Medical Device Link.

VIEWPOINT

Rich Frain Frain Industries Inc.

Timing is everything, especially if you are a pharmaceutical packaging decision maker. Your company is under constant pressure, from either name-brand competitors or generic-brand companies, which are gaining bigger footholds all the time. “If you don’t get something out every week, we are going to lose market share,” you probably hear from management. As a result, you have to time your equipment purchases to handle anticipated product demand as well as unanticipated spikes in demand. But with an eye on your budget, you know can’t afford to overbuild.

Take the case of Boehringer Ingelheim’s Roxane Laboratories Inc. (BIRI; Columbus, OH), the manufacturing and packaging subsidiary of Boehringer Ingelheim Corp. (Ridgefield, CT) and a member of the Boehringer Ingelheim group of companies. When an osteoarthritis drug withdrew from the market, sales of BIRI’s Mobic medication took off overnight. BIRI needed a complete packaging line to respond to market demand. But the firm estimated that a minimum of eight months would be necessary to acquire and set up a line of new equipment at its plant. Obviously, an eight-month response time to an immediate sales opportunity was unacceptable. What to do?

BIRI’s situation is pretty common. New drug product launches, too, pressure pharma companies to build lines quickly and efficiently. With a new product, however, companies cannot always predict whether it will be successful enough to warrant a significant capital purchase. According to the December 2005 issue of Chemical and Engineering News, which cited information from IMS Company Profiles, nearly every pharmaceutical company has experienced the need to withdraw already-launched drugs from the market, or regulatory rejection of new drugs before their introduction. New product approvals are at a 25-year low. So it’s not a question of if products will fail, but when—and how a drug company keeps its costs down and makes wise use of its capital while it waits for the outcome of its new product initiatives.

That’s where renting preowned equipment comes in. Many companies are choosing to launch new products, packaging them on a line at least partially comprised of rented preowned equipment, waiting for the certainty of long-term success before buying new equipment. Everyone knows preowned equipment is less expensive, but decision makers are learning that renting it can be even less costly.

For instance, we worked with Sascha Kellermann, project engineer at BIRI, which had previously used preowned equipment for a liquid-filling line. BIRI had two of the 13 pieces of equipment needed for the complete packaging line, and we offered multiple choices of preowned equipment for the remainder of the pieces needed. Kellermann and his project team traveled to Frain’s offices, toured the warehouse with John Frain, senior consulting engineer, selected the necessary machines, and arranged for BIRI to rent them.

Access to a large inventory of rental machinery increases the chances for a good fit. Photo courtesy Frain Industries.

BIRI shipped its two machines to Frain’s facility where the selected equipment was being refurbished. The complete packaging line was set up, integrated, and tested. The line had to fill different sizes of plastic bottles with the correct number of pills, insert a desiccant packet or cotton, close the bottle with an induction seal and cap, apply a neck band, label, and outsert, collate the bottles into shrink-wrapped packages of 10, and close and seal the cases after the packages had been hand inserted. “We applied the same quality requirements to this line as we would with any new line. There was no compromise with either BIRI’s standards or those established by CGMP,” said Kellermann.

The entire effort took six weeks for selection of equipment, refurbishment, a full factory acceptance test, shipping, and getting the line up and running at BIRI’s plant. Two of Frain’s technicians were on site at BIRI to help get the line fully operational once the pieces arrived at the plant.

Decision makers like BIRI’s Sascha Kellermann must consider both the finances as well as machine quality when choosing to invest in equipment.

For instance, pharmaceutical companies used to be able to charge whatever they wanted for their products. But now they are under pressure to cut their pricing. Unit costs have to keep going down, so, to remain profitable, they are now looking at line efficiencies.

When building a budget for a new pharma packaging line, project managers should look at buying versus leasing versus renting. A piece of equipment that might cost $100,000 when purchased new can cost half of that when purchased used. The same preowned piece could run around $2000 a month if rented.

Initial cost savings are obvious, but cash flow considerations also come into play. And timing is often at the heart of decisions based on cash flow. The cash flow considerations of a purchase vary, but are generally understood. There is one major difference between leasing and renting, however, in which time is significant. Leasing involves a fixed period of time when the equipment will be used, such as for 12, 24, or 36 months. Payments must be made through the term of the lease. Renting, however, involves no fixed term, so the equipment is used as long as necessary and returned whenever it is no longer needed. So if a new product’s sales are disappointing after a few months in a test market, rental equipment can be returned the day the product is discontinued and payments can be ended. Often, with a low startup cost, the revenue that the new product does generate in the test market could pay for the equipment rental.

Machine quality is another issue. Buyers worry that they won’t be able to find quality rental equipment. There is a perceived lack of reliability; some believe that used equipment is just that—used up and out of date. However, high-quality preowned packaging machines from reputable manufacturers do offer years of dependable service to their eventual users. A good number are just a few years old.

Access to a very large inventory of rentable machines is also important. The bigger the selection, the more likely there is to be a fit.

Documentation is one of the most important things needed to ensure optimal preowned equipment usage. Documentation of a machine’s capabilities, use, maintenance, and storage are very important. For example, a machine that was taken from the line to an unsheltered area behind the plant and exposed to the elements for months is more than likely a problem waiting to happen. Storing equipment indoors on a skid is a precaution that aids in long-term reliability.

A copy of the original operation manual should be supplied with each machine, and the equipment’s provider should also be able to offer counsel and training.
And because pharmaceutical project managers need to validate all machinery processes, they may want to have a qualified independent technician inspect, test, and certify equipment to ensure that it operates according to specific performance parameters.

Given the pressure to keep costs down, pharmaceutical companies will need to begin sourcing their packaging equipment and addressing idle assets in different ways to meet their production goals. Equipment rental may very well help in both instances.