Orphan Drug User Fees – The Unintended Gift that Keeps on Giving

“Orphan drugs” are products recognized by FDA that are intended for use in a “rare disease or condition” ─generally a disease or condition with a United States prevalence less than 200,000 persons.  Because the market for orphan drugs is often limited, Congress and FDA have traditionally accorded orphan drugs special consideration.  For example, sponsors of applications for designated orphan drugs are statutorily exempt from paying the one-time application user fee.  This is significant.  The full application user fee for Fiscal Year 2007 is $896,200 (a figure that is certain to rise under the next iteration of the Prescription Drug User Fee Act (“PDUFA”)). 

Orphan drug sponsors are not exempt under the FDC Act from paying annual product and establishment fees (which for Fiscal Year 2007 are $49,750 and $313,100, respectively ─also certain to rise under PDUFA IV).  Instead, such sponsors may request that FDA waive or reduce the annual product and establishment fees on the basis that a waiver/reduction “is necessary to protect the public health,” or because “the assessment of the fee would present a significant barrier to innovation because of limited resources available to such person or other circumstances.”  FDC Act § 736(d)(1)(A)-(B).  Indeed, when Congress enacted PDUFA in 1992, it specifically contemplated that although user fee waivers and reductions would be available to all NDA sponsors, the so-called “public health” and “barrier to innovation” waivers “will give the FDA sufficient authority to waive fees for orphan drugs.”  H.R. Rep. No. 102-895, at 17 (1992). 

According to recent testimony from the National Organization for Rare Disorders (“NORD”), however, Congress’ intent has been impeded by an FDA policy developed in 1993 under which the Agency interprets both the “public health” and the “barrier to innovation” waiver/reduction mechanisms to involve a specific financial test (i.e., $10 million in annual gross revenues and no corporate parent or funding source with annual gross revenues of $100 million or more).  According to NORD:

The current waiver program administered by FDA for product and facility fees has chosen to interpret gross revenues of $10 million or greater as evidence that an entity and its affiliates are fully capable of developing and marketing orphan drugs without regard to the cost of users fees.  We know that FDA believes that a higher threshold than $10 million in corporate gross sales will result in a significant expansion of waived products and a noticeable increase in the fees that would be charged to remaining companies.  Nonetheless, this does not conform with any common sense view of what constitutes a small company in the bio-pharmaceutical industry and seems unrealistically low, especially with the higher fees that will be required under PDUFA IV.

NORD is requesting that Congress resolve the issue “in a way that assures the continued success of the Orphan Drug Act without undercutting the user fee program.”  Specifically, NORD believes that FDA should waive product and establishment user fees for drug products with annual United States revenues less than $25 million.  One recent PDUFA IV proposal does not include any user fee relief for orphan drug sponsors specifically.  There is still plenty of opportunity, however, for Congress to address the issue in new draft legislation.

FDA was previously asked to address this issue in a January 2003 citizen petition submitted by Orphan Medical, Inc.  The petition (supported by NORD) requested, in part, “that FDA establish a clear and fair waiver policy from the establishment and product fees for orphan drugs that have modest sales.”  The petition was withdrawn in August 2006 without a substantive response by FDA.