set out earlier in Figure 3-1, the assessment of the qualitative effects of AstraZeneca’s decision on the future of Alderley Park has been structured around five main categories:
• Adding value to existing business and research activity to drive improved business competitiveness
• Acting as a focus around which new business and knowledge activity develops, boosting employment and economic resilience
• Influencing inward investment flows, giving rise to increased employment, economic diversification and rebalancing
• Enriching the sub-regional community, leading to an improved sense of cohesion and confidence
• Supporting R&D activity and innovative behaviour, resulting in improved business competitiveness and the development of the local knowledge economy.
Assessment of Qualitative Impact
6.3 Table 6-1 presents an assessment of the likely qualitative effects of AstraZeneca’s decision to relocate R&D activity away from Alderley Park. The table sets out the different types of impact identified by consultees and a review of the wider evidence base.
6.4 Additionally, the assessment considers the extent to which these impacts are likely to persist into the future post-disinvestment. For example, according to consultees, some relationships are likely to remain, such as links with senior researchers (academic and NHS) and key opinion leaders. Similarly, it is important to note that this economic impact study focuses solely on AstraZeneca’s operations at Alderley Park. However, there will continue to be an important AstraZeneca presence locally through its significant manufacturing activities at Macclesfield and Speke (Medimmune).
37 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Table 6-1: Assessment of the likely qualitative effects of AstraZeneca’s decision at Alderley Park Type of impact Evidence of contribution of Themes from the consultation s Impact of disinvestment AstraZeneca at Alderley Park Adding value to • AstraZeneca funds Bionow c.£20k • Given that there are limited local purchasing AstraZeneca serves an existing business p.a. as main sponsor per annum arrangements, with supply chain links based on important role as a key sponsor activity e.g. • AstraZeneca funds the North West commercial need/quality, not spatial proximity – of local economic development • Non-financial Business Leadership Team c. £10k AstraZeneca ‘s ties’ to business base in the and innovation organisations, if supply chain p.a. and has been active in its impact area is limited lost this may have a significant linkages e.g. operation • Acknowledged important sponsorship role, but impact on these individual organisations productivity spill- • AstraZeneca funds Cheshire active engagement and partnership-working in overs, local skills Business Leaders c.£500 per local/regional activities seen as less frequent – However, the wider qualitative • Participation in annum some evidence of a perception that AstraZeneca contribution to the existing has been ‘in not fully of’ the impact area, given business base is generally local business • General observation amongst its international rather than principally regarded as being limited, forums and consultees that AstraZeneca does regional/local operational model and focus meaning that the scale and economic not have any specific local severity of impact post- development purchasing arrangements, and that • Given the above, evidence of perceptions of disinvestment is likely to be less activities supply chain linkages are under-developed relationships between substantial than it otherwise determined principally by AstraZeneca and other major regional firms, could have been commercial need and quality, rather SMEs and research/clinical assets across the than geographical proximity impact area
Focus around which • Selected examples of spin-outs from • Significant role played by AstraZeneca in The role of AstraZeneca in new business and AstraZeneca (DxS, Cyprotex, attracting and retaining high skilled people, in attracting, retaining and knowledge activity Imagen and Blueberry turn supporting wider cluster development, a role developing high-class talent will develops e.g. Therapeutics), but a relatively well recognised amongst stakeholder group – be a major loss • Clustering effects limited number over the past concept of AstraZeneca as a key ‘hook’ for the The pipeline of high-quality through in-movers decade, with no evidence of a knowledge base of the area ‘AstraZeneca alumni’ will be and/or new starts regular flow of spin-outs • Important ‘AstraZeneca alumni’ pipeline – former shut-off, and the existing alumni • Stimulating • The relocation will lead to at least employees remain/become important players in network may increasingly diffuse enterprise 1,600 fewer highly skilled the economy off the impact area, with elsewhere (technically, commercially and in disinvestment this pipeline will be closed off • But, a wider role in driving new Stimulating terms of their networks), people in innovation in local • A wider role as a focus for clustering and open business growth and formation the active workforce immediately innovation has been somewhat hidden. firms post-disinvestment – this represents
38 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Type of impact Evidence of contribution of Themes from the consultation s Impact of disinvestment AstraZeneca at Alderley Park a major challenge for the impact has been limited, so the impact is area and the wider North West Life likely to be modest Sciences cluster
Influencing inward • No formal evidence identified of a • The Public Relations impact of the AstraZeneca Limited evidence – not investment e.g. direct role by AstraZeneca at disinvestment announcement recognised unexpected – of Alderley Park • Direct effects on Alderley Park in terms of attracting consistently as damaging for the impact area, having a direct impact on investment investment, from overseas or with and the North West more generally, as a investment flows or specific decisions the UK – this is not unexpected knowledge-business location. Action needs to investment decisions given the multiple (and complex) be taken to address this • Indirect effects on However, The Public Relations factors that will influence specific • However, the subsequent announcements with impact of the decision is regarded investment investment decisions decisions through regards to the £120m investment into as significant by stakeholders, influencing • However, former AstraZeneca staff Macclesfield by AstraZeneca have been positive with an associated risk to the perception & profile have subsequently been influential and widely welcomed by stakeholders within the credibility and profile of the in supporting wider cluster sector impact area (and the North of development efforts – some of • The AstraZeneca presence was seen as having England more widely) as a which have resulted in Foreign traditionally helped with the North West’s location for business, and Direct Investment (FDI) e.g. through ‘credibility factor’ but generally, observations knowledge-based business M&A activity were that AstraZeneca at Alderley Park had not activity in particular played a key direct role in actively promoting the area to overseas investors
Enriching the sub - • AstraZeneca support the North • Awareness of AstraZeneca’s CSR/community Specific activities have been regional community West element of the national STEM activities was limited amongst stakeholders valuable, and important, for e.g. school programme, through the • However, there was a sense of a missed specific beneficiaries. However, • CSR investments AstraZeneca ambassadors opportunity with AstraZeneca not as ‘visible and the overall scale of the and activities • AstraZeneca has made its facilities active’ as it potentially could have been in the contribution to the sub-regional community through CSR and • available to use, on a gratis basis, impact area. With the relocation this opportunity Community activity other activities has been modest. by staff e.g. by selected local community groups has now largely been lost volunteering e.g. social events at the on-site The scale of the impact post- restaurant and the use of sporting relocation is therefore unlikely to facilities etc.
39 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Type of impact Evidence of contribution of Themes from the consultation s Impact of disinvestment AstraZeneca at Alderley Park • Health benefits e.g. be significant – at an aggregate via clinical trials level – on the impact area
Supporting R&D & • AstraZeneca has established links • Given the scale and heritage of AstraZeneca in Given its scale and profile, innovative behaviour with well-regarded sub-regional the area, links to the local research base were AstraZeneca is recognised e.g. research assets e.g. the Cancer reported as being more limited than might ideally consistently as a key element of • Links with local Research UK Manchester Institute be expected – AstraZeneca-funded the impact area’s innovation research base e.g. and the University of Manchester studentships, chairs, and/or wider research ecosystem. However, its direct studentships, Institute of Inflammation and Repair. partnerships/projects were not identified by impacts on supporting innovative research • AstraZeneca has funded clinical stakeholders behaviours outside of its core partnerships trials activity across major NHS • AstraZeneca’s role in supporting directly operation is perhaps more limited than might be expected. As • Trusts in the North West. The innovative behaviours outside of Alderley Park Effects on such, the scale of impact on this local/regional estimated value of the clinical trials was regarded by some consultees as being activity in the North West is around limited, with the influence where it was discerned dimension is likely to be more strategies and modest than it could have been. plans £2m per annum, and it is expected through less tangible indirect effects that the majority of this activity will • The AstraZeneca ‘talent pipeline’ comprising Importantly, where research links be transferred to the South East gifted and highly experienced people with are established, these are post-relocation. Note, it was technical and commercial skills and strong regarded as likely to continue, reported that less than 5% of networks (often at a global level) was very based on research quality and AstraZeneca’s clinical trials spend important in terms of supporting the innovation content, not spatial location. (c. $1bn per annum) is in the UK. ecosystem development and capacity building However, the loss of AstraZeneca’s ‘pull’ on national and global talent pools will be very significant for the regional ecosystem, and will have an effect on the innovation that goes on within it. Source: SQW and Bionow
40 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
An integrated assessment of Qualitative Impact
6.5 Taken in the round, the messages set out in the Table above demonstrate the breadth, and in some cases depth, of the role of AstraZeneca in the economy, and particularly the knowledge- economy, of the impact area. Much of this qualitative value will be lost potentially with AstraZeneca’s relocation of R&D activity away from the site.
6.6 However, the qualitative effects are likely to be less about local economy effects and the loss of Corporate and Social Responsible activities by a major player, and more about two critically strategic factors, namely:
• The profile, standing, and reputation of the place that is Cheshire East, Greater Manchester and the wider impact area, as a location for knowledge-based economic activity, innovation and investment. There are important perception and PR issues here.
• The role of AstraZeneca as an incubator, and on-going focal point, for developing and retaining talent and experience in Life Sciences, commerce and networks. The concept of the ‘AstraZeneca alumnus’ was fed back consistently throughout the consultation process as a key ingredient in the Alderley Park ‘operation’. Post- disinvestment, as this network is not refreshed, there are likely to be implications for the region’s Life Sciences sector and the wider economic development and enterprise capacity of the place. For example:
‹ Former senior-level AstraZeneca staff have gone on to play significant roles in building spin-out companies, such as DxS, Cyprotex, Imagen, and Blueberry Therapeutics. Moreover, in addition to creating spin-out companies based around under-used AstraZeneca IP, it was commented that the AstraZeneca ‘alumni’ was also making a vital contribution to other SMEs within the North West cluster, often through Board membership, senior management roles, and/or through consultancy, offering specialist advice around accessing finance, developing strategy, and building overseas networks.
‹ The AstraZeneca ‘alumni’ have played a valuable role in helping to build the wider knowledge economy across the North West, providing significant intellectual and leadership inputs. Various examples were identified in relation to former staff going on to take-up senior-level roles in local universities and sector development bodies.
6.7 Further, stakeholders generally were concerned about the specific impact of AstraZeneca’s decision on the supply of skills within the North West post-2016, given the loss of a major global R&D facility within the region and its ability to attract high quality talent. There appear to be two important aspects to AstraZeneca’s role in injecting talent into the region, as reported by consultees:
• given the brand, scale of resources, and 'pull' associated with a major global pharmaceutical company, AstraZeneca has been able to attract, and retain, high calibre individuals to the North West and the wider North of England.
41 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
• The international nature and reach of the R&D activity at Alderley Park has resulted in members of the workforce being exposed to overseas networks and developments in the sector internationally. This has meant that the skillset at AstraZeneca has been not only technically well developed, but also sophisticated in terms of understanding commercial environments, and working within complex (and often international) networks.
6.8 Action to both minimise the reputational profile risk, and maximise and sustain the contribution of the AstraZeneca alumnus network and skills base will be important going forward to manage and mitigate the qualitative effects of re-location. Where these issues impinge on future demand, these are addressed in the Volume 2: Future Market Demand Assessment report.
Messages and Implications
Over and above the quantitative effects, AstraZeneca’s disinvestment will generate a number of potentially significant qualitative effects given the role of the firm in the economy, and particularly the knowledge-economy, of the impact area. Much of this qualitative value will be lost potentially with AstraZeneca’s relocation of R&D activity away from the site.
Consultation suggests that the principal qualitative effects of disinvestment relate to the reputational risk to the place as a high-quality location for knowledge-based activity, and the lost role that AstraZeneca has played as an incubator, and on-going focal point, for developing and retaining expert talent/experience. Notably, former senior-level AstraZeneca staff have gone on to play significant roles in building and underpinning the biomedical/Life Science in the impact area and wider region.
Action to minimise the reputational profile risk, and maximise and sustain the contribution of the AstraZeneca alumnus network will be important going forward, as part of the process of managing and mitigating the qualitative effects of re-location.
More widely, given the importance of networks and the ‘alumni’ effect identified in this research, it is recommended future assessments of the impact of disinvestments, closures, relocations, and other economic ‘shocks’ should consider including in their scope a specific focus on mapping the scale, nature and intensity of these sorts of networks.
42 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 7. Perspectives on the Spatial Effects and Consequences of Disinvestment
7.1 This section examines the spatial dimension of the disinvestment at Alderley Park within the impact area, looking specifically at the numbers of AstraZeneca employees living within particular local authorities, and the incomes that such workers bring to these places. At this stage, formal decisions have yet to be taken by individual employees about their future employment decisions, so the analysis presented below is at the level of the current workforce of the 3,000 or so workers. This section also contains qualitative material taken from interviews with stakeholders in Local Authorities and other economic development agencies across the impact area.
Figure 7-1: Alderley Park’s Impact Area - compound local authority areas
Source: Produced by SQW Contains Ordnance Survey data © Crown copyright and database right (2013)
43 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
7.2 It is important to note that the anonymised staff data provided by AstraZeneca to SQW provided residential details at a post-sector level (i.e. broad local areas, not specific addresses). As a result, whilst it is possible to map the location of staff residences with some accuracy, the data represent a ‘best fit’ as post-sector and Local Authority District boundaries are not co-terminus. As such there is some (modest) ‘double counting’ where postcode districts span Local Authority District boundaries. The scale of employment reported below in each area should, therefore, be reviewed with this firmly in mind.
Quantitative Spatial Analysis
7.3 Table 7-1 below shows those Local Authority Districts within the impact area within which the most significant concentrations of AstraZeneca workers live, including all those areas with 50 or more AstraZeneca employees. Not unexpectedly, the largest concentration of employment is accounted for by Cheshire East, with 1,580 employees.
7.4 However, Local Authority Districts in Greater Manchester are home to significant numbers of Alderley Park workers, with over 500 in total living in Stockport, Trafford, and Manchester. There are also significant concentrations in Cheshire West and Chester, Staffordshire (Staffordshire Moorlands and Newcastle-under-Lyme, collectively) and Warrington.
Table 7-1: Number and Salary of AstraZeneca employees by Area (≥ 50 employees)
Area Area Mean Salary Area Mean %of Area %of Area employees AstraZeneca AstraZeneca Employment Employment Cheshire East 1,580 169,400 0.9% £52,500 £27,600 190%
Stockport 270 133,800 0.2% £50,400 £26,300 223%
Trafford 140 99,700 0.1% £54,400 £29,200 247%
Manchester 140 223,500 0.1% £47,100 £22,000 214%
Cheshire West & 120 147,200 0.1% £54,100 £26,400 205% Chester
Staffordshire 70 381,600 0.0% £48,100 £23,700 203%
Warrington 60 98,900 0.0% £54,000 £26,800 201% Source: SQW, Annul Survey of Hours and Earnings, Annual Population Survey. *Note: No resident salary data is available for the total impact area geography. Employment data rounded to the nearest 10
7.5 Cheshire East also has the largest employment impact in terms of the proportion of the total resident employment accounted for by AstraZeneca employees, with 0.9% of employed residents in the Local Authority District working at Alderley Park. Stockport has the second largest proportion of total employment by Alderley Park employees, with 0.2% working at the site.
7.6 The table also shows the mean annual salary (before benefits, or tax and National Insurance deductions) of AstraZeneca employees resident in each area compared to the mean, gross annual salary for residents in the Local Authority District as a whole. The highest mean salary of the areas with 50 or more AstraZeneca employees is found is Trafford (£54,400 per
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annum). There are also particularly high levels of AstraZeneca salaries in Cheshire West and Chester (£54,100), and Warrington (£54,000).
7.7 Considering the high value of the R&D activities at Alderley Park, it is not surprising that the salaries of AstraZeneca staff exceed the mean resident salary by some margin in places across the impact area, but from an economic impact perspective this is important. The most significant difference between ‘resident’ and ‘AZ’ salary can be found in Trafford; but, in all cases, the salaries paid to AstraZeneca staff are around (or more than) two times the average across the implicated local authority areas.
Qualitative Messages
7.8 Qualitative consultation evidence provides further insights into the spatial impact of Alderley Park as perceived by public sector professionals working in local authorities and other bodies dealing with economic development. The Study Team approached Economic Development Officers across the impact area to take views on the impact of disinvestment at Alderley Park. It was possible to complete consultations with Cheshire West and Chester Council, Warrington Chamber of Commerce and Industry, MIDAS, the Commission for New Economy, Stoke-on-Trent Council, and Trafford Council.
7.9 The main insights gained from these consultations were as follows:
• Local authorities in the impact area are aware of Alderley Park as a site of both regional and national importance in terms of employment and the Life Sciences sector.
• Within the Cheshire and Warrington area, Alderley Park is seen as key asset at the sub-regional level, but there is little engagement at a local authority level with AstraZeneca outside of Cheshire East Council. However, there is awareness of the opportunity available to provide an increase in employment at the site following the disinvestment of AstraZeneca, and potential for attracting new initiatives such as a Catapult for Stratified Medicine.
• At a sub-regional, level Alderley Park is viewed as an asset within Greater Manchester, forming part of the Life Sciences offer for the broader Manchester City Region. As a result, the loss of the AstraZeneca facility will be damaging for the reputation of the sector in the sub-region, as well as creating the potential for a new science park development that without differentiation could challenge both existing and future Life Sciences developments.
• Outside of the North West, Alderley Park is recognised as a key employer, but is seen more as a Life Sciences asset for Cheshire and Warrington and the North West, rather than a complementary part of the sector’s offer in the East and West Midlands.
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Messages and Implications
Over half of current AstraZeneca employees at Alderley Park are resident in the Cheshire East Council area; the impact of disinvestment is likely, therefore, to be felt most severely in this footprint. Given the disproportionate effect potentially of the disinvestment on the economy of Cheshire East, it is recommended that particular effort be placed on providing re-employment services and enterprise development opportunities to staff in this area in future, building on the work currently underway by AstraZeneca to ease the routes forward for the staff regarding new employment opportunities.
Across the impact area, the salaries paid to AstraZeneca staff are around (or more than) two times the average, indicating the importance of Alderley Park in employing highly skilled and high value individuals in the impact area.
46 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment 8. Conclusions & Recommendations
8.1 This final section of the report presents the key findings of the economic impact assessment of the disinvestment by AstraZeneca at Alderley Park.
The Quantitative Effects
8.2 This economic impact assessment covers the direct, indirect, and induced effects of the Alderley Park site. In characterising these effects, the assessment has been undertaken from a work-place based perspective for direct, indirect, and induced effects. The assessment does not cover local or national taxes, the likely future employment and locational intents of current AstraZeneca staff, or estimate the potential effects on local land and property markets.
8.3 The impact area encompasses Cheshire, Warrington, Greater Manchester, and proximate areas to the east and south of the Alderley Park location. Over 90% of current permanent employees live in this impact area.
8.4 The assessment of the quantitative effects of the relocation is based on two different scenarios:
• the pre-disinvestment economic contribution of AstraZeneca at Alderley Park, based on its current profile of employment and economic activity
• the post-disinvestment economic contribution of AstraZeneca at Alderley Park, based on the retention of 700 non-R&D roles at the site.
8.5 The pre-disinvestment annual contribution of AstraZeneca at Alderley Park to the impact area is estimated to be around £315m p.a. including direct effects (£270m), and indirect and induced effects (together comprising £45m).
8.6 This represents the best estimate of the potential maximum annual economic impact of the disinvestment by AstraZeneca at Alderley Park assuming full withdrawal and disinvestment, although some of this value is likely to be retained as some employees remain resident in the area. The site currently has around 3,000 jobs on site, with indirect and induced effects supporting a further 1,050 jobs in the impact area.
8.7 The post-disinvestment annual contribution of AstraZeneca at Alderley Park to the impact area is estimated to be around £70m p.a. including direct effects (£61.4m), and indirect and induced effects (together £8.5m). Under this scenario, the site would support 700 non-R&D jobs on site, and a suggested further 200 or so jobs in the impact area.
8.8 Subtracting the post-disinvestment contribution from the pre-disinvestment contribution provides an estimated economic impact of the relocation on the impact area of £245m per annum . The annual GVA of the Cheshire and Warrington economy is around £20bn – the impact of disinvestment therefore would be a reduction in the size of the total sub-regional economy of around 1.2%. Over a 10-year period, the discounted aggregate effect of relocation on the impact area is estimated at £2.1bn.
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8.9 A spatial analysis of Alderley Park shows that the majority of the employment impact will fall within Cheshire East, where 1,580 of the on-site AstraZeneca employees live, accounting for 1% of the total employment in the authority’s area. These employees also earn considerably more than the other Cheshire East residents, with salaries approaching two times the local average. Salaries of AstraZeneca employees across the impact area tend to be significantly higher than those of other residents, indicating the importance of the Alderley Park site in providing high value employment across this wider functional space.
8.10 The potential scale of employment impact at Alderley Park is of the order of recent comparators, including Pfizer’s disinvestment from its R&D facility in Sandwich. However, in the wider context of economic ‘shocks’, where supply chains are not locally concentrated or where suppliers are specialist (both of which apply at Alderley Park), the overall long run scale of the shock on its immediate and proximate area is likely to be less intense than for some other occurrences of disinvestment . Further, in the case of Alderley Park, the economy of the impact area is resilient and well placed to respond to the shock. This said, impacts will however be felt in local supply chains, such as hotels, catering establishments, taxis, and other localised/personal service providers etc.
. . . and Wider Qualitative Effects?
8.11 The assessment of the qualitative effects of AstraZeneca ‘s decision on the future of Alderley Park, set against the five identified routes to wider impact, reveals the following key messages:
• Adding value to existing business and research activity to drive improved business competitiveness . AstraZeneca currently provides financial support and sponsorship to a number of business groups including the NW Business Leadership Team, Cheshire Business Leaders, and Bionow. The evidence gathered from consultees suggests that some of this funding and capacity support is likely to be lost in the future, although its scale, in aggregate terms is limited.
• Acting as a focus around which new business and knowledge activity develops, boosting employment and economic resilience. It was reported by consultees that, with notable exceptions, AstraZeneca’s operations at Alderley Park have not been focussed directly on supporting new business formation or Open Innovation activity. However, Alderley Park has played a crucial role in attracting and retaining highly skilled people to the North West, which in turn has supported wider cluster development efforts. Were AstraZeneca to decide to retain some R&D ‘access’ on site which could support in-movers (as has happened, for example, at GSK Stevenage, albeit in a different context), this could be very powerful for the region.
• Influencing inward investment flows, giving rise to increased employment, economic diversification, and rebalancing . The Public Relations impact of the AstraZeneca disinvestment announcement has been very damaging for the region generally as a business location, and in terms of what it says about networking relationships. However, subsequent announcements about the success of the BioHub initiative and AstraZeneca’s investment into Macclesfield have been positive and welcomed by stakeholders.
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• Enriching the sub-regional community, leading to an improved sense of cohesion and confidence . AstraZeneca supports a Science/Technology/Engineering/Mathematics (STEM) school programme and provides access to various leisure/sporting facilities at Alderley Park for community use. There is limited evidence, at present, from consultees that the AstraZeneca decision will have a significant impact on local land and property markets. However, the bringing forward of the Alderley Park offer to the market may result in some displacement from competitor sites, which will need to be managed through a clear differentiation of offer. The Volume 2: Future Market Demand Assessment report discusses this issue.
• Supporting R&D activity and innovative behaviour, resulting in improved business competitiveness and the development of the local knowledge economy . Consultees were of the view that whilst some R&D linkages are facilitated inevitably by geographical proximity, most relationships are based on commercial need. AstraZeneca has attracted significant expertise and talent to the North West. Staff who have left AstraZeneca have gone on to perform important roles in supporting the development of a wider innovation ecosystem in the North of England, and the wider UK. Similarly, existing AstraZeneca staff have made important contributions to regional/sub-regional strategic agendas, as well as representing the North West nationally/internationally. The Alderley Park BioHub initiative is widely perceived as positive, and it was observed that the wider region should work hard to drive this, and other emerging opportunities, to maximise the positive legacy potential.
8.12 Taken in the round, the key qualitative effects of disinvestment at Alderley Park relate to the reputational risk to the place as a high-quality location for knowledge-based activity, and the role that AstraZeneca’s Alderley Park operation has played in attracting, developing, and diffusing highly skilled workers (technically, commercially, and in terms of their networks) for North West benefit. Regional partners should think now about how this ‘hit’ to the regional skills pool will be addressed going forward.
8.13 The key qualitative spatial impacts are within the areas of Cheshire and Warrington and Greater Manchester , where Alderley Park is seen as a crucial asset to the reputation of the Life Science sector as well as an important employer.
Recommendations
8.14 The disinvestment of AstraZeneca from Alderley Park presents a major challenge to the economy. Nevertheless, the long-run experience of responding to economic shocks is that very significant results can be achieved in addressing the challenges that present with quality of strategic purpose, capacity and capability of executive action, and a genuine commitment to positioning repurposed models as part of an effective and sustained response.
8.15 Within this context, and taking this assessment in the round, six recommendations are provided (with Lead Responsibility identified for each) :
• Whilst AstraZeneca’s relocation of its R&D activities to Cambridge will be disruptive to the supply chain, there will be opportunities for firms, especially for those in the
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impact area, to continue to supply the business at its new Cambridge HQ. Given this, it is recommended that the existing early work to alert suppliers to change be developed and progressed, this as a deliberate tactic to mitigate the loss of supplying activity in the impact area. [Task Force/successor body, AstraZeneca, regional sector and supply chain organisations ]
• When the specific roles to be transferred to Cambridge are known, and the scale of and the scope of retained and non-retained staff at Alderley Park are understood, it is recommended that this EIA should be refreshed formally to take into account the impact of the likely re-location of staff from the impact area from a residence-based perspective . [Successor body to the Task Force , Cheshire East Council]
• Given the potentially disproportionate effect of the relocation on the economy of Cheshire East, it is recommended that particular effort be placed on providing re-employment services and enterprise development opportunities to staff in this area over the coming months and years, building on the work currently underway by AstraZeneca to ease the routes forward for the staff regarding new opportunities. [Task Force/successor body, AstraZeneca, and Cheshire East Council ]
• Recognising the calibre and quality of staff that AstraZeneca has been able to attract to, and retain in, the North West, it is recommended that partners consider what alternative strategies and actions are now appropriate to ensure that ‘the regional skills pool’ is not permanently diminished. [ Task Force/successor bodies, and wider partners in the North West of England]
• With the change in business rates retention meaning that Local Authorities will retain a greater share of the rates generated in their local area, it is recommended that partners undertake a specific and focused review of the potential effects of the re-location (and subsequent re-use of the site for a science park facility) on business rates in the local area under the new rating regime . [Cheshire East Council ]
• Given the importance of networks and the ‘alumni’ effect identified in this research, it is recommended that future assessments of the impact of major closures and relocations should consider including in their scope a specific focus on mapping the scale, nature, and intensity of these sorts of networks . [BIS, regional and sub- regional partners]
50 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Annex A: Key Assumptions and Method
A.1 This Annex sets out the key assumptions, and the methods used in the economic impact model.
Current Impact
Indirect Impact
A.2 The indirect supply chain benefits were calculated using data provided by AstraZeneca. As shown in the table below, each aspect of the revenue supply chain expenditure was allocated a proportion of impact in the impact area, based on previous work by SQW. These values were agreed with AstraZeneca.
A.3 The local impact data was then converted to GVA using GVA to turnover conversion ratios from the Annual Business Survey. Standard regional multipliers were then applied to calculate the overall revenue
Table A-1: Assumptions used for indirect impact Category Expenditure in Sector for turnover/GVA conversion impact area Revenue
Utility costs 10% Electricity/water
Hard services 50% Administrative and support service activities (maintenance)
Lab equipment Repair and installation of machinery and 25% maintenance equipment
Soft services (cleaning, 90% Administrative and support service activities security)
Catering/vending 90% Food and beverage service activities
Waste collection, treatment and disposal Waste services 75% activities; materials recovery
Hotels 100% Accommodation
Additional visits 100% Accommodation
Capital
Various 75% Construction
Plant & Machinery 50% Manufacture of machinery and equipment
Scientific – Building 25% Construction
Scientific Plant & Machinery 25% Manufacture of machinery and equipment
Integral Building features 50% Construction
Contractors
Contractors 50% All sectors
A-1 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
A.4 Capital expenditure was calculated in a similar way, using previous SQW calculations to estimate the proportion of the expenditure in the impact area. GVA to turnover ratios from the Annual Business Enquiry, before standard regional multipliers were applied.
A.5 In terms of contractor expenditure, it was assumed that 50% of expenditure would be in the impact area. This was then converted to GVA using standard ratios and multipliers were applied. Both revenue and capital expenditure figures exclude VAT.
Induced Impact
A.6 The induced impact portion of the model broke down Alderley Park employees into age bands, and calculated the average salary for each band. This average was then divided into the different household spending categories shown in the table below.
Table A-2: Detailed household expenditure by age of household reference person, 2011
Less than 30 30 -49 50 -64 65 -74 Food & non-alcoholic drinks 9.6% 10.3% 11.7% 13.6%
Alcoholic drink, tobacco & narcotics 2.0% 2.3% 3.0% 2.5%
Clothing & footwear 4.6% 4.8% 4.6% 4.3%
Housing (net)1, fuel & power 21.6% 12.3% 10.8% 12.9%
Household goods & services 5.0% 5.4% 5.7% 6.3%
Health 0.7% 0.8% 1.6% 1.7%
Transport 12.9% 13.8% 15.1% 12.9%
Communication 3.2% 2.7% 2.7% 2.5%
Recreation & culture 11.0% 12.5% 14.4% 15.7%
Education 2.5% 1.5% 1.4% 0.2%
Restaurants & hotels 8.7% 8.3% 8.6% 7.6%
Miscellaneous goods & services 7.1% 7.8% 7.3% 8.7%
Other expenditure items 11.1% 17.4% 13.1% 11.1% Source: ONS, Family Spending 2011
A.7 This was then used to calculate the leakage, which shows the amount of the expenditure that has an impact outside of the impact area and can therefore be discounted in the overall local impact. Leakage for expenditure in each category was calculated using SQW calculations from a previous study with AstraZeneca in Charnwood.
Table A-3: Leakage by Expenditure category Category Proportion Leakage 1. Food & drink 20%
2. Alcohol etc. 20%
3. Clothing etc. 30%
4. Housing(net), fuel & power 50%
A-2 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Category Proportion Leakage 5. Household goods 30%
6. Health 50%
7. Transport 30%
8. Communication 30%
9. Recreation 20%
10. Education 20%
11. Restaurants 20%
12. Miscellaneous goods & services 20%
13. Other expenditure 30% Source: SQW Calculations
A.8 After the leakage was subtracted, the gross expenditure was calculated by multiplying the impact area’s average expenditure for each age band by the number of staff members in each band. Tax and National insurance were then subtracted, based on standard tax rates for each average salary , which were calculated using a salary calculator. 10
A.9 The GVA impact of the gross expenditure was then estimated by using standard turnover to GVA conversion rates. The multiplier effects were added using the BIS Evaluation Guidance median sub-regional multipliers for each age band. The age bands were then aggregated to produce the overall GVA for expenditure figures.
Post-Disinvestment
A.10 For this scenario, it was assumed that mainly operations, finance, and IT staff would remain at the site, as shown in the table below. Salary and benefits were also reduced to 75% of the total in this scenario to reflect the nature of the activity in this scenario, which would no longer be based around research and development.
Table A-4: Assumptions for retained staff at Alderley Park
Number of staff Average salary & benefits Annual salary & benefits IS/IT 200 67,454 13,490,709
Operations & Other 350 65,940 23,078,837
HR & Finance 150 63,397 9,509,503 Source: AstraZeneca data and SQW calculations
A.11 For the induced impact, the expenditure of each category of staff was calculated using the same household expenditure data used in the current impact. Tax rates of 30% were then used across the board for all staff. The wage impact was then converted to GVA using the standard GVA to turnover ratios, which were used in the current impact section.
A.12 Revenue expenditure was calculated in the same way as above, but it was assumed that expenditure would fall to 25% of previous levels. Capital expenditure was assumed to be non- existent in this scenario as AstraZeneca would no longer own the site or invest in any significant new assets.
10 http://data.gov.uk/apps/net-salary-calculator
A-3 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Other Assumptions
A.13 Other key assumptions include:
• The assessment of induced effects takes into account only the expenditure of permanent employees that live within the study area i.e. not accounting for expenditure of workers who live outside of the study area
• The model does not account for day expenditure of business visitors, these are likely to be modest in scale, although may include the use of local taxis, cafes, petrol stations and local convenience stores
• Throughout the model, the discount rate at 3.5%.
A-4 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Annex B: Key Consultees
Table B-1: List of consultees
Consultee Title Organisation Angela Smith Business Development Manager Ai2 Ltd, Core Technology Facility
Elizabeth Thomas Chief Executive Officer Alderley Park Analytical
Dr Virginia Acha Director, Regulatory Affairs Amgen
Dr Christopher Doherty Vice-President, Global Medicines Development AstraZeneca
Jonathan Fry Portfolio Director AstraZeneca
Dr Mike Rance Formerly, Vice President of Corporate Affairs AstraZeneca
Professor Mark Baird Professor of Organic Chemistry Bangor University (Chemistry)
Ian Webster Non-Executive Director BioCity
Dr John Stageman Chair Bionow
Dr David Higham Director BIS North West
Dr John Ridden Chief Executive Officer Blueberry Therapeutics
Nick Hood Partner and Head of the Technology Team Carter Jonas, Cambridge
Keith Chantler Director of Innovation & Executive Director Central Manchester NHS Trust & TrusTECH
Jo Lappin Head of Strategy Cheshire and Warrington LEP
Jez Goodman Economic Development Officer Cheshire East Council
Jo Wise Principal Planner Cheshire East Council
Lisa Conway Senior Manager, Employment, Economy, Skills Cheshire West & Chester Council & Learning
Dr Anthony Baxter Chief Executive Officer Cyprotex
Walter Herriot OBE Expert on cluster development and the Ex MD of St John’s Innovation Cambridge cluster Centre
Dr John Nicholson Chairman & Chief Executive Officer Gentronix
Dr Cyril Clarke Vice President Translational Medicine ICON, Manchester
Dr Rod Benson Chief Operating Officer Imagen Biotech
Dr Simon Ward Chief Executive Officer Incanthera
Helen Delahaye Sector Expert Independent Consultancy
Dr John Lovelady Vice President Operations, Consultant in Intercytex Biotech & Cell Therapy (Manufacturing)
Dr Paul Kemp Chief Executive Officer & Chief Scientific Officer Intercytex
Dr Ben Cliff Laboratory Director Intertek Wilton, Teesside
Adam White Associate Director, Planning & Development Jones Lang Lasalle
Caroline Mairs Head of Science Park Keele Science and Business Park
Jenny Tucker Science Park Director Keele Science and Business Park
Professor Andy Garner Pro Vice Chancellor and Dean of Health Keele University
B-1 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Consultee Title Organisation Professor John Professor of Musculoskeletal Science and Lancaster University/NW Coast Goodacre Clinical Director of the NIHR Comprehensive AHSN Local Research Network for Cumbria & Lancashire
Dr Mark Treherne Chief Executive Life Science Investment Office, UKTI
Christopher Musson Chief Executive Liverpool Science Park
Dr Linda Magee Chief Operating Officer MAHSC and Greater Manchester AHSN
Felicity Goodey Chairman Manchester MediPark/UHSM
Rowena Burns Chief Executive Manchester Science Park & Citylabs
Professor Sir John Chief Executive and Deputy Chair of Council Medical Research Council Saville
Richard Clark Chief Executive Medipex
Roger Quince Former Director, with responsibility for Granta MEPC Plc Park, Cambridge
Dr Geoff Wainwright Director MerseyBIO/2 Bio Ltd
Daniel Storer Director of Business Development MIDAS
Dr Sarah Jackson Director N8 University Group
Alison Gordon Director of Project Development New Economy, Manchester
Dr Alexander Roy Head of Research New Economy, Manchester
Tim Green Head of Markets and Opportunities Office of Life Sciences/BIS
Sam Westgate Chief Executive Officer Perfectus Biomed
Dr Steve Little Chief Executive Officer Premaitha Healthcare
Mike Rance Chair Primary Science Teaching Trust
Dr Allan Brown General Manager Qiagen
Dr Neil Murray Chief Executive Officer RedX Pharma
John Leake Business Development Manager Sci-Tech Daresbury
Dr Don Wellings Chief Executive Officer Spheritech
Dr Martino Picardo Chief Executive Officer Stevenage Bioscience Catalyst
Sharon Mayo Economic Development Manager Stockport Council
Professor Graham Partner SV Life Sciences Advisers LLP Boulnois
Dr Zahid Latif Head of Healthcare Technology Strategy Board
John Lewis Managing Director The Heath
Dr David Tuffin Network Partner – Cardiovascular & Metabolic DiseaseThe Research Network Therapeutic Area
Dr Lionel Clarke Co-Chairman UK Synthetic Biology Leadership Council
John Flamson Director of Partnerships & Innovation University of Liverpool
Kris Matykiewicz Head of Business Engagement University of Manchester
B-2 Impact of the disinvestment by AstraZeneca at Alderley Park, Cheshire Volume 1: Economic Impact Assessment
Consultee Title Organisation Professor Rod Coombs Deputy President and Deputy Vice-Chancellor University of Manchester
Professor Paul Associate Dean & Research Professor University of Manchester/MAHSC Townsend
Professor Paul Hellewell Director of Research & Innovation, Medicine, University of Sheffield Dentistry and Health
Stuart Palmer Director Warwick Science Park
Brian Smith Vice President of MS Business Waters Corporation
Bob Hodgson Managing Director Zernike (UK) Ltd
B-3