A Sector at a Crossroads

The Italian life sciences sector is entering a transformational era, in no small part thanks to global competition, regulatory changes and constant M&A activity. Italy remains the world's sixth-largest exporter of medicines and the third-largest exporter of packaged drugs after Germany and Switzerland. Further, Italy is a country where, in many sectors including healthcare and life sciences, companies are still owned by private shareholders. As a consequence of the latter, there is significant interest from investors willing to support the sectors growth and the development of special projects.

The Italian pharmaceutical market: a snapshot

According to market data analysts, the Italian pharmaceutical market continues its steady growth trajectory, with revenues reaching approximately USD60 billion in 2024 and projections suggesting the market will expand to over USD80 billion by 2030. This growth is fuelled by several structural factors, including an aging population that is among the oldest in the world, the increasing burden of diseases and the subsequent need for treatments.

Italy's healthcare system is predominantly publicly funded, with the National Health Service covering the vast majority of the population through general and regional tax revenues. Private health insurance plays a supplementary role, covering a limited portion of the Italian population. This public-centric model creates both opportunities and constraints for pharmaceutical companies, as pricing and reimbursement dynamics remain critical factor of commercial success and efficiency.

Regulatory reform at the European level

The year 2025 marked an important moment for pharmaceutical regulation in Europe, with significant implications for companies operating in Italy. The European Parliament and Council of the European Union ("Council") reached agreement on the EU Pharmaceutical Package, a comprehensive reform designed to modernise the regulatory framework for medicinal products and strengthen medicine supply security and competitiveness. The reforms include a new framework both for data protection period with potential extensions, streamlined approval pathways, and enhanced provisions addressing specific sectors.

In parallel with the pharmaceutical reforms, the European Commission (EC) published its proposed Biotech Act in December 2025, aimed at strengthening Europe's biotechnology sector and accelerating the transition of innovation from research to market. The proposal introduces new funding mechanisms and seeks to incentivise companies to conduct research and production within the EU. For Italian biotech companies, which have historically struggled to compete with their counterparts in larger markets, these measures, coupled with tax incentives and the continuing ability of Italian academy to generate innovation, could represent a meaningful opportunity to attract capital and scale operations domestically.

The EC has also proposed targeted revisions to the Medical Devices Regulation and the In Vitro Diagnostics Regulation, introducing measures intended to simplify compliance while maintaining safety standards. This is coupled with the provisions of the AI Act, which will limit and regulate the recourse to AI-based technology and thus trigger adaptive measures for producers of medical devices that what to distribute products in the EU and in Italy.

This regulatory scenario still poses industry concerns surrounding duplicative compliance burdens and should thus incentivise innovative approaches and an increasing role for legal and compliance advisors in the Italian market.

The AIFA landscape: pricing, reimbursement and policy debates

In Italy, alike it happens in other EU countries, the National Medicines Agency remains the central authority for pharmaceutical governance, managing price negotiations and reimbursement decisions for medicines covered or reimbursed by the National Health Service. In December 2025, the Agenzia Italiana Del Farmaco (AIFA) updated its guidelines for Health Technology Assessment dossiers supporting pricing and reimbursement applications, with the new framework set to apply from April 2026.

Specific mention should be given to the ongoing debate within AIFA regarding potential new pricing mechanisms. Reports indicate that AIFA is considering a mechanism of automatic price renegotiations based on company profits, and the measure has triggered significant industry concern. Critics argue that Italian drug prices are already among the lowest in Europe and that further pressure to reduce of prices could undermine the country's attractiveness and therefore affect patients access to drugs, as has been witnessed in other EU countries.

This discussion is obviously affected by the global market scenario including the role of tariffs and industry players exporting drugs from Italy to other countries. Regional fragmentation, regulatory uncertainties and bureaucratic delays in market access further complicate the national scenario.

The 2026 Budget Law introduced several measures impacting the pharmaceutical sector, including a reduction of the Innovative Medicines Fund and an increase in overall pharmaceutical spending caps.

The rise of artificial intelligence (AI) in drug development

AI is rapidly cementing its place in the industry, from supplementing data management practices to transforming clinical trials and research, which naturally leads to its involvement in drug discovery.

In early 2026, the European Medicines Agency and the US Food and Drug Administration jointly published guiding principles for good artificial intelligence practice in drug development, highlighting AI's potential to foster innovation, accelerate regulatory approvals, and support pharmacovigilance activities. In increase in regulation and policies is expected to efficiently facilitate the increasing use of AI and at the same time regulate its perils and abuses.

For Italian pharmaceutical and biotech companies, the adoption of AI tools presents both opportunities and compliance challenges. The European AI Act limits and regulates the use of AI systems, including those used in medical contexts. The life sciences sector is getting used to this new tool, and its regulation will follow suit.

Mergers, acquisitions and investment dynamics

Italy's life sciences sector continues to see a positive trend in deal activity, with M&A transactions in the health industries growing by size and deal count. This activity reflects global dynamics, including the need for pharmaceutical companies to concentrate research and development (R&D) resources, acquire innovative assets and support their supply chain in an uncertain global context. Those factors increase the recourse to M&A for growth, together with traditional forces driving healthcare and life science companies to grow by lateral acquisitions of assets and companies.

The Italian government has taken significant steps to attract foreign direct investment, introducing single-authorisation procedures for large-scale projects and keeping the number of transactions triggering limitations or commitments to very low figure. Many Italian regions now operate as Special Economic Zones, offering incentives, tax credits, and benefits for companies and workers. These measures, together with a historically high level of medical education and research talents, make Italy a good choice for investments. Italy may not be Silicon Valley, but Italian ideas continue to be a sound investment.

The legal market in Italy for M&A advisors is very sophisticated and financing transactions are well structured and regulated to support this growth in the healthcare space. There remains a number of Italian law firms with practice groups specialising in the life sciences space of transactional M&A, but those populating the wider M&A space are very well established and have strong reputations internationally.

Italy's biotech ecosystem: emerging players

Italy's biotech sector is still smaller than those of other EU countries, although the universities are still material contributors of very good quality and innovative work for the benefits of innovators, and ultimately for patients. A number of industrial groups are supporting research foundations and accelerators of ideas to increase the growth and value of ideas. Private investors follow and seek to implement legal structures to accelerate innovation and put capital at work also in the growth space of life sciences. The EC's proposed Biotech Act could provide support for these emerging players, enabling them to scale operations and compete more effectively in global markets.

Nevertheless, Italian biotech companies continue to face challenges related to access to access to capital, especially from equity capital market, regulatory complexity, and the time required to achieve market authorisation and reimbursement. The proposed Biotech Act may offer opportunities to improve the legal scenario and allow those initiatives to thrive.

Tax incentives and fiscal considerations

Italy's 2026 Budget Law introduces fiscal measures that may benefit life science companies making new investments. The law provides for an enhanced depreciation regime as well as the use of tax-suspended subject to a 10% substitute tax, potentially freeing up capital for reinvestment.

The use of R&D credits is still subject to significant scrutiny by the agencies, and therefore specific tax due diligence for acquisition of companies historically active in the R&D space is recommended. The same applies in general for proper structuring of extraordinary transactions, where the contribution of tax advisors is certainly appropriate.

Compliance, governance and corporate liability

The compliance landscape for life science companies operating in Italy continues to evolve, with new requirements affecting whistleblowing, corporate criminal liability, and data protection. The Italian National Anti-Corruption Authority published final guidelines on internal whistleblowing reporting channels in December 2025, providing operational guidance for entities subject to the Italian whistleblowing decree. These guidelines set out procedures, roles, and responsibilities for handling reports and provide instructions for aligning compliance programmes adopted pursuant to Legislative Decree 231 on corporate criminal liability.

In general, the sensitivity of Italian authorities to compliance standards and procedures reaches a higher level whenever the health sector is relevant. That is even more true in the discussions regarding healthcare industry and all activities that are funded with public money, therefore including reimbursements and payback procedures. The Ministry of Justice also published a report on the reform of corporate criminal liability, giving statutory recognition to essential elements of compliance programmes including risk mapping, preventive protocols ensuring segregation of activities, and adequate information flows. Italian companies are, in general, increasing the level of preventive compliance, and extraordinary transactions in the Italian healthcare sector are seeing the introduction of covenants and obligations, both pre-closing and post-closing, aimed at isolating and managing compliance risks between the parties to the transaction.

Looking ahead: strategic considerations for legal practitioners

As 2026 unfolds, legal professionals advising the life sciences sector in Italy will need to balance multiple competing priorities. Legislation regarding ordinary processes such as supply chain, market access dynamics and R&D require a proper management and the contribution of external advisors is essential to raise the level of compliance and preserve the attractiveness and market positioning.

On the corporate side, the favourable M&A environment and government incentives for investment present opportunities for strategic transactions, though navigating foreign investment screening, competition review, and corruption risk assessment will require sophisticated legal guidance. Proper tax structuring preserves value in extraordinary transactions and ensure correct management of risks. Finally, the heightened emphasis on supply chain resilience and potential compulsory licensing mechanisms introduces considerations that clients must address in their long-term strategic planning.

Italy's life sciences sector stands at the intersection of scientific innovation and regulatory transformation. For legal practitioners willing to develop deep expertise in this specialised field, the opportunities to add value for clients is substantial. The year ahead promises to be one of both challenge and opportunity, and those who navigate it successfully will help shape the future of healthcare innovation in one of Europe's most important markets.