'Cutting Into The Muscle': Fed Funding, Staff Cuts For Biotech Research Could Stifle Lab Projects

Biting cuts came to the nation’s health and science agencies last week, with thousands of layoffs and millions in budget reductions roiling organizations like the National Institutes of Health and Department of Health and Human Services.

The reductions in overall spending capacity and grant funding will clamp down on a key pipeline that pumps dollars into the life sciences sector, a hindrance likely to place more strain on an already stumbling segment of the commercial real estate market. 

Coupled with rampant uncertainty in financial markets, trying to divine the size and duration of the cuts' impact has touched off a new wave of anxiety across an industry that depends on the agencies.

“When you cut their budgets, you’re not trimming fat — you’re cutting into the muscle that powers scientific progress and safeguards public health,” said Mark Romney, co-chair of the Association of University Research Parks Bio Health Caucus and senior vice president of Blue Rise Ventures. “They’re part of the backbone that makes U.S. biotech globally competitive. They aren’t just acronyms, they’re infrastructure.” 

In addition to slashing NIH funding for basic research at colleges and universities by billions of dollars, the Trump administration and new HHS Secretary Robert F. Kennedy Jr. have made massive cuts to the federal government’s workforce, including experts in health, biology, diseases and medical research. HHS will cut 10,000 workers, including thousands at the Food and Drug Administration, Centers for Disease Control and Prevention, and NIH. 

Grants and funding from these agencies provide a foundation that startups and innovation depend on, laying the groundwork for companies that serve as tenants in the nation’s labs. 

Cuts to indirect costs may significantly alter demand for new lab space, according to AURP Chief Strategy Officer Brian Darmody. The cuts are a “major headwind” for development, he said. Because of the cuts’ suddenness and the fact that many ongoing studies and projects were predicated on the funds, many development teams are scrambling for answers. 

For example, Duke University, which received $580M in NIH grants and contracts last year, is pausing expansion projects.

Universities, which face additional funding challenges due to the administration’s push to abandon diversity, equity and inclusion programs, are likely unable to make long-term real estate decisions due to the precariousness of public funding. That means labs and expansion of research and development space will be on hold, curtailing development, JLL Head of Work Dynamics Research Amber Schiada said. 

“The bigger picture really is the uncertainty that all of this is creating,” Schiada said. “[The life sciences real estate industry] is in a business-as-usual situation until the impacts come into focus.”

Incubators, typically the important first home for startups that eventually grow to need thousands of square feet of lab space, are also at risk as beneficiaries of government funds and university programs. 

A new CBRE report on the state of life sciences incubators found that 61% depend on federal funding, and the majority prefer to be located near universities to court talent and innovative startups.

Impacts from university labs and incubators will trickle into the larger life sciences lab market, which is already struggling from a season of overbuilding colliding with reduced demand. Roughly a fifth of the nation’s lab space remains vacant, and any drop in demand, even from smaller startups, could prolong the supply glut. 

Public grants to support R&D de-risk early science, bringing therapies to market and driving the demand for research labs and company headquarters, Romney said. Additionally, federally funded science fills the product pipeline for biotech firms. Recent cuts include $2.6B in NIH contracts, many of which funded cancer and vaccine research. 

Cuts to the FDA have especially raised alarm because that agency provides approvals for new medications and milestones for startups that lead to new funding and expanded real estate footprints. 

The nearly 40% increase in annual drug approvals over the last 15 years tracks with the growth in lab real estate, according to CBRE.  

An increase in approvals “​​foreshadows the need for more space for companies to refine, market and manufacture those drugs,” the company’s report says.

While the Trump administration has said those directly involved in approving drugs won’t be let go, many are skeptical that the severe cuts, including more than 3,500 FDA positions, won’t at least slow approvals.

Biotech stocks lost value after the announcement that Peter Marks, director of the Center for Biologics Evaluation and Research, resigned rather than be fired. The longtime FDA scientist said he didn’t want to be part of spreading misinformation about vaccines.

American drugmakers have remained largely silent about the new administration's policy moves, but there is potential that regulatory actions and new policy preferences might damage some of the profit sectors. 

Vaccines are among the most valued sectors in biotech stocks, according to a Stifel report published in late March, and Kennedy is a longtime vaccine skeptic, with plans to approve a study into the efficacy of childhood vaccines. Vaccine-makers have been sought-after lab tenants, driving big projects such as Moderna's new Boston headquarters, developed by Alexandria Real Estate Equities.

The other significant economic policy shift with a direct impact on the pharmaceutical industry could be the shifting tariff situation, which may impact demand for biomanufacturing real estate. 

President Donald Trump announced Tuesday that pharma tariffs are his next target, but on Wednesday, he said he would pause a large chunk of his tariff package for 90 days, calling into question the strategy for the remainder of the rollout.

Trump also launched what is called a 232 investigation into the supply chain, exploring the national security concerns of importing overseas components and ingredients via the Trade Expansion Act, which Schiada and others expect will lead to import duties. 

The pharmaceutical industry has made big investments in reshoring and expanding domestic manufacturing, including Eli Lilly’s plan to spend $27B on new U.S. manufacturing plants and Pfizer’s suggestion that it might move overseas manufacturing to its existing U.S facilities.

Doug Edgeton, president and CEO of NCBiotech, a regional trade group representing the busy North Carolina biomanufacturing region, said he has spoken to many biotech and pharma firms seeking to figure out how to bring more manufacturing to the U.S.

In the long term, there is also angst over what happens to the nation’s R&D infrastructure with this level of cuts. A Chinese cancer treatment that outperformed Merck’s Keytruda shows China’s biotech sector is making significant advances, according to The Wall Street Journal. International institutions have already started strategizing around attracting underfunded U.S. research talent. 

In life sciences-heavy North Carolina and across the country, cuts are causing universities to freeze research, stop paying graduate stipends and reevaluate funding decisions, according to Edgeton.

“It's a big interruption to the pipeline,” he said. “All industries, any industry, love to have consistency. Nobody likes change.” 

There is also concern that if tariffs and trade wars continue to erode trust and cross-border commerce, it may impact foreign investment in U.S. life sciences real estate. Of the $6.4B in life sciences investment volume since 2023, 24%, or about $1.6B, was from international investors, according to JLL. The share for commercial real estate overall ranges between 5% and 15%. 

“If we undermine our research infrastructure, we’re giving up global leadership in biotech and life sciences at a critical time,” Romney said. “Innovation is ecosystem-driven. If you cut the base, the whole pyramid collapses.”