Final Rule on Branded Rx Drug Fee Treats All NDAs the Same, but IRS Might Consider a Special Rule for Pre-Hatch-Waxman Paper NDAs

August 24, 2014

By Alan M. Kirschenbaum

Beginning with CY 2011, Section 9008 of the Patient Protection and Affordable Care Act (“ACA”) has imposed an annual fee on manufacturers and importers of “branded prescription drugs.”  The global 2014 fee for all manufacturers and importers is $3 billion, to be shared by covered manufacturers and importers in proportion to their relative sales of branded prescription drugs to government purchasers and payors.  You’ll find a summary of this provision of the ACA here.

On July 28, the IRS issued a final regulation to implement the Section 9008 industry fee.  The definition of “branded prescription drugs,” on which the fee is imposed, is straightforward and tracks the statute:  the term means a prescription drug approved under an NDA, or a prescription biological approved under a BLA.  See 26 C.F.R. § 51.2(c).  Accordingly, generic drugs approved under ANDAs are not subject to the fee.

However, interestingly, the IRS acknowledges in the preamble that certain generic drugs were approved under NDAs prior to the enactment of the Drug Price Competition and Patent Restoration Act of 1984 (Hatch-Waxman Amendments), when the ANDA provisions were added to the statute.  IRS is referring to FDA’s “Paper NDA” policy, described in a July 31, 1978 FDA staff memorandum (and eventually published in the Federal Register at 46 Fed. Reg. 27,396 (May 19, 1981)), under which FDA allowed approval of duplicate versions of brand name drugs that were approved after 1962.  Under this policy, a manufacturer could submit, among other things, published reports of studies as the main supporting documentation of safety and effectiveness.  In other words, Paper NDAs were the functional equivalent of ANDAs before the ANDA provisions were added to the Federal Food, Drug, and Cosmetic Act.  FDA revoked the “paper NDA” policy in 1989 when the Agency proposed regulations implementing the Hatch-Waxman Amendments (54 Fed. Reg. at 28, 890 (July 10, 1989)). 

The IRS is requesting comments on “whether a special rule is appropriate regarding the treatment of generic drugs for which applications were submitted under [NDAs] prior to the 1984 [Hatch-Waxman Amendments],” including comments on how to distinguish such generic products from other drugs approved under pre-1984 NDAs.  The preamble explains that any special rule would be prospective only.  Therefore, at least for 2014, drugs approved under pre-1984 Paper NDAs will be included in the industry fee.

Manufacturers marketing drugs that were approved under pre-Hatch-Waxman Paper NDAs should consider submitting comments advocating a special rule to exclude these drugs from the definition of “branded prescription drug.”  Although the preamble does not specify a deadline for comments, we have been informed by the IRS that comments must be received within 120 days after publication in the Federal Register – i.e., by November 25, 2014.