What's Old is New Again: Wresting Value from Second-Hand Equipment

Interphex 2015 (April 21-23) will showcase some of the latest bio/pharmaceutical manufacturing and development technology. An increasingly important segment of that technology will be second-hand equipment. As a growing number of pharmaceutical manufacturers are learning, second-hand doesn't have to mean out-of-date. Like pre-owned late-model cars or electronic devices, late-model drug manufacturing equipment is increasingly available.  Some of it is less than a year old, says Randy Small, vice-president of operations for the Americas at Liquidity Services. In some cases, equipment was purchased but never used, adds Ben Potenza, vice-president of marketing at EquipNet (exhibiting at booth #3359).

Buying used equipment is a win/win for both buyer and seller. Buyers save money and shorten delivery time, notes Matt Hicks, COO and counsel at Federal Equipment Company (exhibiting at booth #1742). Sellers, who may have closed a facility or who no longer need a piece of equipment, can recoup some of their investment and improve their return on investment. Pharmaceutical Technology asked these experts what pharmaceutical companies should consider when exploring buying or selling used assets.

PharmTech: What are the primary reasons a company might want to consider purchasing used equipment?

Small (Liquidity Services): One of the top reasons for purchasing second-hand equipment is the lower starting cost. Start-up companies often take this route because they want to get 'in the black' sooner, and there are a lot of start-ups around the world right now. We are also seeing an increasing number of Fortune 500 companies looking at the second-hand market as a sustainable, cost-efficient way to obtain equipment, and we are doing business with more of these large companies this year than last year or the year before. We are selling 47 out of 52 weeks of the year, with 300–500 pieces of bio/pharmaceutical equipment each week.

Potenza (EquipNet): The ability to save between 50-75% of the cost of new is an attractive factor. Budgets can be stretched and cash saved for additional purchases. In addition, pre-owned equipment is generally available immediately. Delivery can be made as soon as a purchase is completed, which is not always guaranteed when ordering a new system.

PharmTech: What types of pharmaceutical equipment are typically purchased in the second-hand market? 

Small (Liquidity Services): Laboratory R&D assets make up most of the pharmaceutical equipment in the second-hand market today.  Examples include liquid chromatography and mass spectrometry instruments and smaller benchtop assets, because the turnover rate is inherently higher in R&D. About 20% of assets in the market overall are manufacturing assets, typically from Fortune 500 companies, which ensures that they are well maintained and calibrated. The majority are sold in their natural environment, rather than a warehouse.

Potenza (EquipNet): All manner of equipment categories are sold in the pre-owned market, including laboratory instrumentation, pilot-scale and formulation machinery, packaging equipment, and plant utility assets. Solid-dose facilities purchase many fluid-bed dryers, encapsulation machines, tablet presses, and blending equipment, for example. Sterile locations might need vial-filling lines, bioreactors, autoclaves, and water-purification equipment.  Tanks are always in demand.

Hicks (Federal Equipment): For our pharmaceutical customers, we focus on processing and primary packaging equipment for all types of solid-dose and liquid pharmaceutical products, including aseptic fill-and-finish. Late-model, quality equipment is always in demand and does not last long in our inventory.

PharmTech: How old is 'late-model' equipment, and what cost savings can be obtained?

Small (Liquidity Services): In general, we consider less than five years old to be late model, with most of it three to five years old. This equipment is desirable because it is well maintained and still current. Startup companies have a high turnover rate, so equipment from them may be one to three years old, or occasionally less than one year. For equipment in the five to eight-year range, you need to do your homework to be sure that the technology is current and that the asset will do what you need.

The savings compared to purchasing new is typically 30-50% for the less-than-one-year-old range and 40-75% for two-to-three years old. For equipment older than three years, depending on supply, the savings can be in the 50-80% range. Buyers are finding savings a little higher than they did a year or two ago, which is partly due to an expanding marketplace with more sellers.

Hicks (Federal Equipment): The answer here really depends upon the equipment, the original equipment manufacturer (OEM), and the maintenance program. Many types of equipment can have long, productive lifespans-the year of manufacture should not always determine whether a machine is still worthy of use in production. Obsolescence for pharmaceutical process equipment, as a general rule, is when that machine is no longer fit for use in a cGMP environment or there is no support network for the equipment through in-house knowledge, the OEM, or a reliable third party provider. 

We acquire our inventory from the top names in pharmaceutical manufacturing-companies that purchase higher quality equipment from the start, engineer it to last, and have robust fixed asset management and preventative maintenance programs supporting that equipment. This equipment is more likely to be of a higher quality and in better shape so that OEMs can provide the bulk of the support. The buyer can thus trust each purchase, and have that equipment installed and ready for production as soon as possible. Our inventory can be delivered in weeks or even days, compared with months for built-to-order equipment. 

Potenza (EquipNet): Ironically, 'used equipment' is often a misnomer. Many times our clients have built facilities in anticipation of a ramp-up in production that never materializes. In these cases, we are often selling equipment that has never been used but is still 'pre-owned.'  For those items that are used, their value obviously has a direct relation to their age and the state of the current new technology compared to the machine that is for sale. Most buyers that are shopping in the second-hand pharmaceutical market are looking for equipment that is 10 years and younger if there is technology involved.  However, stainless steel tanks can be much older if they are in excellent condition.

PharmTech: What options would you recommend that a company consider for equipment they no longer need?

Small (Liquidity Services): A company should first consider redeployment within sister divisions or other locations. If the equipment is not needed inside their own company, they should consider selling the equipment. This route brings income and avoids the cost of disassembling and relocating the asset, because, typically, the buyer is responsible for moving the asset.

The market for used equipment is booming. Sellers should find a reputable company with an online marketplace and global market of buyers to ensure they will maximize their return on the assets they want to sell.

Potenza (EquipNet): Redeployment should always be the first consideration for a company with surplus equipment.  Clearly, relocating an asset that you already own ensures the highest return on investment for that asset. Beyond redeployment, a facility needs to factor in the amount of time that they have to sell the item. If there is not an immediate deadline for a high-value item, selling it in a negotiated sales platform will yield the next highest level of return.  If it's more of a commodity piece or the owner's priority is quick liquidation instead of highest return, then an online auction event is the preferred channel.

Hicks (Federal Equipment): We specialize in acquiring used equipment in many different ways. Sellers can choose to sell equipment individually, item-by-item, or as a lot through a bidding process.  There are auction and consignment options available. If the equipment is needed internally, we offer an in-network redeployment program when there is a good fit. The key is to understand that the solution for surplus equipment is not 'one-size-fits-all', but to focus on how to maximize the seller’s return in combination with many different factors, including project deadlines, site constraints, removal costs and methods, and conducting the project with minimal disruptions to ongoing operations or other stresses on the facility.

PharmTech: When should a company consider redeploying surplus equipment?

Hicks (Federal Equipment): Redeployment of existing equipment makes a great deal of sense because it maximizes the potential return for that idle equipment.  Redeployment puts that equipment in a place where it can produce saleable product rather than just being sold for the equipment’s own value. Additionally, the equipment history is completely transparent and records can be easily transferred without too many intellectual property concerns. 

With that said, a redeployment program will only work if there are multiple sites in the company’s network with similar equipment requirements. There must also be a financial strategy that makes redeployments attractive to the receiving site. This strategy mainly concerns the valuation of the equipment for the receiving site (e.g., net book value or fair market value) in addition to the removal and shipping costs.

Finally, there should be some strategic review of the transfer against a capital expenditure budget or some other identified objective.  If a transfer cannot be justified against a capital budget or, for example, as a risk mitigation strategy, these would-be assets may just go from storage in one facility to storage in another facility, where they sit inside a crate in a warehouse or take up valuable manufacturing floor space without ever making anyone any money, which is why they were made available in the first place.