Lawsuit Seeks to Compel FDA Compliance with PDUFA User Fee Waiver Provisions

By Kurt R. Karst –      

“That’s all I can stand, I can’t stands no more.”  Those were the words spouted by Popeye the Sailor at the climax of each cartoon episode after having been threatened with bad behavior from an antagonist like Bluto or the Sea Hag.  Immediately thereafter, Popeye would squeeze open a can of spinach – or perhaps suck the spinach through his pipe – infusing him with invigorating power and he would give his adversary a thrashing. 

Popeye’s words seem to capture well the frustration that led Stat-Trade, Inc. (“Stat-Trade”) to open up its own can of “spinach” and file a Complaint and a Motion for Preliminary Injunction in the U.S. District Court for the District of Columbia seeking to compel FDA to comply with the requirements of the Prescription Drug User Fee Act (“PDUFA”) in assessing and granting waivers for prescription drug user fees in relation to the company’s NDA No. 020353 for NAPRELAN (naproxen sodium) controlled release tablets, 375 mg, 500 mg, and 750 mg. 

Under PDUFA (FDC Act §§ 735-736), FDA collects three types of user fees for a drug product that is the subject of a “human drug application”: (1) a one-time application fee that must be paid in order for FDA to accept an application for filing; (2) an annual establishment fee for “each prescription drug establishment listed in [an] approved human drug application as an establishment that manufactures the prescription drug product named in the application;” and (3) an annual product fee for each drug listed in FDA’s Orange Book (i.e., the active section of the Orange Book and not the Discontinued Drug Product List) that is the subject of an approved human drug application.  Annual establishment and product fees have been set at $520,100 and $98,970, respectively, for Fiscal Year 2012.  Those fees went into effect on October 1, 2011 – see our previous post here.  Companies that fail to pay fees are placed on an arrears list at FDA, and may be subject to certain other penalties.  FDA policy says that the Agency will refuse to accept for filing submissions from applicants in arrears.

For those companies that are subject to user fees – and in particular annual product and establishment fees – FDC Act § 736(d) provides a few mechanisms to offer relief.  For example, a company can request FDA to waive or reduce user fees under the “barrier to innovation” mechanism or under the “fees-exceed-the-costs” mechanism.  Under the “barrier to innovation” mechanism (FDC Act § 736(d)(1)(B)), a waiver is granted if “the assessment of the fee would present a significant barrier to innovation because of limited resources available to [the application holder] or other circumstances.”  Under the “fees-exceed-the-costs” mechanism (FDC Act § 736(d)(1)(C)), a waiver or reduction is granted by FDA if “the fees to be paid by such person will exceed the anticipated present and future costs incurred by [FDA] in conducting the process for the review of human drug applications for such person.” 

In addition, there are several exceptions under PDUFA that could preclude the assessment of user fees.  For example, under FDC Act § 736(a)(3)(B), a drug is exempt from product fees if it “is the same product as another product approved under an [ANDA] filed under [FDC Act § 505(j)].”  In a 1994 guidance document, FDA explained that “[i]f the [ANDA] has been approved and not withdrawn, the first approved product [(i.e., the NDA drug product)] is excluded from fees even if the generic product is not presently marketed.”  More recently, however, in a Federal Register notice concerning proposed changes to PDUFA (under PDUFA V), FDA says that a proposed technical change to FDC Act § 736(a)(3)(B) “will clarify FDA’s longstanding policy to use the active portion of the Prescription Drug Product List in the [Orange Book] to identify fee-eligible prescription drug products,” and that “FDA will assess a product fee on a prescription drug product when there are no other products on the Prescription Drug Product List that are the same as that product.”

NAPRELAN, which was approved on January 5, 1996, was not subject to generic competition until 2002 and 2003 when FDA approved generic versions of the 375 mg and 500 mg strengths under ANDA No. 075416.  In 2008, however, a U.S. district court ruled in patent infringement litigation that the ANDA sponsor infringed a patent held by Elan.  The ANDA sponsor stopped distributing its generic NAPRELAN and the products were moved from the active to the discontinued section of the Orange Book.  (Recently, the ANDA sponsor settled the patent infringement litigation with Elan.  Under the settlement agreement, the generic will not be marketed until either patent expiration or if there is a final finding of patent invalidity or unenforceability.)

Once the generic NAPRELAN was no longer marketed and was moved to the discontinued section of the Orange Book, FDA began sending invoices to Stat-Trade for annual product and establishment user fees, and in particular, fee invoices for the 375 mg and 500 mg strengths, which are the same strengths approved under ANDA No. 075416.  Stat-Trade timely submitted waiver requests to FDA under the “barrier to innovation” and “fees-exceed-the-costs” mechanisms discussed above.

In August 2010, FDA denied Stat-Trade’s barrier to innovation waiver request and informed the company that the Agency “had not reviewed Stat-Trade’s fees-exceed-the-costs waiver request, and would not do so unless and until Stat-Trade notified FDA that it would not appeal the denial of its barrier-to-innovation waiver request.”  Stat-Trade appealed the barrier to innovation waiver denial and FDA has allegedly continued to refuse to review the company’s fees-exceed-the-costs waiver request. 

Meanwhile, Stat-Trade failed to pay the invoiced user fee amounts and was therefore placed on FDA’s arrears list and was assessed more than $200,000 in penalties, interest and administrative fees.  In July 2011, Stat-Trade arranged for the payment of $1.3 million to cover all of the company’s outstanding PDUFA user fees and related penalties, interest, and administrative fees for Fiscal Years 2009-2011, thereby removing the company from the arrears list.  Stat-Trade’s user fee payment, however, did not mean that the company was abandoning its fight with FDA.  Stat-Trade further corresponded with FDA setting forth arguments why certain user fees should not be applicable and the company’s waiver requests granted. 

Just a couple of weeks after having paid FDA $1.3 million in back fees and penalties, FDA sent Stat-Trade an invoice for Fiscal Year 2012 user fees, including product fees for the 375 mg and 500 mg strengths of NAPRELAN.  Payment was due by October 1, 2011.  Stat-Trade promptly petitioned FDA (Docket No. FDA-2011-P-0696) for a stay of action concerning the assessment of product and establishment fees for Fiscal Year 2012, the application of FDA’s arrears policy, and the imposition of interest, penalties, and administrative fees with respect to Fiscal Year 2012 user fees.  On September 30, 2011, FDA responded that the Agency had “begun reviewing” Stat-Trade’s petition and would “respond promptly.”  Stat-Trade filed its Complaint on October 7, 2001, after not receiving a prompt response from FDA. 

State-Trade’s Complaint says that FDA has “adopted a final policy that violates PDUFA because it allows FDA to assess and collect annual ‘product fees’ for certain prescription drug products that are exempt from such fees pursuant to [FDC Act § 736(a)(3)(B)],” and that FDA has “applied this unlawful policy against Stat-Trade by assessing product fees for two strengths of [NAPRELAN] that are ‘the same’ as approved generic copies and thus exempt from product fees under PDUFA.”  In addition, Stat-Trade alleges that FDA’s refusal to review or process Stat-Trade’s fees-exceed-the-costs waiver request for more than nineteen months is contrary to PDUFA and violates the Administrative Procedure Act (“APA”).

Although PDUFA has been around for quite a while, legal challenges to FDA’s interpretation of the statute have been rare.  In fact, we are aware of only a single case – Winston Labs, Inc. v. Sebelius, No. 1-09-cv-04572 (N.D. Ill. 2009) – concerning what constitutes an “affiliate” for purposes of the small business user fee waiver provision.  FDA ended up losing that case – see our previous posts here and here.