Sequestration Cuts Set to See Healthcare Funding Slashed, Threatening the Future of Medical Research

Sequestration Cuts Set to See Healthcare Funding Slashed, Threatening the Future of Medical Research

LONDON, UK (GlobalData), 28 February 2013 - In efforts to control national debt, Obama has faced tough decisions, and impending funding cuts will no doubt have a major political impact in the United States, as well as resonating effects on the country's medical research industry, according to GlobalData's expert industry analyst.

The Budget Control Act (BCA) was signed into law by President Barack Obama in August 2011, with the aim of capping discretionary spending programs to reduce the budget deficit by $1 trillion by the fiscal year (FY) 2021. Due to start on March 1, the BCA's across-the-board spending cuts of approximately $85.3 billion in FY2013 alone will affect nearly all government programs. Since most public health funding at the federal level is discretionary, the BCA cuts would have particularly startling effects on public health and medical research.

Programs funded at the National Institutes of Health (NIH) and the Centers for Disease Control and Prevention (CDC) will be subject to the 8%–10% budget cut once the BCA comes into force, and a drop in the number of scientific breakthroughs and technological discoveries is forecast as a result.

The NIH is the world's pre-eminent medical research agency, whose external grant funding pays for a lot of research at universities and laboratories across the US, providing financial support for practically every major medical breakthrough in the country since World War II, including the mapping of the human genome. Adam Dion, GlobalData's Analyst covering Healthcare Industry Dynamics, explains the agency's importance: "Private companies typically won't invest in research endeavours where profit motives are not present, so the NIH plays an essential role.

"At current funding levels, the NIH supports roughly 432,000 jobs across the US and fuels about $60 billion in economic output each year. The indirect financial benefits of their research are profound – it's been estimated that every $1 of NIH funding generates about $2.21 in local economic growth. Moreover, funds dedicated to government-sponsored research have remained either flat or have declined when adjusted for inflation. In fact, it has been nearly 10 years since the NIH budget has been doubled."

The BCA sequester will cut approximately $2.4 billion from the NIH's budget in FY2013 alone, the effect of which will be felt across all 27 of the agency's institutes and centers.

The NIH's largest institute, the National Cancer Institute (NCI), would lose almost $400 million. FY2012 saw the NCI provide more than $115 million in seed funding to support nearly 400 early-stage projects focused on cancer technology development, with over 40% of those projects developing targeted therapeutic agents or devices for cancer therapy. In a testament to these programs' importance, President Obama signed the SBIR & STTR Reauthorization Act of 2011, expanding eligibility to include small businesses majority-owned by venture capital companies and private equity or hedge funds, but programs like these hang in the balance if the BCA sequester is triggered.

Reduced funding would also be allocated to NCI initiatives Small Business Innovation Research (SBIR), and Small Business Technology Transfer (STTR) Programs, limiting their ability to provide external grant funding to small biotechnology companies and research-intensive start-ups in need of access to capital to fund the commercialization of their technologies. "These programs fuel job creation across the country and foster the next generation of researchers", stresses Dion.

This trend could be reflected in medical research more broadly, as the Office of Management and Budget (OMB) estimates sequestration would lead to the NIH issuing about 2,300 fewer grants to medical researchers in FY2013, representing almost a 25% reduction in the NIH's competitive grant allocation. Dion states: "With the success rate for winning an NIH grant at its lowest levels in American history, this could be potentially devastating for biomedical researchers, who seek funding to continue their research programs or for first-time investigators who are starting new projects.

"This would also set a dangerous precedent for the country moving forward and potentially jeopardize American leadership in science and innovation in an increasingly competitive global environment. Many in the academic community believe that low grant funding could discourage the next generation of scientists from pursuing careers in medical research. Furthermore, this discouragement could lead to a 'brain drain', as researchers flee the US to countries like Britain, Germany, China and India which are increasing funding for government-sponsored scientific research."

The BCA sequester would also damage the regulatory processes required within the healthcare industry. The cuts would see the Food and Drug Administration (FDA) suffer a $318 million reduction in its FY2013 budget, which is virtually the same amount that they spent in FY2011 to review and approve biologics, a new complex class of medications that could revolutionize the treatment of cancers and immunological diseases. This budget reduction is also more than the FDA's entire budget for pre-market review of medical devices.

Dion has concerns as to whether the cuts will in fact have a positive economic pay-off: "The BCA sequester would slash funding with no department or agency control on how the cuts are implemented among individual programs, and these indiscriminate cuts would threaten a wide range of national priorities, while causing a loss of approximately one million jobs. The Congressional Budget Office (CBO) estimates that the impact of sequestration means that the US economy will see an estimated decline of 0.7% in the nation's gross domestic product in 2013, due to the ripple effect of cuts on small businesses and government personnel. As the economy already suffers from chronic unemployment and a very slow expansion, the BCA sequester could push the nation into sub-2% GDP growth for 2013 and 2014."

 -ENDS-

-NOTES TO EDITORS-

Commentary is provided by Adam Dion, MSc, GlobalData's Analyst covering Healthcare Industry Dynamics. For more information, or to request an interview, please contact us at [email protected].

This report was built using data and information sourced from proprietary databases, primary and secondary research, and in-house analysis conducted by GlobalData's team of industry experts.

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