BioPharm Executive: The End Is Near

Published: Feb 27, 2013

The End Is Near

Civilization as we know it ends on Friday. That, of course, is when the so-called "sequester" kicks in, forcing broad, blunt cuts across the government. Nobody wants it to happen, and yet such is the state of our political leadership that, barring a last-minute miracle, it's going to happen anyway.

So--are we facing a new recession, with airplanes falling out of the sky, unschooled children fighting with dogs over scraps of tainted meat, and the nation defenseless against invasion from Canada? Well, okay, some of the dire consequences may have been exaggerated a wee bit. For one thing, government agencies should be well aware by now of what is coming their way and prepared to react at least in the short term.

And the short term is what really matters, because in just a few weeks--March 27, to be exact--the Continuing Resolution funding discretionary spending runs out. That's the real deadline. The political posturing taking place now has a better (though not great) chance of giving way to actual action by then.

But whether it is next week or a few weeks from now, real changes are likely to take place. Some of those changes directly impact the life sciences in ways that could be felt immediately--and some in ways we may not feel for years to come.

Sequestration means an across-the-board 8.2% budget cut for the National Institutes of Health, totaling a little more than $2.5 billion this year. (Right now, NIH is funding research grants at 90% of previously committed levels through March 27, but after that all bets are off.)

Keep in mind that the NIH budget has been flat for years, increasing at about the pace of inflation. In constant dollars, NIH's 2012 budget was about the same as its 2000 budget. The 2013 budget was almost dead flat from 2012--not even an inflation bump. And that's before taking these cuts into account.

On the one hand, it's only fair to point out that this means the NIH is faring better than most of us--median household income has declined since 2000, so treading water is something to hold your head high about. Moreover, this decade-plus budgetary flatline followed a period of expansive growth for the department in the late 1990s. The more hysterical advocates for NIH funding should recall that research and innovation did take place prior to 1996.

Still, lightening the coffers by $2.5 billion is going to be felt. The vast majority of NIH's budget--some 83%--goes to funding research at academic and other research institutions across the country. This funding won't stop under the sequester, but the success rate for grant requests will go down sharply. Does that mean a great idea--something that could save lives, reduce costs, or create jobs--won't come to fruition because of budget cuts? That, of course, is impossible to say. But it's easy to point to great successes that grew out of past NIH funding and wonder.

The reality is that we can adapt to these changes. For most companies, it will be business as usual come Monday.

I'm more concerned about the long term. Industry has come to increasingly rely on academic research, and sharply cutting NIH funding is a kick at that leg of the stool. The last couple years have been marked by more industry partnerships with academic researchers. In many cases, drug companies are going straight to academic labs because another leg of the innovation stool--venture capital--has gotten progressively weaker over the past few years.

That makes for a pretty wobbly stool.

The fact that the sky won't fall on Monday, or even in a few months, may actually be the most insidious part of the problem. We will simply weaken, but not cripple, the earliest part of the chain that leads to new treatments. It could take years before we understand just what kind of impact that will really have.

-Karl Thiel

Read the BioPharm Executive online newsletter February 27, 2013.

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