Track and trace regulation will drive outsourcing, says investment firm

02-Dec-2014 - Last updated on 02-Dec-2014 at 15:25 GMT

All drug products will have to be barcoded by 2017, according to the Drug Quality and Security Act

The implementation of track and trace will drive the outsourcing of drug packaging and UDG Healthcare is well-placed to benefit, according to a UK broking firm.

Last month, UK-based pharma packaging and services provider UDG issued robust figures for the 2014 fiscal year, and CEO Liam FitzGerald said the firm is “well positioned to benefit from the growth in outsourcing throughout the healthcare industry as companies react to rapidly changing business requirements.”

One area of business requirements that has changed in the past year is the development of legislation to ‘track and trace’ products throughout the supply chain in order to minimise the risk of contaminated or counterfeit drugs, following the Drug Quality and Security Act coming into US law in November 2013.

The Act requires all pharmaceutical products to be affixed with either human or machine-readable barcodes and will become mandatory in late 2017 in the US, with Europe likely to follow, and according UK investment corporate advisory and broking firm N+1Singer, UDG is “ahead of the pack” of packaging firms set to benefit from the legislation.

“Serialisation is expected to increase capex requirements to upgrade legacy packaging lines and bring them into compliance with the new regime,” the consultancy firm said in a note.

“In our view, this is likely to drive further outsourcing from pharma companies that are either unable or unwilling to invest,” it continued, estimating that only about 15% of pharma firms currently have packaging lines in accordance with the new legislation.

UDG’s advantage over other distribution companies comes from having six years of experience as a distributor of Reckitt Benckiser’s methadone substitute for opioid addiction, Suboxone, which is subject to higher levels of security and regulations, but the note also commented on UDG’s capabilities.

“UDG has eight serialisation lines in operation currently - 6 in Allentown, Pennsylvania - and plans to add a further 12 by the end of 2015. It has a validated technology link through three solutions providers, plus capabilities to link into customers’ ERP systems such as SAP and Oracle.”

For the year ending September 30 2014, UDG’s total revenues were €2.1bn ($2.6bn), up 5% year-on-year, while operating profit was up 9% to €141m.