Issue Date: January 1, 2007
Scanning down the list of companies packed onto the 100-mile-long island of Puerto Rico is like reading a who's who of the drug industry; in the past few decades, nearly every U.S. firm has shipped at least part of its manufacturing to the commonwealth, largely to enjoy hefty tax breaks and an ample, affordable workforce. Firms providing support services have cropped up around the drug facilities, establishing the infrastructure for what is now widely recognized as a manufacturing powerhouse.
But the pharmaceutical industry's productivity has hit a lull, and the newer drugs that do make it to market are often more potent, requiring smaller production batches to serve patients. The situation has led to a glut of manufacturing capacity; companies are closing or selling off plants rather than opening new ones.
And yet, Puerto Rico continues to see growth in the life sciences. Despite the general pharma downturn, employment has risen steadily, and the economy based on the life sciences sector has flourished.
That success is largely a result of the arrival of new business to its shores: The pharmaceutical industry continues to be an economic mainstay, but Puerto Rico is shifting its focus to cultivating the biotechnology world.
The first biotech footprint was made in 1988, when Ortho Biologics, part of Johnson & Johnson, opened a facility producing erythropoietin α, the active ingredient in the anemia drug Eprex. There has been a steady flow of biotech investment ever since, with companies bringing bulk production of recombinant proteins and, later, monoclonal antibodies.
Activity in the sector accelerated in 2002, when a series of high-profile investments in biopharmaceutical manufacturing began to draw attention to the island. Notably, Abbott Laboratories sank $350 million into a facility in Barceloneta for the monoclonal antibody Humira. Eli Lilly & Co. spent $850 million to boost capacity for insulin products at its Carolina campus. And most recently, Bristol-Myers Squibb announced plans to invest $200 million to add capacity for the rheumatoid arthritis drug Orencia at its site in Manati.
Meanwhile, Amgen's presence on the island has grown by leaps and bounds. The company committed $1.2 billion in 2002 to more than triple the size of its facility in Juncos to 1.1 million sq ft, and last year the firm said it would put another $1 billion toward nearly doubling that capacity by 2010.
Yet all that investment in Puerto Rico isn't happening in a vacuum. The commonwealth enjoyed decades of unmitigated success in attracting traditional drug companies, but competition for biopharmaceutical projects has quickly taken hold. Ireland and Singapore have become aggressive suitors for biotech business, and it is becoming apparent that Puerto Rico will need to step up its game to continue to be a major player.
Puerto Rico "now realizes that Singapore wants what they have" and is going after it full force, says Paul Romness, an economic development consultant at Odell Simms & Associates.
Recognizing that business won't just wash up on its shores anymore, Puerto Rico is taking a different strategy to attract biotech investment than it did with the pharma industry. The idea is to change the perception that the commonwealth is simply a manufacturing hub and to establish an environment where companies will not only make drugs but discover and develop them as well. The Puerto Rican government believes that this new research layer is critical to keeping the life sciences business on the island.
Like the U.S. drug companies that have invested in Puerto Rico, biotech firms appreciate the combination of experienced labor, respect for intellectual property, and, of course, generous tax incentives provided by the commonwealth. "Puerto Rico offers the advantages of going offshore with the security of being at home," says Enrique Mirandés, director of life sciences at Puerto Rican Industrial Development Co. (Pridco).
When scouting locations for biopharmaceutical manufacturing, companies are looking to fill five major "buckets," says James V. Blackwell, a consultant with Acton, Mass.-based BioProcess Technology Consultants. Tax and financial incentives are the most critical, but a probusiness environment that includes respect for intellectual property, an experienced and cost-effective workforce, supporting infrastructure, and synergies with existing operations also play into the decision.
The pros and cons mostly balance out when Puerto Rico is compared with countries like Singapore and Ireland, but the commonwealth does have several advantages that can tip the scales in its favor. Geographical proximity to the U.S. is a major asset, particularly for biotech companies with operations primarily in North America, Romness notes.
Furthermore, almost every major pharmaceutical company already has operations in Puerto Rico, resulting in ready-made synergies for new businesses, Blackwell says. For example, Lilly situated its insulin facility at its existing site in Carolina, which was established in 1965. Likewise, Bristol-Myers' biotech investment came at a site that had for years manufactured small-molecule drugs.
The government has become highly organized in its negotiations with companies looking to bring new business to the island, an efficiency that potential partners find appealing.
When Amgen was considering the most recent expansion at its biologics manufacturing site in Juncos, the Puerto Rican government dispatched a team of agency heads to facilitate the negotiations, according to Odell Simms' Romness, who worked for Amgen at the time and was involved with the deal. "Any type of negotiations that include massive commitments of infrastructure and very generous incentive packages usually take six, if not 12, months to negotiate. We did it, literally, in four weeks," Romness says.
However, Puerto Rico is also facing challenges, particularly when it comes to labor. "One of the challenges in the past four years has been to develop biotechnology knowledge," says Henry McLeod Matos, environmental health and safety associate director at Amgen's Juncos site. Amgen has helped universities develop training curriculum, such as a six-week course at the University of Puerto Rico (UPR) where students work at a training facility.
Lilly found availability of experienced labor and the ability to source support products to be the biggest hurdles when it began making Humalog in Puerto Rico, says Seamus D. Malone, president and general manager of Lilly del Caribe. Like Amgen, the company partnered with UPR to cultivate those necessary resources.
As the biotech industry moves into Puerto Rico, the composition of the workforce servicing the life sciences industry is changing, Pridco's Mirandés says. In the heyday of pharmaceutical manufacturing, "the operators at a fill-and-finish line or a packaging line were mostly high school graduates," he notes.
The bar has been raised with the arrival of biotech companies. A significant portion of workers at the biopharmaceutical facilities hold associates degrees or higher. For example, 65% of the employees at Amgen's Juncos site have at least a bachelor's degree, and the company expects the figure to be around 70% in 2010. "There is a very significant shift in the workforce in the type of jobs created by these sites," Mirandés says.
Mirandés knows all too well that competing regions have a deep pool of human resources. Ireland, even though it is presently experiencing some labor shortages, can draw on local, U.K., and European Union workers to staff its factories. And while Singapore's workforce has less experience in biopharmaceutical manufacturing, there is an ample supply of skilled workers who can be retrained relatively easily, Blackwell points out.
A related challenge is convincing expatriate scientists and managers to return to the island. "As you build up this infrastructure, you need to bring in seasoned managers," which is a bigger hurdle in Puerto Rico than in Ireland and Singapore, Blackwell notes.
"We have a challenge to bring back some of these researchers and counter the brain drain that we've suffered," Mirand's admits. Anecdotal evidence indicates that more than 40% of the engineers educated in Puerto Rico leave for the U.S. "We're going to have to create more and better opportunities for them here," he says.
The Puerto Rican government has made a number of investments to foster the development of the biotech industry with the ultimate goal of keeping brainpower in Puerto Rico. Importantly, the foundation being laid is grounded not only in manufacturing but also in establishing a research and development base on the island.
"Manufacturing has been very good for Puerto Rico, but the future is really in the earlier stages of development," Romness notes.
The most ambitious research initiative came last June, when ground was broken on the Molecular Sciences Center, a joint venture between UPR, Pridco, and the U.S. National Institutes of Health. The 120,000-sq-ft facility will house a range of research programs and offer incubator space to biotech companies that spin out of the university system.
The $60 million center, set to open in 2008, is "a quantum leap in terms of R&D in Puerto Rico," Mirandés says. "For the first time, we'll have a state-of-the-art facility to house top scientists," which the government hopes will be a draw for both American researchers and Puerto Rican researchers who have left the island.
The Molecular Sciences Center will also bring Puerto Rico closer in line with the breadth of resources offered at other manufacturing hubs. Specifically, it attempts to put the commonwealth head-to-head with Singapore, which has sunk millions of dollars into Biopolis, a biotech complex that has quickly attracted corporate investment in both manufacturing and research (C&EN, Feb. 27, 2006, page 10).
The Puerto Rican government is also trying to leverage its status as a U.S. commonwealth to attract top-level scientists and research-based businesses. Companies with pioneer products or technologies that come to the island could enjoy tax rates as low as 0 to 2%, Mirandés says.
The government is also considering offering tax incentives to individuals, particularly expatriates who have made their career in the U.S. Scientists who meet a certain set of criteria would be selected by the government to live tax-free on the island. That measure is a longer term proposition, as it would require legislation before taking effect.
While it tries to draw biotech research, the government also recognizes the importance of supporting the island's existing manufacturing industry. The University of Puerto Rico, Mayagüez, has offered an industrial biotechnology degree for the past decade and is now working to get approval for a doctoral program. "Many of the students from UPR Mayagüez have gone on to pursue master's or doctoral work in the U.S.," Mirandés says, where they often stay. The hope is that the doctoral program will stem that brain drain.
On top of developing the island's human resources, the government is also investing in projects that directly support industry. The most recent is the Bioprocess Training & Development Center intended to provide local companies with training facilities and technical support. Start-up biotech firms will have access to the center to scale up manufacturing from pilot to commercial levels.
Scheduled to open in the fourth quarter of 2007, the center will have 8,600 sq ft of bioprocess research labs, including a microbial fermentation suite, mammalian cell culture suites, purification services, and bioanalytical and biochemical characterization labs.
The center, which improves upon a smaller facility on the Mayagüez campus, is a public-private partnership funded by UPR, Pridco, and the U.S. Department of Commerce. Its board of directors includes the general managers of several biotech companies on the island.
The government is seeing early signs of success in attracting the research-intensive stages of the biotech business. In manufacturing, small steps to bring more complex production methods indicate growing confidence in the experience of the workforce.
For example, Amgen is doing its part to bring brainpower back to Puerto Rico, says Ramon Rivera-Gonzalez, director of quality assurance at Amgen's fill/finish facility in Juncos. In early 2006, the company shifted its process development group to the Juncos site and is now releasing product directly from Puerto Rico, rather than waiting for final tests from company headquarters in California.
Lilly is implementing production processes at its Carolina site that improve upon the methods developed at its insulin plant in Indianapolis. Furthermore, demand will likely outstrip capacity at Carolina by 2009, Lilly's Malone says, a signal that a further investment could be in the cards.
There are also encouraging developments on the research side, Pridco representatives say. Two U.S. biotech start-ups, both led by expatriates, are currently in discussions with Pridco about relocating to Puerto Rico. Though there is plenty of biotech manufacturing on the island, these companies would represent the first biotech firms that are performing R&D there.
And a traditional big pharma company is facilitating another first: Merck & Co. is conducting a Phase I clinical trial with UPR's cancer center. "I'm hoping that, in the near future, we can have some success stories to talk about," Mirandés says.
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