Why Outsourced Asset Management Is Becoming More Commonplace

By Doug Graham

Pharmaceutical companies possess gargantuan inventories of instrumentation consisting of everything from mass spectrometers and chromatography equipment to coffee makers and microwave ovens. This list is spread over multiple sites, and like a precision automobile, a typical piece requires regular tweaking to function at top form.

Therein lies the rub. A pharma company’s vast equipment array is rarely enabled for single-point, uniform management in-house. The custom, instead, is for individual researchers to contract support for the equipment they use. Those electing not to contract pay for service calls, which cost-wise gets pretty steep when downtime impacts the price of repair.

“Equipment maintenance is one of the tallest hurdles confronted by pharmaceuticals,” explains Luis Rodriguez, national director of service sales, Thermo Fisher Scientific Corp. (www.thermofisher.com). “Pharmas equip their labs with an unbelievable equipment arsenal. The stuff has got to be maintained, but most companies don’t collectively manage their inventories. They choose instead to do it piecemeal, which taxes them big time in terms of money and efficiency.”

MONEY PIT PAROLE
Asset managers mind the instrumentation storehouse on behalf of pharma clients. They function as a one-stop-shop, providing a range of services as situations demand. Unassisted, this can prove a daunting task. According to Rodriguez, the vast majority of pharmaceutical companies are not aware of their total equipment service spend. In fact, service spend itself is an idea little understood by many companies, as this catchall phrase signifies not only service but associated concepts such as application support and operator training when new equipment and/or personnel are introduced to a lab environment.

“Equipment management can be a money pit for a pharmaceutical company,” Rodriquez says. “Researchers and techs interact with scores of instrumentation every day, and its sheer magnitude forces a company to deal with perhaps a hundred vendors, maybe more. This is not only a management and accounting nightmare, it’s a serious distraction from the prime directive of discovering and promoting new medicines.”

The work of an asset manager begins with a needs assessment. The first step — complete an inventory. Given the scope of instrumentation under its roof, it’s not uncommon for a pharma company’s equipment list to be out of whack. An asset manager’s first job is to audit the roster for accuracy, a painstaking endeavor since the gear is almost always spread out over multiple locations. The second step is to capture end user need. How often is the equipment used and in what capacity? (R&D? manufacturing? compliance?) Then there’s the matter of preventative maintenance intervals. How many pieces of equipment are needed and how often? What about entitlement requirements? For some instruments, up-time is 24/7. Others activate on a scheduled basis.

“The needs assessment process tracks down the raw data relating to the scope of service required by the customer,” Rodriguez says. “Calculated with that are the metrics and historical data in the asset manager’s system, with lifetime job experience a final factor. Once all elements are worked out, the client receives a one-cost proposal reflective not only of promised service delivery capabilities and asset utilization but mission-enhancing, value-adds.”

“THINK OF FLUBBER”
“Pharmaceutical equipment has both intrinsic and subjective value,” says Bob Nugent, director of operations, Biotechnical Services Inc. (www.biotechserv.com), a San Diego-based independent provider of laboratory equipment service, repair, maintenance, and calibration. “In fact, it’s fair to say that an instrument’s dollar-and-cents value estimate is pretty much irrelevant compared to the premium it adds to the research in which it is employed. Think of Flubber, the bouncy stuff discovered by the absent-minded professor in the old Disney movie. The substance defied gravity and, as such, offered tremendous value to industry and government. But as these beneficiaries’ interest would extend not only to the substance but the instruments facilitating Flubber creation, they would go to great lengths to make certain it was capable of meeting the output they desired.”

If the gears stop turning, the Flubber stops churning, and so it goes for pharmaceutical production. When a winner debuts in the pharma marketplace, the FDA double-checks the science responsible and insists every piece of equipment employed in the drug’s production be validated to prove that output lives up to the promise of the manufacturer. Validation carries a hefty price tag, and when added to the cost of maintenance, repair, and qualification, it widens the chasm separating an instrument’s book value from its deployment cost.

This is a major selling point for asset management. Pharmaceutical instrumentation represents much more than capital investment. Its actual cost is inflated by the facts of the pharma trade. A piece of equipment price-tagged at $20,000 potentially runs a company $30,000 or $40,000 per year once it goes online. Some asset management companies cite this fact as reason enough to take them up on their offering and, in all fairness, make a good point. A pampered equipment inventory doing its business at maximum efficiency is cheaper to run and maintain than a lab full of gear plagued with issues resulting from attention deprivation.

“Equipment intrinsic value amounts to less than nothing in short order,” Nugent adds. “Equipment in the pharmaceutical market is often oversold. Companies frequently wind up with five or six instruments for jobs that called for two. There’s way too much gear out there, and none of it lasts very long. Once a new product is slated for release, a support plan is initiated. Fifteen percent of the piece’s initial cost will be devoted to repair on an annual basis, and a lot of companies actually wind up paying 30% or more. Calculating equipment asset value on a five-year depreciation table leaves you with literally nothing. Adding maintenance puts you in the red. That’s a powerful argument in favor of asset management.”

UPSIDES, DOWNSIDES OF ASSET MANAGEMENT
Experts in asset management summarize their industry’s pros and cons as follows:

PRO: Pharma companies employing asset managers enjoy sizable cost savings compared to those realized via their existing service programs. According to Rodriguez, asset management providers approach their job with creativity and cost-friendliness in mind and, being on-site, provide a quick and effective remedy for downtime.

CON: Pharma companies with asset managers on the payroll worry over the prospect of having all eggs relating to equipment management in a single basket. This is a practical concern given the size of the average company’s equipment, the intrinsic value it represents, and equipment failure’s dreadful consequences in terms of lost cash and downtime. The issue of control is a common deal killer and a principal reason contracts go unsigned.

PRO: Outsourced asset management offers pharmas additional management resources and engineering expertise. It’s also liberating. Scientists are unshackled to focus on science rather than on the administration of capital resources. Procurement people no longer have to wrestle with multiple vendors and the administrative functions attendant to that, and they can hunker down instead on the business of getting better total cost of ownership in the equipment acquisition phase.

CON: End user buy-in can be hard to win. Scientists, chemists, and researchers typically enjoy carte blanche control of their piece of the pharma landscape. They have a free hand when it comes to equipment maintenance issues and often loathe surrendering control to outsiders.

PRO: Previously unavailable business intelligence will surface via asset management. Providers bring with them a Web-based resource center that tracks all service-associated activity, including corrective maintenance (CM), preventative maintenance (PM), validation and/or compliance requirements, and inventory accuracy. A resource center also provides matrices on equipment response time, PM completion, meantime between failures (MTBF), and meantime to repair (MTTR).

CON: The phase-in of asset management can tax a client company’s human resources. The dollar-and-cents price of service rarely kills asset management. Man-hour cost is another matter, though. Asset management implementation calls for companywide participation, as the data employees gather forms the launchpad from which the program finally ascends. Pharma company decision makers are frequently reluctant to channel human capital into this effort, as they would rather see those resources used elsewhere. This can prove a tall wall in the negotiating phase.

“Until recently, there was a significant increase in asset management implementation among pharma companies,” Rodriguez adds. “It’s ironic given the fact that companies usually go this route for cost savings, that the down economy has not encouraged more of the same. Layoffs, closures, merging, and diminishing resource availability all conspired to make 2009 a challenging year for the asset management industry. Acceptance will travel in the opposite direction once the recession is behind us, due once again to the pressure pharmas are always under to save time and money. Until that time, key stakeholders will continue to adopt cautiously, because while going the route of asset management might make sense for a given company, the perception that it needs the commitment and attention of everyone involved in the decision to move forward will remain.”