Mastering Life Sciences Regulation: Essential Insights for Startups

Navigating the life sciences industry requires a comprehensive understanding of complex regulations. Startups, lawyers, and investors must grasp the implications of these regulations, as they dictate how products are developed, marketed, and financed. From cancer therapies to dietary supplements, regulation influences everything from initial fundraising to long-term exit strategies.

Regulatory Landscape: Key Players and Challenges

In the United States, the primary regulatory authority is the Food and Drug Administration (FDA). Within the FDA, various specialized centers oversee different product categories: 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).

Companies operating in international markets face additional challenges, as they must navigate the requirements of local health authorities. Although collaboration among global agencies is increasing, differences in standards and timelines persist. For example, while the FDA may accept surrogate endpoints in clinical trials for rare diseases, the European Medicines Agency generally requires longer-term outcome data. Denise Esposito of Covington emphasizes that “understanding not just the FDA, but how the FDA interacts with global agencies, is essential for companies with international aspirations.”

Regulatory oversight extends to various health-related products, often blurring the lines between categories. A cosmetic may be classified as a drug if marketed with claims to prevent or treat disease. Similarly, dietary supplements do not require pre-market approval, yet they must comply with strict labeling and substantiation requirements. As Jay Reilly of Foley Hoag notes, “sometimes being regulated gives you legitimacy in the eyes of investors and consumers, even if it means more paperwork.”

Investors frequently conduct regulatory due diligence when assessing biotech and medical device companies. Achieving regulatory clearance or approval signals quality and reduces reputational risk, making it a critical factor in investment decisions.

Drug Development: A Prolonged Journey

Developing a new drug is a lengthy process, typically unfolding in three phases. Phase I involves approximately 20 to 100 participants and focuses on safety and dosage. Phase II expands to 100 to 300 participants, testing efficacy and side effects. Phase III, the final stage, includes thousands of patients across multiple sites to confirm effectiveness and monitor adverse reactions.

Startups in this space often face special challenges, particularly in areas like precision medicine and rare diseases, where recruiting sufficient patients or validating biomarkers can be particularly difficult. Delays at this stage can lead to significant financial strain, especially for companies that are rapidly consuming cash.

Once a drug receives approval, competitors can pursue either generic or biosimilar pathways. A generic drug shares the same chemical composition as a brand-name drug, while a biosimilar is “highly similar” to a biologic, with no meaningful clinical differences in safety or efficacy. While these products can increase access and reduce costs, they also often lead to litigation. For instance, patent disputes and exclusivity fights are common, with multi-billion dollar revenues hinging on the timing of a generic’s market entry.

Medical devices follow a distinct regulatory path categorized by risk levels. Class I devices, like stethoscopes, are generally low risk and exempt from pre-market review. Class II devices, such as infusion pumps, require a 510(k) clearance to demonstrate “substantial equivalence” to existing devices. Class III devices, which include high-risk products like pacemakers, necessitate a Premarket Approval (PMA) backed by extensive safety and efficacy data. Howard Carolan of CoapTech highlights the significance of these pathways, stating, “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.”

Understanding Regulatory Gray Areas

Some innovations do not fit neatly into established categories. Combination products, which may include a drug-device pair or a drug-biologic, complicate regulatory oversight. The FDA’s Office of Combination Products designates jurisdiction based on the “primary mode of action.” Consumer products can also slip into regulated territories. For instance, a cotton swab is a cosmetic tool unless marketed for applying medications or taking specimens from a patient. Jonathan Havens of Saul Ewing LLP warns that “the line between consumer products and regulated medical devices is thinner than most entrepreneurs realize.”

This gray area has gained importance in the realms of digital health and wearables. Investors may overestimate the ease of commercializing health-related apps, only to find that FDA review can significantly extend both the development timeline and budgets.

Impact of Policy Shifts on Regulatory Strategies

Even well-crafted regulatory strategies can be jeopardized by sudden policy changes. Recent developments highlight these risks, including significant FDA staff reductions, which saw over 3,500 employees laid off in 2025. Such cuts raise concerns about potential review delays. Additionally, a recent executive order mandating that U.S. patients receive the lowest global drug price could threaten profit margins for pharmaceutical firms. Cuts to NIH funding have also left universities and startups scrambling to secure alternative financing.

Mark Gardner of Gardner Law and Chrysalis Incubator advises companies to closely monitor policy developments, as changes can drastically alter financial forecasts.

In conclusion, while regulation may present challenges, it also serves as a vital mechanism for ensuring that innovations reach patients safely. Regulatory compliance can provide a competitive advantage, establishing legitimacy in the eyes of both investors and consumers. Understanding these dynamics is crucial for startups aiming to thrive in the life sciences landscape.