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Puerto Rico must address rising costs to ensure pharma future, says expert

By Dan Stanton+

10-Dec-2013

Puerto Rico’s drug manufacturing industry has no future unless utility costs and taxes are controlled, according to a regulatory expert.

The Caribbean island of Puerto Rico has seen manufacturing jobs fall by more than half in the last twenty years and is currently in a recession with an estimated debt of at least $70bn, the Washington Post reported.

In the last few weeks, Pfizer and Merck & Co. have independently announced plans to shutter operations on the island and - according to Senior Regulatory & Compliance Specialist at RQV Consulting, Rosario Quintero-Vives - if the Government does not react there may be more closures to come.

“If there's no real commitment to improve the industrial sector by controlling the utility costs, the taxes and allowing the private sector to grow without barriers,” she told in-Pharmatechnologist.com, “I don't see a future at all.”

Negative Spiral

The pharma industry has had a strong presence on the island since the mid-1970s due to the highly educated workforce and a series of tax allowances encouraging growth, but these key elements are losing their leverage, she continued.

“In the past 10 years we have been suffering massive migration of highly trained and educated professionals,” and, with budgets more and more going to paying utilities and taxes, “companies here are struggling to survive.”

Electricity costs have always been high, she said, but are now close to double that of the mainland US at over 29 cent per kilowatt hour (Forbes reported earlier this month), whilst tax incentives have decreased, and a recent 4% levy on offshore affiliates of manufacturing operations has recently been reintroduced.

All these factors are contributing to a “negative spiral that is driving all manufacturing out of the island,” she said, predicting unemployment to reach 40% in the next seven years as manufacturers pull-out of Puerto Rico in favour of locations with greater administrative support.

Despite their recent announcements, both Pfizer and Merck (known as MSD outside North America) told in-Pharmatechnologist.com they remained committed to the island for future manufacturing operations.

Countering the Costs

Puerto Rico’s Industrial Development Company (PRIDCO) told us despite the tax and utility rises, “securing the role of manufacturing is a supreme priority for the current administration.”

The excise tax was a necessary government measure to address the fiscal situation, Executive Director Antonio Medina Comas continued to tell us, and “PRIDCO has worked openly with companies to find different options that could help them compensate the effect of this tax.”

“Also, the current administration has set clear strategies and projects that should help us reduce the energy costs in the coming years, such as the natural gas diversification strategy,” Comas added.

Gov response

The Government itself holds an optimistic view for the future, announcing in a recently released Economic Roadmap  that it will defend its tradition Pharma base manufacturing whilst also pursuing “innovative opportunities" in biologics and generics.

Furthermore, Governor Alejandro Garcia Padilla remained confident in an interview with Bloomberg News that Puerto Rico is still an attractive place for pharma to invest in.

“Puerto Rico, per square mile, is the number one place in the world for the pharma industry,” he said, and currently the industry is “in expand mode.”

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