Hurricane Maria forces Medtronic to close Puerto Rico manufacturing plants

The eyes of Minnesota's medical technology community were fixed on Puerto Rico on Wednesday as Hurricane Maria battered the island and the dozens of med-tech factories that dot its countryside.

Scores of life sciences companies have built manufacturing plants in Puerto Rico over the years, drawn by advantageous tax arrangements and a strong local workforce. On Wednesday, many of those plants closed down as the destructive storm passed overhead, though company officials largely remained tight-lipped until they could get a better assessment of the damage wrought.

A spokesman for Medtronic said the company had closed its manufacturing plants there, and the company's internal emergency response team has been in close contact with site managers and employees on the island for days.

"The safety and well-being of our employees is our top priority, and we continue to closely monitor the situation in Puerto Rico," Medtronic spokesman Fernando Vivanco said via e-mail Wednesday morning. "This is a very fluid situation. … We will assess the impacts of Hurricane Maria on our employees, facilities, customers and the patients we serve but it is too early to make any determinations right now."

Medtronic is among the many med-tech companies with major footprints in Minnesota that have plants on the Caribbean island, including Boston Scientific, Abbott Laboratories and the St. Jude Medical products that Abbott acquired earlier this year. 3M also has a sales, technical and marketing office there.

News accounts from the island on Wednesday told of widespread flooding and structural damage, but none of the companies could immediately say how the storm had affected their workers or factories.

A Boston Scientific spokeswoman said company employees are closely monitoring the situation.

"We took precautionary actions to minimize risk to our colleagues and our property in Dorado, including closing the facility in advance of the storm. The safety of our employees is our first priority," spokeswoman Kelly Leadem said via e-mail. "We believe our current inventory generated by Dorado can sustain potential disruption, however given this is an ongoing situation, we will continue to assess the total impact of this storm."

Similarly, spokespeople with 3M and Abbott couldn't offer specific assessments of their impacts on Wednesday.

J.P. Morgan Securities stock analyst Mike Weinstein said that in conversations with the management of major med-tech companies Wednesday, executives emphasized that they had built up inventories ahead of the recent storms and had backup power generators on site, among other preparations.

Fred Zimmerman, emeritus professor in manufacturing systems engineering at the University of St. Thomas, said it's likely that the med-tech companies had taken preparations in advance of Wednesday's storm.

"Most well-run companies nowadays have to prepare for severe disruptions," Zimmerman said. "They won't be unscathed, but I think they will be able to recover."

The small Caribbean island 2,400 miles south of Minnesota has been home to medical technology factories since the 1950s.

University of Minnesota associate business professor Rachna Shah said one of the med-tech manufacturing pioneers on the island was Baxter, but today Puerto Rico is home to more than 30 medical device companies in 21 different municipalities.

She said a major reason for the growth is that the island has some of the lowest landed costs for med-tech in the world. Landed cost is a measure of the total cost to bring a product to a consumer, including labor, manufacturing, shipping, insurance, customs and duties.

The Puerto Rico Department of Economic Development and Commerce notes on its website that the island has an "unparalleled tax regime" and aggressive economic and tax incentives, "with the purpose of helping operations on the island become more profitable to those companies who manufacture here." About 40 percent of Puerto Rico's gross domestic product is from manufacturing.

Earl Bakken, the co-founder of Medtronic, once told biographers that Puerto Rico was a good place for Medtronic to manufacture pacemakers because, in addition to Puerto Ricans' strong family values and work ethic, the island offered significant financial advantages.

"We decided to put plants in Puerto Rico because we'd get a real tax advantage as long as we built something there that wasn't being built on the mainland," Bakken said in 2014's "Dreaming On with Earl Bakken." "We were always changing the pacemaker, so we'd be able to continually get tax advantages."

Whether those advantages could be offset by bad weather remains to be seen.

Only two weeks ago, the Puerto Rican government announced an economic recovery program for companies affected by Hurricane Irma, which destroyed many homes and left several people dead on the island. Now comes Maria, a Category 4 hurricane that made a direct hit on the island with winds in excess of 150 mph and more than 20 inches of rain, starting at the southeastern coast and working its way northwest.

Shah predicted that companies that have shortened their supply chains to become more "lean" will now have a harder time climbing back.

"It depends on how lean these companies are, in terms of how much inventory they hold vs. how much is in on-time manufacturing," Shah said. "But in situations like this, if you are very lean, there is a bigger negative impact on you than on companies that are a little more bloated and have more inventory on hand."

Joe Carlson • 612-673-4779