CBO Report: NIH Cuts and FDA Delays Could Significantly Reduce New Drug Development

The Congressional Budget Office (CBO) recently released a report titled “How Changes to Funding for the NIH and Changes in the FDA’s Review Times Would Affect the Development of New Drugs” analyzing how changes to NIH funding and FDA review times could impact the development of new drugs. The report models two scenarios: a permanent 10% reduction in NIH funding and a nine-month increase in FDA review times for New Drug Applications (NDAs).

NIH Funding Cuts: A Long-Term Impact on Innovation

The CBO estimates that a permanent 10% reduction in NIH funding for external preclinical research would ultimately lead to a roughly 4.5% decrease in the number of new drugs reaching the market, translating to about two fewer drugs per year. This effect wouldn’t be immediate; its full impact would emerge over a 30-year period, taking full effect in the third decade after the funding cut.

This decline stems from the complementary relationship between basic research (often NIH-funded) and clinical research. Basic research identifies promising drug candidates, feeding the pipeline for clinical trials. As the CBO notes, over 90% of NIH funding supports basic research related to biological targets, not the drugs themselves (Cleary et al., 2018). Moreover, NIH spending on clinical development primarily focuses on early-stage trials and represents a small fraction of industry spending (Zhou et al., 2023). The long drug development timelines explain the delayed impact: current clinical trials wouldn’t be affected, but future promising targets would diminish.

FDA Review Delays: Raising Costs and Deterring Approvals

An increase of nine months in FDA review times for NDAs would also negatively affect drug development. Initially, it would reduce approved drugs in the first year as approvals shift to the next. Beyond that, the CBO predicts this delay would reduce new drug approvals by 2%, or about one less new drug annually, reaching its full effect in the second decade after the increase. This reduction occurs because longer review times increase the overall cost of developing new drugs, deterring some projects.

CBO’s Methodology and Limitations

The CBO’s estimates are derived from its simulation model of new drug development. This model assumes that a 15% to 25% reduction in expected returns for the highest-performing drugs correlates with a 0.5% average annual reduction in new drugs entering the market in the first decade, escalating to an 8% average annual reduction in the third decade.

However, a 2025 USC report argues that the elasticity of innovation used by the CBO’s model is too conservative. The USC report highlights two key limitations:

1. The CBO’s model focuses solely on decisions to begin Phase 1, 2, and 3 clinical trials, assuming no impact on preclinical discovery research. In contrast, other models suggest policy changes have their most substantial direct impacts on discovery research.
2. The CBO’s model assumes policies only affect firms with expected profits in the top 20%, which is not realistic. Real-world policies impact prices or revenues directly, not just a select group of highly profitable firms.