Puerto Rico’s medical device and pharmaceutical industry at a cross roads

Puerto Rico has long been a popular location for medical device and pharmaceutical manufacturing thanks to favorable duty free access to the US and tax incentives. However, increasing costs such as transportation and a potential tax increase, along with increased competition from the likes of Ireland, Mexico, Costa Rica, Dominican Republic, Southeast Asia and even the US itself, has resulted in facility closures and restructuring as medical device and pharmaceutical manufacturers look for lower cost locations.

While there are many air cargo providers such as DHL, FedEx, UPS and others, rates tend to be high as many manufacturers utilize airfreight for much of their transportation needs. Not only are rates high, but scheduling of such services can be limited. As such, while still maintaining a presence in Puerto Rico, some manufacturers such as Cardinal Health and Tyco Healthcare have opened facilities in Mexico to take advantage of NAFTA regulations and more transportation options.

According to the Advanced Medical Technology Association (AdvaMed), there are more than 60 medical device plants in Puerto Rico which represent 13% of total manufacturing and about 5% of the island’s GDP. However, a potential 4% tax increase on manufacturers, as well as one in which the US levied on medical device manufacturers in January, may force even more manufacturers to move operations to other countries.

Baxter International Inc. has manufactured pharmaceuticals and medical devices in Puerto Rico since the 1950s. Recently, it announced plans to cut 400 positions at its facility in Aibonito, shift some operations to the Dominican Republic and automate select processes at the Aibonito plant. In 2012, Abbott announced it was planning 200 manufacturing layoffs for its operations in Puerto Rico, while in  2010, Pfizer announced its intentions to close two sites and downsize another in the country as part of global restructuring efforts.

Still, other manufacturers continue to invest in the Island such as Medtronics which plans to invest $50m and add 200 new jobs while C.R. Bard plans to invest $40m on expansion of its device manufacturing in Puerto Rico.

Puerto Rico will need to find ways to remain competitive in medical device and pharmaceutical manufacturing. Even though it offers many benefits to companies, the life science industry is undergoing vast changes and the need to reduce costs is of great importance. As such, countries such as Mexico, Thailand, Singapore and the Dominican Republic appear to be providing more appealing incentives for manufacturers and thus manufacturers are establishing facilities in these countries at the expense of Puerto Rico.