The life sciences sector is one of the most heavily regulated industries globally, impacting how products like cancer therapies and medical devices reach the market. Regulations not only dictate compliance but also influence fundraising and exit strategies for startups, shaping the perception of risk among investors. Understanding these regulations is crucial for entrepreneurs, legal advisors, and investors looking to thrive in this complex environment.
Key Regulatory Authorities and Global Considerations
In the United States, the Food and Drug Administration (FDA) serves as the primary regulatory body. Within the FDA, products are categorized into specialized centers: the Center for Biologics Evaluation and Research (CBER), the Center for Drug Evaluation and Research (CDER), the Center for Devices and Radiological Health (CDRH), the Center for Tobacco Products (CTP), and the Center for Veterinary Medicine (CVM). Additionally, the Human Foods Program oversees food-related products.
Internationally, companies must navigate various local health authorities, which can lead to discrepancies in standards, timelines, and evidence requirements. For example, while the FDA may accept surrogate endpoints in trials for rare diseases, the European Medicines Agency might demand long-term outcome data. As Denise Esposito from Covington notes, “Understanding not just the FDA, but how the FDA interacts with global agencies, is essential for companies with international aspirations.”
Regulatory Landscape and Market Impact
Not every health-related product falls under the FDA’s purview, but the boundaries are often unclear. A cosmetic can be classified as a drug if marketed for disease prevention or treatment, while dietary supplements face strict labeling requirements despite not needing pre-market approval. For instance, a mobile app may be categorized as a fitness tracker until it claims to diagnose medical conditions, at which point it is treated as a medical device.
Jay Reilly of Foley Hoag highlights the dual nature of regulation, stating, “Sometimes being regulated gives you legitimacy in the eyes of investors and consumers, even if it means more paperwork.” This creates a complex relationship where compliance can represent both a cost and a competitive advantage.
Investors often engage in regulatory due diligence when assessing biotech companies. Approval or clearance can signal quality and reduce reputational risks. The journey to develop a new drug typically follows three phases: Phase I involves 20 to 100 participants focusing on safety; Phase II includes 100 to 300 participants testing efficacy; and Phase III encompasses thousands across multiple sites to confirm effectiveness and monitor adverse reactions. Delays in these phases can have significant financial repercussions for startups.
Once a drug receives approval, competitors may pursue either the generic or biosimilar pathways. A generic drug is chemically identical to its brand-name counterpart, while a biosimilar is “highly similar” to a biologic product. Both pathways aim to expand access and reduce costs but often ignite fierce legal battles over patents and exclusivity. For instance, pay-for-delay settlements, where brand-name drug companies compensate generic manufacturers to postpone market entry, have raised antitrust concerns due to their impact on revenue.
The regulatory process for medical devices also varies based on risk classification: Class I devices, such as stethoscopes, are usually exempt from pre-market reviews; Class II devices, like powered wheelchairs, require 510(k) clearance demonstrating substantial equivalence; and Class III devices, such as pacemakers, demand Premarket Approval (PMA) with extensive safety and efficacy data.
The distinction between clearance and approval has significant implications. A 510(k) pathway could cost a few million dollars and take months, while a PMA may require hundreds of millions and several years. As Howard Carolan from CoapTech points out, “Bringing a device to market often hinges on whether you can use the 510(k) pathway — it’s faster, cheaper, and can mean survival for a startup.”
Some innovations fall into gray areas of regulation, especially with the rise of digital health technologies. Combination products, like drug-device pairs, complicate jurisdictional assignments. As Jonathan Havens from Saul Ewing LLP states, “The line between consumer products and regulated medical devices is thinner than most entrepreneurs realize.”
This ambiguity can lead investors to misjudge the commercialization process for health apps, often discovering that FDA reviews can significantly extend timelines and budgets.
Policy Changes and Financial Implications
Regulatory strategies can be disrupted by policy fluctuations. Recent developments illustrate this risk. In 2025, the FDA laid off over 3,500 employees, raising fears about review delays. Additionally, a “Most-Favored-Nation” executive order mandates that US patients pay the lowest global drug price, potentially squeezing pharmaceutical profit margins. Furthermore, substantial cuts to National Institutes of Health funding have left many universities and startups scrambling for alternative funding sources.
Mark Gardner of Gardner Law and Chrysalis Incubator cautions that policy shifts can impact financial forecasts rapidly and emphasizes the need for companies to remain vigilant regarding regulatory developments.
While navigating the regulatory landscape can be daunting, it is a necessary step toward ensuring that innovations safely reach patients. Compliance not only serves as a barrier to entry for competitors but also enhances credibility in the eyes of investors and consumers. Understanding these complexities can position startups for success in a challenging environment.
For further insights into life sciences regulations, readers are encouraged to explore additional articles on startups and entrepreneurship.
