NEW YORK (GenomeWeb News) – Investment analysts were encouraged by President Barack Obama's fiscal year 2013 budget proposal for the National Institutes of Health, calling it a positive for life science tools companies.
On Monday, Obama proposed a budget that would keep NIH funding in FY 2013 flat at $30.7 billion, compared to FY 2012. While the proposal is far from a done deal — the Senate and House of Representatives also still need to create their own budget proposals and then reconcile all the plans — investment analysts said the White House blueprint is an indication that scientific researchers will be spared from deep cuts in FY 2013, which begins on Oct. 1, 2012.
"The budget request also appears to signal an effort to keep science funding stable in an environment of budget cutting," Peter Lawson of Mizuho Securities said in a research note.
Among Obama's requests in his budget is a reduction of $1 million to the National Human Genome Research Institute, which would get $511 million. The National Cancer Institute would see an increase of $3 million to a total of $5.1 billion, while the recently minted National Center for Advancing Translational Sciences, which funds the development of new diagnostic tools and technology, would see its budget increase by 11 percent to $639 million.
While the proposal is seen as a plus for the life science tools space in general, analysts see it as particularly good news for firms with heavy exposure to the academic/government end market, such as Illumina and Life Technologies. About 80 percent of Illumina's revenues come from academia/government, and about 45 percent of Life Tech's revenues come from that end market.
Other firms with significant exposure to US government-supported research include Affymetrix, Fluidigm, and Thermo Fisher Scientific.
Obama's proposal would spare NIH from an 8 percent mandated cut in funding that had cast a shadow over the life science tools industry because of its potential to impinge on academic spending.
That potential cut is a result of the failure of the Congressional Joint Select Committee on Deficit Reduction in November to come up with a bipartisan agreement to cut the federal deficit, and according to David Ferreiro at Oppenheimer, such a cut could have reduced Illumina's revenue growth by 5 percent and Life Tech's revenue growth by 3 percent in 2013.
However, executives at some of the life science tools firms have recently said they doubt the mandated 8 percent cut would take effect.
"First, as I've said publicly, we believe that sequestration will not happen and that the NIH budget will be relatively secure, flat, up a little in 2013," Life Technologies President and CEO Greg Lucier said on his company's fourth-quarter earnings call last week.
Obama signaled his support for biomedical research during his recent State of the Union address, and with this budget proposal, the White House is sending a clear message that it regards scientific research as a high priority, analysts said.
"[W]hile we believe [Wall Street] had already been modeling a flat budget, the actual proposal of a flat budget should remove some of the discount investors will apply to this scenario," Dan Leonard of Leerink Swann said in a research note.
A final budget for 2013 is still months away, and Vamil Divan of Credit Suisse cautioned in a research note that a bipartisan agreement may not be reached until after the Presidential election.
A similar delay on the FY 2012 budget negatively affected spending by academic/government customers during the second-half of 2011. But with the NIH budget eventually increased 1 percent for FY 2012, "we believe researchers will have a little more confidence this time around that the NIH budget should be relatively spared from large cuts and we would expect that researchers will not curtail their purchasing later this year to the same extent as we saw last year," Divan wrote.