Updated on 24 December 2012
Industry keeps a close watch on the negotiations to tide over the fiscal cliff
With the US staring at a fiscal cliff in 2013 and the threat of an ensuing $1.2 trillion across the board budget cuts, negotiations are on at the political level to reach a consensus on how best to address the circumstances. Experts and industry analysts fear that if a decision is not reached by year-end, the turn of the year will kick off steep government spending cuts and rise in taxes for all in the country.
The economic effects that could result from the tax increases, spending cuts and a corresponding reduction in the US budget deficit beginning in 2013 are expected to lead the economy into a recession in the new year.
The bioscience industry will be no exception with R&D budget cuts and taxes raising the overall costs for companies. The biggest immediate threat the fiscal cliff poses for the industry is to the FDA budget. "The agency is already chronically underfunded and any cuts will affect the speed with which it is able to review new drugs and devices," says Mr G Steven Burrill, CEO of Burrill, a global financial services firm focused on the life sciences industry. "The National Institutes of Health budget will also be impacted should sequestration take effect. The NIH budgets have already been under pressure and could fall by as much as 10 percent if Congress fails to reach an agreement."
In his email response to BioSpectrum, Mr Burrill explains that a cut in the already strained NIH budget will have "ramifications that echo through academic and independent research institutes, as well as life sciences companies that supply labs, perform research services, and rely on NIH funding". He, however, also points out that this should have no short-term impact on the biotech companies.
Ms Jennifer Brice, life sciences global program manager, Frost & Sullivan, is of a similar opinion. Frost & Sullivan, headquartered in Mountain View, California, is a global growth consulting company that also provides market research to a wide range of industries. Ms Brice says the main impact the fiscal cliff will have on the life sciences industry is a cut in research grants for labs and universities. "In addition to research programs being halted, this would result in job cuts across the research community and lower R&D productivity. We could also face impacts on the clinical development of drugs to make this process more efficient, such as faster recruitment and smaller, targeted patient population trials,"she points out.
The situation will be tough for the drug companies and the medical devices industry as well. "Capital continues to be difficult and expensive to raise for life sciences companies. A failure in Washington to reach an accord over the fiscal cliff will signal to Wall Street that the dysfunction in Congress continues. This will only make it hard for companies to raise capital," says Mr Burrill.