After the National Institutes of Health (NIH) announced late Friday that it would be following a Trump administration directive to cut the cost of medical research grants, major makers of DNA sequencing and cell analysis hardware saw their stock prices take a hit.
Specifically, the NIH said it would be limiting funding for the so-called “indirect” expenses of R&D—which includes overhead facility costs as well as maintenance and the purchasing of new equipment such as research hardware. Instead of individually negotiating indirect cost rates with each recipient’s institution, the institutes plan to impose a 15% cap across all NIH grants.
In Monday’s trading, instrument manufacturers Pacific Biosciences and 10x Genomics each saw their stock prices dive by 13% to 14%, while industry giant Illumina—still recovering from being caught up in the tariff battle between the U.S. and China—saw its shares drop as much as 7% on the day, or a 17% total decline compared to last week.
In a note to investors over the weekend, analysts at J.P. Morgan pegged about 44% of Illumina’s customer mix to be academic and government researchers—and noted as much as a quarter of its business could be exposed to declines in NIH indirect cost funding.
For PacBio and 10x, meanwhile, that category may account for more than 60% of their customers, and about a fifth of their respective operations, the analysts estimated.
“We believe the budget actions will result in broader headwinds for the life science tools space, although we expect specialty tools will be more impacted than core tools,” they said, forecasting lesser impacts on companies like Agilent, Bruker and Danaher.
The NIH said the cuts aim to save about $4 billion per year. 10x and PacBio have their fourth-quarter earnings called scheduled for later this week, on Feb. 12 and 13, respectively.
A group of 22 state attorneys general have filed a lawsuit to block the move, saying the changes would run afoul of Congress’ appropriations acts—which expressly prohibit the NIH from making categorical changes to indirect cost rates—and would violate the Administrative Procedure Act that governs federal regulatory actions.
Sen. Patty Murray, D-Washington, vice chair of the Senate’s appropriations committee, said in a statement that limiting indirect costs would create funding shortfalls for research institutions of all sizes across the country.
“These resources go toward things like construction, utility costs, and lab operation—if NIH cuts off this support, the research will come to a halt,” said Murray, who formerly helped lead the Senate’s health committee. “This funding helps produce breakthroughs that change patients’ lives, prepare us for pandemics and other health threats, and ensure the U.S. continues to be the global leader in biomedical research.”
“This will derail major breakthroughs by forcing research institutions—like the Fred Hutchinson Cancer Center and the University of Washington in my state—to now scramble to make up this massive shortfall, almost certainly forcing layoffs across the country,” she said. “Sick kids may not get the treatment they need. Clinical trials may be shut down abruptly with dangerous consequences.”