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As people live longer and longer, we need drugs to help us stay healthy – and plenty of them. According to the Association of the British Pharmaceutical Industry (ABPI) the average UK consumer spends around £205 each year on medicines. A staggering 73,000 people are employed directly in the industry and another 25,000 in related industries.

The pharmaceutical manufacturing market is diverse, encompassing drugs under development, patented drugs, generic and over-the-counter (OTC) remedies, and prescription drugs. Once the patent on a drug expires, that drug becomes ‘generic’, meaning other firms can produce and market cut-price versions of it. As part of this, manufacturing is often shifted to countries with low labour costs – and often followed by firms specialising in pharmaceutical packaging.

The past 15 years have been punctuated by major activity by pharmaceutical companies, with the big players becoming bigger and bigger: GlaxoWellcome merged with SmithKline Beecham, and Astra with Zeneca.

This level of merger and acquisition activity in the sector is hardly surprising considering the high level of investment required for drug research and development. Lansdowne Capital analyst Tim Rothwell says: “The ‘risk and reward’ element has increased, the smaller boys have been taken out by the bigger boys, and development is becoming more expensive – the larger companies are better able to cope with this.”

This is also the case with packaging producers working in the sector. The Clondalkin Group has a number of operations in Europe and the US, but is constantly pursuing new acquisitions. In April 2006, it bought US firm Pharmagraphics, incorporating it into its Specialist Packaging Division, which produces pharmaceutical and medical device packaging, and renaming it Pharmagraphics Guy. It also recently acquired label producer Kenilworth Products.

Chris Hill, Clondalkin Specialist Packaging’s sales and marketing director, feels that it’s important to be multinational, or at the very least a regional, player to be taken seriously in this sector. “You do it big or you don’t do it at all in pharmaceuticals. It’s about economies of scale; drug manufacturers are global by nature and, by acquiring Pharmagraphics, we are now also able to provide a global service.”

Location, location, location
Hill knows that siting a packaging operation near customers’ sites can offer significant benefits. “To be nearby is particularly useful for short runs and quick turnarounds,” he says. “This trend of moving further and further into Europe, for example, has also started within other sectors of the packaging industry. We have two plants specialising in cosmetics in Eastern Europe and we are keeping an eye out for acquisitions for pharmaceutical packaging production in the region.”

Hill believes that smaller companies will find conditions getting tougher as their customer base gets smaller through M&A activity and migration into cheaper labour markets.

“As the market moves you have to move with it and it is becoming more demanding, so packaging companies have to have the infrastructure to be able deal with this. And increasingly, the global pharmaceutical companies want to deal with global suppliers,” says Hill.

Becoming a global supplier was Chesapeake’s intention when it purchased US company Arlington Press almost two years ago. Chesapeake already had a healthcare packaging division, UK-based Field Boxmore, but Arlington numbered among its customers 11 of the 15 largest pharmaceutical companies operating in the US.

Field’s Bob Houghton says: “The sector is moving so quickly, we’ve been developing plants worldwide to better serve the marketplace with finishes such as foil blocking and varnishing.”

Broader portfolios
In February 2006, Belfast-based carton and rigid box maker MSO Group acquired pharma specialist Storey Evans. According to a company spokesman, the flurry of M&A activity in the marketplace has a lot to do with increasing what suppliers can offer. “The carton industry is trying to get a wider portfolio. Margins have been attacked in the food sector and the more progressive groups have extended the range of products that they offer, and pharmaceuticals is said by consultants to be a good niche area to get into.”

However, he believes that, as far as sourcing suppliers is concerned, the pharmaceutical industry is showing no clear pattern. “Some want to operate at a multinational level but some see the benefits of having key strategic local companies as suppliers.”

Although the move to set up in other countries is apparent, there is also evidence of buying, selling and expanding on a national level.

Benson Box last year acquired Crewe-based Medica Packaging, and its estimated 10% of the pharmaceutical packaging industry. Group managing director Mark Kerridge says the carton and leaflet area is very fragmented in Europe, mainly because of the many types of manufacturers and different formats of pharmaceutical packaging. He predicts that there will be more consolidation in the future, whether that’s on a local, nationwide or multinational basis, and says the supply chain will mirror the customer base.

Enhancing a company’s service is another way to add value in a changing market. Chester Medical Solutions recognised six years ago that the major players were swallowing up many of the independent companies, and that it was going to be harder to compete with these groups’ purchasing power. Sales director Tammy Williams says: “Back then, we looked at acquiring another carton company, but at the same time we were asked by a few customers to go into the contract packing market, and that’s what we did.”

The company set up a state-of-the-art facility to provide a contract packing service for drugs as well as medical devices such as woundcare products and hospital kits.

Williams says: “We have begun to see more pharmaceuticals companies merging together and opening manufacturing facilities in Eastern Europe and India, and from time to time we have to compete with that market. We expect the next focus to be in the Far East and we are starting to hear about other competitors setting up there.”

The quality of pharmaceutical packaging manufactured in areas with low labour costs could be a concern for many in the future. Brecon Pharmaceuticals produces a variety of packaging for leading pharmaceutical companies and its business development director, Steve Kemp, recognises that manufacturing in developing countries is an issue and that quality is a significant driver for keeping production in the UK. “There is more confidence in the UK market. I really believe that you get what you pay for and it is important to look at the overall cost, not just the bottom line.”

This optimism is echoed by Chester Medical’s Williams: “We do believe that at some point product manufacturers that have left this country will return and, in a few instances, we have started to see this already.”

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PACK INNOVATION AND PRODUCTION CHALLENGES
Pharmaceutical packaging manufacturers have to carefully consider a wide range of variables, especially in the field of leaflets and labels: Braille product information, packaging format, cosmetic appearance, runability on line, integrity, anti-counterfeiting features, traceability, accountability, readability and compliance are all issues.

Pharmagraphics Guy managing director Sean Nolan says: “The pressures on print and packaging manufacturers to address the changing needs of their customers are continuous and unrelenting. Innovativeness and a willingness to embrace change are essential.”

He has noticed that one of the biggest changes is the demand for larger leaflets to accommodate more text in bigger type sizes and in more languages, together with graphical elements to aid understanding.

He says: “In general, our customers do not wish to make changes to the carton size when the leaflet size grows, so the printer has to find a way to deliver the larger leaflet in a format that is suitable for automatic insertion on the production line.”

According to Lansdowne Capital’s Tim Rothwell, the methods of dispensing drugs are becoming increasingly innovative.

“During the past five to 10 years there have been developments on finding other ways to administer drugs,” he says. “The drugs have become more sophisticated and that has required more elaborate packaging devices.”

RPC Formatec’s pharmaceuticals sales and development manager, Ekhard Mugge, agrees. He says that in the future there could be a major shift in the way mainstream pharmaceuticals are produced. He expects products usually sold in tablet form to become available as powders to be inhaled. “Although powders have traditionally been used to treat asthma and, more recently, in one-shot pain relief remedies, more drugs are expected to be dispensed this way – possibly even vaccinations. It is an expensive technology at the moment, but in the long-term it could be used.”

RPC recently developed the Watchhaler (pictured), a new inhalation device for children, based on a product devised by German firm Activaero for pulmonary drug delivery. As well as considering the aesthetic appearance of the device, an important factor was ensuring the efficient delivery of the drug using a mechanical valve at the air inlet.

The prevention of counterfeiting is also an essential requirement for today’s pharmaceutical manufacturers. Storey Evans has taken the issue particularly seriously and is a member of Copapharm Europe – an alliance of packaging companies supplying the pharmaceutical industry for whom the prevention of counterfeiting is a top priority. A spokesperson for Storey Evans concludes: “It is a life
or death situation and our number one challenge.”