GDUFA: Fee Avoidance Affects Rates Again

Industry avoided application supplement fees by using CBE submissions instead, forcing FDA to change its estimates and sending generic drug user fees higher.

A change in the type of generic drug application sponsors submit to reflect moderate manufacturing process or other changes may have significantly affected GDUFA user fees.

Much of the increase in the fiscal year 2014 generic drug user fees was attributed to a rebalancing of the burden to compensate for the loss of a fee for backlog applications, as well as an inflation adjustment.

But FDA also adjusted submission volume estimates for the program’s second year to compensate for patterns seen in FY 2013. Many of those changes resulted in estimated decreases in fee-paying submissions, which in turn exacerbated the increase in fees per submission.

Among the trends was the switch from prior approval supplements (PAS) to changes being effected (CBE) submissions. Supplements require a fee payment; CBEs do not.

“People were more carefully selecting things that could come in as a CBE instead of a PAS,” FDA’s Donal Parks said.

Future years likely will not see the type of increases necessary for FY 2014, but it seems that as the generic industry adapts to the new user fee regime, it may result in more than modest changes to regulatory costs.

Industry Adaptation To Fees

Each fee must generate a pre-set percentage of the overall program revenue for the fiscal year. As the industry learned how to avoid the supplement fee, the agency had to alter its revenue-generation figures.

Donal Parks, director of the Center for Drug Evaluation and Research’s Office of User Fee Collections and Budget Formulation, said the agency adjusted some of its calculations for estimating prior approval supplement and drug master file submission levels to accommodate how industry adapted.

Supplements were estimated to decrease from 576 in FY 2013 to 480 in FY 2014. Total fee-paying full application equivalents also were expected to decrease from 1,160 to 1,149.

“I’d say the biggest methodological change was on the DMF side, where we had that big shift from the first year to the second,” Parks said in an interview. “Maybe the biggest learning other than that was on the PAS to CBE issue for the ANDA fee. ... People were more carefully selecting things that could come in as a CBE instead of a PAS, and so that sort of affected the number of full application equivalents that we saw for the ANDA fee.”

Both adjustments led to significant increases in fee rates: 47% for DMFs and 24% for ANDAs and supplements.

CBEs are required when moderate manufacturing or other changes are made to a generic drug that could affect the product’s purity, strength, quality or potency. A PAS is necessary for major changes.

GDUFA, which launched Oct. 1, 2012, is intended in part to generate more resources for FDA to review ANDAs and other submissions as well as conduct more and timely generic drug facility inspections through application and establishment fees.

The program is scheduled to generate $299 million in FY 2013, which ends in late September. The agency announced Aug. 2 that the program will generate $305.7 million in FY 2014 (Also see "FDA User Fees In FY 2014: Burden Per Application Grows As Submission Projections Fall" - Pink Sheet, 5 Aug, 2013.).

GDUFA also included a one-time fee for applications in the agency’s backlog at program launch, which was intended to generate $50 million to help FDA deal with them.

That fee’s elimination forced the remaining four fee types to generate additional revenue in FY 2014, not only for an inflation increase but also to cover the funding that was generated by the backlog fee.

Those fees were supposed to generate $249 million in FY 2013. In FY 2014, they must generate nearly 23% more (see chart).

GDUFA Fee Burden Changes: FY 2013 To FY 2014

The departure of the backlog fee from the generic drug user fee schedule in fiscal year 2014 forced the remaining fees to make up the difference. Those fees also grew due to an inflation adjustment.

Source: FDA Federal Register notices

Still, all of the individual fees, except the foreign active pharmaceutical ingredient manufacturer fee, increased more than 23% (Also see "Generic User Fees Jump To Cover Inflation Increase, Backlog Fee Elimination" - Pink Sheet, 1 Aug, 2013.).

FDA ran into a similar rate-altering problem as the backlog was being finalized in September 2012. The agency had hoped sponsors would remove pending applications to avoid paying the fee. Instead, the backlog increased in size as sponsors rushed to get applications in, likely because the backlog fee was projected to be lower than the ANDA fee (Also see "Backlog Backfire: FDA Sees Increase In Pending Generic Applications At Deadline" - Pink Sheet, 15 Oct, 2012.).

Submission, Facility Decrease Contributes

The increased GDUFA revenue for FY 2014 came with a decrease in the total number of expected fee-paying submissions, which help determine GDUFA rates.

Estimates for supplements and DMFs each dropped nearly 17%. The number of ANDAs increased over the FY 2013 level by about 7%.

DMFs are expected to drop because an unusually high number were submitted in FY 2013, in part because their owners wanted to pay the lowest fee possible and also market to finished dosage form makers that they were ready for reference.

“A lot of that was sort of a one-time first-year, first-mover effect,” Parks said.

DMFs require a completeness assessment before they can be used in an ANDA, which FDA has said could cause delays (Also see "ANDA Sponsors May Need Extra Three Months To Avoid DMF-Related Delays" - Pink Sheet, 15 Oct, 2012.).

Facility counts also dropped in some cases, which added to the increase in those fee amounts. But FDA said it also was able to increase the accuracy and detail of its generic manufacturing information.

“We’ve been able to reduce duplicative and/or outdated information in FDA’s records,” the agency said in an e-mail.

The agency required facility self-identification as part of GDUFA to determine fee amounts as well as gain a better picture of the industry (Also see "GDUFA Launch Pains: Facility List Fluctuations, Back-Due Backlog Fees" - Pink Sheet, 18 Feb, 2013.).

One of the largest facility count decreases came among domestic finished dosage form (FDF) manufacturers. The agency is projecting 3% fewer self-identified facilities for fee-calculating purposes compared to FY 2013, according to figures in the notice.

The foreign FDF facility figure was unchanged, meaning that overall there would be fewer FDF manufacturers who would have to pay a larger fee. Foreign FDF fees increased about 24% and domestic FDF fees grew about 26%.

Active pharmaceutical ingredient facility fees increased dramatically despite a volume increase. Domestic API facilities will pay about 30% more and foreign API facilities will pay about 19% more, even though the total number of API facilities increased 2%.

Facility counts already had been expected to drop in FY 2014, leading to a fee increase (Also see "GDUFA Facility Fees Likely To Increase Due To Fewer Self-IDs" - Pink Sheet, 10 Jun, 2013.).

Buyer’s Remorse?

FDA seems to have expected some backlash from industry about the fee increases, although it said Aug. 7 that it had not received any complaints. In a press announcement of the new rates, the agency said it “minimized the increase in fees as much as possible.”

One generic industry small business owner, who asked not to be quoted by name, said the FY 2014 fees were another shot at small and mid-sized companies. The business owner also said API manufacturers appeared to be impacted more than last year.

Small generic manufacturers already were concerned about the cost of the fees, saying the agency should create a small business exemption to increase industry competitiveness (Also see "Generic User Fees Need Small Business Waiver, Firms Say; Congress May Agree" - Pink Sheet, 24 Jun, 2013.).

David Gaugh, Generic Pharmaceutical Association senior VP of sciences and regulatory affairs, said in a written statement that the group still was discussing the new fees with its members and continues to communicate and cooperate with FDA.

Industry expected movement to fix a disparity between domestic and foreign facility inspections, among other things, in exchange for fees. Industry had complained domestic facilities were inspected much more frequently than foreign facilities (Also see "Generic User Fee Agreement Includes FDA Pledge To Determine Best Use Of Foreign Regulator Inspections" - Pink Sheet, 7 Dec, 2011.).

GDUFA’s impact on inspections remains unclear, but FDA has nearly doubled the number of foreign generic and innovator facility pre-approval inspections between FY 2008 and FY 2012, according to data the agency provided.

Foreign facilities are charged $15,000 more to account for FDA’s increased costs for overseas travel. That figure could be as high as $30,000, but Parks said the agency does not have enough information to determine whether it should be changed.

User fees are expected to increase staffing at the Office of Generic Drugs and other divisions dramatically. FDA estimated it would need 950 new employees, who will be hired through FY 2015, to deal with GDUFA mandates (Also see "GDUFA Self-Identification Woes Can’t Deflate Industry, FDA Enthusiasm" - Pink Sheet, 17 Dec, 2012.).

That boost comes as the agency struggles with sequestration challenges and even as the personnel costs associated with brand drug reviews drop (Also see "Drug Review Personnel Costs Dropping, Remain “Completely Normal,” FDA Says" - Pink Sheet, 12 Aug, 2013.).