Last October our little consultancy looked around and noticed things had begun to slow down a bit. New business wasn’t banging at the door and we had to face an unpleasant truth – we were not as immune to the economic downturn as we had hoped.
Percepta is a San Diego area marketing consultancy serving biological research tools suppliers. You know the ones I mean – big companies that buy up small ones; small ones that want to get bought, and everything in between. Having worked for many of them over the past 20-some years we all had been through economic slumps before. Back in the late eighties during one of the first resessions the adolescent bio-tools industry faced, we could feel somewhat secure because smart venture groups kept courting the short list of bio-tools companies that existed then telling them that biological research was almost completely funded by the federal government and the government would be sure that “research must go on”. The suppliers, they said, were “recession proof”.
So what happened? Why did business slow down so dramatically in October 2008? What happened to the old mantra “research must go on”? Well the answer is a little complex.
First there was the psyche of the tools companies. I spoke with a bunch of friends I’ve worked with over the years at many tools companies last October when the economy was in freefall and things were a bit scary. The VP of Marketing at one of the divisions of one of the leading suppliers to the pharmaceutical, healthcare and life science industries told me that business was slow and “management wants to keeps its powder dry” – translation: we are not going to spend any money on marketing in case we need it later. A marketing manager at a large well known molecular biology and chemicals company told me basically the same thing – “budgets are tight until January 09 at the earliest”. The management at these and other companies was nervous. Who wasn’t?
Second there was the exodus of investors. Small, medium and large companies couldn’t raise money no matter how urgently it was needed. Nascent startups were withering on the vine and even giants like Invitrogen, which at the time was trying to raise capital to complete the acquisition of Applied Biosystems, had to patch together commitments from over 300 separate banks and raid its own stock and cash coffers to close the deal. And anyone that has tried lately knows that venture capital has all but vanished in biotech circles. Even if it seems counterintuitive, when money is tight marketing budgets are often among the first to suffer.
Finally there is the research funding hangover resulting from the decade long paltry growth in federal funding during the Bush administration. In the end we are all dependent on researchers buying research products. Sure there are pharmaceutical and diagnostic companies that don’t rely on federal money but they are only half of the market and they are cutting budgets too. Bench scientists have had to scrape by with fewer research dollars and the dollars they have don’t buy as much as they used to.
But wait a minute – didn’t we hear something about a new $800 billion stimulus package? Didn’t that include an unprecedented $10 billion for the NIH to spend in two years as part of the American Recovery and Reinvestment Act of 2009 (ARRA), and isn’t $9 billion of that earmarked for extramural grants to pay for the advancement of scientific research? Shouldn’t tools company’s collective mouths be watering in anticipation of the influx of fresh research money?
Yep. So where is the money? We decided to find out. Percepta sponsored a study to take the temperature of research funding optimism in America as a result of the ARRA stimulus. We are analyzing the results now and in coming posts we will share some of the more interesting findings. We’ll also post the final report on Percepta’s website so keep an eye out.
October 2008 was a sobering month for a small business like Percepta. 2009 is much more like normal, albeit a new normal, and business is back to predictable levels because “research must go on”. But the world is changing and bio-tools companies in the new normal will be changing too. We can’t wait to see what happens.
Your comments and thoughts are welcome.