Tuesday, September 22, 2020

Oversight Board Presents Report on Manufacturing Opportunities for Puerto Rico

By on August 4, 2020

(San Juan, PR – August 4, 2020) – The Financial Oversight and Management Board for Puerto Rico today presented a report about opportunities for Puerto Rico to take advantage of the current public debate about bringing pharmaceutical and medical device manufacturing back to the United States as concerns regarding supply chain security grow. 

The report, prepared by Boston Consulting Group and completed over four weeks, represents a short and focused assessment of how Puerto Rico can best position itself to attract biopharmaceutical and medical device manufacturing companies in the face of COVID-19 and potential federal legislative action. 

Puerto Rico exported over $40 billion in biopharma products in 2019, including over $30 billion to the mainland U.S., more than twice the value of any foreign country or U.S. state. It exported about $3 billion in medical technology products. 

“This is a unique potential opportunity for Puerto Rico,” said Carlos García, a member of the Oversight Board. “The current discussion around incentives to support U.S. manufacturing could provide the kind of economic development tool that has been missing in Puerto Rico for some time, particularly given the strong competitive advantages Puerto Rico offers investors. Those include a strong existing manufacturing ecosystem and capacity that minimizes time and capital for product transfer; specialized and cost-competitive labor with a strong pipeline of universities and labs; and a lower cost of manufacturing compared to U.S. states with established manufacturing hubs.” 

In the current context, companies that are either medically necessary in the U.S., that have substantial supply chain risk they wish to manage, or that can easily adjust their supply chains should be the first priority. 

Like the makers of generic drugs, contract development and manufacturing organizations (CDMO), companies that manufacture drugs on a contract basis, also focus on cost and quality. CDMO, therefore, benefit from the economically distressed zones legislation and could also take advantage of Puerto Rico’s manufacturing ecosystem. 

Puerto Rico is well-positioned to compete with U.S. manufacturing locations in the Southeast and U.S. Border States because of its experienced engineers, chemists, and biologists; its track record of reliability in manufacturing; and because of its existing, underutilized sites ready for businesses to use. 

“This report shares important insights on the decision-making process of pharmaceutical and medical device manufacturing,” said the Oversight Board’s Executive Director, Natalie Jaresko. “It outlines the substantial opportunities for Puerto Rico given Puerto Rico’s critical role in the industries and valuable competitive advantages.” 

A proactive effort, however, needs to be made by both the Government of Puerto Rico and the Federal Government. The Government of Puerto Rico needs to develop outreach strategies for companies with a higher likelihood of in-shoring in Puerto Rico. The report outlines how Puerto Rico is positioned compared to other potential in-shoring locations in the U.S.: labor and workforce, quality and reliability, infrastructure, operations risk, manufacturing ecosystem, manufacturing cost, tax climate, and ability to serve the U.S. market. Taking these realities into context, marketing Puerto Rico should focus on refining the misconceptions in the marketplace, emphasizing specific competencies in areas such as available talent and sites, and working to address persistent challenges such as infrastructure and permitting defined by the necessary structural reforms outlined in the Certified Fiscal Plan. 

On the federal side, the current tax incentive proposals in Congress credits for wage expenses and tax deductions for the decrease of the value of assets in economically distressed zones could have great potential benefit to the U.S. broadly and Puerto Rico specifically. Such credits are most attractive for cost-sensitive generics in small molecules and medical devices, areas in which Puerto Rico compares favorably to other economically distressed zones given its workforce and existing unused sites. 

Legislation to support economically distressed zones could result in 1,000 to 3,000 new manufacturing jobs by 2026 and provide an additional $70 million to $220 million in annual tax revenue for Puerto Rico, the report estimates. 

“The report underlines the importance of simultaneously improving Puerto Rico’s business climate,” Jaresko said. “The Puerto Rico Government must work fast towards reforms that create ease in doing business, as outlined in the Certified Fiscal Plan, including permitting and property registration reform, continue to transform its energy system to provide more reliable and more affordable electricity, and invest in efficient infrastructure.” 

For the report and presentation, please visit the Oversight Board’s website or click here for the presentation or here for the report. 

Access the report
See the presentation

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