Incubate Survey: Early-Stage Biotech CEOs Warn Medicare's Pill Penalty Is Driving Capital Out of the Sector

Executives also cite NIH and FDA uncertainty, external reference pricing, tariffs, and research funding cuts as major threats

/EIN News/ -- Washington, DC, May 08, 2025 (GLOBE NEWSWIRE) -- A new survey conducted by Incubate reveals rising concern among early-stage biotech executives that federal health policies are chilling investment and research in the sector. They warn that the "pill penalty" — a provision in the Inflation Reduction Act that discourages the development of small-molecule medicines — is weakening investment and stifling research into new cures.

"America's biotech leaders are sounding the alarm," said John Stanford, executive director of Incubate. "The pill penalty isn't some abstract policy — it's a real-world deterrent to investment and discovery. This survey proves what we've been warning all along: when policymakers penalize innovation, they rob patients of hope."

Of the early-stage biotech CEOs surveyed:

• 67% say the pill penalty has already chilled capital formation for small-molecule research and development.
• 92% are concerned that investors are moving out of the biopharma sector to lower-risk industries.
• 93% believe reduced government funding for basic research will worsen outcomes for their companies.
• 78% warn that agency personnel changes at NIH, FDA, and HHS threaten their ability to complete clinical trials.
• 88% cite international tariffs and 64% cite weakened intellectual property rights as significant threats to securing future funding.
• The majority say below-cost reimbursement structures lead to negative outlooks for companies, indicating that foreign reference pricing models would further threaten investment in the sector. 

The survey also underscores biotech leaders' calls for urgent, pro-innovation policy reforms — including strengthened IP protections, consistent trade policy, and pricing frameworks that reward, rather than punish, risk-taking and discovery.

Since the passage of the Inflation Reduction Act, at least 49 research programs and 24 drugs have been discontinued according to Incubate's Life Sciences Investment Tracker. Legislation like the Ensuring Pathways to Innovative Cures (EPIC) Act would fix the IRA's pill penalty, restoring investment incentives for small-molecule drugs.

"To keep cutting-edge cures on U.S. soil, Congress and the Trump administration must end the pill penalty, safeguard the NIH and FDA, and abandon reference pricing models that import foreign price controls for drugs," Stanford said. "Now is the time to invest in innovation, not retreat from it."

Learn more about Incubate's biotech CEO survey here.

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About Incubate
Incubate is a 501(c)(4) organization of leading life science venture capital firms representing the patient, corporate, and investment communities. Incubate advocates for policies that ensure the U.S. remains the global leader in medical innovation.

Lucia Orlandi
                    Incubate
                    8123634434
                    lucia@keybridge.biz