By Bill Alpert

Medical research fell under the hatchet of the Trump administration this week, and investors slashed the stocks of those make that lab equipment.

The National Institutes of Health announced over the weekend that it will cap its payments for the indirect costs of research, like support staff and costly lab equipment.

Shares of gene-sequencing leader Illumina have fallen 15% to $103.57 from Friday. Its smaller rivals 10X Genomics and Pacific BioSciences of California lost 18% and 15%, respectively.

"Indirect funds" amounted to $9 billion, or 26%, of the $35 billion that NIH distributed in grants last year. NIH said it would now only pay 15% toward such overhead. That would have reduced its last year's overhead payments from $9 billion to $5 billion.

Medical research institutes and universities quickly warned that the cuts would devastate the search for cancer cures and other cutting edge research.

"We're all reeling," Harvard Medical School Dean George Daley told NPR. "This would decimate medical research."

"Cutting indirect funding for NIH research with a hatchet instead of a chisel jeopardizes the entire ecosystem of scientific discovery," said a post on X by Answer ALS, a charity that funds research into the deadly neurological disease Amyotrophic Lateral Sclerosis.

Attorneys general from 22 states went to federal court in Boston on Monday, where U.S. District Judge Angel Kelley temporarily halted the policy in those states, pending a hearing on February 21.

In its announcement, the NIH had called out Ivy League research centers that it said had spent two-thirds of their grants on overhead.

The cuts were cheered by President Donald Trump's designated ax-wielder, Elon Musk, who claimed elite universities were wasting grant dollars on administrative costs.

"Can you believe that universities with tens of billions in endowments were siphoning off 60% of research award money for 'overhead'?" Musk wrote on his social-media platform X. "What a ripoff!"

The 2025 budget for NIH is for $49 billion. The just-announced cuts would trim that by about 8%, or $4 billion, said Morgan analyst Rachel Vatnsdal in a Sunday research note.

"We believe the budget actions will result in broader headwinds for the life science tools space, although we expect specialty tools will be more impacted than core tools," she writes.

Those specialty tools include Illumina gene sequencing systems, which research centers usually house in a central lab whose costs are then shared among the institution's researchers. She rates Illumina stock at a Hold.

Vatnsdal figures that some 25% of Illumina orders come from customers reliant on NIH's "indirect" funding. At Pacific Biosciences and 10x Genomics, she estimates that NIH overhead grants account for 20% of revenue.

Illumina shares have been shadowed for months by fears of NIH cuts and of a trade war. China's Ministry of Commerce recently blacklisted the company's products. Apart from warning that these actions pose risks, Illumina hasn't quantified how they would affect its revenue.

The 10-K for Illumina's 2024 year just appeared on Thursday.

It warns: "Reduced allocations to government agencies that fund research and development activities, such as the U.S. National Institutes of Health, or NIH, or targeted cancellations by the U.S. federal government of certain grants or contracts, could adversely affect our business or results of operations."

Write to Bill Alpert at william.alpert@barrons.com

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February 12, 2025 19:19 ET (00:19 GMT)

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