Corning is known for many of the products we use every day from
the glass on our smartphones to the cookware we use during
Thanksgiving. Something it's less known for is its
contribution to the world of pharmaceuticals.
Corning vials and tubing have been used throughout history;
World War II which used to package penicillin and other
drugs for the frontline for the soldiers fighting in Europe.
But these aren't your grandparents vaccine vials.
They basically have created Gorilla Glass for the
pharmaceutical industry in a way that also makes it safer to
carry the drugs that are in the vials. So all of that together
makes it a very interesting growth opportunity for the
company.
Valor glass vials are made with technology borrowed from the
super strong Gorilla Glass used on iPhones and the new Velocity
glass add speed to the equation, making it easier and safer for
companies like Catalent, which fills over 70 billion doses of
vaccines a year to fill and package medicine.
We have found that their vials because of the coding actually
have a faster throughput rate for us on the equipment that we
use, and anything we can do right now to be more doses to
patients around the world is critical.
Despite fears of a sand and glass shortage and continuing
global supply chain issues. Corning stock is up 64% Since
March 2020, when the pandemic began. Corning is growing its
pharmaceutical business with a new vial factory in Durham,
North Carolina to become a bigger part of the $3.2 billion
global pharmaceutical vial industry.
I served on the board of a major pharmaceutical company, and I
kept seeing issues of sterility issues of lines being shut down,
all because of the packaging. So we decided to bring high tech
tools to the pharmaceutical packaging industry, first with
Valor now with Velocity and many many more to come.
CNBC got an exclusive first look at Corning's new factory to see
these vials start rolling off the production line.
Corning built this new factory in Durham, North Carolina, which
was developed and deployed in record time thanks in part to
the $204 million funding from the federal government as part
of Operation Warp Speed to help ensure there were enough vials
ahead of the Covid vaccine development.
That enabled us to very rapidly accelerate our business plan.
And we built the plant in record time and brought it up in record
time. And that's that's what operation warp speed really
enabled us to do.
This new factory has the potential to churn out half a
billion super strong vials per year, each with the ability to
withstand the extremely cold temperatures required to store
the COVID-19 vaccine.
Once we knew that the vaccines would have to be frozen, we knew
there's going to be a significant challenge around the
mechanical stress breakage for the products. Both Valor and
Velocity are really optimized for mRNA vaccines. They've done
a great job out in the industry not only helping to reduce the
breakage during the freezing process, but also to help
increase the fill finish speeds of the pharmaceutical companies
who are trying to get as many doses out the door as possible.
Corning got an additional $57 million in government funding in
March to help finalize the plant as well as increased glass tube
production at its New Jersey factory.
When Covid came it is a great example of sort of
public-private partnership is the government basically funded
a quarter of a billion dollars for us to increase our
productive capacity by over 50 times.
This factory solidifies Corning's place as one of the
global leaders in pharmaceutical glass. Some other large players
in the space include Germany based Schott, Japanese company
Nipro, and Italian companies Stevanato and Bormioli.
The company's basically invented their way to a competitive moat
where the glass that they've invented is 20 times more
durable against breakage. I'm not saying that they don't face
competition but what Corning is has invented should create
significant opportunity for them, you know, over the next
three to five years and longer. It could be as big as a $1
billion revenue business, which in the context of their $14
billion in sales is is pretty significant.
The global pharmaceutical glass packaging market is expected to
grow to a $7.46 billion industry by 2028.
I don't think Corning would go into this market unless they
were going to make 40% plus gross margins, which is above
average gross margins for them right now.
The vial making process starts with a shipment of glass tubes
made at one of Corning factories in New Jersey.
Vial converting is the second step our vital manufacturing
process. We start with form tube, either aluminum silicate
for Valor glass or borosilicate for Velocity glass, and we
formed that tube into a unique vial shape. Then there the vial
is inspected and goes through an annealing process to relax the
stress in the glass. And from there it's ready for coating and
ion exchange.
The Valor glass vials go into a molten salt bath, where smaller
sodium ions are swapped for larger potassium ions adding
critical tension and strength to the glass. This process was
borrowed from the company's Gorilla Glass production.
Velocity glass, on the other hand, doesn't go through an ion
exchange process, but still receives a low coefficient of
friction external coating, which makes us substantially more
durable and crack resistant compared to conventional
borosilicate vials that are made by our competitors.
Traditional glass vials create friction when rubbing against
each other on a production line or in transit causing damage to
the vials, and in turn what's in them. The coating Corning uses
on its vials prevents this friction.
This is our coating process. In this process, Corning applies a
proprietary coating on the exterior part of the vial in
order to give the vial their improved operational efficiency
and faster filling speeds.
Special attention has to be paid to these vials as they are
highly regulated.
The end of the day, the packaging is the last thing that
drugs touch before they get injected into the human body.
The FDA and regulatory bodies consider the packaging as part
of the drug. Because they're so much interaction and
compatibility,
Then they're off to be inspected one last time packaged and
shipped off to companies like Catalent where the vials will be
filled with the vaccine.
We may not be a household name, but we do over 70 billion doses
a year, which means that one out of any every 20 doses taken in
the world is actually made by Catalent
Corning has been able to create this new factory even in the
face of a potential glass and sand shortage.
There was definitely fear of a sense shortage because it has to
be a specific type of sand to be amenable to the glass
production. And so it could be it could be a problem to do in
the future. We've be seeing shortages in many, many products
in many industries, who asked is apparently one of those.
This is one of the reasons Corning built a new vial factory
in North Carolina, to be close to pharmaceutical companies and
to rely less on overseas suppliers.
Our long standing philosophy has always been we want to
manufacture in the region where our customers are.
They're ramping capacity to a plan that's also supported by
like a major customer. They have a long term agreement with
Pfizer, they started developing as glass Valar glass before
Covid Because companies like Merck and Pfizer saw an
opportunity and a need for an advanced glass. And because
there was shortages already developing in the in the glass
supply chain.
The COVID-19 vaccine has been a triumph of scientific progress.
But with only about 52% of the world vaccinated against
COVID-19 There's still a lot of progress to be made.
The pandemic has shown some of the fragility of a global supply
chain. And it's also shown why for something as important as
you save your child's life, America should be able to
produce everything that is required to do that.
And there's also a plan for the vials if and when the COVID-19
vaccine is not in demand.
Covid is one problem, one demand for glass vials.
This technology was designed originally for all of the other
drug categories, because of this 50% improvement in efficiency,
better cost, better quality, that means that we have plenty
of demand. Really it's not about the next two years, three years.
It's really beyond that. And we think this is billions of
dollars opportunity. We're quite certain of it.