n a town known for the size of its telescope, medical device maker St. Jude Medical Inc. is offering a glimpse of its not-so-distant future.
   In September 2007, the St. Paul, Minn.-based maker of cardiac and neurological devices announced the purchase of a former Guidant plant in the town of Arecibo, Puerto Rico. St. Jude will invest $220 million and hire up to 1,200 people over the next three years for the manufacture of cardiac rhythm management devices, including pacemakers and pacing leads, and, later, implantable cardioverter defibrillators.
   While the new production will shift product lines from the St. Jude's 20-year-old plant in Caguas, that plant will continue to manufacture mechanical heart valves and vascular closure devices, and also is expected to add new product lines in the future. That original 23,000-sq.-ft. (2,137-sq.-m.) plant, which began with 25 employees, now occupies three times that amount of space, employs more than 550 and makes more than 1.6 million devices a year for worldwide export.
   The acquisition of Guidant by Boston Scientific had meant the shutdown of the Arecibo facility because of excess capacity among the newly merged companies' property portfolios. It's one of many company moves in the Puerto Rican pharmaceutical sector that have resulted in fewer pill makers, more biologics and medical devices, and a focus on shifting skills in the island's industrial talent base.
   The Arecibo project fits into a growth plan announced a month later for a company that currently employs 12,000 people at 20 principal operations around the world.
   "During the last four years, we have acquired six companies, established three new divisions and approximately doubled our annual revenue," said Dan Starks, chairman, president and CEO of St. Jude Medical, in October. "We have achieved our goal of growing at an annual average compound rate of at least 15 percent during this time. The expanded organizational structure announced today is part of a comprehensive program designed to double the size of St. Jude Medical again within the next five years."
   St. Jude could not accommodate an interview request. But Enrique A. Mirandés, director of the Life Sciences Business Unit at the Puerto Rico Industrial Development Company (PRIDCO), says he talked to the plant's general manager, Angel Ortiz, at the end of 2006 about a looming opportunity. At the time, the company was looking for tax-advantaged locations for a project described as "very large," he says, and likely to be co-located on the island and at another location in the Asia Pacific.
   The likelihood was slim that Puerto Rico would attract more than half the 1,200 jobs, Mirandés was told, because of the need to spread risk. "But we put our best offer on the plate," he says, including an aggressive incentives package rewarding an increase in jobs and an equally aggressive tax write-off package.
   On St. Jude's end, the company has agreed to invest more in R&D associated with the University of Puerto Rico system, and to increase local sourcing of products and services.    PRIDCO itself has done its best imitation of a corporation over the past few years, as it not only has right-sized its organization but, with the help of CB Richard Ellis, inventoried its own real estate portfolio, which comprises 25.6 million sq. ft. (2.38 million sq. m.), or some 88 percent of industrial space on the island. The analysis extends to the agency's presence in New York City, where on the day of the interview Mirandés and his colleagues in three formerly separate agencies were in the midst of consolidating from three expensive Manhattan offices to one.
   "We have certainly taken a fine look at our projects, making sure we are as conservative as possible in a fiscal sense," says Mirandés, noting the agency's 85-percent occupancy rate. But that leaves plenty of property (approximately 5.9 million sq. ft. [548,110 sq. m.] as of last spring) to otherwise manage or dispose of in due course.
   He says some properties evaluated as no longer best suited for industrial use are being considered for commercial and other development by the private sector via PRIDCO-issued RFPs. Other industrial parks are being remodeled and refurbished in order to present a turnkey option to prospects, he says. There's even the redevelopment of a penitentiary into an R&D/mixed-use complex.
   Since IRS Section 936 achieved full phase-out on the final day of 2005, companies not grandfathered on the island can no longer avoid federal taxes on profits earned by their Puerto Rican subsidiaries. But that doesn't mean all the advantages have dried up, says Mirandés.
   "A lot of corporate executives are under a false impression that Puerto Rico's competitive advantage in the tax incentives arena went away. That is certainly not the case," he says, noting the island's maximum corporate income tax rate of 7 percent and complete lack of federal income tax for individuals and companies, as well as a strong supply-chain network and a high level of technical and scientific education. He cites the island's suddenly spurting aerospace sector, which has seen quickly escalating investment and employment from Honeywell and from Lockheed Martin. The latter reversed the usual progression by first establishing defense-related R&D, and is now looking to locate a shared services IT operation.
   Finally, even though they can't vote for president while residing on the island, Puerto Ricans are U.S. citizens in a U.S. territory, affording a company the privilege of putting the "Made in the U.S.A." label on its products.
   Asked about pending legislation that seeks to decide the island's political status as a state once and for all after more than 50 years as a commonwealth, Mirandés says, "I don't foresee any changes in Puerto Rico's status. Our current relationship works well for Puerto Ricans, for the United States and for the companies that locate here, providing financial incentives and creating quality jobs. There is no consensus, on the island or in Washington, D.C., that change is needed, when we have a system that works as is."    According to BLS data, unemployment in Puerto Rico has hovered between 10 and 12 percent over the past several years, roughly twice the unemployment rate on the mainland. With a civilian labor force of just over 1.3 million, the island's strongest employment growth over a 12-month period ending in November 2007 has been in education and health services, at 4.3 percent, and other services, at 6.5 percent. Meanwhile, employment in manufacturing has been hit the hardest, falling by 5.4 percent over the same period.
   Some areas belie the statistics, however. In Mayaguez, the labor force has dropped by 5,000 to just over 37,000, but the unemployment rate is under 5 percent. In Guayama and Fajardo, the labor forces each have grown by several thousand over the past decade, with metro-area unemployment rates of around 4 percent. Even in Ponce, where unemployment is around 12 percent, it's a vast improvement from the 17-percent rate of a decade ago, and the labor force is growing.
   Asked about unemployment, PRIDCO's Mirandés says it's a two-way street.
   "Yesterday I was taking some site selectors from the states to CooperVision, which has a very large contact lens operation with over 1,300 employees at the site," he explains. "They were asking precisely about that, and the GM said he has no problem hiring quality engineers, experienced people in the life sciences sector. He has had to train five engineers and send them over to the U.K. because they cannot find people over there.
   "Obviously we want to do all we can to get our unemployment rate down," he continues, "but particularly for our industry, it is an advantage to some extent that they have a talent pool to recruit from," as well as the island's cumulative experience in regulatory compliance.
   He cites numerous efforts from higher education to K-12, including an industrial biotech training program now in its 13th year, which has in turn spawned construction of a $15-million bioprocessing development and training complex. There is even a new biotech summer camp program for high school students that already cannot keep up with demand.
   "Our main offer," he says, "continues to be the talent."    Mirandés says Puerto Rico's advantages remain "on par with any location in the world." Asked where the main competitors are, he says, "We continue to compete mostly with Ireland and Singapore, particularly in the life sciences. As time goes by, other players start to show up on the radar, with competition from India and China, particularly in API [active pharmaceutical ingredient] projects."
   He says there now is competition from Costa Rica in the medical device field, Malaysia to a lesser extent, and even the Dominican Republic, though it has a ways to go in infrastructure development.
   One benefit Mirandés sees in the regional competitiveness is the build-up of Puerto Rico-based companies. He cites one pharmaceutical validation services firm that now provides services in Costa Rica, the Dominican Republic and Europe, and which is setting up a new office in Indianapolis, Ind., to service longtime island beneficiary Eli Lilly, among others.
   What's next? In early February, Gov. Anibal Acevedo-Vila unveiled a plan to fund startup life sciences firms with $215 million in venture capital derived from retirement pension funds managed by the government bank. Next, says Mirandés, will be a new legislative proposal with flexibility at its core. Unable to disclose details, he says it will be "the most competitive incentives legislation in the world."