#4 Sectors in Brief - Players in the Pharmaceutical Glass Packaging Segment

Pinpointing I have approximately 25% of my current portfolio allocated to the pharmaceutical industry with exposure to most of its different subsectors: big pharma (Novo Nordisk), tools (Danaher), CDMO (Lonza AG) and testing (Eurofins Scientific).

As I explained some months ago in my write-up covering the pharma packaging industry (#3 Sectors in Brief - The Pharma Packaging Sector) I have been investigating if there is any attractive investment opportunity within its players to gain exposure to this segment of the pharmaceutical industry I am missing in my current portfolio.

In today’s write-up I am presenting an overview of the main publicly listed players I have encountered.

Pharmaceutical Packaging Industry Recap

As discussed in #3 Sectors in Brief - The Pharma Packaging Sector, growing demand for RTU packaging, biologics, and GLP-1 drugs is driving growth in glass packaging. Glass offers inertness, versatility, and sustainability. This set of characteristics perfectly aligns with pharma industry trends:

• Inertness: key feature to avoid cross-contamination between product and storage container. Bear in mind that 75% of the pharma packaging market value is on primary packaging solutions.

• Versatility: new drugs developed are more niche specific than traditional ones. Glass can be shaped to a suitable size and form.

• Sustainability: growing focus and continuous effort from people and institutions is being placed in the development and introduction of sustainable solutions.

Strict regulations, high capital & operational costs and the need of specialized equipment & technical expertise create significant barriers of entry for other potential competitors.

Players Introduction

The following companies are the main players I found in the pharmaceutical glass packaging sector during my initial investigation of the pharmaceutical packaging industry.

Gerresheimer AG (ticker: $GXI)

Gerresheimer AG is a leading global manufacturer of medical devices and primary packaging for the healthcare, cosmetic, and food & beverage industries. Headquartered in Düsseldorf, Germany, the company generates €1.991 billion in revenue (2023) through its three divisions: Primary Packaging Glass (PPG), Plastics & Devices (P&D), and Advanced technologies (AT).

The PPG segment produces glass vials, cartridges, and ampoules for the pharmaceutical industry, as well as containers for fragrances and skincare products and glass bottles for food & beverage applications. This segment accounts for approximately 46.6% of total sales in 2023.

The P&D segment focuses on ready-to-fill plastic syringes, plastic bottles for drug filling, and inhalers, contributing to approximately 53.5% of total revenue. Gerresheimer has a strong customer base, including major pharmaceutical companies like Novo Nordisk and GlaxoSmithKline. The company's contract manufacturing services, which involve outsourcing production steps for clients, offer high margins and long-term partnerships.

Finally, the AT division is focused on development projects, including digital platforms for therapy support, wearable medication pumps for small- and large-molecule drugs, and the proprietary auto-injector platform, which are continuing as planned. Its contribution to the group revenue is negligible. Moreover, it does not generate any operational profit.

Gerresheimer's global production footprint, reduced shipping costs for glass products, and reputation for high-quality medical devices are key competitive advantages.

SCHOTT Pharma AG Co KgaA (ticker: $1SXP)

SCHOTT Group was founded by Otto Schott more than 100 years ago. The company was set to manufacture pharmaceutical ampoules to safely store different types of medicines. The pharma company, SCHOTT Pharma AG Co KgaA, was spun-off from the conglomerate in August 2022, taking its IPO place in September 2023. They are based in Mainz Germany and have 16 different manufacturing sites across the world.

The company has two different segments:

1. Drug Containment Systems (DCS).

   This segment offers vials, cartridges and ampoules to store drugs manufactured by customers for their delivery. Products are manufactured in glass and can include different coatings and sealing components made of metal or rubber.

2. Drug Delivery Systems (DDS). 

   This segment has a more unique product portfolio offering focused on prefillable syringes (PFS) made of glass or high-tech polymers. The syringes are sterilized and ready-to-use by the customer (RTU).

Schott Pharma's portfolio is segmented into Core and High-Value Added Solutions (HVS). The company is strategically focused on expanding its HVS offerings, which align more closely with evolving pharmaceutical industry trends and generate higher profit margins.

HVS products have shown significant growth, increasing their share of total company revenue from 39% in 2022 to 48% in 2023. This positive trajectory is expected to continue, with HVS products anticipated to make up 60% of total revenue in the mid-term

The company also offers its services to support the customer along the whole packaging life cycle of any product from any segment, from its design to functional testing and documentation.

Stevanato Group SpA (ticker: $STVN)

The Stevanato Group is a leading global provider of pharmaceutical packaging and diagnosis solutions which was founded in 1949 in Italy. With 16 different sites, it is present in 9 different countries across the world.

The company manufactures a variety of drug containment and delivery solutions in glass and polymeric materials. Stevanato Group operates primarily through two business segments: Biopharmaceutical and Diagnostic Solutions (BDS) and Engineering.

1. Biopharmaceutical and Diagnostic Solutions (BDS).

   This segment focuses on the production of glass primary packaging, plastic components, and integrated systems for drug delivery. It includes products like prefillable syringes, insulin pen cartridges, diagnostic vials, and other specialized containers. In 2023, the BDS segment generated approximately 80% of the company’s total revenue.

2. Engineering.

   In 2023, this segment contributed to 20% of the total group revenue for the period. This segment provides high-precision machinery and equipment for the production of glass containers and drug delivery systems. It includes the design and manufacture of glass forming lines, inspection machines, and assembly and packaging equipment. The Engineering segment also supports the development and manufacturing processes of the BDS segment (accounting one third of the revenue of the engineering segment).

The group strategy is similar to SCHOTT Pharma AG one: grow revenue share originated from HVS containers while increasing operational efficiency after the current expansion projects have been finalized.

Beckton, Dickinson & Company (ticker: $BDX)

Becton, Dickinson & Company (BD), founded in 1897 by Maxwell W. Becton and Fairleigh S. Dickinson, is a global medical technology company that focuses on advancing healthcare by improving medical discovery, diagnostics, and care delivery. BD operates through three main business segments:

1. BD Medical: This segment includes medication delivery solutions, diabetes care, and pharmaceutical systems. It offers products such as needles, syringes, intravenous catheters, and insulin delivery devices. The segment has grown at a 5-year CAGR of approximately 4.7%, generating approximately 55% of the company’s total revenue in 2023.

2. BD Life Sciences: This segment focuses on products and services that support the entire spectrum of diagnostics, including specimen collection, molecular diagnostics, and microbiology. The segment has grown at a 5-year CAGR of approximately 5.1%, generating approximately 30% of the company’s total revenue in 2023.

3. BD Interventional: This segment provides surgical and interventional specialty products, including vascular access devices, hernia repair products, and biosurgery solutions. The segment has grown at a 5-year CAGR of approximately 5.7%, generating approximately 15% of the company’s total revenue in 2023.

As it can be extracted from the description above, packaging solutions only correspond to 55% of the company revenue, being the remaining revenue related to the medical devices, tools and testing sectors. Moreover, the delivery solutions segment offering is broader than the other players.

Terumo Corp (ticker: $4543 JP)

Terumo Corporation, founded in 1921 by Dr. Shibasaburo Kitasato and a group of physicians and scientists, is a leading global medical device company based in Japan. The company operates through three main business segments:

1. Cardiac and Vascular Company (45% od revenue in 2023)

   This segment focuses on products and solutions for cardiac and vascular interventions. Key offerings include interventional and cardiovascular systems used during surgery.

2. General Hospital Company (35% of company revenue)

   This segment provides a wide range of medical devices and supplies for hospitals and healthcare facilities. Key products include infusion systems, nutritional products and infusion solutions.

   Is the Pharmaceutical Solutions Division within this segment the one focused on drug delivery containers and systems. Key offerings include prefilled syringes, auto-Injectors and safety devices, infusion systems and services for the joint development with pharmaceutical companies of packaging and drug delivery solutions.

3. Blood and Cell Technologies Company (20% of company revenue)

   This segment focuses on products and technologies for blood and cell therapies as well as blood management. Key offerings include blood component collection & cell processing systems, blood glucose monitoring systems and devices for therapeutic apheresis procedures.

Closing remarks

Despite the leadership of Terumo Corp. and Becton, Dickinson & Company in some drug delivery technologies such as prefilled polymer syringes and prefilled glass syringes, respectively, both companies are not pure glass packaging players. The exposure to pharma packaging solutions thorugh both these companies will be of approximately 55% for Becton, Dickinson & Company and 35% in the case of Terumo Corp.

The most interesting players identified are SCHOTT Pharma AG Co KgaA & Stevanato Group Aps. Both companies have a high exposure to glass packaging and have similar strategies to develop their HVS offering through prefilled syringes and other RTU containers.

Regarding Gerresheimer AG, it is a pure pharma packaging player. However, 45% of its revenue comes from plastic packaging solutions. Therefore, I found it a less attractive player as explained in the previous pharma packaging sector write-up. Although, it can be very interesting to include it as a peer when running a fundamentals comparison with SCHOTT Pharma & Stevanato Group to verify if plastic product offering drags the company performance.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

In the coming weeks, I will publish an analysis comparing the fundamentals of the three identified candidates with further potential as an investment into the glass packaging sector. The results from that analysis, if favorable for any of them, will dictate which company I will deep dive in during the coming weeks.

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