Puerto Rico Industrial Development Company: Much more than just tax breaks




Episode Loading...




PharmaTelevision requires Javascript enabled and Adobe Flash Player to watch our programmes. If you do not have Flash installed, you can download it for free from the Adobe Flash homepage.

Improve your Internet experience and start watching exciting new video content.

Video title: Puerto Rico Industrial Development Company: Much more than just tax breaks
Released on: September 19, 2012. © PharmaTelevision Ltd
Share/save this page:
Email
Bookmark
Facebook
Twitter
LinkedIn
Follow us:
RSS
Twitter
  • Summary
  • Transcript
  • Participants
  • Company
In this episode of PharmaTelevision News Review, filmed at #BIO2012 Convention in Boston, Fintan Walton talks to Victor Merced, Life Sciences Director at Puerto Rico Industrial Development Company
PRIDCO's role in growth of pharmaceutical industry in Puerto Rico
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here at BIO in Boston, in 2012. On this show I have Victor Merced, who is Life Science Director at Puerto Rico Industrial Development Agency , welcome.
Victor Merced:
Thank you.
Fintan Walton:
Puerto Rico is very well known for its manufacturing capabilities, a lot of pharmaceutical companies have located there, often very well known because of the tax policy that you have at Puerto Rico. So I just wanna get sort of feel more, a little bit better feel for Puerto Rico in terms of it's capabilities, pharmaceutical companies have been there for sometime, so why should a company want to come to Puerto Rico?
Victor Merced:
Actually, yes its sure lot of people known us for our tax breaks, actually Puerto Rico Industrial Development Company is the first industrial development company that established a program to bring foreign investment to the country. We are 68-years old and right now you know the pharmaceutical industry is our other big industry in the Island which has been in Puerto Rico for more than 50-years, just to imagine that one of our big customers in the island called Pfizer is celebrating its 65th birthday of been established in Puerto Rico, and I would say in the beginning of the industry the tax, the tax incentives were a big part of what happen in Puerto Rico and part of those tax incentives especially the federal ones just went away but the (indiscernable) didn't left they kept they stay in Puerto Rico, why? This 50-years that we have an experience in the life sciences sector has made the Puerto Ricans know the industry, know the regulation so right know if you decide to go to Puerto Rico and talk to anyone of these executives in these industries is gonna tell them manpower availability that we have in the Island with the expertise on how to do things the right way the first time, okay is one of our greatest asset today.
Puerto Rico's support programs and tax credit system for development of pharma industry
Fintan Walton:
So, I mean you've talked about the experience going all the way back you know over 65-years in the case of Pfizer, but I suppose in the end pharmaceuticals is a developing area, it's not just manufacturing isn't the same as it was 65-years ago, challenges have changed, so how obviously in the area of biologics for an examples come in but there is new innovations all the time, so how does Puerto Rico support companies that are challenged with new manufacturing methodologies?
Victor Merced:
Very, very nice question and I love it. Lets put it this way, we have to bet on our people and how we bet on our people is the our education system. Just imagine a 3500 square mile Island that has 60 institutions of higher education, Puerto Rico in that 3500 square miles had two universities that enrollment in engineering were within the top 20 of the US, so just imagine the kind of capacity there that we have grown and having this industry for so long with us what has accomplished is that the academia has actually tailored the training within this industry. Just imagine a school that actually teaches GMP in college, okay so you come out already with the GMP tools to go to the industry that's one thing, the other part is we actually because of this pharmaceutical saturation that we have in the Island we knew that biologics were gonna come, so what happens we have also five huge biotech facilities in the Island and these biotech facilities they require personal, Puerto Rico reacted to this and made also biotechnology programs that can go from biotechnology operators, biotechnology technicians to biotechnology engineering and right now even our PRIDCO totally assists there some of our sister companies to not only have engineers but also we have PhD's in biotechnology that are trained in the US then come back to Puerto Rico for this industry.
Fintan Walton:
Okay, now I mean clearly one other area that is important to the pharmaceutical industry besides manufacturing is research and development ability to discover new drugs, from Puerto Rico's point of view is that an area that you would like to see things grow, develop?
Victor Merced:
Beautiful, let me tell how we are doing, you know right now being an Island means the resources are tight, just like everywhere else in the world, so we went to our core competency, what's our core competency, we have been in for 50-years in manufacturing, we are really, really good manufacturing pharmaceuticals and biology drugs, but what happens if you go from research to development that gap is like 10-years to go to market and our biggest expertise in manufacturing so applying that knowledge what we are doing is the opposite we are going from development to research. We are actually today the Puerto Rico Industrial Development Company helping the industry to establish pilot facilities within their facilities. So we can do like start the manufacturing ability and the commercialization of the product when they are in Phase I and Phase II. How we do it? First of all if it's a new installation we have a cash grant program that will assistant them, but over and above that in our tax incentive law we have I would say bond on the best tax credit for R&D that is existing in the world today. We award 50% tax credit of the eligible activities for R&D operations in Puerto Rico, how that thing about is well okay I have this whole bunch of R&D that at a certain point how lower can I go beyond the zero in taxes, the beauty of this credit is that is not only for taxes, you can use it lets say for a start-up company that they start developing their R&D their product is not commercial they can get this credit put it in the market to sell it as a bond, he is not going to sell as a face value because it's gonna happen somebody wants to buy it to pay less taxes, okay but he will actually put some refund in the research and now lets go to the big pharma that it's doing the new drug that they are not the cash strapped, what they do with it, we know that Puerto Rico doesn't have the best power rate dollar per dollar in the world, so what we do? We give the industry a way of using the R&D credit as a form of payment to the public utility, so what happens? when this big pharma is doing the development work for this drug they get this tax credit and instead of selling it or using it for taxes they use it to pay the utilities, so what happens that unit cost of that product actually drops and makes our plans more competitive. So we devise a very, very I would say interesting way of applying tax credits in order to assist not only a start-up but also a established firm in the island.
Fintan Walton:
So just going back to the bond idea, the tax credits and convertible into a bond, so how those are actually sold? Are they sold on the New York?
Victor Merced:
It's actually sold within Puerto Rico, because that tax credit will only apply to the Puerto Rican companies. What happens, whose tax have 30% retail, so what you do is you put the tax credit within a broker, that broker is gonna look for a customer and believe me there are lots of customers around because we have big retail in the Island that doesn't want to pay us much taxes, Face value today is about 15 to 20% discount which is very, very good, how the market is tied today, so what happen when it sells that cash that they make on the sale is actually tax free to the company that sells, and then the retailer says thank you very much with this credit I just pay 15% less taxes.
Fintan Walton:
Fascinating and that's a free market, it's a market that free market?
Victor Merced:
Free market.
Fintan Walton:
That the prices of these things will change overtime?
Victor Merced:
It's free market, it's whatever it's how good your broker is, as I said there and we have this tax credit, we devise these tax credits following out tax rates around and we knew that we have a movie industry on the island and the way that tax credit work for the movie industry is very similar to this R&D. It's there we don't have Paramount in Puerto Rico they come, they film, they leave, so they cannot use the tax credit, so what they do they sell them, so we applied that same model for these kind of companies. So this is a nice way because just imagine you just spend a million dollars of hard earned cash in R&D that you will receive half a million back in a credit that you are saving 400,000.
Fintan Walton:
So have you got evidence that this actually works particularly for research and development companies?
Victor Merced:
Very simple, I am gonna tell you a miracle, I cannot tell you today this date but with this tax credit and some time on some cash credit incentive that we placed on a big pharmaceutical company we are able to get three brand new pharmaceutical drugs one of that declared a blockbuster and they are starting, we are planning to announce that big time in Puerto Rico next month, so I cannot tell you that right now I don't have the disclosure, but I can go all the way to there.
Sustainability strategy and future plans
Fintan Walton:
So we look forward to seeing, hearing about that later on. So in the end, okay so it's very much sounds like a very much tax driven strategy that Puerto Rico has adopted, but obviously that needs to be backed up by having the infrastructure, the skill set, the ability to ensure that those people who invest in Puerto Rico can actually survive and do well, so where does that go through, where you've got these wonderful ideas about tax incentives, I mean how far can you go with tax incentives?
Victor Merced:
Actually we go pretty far, because we devised tools not only for the start-up but also for the sustainability. One of the things I would need to do with the kind of economy it's going it's we have to do some changes to the model, lets say for example we were heavily into the branded drug, the patented drug market which is the one mostly hit with what is called the patent cliff, we know that the market is gonna rebound, we have this faith that the market is gonna rebound and it's gonna be like it was before, but we have to survive this part, so at the end of the day what we decided doing was asking the industry what kind of help do you need from us? What do you need to have some staying power? And I always say sometimes you need to cut our arm to have the rest of the body survive. Yes we have had some issues with plant closures mostly because of the consolidation, what we have done is it's talking to the facilities I want you to keep this part of the operations what do we need to do to keep this part of the operations going? we were able to devise combinations of grants plus additional cash run incentives in order to lets say the (indiscernable) the capital cost of this facility you know and keep them going in the Island by means of rescuing the we call it rescuing the plan is basically telling hey I am gonna put this capital to you so you can actually grow to the next level and cross this part and let me tell you, I can tell you my last year numbers, okay pharmaceutical alone allocated $433 million brand new investment not maintenance this is brand new expansion investment in Puerto Rico the last year.
Fintan Walton:
Victor Merced, thank you very much indeed for coming on the show.
Victor Merced:
Thanks for your time.
Fintan Walton:
Thank you.
Fintan Walton
Dr Fintan Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).
Victor Merced
Director of Alliance Management
At the time of recording this PTV interview Victor Merced serves as Director Life Sciences Team at PRIDCO. His prior roles include North America East Coast Regional Manager at Finesse LLC, Business Development Vice President at Coneco De Puerto Rico, Inc, Sales Manager Caribbean at Emerson Process Management and Sales Manager Caribbean at Emerson. Victor Merced graduated from University of Phoenix PR Campus in MBA, Marketing and University of PR in BS, Biology & Chemistry.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.
PRIDCO
PRIDCO: The Puerto Rico Industrial Development Company (PRIDCO), along with the Puerto Rico Government Development Bank (GDB), was created by the Government of Puerto Rico in 1942, during the administration of Governor Rexford G. Tugwell, to finance the construction and manage the operation of industrial parks where stateside manufacturing companies could find low-rent venues for their operations. For decades, it operated in tandem with the Puerto Rico Economic Development Administration, known as "Fomento" in Spanish. As a result of recent reorganizations, Fomento has been merged into PRIDCO. PRIDCO also oversees the program to promote Rums of Puerto Rico and is part of the Puerto Rico Department of Economic Development and Commerce umbrella.