FDA GRAS Rule Could Hinder Food Innovation

FDA’s proposed rule to make GRAS notification mandatory could delay or complicate funding and deals for companies developing novel ingredients, according to food-and-beverage lawyer Daniel Tavakoli. The change would shift the current voluntary notification into a mandatory requirement, adding a new layer of regulatory scrutiny that investors and partners may view as a risk factor.

The rule, drafted on Aug. 11, would require companies to submit a GRAS determination to the FDA, rather than leaving the process to internal dossiers. Failure to comply could become a factor the agency uses when prioritizing a substance for post-market review. The proposal also offers a limited time-lapse option for certain intended uses of substances already in interstate commerce, and it updates the exemption threshold for human food to reflect new scientific guidance. Substances used in both food and as food-contact materials would also be covered.

Rule Changes and Impact

If the rule passes, the framework will make GRAS risk a visible and quantifiable element of due diligence. Investors, strategic partners and potential acquirers will need to understand the substances in each product, the GRAS pathway, the conditions of use, the supporting record and any prior FDA interactions. The goal is to assess not just the position a company is taking, but where that position originates and how well it is supported.

Stakeholders will also want to test the support behind a GRAS conclusion. This involves verifying that documentation matches the substance and its use, checking that analysis and exposure assumptions remain current, and ensuring that public scientific support is sufficient. Knowing who holds the records-whether the manufacturer, supplier or target company-is critical, because the defensibility of a GRAS position can affect the cost of remediation.

Due Diligence Shifts

The shift could matter especially for early-stage companies. An unresolved GRAS issue could become a financing or partnership hurdle before an ingredient ever reaches commercialization. After a due-diligence process of this magnitude, a company may need to update its GRAS portfolio, which could include expert reviews, additional testing and potential reformulation. Cooperation with suppliers is often required if the records are not held by the target.

Investors might consult stats to gauge how the rule could affect funding trends, while companies could review their fixtures to ensure all ingredient data is documented. Potential acquirers may look at the expertise of the ingredient development team, sometimes referred to as the “squad,” to assess the risk profile.

Strategic Implications for Innovators

The proposed rule will complicate timelines for stakeholders that want to invest in or acquire a company before or while it is notifying the FDA of its GRAS status. That could leave investors and acquirers exposed to the cost of additional testing, reformulation or other remediation after the deal closes. Buyers could seek specific deal protections, rather than relying solely on general representations and warranties, or require the seller to remediate problems before closing.

Daniel Tavakoli notes that the rule is very new, so investment or M&A evaluations will be fluid based on how the final rules end up and the liability allocation thereunder. He advises that having a well-supported and organized GRAS portfolio reduces uncertainty and speeds execution. For sellers in the market, that speed is key and something to think about, along with how to set up a proper portfolio, track those things and think about compliance.

The article was published by Food Navigator. The proposed rule could leave investors and acquirers exposed to the cost of additional testing, reformulation or other remediation after the deal closes.