R&D Spending on the Rise at Many Firms

The Minneapolis/St. Paul Business Journal has compiled its first-ever Top 25 List that ranks public companies based on R&D spending. The list covers each company’s most recent four quarters. Of the 25 biggest spenders, only four have cut their R&D budgets compared to the year-ago four-quarter period, and most companies increased investment levels, with a dozen firms bumping spending up by 10% or more.

3M Co. ranked first on the list. The Maplewood-based manufacturing giant spent $1.4 billion on research and development over the past four quarters, up 2.6% compared to the prior year. Medtronic Inc. followed, ranking second with $1.3 billion in spending, up 6.5% compared to the year-ago period. Both companies also rank among the top 28 R&D spenders nationwide, according to a Wall Street Journal analysis released in April.

St. Jude Medical Inc., The Valspar Corp. and Lawson Software rounded out the top five. Overall, the medical-device and high-tech industries dominated the list.

All med-tech companies in the rankings increased R&D investment over the past four quarters, with SurModics Inc. posting the biggest bump among all companies on the list. The Eden Prairie-based firm, which develops coatings and drug-delivery technologies for medical-device and pharmaceutical companies, boosted its investment in R&D by 51% to $41 million. That’s about 30% of its sales. Most of that funding went toward growing headcount at the Birmingham, Ala.-based subsidiary, SurModics Pharmaceuticals, said company Chief Financial Officer Phil Ankeny.

SurModics has hired 40 employees there since it bought Brookwood Pharmaceuticals, the division’s former name, in 2007. The division now has 100 employees. The expansion reflects biotech companies’ demand for innovative research, Ankeny said. “It’s a tough economy, but fortunately, we have a pretty strong customer base that believes R&D is the key to their future.”

Other companies posting notable R&D increases include Eden Prairie-based Digital River Inc., an e-commerce company, as well as defense and aerospace company Alliant Techsystems Inc. (ATK).

Edina-based ATK increased its investment by 30.4%, spending $87.2 million on developing such products as mission-control technology, ammunition product lines and aerospace launch vehicles. Digital River upped its spending by 30.6%, to $51.2 million, compared to the year-ago period. Its focus is on pushing into the consumer-electronics market, in part by developing programs that run inside video games.

Not all companies increased investment in R&D last year, however. Imation Corp., an Oakdale-based maker of data-storage products, cut its spending by 38.2 percent to $23.6 million. The company didn’t make the move simply to cut costs, said Subodh Kulkarni, vice president of research and development for Imation. The firm has shifted its priorities, spending less on developing storage tapes — demand for which has declined — and more on products that are less costly to develop, such as wireless projectors and disk drives.

Despite the ongoing recession, U.S. companies will invest roughly the same amount in R&D in 2009 as they did in the prior year, according to a study released in February by the Industrial Research Institute. Many Minnesota companies have said they expect to do the same, partly to ensure they have strong products to sell when the recession ends.

For some companies, investing in R&D is a matter of survival, said 3M CEO George Buckley at an investor conference in December. “If you don’t innovate and you don’t have the opportunity to differentiate your products, you’re just going to become a hostage to fortune. Innovation is … our best chance, perhaps even our only chance for success in times like these.”

Not all companies increased investment in R&D last year, however. Imation Corp., an Oakdale-based maker of data-storage products, cut its spending by 38.2 percent to $23.6 million. The company didn’t make the move simply to cut costs, said Subodh Kulkarni, vice president of research and development for Imation. The firm has shifted its priorities, spending less on developing storage tapes — demand for which has declined — and more on products that are less costly to develop, such as wireless projectors and disk drives.

Despite the ongoing recession, U.S. companies will invest roughly the same amount in R&D in 2009 as they did in the prior year, according to a study released in February by the Industrial Research Institute. Many Minnesota companies have said they expect to do the same, partly to ensure they have strong products to sell when the recession ends.

For some companies, investing in R&D is a matter of survival, said 3M CEO George Buckley at an investor conference in December. “If you don’t innovate and you don’t have the opportunity to differentiate your products, you’re just going to become a hostage to fortune. Innovation is … our best chance, perhaps even our only chance for success in times like these.”

Minneapolis / St. Paul Business Journal - by Katharine Grayson, Staff writer