ANALYSIS: NIH funding cuts threaten biotech, innovation and economy

Zoe Berg

The recent National Institutes of Health funding cuts and proposed caps on indirect costs are raising concerns not only about the future of scientific innovation but also about potential economic consequences that could extend far beyond research institutions.

The Trump administration’s proposal to cap NIH indirect costs at 15 percent has sparked debate over its potential effects on research institutions, biotech startups and local economies. Universities like Yale and companies such as Arvinas, Biohaven and Curatix have expressed concerns over how these cuts could affect hiring, infrastructure investments and broader economic activity. Given that research institutions drive local job markets and supply chains, reductions in federal funding may have cascading effects on employment, business contracts and regional economic stability.

“If small biotech companies like ours are forced to scale back or shut down, it will not just be a loss for scientific innovation but for the patients whose lives depend on these breakthroughs,” Dr. Choukri Ben Mamoun, a professor of medicine and founder of Curatix and Virtus Therapeutics, wrote in an email to the News. 

The direct effects of NIH funding cuts are already being felt in the biotech industry. Virtus Therapeutics, a Yale-affiliated company, lost a diversity supplement grant, resulting in the departure of a key early-career researcher. Curatix and Pearl Bio have also cited concerns that continued funding uncertainty could slow down drug development and commercialization efforts.

But the implications of these cuts extend beyond the research sector. Universities and biotech firms are not just hubs of scientific discovery — they are major economic drivers. Research institutions support thousands of jobs in both academia and the private sector, employing faculty, postdoctoral researchers, technicians and administrative staff. Many of these roles depend on federal grants, and a reduction in funding could lead to layoffs or hiring freezes.

Moreover, the indirect costs covered by NIH funding play a crucial role in maintaining research infrastructure, including facilities management, equipment maintenance and regulatory compliance. 

“Many research-related jobs, including infrastructure support and safety compliance roles, are funded through indirect costs,” said Dr. Sandy Chang ’88, former dean of STEM education and professor of Laboratory Medicine. “Any significant reduction in those funds could disrupt multiple sectors, including local construction and maintenance work.”

Universities also contract work to private businesses, including electricians, construction firms and equipment suppliers. At Yale, ongoing lab expansions and research facility maintenance generate steady demand for these services. 

If institutions scale back their research operations, contractors and suppliers could face revenue losses, affecting businesses that rely on research institutions as key clients.

“The research enterprise isn’t just about scientists in labs — it’s about the electricians who install lab equipment, the HVAC specialists who maintain controlled environments and the companies that supply reagents and instruments,” said Dr. Julius Chapiro, a physician-scientist at the School of Medicine. “If universities cut spending, there will be real economic consequences for these industries.”

The biotech industry, which often bridges the gap between academic research and commercial innovation, is also at risk. 

Startups and early-stage biotech firms depend heavily on federal grants and partnerships with research institutions. If funding becomes scarce, companies may struggle to attract private investment, potentially leading to a slowdown in drug development and medical advancements.

“If research dollars dry up, you’ll see fewer biotech startups launching, which in turn affects venture capital investment and job creation,” Amy Cayne Schwartz, co-founder of Pearl Bio, wrote in an email to the News. “The ripple effects could impact the entire biotech ecosystem, from research labs to manufacturing and distribution.”

In addition to immediate job losses and reduced research output, long-term concerns include a potential talent drain. 

With fewer funding opportunities, young scientists may be discouraged from pursuing academic careers, opting instead for more stable industries.

“If this policy takes effect, some scientists may choose alternative fields with greater financial security,” said Dr. Howard Forman, a professor and healthcare economist.

While some argue that NIH funding should be optimized to reduce inefficiencies, the economic risks associated with sudden reductions in research spending remain a key concern. 

As policymakers weigh the potential impacts, research institutions and biotech firms continue to assess how they will adapt to financial constraints while maintaining their contributions to scientific progress and economic development.

The NIH is the biggest public funder of biomedical research in the world.