Small and mid-size pharmaceutical companies face an existential threat from the Most-Favored-Nation prescription drug pricing model, according to a new report from Americans for Tax Reform. The policy, which requires manufacturers to offer their lowest negotiated price to Medicare, Medicaid, and private insurers, will devastate emerging biotech firms that develop most early-stage drugs, the report finds. While enforcement has so far targeted 17 large manufacturers, the White House plans to expand agreements to cover "most manufacturers of sole-source brand name drugs and biologics in the nation" — a category that includes nearly every small biotech company with a single approved product.

The investment climate for small biotech is already deteriorating sharply. Seed and Series A biotech financings are on pace for their worst year since before the pandemic, with 50 deals worth $2.3 billion in the first quarter of 2026, down from 60 deals worth $3.7 billion in the same period last year. Public markets show the same trend: American biotech IPOs hit a six-year low in 2025, with only 11 companies going public — a 55 percent drop from 24 IPOs in 2024, and far below the 79 IPOs in 2020 and 104 IPOs in 2021. Meanwhile, emerging biopharma companies — those with R&D spending under $200 million and revenue under $500 million annually — control 70 percent of all clinical-stage assets, with a record 65 percent of pipeline molecules having no larger company involved at all. The top 25 pharmaceutical companies account for less than 10 percent of the active drug pipeline. Of 197 new drugs initially commercialized by 176 emerging biopharma companies, most retained, were acquired for, or out-licensed a single launched asset.

The report finds that the overwhelming majority of emerging biopharma, which controls the majority of clinical-stage drugs, are defined by one asset, making the risk of government price controls existential. According to the authors, compliance with MFN requires tracking drug prices in other countries, calculating exposure, and coordinating legal, regulatory, and finance teams — burdens that are "near impossible" for emerging biopharma to manage. The report notes that the 17 existing MFN agreements require launch prices roughly matching other wealthy nations, but the actual terms remain completely secret, leaving smaller companies with no benchmark and no comparable leverage to negotiate flexibility into their own launches.

The report explains that when government increases the risk of pharmaceutical investment by threatening revenue from expensive drugs to develop, the riskiest investments are first to go — in this case, early-stage drug development. Small and mid-size biotech companies perform the bulk of this work, while larger companies tend to concentrate on later trial stages, regulatory approval, and commercialization after licensing or acquiring assets. The MFN policy creates a compounding problem: investors grow more cautious about funding early-stage development, small companies have no other products to fall back on if one gets hit, compliance costs consume a disproportionate share of smaller budgets, and emerging firms have no seat at the table shaping rules built around what large companies negotiated for themselves. The Administration is still developing the model based on negotiations with those 17 large manufacturers, creating uncertainty that hits small companies hardest because they can't afford government affairs teams or robust tracking systems.

The report warns that when MFN enforcement expands to small and mid-size biotech, America could see "a mass extinction of the developers responsible for most new life-saving drugs." The White House has called for Congress to codify MFN, which would shift the mechanism from "voluntary" negotiated deals to a legal requirement at drug launch. The CMS's proposed payment models — GLOBE for Medicare Part B and GUARD for Medicare Part D — don't control for company size but kick in when spending thresholds are met, with final rules expected imminently. The costs extend beyond business failures: it's a drug that never gets funded, a trial that never starts, and a disease that stays untreated.