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Corporate Investment Recovery Programs

Every business eventually has items they no longer need. For some businesses this may be machine tools, processing lines, and even complete plants, while for others it’s overstocked inventory, end of life products, computers or vehicles. Most everything tha

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

t flows through the billion dollar purchasing channels and supply chains of the world will some day be discarded or sold. In some situations these items may be relatively new and still in original packaging or recently installed, while in other cases the asset may be 50 years old and held together by duct tape. Managing

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

items when they arrive at the end of their initial planned use is something that I, and others, call the Disposition Chain Management. This function is also referred to as “Investment Recovery” or “Surplus Asset Management”. By whatever name you call it, this is one of the single largest overlooked areas for most busin

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

sses.

The Missed Opportunity

Think of all the technology, resources and effort applied to purchasing management. The purchase of a $20,000 asset will likely involve certified purchasing managers, an RFQ, pre-approved vendors, multiple bidders, advanced purchasing systems and a well structured process to approve

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

he purchase. If the $20,000 budgeted asset is purchased for $19,000 through these efforts the $1,000 savings is important and measured cost avoidance. Now consider the sale of a used piece of equipment with a market value of $20,000. In many company’s this task will be delegated to someone with little experience in ass

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

t sales. In addition, there are few controls on vendors, no standard bidding process, and there may be no formal approval processes for the transaction.

So, whether the asset sells for $4,000 or $30,000 or is scrapped there is no tracking, no performance incentive, and the investment recovery that was lost or gained, go

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

s un-noticed. Is there any other place in your company where you could save, or lose $200,000 a month and not notice? It happens all the time, even in otherwise well run companies. I’ve met with engineers who admit they scrap equipment rather than have the company sell it because they feel it’s easier to scrap it and t

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ere’s no incentive to do otherwise. I’ve seen companies sell assets for less than 5% of their current value, and on more than one occasion buy the same exact item back at another plant for twenty times what they sold it for. And then there is all the idle equipment that nothing is done with while companies pay taxes and

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

insurance on these idle assets, and their value disintegrates.

If you don’t think these issues are present in your world just walk the plant floor and talk to a forklift operator, open a few closets, follow up on the next asset being written off and see what happened. I’m not talking about a few hundred dollars here and

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

there; this is low hanging fruit that can make a difference to the bottom line. If you look in enough places it will be there. In most cases it’s not that anyone is doing anything illegal or even intentional, it’s just that the process is either not in place or has issues.

Estimating the Opportunity

The used eq

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

ipment industry is estimated at $100 billion a year so if companies are leaving even 10% on the table, that is significant. In most cases it’s a lot more than 10% but this issue still has not caught the attention of many CFO’s. For purposes of this article we’ll focus on two areas, used asset sales and idle equipment.

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

irst, how much used or overstock equipment did your company sell last year, and how much can you improve that. For most companies, even many of those with an Investment Recovery department, the sale of used equipment is so fractioned that this will not be an easy number to find or estimate. For companies that already ha

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

e a central program, additional focus on Investment Recovery will likely bring an improvement of 20% or more. For those without a central program, the improvement potential can easily exceed 60%.

The other area to consider is idle equipment. It is typically estimated that 10% of the average company’s assets are idle.

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

hese are the items you see in the “bone yard” at the back of the property, or equipment from a line no longer used, or an air conditioning unit purchased but never installed, or the stack of used computers in the closet. In most companies, it’s just out of sight, but everywhere. Take a conservative estimate of 5% of the

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

company’s capital assets and then assume you will get 40% of the book value. It’s not an exact science but it should frame the size of the opportunity and it will likely have at least seven figures.

It’s not just the money

For most companies there are sizable direct cash contributions, savings and cost avoidance

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

that can be brought to the bottom line through improved investment recovery projects. Beyond the money, it’s the legal matters that corporations also need to watch. From environmentally friendly disposition to terms and conditions of sale to protect you from liability, these are critical functions you need to be aware o

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

. For example, let’s say a company decides to have a college intern, handle the sale of a machine tool. They get top dollar from a factory down the road…but…the machine had alterations prior to sale that caused an injury after the sale. Worse yet, the alterations were not documented and weak terms and conditions were u

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

ed with the sale.

Can you say major liability exposure? The sale of anything, especially used equipment is full of legal pitfalls. If you have people handling the sale of your assets, without the industry knowledge to avoid the major areas of exposure, you are opening yourself to financial and public relations risk.

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.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

>Change is coming

With the increased requirements of Sarbanes Oxley, and added pressure from shareholders for efficient management, I believe that we will see a change here in the next 5 years. Then consultants will be crawling out of the woodwork touting total cost of ownership, disposition chain management, invest

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ent recovery, yadda yadda yadda. Companies ahead of the game will be well positioned and those looking to catch up are going to find skilled resources difficult to find.

There are substantial benefits to establishing and supporting and effective investment recovery program today and it should be on every company’s radar

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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A contractor knows that creating an estimate is the first step in securing a job. The client will look at all of the estimates and choose the one that best suites his or her needs. When a contractor has the experience, creating an accurate estimate will not be a problem. Creating an estimate will not only give you a timeframe for completion, its can save you a lot of time and money.

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