MFN Poses an Outsized Threat to Small and Mid-Size Pharma

The Most-Favored-Nation (MFN) prescription drug pricing model will have significant, negative effects on pharmaceutical innovation and investment. While these effects will be pronounced across the industry at large, they will be especially devastating for small and mid-size pharmaceutical companies.

Small and mid-size biotech companies face these risks from every direction. Investors are more and more cautious about funding them, they rarely have other products to fall back on if one gets hit, the costs of compliance are particularly burdensome for them, and the MFN process is being shaped by companies with far more leverage than them.

At the moment, enforcement of MFN has taken the form of private deals made with 17 large drug manufacturers. The White House’s stated plan, however, is to “reach similar agreements with most manufacturers of sole-source brand name drugs and biologics in the nation.” Of course, a small or mid-size biotech company with one approved exclusive product is, by definition, a sole-source manufacturer. Further, the White House has called for Congress to codify MFN, which would change the mechanism entirely from “voluntary,” negotiated deals to a legal requirement at the point of a drug launch. Further, the CMS’s proposed MFN payment models – GLOBE for Medicare Part B and GUARD for Medicare Part D – don’t control for company size but would rather kick in when a certain spending threshold is met. The release of the final rules for these models is imminent.

Investors are already growing more cautious about funding early-stage drug development. Small and mid-size biotech companies perform the bulk of early-stage drug development. While they still do plenty of early-stage drug development, larger companies tend to concentrate their efforts later in the process. After licensing or acquiring pharmaceutical assets, they often carry out later trial stages, go through regulatory approval, lead commercialization, and scale these products. The top 25 pharmaceutical companies account for less than 10 percent of the active drug pipeline, while small-to-mid-size and emerging biopharma players account for 70 percent of all clinical-stage assets, most of them unpartnered.

When the government increases the risk of pharmaceutical investment – by threatening to kneecap revenue made by an extremely expensive drug to develop, for example – the riskiest investments are first to go. In this case, early-stage drug development.

This is already playing out in the market. 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 Q1 2026, down from 60 deals worth $3.7 billion the same time last year.

Public markets tell the same story. The number of 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 a long way from the 79 IPOs in 2020 and the 104 IPOs in 2021.

Fewer companies are reaching public markets because fewer companies have independent access to capital. In many cases, small and mid-size biotech companies either go under or become dependent on large acquirers.

Companies with only a handful of drugs in development have little else to fall back on if one of them gets hit. As mentioned, emerging biopharma (companies with R&D spending under $200 million and revenue under $500 million a year) has a 70 percent share of clinical-stage pipeline assets. A record 65 percent of the molecules in the R&D pipeline have no larger company involved at all. Of 197 new drugs initially commercialized by 176 emerging biopharma companies, most companies retained, were acquired for, or out-licensed a single launched asset. Thus, the overwhelming majority of emerging biopharma, which controls the majority of clinical-stage drugs, are defined by one asset.

The risk of being stunted by government price controls, for these companies, is existential. 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.

For small biotech companies, MFN’s compliance costs would eat into a much smaller budget, making the same rules hurt more. Whetherit be compliance around a specific deal made with the Administration, the new GLOBE and GUARD MFN models, or with a codified MFN structure, small and mid-sized biotech companies will be especially burdened.

Compliance requires tracking drug prices in other countries, figuring out how much exposure that creates for their products, and pulling together legal, regulatory, and finance teams to manage it all. These are difficult administrative burdens to reach for companies who already have robust teams skilled in dealing with these things. These are near impossible administrative burdens to reach for emerging biopharma. Again, this will either lead to an inability to operate or a reliance on large companies.

Small companies have no seat at the table shaping these rules — they’ll simply have to live within a system built around what large companies negotiated for themselves. The 17 existing MFN agreements require launch prices roughly matching other wealthy nations, but the actual terms of those deals remain completely secret. Small and mid-sized companies thus have no benchmark logic of the deals made and have no comparable leverage to negotiate similar flexibility into their own launches.

Under MFN, manufacturers have to offer their lowest negotiated price to Medicare, Medicaid, and private insurers. The Administration is still adding new pieces to the system and developing out the model itself based around their negotiations with these 17 large companies. Of course, no company benefits from that kind of uncertainty. Across the board, the American pharmaceutical industry and patients alike suffer. But unlike large companies, emerging biopharma can’t leverage their high capacity, can’t afford to keep government affairs teams, and have trouble tracking these changes as they unfold.

Small and mid-size biotech companies are where the biggest risks are made in American drug development. These are the companies that chase down a single molecule for a decade on the chance that it could, one day, save American lives. MFN threatens that resolve by shifting incentives away from funding these projects and bogging emerging biopharma down with crushing regulatory requirements. The costs of policies like these are more than a business shutting down – it’s a drug that never gets funded, a trial that never starts, and a disease that stays untreated.