Helping your lab weather the current financial storm
Even before the precipitous meltdown in global economic markets, laboratories affiliated with the U.S. federal government, academic institutions, a range of industries and non-profit entities were battling a constellation of woes inextricably linked to an economy that was losing steam.
Now, in the overall economy, the staggering financial implosion has created a veritable crisis in confidence and has choked off credit, the lifeblood of modern commerce. Largely attributed to an inadequate regulatory regimen, this downturn, and the excesses that led up to it, has roots that can be traced back to the once booming housing market, which fueled a remarkable period of consumer spending as the major economic growth engine.
But the housing boom itself was built on the decaying foundation of subprime lending to eager homeowners, many of whom would eventually prove not to have the wherewithal to repay the loans on their pricey homes. The result has been record increases in home foreclosures and a mounting inventory of toxic debts on the books of banks. This has devastated the credit markets and undermined confidence despite aliant government efforts globally to provide respite with several huge, multi-pronged bailouts.
Even so, the financial markets are far from calmed. Their uncertainties are on display in the erratic daily gyrations on any major stock market index. Former Federal Reserve Chairman Alan Greenspan told the House Oversight and Reform Committee, “We are in the midst of a once-in-a -century credit tsunami.” He expressed shock that the financial system had broken down to these levels and conceded that he was mistaken in assuming that lenders would more capably safeguard their finances than government-appointed regulators. “I still do not understand exactly how it happened,” Greenspan said.
It is still too early to gauge the extent of the impact of the worldwide financial meltdown on the fortunes of the laboratory sector. What has emerged thus far is a mixed picture based on industry and type of laboratory, which may in fact have been created at a time when the economy was already showing signs of slowing.
As in most areas of the economy, laboratory costs are being driven up by the tough economic climate. Analyst forecasts reported by R&D Magazine in June 2008 suggest that construction costs for new laboratory facilities could go up, depending on local and regional market conditions. These increases stem from increasing costs of fuel, labor and commodities, and a busy construction industry with little spare capacity.
To be sure, the laboratory sector has been the subject of shifting emphasis, especially for federal dollars that seemed destined for security pursuits in the post-9/11 climate. In addition, competitive pressures and outsourcing have been increasing. Still, the year-to-year growth in R&D spending was not unexpected.
“An economic downturn like this can clearly have some impact on laboratories – especially on investments in new laboratory development and expansion,” says Renaud Bardon, national sales manager for Millpore’s Laboratory Water Systems.
But Bardon notes, “As we have seen in previous crises, it is very important for laboratories to deliver under these trying circumstances.”
In some instances, he explains, companies will choose not to invest in their laboratories, or they may elect to delay these investments. “By and large, people are wise on this front and they realize that without the investments now there will be consequences in the future. Even short-term future losses may be greater than the cost of investments they make now in their laboratories,” Bardon says.
“There is a need to keep up investments at times like these so that you can emerge from the downturn with new products and services that will be more competitive when times get better and there is more demand,” he adds.
“At the moment at Millpore we don’t see any slowdown. Events in the financial markets can change this – but as of now there is not detectable slowdown,” says Bardon.
Companies like Millpore that make and sell analytical laboratory instrumentation may in fact, represent one of the few bright spots in this economic crisis.
Still, this is an uncertain economic environment. “In tough financial times, laboratories will look at their equipment more closely, and some will stop buying until they figure out the exact status of the current instrumentation. They will try to reuse, repurpose and recalibrate as much as possible to maximize their initial investment. Emphasis will be on greater efficiency and productivity,” says Laura Hammond, global marketing manager at Agilent.
Alessandra Rasmussen, chromatography business directory at PerkinElmer Life and Analytical Sciences, concurs, noting that labs in all industries will try to produce more with instruments they currently have. She says, “Greater productivity or efficiency could mean handling larger volumes of samples, greater throughput, using fewer people – that will definitely be a focus in 2009 for sure.”
She believes that the drive for greater efficiency in lean times could result in labs using more handheld portable tools. These tools help cut operating expenses by reducing the need to transport samples from different sites to the laboratory. “This will be facilitated as more effective tools become increasingly capable and portable without losing performance,” she says.
Donna Lococo, product manager of LABWORKS LIMS at PerkinElmer, says that labs engaged in quality testing or monitoring will increasingly market laboratory services by leveraging any excess capacity in their facilities. “So some labs that have focused on general monitoring are now starting to become contract labs on a part-tine basis,” she says.
Another time-tested approach laboratories use in tough times is to acquire capable and productive tools that rely on fewer workers. Workers do not necessarily need high-level skills. They just need equipment operator skills for instruments that embody highly capable technologies that generate high-level data in a meaningful way that is also easy to retrieve, says Linda Doherty, marketing manager for Agilent’s Software and Informatics Division.
She believes there will be a move toward using centralized informatics tools to help create secure, centralized and even paperless environments – such as electronic laboratory notebooks (ELNs) that coordinate data across labs. This helps IT workers manager their labs more productively and cost-effectively.
“Another approach will be to seek smaller-scale solutions that will meet the needs of a work group environment and can be scaled up over time – that is, starting out small at a lower cost and growing as needed,” says Doherty.
Other bright spots include an increase in R&D spending in major industries and the solid infusion of venture capital (VC) in the tech sector, which will channel significant funds into research and testing laboratories. Research labs engaged in clean energy technologies have attracted unprecedented attention from VCs.
Analysts are still grappling with the complexities of the current economic crisis. It is still almost impossible to gauge the extent of the immediate financial meltdown, let alone its impact on various industries and sectors. What is clear is that all areas are being affected, and in the laboratory sector it is evident that the impact so far has not been good.
This article was written by Bernard Tulsi for Lab Manager magazine. Bernard Tulsi is a freelance writer based in Newark, Delaware.