Photo courtesy of DPT

Growth From Within
There are other factors that can also contribute to the growth of the CPO business, but the key one is the growth of the Pharma industry itself. “We expect the growth rate of the Contract Packaging industry to be about 8-12% per year for the next five years. It should grow approximately 75% as quickly as the overall pharmaceutical industry,” said Robert Gettis, president of ProClinical, a Phoenixville, PA-based provider of clinical trial services, including packaging.

“From our perspective on the industry,” added Dr. Joseph Urban, ProClinical’s senior director, “we believe that pharmaceutical companies are looking for contractors to manage their supplies throughout the life cycle of clinical trials.”

ProClinical began in 1993 as a clinical packaging company, and has added analytical, formulation and other services to its offerings in the past decade. The company has been expanding its clinical packaging capabilities, while also engaging in small commercial packaging runs for several companies. Said Mr. Gettis, “In 2002, we formed a partnership with Graphic Packaging Corp. (GPC), where we licensed some of our child-resistant/senior-friendly blister packaging. GPC has the capability to provide blister cards, boxes and other packaging components in large, commercial volumes.”

One packaging executive remarked that Mr. Gettis’ growth projections may be too low. “In the next few years, we’ll see that outsourcing is growing faster than the Pharma industry in general, and I think Contract Packaging is going to be one of the leading markets,” said the industry source. “The inevitability of bar codes—and the blister packaging that must accompany them—is important, but natural growth has helped push some CPOs to new heights.”

The executive added, “CPOs are in a strong position right now. Drug makers are challenged to keep up with the various end-use markets, including hospitals, pharmacies and other customers. They all have different needs, requiring different kinds of packaging. In a sense, it’s reached a point where pharmacies need their own packaging personnel. Some CPOs are uniquely qualified to handle these functions, so it makes sense for many pharma companies to turn this part of the cycle over to them. The flexibility of the better CPOs affords opportunities that the Big Pharma companies, by the nature of their size, simply can’t undertake.”

The Downside
Not everyone is bullish about the CPO business. Said another industry source, “The past 24 months have been somewhat flat. We’ve seen little to no growth in the standard blister or bottle packaging industry. With the lack of significant launches from Big Pharma, there have been few opportunities for the contract industry. Opportunities from Big Pharma have been focused on mature products or overflow production as sponsors continue to optimize their plants.”

Everyone we spoke to contended that bottle filling had become a victim of overcapacity, or at least that demand for it has dropped off. “From the contacts we’ve made with potential customers, there appears to be no real overcapacity issue in the Contract Packaging industry,” said YPT’s Mr. Pearson. “It does appear, however, that there are more requests for blister packaging than for bottle packaging. I think this is a sign of the needs of the end user, though, and not necessarily due to overcapacity issues.”

DPT, a San Antonio, TX-based contract service provider that bought a packaging facility in Lakewood, NJ last year, is looking outside of standard packaging for growth opportunities. “Our feeling is that the areas with the highest potential for growth will be in the specialized packaging market,” said Paul Josephs, vice president of marketing. “These markets will include DEA-registered products and unique delivery systems, as opposed to standard blister/ bottle filling.”

Another driver for continued growth in the CPO market is the proliferation of generic releases. Last year, we documented how the incredible success of generic Prozac opened doors for CPOs. This year, more blockbuster drugs (though none as high profile as Prozac) are becoming generic. In the next year, we’ll see a possible generic Claritin, which will do battle with the OTC version of Schering-Plough’s drug, as well as its prescription successor, Clarinex.

“Generics are definitely a market that we’re pursuing,” said Mr. Josephs. “There’s real growth opportunity for packaging of generics. With the ongoing political environment and pressures,” including President Bush’s recent push for a law to limit generic challenges by innovator companies, “this is a market that deserves focus.”

Mr. Pearson concurred, adding, “Generic drugs have increased the need for CPOs. The volume of generics that need packaging, not only in the U.S., but worldwide, is increasing every year. With many high-volume drugs now coming off patent, the numbers are growing yearly, and this will increase the need for CPOs in the future.”

Generally, CPOs are optimistic. All of the companies we spoke with (even the ones that cited capacity gluts) discussed their ongoing plans for expansion or acquisitions to grow within the CPO industry. Technological improvements have added flexibility to CPOs’ offerings. “The level of expertise of the equipment vendors and the CPOs has improved the equipment that is available for use,” said Mr. Pearson, “while also enhancing the quality of operations and consistency of performance. The result has been higher reliability, increased speeds, and improved on-time delivery.”

Or, as another industry source put it, “When you get down to it, the drug makers have only the FDA and their internal QA staff to help them determine GMPs. CPOs have the FDA and the staffs of every one of their clients telling them how to do the job right. The best CPOs are receptive to the demands of their sponsors; that’s how they get to be the best.”