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Manufacturing Goes High-Tech And Biotech

Puerto Rico's manufacturing industry to retool and expand as pharmaceutical companies introduce biotechnology and Pridco drafts new communications & information technology roadmap


November 28, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

A new dawn for manufacturing: C&IT roadmap to create more than 27,000 new jobs over next five years

When Eli Lilly announced in March 2001 that it would add a $200 million biotechnology plant to its Carolina complex–and then increased the scope of the project to $450 million–Puerto Rico leaped into the 21st century's science & technology race.

Since then, Amgen Manufacturing Ltd. and Abbott Laboratories have also announced the conversion of standard manufacturing processes to biotechnology, or the use of recombinant DNA, cell fusion, and new biological techniques. Given that all diseases have a genetic component, the goal is to find ways to treat, cure, or even prevent diseases.

For years, Puerto Rico’s pharmaceutical drug manufacturing companies have been spending billions of dollars on transferring innovative manufacturing technologies, adding equipment & machinery, and providing education & training for existing and new employees.

After losing nearly 8,000 jobs in the manufacturing industry in 2001 (mostly in labor-intensive industries such as apparel, electronics, leather, and oil refineries), today there is hope for the island's strong debut in the global biotechnology sciences industry. New high-technology sciences promise to create 27,000 new and better-paying jobs over five years.

Puerto Rico's pharmaceutical industry remains strong, with a work force of 27,000 in 2002, or 20% of the total manufacturing jobs. The value of pharmaceutical exports increases each year, with approximately $31 billion in pharmaceutical products exported in fiscal year (FY) 2001, a 35% increase compared with $23 billion in FY 2000. The pharmaceutical industry accounts for 22% of the island's gross domestic product, which was $67.9 billion in FY 2001.

Earlier this year, the Puerto Rico Industrial Development Co. (Pridco) commissioned a plan from international management consultant McKinsey & Co. to accelerate job creation potential in high-technology sectors. Representatives from industrial technology, government, and academia were called on to identify more than 20 key business opportunities. The result was a communications & high technology (C&IT) roadmap that charts the course for the island’s manufacturing industry for years to come.

"Pridco is committed to the development and expansion of the C&IT roadmap," said Pridco Executive Director Hector Jimenez Juarbe. "We understand Puerto Rico’s future depends on attaining a leadership role in the global manufacturing industry and that the creation of new jobs depends on high technology.

"Our most recent efforts have been in that direction, such as the clusters Pridco currently supports in sectors such as pharmaceutics, biotechnology, medical devices, electronics, and health," Jimenez Juarbe continued. "Soon two more clusters will be established in the construction and food & beverage sectors."

A critical component of the C&IT roadmap is the establishment of a Puerto Rico Research & Commercialization Alliance (PRRCA). The alliance will foster the generation of patents, incubator companies, intellectual capital, academic papers, and R&D with commercial applications. Industries such as biotechnology, pharmaceuticals, communications, and health, as well as their suppliers, will promote job creation and increased revenues from the commercialization of technology.

An initial $10 million investment by the local government will fund the PRRCA’s start-up. Once established, the alliance’s R&D work will be financed with $60 million: $40 million from the federal government plus $20 million from the local government.

By re-investing university funds and royalties, R&D funding could increase to $200 million over five years. This figure doesn’t take into account an increase in the number of Small Business Innovation Research (SBIR) awards granted to Puerto Rico by the federal government. The number of SBIR grants is expected to increase from four between 1990 and 1998 to approximately 50 per year, for an estimated $50 million in financial support.

"By interviewing more than 200 persons around the island, McKinsey & Co. developed a C&IT roadmap with all the possibilities that could be explored," said Manuel Hormaza, Pridco’s science & technology program director and the PRRCA’s director. "The PRRCA looks to develop high-technology platforms that corporations can commercialize."

The $10 million seed money for the PRRCA has already been identified in the government’s budget. Pridco now waits for Gov. Sila Calderon’s final approval to initiate its implementation.

Chain of events in science & technology leading to PRRCA

For more than 10 years, local government economic development agencies and academic institutions have been working on a model to promote technology commercialization. In 1993, the Rossello administration commissioned such a study from Massachusetts-based management consultant Arthur D. Little (see sidebar).

The firm’s results were the precursor for the island’s cluster concept. The first cluster was in the health area and it has been integrated into the government’s economic development strategy. Health cluster members are pharmaceutical companies, schools of medicine, hospitals, insurance companies, and the Puerto Rico Department of Health.

The C&IT roadmap and the PRRCA are part of a chain of events that occurred in the island’s science & technology industries in the past decade. Today, there is an obvious need for most pharmaceutical companies on the island to provide their work forces with continuing education and on-the-job training.

The PRRCA ties in the academic sector as a main component of this effort. In turn, universities are adapting their science & technology curriculums to the industrial sector’s needs. This is a necessary investment on the part of manufacturing companies that need top science, engineering, and high-technology professionals on their staffs.

From the industrial manufacturing perspective, Lilly’s announcement last year that it would build a $200 million, 200-job biotechnology manufacturing plant at its Carolina complex was a good beginning. The company’s transfer of its proposed Ireland biotechnology facility to Puerto Rico, expanding Puerto Rico’s plant to a $450 million, 450-job operation, was icing on the cake. It is unfortunate that the decision stemmed from the global financial uncertainty brought about by 9/11.

Since Lilly’s initial announcement in April 2001, the company has hired about 20 scientists and engineers. This group’s education program includes onsite training at the parent company’s Indianapolis biotechnology plant. By the time Lilly’s biotechnology plant opens in Puerto Rico in 2004, the employees will be well familiar with the protocols and procedures that will apply in the specialized production facility.

"It’s obvious biotechnology’s techniques require advanced knowledge, which at this time isn’t readily available in Puerto Rico," said Carlos Bonilla, Lilly del Caribe tax adviser. "However we can, we will motivate or sponsor such initiatives through different higher-education programs and complement them with onsite education and training. The investment the company is making in Puerto Rico’s biotechnology plant is significant, so we have to go a step further and make sure the staff is prepared to deal with the technology."

Earlier this year, Amgen announced the construction of a brand-new biotechnology facility in Juncos. The company will invest $450 million to double its current facilities to create an 810,000-square-foot biotechnology plant that will add 440 new jobs. As part of its effort to incorporate education & training for its work force, Amgen has recently signed an agreement with the Local Southeast Mayors Board (known by its Spanish acronym Alsureste).

The contract guarantees 400 jobs to area residents in the municipalities of Juncos, Las Piedras, San Lorenzo, Humacao, Yabucoa, Maunabo, and Patillas. Alsureste, whose funds come from the Workforce Investment Act of 1998, will train Amgen’s employees, refer qualified personnel to the company, and provide a 50% credit on training materials if needed.

The most recent news from the biotechnology local industry came on Oct. 29, when Abbott Laboratories held a groundbreaking ceremony for a $350 million, 200-job biotechnology plant. Part of Abbott’s complex in Barceloneta, the state-of-the-art plant is scheduled for completion in 2006.

Abbott also took the occasion to announce a $60,000, four-year scholarship program for students in fields such as biotechnology, biology, chemistry, biochemistry, microbiology, and science-applied engineering. For years, Abbott has been providing scholarships to its employees and their children.

"By 2006, Abbott will have invested more than $1 billion in Puerto Rico, making it the company’s largest manufacturing complex," said Harry Rodriguez, divisional vice president & general manager of Abbott Puerto Rico. "The decision to build a biotechnology plant on the island was based on the talent, skills, and dedication of the local work force. But the continuous improvement of our human resource is vital on both technical and professional levels."

Abbott’s Professional Development Program (PDP) searches for new job candidates to train in specialized areas. In fact, the PDP will provide the future biotechnology plant’s first employees.

At least 20 employees from the industrial biotechnology and biochemistry fields will go through the program, at a cost to Abbott of $2.6 million, before the biotechnology plant’s inauguration in 2006. Begun in 1981, the PDP spends approximately $130,000 per person and has already graduated 150 employees, boasting a 90% retention rate.

What’s new in school?

Local universities have refined their course offerings and set about to compete for funding on projects of relevance to local manufacturing industries.

The UPR has received $59.1 million in federal funding for R&D over the past 15 years. The institution has committed another $5.5 million of its own money.

In early 2002, three academic biotechnology research centers at the University of Puerto Rico (UPR) were awarded a five-year, $24 million grant from the National Institutes of Health (NIH). Two of them are part of the NIH’s Centers of Biomedical Research Excellence (Cobre) program: the Neuroscience Center for the Molecular Study of Development & Behavior and the Center for the Study of Proteins Structure, Performance & Dynamics. Third, the Center for the Development of a Biomedical Research Information & Collaboration Network, is part of the NIH’s Biomedical Research & Infrastructure Network (BRIN).

Participating in the programs are 21 professors from the UPR’s Rio Piedras, Medical Sciences, Mayaguez, and Humacao campuses, as well as from the Ponce School of Medicine and the University of Missouri.

"We are now considering submitting additional proposals to NIH’s Cobre program, particularly in the areas of proteomics and human behavior," said Dr. Manuel Gomez, UPR’s vice president of research & academic affairs and vice president of the Industrial University Research Alliance (known as Induniv).

Proteomics is the step after biotechnology to understanding cell behavior and disease. Proteins used to be studied indirectly through their genes, but new technologies are making it feasible to perform mass screening of proteins.

"The Neuroscience Center for the Molecular Study of Development and Behavior, headed by Dr. Fernando Gonzalez, is a project similar to what the study of proteomics would be," said Manuel Gonzalez. "Information is analyzed with the use of special equipment such as a dual excitation fluorimeter connected to an image processor and a fluorescent microscope. The information gathered is further evaluated with the help of the UPR’s High Performance Computing Facility and its access to Internet2."

While another source of R&D biotechnology funding could come from pharmaceutical manufacturers, expectations are that more projects will come up as biotechnology alternatives to the plants’ product development and production processes.

This is because investors have lost faith in the initial drugs developed through biotechnology, such as ImClone’s colorectal cancer drug Erbitux and Amgen’s Epogen. For the next two years, R&D funds from pharmaceutical companies will be scarce as they instead invest earnings on best-selling drugs before their patents expire.

Clusters as part of the equation

Clusters are groups of companies in a particular industry that share products and services, allowing them to centralize their needs and streamline their operational costs. Through the years, the cluster phenomenon has occurred naturally in certain regions of the island.

For example, communications and information technology companies and industry suppliers such as Digital, Hewlett-Packard, Sensormatic, MSL, Solectron, and Nypro have naturally gathered in the western region over the past 20 years because of the access to the UPR’s Mayaguez campus, which specializes in mechanical arts & sciences.

Medical device companies have also taken advantage of this access to engineering and science academics by forming their own cluster in the western region. Participants include TechnoPlastics, Thermometrics, Surgical Medical Products, St. Jude Medical, and Jostra Bentley.

Pharmaceutical companies share several regional clusters. One of the best known is the northeastern region’s pharmaceutical cluster, which includes Abbott, Merck, Pfizer, Pharmacia, and Bristol-Myers Squibb. Another pharmaceutical cluster is in the eastern region, represented by companies such as GlaxoSmithKline, BMS, Amgen, Mova, Wyeth-Ayerst, and Johnson & Johnson.

This year, a biotechnology cluster was created. Among the group’s representatives, who come from varied sectors and regions on the island, are pharmaceutical companies Eli Lilly, Amgen, Johnson & Johnson, and Abbott, as well as academic institutions UPR-Mayaguez, UPR-Rio Piedras, UPR-Medical Sciences, and Ponce School of Medicine. Fluor Daniel and Induniv have also become members.

The healthcare cluster, organized since 1998, is the most defined group. In it are hospitals (San Pablo, Pavia, and San Lucas), insurance agencies (Triple-S, MCS), academia (UPR-Medical Sciences, Ponce School of Medicine), the Puerto Rico Pharmaceutical Industry Association, and Induniv.

So far, all the clusters (except for healthcare) are headed by nonprofit business organizations, academic institutions, or science & technology industries. All are in the process of developing a more business-oriented focus.

One of these organizations is the Puerto Rico TechnoEconomic Corridor (PRTec), a high technology & business development nonprofit organization that manages the communications & information technology and medical devices clusters. Founded during the later years of the Rossello administration, as part of the government’s science & technology initiative, PRTec became an independent nonprofit in 2001.

In 2001, Gov. Sila Calderon awarded PRTec a $615,000 stipend to cover its initial start-up and administrative costs. Most recently, California Silicon Valley consultant Jose Perez was hired as executive director. His goal is to encourage the islandwide expansion of the two high-technology clusters operating in the western part of Puerto Rico, communications & high technology and medical devices.

The central & municipal governments have also become more open to incentives negotiations. Incentives from the central government–such as the economic development laws passed in 2001 and the Puerto Rico Electric Power Authority’s 11% power rate discount for companies with new or expanding facilities–have had an impact on companies’ decisions to grow locally. The government also announced a five-year, $2.5 billion infrastructure improvement program to build key areas such as housing, highways, telecommunications, and water & electric power installations.

Most of the island’s municipalities, meanwhile, have loosened up on corporate regulations to attract new companies or expansions. In Barceloneta, which boasts five major pharmaceutical manufacturing companies, Mayor Sol Luis Fontanez has renegotiated incentives such as municipal taxes on exports (patentes), offering corporations scaled taxed exemptions over five- and 10-year periods. The pharmaceutical cluster in this area, in conjunction with Mayor Fontanez, has gathered $520,000 to develop a feasibility plan

So what will the PRRCA do for Puerto Rico’s biotechnology industry?

The PRRCA initiative depends on the $10 million funding from the government to combine the government’s, academia’s, and private industry’s efforts and encourage the commercialization of technology. The model includes developing new products, establishing new companies and expanding existing operations, and promoting considerable economic activity from academic licensing.

First, a consortium must be created between the government, industry, and academia that formalizes the agreement and organizes the formal leadership. So far, Economic Development & Commerce Secretary Ramon Cantero-Frau, Pridco Executive Director Hector Jimenez Juarbe, and Management & Budget Office Director Melba Acosta have made up the C&IT roadmap’s executive team.

The second stage in the planning includes setting up a PRRCA committee, half of whose members would be CEOs (including entrepreneurs). The remaining half of the membership would be evenly split between academics and influentials.

The committee’s members would be organized into various peer groups, such as applied research, technology commercialization, and specialized incubators. They would evaluate research & commercialization proposals for funding and would closely monitor those to which funds are granted. Funding may be used for research operation, specialized equipment, and infrastructure improvement expenses.

"For the committee to be able to select a project, proponents will need to prepare a document akin to a business plan," said Hormaza, referring to guidelines stated in the McKinsey & Co. study. "The business plan should apply or improve upon existing technology to fulfill a market need and have industry or entrepreneurial participation from the beginning to encourage commercial viability."

Campaigning for additional legislative funding will be ongoing and the project will be used to attract matching funds from academia, government, and local and international industry.

In fiscal year 2002, Pridco’s Science & Technology program awarded $19.1 million to high-technology entrepreneurs. Out of those funds, 86%, or $16.4 million, went to local start-ups. Among them were Manufacturing Technology Services ($2.5 million), Snapperfarm Inc. ($750,000), International Construction Solutions Inc. ($1.5 million), RD Medical Manufacturing Inc. ($595,000), Caremco Inc. ($2.2 million), and Netxar ($750,000).

McKinsey & Co.’s study suggests the PRRCA’s proposed initiative should be temporary and eventually must be transferred to a separate entity. While the leadership of both the Economic Development & Commerce Department and the Office of Management & Budget Office is essential to get underway with the C&IT roadmap, the agility of private ventures such as industry and academia will be required to develop a consistent R&D and commercialization funding program.

"I am optimistic about the evolution of the PRRCA model," said Hormaza. "The private sector has had a limited role in the economic development of strategies to create jobs and expand high technology in Puerto Rico. But all of it depends on three elements: the integration of education, R&D, and capital investment. None of these elements is now present in Puerto Rico. Therefore, the PRRCA will be advantageous to all the parties involved."

This Caribbean Business article appears courtesy of Casiano Communications.
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