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Investing.com -- Shares of companies in the lab-tool equipment sector, including Bruker (NASDAQ:BRKR), Illumina (NASDAQ:ILMN), Quanterix (NASDAQ:QTRX), Bio-Techne (NASDAQ:TECH), 10X Genomics, and Qiagen (NYSE:QGEN), experienced declines in premarket trading. The downward trend follows an announcement from the National Institutes of Health (NIH) detailing a plan to significantly reduce reimbursements to medical researchers by lowering the maximum indirect cost rate that research institutions can charge the government.
Bruker shares fell by 2.5%, Illumina by 3.3%, Quanterix by 2.8%, Bio-Techne by 5%, 10X Genomics by 8.8%, and Qiagen by 3.5%. Analysts have noted that this move by the NIH could have a material impact on genomics companies, particularly in the first quarter.
The NIH’s decision, revealed late Friday, aims to cut over $4 billion annually by reducing the indirect cost rate to 15%. Indirect costs are essential for research institutions, covering administrative overhead such as patient safety, research security, and hazardous waste disposal. Mark Becker, president of the Association of Public & Land-grant Universities, expressed concerns that the cuts would hinder medical progress, potentially slowing down or limiting medical breakthroughs for diseases like cancer, diabetes, and heart disease.
In contrast to the apprehension voiced by scientists and industry professionals, White House spokesman Kush Desai labeled such concerns as "hysteria," arguing that reducing administrative expenses will result in more funds for legitimate scientific research.
Analyst commentary on the situation has varied. Stifel’s Daniel Arias indicated that the 15% cap on indirect costs is a significant reduction from the average rate, which is estimated to be around 30%. He expects businesses reliant on NIH funding to face increasing challenges. Leerink Partners’ Puneet Souda predicted that the most significant impact would be felt in the first quarter as researchers cut back on instrument purchases and consumables due to funding uncertainties. Barclays (LON:BARC)’ Luke Segott suggested that while there are concerns about the impact on companies exposed to academic and government sectors, the idea that the cuts will materially affect the Tools sector might be exaggerated.
Barclays analyst Luke Segott provided a statement that somewhat counters the prevailing sentiment, "We do not rule out budgetary pressures on the end market, but are saying that the fear that Tools will be materially impacted by the cuts feels overblown."
As the market absorbs the implications of the NIH’s cost-cutting measures, investors and industry observers will be closely monitoring the potential effects on the lab-tool equipment sector.
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