Generics are big business, heading towards $90 billion in annual sales as mega-blockbusters lose patent protection and more markets push for containment of healthcare costs. In the U.S., which comprises more than 40% of the global market, the FDA seems ready to overhaul the generic application and inspection process. But how will it impact those suppliers that work with generic drugmakers?

After more than a year of conversation and negotiation, the FDA has proposed a user fee for generic drugmakers. The Generic Drug User Fee Act (GDUFA) hasn’t been enacted by the U.S. Congress yet, but hearings are scheduled for February 2012 by the House Energy and Commerce Committee, and we could see passage of a five-year term in time for the 2013 fiscal year.

At a speech to the Generic Pharmaceutical Association (GPhA) last year, FDA Commissioner Margaret Hamburg declared the need for a GDUFA, remarking, “We are at something of a tipping point . . . Looking ahead, it is clear that FDA will not be able to make ends meet with current resourcing, and more approvals will be delayed because of a lack of inspectional resources. That is why it is so important . . . to constructively address the Generic Drug User Fee. No one benefits from a pending-application queue of 2,000-plus products. Uncertainty and delays are costly to consumers, costly to industry — and hurtful to the public.”

FDA reports that it receives between 800 and 900 generic drug-related applications each year, and it revised that pending-application estimate to something in excess of 2,500 ANDAs. Under the current proposal, the GDUFA would bring in $299 million annually from industry for five years. Application fees from drugmakers would comprise 30% of that sum ($90 million), with the rest coming from “facility fees” to inspect API suppliers and dosage form manufacturing sites. Fees from API suppliers would total $42 million and dosage form facility fees would be $168 million.

But first, the FDA needs to clear out all those old applications, so the GDUFA’s initial year of funding (FY13) would include $50 million in backlog fees to speed up long-pending ANDAs. And, boy, are they long-standing. The average review time for an ANDA is around 30 months, compared to 10 months for innovative drugs.

The agency projects that, by 2017, backlog would be eliminated and review times would be significantly reduced, with 90% of electronically-submitted ANDAs reviewed and acted upon within 10 months. (FDA also projects that it’ll get to 90% of all ANDAs that are outstanding on October 1, 2012 by the end of 2017, which raises the question of how stubborn those last 10% are going to be.)

Still, why a facility fee in addition to the application fee? Kyle Sampson, a partner at Washington, DC law firm Hunton & Williams (and FDA Watch columnist for this magazine), commented, “The usual justification for user fee programs is that FDA needs additional resources so that it can approve drug applications more quickly. With regard to generic drug user fees, however, the Generic Pharmaceutical Association (GPhA) signaled early on in negotiations with FDA that the generic industry supports allocating a portion of generic drug user fees toward an additional purpose — enhancing drug quality and safety. Under GDUFA, FDA would not only have additional resources to review and approve ANDAs more speedily, the agency also would have additional resources to conduct more inspections — both in the U.S. and overseas.”

In fact, the FDA has three key goals for the GDUFA, according to a draft statement:

• Safety – “Ensure that industry participants, foreign or domestic, who participate in the U.S. generic drug system are held to consistent high quality standards and are inspected biennially, using a risk-based approach, with foreign and domestic parity.”
• Access – “Expedite the availability of low cost, high quality generic drugs by bringing greater predictability to the review times for abbreviated new drug applications, amendments and supplements, increasing predictability and timeliness in the review process.”
• Transparency – “Enhance FDA’s ability to protect Americans in the complex global supply environment by requiring the identification of facilities involved in the manufacture of generic drugs and associated active pharmaceutical ingredients, and improving FDA’s communications and feedback with industry in order to expedite product access.”

If the GDUFA is enacted as proposed (and there’s no guarantee of that, given this Congress), what impact will $210 million in annual facility fees have on how CMOs and API suppliers who work with generic drugmakers?

While some CMOs I spoke to believe that the fee wouldn’t apply to their sites, the FDA confirmed to me that the fee applies to any facility  involved in the manufacture of generics. According to the GDUFA, “Facilities identified, or intended to be identified, in at least one generic drug submission that is pending or approved to produce a finished dosage form of a human generic drug or an active pharmaceutical ingredient contained in a human generic drug shall be subject to fees. . .” That definition includes in-house generic facilities, but also has CMOs that work with generic companies square in its sights.

I asked Clive Bennett, president and chief executive officer of Whippany, NJ-based Halo Pharmaceutical, what effect he thought the facility fee would have on CMOs working with generics. He said, “None . . . except that we will be forced to no longer make generics for generic firms unless the companies that we do generic work for allow us to pass the facility fee back to them. This will be a common reaction amongst CMOs.”

He added, “What’s more, this approach is illogical. Facility fees for existing products will only tend to increase the price of current generics on the market. The purpose of the legislation (surely?) is to charge a fee for ANDAs so that the generic division gets better funding such that more new generics get approved. Those are totally different outcomes.”

Mr. Bennett noted that the proposal smacked of ‘no taxation without representation,’ commenting, “To the best of my knowledge, the generic companies have been pushing for this — but also to the best of my knowledge CMOs have not been represented.”

It put me in mind about what Billy Tauzin (apocryphally?) said when he was president of PhRMA and helped negotiate the industry’s contribution to President Obama’s healthcare act. Criticized for ‘working with the enemy,’ he noted, “If you’re not at the table, then you’re on the menu.”

Regarding Mr. Bennett’s contention that the imposition of $299 million in new fees will raise the price of generics, the FDA has argued that, dispersed across the spectrum of the generic market in the U.S., the cost will come out to a mere dime per prescription, and could conceivably lead to cost savings, if more products are approved in a more timely manner.

Still, the question remains: Are the GDUFA’s three goals — safety, access and transparency — at odds with each other? Can a single program target all three, or is it a case of “good, fast, cheap: pick two”?

Dr. Robert Hardy, chief executive officer of Aesica Pharmaceuticals, a UK-based API manufacturer, pointed out a discrepancy in the GDUFA as currently proposed. Coming from the safety/inspection perspective, he remarked, “We welcome any initiatives to make medicines safer for patients and outlaw disreputable manufacturers. The big question is, should CMOs in regions that are already highly regulated, such as Europe, be made to pay for countries with poorer quality standards?”

He added, “Ultimately, U.S. consumers and health insurers reap the benefits of cheap medicines and they push hard for competitive pricing, which drives demand from China and India. When prices come down, something has to give; in this case it’s the stringency of the auditing process. If the U.S. government wants to raise standards and continue to enjoy lower drug prices, it should cover the cost of a joined-up global auditing process where China’s SFDA and its international equivalents work to the same parameters, rather than duplicating effort by introducing additional inspections.”

The GDUFA does stipulate that facility fees for non-U.S. API and dosage form suppliers will be between $15,000 and $30,000 more than for a U.S. facility, which can be read either as recognition of the added hurdles of overseas inspections or a method of penalizing generic drugmakers that use non-U.S. labor (or both). In addition, according to the GDUFA goals and preferences draft document, “FDA will undertake a study of foreign government regulator inspections (CGMP and bioequivalence), report findings publicly, and develop a program to utilize foreign inspection classifications when and where appropriate.”

Dr. Hardy at Aesica commented, “The GDUFA as currently proposed will create a trade barrier for non-U.S. CMOs and make it even more challenging for European suppliers to compete for U.S. business.”

Thomas M. Speace, president and chief executive officer of Neuland Laboratories Inc., an API manufacturer based in India, was more sanguine about the GDUFA. He remarked, “I think the generic industry, as well as the associations representing the member companies, are aligned on the need for these fees. This wasn’t the case earlier when the industry was dominated by founder/entrepreneurs at each company.”

The fee schedule is still unclear for Drug Master Files (DMFs), facility inspections and annual facility registrations, the three areas that would impact Neuland. No one is exactly clear on how many facilities, both in-house and outsource, are involved in generic manufacturing, so there’s little guidance on how the fees will be distributed.

Mr. Speace said that he heard rumors of a $50,000 fee for a DMF and that the cost for inspection around the same, presumably for an overseas operation like Neuland. He commented, “The fees will increase everyone’s cost of doing business, but the large generic companies, such as Teva, Mylan and Watson, will view this as a cost of doing business which will be recouped by earlier entry into the market.”

This raises another concern about the GDUFA; laws that impose uniform fees on marketers of different sizes tend to — and maybe are intended to — price smaller competitors out of the market. As Mr. Speace said, for the major generic companies, these costs can be written off, but for smaller firms, they can mean the difference between profit and loss, which could lead to a smaller pool of generic drugmakers. Could it have the same effect on smaller API and dosage form suppliers, especially in non-U.S. markets, leading to the trade barrier Dr. Hardy warns of?

Innovative drug companies have been paying user fees since the PDUFA was first enacted in 1992. It only makes sense, given the rising importance of generic drugs and the criticality of their safety, that they shoulder some of the regulatory burden. As Mr. Speace put it, “The ability to file DMFs, have your facility inspected by FDA free of charge and not pay any associated fees for ANDA review and approvals, which are required to gain access to the biggest pharmaceutical market in the world, has been the biggest bargain on the planet for domestic and foreign firms and that is about to change.” 

Gil Roth has been the editor of Contract Pharma since its debut in 1999. He can be reached at gil@rodpub.com