The European Commission has acknowledged the importance of government provided support to provide additional hospital beds and increase capacity in healthcare settings.

With its Temporary Framework for State aid measures to support the economy in the current Covid-19 outbreak the European Commission has established criteria under which aid for research and development and for the testing and production of products relevant to Covid-19 is compatible with the EU internal market. Under these rules, Member States' support for projects relevant to Covid-19 is privileged enabling access to public financing for research, testing and upscaling of Covid-19 relevant infrastructures and production. Cross-border collaboration is rewarded with increased aid intensities. Member States can support specific projects and also set up specific support programmes, each of which is to be approved by the Commission under State aid law. Aid that meets the criteria established is generally approved by the Commission within a short time.

Additionally, the European Commission and other regulators have lifted regulatory requirements in order to accelerate marketing authorisation for certain products. Conformity assessment bodies should, if possible, give priority and speed up the testing of Covid-19 relevant products and personal protective equipment. In addition, the Medical Devices Regulation initially supposed to enter into force this May has been postponed for one year. 

At the same time, the broader healthcare industry: (i) has quickly upscaled production of a broad range of products to respond to Covid-19 such as sterilizers, temperature measurements solutions, disinfectants or personal protection equipment; (ii) has developed a very large number of new solutions for Covid-19-testing; and (iii) is progressing on treatment alternatives and the development of vaccines. While the regulatory status of vaccines, testing kits and disinfectants is rather clear, there is room for manufacturers to influence applicable regimes by carefully defining the intended purpose of use in respect of other products. In particular, strict requirements under medical device law only apply to devices specifically intended to be used for human beings for a medical purpose.

Digitisation in the healthcare sector has been a promising vision for many years in particular with respect to new enhanced treatments as well as to manage cost pressure faced in many health systems. Just before the Covid-19 outbreak, Germany introduced a new piece of legislation providing for certain digital health applications that qualify as medical devices a fast track procedure into standard care reimbursed under the statutory health scheme. During the pandemic, digital health and telemedicine solutions become even more important since they promote social distancing and may help service providers avoiding economic losses by offering virtual appointments. The needs of the pandemic environment have overruled traditional concerns, and further increased demand by consumers has driven a broader use of technology.

We expect that this trend will further continue, and regulatory hurdles for digital health will be further reduced. Nonetheless, as with all digitisation projects, new regulatory hurdles will need to be navigated as a result of the use of innovative technology and the increased processing of sensitive personal data.

In recent years, there has been a trend towards stricter foreign direct investment (FDI) control regimes in the EU and its Member States. For example, at an EU-Level, the FDI Screening Regulation (EU) 2019/452, which is fully applicable only as of 11 October 2020, establishes a framework for the FDI screening and has triggered awareness and driven le-gal changes in many Member States.

The Covid-19 crisis has been a powerful catalyst in accelerating this trend. On 25 March 2020 the European Commission issued a guidance to the Member States on FDI, in which it encouraged the Member States to make full use of their FDI screening mechanisms and all available legal instruments to protect critical health infrastructure, the supply of critical inputs, and other critical sectors. The European Commission warned of increased risk of attempts to acquire healthcare capacities (for example for the productions of medical or protective equipment) or related industries such as research establishments (for instance for developing vaccines) via FDI.

Generally, governments are moving fast to prevent undervalued companies from becoming targets for opportunistic foreign takeovers in the pandemic. Protective measures ex-tend to a wide range of sectors, specifically including the healthcare sector and related critical technologies, including nanotechnologies and biotechnologies. A number of Member States, including Germany, France, Spain and Italy, have significantly tightened their FDI regimes in light of the pandemic – and further lawmaking is on the way.

Against this background, we have experienced a number of healthcare related transactions being impacted by FDI screenings of unprecedented intensity and scrutiny. Beyond the impact on costs and timing, authorities are often applying new laws against a backdrop of intense political pressure to protect local populations during the pandemic.

Most of these changes are here to stay and will continue to affect M&A-transactions after the pandemic. Also, further law-making and regulation is to be expected on the EU-level, by individual Member States and, of course, in other jurisdictions worldwide. We expect an ongoing trend of FDI becoming an even more important factor to be considered in healthcare related acquisitions.

The trend to protect the European industry from a drain due to FDI is accompanied by efforts to strengthen and develop capacities for research and production of certain health products, such as vaccines, pharmaceutical products and medical devices. Government intervention ranges from public funding and other incentives for production sites and research and development facilities to participation in certain enterprises considered of particular importance.

In this context, the EU has recently announced the launch of a new pharmaceutical strategy to improve and accelerate patients’ access to safe and affordable medicines and support innovation in the EU pharmaceutical industry, as well as to address risks associated with Europe’s dependency on third countries. Securing the supply and reducing the dependence on raw materials sourced from non-EU countries is at the heart of this strategy. The public consultation on the Pharmaceutical strategy for Europe will be open until 15 September 2020.

The Covid-19-pandemic will be ongoing for many months, if not years. Thus, the product related shifts in supply and demand will impact the industry for at least the medium term. Further, the pandemic is considered a wake-up call, reminding states of the vulnerability of their healthcare systems and their dependency on international supply chains. We expect this experience to reverberate in governments trying to seize control of their national health industry and to strengthen their functionality in a crisis. In Europe, we expect a joint approach by the European Union to strengthen European supply chains for the European health industry.

Though many ad-hoc measures, e.g. export-bans, specific funding and state aid, regulatory reliefs will be temporarily only, we expect certain changes to continue and result in a structural reform, particularly with respect to governmental intervention for strengthening supply chains, independency from third countries and managing FDI.

Our European healthcare regulatory teams have been supporting our clients on a wide range of activities, including the marketability of Covid-19 related products, public funding for Covid-19 relevant activities and foreign investment control.