Reliance on Puerto Rico Manufacturing, by Major Pharmaceutical Firm

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Richard Evans / Scott Hinds

203.901.1631 /.1632

revans@ / shinds@ssrllc.com

@SSRHealth

October 11, 2017

Reliance on Puerto Rico Manufacturing, by Major Pharmaceutical Firm

  • Eight large-cap pharmaceutical firms (ABBV, AMGN, AZN, BMY, JNJ, LLY, MRK, PFE) own and operate manufacturing facilities in Puerto Rico; estimated reliance on PR-based manufacturing ranges from a high of >= 72% of US sales for ABBV, to a low of >= 6.1% of US sales for AZN
  • Hurricane damage is likely to have impacted operations for most, or even all, of these facilities. Firms should be able to perform moderate structural repairs, and overcome surface transportation and power supply problems with relatively little difficulty. Volume and quality of incoming water, and high absentee rates for skilled labor involved in validated manufacturing processes, will be much harder problems to solve
  • We see a significant risk that some Puerto Rican facilities will be unable to meet US demand for products in the short term. Most products are also likely to be manufactured, either in whole or in part, in non-Puerto Rico locations; however non-Puerto Rico facilities manufacturing for non-US markets may not be FDA validated, and/or may not be able to expand production to meet US demand in time to avert temporary shortages

Summary

Hurricane Maria extensively damaged Puerto Rico’s infrastructure, which raises the question of whether PR-based pharmaceutical manufacturing will be sufficiently impacted to cause product shortages. We believe that companies will be able to overcome challenges to surface transportation and power generation with relatively little difficulty; however, we also believe that incoming water quality (and amounts) and absenteeism of skilled staff involved in validated manufacturing processes are rate-limits that will be difficult to overcome

Puerto Rican manufacturing accounts for 3.2 to 4.5 percent of global gross pharmaceutical sales, and about 5 to 8 percent of US gross pharmaceutical sales. At least 22 Puerto-Rico based facilities are owned by eight publicly traded pharmaceutical firms (ABBV, AMGN, AZN, BMY, JNJ, LLY, MRK, PFE). We have not yet been able to establish location of manufacture for all of these companies’ products; however, we have established that at least the following percentages of US sales come from products manufactured, at least in part[1], in PR-based facilities for six of these companies:

  • ABBV: at least 72 percent of US sales
  • BMY: at least 51.8 percent of US sales
  • JNJ: at least 44.2 percent of US sales
  • AMGN: at least 43.7 percent of US sales
  • LLY: at least 16.7 percent of US sales
  • AZN: at least 6.1 percent of US sales

Of the eight companies for whom we’ve identified PR-based manufacturing, only ABBV and AMGN have issued a statement[2] or press release[3] addressing hurricane related supply risks. In its statement, ABBV claims that ‘we have managed our inventory to assure availability of medicines to patients. No patient impact or product shortage is expected at this time as a result of Hurricane Maria.’ In its release, AMGN reaffirms 2017 guidance, and predicts that inventories will be sufficient to meet patient demand. PFE stated in a recent trade article[4] that the company does ‘not see a risk to patient supply at this point.’

Details

Direct measures of Puerto Rico pharmaceutical exports to non-US destinations totaled $11.8B in 2016[5]. No direct measures of Puerto Rico pharmaceutical shipments to other US states and territories are readily available; however we estimate PR to rest-of-US pharmaceutical shipments of (very) roughly $23B to $38B in FY2017. We know that PR to rest-of-US shipments of all products – pharmaceutical and other – totaled $55.3B in FY2017[6]. We also know that 69 percent of PR to Canada / Mexico shipments were pharmaceuticals in FY2017[7]; if we simply assume a similar share of PR to rest-of-US shipments are pharmaceuticals, this implies roughly $38.2B in PR to rest-of-US pharmaceutical shipments (0.69 x $55.3B). More conservatively, if we attribute 70 percent of PR’s $50B of manufacturing GDP to pharmaceuticals, and deduct non-US exports from this total, we would estimate PR to rest-of-US pharmaceutical shipments of approximately $22B in 2016. These figures imply that PR supplies roughly 5 – 8 percent of US pharmaceutical consumption, 1.8 percent of non-US pharmaceutical consumption, and 3.2 – 4.5 percent of global pharmaceutical consumption (Exhibit 1)

Manufacturing facilities that produce pharmaceuticals and medical devices for US markets require FDA licensing, and these licenses are publicly disclosed[8]. Starting with all licensed facilities we identified those located in Puerto Rico, and where possible identified the publicly traded companies that operate these facilities. In addition, we cross referenced this FDA data with information available from the Pharmaceutical Industry Association of Puerto Rico (http://www.piapr.org). We then used satellite images to estimate square footage by facility, and by publicly traded company. Results are in Exhibit 2; we identified 22 pharmaceutical manufacturing facilities in Puerto Rico that belong to public companies; JNJ’s 7 PR sites and 1.5M square feet represent the largest presence, LLY’s single PR site of approximately 330k square feet is the smallest presence. Satellite images and square footage estimates by facility are provided as an appendix. Manufacturing square footage is at best a rough proxy for the relevance of Puerto Rico manufacturing to a given firm; we cannot consistently establish PR square footage as a percent of total manufacturing square footage for each firm, nor can we directly account for such factors as efficiency of facility usage, or contract manufacturing arrangements

For the publicly traded pharmaceutical firms with PR facilities, we sought to determine which of each company’s major products are manufactured on the island. We reviewed approval documents[9], SEC filings, media reports and trade publications. We found that disclosure of manufacturing location in approval documents is inconsistent; discrete manufacturing sites often are not mentioned or are redacted, the sections of approval / review documents in which manufacturing sites are mentioned vary across dossiers, and many dossiers are image files which are for all practical purposes unsearchable. Because of these limits we’ve been unable – at least for now — to fully identify location of manufacturing for all major products; however, we have been able to identify several companies for whom significant percentages of total US sales involve Puerto Rico based manufacturing. Our analysis suggests that companies’ shares of US sales involving Puerto Rico manufacturing are (at least) as follows:

  • ABBV: at least 72 percent of US sales (Humira)
  • BMY: at least 51.8 percent of US sales (Opdivo, Orencia)
  • JNJ: at least 44.2 percent of US sales (Remicade, Xarelto, Prezista/Prezcobix)
  • AMGN: at least 43.7 percent of US sales (Enbrel, Neulasta)
  • LLY: at least 16.7 percent of US sales (Humalog)
  • AZN: at least 6.1 percent of US sales (Crestor)

These percentages of US sales made in Puerto Rico should be considered minimums, since it’s possible that products we have not yet been able to identify manufacturing locations for will be found to be made on the island. This is especially the case for MRK and PFE, who have significant manufacturing presences in Puerto Rico, but for whom we’ve been unable to identify locations of manufacture by product. Details are provided in Exhibit 3; where a product is categorized as other than ‘unknown’, links to source information can be found in the corresponding endnotes

As a final point, the fact that a given US product is made in Puerto Rico does not establish that all manufacturing steps are on the island, and does not rule out that the product also is made, for the US and/or for non-US markets, in one or more facilities outside Puerto Rico. We believe that many of the US products we’ve identified as being made (at least in part) in Puerto Rico will also be made, at least in part, in non-PR locations. However, in these instances, we doubt the entire non-PR supply chain for that product will be FDA approved. For example, BMY’s Opdivo is made in Puerto Rico for the US, and in Italy for non-US markets. It is feasible that parts of the Italian supply chain for Opdivo (e.g. bulk manufacturing) have been FDA validated, with other parts of the Italian supply chain (packaging and labeling for non-US markets) taking place in facilities that are not FDA validated. Diversifying bulk active manufacturing in two or more separate global locations is common practice for obvious strategic reasons; shielding non-US packaging / labeling operations from FDA validation is a common step taken to discourage importation or re-importation of goods made for non-US markets. Products whose PR manufacturing is limited to final fill / finish should be less susceptible to shortages than products that are entirely, or almost entirely, manufactured on the island. Similarly, products for which non-PR, FDA validated bulk supplies are available will be less susceptible than products made only in Puerto Rico. Because we cannot consistently determine what percentage of total manufacturing steps take place on or off the island, or whether non-US bulk active sources exist and are FDA validated, the percent of US sales from products made in Puerto Rico may not accurately reflect the companies’ relative exposures to Puerto Rico manufacturing risks

Appendix

 

  1. We cannot consistently determine whether all manufacturing steps for a given product take place in PR, nor can we consistently determine whether the product also is made in non-PR facilities that are FDA validated, and thus able to supply product to the US
  2. https://news.abbvie.com/news/media-statements/abbvie-statement-on-hurricane-impact.htm
  3. http://www.amgen.com/media/news-releases/2017/09/amgen-provides-update-on-hurricane-maria/
  4. https://www.in-pharmatechnologist.com/Article/2017/09/26/Pharma-still-assessing-impact-of-Hurricane-Maria-on-Peurto-Rico-ops
  5. https://usatrade.census.gov/data/Perspective60/Dim/dimension.aspx
  6. Government Development Bank of Puerto Rico, “Puerto Rico Economic Indicators”, August 31, 2017
  7. Ibid 4
  8. https://www.fda.gov/Drugs/InformationOnDrugs/ucm135778.htm
  9. https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm

 

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