New Puerto Rico Plant May Cut Amgen’s Taxes : Pharmaceuticals: Savings could hit $60 million a year in 1995. But the controversial benefit, used by many firms, may be scaled back.

Amgen Inc. is building a production facility in Puerto Rico. And it’s not because the Thousand Oaks-based biotechnology firm likes the tropics.

Amgen is erecting its plant in Juncos to obtain a valuable--and controversial--corporate tax break, just as hundreds of other American companies are doing. The pharmaceutical industry in particular is a big user of the Puerto Rican connection.

By some calculations, Amgen could save $60 million a year in federal taxes starting in 1995.

Under a section of U.S. tax law that dates to 1921, companies that have Puerto Rican manufacturing operations can exclude from federal tax whatever profits are attributable to those plants. The law is aimed at persuading companies to create jobs in U.S. territories and possessions, as opposed to foreign countries.

But the law is again under scrutiny by U.S. political leaders searching for ways to close the federal budget deficit.

Presidential candidates Bill Clinton and Ross Perot are both said to be evaluating whether to scale back the provision.

The U.S. Treasury will lose $3 billion a year in tax revenue between 1993 and 1997 because of the Puerto Rican exemption, the Congressional Budget Office estimated. The exemption saved drug companies--62 of the 516 companies using the Puerto Rican benefit--$10.1 billion in taxes during the 1980s, according to the U.S. General Accounting Office.

Amgen’s $100-million plant, scheduled to open in 1994, is not initially scheduled to manufacture the two biotechnology-derived drugs that the company now sells. (The drugs are Epogen, which treats anemia in patients with kidney disease, and Neupogen, an infection-fighter for cancer patients.)

The drugs will continue to be produced in bulk form in the company’s Thousand Oaks plant. The Puerto Rico plant will package them for shipment to distributors--a role now handled by one of Amgen’s outside contractors, Parke-Davis, a unit of pharmaceuticals giant Warner-Lambert Co.

Nonetheless, Amgen’s plant will qualify for the tax exemption, said Chief Financial Officer Lowell E. Sears, because the plant will employ at least 200 and will add value to the raw drugs that will be packaged there.

Amgen is “looking to put additional manufacturing facilities down there” that could produce future drugs that it brings to market, he said.

Last year, Amgen earned $97.9 million on revenue of $682 million after paying $60.1 million in income taxes. Of that, about $37 million were federal taxes.

By 1995, when the Puerto Rican factory is expected to be operating, Amgen should have sales of $2.3 billion and a pretax operating profit of $870 million, said David Stone, an analyst with Cowen & Co. in Boston. Based on his prediction of Amgen’s pretax earnings in 1995 and a drop in its overall tax rate, he said the company would save $60 million.

That estimate “is in the ballpark,” Sears said.

But present assumptions may not hold.

“In the current environment, when everyone is looking for money” to alleviate the deficit, “any tax break of this sort is under scrutiny,” said Chris Pimlott, who heads Arthur Andersen & Co.’s international tax services group in Los Angeles. “The question is how much Congress feels these countries need this provision for economic development.”

Critics have long asserted that the tax benefits derived by U.S. companies far outweigh the benefits in creating jobs in Puerto Rico. One critic was former President Reagan, who tried to repeal the exemption--known formally as Section 936 of the federal tax code--in 1985.

The GAO report said the drug companies’ tax breaks averaged $71,000 per Puerto Rican employee in 1987, while Puerto Rican employees’ average wage was $26,500 a year.

“We’re spending $3 in tax credits for every $1 they pay in wages,” said an aide to Sen. David H. Pryor (D-Ark.), who asked not to be identified. “From a tax policy standpoint, it’s highly inefficient.”

The drug industry disputes the figures, noting among other things that the study did not take into account jobs created at other Puerto Rican companies that provide supplies and services to the drug makers’ plants.