FDA Issues New Guidance on PDUFA User Fee Waivers, Reductions, and Refunds; Guidance Represents the Culmination of 18 Years of FDA Experience

By Michelle L. Butler & Kurt R. Karst –

FDA recently published in the Federal Register notice of a long-awaited revision to its draft interim guidance on user fee waivers, reductions, and refunds.  See 76 Fed. Reg. 13629 (Mar. 14, 2011); FDA, Draft Guidance for Industry, User Fee Waivers, Reductions, and Refunds for Drug and Biological Products (Mar. 2011, rev. 1).  This is the first update to FDA’s guidance on this topic since the Agency published interim guidance in July 1993 after the enactment of the original Prescription Drug User Fee Act (“PDUFA”).  In the time since the interim guidance was published, a number of amendments to the statutory provisions relating to user fee waivers, reductions, and refunds have been enacted.  For example, the statutory exemptions from user fees for orphan drugs have been added, the small business statutory ground for a waiver has been revised, and the statutory ground for a waiver based on inequitable treatment between a 505(b)(1) applicant and a 505(b)(2) applicant has been removed.  With publication of the 2011 draft guidance, FDA is presenting formally many of the standards the Agency has used in practice over the years between the enactment of PDUFA I and PDUFA IV.

The statute provides for waivers of, reductions in, exemptions from, and refunds of user fees for a variety reasons.  See 21 U.S.C. §§ 379h(d)(1), 379h(k), 379h(a)(1)(F)-(G).  Generally, application fees, establishment fees, and product fees all may be the subject of a request for waiver, reduction, or refund, provided an applicant makes a timely request to FDA as discussed below.

The new guidance discusses categories of waivers and reductions (e.g., necessary to protect the public health, presents a barrier to innovation, and small business), types of exemptions and refunds (orphan designated products, state or federal government entity, and no substantial work), and the process for submitting requests for waivers, reduction, and refunds. 

Waivers and reductions based on the fees-exceed-the-costs statutory ground are subject to separate guidance.  We note that while the fees-exceed-the-costs mechanism is not often used (because many applicants are continually submitting applications to FDA and the Agency’s costs usually exceed the fees paid), it has been successfully used by companies with a small number of FDA submissions approved several years ago that are still subject to annual user fees.  For these companies, FDA’s costs remain static while the total amount of fees paid by the company continues to grow, eventually leading to an overage that could used as a basis for a fee waiver or reduction request.

As an initial matter, the guidance describes the process by which FDA sets user fee target revenues each year.  Guidance, at 2.  The guidance states that target revenues are independent of the number of waivers or reductions in fees that are granted.  However, the guidance states that the more waivers or reductions that are granted, the more fees must be increased the following year so that the annual statutory revenue targets can be met.  Id.  This could explain why FDA has seemingly set the bar high in determining that applicants meet the criteria for requests for waivers or reductions, particularly in the more subjective categories of protecting the public health and presenting a barrier to innovation. 

Public Health Waiver/Reduction.  The statute provides for a waiver or reduction in user fees “if such waiver or reduction is necessary to protect the public health.”  21 U.S.C. § 379h(d)(1)(A).  The guidance breaks this down into two components:  (1) whether the product protects the public health; and (2) whether the applicant can show that “a waiver or reduction is necessary to continue an activity that protects the public health.”  Guidance, at 5 (emphasis in original). 

With regard to whether a product protects the public health, the guidance lays out for the first time the questions FDA will ask itself in determining whether an applicant’s drug product protects the public health.  Among those questions are the following:

• Is it or does it have the potential to provide a significant improvement compared to other marketed products, including other dosage forms or routes of administration?
• Are there treatment alternatives?  The guidance indicates that the existence of alternatives would weigh against a finding that it is necessary to protect the public health.
• Is it a priority drug?  Has it been granted fast track status?  Has it been determined to be a new molecular entity?  The guidance states that affirmative answers to these questions generally indicate that a product does protect the public health.
• Is it intended for the treatment of a serious or life-threatening condition?
• Does it address or have the potential to address unmet medical needs?
• Is it designated as an orphan drug?

Id. 

With regard to whether a waiver or reduction is necessary to continue the activity that protects the public health, the guidance states that FDA believes that a financial test is appropriate.  FDA will consider the financial resources of the applicant and its affiliates.  Id. at 7.  Citing to legislative history of the original PDUFA legislation, the guidance states that FDA will consider the “limited resources” of an applicant.  Id. at 8.  In doing so, the guidance states that FDA will consider the total annual revenue of an applicant and its affiliates.  The Agency does not intend to deduct marketing costs or consider lack of profitability in as evidence of limited resources.  FDA may also consider available financial assets, including net proceeds, cash, and total assets, as well as the results of recent issuances of stock and recently raised capital.  The guidance states that FDA ordinarily expects to use a $20 million marker in determining whether an entity and its affiliates has limited resources for this purpose.  Id.  (Note that the 1993 interim guidance articulated a benchmark of $10 million for purposes of determining whether an applicant has limited financial resources – the new guidance addresses the reasoning behind the change to a benchmark of $20 million.  Id. at 9.)  The guidance also states that consideration of the financial resources of applicants that are State or Federal government entities will be handled differently and lays out those considerations.  See id. at 8-9.

FDA has applied this financial conditions analysis to both the public health waiver ground discussed above and the barrier to innovation waiver ground discussed below.

Barrier to Innovation Waiver/Reduction.  The statute provides for a waiver or reduction in user fees if “the assessment of the fee would present a significant barrier to innovation because of limited resources available to such person or other circumstances.”  21 U.S.C. § 379h(d)(1)(B).  The guidance breaks this down into two components as well:  (1) whether the product or other products under development by the applicant are innovative; and (2) whether the applicant can show that “the fee(s) would be a significant barrier to the applicant’s ability to develop, manufacture, or market innovative products or to pursue innovative technology.”  Guidance, at 6 (emphasis in original). 

As with the public health ground for waivers or reductions, the guidance lays out for the first time the questions FDA will ask itself in determining whether an applicant’s drug product or other products being developed by the company are innovative.  Id. at 7.  Among those questions are the following:

• Does the drug product or technology demonstrate advanced “breakthrough” research, new, progressive methods, and/or forward thinking, and/or forward thinking in the treatment or diagnosis of disease, or does it have the potential to be at the forefront of new medical technology?
• Does the drug product or technology introduce a unique or superior method for diagnosing, treating, or preventing a disease, or for affecting the structure or function of the body?
• Is the drug product designated as a priority drug, has it been granted fast track status, or has it been determined to be a new molecular entity?
• Has the applicant received a Federal grant for innovation?  The guidance identifies two examples that may qualify as innovative: the National Institutes of Health’s Small Business Innovative Research Program and National Institute of Standards and Technology’s Advanced Technology Program.

Id.

With regard to determining whether a fee presents a significant barrier to an applicant’s ability to develop, manufacture, or market innovative products, the guidance states that FDA will conduct the financial resources analysis of the applicant and its affiliates described above.

Small Business Waiver/Reduction.  The statute provides for a waiver or reduction in user fees if “the applicant involved is a small business submitting its first human drug application to the Secretary for review.”  21 U.S.C. § 379h(d)(1)(D).  A small business is defined 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.”  Id. § 379h(d)(4)(A) (emphasis added).  The term “affiliate” is defined in the statute 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.”  Id. § 379g(11).  The small business ground for waiver or reduction applies only to the application fee and only to the first application a small business or its affiliate submits.  Id. § 379h(d)(4)(B).  Thereafter, the small business pays application and supplemental application fees just as an entity that is not a small business does, though it is possible that a small business could subsequently be granted a waiver or reduction based on one of the other grounds, assuming it meets the criteria for those other grounds.

FDA works with the Small Business Administration (“SBA”) to determine the size of an applicant and its affiliates, and the new guidance describes this process.  Guidance, at 10.  When an applicant requests a small business waiver from FDA, the Agency asks SBA to determine what companies are affiliated with the applicant and the number of employees for the applicant and its affiliates.  SBA will send the applicant a request for information, and SBA will make a determination in accordance with SBA regulations.  Id.  If the information requested by SBA is not provided, SBA will find that the applicant is other than small, and the request for a small business waiver will be denied.  Once SBA has identified and confirmed the affiliates of the applicant and determined whether the applicant is a small business, FDA will evaluate whether the applicant meets the other criteria for the small business waiver (e.g., that the application is the first human drug application submitted by the applicant or its affiliates).  Id. 

We note that the guidance is silent on a matter that was the subject of fairly recent litigation – that is, whether FDA can take into account former affiliates in determining whether the application is the first human drug application submitted by the applicant.  We previously posted on this issue, which was presented in Winston Labs, Inc. v. Sebelius, No. 1-09-cv-04572 (N.D. Ill. 2009)  Despite the decision by the Court that the statutory definition of affiliate includes only current affiliates and not past affiliates as argued by FDA, the Agency appears to be trying to advance the position it took in Winston in negotiations for PDUFA V – see here and here.  

In addition, the guidance provides some answers to what are likely frequently asked questions about the small business waiver.  See Guidance, at 10-11.  First, an applicant that has been granted a small business waiver should submit its human drug application within one year after the date of the SBA determination, as the circumstances pertaining to a small business waiver may change over time.  Second, as discussed above, an applicant is eligible for a small business waiver only for the first human drug application it or its affiliate submits – if a human drug application is submitted and withdrawn or refused for filing, the applicant or affiliate is ineligible for another small business waiver.  If, however, an applicant does not submit the application for which it was granted a waiver, the applicant may qualify again for a small business waiver.  Third, although there is no specific provision for a waiver or reduction of product and establishment fees for small businesses, a small business may nonetheless qualify for waiver or reduction of those fees under the other statutory grounds for waivers or reductions (e.g., public health, barrier to innovation).

Orphan Drug Exemption.  A human drug application or supplement for a drug that is designated as an orphan drug is not subject to the application fee unless the application also includes an indication for a non-orphan indication.  21 U.S.C. § 379h(a)(1)(F).  The guidance explains that if the application or supplement qualifies for an orphan exemption, the applicant does not need to send FDA a written request for the exemption; rather, the applicant should notify FDA that it is claiming orphan exemption when it completes and submits the User Fee Coversheet that accompanies the application.  Guidance, at 12. 

With regard to product and establishment fees, as added to the statute by PDUFA IV, a drug that is designated as an orphan drug is exempt from such fees, provided the drug meets the public health requirements relating to requests for waivers of product and establishment fees and the applicant’s gross worldwide revenue did not exceed $50 million in the previous year.  21 U.S.C. § 379h(k)(1).

State or Federal Government Entity Exemption.  An application submitted by a State or Federal government entity for a drug that is not distributed commercially is not considered a human drug application under the statute and is therefore not subject to application, product, and establishment user fees.  21 U.S.C. § 379g(1)(B).  The guidance states that for purposes of this exemption, distributed commercially means “any distribution in exchange for reimbursement, goods, or services, whether or not the amount of the charge covers the full costs associated with the product.  Any recovery by the applicant of all or part of the costs of manufacture or distribution of a product makes the distribution commercial.”  Guidance, at 12.

Process for Submitting Requests for Waivers, Reductions, and Refunds.  The guidance discusses the timing for submitting requests for waivers, reductions, and refunds, as well as the content and format of such requests.  Guidance, at 13-16. 

With regard to timing of requests, the statute requires that any such request must be made in writing “not later than 180 days after such fee is due.”  21 U.S.C. § 379h(i).  For applications (which are not considered complete unless the application fee has been paid), if an applicant wishes to avoid paying the fee and then seeking a refund, the guidance recommends submitting the waiver or reduction request approximately three to four months before submission of the application.  Guidance, at 13.  The guidance also states that FDA discourages applicants from submitting application fee waiver or reduction requests more than four months in advance of submission of the application because the circumstances supporting the waiver request may change.  Id. at 14.  For waivers or reductions of product and establishment fees, the guidance also recommends submission of requests three to four months before the fee is due (i.e., between June 1 and July 1 as the fees are due October 1).  Id.  The guidance indicates that if applicants submit waiver or reduction requests in these time frames, “under normal circumstances and depending on available resources,” FDA will try to complete its evaluation of the requests before the application is submitted or before the product and establishment fees are due.  Id. at 13-14.

As noted, the guidance also provides recommendations for the contents of each waiver or reduction request.  Id. at 14-16.  The guidance does not provide a timeframe for responding to a waiver or reduction request other than to say that “[t]he Agency will respond to requests for waivers and reductions in a timely fashion based on available resources and collection time for additional information.”  Id. at 17.

The guidance also discusses the process and timing for requests for reconsideration and appeals.  Id.  The guidance recommends that any requests for reconsideration be made within 30 days of an FDA decision on the underlying waiver or reduction request, and that any appeals be made within 30 days of the decision on the request for reconsideration.  Id.