On the Eve of PDUFA Reauthorization, DC District Court Strikes Down FDA Interpretation of PDUFA

By Kurt R. Karst –      

In a June 25th decision from Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia, the court gave a mixed bag ruling on Cross-Motions for Summary Judgment (here and here) filed by FDA and Stat-Trade, Inc. (“Stat-Trade”) in a long-running dispute over FDA’s assessment of user fees under the Prescription Drug User Fee Act (“PDUFA”) in relation to the Stat-Trade’s NDA No. 020353 for NAPRELAN (naproxen sodium) controlled-release tablets, 375 mg, 500 mg, and 750 mg, and the Agency’s process for granting waivers for prescription drug user fees submitted by Stat-Trade.  Legal challenges to FDA’s interpretation and application of PDUFA have been rare over the almost 20-year existence of the statute.  In fact, the Stat-Trade decision is only the second court decision of which we are aware (see here). 

As we previously reported, Stat-Trade filed a Complaint and a Motion for Preliminary Injunction in October 2011 seeking to compel FDA to rule on the company’s PDUFA user fee exception and waiver requests.  Subsequently, Stat-Trade agreed to withdraw the company’s Motion for Preliminary Injunction after FDA agreed to rule on the company’s pending requests. 

Briefly, Stat-Trade alleged that for several years FDA incorrectly assessed fees for certain NAPRELAN strengths that are the subject of an approved ANDA listed in the discontinued section of the Orange Book.  FDC Act § 379h(a)(3)(B) excepts a “prescription drug product” from annual product fees if “such product is the same product as another product approved under an [ANDA].”  FDA and Stat-Trade disagreed as to whether this statutory exception applies in any situation where there is an FDA-approved generic equivalent (regardless of whether the product is listed in the active or discontinued section of the Orange Book), or whether it applies only when the generic is being actively marketed. 

Stat-Trade also submitted multiple requests to FDA seeking waivers of PDUFA fee assessments under the so-called Barrier to Innovtion (“BTI”) and Fees-Exceed-the-Costs (“FEC”) statutory provisions.  The BTI provision at 21 U.S.C. § 379h(d)(1)(B) requires FDA to grant a partial or complete waiver of fees to any company that can demonstrate that “the assessment of the fee would present a significant barrier to innovation because of limited resources available to such person or other circumstances.”  The FEC provision at 21 U.S.C. § 379h(d)(1)(C) requires a fee waiver if the fees “will exceed the anticipated present and future costs incurred by [FDA] in conducting the process for the review of human drug applications for such person.”  Under 21 U.S.C. § 379h(i), to qualify for consideration for a BTI or FEC waiver request “a person shall submit to [FDA] a written request for such waiver . . . not later than 180 days after such fee is due.”

In late October 2011, FDA denied Stat-Trade’s BTI requests for Fiscal Years 2009 to 2011, partially granted the company’s Fiscal Year 2009 and 2010 FEC requests, and refused to rule on Stat-Trade’s FEC request for Fiscal Year 2011 “on the grounds that it could not issue its final determination until it had calculated its standard costs for fiscal year 2011, which, it estimated, would not occur until June 2012 at the earliest.”  With respect to FDA’s interpretation of the “generic exception,” the Agency issued a formal decision affirming the Agency’s interpretation of FDC Act § 379h(a)(3)(B) that active marketing is necessary for the exception to apply.

In November 2011, Stat-Trade filed a two-count Second Amended Complaint alleging violations of the Administrative Procedure Act (“APA”).  Judge Jackson distilled the amended complaint down to the following in her decision:

Count I of the second amended complaint asks the Court to determine whether Stat-Trade is entitled to reimbursement of product fees it paid for the 375 and 500 mg strengths of Naprelan for fiscal years 2009–2012 as well as the amounts it paid to FDA in penalties, interest, and administrative charges for its late payment of product fees for fiscal years 2009–2011. This presents two distinct legal questions:

1)  Whether FDA exceeded its authority under the PDUFA by interpreting the generic exception provision to be limited to situations where the generic is not only “approved,” but also in active production; and

2)  If the Court finds that the exception should have applied, whether FDA abused its discretion and acted in excess of statutory authority by denying Stat-Trade’s request to correct the FY 2009–2011 invoices on the grounds that they were time barred by 21 U.S.C. § 379h(i).

Count II of the complaint asks the Court to determine whether Stat-Trade is entitled to reimbursement for the penalties, interest, and administrative fees that it paid to FDA for the late payment of fees that were eventually waived under the FEC waiver provision of PDUFA. This count also presents two distinct legal questions:

1)  Whether FDA’s decision to defer processing Stat-Trade’s 2011 FEC waiver request until it can determine standard costs for that year constitutes unreasonable delay and is arbitrary and capricious; and

2)  Whether it was arbitrary and capricious for FDA to refuse to review Stat- Trade’s 2009–2010 FEC waiver requests until Stat-Trade had abandoned or exhausted its appeals for its BTI waiver requests.

Judge Jackson addressed each issue in turn.  With respect to Count I, Judge Jackson, in applying the familiar Chevron analysis, found that the case can be resolved at Chevron Step One.  “Stat-Trade takes the position that the statute is unambiguous and so the obligation to defer to the department is not triggered in this case.  Looking at the text of the provision, the Court agrees; the exception plainly applies when there is an approved generic without further limitation,” wrote Judge Jackson in her 26-page opinion.  That win for Stat-Trade was short-lived, however.  As a result of the 180-day deadline for making PDUFA user fee refund requests, and Stat-Trade’s untimely filed refund requests for certain Fiscal Years, Judge Jackson ruled that Stat-Trade is not entitled to a refund of the fees for the untimely filed refund requests.  With respect to Fiscal Year 2012 product fees and Stat-Trade's timely request, however, Judge Jackson ordered FDA to refund the disputed fees.  Moreover, the decision is short-lived because Congress is poised to change PDUFA in a manner consistent with FDA's interpretation of the generic exception.  According to FDA, the change “will clarify FDA’s longstanding policy to use the active portion of the Prescription Drug Product List in the [Orange Book] to identify fee-eligible prescription drug products,” 

With respect to Count II, Judge Jackson found that FDA’s decision to defer processing Stat-Trade’s 2011 FEC waiver request until it can determine standard costs for that year does not constitute unreasonable delay and is not arbitrary and capricious under the APA.  “Since it is the statute, and not FDA policy, that requires waiver applicants to pay their fees before they receive the waiver, the Court cannot find FDA’s timetable to be unreasonable merely because the upfront payment imposes a burden on some companies.  Furthermore, FDA offers a reasonable justification for its method of calculating standard costs.”  As to the second issue under Count II, Judge Jackson said that the issue is moot as a result of FDA’s voluntary review of the waiver requests.

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