Category Archives: Strategic Targets

Kentucky’s Automotive Industry, Part 2: Economic Contribution

The Kentucky Automotive Industry Association‘s report discussed last week also examined the contribution of Kentucky’s automotive industry to the state and regional economies through direct, indirect, and induced effects.

Direct effects created by automotive industry companies themselves, such as automotive jobs, production, exports, and payrolls. Indirect effects are caused by inter-industry activities, or business-to-business spending on goods or services used to create automobiles such as trim and engine parts. induced effects are caused by auto industry employees’ household spending. In other words, auto businesses spend money at other businesses (indirect effects) and auto employees spend money (wages) in the regional economy (induced effects). Both create jobs and tax revenue.

To estimate direct, indirect, and induced effects, the researchers used a model of Kentucky’s economy containing data on 536 industries, imports, output, employment, payroll, and other variables specific to Kentucky.

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Kentucky’s automotive industry supports over 136,000 jobs with a total payroll of $6.13 billion. However, the automotive industry is a hierarchy and it is more informative to analyze the levels separately.

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Kentucky’s four auto assembly plants employ over 16,000 people, with an average annual pay of $84,000. The Lexington Region has the highest concentration (49%) of automotive assembly plant jobs, but the Louisville Region is a close second with only 380 fewer jobs than the Lexington Region. Not surprisingly, the automotive industry supports mostly (28%) wholesale trade jobs (9,194 jobs) and jobs in eight motor vehicle manufacturing industries (3,609 jobs), such as engine parts manufacturing. The researchers found that assembly plants get most of their inputs (i.e., parts) from outside of Kentucky and that Kentucky parts manufacturers export between 10% and 70% of their products out of state.

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Unlike auto assembly jobs, employment in automotive body and parts manufacturing is not concentrated in only a few regions of the state. Regardless, the Lexington Region has the second-highest concentration of automotive body and parts manufacturing jobs (23%) behind Louisville. The average pay of automotive body and parts manufacturing is just below $48,000 per year, much lower than average annual wages at auto assembly plants, primarily due to the level of expertise and sophistication required in those positions. The largest share (14%) of jobs supported by these facilities are in wholesale trade (3,148 jobs).

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The researchers used country-level effective tax rates over the past three years to estimate Kentucky income and sales tax receipts from the automotive industry and associated revenue.

The automotive industry and all jobs supported by it contributed $488 million in state tax revenue in 2013. That’s $1 of every $14 in state taxes. The Lexington Region contributed 38% of direct state income tax revenue, 33% of all state income tax revenue, 36% of direct state sales tax revenue, and 31% of all state sales tax revenue associated with the automotive industry in 2013.

Almost 40% of all direct local occupational tax revenue derived from the auto industry went to the Lexington Region, totaling almost $20 million.  When tax revenue from indirect and induced jobs are included, the total local occupational tax revenue received by Lexington jumps to $41.6 million.

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Biotech is Booming in Lexington!

Last week was the annual Biotechnology Industry Organization (BIO) International Convention. Every year BIO brings biotechnology leaders and innovators together to showcase cutting edge technologies and to offer a week-long opportunity for participants to network and create partnerships. Attendee’s at last year’s convention included over 15,000 people from more than 60 countries, 300+ academic institutions, top 25 pharma companies, top 20 CROs and CMOs, and 1,800 exhibitors.

This year’s convention was held in Philadelphia, and members of the Bluegrass Business Development Partnership (BBDP) were in attendance. The BBDP includes representatives from Commerce Lexington Inc., the University of Kentucky, and the City of Lexington. The BBDP delegation traveled to BIO to advocate for Lexington and Kentucky, to meet with current prospects, and to develop new leads to bring businesses to the Bluegrass.

Lexington is an ideal location for innovative and high-tech companies, largely for its human assets. In fact, 40.1% of Lexingtonians have a bachelor’s degree or higher, which is considerably more than the national average of 28.8%. Lexington consistently earns high praise for its educated citizens. In 2014, Lexington was ranked the 23rd Most Educated City by Wallet Hub and the World’s 24th Smartest City by National Geographic. Lexington has also ranked #7 Best City in Terms of Business Cost (2014), #7 Best Midsized City for Jobs (2013), and #17 America’s Top 25 High-Tech Hotspots (2013).

Over 50 biotech companies have chosen to locate in Lexington, but two have recently made the news: AntiOp Inc. and Transposagen Biopharmaceuticals.

AntiOp Inc. founder Daniel Wermeling created an anti-overdose nasal spray to help save lives from heroin overdoses and has sold the life-saving product to the biotech firm Indivior, PLC. Depending on FDA approval, it may be on the market within six months. The FDA has fast-tracked the spray because there is an unmet medical need for heroin overdose treatment and the spray offers an innovative response with several advantages over existing injection-based anti-overdose methods. By removing the need for a needle, Wermeling’s invention can be used quickly, safely, and successfully by pre-hospital responders (i.e., on-the-scene law enforcement, paramedics, or even family members), and reduces the recipient’s risk of contracting hepatitis or HIV.

AntiOp, Inc. received approximately $4.5 million in SBIR/STTR funds to create the overdose antidote ($650,000 was returned because Indivior is not based in Kentucky). Wermeling, a University of Kentucky College of Pharmacy professor, created the life-saving nasal spray with support from the University of Kentucky and over $5 million in federal and state tax workers.

UK’s College of Pharmacy is the 5th Best Pharmacy Program in the nation and is an asset to Lexington. The cutting-edge medical research on disease and drug development performed by the grad students, faculty, and staff has benefited the area and the nation. Graduates enrich the workforce and faculty members have created 25 startup companies since 1989, including Wermeling’s AntiOp.

Another excellent example is Transposagen Biopharmaceuticals, a Lexington-based biotech company that has been honored with the Tibbetts Award. The Tibbetts Award is granted for exemplary technological innovation and SBIR achievement. This year the U.S. Small Business Administration granted the Tibbett Award to six individuals, three supporting organizations, and 23 small businesses, one of which was Transposagen.

Transposagen Biopharmaceuticals is a privately held biotechnology company that specializes in genetic manipulation technologies, stem cell engineering services, and creating genetically modified laboratory rats. Altering the genetic code of rat models allows scientists and researchers to compare modified organisms with normal organisms to better understand gene functions and advance medical research on disease and drug discovery.

“We at Transposagen are dedicated to providing improvements to the nation and to the world through application of our industry-leading genome engineering technologies. Receiving the Tibbetts Award is a great honor and further fuels our drive to produce high-quality, versatile gene editing tools that play a significant role in improving the quality of human life,” said Eric Ostertag, M.D., Ph.D., founder and CEO of Transposagen, reported by Globe Newswire

Last year, Transposagen entered into a multi-million dollar research collaboration and worldwide license agreement with Janssen Biotech, Inc. to develop allogenic cells that may one day be “on the shelf” cancer treatments that will not require a donor-recipient match. Transposagen’s genome editing technologies will be used to create allogenic Chimeric Antigen Receptor T-cells (CAR-T) therapies, and Janssen will pay up to $292 million per CAR-T therapy.

AntiOp, UK’s College of Pharmacy, and Transposagen are only a few examples of Lexington’s thriving business industry and the success that entrepreneurs and small businesses can have here in Lexington.

Clusters and Regional Strategy

Q: What drives high-wage growth, higher patenting rates, and economic resiliency?

A: Industry clusters.

Clusters are a regional concentration of related industries in a particular location.  It isn’t just proximity that make clusters special, it’s that an entire value chain exists within a cluster: suppliers, manufacturers, distributors, academic institutions, researchers, and workforce training – which results in tight linkages, better market insights, larger spools of specialized talent, and faster deployment of new knowledge.

Clusters act as a catalyst for economic growth, enhancing productivity and spurring innovation. Consider the clusters that have blossomed around automobile factories in Kentucky. According to the Kentucky Cabinet for Economic Development (PDF), more than 460 “motor vehicle-related” facilities are now located in the state, employing more than 82,000 workers.

Recently launched, the U.S. Cluster Mapping Project is a national economic initiative that provides over 50 million open data records on industry clusters and regional business environments in the United States to promote economic growth and national competitiveness. The project is led by Harvard Business School’s Institute for Strategy and Competitiveness in partnership with the U.S. Economic Development Administration.

The U.S. Cluster Mapping tool provide a powerful understanding of the industry dynamics shaping a regional economy and highlights opportunities for coordination and join action.  It can also offer insights into new and emerging clusters in different regions. Charts and maps from the tool illustrate, for example, that the Lexington-Fayette MSA, generally regarded as the “Horse Capital of the World”, is also major center of biopharmaceutical development and printing services.

Lexington-Fayette MSA Traded Industry Clusters
Lexington-Fayette MSA Traded Clusters

Rather than chasing investment in generically “attractive” industries, Commerce Lexington has long worked to strengthen the region’s distinctive competitive position in light of its location, existing strengths and industry mix, and business environment qualities. With one of the nation’s most educated populations, a low cost of living, ideal location and infrastructure, and a rich entrepreneurial history, it’s not hard to identify the Bluegrass Region’s unique value proposition. Click here to learn more about our strategic industry sector targets.

– CLX Economic Development Team

Commerce Lexington Update

  • Commerce Lexington Inc. and Lexington Mayor Jim Gray announced that hydra, a manufacturer of aromatherapy and bath products to more than 2,000 retailers around the world, has moved its company headquarters from San Francisco to Lexington. Click here to read the press release.
  • The U.S. Small Business Administration has awarded a State Trade Export Promotion (STEP) Grant to the Commonwealth of Kentucky, which is designed to encourage and boost international trade among small businesses in the Commonwealth. The STEP program has two objectives: 1) increase the number of small businesses that begin to export and 2) increase the value of exports for small businesses that currently export.
  • Commerce Lexington will host Kentucky Secretary of State, Alison Lundergan Grimes for a Public Policy Breakfast on Wednesday, Oct. 15.