Carribean Med-Tech Movement

As part of a vast expansion and globalization initiative, St. Jude Medical, Inc., based in Little Canada, acquired a new 150,000-square-foot medical device manufacturing facility in September in Arecibo, Puerto Rico. The new plant will start out making pacemakers—devices that regulate heart rate and rhythm—and will manufacture other products over time. Pacing leads, small wire-like devices that are used by surgeons to place pacemakers in the body, also will be among the company’s first products manufactured there.

Operations are set to begin by mid-2008. Over the next five years, St. Jude will invest $200 million in all of its facilities in Puerto Rico.

“We started out [in Puerto Rico] 20 years ago with only 25 employees,” says Kathleen Janasz, the company’s senior director of public relations and communications. “The new site will create up to 1,200 new jobs within the next three years. We’ve had a lot of success there, and we feel there’s potential for quite a bit more success.”

This isn’t St. Jude’s first foray into Puerto Rico. Its first plant, a 23,000-square-foot facility in Caguas, opened in 1987. It manufactures cardiovascular and cardiac rhythm management devices for the U.S. and international market. A second site, a sales and service office in Caguas, opened in January 2007. The two locations have more than 500 employees.

A Larger Context

If that seems like a large investment to make in a Caribbean commonwealth only slightly more populous than the metropolitan Twin Cities, it may be instructive to look at St. Jude’s initiatives in a larger context. Puerto Rico has been courting biotech for decades. According to Ricardo Rivera Cardona, Puerto Rico’s secretary of economic development and commerce, the island produces three-quarters of the top 20 prescription drugs sold in the United States, and ranks eighth in the world in shipments of medical and scientific devices.

Medtronic was the first Minnesota medical device company to commence operations in Puerto Rico. It was quickly followed by cardiac rhythm management company Guidant (which merged with Boston Scientific last April and is now known by that name), St. Jude, and Synovis Surgical Innovations, a surgical device manufacturer based in St. Paul. Nowadays, the field also includes firms such as Allergan, Inc., a pharmaceutical and medical device company based in Irvine, California; Indianapolis-based Eli Lilly and Company; wound closure and surgical device maker U.S. Surgical in Pembroke, Bermuda; New Jersey–based Johnson & Johnson; B. Braun USA, a medical device maker in Las Vegas; and London-based global health-products giant Unilever.

It’s not just devices that are being made in Puerto Rico. More than 60 pharmaceutical plants—representing all the major U.S. firms, as well as some of their European counterparts—are located on the island.

What makes Puerto Rico such an appealing locale for manufacturing and distribution of medical products? Until recently, the main attraction was an investment incentive laid down in Section 936 of the U.S. Internal Revenue Code. Enacted in 1982, the legislation exempted from federal corporate income taxes the income earned by U.S. firms at operations in U.S. territories. Section 936 was repealed in 1996, with a clause that retained its benefits for 10 years for corporations already operating in these areas.