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ABBOTT $200 MIL. CLARITHROMYCIN PLANT IN PUERTO RICO

Executive Summary

ABBOTT $200 MIL. CLARITHROMYCIN PLANT IN PUERTO RICO is "expected to be completed by the end of 1994," the Puerto Rico Economic Development Administration announced Aug. 10. The island development agency describes the Abbott expansion plans as the "largest expansion by an off-island company." The bulk antibiotic production facility "will create close to 600 jobs upon reaching peak production," Puerto Rico said. Clarithromycin is the active ingredient in Abbott's recently-introduced product, Biaxin. Puerto Rico is apparently publicizing the Abbott commitment to reassure other companies considering projects on the island. At July 21-22 hearings in the House, Ways & Means Committee Chairman Rostenkowski (D-Ill.) identified Sec. 936 tax credits for manufacturing on the island as a primary target for tax reform in the next legislative session. Rostenkowski floated a downward revision in the Puerto Rico tax credit (from 100% of revenues from island-based activities to 85%) in HR 5270, a bill introduced this year as a trial balloon for a proposal in the next Congress ("The Pink Sheet," July 27, p. 9). The 936 credits also have remained under congressional scrutiny as a perceived incentive for the relocation of mainland- based jobs and as a lever for attacking pharmaceutical price increases. Sen. Pryor (D-Ark.) has a bill pending (S 2000) to reduce Puerto Rico tax credits for companies that increase prices faster than the rate of general inflation. Pryor acknowledges that the bill is not going anywhere this session, but he maintains it would have a very good chance of moving as part of a Clinton presidency's initial legislative package ("The Pink Sheet" Aug. 3, T&G-2). Abbott's decision to go ahead with the large plant expansion in the face of the congressional activity implies a continued confidence in the industry's ability to withstand challenges to the tax credits. The 936 credits survived one major revision effort in 1982 led by Sen. Dole (R-Kan.). The Abbott expansion may further indicate that even the substantial threat of a 15% reduction would not be a critical blow to the credits in the long run. In 1991, Abbott saved $87 mil. from tax breaks tied to operations in Puerto Rico and Ireland. That figure translates to almost 8% of the company's net earnings for the year. Abbott already has six establishments in Puerto Rico employing almost 2,200 people, the island development agency notes. The clarithromycin plant will be in the same town (Barceloneta) as an existing erythromycin facility and a manufacturing site for antihypertensives and tranquilizers. The Puerto Rico development agency also notes that Amgen is continuing with its plans to convert a 320,000 sq. ft. building in Juncos into a fill and finish facility for Epogen and Neupogen. Amgen began making modifications to the building early this year. Mechanical completion is projected for the first quarter of 1993; production should begin in early 1994. The company is committing more than $50 mil. to the production facility. About half of the 320,000 sq. ft. in the renovated building will be used for fill and finish operations.

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