by Aurelie Nowack
The FDA has always influenced biotech investment dynamics, but the past two years have been exceptional in terms of the speed and amount of changes.
The trend started with the Accelerated Approval reforms in 2023. Previously, biotechs could secure FDA approval for drugs in high-risk indications like oncology based on surrogate endpoints, and fund their subsequent confirmatory trials with commercial revenue. Now, the FDA requires confirmatory Phase 3 trials to be actively enrolling patients before granting Accelerated Approval — effectively doubling upfront capital requirements for companies.
Since then, there have also been FDA workforce cuts, policy shifts, concluding programs, and transparency initiatives. Each change has been individually important but collectively transformative, significantly altering the risk-return profiles for therapeutic biotech investments. European entrepreneurs and investors need to reassess their assumptions in this new regulatory reality, if they want their companies and portfolios to succeed.
One FDA program that will have a tremendous impact with its imminent closure is the Priority Review Voucher (PRV) for rare pediatric diseases. The PRV program allows companies to obtain a voucher when developing a solution for a rare pediatric disease, which can then be used to obtain priority review for another drug.
The vouchers are also transferable: they can be sold to big pharma companies for $50-150 million, creating a critical non-dilutive funding mechanism for smaller, VC-backed ventures. For investors, these vouchers have functioned as embedded value in rare disease investments — essentially providing a guaranteed capital event that reduces dilution from follow-on rounds.
However, the PRV programs have been created with built-in ‘sunset’ clauses: after a certain date, FDA can no longer award new vouchers. The PRV program for rare pediatric diseases — which has awarded 53 vouchers across 39 rare pediatric diseases since 2012 — began its sunset process in December 2024. Without Congressional reauthorization, no new vouchers will be awarded in this program after September 2026.
Adding complexity, the FDA launched a new pilot program in June 2025: the Commissioner’s National Priority Voucher (CNPV), awarding nine vouchers in October 2025. Unlike the statutory PRV program, CNPVs are non-transferable, expire within two years, and are awarded at the Commissioner’s discretion. While CNPVs promise ultra-fast 1–2-month reviews, they offer zero value in terms of financing — eliminating the monetization that made rare disease development economically viable for venture-backed companies.
In a move that could reshape investment opportunities in the biologics space, the FDA has dramatically streamlined the approval pathway for biosimilars — biologic medications that are highly similar to drugs that have already been approved.
In June 2024, the agency issued draft guidance eliminating the requirement for costly ‘switching studies’, previously needed to obtain an interchangeability designation for biosimilars. These studies involved extensive clinical trials demonstrating that alternating between a reference biologic and a biosimilar posed no additional safety risks — costing companies tens of millions of dollars and adding years to development timelines.
In September 2025, the FDA granted its first-ever waiver of clinical efficacy studies for a monoclonal antibody biosimilar. The decision relied solely on analytical similarity and pharmacokinetic/pharmacodynamic data — eliminating the need for redundant Phase 3 trials and setting a precedent for the approval of other biosimilars.
From a VC perspective, this shift creates a new category for investments by making biosimilar development financially accessible to mid-sized companies with capital-efficient business models. Where biologics previously required pharmaceutical-scale resources to make it through development, this regulatory evolution opens the door to potential returns on startups in the space.
Complete Response Letters — detailing the reasons the FDA denied approval for a new treatment — have historically been confidential and carefully managed by companies. These letters include information on the safety, efficacy, manufacturing, or bioequivalence issues that led to the application being rejected. Now, these letters are becoming publicly available, initially for approved products from 2020–2024, but with ongoing releases planned.
For investors, this transparency cuts both ways. Portfolio companies will have a harder time controlling the narrative around regulatory setbacks, making negative events more impactful on valuation and follow-on financing. However, the public database also creates a competitive intelligence resource: due diligence teams can now analyze FDA feedback on competitor programs, identify common regulatory pitfalls, and assess whether portfolio companies are designing trials that address known concerns for the agency. Sophisticated investors who leverage this information effectively gain an edge in deal sourcing and guiding their portfolio companies.
The FDA remains the world’s most influential drug regulator, and access to the US remains the main value driver for biotech exits. But the regulatory landscape is currently more complex, economically constrained, and less predictable than at any other time in recent decades.
These pressures are prompting a strategic shift in the geography of clinical development that creates both risks and opportunities for European investors. An increasing number of biotech firms — particularly smaller companies with limited resources — are now conducting their early-stage clinical trials in the European Union, Australia, or the United Kingdom, instead of the United States.
European investors should consider these dual-pathway regulatory strategies when developing their investment theses. European biotechs have alternatives to the standard “US first” path, and a regulatory strategy that prioritizes EMA approval can serve as a viable path for companies to generate meaningful revenue, follow-on capital, and interest from strategic potential acquirers.
The FDA regulatory environment of 2025 bears little resemblance to that of 2022. The US market remains essential for meaningful exits, but the path has grown longer, more expensive, and less certain for both entrepreneurs and investors.
What began with accelerated approval reforms has evolved into a comprehensive reset affecting nearly every aspect of therapeutic development — from capital requirements and development timelines to modality-specific risks and non-dilutive financing mechanisms.
For European VC funds, success in this environment requires a fundamental shift when considering potential investments: along with scientific merit and market opportunities, regulatory clarity must now also be elevated to a primary criterion. Investors should also construct diversified portfolios that include a balance of modalities and geographic strategies, and account for extended capital runways that assume regulatory delays.
More than ever, it’s essential for investors to ensure that their companies’ teams include the regulatory expertise, strategic flexibility, and resilience required to navigate this unpredictable new FDA landscape.
