Medtronic, which supplies about half of the world’s pacemakers, recently announced that the company is investing $5 million for a second facility in Puerto Rico. Baxter, another medical products giant, employs 4,000 people in its plants across the island. Why are many of the world’s biggest medical device companies investing millions on this island—a U.S. jurisdiction with a foreign-like tax structure?
According to Puerto Rico Industrial Development Company (PRIDCO), a government economic development branch, more than $5 billion in shipments of medical devices leave Puerto Rico each year. The government recently enacted Law 73, which provides up to a 50 percent tax credit of qualified research and development expenses for developing new technologies.
After last month’s AdvaMed 2010: The Medtech Conference in Washington, I talked with Victor Merced, the PRIDCO’s business development officer for Life Sciences, to learn why the medical device industry accounts for 10 percent of Puerto Rico’s jobs and 5 percent of the island’s GDP.
Merced said Puerto Rico manufacturers devices including Ace bandages, pacemakers, defibrillators, surgical equipment, sutures, scalpels, implantable orthopedics and eyeglasses. “Thirteen of the top 15 medical device companies are established in Puerto Rico,” he said. He told me there are five primary reasons these medical device companies want to set up shop on the island:
1. Tax Benefits: Puerto Rico is a U.S. jurisdiction that under the IRS code is treated as a foreign jurisdiction, so we don’t pay federal taxes. The only taxes are those negotiated between the company and the Puerto Rican government. We tell them they will be subject to the taxes of the country where they repatriated their money.
2. Legal framework: The legal framework in Puerto Rico is the same as in the U.S. We are covered by the same laws, so intellectual property that people are working so hard for is protected by federal law. So that [guarantees] that the technologies brought to Puerto Rico are safe in Puerto Rico. For example, we prosecute people who record movies in the theater; when you’re in the movies and you see these very nice black Chargers or black Explorers with black windshields, you know someone’s going to get arrested. Let me put it this way: Microsoft prints and develops all the CDs for Windows in Puerto Rico, so Microsoft trusts Puerto Rico.
3. Skilled Labor Availability: Puerto Rico has been in the life sciences market for about 40 years. We’ve done pharmaceuticals and had our footprint in medical devices. They tailor the courses here to what the industry needs. Puerto Rico graduates 30,000 degrees every year; of those, 10,000 are in a technical field—engineers and scientists. It’s just part of the culture. Your dad would tell you go to college, get a degree and get a good job. Here it’s encouraged to get a technical degree because of our large footprints of pharma and biotech and aerospace. There’s a market for that here. Right now the pharma sector alone is more than 100,000. In job creation, 34 percent of the jobs created in Puerto Rico are in the life sciences market. It’s big.
4. Infrastructure: We have a solid infrastructure, just like any state in the U.S. Puerto Rico is surrounded by freeways. We have a port in San Juan, which is where we receive all the cargo, and one in Ponce, which is under construction and will be at full capacity this year. We have 11 airports in Puerto Rico. We have a life sciences hub for UPS in Puerto Rico. Say you make pacemakers. They’re delivered straight to the doctor. So instead of going to a distribution center, they go from the manufacturer to the UPS logistics center to the doctor. At the UPS center, they do all the logistics. Say you need XYZ chemicals. From your computer you can say you need two tons, and UPS ships two tons. So UPS is sending out the raw material and the finished goods. They have boxes and insert, and it’s all created there.
5. Geographic Location: We’re surrounded by water, but our geographic location puts us at a six-hour flight from Europe, two to three hours from the East Coast, a40 minute flight to the north of South America. Puerto Rico is the farthest eastern port of America coming from Europe.
Of course anything that’s going to shipped in is going to take time, and one of the challenges we have sometimes, when there’s bad weather, some shipments get delayed. But even though we are in the hurricane path our record in hurricanes has been three in the past 50 years. The building codes here are made to withstand hurricanes.