Is Chem R&D in Jeopardy?

According to a 2001 study published by the Washington, D.C.-based Council for Chemical Research (CCR), every dollar the $419 billion chemical industry invests in research and development (R&D) generates $2 in corporate operating income over six years.

Despite the promise of a robust return, however, chemical industry R&D expenditures are expected to remain flat in 2003, continuing a trend that began a few years ago and mirroring that of industry as a whole. In fact, a recent study published by Battelle Memorial Institute and R&D magazine predicts industrial spending on R&D will rise less than 1 percent this year.

Moreover, some companies in the chemical sector actually intend to slash their R&D budgets this year.

A prolonged stagnation in R&D spending could spell disaster for the chemical industry's future ," especially in key areas such as energy efficiency and green chemistry.

Many R&D budget decisions can be directly attributed to the dismal economic conditions of the past few years. Because R&D efforts usually involve a sizeable time investment before they translate into profits, they tend to be one of the first things to go.

"Our current economic conditions, in addition to the problems the corporate world has had with management recently, have created an environment that does not support creativity and innovation," stresses Brian Southern, president and chief technology officer for Baltimore-based Accelics, a provider of computational applications and tools to accelerate chemical, pharmaceutical and other R&D and discovery processes. "We need to return to what made the U.S. a powerhouse in economic and industrial strength. We must return to supporting the creativity and innovation activities of R&D and the small business entity."

Columbus, Ohio-based Battelle says the bookkeeping "irregularities" making the news of late have had a "far-reaching" effect on businesses in the United States. "The downstream impacts of loss in confidence, bankruptcies, ripple effects and associated disruptions are not the only consequences," maintains Battelle. "These direct results have created questions relative to the accuracy of the entire financial reporting system, including that which addresses the reported values of R&D investments."

Other observers believe the current situation reflects the changing mindset of U.S. industry management.

"The tragedy of industrial R&D in America is that it has been significantly taken over by the money men," contends Dr. Terry Collins, Thomas Lord professor of chemistry and director of the Institute for Green Oxidation Chemistry at Pittsburgh-based Carnegie Mellon University. "They have been constraining research programs to ever shorter delivery times for proof-of-profit streams. In the process," he adds, "they have been killing creativity and, with it, the industrial R&D power of the nation."

Dr. Michael Wong, a chemical engineering faculty member at Rice University in Houston, agrees. "There's been this move away from basic science research and applied science research out in the various industry sectors," he maintains. "The justification there is that we don't need it; we're making lots of money right now with the current existing processes, so therefore it's OK to make cuts on those sorts of things.' But that's not true. That's a very shortsighted view."

Should the U.S. chemical industry truly be worried about the current sorry state of R&D? After all, with the exception of "green" technologies, European companies appear to be mired in the same situation.

Perhaps it should be concerned. According to CCR's report, R&D is the chemical industry's growth engine. Moreover, without sufficient industry R&D, innovations related to sustainability fail to receive enough attention.

"We simply will not achieve a sustainable civilization without the dedicated engagement of the science of chemistry in the technical challenge of sustainability," says Collins. "Many countries are beginning to invest seriously in green chemistry. There are massive opportunities for new economies based on green chemistry, and any country that ignores the R&D portfolio required to lead or participate does so at their own considerable economic peril in terms of global competition."

The current state of affairs also results in a sort of "trickle-down" effect, notes Wong. "Because R&D is not a big deal in these companies any more, there's that lack of demand for trained people to do that type of R&D. Then who's going to hire the graduate students who are making the best catalysts in the world?"

"There's been a bit of a brain drain," Wong maintains. Many of these students end up training for other fields, he says, and then will not be available when R&D efforts again take off. "There's going to be a time lag, and that time lag could hurt us ," U.S. industry ," badly in terms of competition."

A few bright spots bleep promisingly on the R&D radar screen in the form of pharmaceutical and biotechnology projects, industry alliances, and collaborations among industry, academia and the federal government. However, a great deal more in the way of dedication and dollars will be needed to beef up chemical industry R&D efforts and to create a truly innovative ," and sustainable ," environment.

Next month's column will take a look at the some of measures that will be required to get there.