This Year's Investment Confidence Report Reveals Glimmers of Hope

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–from upper management down to the trenches of the lab.

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 didnt 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 Sudermans 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 Sudermans 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, its 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 thats unclear. It really depends on how things go in the near future. We just need to raise more money to start everything up again.
For a global perspective, go to www.labmanager.com/confidence/global

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 cant sit back and say, Why put three months worth of hard effort into writing a grant that might not get funded? You cant take that attitude. You have to continue to seek new markets, new networks, new contacts.

We will be more aggressive, for certain, says Dr. Ted Lewis, CEO and lab manager ofMissouri Fuel and Biowaste in Sikeston, Mo. If the market is down, thats the best time to get ahead of the rest of the group. Its like a bicycle race. When everybody is drawing back and starting to coast, thats the time to pump real hard. Thats when you make strategic steps forward. To coast and watch to see what happens is the wrong philosophy.

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, weve seen some deals for equipment that we didnt 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 Ontarios School of Kinesiology in Canada. We find that that works very well. Its honestly about 10 to 15 percent of the actual cost, and its less than a year old. Its kind of shocking.

Hiring

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 didnt know decreased from 34 percent to 15 percent. For detailed data on R&D resource allocation, go to www.labmanager.com/confidence/rd

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.

Outsourcing

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 didnt 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.

Technology investments

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.

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 cant just stop and wait, he says. We will grow or, less likely, just disappear..

You always have to update things youre 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 dont have the money, we wont.

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. For attitudes toward green investments, go to www.labmanager.com/confidence/green

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.

Its a scary world out there, but you cant become immobilized by fear, Mr. Suderman says. You have to work through it.