Pharmaceuticals pep up the Tar Heel economy.

• Position: Interview with Craig Newmark, associate professor of economics at North Carolina State University - Interview

BNC: Has drug manufacturing plateaued in the state?

The growth is slowing down a little bit, at least in terms of employees and sales. Wage growth still seems to be very healthy. It's not unexpected. Companies have gotten so large, and there are outside pressures, so it makes sense it has slowed some from the '80s.

BNC: What are the outside pressures?

There's a long list. They have to offer Medicaid rebates to states. And managed care is putting pressure on them in terms of price. Some of that in terms of society is very good. But it is putting pressure on margins.

BNC: What's the effect of generic drugs?

The 17-year patent life usually isn't realized because it takes so long to get FDA approval. So in 1984, legislative changes were made to provide a little longer protection. But a hurdle was lowered for generic drugs, which now just have to show they have the same active ingredient and the same effect, without elaborate testing. You're seeing a lot more vigorous competition as soon as a drug comes off patent.

BNC: Congress is looking at pricing and profits. What's the result?

The industry has been successful for so long that it is essentially a target now. We are moving to a relatively dramatic change. You can either have higher prices and more research. Or you can have lower prices and less innovation. People say, 'Well, look at how much lower prices are in Canada or in France.' The prices are lower. But Canadian pharmaceutical companies have produced no breakthrough drugs in the past 15 years. And the same thing with France.

BNC: Are the drug companies just manufacturing here?

There's substantial manufacturing here, but if you look at those wage levels and compare them to the average, there is a substantial research component. People make higher salaries than an all-industry or all-manufacturing average because of research scientists.

BNC: How does drug manufacturing here compare with other states?

In payroll, we're about sixth. In value of shipments, we are third. New Jersey has $9 billion, Pennsylvania $7.6 billion, and we're reporting $6 billion. That's substantially more than anyone else reporting. However, the state doesn't account for a terribly large portion of shipments or payroll for the nation. The industry is not terribly localized.

BNC: How much do pharmaceutical companies contribute to the state?

In 1992, they paid $14.2 million in local taxes and $81.8 million in state taxes. That's just corporate taxes. Individual...