Puerto Rico Pharma: Battered but Unbroken

One year after Hurricane Maria, Puerto Rico's pharma industry is standing its ground.

By Karen Langhauser, Chief Content Director and Meagan Parrish, Senior Editor

PM1809 Puerto Rico ReoveryAsk someone what it was like in Puerto Rico the night Hurricane Maria barreled into the island, and often, the answers take on a surprisingly calm tone.

Sure, it was loud. The winds roared at over 155 miles per hour. And there was the sideways rain — something many had never seen. But although some stayed awake all night and watched as Maria showed no mercy, many managed to sleep.

For most on the island, the real drama began the morning after.

“It’s as if you went to sleep in the 21st century and woke up in the 19th century,” Marco Monrouzeau, CFO and general manager of Neolpharma, says as we sit in his office in Caguas.

All throughout Puerto Rico, it looked as though the island had been pummeled by bombs. Trees were scattered like toothpicks on the streets. A massive storm surge plunged parts of the island underwater. And all of the forms of modern technology we rely on were suddenly gone — no power, no internet, no phone service. Puerto Rico was on its own — and the scramble to find resources had begun.

News (whether accurate or not) was spread primarily by word-of-mouth and sporadic radio broadcasts. Occasionally, someone would find a functioning cell tower and people would cluster around it in cars, desperate to connect with the outside world. Lines to get water, food and gas were horrendously long. And all of these new challenges had to be managed amidst the sudden need to rebuild.

At first, many stayed close to home, clearing debris from local roads, repairing damage to their houses, and checking in on neighbors. But for many employed by one of the island’s dozens of pharmaceutical plants, there was a notable exception to this post-Maria routine: They were at work. In fact, some hadn’t left their facilities during the storm. Luckily, many pharma companies were able to provide employees with much-needed post-storm supplies. But perhaps more importantly, going to work gave people some semblance of normalcy after their lives were so violently disrupted.

The post-Maria effort from the pharmaceutical industry, like that of Puerto Rico as a whole, is a story about resilience.

The pharma industry in Puerto Rico is up against unprecedented challenges: The Commonwealth’s crippling debt, an unstable power grid, the rapid consolidation of manufacturing facilities and a changing tax structure. On top of this, Maria has sparked worries about the future growth of manufacturing on the island.

As Puerto Rico approaches the one-year anniversary of the most destructive storm in close to a century, we headed to the island to meet with industry leaders and tour major manufacturing facilities to find out how pharma companies are recovering. Their message? The industry may have been battered, but “¡Puerto Rico se levanta!”

pharma mfg PR cast>>>>>CLICK TO SEE OUR EDITORS' PHOTOS FROM THE TRIP

PHARMA'S TROPICAL HUB
Puerto Rico may often be thought of as a picturesque getaway, but in the pharma world, it’s one of the globe’s most vibrant hubs of manufacturing.

The island became a leading destination for pharmaceutical companies after 1976, when Congress passed a tax code to make it more attractive for businesses. Called Section 936, the law exempted companies from paying corporate taxes on profits made in Puerto Rico, and was enacted to help bolster the island’s sputtering economy. It paid off. Soon, companies flocked to Puerto Rico to set up shop, including most of the biggest players in pharma: Pfizer, Bristol-Myers Squibb, Merck, Mylan, Eli Lilly and Company, and many others.

Amgen built its flagship site in Puerto Rico, which is also the biggest pharma facility on the island. About 90 percent of the company’s products now pass through the sprawling complex with 1.7 million square feet of manufacturing space and about 2,000 employees.

In particular, Puerto Rico became the place to make high-profit blockbuster drugs. Today, 11 of the world’s top 20 drugs are manufactured in Puerto Rico, including Humira, Enbrel and Lyrica.

But the good times couldn’t last forever. Despite the manufacturing boom triggered by Section 936, many began to see the law as an unfair tax break for corporations that was fueling the island’s rising debt. In 1996, Congress decided to phase out the law as the Puerto Rican government struggled to pay for public services and over-borrowed to cover its growing deficit.

After Section 936 was wiped away in 2006, the industry stumbled but didn’t fall. Some jobs were lost, but many cuts were also related to mergers, and increased efficiencies brought on by technological advances like automation.

Today, manufacturing still accounts for one-third of the island’s GDP, of which the pharma industry occupies the largest slice of the pie.

“Although companies now might pay higher taxes, it’s still better than what they pay in the States, depending on their company model,” explains Ivan Lugo, executive director of INDUNIV Research Center.

We’re gathered at Amgen’s main facility in Juncos, alongside representatives from pharma, construction and legal companies, to discuss what Maria has meant for the island.

As the front man for INDUNIV, an organization that represents the business, government and academic sectors of pharma in Puerto Rico, it’s Lugo’s job to tout the strength of the industry. There’s much to be proud of.

According to INDUNIV, pharmaceuticals now create about 78,000 direct and indirect jobs in Puerto Rico. The industry exports to more than 80 countries and is the sole source for several top-selling drugs and medical devices. The industry is also extremely high-tech with a well-educated workforce, a long history of regulatory compliance and a few notable “firsts” in pharma, including real-time release and continuous manufacturing.

In short, the business environment in Puerto Rico may have evolved in recent years — with some companies consolidating and raw job numbers declining slightly — but the pharma industry is here to stay.

BATTEN DOWN THE BATCHES
For Puerto Rico, September of last year was a painful cliché. Just two weeks after Hurricane Irma left more than half the island without power and nearly 50,000 without water, Maria made landfall — a crushing example of what it’s like for an entire island to be kicked when it’s already down.

Hitting the island as a Category 4 storm, and now considered the worst natural disaster to affect Puerto Rico in history, Maria’s 155-mph winds wiped out what was left of the electrical grid, grinding through wounds already opened by Irma.

Arthur Deboeck, general manager at Galephar Pharmaceutical Research, has one word for Maria: Ugly.

“As an engineer, I’m accustomed to building. Maria was hard because you had to slowly, but surely, watch the destruction unfold,” he explains.

For those managing pharma plants on the island, their responsibilities were twofold: Not only did they have to worry about their own homes, but they also had to prepare for the storm’s effects on their facilities, workers and, ultimately, patients.

It’s basic practice for manufacturing plants in Puerto Rico to have Standard Operating Procedures (SOPs) for both disaster preparation and recovery. The plans are specific, and executed by hurricane task forces — a group of people who are trained to stay on-site during the storm. The task forces spent the evening of Sept. 20th taking care of critical utilities, reinforcing failing doors and windows, relocating inventory as needed and keeping key personnel updated on the facility status.

Some facilities manufacturing biologics, such as AbbVie and Amgen, were not able to halt all their processes, and thus continued manufacturing through the storm, relying on generators for power.

Although most of the pharma facilities were structurally safer than many homes, the stories of those who stayed on-site were chilling.

“This is where I slept during the storm, while the rain water seeped into the room, soaking the floor around me,” says Kerry Ingalls, vice president of site operations at Amgen, gesturing to the table we’re sitting at in Amgen’s Juncos conference room.

East of Juncos, at the Galephar facility in the coastal city of Humacao, Deboeck tells us about how he covered his chief of security’s post-Maria psychological treatment after the worker witnessed the two-story windows of the administrative building exploding around him during the storm.

In times of crisis, a sense of order is often the most comforting asset — most site leaders agreed that a crucial benefit of the disaster preparedness plans was the structure they provided.

“I think a business continuity plan provides a clear chain of command,” says Idalia García, vice president and site director of CDMO, Avara Pharmaceutical Services -Arecibo. “Who’s the leader? What are the roles? This was critical to keep people calm and provide direction. People were in a state of shock but they were willing to work. And the team showed them what to do and what we were going to accomplish.”

pharma mfg disaster tips SOLVING A PROBLEM LIKE MARIA
But even the best of plans could not combat the power of Maria. The short-term impact of the storm on the pharma industry was daunting. However, the industry was strategic, and at times, even fiercely creative in sourcing solutions.

Contrary to public perception, Puerto Rico has endured surprisingly few catastrophic hurricanes — the last storm that came close to matching the intensity of Maria was Hurricane Hugo in 1989. Perhaps the biggest adjustment to make post-Maria was the loss of essential communications — cell service and email especially. These communication issues, combined with the physical obstacles caused by flooding and downed trees, and the sheer demand for essentials, made securing resources and workers a challenge.

After companies did their best to locate employees and ascertain their safety (most used radio communication via satellite) there were several issues that needed to be addressed. The knowledge that pharma facilities were manufacturing drugs, and in some cases, controlled substances, meant that security was a top priority — especially at night as darkness fell on the areas surrounding the plants.

“Even though we added some additional security people, they were here alone without perimeter lighting and without monitoring systems to see what’s happening around them. I was also concerned that our security gate was affected,” Monrouzeau notes about the Neolpharma site.

The Pfizer site in Guayama got assistance from an unlikely source — inmates from the neighboring low security detention center, who helped repair the plant’s exterior fencing after the storm. And Pfizer repaid the favor too, allowing the center to fill their potable water tanks at the site to keep the inmates hydrated.

To help with the lack of power, all of the facilities had contingency plans — most of which involved diesel-powered generators. Unfortunately, these generators were meant for brief outages — days, typically. None of the companies thought they would need to use their generators for months, like they did after Maria. 

This continuous operation also gave rise to other problems no one anticipated.

“One thing we learned is that we need to identify the critical materials that we might need, such as spare parts for generators. For example, we needed oil filters and then we couldn’t find any — they weren’t available on the island,” Monrouzeau says.

And then there were the unexpected challenges most don’t think of initially: With no power or internet, banks were closed, and ATMs and credit cards didn’t work. Suddenly, life was cash-only and that cash was hard to come by. While larger establishments, such as Amgen, have their own credit unions on-site, other plants had to get creative.

Medical technology company, Becton, Dickinson and Company (BD), for example, flew in a corporate jet full of cash. Deboeck took an even more hands-on approach at Galephar, personally driving $50k from San Juan to his plant in order to pay workers.

Filling in the Gaps
There was notable reluctance among all interviewed to criticize the government’s response to Maria. Instead, the general mindset was that of self-reliance. Pharma companies were more than willing to assist the government in “connecting the dots” as Alejandro Blanco, general manager, BD puts it.

The pharma industry knew it had to proactively take matters into its own hands and it collectively stepped up to not only assist employees, but the government and community at large.

“Someone had to provide a structured approach to manage an emergency, and our role was to take that lead,” García says. “As you can imagine, the government was busy with other things. There was a need to provide a defined direction, so we took that leadership role.” 

After the storm, Amgen worked with the Puerto Rico Water Authority and supplied resources to fix a pump that services the nearby community. The drugmaker also supplied diesel to local gas stations. When a supermarket generator broke down, Amgen sent technicians to fix it so the store could continue operating.

“There were different ways to mitigate some of the gaps that were created,” Juan Kuang, vice president, manufacturing, Amgen, says. “We came up with plans to handle whatever factors we could.”

Pharma companies also did something unexpected for a such a highly competitive industry — they worked together.

For example, there was a sudden constraint on gases like nitrogen and oxygen, that are essential for pharma manufacturers, after one of the island’s main supplier’s facility was damaged during the storm.

“Companies started talking to each other and created a supply chain for gases. Once one of us found a route, we shared with the other companies and could even share some of the product as we were getting it to the island,” Kuang explains.

Getting Personal
Strong relationships with suppliers and contractors proved essential to helping the pharma industry overcome the deluge of obstacles that rained down with Maria.

Neolpharma, for example, had contractors on-site the day after the storm, dealing with flooding and roof issues — Monrouzeau attributes this quick service to loyal, long-standing relationships.

Amgen gave props to the support and expertise they received from companies such as CIC Construction Group, which provides construction services for the biopharma and medical device industries in Puerto Rico.

Gustavo Hermida, president, CIC Construction Group, says he had 70 percent of his employees back to work the day after Maria, and 100 percent within a few days.

“We have an action plan to make sure we can respond immediately to customers. Our company has close to 650 employees around the island and we can react quickly,” Hermida says.

Notably, not one pharma leader failed to praise the efforts of the pharma workforce post-Maria. Despite suffering extensive personal losses, employees were traversing tree-strewn roads and using the little gas they had to show up to work.

“After this I have become an even bigger fan of our colleagues,” says Víctor Batista, general manager, Pfizer-Guayama. “They put the interests of Pfizer even before their own.”

In return, pharma companies looked out for the wellness of employees, too. Pfizer provided free kits with portable generators, propane stoves and portable gas tanks to all its employees, and then distributed the extra to critical contractors and nonprofits, giving away 2,200 kits in total. Amgen opened a temporary gas station and laundromat on-site. The majority of companies fed their employees and families meals, as well as provided other essentials, such as hygiene kits, water, batteries, diapers and ice.

“It was important to provide them a better and more comfortable place than they had outside, so that they could come to work and focus on contributing,” Batista concludes.

BEYOND THE STORM
Last month, as a Category 4 hurricane closed in on Hawaii, Honolulu’s mayor made a public statement to reassure the city’s residents.

“We do not want to see here what happened in Puerto Rico,” Kirk Caldwell said.

The statement illustrated how, even though a year has passed, Puerto Rico is still synonymous with “disaster.” In fact, repairing the industry’s public image may prove to be more difficult than rebuilding its infrastructure.

Part of the holdup is that the effects of Maria are lingering throughout the island. Signs on highways that long ago blew away haven’t been replaced. At some intersections, inoperable traffic lights hang precariously. Parts of rooftops in the hardest hit areas are pounded into pieces. And some are still without power.

Although most pharma facilities were up and running within weeks, some of the sites we visited are also still rebuilding, with walls, floors and windows under construction.

According to the most recent estimates from the Puerto Rican government, the full cost of repairs from Maria could reach $139 billion. For pharma companies, the costs were significant as well.

A month after Maria, Amgen estimated that its hurricane-related costs could reach $165 million. According to Monrouzeau, Neolpharma, which has a much smaller facility, submitted an insurance claim for $5 million after the hurricane to cover the cost of repairs and business interruptions — but it still hasn’t been fully repaid.

Monrouzeau admits that Neolpharma also lost one-third of a customer account due to production delays — and all of the company representatives we spoke to said there were concerns from customers. But most companies were able to reassure customers they could maintain business as usual.

“We were expecting major equipment — a compressing machine — and when it came, we sent our customers a video of that,” García says. “So, companies could see that we were doing our work to deliver our commitments and be back on our feet.”

Despite its business disruptions, Monrouzeau says Neolpharma is still pushing ahead with its plans to invest $35 million in its Caguas facility — a move the company announced just weeks before Maria.

Even so, Puerto Rico is still plagued by several major concerns for businesses.

Maria exposed the vulnerability of the island’s power grid, and there are worries it could easily fail again. The government is still over $70 billion in debt. And recently- passed taxation laws are also raising concerns.

According to Carlos Serrano, a capital partner with Reichard and Escalera Law Firm, companies are still assessing how the new taxation structure will impact businesses — but he predicts that the benefits and drawbacks will likely equal each other out. Either way, it’s one more element of uncertainty that companies in Puerto Rico have to grapple with.

After seeing the damage Maria caused, it’s difficult not to wonder if pharma companies still see Puerto Rico as an attractive destination for manufacturing. Those who attended our Amgen panel were dismissive of the idea, however, that Maria will have a long-term impact on the health of the industry.

“I’ve watched the indicators that keep track of the risk of industry decline — taxations, royalties by patent 

expirations, mergers, where sites are closing, etc. This has all been an ongoing process, but those issues have been ongoing for 30 years,” Serrano explains. “But the industry just evolves.”

What’s it going to take to overcome the public perception that Puerto Rico is a place in peril? Right now, it’s all about proving that the industry has learned from all of these storms and is even better prepared for what comes next.

ANOTHER MARIA? BRING IT ON.
Storms like Maria don’t come around often. But global warming has also increased concerns that strong hurricanes could become more frequent.

Either way, all of the company leaders we spoke to said they have updated their SOPs for hurricanes and have strengthened their business continuity plans in case of another blackout. Many have increased reserves for critical resources and are looking at new ways to ensure their supply of electricity will be stable. For most, that will likely mean switching to co-generation, or combined heat and power. These kinds of systems are generally located near the point of consumption and recycle wasted heat to produce heating, cooling and electricity from a single source.

Blanco says there has also been a lot of knowledge sharing in the industry so that others can learn from the experiences of companies on the island.

One year after Maria, the goal is to shake the image that Puerto Rico is in a state of disaster. Those in pharma hope the storm will showcase the industry’s ability to roll with the punches and bounce back stronger than it was before. No matter how many challenges the industry is up against, it’s determined to maintain its footing as a high-tech hub for pharma manufacturing.

“The reality is that what we built on this island cannot be done overnight,” Batista says of the industry’s long history and staying power.

If companies in Puerto Rico have anything to say about it, the industry won’t be un-done overnight either — and for now, it’s going to take a lot more than Maria to unearth their commitment to the island.

“I didn’t choose to come here 35 years ago only to leave because the wind is blowing a little bit more,” Deboeck says.  

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