Magazine Article | May 6, 2010

Why Buying Used Biopharma Equipment Makes Sense

Source: Life Science Leader

By Suzanne Elvidge

Equipment for biopharma R&D is a high-ticket investment, and buying it new represents a huge capital outlay, especially for start-ups and SMEs (small and medium enterprises). And like any high-tech equipment, the value depreciates rapidly after purchase.

Whether it is through consolidation, liquidation, or simply because of upgrading facilities, many biopharma companies worldwide are looking to sell research and manufacturing equipment that is no longer needed but is still working well. What are the advantages and issues of buying second-hand biopharma R&D and manufacturing equipment?

The key advantage of buying used equipment is the lower acquisition cost, which reduces companies’ overheads — particularly critical for small start-ups — and allows companies to turn a profit more quickly. According to an article in the Boston Globe in January 2010, buying second-hand equipment can save companies around 50% on the list price, and sometimes even up to 90%.

If the required piece of equipment is in stock, buying second-hand rather than new can reduce the lead time — instead of waiting weeks or even months for delivery of a new piece of equipment from the original equipment manufacturer, a used item could be shipped and installed within a matter of a few days.

Used biopharma equipment auction houses provide one-stop shops. Rather than having to visit or contact a number of different OEMs or suppliers, a purchaser may be able to find all they need under one roof, which is especially convenient if they are looking for products from a number of manufacturers or from a number of different industry verticals (e.g. testing, manufacturing, IT). “This can make the purchasing process more cost-effective,” says Randy Small, VP of asset sales and services at GoIndustry DoveBid.

Equipment that has been in regular use by a large and reputable pharmaceutical company will have been calibrated and serviced regularly, with buyers able to ask the seller questions about the equipment, and perhaps even inspect it. “This should give buyers additional security and confidence,” says Small. Because most used biopharma equipment comes directly from working laboratories, this also can reduce the time and costs for installation. Additionally, from a green perspective (which is increasingly important to end users and shareholders), buying used equipment has a lower environmental impact than buying new.

Obviously there are some challenges associated with buying used equipment. It is generally sold “as seen,” with no guarantees or warranties and no opportunities for enhancements or software and hardware upgrades. “Because of this, it is important to inspect for age, usage, hours, and condition, as all machines vary based on the prior user,” says Kirk Dove, managing partner, Heritage Global Partners.

Because this can raise concerns, reputable auction houses should be up-front about any possible faults with the equipment for sale. “Buying ‘as is’ can concern people, and we try to supply the purchasers with as much information as possible and be open about any faults or problems,” says Small.

Because auctions are on specific dates and can only sell what is available at the time, customers need to be aware that availability or choice can be limited. However, the major auction houses will have contacts worldwide and develop an idea of what is likely to come onto the market in the short or medium term. “We can sell only what we are supplied,” says Small, “but because of our networks, we have an idea of what is becoming available.”

Companies need to prearrange payment plans if required, as often used equipment is a cash purchase only, with auction houses offering no financing. Purchasers also need to be aware that second-hand equipment may come with associated financial liabilities such as lease terms.

It is also worthwhile checking out service contracts and software licenses. A new purchaser may have to continue with an existing contract or license, or you may need to arrange new contracts and licenses at short notice. Likewise, customers buying second-hand equipment do need to be aware of any other potential additional costs, such as replacing any missing components or software and any delays associated with this, especially since those parts will probably have to come from the OEM rather than the auction house. Other often overlooked costs include derigging, transporting, and installation, which are often included in the purchase price of new equipment.

Some companies will provide support above and beyond the basic purchasing process. For example, recommending and facilitating the services of specialist riggers, transporters, and shippers is a common value-added service. The benefit provided by these services is worth checking out as it could make a difference to the overall costs.

“Many first-time buyers assume that used equipment will be of a low quality and be out of date, but this is not the case,” explains Small. “It’s not that the equipment no longer works; it is generally just not needed anymore due to a project ending or a company choosing to upgrade. Some buyers also assume that used equipment will involve a long acquisition process, but it is generally very quick, especially now that online payments have speeded up global money transfer.”

Dove says the most common misconceptions about buying used equipment revolve around its age and condition. “In fact, successful companies upgrade on a regular basis, which makes relatively new equipment available on the market.” Start-ups that have gone out of business or been taken over by another company are another source of recent and high-quality second-hand equipment. “These types of companies offer many state-of-the-art items at attractive prices,” states Dove.

The key types of equipment often offered second-hand include:

Analytical equipment:

  • HPLC (high performance liquid chromatography)
  • GC (gas chromatography)
  • LC (liquid chromatography)
  • mass spectrometry
  • nuclear magnetic resonance (NMR)

General laboratory equipment

  • centrifuges
  • balances
  • microscopes
  • autoclaves
  • consumables

Pharmaceutical processing

  • tablet presses
  • powder blenders
  • blowers
  • mills
  • mixers
  • stainless steel tanks

Pharmaceutical packaging

  • packaging and filling lines
  • sorters
  • box makers
  • equipment for wrapping and labeling

Facility and laboratory support equipment

  • laboratory furniture
  • IT equipment
  • heating, ventilating, and air conditioning (HVAC) equipment

The types of equipment most commonly bought and sold second-hand are general laboratory and analytical equipment. “This is because these are used in R&D rather than manufacturing, and generally, more R&D sites are closing than manufacturing sites. R&D equipment also tends to be smaller and lower cost than manufacturing equipment,” says Small.

The approaching “patent cliff” will have an impact on the used equipment market, because it will lead to consolidation within the industry as larger companies with expiring patents seek to acquire smaller companies to add novel products to their pipelines and access technologies to extend product life cycles. This will increase the amount of second-hand equipment available on the market, but could potentially reduce the number of customers, particularly the smaller companies. For the companies that don’t close or consolidate, as purchasing budgets fall, they are likely to move from buying new to buying second-hand, and the “value-added” services will become more important, with auction houses partnering with service providers such as software licensors, shippers, and insurers to differentiate themselves from the competition and improve cost-effectiveness and value for money for customers.