The New EU Pharmaceutical Legislation: Key Points for Deal Teams

The European Union’s new pharmaceutical legislation represents the most significant overhaul of the EU medicines framework in more than 20 years. Although the legislative process has not yet been finalized, the core text is available and is anticipated to have a material impact on companies. Regulatory incentives, including protections and exclusivities, will become more conditional, obligations on marketing authorization holders will increase, and companies will face greater launch and supply obligations across the European Union.

The latest estimate is that the legislation will be finalized by the end of 2026 and will apply by the end of 2028. However, given that the core text is already available and decisions on future developments that will be authorized under the new regime are being made now, companies should not wait to assess the implications.

This LawFlash highlights key points for deal teams to consider and a preliminary assessment of the impact of the new legislation on contractual agreements and ongoing negotiations.

CHANGES TO REGULATORY PROTECTIONS AND WHAT THEY MEAN FOR DEAL TEAMS

While the changes introduced by the new regime are wide-ranging, the amendments to the regulatory protections and supply obligations have been a particular focus for the life sciences industry, and may have a significant impact on commercial arrangements.

Flexible and Variable Regulatory Protection

One of the most commercially significant changes in the new legislation is the move away from relatively stable and predictable EU regulatory protection periods to a less predictable and more variable protection. While the proposed reforms maintain the eight years of data protection, the baseline market protection has been reduced to one year. However, this market protection period can be extended if certain conditions are met.

In practice, this means that protection periods may vary depending on whether companies satisfy requirements relating to the conduct of comparative clinical trials, whether those trials are conducted in the EU, and the timing of the marketing authorization application.

Many commercial agreements historically rely on protection periods as a core economic assumption underpinning milestone payments, royalty periods, and valuations. However, under the new regime, parties may no longer be able to assume that a uniform protection period will apply across the EU, particularly where, as explained below, market protection could be lost earlier in certain member states if a company does not comply with launch or supply obligations. As such, contractual terms may need to be updated to define both the protection period and possible extensions and reductions to that period.

The new legislation also requires companies to undertake “best efforts” “within the limits of their responsibilities” to supply product; such obligations may impact “commercially reasonable efforts” clauses and similar terms within contracts and introduces the possibility that a party’s diligence obligations as a matter of law are higher than the contractual standards that have been prevalent.

Variable Orphan Exclusivity

Under the new legislation, the baseline period of orphan exclusivity will be nine years, with 11 years of protection for a new class of “breakthrough” products. The definition of “breakthrough” product, and how this is applied, will therefore be crucial to be able to benefit from the additional years of protection.

In addition, orphan products will no longer benefit from a separate baseline exclusivity period for each orphan condition. Instead, a one-year extension may be granted (up to twice) for the authorization of a new orphan indication in a new condition. Therefore, developing orphan products in multiple indications may become less of a commercial driver if additional exclusivity periods are limited. There are also changes to the time when applications for similar products can be made during the orphan exclusivity period, reducing the practical effect of orphan protection.

Launch Obligations and Impact on Regulatory Compliance

Under the new legislative framework, marketing authorization holders have obligations to make products available in member states following a request from the national authority, with a potential loss of market protection or the extension to orphan exclusivity in the relevant member state if these obligations are not met. These provisions are intended to address concerns regarding unequal access to medicines across the EU, but complying with the request may significantly affect launch sequencing strategies that have historically been driven by supply chain constraints, pricing considerations and commercial prioritization.

Historically, some companies have prioritized launches in larger EU markets for economic reasons. The new framework may reduce that flexibility or may lead to regulatory sanctions if this strategy is followed. This could lead to questions regarding which party bears responsibility for launch in countries that have historically required lower prices for products to be available on the applicable national health service.  

These issues are likely to be particularly complex in regional licensing deals where rights are split between multiple parties or where commercialization responsibility differs by territory, and where the price in one territory may impact the price in another.

WHAT CAN DEAL TEAMS DO NOW TO PREPARE FOR THE LEGISLATIVE CHANGES?

Given the implications noted above, deal teams may wish to consider new transaction structures:

• Parties may increasingly seek territory‑specific provisions, differentiated royalty structures between territories, and a more detailed allocation of responsibility and diligence for regulatory compliance.
• Parties may consider adopting more conservative assumptions regarding duration of protection, with an option of “success payments” if certain conditions are met to extend those periods. Alternatively, where a milestone is linked to expiry of the protection period at a specified time, parties may need to address whether partial loss of protection in certain member states triggers economic consequences.
• Parties may also seek stronger best efforts obligations or performance covenants to ensure that partners take the actions necessary to maximize available regulatory protections.

Deal teams may also need to reflect on the following contractual provisions that will factor into negotiations and contract drafting:

• Supply chain: Companies face additional requirements to monitor supply chains and notify authorities regarding shortages, suspensions or withdrawals. These developments mean that supply chain and manufacturing considerations will need to be addressed earlier in negotiations and that capacity, shortage prevention plans, API sourcing, and EU‑based supply capabilities may become important diligence questions. There may also be a need for more detailed provisions relating to shortage prevention planning, information sharing and responsibility for responding to regulatory authorities.
• Fiscal import: Enhanced provisions on financial import, where the financial arrangements between companies do not mirror the physical flow of products, could materially impact existing supply chain structures and distribution models. Many companies currently use a supply chain set up in which the product is manufactured in the EU, placed in a central warehouse after its release, and distributed to customers by local affiliates of the marketing authorization holders who hold a European wholesaler dealers authorization (WDA). However, for tax reasons, the product may be owned by a non-EU entity, often a Swiss entity. When the local affiliate makes a sale with a customer, the title to the product is transferred from the non-EU (Swiss) entity to the local affiliate in the EU through a flash sale. The new legislation clarifies that EU wholesale dealers (the affiliate) can only procure, including via financial transactions, medicinal products from persons who are themselves in possession of an EU-WDA or EU-manufacturing authorization, and not from non-EU (Swiss) entities holding a non-EU WDA. These changes may require companies to consider their supply chains, the licenses they hold, and the tax implications.
• Compliance provisions: Parties should consider whether standard “compliance with law” clauses are sufficient in a regulatory environment where commercial incentives and regulatory protections are increasingly linked to operational conduct.
• Change‑in‑law provisions: Parties may wish to consider more detailed mechanisms for renegotiation (or indeed review existing possibilities for renegotiation), cost allocation or adjustment of financial terms where changes in EU pharmaceutical legislation materially affect protection periods, launch obligations or supply requirements.
• Bolar exemption: The Bolar exemption allows companies to conduct certain activities, such as clinical testing, during the development of a follow-on product without it being considered as patent infringement. The new legislation expands these provisions and will facilitate preparatory activities by generic and biosimilar manufacturers prior to expiry of protection periods, meaning that innovator companies may face earlier competitive entry. This will have direct implications for asset valuation, pricing models, and lifecycle management strategies.
• Anti-microbial resistance: “Priority antimicrobials” is a new defined category of product, which if the relevant criteria are met, can lead to the grant of a transferable exclusivity voucher. This will provide a transferable 12-month data protection extension, which can either be used for a product within the applicant’s own portfolio, or can be sold to third parties. This may become an important commercial driver for transactions, similar to the priority review voucher in the United States.

Conclusion

For pharmaceutical and biotechnology companies, the implications and necessary planning in anticipation of the new legislation extend beyond regulatory teams. Companies may wish to revisit standard contractual terms and ensure that regulatory risk allocation reflects the new legislative environment. 

Further, given the likely date of application of the new regime, the new rules will impact current product developments, including products that are subject to existing commercial arrangements, which raises immediate questions for ongoing collaborations. Parties should review whether current agreements adequately allocate responsibility for compliance with evolving EU requirements and whether amendment mechanisms are needed to address these changes.

The Morgan Lewis Life Sciences team will continue to monitor these changes and report back as the legislation becomes applicable.