Investing through Europe’s regulatory overhaul

Legal implications for Venture Capital and Private Equity diligence, valuation scenarios and post‑deal value creation

The European life sciences and healthcare sector is undergoing a transformative regulatory overhaul that will significantly reshape the investment landscape for venture capital and private equity firms[1].

The provisional agreement on the EU Pharma Package reached by the Council and the European Parliament on 11 December 2025, together with the proposal for a new regulation on biotechnology and biomanufacturing – the “EU Biotech Act” – signals a comprehensive modernisation of the regulatory framework that investors cannot afford to ignore.

In addition, the Italian Life Sciences industry is undergoing national reforms reshaping market access and pricing dynamics.

The EU Pharma Package: Recalibrating Investment Returns

Under the current EU framework, companies benefit from eight years of regulatory data protection and two years of market protection, with the possibility of an additional one‑year extension for a new therapeutic indication with significant clinical benefit.

The new legislative proposal would replace this 8+2(+1) structure with a baseline of eight years of data protection and only one year of market protection. A further twelve‑month extension would be available only to medicines that meet two out of three criteria: timely launch in all Member States, generation of comparative clinical evidence, or addressing an unmet medical need. While this mechanism can bring total protection to ten years, additional extensions for paediatric studies or new indications remain available under separate provisions, meaning that the overall maximum duration of regulatory protection can still reach eleven years.

This shift reduces baseline protection from ten to nine years and introduces a conditional, incentive‑based model that will impact financial return profiles, particularly for medicines that do not qualify for the new extensions.

For VC and PE investors, this shift requires a recalibration of investment models. The key issue will be how the new conditional extensions operate in practice – what steps companies must take, how each criterion will be assessed, and how reliably firms can demonstrate compliance. This adds procedural complexity and increases uncertainty around effective exclusivity. Reduced protection periods and greater regulatory intervention in R&D may be particularly challenging for emerging companies with limited resources and less certain financial output, which are precisely the types of portfolio companies that dominate early-stage VC investments.

In addition, Member States will have the power to require companies to supply medicines benefiting from regulatory protection in sufficient quantities to meet patient needs, and failure to comply may result in the loss of market protection in the relevant jurisdiction. This new supply obligation introduces new operational and compliance risks that must be factored into due diligence processes and post-acquisition value creation plans.

The EU Biotech Act: Opening New Opportunities

The proposal published by the European Commission on 16 Decembre 2025 aims to position Europe as a biotech powerhouse through measures designed to improve access to funding, support to scale-up of biotech companies, harness AI and data, and streamline regulatory procedures. From an investment perspective, several provisions merit particular attention.

The EU Biotech Act introduces a 12-month supplementary protection certificate extension for medicinal products developed through biotechnological processes and for advanced therapy medicinal products (ATMPs), subject to defined conditions relating to clinical value, data robustness, and access commitments. This extension of protection under supplementary protection certificates for biotech and advanced therapy medicinal products could enhance the attractiveness of investments in these innovative therapeutic areas.

For multinational clinical trials, end-to-end authorisation timelines will shorten from 75 to 47 days where no further information is requested, and from 106 to 76 days where such requests are made. This acceleration in clinical trial approval processes directly impacts time-to-market calculations and capital efficiency  -critical metrics for VC and PE investors evaluating deployment strategies.

Lastly, the BioTechEU pilot with the European Investment Bank aims to generate investment of up to €10 billion in the sector, involving a toolbox of financial products tailored to the risk profiles of biotech companies and projects. This public funding initiative creates co-investment opportunities and may improve exit prospects for early-stage investors.

Medical Devices: Regulatory Simplification with Compliance Complexity

The Commission unveiled targeted proposals to simplify the EU Medical Devices Regulation (MDR) and In Vitro Diagnostic Devices Regulation (IVDR), aiming to reduce complexity, enhance predictability in conformity assessment, and reduce costs for manufacturers. Among the most significant changes, the proposal removes the five-year certificate validity cap, replacing fixed recertification cycles with continuous risk-based notified body surveillance and periodic reviews. Additional changes include greater flexibility in the use of clinical data, a revision of devices’ classification rules, and a streamlined procedure for combined studies involving both medicinal products and medical devices or IVDs. The proposal also reduces administrative burdens by limiting the Summary of Safety and Clinical Performance (SSCP) and Periodic Safety Update Report (PSUR) requirements, enabling more flexible (including remote) audits, and expanding the use of digital tools. It further introduces reduced fees for micro and small enterprises.

While these simplifications appear investor-friendly, the unintended consequences of Medical Devices Regulation implementation have already begun to surface, including repeated extensions of compliance deadlines to mitigate product shortages and reports of smaller companies struggling to absorb higher compliance costs. For PE firms considering add-on acquisitions or platform builds in the medical device sector, understanding the financial burden of ongoing compliance is essential for accurate valuation and integration planning.

The draft introduces new obligations requiring manufacturers to report actively exploited vulnerabilities and severe cyber incidents affecting medical devices to cybersecurity stakeholders within 30 days, creating additional operational and liability risks that will need to be addressed through robust governance frameworks.

Italy: National Reforms Reshaping Market Access and Pricing Dynamics

Italy, as the fourth-largest healthcare market in Europe, is undergoing a phase of regulatory transformation driven by a series of domestic reforms that directly affect pricing, procurement, and health technology assessment pathways. These changes reshape competitive dynamics and creating a more complex environment for companies operating in the Italian market.

The 2026 Italian Budget Law (Law No. 199/2025) is particularly impactful. It introduces a new procurement framework for off‑patent non‑biological medicines, extending to generics the competitive logic already applied to biosimilars. When more than three equivalent products are available, regional purchasing bodies may establish a single‑lot framework agreement open to all eligible suppliers, with purchasing volumes allocated among the three lowest‑priced operators. This structure is designed to maximise price competition while reducing the risk of supply disruption, and it marks a decisive shift toward multi‑supplier procurement as the default model for mature therapeutic areas.

The law also requires contracting authorities to reopen competitive procedures whenever a patent or supplementary protection certificate expires during an ongoing supply contract. Within sixty days of the first generic entering the market – once its actual availability is verified – a new competitive comparison must be launched, applying the same multi‑supplier logic. This ensures that price reductions linked to loss of exclusivity are captured rapidly and uniformly across regions, reinforcing Italy’s move toward a more aggressive, competition‑driven procurement environment.

The Budget Law further revises the pricing framework for off‑patent biotechnological originator medicines. When the patent on a biotech active substance expires and no biosimilar (or therapeutically equivalent product) has entered a pricing negotiation, AIFA must initiate a new price‑setting procedure with the marketing authorisation holder to reduce the reimbursement price. As an alternative to a formal negotiation, the company may directly propose a new price incorporating a discount of at least 20% compared to the previous level. This mechanism ensures that price reductions linked to loss of exclusivity occur even in the absence of biosimilar competition, effectively anticipating the downward pressure that would normally materialise only upon market entry of follow‑on products. For investors, this introduces earlier and more predictable erosion curves for mature biotech assets, reinforcing Italy’s shift toward a cost‑containment‑driven environment.

In parallel, January 2026 marked the operational launch of the 2026–2028 National Health Technology Assessment Program for Medical Devices, supported by €13 million in national funding from the medical device governance fund. The programme will produce between 50 and 100 assessments in 2026, prioritising technologies with significant clinical, organisational, and economic impact, including artificial intelligence solutions and digital therapeutics. For companies, this marks a decisive shift toward a more structured, evidence‑driven market access environment, where robust clinical and economic data will increasingly determine commercial viability.

Strategic Implications for VC and PE Investors

The life sciences sector is entering a period of accelerating regulatory change that will reshape innovation timelines, compliance costs, and investment returns. For investors, success requires integrating regulatory strategy into every stage of the investment lifecycle.

Due diligence processes must evolve beyond traditional financial assessments. Investors need to model different exclusivity scenarios under the new Pharma Package, assess portfolio companies’ capacity to meet EU-wide supply obligations, and evaluate readiness for health technology assessments—particularly in markets like Italy where economic evaluation is now mandatory.

Valuation methodologies face opposing pressures. Shortened exclusivity periods compress revenue forecasts, whilst accelerated clinical trial timelines under the Biotech Act improve capital efficiency. This demands sophisticated scenario planning and more conservative base-case assumptions.

The regulatory burden is intensifying across multiple dimensions. Medical device companies face continuous surveillance and cybersecurity reporting obligations. Pharmaceutical companies must navigate supply commitments whilst managing reduced exclusivity windows. This requires sustained investment in regulatory capabilities—not as compliance cost, but as strategic advantage.

Yet genuine opportunities exist. The Biotech Act’s regulatory sandboxes, advanced therapy centres of excellence, and the €10 billion BioTechEU initiative create pathways for differentiation. Italy’s national HTA programme, backed by €13 million in funding, rewards companies that align early with new AIFA guidelines and demonstrate robust health economics data.

Conclusion

2026 will be a pivotal year for the European life sciences and healthcare sector, underpinned by comprehensive regulatory changes across EU, with streamlined approval pathways alongside heightened governance and compliance requirements. Whilst many changes promise to boost innovation, others may increase costs and impact investment strategies, making anticipation and preparation key for sponsors seeking to successfully navigate these developments.

To succeed in this dynamic and challenging environment, life sciences investors must monitor regulatory changes and anticipate global trends, pursue a holistic approach and proactive engagement with stakeholders. The regulatory transformation underway represents both challenge and opportunity—investors who adapt their strategies, enhance their legal and regulatory capabilities, and position their portfolios proactively will be best placed to capture value in the evolving European life sciences landscape.

[1] It should be noted that many of the topics addressed in this article may still be subject to regulatory changes, as several of the legislative texts cited herein have not yet been enacted.