FDA Sued After Denying PDUFA User Fee Small Business Waiver

By Kurt R. Karst & Michelle L. Butler –      

Winston Laboratories, Inc. (“Winston”) recently sued FDA after the Agency denied a waiver of the Prescription Drug User Fee Act (“PDUFA”) application fee assessed with respect to the company’s human drug application (NDA No. 22-403) for CIVANEX (civamide (zucapsaicin)) Cream, 0.075%.  Specifically, the complaint, filed in the U.S. District Court for the Northern District of Illinois Eastern Division, seeks declaratory and injunctive relief with respect to FDA’s denial of Winston’s application for waiver of the application user fee – which was $1,247,200 in Fiscal Year 2009 – under the small business waiver provisions of the FDC Act, notwithstanding the Small Business Administration’s (“SBA’s”) determination that Winston is a “small business.”  (The correspondence identified below is included as exhibits to Winston’s complaint and is available here.) 

Under the FDC Act, FDA shall grant a waiver or reduction of user fees where “the applicant involved is a small business submitting its first human drug application to [FDA] for review.”  FDC Act § 736(d)(1)(d).  The statute further provides “Rules Relating to Small Businesses” and requires that FDA shall waive “the application fee for the first human drug application that a small business or its affiliate submits to [FDA] for review."  FDC Act § 736(d)(4)(B) (emphasis added).  The statute defines a small business as “an entity that has fewer than 500 employees, including employees of affiliates, and that does not have a drug product that has been approved under a human drug application and introduced or delivered for introduction into interstate commerce.”  FDC Act § 736(d)(4)(A). 

FDC Act § 735(11) defines the term “affiliate” to mean “a business entity that has a relationship with a second business entity if, directly or indirectly – (A) one business entity controls, or has the power to control, the other business entity; or (B) a third party controls, or has power to control, both of the business entities.” 

After FDA grants a small business or its affiliate a waiver, the company or its affiliates must pay “application fees for all subsequent human drug applications submitted to [FDA] for review in the same manner as an entity that does not qualify as a small business,” and “all supplement fees for all supplements to human drug applications submitted to [FDA] for review in the same manner as an entity that does not qualify as a small business.”  FDC Act § 736(d)(4)(B)(i)-(ii).

In May 2008, in advance of the CIVANEX NDA submission, Winston requested that FDA waive the application user fee in accordance with FDC Act § 736(d)(1)(D), asserting that the company met the statutory requirements for FDA to grant the waiver.  After receiving the request, FDA requested the SBA to determine whether Winston and its affiliates met the “small business” definition.  The SBA, which does not consider those firms that are no longer in business in determining affiliates, made a formal size determination in August 2008 that Winston and its affiliates had fewer than 500 employees. 

In December 2008, FDA denied Winston’s waiver request, stating that although Winston and its affiliates have fewer than 500 employees, the company failed to meet the requirement that the marketing application must be the first human drug application that a company “or its affiliate” submits to FDA.  FDA noted that “for purposes of determining whether to grant a small business waiver, FDA considers all affiliates, even those that are no longer in existence” (emphasis added), and that according to the Agency’s records, the CIVANEX NDA is not the first human drug application submitted by Winston or its affiliates.  Specifically, according to FDA, two now defunct companies with ties to Winston through its CEO, Joel E. Bernstein, M.D. – GenDerm Corporation (“GenDerm”) and Northbrook Testing Co., Inc. (“Northbrook”) – were considered to be affiliates of Winston that previously submitted human drug applications to FDA.  In the course of making this determination FDA conducted its own analysis of whether Dr. Bernstein was affiliated with GenDerm and Northbrook. 

Dissatisfied with FDA’s decision, Winston promptly requested that FDA reconsider the waiver denial, arguing that Winston is not an affiliate of either GenDerm or Northbrook.  In February 2009, FDA affirmed its finding that Winston is a “small business,” but also confirmed its prior decision to deny the small business waiver on the basis that, given the affiliate status of GenDerm and Northbrook, Winston did not satisfy the requirement that the NDA be the first human drug application submitted by a small business or its affiliate.  In reaching this decision, FDA stated that “[t]here is no requirement in the definition of affiliate that all relevant parties be in existence at the same time.”

In April 2009, Winston appealed the decision, explaining that FDA’s interpretation of the term “affiliate” to include companies that are no longer in business is unacceptable and inconsistent with the definition of affiliation.  In June 2009, FDA issued a final decision denying Winston’s appeal and affirming its previous determination that Winston does not qualify for a small business waiver.  In that decision, FDA affirmed that Northbrook is a Winston affiliate, but found that there is insufficient evidence to conclude that GenDerm and Winston are affiliates for PDUFA user fee purposes.  In explaining its interpretation of the scope of the term “affiliate” FDA commented that:

In contrast to the [SBA’s] process for making a size determination, which require consideration of a company’s status at the time the determination is made, PDUFA contemplates that FDA examine past events in order to determine whether an NDA is the first human drug application submitted by a company or its affiliates.  Therefore, it is reasonable, indeed, arguably necessary, to consider whether companies that may no longer exist should be considered affiliates of that company and whether they have submitted applications. Given the clear purpose of this provision and the fact that the statute's plain language includes no temporal limitation to prevent the consideration of now defunct companies, it is reasonable to consider companies that are no longer in business to be affiliates of an applicant for a small business waiver.

Moreover, policy considerations support a broader interpretation of the term affiliate. Under the interpretation promoted by Winston, a company could obtain a fee waiver for its “first human drug application,” dissolve the company, establish a new company that is essentially a duplicate of the first, and obtain a fee waiver for its next NDA (which would technically be the “first” NDA of that incarnation of the company).  This cycle could be repeatedly indefinitely.  PDUFA’s emphasis that a waiver is only available for the first human drug application submitted by “a small business or its affiliate,” and not for subsequent applications, 21 U.S.C. § 379h(d)(4)(B) (emphasis added), instead of all applications submitted by a “small business,” id. § 379h(d)(1)(D), certainly suggests that Congress intended to prevent such abuse.  To adopt an interpretation that would permit companies to easily circumvent the limitation on the small business waiver put in place by Congress is not sound public policy. [(italics in original)]

Winston’s complaint requests that the court enter a judgment declaring that FDA’s refusal to grant a small business waiver of user fees violates the Administrative Procedure Act (i.e., that FDA’s interpretation of the user fee statute is arbitrary, capricious, and an abuse of discretion, contrary to law, and in excess of the Agency’s statutory authority).  Winston also requests that the court enter an injunction requiring FDA to immediately grant Winston the small business user fee waiver.