The U.S. market for pharma contract packaging is currently in a growth cycle that is estimated to be increasing at 5-8% a year, according to Daryl Madeira, vice president, sales and marketing, QPSI, a global packaging solutions provider that provides contract packaging, design, distribution, warehousing and logistics management. This is consistent with figures quoted by the Contract Packaging Association on their web page: “Pharmaceutical outsourcing is experiencing a 9.1% global growth rate to reach $374.8 billion by 2018, according to BCC Research in a recent report.” Pharmaceutical outsourcing trends are generally a good indicator of outsourced packaging trends.
This current growth in pharmaceutical contract packaging would seem to be a result of the changes and challenges facing pharmaceutical manufacturers today. In the last few years the landscape for pharma manufacturers has been changing in a significant way. Whether you consider legislative impact from regulations such as the Drug Quality and Security Act signed by President Obama in November 2013, or increasing pressures being applied by healthcare in response to implementation of the Affordable Care Act, or even the long standing trend of brand-to-generic conversions, they all mean the same thing: the pharmaceutical manufacturers are seeing increasing pressure to streamline and perform at higher levels. This has come to mean focus on your core business and divest the rest. This attitude has led to a resurgence in merger and acquisition activity not seen since before the 2008 crash. One of those non-core activities being divested from many of these operations is packaging.
Packaging has long been an afterthought of the pharmaceutical process, a cost to be managed not an asset to be cultivated, which is somewhat unfortunate given the important role it plays in the supply chain. The disconnect between product development, marketing and packaging in pharmaceuticals has been a focal point for HCPC in its effort to spur the growth of compliance packaging in healthcare.
So how are these changing conditions influencing pharma manufacturers and their dependence on contract packaging and how will they affect tomorrow?
The Patent Cliff
One often discussed event or series of events is the “patent cliff” that has been written about for years. Basically, from 2011 to 2020 almost 50 well known, highly prescribed branded drugs will go off patent with many already passed their expiration date (see Table 1). In the world of contract packaging this creates several opportunities. Some of these drugs will become Rx to OTC switch candidates while others will have a slew of generic drug companies straining at the gate, ready to launch when the flag officially drops.
In the former case, the package formats required for these OTC switch products are dramatically different from the branded product destined for the backroom of the pharmacy. After all, this package now has to survive on its own and tempt a consumer to reach for it. Also, this OTC version is more than likely less profitable than its branded predecessor so the prospect of buying new packaging equipment and allocating space to this new less profitable entity is not appetizing to the manufacturer. Contract packaging becomes a welcome home for many of these products. In the case of generics launching on the heels of these patent expirations several things come into play. Many of the generic companies operate on tight capital budgets. Drug manufacturing may be on their list of activities, but packaging very often is not.
Joe Luke, vice president of sales and marketing at Reed-Lane, a privately held New Jersey firm specializing in pharmaceutical contract packaging for leading Rx, OTC and generic drug manufacturers, said, “Many of the generic companies don’t have the capacity or expertise with certain packaging to handle this increase and turn to contractors.”
Once again, contract packagers become the provider of choice. But simply getting the generic version to market in a timely fashion is not enough to guarantee success. Justin Schroeder, executive director, marketing, business development and design for PCI, a global leader for drug development and commercialization of drug products, said, “The WalMart $4 generic program is a great example of generic firms looking to capitalize on some method of differentiation, and patients are benefitting from that energy through the use of calendarized medicines and compliance prompting packaging.”
On the opposite end of the spectrum from the patent cliff are new product launches. These often end up in contract packaging space for several reasons. The timing of FDA drug approvals is unpredictable. Contract packagers by their nature are flexible enough to stage product and packaging in anticipation of launches. They can very often utilize existing packaging lines and be ready to flip the switch upon notice from manufacturers or as is often the case pre-produce packaging in anticipation of approval. A more risky prospect but one entertained by many pharma manufacturers. Delays in approval still have an impact on capacity and manpower but if you are the manufacturer these impacts are outside your four walls.
Contract packagers are launching products on a fairly regular basis, depending upon the packager. This means they become tuned in to the process and it is a complicated process. They have the ability to train staff in these processes and streamline the activities increasing efficiency and reducing launch time. A manufacturer does not launch products with the frequency of the average contract packager. Their staff may see a launch once a year or even less frequently. They don’t have the opportunity to develop a level of comfort with the process that contract packagers cultivate over time.
Changes in healthcare due to the Affordable Care Act
The implementation of the Affordable Care Act has put pressure on the healthcare community to improve performance and outcomes, which includes improving the performance of patients with pharmaceuticals. Not surprisingly some of that pressure has worked back up the supply chain and pharma manufacturers are beginning to cooperate with care providers, creating tools to support their products, which in some cases mean special packaging. The industry has seen an increase in utilization of compliance prompting packaging in support of improving health outcomes. This trend is likely to continue as providers see sustained pressure on improving patient performance with drug regimen.
Unique packaging solutions
The ACA is by no means the only reason for increasing complexity in packaging. As drug therapies become more complicated so does the packaging and accompanying literature required to engage the patient and caregiver. Physician samples, starter kits and titration packs require non-standard packaging processes and are often accomplished in contract facilities. In many cases the processes involve manual assembly, which requires a flexible workforce.
“These solutions tend now to be about providing a sample for the physician to demonstrate a complicated dosing regimen vs. a sample for the patient to simply try the drug product,” said Mr. Madeira of QPSI. “As a result, we will probably see unit-of-use packaging have a greater share in physician sampling.” This type of customization and non-standardized packaging is difficult to accomplish in the brand manufacturing environment but is well suited to the contract world where each packaging suite is its own world.
Unique packaging solutions include a move toward more home based self-administration of injectable therapies. This means fewer vials and more prefilled syringes. In order to service patients in the home these syringes are provided in kits with detailed instructions.
“For injectable products we are seeing a transition from vials administered in clinic to a focus on patient convenience whereby dosing can be done at home,” said PCI’s Mr. Schroeder. “This is leading to a transition to supply prefilled syringes and specialized injectable devices.”
Again, this unique format fits the contract environment more so than the manufacturer especially considering that many of these unique therapies service small populations and the prospect of automating packaging of these kits is impractical.
The Drug Quality and Security Act (DQSA) is a well-recognized four-letter word—or more appropriately acronym—that has prompted much searching for the right contract packaging partner. Signed in late 2013 by President Obama, DQSA has an interesting pedigree dating back to the 1987 Prescription Drug Marketing Act, followed a decade and a half later by the 2005 Florida Pedigree legislation which set the stage for California’s SB 1307 and ultimately pushed Congress to action. It’s been more than 18 months since it was signed and there may be some out there—not many—who still don’t believe it will be fully enacted on the timeline laid out.
Maybe so but for manufacturers there is a very clear deadline looming that has many scrambling to launch internal solutions and others looking to the contract packaging providers to hold the bag while they figure out what they want to do in their own house. Most of the contractors I’ve spoken with believed the writing on the wall and they are ready to help their pharma manufacturer partners.
“Not every manufacturer will have all lines ready. I think there will be a collision of sorts when January 2017 comes,” said Joe Luke of Reed-Lane. “We do believe there will be opportunities for contract packagers who are compliant to service customers who can’t get all their packaging lines and infrastructure ready.” It is still a daunting task and time will tell how the initial deadlines will be met.
So, these are some of the reasons that we are seeing a sustained uptick in the contract packaging market in the U.S. The Affordable Care Act, the growth in generics and DQSA are here to stay, and I believe the growth in contract packaging will continue to be affected by these items for the foreseeable future.
Walt Berghahn is executive director of the Healthcare Compliance Packaging Council (HCPC). The HCPC is a not-for-profit trade association whose mission is to promote the greater use of compliance prompting packaging to improve patient adherence and patient outcomes. The HCPC is celebrating its 25th anniversary of improving patient adherence and safety. For more information on HCPC, please visit our website, www.hcpconline.org.