The President’s FY 2012 Budget Would Create New User Fees, Ban Patent Settlements, and Reduce BPCIA Reference Product Exclusivity

By Kurt R. Karst –      

The tome that is the President’s Budget for Fiscal Year 2012 is chock-full of new proposals that, if implemented, would significantly affect both brand-name and generic drug manufacturers. 

What first caught our attention were some statements in an overview of the proposed FY 2012 budget for the Department of Health and Human Services that:

The Administration will accelerate access to more affordable pharmaceuticals that will lead to cost savings for consumers and health programs across the Federal Government.  The President’s Budget includes two proposals to increase availability of generic drugs by providing the Federal Trade Commission [(“FTC”)] authority to stop drug companies from entering into anticompetitive agreements intended to block consumer access to safe and effective generics, and hastening availability of generic biologics while retaining the appropriate incentives for research and development for the innovation of breakthrough products.

Another budget document, titled “Terminations, Reductions, and Savings” provides a little more detail on these proposals.  Both of these issues were topics discussed in President Obama’s 2009 10-year budget proposal.

With respect to patent settlement agreements, which opponents refer to as pay-for-delay agreements, the President’s Budget says that “[t]he Administration proposal would give the [FTC] the authority to prohibit pay-for-delay agreements in order to facilitate access to lower-cost generics.”  This is authority the FTC has craved for years now, and that according to President Obama’s budget proposal would yield savings of $8,790,000,000 between 2012 and 2021.  As we recently reported, in January, Senator Herb Kohl (D-WI), along with several other Senators, introduced S. 27, the Preserve Access to Affordable Generics Act.  The bill, like its predecessor versions introduced, amended, and debated in the 111th Congress, would amend the Federal Trade Commission Act to permit the FTC to “initiate a proceeding to enforce the provisions of [new Sec. 28] against the parties to any agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a drug product.”  Such agreements, if challenged, would be presumptively anticompetitive and unlawful unless it can be demonstrated “by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.” 

With respect to the 12-year period of reference product exclusivity created by the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), President Obama’s FY 2012 budget says that:

Under current law, innovator brand biologics have 12 years of exclusivity and broad “evergreening” authority, whereby innovator manufacturers are able to make relatively minor changes to the “potency, purity, and safety” of their products to receive an additional 12 years of exclusivity. 

Under the Administration proposal, beginning in 2012, innovator brand biologic manufacturers would have 7 years of exclusivity and would be prohibited from receiving additional exclusivity by “evergreening” their products. 

The Obama Administration estimates that the change in reference product exclusivity  would yield savings of $2,340,000,000 between 2012 and 2021.

The issue of so-called “evergreening,” which is the practice of obtaining additional periods of exclusivity for product modifications, along with the period of reference product exclusivity were hotly debated during consideration of what ultimately became the BPCIA.  According to a December 21, 2010 letter signed by the three principal authors of the BPCIA, evergreening is not a concern because the BPCIA “is clear that no product, under any circumstances, can be granted ‘bonus’ years of data exclusivity for mere improvements on a product.”  The letter goes on to note, however, that “if a ‘next generation’ product is approved by the FDA as a new product (significant changes in safety, purity, or potency) then that new biologic will receive its own 12-year period of data exclusivity.”

The President’s FY 2012 Budget (here beginning on page 227, and here beginning on page 437) also proposes the creation of new user fees. 

The first new fee is the much-ballyhooed generic drug user fee.  Under the President’s proposal, the generic drug user fee charge would be an amount not to exceed $40,122,000 and “would be used to improve review times and reduce the current backlog of applications.”  As we recently reported, the ANDA backlog in FDA’s Office of Generic Drugs (“OGD”) continued to grow unabated in 2010, for a grand total of 2,361 original ANDAs pending at the close of 2010, and with an estimated median approval time of 31 months.  (According to the latest OGD statistics, the ANDA review backlog dipped slightly in January 2011 to 2,356 original ANDAs; however, the number of ANDAs pending more than 180 days continued to grow, from 1,816 ANDAs to 1,836 ANDAs.)

The President’s FY 2012 Budget would also create a new “reinspection fee for medical products” in an amount not to exceed $14,108,000.  According to the proposal, “FDA conducts post-market inspections of manufacturers of human drugs, biologics, animal drugs, and medical devices to assess their compliance with Good Manufacturing Practice and other regulatory requirements. The Budget includes a proposal to enable FDA to assess fees for follow-up reinspections that are required when violations are found during initial inspections.”  President Bush made a similar proposal in his FY 2009 budget request. 

Finally, the Obama Administration’s budget proposal includes a new “international courier user fee” in an amount not to exceed $5,338,000.  According to the budget proposal, “[t]he volume of imports, predominantly medical products, being brought into the United States by international couriers is growing substantially. To ensure the safety of these FDA regulated products through increased surveillance efforts, the Budget includes a new user charge to international couriers.”

Each of the user fee proposals is contingent upon the enactment of authorizing legislation.  Generic drug user fees, along with generic drug labeling preemption, may be among the most talked about topics at the GPhA Annual Conference taking place in Orlando later this week.