Escape Hatch: New Legislation Seeks to Provide a Way Out for Some Companies Subject to GDUFA User Fees

December 3, 2013

By Kurt R. Karst –      

Earlier this week, Representative Robert Hurt (R-VA) introduced new legislation – H.R. 3631, the Small Manufacturer Protection Act of 2013 – that, if enacted, would bring relief to some companies that are required to pay user fees under the Generic Drug User Fee Amendments of 2012 (“GDUFA”).  Although GDUFA user fees are significantly less than those fees paid by brand-name companies under the Prescription Drug User Fee Act (“PDUFA”), they increased substantially from Fiscal Year (“FY”) 2013 to FY 2014 with the disappearance of the ANDA backlog fee (see our previous post here) – particularly the Finished Dosage Form (“FDF”) and Active Pharmaceutical Ingredient (“API”) facility fees (domestic and foreign).  Some small generic drug manufacturers have reportedly found the fee amounts burdensome.  Indeed, in a statement provided to FDA Law Blog, Rep. Hurt commented:

I am proud to have introduced this legislation that addresses an important issue within Generic Drug User Fee Act (GDUFA) of 2012.  The way in which the FDA has implemented the GDUFA user fee has had an adverse effect on smaller generic drug manufacturers.  The expectation that small manufacturers pay the same fees as large firms is unrealistic, and it hampers economic growth and job creation in Virginia’s Fifth District, as well as across the country.  It is my hope that this important bill moves swiftly through the legislative process so that these manufacturers are afforded relief in a timely manner.

GDUFA, which was enacted on July 9, 2012 as Title III of the FDA Safety and Innovation Act (“FDASIA”), established several types of user fees: application fees (original ANDA and Prior Approval Suplement), a Drug Master File (“DMF”) fee, annual facility fees, and a one-time FY 2013 backlog fee.  The fees collected by FDA generate funding for the Agency to review generic drug submissions.  Unlike PDUFA, which includes several provisions under which a sponsor can request a waiver or refund of a user fee, GDUFA merely includes a provision for refund of a payment made in error (FDC Act § 744B(m)) and a refund of 75% of the application fee for certain ANDAs that are refused for receipt (FDC Act § 744B(a)(3)(D)). 

The absence in GDUFA of broad waiver and refund provisions – or provisions targeted to small businesses – is intentional.  As explained in GDUFA Negotiation Meeting Minutes:  

Industry and FDA agreed not to include fee waivers or exemptions to the extent possible, given the relatively low amount of expected individual fees, the return participants can expect for paying the fees through quicker review times and inspections, ease of administration that will allow FDA to hire additional science and inspection staff rather than a significant number of administrative staff to handle adjudications, as well as other benefits anticipated by the program.

Moreover, FDA addressed the effect of GDUFA user fees on small businesses during a March 29, 2012 hearing before the Senate Committee on Health, Education, Labor, and Pensions on the various UFAs (User Fee Acts).  There, FDA’s Janet Woodcock, M.D. commented that “[GDUFA] is expected to provide significant value to small companies and first-time entrants to the generic market.  In particular, these companies will benefit significantly from the certainty associated with performance review metrics that offer the potential to dramatically reduce the time needed to commercialize a generic drug, when compared to pre-GDUFA review times.”  (At a more recent hearing on FDASIA implementation – November 15, 2013 before the House Energy and Commerce Committee – FDA did not address concerns about GDUFA user fee burdens on small companies, based on a quick look at the preliminary hearing transcript.)

The penalties for failing to pay GDUFA user fees are stiff.  For example, failure to timely pay the application fee results in the application not being received by FDA until the fee is paid.  Failure to timely pay the DMF fee results in the DMF not being deemed available for reference, and an affected ANDA may not be received.  Finally, failure to timely pay a facility fee results in the several consequences, including that all FDF or API products manufactured at the facility and all FDFs containing APIs manufactured at the facility will be deemed misbranded.  Indeed, as we previously reported, FDA issued a Warning Letter to that effect earlier this year with respect to one non-paying facility. 

The Small Manufacturer Protection Act of 2013 would amend the statute to add new provisions allowing for waivers and refunds of GDUFA user fees.  Specifically, the bill would amend FDC Act § 744B(1)(b)(B) (“Fee Revenue Amounts”) to add the emphasized text below:

(B) FISCAL YEARS 2014 THROUGH 2017.—For each of the fiscal years 2014 through 2017, fees under paragraphs (2) through (4) of subsection (a), except as provided in subsection (c)(3), shall be established to generate a total estimated revenue amount under such subsection that is equal to $299,000,000, as adjusted pursuant to subsection (c).

Proposed FDC Act § 744B(c)(3), titled “Fee Waivers,” would apply with respect to fees authorized in FYs 2014-2017, and states:

(A) STANDARD.—The Secretary shall grant to a person that owns a generic drug facility a waiver from or a reduction of one or more fees assessed to that person under subsection (a) where the Secretary finds that the assessment of the fee would present a significant barrier to market entry because of limited resources available to such person or other circumstances.

(B) CONSIDERATIONS.—In determining whether to grant a waiver or reduction of a fee under subparagraph (A), the Secretary shall consider only the circumstances and assets of the person involved and any affiliate of the person.

In addition to these waiver provisions, the bill would require persons to timely request in writing a waiver or refund of a user fee: within 180 days after the fee is due. 

Although the bill is clearly targeted to relieve FDF and API manufacturers of user fee burdens, the references in the bill and in the proposed amended statute to fees assessed pursuant to “subsection (a)” appear to permit the possibility of a waiver or reduction of not only facility fees, but application and DMF fees paid by a facility owner as well. 

The introduction of H.R. 3631 comes just a few months after FDA denied a Citizen Petition (Docket No. FDA-2013-P-0204) submitted in February 2013 on behalf of Square Pharmaceuticals Ltd. (“Square”).  FDA interpreted one of Square’s requests – that FDA “issue, amend, or clarify the regulation and requirement for the payment of [FDF] facility fees under [GDUFA] for a generic finished product manufacturing facility of a foreign-based generic drug manufacturing company” – as essentially requesting that the Agency “change language in the GDUFA section of the enacted FDASIA legislation to require collection of manufacturing facility fees only one time, at the approval of the first ANDA manufactured at the subject facility (and to implement all regulatory and administrative changes necessary to make these changes).”  As such, FDA denied the petition, saying that “changes to statutory language can only be made through the federal legislative process,” and that “[t]o amend the statutory requirements, Congress must pass new legislation amending the FDF facility fee language, and the President must sign the legislation.”  Although H.R. 3631 does not do exactly what Square requested in its petition, it would certainly give FDA the authority to reduce user fee burdens on some companies.