This Year’s Investment Confidence Report Reveals Glimmers of Hope
By Richard Daub
Few will deny that 2009 was a brutal year for laboratories. Layoffs, cutbacks, dwindling research funds and the fear of an uncertain economic future were among the issues that organizations had to deal with—
Now, however, with the economy slowly beginning to creep back to life, 2010 is offering a glimmer of hope to many lab managers. Our second annual confidence survey revealed that there is growing optimism about the future, and many feel that investment in research and development is going to significantly improve sooner rather than later. After riding out the last few months of 2009, the survivors stepped up to the starting line of 2010 ready to sprint off the blocks and pick up where they left off before the economy interrupted and threw everything out of whack.
Perhaps the most hopeful sign that things have already improved is that layoffs for the most part seem to have ceased. And because the trend for industry and institutional laboratories during the economic crisis was to cut costs as much as possible, which for many included layoffs to bring staff sizes down to the bare minimum, even a small amount of growth may prompt immediate hiring.
One of the major reasons the economic downturn was so swift and severe was that a wave of fear created by the uncertainty of not knowing how long the recession would last prompted nearly every organization in the world to cut spending. Heading into 2009, nobody seemed to know what was going to happen next. By the end of the year, however, it became apparent that the economy was not likely to take another steep nosedive.
Confident or not
Now that economic stability has been achieved, the uncertainty that drove laboratories to cut spending has subsided but has not disappeared completely. Going into 2009, 35 percent of our survey participants indicated that they did not know if their market sectors would be robust enough to support or attract significant research and development investments. Going into 2010, only 18 percent said they didn't know. And while confidence increased from 42 percent in 2009 to 51 percent, the not-confident group also increased from 23 percent to 31 percent.
These results seem to indicate that companies and organizations now have a better understanding of where they are and what they need to accomplish to begin moving forward again. Whether the outlook is good or bad, the relative economic stability is now allowing business forecasts to be made and plans to be put into motion. Behind the numbers, the mood seems to be one of cautious optimism stemming from a weariness of being stuck in the economic mud and a loss of patience from sitting and waiting for the economy to improve. Now, here at the dawn of a new decade, there seems to be a new determination to move forward regardless of what is going on in the world, which may be the kick in the butt that the economy needs to resume levels of significant growth.
"I'm guardedly optimistic," says Miguel Suderman, president and chief science officer at Cell Systems 3-D in League City, Texas. "I am seeing some things opening up. I was recently at a conference and people seemed to be more excited about the potential for research and development and that there is going to be more R&D money being pushed into the marketplace."
The main reason for Suderman's optimism is that private bio foundations, which in recent years have been an increasingly important fund provider for scientific research and development, had much of their money invested in various markets that declined sharply when the economy began its free fall. Now that the markets are on the mend, these foundations are in better positions to start funding projects again.
Of course, not everyone shares Suderman's optimism. Dr. Rudolf Mueller, director of medicinal chemistry at Cortex Pharmaceuticals in Irvine, Calif., saw his company let go half of its staff in March 2009, leaving it with only 13 employees. Mueller hopes that there will be no need for additional layoffs in the coming year, but his confidence has understandably been shaken. However, if Cortex is able to raise money through the sale of some of its patents, it may be able to begin hiring again. But the sale of the patents needs to happen quickly and for the right price.
"Right now I'm not so confident," he says. "I wish I could be more confident, but it looks shaky. When you see how many people were let go by the big pharma companies, it's not so positive. Most of the research science is gone, and we have only a couple of researchers left in order to save money. If we get more money, we will definitely hire people. But that's unclear. It really depends on how things go in the near future. We just need to raise more money to start everything up again."
"On a global level I see no improvement," says Serguei Stremilov, owner of Canadian firm SVS Technologies & Research in Concord, Ontario. "Just as the crisis developed mostly because of panic, we now have a sort of speculative market rise without structural changes. I see no any proper structural changes in the global economy that could benefit our lifestyle. Therefore, the crisis is not over yet. From the other side on a micro level, I see a future for our project. Taking into account cheap credit sources, I'm confident that near future will be nice for our company."
Just as in North America, the rest of the world has taken sides about how robust research and development investment will be in their market sectors.
Dr. Bharat Bhusan Patnaik, a scientist for the Government of India's Central Sericultural Research & Training Institute in West Bengal, says that investment will recover based on mere necessity.
"I am very optimistic regarding R&D investment in the coming year," he says. "As global scientific problems are surfacing with foreseeable damage to humanity in the next decade, investments will be in proportion to the market growth."
On the other side, Dr. Igor Chevelev, acting head of the Laboratory of Chromosome Stability at the Institute of Molecular Genetics Academy Science of the Czech Republic, saw his 2010 budget slashed, leading him to believe that the future of R&D investment will not as robust as it was in the recent past.
"I am rather a pessimist about the improving of investments in fundamental research," he says. "In my opinion, the peak was in 2008-2009. But, because we are a young lab, I expect the same level of investment in current research in the coming year as we had in 2009. We chose the aggressive overall strategy in the coming year because we are a young lab and we have to show our ambitious and scientific potential."
After a year of caution and conservatism, many lab managers, regardless of whether they are optimistic or pessimistic about the future, seem to believe that it is time to sink or swim and will therefore be taking an aggressive approach in 2010.
"You have to be aggressive," Suderman says. "You can't sit back and say, 'Why put three months' worth of hard effort into writing a grant that might not get funded?' You can't take that attitude. This is a global economy, and it is fairly cutthroat. If you cut back in particular areas, you have to expect that your competitors in the Asian market, the European market, the South American market are going to pick up in those areas that you're positioned in. You have to continue to seek new markets, new networks, new contacts. Some of the people that I talk to are not even remotely interested in my particular area, but they may know somebody who knows somebody. They can open the door to a conversation, and my name or the company is mentioned, and that's what we're striving for."
"We will be more aggressive, for certain," says Dr. Ted Lewis, CEO and lab manager of Missouri Fuel and Biowaste in Sikeston, Mo. "If the market is down, that's the best time to get ahead of the rest of the group. It's like a bicycle race. When everybody is drawing back and starting to coast, that's the time to pump real hard. That's when you make strategic steps forward. To coast and watch to see what happens is the wrong philosophy." When things are tough, you've got a little extra time to plan the use of your venues and you have a little extra time to really reinforce what you do best. That's the time to really dig in."
Used equipment purchases
Some have even seen the downturn of the economy as an opportunity to find good deals on lab equipment. While our survey revealed that the purchasing of used research and development equipment was a common practice before the recession (this year, 68 percent indicated that their research and development equipment and instruments were new, and 32 percent indicated they bought used; last year it was 67 percent new and 33 percent used), there were some enticing deals on used equipment that for some were just too good to resist.
"Because of the fallout from the economy, we've seen some deals for equipment that we didn't really have to have right when we bought it, but since the price was good, we bought some things," says Dr. Robert Streeper, who with Dr. Elzbieta Izbicka co-own BTNS, a small laboratory in Marion, Texas, that is currently evaluating a novel anti-inflammatory/anti-infective drug. "We just consider it smart shopping."
"We did actually buy quite a bit of used equipment," says Dr. Gary Hodges, a professor and researcher at the University of Western Ontario's School of Kinesiology in Canada. "We find that that works very well. It's honestly about 10 to 15 percent of the actual cost, and it's less than a year old. It's kind of shocking."
In terms of cost-saving measures, there was perhaps no more damaging result of the economic downturn than job losses and compensation reductions.
While survey participants were more confident that the overall market will see improvement in R&D investment, they were less confident that there will be adequate funds to hire enough staff and compensate them appropriately. Confidence rose slightly from 29 percent last year to 33 percent going into 2010, but the not-confident group swelled from 37 percent to 53 percent. The group that reported that they didn't know decreased from 34 percent to 15 percent.
As for how organizations will be allocating their research and development budgets, the only significant change was in management and staff compensation. Going into 2009, last year's survey participants indicated that 36 percent of their organization's research and development budget would be used for management and staff compensation, but this year's survey participants indicated that only 24 percent would be used for such. This decrease seems to reflect the number of layoffs over the past year, with laboratories cutting back their staff sizes to the bare minimum in order to maintain operations.
The good news is that only 11 percent of survey participants expect that staff sizes will decrease in 2010, while 21 percent expect an increase in staff sizes and 59 percent expect that they will remain the same. This equates to a total of 80 percent who expect that their staff sizes will increase or remain the same; while only 11 percent expect a decrease (approximately 9 percent indicated that they didn't know). This seems to show that most labs feel that the worst of the job losses is over, and that job growth is on the horizon.
While hiring additional employees to supplement thin staff levels may become necessary if business picks up even slightly in 2010, it does not seem to be a priority. The survey participants indicated that if they were to receive additional funding from grants, 12 percent said that they would hire additional staff. Thirty percent indicated that they would fund new research projects, while 20 percent would use the funds to accelerate the process of ongoing research. Twenty-eight percent indicated that they would purchase additional scientific equipment, and 11 percent would modernize their existing facilities or begin construction on new ones.
"If I receive grants, they're going to be for particular projects," Mr. Suderman says. "I have some real constraints. If N.I.H. gives me a half-million dollars, it's not to do with it as I want. I have goals and timelines that I have to meet, so the majority of those funds will be directed to whatever project. Now, some of the incidental costs could be transferred over to upgrading more equipment, the existing equipment, potentially looking at new technology, especially in intellectual information technology, and I'd like to try to bring one other person onto the team and that way the grants would cover their salary component."
Mr. Suderman says that his staff size in the coming year will depend not only on the contracts they sign for current and future projects, but also on keeping the medical and hospitalization costs of his employee insurance plan down. If he is successful in doing so, he may be able to bring on one or two new employees.
In 2009, two of Mr. Suderman's employees decided to pursue educational opportunities, so he made arrangements with them to where they were no longer full-time employees but came in when the need arose. Mr. Suderman is also looking at innovative ways to add to his staff while trying to keep costs down and addressing his concern that the current economy may have a devastating impact on future generations of American scientists. He is doing what he can to encourage their interest in science while trying to discourage the growing notion that science is a field wrought with financial insecurity.
"I think it has hit with some of the decision makers that there is a whole generation of young scientists not being encouraged and basically being wiped out," he says. "That is going to be a big hole to fill. I look at some of the people who are finishing up post-docs and PhDs, and in today's economy, in today's environment, I don't know if I'd be able to do that again."
Mr. Suderman is on the advisory board of a new program aimed at encouraging biotechnology at the high school level. One of the goals of the program is to get students interested as early as possible before they become discouraged and seek to pursue other avenues of interest.
"We're probably going to mentor somewhere between three and five students to give them an opportunity to see what a functional biotechnology lab does," he says. "This is not something I have ever seen at the high school level, and I'm excited about it. We really do have to train a new generation of scientists."
Avtar Sidhu, Manager of Research and Development and Technical Services for Canadian firm Diacon Technologies in Richmond, British Columbia, says his company, which saw their workforce of 25 reduced by two in the fourth quarter of 2008, also tries to utilize students as an employment resource.
"In Canada, we have educational tax incentives for small companies to do some fundamental research," he says. "So, if you do a lot of fundamental research, you tend to hire university students and get certain grants from the government. We apply for those every year. If we receive additional grants, we will hire additional cooperative students."
Before the recession, outsourcing as an alternative to hiring additional employees was an increasingly popular way to keep costs down. Therefore, it seems logical to think that laboratories that were forced to let employees go would turn to outsourcing as a way to maintain production levels.
However, outsourcing has been an area where labs tended to cut back over the past year, with many companies attempting to perform more tasks in-house to save money (in some cases despite having reduced staff sizes). Survey participants showed less confidence in the coming year that investments will be made to outsource work when required to achieve their research and development objectives. The confident group dipped from 45 percent going into 2009 to 37 percent going into 2010, while the not-confident group increased from 22 percent to 39 percent. The group that didn't know decreased from 34 percent to 23 percent.
Survey participants were also asked to compare their expected levels of outsourcing in 2010 to prerecession levels of two to three years ago. Twenty-seven percent indicated that they expect that their organizations will outsource more than they did prior to the recession, while 40 percent expect the same level and 15 percent expect a decrease. Eighteen percent indicated that they have not outsourced in the past two to three years.
Avtar Sidhu says that his company's use of outsourcing has decreased significantly since the start of the economic downturn, leaving them to perform more tasks in house. Since their level of business slowed during that time, they were able to perform tasks in house that they otherwise would have outsourced despite letting go of two of their 25 employees in late 2008. As the economy starts to pick up, however, Mr. Sidhu expects their outsourcing to increase again so they can focus more on their goal of new product development.
"Our sales went down, so we decreased the outsourcing to keep our spending in check," he says.
One method of reducing employee costs while trying to keep outsourcing to a minimum is to form alliances with other laboratories. This approach is not only an efficient way to share resources, it also allows for looking at the same work from different perspectives.
"We make strategic alliances with other laboratories that have other capabilities as an option to just buying a bunch of new equipment and trying to train a bunch of people of how to use it," Dr. Lewis says. "If money were plentiful, you have a tendency to hire more people and buy a new piece of equipment and try to bring them up to speed. But, if you're able to make that strategic alliance, they not only have other analytical equipment, but they also have people who are already trained to use that equipment, and those people may have a different viewpoint, which is helpful. Having a fresh new view adds a new dimension to the research you're going after."
Mr. Suderman takes a similar approach.
"We try to do some of the diagnostic procedures here, but we realized that not everybody can be an expert in everything," he says. "So we needed to bring on some individuals who had an expertise in certain areas, and we did collaborations and partnerships with them."
While Dr. Lewis and Mr. Suderman are confident that their alliances will work for them, such collaboration is not always possible, rendering outsourcing a necessary expense.
Although many companies reduced their investments in technology in the past year, many lab managers consider this to be a crucial area in advancing their research and keeping their laboratories modern and relevant. However, technology is expensive, and though it is widely considered a necessary expense, many are still not confident that funding resources will be available for investment and for now are going to have to make do with the older equipment they already have.
Our survey participants were split fairly evenly as to whether they think that sufficient funds will be available to acquire the technology such as equipment, systems and instruments necessary to achieve their research and development objectives. The confident group was 43 percent (up from 35 percent last year), while the not-confident group was 45 percent (up from 31 percent last year). The group that didn't know decreased from 35 percent to 13 percent.
Serguei Stremilov says that his lab at SVS Technologies & Research in Concord, Ontario, has no choice but to continue investing in technology.
"We are growing from an embryonic state, so therefore we can't just stop and wait," he says. "We will grow or, less likely, just disappear."
Mueller says that Cortex did not invest in technology over the past year, but that the company had been actively doing so before the downturn of the economy.
"You always have to update things you're doing, so yes, we did invest in technology," he says. But we just stopped it in order to preserve money. Now it completely depends on whether we can get more funds or not. If we can, I think we will invest, but if we don't have the money, we won't."
"I don't think we'll do anything in the first quarter of 2010," Miguel Suderman says. "I think we'll kind of be vey conservative, and if it appears that there is additional research funds coming into the pipeline, to stay competitive we're going to have to look at some new technology, new equipment."
Construction and renovation
Like technology, another major cutback that laboratories have made since the economic downturn was to curb construction and modernization projects. When asked in late 2008 if their organizations anticipated any construction projects to start within the next 24 months, only 25 percent said they did and 53 percent said they definitely did not (22 percent indicated they would be investing in projects that were already under way). This year, however, these numbers have virtually reversed. When asked this year, 51 percent indicated that they anticipated construction to begin within 24 months and only 28 percent indicated that they were definitely not investing.
"We would like to increase our physical plant," Mr. Suderman says. "It would be a remodel. We have a fairly large structure in which we are not utilizing some space, and I'd like to go in and construct a dedicated cell culture laboratory or cell culture rooms. But honestly that's kind of a low priority item, and most likely some of the construction I would do myself."
Before the economic downturn, the color green was very much in vogue in terms of saving the environment. Since then, however, green seems to have reverted back to representing money and how much of it can be saved. Since environmentally-friendly products and materials are often more expensive than the standard variety, we asked the survey participants about their organization's spending on green products. A year ago, 61 percent indicated that their organization purchases green products, while 39 percent said they did not. This year, 55 percent indicated that they purchased green products, while 45 percent said they did not. Perhaps the most revealing result was that a year ago, 10 percent indicated they were required to purchase green products, while this year only 2 percent indicated such.
"We don't focus on it," Dr. Hodges says."I know it sound horrible, but, because we're spending taxpayer's money, I really try to get the best I can for my dollar. We don't really focus on it at all, and we don't have plans to do so."
Avtar Sidhu says that his laboratory at Diacon does what the customer wants when it comes to purchasing green products.
"It's used very loosely because people don't know exactly what 'green' is," he says. "We haven't either gone away from green products or try to pick up new ones; we just try to do what the customer wants. You want to change your product line according to what the customer's requirements are."
Miguel Suderman says that it his own personal preference to use green products whenever possible, so his purchase of environmentally-friendly materials and supplies has not declined during the economic downturn.
"We try to use green products, everything possible that is recyclable," he says. "Because we are dealing with living tissue and living cells, we have to be extremely careful with our sanitizing procedures that we're not going to introduce any harmful agents. Our cleaning agents and that sort of thing are environmentally friendly. That's just my own philosophy."
For some, green products are not always an option.
"When there's a choice, we'll pick something up," says Dr. Robert Streeper."But with a lot of the things we use, there isn't any option available."
"I wish we would do that more, but we don't really produce anything where we can say, Okay, let's use a green product, Dr. Mueller says.
Serguei Stremilov has his own perspective on green products.
"I'm highly skeptical about 'green' products," he says. "Because of my experience in environmental science, I do understand that in many cases this is just a 'greenwash'. Therefore, we are purchasing products on the basis of cost/benefit balance. A green label does not mean that much, and many green products have no value by themselves. You have to have a complete solution to be environmentally friendly. For example, it is nothing but a waste of money if I buy an energy efficient heater but have a poorly thermo-insulated building and a leaking roof."
Despite the challenges that the economy continues to present, the overriding theme in the scientific community seems to be that 2010 will be different from 2009, if not better. In order to survive, it will be necessary to take action and be aggressive. Sitting back and waiting for the economy to improve is a very dangerous approach. The survivors thus far have managed to summon the strength to fight through the worst economic environment since the Great Depression, and now there is a light visible at the end of the laboratory providing new hope and fresh determination to start pushing that lab cart back up the long steady incline.
"It's a scary world out there, but you can't become immobilized by fear," Mr. Suderman says. "You have to work through it."
Richard Daub is a freelance journalist based in New York City who writes for trade publications in a variety of different industries. He can be reached by phone at 917-657-6532 and by e-mail at email@example.com.