If we did a report card on the Generic Drug User Fee Amendments ( GDUFA ) of 2012, at best, it might get a C. In the three years since Congress voted for GDUFA, naysayers and supporters can both claim to have been right—on some aspects of the law. For example, GDUFA was intended to speed approvals to provide access to safe and effective generic drugs to the public, and we’re starting to see speedier approvals. GDUFA was also supposed to reduce costs to the industry, but we’ve seen just the opposite happen. And while the law has increased inspections, both of domestic and international manufacturers, to ensure foreign facilities meet U.S. standards, and to maintain public trust—the number of enforcement recommendations has not increased. Overall, while we’ve seen some important improvement because of GDUFA, there is much progress to be achieved.

Speed Approvals
In terms of approvals, the first thing to look at is the number of ANDA submissions. According to the FDA /GphA Quarterly Meeting in March 2015, the number of Abbreviated New Drug Applications (ANDA) has increased significantly from 885 in 2011 to 1,415 in 2014. Impressively, the timeline from submission to approval has been shortened. For years 2008 through 2010, time to approval took approximately five years. In 2014, time to approval took less than two years.

While the FDA is more responsive and turn-around times have shrunk, it still takes a long time to get approvals. The FDA’s pre-GDUFA inefficiency is still causing problems and delays. For example, pre-GDUFA, the ANDA backlog ranged between 2,800 and 3,300 submissions along with approximately 500 PASs. The Office of Generic Drugs (OGD) has made some progress, which includes making additional hires and updating processes to include target action dates (TADs). OGD assigns one TAD per ANDA, with workload factors used to assign TAD, which are fixed. This year, it has approved 35 PASs, ahead of the GDUFA goals, and nearly 140 pending notices as of Feb. 2015 (slides 19-20). Nevertheless, OGD doesn’t expect to clear the backlog until Oct. 2017, which will be in GDUFA’s fifth year according to FDA News.

According to Lachman Consultants, “The nature of the ANDA review and approval process will guarantee that there is always a backlog. That is because firms submit applications on an ongoing basis, and it takes the OGD time to review and assess each application. The key to success is to maintain the backlog at a manageable level.”

Reduced Costs
Along with reducing time-to-approval, GDUFA was intended to reduce costs. Unfortunately, because of lobbying by big players, GDUFA seems better at raising fees or maintaining them at a high level for applications and Drug Master Files (DMFs). The FDA estimates the fees “to cost the generic drug industry less than ten cents for the average generic prescription,” but the fees are much more of a hardship for smaller firms.

GDUFA Fees	FY2016	FY2015
ANDA Fee	$76,030	$58,730
PAS Fee	$38,020	$29,370
DMF fee	$42,170	$26,720
API Domestic	$40,867	$41,926
API Foreign	$55,867	$56,926
FDF Domestic	$243,905	$247,717
FDF Foreign	$258,905	$262,717

Some of those fees for 2016, like for ANDAs, PASs, and DMFs, have increased from those charged in 2015, but even those that dropped a small percent still increase the level of risk for small companies; manufacturers must pay a facility fee even if they haven’t yet received approval. That means the FDA expects payment even before they have an actual product or revenue. Big pharma can amortize the fee across a number of different products but small companies may have only the one product in development. This substantially increases their risk while stifling innovation from smaller firms, especially when considering that generics can take more than five years to get approval, and only 50 percent get approved. That means that smaller firms aren’t making a quarter-million-dollar gamble—they’re actually placing a $1.25-million-dollar bet over five years, with no guarantee that they’ll get approval. That means they have to be confident that they’ll make at least $2 million (when adding personnel, equipment, cash flow, etc.) just to break even—and that’s if other competing generics don’t Hit at the same time. All of this tends to reduce the risk taking that is necessary for innovation and eliminates competition as companies can’t afford to risk the $1.25 million or to wait until 2017 when the backlog is cleared out. For consumers, this can Lead to fewer options for generic drugs as well as higher prices for those left on the market.

Smaller manufacturers, have to determine whether they can generate a better return to compensate that risk for paying large fees. In a real-life example, we developed an API with a partner and were compensated based on the number of prescriptions written for that liquid, Topical generic product. Our partner manufactured the finished dose. Our partner was bought out and the site they manufactured the product was closed. Going forward it made the most sense for us to manufacture both the API and the finished dose. We had the capacity, the capability and all the quality systems in place.  We looked into it, and realized that paying the facility fee with only one approved product would be a big problem because potential sales of the product would barely cover the facility fee.
We determined we might make a slim profit in a good year. We declined because it was hard to justify starting that business; we felt the risk was too high by itself, especially when factoring in the opportunity costs of our facility and people focusing on a low-margin line of business instead of focusing on one with lower costs and risks. No one can afford to build a business with that kind of time commitment and risk.

Increased Inspections
Concerns about the quality of foreign medicines, including contaminated, counterfeited or adulterated drugs getting in the hands of U.S. patients, have sparked the need to increase foreign inspections. Despite pushback from facility owners in India and elsewhere, claiming the regulations are burdensome and expensive, the FDA has increased foreign inspections to ensure manufacturers of drugs being exported to the U.S. meet the same high standards as are domestic manufacturers. Fueled by GDUFA fees, the number of inspections has increased, and the FDA has been developing new approaches and processes for those inspections. Still, many foreign manufacturers are not inspected or are inspected to the same degree as U.S. firms. For example, while the FDA has increased the number of inspections in India, the Chinese government continues to block increased levels of FDA inspections there.
But, according to the Regulatory Affairs Society (RAPS) in May 2015, the FDA “conducted relatively fewer inspections outside the U.S. In 2011, nearly 60% of FDA’s inspections of generic drug facilities were outside the U.S. In 2012 and 2013, the agency conducted only about half of all pre-approval inspections outside the U.S.” Partly this is because the number of inspections, both domestic and foreign, has increased.

Another area of concern: one would expect that as the number of foreign inspections increases, so, too, would the number of problems identified. Yet, that is not the case. RAPS also noted that the Office of the Inspector General found that, “the number of enforcement recommendations has remained relatively steady. In all three years, 51-52% of firms passed the inspection, 41-43% of firms were asked to take voluntary action to resolve minor problems, and 6-7% of firms were required to take action to resolve problems (‘Official Action Indication’).”

Quality control is essential but the lack of an increase in foreign enforcement recommendations is troubling.

Unintended Consequences
GDUFA was passed, no doubt, with the best of intentions. But there have been a number of unintended consequences that are damaging GDUFA’s reputation and legacy.

Reduced Competition as Smaller Firms Drop Out = Higher Demand and Prices
Whether intended or not, GDUFA’s higher fees and increased oversight is reducing competition by driving out smaller firms. They often can be a source of innovative thinking, but they don’t want to take on the risks. Some have shut down completely and laid off their employees. High fees are not the only reason smaller firms are going out of business. There’s no question we need regulatory scrutiny. But too much scrutiny of U.S. facilities may be another factor as it places significant burdens on manufacturers without actually improving outcomes for consumers. Example of reduced competition are the exits of firms like Ben Venue Laboratories and Hospira as well as the product or corporate acquisitions as Patent -cliff protection by major players.

Less competition can lead to higher demand for generics because there are fewer alternative medicines available. And fewer manufacturers can lead to greater scarcity, which can lead to two things, neither of them good:

• The scarcity of in-demand generics may result in situations where patients are unable to get the drugs they need, at a price point they can afford or that is covered by their insurance; and
• Shortages cause the generics to go up in price, driving imports of foreign-made generics to meet demand—even as half of foreign manufacturers have not undergone FDA inspections so that their medicines may meet U.S. standards.

Another consequence results when U.S. manufacturers shut down, innovation could develop elsewhere, outside the U.S. In fact, international companies may decide to innovate with the goal of never selling into the U.S. market. The reason? Exporting drugs to the U.S. would require foreign manufacturers meet U.S. standards and pay U.S. fees—driving up costs again. And that’s even with the U.S. market being worth more than twice the rest of the world’s. With fewer U.S. manufacturers and fees for smaller manufacturers, we expect drug shortages in 2016 and in years to come. The shortages and discontinuation of other drugs will make available drugs more expensive, and may drive imports of foreign-made generics to meet demand.

Shortages
There is already a shortage of drugs needed to save lives or maintain quality of life, especially for the chronically ill. There is currently a shortage of approximately 70 drugs, according the to FDA Drug Shortages Report, for reasons due to manufacturing, quality control, or delays in obtaining raw materials from supplies. Generics can be a great way to treat patients for less—but not if these drugs are not available when needed. Some are small volume but critical products used to treat, for example, relatively rare forms of cancer.

Declining Quality
Scarcity will make those drugs more expensive and may drive imports of foreign-made generics to meet demand. Because many foreign manufacturers are not inspected to the degree that U.S. firms are, that could lead to quality issues that we all want to avoid. Unfortunately, there is no easy Solution to this problem. Scrutiny must and will continue. We need to get through these growing pains so as to fulfill the mandate of GDUFA and get approvals through quicker, which will benefit everyone. But a serious concern is that five years will go by and India and China will still be dumping lower quality generics in the U.S.

Prices Continue to Rise to Offset Greater Risk
The increasing price of generics or older medicines has been an election-year issue. But prices may continue to increase to offset higher costs and additional regulatory hurdles. If the price of the generic increased relative to the facility fee that has to be paid, companies may be able to grow their businesses. 

Moving Forward
GDUFA will be renewed in 2017. But what we need are changes that alleviate the pressure on smaller players such as:

1. The FDA needs to continue to refine its internal processes to continue to work through the backlog. It’s unconscionable that one-product companies have had to wait years before the FDA even acts on their submissions.
2. The FDA needs to consider addressing the facility fee that smaller firms must pay even before they have an approved product. We can improve the environment for innovation by allowing smaller firms to defer paying a facility fee until their generic gets approval. Reducing costs to the industry can increase competition, which can boost the number of available generics, which can lower prices charged to consumers and reduce the likelihood of drug shortages.
3. The FDA also needs to continue to conduct inspections in India and China so that we can improve the quality of foreign-made generics. Protecting U.S. patients remains vital. The U.S. represents the largest market for pharmaceuticals, and the next administration needs to leverage that in conversations with China. We need to tell them: If you want access to our market for pharmaceuticals, you must allow our inspectors of those facilities making generics for the U.S.

If these changes are not made, smaller firms won’t be able to afford to stay in the market. Not only will the industry suffer as a result, so too will U.S. patients. 

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Ed Price is President of PCI Synthesis (www.pcisynthesis.com), a 15-year-old custom chemical manufacturer of new chemical entities (NCEs), generic active pharmaceutical ingredients (APIs), and other specialty chemical products.