Puerto Rico Manufacturing Proposition Analysis

Legislation for economically distressed zones is more likely to spur in-shoring of mfg. and produce more impact for Puerto Rico (vs. eliminating GILTI) Estimated Impact Companies & Products Value Proposition Economically Distressed Zones (EDZ) • Potential to in-shore up to approx. $1.5-4.5B in mfg. value to PR (2026E); rep. -1,000-3,000 FTEs & -$70M-$220M in tax dollars 1,2 Lower margin companies Tax benefit most attractive for cost-sensitive generics in small molecules, biologics, and medical devices Good fit with Puerto Rico value prop (talent availability, quality, existing mfg. ecosystem, especially small molecules) Growth via volume shifts w/ some opportunistic site expansion Tax benefit & value prop also attractive for lower margin OEM med devices, given existing brownfield sites & underutilized capacity Higher margin companies Unlikely to drive change for branded cos. and some higher margin OEMs, since level of incentive not enough to change siting (prioritized by existing footprint, labor available) CMOS/CDMOS Tax benefit and fit with PR value prop also attractive, given cost sensitive margin structure and ability to leverage turnkey sites w/ good ROIC4 + production pooling to grow via volume shifts PR is competitively positioned vs. other economically distressed zones due to talent and mfg. ecosystem Incentives help strengthen labor cost advantage vs. established mfg. locations in the US (e.g., CA, MA, IN) GILTI Elimination + Standalone Incentives Potential to in-shore up to approx. $0.5-2.5B in mfg. value to PR (2026E); rep. -500-1,400 FTES & -$35M-$105M in tax dollars 1,2 Lower margin companies Tax benefit similar but slightly less attractive vs. EDZ for generics (smaller impact from eliminating GILTI; other incentives weaker) Small molecules, biologics, med devices still priority given value prop fit (current mfg. footprint and talent) Also attractive for lower margin OEM value prop, esp. in med devices, although upside is much smaller compared to EDZ Higher margin companies Unlikely to drive change for branded cos. and some higher margin OEMS, despite preferring GILTI elimination over EDZ, given costs/tax benefits are less important than overall value prop for future growth³ CMOS/CDMOS Tax benefit slightly less attractive vs. EDZ, given reduced benefit of limited GILTI impact and weaker benefits from standalone incentives for cost-sensitive margin structure Limited change for PR competitive positioning vs. states, given brand cos unlikely to change, and lower value for Gx and CDMOS Standalone incentives provide smaller labor cost advantage vs. established mfg. locations in the US (e.g., CA, MA, IN) Likely requires additional language in federal legislation to ensure realization of mfg. investment and job creation in PR 1. Incremental FTEs, tax revenues in 2026e over current FTEs, tax revenues; FTEs rounded to nearest 100 and tax revenue rounded to nearest $5M 2. Only looking at PR excise and local income tax revenues, and assumes US-domiciled parent companies can claim credits for PR branch and CFC activities 3. Increasing foreign tax credit cap vs. GILTI obligations likely also has limited impact today; could shift if excise tax is eliminated as tax on PR source income tax increases to cover shortfall. Companies would be enabled to use more of these incremental tax dollars as foreign income tax credits against higher cap 4. Return on invested capital Copyright 2020 by Boston Consulting Group. All rights reserved.

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