The many benefits of implementing used equipment strategies

The availability of high-quality surplus equipment is increasing at the same time that CDMOs are expanding to meet growing demand. Matt Hicks, COO, Federal Equipment Company, discusses the benefits of strategies to manage used equipment

An understanding of the unique regulatory requirements of the pharmaceutical industry and knowledge of the various types of equipment, how the equipment functions, as well as an understanding of marketplace are all imperative

Change is commonplace in the pharmaceutical industry, but in recent years the level of transformation has been quite significant. Drug manufacturers are increasingly expected to demonstrate that new medicines provide value for their money, blockbuster drugs, most of which have fallen or will soon dive over the patent cliff, have been replaced with smaller-volume, targeted and niche therapies, and the greatest growth in demand is occurring in emerging markets that expect lower-cost treatments.1

To remain profitable in a marketplace full of significant downward pricing pressure, pharmaceutical companies have turn to consolidation2-6 and outsourcing7 to help reduce costs while simultaneously expanding their product portfolios and gaining access to needed specialised capabilities.

CDMOs and generic manufacturers looking to expand production to meet the growing demand from their respective customers need immediate access to lower-cost, high-quality manufacturing and packaging equipment

The used pharmaceutical equipment market has experienced significant growth under these conditions, and both branded drug manufacturers and custom development and manufacturing and organisations (CDMOs) are benefiting as well. Consolidated entities achieve cost savings by eliminating redundancies, which generally involves the closure and/or sale of facilities and equipment.

Meanwhile, CDMOs and generic manufacturers looking to expand production to meet the growing demand from their respective customers (branded drug companies and patients in emerging markets) need immediate access to lower-cost, high-quality manufacturing and packaging equipment.

Used equipment dealers that can serve as trusted partners to both pharmaceutical companies and CDMOs can help all members of the pharmaceutical supply chain realise measurable results. These special companies understand the needs of the industry and have the expertise to resolve equipment concerns for all parties while offering real cost savings. They can assist with the purchase or sale of a single piece of equipment, facilitate a facility liquidation, or provide ongoing management services for resource recovery programmes. As a result, it is possible for sellers and buyers of used equipment to maximise the potential benefits of participating in the used pharmaceutical equipment market.

The selling process

Sellers should seriously consider the use of a reliable and well-known dealer that has a large network of potential buyers, an extensive marketing programme in place, and physical warehouse space where the equipment can be viewed and tested. In addition, they should be familiar with the various regulatory requirements that govern the sale of used pharmaceutical manufacturing equipment.

A trusted used equipment dealer will also have extensive experience in the assessment and appraisal of pharmaceutical equipment, taking into consideration all relevant factors, which can include not only the type of equipment and its condition, but also the cost of removing it.

Even if the equipment is in excellent condition, the cost of removal from the current location must be considered when determining if it should be sold or scrapped

The type of equipment is important, because some pieces of equipment are in much higher demand than others. In solid dose manufacturing, for example, high-quality tablet presses and capsule fillers from recognised manufacturers are difficult to keep in stock, while for API production Hastelloy filter dryers and reactors sell very quickly. However, even if the equipment is in excellent condition, the cost of removal from the current location must be considered when determining if it should be sold or scrapped. For instance, if a crane is required to remove a reactor, the cost for removal can be quite high and thus lead to minimal investment recovery. In such a case, scrapping of the equipment would be recommended.

As another example, a highly specialised equipment train that was custom designed for the packaging of one specific product, even if it is in excellent condition, is unlikely to attract any buyers, and the recommendation here would also be to scrap rather than sell.

It is also crucial for both the seller and the used equipment dealer to have a clear understanding of the goals for the sale of the equipment so that the person or team managing the project can appropriately evaluate the various options against those expectations while weighing all of the relevant factors.

The need for storage of equipment waiting for sale must also be considered. In some cases, it may be possible for the equipment to remain at the seller’s location, while in others the seller may need to have it moved to the dealer’s warehouse. In either case, storage under appropriate conditions, preferably in a clean and climate-controlled building with space for viewing and facilities for testing, is highly preferred. If the evaluation process is conducted correctly, the result should be a customised plan for the sale (or scrapping) or the equipment that maximises the firm’s goals.

The buying process

CDMOs and generic manufacturers, both of which are involved in highly competitive markets, can realise tremendous savings and reduce lead times through the purchase of used pharmaceutical equipment. The price of used assets is often as little as 40% of that of the new equipment, and sometimes as low as 20% of the original price. Used equipment is also immediately available; there is no waiting time for production, which can in some cases take weeks or months. That can be very important for CDMOs bidding on projects that require specific pieces of production equipment.

Matt Hicks, Chief Operating Officer, Federal Equipment Company

In the event of unexpected equipment issues, experienced used equipment dealers can help manufacturers rapidly find suitable replacement equipment so that the production process does not have to be shut down, thereby avoiding supply shortages. Used equipment is also an attractive and cost-effective option for back-up, redundant equipment that is stored on site.

As with companies looking to sell used equipment, manufacturers seeking to purchase pre-owned pharmaceutical production and/or packaging equipment will benefit highly from a relationship with a reliable and trusted used equipment dealer. Such a partner will be able to evaluate the production process and determine whether the purchase of used or new equipment is most appropriate.

In particular, because it is very difficult to find pre-owned equipment that meets the exact design specifications for a given process, an experienced dealer that is familiar with pharmaceutical equipment can help the manufacturers select the equipment that most closely meets the design parameters. Alternatively, if purchasing new equipment is the best route, the used equipment dealer can help connect the manufacturer with the most suitable equipment supplier.

Early consideration of used equipment may avoid time-consuming and costly design and specification stages of new equipment purchases

To maximise the potential for time and cost savings, used equipment should be considered as early as possible in the process design stage so as to allow for greater flexibility in equipment options and the greatest likelihood of finding suitable used assets. Early consideration of used equipment may avoid time-consuming and costly design and specification stages of new equipment purchases.

While it is recommended that used equipment options be considered early in the process, considerations for used equipment later in the project can also provide significant savings or keep a project on track to meet key deadlines.

Finally, a used equipment dealer that acts as a true partner during the buying process will work very hard to provide as much of the historical documentation for the equipment as possible. All equipment for sale should be easily accessible for inspection and, in most cases, testing, whether at the seller’s site or in the dealer’s warehouse. Storage facilities should also be very clean and wherever possible climate-controlled to ensure that the offered equipment is not only high quality but also meets all of the requirements for pharmaceutical manufacturing.

Strategic resource recovery

Larger pharmaceutical companies with multiple sites that continually purchase smaller firms and/or undertake larger mergers/acquisition typically have ongoing resource recovery initiatives in place. While these programmes can be run completely in-house by personnel who keep track of the equipment/facilities for sale, run advertising campaigns and manage the removal and storage of the assets, they require significant resources and expertise that are often not available, particularly given the globalisation that has taken place in the pharma industry in recent years.

In fact, maximising investment recovery can be challenging, particularly for companies that do not have previous experience, have limited communication between different plant and R&D sites, or simply lack the personnel and resources to implement an efficient recovery programme. Consequently, most companies choose either to have one or two in-house personnel manage to the programme with the support of a third-party used equipment dealer, or to turn the management of the entire programme over to the service provider. Regardless of which approach is preferred, to maximise the potential for investment recovery, it is important that asset owners develop a strategy for managing their recovery efforts.

Only service providers that are interested in establishing a strong relationship with the pharmaceutical company and committed to obtaining the optimum value for each piece of equipment should be considered

As mentioned above, for investment recovery efforts to be successful, it is crucial that clear goals be established for the team to work towards. In addition, the used equipment dealer should be selected with care, and only service providers that are interested in establishing a strong relationship with the pharmaceutical company and committed to obtaining the optimum value for each piece of equipment should be considered.

For larger pharmaceutical companies with multiple sites around the world that do not have enterprise-wide equipment tracking systems and also do not effectively communicate about equipment availability and needs, a used equipment dealer can also facilitate the management of equipment across all facilities. This activity is very important for maximisation of investment recovery, because the greatest return on used equipment is achieved when internal redeployment is possible and unnecessary capital expenditures can be avoided across the entire company.

When it comes to facility liquidation, pharmaceutical companies have several options. They can offer the entire facility for sale, sell the entire facility and its contents to a used equipment dealer, hire a dealer to conduct an auction, or have a dealer sell the equipment on consignment. A dealer that serves as a trusted advisor can help a manufacturer determine which option is most appropriate for a given situation. Such a used equipment dealer must have extensive knowledge of the equipment market to determine the best approach.

A trusted used equipment dealer will also have extensive experience in the assessment and appraisal of pharmaceutical equipment, taking into consideration all relevant factors

Knowing which factors are relevant is crucial to achieving a successful resource recovery programme. Some issues to consider include the type of facility and specific pieces of equipment; the timeframe in which the company needs to complete the resource recovery effort and its desired return on investment; how much of the equipment is saleable and/or should be scrapped, and whether the equipment should be left onsite or moved to a storage location (in-house or owned by the dealer).

An effective used equipment dealer can facilitate the entire process, from evaluation of specific resource recovery needs to development of a customised plan. As a result, leveraging the services of a used equipment dealer that is committed to being a true partner can help ensure the potential for investment recovery is indeed maximised.

The importance of partnerships

It is in fact important for both buyers and sellers to find a used equipment dealer that will be a true partner and have the best interests of its customers in mind. Such a partner will not focus on a specific transaction, but take a comprehensive approach to the evaluation of buying and selling opportunities that includes consideration of the customer’s specific goals and all factors that might determine the actual cost savings or level of investment recovery. Equipment owners should be aware that there are pitfalls and risks associated with a one-size-fits-all equipment sales or disposal strategy.

There are many risks for equipment sellers in the secondary market for pharmaceutical and chemical equipment. Sellers need to be aware of laws and regulations regarding sales of certain drug-manufacturing equipment such as tablet presses and capsule filling equipment.

Sellers should also be aware of both domestic and international import and export compliance laws and regulations

Sellers should also be aware of both domestic and international import and export compliance laws and regulations. Often, import and export regulations require a significant amount of technical knowledge to properly classify an export. These regulations often require the seller to understand and document the customer and the customer’s intended use of the equipment.

Every pharmaceutical company will want to make sure that its surplus equipment will not end up in the wrong hands. These ‘wrong hands’ can range from users who do not know how to use the equipment properly to users purchasing with the intent to engage in a wide range of criminal activities from import-export violations to counterfeit, illegal or non-GMP drug manufacturing.

Ideally, the used equipment dealer will act as an extension of the company, working seamlessly with the relevant departments (purchasing, sales, manufacturing, engineering, etc.). An understanding of the unique regulatory requirements of the pharmaceutical industry and knowledge of the various types of equipment, how the equipment functions, as well as an understanding of marketplace are all imperative. Established relationships with original equipment manufacturers, pharma companies, CDMOs, and generic manufacturers are also important.

Unique training support

Highly experienced used-equipment dealers can provide their customers with support well after each individual equipment transaction is completed. For instance, with its extensive knowledge of pharmaceutical manufacturing and packaging equipment and its access to high-quality used equipment, Federal Equipment Company realised it could provide real support to customers by offering training and workshops for operators using the equipment it manages.

With the shift in the pharmaceutical market away from blockbuster drugs to smaller-volume, niche products, many facilities operated by CMOs, generics manufacturers and branded pharmaceutical companies are multiproduct sites today, producing numerous pharmaceutical intermediates, active ingredients and formulated products. As a result, many different products are being produced over the course of a year, and processes are often run only a few times over that period. Despite the variable schedule, however, it is crucial that each process always be run right the first time every time. Active ingredients for small batches are too expensive to waste with inefficient operations.

To help ensure that operators are familiar with different pieces of equipment prior to the startup of each process, Federal Equipment Company and Techceuticals have designed a training system that can be used in the classroom and continue through to the operations floor. Operators are trained on manufacturing theory and processes and tested. They can continue to access training videos and materials stored on kiosks that show the steps that must be completed and the appropriate sequence of operations for different processes that are run on specific pieces of process equipment.

For pharmaceutical manufacturers that want to provide their operators with additional hands-on training with relevant process and packaging equipment, Techceuticals offers workshops and training onsite at Federal Equipment Company’s facilities. Techceuticals’ training facilities and non-GMP formulations labs are located in Cleveland, Ohio within a large, climate-controlled warehouse where the Federal Equipment Company stores the used pharmaceutical equipment it has for sale. The dedicated, interactive classroom and lab includes areas for hands-on training with many different types of pharmaceutical process equipment.

Most importantly, the training workshops are open to anyone in the pharmaceutical industry value chain, not just customers who have purchased equipment from the company. Getting needed medicines to patients as quickly and safely as possible is the goal of everyone in the pharmaceutical industry. The training programmes are customisable and scalable for individual customers. Techceuticals can also perform mass trainings at customer’s facilities upon request.

Used equipment dealers have an important role to play by supporting efficient, quality manufacturing with high-quality equipment

Used equipment dealers have an important role to play by supporting efficient, quality manufacturing with high-quality equipment. Sharing knowledge on how to improve operator training and production practices is a natural fit for used equipment dealers that are committed to being true partners with their clients.

With the range of cost pressures currently placed on pharmaceutical companies, it is important for drug manufacturers to realise cost savings through all possible avenues. The sale of equipment that is no longer in use will recover some of the initial capital expenditure and purchasing used equipment can save a significant percentage of the cost of new equipment.

Used equipment dealers that are trusted sources of pharmaceutical processing and packaging equipment can help realise both maximum recovery to sellers and optimum cost savings to buyers, while simultaneously ensuring that the equipment involved is high-quality and that all transactions are transparent and compliant with relevant regulations.

References

1. P. Van Arnum, “IMS Offers a Subdued Outlook for the Global Pharmaceutical Industry at DCAT Week '14,”. PDCAT Connect, March 25, 2014. http://connect.dcat.org/blogs/patricia-van-arnum/2014/03/25/ims-offers-a-subdued-outlook-for-the-global-pharmaceutical-industry#.VNwFui6YYuc, Accessed 2/1//2015.

2. A. Ward, E Hammond, “Big Pharma Deals are Back in the Mix,” Financial Times, April 21, 2014, www.ft.com/intl/cms/s/959fd6f2-c957-11e3-bba1-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F959fd6f2-c957-11e3-bba1-00144feabdc0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz3RUNsrWNr. Accessed 2/11/2015.

3. K. Weinmann, “Big Pharma Consolidation Underpins Deal Making In 2014,” Law360, April 8, 2014, www.cov.com/files/Publication/11160963-4f7c-4532-bd74-a03b55114411/Presentation/PublicationAttachment/f1d22686-140b-404e-93ca-a081da7fc229/Big%20Pharma%20Consolidation%20Underpins%20Deal%20Making%20In%202014.pdf. Accessed 2/11/2015.

4. Wharton Business School, “‘Trying to Recapture the Magic’: The Strategy Behind the Pharma M&A Rush,” May 28, 2014, http://knowledge.wharton.upenn.edu/article/trying-recapture-magic-strategy-behind-pharma-ma-rush/. Accessed 2/11/2015.

5. Bloomberg Business, “Consolidation Efforts Transform the Pharmaceutical Industry,” May 1, 2014, www.bloomberg.com/infographics/2014-05-01/pharma-mergers.html, Accessed 2/11/2015.

6. Pfizer Press Release, “Pfizer to Acquire Hospira,” February 5, 2015, www.pfizer.com/news/press-release/press-release-detail/pfizer_to_acquire_hospira. Accessed 2/11/2015.

7. Visiongain, “Pharma Leader Series - Leading Pharmaceutical Contract Manufacturing Organizations (CMOs) 2014–2024,” September 26, 2014. https://www.visiongain.com/Report/1325/Pharma-Leader-Series-Leading-Pharmaceutical-Contract-Manufacturing-Organisations-%28CMOs%29-2014-2024, Accessed 2/3/2015.

Featured Companies

Federal Equipment Company (more information, website)