Wall Street Worries FDA Cuts Will Slow Drug Approvals
The email to union officials at the American Federation of Government Employees came like a brick through a window early Thursday morning: The U.S. Department of Health and Human Services would be implementing a massive “reduction in force,” with 8,000 to 10,000 workers losing their jobs as early as Friday.
Word spread, first in The Wall Street Journal and then in every news outlet in the country, that Robert F. Kennedy Jr., the health secretary, planned to wipe out a quarter of the full-time roles at HHS in a reorganization of his massive agency.
HHS said 10,000 jobs had already been eliminated through various Trump administration programs, and 10,000 more would be gone under the new cuts. The notification sent to AFGE, which represents some HHS workers, said notices to employees targeted for termination “may be sent as early as Friday, March 28.”
The cuts are deep and will disrupt a workforce tasked with jobs vital to American health, among them approving new medicines; inspecting produce farms; providing health insurance for more than 160 million people; stockpiling drugs in case of a pandemic or a biological attack; directing billions of dollars a year in scientific research; and deciding which vaccines children need.
The question now is where, and how deeply, the cuts will be felt.
HHS has grown significantly over the past decade, and its head count after the cuts of 62,000 full-time employees will be roughly in line with where it was in 2012, according to government data.
“I mean the government, I hate to say it, just grows,” says Tom Scully, who was administrator of the Centers for Medicare and Medicaid Services, an HHS agency, from 2001 to 2004. CMS spent $1.5 trillion in the 2024 fiscal year.
There is worry on Wall Street that steep cuts at the Food and Drug Administration might slow down drug approvals vital to the biopharma industry.
“The concern is much more around the staff cuts to FDA specifically, and what implications that may or may not have,” says Jared Holz, a healthcare equity strategist at Mizuho.
What concerns Scully, the former CMS administrator, is the risk that seasoned staff whose jobs haven’t been eliminated will get fed up and choose to leave.
“There’s a thousand of them that are mostly senior, been there for 30 years, who could retire, who are irreplaceable and know where everything is buried and exactly how it works,” he said. “And the worst thing in the world would be to have those people get mad and retire. It’s a fine line.”
Scully’s former agency has been spared the worst of the cuts. CMS’s workforce, which was 6,710 as of November of 2024, is being decreased by 300 people, a 4% cut. The Centers for Disease Control and Prevention, by contrast, will lose 2,400 workers. CDC had 13,000 employees before the start of the Trump administration.
“I worked in the federal government for years, and it’s not easy to lose your job, or have your agency tell you you’re not wanted,” Scully says. “They’re doing it in a pretty radical way. So there’s no way they could have gone through office by office, person by person, spending time looking at it. So that worries me a little bit.”
Still, Scully says he doubts the cuts will impact services like the ones managed by CMS.
“Do I really think it’s going to impact beneficiaries? Probably not,” he says.
At the FDA, HHS has said it would cut 3,500 full-time employees, out of what had been a total of more than 18,000 workers. HHS said Thursday the head count reduction at FDA “will not affect drug, medical device, or food reviewers, nor will it impact inspectors.” But there are signs of unrest at the agency, and in the divisions that oversee drug approvals.
The healthcare news website STAT reported Thursday that both of the deputy directors in the FDA’s Oncology Center of Excellence, which regulates cancer drugs, are planning to leave. STAT reported the departures of the cancer officials are the latest in a number of high-level departures from FDA in recent months.
“In our view, the cuts at FDA may impact the speed of approvals and guidance,” Raymond James policy analysts Ed Mills and Chris Meekins wrote in a Friday note.
The SPDR S&P Biotech ETF
XBI
-1.32%
, which tracks biotech stocks, fell 1.4% Friday, while the S&P 500
SPX
-1.97%
fell 2%. The S&P 500 Pharmaceuticals
SP500.352020
+0.53%
industry group was up 0.5%.
As the cuts were rolling out Friday, Kennedy was in West Virginia, speaking alongside the state’s Republican governor, Patrick Morrisey, about a new state law banning some food dyes from school lunches. After Morrisey introduced Kennedy warmly from the podium, Kennedy ridiculed the governor’s weight.
“I said to Governor Morrisey the first time I saw him, I said, you look like you ate Governor Morrisey,” Kennedy told the audience. “I am going to put him on a really rigorous regimen. And we’re going to put him on a carnivore diet, we’re going to make him do—raise your hand if you want Governor Morrisey to do a public weigh-in once a month. And then when he’s lost thirty pounds, I’m going to come back to the state and do a celebration and a public weigh-in with him.”
When he returned to the podium after Kennedy’s remarks, Morrisey said: “I thought that was a wonderful speech, except for the darn weigh-in part. What is that all about?”
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
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