FDA Grants A Registration Fee Waiver for Very Small, Broke Device Manufacturers

Our last post on small business certification requests described how small medical device manufacturers, defined as those with gross receipts of less than $100 million in gross receipts and sales for the most recent tax year, are eligible for a reduced fee on those medical device submissions that require a user fee. Now, FDA is granting a waiver of annual registration fees, per the draft guidance for Select Updates for the Medical Device User Fee Small Business Qualification and Certification Guidance.  The catch: the company has to be small and bankrupt.

Section 3309 of the Food and Drug Omnibus Reform Act (FDORA), signed into law on December 29, 2022, amended section 738(a)(3)(B) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) by adding clause (ii) “Small business fee waiver.” This gives FDA discretion “to waive the establishment registration fee for device establishments that are small businesses, if FDA determines that paying such fee represents a financial hardship,” starting on October 1, 2024. FDA considers a “clear and objective standard” of financial hardship to be when a small business is in active bankruptcy. While this standard has the benefit of being “clear and objective,” it also essentially guts the waiver provision.

Applying for a Small Business Registration Fee Waiver

Per the draft guidance, FDA proposes to combine forms FDA-3602 and FDA-3602A into a single form. The forms are currently used for businesses headquartered in the US and OUS, respectively, to request a small business certification. FDA also proposes to add to the new combined form, a “Registration & Listing Fee Waiver” section, which asks if businesses have registered in the past.

To be considered for the registration fee waiver, a small business in the US or OUS has to demonstrate “financial hardship”. If a business is applying for a small business registration fee waiver, it is recommended that the following be provided to FDA:

1. Income tax return(s) showing $1 million or less in gross receipts or sales (including affiliates);
2. Evidence that the establishment for which a waiver is being sought has previously registered and paid the associated fees under the owner/operator ID with FDA; and
3. Evidence that the establishment if in the US, filed a petition for bankruptcy or if OUS, filed the jurisdiction’s equivalent of a US bankruptcy action.

For those without a National Taxing Authority (NTA), requests for a small business registration fee waiver are considered on a case-by-case basis pending review of gross sales and receipts that demonstrate the establishment falls below the $1 million threshold to qualify. FDA does not squarely address whether those who operate in jurisdictions without an NTA must also have filed the equivalent of a US bankruptcy action through their jurisdiction’s court systems. FDA explains that it chose bankruptcy as a criterion because it satisfies “a clear, objective standard, the meeting of which is a matter of public record.” FDA does not explain why it chose the extremely low sales threshold of $1 million.

Considerations

A sponsor is granted a small business designation for each fiscal year it submits a request and is able to provide evidence that its gross receipts and sales are less than $100 million for the most recent tax year. While FDA does not address an annual expectation for a request for a registration fee waiver in the draft guidance, we expect FDA to be consistent with the Small Business Certification and require an annual application for the registration fee waiver, if applicable.

Sections 738(d)(2)(A) and (e)(2)(A) of the FD&C Act define a “small business” as an entity that reported $100 million or less of gross receipts or sales in its most recent income tax return. FDA uses that definition to designate small businesses eligible for a reduced user fee. FDA goes 100 times further to designate those businesses eligible for a registration fee waiver. Specifically, any business that reported $1 million or less in gross receipts in its most recent tax filing can be considered small.  We consider it micro. Nevertheless, FDA does not offer any insight on why they chose $1 million as the threshold for businesses to obtain a registration fee waiver. This limit – combined with the requirement that the company has filed for bankruptcy — makes it such that very few businesses would benefit.

The draft guidance does not change the existing policy of no reduced fees for registration. That is, a small business either qualifies for the registration fee waiver or does not.

Newly established businesses are unlikely to qualify for the registration fee waiver because they will not be able to meet the second criterion above.

There is no transferability provision that allows one small business to transfer the fee waiver or user fee reduction to another entity. As an example, FDA points to a device establishment certified by FDA as a small business that is then acquired by another entity. The entity is responsible for the full fees unless it obtains its own small business determination. This is consistent with current FDA expectations.

Finally, in the Federal Register notice, FDA estimates 4,500 requests for a Small Business Certification. Our review of the 4^th Quarter 2023 MDUFA V Performance Report shows that just 2,283 applications were eligible for a reduced user fee.  While it is possible that each application is tied directly to a single small business request, suggesting that 2,283 applicants benefitted from a small business designation, this is unlikely to be the case as some businesses may submit multiple submissions within the fiscal year.

We expect few, if any, businesses will meet all three elements for an exemption:  sales under $1 million, previously paid and registered with FDA, and bankrupt. On top of that, the need to provide evidence of bankruptcy and micro sales to FDA at a time when a business is already under financial duress may prove too much for a small device manufacturer to tack on their to-do list.   In essence, FDA has taken the exception created by Congress and made it available only to device companies that are already in extremis.

Comments to the draft guidance must be submitted by April 22, 2024.