Why the National Institute of Health New Budget Looks So Promising

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According to a recent analyst report by Janney, the National Institute of Health (NIH) budget that was approved last Friday could be a big boost for some select biopharma stocks. The budget is said to be the best in 15 years and that the momentum is strong under the president and Republican leadership.

The prior seven years have been very dismal with spending declines in most periods but the 2018 proposal of $38 billion represents an 8.8% increase. The 2017 budget actually increased +7%, but Janney noted that government and academic labs have been holding back spending.

Overall this is good for the sector, with about 20% academic exposure and particularly good for companies like Illumina Inc. (NASDAQ: ILMN), Bio-Techne Corp. (NASDAQ: TECH), Thermo Fisher Scientific Inc. (NYSE: TMO) and Harvard BioScience Inc. (NASDAQ: HBIO).

The Friday budget signed, after a 15% cut threatened one year ago, called for a $3 billion, or an 8.8%, NIH increase. Between the House, Senate and White House, President Obama had been the most conservative since the Clinton era regarding annual NIH funding, with his preference for inflation based upticks (2% to 3%). However, the times are changing with a new administration in power.

The NIH support is from both Democrats and the newly “converted” Republicans. Spending already had picked up last fiscal year with a 7.2% budget increase, but the lack of a budget accord going into 2018 was a major overhang. According to Treasury data, NIH outlays for the federal months of September 2017 (+11.3%) and October 2017 (+13.4%) were beginning to show an uplift in confidence.

Also, academics had put on the spending brakes for many years following budget cuts and government shutdowns. The NIH distributes about 80% of funding to academia, and this accounts for about 20% of the industry spend. House and Senate members have a vested interest in a successfully funded NIH as major university research programs in their districts and states benefit.

In the Janney report, the firm further detailed:

Tom Cole leads the Subcommittee on Healthcare and Health & Human in Congress and is responsible for NIH funding. During a March 2016 speech, Tom Cole said, “The most important thing, as Roy has already said, is to make sure that the $2bn increase in 2016 is not a one-hit wonder. We want this to become a regular pattern for Congress, to make these NIH investments in a regular, manageable, and predictable way so that the scientific community knows they will continue.”

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