More money for healthcare, Biden signs the checks

A few days ago, Biden signed a $1.65tn spending bill to avert a government shutdown. Within the bill, the budget for specific parts of the Health & Human Services (HHS) is drastically increased. 

Bottom line

Healthcare spending represents >18% of the U.S. GDP; it’s big and getting bigger, growing three times faster than the Defense budget. Biden set health as a top priority with an increased budget in 2023 for drug access, drug research, market access, and disease prevention. The recession is incoming, and no budget cut for biotechs is in sight; time to top up your exposure.

What happened

Big checks were signed in the U.S., notably for the NIH, FDA, and CDC.

At the end of December, referring to the spending bill, Biden tweeted: “It’ll invest in medical research, safety, veteran health care, disaster recovery, (Violence Against Women Act) funding – and gets crucial assistance to Ukraine”. The order is relevant to the priorities of the U.S. government. As mentioned in our 2023 outlook, as much as the U.S. wants to curb drug pricing, what it really needs is investments in research and market access for better drugs.

Within the spending bill, averting a government shutdown, we can notice the increase in the budgets of the U.S. Food and Drug Administration, the National Institutes of Health, and the Centers for Disease Control and Prevention, all part of the HHS, the most significant governmental body with ~2.3x the defense budget.

The breakdown of the healthcare budget increases

Although only a limited part of the bill is devoted to healthcare, its impact is significant. The bill provides $47.5bn for the NIH (+5.2% YoY). Funding includes $7.3bn for the National Cancer Institute, $3.7bn for research into Alzheimer's disease and other dementias, and $3.3bn for HIV/AIDS research.

The FDA receives $3.5bn in discretionary funding (+6.4% YoY), and total funding is raised to $6.6bn. The funding addresses the opioid crisis, medical supply chain issues, medical device cybersecurity, and increasing and strengthening in-person inspections of foreign drug manufacturers.

The bill also provides $9.2bn for the CDC (+8.2% YoY). Over half of the increased funding is directed at public health infrastructure investments, but there are also $735mn for public health emergency preparedness cooperative agreements and $197mn for the antibiotic resistance initiative.

Impact on our Investment Case

The U.S. healthcare spending is gigantic and keeps growing

As a reminder, U.S. healthcare spending amount to $4.1tn (18.3% of the U.S. GDP or ~40% of the entire world's healthcare spending). No wonder the Health & Human Services budget is the biggest of all federal government bodies. Money and politics are two of the three supporting biotech pillars.

Reallocating healthcare spending

Medicaid is 33% of the HHS budget. The bill phases out the requirement that prevented states from disenrolling Medicaid recipients enacted as part of a Covid-19 relief package passed in March 2020. States will be able to start evaluating Medicaid enrollees’ eligibility and terminating their coverage as of April 1st. Up to 19mn people could lose their Medicaid benefits.

In other words, public spending is reallocated from subsidizing commercialized drugs to encourage innovative research. 

Innovation is carried by small companies spurred by early research

Funding the NIH to push further research fuels the pipeline of SMID biotech companies with new drug targets. About 77% of the ~7'000 clinical trials run in 2022, and 70% of approved drugs originated from SMID companies. The 2020/2021 IPO spree ended in 2022 because of funding concerns, not a lack of candidates in biotech.

Drug market growth is not far from being proportional to the investment in fundamental academic R&D, so following the NIH budget allocation is insightful. Unsurprisingly, cancer, topping all other areas in funding, is 3.5 times the size and grows at 2.5 times the rates of the other markets. Expect the most exciting innovations from this segment over the next few years. 

The FDA needs more money to operate properly

The FDA is swamped under a backlog of work for site inspections. More money will also be helpful to the once-tiny Office of Tissues and Advanced Therapies at the FDA, which is in charge of reviewing cell & gene therapy applications. The office will increase by 1/3 its positions to review the CGT applications as ~3'000 Investigational New Drug applications submerge it. This will help companies like Intellia or Avidity Biosciences bring cutting-edge drugs, like gene editors or antibody oligonucleotide conjugates, onto the market faster.

On the back of a “tripledemic” the CDC needs to invest

The most significant budget increase has been given to the CDC to up national public health infrastructure. The Covid pandemic has shown the limitations of the public health system in the U.S., where the death per 100k habitants is among the highest in the world. Now that the “tripledemic” (Flu, Covid, RSV) is here, the investment is even more pressing. This is giving a positive signal to the vaccine market that Moderna, BioNtech, or CureVac want to conquer.

Our Takeaway

Money flowing to support research, regulatory affairs, and prevention show a strong focus on health and the resilience of health-related budget.

Such an increased focus and support for biotechs is a positive signal for our theme, particularly when darker clouds are forming over the broader macroeconomic horizon. 

Companies mentioned in this article

Avidity Biosciences (RNA); BioNtech (BNTX); CureVac (CVAC); Intellia (NTLA); Moderna (MRNA)



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