Big moves are afoot in the contract packaging space. In recent months there’s been a major consolidation, new market entrants, expansion among existing players, and a regulatory push that could change the face of the business.

In April, Packaging Coordinators, Inc. (PCI) bought the contract packaging business of AndersonBrecon for more than $300 million. When the deal closes, the combined company will be the top player in the contract pharmaceutical packaging space. Bill Mitchell, PCI’s chief executive officer, told us, “This move was all about creating a global footprint in contract packaging.”

When we spoke to Mr. Mitchell for a Newsmakers Q&A in September 2012, he told us, “There’ll definitely be acquisitions” for PCI, but the AndersonBrecon move came up quickly, when parent company AmerisourceBergen put the unit on the block last November. “The opportunity with AndersonBrecon was too good. When [Frazier Healthcare] started with buying back PCI from Catalent last summer, it was never about just bringing back that business. It was about becoming a global supplier. It would’ve been difficult to build out PCI in a reasonable timeframe; this move has accelerated our chance to step forward with the business.”
As for further moves, Mr. Mitchell commented, “This is a big acquisition, and it’s not closed yet. We’ll focus on integrating AndersonBrecon, then look around at the marketplace.”

Mr. Mitchell considers contract packaging a dynamic market, with growth in the 5-7% range, but noted, “There are opportunities above that, particularly to penetrate large pharma’s in-sourcing operations.” Some success in that area, he said, could lead to double-digit growth rates.

The next largest company in contract packaging, Sharp Corp., also sees the industry as full of promise. Bob Macadangdang, the company’s marketing manager, told Contract Pharma, “It’s a very busy time for us. We have a healthy business outlook for at least the next year or two.” He added that the industry overall has been in good shape for the past three years. “It’s a cyclical business, of course, but we haven’t seen much ‘in-house over outsource’ activity in the last 18 months.”

Sharp Corp.’s growth has led to a significant expansion effort, targeted for validation in late summer. The company plans to add as many as seven suites in a facility in Allentown, PA. “If business continues to grow,” said Mr. Macadangdang, “there’s the possibility for another 50,000 to 60,000 sq. ft. of expansion, in addition to our main facility.”

Elsewhere in Pennsylvania, Almac Pharma Services has added a commercial packaging facility in Audubon, PA. The site previously served as the hub for Almac’s U.S. Clinical Trial Supply operations, before the company built its new North American headquarters in nearby Souderton, PA. Almac has invested around $10 million to reconfigure 100,000 sq. ft. of space to offer commercial primary and secondary packaging of tablets and capsules into bottles, blisters, cartoning, walleting and vial labeling. The site provides a North American foothold for Almac’s contract packaging efforts, complementing its operations in Craigavon, Northern Ireland, which have handled commercial packaging for more than 30 years. The site was approved by the FDA and DEA in January 2013.

James McGibbon, director of Business Development for Almac Pharma Services, told us, “Our management realized that contract packaging business has grown substantially, but it could have grown much faster if we had services in the U.S.”

Four lines are currently in place, taking up less than half of the available space for operations. Mr. McGibbon remarked, “What you’ll see in Audubon isn’t a massive investment. Rather, it’s a smart investment, and it’s one we’ll build on as we get a return on the initial phase of the investment.” He cited the facility’s Uhlmann UPS4 blistering line as a major opportunity for both U.S. and European customers. “When it came to designing the facility, we listened to our clients, who had been asking when we were going to set up shop in the U.S.”

The changeover from clinical to commercial packaging required significant modifications and upgrades, including monitoring systems, air handling and temperature control, as well as taking down walls to accommodate larger equipment lines and transferring quality systems from Northern Island to PA. Mr. McGibbon characterized the U.S. packaging operations as “a startup . . . with 30 years of experience backing us up.”

Supply Side
Things are looking up for packaging suppliers, too. Constantia Flexibles re-cently announced a $12 million expansion of its main U.S. manufacturing facility in Blythewood, SC. The move will add 15,000 sq. ft. of floor space to the factor to accommodate several new pieces of packaging equipment and more than a dozen new employees.

The Blythewood facility manufactures custom packaging for the pharma and food industries, including packaging foils for blister packages, child-resistant (CR) packaging, and lids for portion controlled containers.

Fred Lutz, sales manager at Constantia Flexibles, told us, “The trend we are seeing is continued customer interest in child resistant materials, needed for many of today’s over-the-counter cough/cold/allergy products. Function-ality is always an issue, in that care must be taken in design to maximize the child-resistant aspect of the package, while still insuring that adults/seniors can access the medication without great difficulty.  It is always a fine line to walk, but design elements can be engineered into the blister (greater land area, good access to peel area, clean perfs, etc.) to meet both objectives.”

Serial? Killer!
The key trend cited by contract packagers and suppliers is the onset of serialization and track-and-trace. We’ve written about this for more than a decade, but it seems that 2015 will at last be the year that serialization and e-pedigrees hit the big time.

After serveral delays, the state of California has mandated  that 50% of all “dangerous” drugs that are distributed in California must be serialized and have an electronic pedigree from their manufacturers by January 1, 2015, and that jumps to 100% by January 1, 2016. (The percentage can be based on unit volume, SKU type, or drug product family.) Wholesalers and repackagers must accept and pass pedigrees by July 2016 and pharmacies and pharmacy warehouses must accept them by July 2017. And given the size of its population, as goes Calilfornia, so goes the country (like it or not).

Eric Allen, director of Sales/Marketing at Aphena Pharma Solutions, told us, “The hot topic and getting hotter is the serialization requirements for CA. Packaging companies and manufacturers are focused on this topic right now and will be making decisions very soon on the equipment and software solutions for handling the 2015 requirements. Aphena has a full project team doing nothing but investigating the options and making recommendation so we can be 100% ready by next year.” The company has already been doing serialization on a small scale for about four years in two of its operations, Mr. Allen added.

Matt Hicks, chief operating officer at Federal Equipment Co., a re-seller of pharmaceutical equipment, remarked, “Serialization and track-and-trace is the biggest issue in pharma packaging right now. The California Board of Pharmacy’s mandate is well within capital planning fences at most pharmaceutical companies. The question is whether those planned solutions will meet everyone’s needs.”

Rather than build out infrastructure to accommodate the serialization and e-pedigree requirements, companies large and small are looking to their contract packagers for guidance.

Mr. Hicks added that his firm has also seen strong demand lately for flexible, solid-dose packaging equipment and packaging lines, both blister-packs and bottles. “We have also had spikes in requests for specialty packaging equipment like transdermal packages and blow-fill-seal, and demand for vial-filling equipment has also been robust,” he noted.

Richard Wrocklage, director of Package Development at Reed-Lane, Inc., “Serialization is going to be a big shift in the industry. Being a service industry, we have to be ready to serve, so we’re working hard on it.”

Joe Luke, vice president, Sales at Reed-Lane, added, “We’re making a significant investment in serialization. As far as our Rx business is concerned, we’re well positioned for it. We’ll be ready for the 2015 deadline. We’re on pace to do pilots for customers in late-2013/early 2014.” Mr. Luke noted that Reed-Lane has seen growth in demand for bottling services.

Mr. Mitchell at PCI commented, “Serialization is coming on, and there’s no avoiding that fact. We’re heavily invested in making it work for our customers.”

At Sharp Corp., Mr. Macadangdang told us, “Serialization is a hot topic and everybody has it on their plate. We’ve had quite a few customers visiting to talk about it in the last few months. When it comes to technology, I believe we’re in the forefront of the serialization part of the industry.”

Finding a Standard
Serialization, e-pedigrees and track-and-trace are going to revamp the pharma packaging industry (both in-house and contract) and protect the supply chain for end-users, but how exactly are they going to do that?

Chip Meyers, vice president Corporate Public Affairs at UPS, commented, “As companies prepare for serialization, they need to consider a variety of factors. Chief among those is technology. Currently, there isn’t a standard technology in place for all of serialization, so we are advocating for a national solution that will allow companies to implement technologies that preferably can be replicated and/or integrated into a broader, global system. Unless global standards for serialization are adopted, costs will increase and technology expertise will become even more difficult to find. As you create a serialization plan, one of the first considerations should be whether or not you have that expertise in-house, need to hire or if you will engage an outside vendor with that knowledge.”

Mr. Meyers added, “Whether you engage a technology partner or choose to build serialization capabilities internally, the current timeline is the biggest concern for implementation; getting to a pilot/test phase — one facility or one line at a time — is most important to develop a broader plan.”

Brian Daleiden, vice president — Marketing at TraceLink, which developed a cloud-based platform ‘enabling complete global connectivity, visibility and traceability of pharmaceuticals,’ said, “The current uncertainty in technical/operational requirements to meet track-and-trace compliance deadlines such as California’s 2015 ePedigree creates an investment issue for contract packagers and their customers. Contract packagers want to prepare packaging lines and serialization IT infrastructures for California deadlines, yet certain compliance requirements (such as a final ePedigree model) have yet to be determined. This forces companies either to wait for clarity or to push ahead with serialization projects in isolation from the larger planning requirements. Waiting risks not being ready in time, but pushing ahead risks making technical choices with data formats, aggregation hierarchies, and the like that may cause interoperability issues for the pharmaceutical customer farther down in the supply chain.”

UPS’ Mr. Meyers remarked, “While this topic has been debated for years, standards and a uniform federal solution still escape us. With only about one-and-a-half years until implementation begins, the timeline is a source of anxiety for many companies.”

With anxiety comes opportunity. Contract packagers see plenty of room to grow, even as consolidation among the top players drives smaller companies to innovate.