What the National Institutes of Health Does for the Economy and the Health of Our Citizens

by MARC FASTEAU & IAN FLETCHER

Authors of Industrial Policy for the United States: Winning the Competition for Good Jobs and High-Value Industries

The National Institutes of Health (NIH) is today the main source of new drugs in this country – indeed the world, because America leads in the field. It has a critical importance to America’s health. Less well known is its huge, positive, economic impact.

Here are four numbers that explain why cuts to the NIH budget would be a profoundly false economy that would ultimately cost, not save, the government money and would be disastrous for our health.

1) 210 – Research wholly or partly funded by the NIH was associated with every single one of the 210 genuinely new drugs – so called “new molecular entities,” not repackagings of existing drugs – winning FDA approval from 2010 to 2016.(1) Eighty-four of these were the first solution ever for the problem they addressed.(2) As of 2007, some 13 of the 15 American-developed “blockbuster” (over $1 billion in annual sales) biotechnology-based drugs received federal support for their discovery, development, or clinical trials.

Apixaban (Eliquis)	2012	Anticoagulant	10 million US users
Dulaglutide (Trulicity)	2014	Diabetes	8 million US users
Semaglutide (Wegovy, Ozempic,Rybelsus)	2017	Obesity	5 million US users
Rivaroxaban (Xarelto)	2010	Anticoagulant	5 million US users
Lurasidone (Latuda)	2010	Schizophrenia	1 million US users

2) $95 billion – The federal government funds roughly 40 percent of U.S. medical research, and with a 2024 budget of $47 billion, the NIH is the biggest funder of all civilian research agencies. This government spending is a huge driver of discovery and innovation and the economy. Although it emphasizes investigator initiated, peer reviewed pure research, practical applicability is a funding consideration and it proactively supports commercial application of its discoveries. Its grant application review processes are competitive, transparent, and scientifically rigorous.

NIH-funded research directly employs tens of thousands of scientists, support staff, and the people who design and manufacture scientific equipment and supplies such as microscopes and biological chemicals. In fiscal year 2024, the NIH’s $37 billion in research funding generated $95 billion in economic activity as this money worked its way through supply chains, accounting for 408,000 jobs.(3) More important still are the economic benefits from fertilizing the commercial pharmaceutical industry with its research, something the agency proactively pursues. For example, its National Center for Advancing Translational Sciences proactively helps drug companies translate scientific discoveries into actual treatments.

Even the NIH’s more obscure research, the kind politicians like to mock with useless-sounding article titles, will one day reach the hospital floor. Past appreciation of this fact is why the NIH has created entire new and previously unthinkable industries – which would not have happened if it had been narrowly restricted to solving only the problems of today. The most important example is biotechnology, which is based upon gene splicing. This technique was first achieved in 1973 by Herbert Boyer and Stanley Cohen, both supported by the National Science Foundation and the NIH. (In 1976, Boyer founded Genentech, one of the first biotech firms, which exists to this day and employs 13,500 people.)

America is strong today in biotech for three reasons. The first is this kind of government-funded basic and proof-of-concept research, mainly but not exclusively managed by NIH. The second is large pharmaceutical firms such as Pfizer: research-based companies with multiple revenue streams to survive the volatility of an ever-changing drug market, the oligopoly pricing power to afford expensive investments in product development, and the ability to scale up physical production quickly. The third is a thriving sector of biotech start-ups backed by an experienced, technologically sophisticated, capital-rich VC sector. All three elements of this ecosystem are crucial for its functioning – as other nations have discovered in their often faltering attempts to replicate it. This a prime example of successful American industrial policy, indeed a model for many other sectors of our economy.

3) $8.38 – NIH funding not only increases economic output by enabling new drugs to be produced, but also has knock-on effects stimulating private R&D. Far from being a form of “creeping socialization” of the R&D enterprise, this money stimulates increased investment and competition between private-sector firms downstream of the research. The evidence is clear that NIH funds are complementary with private money. Each $1.00 in additional public investment in basic research in the pharmaceutical industry has been estimated to result in $8.38 in increased private R&D over the following eight years.(4) And each dollar of NIH funding generates over $1.70 of additional output in the bioscience industry.(5) (Indeed, depending on modeling assumptions, the long-term effect may be as much as $3.20.)

This multiplier effect is even more potent in expanding, cutting-edge, sectors: For example, from 1988 to 2012 the federal government funded (via a number of agencies, not just NIH) the Human Genome Project to map the human genetic code. It was estimated in 2013 that each additional $1 in federal money expended therein ultimately enabled an additional $65 in private-sector genetics-related output. All this new economic output is partly recycled, of course, back into federal revenue by way of the corporate and individual income tax, so much NIH research even pays for itself to some extent.

Why does NIH money have such a strong impact on the biopharmaceutical industry? Above all, because this industry, unlike most others, must continually bring out new products to offset patent expiries – and these new products depend on advances in the underlying science. Thus, over 90 percent of NIH pharmaceutical funding goes exactly where it should go: to the underlying bioscience that cannot be owned by any one company and that firms are therefore do not to pay for. This is not funding that can plausibly be replaced by other sources, especially given that the enormous scale of NIH funding means that even the wealthiest private foundations simply do not have the money to fill the gap. Put directly, the American pharmaceutical industry will gradually grind to halt without the work of NIH funded scientists and researchers.

Private industry thus focuses on applied research. But, by deliberate design, the NIH does not benefit Big Pharma alone. Like many other government agencies, it has Small Business Innovation Research (which funds small firms doing research for the government) and Small Business Technology Transfer (which funds the transfer of governmentally developed technologies to small firms) programs. The NIH’s version of both received favorable evaluations from the National Academy of Sciences in 2022.(6)

The NIH is important for many regional economies. Its funding has been crucial to the rise and sustainment of bioscience clusters such as those in metro San Francisco, Los Angeles, San Diego, Philadelphia, and Boston.(7) Bioscience firms there have attracted related and supporting businesses, which have then attracted more bioscience firms to take advantage of the strong local support system and talent pool. The salaries of these firms have then cycled through local economies, benefitting all local residents, not just those in the biosciences.

NIH funding not only increases the quantity of jobs in our economy, it also increases their quality, i.e., their skill level and compensation. Its steady, reliable supply of research money makes it rational for people to invest in more education and training, enabling the crucial accumulation of human capital. Contrary to common misunderstanding, these jobs are by no means only for PhDs and other highly skilled workers. For example, as of 2022, 41 percent of the people employed by firms in the Greater Boston life sciences cluster had no more than a BA or BS, and 16 percent had less than a BA.(8) And a third of employers in the cluster surveyed reported that their requirement for entry-level candidates was an Associate’s degree or less, sometimes just a high school diploma.(9)

The NIH, like other American science agencies, benefits from the fact that Washington has adjusted America’s overall policy environment to proactively encourage commercialization of federally funded science from the NIH and other agencies. The most famous example is the Bayh-Dole Act of 1980, which accelerated technology commercialization by allowing researchers working under federal contracts to own their inventions. And the Stevenson-Wydler Technology Innovation Act that same year made it easier for federal labs to transfer their technology to non-federal entities. Patents that had been gathering dust on federal shelves began to catalyze the technology startup boom that began in the 1980s and continues to this day.

4) $61 trillion – The preceding discussion has not even touched on the NIH’s largest economic benefit of all: the actual medical value of the pharmaceuticals and medical devices that its research enables. These result in improved health, lives saved, improved patient quality of life, and a healthier, more productive workforce – all of which are worth a great deal of money.(10) Improvements in lifespan especially show staggering economic benefits. From 1950 to 2009, US life expectancy increased by 10 years,(11) and the resulting economic gains since 1970 have been plausibly estimated at $61 trillion.(12) (Total US household wealth is about $160 trillion.) Since that same year, the improved treatment of assorted diseases has been estimated to have increased national wealth by $3.2 trillion per year. And these gains have not yet been exhausted: It has been calculated that in the future, each one percent reduction in cancer mortality will be worth about $500 billion.(13)

The American public understands, correctly if not in technical detail, many of the above facts, which is why 81 percent of Americans support government funded medical research.(14) It is thus no accident that from 1998 to 2003, NIH’s budget was increased from $14 billion to $27 billion, a 62 percent increase after inflation, with bipartisan support.(15) But since then, it has fallen in real terms, then recovered slightly, for a net increase of less than one percent per year, even including the “bump” of COVID-19 funding after 2020. This was part of a general weakening of federal support for scientific research of all kinds.

Today, NIH funding is being reduced via a reduction in the percentage of its grants that may be spent on “indirect” expenses that support the institutions where the research takes place. These costs average 28 percent and are sometimes as high as 69 percent.(16) But these costs are not fat that can be cut, but a necessary part of conducting research, which cannot occur in an institutional vacuum.

Thus NIH’s recent announcement, forced by DOGE, that it will be limiting its indirect funding to 15 percent has triggered serious alarm. Specific endangered research includes:

Mechanisms that drive cancer tumor metastasis
The global threat of multidrug-resistant infections
Toxin reduction and the harm from microplastics
Modifiable risk factors for Parkinson’s disease

Overhead costs are not institutional bloat. Harvard’s Vice-Provost for Research, John Shaw, notes, indirect funding expenses are high because:

Cancer research requires sophisticated equipment, data storage, and computing power to interrogate and synthesize genomics, proteomics, and metabolomics, and to leverage bioinformatics for data analysis. Infectious disease research requires multiple specialized facilities, including advanced centers for bioimaging and genomic studies, a biosecurity Level 3 pathogen core facility, a gnotobiotic mouse facility, and a biosecurity Level 2 insectary… Microbiome research requires a -80 degree Celsius cryogenic freezer… Toxin reduction research relies on sophisticated equipment such as mass spectrometry, specialized assays, and significant lab bench space.

In addition, he notes that many overhead costs are themselves mandated by the government itself, for such important purposes as avoiding leaks of dangerous organisms and chemicals, protecting human and animal subjects, preventing scientific fraud, avoiding financial conflicts of interest, ensuring proper use of funds, protecting intellectual property, providing cybersecurity for sensitive data, and keeping national security-relevant expertise from adversaries.(17) And, as Shaw notes, overhead rates are set in accordance with official government guidelines.(18)

Harvard, of course, would not be the only victim of cuts to overhead: Here’s a state-by-state analysis from Forbes of the likely losses:(19)

Texas: $310,282,120

Ohio: $171,355,609

Tennessee: $133,514,022

Missouri: $131,590,159

Florida: $123,982,436

Indiana: $68,925,255

Alabama: $46,642,500

Utah: $45,974,847

Iowa: $36,986,835

South Carolina: $33,368,620

Make no mistake: Cuts in funding, and failures to increase funding to reflect increasing scientific opportunities, have concrete consequences for the number of research jobs and the amount of science being done. For example, according to the Milken Institute’s analysis of a previous round of budget cuts,

In 2013 the American Society for Biochemistry and Molecular Biology conducted an online survey of 3,700 scientists across America. Of those responding, 46 percent had laid off scientists or expected to soon, while 55 percent knew of a colleague who lost his or her job. In addition to cutting existing staff, 53 percent had to turn away promising young researchers because of a lack of funds. A more recent survey of researchers holding NIH or National Science Foundation grants found that nearly half had abandoned an area of investigation they considered central to their lab’s mission, and that more than 75 percent had reduced their recruitment of graduate students and research fellows.(20)

Many other confusing and ill-considered DOGE cuts are also underway.(21) This is all happening at a time when biomedicine is extraordinarily rich in opportunities – which may now go to waste or be developed in other countries. Already, products are starting to emerge based on research in genomics, protein trafficking (how proteins move from where they are made to specific places in the body), the cell cycle, apoptosis, gene expression, differentiation patterns, and the immune system, to name only a few examples.

Finally: Despite America’s currently strong position, the international competitive environment in the life sciences is not standing still. China has committed itself to developing a globally competitive industry by 2035. Beijing’s current five-year plan (2021–2025) designates biotechnology a strategic industry and is giving it funding that undisclosed, but judging by previous endeavors, huge. The national security implications of possible bioweapons alone should give one pause.

Ekaterina Cleary, Jennifer Beierlein, Navleen Khanuja, and Fred Ledley, “Contribution of NIH funding to new drug approvals 2010–2016,” Proceedings of the National Academy of Sciences, February 12, 2018.
“Contribution of NIH funding.”
“2025 Update – NIH’s Role in Sustaining the U.S. Economy: Powering Local Economies and American Leadership,” United for Medical Research, 2025.
Andrew Toole, “Does Public Scientific Research Complement Private Investment in Research and Development in the Pharmaceutical Industry?” Journal of Law and Economics, 50 (2007), 81–104.
Anusuya Chatterjee and Ross DeVol, “Estimating Long-Term Economic Returns of NIH Funding on Output in the Biosciences,” Milken Institute, August 31, 2012, 10.
National Academies of Sciences, Engineering, and Medicine, Assessment of the SBIR and STTR Programs at the National Institutes of Health (Washington, DC: National Academies Press, 2022).
“Estimating Long-Term Economic Returns.”
“2022 Massachusetts Life Sciences Workforce Analysis Report,” Massachusetts Biotechnology Council, Figure 5: Employee Educational Attainment, 17.
“2022 Massachusetts Life Sciences,” 23.
Martin Buxton, Steve Hanney, and Teri Jones, “Estimating the Economic Value to Societies of the Impact of Health Research: A Critical Review,” Bulletin of the World Health Organ-ization 82, no. 10 (October 2004), 733–39.
Centers for Disease Control, “Health, United States,” 2011, cdc.gov/nchs/data/hus/hus11.pdf#022.
Kevin Murphy and Robert Topel, “The Value of Health and Longevity,” Journal of Political Economy 114, no. 51 (2006), 897.
Murphy and Topel, 871–904.
“AACR Survey on Cancer and Cancer Research Funding,” American Association for Cancer Research, 2015, 3.
Joseph Kennedy and Robert Atkinson, “Healthy Funding: Ensuring a Predictable and Growing Budget for the National Institutes of Health,” United for Medical Research and Information Technology and Innovation Foundation, February 2015, 4.
National Institutes of Health, “Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates,” Notice Number: NOT-OD-25-068.
“NIH Grants Policy Statement,” HHS, April 2024, grants.nih.gov/grants/policy/nihgps/nihgps.pdf.
Office of Management and Budget, Code of Federal Regulations, Title 2, part 200.
“Michael T. Nietzel, What The NIH Cut To Indirect Cost Payments Could Cost Red States,” Forbes, February 10, 2025.
Kennedy and Atkinson, 7.
Gina Kolata, ‘Chaos and Confusion’ at the Crown Jewel of American Science, NYTimes March 24, 2025