Issue Date: November 22, 2010
When an East Coast drug company announced that it was cutting a research program and laying off staff, many scientists went home that day and did not return. Their experiments sat as they left them, and the lab equipment languished unused while the company arranged to relocate or dispose of it.
Months later, after some of the instruments found a home at a start-up firm, the new owners said they could smell residual chemicals from the abandoned experiments. But despite getting less-than-pristine equipment and having to spend a bit on cleanup and repair, the new owners believe they got a bargain.
In 2009, about 300,000 used and refurbished lab instruments were sold worldwide, amounting to almost $1 billion in sales, according to Strategic Directions International, a Los Angeles-based research firm. Overall, sales of used equipment represent just 2–3% of the lab and analytical instrument market. SDI President Lawrence S. Schmid believes, however, that the business is growing, even though he doesn’t have hard historical data. He figures it reached a new high in 2009 and should grow even higher this year and beyond.
Behind the growth in supply are lab closures and layoffs at pharmaceutical companies big and small. Meanwhile, cash-strapped research executives at start-up and biotech firms are turning to the used-equipment market to equip their labs on the cheap. On the sideline, instrumentation companies are eyeing the market warily, seeing used equipment both as competition and business opportunity.
“Almost every category of instrument is sold used and refurbished—everything from manual pipettes to mass spectrometers,” Schmid says. “Long term, the used market will grow because of the ever-growing installed base, long-lasting instruments, and the replacement of older, but still working, instruments with new ones on a one-for-two or one-for-three basis.”
In the short term, the market is being flooded with instruments cast off as a result of pharmaceutical industry consolidation, according to Schmid and others who follow the business. Surplus arising from lab closures, acquisitions, and small-company shutdowns is appearing in a variety of resale channels. Through auctions, online exchanges, private sales, and resellers, cost-conscious buyers can equip their labs for cents on the dollar.
“Right now, it is a strong seller’s market and a strong buying market,” says Randy Small, vice president of North American asset sales and services at GoIndustry DoveBid, an asset-management firm based in London. Although it seems contradictory, both inventories and buyers are plentiful, he says. In addition, prices in Go-Dove’s online auctions are inching up, after a 15–20% drop in 2009.
“We have seen at least 25% growth over the past year in the number of people who are purchasing from us,” Small says. In 2009, Go-Dove coordinated $187 million in sales in 17 industrial sectors, with biotech and pharma among its largest. Buyers can attend online auctions, which often highlight assets from a major drug firm, or participate in private sales, where big-ticket items—such as high-throughput-screening systems, as well as nuclear magnetic resonance and mass spectrometers—change hands through negotiated deals.
To meet demand, Go-Dove has expanded the online biopharma exchanges through which it consolidates items from several sellers. It now runs scheduled exchanges about 48 times per year. With a few hundred buyers signing up each time, Go-Dove sells between $200,000 and $1 million worth of equipment per exchange, Small says. In total, it operates 60–70 events per year in the pharmaceutical space.
Small lab equipment, such as rotary evaporators and pumps, is more commonly auctioned than large, complex systems. Almost all sales are conducted online and the transactions handled electronically. Live physical auctions have become few and far between, and ones that do occur are usually simulcast. Used instruments can be found all across the Internet, ranging from single items on eBay to corporate listings at large specialized sites such as Go-Dove.
“Sites always pop up, but because we have so much more inventory, buyers look to us and sellers recognize this,” says Roger Gallo, chief executive officer of EquipNet. With a focus on the pharmaceutical, biotech, chemical, and consumer goods industries, the Canton, Mass.-based firm sells about $75 million worth of equipment annually. Like its competitors, it sells used lab and analytical instruments, plant equipment, and even lab consumables and furniture.
EquipNet uses whatever sales channel will get the best results for its clients, which include many major pharma companies as featured sellers, Gallo says. The choice of route depends on the type and value of the assets, as well as the seller’s flexibility. For example, companies needing to liquidate assets quickly might use auctions or just sell everything to a dealer, he explains. When there’s more time and enough premium assets to draw in buyers, auctions and private sales events usually bring higher returns.
EquipNet and Go-Dove offer asset-management services along with their disposition channels. “You work with a client to help them understand the value of the equipment they have and whether a home can be found for it within their own company,” Gallo says. “If the redeployment process doesn’t pan out, the next step is turning those assets into money and figuring out how to maximize that equation.”
The market for used lab equipment moves in both good and bad times, Gallo says. “Research areas are constantly changing, so it is always an active market,” he says. “Because of the recession, some people who had been in the market may have bought less, but now people who never would have bought used instruments are looking to save.”
For the best results, buyers need to understand the rules. Auctioneers usually sell lab and analytical instruments “as is, where is, and with all faults,” as Go-Dove’s disclaimer states. As a rule of thumb, instruments about five years old will go for 20–40% of the new purchase price, depending on their condition and availability. Newer instruments, or large and unique assets, will sell for a higher percentage but still at a good discount compared with brand-new items.
That big pharma companies are not only listing assets but also increasingly attaching their names to the sales is significant in attracting buyers, even for “as is” items. “They know that they are buying from a reputable Fortune 500 company and that for that company to have used an instrument, it had to have met all kinds of standards and been kept calibrated,” Small says. “Knowing who the seller is gives the buyer confidence.”
This implied quality has implications for auction sales. Dealers and refurbishers—those who buy, clean up, and get used equipment running before reselling it at a higher price—were traditionally the biggest buyers at auctions, Small says. Now, more end users are bypassing these intermediaries and going directly to online auctions themselves to get the best deal.
“Three or four years ago, about 50% of our buyers were dealers, but today they make up only 5–10% of the purchases,” Small says. As a result, purchases by other groups have nearly doubled: Academics account for up to 20%, start-ups and other small buyers make up about 50%, and large companies are the balance.
The deals might be better, but risks still abound, and some buyers want assurance that the used instruments they buy are in working order. For this group, numerous refurbishment firms, ranging from one-person shops to large operations, offer a variety of instruments and services. Their websites are easy to find, and many of them also advertise on the online marketplace LabX.
“Anybody can power things up and see if they light up,” warns Chris Ayotte, director of operations at Harlow Scientific. “Sometimes they will wipe the instruments down to look nice and then send them out the door and cross their fingers.” Based in Arlington, Mass., Harlow bills itself as a seller of high-quality, reliable scientific equipment—both refurbished goods and new or demo items from small instrumentation firms.
Harlow’s technicians go through used equipment to bring it up to factory specifications using manufacturer parts, Ayotte explains. The company also offers warranties for up to six months. These guarantees and the refurbishment work typically raise the resale value to about 50% of the new purchase price. Harlow also does repairs and preventive maintenance and offers asset-management and service contracts.
Ayotte considers Harlow’s business to be fairly recession-proof but not immune to market swings. During the downturn, for example, when instrument manufacturers with inventory on hand dropped their prices, Harlow’s relative discount fell to about 20–30%, he explains. Although this level still represented good savings, he says, some customers took advantage of the situation and decided to buy new.
Sales of used equipment overseas remained strong, however, because of favorable currency exchange rates. “About 10% of our business is international, and we’ve sold to buyers in 17 different countries,” Ayotte says. Both Go-Dove and EquipNet, which have operations in several countries, report that about 35% of their sales are made outside the U.S. According to Small, Asia, India, and South America are among the fastest growing regions.
“Foreign buyers will pay the highest price today, especially on the high-end specialty items,” EquipNet’s Gallo says. Despite being the high bidders and having to handle customs and export requirements—as well as paying higher shipping and handling charges than firms purchasing locally—buyers outside the U.S. still get a good deal, according to company managers.
Kalexsyn, a contract research firm in Kalamazoo, Mich., has been a bidder in such auctions many times. “The used-equipment market is just so flush right now that almost everything we’ve ever bought has been used,” President Robert Gadwood says. He’s been able to find most of what the seven-year-old company has needed during the setup of operations. For items costing up to about $30,000, he is willing to take a chance on the auction market. For more expensive items, or instruments that the company has limited experience using, it generally pays to buy from a refurbisher, he says.
Buying online, sight unseen, is convenient but risky, Gadwood says. “The biggest problem is that the equipment frequently is missing key pieces,” he explains. Decommissioned instruments often have cut or missing lines and cables, as well as problems arising from how they were taken out of service and then packed for storage and shipping. “Still, the used price is often so low that it justifies buying the equipment and then getting it fixed,” he points out.
If Kalexsyn’s scientists are familiar with the technology, they sometimes take a first stab at revitalizing a used instrument and finding any parts needed to make it work. If that fails, the company might contact the manufacturer or a third party for service. Most buyers like used instruments that are less than five years old, although some workhorse equipment is considered satisfactory even if it is older. Older can even be better when analytical methods have been validated on a specific unit.
Newer equipment has the advantage that it is more likely to be supported by the manufacturer, Gadwood points out. Buyers would prefer to get as much information as possible about an instrument’s past, but maintenance histories and even manuals are rarely available. Although the ownership chain of custody might not be supplied, an instrument will sometimes arrive with a drug company’s inventory label still stuck on it, buyers say.
Buyers should be aware of what is and isn’t included in the purchase price, Gadwood cautions. Fees, commissions, and sales tax can add to the price. Packaging and shipping can be extra and can even require contracting with a third party. Items might have to be picked up at the original owner’s site or the selling agent’s warehouse.
The biggest caveat that experienced buyers warn about relates to software, which cannot be resold. Often, any associated computers will be wiped clean to remove experimental data and the software. If software is present, it might not be a licensed copy that will be supported by the manufacturer. In some instances, a software license can be transferred, but more often the software and license have to be obtained from the manufacturer.
The cost for software and computers to run some instruments can run into the tens of thousands of dollars, says Joseph Salvino, chief scientific officer of Alliance Discovery, a contract research company he founded earlier this year after being laid off from the pharmaceutical maker Cephalon. Salvino spent several months working to transfer software licenses on some of the $490,000 worth of equipment that Cephalon subsequently donated to the Pennsylvania Biotechnology Center, in Doylestown, where Alliance is located.
Alliance and other start-ups at the center share equipment, which includes used and donated pieces, he says. Through programs at the center, many of these firms were launched by researchers laid off from large drug company labs. Scientists like these, or their colleagues, might even have firsthand knowledge about the condition of soon-to-be-sold equipment because they have worked on it in the past.
Salvino has been cautious when choosing between used and new instruments. “When I set up Alliance, I decided to buy new equipment for anything that was going to be key to what the company was doing,” he explains. “In some cases, if it wasn’t brand new, it was a demo model purchased through a respectable vendor.”
“You can get good equipment and you can get it cheap, but nothing is as good as it sounds,” he says about buying sight unseen. “You really need to be experienced in a piece of equipment if you are going to buy it, or have the help of a consultant.”
Salvino also works closely with AstaTech, a contract research firm located in the Keystone Industrial Park, in Bristol, Pa. “We are trying to cut costs and take advantage of the environment, and so we are buying a lot of used equipment,” he says. The firm has hired an experienced analytical chemist as a consultant to help find and purchase equipment for its operations in the U.S. and China.
Some instrument makers have been quite helpful with software licensing and in providing service—for a fee, of course. “They don’t have any control over the fact that all these pharma companies are shutting down operations, and many are doing what they can to help people get set up and running,” Salvino points out.
Instrument manufacturers have different reputations when it comes to being involved in the resale market. Used instruments can compete with purchases of new equipment and represent what are called “lost sales” in the industry. Some firms C&EN contacted wouldn’t comment on the market. But opportunities exist. For example, Ayotte says Harlow will often help its customers set up service contracts with the manufacturer.
Agilent is involved both directly and indirectly in the used-equipment market, according to Michael Linderman, director of global marketing for services and support. “Original equipment manufacturers are uniquely advantaged because they built the equipment, so they inherently understand it and can supply parts,” he explains.
In this market, Agilent aims to meet customer needs. “Some are more value-conscious than others, some more tolerant of risk than others around what kind of equipment they’ll bring in-house,” Linderman says. “We believe that at some point we will meet those customers on a middle ground and find solutions for them.”
For these customers, Agilent says it offers “premium preowned instruments” that were generally demos. “These products are put back into the marketplace fully refreshed to Agilent standards,” he says. The items will have the latest software and manuals, validated performance, and a 12-month warranty. They also can be configured to order and are shipped to the customer and installed.
The Internet has flattened prices, Linderman explains, because economically motivated buyers can get several quotes in minutes. On pricing, he will only say that Agilent’s preowned instruments go for “what the market will bear.” The company sells used equipment through its own direct sales force, which finds “that demand typically exceeds supply,” he adds.
The company also supports users that have purchased through other channels. “In the end, it is an Agilent piece of equipment, and we are happy to offer service contracts as well as to come in and install a piece of equipment,” Linderman says. For customers that have bought an instrument in suspect condition, or one mothballed during the downturn, the company can provide reconditioning services.
Through its Lab Resource Management program, Agilent also supports equipment in drug company labs from multiple vendors. It provides services including life-cycle assessment, redeployment, disposition, and even recycling. “Because the pharma industry is going through such a transition now, they are creating the largest demand for these added-value services,” Linderman says.
Ralph M. Dioguardi, global business manager at PerkinElmer, agrees that the pharmaceutical industry is driving demand for multivendor asset-management services. Through its OneSource Laboratory Services program, the company already works with major pharma companies.
“We are continuously being asked how we can assist them through the process of reducing their asset base,” he says. “We already know the assets, and now we can provide some assistance on working through the redeployment or disposition phase.” The process could include servicing and testing an instrument before decommissioning it and then packaging it for storage or transport. If the equipment is moved to another company site, the reverse is done for reinstallation.
The process is pretty much the same for equipment being sold to third parties. “If they are looking to maximize their return, we can also provide a level of ‘certification’ that the instrument is intact, all the accessories are with it, and it passes a minimal level of tests for an operational system,” Dioguardi says. “It gives the buyer a bit of assurance that they are not getting a bunch of pieces in a box.”
Once the equipment is ready to be sold, PerkinElmer works with a partner on finding the right sales channels, he says. This process can put higher value assets into what are traditionally “as is” marketplaces. As part of the sale, additional offerings to buyers can include packaging, transport, installation, qualification, training, and service.
Online auction houses offer their Web technology for management of internal corporate assets as well. “We have worked with some equipment manufacturers to use our redeployment software to provide visibility of available equipment within an organization,” says Michael Sorensen, Go-Dove’s senior vice president for North American sales and corporate solutions. Through an internal portal or “virtual warehouse,” pharma researchers, for example, can quickly find idle instruments within their companies before looking outside to buy one.
“We share pharma industry customers with a lot of the equipment companies, and I think there is tremendous opportunity to partner in order to have a more complete service,” Sorensen says. In his view, technology deployed by his firm and other equipment auctioneers ultimately serves to attract buyers and offer competitive prices. “It provides the transparency and control over the bidding to determine the true market price,” he says.
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