Life Sciences: Highlights and predictions

Europe’s Digital Decade comes into effect

2024 was the year Europe’s Digital Decade started to impact our clients. Many new regulatory requirements are coming into effect and will change the game for data-driven industries, particularly within the life sciences sector. In 2024, the AI Act was finally adopted, and we passed the deadline for Member States to implement NIS2. Many life sciences clients also adopted the first generative AI solutions during 2024, and it became clear that AI will fundamentally change the life sciences industry. Many clients have also started taking measures to comply with the new cybersecurity requirements introduced by NIS2 and the Critical Entities Resilience Directive. These initiatives reflect the evolving threat landscape that will impact both the industry and society.

For further information on the Danish implementation of the EU Critical Entities Resilience Act and NIS2 read here and here (in Danish).

Full impact of new regulatory wave

If 2024 marked the beginning of the regulatory wave’s impact during Europe’s Digital Decade, then 2025 will be the year when its full effects are realized. With the AI Act, Data Act, and NIS2 coming into force, life sciences clients will have to stay sharp to navigate the new regulations. The AI Act will impact artificial intelligence used in the life cycle of medicinal products and on medical devices relying on artificial intelligence. Companies that have not yet done so should definitely start getting acquainted with the new AI Act and the impact that it may have on their products and services.

Cybersecurity will continue to play an important role and will affect all aspects of our clients’ organizations and culture. 2025 will also be the year many life sciences clients will start transforming their way of working by implementing AI systems at the core of the business. With even more regulations on the horizon, including the European Health Data Space, many life sciences companies will also spend 2025 preparing and establishing the data governance needed to navigate the digital future.

New life sciences strategy and reforms

The Danish life sciences and healthcare industry has developed significantly over the past decade. Today, the industry is one of Denmark’s most important business strengths.

In efforts to ensure that the industry has the best conditions, the Danish government launched in November 2024 a new life sciences strategy towards 2030. The vision is for Denmark to be a leading life sciences nation in Europe. A similar ambition is being worked on in parallel at EU level to strengthen the region’s position and competitiveness, primarily in relation to the US and China. Main priorities of such strategy may be (i) greater focus on transforming innovation into products/services, (ii) ensuring that EU is the preferred region for R&D and manufacturing, (iii) supporting and levering a sustainable investment eco system, and perhaps (iv) the establishment of an EU Office of Life Sciences accountable for delivering results.

In 2024, we also saw the preparations of the reform of pharmaceutical legislation and related IP rights at European level, which, in our view, and despite good intentions to ensure timely and equal access to medicines for patients in the EU, may challenge the competitiveness of the European pharmaceutical industry – and particularly affect the companies that develop new and innovative medicines.

In 2024, we also saw the impact on the complex regulatory environment and the frequent monitoring and enforcement by the Danish regulatory authorities, such as the Danish Veterinary and Food Administration and the Danish Medicines Agency.  For instance, the results of a 2024 inspection campaign by the Danish Veterinary and Food Administration, which focused on companies’ use of health claims for food supplements, revealed that six out of ten companies (61%) were sanctioned for allegedly using non-compliant health or medicinal claims.

You can read more in Gorrissen Federspiel’s newsletter on the Danish Veterinary and Food Administration’s inspection here.

In July 2024, the new Regulation (EU) 2024/1938 on standards of quality and safety for substances of human origin intended for human application (“SoHo Regulation”) was published in the Official Journal of the EU, and while the SoHo Regulation does not become applicable until August 2027, companies should already now start assessing how the new rules on quality and safety for use of substances of human origin may impact their activities.

Several new EU reforms underway

Looking to 2025, several reforms and strategies are underway to keep EU at the forefront within the life sciences and healthcare sectors.

In an attempt to harmonize EU legislation on availability and affordability of medicinal products, the European Commission published its proposal for a reform of the pharmaceutical legislation in April 2023. This proposal has been widely reported and consists of a proposal for a new pharmaceutical regulation, a new pharmaceutical directive, and recommendations regarding antimicrobial resistance. As it currently stands, the proposal includes, among others, measures that would see the shortening of the periods of regulatory data exclusivities available for new medicines and a series of measures aimed at securing the supply of critical medicinal products across the EU and at preventing shortages.

The European Parliament adopted its position on the reform in 2024, and it will be interesting to follow the continued legislative train in 2025, where the Council is yet to adopt its position.

For further information about this subject, please read here, here, here, and here (for subscribers of Dagens Pharma only).

In October 2024, the European Parliament issued a parliamentary resolution on the urgent need to revise the regulations on medical devices to ensure better availability and affordability of medical devices within the EU. With the resolution, the European Parliament has called for concrete actions from the European Commission already in early 2025.

From January 2025, the regulation on health technology assessment (the “HTA Regulation”) has applied which is relevant for both medicinal products and medical devices. Health technology assessments (“HTAs”) are part of the process by which competent authorities can determine the relative effectiveness, safety and cost-benefit of new and existing health technologies. The HTAs are normally used to inform decisions on patient access and allocation of budgetary resources within national healthcare systems. The HTA systems in the EU have been somewhat fragmented, with differences between national laws and administrative procedures, which has resulted in companies often having to navigate multiple national systems and requirements across the EU. The HTA Regulation aims to improve the availability of innovative health technologies, to strengthen the quality of HTAs across the EU, and to reduce the need for multiple national HTAs. To do this, the HTA Regulation will establish systems for joint clinical assessments, joint scientific consultations, and joint identification of new health technologies. Certain selected medicines will gradually become subject to common clinical assessments, and subsequently the European Commission is expected to adopt decisions on medical devices and in vitro diagnostic devices to be subject to the common clinical assessments.

Within the food sector, the European Commission’s Vision for Agriculture and Food initiative will among other things focus on supporting the agri-food industry. Furthermore, work is still ongoing at the EU level to establish harmonized maximum levels in terms of fortification, including for vitamins and minerals. Since Denmark has national limits for these substances, the industry may welcome harmonization across EU markets (depending on the final limits).

A number of other national and EU legislative measures are entering or will enter into force or become applicable in 2025, e.g. within the area of unitary supplementary protection certificates, ESG, and cybersecurity. Worth mentioning is the fact that the Council of the European Union has formally adopted the Regulation on the European Health Data Space (“EHDS Regulation”) in January 2025. The primary objectives of the EHDS Regulation are to increase the EU citizens’ digital access to and control over their own health data, facilitate exchange of health data across the EU, and foster a system for re-use of health data for research and innovation. With the Council’s adoption of the EHDS Regulation in January 2025, it can then be expected to enter into force around April 2025.

Trend towards non-liquidation preference: Tax implications to consider

In Danish biotech companies, market practice has for many years been for investors to hold participating liquidation preferences, allowing investors to receive their initial investment back upon an exit event, plus their pro rata share of any remaining proceeds distributed to all shareholders.

Many US investors are used to non-participating preferences, whereby investors receive the greater of either (i) a fixed, predetermined preference amount or (ii) the proceeds they would receive if their preference shares were converted into ordinary shares.

We sometimes see a request from US investors investing in Danish companies to convert an already existing participating preferences into non-participating preferences.

If this is accommodated or if other changes to the preference class structure are contemplated, it is important to be aware that such changes can have potential tax implications. More specifically, it may be a taxable event potentially triggering taxation for both shareholders and holders of other financial instruments, such as warrants. Therefore, it is crucial for companies and investors to carefully assess the tax consequences before proceeding with any changes to the liquidation preference.

Continued development in FDI practice

Since 1 September 2021, Denmark has had rules in force regarding screening of foreign (i.e., non-Danish) investments  in Danish companies (“FDI”) within certain sensitive sectors and activities. These rules are highly relevant for the life sciences sector, as many activities within the biotechnology, healthcare, and pharmaceutical industries fall under the Danish FDI regulations. As a result, prior approval from the Danish Business Authority (“DBA”) may be required before completing certain foreign investments or agreements with Danish companies within the relevant sectors.

Below, we highlight certain key developments in Danish FDI practice relevant to the life sciences sector:

• Filing threshold: Foreign investments require authorisation from the DBA when the investment is within a particularly sensitive sector, and the investor acquires at least 10% of the shares, voting rights, or similar control by other means.
• According to the DBA, the right to appoint a member of management (either executive management or a board member) constitutes such similar control by other means. Investments below 10% of shares or voting rights, as well as other instruments such as (convertible) loans, will thus require approval if they include a right for the foreign investor to appoint a member of management. Other examples of similar control by other means are certain veto rights, and other rights to exert influence on significant matters, e.g. financial, economic or operational decisions, for instance pursuant to a shareholders’ agreement.

• Covered sectors: The particularly sensitive sectors under the Danish FDI rules cover, amongst others, a wide range of companies within healthcare and pharmaceuticals, including companies that produce prescription drugs. In some cases, the Danish FDI rules also apply to entities developing prescription drugs, even in the early stages of the development phase. However, this is not always the case. Due to this uncertainty, pre-screening/pre-notification of a transaction concerning such companies is often advisable, as the process is relatively fast and can be completed before finalizing the transaction agreement.
• The rules also apply to companies that develop or produce technologies that fall within biotechnology in synthetic biology. The term synthetic biology is not further defined in the Danish Investment Screening Act or in official guidance from the DBA, leading to some uncertainty regarding its precise scope. However, our experience is that according to the DBA it covers a wide range of biotech companies.
• Special financial agreements: Special financial agreements – i.e. certain joint venture agreements, supplier agreements, and operation or service agreements – may also fall under the authorisation requirements if they are concluded between a non-EU supplier and a Danish target operating within the particularly sensitive sectors and activities.

The Danish FDI rules should be considered at an early stage in investments and other transactions, as they may ultimately affect the overall timing of the transactions.

Positive trends for investments

In our view, the outlook for M&A in the life sciences sector in 2025 is promising with several factors contributing to a potentially vibrant market. While geopolitical tensions and high interest rates may cast shadows, this optimism can be based on, among others:

• Patent Expirations: The pharmaceutical industry is approaching a significant patent cliff, with drugs that currently generate up to EUR 180 billion annually set to lose patent protection by 2030. This is likely to drive companies to compensate for revenue losses through acquisitions.
• Portfolio Specialization: Companies are streamlining their product portfolios to enhance therapeutic specialization, which may lead to increased activity through sales or licensing of strategically less aligned products.
• Private Equity Interest: Capital-rich private equity funds are increasingly focusing on life sciences companies, both biotech, pharmaceutical and medical devices, driven by the need to allocate uninvested capital and create new growth cases.

Read an article on the 2025 outlook of the life sciences sector published in “Dagens Pharma” by Martin Dræbye Gantzhorn, partner at Gorrissen Federspiel, here (in Danish).

New initiatives for Danish start-ups

In 2024, we saw an increased focus from the Danish parliament on the significance of the life science sector and aims to accommodate the sector through tax initiatives and reliefs under the umbrella of joint initiatives aimed at Danish start-ups and entrepreneurs (in Danish: “Iværksætterpakken”).

Most significant initiatives implemented in 2024 – which have entered into force on 1 January 2025 – of relevance to the life sciences sector were:

• Tax exempt dividends from portfolio shares (shareholdings of less than 10%) making it more attractive for corporate investors to invest in Danish life sciences companies (corporate shareholders holding 10% or more were already tax exempt).
• Improved utilization of tax loss carryforwards, where the threshold for full offsetting against positive taxable income has now been raised from DKK 9,457,500 to DKK 20,829,000.
• Improved conditions of the expatriate tax regime, where the salary requirement has been reduced by DKK 15,000 to a minimum monthly wage of DKK 63,000, which makes it easier to attract skilled foreign employees.
• Increased possibility of having tax loss carryforwards paid out in cash under the tax credit scheme from DKK 5,5m to DKK 7,5m (both tax value)

Two other tax topics in 2024 were (i) an increased focus on movable assets and structuring of license agreements, which tax treatment can be business critical for life sciences companies, and (ii) incentivization of employees through share-based incentive programs, where Danish tax rules provide some tax breaks for employees.

In our experience, the requirement for even more extensive transfer pricing documentation has increased the compliance burden, especially due to the complexity of intercompany transactions in the life sciences sector companies.

Improved regulations on earn-out payments and incentive programs

Looking at the political tax initiatives from 2024, we expect 2025 to bring even more new improved regulation:

• Easement of taxation on earn-out payments providing for a possibility to defer tax triggered in connection with the sale of shares or assets, where payment of the purchase price is based on milestones. This initiative is aimed at the life sciences sector, but it is likely to be implemented as a general initiative across sectors.
• Improvement of the special tax regime under section 7 P of the Danish Tax Assessment Act, which would make share-based incentive programs more attractive, as more of the value under the program could be taxed as share income (42%) rather than at a higher tax rate as personal income (56%).

The Danish government has published a draft proposal to amend the deferral rules for tax triggered on milestone payments, which would significantly reduce the liquidity issue for individual shareholders today subject to dry capital gains taxation, just as companies selling assets now can defer tax on the gain until the milestone payments are received. However, the expected new deferral rules do not appear to accommodate income tax triggered for employees participating in an incentive program, where tax is triggered upon exercise of warrants or option, which is treated as salary income. We have filed a consultation paper in that regard, and it remains to be seen whether the issue will be solved in the final legislative proposal.

With respect to improvement of section 7 P of the Danish Tax Assessment Act, a draft proposal is still pending, as the initiative has to be approved by the EU-Commission, but the improvements look to increase the value of share-based remuneration that may benefit from the lower tax rate, while introducing base salary as a condition. However, it will be interesting to see if the beneficial tax regime for employees is due for a major update or changes are limited to i.e. only abolishing the 50% threshold for start-ups.