Right place, right time for UDG

In Europe, the Falsified Medicines Directive (FMD), which was first drafted in 2011, requires a variety of new safety features on prescription drugs - known as Rx drugs in industry jargon - to prevent the spread of counterfeits and generic copies. While generics have been a fairly low threat in Europe, a number of high-profile medicines are due to lose their patents in the coming years, and regulators are concerned about the spread of fake medicines. The new laws should help prevent tampering by stipulating the use of glued flaps, closure seals and collars on bottles and vials. Crucially, the new laws will also require a unique 2D barcode on all drug packaging to allow pharmacists to verify the product at the point of sale. In the US a similar process is well under way following the signing of the 2013 Drug Quality Safety Act.

The US laws are expected to come into effect first, by the end of 2017. Meanwhile, FDM should become law by the end of 2018. It will affect every pharmacy in the EU.

UDG's specialism in packaging services, through its Sharp Packaging Services business, puts it in a very strong position to benefit from these changes. Indeed, it considers itself the market leader, with over six years' experience in the field of "serialisation"of medicines (as the barcoding process is known). And the IT systems that will be needed to comply with the new regime should provide significant barriers to entry.

Broker Jefferies reckons serialisation is likely to be an $80m opportunity for UDG in the US alone and tentatively puts a value of about $20m on the European opportunity.

In the meantime, UDG's packaging business, which accounted for 22 per cent of first-half profits, is growing well. Indeed, capacity for Sharp in the US is being expanded to cope with soaring demand. UDG's two other businesses are moving in the right direction, too. Its Ashfield division, which provides communication and training along with other professional services and accounted for 48 per cent of first-half profit, helped drive third-quarter operating profits significantly higher. And while the supply chain business has seen profits drop following the disposal of its 50 per cent stake in UniDrug to Alliance Boots, the impact of the sale on year-on-year comparisons will end this quarter.