Recent moves by the Trump administration have significantly cut funding from the National Institutes of Health for research institutions around the country. In early February, NIH announced it would cut research funding by 15% due to “indirect costs.” This is something that is not directly linked to specific research projects such as overhead or administrative costs. The new cap is below the average indirect cost rate of 27% to 28%, and well below the rates received by universities such as Harvard, Yale and Johns Hopkins. The agency estimates that the proposed indirect funding cuts will reach more than $4 billion in annual federal savings. This relates to the lab’s total budget for accounting for over $47 billion in 2024. This makes NIH the world’s largest single public funder for biomedical and behavioral research. But sudden cuts from the Trump administration have already been challenged in court. Earlier this month, a federal judge stopped the White House from implementing cuts. Some lawmakers opposed the cut, including Republicans such as Sen. Susan Collins of Maine. As uncertainty gets caught up in the future of NIH-funded research, some Wall Street people are warning more than stocks that could be hit. “Around 60% of US academic research is funded by federal agencies, and NIH is the largest source of revenue for tool companies A&G (academic and government),” Bank of America analyst Michael Riskin wrote in a note on February 25th. “Regardless of how it ultimately resolved, limiting all indirect costs to 15% could have a significant impact on the facilities and ability to provide support for certain types of research, as individual scientists/grants cannot support vivariums or the entire complex infrastructure,” the analyst continued. In the aftermath of the NIH announcement, “Braces for Weakness,” stocks in many well-known life science tool companies have slowed the broader market. The S&P 500 has dropped by 4% over the past month, while Bruker has slipped by over 14% and the Illumina has dropped by about 10.8%. Agilent and 10-fold genomics decreased by more than 11% and 19%, respectively. Thermo Fisher Scientific has poured over 3% in that time. Of these names, 10x Genomics, Illumina and Blue Car have the highest A&G exposure in BOFA coverage. While direct NIH exposure is “more restrictive,” Liskin writes, if funds are frozen, it could still make sense. That’s because the life science tool space has already been under pressure over the past few years. William Blair’s Matt Lare told CNBC this was primarily because the space was out of the Covid-19 pandemic when clients purchased large quantities in areas such as equipment and consumables and overattacked many products due to supply chain concerns. “The growth in this sector has been really challenging as customers already had a lot of products due to weak macros over the past few years,” the analyst said. “In the end, you got through it, so the space for the first two weeks of the year actually surpassed the market for the first time in years,” he pointed out that those profits have only disappeared for good. ILMN TXG, TMO, BRKR 5Y Mountain Ilmn, TGX, TMO and BRKR have been “from an investor’s perspective, people have been very unhappy with the historically undefeated non-circular parts of the market being considered sensitive to these changing net market conditions. “It certainly is a problem for stocks. There is no doubt.” Larew also said that the current quarter and perhaps the next quarter will “undoubtedly” look challenging for companies. Other analysts have similar views. “People are weak,” said Daniel Brennan, analyst at TD Cowen in an interview with CNBC, adding that the market is affecting the company’s first quarter revenue outcome, especially over the coming months. “People are trying to understand: Are there prices?” Nevertheless, Brennan pointed out that pressure on stocks might provide silver lining to those on the street. “If there are weaknesses, it could create opportunities for investors to intervene,” he continued. Long-term confusion? If an indirect cost cap is passed, institutions can collectively lose billions of dollars in research budgets. According to calculator estimates designed by data for the University of Chicago’s common interest, the total loss in the research budget will exceed $6.9 billion based on figures for fiscal year 2024. D4CG also points out that it is likely that the calculator is underestimating the amount of lost indirect costs. This means that the losses can actually be even greater. Tara Legatez, a biological science researcher at the University of Maryland in Baltimore County since 2019, emphasized that this would have a major impact on the research project she proposes. In addition, she said the local economy will suffer as university staff could be fired. “Indirect essentially provides the infrastructure that allows me to do projects,” she told CNBC. “I can have a building with lights and electricity, so that the students and staff there are actually able to achieve those research goals. It will evaporate.” Progress, Legates believes that the university has no reason to support research with this policy change, and hopes that more freezes will continue in the employment and admissions of staff and students. For example, a month ago, Stanford University announced staff hiring Freeze, citing uncertainty about the NIH cut. “We’re going to see a big stagnation in scientific progress because if the university is closing the building because it can’t run it, or if there are few people actually doing the work, things won’t be going to be done,” Legates added. On that front, Leerink analyst Puneet Souda said the long-term impact of these cuts threatens the US’s global position in scientific research, particularly when it comes to drug discovery. “We’re talking about basic, novel innovations. That’s what the American biomedical research system can do,” he told CNBC. “It doesn’t happen this way anywhere in the world. If these cuts are implemented, it’s at risk.”
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Life Science stocks are under pressure due to potential NIH fund cuts
By Reid Novak
