The Redeployment Dilemma

The principal of redeploying production equipment and instrumentation from one facility to another as projects complete, priorities change, or companies merge is now well established in the pharma industry. The cascade of the remaining surplus equipment into sales or auction channels is now also standard practice and allows companies to recover as much initial investment as possible.

However, just because something is standard practice does not necessarily mean it is straightforward. We can offer a recent example that proves the point. After a local, non-specialist company had packed a consignment of equipment destined for India via airfreight, it was ready for consolidation into our shipment. Fortunately, Peter Harris noticed a problem: one of the items on the documentation had a flammable pressurized cylinder attached, meaning that the package would have to conform to International Air Transport Association regulations and be certified by a Dangerous Air Cargo (DAC) assessor. Essentially, Peter had averted the potential danger of it being placed in a standard passenger aircraft – and we helped the packers quickly get up to speed with regulations. As a direct consequence, the company was made aware that the nitrogen tank in another shipment was also a DAC consignment. Best practice can easily spread.

To achieve the best possible return on your assets as they are relocated or sold on, there is a requirement for formalized processes, specialist knowledge of the industry and its equipment, and dedicated resources, usually from outside the organization, to provide project management and overall program leadership. Perhaps even more significant, management must implement and abide by a policy that calls for everyone to look for their equipment needs from within the business prior to purchasing new capital assets. Things can get complicated very quickly and we would like to raise awareness of some specific problems.

When developing policy, you first need to consider liability risk. The industry standard is to sell surplus assets “as is/where is”, with no warranties expressed or implied. But in practice, companies not only need to have a watertight section in their terms and conditions of sale documentation that covers these aspects, but must also instigate auditable reporting and processes for every aspect of a transaction. Specialist partners can help in this regard since they tend to offer standard terms and conditions that address these areas and meet reporting and auditing needs.

Practices and records of equipment decontamination are a second important area to consider. Though all firms have decontamination processes in place as part of decommissioning assets, many buyers will request proof of decontamination and ask for detailed information on the specific products that have been run on the equipment. Therefore, the seller will need to decide to what extent they are willing to provide product information. In particular, complete decontamination of equipment that has produced certain products, such as antibiotics or beta-lactam, is so costly that, in most cases, it should only be sold to a new owner who is running the same type of product. In all cases, the terms and conditions of sale must be written to protect the selling company. The globalization of the pharma industry can also present challenges. For example, European buyers would want to know whether a surplus analyzer is CE marked. If not, the market demand for the equipment in Europe will be smaller because of the time and costs needed to certify the product.

There are also trade restrictions and embargos – often specific to the individual origin and destination countries – for any given shipment. And these are changing all the time. For example, current embargoes prohibit any equipment that can be used for energy production from being sold and shipped to Russia. Many countries in South America also have very strict import regulations that are driven by commercial sensitivities. These countries often impose very high duties and tariffs on imported goods and, in some cases, will not allow the importation of an item at all if it is readily available in the country from a local manufacturer.  When a buyer of equipment from, say an auction in the US, is located in one of these countries, the seller needs not only to be aware of the restrictions but also make the buyer aware of them too, and work with them and their customs broker to ensure there will be no issues with completing the sale.

Given the pitfalls – and the time and resources necessary for successful asset redeployment or sale – it is no surprise that many are seeking the help of specialist companies. We’ve certainly seen an increase in the number of companies seeking partners to drive and manage their programs, and to ensure compliance with national regulations and local customs. And to be honest, we believe it makes the process much smoother for buyers and sellers alike.