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Jun 1, 2009 (Vol. 29, No. 11)

Long-Term Viability in a Down Market

Suppliers Need to Focus on the Future Even if It Means Temporarily Reducing Sales Volumes

  • Research and drug discovery always involve a compromise. Even in the best of times, a balancing of competing interests associated with cost, speed, accuracy, and relevance is required.

    After a period of expansive opportunities and extensive growth, the life sciences are facing an economic landscape that has fundamentally changed compared to the boom time of the late 1990s and early years of this decade. With many institutions and corporations confronting sobering financial conditions due to devaluation of endowments, loss of capital, and decreases in revenue, administrators and executives alike are considering ways to reduce operating and research budgets.

    BioInformatics’ recent report, “Prospering in a Down Market: Strategies for Life Science Suppliers,” examines how 500+ scientists in academia and industry are coping with the effects of the current recession.

    With the signing of the American Recovery and Reinvestment Act (H.R. 1), several key agencies that support life science research will receive increased funding via an emergency supplemental appropriations mechanism. Life science suppliers may be in a position to benefit indirectly from this largesse as more labs, which are in need of capital equipment, instrumentation, and consumables, become funded or if existing labs increase their level of support with federal dollars. This influx of funding will mostly benefit academic labs, which are facing only a small decrease (an average of 1%) in their operational research budgets from FY2008 to FY2009 according to the report.

    Research budgets for the typical industrial lab, which are usually quadruple the size of the average academic lab, are facing a greater decrease of 6% between FY2008 and FY2009.

    While pharmaceutical and biotech labs will not receive a direct R&D boost from the stimulus package, the industry, as a whole, is poised to benefit indirectly from the government’s focus on promoting healthcare initiatives. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), President Obama’s budget proposal lays a solid foundation for essential and comprehensive healthcare reform. This emphasis on healthcare reform, heralded by the recent reauthorization of the State Children’s Health Insurance Program, is “essential to economic recovery and imperative to making Americans healthier and more productive,” according to PhRMA.

    Industry’s interest in such reform stems in large part from its efforts to ensure a future supply of consumers of its drugs and devices. Hence, PhRMA is championing efforts by the administration to provide high-quality, affordable health coverage to all Americans.

  • Scientists’ Reactions to the Economy

    Click Image To Enlarge +
    Figure 1

    Despite the fact that the majority of scientists surveyed for this report indicated that their research has been affected to some degree by the recession, the worry about the economy seems to be more pervasive in academia than industry (Figure 1). Regardless of whether they work in industry or academia, many study respondents indicate that their organizations or institutions have enacted hiring freezes. Other common economic-driven changes include decreased resources being devoted to projects, reduction in the number of projects, and staff layoffs.

    In pharmaceutical and biotech companies, there is an increased focus on outsourcing to contract resource organizations (CROs) to sustain capacity and growth. In aggregate, all of these changes may affect life science suppliers’ ability to sell products through traditional channels as there will likely be less need to outfit brand new labs with equipment and reagents and supply products and services to existing customers at the same level (at least until the federal stimulus funds kick in).

    These changes also present opportunities for life science suppliers to secure new clients, however, such as those in the expanding CRO market.

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