By Erik Swain, Senior Editor
Packaging costs will decrease due to indirect pressures from buying groups, but the medical packaging market overall will continue to grow as a result of better services from packaging suppliers.
Pressures from hospitals and other healthcare buying groups to keep medical device costs down have tempered the industry's growth. Indeed, those in the industry say, not only are buyers demanding that device manufacturers hold the line on their prices, some have negotiated long-term contracts with their device suppliers that reduce prices over the course of time.
In turn, medical device manufacturers have locked packaging suppliers into long-term contracts that are similar to those between manufacturers and hospitals. While polymer raw material costs have gone up—polyethylene prices, for example, have jumped eight times in the last year and a half—packaging suppliers have not been able to pass those costs on.
To develop and maintain long-term relationships with device makers—necessary for survival in today's climate—packaging suppliers are devising new packaging options and offering support through various services.
MEDICAL PACKAGING MARKET WILL GROW
The sterile medical device packaging market (not including diagnostics) in the United States is projected to grow 5.5% per year for the next five years to reach approximately $800 million in 2004, according to a study produced by Allied Development Corp. (Lakeville, MN) and published by Packaging Strategies (West Chester, PA). But that growth rate will not match the 7.4% projected for medical devices themselves. The cost pressures are a major factor in that discrepancy, as is the increasing use of thinner materials.
Nonetheless, medical packaging is viewed as one of the most promising markets for growth in packaging, according to a survey by the Flexible Packaging Association (FPA; Washington, DC). Respondents ranked its potential on a par with that of drug packaging and trailing only fresh produce packaging.
New packages, like this peelable pouch from Rexam Medical Packaging that employs the supplier's Core-Peel system, are helping device makers reduce material costs.
Paper rollstock, nonwoven rollstock, and formable films are expected to be the biggest beneficiaries of the growth trends, according to the Allied/Packaging Strategies survey (see Figures 1 and 2). Paper rollstock currently has 8% of the market and should climb to 9% in 2004. Nonwoven rollstock will jump from 7 to 9%, and formable films from 12 to 15%. These share gains will most likely come at the expense of header bags, pouches, and trays. A driving factor in this market shift is the increasing use of automation.
Figure 1: U.S. device packaging market segmented by packaging format—1999.
Figure 2: U.S. device packaging market segmented by packaging format—2004.
The aging U.S. population is another factor that will affect packaging. This group will require an increasing amount of packaged disposable medical supplies and drug-delivery devices. A study titled "U.S. Disposable Medical Supplies," published by The Freedonia Group Inc. (Cleveland), says that the demand for disposable medical supplies in the United States will increase 5.3% annually through 2004 (see Table I). Among the strongest sellers will be prefilled syringes and prefilled nebulizers. In addition, demand for IV, drug-delivery, and related supplies will increase at 6.4% per year to 2004. While hospitals will remain the largest market for disposable medical supplies, outpatient sites will be a fast-growing market, demanding such packaged medical products as transdermal patches, prefilled nebulizers, and blood glucose strips.
CHANGING BUSINESS ENVIRONMENTS
Mergers and acquisitions among device manufacturers are also putting strains on packaging suppliers. As the device companies consolidate among themselves, they are also consolidating their supplier bases and relying on fewer vendors for more goods and services, and expecting the higher volumes to result in unit cost reductions. Concurrently they are putting more jobs out for open bids than they used to.
"As a supplier, your existing business is at risk, but there are also more opportunities to grow volume and gain business," says Jerry Bennish, vice president of marketing and technology for Ream Medical Packaging (Mundelein, IL).
"Consolidation among the sterile packaging manufacturers has slowed considerably during the last few years," says John Voultos, North America business manager for DuPont Medical Packaging (Wilmington, DE). "However, we do foresee changes in the roles they will play, and future consolidation is inevitable."
There have been a variety of ways in which medical packaging suppliers have responded to the changing demands of the market.
One is with new materials, says Hal Miller, director of packaging technology for Johnson & Johnson (J&J, New Brunswick, NJ), which bought more medical device packaging than any other company in 1999 according to the Allied/Packaging Strategies report. "Material cost is where most are looking for packaging cost reduction," he says. "For instance, converters such as Perfecseal and Ream have introduced formable films with peel-seal adhesives for uncoated top-stock materials. And DuPont responded with Tyvek 2FS" which is lighter in weight than other forms of Tyvek.
Another way material suppliers are solidifying their relationships with medical device makers is by increasing their services.
"There is the continued reduction of resources at our customers as far as packaging engineers and engineering departments," Bennish says. "They don't seem to have time to take on new projects. Therefore some suppliers are positioning themselves to provide more services."
"In the past, a lot of our sterile barrier component suppliers basically supplied materials and specifications and troubleshot technical issues. Now we ask our suppliers about services such as physical testing, process validation help, sterilization testing, and biocompatibility testing," explains John Spitzley, associate fellow–packaging for Medtronic (Minneapolis). "It's good to have those services and expertise in situations where we simply do not have the time to do things ourselves. Not all suppliers will be able to provide them, but the companies that do step up will get a better understanding of their customers and their needs."
Whether this will enable the device manufacturer to understand the value a supplier brings, and pay accordingly, remains to be seen.
METHODS AND MACHINERY
Another area that industry hopes to make more efficient is package testing. Standards bodies such as the American Society for Testing and Materials (ASTM; West Conshohocken, PA) have been developing new standards and revising existing ones for how to properly test the limits of one's package. Once completed, the projects are sent to FDA in hopes that they will be recognized as consensus standards.
If that happens, says J&J's Miller, who is chairman of ASTM's F02.60 subcommittee on medical packaging, not only will device companies save time and money because they know they will be performing their package tests correctly, but also they could save time on FDA inspections. Investigators might not ask so many questions if they know something was done in accordance with a consensus standard, he explains.
There could be some developments on the labeling and coding fronts that lead to further efficiencies. Hospitals, those in the industry say, would like device manufacturers to standardize their product-code numbering systems, which would enable a hospital to better manage inventory and compare costs among different suppliers. That could lead to an overhaul of a package's labeling and bar coding in the short run, but reductions in hospital operating costs in the long run.
Advances in machinery might also be deployed to increase efficiencies and reduce costs. "Take a manual sealing operation," Spitzley says. "If you add robotics and take away the operator, your consistency and quality will probably improve, and the risk of foreign material contaminating the process is reduced."
Another machinery-related concern is improving process control and getting into compliance with the quality system regulation. Those who don't could face significant time and money lost to rectifying FDA complaints. "There is a need for active work in this area," says consultant Donald Barcan, principal of Donbar Industries Inc. (DBI; Long Valley, NJ). "Many companies do not have the in-house capabilities to do process validation on their packaging equipment, but they recognize it needs to be done."
THE WORLD MARKET
Perhaps the most important trend to keep up with is industry's increasing globalization. Device manufacturers are becoming more interested in using a single package for worldwide distribution of a product, and a supplier whose package can meet standards anywhere in the world could gain an advantage.
Such suppliers will also have to maintain high levels of service around the world, says Dick Simmons, vice president–medical marketing for Ivex Technical Packaging (Wheaton, IL). "When you call on a company, you have to go to six places, not just one," he says. "You service not only the headquarters but all the outposts, acquisitions, and remote sites. The key is to treat all those sites the same as far as the lowest price, fastest time, and best quality. You must have knowledgeable representatives in all the areas you serve, and you should have manufacturing close by. If you're based on the East Coast and your buyer is in California, he will find that the freight from east to west is not value-added and may want someone local. So you have to have the resources to put the manufacturing sites in each area."
It will take more resources, increased flexibility, and improved products to successfully serve the medical device packaging market in the coming years. While the challenges may appear daunting, some packagers are well on their way to meeting them. For those who do, substantial growth is on the horizon.