Drop shadow in placed PS file

I think I already know the answer to this one but can anyone confirm?
I placed a Photoshop layer into Illy. It's got a % black multiplying drop shadow layer effect.
When placed into Illy the multiplying doesn't work. I'm using a red backgound colour and it's obvious that something's wrong.
The shadow looks light brownish on the bright red ground no matter whether I have Overprint Preview turned on or not.
Do I either have to (1) do the whole thing in Photoshop or (2) take the effect off the Photoshop layer and re-create in in Illy?
Any remarks welcome.

Photoshop creates a composite layer when you save a layered PSD. If the file is saved without Maximize Compatibility, or if you change layer options in Illustrator, then Illustrator will create this composite layer instead. But no matter how the composite layer is created, it is only one layer, with one opacity setting.
You can duplicate the image and change layer options so taht one copy does not have the shadow, and one has only the shadow. Put the Shadow copy below the other image and set only the Shadow image's opacity to Multiply in Illustrator.

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