Our team recently had the privilege of attending the BIO International Convention in San Diego, California, as part of the Invest Puerto Rico delegation. The event, renowned as the largest and most comprehensive in the biotech industry, brought together around 20,000 leaders from across the world. Through engaging in over 150 conversations, we gleaned valuable insights into the current and future state of biotechnology and, most importantly, the sentiment toward R&D and manufacturing in Puerto Rico. This year, even more than the prior two years, many companies were eager to understand the opportunities to relocate operations and create jobs in Puerto Rico.
Key Takeaways from the convention:
Takeaway #1. Strong Interest in Reshoring R&D and Manufacturing Activities: There was a significant trend among executives looking to potentially establish or expand their R&D and manufacturing capabilities within the US. Key themes in the various conversations included:
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- Supply Chain Resilience: Many people still remember the vulnerabilities in supply chains highlighted during the pandemic. Numerous conversations centered on an industry shift away from overdependence on overseas manufacturing.
- Consumer and Market Proximity: Many companies developing products in foreign jurisdictions highlighted access to the US markets as a top priority. Several key conversations centered around site selection for manufacturing operations closer to the US market or within the US.
- Geopolitical Tensions: Increasing tensions, especially between the US and China, have left many seeing growing risks of foreign manufacturing. While there is still significant uncertainty, many executives are seeking to hedge risk by reestablishing or growing domestic US operations.
- Quality Control and Compliance: Many conversations emphasized the importance of adhering to regulatory standards and improving quality and compliance. While this, at times, was more general and not necessarily tied to only US operations, a common theme was meeting US regulatory requirements for market access.
- Intellectual Property Protection: Various executives expressed concerns over IP protections, much of which were tied to geopolitical issues. Given the robust IP protections in the US, many see performing R&D on US soil as a safeguard.
- Clinical Trials Capabilities: There are several centers around the around the Island that have fostered and developed close relationships with Academia, Doctors, labs, Clinics and Hospitals to conduct a variety of clinical trials, like the recently inagurated Clinical Trial Solutions Center at the Puerto Rico Science Trust.
Why Puerto Rico? We believe that many executives were drawn to the Invest Puerto Rico booth because the Island has the potential to address each of the common themes discussed. As a US territory, Puerto Rico has historically played a significant role in pharmaceutical and medical device manufacturing.
- Puerto Rico is the #1 producer and exporter of pharmaceutical products in the entire US, with more than $53B in exports.
- 6 of the top 10 biologics in the world are manufactured on the Island.
- There are more than 2,100 independent product lines produced in Puerto Rico.
- Approximately 2,500 STEM bilingual students graduate annually, providing ample new talent for growing organizations
While many of the large companies already have a sizable presence in Puerto Rico, it was great to meet with executives who were not familiar with Puerto Rico’s capabilities. Many were pleasantly surprised to learn about the Island’s robust logistics capabilities and supply chain resilience. A critical discussion point was the understanding that companies operating in Puerto Rico still adhere to US regulatory standards, maintain robust intellectual property protections, and benefit from the ‘Made in USA’ designation. Additionally, proximity to the US market allows quicker response to consumer demands and easier collaboration with US research institutions. Combined with attractive tax incentives and the Island’s significant investments in revitalizing infrastructure, it is understandable why so many groups wanted to sit down and meet with the Puerto Rico delegation.
Takeaway #2. Need for New Capital Sources: Many of the discussions centered on capital market challenges, with companies seeking ways to extend their capital and access new funding sources. Most critical were those investing heavily in R&D. For those with funding already in place, the conversations centered on extending capital and reducing the rate of cash burn. For those seeking to raise money, it was about access to new investor bases and non-dilutive funding sources. For earlier-stage companies, many confirmed that they already have explored or are in the process of exploring alternative funding sources such as industry partnerships and government grants. The general feeling was that of uncertainty yet optimism about the near-term landscape. From the investor perspective, many are prioritizing later-stage investments due to heightened risk aversion.
Some additional research supports the general sentiment expressed at BIO. According to the Venture Monitor from PitchBook and the NVCA, in Q1 2024, biotech and pharmaceutical companies raised $5.9 billion across 209 rounds.
Why Puerto Rico? During most of the conversations, the participants had some familiarity with Puerto Rico’s tax status and that there were incentives for manufacturing on the Island. Puerto Rico’s unique tax framework, protected under IRC Section 933, allows bona fide residents to exclude Puerto Rico-sourced income from US taxation, creating a favorable environment for business growth. However, most executives we spoke to were largely unaware of the R&D incentives available to companies operating on the Island. Companies with an incentives decree conducting experimental activities such as studies that generate proprietary data, theoretical product designs, prototype development, experiment design, and the execution of experiments qualify for R&D tax credits of up to 50% of the investment. Many company leaders were familiar with traditional US R&D tax credits. However, unlike many other tax credits, one of the critical considerations of Puerto Rico tax credits that were most interesting to executives is that they are transferable, meaning they can be sold to another individual or company with a Puerto Rico tax liability. With a robust private market, we typically see the credits trade for $0.90+ per $1.00 of credits generated. An added benefit for those with federal grants is that those funds can be spent on qualified activities in Puerto Rico to generate the monetizable R&D tax credits, stretching non-dilutive capital even further.
Overall, we are extremely proud to be part of the Puerto Rico delegation at BIO International for three years in a row. The growth in presence and buzz about conducting business in Puerto Rico has been very palpable throughout these years. That has been accomplished because of the extraordinary efforts put forth by Invest PR and their entire team.
This year, the booth made a clear point that it’s not what’s next; it’s where. The excitement was felt all around us. More so, companies saw a united front from the government, NGOs, and the private sector working together to promote Puerto Rico.
This year, the delegation counted with a strong presence from the Puerto Science Trust that enabled the delegation to embark on deeper science conversations. This allowed us to position Puerto Rico as the ideal jurisdiction to conduct business since everyone was able to realize that we have the talent, expertise, and know-how combined with unique and attractive incentives that position the Island as a world-class destination that has to be on top of mind when looking into conducting R&D and highly specialized manufacturing.
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