Market context: Regulatory volatility meets deal resilience

The third quarter of 2025 closed amid growing macroeconomic strain, policy unpredictability and renewed investor focus on execution risk. While deal volume in life sciences and healthcare private capital has stabilized after the spring downturn, valuation spreads remain wide — particularly across later-stage biotech and services platforms exposed to reimbursement or cross-border manufacturing risk.

The fourth quarter begins under an active US federal government shutdown, and although the life sciences sector has weathered past disruptions, this one arrived at a particularly sensitive time. The shutdown’s reach extends across FDA review divisions, CMS rulemaking and antitrust clearance processes — directly affecting regulatory milestones and transaction timing. Combined with the White House’s announced 100% tariff on branded pharmaceutical imports, the regulatory risk matrix for private investors in life sciences has rarely been more complex.

Policy Outlook: Shutdown, Tariffs and Industrial Policy

A Government Shutdown That Hits Where It Hurts

The October 2025 government shutdown triggered a near-immediate freeze in agency activity, including:

• FDA operations: Routine inspections, non-emergency facility reviews and new meeting requests are paused. Only mission-critical functions such as safety surveillance and emergency IND reviews continue.
• CFIUS and FTC reviews: While some national-security functions remain staffed, transaction clearances are experiencing extended delays, affecting cross-border M&A and closing conditions.
• CMS and HRSA programs: Key reimbursement rulemakings and pilot programs are in limbo, introducing timing uncertainty into pricing and access forecasts.

For private equity sponsors and strategic buyers, this disruption compounds diligence risk. Deal documents increasingly include “shutdown delay” provisions in outside-closing dates and regulatory MAE carve-outs that reference agency inaction. The delay may also widen the gap between regulatory approval assumptions in models and the realities of deferred FDA timelines — particularly for investors targeting mid-cycle or pre-commercial assets.

Transactions note: HSR filings continue to be accepted, but early termination is unavailable; antitrust reviews are slowed under reduced staffing, warranting longer pull-and-refile windows and extended outside dates.

Trump Administration Tariff Action: Section 232 Expansion and the “100% Shock”

In a sweeping escalation of the administration’s national-security-based trade strategy, the Trump Administration has extended Section 232 investigations to cover pharmaceuticals and medical supplies, citing heavy US reliance on foreign manufacturing for critical health products. The pharmaceutical investigation, initiated in April 2025, encompasses finished drug products, APIs and intermediates, while the medical-supplies inquiry, launched in September 2025, targets imports of PPE, consumables and devices—all with a view toward potential tariffs or supply-chain restrictions. Against this backdrop, on September 25, 2025, President Trump announced plans to impose a 100 % tariff on branded or patented pharmaceutical imports, effective October 1, 2025, unless the company “is building” a US manufacturing facility. Although no formal rule has yet appeared in the Federal Register, this announcement aligns closely with the pending Section 232 reviews and marks the most aggressive invocation of the statute in the life-sciences sector to date.

Implications for private capital:

• Supply-chain risk repricing: Cross-border CDMO assets with non-US production exposure face near-term valuation compression.
• Localization premium: Domestic API and fill-finish assets, particularly those in active or planned construction phases, stand to gain both operational resilience and tariff exemption benefits.
• Deal structuring: Expect buyers and sellers to negotiate tariff-allocation clauses and post-closing risk-sharing mechanisms similar to those used in the 2018–2020 steel and aluminum tariffs.
• Preferred treatment: Under newly finalized trade frameworks, EU and Japanese products may face capped rates (15%), adding another layer of differentiation in global supply-chain diligence.
• Supply-chain compliance overlay: Investors should also watch the expansion of the Uyghur Forced Labor Prevention Act (UFLPA) and new FDA import alerts targeting GLP-1 APIs and finished formulations, which increase scrutiny on origin tracing and supplier documentation.

Together, the tariff and shutdown underscore an unmistakable theme: the convergence of trade, industrial and healthcare policy is now a defining feature of life-sciences investing.

FDA Environment: Enforcement Tightens, Transparency Expands

FDA “Crackdown” on Deceptive DTC Drug Advertising

On September 9, the FDA announced an aggressive enforcement initiative aimed at what it termed “misleading” direct-to-consumer (DTC) prescription drug advertising. The agency signaled intent to repeal the long-standing 1997 “adequate provision” rule, sent roughly 100 cease-and-desist letters to manufacturers, and published them on its website a week later.

This marks a fundamental policy shift: the FDA is moving from case-by-case discretion to proactive industry-wide policing, likely testing the boundaries of commercial speech jurisprudence in the process.

Investor takeaway: Portfolio companies with heavy consumer-marketing footprints—particularly in lifestyle drugs, obesity therapeutics and tele-promotion models—face heightened risk. Diligence teams should assess medical-legal-regulatory committee governance, promotional review controls, and documentation of “fair balance” and substantiation practices.

Transparency as a Regulatory Weapon

The FDA’s publication of Complete Response Letters (CRLs) for unapproved products, alongside its rollout of daily adverse-event reporting (FAERS) and real-time safety dashboards, signals a deliberate move toward radical transparency.

Investor action: Consider integrating CRL and FAERS datasets into diligence and post-acquisition surveillance programs to benchmark review trends and early safety signals. Have similar molecules or mechanisms been rejected or delayed? Are the drug candidate’s manufacturing / supply-chain disclosures similar to those flagged in CRLs? Is the target’s product receiving more-than-average event reports compared to peers?

Programmatic Developments

The third quarter also brought a cluster of policy pilots that collectively reshape regulatory timing and predictability:

• Rare Disease Evidence Principles (RDEP): Provides pre-pivotal engagement for ultra-rare indications with genetic etiology.
• PreCheck Program: Offers early FDA manufacturing feedback and fast-track facility assessment—particularly aligned with domestic-build incentives under the tariff policy.
• Commissioner’s National Priority Voucher (CNPV) Pilot: Promises accelerated review (one to two months) for selected programs. As of October 16, 2025, the agency has announced the first nine voucher-recipients under the pilot..Withdrawal of LDT Rule: The FDA’s September 19 rescission ends the 2024 attempt to classify laboratory-developed tests as medical devices, likely unlocking renewed M&A and platform consolidation in diagnostics.
• Cybersecurity guidance: The FDA finalized key updates in June requiring “secure-by-design” verification, software bills of materials and lifecycle patching under Section 524B—an emerging diligence checkpoint for connected devices and diagnostics portfolios.

Collectively, these shifts point to a dual trajectory: heightened public scrutiny paired with streamlined engagement for strategically aligned sponsors.

Pricing, Access and Reimbursement: The Next Shockwave

Even amid the shutdown, CMS continues to shape a pricing environment that will define life-sciences investment returns through the end of the decade.

• Global Benchmark for Efficient Drug Pricing (GLOBE) Model: A proposed rule now under OMB review would import “most-favored-nation” (MFN) principles into US drug pricing, setting international reference caps on Medicare reimbursements.
• CMS 2026 Final Rules Pipeline: The long-awaited final rules on outpatient payment systems, clinical lab fees and physician fee schedules—originally expected by November 1—remain delayed, leaving manufacturers and investors without finalized reimbursement benchmarks. The lag in publication has temporarily stalled recalibration of average-sales-price and fair-market-value calculations, creating short-term uncertainty for pricing and valuation models—particularly affecting gene-therapy and skin-substitute manufacturers whose payment methodologies hinge on these updates.
• 340B Rebate Pilot: HRSA’s July 31 announcement of a post-sale rebate model, rather than upfront discounts, could alter manufacturer cash-flow timing and introduce reconciliation complexity across contract pharmacies.
• PBM scrutiny: The FTC’s continuing investigation and state-level actions targeting pharmacy benefit manager ownership and spread pricing are introducing operational and margin risk for specialty and channel-heavy portfolios.
• Wave of pharmaceutical investment leaving the UK: Several recent announcements from some of the world’s largest pharmaceutical companies either pausing or scrapping UK projects. The announcements raise the question of whether the wave is due to US tariff actions or the low reimbursement prices of the NHS. Pharmaceutical companies are pushing for the UK government to restart negotiations over VPAG – the Voluntary Scheme for Branded Medicines Pricing and Access – which was agreed on to keep NHS costs down.

Investor relevance: These factors introduce a new dimension of reimbursement risk. PE buyers should stress test cash-flow assumptions for 340B-exposed manufacturers and Medicare-linked revenue streams and incorporate CMS modeling sensitivity into forward projections for 2026–2028.

Data, Privacy and AI Compliance: Expanding Global Obligations

DOJ Data Security Program Now in Force

As of October 6, companies subject to the DOJ’s Data Security Program implementing Executive Order 14117 must maintain a written data-flow compliance program, certify annually, and conduct an audit covering any “restricted transactions” involving countries of concern.

For investors, this creates a new regulatory diligence checkpoint. Any portfolio handling certain types and thresholds of data, including genomic, patient or trial data across borders must now verify end-to-end data governance protocols and documentation of supply-chain data flows.

California CPPA and AI Governance

California’s finalized rules on automated decision-making, risk assessments and cyber audits (effective January 1, 2026) bring AI compliance formally into the privacy regime. Digital-health and diagnostics companies deploying AI tools should implement pre-use risk assessments and robust audit trails. The rules’ phased compliance (some delayed until 2028) should be factored into post-acquisition integration budgets.

Europe: AI Monitoring, Data, Security, Privacy and Exclusivity Reform

• European AI Observatory: The EU Commission is launching an AI Observatory, which will monitor public and private AI investments, assess sectoral impacts, and analyze market shifts using a methodology developed with the OECD.
• EDPS v. SRB (CJEU, Sept 2025): Clarifies that pseudonymized data remain “personal data,” tightening documentation obligations for EU-US transfers.
• NIS2 Directive: Now enforceable, with penalties up to €10 million or 2% of global turnover and direct liability for senior management in the health sector.
• EU Data Act: A cornerstone of the European Union’s Data Strategy now applicable, ushers in a sweeping new framework for access to and use of data from connected products and related services. Data from wearables, connected implants and clinical platforms, for example, is now expected to be accessible directly by patients, researchers and doctors. Noncompliance with the Data Act’s requirements can result in significant fines, regulatory investigations and civil liability.
• EU Pharmaceutical Reform: The Council’s June position maintains eight years of data protection and 10 years of orphan exclusivity but reduces market-protection duration to one year—with extensions tied to supply-security commitments.
• EU operational horizon: Investors should track IVDR Class D notified-body deadlines (Sept 26, 2025) and pending NIS2 enforcement actions, both potential gating items for EU-facing med-tech assets.

Cross-border diligence now requires integrated mapping of privacy, cybersecurity and exclusivity exposure—each a material value lever in transatlantic transactions.

Enforcement and Litigation: DOJ and OIG Escalate

DOJ Enforcement Priorities

Through summer 2025, DOJ released new enforcement guidance emphasizing AI governance, data analytics and algorithmic promotion risk under the Evaluation of Corporate Compliance Programs. The Department continues to target:

• Digital-promotion and telehealth marketing schemes that implicate the Anti-Kickback Statute or False Claims Act (FCA);
• Off-label algorithmic messaging embedded in AI-driven sales tools; and
• Clinical-trial billing irregularities in government-funded studies.

Current focus: The DOJ-HHS FCA Working Group and June healthcare fraud takedown highlight renewed coordination and data-driven monitoring across manufacturers, insurers and distribution partners—portfolio compliance systems should centralize oversight at the sponsor level.

OIG Oversight

The Office of Inspector General has intensified reviews of:

• Manufacturer-sponsored patient-assistance programs and their interactions with reimbursement support vendors;
• AI-enabled diagnostic scoring tools that may indirectly influence coverage decisions; and
• Third-party foundations connected to co-pay or utilization management programs.

Recent settlements exceeding US$500 million across device and diagnostics companies reflect a clear enforcement pivot from traditional provider-side fraud toward manufacturer and data-integrity accountability. Corporate integrity agreements now routinely include AI-system audit requirements—a signal that algorithmic compliance has entered mainstream enforcement.

Investor Outlook: Navigating Q4 and Beyond

The final quarter of 2025 is poised to test investor discipline. The shutdown’s duration will determine how deep the backlog of FDA reviews and CMS rulemaking extends into early 2026. Meanwhile, tariff implementation orders could appear with little notice, requiring real-time portfolio triage for import-reliant assets.

Opportunities ahead:

• Domestic manufacturing build-outs: Capitalizing on tariff-driven reshoring incentives and FDA’s PreCheck engagement model.
• Compliance-infrastructure platforms: Growing demand for outsourced data-governance, audit and privacy-risk management services.
• Precision medicine and non-opioid portfolios: Benefiting from FDA’s RDEP and chronic-pain guidance initiatives.

Risks to monitor:

• Finalization of CMS’s GLOBE model and related MFN-style pricing reforms.
• Tariff scope and timing under Section 232 implementation orders.
• Potential data-security enforcement actions under the DOJ program.
• Continuing FDA transparency and advertising enforcement activity.
• Implementation of the new HSR filing requirements, which expand disclosure and narrative obligations for private capital sponsors.

Bottom Line

Q3 2025 underscored a new paradigm for private capital in life sciences: regulatory velocity now drives deal velocity. Investors who integrate policy foresight—across trade, pricing, data and compliance—into valuation and structuring decisions will be best positioned to convert volatility into advantage as 2026 approaches.

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