Navigating the FY26 White House Budget Proposal: What It Means for Life Science Companies

Introduction

The recently published FY26 White House Budget in Brief proposes significant structural changes to health research funding, particularly affecting the National Institutes of Health (NIH) and introducing the new Administration for a Healthy America (MAHA). While headlines focus on the apparent reduction in NIH funding, a closer examination reveals that the impact on life science companies engaged in innovative R&D may be less severe than initially perceived.

Importantly, this document represents only the President’s proposed budget and has not been approved by Congress. Historical precedent suggests significant modifications are likely before final passage. During the first Trump administration, similar proposals to substantially cut NIH funding (approximately $20 billion) were ultimately rejected by Congress, which instead maintained or increased biomedical research funding. Therefore, this proposal should be viewed as a potential “worst-case scenario,” with the final approved budget likely to include less dramatic reductions to research funding and the NIH budget.

In light of current market conditions in the life science, biotech, and medtech industries, the importance of non-dilutive funding supporting R&D—specifically federal grants and contracts—has increased substantially. Companies in general, and especially early-stage life science companies, struggle to raise funding in the current market environment. The federal funding available represents their best funding source to sustain current positions, advance science, and better position themselves for improved market conditions, allowing them to raise funds with better valuations in the future. The importance of this source of funding to the industry, especially at this time, cannot be overstated.

Nuanced Budget Reallocation Rather Than Simple Cuts

The FY26 budget reduces NIH’s discretionary budget authority from approximately 47.5billionto27.5 billion. However, this reduction is not a straightforward cut to research funding, but rather represents a strategic reorganization with several key components:

  1. Administrative Restructuring: The NIH is being consolidated from its current structure into eight institutes, creating operational efficiencies and streamlining research portfolios.
  2. Organizational Transfers: Several NIH institutes are being transferred to the new MAHA, which receives approximately $19 billion in funding. For example, the National Institute of Environmental Health Sciences moves to MAHA with its funding.
  3. Internal vs. External Research: The budget prioritizes external research grants over internal NIH-conducted research, stating explicitly that “NIH will continue to expand the number of fully-funded research project grants in 2026.”
  4. Indirect Cost Cap: Perhaps most significantly for industry vs. academia, the budget caps indirect cost rates at 15% (down from the current average of approximately 70%). This primarily impacts academic institutions that have traditionally received much higher indirect cost allocations than industry partners.

 Preserved Priority Research Areas

It’s notable that several key institutes remain untouched or even prioritized in this reorganization. The National Cancer Institute (NCI) and the National Institute of Allergy and Infectious Diseases (NIAID) are specifically preserved in their current form, indicating continued strong support for cancer and infectious disease research. Additionally, both NIH and MAHA emphasize CNS research and neurodegenerative diseases, including Alzheimer’s and Parkinson’s, as priority areas for funding.

Implications for Life Science Companies

For life science companies engaged in R&D, several aspects of this budget are noteworthy:

  1. Indirect Cost Cap Benefits Industry: The 15% indirect cost cap disproportionately affects universities and academic medical centers, which typically receive 50-70% in indirect costs. Most companies rarely exceed 30% in indirect costs, making this change relatively less impactful for industry partners.
  2. SBIR Program Structure: The Small Business Innovation Research (SBIR) program typically provides full award amounts rather than separating direct and indirect costs. This structure means small businesses will likely see minimal changes in their total award amounts.
  3. New Funding Through MAHA: The creation of MAHA with $19 billion in funding creates new opportunities for industry partnerships. MAHA will have its own grant and contract mechanisms, including SBIR programs that support companies directly.
  4. Focus on Commercialization: The budget emphasizes “true science” and “impactful science,” suggesting a potential shift toward research with clearer paths to commercial applications and addressing chronic diseases.

The MAHA Opportunity

The establishment of MAHA represents a significant reorganization of health research and services. For life science companies, this presents several opportunities:

  1. Streamlined Programs: MAHA consolidates previously fragmented programs across multiple agencies (27 separate HIV/AIDS programs, 59 behavioral health programs, etc.), potentially creating more coordinated funding opportunities.
  2. Make America Healthy Again Initiative: The $500 million MAHA initiative includes funding for prevention innovation, chronic care telehealth, and Alzheimer’s research – all areas where industry partnerships will be essential.
  3. Focus on Prevention and Chronic Disease: MAHA’s emphasis on addressing “root causes of chronic disease” aligns well with many life science companies developing preventative approaches and chronic disease management solutions.

Additional Federal Funding Sources

While NIH and MAHA represent major sources of federal R&D funding for life science companies, it’s important to note that additional funding sources exist across the federal government. The Department of Defense (DOD), through programs like the Congressionally Directed Medical Research Programs (CDMRP), provides substantial funding for medical research in areas of strategic importance, including cancer, traumatic brain injury, and infectious diseases. Other agencies such as BARDA (Biomedical Advanced Research and Development Authority) and DARPA (Defense Advanced Research Projects Agency) also offer significant non-dilutive funding opportunities for life science companies.

Conclusion

While the FY26 Budget in Brief does reduce overall health research funding, the impact on life science companies engaged in innovative R&D appears to be relatively minor compared to the impact on academic institutions. The indirect cost cap, organizational restructuring, and creation of MAHA may actually create new opportunities for industry partnerships and commercialization of research.

Companies that can align their R&D efforts with the administration’s priorities – particularly addressing cancer, infectious diseases, chronic diseases, neurodegenerative conditions, prevention, and nutrition – may find themselves well-positioned to compete for funding in this new landscape. The preservation of key institutes like NCI and NIAID, along with the emphasis on CNS research across both NIH and MAHA, provides clear signals about research priorities that companies should consider in their strategic planning.

As the budget process moves forward, life science companies should closely monitor implementation details and prepare to engage with both the restructured NIH and the new MAHA, while also exploring additional funding opportunities through DOD and other federal agencies. While recognizing that the final approved budget will likely differ substantially from this initial proposal, companies should begin positioning themselves now to capitalize on the evolving federal funding landscape.