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Manufacturing Industry Without Much To Say For The Year

Job creation didn’t meet comparable 2001 figures; biotechnology one of few highlights


December 26, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Puerto Rico’s manufacturing sector fortunately wasn’t severely impacted by 2001’s economic recession thanks to the solidity of the capital investment in local infrastructure and the production capacity enjoyed by companies at the time.

Puerto Rico’s economy, and most of all the manufacturing industry, was expected to rebound in 2002 with the implementation of nearly 30 economic development laws which the administration had touted as the key to economic expansion and job creation, but promotional efforts to attract new companies didn’t materialize.

The year was marked by a number of changes at both the Puerto Rico Industrial Development Co. (Pridco) and the Economic Development & Commerce Department (EDC). After scarcely one year in office, William Riefkohl was replaced by former Puerto Rico Manufacturers Association (PRMA) Executive Vice President Hector Jimenez Juarbe as Pridco executive director.

Jimenez Juarbe, who had been retired from the PRMA for four years, had been called upon by Gov. Sila Calderon to lead the Port of the Americas project. Riefkohl was named executive vice president of the Puerto Rico Manufacturers Association.

The mid-December departure of EDC Secretary Ramon Cantero Frau, though anticipated, didn’t sit well with the island’s financial, manufacturing, and business sectors. Cantero Frau has been recognized for the economic development strategy and financial credibility he lent the EDC during his term. Substitute Milton Segarra, former head of the Tourism Co., won’t have much room to make mistakes as he implements the policies that have been established.

Job creation

Statistics for job creation during the Calderon administration’s fiscal year (FY) 2002 didn’t surpass comparable FY 2001 figures, according to Pridco. The agency reported 74 company openings in FY 2002 (ends June 30), compared with 73 in FY 2001.

However, the number of new jobs created decreased 48% to 1,228 jobs in FY 2002, compared with 2,374 new jobs in FY 2001. With most new jobs created in the chemical/pharmaceutical sector, the only other area significantly impacted was equipment & machinery. According to Pridco, the agency is in the process of attracting new high-technology companies to the island, though they won’t generate the number of jobs that traditional companies used to create.

Company closings were down 66 and 4,855 jobs were lost during FY 2002, compared with 75 company closings and 5,727 jobs lost in FY 2001. July 2001 had the largest number of jobs lost, at 2,028, and August 2001 had the most company closings, at 13.

FY 2003 to date

In the first four months of fiscal year 2003 (July 2002 and October 2002), 14 companies and 181 jobs were created, compared with 19 companies and 341 jobs during the same period a year earlier. Rubber and plastics manufacturing companies provided 82 new jobs, with the balance emerging in the wood, paper, printing, chemical, stone, and metal industries.

Five company closings were reported during the first four months of FY 2003, with 65 jobs lost, compared with 28 companies and 1,888 jobs lost in October 2001. An additional 619 jobs will be gone by the end of FY 2003 as a result of the current closings.

Pridco reported 95 job promotions through October 2002, with the potential for 7,830 new jobs and capital investments from the companies reaching $1.2 billion. New jobs are most prevalent in the instruments sector, followed by chemicals, electric/electronics, and food products.

In 2002, the administration commissioned a plan from Washington, D.C.-based management consultant McKinsey & Co. to accelerate job creation potential in high-technology sectors. This resulted in a communications & high technology roadmap that aims to generate up to 27,000 new jobs in the next five years.

Puerto Rico is also attracting attention in the biotechnology arena. More than $50 million in R&D funds has been granted to academia by groups such as the National Science Foundation, National Institutes of Health, National Institutes of Mental Health, and even research & development manufacturing companies.

Manufacturing industry highlights

The top story in the manufacturing sector was Abbott Laboratories’ announcement that it would invest $350 million to build a biotechnology facility in Barceloneta. Scheduled to be operational by 2006, the new plant will add 200 new jobs to the company’s work force. Eli Lilly & Co. and Amgen biotechnology centers’ groundbreaking ceremonies in Carolina and Juncos, respectively, also took place in 2002; their $900 million investment will eventually create nearly 900 jobs.

Several pharmaceutical manufacturing companies announced the integration of new production lines to their operations. Bristol-Myers Squibb (BMS) recently inaugurated a newly remodeled $30 million facility to produce Plavix, used to treat cardiovascular disease.

The U.S. Food & Drug Administration (FDA) approved Abilify, BMS’ schizophrenia treatment which could reach $1 billion in annual sales and will be produced in Humacao, and Metaglip, a combination treatment for Type 2 diabetes which will be packaged for distribution in Mayaguez.

BMS’ Cardiolite, an imaging agent manufactured in Manati, was also approved as a key to identifying silent, or undiagnosed, coronary artery disease in diabetes patients. Glucovance, produced in Humacao, will be marketed for application with a second class of diabetes drugs, increasing its annual sales from $330 million in 2001 to $530 million by 2011.

In mid-December Baxter Healthcare Corp.-Fenwal confirmed the start of a $90 million, 450-employee capital improvement project in its San German operation, just as CARIBBEAN BUSINESS had announced in March. The plant will manufacture a new product that will cleanse blood of viruses and bacteria.

In 2001 and 2002, Baxter invested nearly $20 million to expand its production lines and make infrastructure improvements. Results were obvious when the corporation received four awards recognizing the plant’s quality, cash flow, financial improvement, and integrity.

Johnson & Johnson’s (J&J) 40th anniversary on the island marked the reorganization of its local operations, ending with nine manufacturing operations and five administrative, sales & marketing, or distribution sites in Puerto Rico. The most recent J&J arrival in Puerto Rico was Cordis Corp., a manufacturer of instruments used in the treatment of cardiovascular disease. The company added approximately 200 employees to San German contract manufacturer OMJ Pharmaceuticals’ existing 240-employee work force.

One of the manufacturing sectors with the highest growth expectations is medical devices & instruments. Medtronics’ two plants in Villalba and its third in Humacao produce the company’s global yield of pacemakers, electrodes, and catheters for the treatment of cardiovascular and neurological diseases. In 2002, Medtronic announced it would invest $66 million to expand Villalba’s Medtronic Puerto Rico Inc. facilities and transfer Humacao’s Medtronic P.R. Operations Co. to a larger, state-of-the-art facility in Juncos.

Stryker Corp. announced it would start construction of a new R&D center in Puerto Rico. In 2000, Pridco had granted the surgical and medical video-imaging equipment maker close to $30 million in tax incentives and grants for construction and plant improvements.

Local manufacturing companies also emerged during the year or announced expansions of services or new subsidiaries. Construction began in Manati of the island’s first FDA-approved outsourcing warehouse, logistics, and analytic testing facility in the pharmaceutical industry. Advanced Instruments President Carlos Rodriguez, who already runs a quality control equipment manufacturing and distributing corporation for the pharmaceutical industry, owns Adchem Distributors.

Fajardo’s Comar Puerto Rico, a pharmaceutical and medical devices injection molding plant, was sold to a group of employees who formed a cooperative under the name MarCoop Molding. At San Juan’s Piers 15 and 16, masonry products manufacturer Grupo Carmelo is building a dockside facility called Ecologic Carmelo to import raw materials such as fly ash, residual resources, finished products, and other construction aggregates and export their product.

In Caguas, Manufacturing Technology Services Inc. signed a $2.5 million capital investment contract with Pridco to expand its contract manufacturing and research & development operations globally, adding 200 jobs. The company has also announced its plans to go public within five years.

Following Hanes’ and Playtex’s gradual closing of their apparel and textile operations on the island because of the high costs of its labor-intensive work force, the New Horizon Manufacturing Cooperative took over Comerio’s former Playtex manufacturing plant to continue producing intimate apparel. Pridco granted the cooperative nearly $1 million for start-up operations on a $2 million contract from Playtex.

Prescription drug discounts

Pharmaceutical companies launched three different discount programs for prescription medicines this year in an effort to increase sales. Pfizer Inc.’s Share Card program allows elderly people on low incomes and Medicare beneficiaries to pay a $15 flat fee on the company’s prescription drugs. GlaxoSmithKline’s (GSK) Health for Everyone program provides 20% to 50% savings on GSK prescription drugs with no limits for age or income.

The most recent addition was Together Rx, which had been announced earlier on the U.S. mainland as a program established by Abbott, AstraZeneca, Aventis Pharmaceuticals, BMS, GSK, J&J, and Novartis. The program offers savings on more than 150 drugs, including 26 used to treat diabetes, hypertension, cancer, allergies, asthma, arthritis, and depression.

Manufacturing companies to keep an eye on

Sales of Wyeth Pharmaceuticals’ hormone replacement drug Prempro, which is made in Puerto Rico, decreased because of a report citing its risks for heart attacks in women. Nevertheless, it is still recommended as a combination therapy for post-menopausal women suffering from symptoms such as hot flashes and who are at risk for osteoporosis.

Pfizer Inc.’s $60 billion deal to buy Pharmacia Corp. will create the most dominant drug manufacturer in the world. It will probably affect the island’s production profile, as each company has three manufacturing plants on the island. European Union antitrust regulators halted the process that was supposed to culminate this year, but the transaction is expected to take place in first-quarter 2003.

Companies in trouble

The manufacturing sector, particularly pharmaceutical production companies, is being hit hard by stricter regulatory guidelines from the industry’s prescription drug watchdog, the FDA. Schering-Plough’s consent decree with the FDA forced the company to pay a $500 million fine for quality control and record-keeping failures found at its plants in Las Piedras, Manati, and Kenilworth, N.J. In addition, there is an ongoing criminal investigation by the FDA’s Office of Criminal Investigations in Puerto Rico and the U.S. Attorney’s Office in New Jersey involving certain Schering-Plough products manufactured in Puerto Rico.

BMS is also under investigation by the U.S. Securities & Exchange Commission regarding the company’s use of price incentives to increase last year’s earnings. An FDA warning was sent to BMS’ Mayaguez facility, whose manufacturing processes are being investigated. Similar violations are in process for Becton Dickinson’s medical devices plant in Juncos.

Avon’s jewelry manufacturing facility in San Sebastian closed in 2002 as the company sought to restructure its operations and reduce costs. Although it left 320 people unemployed, a 400-employee sales force in Caguas that provided support to 18,000 direct sales representatives wasn’t affected.

StarKist Caribe’s tuna canning operation finally closed its Mayaguez operation and Pridco bought the land for $4 million. Bumble Bee’s tuna canning facility reduced its work force by 385 in May, leaving approximately 550 employees.

They Said It This Year

"Bristol-Myers Squibb’s Puerto Rico plants are critical to the company’s future success, not only for the infrastructure accumulated throughout the years but due to the quality of its work force. Even with the disappearance of [Internal Revenue Code] Section 936, BMS continues in Puerto Rico because of the people, those who work for BMS and others who provide us with services throughout the island."--BMS Global Manufacturing Operations President Thomas Primm

"I have been involved either in local politics or the government for nine years and the time has come for me to step down. I leave behind an excellent economic development team that I am sure will carry out the plans the administration has set out."--EDCD Ramon Cantero Frau on his resignation

"It is impossible to develop a country’s economy if there is a collective inertia keeping it from moving forward. I believe this not only exists in the public sector but in the private sector as well. Slowly but surely, bureaucracy has been invading not only the government but also the private sector and it must come to an end."--Puerto Rico Manufacturers Association (PRMA) President Manuel Cidre

This Caribbean Business article appears courtesy of Casiano Communications.
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