Federal Health Research Funding Faces Uncertainty Following Proposed Cuts
The past few days have been turbulent for federal health research funding after the Trump administration announced reductions to a specific type of National Institutes of Health (NIH) funding. The decision, revealed on Friday, has sparked concerns within the drug research community about potential ripple effects on scientific progress.
The proposed cuts target “indirect costs”—expenses that support research infrastructure, such as rent, utilities, and staff salaries—reducing NIH’s reimbursement rate from 30% to 15%. This adjustment is expected to save the government approximately $4 billion.
However, the move has faced swift opposition. By Monday, 22 states and several higher education institutions had filed a lawsuit against the administration, arguing that the funding cut is unlawful. Later that evening, a federal judge temporarily blocked the cuts and scheduled a hearing for February 21.
The announcement had an immediate financial impact, erasing $16 billion in market capitalization from leading diagnostics and genomics firms, including Illumina (ILMN) and Exact Sciences (EXAS), according to analysts at Jefferies.
“We believe the initial market reaction was excessive, as alternative resolutions such as court interventions or renegotiations remain possible,” Jefferies analysts wrote in a note to investors on Monday.
To provide context, indirect costs cover essential research-related expenses like facility maintenance and administrative support. These costs are in addition to direct research funding, such as researcher salaries. Typically, the reimbursement rate stands at 30%, though some institutions, including Harvard, receive as much as 70%. In Fiscal Year 2023, NIH allocated $9 billion of its $35 billion in extramural grants to cover indirect costs, Jefferies noted.
Despite the temporary recovery of stocks like Labcorp (LH) and Quest Diagnostics (DGX) following the initial downturn, the broader drug industry has remained largely silent on the potential consequences of the cuts.
Nonetheless, the looming threat of funding reductions has triggered concerns about mass layoffs, halted research projects, and setbacks in biomedical advancements—particularly for academic researchers and universities, where NIH grants are fiercely competitive, with an acceptance rate of only 20%, according to the NIH website.
Dr. Paul Offit, director of the Vaccine Education Center at the Children’s Hospital of Philadelphia, has firsthand experience with federal research grants. Having dedicated over two decades to developing the rotavirus vaccine, he emphasized the importance of indirect costs in sustaining research environments.
“I would apply for grants to cover my salary, fund graduate students or post-docs, and purchase supplies and reagents for my research. But without indirect cost funding, I wouldn’t have had a space to work,” Offit explained. “These costs support essential needs like rent, lighting, heating, and other fundamental expenses required to conduct research.
