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Feb 7, 2011

2011 Budget Outlook: Trim, Cut, Then Slash

Agencies like the FDA and NIH are looking at potentially huge cuts.

2011 Budget Outlook: Trim, Cut, Then Slash

© Simon Greig - Fotolia.com

  • When Republicans won the U.S. House of Representatives last fall, it was with the understanding that they must restrain spending or be voted out as quickly as they were voted in. Keenly aware of this, Republicans with some Democrat colleagues passed House Resolution 38. The bill calls for discretionary spending—budgets of the NIH, HHS, FDA, and a host of other agencies to return to 2008 levels.

    For the FDA that means a budget of $1.7 billion, down 25% from the actual 2010 level of $2.36 billion. The Obama Administration, in contrast, requested $4 billion for 2011, an almost 70% increase over 2010 funding and a 25% increase over its 2010 request, which was $3.2 billion. The administration’s $4 billion figure includes $450 million in tobacco new funds and PDUFA user fees. For NIH, a return to 2008 spending levels means a budget of $29.3 billion, versus the $31 billion given for 2010.

    This budget isn’t the only proposal on the table. In the Senate, Sen. Rand Paul (R-KY) introduced S.162, the Cut Federal Spending Act of 2011. That bill seeks to reduce the federal budget by $500 billion in one year by limiting the government to its constitutionally mandated role. His proposal cuts the FDA budget by $230 million and the NIH by $5.8 billion, eliminates the Department of Education, and incorporates the Department of Energy into the Department of Defense.

    Austerity measures are considered a logical response to a national debt—all money owned by the government—which is rapidly approaching the nation’s gross domestic product (GDP). The Congressional Budget Office is projecting that the U.S. federal budget deficit is expected to approach $1.5 trillion for 2011.

    Currently, the U.S. government is operating on a continuing resolution, which expires March 4, that provides funding at 2010 levels. Since 2009, not only has the actual annual budget been less than what was requested for that year, but it has also been below the requested budget for the previous year. The President is expected to present his 2012 budget request to Congress in mid-February and has acknowledged the need to reduce the deficit. Only after the 2011 budget is funded—either by another continuing resolution or an omnibus spending bill—will Congress begin to debate the 2012 budget.

    It seems probable that the 2011 budget will be delayed. Whatever cuts are adopted for the remainder of 2011 are likely to extend to the 2012 budget as well, senior research fellow at The Heritage Foundation, Ed Haiselmeir, told GEN.

  • The GOP Plan

    The GOP outlined its vision for a trimmed budget in the Spending Reduction Act of 2011, developed by the House Republican Study Committee. The bill would not only return nondiscretionary spending to 2008 levels for the remainder of 2011 but would also call for 2006 spending levels for the next nine years.

    Specifically, it would repeal all remaining stimulus funds, withhold funds from any portion of the healthcare bill, cut the federal agencies’ civilian workforce by 15%, eliminate funding for Obamacare administrative costs, as well as trim $293 million from the Economic Development Administration and $70 million from the Technology Innovation Program. Many of the remaining cuts are to foreign aid, transportation subsidies, and so-called noncritical programs (like the mohair subsidy).

    At this point, no one knows how such austerity measures will affect the life sciences. “The budget is pending, so we wouldn’t know how it would affect us,” Tee Simananda, project assistant for the Office of Budgeting at the NIH, told GEN. “There are too many variables.”

    Those variables are “up to the Congressional authorization committees and appropriations committee,” Haiselmeir explained. “The GOP goal is to trim $100 billion from the 2011 budget.” But, as Steven Grossman, deputy executive director, Alliance for a Stronger FDA, pointed out to GEN, “Since little more than half the year will remain by the time the cuts are made, it is unclear whether that will be $50 billion or the full $100 billion.” The House plans to vote weekly on new spending cuts, according to H. Res. 38.

  • Biotech Fallout

    The cutbacks will force the biotech industry to become more innovative and efficient in early-stage research, working closely with academia on early research projects and leveraging the vast amounts of largely untapped historical clinical data as well as in silico projects, Anthony Johnson, president and CEO of Empire Genomics, noted.

    “The amount of early-stage research in the U.S. will decrease dramatically, however,” he cautioned. This would reduce the pipeline of new drugs and diagnostics and essentially “hand over the biotech/pharma industry to emerging and well-funded economics. If this occurs people will go where the cash is to conduct their experiment and further their ideas.

    “Most importantly,” Johnson said to GEN, “it could lead to firms looking for shortcuts and running fewer experiments, generating fewer results as they try to bring drugs to market. The lack of early funding could force firms to make tough choices when licensing, developing, and launching new products as a result of the lower funding amounts provided to the FDA.”

  • Effects on Agencies

    The effect on the FDA could be devastating, Grossman remarked. “The FDA has been chronically underfunded for decades. It could use a 15–20 percent budget increase and still be short of resources.” Demands upon the agency, meanwhile, are growing. Resources permitting, it must implement a new food safety system, budgeted at $318 million for 2011, deal with increasingly complex science, and expand overseas to respond to the globalization.

    More than 80% of the FDA budget is allocated to employees and facilities, according to Grossman. Therefore, if deep cutbacks occur, he foresees program consolidation and abandonment as well as massive furloughs and layoffs.

    In contrast, cutbacks at the NIH may be implemented by halting some grant competitions or by awarding fewer numbers of grants or smaller awards. The NIH is already planning to abolish the National Center for Research Resources and some of its programs. It will transfer the remaining projects to the soon-to-be-created National Center for Advancing Translational Sciences (NCATS), according to HHS secretary, Kathleen Sebelius, in a letter to legislators. “Funding is intended to come from existing resources of the programs that would move to NCATS,” she noted.

    NIH programming is also growing, though. The Patient Protection and Affordable Care Act of 2010 formed the Patient-Centered Outcomes Research Institute, which will require funding from the diminishing resources of the federal budget.

    “I think what you may see going forward in the next year is a more robust governing agenda coming out of the agencies,” commented Bruce Katz of the Brookings Institution in a rehash of the State of the Union address. He said this may mean marshalling the tools that have bi-partisan support as well as greater dependence upon public/private partnerships.

    Such partnerships could be troublesome for the FDA, however. The Prescription Drug User Fee Act (PDUFA), due for reauthorization in 2012, is a case in point. PDUFA is expected to add $707 million to the FDA budget in 2011, Grossman said. Although that’s only about one quarter of the overall FDA budget, “those user fees are concentrated in certain areas. PDUFA fees pay about 65 percent of the drug approval process.”

    The concern, Haiselmeir explained, “is that if more than 50 percent of the FDA’s budget is generated from fees from the biopharmaceutical industry, the agency is in effect a major shareholder in the industry and thus has a conflict of interest.”

    At the Alliance for a Stronger FDA, Grossman added, “We look at the FDA as a public agency, performing tasks for the public good. It, therefore, should be funded by the public—not by industry.” Nonetheless, he said, “there is an acceptance that FDA needs some user fees from the biopharmaceutical industry to do its job.”

    Streamlining the FDA won’t generate the savings needed, either. “When responsibilities so exceed revenue, streamlining can add more value to the agency’s activities but will not save money. For example, there are new databases that would save time but require significant money up front before they can be put together,” Grossman explained.

  • Delivering the Impossible

    How budget cuts will affect the FDA and other health agencies isn’t yet known. Although President Barack Obama, in his State of the Union speech January 25, called for a five-year spending freeze for discretionary programs, that affects the aggregate budget rather than specific programs. That leaves room for some programs to be reduced and others to continue to grow.

    The FDA and NIH have broad support in Congress so the FDA may have a better claim on resources than less scientific or technological agencies, Haiselmeir speculated. HHS Secretary Kathleen Sibelius called investment in the FDA a critical component of national security. The outlook for the FDA, therefore, may be better than that of many other agencies.

    Although Americans are calling for spending cuts and even Congressmen are beginning to see that need, politics makes it impossible. “There is still a perception among many on Capitol Hill that somehow trimming 12 percent of the U.S. budget to 2008 levels will be sufficient to stave off disaster,” Grossman remarked. “I’ve been there when government was overhauled, and nobody ever expects Congress to make dramatic changes,” he said, recalling his years on the Hill in the early 1980s. “What’s possible this year can’t be predicted now.”


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