Pharmaceutical Manufacturers and Consumers, and Congressional Democrats and Republicans AGREE to Increase, Expand and Extend the FDA User Fee Program

Posted by William P. Conaboy Jr. on August 15, 2012
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President Obama recently signed a bipartisan bill that authorizes Food and Drug Administration (“FDA” or “Agency”) user fees for five more years and establishes new user fees for the FDA’s review of generic drugs and biosimilar products.[1]  The bill reauthorizes the Prescription Drug User Fee Act (“PDUFA” or the “Act”), a law originally passed by Congress in 1992.  PDUFA permits the FDA to collect user fees from drug manufacturers to fund, among other FDA endeavors, new drug and medical device approval.  The most recent reauthorization of the bipartisan bill, which increases the amount of money drug and device manufacturers must pay the FDA to review a new drug or device application, has gained the support of both Congress and the pharmaceutical industry.

The most recent version of the bill should hasten consumer access to new drugs, and also improve the quality of drugs currently on the market.  While at the heart of the bill is the reauthorization of the FDA’s user fee program, several other provisions “will help. . . protect patients from drug shortages and manufacturing problems, and enhance the availability of low-cost generic drugs,” according to Senators Tom Harkin (D-Iowa) and Mike Enzi (R-Wyoming).  Several of these provisions will be discussed below.

Origin of the User Fee Program

The FDA’s drug and device approval process is relatively straightforward: to get a new drug, device or biologic to the market, manufacturers must submit an application to the FDA.  If the FDA approves the application, the drug can then be marketed to customers.  However, when there are no FDA employees to review applications, they pile up.  The resulting backlog denies consumers access to potentially life-saving medications and costs manufacturers millions of dollars in potential revenue, as the drug, device or biologic awaits FDA approval.  Congress enacted the first version of PDUFA nearly 20 years ago to reduce this backlog and to decrease the time it took new drugs to reach the market.

Today, user fees supplement, but do not replace, Congressional appropriations.  The fees are used to fund the approval process and support FDA employees and programs.  The amount of user fees collected by the FDA has increased over the past twenty years.  This is mostly due to the user fee program’s expansion; for instance, the 2002 reauthorization expanded the user fee program to include new device applications and resulted in over $200 million in additional user fees collected in the following 5 year period.  Interestingly, many of these fee increases have come at the request of the pharmaceutical industry.  While at first blush a drug manufacturer requesting increased approval fees seems counterintuitive, the fact is that the increased fees are a bargain when compared to the cost to manufacturers of delays in the approval process.  For example, at the time the original PDUFA was passed, the FDA estimated that a one-month delay in a drug’s approval cost the manufacturer an average of $10 million. With that understanding, it’s easy to see why manufacturers were (and are) eager to pay significant fees to have a new drug reviewed.

PDUFA I-IV

PDUFA has a five-year sunset provision and, thus, must be reauthorized every five years.  Accordingly, there have been 4 iterations of PDUFA since its inception in 1992.  Like the 2012 reauthorization, each of the previous four versions of the Act, as discussed below, has expanded the program and increased user fees.

1.  1992: PDUFA I – PDUFA I supplemented federal FDA funding with manufacturer dollars.  The goal was to expand the FDA workforce, reduce the time it took to review new drug applications, and increase consumer access to potentially lifesaving medications.  The inaugural version of the Act collected fees from three sources: (1) application review fees paid by new drug or biologic applicants; (2) facility fees paid by a manufacturer for each facility it owned; and (3) product fees paid by a manufacturer for each product it had on the market.  By 1997, PDUFA I had significantly reduced application review times for new drugs and biologics by providing the FDA with an additional $87.5 million a year to devote to the new drug evaluation process.[2]

2.  1997: PDUFA II – Pursuant to the second reauthorization, the FDA collected an estimated $740 million in fees over a 5-year period and increased the scope of the FDA’s authority to allow the Agency to intervene at the investigational phase of a drug’s development.  PDUFA II also modernized the application review process by eventually requiring electronic new drug applications.  Most importantly, however, PDUFA II facilitated better communication between drug makers and the FDA by allowing face-to-face meetings early in the drug development phase.  These changes reduced errors in the application process and, in turn, improved application review time.

3.  2002: PDUFA III – PDUFA III called for dramatic increases in user fees.  Specifically, the Act’s third reauthorization led to an increase from $177 million in user fees collected in 2002 to $259 million in 2007.  The increased revenue was generated by gradually increasing new drug application fee rates from $311,000 in 2001 to $576,000 in 2007. The increased user fees funded an infusion of resources and allowed the FDA to hire over 400 new fulltime employees.  PDUFA III also authorized the FDA to conduct post-market safety reviews of new drugs for up to three years.

4.  2007: PDUFA IV – By 2007 the FDA was collecting nearly $259,000,000 in annual user fees and PDUFA had the full support of the pharmaceutical industry, Congress and consumers.  The program was largely viewed as a success.  PDUFA IV ushered in a new era of enhanced FDA safety concern by using increased revenue from user fees to hire new employees to review Risk Evaluation and Mitigation Strategies (“REMS”), which, after 2007, were required to be filed with each new drug or biologic application.  PDUFA IV authorized the FDA to require a REMS – an analysis proving that a drug’s benefits outweigh its risks – if the Agency  determined that a drug’s adverse effects were particularly severe.  PDUFA IV also gave the FDA the right to require a drug or device manufacturer to submit a REMS after a drug had already been approved if new safety information becomes available.  Finally, PDUFA IV added monetary penalties for false or misleading direct-to-consumer advertising and required advertisements to both list, and encourage patients to seek medical attention for, a drug’s potential adverse effects.

PDUFA V

The most recent reauthorization will increase the fees pharmaceutical and device manufacturers pay the FDA by nearly $2 billion over the next five years.  In total, the FDA will collect nearly $6 billion in user fees over that same period to help fund its various programs.  While reauthorization of the user fee program is the bedrock of the bipartisan legislation, and the fees collected will be critical to fund the FDA’s review capabilities, there are many other noteworthy provisions contained in the bill, such as:

1.  Generic Drug and Biosimilar Manufacturers May Now Participation in the User Fee Program.

Manufacturers of generic drugs and biosimilar products successfully petitioned Congress to grant the industry access to the FDA’s user fee program.  The user fees collected from generics manufacturers increase FDA funding so that the Agency can hire more employees and expedite the generic application review process.  The FDA estimates that it will collect $1.5 billion over the next five years from generic manufacturer user fees, allowing the Agency  to hire 200 additional employees over that same time period.  Manufacturers hope that the additional revenue generated from the user fees will be used to reduce an FDA backlog of nearly 2500 generic drug applications.  If the past success of the user fee program is any indication, allowing generic manufactures to participate in the user fee program should benefit both consumers and manufacturers by getting generic drugs to the market quicker.

2.  PDUFA V Increases the FDA’s Foreign Inspection Authority and the Ability to Crackdown on Counterfeit Drugs.

Margaret Hamburg, the Commissioner of the FDA, stated that “the [additional] money from user fees [under PDUFA V] will. . . eventually ensure that [the] FDA is able to inspect overseas facilities as often as it does domestic facilities.”  This is because PDUFA V gives the FDA the power to compel inspections of overseas drug facilities in foreign countries if a drug is manufactured in the U.S.  It also authorizes the FDA to block a product’s entry into the U.S. if a manufacturer refuses to grant the FDA entry to a manufacturing facility to conduct inspections.  Because nearly 80 percent of the raw ingredients in American’s medications are manufactured overseas, the ability to conduct overseas inspections is critical to cracking down on fake and counterfeit drugs.  Finally, the bill increases the maximum penalty for drug counterfeiting to 20 years, or a $4 million fine, from just 3 years, or a $10,000 fine.

3.  PDUFA V Contains Incentives to Develop New Antibiotics and Innovative Medications for Life-Threatening Diseases.

PDUFA V also requires the FDA to develop and maintain a list of qualifying pathogens for which manufacturers, if they develop drugs to treat these pathogens, would receive an extra 5 years of market exclusivity.  These manufacturers would also recieve priority review and fast track status.  Priority review reduces the Agency’s review time from 12 months to 8 months, and fast track status provides for increased communication between manufacturers and the FDA.  Together, these two processes prioritize a drug’s review and get a drug to the market as quickly as possible.  The bill also provides for priority review and fast track approval of first-of-a-kind medicines to treat life threatening diseases and reduces the size and cost of clinical trials normally required to get these drugs to the market.  Ideally, the reduced time to market, coupled with an additional five-years of market exclusivity, will encourage manufacturers to develop medications that might not otherwise be profitable.

4.  Reduction in Drug Shortages.

Title X of PDUFA V seeks to reduce drug shortages, which have become a significant problem over the past decade.   This section requires at least 6 months’ notice by a manufacturer prior to halting or interrupting the production of certain drugs.  Previous versions of the FDA’s drug shortage notice requirement only required notice if a manufacturer planned to discontinue production altogether.  Title X also makes all drugs used in emergency medical care subject to drug shortage notification requirements.  This, too, is a significant departure from previous drug shortage notification requirements, which required notice only if a manufacturer was the sole manufacturer of a drug.

Conclusion

Considering the current Congressional environment, where both sides of the aisle refuse to compromise in the slightest, it’s refreshing to see a piece of legislation nearly everyone can agree on.  The Act, now in its fifth iteration, is truly bicameral and bipartisan.  PDUFA is even more rare in that both the industry it regulates and the consumers it serves agree that it plays a valuable role.


[1] A biosimilar product is a generic version of a biopharmaceutical product made by a subsequent manufacturer after a  market exclusivity period for the innovator product has expired.

[2] Report by Michael A. Friedman, M.D, Acting Commissioner of Food and Drugs, PDUFA II Five Year Plan, July 1, 1998.

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