Puerto Rico Manufacturers on a Mission to Become a National Security Ally
Touts Big Pharma, Medical Device Expertise in Missive to Trump Trade Adviser
SAN JUAN — There is nothing like the crippling effect of a worldwide pandemic to expose the United States’ vulnerability to Big Pharma’s global relocation. Many in the federal government believe the Covid-19 crisis has made it painfully clear that the manufacturing of excipients for medicines and the production of personal protective equipment (PPE) must not remain on foreign soil. Foremost among those officials is White House National Trade Council Director Peter Navarro, who told CNBC that he is giving President Donald Trump an action plan for an executive order that would drive the relocation of manufacturers of medicine and medical devices back to the United States.
The White House initiative has opened an opportunity for Puerto Rico to tout its capacity as a willing partner in efforts to bring back those manufacturers at this critical juncture in the health crisis. Pointedly, the Puerto Rico Manufacturers Association (PRMA) is touting its wares as a willing partner in bolstering national security in a recent missive sent to Navarro.
“More than our pharma and medical devices, I would look at it more from a perspective of everything that has to do with national security—such as the production of Personal Protection Equipment,” explained PRMA President Carlos Rodríguez, who recently sent a letter to Navarro expressing the association’s interest in helping repatriate pharma to U.S. soil—Puerto Rico is a territory of the United States. “I think that through PIA [Pharmaceutical Industry Association] and the [Puerto Rico] Medical Device Cluster there is an evaluation being conducted pertaining to the available resources. So we are evaluating whether we are in a position to bring back the manufacturing of all these products that are closely tied to national security based on our vast experience doing so across decades.”
In the drive to get on the Navarro train, the PRMA put together a task force, which includes Rodríguez; Wendy Perry, who presides over PIA, Joaquín Viso, a veteran leader of Puerto Rico’s Big Pharma; Carlos Bonilla, a former tax adviser for Eli Lilly; Félix Negrón, vice president of operations for Medtronics; William Lockwood, a former president of the Government Development Bank; Carlos Serrano, who heads the PRMA tax committee; and Sylvia Santiago, who is the vice president of manufacturing at Destilería Serrallés and PRMA’s vice president of local industry. The group is analyzing how Puerto Rico can best position itself to become a part of the stateside initiative, looking at different models and the tax structures that might make the island more competitive with other nations such as China, while making the incentives palatable in the U.S. Congress.
“As you well know, up until 2006 we were a mecca for manufacturing. So, our capacity is there, our skilled labor is there,” the PRMA point man told Caribbean Business. “One of the things during the Covid-19 pandemic that highlights Puerto Rico’s rigorous standards is that these pharmaceutical firms remained operating with ease and security because they were already accustomed to clean procedures in their daily manufacturing. Therefore, it was a wise decision to allow them to continue to operate; also they are producing medicines that are essential in Puerto Rico and throughout the rest of the world.”
Even before Gov. Wanda Vázquez’s executive order to implement lockdown protocols, Puerto Rico’s pharmaceutical and medical device manufacturers were controlling the visits to their plants. These companies were not allowing anyone not performing an essential service to enter those plants.
Knowing Our PPEs
Although Puerto Rico is not producing PPEs, at this moment, there is a movement afoot to bring back production of N95 masks, gowns and other protective gear to supply Puerto Rico’s hospital network while showcasing the island’s medical manufacturing capacity in one fell swoop.
“We have various alternatives that we have been working on. We have a PRMA member, PrecisionWorx, that used to manufacture N95 masks and gowns—everything having to do with personal protection. But, years ago they had to leave that line of production to transform the plant because that business was taken over by China,” Rodríguez explained. “It is very interesting to see what is going on and how we can position ourselves. Although, [PrecisionWorx] had to leave that line of production, the company knows the process, their employees know the manufacturing process.
“So, what [CEO Robert Smith] is doing as a first step is to bring N95 masks to Puerto Rico for distribution as a first step parallel to his purchasing of a machine to make the masks in Puerto Rico. Because of the urgency, his first step would be to bring them already made, while he will have a machine in Puerto Rico to manufacture them here.”
In the realm of medical devices, there is already innovation on display at Engiworks, a custom-fabrication company in Caguas founded in 2000, whose engineers are already producing prototypes of various medical devices through 3D printing. The company currently manufactures for such clients as Amgen, Medtronic and Johnson & Johnson. Engiworks is working on manufacturing several prototype face shields and is preparing to manufacture ventilators.
“When we first set out to develop the shields, we used open-source designs that were already in use but we were only able to produce 10 units per hour,” explained Engiworks President Félix Rivera, an engineer who got his manufacturing chops as a student working at pharmaceuticals located in eastern Puerto Rico back in the 1990s. “So, I shifted to a process where you could produce several units from one same piece of raw material. That allowed us to manufacture 500 units per shift, which we sell to hospitals in Puerto Rico.”
Among its most innovative devices are acrylic chambers that fit over patients’ upper body to help prevent infecting frontline medical brigades as they intubate Covid-19 patients. The prototype of the so-called treatment boxes is an essential device in the times of Covid-19. That much was made painfully clear during a recent report on CBS’s “60 Minutes,” which focused on a New York hospital system overrun by the covid-19 pandemic. That report stressed the importance of keeping doctors isolated from pathogens exhaled by patients as they were being intubated.
Autopac, located in Humacao, is another company working on a prototype to automate ventilators so that physicians and their support staff do not have to compress air. The idea is to have the machine automatically compress air from the ventilator’s bag so that caregivers are free to focus on other aspects of the patients’ care.
“I think that those companies are more concerned about the health of Puerto Ricans than exporting at this stage. I know that there were hospitals in Puerto Rico that wanted to buy massive amounts of face shields to export these to the United States. But the Engiworks president [Félix Rivera] said no; he wanted to serve the pressing needs of the local market,” recalled PRMA’s Rodríguez.
Back to the Future
Although the short-term goal of the PPE manufacturing brigades is to supply the local healthcare and hospital networks, the PRMA task force sees this latest effort in the realm of protective medical gear to showcase Puerto Rico’s value in a national battle being waged against Covid-19. The question remains whether Trump’s point man on trade will welcome Puerto Rico’s offer because it has a tax incentive component that conjures the ghosts of corporate welfare past.
Puerto Rico became a manufacturing hub for drugs sold around the world thanks to tax incentives included in Section 936 of the Internal Revenue Code, which granted nearly 100 percent tax exemption on revenues generated by local manufacturing companies as long as they kept their money in Puerto Rico banks. At a high point in the early 1990s, more than 40 percent of the money in island banks were 936 funds.
When the tax code was targeted for a 10-year phaseout by the Newt Gingrich-led Republican Congress in 1996, it lit a powder keg that would eventually blow Puerto Rico’s economy to smithereens. By the time the erstwhile tax code had been phased out in 2006, Puerto Rico had lost half of its 160,000 manufacturing jobs to foreign jurisdictions.
At this writing, the PRMA was hoping the pressing concern over national security might be just the historic opportunity to help get legislation passed that will help make Puerto Rico an attractive destination for the production of important meds and devices.
“As you know, Resident Commissioner Jenniffer González has introduced a bill to incentivize the return of pharmaceutical companies to U.S. soil,” Rodríguez told Caribbean Business. “We believe it is a good start because it has opened up dialogue over which incentives are appropriate. Our task force will take those incentives to project models for manufacturers to see what works. If the incentives are deemed insufficient we look at alternatives. Ultimately, these should be incentives that would make us more competitive with China.”
Navarro, who is single-minded in his anti-China trade crusade, has seen pushback by the pharmaceutical lobby in the U.S. During recent broadcast interviews, Navarro called the Big Pharma global conglomerates an oligopoly. “This Big Pharma spin is simply a desperate attempt to stop President Donald J. Trump from moving the production of our essential medicines and medical equipment and supplies to the U.S.,” he told CNBC.
If Navarro sees the PRMA as an extension of that lobby, it will be tough sledding for the industriales to see their crusade to bring manufacturing plants back to Puerto Rico because pharma bares a scarlet letter for having taken flight for global confines largely because of very cheap skilled labor and tax incentives allow them to produce drugs for a fraction of the costs on U.S. soil.
“I don’t think it will affect us,” Rodríguez said with confidence. “If you look at another bill filed by Rep. Chip Roy, which merely seeks to have all things manufactured that have to do with national security [including medicine and medical devices] must be made on U.S. soil, you might say it runs contrary to what those lobbyists are saying—that they need diversity of locations in their [P&L] equations. So, we are looking at those two streams of thought.”
Ultimately it will come down to having Trump’s trade and tax brigades weighing whether it is worth granting decrees to attract Big Pharma and medical device companies to return to the U.S., which in Roy’s bill includes the territory of Puerto Rico, or whether more lives lost at this critical juncture is a price worth paying.