Pharmaceutical preparations : a manufacturing opportunity in Georgia

annaceutica
reparaltOnJ
A
manufacturing
J
opportunity in
Georgia
~ tEPARED FOR THE GEORGIA DEPARTMENT OF COMMERCE JACK MINTER, DIRECTOI
D IUSTRIAL DEVELOPMENT DIVISION I ENGINEERING EXPERIMENT STATION I GEORGIA INSTITUTE OF TECHNOLOG

Project B-209
PHARMACEUTICAL PREPARATIONS A MANUFACTURING OPPORTUNITY IN GEORGIA
Prepared for The Georgia Department of Commerce
Jack Minter, Director 100 State Capitol Atlanta, Georgia
by
. Wade McKoy
Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY
December 1962

Table of Contents

Foreword

i

Surrunary

ii

INTRODUCTION

1

THE MARKET FOR PHAIU1ACEUTICAL PREPARATIONS

2

The National Market

2

The Southeastern Market

2

The Wholesale Market

4

Special Area Market

5

CHARACTERISTICS OF THE PHARMACEUTICAL PREPARATIONS INDUSTRY

7

Location of the Industry and Its Markets

7

Plant Size Comparisons in the Industry

7

ADVANTAGES OF A GEORGIA LOCATION FOR PRODUCTION FACILITIES OF

THE PHARMACEUTICAL PREPARATIONS INDUSTRY

13

Labor Costs

13

Freight Costs in Serving the National Market

14

Effect of Labor and Freight Costs on Earnings

14

Freight Costs in Serving the Southern Market

15

Other Factors

16

Manufacturers of Containers in Georgia

17

Conclusion

19

APPENDICES

20

National and Southern Markets

21

Market Forecast Calculations

23

Determination of Freight Cost

27

Maps:

1. Georgia Freight Advantage Area

3

2. Comparison of the Location of the Pharmaceutical Industry

with the Distribution of the Markets for Pharmaceuticals

8

3. Location of the Medium and Large Size Plants of the

Pharmaceuti~al Preparations Industry

12

Tables:

1. Leading States in Value of Shipments for Pharmaceutical

Preparations

7

2. Measure of Balance Between Production and Markets for

Pharmaceuticals

9

3. Average Production Pay Rates in the Pharmaceutical

Preparations Industry for States and Regions

13

4. Influence of Wages and Shipping Costs on Earnings

15

Tables (continued):

5. Georgia Property Tax Comparisons

17

6. Manufacturers of Metal, Plastic and Glass Containers

in Georgia

18

7. Number of Manufacturers of Paper Fiber and Wood

Containers in Georgia

18

Figures:

1. Average Annual Salary by Size of Establishment

10

2. Value Added per Dollar of Payroll by Size of Establishment

10

3. Comparison of the Ratio of Average Production per Employee

for the Group to the Industry Average

10

4. Average Value of Shipments per Establishment by Group

10

Appendix Tables:

1-A. Sales of Pharmaceuticals for Human Use

21

2-A. Annual Pharmaceutical Sales Data

23

2-B. Wholesale Price Index of Drugs and Pharmaceuticals

26

3-A. Central Cities for Service Areas

28

Appendix Figures:

2-A. Pharmaceutical Sales Index

24

2-B. Per Capita Sales Index for Pharmaceuticals

24

Appendix Map:

3-A. Service Areas Used in Freight Cost Calculations

29

Foreword The second in the new special industry studies in preparation for the Georgia Department of Commerce, this analysis points up three major advantages which pharmaceutical manufacturers can achieve through a Georgia location. Like many of the earlier studies, it points up a combination of a large and growing market which can be served more economically in the area through the reduction of freight costs, plus lower production costs through more efficient operations. Additional specifics pertinent to the needs of individual companies will be prepared in confidence on request. Comments or questions regarding the study are invited.
Kenneth C. Wagner, Chief Industrial Development Division GEORGIA INSTITUTE OF TECHNOLOGY
- i-

Summary
Three factors support the belief that pharmaceutical manufacturers would profit appreciably with Georgia branch plants:
1. Twenty-three percent of the U. S. market is in an area where freight costs would be cheaper from Georgia than from either Chicago or New York.
2. Many plants have grown so large that they are no longer as efficient as the smaller ones.
3. Manufacturing costs would be lower in Georgia.
There were over $1 billion in retail sales in pharmaceutical products in the Georgia freight advantage area (see Map 1), representing over $530 million at the manufacturers' sales price in 1962. This represents 23% of total U. S. sales. Sales of pharmaceuticals for human use in 1967 should be 37% greater than the 1960 sales.
In addition, Georgia is recognized as the center of a special market for drugs used to treat poultry. Georgia ranks first in broiler production, accounting for 18% of the national total. The five-state southeastern areal/ is estimated to have $5.7 million in manufacturers' sales annually for vaccines for bronchitis and Newcastle disease.
Pharmaceutical production facilities concentrated in the northeastern quarter of the U. S. account for 87% of the U. S. production. In contrast, the markets are spread over the entire country. Approximately 42% is produced outside of the area in which it is consumed. The imbalance between production and markets is largest in the South, with 24% of U. S. production being shipped into the area that accounts for 30% of the U. S. market.
The northern pharmaceutical plants with over 1,000 employees may find after critical examination that their operations would be more productive if they establish southern branches. The larger plants, compared with the medium size plants in the industry, pay higher wages and realize less value added per dollar of payroll, as well as less production per worker.
The national markets can be served from a Georgia plant more economically than from an Illinois, New York or California plant. By comparing production
ll Alabama, Florida, Georgia, North Carolina and South Carolina.
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labor costs and freight costs between plants located in Atlanta, New York, Chicago and Los Angeles, an Atlanta plant would have 11% to 19% higher earnings than the other locations. In addition, a Georgia plant would have the advantage of lower taxes, lower utility costs and lower construction costs.
With a branch plant in Georgia serving only the southern market, the freight savings would be from 37% to 75% of the freight bill at the other locations.
All types of containers and packaging materials are produced in Georgia -- glass, plastic, metal, paper, fiber and wood, For many pharmaceutical products the container and packaging materials are a major part of the shipping weight; thus, another advantage is realized by the economical source of supply for such packaging materials.
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INTRODUCTION

The pharmaceutical preparations industry includes establishments primarily engaged in manufacturing, fabricating or processing drugs in pharmaceutical preparations for human or veterinary use. Most of the products are finished in the form intended for final consumption, such as ampoules, tablets, capsules, ointments, medicinal powders, solutions and suspensions. Many of the raw materials are procured from basic chemical processors.

The following pharmaceutical preparations account for more than half of the total ethical drug sales in the United States:

Product Antibiotics Hormones Ataraxics Cardiovasculars Vitamins and Hermatinics Analgesics Total

Proportion of Total Ethical Sales 22% 9%
8% 6% 6% 5% 56%

This study is concerned with the feasibility of establishing manufacturing operations in Georgia to serve either the national or southern market. The present and future markets are considered, and a special area market for pharmaceuticals used in the poultry industry is explored. In pointing out the characteristics of the industry, the concentrated production centers and the dispersed regional markets are contrasted, and operating characteristics of different size plants are compared.

In considering the advantages of having a pharmaceutical plant in Georgia, this report concentrates on the labor and freight advantages the Georgia plant would have. Georgia's many other attractions are also analyzed: construction costs, natural gas rates, electric rates, property taxes, and the availability of containers and other packaging materials.

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THE MARKET FOR PHARMACEUTICAL PREPARATIONS
The National Market
Manufacturers' sales of pharmaceuticals for human use in the United States amounted to over $2 billion dollars in 1960.1/ Pharmaceuticals for use in treating livestock, poultry and pets accounted for more than $100 million in manufacturers' sales in the same year. Over the past 12 years tota 1 sa 1es have grown at an average rate o f over 8"ro' a year.2- /
Ethical sales for human use are made through three types of outlets: prescription shops, hospitals and physicians. Overall prescriptions account for 60% of the sales, while 21% are sold to hospitals and 19% to physicians. However, the sales profile as well as the per capita sales vary between the states. A breakdown of these sales by states has been used to estimate the markets in the South.
Manufacturers' sales of pharmaceuticals for human use are expected to reach almost $3 billion by 1967 -- a 37% increase over 1960 sales. The forecast is based on a projection of per capita consumption and an authoritative forecast of population. Other specialists have forecast a much greater increase in sales, even in excess of 90%. Details are given in Appendix 2. Regardless of the forecast used, tremendous growth is predicted for the pharmaceutical industry.
The Southeastern Market
The southeastern market in this report is the area that a Georgia plant can supply at a lower shipping cost than a plant located in Chicago or New York. Atlanta was used to fix the shipping point in Georgia, and Chicago and New York are representative centers for the present producers. The Georgia freight advantage area comprises all of seven states and parts of seven
others. (See Map 1.) Eleven states3- / were chosen as representative of the
freight advantage area for purposes of measuring the area's market.
l l 1960 NWDA Drug Market Data, National Wholesale Druggists' Association.
2/ "Summary of 1960 Sales of Drug Store Products," Drug Topics, July l7, 1961.
. 11 Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana,
Mlssissippi, North Carolina, South Carolina, Tennessee and Texas.
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MAP 1 GEORGIA FREIGHT ADVANTAGE AREA

I (,...) I

Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY

Motor freight rates are lower from Atlanta to points in U. S. south of line than from Chicago or New York

Manufacturers' total sales in the freight advantage region are estimated to be over $530 million in 1962, representing retail sales of more than $1 billion. In 1960, area sales of pharmaceuticals for human use amounted to 23% of U. S. sales, or $496 million at the manufacturers' level and $936 million at the retail level.

The freight advantage area contained 41.68 million people in 1960, which is 23% of the total U. S. population. The regional market estimate did not involve use of per capita averages but was based on sales in each category for each state. More information is given in Appendix 1.

For ethical sales, the pattern in the freight advantage area varies from the national pattern in that prescriptions have a higher share of the sales and physicians purchase less. The following list enables comparison:

Prescription Sales Hospital and Institutional Purchases Physician Purchases Total Ethical Sales

% of U. s.
Sales 60.3
21.0 18.7 100.0

% of Georgia Freight Advantage Area Sales
62.9
21.1 16.0 100.0

The 1967 sales estimate for the 11-state freight advantage area is almost $680 million at the manufacturers' sales price -- a 37% increase over 1960 sales.

The Wholesale Market
The southeastern wholesale market is centered in Atlanta, which has a total annual wholesaling volume of about $4 billion. This places it $1.5 billion ahead of its nearest competitor in the Southeast (Memphis).
In the wholesaling of drugs, drug proprietaries, druggists' sundries, and toiletries, Atlanta not only stands fourth in the nation behind New York, Chicago and Los Angeles, but it is far ahead of the city that ranks fifth.
A total of $233 million worth of drugs, drug proprietaries, druggists' sundries and toiletries was wholesaled in Atlanta in 1958. The entire New England area in the same year wholesaled only $246,900,000, while sales in the states of Florida, North Carolina and South Carolina combined were only $235,884,000. Twenty-five per cent of all the wholesale sales of these

l

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products in the eight South Atlantic states, the District of Columbia, and the four East South Central states combined are made in Atlanta.

Pecial Area Markee!/

The large poultry industry in Georgia and the surrounding states provides a special market for certain pharmaceuticals. Shown below are data relating to the quantity of poultry produced in the five-state area of Alabama, Florida, Georgia, North Carolina and South Carolina and the area's production as a percentage of the national total.l/

Broilers Layers

Georgia 320,250,000
13,289,000

Five-State Area 676,313,000 45,041,000

Five-State Area %
of National Total
38
13

Georgia ranks first in broiler production in the nation, accounting for 18% of the national total.

The standard practice in the poultry industry is to vaccinate every day-old chick for bronchitis and Newcastle disease before it leaves the hatchery. In the broiler industry, it is estimated that at least one-half of these chicks are re-vaccinated on the farm. It is standard practice for all layers to be re-vaccinated on the farm at housing age (16 to 18 weeks). In 1960, the market potential for Georgia was 543,403,000 doses, and the five-state area was 1,141,001,000 doses. Assuming a price per dose of 0.5 cents, manufacturers' sales are estimated to be $2.7 million in Georgia and $5.7 million in the five-state area annually.

Pharmaceuticals are also used as feed additives in the poultry industry. Based on the standard practice of fortifying feed during the early growing period of baby chicks, Georgia's market potential in 1960 for an antibiotic-

ll Information in this section based on report prepared on pharma-
ceuticals used in the poultry, cattle, and swine industry in Georgia, Alabama, Florida, North Carolina and South Carolina by Oliver Terriberry, Industrial Development Division, Engineering Experiment Station, Georgia Institute of Technology.
2/ Agricultural Marketing Service Crop Reporting Board, Livestock and Poultry Inventory, January, 1961.

l

-5-

bacitracin or nitrofuran-type material was 23 pure tons, and the five-state area's requirement was 41.7 pure tons.l/
By accepted practice, worming materials are used to treat broilers once during their lives, and layers are treated twice prior to housing and then once every 30 days during their laying life of 10 to 14 months.
The most commonly used materials in worming compounds are piperazine salt and phenolthiazine. In 1960, 1,240 tons of piperazine were consumed in Georgia, and 3,500 tons were consumed in the five-state area, based on 16.9% active piperazine salt. Consumption includes material used by the livestock industry.

!/ 100% concentration basis. Broilers consume seven pounds of feed per
bird of which 8% is fortified. Layers consume 22 pounds of feed per bird
during the growing period, of which two pounds are fortified as a standard Preventive practice.

l

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CHARACTERISTICS OF THE PHARMACEUTICAL PREPARATIONS INDUSTRY
19cation of the Industry and Its Markets
Almost 87% of the production of pharmaceuticals is concentrated in the northern manufacturing belt (Northeastern and East North Central states). New York and New Jersey together account for 39% of U. S. production, and the East North Central states account for 32%. The top producing states are listed in Table 1 in descending order.

Table 1

LEADING STATES IN VALUE OF SHIPMENTS FOR PHARMACEUTICAL PREPARATIONS

State

Percent of U. s.

New York

24

New Jersey

15

Indiana

12

Michigan

10

Pennsylvania

10*

Illinois

8

* Estimated.

Source: United States Census of Manufactures: 1958, U. S. Department of Commerce, Bureau of the Census, SIC 2834.

In contrast, the markets for pharmaceuticals are spread over the entire country. Consequently, production locations are out of balance with the markets. Approximately 42% of all pharmaceuticals are produced outside of the general area where they are consumed. Table 2 and Map 2 show a comparison of production and market locations. The largest deficit of production is in the South, which imports into the area 24% of the U. S. production in order to supply a market amounting to 30% of the total U. S. consumption.
!Jant Size Comparisons in the Industry
Statistics from the 1958 Census of Manufactures provide a basis for comparing the different sizes of establishments in the pharmaceutical Preparations industry (SIC 2834). The following study of industry statistics indicates that the 14 plants that have over a thousand employees

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,
MAP 2 COMPARISON OF THE LOCATION OF THE PHARMACEUTICAL INDUSTRY WITH
THE DISTRIBUTION OF THE MARKETS FOR PHARMACEUTICALS

I 00 I
SOURCE: 1958 Census of Manufactures. The sum of the areas of each type circle equals 100%.

Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY

The solid areas represent markets and hatched areas represent production.

Table 2
MEASURE OF BALANCE BETWEEN PRODUCTION AND MARKETS FOR PHARMACEUTICALS

----Area
Northeast

Value of Shipment
(% of U. s.)
54.39

Consumption
(% of U. s.)
25.83

East North Central

32.41

19.01

west North Central

4.93

8.86

south

6.01

30.05

west

2.21

15.77

(+) Area manufactures more than it consumes.

(-) Area manufactures less than it consumes.

Balance
+ 28.56 + 13.40
3.93 - 24.04 - 13.56

+ 41.96
- 41.53

Source: United States Census of Manufactures: 1958, U. s. Department of
Commerce, Bureau of the Census, SIC 2834.

each probably would be more productive if operations were decentralized and branch plants were located in areas where product consumption is high relative to production.
The establishments of the pharmaceutical preparations industry are divided by number of employees into 10 size groups. The smallest has an ~loyment range of one to four employees and the largest has 2,500 or more employees. The average annual salary paid per employee is compared for the different size establishments in Figure 1. This comparison shows that the larger the plant, the higher the average annual salary, varying from $3,200 for the smallest plants to $6,540 for the largest plants.
When comparing the value added per dollar of payroll for the different size establishments, three of the groups stand out. (See Figure 2.) The three groups covering plants having between 100 and 1,000 employees show the greatest value added per dollar of payroll. The ratios shown on the chart indicate that a plant's efficiency apparently declines as plant size grows beyond a critical point.
The ratio of the average production per employee for the group to the industry average is compared for the different groups in Figure 3. Again, the establishments employing between 100 and 1,000 are outstanding in this ae&sure of employee productivity for the industry, exceeding the industry average by about 20%.

-9-

COMPARISON OF STATISTICS FOR THE DIFFERENT SIZE PLANTS IN THE PHARMACEUTICAL PREPARATIONS INDUSTRY

~ :~~ ~---------- INDUSTRY

I-

~ $5000 z <

AVERAGE

LU

~ $4000 t-

Figure 1. Average Annual Salary by

o::

Size of Establishment.

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>< $3000 ..__________.._.............................

$6

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~_J
LUQ

0..0::

$5

o>-

LU<

00..

ou..

<O

$4

:L_:UJJC_<kJ:

<.-J
>O

$3

0

INDUSTRY AVERAGE
Figure 2. Value added per Dollar of Payroll by Size of Establishment.

1.2

1.0

INDUSTRY

AVERAGE

0.8

0.6

Figure 3. Comparison of the Ratio of Average Production per Employee for the

Group to the Industry Average.

1201

110

V) ,V)

1-1-0:: zLIJzLI< J_j

60

:-c::.:.;v:c:::>-:;:c.o-oJ

50
40

V)a:lu..

u..<O Ot-v>

30

- LUvL>IJZQ
;_:)J[:k:_J

20

<LU_J
>o..::E

10

0

ESTABLISHMENT GROUPS RANGE OF EMPLOYMENT

Figure 4. Average Value of Shipments per Establishment by Groups.

LU

>

o o8 88 ~

:;=l"o c' io on68 ~J~gI~~1~ g1
ll"')r-NLI).-NLI)

~
I
~

~ <
I
8
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Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY

SOURCE: United States Census of Manufactwe.s: 1958, U.S. Department of Commerce, Bureau of the Census, SIC 2834.

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Of the total of 1,114 establishments in 1958, 10.7% accounted for 90.7% of the value of shipments. The smallest size group, averaging two employees per establishment, accounted for 45.2% of the number of establishments but only 0.6% of the value of shipments. (See Figure 4.)
The location of the medium and large size establishments (100 employees and more) is shown by state on Map 3. The 14 largest establishments of over 1,000 employees each are located in the six states listed in Table 1 as the leading states in value of shipments for pharmaceutical preparations.
-11-

~
MAP 3 LOCATION OF THE MEDIUM AND LARGE SIZE PLANTS, ETC.

I t-' N I
8

SOURCE: 1958 Census of Manufactures U.S. Totals, Number of Establishments.

(8)

Having 1000 or More Employees

105

Having 100 to 1000 Employees

2
Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY

ADVANTAGES OF A GEORGIA LOCATION FOR PRODUCTION FACILITIES OF THE PHARMACEUTICAL PREPARATIONS INDUSTRY
A national manufacturer of pharmaceutical products could more profitably serve either national or southern markets from a plant located in Georgia than from established plants in the northern manufacturing belt due principally to lower labor costs and advantages to be derived from lower transporation costs.
Labor Costs In the pharmaceutical preparations industry (SIC 2834) the average
production wage in 1958 for the United States was $2.25 per hour. As indicated in Table 3, the average wage by states and regions ranged from a low of $1.56 per hour to a high of $2.68 per hour,l/

Table 3
AVERAGE PRODUCTION PAY RATES IN THE PHARMACEUTICAL PREPARATIONS INDUSTRY
FOR STATES AND REGIONsl/

State or Region

Average Pa:y: Rate

Per Hour

% of u. s. Average

Michigan

$2.68

119

Indiana

2.56

114

East North Central States

2.47

110

New Jersey

2.35

104

United States

2.25

100

Northeast

2.25

100

Illinois

2.22

99

New York

2.19

97

California

2.06

92

Ohio

2.04

91

Missouri

1. 91

85

Wisconsin

1.87

83

West North Central States

1. 86

83

West South Central States

1. 75

78

Texas

1. 71

76

North Carolina

1. 60

71

East South Central States

1. 59

71

South Atlantic States

1.56

69

Source: United States Census of Manufactures: 1958, U. S. Department of Commerce, Bureau of the Census, SIC 2834.

bav !~ States and regions where general statistics are disclosed and that
e f1ve or more establishments with 20 or more employees.

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Although the average wage for Georgia is not revealed, it is approximately the same as the average for the South Atlantic states, which is $1.56 per hour or 69% of the U. S. average. Statistics for Georgia have been withheld by the Bureau of the Census to avoid disclosing figures for individual companies. Georgia had 13 establishments listed under SIC 2834 in 1958.

Comparing Georgia with representative locations in the manufacturing belt (New York and Illinois) and California, labor savings in Georgia range from 24% to 30% of production labor cost. These are:

When Compared to the Average Plant in:
Illinois New York California

Production Labor Savings for a Georgia Located Plant
30% 29% 24%

Freight Costs in Serving the National Market

Four plant locations were selected for determining the freight bill in serving the national market -- Atlanta, New York, Chicago and Los Angeles. The destination points for shipments from the plants are the principal cities of the 37 wholesale drug areas of the continental United States as defined by the National Wholesale Druggists' Association. By using these areas the freight bill could be calculated for the actual sales in each area. The freight bill as a percent of the plants' sales is:

Plant Location Atlanta New York Chicago Los Angeles

Freight Bill as a Percent of Plant Sales 1.52 1.67 1.39 3.34

!(feet of Labor and Freight Costs on Earnings
As a result of savings in labor and freight costs, the earnings of an Atlanta plant would exceed earnings for plants in the other locations being compared by:
19% over Los Angeles, 12% over New York and 11% over Chicago.

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These figures are the result of using the averages for the United states and determining the influence of wages and shipping costs on earnings. (See Table 4.) The effect on earnings for the difference in local and state taxes, utility costs and construction costs is not included. However, other industry studies by the Industrial Development Division of the Georgia Institute of Technology have evaluated these factors and found that Georgia plants have the advantage.

Table 4 INFLUENCE OF WAGES AND SHIPPING COSTS ON EARNINGS

u0 s. 1/ Georgia

New York

Average- (Atlanta) (New York City)

Production pay rate: $2.25 hr. $1.56 hr.

$2.19 hr.

Production wages as a %of plant sales:

7.93%

5.50%

7. 72%

Shipping cost as a 7. of plant sales:

1.57%

1.52%

1.67%

Earnings as

a 7. of plant

sales~

20.00%

22.48%

20.11%

Illinois (Chicago)
$2.22 hr.
7.83%
1.39% 20.28%

California (Los Angeles)
$2.06 hr.
7.26%
3.34% 18.90%

ll Based on 1958 Census of Manufactures.

}!eight Costs in Serving the Southern Market
Comparing the freight bill for serving the South for plants located in Atlanta, New York, Chicago and Los Angeles, freight savings for the Georgia Plant range from 37% to 75%. Wholesale drug areas were used in defining the southern market. These areas do not correspond exactly to the freight adVantage area shown in Map 1. The 10 areas used account for 20% of the U. S. Bales, while the freight advantage area has 23% of the U. S. sales. The effect of this difference is to understate the freight advantages of the Georgia plant. Freight savings over each location are shown below:

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When Compared to a Plant Located in:
New York Chicago
Los Angeles

Freight Savings for a Georgia Located Plant
54% 37% 75%

Other Factors
The cost advantages of a Georgia plant over present plants are increased by the following factors:
1. Lower capital investment is required for a given production capacity in Georgia than in the Northeast. This lowers the amount spent on property taxes and increases the per cent return on the investment as well as increases the actual earnings.
Construction costs are proven to be low. Leading contractors are building plants in the Atlanta area at costs that are 14% to 40% less than construction costs elsewhere. For example, one company recently accepted bids for plants built to the same plans at two different locations. The bid in Atlanta was $60,000; on a site in New Jersey, the bid was $95,000. Another comparison under the same conditions found Atlanta costs 20% lower than costs in a central Illinois town.
Contractors claim the main reason that construction costs are lower in Atlanta are climate and worker productivity. There are more working days under favorable weather conditions. The attitudes of the workers -- both ~ion and non-union -- are superior and permit effective use of new laborsaving tools.
2. Natural gas rates in Georgia are 30% to 50% of the rates in the New York area. Additional savings are realized because of the milder and shorter winters in Georgia.
3. Electric rates in Georgia are 60% to 80% of the rates in the New York area.
4. Taxes in Georgia are lower than in many other places. Some specific e~les are listed in Table 5.

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Table 5 GEORGIA PROPERTY TAX COMPARISONS

Georgia Location: Clayton County (Atlanta Area) Atlanta, Fulton County Clayton County (Atlanta Area) Clayton County
Clarke County (Athens Area)

Compared to:
Caldwell Township, Essex County, New Jersey
Newark, Essex County, N.J.
Buffalo, Erie County, New York
Cook County, Illinois (Chicago Area)
Wheeling, Ohio County West Virginia

Georgia Tax +1/ Compared Tax -
64%
38%
40%
54%
97%*

~en comparing not only property taxes, but also West Virginia's Business and Occupation Tax and Georgia's Corporate Income Tax and Franchise Tax, the Georgia tax bill is 44% of the West Virginia tax bill.

Source: Case studies and files, Industrial Development Division, Georgia Institute of Technology.

lf Georgia property tax bill as a percentage of the tax bill in the
place being compared, based on equal investment.

~nufacturers of Containers in Georgia
Container and box manufacturers in the area are a primary advantage to a drug manufacturer. Located in Georgia are plants manufacturing metal, plastic and glass containers. These are listed in Table 6.
In addition, there are many manufacturers of paper fiber and wood containers located in Georgia. The number of plants are listed by Standard Industrial Classification (SIC) in Table 7.
Containers and packaging materials are a major part of the shipping ~ight of many pharmaceuticals.

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Table 6 MANUFACTURERS OF METAL, PLASTIC AND GLASS CONTAINERS IN GEORGIA

plant
;;---
American Can Company

Location Atlanta (Forest Park)

American Can Company
crown Cork & Seal
Company

Savannah Atlanta

Knox Glass Company
Owens-Illinois Glass Co. Glass Container Division Plastic Products Division

Atlanta (Forest Park)
Atlanta Atlanta

PQ lyco, Inc.

Atlanta (Smyrna)

Products Oblong cans, beer cans, carbonated beverage cans, paper tubes with metal ends, lithographing facilities Coffee cans and other cans
General open top cans, aerosol cans, aluminum cans, beer cans, bottle crowns, oblong cans, lithographing facilities Glass containers
Glass containers
High density polyethylene bottles High and low density polyethylene bottles

Table 7 NUMBER OF MANUFACTURERS OF PAPER FIBER AND WOOD CONTAINERS IN GEORGIA

!!
2651 2652 2653
3654 2655
2441
2442 2443

Number of Plants 6 7 14
10 8
14
20 6

Products
Folding paperboard boxes
Set-up paperboard boxes
Corrugated and solid fiber boxes
Sanitary food containers
Fiber cans, tubes, drums and similar products
Nailed and lock corner wooden boxes and shook
Wirebound boxes and crates
Veneer and plywood containers, except boxes and crates

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Conclusion Greater earnings are possible in serving either the national market or the southern market when the pharmaceutical items are produced in Georgia rather than being produced in the northeastern quarter of the Uo So While increased earnings of between 10 and 20 percent can be shown for a hypothetical company, the actual increase in earnings that a specific company would realize can only be determined from a case study for that companyo Individual studies can be made for interested companies.
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APPENDICES -20-

Appendix 1 NATIONAL AND SOUTHERN MARKETS
The National Wholesale Druggists' Association published the "1960 NWDA Drug Market Data" which contains detailed market estimates. Sales in the U. S. and the 11 southern states are shown in Appendix Table 1-A.

Appendix Table 1-A

SALES OF PHARMACEUTICALS FOR HUMAN USE (In Millions of Dollars at Manufacturers' Prices)

~
Alabama Arkansas Florida Georgia Kentucky Louisiana Mississippi No. Carolina So. Carolina Tennessee Texas

Total Ethical
Sales
25.00 15.69 39.78 31.65 25.00 30.89 15.67 31.16 17.80 30.64 94.49

Percent
of U. s.
1. 6205 1.0166 2.5785 2,0523 1. 6210 2.0029 1. 0155 2.0208 1.1540 1. 9866 6.1250

Percent of U. s. Ethical Sales
Prescription Hosp ita 1 Physician

1. 7999 1. 05 76 2. 7742 2.1190 1.5674 2.1519 1. 0924 1.7827 1.1309 2.1097 6.5893

1. 5458 0.9048 2.4180 1. 1315 1.6716 1. 8624 1.0059 2.7405 1.1588 2.0538 5.8523

1.1232 1. 0126 2.1289 1. 7464 1. 7354 1.6778 0.7789 1. 9873 1. 2232 1. 5136 4.9333

Total
u. s. Total u. s. Sales

357.79 1,542.61

23.1937 100.0000

24.1750 100.0000 $930.81

23.3454 100.0000 $323.59

19.8606 100.0000 $288.22

11-State Sales

$225.02

$ 75.54

$ 57.24

Percent of ethical sales, 11-state area

62 0 89/.

21.11/.

16.00%

Percent of ethical sales, U. S. total

60.34%

20.98%

18.67%

The following information was used in the market calculations. All

dollars are in millions.

Proprietaries sales, 1960, U. S. Total:

$616.94

11-state sales estimate using prescription sales percentage: $149.15

11-state total of ethical and proprietaries, 1960:

$506.93

Gross margin from manufacturers' to wholesalers' price: Gross margin from wholesalers' to retail price:

17.16%1/
36.00%~/

ll Average from August 1962, Lily Digest.
~/ Ibid.

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Resulting gross mark-up from manufacturers' to retail price as percent of manufacturers' price:
11-state retail sales, 1960: Change in retail sales of drugs from 1960 to 1961: 11-state retail sales, 1961:

88.6%
$956.08
+ 3.4%~y
$988.58

Freight advantage area, Atlanta over Chicago and New York Percent of the 11-state population Pharmaceutical Preparations Sales:

97.9%

1960 1961 1962 Estimate

Retail Price $ 936.00 $ 967.82
$1,000.00

Manufacturers' Price
$496.29
$513.16 $530. 22]j

Livestock, Poultry and Pet Health Aids
1960 reta~.1 sa 1es :3-1
1960 sales at manufacturers' sales prices:

$238,190,000 $105,161,000

The retail sales reported by Drug Topics are converted to manufacturers' sales dollars by a factor that not only include mark-up but also includes a correction in the relative bases between Drug Topics' sales figures and NWDA sales figures. The resulting manufacturers' sales dollars in the veterinary category can therefore be added to the sales for human use. The converting factor is obtained by correlating data between the two sources:

Drug Topics 1960 retail drug store sales total NWDA 1960 drug store sales in manufacturers' dollars: Ratio of Drug Topics to NWDA:

$7' 711,000,000 $3,404,397,600
2.265

11 Source: Drug Topics Annual Sales Survey. Obtained by combining the
prescription and packaged medication sales and subtracting the duplications. 2/ Represents a 3.3% increase over 1961. Percentage increases have
been greater than this from 1954 through 1961.
11 Source: Drug Topics Annual Sales Survey.
-22-

Appendix 2 MARKET FORECAST CALCULATIONS
The growth in annual sales of pharmaceutical products from 1949 to 1961 is measured by using data published annually by Drug Topics. Three items are combined: prescription sales and packaged medication are added, and from this the duplication figure is subtracted. The annual sales figure is converted to an index number with 1960 equaling 100. The index is plotted in Appendix Figure 2-A.
Per capita sales are obtained by dividing annual sales by population and then converted to an index with 1960 equaling 100. This index is plotted in Appendix Figure 2-B. The figures are listed in Appendix Table 2-A.

Appendix Table 2-A ANNUAL PHARMACEUTICAL SALES DATA

Year 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 1950 1949

SaleJI

Change from
Previous Year

$3,715,740,000 +3.4%

3,592,550,000 +7.7%

3,334,620,000 +10.9%

3,007,060,000 +6. 2%

2,830,730,000 +16.8%

2,423,620,000 +14.9%

2,ll0,010,000 +12.4%

1,877,230,000 +7 0 27.

1,751,150,000 +2.4%

1, 710, llO ,000 +4. 6i.

1,634,900,000 +9.4%

1,494,420,000 +3.7%

1,441,100,000

Sales Index 1960 = 100 103.4 100.0 93.8 83.7 78.9 67.5 58.7 52.2 48.7 47.6 45.5 41.6 40.1

Sales Per CaEita
$20.23 19.88 18.81 17.28 16.53 14.41 12.77 11.56 10.97 10.89 10.59 9.85 9.66

1967 -- from Appendix Figure 2-B

$24.50

Per Capita Index
1960 = 100
101.76 100.00
94.61 86.92 83.14 71.12 64.23 58.14 55.18 54.77 53.26 49.54 48.59
123.23

l l The year 1954 and earlier years are adjusted to the same base
as the later years by using the percent of change.

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APPENDIX FIGURE 2-A PHARMACEUTICAL SALES INDEX

~ X

100 90

z 80

~ 70

::;j_ 60
II)

50

40

APPENDIX FIGURE 2-B PER CAPITA SALES INDEX FOR PHARMACEUTICALS

X 100

Ll.J

Q z

90 80

X 70
Ll.J
-<(' 60
II)

50

40

30 1948 50 52 54 56 58 60 62 64 66 68 70

Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY

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The per capita sales for 1967 were estimated, using Appendix Figure 2-B. The sales history for the past 13 years was studied by forecasters of the Industrial Development Division who made the estimate.

The per capita sales figure is multiplied by an authoritative forecast of popu 1at1.onl-/ for 1967 for both the U. S. and the 11-state area. The fore-

cast for 1967 for the U. S. and the 11-state area is 37.28% increase over

1960. The calculations are shown below~

Per capita sales from Appendix Figure 2-B
Per capita sales index, 1960 = 100

$ 24.50
123.23

Population:

Year 1960 1967 Percent increase:

u. s.
179,323,175 199,766,000
11.4%

11-State Areal) 42,570,522 47,423,600 11.4%

1967 population index, 1960 = 100:

111.4

1967 sales index from population index X per capita sales index:

111.4 x 123.23 = 137.28 or 37.28% increase in 1967 over 1960

The McGraw-Hill Department of Economics forecast production to increase 150% by 1975 over 1960. The 1967 production, by using the average rate of growth method, would be 54% above 1960. Therefore, for both the production and sales forecast to be accurate, substantial price deflation would also occur. The Wholesale Price Index of Drugs and Pharmaceuticals (Appendix Table 2-B) has shown only small variations and actually register deflation from 1949 through 1961.

11 U. S. News and World Report Population Forecast for 1970.
2/ The 11-state population estimate for 1967 is made from individual state-estimates and not, as the percentages suggest, by using the same percentage of the U. S. as in 1960.
-25-

Appendix Table 2-B
WHOLESALE PRICE INDEX OF DRUGS AND PHARMACEUTICALS (1960 ::: 100)

1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 1950 1949

97.1 100.0
98.5 99.4 98.6 97.4 98.1 99.3 98.2 97.8 101.1 97.8 98.9

More recently Charles A. Hampton of Abbott Laboratories' Commercial Development Division authored a report "Ethical Drugs''-=1- / in which he
forecast an increase of over 90% from 1960 to 1967. The statistical
technique involved five multiple regression models, providing sophisticated forecasting.

1/ Hampton, Charles A., "Ethical Drugs, CW Report," Chemical Week, November 17, 1962, p. 134.
-26-

Appendix 3 DETERMINATION OF FREIGHT COST

To determine the freight cost for serving the national market, the
national market is divided into 37 service area~/ as shown on Appendix
Map 3-A. A central city in each area represents the destination of the shipments to that area. Appendix Table 3-A shows the area number, the central city, and the per cent of U. S. sales of ethical drugs in each area. The other information needed to calculate the freight bill as a percent of sales is the freight rate for each origin-destination pair, and a factor for converting dollar sales volume to shipping weight.
The following mathematical relationships are used: g- Service areas's percent of U. S. sales. S - Dollar volume of the plant sales. f - Factor that converts dollar volume sales to hundreds of pounds of shipping weight, CWT/$ of sales. y - Freight rate to central city in service area. B - Freight bill to specific service area. B (g)(S)(f)(y)
Total B glsfyl + g2sfy2 + g3sfy3 + etc. Total B Sf(glyl + ~2Y2 + g3y3 +etc.)

Freight bill as percent of the plant's sales

Total S

B =

f(llyl

+

g2y2

+

g3y3

+etc.)

The results of the freight calculation are shown in the text. The factor for converting sales to shipping weight was picked for convenience to be one pound to one dollar of sales. Examination of ratios for some actual products displayed a range of from 0.1 pound per dollar of sales to six pounds per dollar of sales. Consulting with people in the pharmaceutical industry, the $1 per pound average was favored.
Appendix Table 3-A indicates the service areas that were used to compute shipping cost to the freight advantage area.

1/ Designated wholesale drug areas by the National Wholesale
Druggists' Association.

-27-

Area Number
1
2 3 4 5 6 7 8
9
10
11
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

Appendix Table 3-A CENTRAL CITIES FOR SERVICE AREAS

Central City
Boston Hartford Albany, N. Y. New York City Philadelphia Syracuse Pittsburgh Baltimore
Richmond~'(
Cincinnati Cleveland Detroit Indianapolis St. Louis Chicago Minneapolis Des Moines Kansas City, Mo. Omaha Denver Butte Salt Lake City Seattle San Francisco Los Angeles El Paso
Dallas~:
Oklahoma City Houston'<': New Orleans*
Memphis~:
Nashville~:
Birmingham'>':
Atlanta~:
Charlotte'<':
Miami~':
Milwaukee

Area Percent of U. s. Sales
4.4196 1.2727
.9848 9.7098 5.2984 2.4470 2.3066 2.7020 3.4044 4.0248 2.1907 3.7057 2.3931 2.6965 5.5607 2.5440 1.4835 2.5274 1. 1768 1. 6922
.4315 7515 3.1664 4.5168 4.5194 .6381 3. 7772 1.6578 2.5769 2.7779 1. 5420 .5790 1. 9459 2.3306 1. 7978 2.2885 1. 7748

* Area used to calculate the freight advantage area for a Georgia branch plant.

-28-

APPENDIX MAP 3-A SERVICE AREAS USED IN FREIGHT COST CALCULATIONS

\

!

16 \

---------~

I
N \.0 I

Appendix Table 3-A Identifies the Central City for Each Area.
SOURCE: National Wholesale Druggists' Association