Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The Trump administration's vendetta against medical research was always one of the strangest parts of its proposed budget.

It was also one of the unlikeliest to become reality. Now, in a new congressional spending deal, the president's proposed evisceration of the National Institutes of Health has turned into a $2 billion funding increase for 2017. This suggests that any further threats to NIH funding -- and the business of companies that profit from it -- shouldn't be taken too seriously.  

Ill
Illumina, which makes machines that sequence DNA, got a share-price boost after Congress boosted NIH funding
Source: Bloomberg
Intraday times are displayed in ET.

The list of things Republicans and Democrats currently agree on likely doesn't exceed 250 words, but there's common ground on funding cancer and Alzheimer's research. Lawmakers passed the 21st Century Cures Act -- which gives the NIH $4.8 billion in additional research funding over the next 10 years -- about six months ago. The result of years of bipartisan work, it passed 392-26 in the House and 94-5 in the Senate. To turn around and slash NIH by $1.2 billion this year and $5.8 billion in 2018 always seemed rather unlikely. 

The current compromise only funds the government through September, and it's unclear what will happen in 2018. But it is clear Congress has little interest in harming the NIH, which has already suffered through a pretty rough few years due to budget cuts and sequestration. That's particularly meaningful for companies such as Illumina Inc., Bio-Techne Corp., and Thermo Fisher Scientific Inc., all of which produce equipment and other materials vital to medical research. The NIH funds many customers of these firms and is a backbone of the research ecosystem on which they depend. The better the NIH does, the better they do.

NIH funding doesn't mean as much to the much larger pharma lobby -- which spent $51 million in the first quarter of 2017, according to Bloomberg Intelligence. But the sector is definitely pro-NIH, and was a big supporter of the 21st Century Cures Act. Basic research of the type the NIH funds is time-consuming and failure-prone. Pharmaceutical companies are very happy when other people do it for them. A huge number of new and innovative drugs have their roots in NIH-funded research that was either licensed by a large pharmaceutical company or a smaller biotech. The NIH gets royalties, but they pale in comparison to a successful drug's sales.

Large pharma R&D spending has been flat for years, as companies have become more dependent on buying rather than developing drug candidates. Basic R&D efforts are often among the first to go when cost-cutting time comes. 

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R&D spending by large pharma firms has stayed flat for some years; most growth in 2016 came from a 50 percent increase in Merck's spending that likely won't be sustained
Source: Bloomberg

A longer-term funding commitment would be preferable, but this deal is a concrete signal for investors that the draconian cuts Trump proposed were never a realistic possibility. Come September, the administration may well float big cuts to the NIH again, and that may even hit the stocks of life-science companies. But such concerns should quickly be put to bed. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net