NIH Cuts: A Push for Efficiency or a Blow to US Healthcare Innovation?
President Donald Trump’s administration recently cancelled billions of dollars in funding to the National Institutes of Health (NIH), causing widespread concern among researchers and tech developers in the healthcare world.
These cuts are currently paused while being challenged in court — but regardless of the litigation’s outcomes, healthcare researchers are girding for an eventual reduction in investment.
Healthcare experts interviewed for this article said NIH funding cuts will disrupt the pace of medical research in the U.S. — which will not only hamper the commercialization of novel treatments but could also hurt the country’s position as a global leader in healthcare and technology advancement.
The consensus seems to be that researchers and startups will need to increase their reliance on private industry and nonprofit funding sources — or else, the U.S. could fall behind other nations when it comes to healthcare innovation. However, some healthcare experts saw a potential for faster grant timelines and improved efficiency as a result of the funding cuts.
The scope of the cuts
The Trump administration announced last month that it is capping indirect costs for NIH research grants at 15%. This change does not affect NIH funding for direct costs, which refer to researchers’ salaries and laboratory supplies. Instead, the policy shift decreases the funds available for indirect expenses like utilities, equipment, security and legal compliance.
Before this shift, universities and other research institutions negotiated an indirect cost rate with the federal government, and it usually was about 50-60% of direct research costs — so this change will hurt. The move is projected to cut billions of dollars from research aimed at developing cures and treatments for diseases like cancer, Alzheimer’s, diabetes, mental health disorders and opioid abuse.
Last year, $9 billion of the $35 billion that the NIH awarded in grant money was used on indirect costs. The funding cuts are projected to save the federal government about $4 billion annually.
The administration’s enforcement of the cuts has faced legal challenges, though.
Earlier this month, a federal judge blocked the administration’s attempt to implement the funding cap after 22 states sued to stop the policy. This temporarily pauses the funding cuts in states that have filed lawsuits — including California, New York, Massachusetts and North Carolina, which are all among the top recipients of NIH grant funding.
In response to being stymied by the lawsuits, the Trump administration has sought an alternative, creative method to enforce the cuts: suspending NIH grant meetings, which effectively suspends the approval of new funding.
Slowing the pace of innovation
Healthcare experts are worried about the effect that reduced NIH funding will have on innovation in the industry. The agency plays a critical role in funding early-stage research and clinical trials — and is known for providing financial support to researchers pursuing scientific discoveries that often lack immediate commercial viability.
NIH funding cuts are likely to lead to research bottlenecks for many diseases and conditions, pointed out Jonathan Wofford, chief commercial officer of Title21, a company that provides software to cell and gene therapy labs.
This is especially true for high-risk, high-reward areas like cell and gene therapy or neurodegenerative disease treatments, he noted.
With decreased funding, many research institutions will struggle to invest in the resources necessary to carry out studies, such as lab facilities, specialized equipment and sufficient data storage software. The uncertainty surrounding these cuts also discourages long-term planning and investment, leading to delays in project execution and regulatory approval.
As a result, promising therapies could get stuck in the pipeline, slowing innovation timelines and delaying the availability of breakthrough treatments for patients, Wofford said.
He also noted that earning an NIH grant is often an indicator of a research project’s feasibility.
Once the research effort spins out to become a startup, clinical trial sponsors and venture capitalists view the NIH grants as early validators of the technology, thereby lowering the risk profile of those startups.
“The grant processes are intensive. This is why academic organizations particularly engage in the grants, as there is more of an organizational capacity to work with NIH processes at scale. It is unclear what private funders would use to replace the signal that NIH funding gives, especially at the translational stage,” Wofford said.
Biotech incubator Altitude Lab published a report last month showing that startups receiving NIH funding are 10 to 15 times more likely to secure venture capital — with 65% of these startups raising more than $5 million.
The NIH also actively monitors the outcomes of its funded research, especially regarding patents, licensing agreements and the commercialization of technologies.
The agency’s most recent data is from fiscal year 2023. During that time period, the FDA approved three products that arose from NIH-funded research, and the U.S. issued 87 patents to NIH-funded technologies. The three new FDA-approved products were all pharmaceuticals: the first RSV vaccine for people ages 60 and older, the first gene therapy for hemophilia, and an immunotherapy for melanoma.
Effects on the country’s global competitiveness
Russ Paulsen, COO of advocacy group UsAgainstAlzheimer’s, pointed out that the NIH has supported research breakthroughs “across virtually every major disease” — and its funding is deeply tied to the development of treatments.
“It’s hard to find a treatment that doesn’t have roots in NIH-funded research. While we don’t know exactly what is proposed, any significant funding cuts could be catastrophic. We’re already seeing that grants put on hold are delaying the development of cures, and patients cannot wait,” Paulsen declared.
He also noted that cuts to the NIH means fewer of the world’s brightest doctors and researchers coming to the U.S. to advance science and improve treatments.
In his view, the country is at risk of losing a generation of talented innovators to other nations — taking their discoveries, breakthroughs and economic impact with them.
“NIH funding is not just a scientific investment — it’s an economic engine. It drives innovation, supports high-quality jobs, and fuels growth through research and development. For every dollar invested, the return is more than double in economic output. At a time when the economy is uncertain, slashing this kind of reliable, proven investment would be short-sighted and self-defeating,” Paulsen remarked.
Another healthcare executive — Orr Inbar, CEO of QuantHealth, an Israeli AI company offering a clinical trial simulation platform — agreed that NIH funding cuts could weaken the U.S.’ global competitiveness in healthcare and technology.
Historically, NIH funding has helped position the U.S. as a leader in health research, but reduced investment could allow other countries to take the lead in healthcare advancements, Inbar stated.
“From a tech perspective, this could stifle progress in AI-driven drug development and precision medicine innovation. U.S. companies and research institutions may struggle to maintain their competitive edge as funding declines, which reduces opportunities for early-stage discoveries, which are needed for later-stage commercial and technological advancements,” he declared.
The potential positive impact of funding cuts
While NIH cuts will likely cause research delays, they also have potential to produce efficiency gains, noted Andreas Forsland, CEO of Cognixion, a startup building a noninvasive brain-computer interface.
In Forsland’s eyes, the primary impact of NIH funding cuts has been delays in grant approvals rather than outright cancellation.
He said his company is waiting to hear back about grant applications it sent to the NIH and the Advanced Research Projects Agency for Health (ARPA-H). Cognixion has raised over $25 million in venture capital funding, so NIH grant delays are manageable — but these delays can be disastrous for small startups and university labs that depend on timely grants for survival, Forsland pointed out.
However, in the long term, he thinks the cuts may be successful in purging inefficiencies. They might force academic researchers to become more outcome-driven, he said.
“[Academics] need to be more entrepreneurial. They need to be more mindful of their contributions. There are organizations that are just grant factories. There are even businesses that all they do is just apply for grants — they do projects and they publish, but they don’t actually produce anything that’s valuable or that the world gets to benefit from,” Forsland stated.
Another healthcare expert — Hernan Bazan, a professor of surgery and cardiovascular innovation at Ochsner Health, as well as CEO of South Rampart Pharma — also said that the funding cuts could spark increased efficiency.
South Rampart Pharma, which is developing non-opioid pain treatments, has received nearly $2 million from the NIH. Bazan noted that the NIH grant application process is slow and bureaucratic, often taking 9-12 months to secure funding, even for highly rated proposals.
Capping the amount of indirect costs that can be charged to the government at 15% might make the process more seamless — and potentially ensure more timely support for innovations, he said.
He also pointed out that some companies receive multiple NIH grants over several years without progressing to clinical trials, indicating that there are inefficiencies in the overall NIH funding process.
At the end of the day, Bazan thinks that healthcare startups need a balance of non-dilutive government funding and private investment. NIH funding is valuable because it allows young companies to develop innovations without giving up equity — but startups relying too heavily on this funding risk being seen as research-focused rather than commercially viable.
Where to go from here
For healthcare innovation to remain strong in the U.S., the gap left by NIH funding cuts will have to be filled somehow, stated Anshul Mangal. He is a biotech entrepreneur and investor, as well as CEO of life sciences consultancy Project Farma.
Possible alternative funding avenues include nonprofit grants, philanthropy, state-level investment or reallocated institutional budgets, Mangal stated.
“In the short term, this could mean some research projects slow down or shrink in scope, especially at institutions that rely heavily on NIH support and don’t have large endowments or other funding to fall back on,” he explained.
Over time, Mangal said the real question becomes whether those institutions can find reliable alternatives.
All healthcare research organizations are facing the same cuts — but larger, well-resourced organizations are more likely to weather the change. Smaller universities and state schools will struggle, leading to a reduced research output, Mangal noted.
Overall, the NIH cuts are accelerating a pre-existing trend: the advancement of private industry funding.
Industry-sponsored research, especially for rare diseases and oncology, is becoming the primary driver of innovation, said Mitesh Rao, CEO of OMNY Health, a national data ecosystem that facilitates medical research.
He noted that OMNY Health enables provider-industry partnerships for patient-centered research without relying on NIH funding — and that his company’s platform is seeing an increased demand as research institutions seek new ways to fund and conduct studies.
Going forward, Rao encouraged researchers and startups to focus on finding diverse and sustainable funding modes of funding. He said he is confident that industry and nonprofit partnerships can step in to fill the gap created by NIH funding cuts.
“I see a lot of opportunity for organizations to be able to change and pivot their model to be able to support the research,” Rao remarked.
Ultimately, he and the other experts interviewed for this article agree that NIH funding cuts mark a noticeable shift in the healthcare research landscape.
While some experts see possible efficiency wins, others are worried about a delayed pace of innovation and a weakening of the nation’s standing as a global healthcare leader.
To protect the future of healthcare discoveries in the U.S., research institutions and startups will have to seek alternative sources of capital — the question is whether these models can sustain the level of innovation that NIH funding has historically supported.
Photo: Who_I_am, Getty Images
