Universities Face an Uncertain Future as Gap To Industry Keeps Growing

When a university lab produces a promising therapeutic candidate, the next step has traditionally been to license it to a pharma company or spin it into a startup backed by venture capital. But pharma companies are now waiting longer to engage, demanding more clinical proof before they'll take on an early-stage asset. 

Similarly, VCs are concentrating their money in later-stage companies that have already de-risked the science. And the federal grants coming from The National Institutes of Health (NIH) that funded the early work in the first place are being cut at a pace that has forced institutions to rethink how they operate.

"It would be hard to point to a single major biotech innovation that doesn't trace its roots to NIH-funded fundamental research," said Todd Golub, PhD, Director of the Broad Institute in Cambridge, Mass. "We would expect that if funding is not robust from the NIH, that is going to have a downstream impact on biotech innovation and opportunities."

The Goalposts Have Moved

The strain on federal funding alone would be a serious problem. But it arrives alongside a shift in how industry engages with academic science that makes the impact worse.

"That is a very large, important role that NIH funding has played in advancing the innovation economy, and we're very concerned about the kind of immediate impacts from recent cuts because this also happens to fall at the same time that we're seeing a pullback on the commercial side," said Lisa Placanica, PhD*, Senior Managing Director, Center for Technology Licensing, Weill Cornell Medicine in New York. "Commercial partners, whether they're existing companies looking to license and grow their pipelines or whether they're investors looking at startup companies, have moved the goalposts of what they expect an asset to look like before they're ready to invest or to partner. We've seen a shift where pharma and biotech will engage with academia."

The changed relationship means less direct licensing from pharma, placing some institutions in a precarious position.

"Pharma companies are much more interested in letting small biotech company X and academic start-up Y do all the de-risking before investing," she noted.

Alicia Loffler, PhD, Executive Director for the Northwestern Innovation Institute at Northwestern University in Evanston, Ill., acknowledged the impact of the university's loss of federal funding over several months in the last year. The combination of less funding and early commercial investment changes the way that Northwestern and other universities move potential products forward.

"That puts a little more pressure on the institutions because they have to find the money to do more development," she said.

Placanica is concerned about the immediate and long-term research innovation outlook.

"Given the federal funding situation and the apparent pullback of investors and pharma companies, we have to find ways to get research out of the institution and keep the research pipeline flowing," she said. Her office has taken a much more active role in trying to identify non-federal funding opportunities.

What NIH Funding Actually Does

NIH grants come from taxpayer dollars, supporting foundational basic science that provides insights into disease biology, the inner workings of the genome, new drug targets on a cell and otherwise help set the stage for developing potentially life-saving therapies. They're part of America’s innovation ecosystem that will help determine what diseases can be treated over the next several decades and underscore the country's biotech leadership on the world stage.

A continuous developmental therapeutics pipeline is crucial to fields across the biomedical landscape, from cancer to gene therapies to new weight-loss drugs. Golub sees larger roles for genomics and functional genomics in developing therapeutics and newer approaches to help unravel the complex biology behind Parkinson's and Alzheimer's diseases and other neurodegenerative disorders. The ability to use gene editing to engineer mutations of interest into cells will be a powerful research tool.

While research institutions continue to grapple with fallout from changes in federal funding levels, for the moment, there is some good news. Congress passed a federal budget earlier this year that reestablished the NIH and National Science Foundation funding for FY2026 roughly at the levels they had been in prior years. The budget also included an indirect cost rate at the level that had been negotiated with the funding agencies in the prior year. Indirect research costs encompass non-specific expenses like administrative services and facilities maintenance.

"The threat to the indirect cost recovery would have been devastating for current projects and the larger innovation ecosystem, certainly to Boston Children's and many other organizations," said Irene Abrams, Senior Vice President of Research Innovation at Boston Children's Hospital.

Still, funding concerns remain high, especially about possible changes in how NIH supports grants. The possibility of multi-year grants paid all at once, rather than spread over years, could limit the number of projects that are approved.

A Generation at Risk

The long-term implications from changes in NIH funding are only beginning to be understood, but point toward a significant reduction in a science-trained workforce.

"The entire model of training a highly educated, innovation workforce is in jeopardy," said Placanica. "Are we going to lose a generation of scientists because universities can't build PhD programs without funding for the researchers' grants and the graduate students and postdocs in those labs?"

Research institutions are limiting graduate enrollment because of concerns about being able to support students' training. Fewer PhD students working in research laboratories likely means fewer experiments and a reduced volume of data needed for publications and grant applications. The shortages could extend to other science-related fields as well, as many PhD-trained scientists pursue policy, regulatory affairs, law, venture capital, scientific writing and more.

Restrictions on foreign students and talent attending U.S. universities will very likely affect U.S. scientific output and training as well.

"The funding uncertainty impacts faculty, but the limitation on training grants and visas for students and postdocs likely has a larger impact," said Abrams. "For students and the next generation of scientists, restoring funding will be critical, but some of the damage may be hard to undo."

How Institutions Are Adapting

The potential of gene therapy and gene editing gives hope to millions, and improved non-animal models offer new opportunities for drug testing and disease studies. The use of artificial intelligence has taken off in clinical trial design, drug discovery and a wide range of areas. Yet to achieve the promise of these fields, research institutions need to find ways to adapt to current realities.

One potential alternative funding source could be government-supported funding for small businesses through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Philanthropy is helpful as well.

Boston Children's is experimenting with a strategy where both industry and academic partners fund research and its de-risking. Research teams work together to develop a drug or technology that ultimately will be jointly owned.

Placanica sees a need for more collaboration among research centers, beyond hubs like Boston, San Francisco, and New York. "We need to tap the full power of the country's research capacity," she said, "and come up with more models of how to work together."

Renee Wegrzyn, PhD, former director of the Advanced Research Projects Agency for Health, urges universities to look for more opportunities to generate revenue directly from research, and explore more opportunities for corporate sponsorships and partnerships.

"Many of the universities that will come out of the current funding crisis situation successfully will be those that bring creative solutions," she said.

Abrams is cautiously optimistic of a turnaround in investments from industry and venture capital. Economic conditions in recent years, especially high interest rates, slowed investments. "The venture capital community is beginning to make investments again, but it remains a tight biotech market," she said. "It's hard to know what the long-term health of the U.S. innovation system will be."

____________________

*Lisa Placanica serves as an unpaid advisor to Cure.