Puerto Rico's problems piling up

By Kirsty Barnes

- Last updated on GMT

Related tags Puerto rico Glaxosmithkline

Pfizer's revelation this week that it plans to slice jobs in Puerto
Rico is the latest in a string of blows for this popular offshore
manufacturing location.

The drug titan announced that it will diminish 40 positions from three of its Puerto Rican sites - Caguas, Vega Baja and Barceloneta - in an ongoing bid to cut costs.

Pfizer employs around 3,000 workers in its manufacturing facilities in the country, so 40 may seem like a drop in the ocean.

However, it is compounded by the fact that the company already slashed 210 jobs there last year and closed a facility in Arecibo in 2005.

Puerto Rico's $36.5bn (€25bn) pharmaceutical export industry accounts for 25 per cent of its gross domestic product (GDP) and the industry is a key source of employment for many of the island's inhabitants, so further compounding the blow to the industry's job market is a spate of other recent employee reductions by pharma firms in the region of late.

The island is one of the world's top five drug-manufacturing hubs, primarily due to its close proximity and trading ties with the US, as well as its low cost base and tax breaks.

However, the wind is blowing in Puerto Rico and various changes to the tax laws coming into place, along with required upgrades in order to employ more advanced production methods, are leaving drug companies weighing up the cost benefit ratio of continuing to run activities here.

In terms of manufacturing, last month GlaxoSmithKline (GSK) unveiled big plans for slimming down an already shrinking in-house capability over the next three years, and indicated that its troubled Cidra, Puerto Rico, plant would be the first to fall to its impending axe.

The plant is currently used to manufacture GSK's Paxil (paroxetine), Coreg (arvedilol) and troubled Avandia (rosiglitazone) and Avandamet (rosiglitazone, metformin) diabetes meds, the subject of a recent review by the US Food and Drug Administration (FDA) regarding adverse cardiovascular side effects associated with the drug.

The Puerto Rico plant had, however, already been the site of good manufacturing practice (GMP) violations between 2002 and 2005, when batches of Avandamet and Paxil were seized following sub-standard product making it onto the market.

The manufacturing issues have since been rectified, and the 250 staff left at the site will continue to manufacture GSK's antidepressant Paxil CR until it can be switched to an alternative site.

In June 2006, Schering-Plough cut over 1,000 jobs (just over 3 per cent of its workforce) at manufacturing sites in Puerto Rico and New Jersey, in a bid to reduce costs in manufacturing operations and save the company $100m a year.

In addition, Teva Pharmaceuticals, Watson Pharmaceuticals and Bristol-Myers Squibb have all recently mothballed sites in Puerto Rico, some of which had also fallen foul of the FDA over regulatory concerns.

Meanwhile, other facilities in the region are facing similar difficulties.

Patheon's Puerto Rico sites, acquired in 2004 from Mova Pharmaceutical, have been largely responsible for draining the company of life.

In late 2006 it was discovered that in Patheon's Caguas facility some batches of an undisclosed product might not achieve their expected shelf life.

The firm decided not to release any more product and to temporarily stop production to consider potential causes and solutions.

Now, the site is incurring significant additional costs in connection with the launch of a new, large-volume product, as well as market-driven volume declines for two key products.

In late 2006 a problem occurred at a different facility, believed to be Manati, where an ingredient for a different product made at that facility was temporarily unavailable.

Currently the site is experiencing lower-than-expected volumes of a new product that was introduced to the site last year, which impacted its revenues and profitability.

At its other Puerto Rican site in Carolina, Patheon ran into trouble with the FDA in 2005 regarding its production of Abbott's oral antibiotic, Omnicef (cefdinir).

The plant was temporarily closed and reopened with the "issue fully resolved" in 2006, but although, according to a Patheon spokesperson the site has "performed consistently well this year", in terms of profitability, it is now facing new pressure as Abbott's two patents on Omnicef expire this year and in 2011, opening the door to generic competition.

To try and turn things around, Patheon is involved in an ongoing attempt to improve its profitability.

At the end of the second quarter it announced it would undertake a comprehensive review of the Puerto Rico operations, with a focus on restructuring the activities, eliminating operating losses and developing a long-term plan for the business.

In particular the firm has taken several steps to adjust for declining revenues and to address operational challenges at the Caguas facility, including reducing the size of the workforce by 130 positions since May, bringing the total number of reductions to 225 positions - almost one-third of the site's workforce - since the beginning of the fiscal year.

Further cost reduction initiatives to realign operating costs with significantly reduced revenues, particularly at Carolina and Caguas, are being implemented during the fourth quarter.

Moreover, late last year Wyeth ran into difficulties with its Puerto Rico site and had to boost production at the US plant it had earmarked for closure while it dealt with ongoing manufacturing deficiencies in its Guayama facility.

Wyeth's troubles started in May 2006 with a warning letter from the FDA, in which the regulator expressed concerns about the good manufacturing practice (GMP) violations that were discovered between November and December 2005 during the agency's inspection of the company's Guayama site.

These violations resulted in a strongly-worded warning letter from the FDA to which Wyeth responded and began addressing in order to ensure compliance and avoid site closure or other severe action.

At the time a company spokesperson said that the difficulties would be "of a very short-term nature although no end date has been fixed."

Meanwhile, trouble of another kind has been inflicted upon the Manati facility belonging to the beleagured Inyx USA.

The site is in a state of disarray, having been put into Chapter 11 bankruptcy protection when its parent company, Inyx Inc. ran aground financially.

Its fate now hangs in the balance - it is the centre of a fierce ongoing court battle between creditors and its owners over its future, and there is much speculation over whether the business will be sold to a third party intact or placed under Chapter 7 and subsequently liquidated.

With the plant now barely functioning, many job losses have already occurred and a further haemorrhaging of positions is expected.

Several affected customers have also had to take Inyx USA to court.

Amidst all the turbulence, what appeared to be good news for Puerto Rico came in April when Amgen revealed it was intending to expand its commercial and clinical production capacity of recombinant erythropoietic factors at its site there.

However, this has since been marred when in August, the company retreated from its grand expansion plans.

The biotech firm admitted it planned to slash 12-14 per cent of its workforce to offset the recent difficulties it has been facing with the sales of its anaemia blockbusters, resulting in a "re-scoping" of its Ireland manufacturing operations, the construction of which was previously reported to have been delayed, revisions of its planned manufacturing expansion in Puerto Rico, and has also moderated the expansion of its research facilities.

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