Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=127487
Story Retrieval Date: 5/22/2013 3:35:52 PM CST
Kiran Sood/ MEDILL
Companies are cutting jobs and wages amid falling sales in the current recession. But experts say there’s one area in which they cannot afford to cut back – innovation.
Industry experts and corporate executives agree that in order for corporate America to emerge healthy and viable from the worst economic downturn in the post-War period, spending on innovation must at least remain steady.
History shows that a recession can be the best time to invest in new ideas, and that even when capital is scarce, new ideas can be nurtured successfully.
“A billion dollar drug is a billion dollar drug, whether the Dow [Jones Industrial Average] is at 14,000 or 6,000,” said Keith Crandell, managing director and co-founder of ARCH Venture Partners LP. “It is definitely a tough environment, [but] historically, the best deals are done during tough times.”
Crandell said one reason a recession is a good time to participate in new ventures is because there’s a lower risk of competitors quickly sprouting up to copy the new idea.
Crandell said Chicago-based ARCH Venture Partners, which has invested in more than 120 companies in its 23-year history, has successfully raised seven funds so far.
Its latest, launched at the end of 2007 just as the recession began, is a $400 million fund that invests in innovations in advanced materials, including semiconductors and nanotechnology.
While the recession has reduced the bottom line for companies in most sectors of the economy, for small technology startups, the first few years are not expected to bring in money anyway.
Instead, the initial launch is set in motion by a risk-taker, funded by a venture capitalist, put through clinical trials, and then often taken to the final step of going public or being sold – which may be the first time the company actually takes in a profit.
In a recent success story, Lundbeck Inc. of Denmark bought Deerfield-based drugmaker Ovation Pharmaceuticals Inc. for between $600 million and $900 million in an all-cash deal in February.
Likewise, the recession has not impaired Andrew Cittadine's ability to obtain government grants and corporate partnerships while forming a startup company in Chicago.
More than a decade ago, Cittadine developed an ultrasound imaging company in Silicon Valley called Sensant Corp. to provide supplemental technology to detect breast cancer in young women.
As co-founder and vice president of marketing at Sensant Corp., Cittadine helped take the company through the stages of clinical testing and its eventual sale to Siemens Medical Solutions USA Inc.
After moving to Chicago in 2006, Cittadine looked for a new challenge.
“In the current economic environment, financing is harder for everybody,” Cittadine said. “For high risk, early stage companies in the Midwest, in general, it is difficult. Getting financing is particularly challenging. It’s the biggest impediment, and it applies anywhere.”
Cittadine is now co-founder of American BioOptics LLC, a medical device startup with links to Northwestern University and Evanston Northwestern Healthcare for population-wide screening of colon and other cancers.
“A lack of successful startups [in Chicago] makes it more difficult to have people wanting to take risks,” Cittadine said. “You don’t have a reference point. The more successful startups you see, the more likely people are willing to take risks.”
He went on: “If you have a good idea, you can attract financing from everywhere. It is more challenging, but not impossible.”
Large firms squeezed in the recession may be tempted to reduce R&D spending, but experts warn against it.
Schaumburg-based Motorola Inc., the embattled telecom equipment maker whose innovation in mobile phone technology drove years of growth and profits, invested $4 billion in R&D annually from 2006 to 2008.
A spokeswoman said the company, which posted net losses for 2007 and 2008, believes a strong commitment to R&D is required to drive long-term growth.
“Innovation is essential to staying competitive and developing products that meet the expanding needs of our customers around the world,” said Therese Van Ryne, a spokeswoman for global communication at Motorola. “We believe our investments in R&D will deliver new innovations to support growth in the future.”
A recent survey found that 27 percent of industry professionals responsible for innovation at their organizations said the climate for innovation has improved slightly since the onset of the global recession, while another 22 percent said it had improved significantly.
The Innovation Climate Survey, conducted in March by InnovationTools.com, polled more than 350 members of research and development teams over a two-week period online.
The survey found funding for innovation has held steady. Over one-third of the survey respondents, 37 percent, reported that there had been no change to their organization’s level of funding for innovation.
Innovation is not only about developing new products and new business models, said Chuck Frey, founder and editor of InnovationTools.com. He added that practitioners are also looking at creative ways to reduce costs.
“Sustainable innovation is the key now,” Frey said. “Companies have to find ways to remain innovative – man-power is being squeezed hard right now.
Even in the recession, said David Miller, president and CEO of the Illinois Biotechnology Industry Organization, “The general impression is that folks who have good products are continuing doing well."