Drug pricing, budget cuts, tariffs and other shifts under the Trump administration undermine the biopharma and healthcare ecosystem.
Prescription drug policy is back in the spotlight in Washington, with policymakers debating everything from price controls and research funding cuts to pharmaceutical tariffs and changes to intellectual property protections.
But for those of us working at the intersection of science and investment, the impacts of recent policy changes are no longer hypothetical. They’re here.
Most biotech CEOs warn that reference pricing models—which tie U.S. drug prices to those set in foreign countries—would make it harder to innovate and launch new medicines here at home. That’s according to an April survey we ran at Incubate, a coalition of early-stage life sciences investors where I serve as executive director.
This finding is especially concerning given President Donald Trump’s May 12 executive order on “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients,” which would tie U.S. drug prices to those in countries with government-run healthcare systems.
Most Favored Nation proposals are just the latest in a series of government pricing interventions that threaten pharmaceutical innovation. Sixty-seven percent of biotech CEOs say Medicare’s so-called “pill penalty” has already chilled capital formation for companies working on small-molecule drugs. These are the everyday pills most Americans take—making up more than 90% of all prescriptions.
The pill penalty is a little-known but highly consequential provision in the Inflation Reduction Act of 2022. It sets a timeline for when price controls kick in under Medicare—just nine years for small-molecule drugs, compared to thirteen years for biologics, which are typically given via injection or infusion.
That four-year gap may sound minor, but in biotech, it can mean the difference between attracting funding and walking away from a promising candidate entirely.
Indeed, since the IRA passed, Incubate’s Life Sciences Investment Tracker has identified at least 51 research programs and 26 drug candidates that have been discontinued. Each of those represents a potential therapy that will never reach patients.
Pfizer, for example, significantly scaled back its small molecule oncology pipeline because of the IRA. Novartis likewise dropped several small molecule cancer drugs from its pipeline, citing that they’d be disproportionately impacted by Medicare price setting. Novartis’ CEO Vas Narasimhan also said on CNBC that companies are “deprioritizing small molecule medicines for the elderly due to the IRA.”
The good news is that there’s already a fix on the table. The bipartisan Ensuring Pathways to Innovative Cures (EPIC) Act would level the playing field by giving small-molecule drugs and biologics a flat thirteen years of protection before Medicare price-setting begins. Despite the Trump administration’s call to Congress to undo the pill penalty, the House did not include the EPIC Act in its version of the One Big Beautiful Bill Act which is now under consideration in the Senate.
Unfortunately, the recent MFN executive order and the pill penalty are just two examples of a larger trend. Our survey shows that biotech companies are being squeezed on multiple fronts.
Ninety-two percent of CEOs worry that investors are shifting capital out of the sector entirely. Seventy-eight percent say recent layoffs and hiring freezes at key federal agencies are delaying or derailing their clinical trials. Ninety-three percent report that reduced government funding for basic science is actively harming their company’s long-term prospects. Eighty-eight percent cite tariffs and nearly two-thirds cite weakened intellectual property protections, such as those imposed by so-called march-in rights, as direct threats to future investment.
And these concerns aren’t just coming from company leaders. In an earlier survey Incubate Policy Lab conducted with life sciences investors, 76% said drug pricing restrictions will reduce investments in biotech startups.
When the people building companies and the people funding them are waving the same red flag, policymakers should take note. This is a policy environment that discourages risk-taking at precisely the moment we need it most. Startups are being forced to make hard choices: shelve promising programs, pull back on trials or pivot away from entire classes of cutting-edge and potentially life-saving drugs.
What’s needed now is a course correction. Congress and the Trump administration can start by passing the EPIC Act to grant small-molecule drugs the full thirteen-year protection period from price controls. They should also stabilize operations at the NIH and FDA, giving companies a predictable regulatory path forward. Finally, they should strengthen U.S. intellectual property protections while resisting price control policies that make our market less attractive.
As the survey results show, markets react quickly to policy shifts. If Washington doesn’t act, capital will continue to move elsewhere—and once it’s gone, the research it supports disappears with it.
There’s still time to fix this. But the window is closing.
