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Nine major Puerto Rico drug manufacturers report $24.3 billion in sales
Make up 47.8% of their total pharmaceutical drug sales of $50.9 billion
By MARIALBA MARTINEZ
June 3, 2005
Global sales of 52 pharmaceutical drugs manufactured in Puerto Rico by nine major corporations reached $24.3 billion, or 47.8% of total drug sales of $50.9 billion, during the first quarter (1Q) of 2005.
Drug sales of products manufactured locally by Abbott Laboratories, Amgen, Bristol-Myers & Co., Eli Lilly & Co., GlaxoSmithKline, Merck & Co., Pfizer Inc., Schering-Plough Corp., and Wyeth were flat compared to 1Q04. However, earnings decreased 4.2% during 1Q05, with companies reporting $9.2 billion for 1Q05 vs. $9.6 billion in 1Q04.
Of the 52 pharmaceutical products manufactured in Puerto Rico, the five with the highest sales were Pfizers Lipitor ($3.075 billion) and Norvasc ($1.175 billion); Mercks Zocor ($1.106 billion); Eli Lillys Zyprexa ($1.038 billion); and GlaxoSmithKlines Avandia / Avandamet ($1.002 billion). The products with the highest percentage change in sales from 1Q04 to 1Q05 were GlaxoSmithKlines Coreg (174.4%) and Avandia / Avandamet (130.3%); Pfizers Relpax (76.7%), Zithromax (71%), and Geodon (56.8%); and Schering-Ploughs Zetia (75.1%).
Merck and Pfizer topped the list of pharmaceutical products with percentage losses from 1Q04 to 1Q05. In September 2004, Merck had to retire Vioxx (-100%) from the market after studies warned of possible heart attack and stroke risks to patients. In April 2004, Pfizer also retired Bextra (-79.3%) because of the same cardiac risks found in Vioxx plus the discovery of an incidence of a potentially fatal skin allergy. Three more Pfizer medicines, Neurontin (-73.9%), Diflucan (-54.6%), and Accupril / Accuretic (-47.6%) showed considerable losses during this same period because of competition starting in 2004 from generics in the U.S. market.
Pfizer Chief Executive Officer Hank McKinnell remains optimistic about returning Bextra to the market, which had sales of $1.3 billion in 2004, and hopes to convince the industrys regulatory agencies that the drugs benefits outweigh its risks. The company also may be trying to maneuver bestseller Celebrex ($3.3 billion in sales in 2004) into a safer position with the return of Bextra. Vioxx, Celebrex, and Bextra are a class of drugs known as COX-2 inhibitors, which have proven extremely successful for arthritis patients. Celebrexs slightly different chemical composition so far has kept the drug from being removed from the market, albeit with a Food & Drug Administration order to include a black-box warning on the label. This warning is the strongest kind issued by the federal regulatory agency and will include information about cardiac risk to patients taking the medicine.
IMS Health recently reported global pharmaceutical drug sales for all manufacturers had gone up 6% from March 2004 to March 2005 in 13 leading markets, with no growth from the rate recorded a month earlier. Registered sales were $354 billion during this period, which includes more than two-thirds of the world market. IMS Health attributed flat-growth rates to generic competition and government cuts in healthcare spending.
Defending the islands pharmaceutical-manufacturing industry
Unless Puerto Rico becomes more competitive in facing the tax breaks granted last year by the U.S. Congress to U.S. mainland and foreign companies in the manufacturing industry, the islands pharmaceutical sector could be adversely impacted. Last year, Puerto Rico lost an important battle in Congress when the American Jobs Creation Act was approved, allowing manufacturing companies a one-year window to return foreign profits to the U.S. mainland at a 5.25% tax rate, compared to the standard 35% tax rate. Since Puerto Rico is considered a foreign territory under U.S. tax law, U.S. subsidiaries on the island will have a 12-month window to return their profits to their stateside parent company.
In 2005, the top-six pharmaceutical-drug-manufacturing companies in the U.S. will return an estimated $75 billion in profits from their foreign subsidiaries because of the American Jobs Creation Act. Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer, and Wyeth already announced they will repatriate or are considering repatriating approximately $75 billion in foreign profits to the U.S. The companies, which would have paid up to $26 billion in standard federal taxes under usual circumstances, now will pay less than $4 billion.
Independent financial analysts and tax lawyers say pharmaceutical companies use legal loopholes in U.S. tax law to claim their foreign profits are larger than their domestic. These experts have expressed doubt in the past about domestic revenue, stating that 60% to 75% of pharmaceutical companies drug sales occur in the U.S., where prescription drugs are more expensive, compared to sales in foreign countries where drugs are less expensive because they generally are government-controlled.
Puerto Rico Resident Commissioner Luis Fortuño recently filed two bills in Congress to make up for the economic impact that repatriation of foreign profits could represent to the islands pharmaceutical sector, which account for 25% of Puerto Ricos work force of approximately 30,000 direct jobs and 60,000 indirect jobs. Fortuños House of Representatives (H.R.) Bill 2182 requests Puerto Rico be included in the National Enterprise Zone Act so local companies can qualify for a federal tax rate of up to 17% to encourage new business creation.
The Puerto Rico Inclusion Bill of 2005 (H.R. Bill 2181) amends the islands exclusion from the American Jobs Creation Act of 2004, which reduced the tax rate of domestic manufacturing companies from 35% to 32% and also is responsible for the one-year repatriation of foreign subsidiaries profits to the U.S. In 2004, Congress offered Puerto Ricos then-Resident Commissioner Aníbal Acevedo Vilá the inclusion of the island in the bill to make up for the Calderón-Acevedo Vilá administration rejection of an amendment to Section 956 of the U.S. Internal Revenue Code, but the commonwealth government rejected the offer.
Another problem facing Puerto Rico is the manufacturing sectors trend to outsource. Even though the American Jobs Creation Act was supposed to encourage companies to expand, corporations are taking advantage of the law as a tax loophole and continuing with plans to reduce operations. In 2004, major pharmaceutical manufacturers, such as Pfizer, Merck, and Eli Lilly, announced billions of dollars in major restructuring initiatives, which include plant closings and head-count reductions worldwide.
To address their physical manufacturing needs, pharmaceutical companies are turning to contract manufacturing operators (CMO), such as Patheon / Mova Pharmaceuticals and Cardinal Health, which have plants in Puerto Rico. Patheons $350 million acquisition of Mova Pharmaceutical in 2004 speaks highly of the local CMOs capabilities and its longtime contracts with local manufacturers.
Cardinal Health has six manufacturing operations, two in Humacao and one each in Añasco, Guaynabo, Manatí, and Las Piedras. The CMO offers different capabilities for its clients, such as contract packaging, medical devices, printer components, inserts / labels / outserts, electronics / clinical technical services, and sterile products. The sterile products division in Humacao will close this year and its services will be transferred to other company operations.
Still, Pfizer will continue its $4 billion cost-savings plan until 2008, including a 25% cut in its manufacturing plants; Eli Lillys restructuring initiatives include relying more on CMOs; and Merck announced it will eliminate 5,100 jobs, with about 50% of the cuts coming from the manufacturing division.
This Caribbean Business article appears courtesy of Casiano Communications.