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Erik Skibsted
Posted on Thursday, August 19, 2004 - 3:05 am:   

Hi

In the pharmaceutical company where I work we have now purchuased several NIR instruments from one particular vendor throughout the last 3 years and we plan for many more to come.

The management have decided a strategic central control of 'what and from who to buy from' i.e. we buy from certified vendors, which we audit and also so we can make some potential discount agreements.

We have a forum here in the company where we also discuss what type of service contract we need to come with the instrument. Our experience is that the suggested service contract from the vendor is 'more then enough' i.e. its to much.

From some sources I have heard that a vendor had different pricing of the same type of instruments, depending on what type of company they would sell the instrument to. If the customer was a pharmaceutical company the price was higher then if the customer was from the food industry.

I would like to hear comments from all of you if you have discussed the pricing of NIR equipment from various vendors. Do you have some positive ideas how a service contract should be made. Also if you have some examples of mystyrious pricing I would be happy to know.

I know this might be a sensitive subject but I hope we can start a discussion. In the end all parties (customer, vendor) benefit from a positive collaboration i.e. the vendor makes money and the customer feels that they are not a 'cash-cow' to the vendor.

Erik Skibsted
Novo Nordisk
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Michel Coene (Michel)
Posted on Thursday, August 19, 2004 - 3:26 am:   

I have worked for an instrument supplier and yes, we certainly made more money out of Pharma customers. This is however balanced by the fact that they require a lot more time and effort. If you audit a supplier, this requires work from their side as well. Food customers give a lot less "trouble", as IQ/OQ and such are non existent. Simply the effort of making your spectroscopy software CFR part 11 compliant is a serious investment. It would not be "fair" to recuperate this from food-customers which don't require it.
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Erik Skibsted
Posted on Thursday, August 19, 2004 - 4:29 am:   

I also thought about that and I know that Pharma companies do reuire a lot more documentation and are very afraid of non-compliant CFR 21 part 11 issues (they cause time for us).

But what I am a little afaraid of is that the different pricing of the instruments solely - not the service agreements, installation and follow-up work.

I mean the instrument alone requires the same "effort" to vendor, whatever it is a pharma company or food company.

My frustration is that I think different things get mixed up in the total price then. How much do I pay for the instrument and how much do I pay for documentation etc etc.

When you buy an instrument you need the vendor to install it and during the installation all customers (pharma+food) needs some sort of documentation. Many instruments have automated instrument control features i.e. internal validation unit in the Bruker systems we buy.

If e.g. the food companies does not perform i.e. the USP linieraty control for reflectance/transmission mode I think they are not doing a good analytical job - if they are serious about their NIR instrument they will also apply many of the same instrument tests as we do in pharma.

So as I interpret your answer is that because of the development costs the vendors have to comply the FDA part 11 issues for the software and then be able to sell to the pharma industry, then you now put extra onto the bills to pharma companies and not the food industry who doesn't need to compli the part 11 issues??? correct me if I'm wrong.

Erik
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Michel Coene (Michel)
Posted on Thursday, August 19, 2004 - 5:44 am:   

I know of at least one vendor who makes a "Pharma" analyser and a "Normal" one. They differ by the sticker on the front, the bottom number on the invoice, and a big pile of regulatory documents lying next to it if you buy the "Pharma" one. It is difficult to deny that two factors are playing. One is that even just "the analyser" does require extra effort, as the invoice is usually not paid until after an acceptance test, which will be a lot stricter in a pharma-environment. I helped mount a NIR analyser on a brand new Pharma production line. It took more then 6 months to acceptance, and after 2 years the line was still under testing (not our fault!). Which brings us to the second factor. If people from a (small) spectroscopy division walk around in a mega-expensive Pharma project and see how much money goes "out of the window", it becomes VERY tempting to revise your pricing upwards. My advice: you should be able to bring the price down if you "shield" your supplier from some of the regulatory complexities. Make clear arrangements on who is responsible for what. Don't make payment dependent on achieving IQ. Also, the more regulatory stuff you do yourself, the more competitors you can bring in the field. You will find many manufacturors and consultants who can deal with the spectroscopy, but will shy away from Pharma because they have no experience on the regulatory side. As for food companies dealing with linearity; as a sales-rep once told me: "If I sell an expensive meat analyser to a small slaughter, they take any number which comes out of this machine as sent by God." I was teaching him how to recalibrate the instrument, and he believed this to be an utter waste of time.
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Erik Skibsted
Posted on Thursday, August 19, 2004 - 6:38 am:   

Thank you for your input Michel

I know that customers have very different needs when they order a NIR instrument and also details of payment to the vendor i.e. what needs to be done and documented before payment.

The pharma customer usually have made a URS (user requirement specification) for the needed instrument/probe which basicly is a list of technical stuff i.e. resolution, scanning time etc. which is easy for the vendor to document i.e. it is the tech sheet of the instrument.

I understand and respect that if the pharma customer expects the vendor to participate in the validation of an application after installation of the instrument and verification that the instrument performs as stated by the tech sheet - then! a higher price is certainly in its rightfull place. BUT! it is not fair of all pharma companies have to pay for the extra work required by a few pharma customers !!!

If a pharma company is relying on the expertice and help for calibration and regular maintenance from external vendors they are driving down a 'blind alley'. If the whole PAT evolution has to gain true value, then you need the expertice within the pharma companies, the knowledge and interpretation is to valuable to be missed and also if you are not able to understand and maintain your NIR instruments/applications then you will have serious troubles with the inspecting authorities.

I know that many food companies doesn't have the required knowledge/persons to calibrate and maintain a NIR application so they buy everything from the vendor incl. the consultancy. And thats is actually a lot more work then just filling out various test schemes and put them in a binder during installation (this is what Bruker does when they install a NIR instrument at Novo Nordisk).

As you emply, we have a feeling that Pharma companies pay more for their instruments because the vendors believe (and in many cases are true) make more money then the food industry. But you will never accept such a price policy in the 'real world'. Can this really be true, if so, shouldn't we (the pharma companies try to do something about it?).

Finally, I understand that if you are a major customer and buy e.g. 10 NIR isntruments pr. year that you get a discount e.g. 10 % off list price.

Erik
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Michel Coene (Michel)
Posted on Thursday, August 19, 2004 - 6:47 am:   

I suggest you let a professional purchaser negociate with the supplier. If you can guarantee a volume of 10 instruments/year, you should be able to do a LOT better then 10%!!!
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Erik Skibsted
Posted on Thursday, August 19, 2004 - 7:23 am:   

well this is exactly what we do now and we get a discount i.e. smaller then the 10% you suggest and we buy now in the order of 6-10 instr./year.

Off course was the very forst instrument extreemely cheap ;-)

I do not complain about the instrument itself, except from some small stupid errors the performance is excellent, but I think we shall consider to have at least two preferred vendors when it comes to NIR instruments. In that matter the pharma companies have more flexibility when it comes to negotiating the price before buying an instrument.

Erik
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Michel Coene (Michel)
Posted on Thursday, August 19, 2004 - 7:33 am:   

Another perfect example of the big difference between food and pharma: food uses milk cows, pharma IS one!
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Erik Skibsted
Posted on Thursday, August 19, 2004 - 8:41 am:   

well I don't think my managers have that point of view ;-)

Erik
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hlmark
Posted on Thursday, August 19, 2004 - 9:13 am:   

This is an interesting discussion. Everyone is in favor of "free enterprise" and "market-driven" commerce - - until it appears to be working against them.

But if I understand economic theory correctly, one of the key basics for free enterprise to work properly is the requirement of "full information", i.e., everyone concerned is supposed to know all there is to know about the goods and services involved. That being the case, it is up to both the buyers and sellers to make the effort needed to learn the necessary information. If the market appears to not be working correctly, in that one side or the other feels they are being cheated, then they have to be sure they made the necessary effort to learn what they need to know.

It seems that until now, Erik's company may not have been doing that, and Erik is finally taking the steps he needs to take in order to learn about the market he is in. He seems to have been very fortunate to find a good teacher.

Or maybe I don't understand economic theory correctly!

Howard

\o/
/_\
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Bob Rosenthal
Posted on Friday, August 20, 2004 - 8:31 am:   

I agree with Howard that this is an interesting discussion. However, I think that there may be another reason for this entire problem. That reason derives from the fact that commercial NIR instruments can be considered to be in three categories:

1) Versatile research grade instruments

2) Versatile research grade instruments to be used for QC/QA tasks

3) Limited capability instruments designed to perform a very specific QC/QA task.

The first two categories require instruments that are extremely versatile, and therefore, complex. This versatility/complexity require careful attention by trained NIR experts to insure they perform and keep performing within specifications.

The third approach - - - dedicated simple instruments - - - are normally designed using filter technology (as opposed to gratings or interferometers). In filter instruments wavelength capability is very limited and they are specifically designed for a single application. For example, my company produces a six wavelength dedicated instrument for a specific medical application. For that application, we were required to receive FDA market approval, and for the thousands of units installed in hospitals, clinics and doctor offices, we are under the federal CLIA law that impose stringent requirements to periodically prove that each instrument is working properly. Fortunately, such dedicated NIR instruments are simple in concept, simple in hardware, and simple in application. Therefore, there is little difficulty in meeting the FDA and CLIA requirements.

The one "negative" of such dedicated instruments, is that there must be a reasonable size market for them in order for any manufacturer to make the investment to develop such an instrument. Normally the manufacturer has to be assured that if he is able to produce such a dedicated instrument, that he will sell more than 100 units within the first year, and at least 1,000 units within the lifetime of the product. For applications that are attuned to this kind of volume, such dedicated filter-type instruments sell from anywhere between $1,000 to $10,000. (They can be made either as stand-alone or online instruments.)

The point I'm trying to make is if the pharma industry has applications where a significant number of instruments would be required (either at one company or in a group of companies) then a dedicated design would be much less costly and be much simpler to achieve FDA compliance in QC/QA applications.

Bob Rosenthal
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hlmark
Posted on Friday, August 20, 2004 - 9:29 am:   

Bob - you make some excellent points. Don't forget, though, that the pharm industry is also subject to FDA regs, which are different from but equivalent to the ones for medical devices. Even an NIR instrument to be used purely in the research laboratory and in a research capacity must go through the IQ, PQ, OQ steps, and any analytical methods developed on it must undergo a full method validation if the results from it are ever going to be transferred to the process. Then the process analyzer has to go through that all over again if the results from it are going to be used for process control, release testing, or any other regulated function. The FDA's new PAT guidelines exempt instruments from all that IF (that's a very big "if", you see) the results are only going to be solely for research on and understanding of the process, but not for anything related to actually manufacturing and releasing the drug product for sale. Now, we're in a transition period, and things are likely to change eventually, but for now that's how it is. So unless a company goes through the effort to do all the validation of both the instrument and the analytical methods, they have to fall back on the old, wet chemistry (or HPLC, or whatever they're currently using) to do their release testing. Larger companies that are foresighted have the resources to do the double analyses during the transition period and thereby be ready when regulations relax, but smaller companies probably can't.
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hlmark
Posted on Friday, August 20, 2004 - 9:33 am:   

Bob - you make some excellent points; the situation is much more complex than it appears on the surface, and there are many factors contributing to Erik's dilemma. Don't forget, though, that the pharm industry is also subject to FDA regs, which are different from but equivalent to the ones for medical devices. Even an NIR instrument to be used purely in the research laboratory and in a research capacity must go through the IQ, PQ, OQ steps, and any analytical methods developed on it must undergo a full method validation if the results from it are ever going to be transferred to the process. Then the process analyzer has to go through that all over again if the results from it are going to be used for process control, release testing, or any other regulated function.

The FDA's new PAT guidelines exempt instruments from all that IF (that's a very big "if", you see) the results are only going to be solely for research on and understanding of the process, but not for anything related to actually manufacturing and releasing the drug product for sale. Now, we're in a transition period, and things are likely to change eventually, but for now that's how it is. So unless a company goes through the effort to do all the validation of both the instrument and the analytical methods, they have to fall back on the old, wet chemistry (or HPLC, or whatever they're currently using) to do their release testing. Larger companies that are foresighted have the resources to do the double analyses during the transition period and thereby be ready when regulations relax, but smaller companies probably can't.
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Erik Skibsted
Posted on Monday, August 23, 2004 - 3:04 am:   

I am very happy how this discussion evolvs, its nice to hear about the subject from both (many) sides.

I guess there are many things we could discuss within this subject. But I am still wondering why some vendors feel they can put extra fees on the bill when they sell instruments (not consultancy and service) to pharma companies.

Does anyone have some suggestions how we can prevent this or how we can make the payment more 'transparent'?

I believe that if the individual company does not make qualification of the instruments and also validation of analysis methods themself then they will not be very good in using the technique on a long term basis. It is essential for analysis method that you rely as little as possible on external forces.

I need Bruker to come to our company and install and prove and document that the instrument works perfectly according to the specifications they provide with the instrument, nothing more (except from some spareparts and a bi-annual visit to change the laser and do a check-up of the instrument).

The development costs for the part 11 compliant software should be paid by all the customers, how can you differentiate it between pharma and non-pharma customers??? The vendors know that if they do not make part 11 compliant software, then they are not making instruments for pharma. If they do the effort to make part 11 compliant software it is an active choice they make so they have a bigger market for their products.

We buy Bruker MPA NIR instrument, which is a lab/part-production) instrument. It is no-where pharma only instrument, but can be used in any industry.

Erik
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Michel Coene (Michel)
Posted on Monday, August 23, 2004 - 5:41 am:   

I am sorry to say but I find it hard to believe this is a NIR-only problem. Novo has the reputation of being one of the richest companies in Denmark and if you have one preferred supplier of e.g. airco systems, then I don't think these guys will be scraping the last øre off their pricing just to please you. Here like anywhere else, market laws apply. If you now would start by getting two preferred suppliers... You could then buy instruments in batches of 10, and firmly insist that the support contract has to be quoted at the same time as the instruments. A friend of mine works in photocopiers. They have a "major account" department who is allowed to sell while losing money to customers who buy > 1000 pieces. That is because they need a large installed base to be able to set up a sound support. A NIR company who sells 10 instruments a year in Denmark can afford a small local stock of spareparts, a local technician etc. This means their service to smaller customers becomes better. Playing this factor and some sound supply & demand will probably yield better results then trying to make a (in your case) private monopoly behave... (Just ask Tony Davies what happened when the Yorkshire water company got privatised!)
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hlmark
Posted on Monday, August 23, 2004 - 9:17 am:   

Erik - without being a lawyer, as I understand the law, the vendor CANNOT validate the instrument, or the software, or the analytical method for the user (except as they might be hired as subcontractors to do that for the user at the user's site). It is the responsibility of each user to do that for themselves.

This makes sense in the case of IQ/PQ/OQ, but not too much in the case of software validation. But nevertheless that's the way it seems to be. Trust the government to find the most expensive way of doing something in the name of "reducing costs".

What the vendor CAN do, though, is to make software "validatable" - i.e., minimize the burden on the user to do the validation. But this takes time, effort and resources, too.

Howard

\o/
/_\
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Erik Skibsted
Posted on Tuesday, August 24, 2004 - 6:18 am:   

I think what we have to do is to continue the negotiation via a centralized person here in Novo. Also if we can stock the number of orders, might help in getting a fair discount.

What I might think is also that we should meaby get a second vendor so we have two prefered vendors for NIR instruments, and this might be the case in the near future.

Even though Novo is one of DKs richest companies it does not allow their researchers to buy whatever they want i.e. the management wants cost-effectiveness and theirefore are all our suppliers (instrument vendor) been auditted and pricing discussed.

If it is the case that we pay a higher price for a NIR instrument compared to a food company, and I am only thinking about the instrumnent price only (not IQ/OQ/PQ) then I think Bruker is walking 'on a thin line'.

Finally I am very happy for my Bruker instruments, but to ensure a fruitfull collaboration I need a tranparent price policy.

Erik

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