SIC 8731
COMMERCIAL PHYSICAL AND BIOLOGICAL RESEARCH



This industry classification covers establishments primarily engaged in commercial physical and biological research and development on a contract or fee basis. Noncommercial research establishments funded by endowments, grants, or contributions are classified in SIC 8733: Noncommercial Research Organizations. Separate establishments of aircraft, guided missile, or spacecraft manufacturers primarily engaged in research and development on these products are classified in several SICs concerned with transportation equipment manufacturing.

NAICS Code(s)

541710 (Research and Development in the Physical Sciences and Engineering Sciences)

541720 (Research and Development in the Life Sciences)

Commercial physical and biological research organizations are supported by commercial firms and organizations that invest a portion of their annual budget in research and development (R&D). These industries apply the knowledge acquired through R&D toward developing products for domestic and international markets. Commercial physical and biological research is routinely undertaken in a vast array of subject categories, including agricultural, biological, chemical, engineering, physical, and industrial research. Studies in these arenas serve to improve already existing products, and to develop new ones. Nearly every firm in every major industry has a division or subsidiary devoted to commercial physical research. Many products that arise out of these research efforts appear solely in the retail consumer market; others contribute to improving industrial processes.

Commercial, physical, and biological research surfaced among the fastest growing segments of the U.S. economy beginning in the early 1990s and continuing into the early 2000s. Research and development companies experienced explosive growth with associated high volatility. According to the U.S. Commerce Department the total annual U.S. expenditures for research and development grew by 9.3 percent in the year 2000 to $162.7 billion; this was the largest increase since 1995. The two fastest-growing segments of the industry—information and electronics manufacturing and medicines and medical devices—accounted for more than two-thirds of all research and development spending in the United States, compared to slightly more than half in the mid-1990s.

While other industries cut back during recession periods, commercial research and development divisions often enjoyed increased budgets. For instance, a fiercely competitive business environment in the early 1990s led companies to place a substantial premium on first-to-market technology, thus accentuating the importance of research and development for maintaining and expanding market share. Drug companies increased their R&D expenditures by 13 percent to about $11 billion or 16 percent of sales, in response to public concerns over physical and biological phenomena such as the spread of AIDS. In the latter years of the decade innovative new concepts—such as controversial experimentation with cloning—further fueled the R&D economy. Despite the downturn in the technology industry in the early 2000s, R&D budgets in the technology sector continued to grow. In March of 2001, the Semiconductor Industry Association announced its intent to grow its research efforts twofold. Industries experiencing decreased R&D spending in the early 2000s included aerospace, chemical manufacturing, and basic industries and materials.

At the turn of the twenty-first century, the roster of R&D industry firms fluctuated drastically. One major player, Science Applications International Corporation (SAIC) was a private, employee-owned company headquartered in San Diego, California. SAIC reported annual sales of $6.09 billion in 2002, for a 3.4 percent annual sales growth. SAIC employed 40,400 workers in 2002 and ranked at number 288 among the Fortune 500. The firm contracts an estimated 50 percent of its workload with government entities.

Also prominent is Quintiles Transnational Corporation, the largest research provider to pharmaceuticals manufacturers, which maintained operations in 30 countries worldwide. An S&P 500 company, Quintiles is headquartered in Durham, North Carolina. In 2002, the firm employed over 15,500 workers and posted $1.99 billion in sales, a 23 percent growth. Quintiles' PharmaBio Development subsidiary offers R&D services to healthcare companies in exchange for new product royalties. In 2002, a management-led buyout team was in the process of taking Quintiles private. Additionally, Chiron Corporation, devoted to pharmaceutical research, reported $972.9 billion in sales for 2002. Chiron, a public company headquartered in Emeryville, California, is largely owned (42 percent) by Novartis.

Further Reading

"Chiron Corp." Hoover's Online, 20 April 2003. Available from http://www.hoovers.com .

Leopold, George. "Figures for 2000 Show Big Rise in Corporate Research from '99." Electronic Engineering Times, 22 October 2001, 32.

"Quintiles Transnational Corp." Hoover's Online, 20 April 2003. Available from http://www.hoovers.com .

"Science Applications International Corp." Hoover's Online, 20 April 2003. Available from http://www.hoovers.com .

Studt, Tim, and Jules J. Duga. "Industry Spends Big on Development While Feds Focus on Research." R&D, January 2000.

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