The scientific tools and services sector is entering a turbulent period. Rarely has it faced so many challenges at once. Most notably, funding uncertainty in the United States, our largest market, has put the brakes on spending. At the same time, cautious private investment, higher than expected inflation and potential cuts to US drug prices are likely to have a longer-term impact. This increasingly hostile environment means that businesses must act quickly to develop creative, resilient responses to survive.
Cuts, Caps and Contraction
Three economic headwinds define the moment. Firstly, US federal funding cuts have been swift and severe. $1.8 billion in grants were halted overnight, and a significant reduction is planned for the upcoming fiscal year. If these cuts take effect in October, funding levels will be reduced to levels last seen two decades ago.
In addition to the cuts to federal funding, there is a more cautious investment from the private sector. Venture capital and private equity have become more selective. Early-stage biotech companies are finding it increasingly difficult to raise funds, with investors demanding commercial readiness far earlier in the process. While there was an uptick in IPO activity in 2024, investors are prioritiszng companies with strong growth potential, innovative therapies and robust pipelines. Alongside this, current stock market volatility is suppressing valuations.
The second headwind is funding caps. Indirect cost caps of 15% now make some research projects economically unviable, particularly for institutions already stretched thin.
The third headwind is a contraction in the types of projects that will be funded. Projects labelled as "woke" by the current US administration, such as those related to climate change, public health equity and behavioral science, are being sidelined.
Overall, the current administration aims to significantly scale back federal investment in basic and early-stage scientific research.
Broader macroeconomic factors, including fluctuating trade tariffs, persistent US inflation (expected to remain around 3 to 3.6%), and unpredictable drug pricing reforms, are fueling uncertainty across the industry. Of these factors, US drug pricing is likely to have the greatest impact. The US President has pledged to reduce drug prices by between 30 and 80% by tying them to a basket of comparable OECD countries. As the largest pharmaceutical market, any changes to US pricing will directly affect pharma companies’ revenues and their capacity to invest in R&D. Another unintended consequence might be that prices elsewhere will go up to avoid low-cost countries being used as an unfavorable benchmark for US prices.
What does this mean for the sector?
These factors are converging to create a major shift. Reduced research funding will lead to decreased demand for tools, reagents and services and increase pressure on prices.
The consequences of this reduction in research activity will also have a wider, negative impact on the economy. A recent United for Medical Research report showed that every dollar invested in NIH-funded research produces $2.56 in economic activity. Any decrease in funding is likely to have a significant effect on the overall economy.
Threats to academic freedom, such as proposed restrictions on where government-funded scientists can publish their work, could drive top talent to countries that offer a more favourable research environment. France’s "Safe Place for Science" and the European Union’s "Choose Europe for Science" are initiatives already underway to attract US researchers, capitalising on the moment.
Longer term, without investment in basic science, transformative breakthroughs like monoclonal antibody therapies, CRISPR gene editing or mRNA vaccines may never happen again.
In times like these, the greatest risk isn’t the challenge itself, but rather inertia. When faced with rising uncertainty, it’s natural to wait to see what will happen next. But survival depends on acting early and decisively.
What smart companies should do
In times of severe downturn, experience shows there are three areas where focused action can significantly improve a company’s chances of survival.
Revert to fundamentals
- Strategic clarity: Have a clear strategy that articulates the core problem your product solves. Define your audience and markets and how you win. It’s easy to lose sight of your strategy, panic and chase multiple customer segments but it’s important to focus to conserve resources.
- Deep customer insight: A detailed understanding of your customers' needs and pain points will help smart companies to differentiate themselves from competitors.
- Brand trust: During uncertainty, businesses that show up as human, honest and consistent will win customers.
- Investor confidence: Build investor confidence by maintaining open and frequent communication. They will also be feeling nervous and you will need their ongoing support.
- Customer relationships: Double down on retention. Strengthen ties with your existing customer base before chasing new ones. Securing recurring revenue is more cost effective than winning new customers.
- Organizational agility: Flatten the organization. Empower teams closest to the market to act fast. Decentralising decision making will give teams more autonomy to respond quickly to market shifts.
Make operational adjustments
- Preserve capital: When faced with a downturn, many companies freeze or take action too late. Don’t wait. Act early to slow cash burn and extend the time you have to operate and adapt before new funding is needed.
- Scenario planning: If you don’t already have contingency plans for a downturn, make them as soon as possible. Plan for the worst-case scenario.
- Strategic cost-cutting: Reduce costs selectively, don’t slash indiscriminately. Protect these three areas first: core operations, product quality and customer satisfaction.
- Carefully streamline staffing: Redundancies may be inevitable, but carry them out compassionately to minimise the impact on morale. And consider other alternatives like salary adjustments, reduced working hours or furlough programmes.
- Smarter marketing: Reallocate marketing budget to areas that matter. Use marketing to show the value that your product provides and the measurable return it generates. Use the downturn to your advantage by renegotiating with media partners — there are often better deals to be had.
- Meaningful messaging: Your marketing should reflect the challenges that customers are facing. There is a temptation to focus on driving leads, but budget-constrained, risk-averse customers will respond more favourably to strong brand and value messaging.
- Geographic rebalancing: Rethink markets that you may not have traditionally served. Consider R&D hubs like Israel (which spends 6.3% of GDP on R&D), South Korea (5% of GDP spent on R&D), or Saudi Arabia, the United Arab Emirates and Qatar (with ambitious diversification plans and vast sovereign wealth funds) and China (with large state funds). New talent acquisition initiatives in Europe and Singapore may also offer opportunities for equipment and consumable sales.=
Keep innovating
It may sound counterintuitive to suggest that companies should continue to innovate in a downturn. But cutting costs is only one half of the performance equation — the other half is driving growth through innovation, by finding new ways to deliver value, solve customer problems and create long-term competitive advantage.
- Operational excellence: Implementing innovative ways to optimise internal processes, improve efficiency and reduce waste, leads to enhanced productivity.
- Product development: Continue developing products that address critical customer needs or that can reduce R&D costs for pharma/biotech. Stopping these projects could put the company at a competitive disadvantage that will be difficult to close later when the market improves.
- Business model agility: Consider flexible revenue models like leasing or reagent rental rather than capital purchase. By bundling service contracts or extended warranties with products, you can maintain pricing while providing additional value to customers. Or reduce costs by offering remote installation support, online training, virtual troubleshooting and service support. For service projects, consider dividing them into several phases to make individual payments smaller and more manageable for clients.
Camels not unicorns
To navigate this downturn, scientific tools and services companies will need to be more like camels. They’ll need to endure long stretches with limited resources, adapt to extremes and survive in some of the harshest environments to be able to emerge stronger on the other side.
Sources: United for Medical Research report: NIH’s Role in Sustaining the U.S. Economy 2025
About the Author
Marina Hop, Managing Director of Viveo Consulting Ltd: Marina’s background is an unusual blend of scientific, strategic, and marketing experience. She has worked with start-ups and corporates to develop, manage, and execute substantial marketing campaigns. Together with the creative team of Gary Books and Chris Rambridge, Viveo delivers creative marketing for ambitious life science companies at each stage of their life.
