Consolidation remains a main theme in the pharmaceutical industry and its community of blow molded container suppliers.
The processors, usually using high density polyethylene, must be nimble to face continuing challenges. About 80 percent of solid-dose medications are packaged in plastic containers, and 20 percent in increasingly popular blister packs.
``The pharmaceutical industry wants one-stop shopping'' and leans toward big companies that can design and engineer new packaging, said Daniel Khoshaba, a packaging analyst with Salomon Bros. in New York. The annual North American sales of value-added blow molded containers for pharmaceutical applications is about $1 billion, he estimated.
Globally, Khoshaba said, ``The entire packaging industry is consolidating,'' with players in the fragmented plastics segment combining along injection molding, extrusion and flexible packaging lines.
``The days of the local supplier are limited, if not over,'' said Joel Tiss, a packaging analyst with Lehman Bros. in New York. ``Global ability and quality'' are key to landing big accounts.
``Converters have zero pricing power, [and] they are going to get squeezed,'' said packaging and beverage analyst Skip Carpenter. ``Converters see volume potential, not recognizing the long-term ramifications of investing in those markets.''
Pharmaceuticals represent ``a small portion of the [packaging] business'' but a niche with a more-consistent track record than other segments, said Carpenter, vice president of Donaldson Lufkin & Jenrette Inc. in New York.
Suppliers to the pharmaceutical industry need a ``critical mass'' and a ``practical, long-term approach'' because, ultimately, only the top two processors have a viable chance to succeed, Carpenter said.
``As the number of customers continues to consolidate, converters need to consolidate,'' he added.
Cornelius Thornton, an analyst with Goldman, Sachs & Co. in New York, said value-added packaging is ``very difficult to squeeze on a price basis.'' Pharmaceutical firms are willing to pay a little more to get high quality, resulting in a processing niche with ``higher-than-normal-margin business.''
Major manufacturers of pharmaceutical plastic containers include units and operations of Owens-Illinois Inc., Alusuisse-Lonza Holdings Inc., Drug Plastics & Glass Co. Inc., Silgan Holdings Inc., McCormick & Co. Inc. and Kerr Group Inc.
Their customers sell blow molded containers of solid-dose medicines in three segments:
Prescription drugs, including name brands such as Hoffman LaRoche Inc.'s Valium or Ely Lilly and Co.'s Prozac, or generics like penicillin.
Over-the-counter drugs including Tylenol from Johnson & Johnson's McNeil Consumer Products or Sudafed from Warner-Lambert Co., or generic equivalents made by Perrigo Co. and others.
Vitamins and homeopathic medicines, the least-regulated segment, which generally are treated as food additives.
Alusuisse-Lonza of Zurich, Switzerland, has assembled a global pharmaceutical and cosmetics packaging juggernaut and, in an Aug. 1 restructuring, identified the business as one of six divisions.
Alusuisse-Lonza acquired Lawson Mardon of Mississauga, Ontario, and Bologne, France, in 1994; and Wheaton Industries of Millville, N.J., in 1996.
Operating as Lawson Mardon Wheaton and based in Millville, the combination has an extremely aggressive growth target, said Dan Ingram, divisional senior vice president for market planning and business development. LMW has ``the broadest range for pharmaceutical and cosmetic'' packaging products and intends ``to fill gaps and geographies and deliver breadth'' through internal growth and acquisitions.
On July 31, the firm purchased pharmaceutical and cosmetics packaging supplier ACI Rockware Ltd. and now is restructuring the operations in England.
LMW seeks ``niche companies with [ISO] certification and Class 100,000 clean rooms'' and capability to produce medical packaging and components, according to Garry Hager, director of product development for plastic operations.
``Historically, a lot of pharmaceutical companies design and develop their own packages and come to us or converters'' for production, Hager said. ``Now, they want to leave packaging design and development up to companies like LMW. We can leverage our size and product offerings.''
Pharmaceutical companies lean toward outsourcing tasks to consolidate bottle shapes and sizes, Hager said. ``They want to spend their dollars on curing disease, not on developing new packages.''
In recent years, the same concept has applied to manufacturing, where some pharmaceutical companies have transferred molding capabilities to a vendor such as LMW.
``In most cases, we take the assets out of their facilities and into our facilities,'' Hager said.
LMW blow molding accounted for 1996 sales of more than $200 million. LMW operates 131 blow molding machines at six plants in the Americas. In addition, LMW's plastics production in the United Kingdom is about $50 million, according to Ingram.
Alusuisse-Lonza had 1996 sales of $5.96 billion. Pharmaceutical and cosmetics packaging accounted for about $1 billion.
The relative size of the pharmaceutical packaging businesses of LMW and competitor Owens-Illinois Inc. is a subject of debate.
Packaging product giant Owens-Illinois has claimed it is the largest North American manufacturer of plastic prescription containers, but LMW may rate that title.
Lehman Bros.' Tiss said that Owens-Illinois' plastic medical lines account for as much as $400 million of the company's $1 billion-plus plastics segment.
Owens-Illinois reported higher shipments of plastic containers for personal-care items ``along with increased demand for prescription containers'' for the six months ended June 30. Sales of plastics and closures were $573.4 million, 8.2 percent higher than the comparable 1996 period.
Owens-Illinois identifies a Berlin, Ohio, facility as its prescription products plant, but manufacturing of other plastics, closures and specialty items occurs at 31 U.S. facilities and ones in Finland and Mexico. An Owens-Illinois plant in Las Piedras, Puerto Rico, packages most of the world's supply of Tylenol after its production at a nearby McNeil factory.
Also, Owens-Illinois is constructing a plant in Rocky Mount, N.C., to injection mold containers primarily for Abbott Laboratories. Operations are to begin in early 1998.
Glass containers, Owens-Illinois' larger segment, had 1996 sales of $2.78 billion. The plastics and closures segment's 1996 operating profit was $172.1 million on sales of $1.06 billion.
In the wake of their mergers, pharmaceutical firms ``try to leverage their size, narrow down the number of vendors and select a few who have the capability to supply them a broad range of products,'' said Edmond Phillips, vice president of pharmaceutical sales for Kerr Group in Lancaster, Pa.
Kerr is strong in plastic closures for the pharmaceutical, food, distilled spirits and other industries, and makes prescription vials and plastic containers.
Kerr's sales increased 10 percent to $57.6 million for the six months ended June 30, vs. the comparable period in 1996. Profit jumped to 24 percent, from 18 percent for the same periods. The company attributed both increases to higher unit sales and improved pricing on packaging for pharmaceuticals and prescriptions.
Effective Aug. 29, new capital-rich ownership and new management took control at Kerr. Fremont Partners LP of San Francisco acquired and privatized Kerr, and management gave indications that acquisitions may be on the horizon.
``The pharmaceutical industry has been moving toward supplier consolidation programs, which move the supplier base closer to being an extension to their own business,'' said Thomas Siak, vice president of sales for Drug Plastics & Glass in Boyertown, Pa. ``This supply-chain management has also created an improvement in their cost structure.''
Drug Plastics molds bottles of HDPE, low density PE, PET and polypropylene.
Silgan Plastics Corp. focuses on midsize extrusion blow molded containers requiring special decoration and short production runs.
The operation pursues opportunities in custom-designed containers of PET and HDPE for personal-care, health, food, pharmaceutical and household chemical products.
Silgan's plastic container business was established through the 1987 acquisition of a Monsanto Co. business line, 1989 purchases involving Aim Packaging Inc., Fortune Plastics Inc., Express Plastic Containers Ltd. and Amoco Container Co. and a 1995 deal for American National Can Co.'s Omni plastics containers and some metal products.
Silgan Plastics, based in Chesterfield, Mo., had 1996 sales of $216.4 million.
Plastic bottle molder Setco Inc. has developed new packaging products and built new business in the ``expanding vitamin industry,'' viewed as ``a major ingredient'' in its parent's future growth.
Setco continues to supply containers to cosmetic and food companies from a 275,000-square-foot plant in Anaheim, Calif., and a leased, 203,000-square-foot facility in Cranbury, N.J. McCormick, a spice and food specialties firm, operates Setco as a subsidiary.
Historically, resin suppliers held the keys to a material's regulatory clearance. Now, that process has moved down the chain to involve molders.
In clearing a new drug, federal regulators authorize a container or packaging material for use with that drug.
Now, they are updating what data about the container is required in conjunction with a drug application.
In July, the Food and Drug Administration proposed a guideline describing the types of information needed for ``container closure systems used in packaging human drugs and biologics'' and called for comments.
The existing guide, developed in 1987, contains incomplete instructions.
At least two Washington-based trade groups planned to submit comprehensive comments in advance of the Nov. 14 deadline for submissions.
Food, drug and cosmetic packaging committee members of the Society of the Plastics Industry Inc. reviewed the FDA concept and an SPI staff draft suggesting substantial changes.
The science division of the Pharmaceutical and Research Manufacturers of America also is developing a response.
Other forces are at work. ``The regulatory agencies of the United States, most European countries and Japan are harmonizing their regulatory procedures,'' said Peter J. Schmitt of Montesino Associates, a global pharmaceutical packaging consultant in Wilmington, Del.
``Their goal is to establish a process where a drug approved in one global area would be approved automatically in the others,'' said Schmitt. ``The result will be a further globalization of packaging suppliers as they follow their customers around the world.''
The pharmaceutical industry's worldwide plastic-bottle demand could grow by the year 2000 to sales of $2.4 billion, representing an average annual increase of 6.5 percent during six years, LMW projected. The 1994 figure: $1.7 billion.
Popular blister packs, however, could grow faster, rising 13.5 percent annually to $3.5 billion in 2000 from almost $2 billion in 1994.