Prescription drug policy is back in the spotlight, with policymakers debating everything from price controls and research funding cuts to tariffs.

But the impacts of recent policy changes are no longer hypothetical. They’re here.

Most biotech CEOs warn reference pricing models – which tie U.S. drug prices to those in foreign countries would make it harder to launch new medicines here at home, according to a recent survey we ran at Incubate.

This is concerning given President Trump’s “Most Favored Nation” executive order, which would tie U.S. drug prices to those in countries with government-run healthcare systems.

Most Favored Nation proposals are the latest in a series of government pricing interventions that threaten innovation. Sixty-seven percent of biotech CEOs say Medicare’s “pill penalty” has chilled capital formation for companies working on small-molecule drugs – the everyday pills Americans take, making up more than 90% of all prescriptions.

The pill penalty is a provision in the Inflation Reduction Act. It sets a timeline for when price controls kick in under Medicare – nine years for smallmolecule drugs, compared to 13 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. Since the IRA passed, Incubate has identified 51 research programs and 26 drugs that have been discontinued.

Pfizer scaled back its small molecule oncology pipeline. Novartis dropped several small molecule cancer drugs. Novartis’ CEO said companies are “deprioritizing small molecule medicines for the elderly due to the IRA.”

The good news is there’s a fix. The EPIC Act would level the playing field by giving small-molecule drugs and biologics a flat 13 years before Medicare price-setting.

Unfortunately, the executive order and pill penalty are just two examples of a larger trend. Biotech companies are being squeezed on multiple fronts.

Seventy-eight percent of CEOs say recent layoffs and hiring freezes at federal agencies are delaying or derailing their clinical trials. Ninetythree percent report reduced government funding for basic science is harming their company’s prospects. Eighty-eight percent cite tariffs as a direct threat.

And these concerns aren’t just coming from company leaders. In a survey with 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 policy environment discourages risk-taking at 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 drugs.

What’s needed is a course correction. Congress and the Trump administration can start by passing the EPIC Act. They should stabilize operations at the NIH and FDA. Finally, they should strengthen U.S. intellectual property protections while resisting price control policies.

If Washington doesn’t act, capital will move elsewhere. Once it’s gone, the research it supports disappears with it.

John Stanford is the executive director of Incubate, a Washington-based coalition of life sciences venture capitalists. This piece originally ran in Biospace.