The U.S. Food and Drug Administration’s fiscal year 2027 budget justification includes more than 20 legislative proposals spanning drug and biologic approval pathways, supply chain oversight, advertising standards and enforcement authorities. The full package addresses topics ranging from food safety to tobacco regulation, but the subset of proposals most relevant to life science investors include initiatives that would streamline biosimilar and biologic development, create new pathways for complex generics and early-stage clinical programs, strengthen supply chain transparency and enforcement, and incentivize domestic manufacturing.
For middle-market private equity firms with life sciences exposure, these initiatives carry substantial implications: They would recalibrate competitive dynamics in the biosimilar and generics markets, alter the economics of early-stage drug development, and introduce new compliance obligations around supply chain disclosure and promotional practices.
This alert examines each of these proposals in detail, articulates their strategic and operational significance, and identifies those with demonstrated legislative momentum based on prior FDA budget submissions and the upcoming user fee reauthorization cycle.
1. Biosimilar Interchangeability: Eliminating the Two-Tier System
The FDA would like to amend Section 351 of the Public Health Service Act (PHS Act) to remove the separate statutory standard for interchangeability and deem all approved biosimilars to be interchangeable with their reference products. [1] The FDA has approved 83 biosimilars to date, with 37 approved between January 2024 and January 2026 alone — marking the most concentrated wave of biosimilar regulatory activity in the program’s history.
If enacted, this proposal could trigger a significant shift in market share for biosimilars and reference products. Deeming all biosimilars interchangeable would allow pharmacists to substitute biosimilars for brand-name products without the prescriber’s intervention. For PE firms with portfolio companies developing or marketing biosimilars, the removal of the interchangeability distinction would likely accelerate pharmacy-level substitution and expand market share. Biosimilars have already generated more than $56 billion in healthcare savings since 2015, with $20.2 billion saved in 2024 alone, and this proposal could significantly expand those figures. Formalizing FDA policy into statute would also bring greater certainty to biosimilar firms to reduce development costs, since “switching studies” will no longer be required. Conversely, firms holding reference biologic assets should anticipate intensified biosimilar competition and potential margin compression. Sponsors evaluating biosimilar platform investments should model accelerated market penetration timelines, while those with reference biologic exposure should stress-test valuations against faster competitive entry.
2. New Abbreviated Licensure Pathway for Biological Products
The FDA proposes to amend Section 351(a) of the PHS Act to create an abbreviated licensure pathway for biological products that would function analogously to the 505(b)(2) pathway available for drugs. This proposed new pathway would permit applicants to rely on the FDA’s prior findings of safety, purity and potency for an already-approved biological product, as well as on published literature, to support a more streamlined development program for new biologics that are intended to differ from the reference product.
Currently, no statutory equivalent of the 505(b)(2) pathway exists for biologics, meaning that sponsors of “biobetter” or follow-on biological products face the full development burden of a 351(a) application. If enacted, this new pathway would meaningfully lower development costs and timelines for a category of products that is increasingly attractive to middle-market life science companies, including next-generation formulations, alternative delivery mechanisms or improved versions of existing biologics. PE firms evaluating platform biologics companies or considering investments in differentiated biologic assets should monitor this proposal closely, as it would create a fundamentally new market entry strategy.
3. Expedited IND Pathway for Phase 1 Clinical Trials
The FDA proposes to create an optional, risk-based “Expedited IND” pathway as an alternative to the traditional Investigational New Drug application process for certain Phase 1 clinical trials. The pathway would be available when existing preclinical data, including data generated through validated non-animal methods, can potentially satisfy the regulatory standard for first-in-human studies. FDA frames this proposal as addressing the competitive disadvantage U.S. biotechnology firms face, noting that the current IND paradigm contributed to the migration of early-stage clinical activity to jurisdictions such as China and Australia, where regulatory requirements are less burdensome.
For PE firms investing in early-stage biotech, this proposal could meaningfully reduce the cost and timeline of initiating U.S.-based clinical programs. Diligence workstreams for potential investments should include an assessment of the quality and rigor of existing and in-process preclinical testing programs, to ensure this pathway remains an option. A streamlined Phase 1 entry point would increase the attractiveness of U.S.-based clinical-stage assets and could influence site-selection decisions for portfolio companies considering where to initiate clinical programs.
4. Permanent Reauthorization of the Rare Pediatric Disease Priority Review Voucher Program
The FDA proposes to permanently reauthorize the Rare Pediatric Disease Priority Review Voucher (RPD PRV) program under Section 529 of the Federal Food, Drug, and Cosmetic Act (FD&C Act), which awards priority review vouchers to sponsors of approved rare pediatric disease product applications. The program incentivizes drug development for rare pediatric diseases by allowing voucher holders to shorten FDA review timelines from 10 months to six months, and vouchers are transferable, creating a secondary market. The program has historically been reauthorized every four years but had partially lapsed since 2024 and is currently set to expire again in 2029.
The RPD PRV program has been a meaningful driver of rare disease investment, particularly for emerging biotech companies, as vouchers have historically sold for $75 million to $350 million on the secondary market. The periodic lapsing and reauthorization cycle creates uncertainty that can chill investment decisions. Permanent reauthorization would provide the predictability that sponsors and investors need to commit to multiyear rare pediatric disease development programs. Media reports indicate that the most recent PRV was sold for $200 million, setting a new high for PRV value. That kind of PRV value can provide much-needed operating capital for new companies and also can significantly contribute to an expected valuation of a targeted investment with a later-stage asset. PE firms with orphan drug or pediatric-focused portfolio companies should view this proposal favorably, though they should note that Congress passed a five-year reauthorization of the program in early 2026. The history of the PRV reauthorization is summarized in a previous client alert.
5. Generic Drug-Device Combination Products: Clarifying the ANDA Pathway
The FDA proposes to amend Section 505(j) of the FD&C Act to explicitly address the submission and review of drug-device combination products in abbreviated new drug applications (ANDAs), as well as drug products used with a device. The proposal would clarify that the FDA may request and review data for such applications, that certain differences between the device components of the reference product and the proposed generic are permissible, and that related labeling differences are also acceptable.
Drug-device combination products such as autoinjectors, inhalers and prefilled syringes represent a growing segment of the pharmaceutical market. Complex generics and combination products have historically faced delayed market entry due to statutory ambiguity around device components, but this proposal would provide a clearer pathway. The FDA notes in the proposal that the current statutory framework — established nearly 40 years ago when most products were simpler — may make it difficult for companies to develop generic versions of these products and for the FDA to efficiently approve ANDAs for these products.
For PE firms investing in generic or specialty pharmaceutical platforms, this proposal could unlock new competitive opportunities in complex generics. For firms holding branded combination product portfolios, it signals an increased risk of earlier generic competition over the medium term.
6. Domestic Generic Drug Manufacturing Incentive
The FDA proposes to amend Section 505(j)(5)(F)(ii) of the FD&C Act to allow domestic generic drug manufacturers to submit ANDAs and Paragraph IV certifications one month earlier than foreign competitors in certain circumstances. The proposal would apply to U.S.-based companies that currently manufacture a generic drug domestically or are making investments in new domestic manufacturing facilities to substantially increase U.S.-based manufacturing capacity.
This proposal directly supports the administration’s reshoring agenda and would give domestic generic manufacturers a competitive edge in the race for 180-day exclusivity, which is a significant economic incentive in the generic drug market. PE firms evaluating generic pharmaceutical platforms should consider the strategic value of U.S.-based manufacturing infrastructure as a differentiator, as this proposal signals a broader policy trend toward preferencing domestic production. Portfolio companies with existing U.S. manufacturing capacity would benefit from a structural timing advantage in filing.
7. API Sourcing Transparency and Civil Monetary Penalties
The FDA proposes to impose civil monetary penalties on finished dosage form manufacturers who fail to disclose the quantity of active pharmaceutical ingredient (API) used from each API manufacturer approved in their application. The FDA states that the current lack of visibility into the connection between API sourcing and finished dosage form production hinders the agency’s ability to monitor supply chain integrity.
This proposal has significant supply chain compliance implications for pharmaceutical portfolio companies. Firms that have invested in generic manufacturers or contract development and manufacturing organizations should assess whether their companies are prepared to comply with enhanced API source reporting requirements. This should include (1) mapping all API sources by volume and manufacturer; (2) verifying sub-tier supplier visibility; (3) assessing existing reporting infrastructure; and (4) budgeting for compliance system upgrades if necessary. The threat of civil monetary penalties introduces a new enforcement risk that should be factored into pre-acquisition diligence and ongoing compliance monitoring.
8. Cracking Down on Misleading DTC Drug Advertising and Compounded Drug Marketing
The FDA proposes to update its authorities with respect to direct-to-consumer (DTC) advertising by deeming a drug to be misbranded under Section 502 of the FD&C Act if a DTC advertisement lacks fair balance and creates a misleading impression regarding FDA approval, the scope of the FDA-approved indication(s) and limitations of use, or the drug’s efficacy and benefits, including by making or suggesting overstated representations that are not supported.
The proposal would also deem a compounded drug to be misbranded if an advertisement:
- fails to clearly and prominently disclose that the FDA has not approved or evaluated the product for safety, effectiveness or quality prior to marketing;
- represents or suggests the compounded drug is safe and effective without evidence;
- makes misleading comparative claims to a particular FDA-approved drug;
- misrepresents data based on clinical trials of FDA-approved drugs containing the same active ingredients; or
- omits risk information or otherwise fails to provide fair balance.
This proposal carries significant implications for PE firms with portfolio companies in the branded pharmaceutical, compounding pharmacy or telehealth sectors, and builds upon recent FDA enforcement actions against compounding pharmacies for false and misleading claims on GLP-1 drugs. The FDA has already issued more than 30 warning letters and more than 100 cease-and-desist letters to compounding pharmacies and telehealth companies for deceptive advertising practices since September 2025.
In February 2026, the FDA announced its intent to take decisive steps to restrict GLP-1 APIs used in mass-marketed compounded drugs. For firms with investments in compounding pharmacies or telehealth platforms that market compounded drugs, the compounded drug advertising provisions would impose new disclosure and substantiation requirements that could fundamentally alter advertising strategies and promotional tactics. PE firms conducting diligence on companies with significant DTC advertising spend or compounding operations should assess the target’s promotional compliance posture with heightened scrutiny. The GLP-1 enforcement wave should be viewed as a preview of the regulatory environment this proposal would codify. Sponsors should assume aggressive enforcement will continue regardless of whether the proposal is enacted.
9. Data Retention and Fraudulent Data: New Enforcement Tools to Protect Product Integrity
The FDA proposes to establish express statutory authority to require retention of data and records supporting marketed medical products and marketed medical product applications, and to equip the agency with enhanced enforcement tools to address fraudulent or unreliable data submissions. This proposal reflects the agency’s response to a growing incidence of falsified, unreliable, or unverifiable data in premarket submissions and post-market inspections. The proposal would apply to data supporting both application-based medical products (drugs, biological products and medical devices subject to premarket review under New Drug Applications, Biologics License Applications, Premarket Approval Applications and 510(k) submissions) and non-application medical products (such as over-the-counter monograph drugs) where no individualized premarket application is required. The FDA has emphasized that the proposal would cover data generated across the total product life cycle, including data relied upon in premarket submissions and data generated during post-market manufacturing, inspections and remote regulatory assessments. The proposal would require that data supporting marketed medical products be reliable and verifiable “for as long as the product may be legally marketed,” including throughout the lifetime of the application or market authorization. This represents a significant expansion relative to existing record retention requirements under 21 CFR Part 11 and other applicable regulations, which generally specify retention periods measured from the date of record creation or product distribution rather than the duration of market authorization. The lifetime retention standard would have particular implications for long-marketed products and legacy applications.
For PE firms with life science portfolio investments, this proposal carries significant compliance and diligence implications. Portfolio companies that rely on third-party testing laboratories, contract research organizations or contract manufacturing organizations — particularly those located outside the United States — should implement robust vendor qualification, ongoing oversight and audit programs to ensure the reliability of data generated by third parties. FDA warning letter trends indicate that data integrity violations increased substantially in fiscal year 2025, with a reported 50% year-over-year rise in FDA warning letters to drug manufacturers, many of which cited good manufacturing practice and data integrity violations at third-party facilities. PE firms evaluating acquisition targets with significant foreign manufacturing or testing relationships should incorporate enhanced data integrity diligence into their pre-acquisition workstreams, including review of third-party qualification processes, audit histories and any prior FDA inspectional observations or warning letters.
Looking Ahead: The FY 2028 User Fee Reauthorization Cycle
It is important to view these legislative proposals in the context of the upcoming user fee reauthorization cycle. Key FDA user fee programs covering prescription drugs, medical devices, generic drugs and biosimilars are set to expire on Sept. 30, 2027, and Congress must reauthorize them to prevent significant disruption to FDA operations. The reauthorization process, which typically begins with direct negotiations between the FDA and regulated industries, is expected to commence in earnest in 2026. User fee reauthorization bills have historically served as the primary legislative vehicle for Congress to enact broader changes to FDA regulatory pathways. Many of the legislative proposals described in this alert could be attached to the user fee reauthorization package, making 2026 and 2027 a particularly active period for FDA policy development. Life science investors should closely monitor the reauthorization process as a potential catalyst for the enactment of one or more of these proposals.
McGuireWoods’ Life Sciences Industry Team continues to monitor legislative developments related to the FDA. For questions about related topics, contact the authors or a member of the team.
[1] Under the current statutory framework set forth in Section 351(k) of the PHS Act, a biosimilar must satisfy additional requirements demonstrating that it may be expected to produce the same clinical result as the reference product in any given patient — and, for products administered more than once, that the risk of switching between the biosimilar and reference product is no greater than the risk of using the reference product alone — before it may be designated as “interchangeable” and thus eligible for pharmacy-level substitution without prescriber intervention.