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Bloomberg – FDA Drug Review Deal Set to Unravel as Fiscal Cliff Looms

Bloomberg – FDA Drug Review Deal Set to Unravel as Fiscal Cliff Looms


A $6.4 billion accord for U.S. drug and medical-device reviews is set to unravel just three months after taking effect as lawmakers squabble over budget cutbacks.


Drug and device reviews, which rely heavily on fees paid by companies, may slow or halt in January because the Food and Drug Administration must receive certain funding from Congress before it can spend any of the industry money, said Karen Riley, an FDA spokeswoman. That appropriations level is at risk as lawmakers bicker over whether to follow through on $1.2 trillion of government-wide budget cuts through 2021.

The stalemate “could result in the loss of whole user fee programs, programs that have become essential to public health and medical product innovation,” Riley said in an e-mail.

Drugmakers such as Pfizer Inc. (PFE) and Eli Lilly & Co. (LLY) will pay almost $2 million for each new drug application to the FDA beginning Oct. 1, as well as a $527,000 establishment fee and $98,000 product charge. Also at risk are fees for medical-device and cigarette-safety reviews. The National Institutes of Health may also lose $2.4 billion and have to cancel as many as 2,400 grants, Calvin Jackson, a spokesman, said in an e-mail.

President Barack Obama’s Office of Management and Budget missed a Sept. 6 deadline to submit a plan to Congress for the first $109 billion in mandated spending reductions, known as sequestration. The FDA may lose 8 percent of the taxpayer money it’s appropriated, or a reduction of $200 million for fiscal 2013, the advocacy group Alliance for a Stronger FDA estimates.

‘Devastating’ Cuts

The key element of the user fee program is known as the trigger, which sets a baseline of taxpayer funds to ensure that industry payments supplement congressional appropriations, said Alan Goldhammer, an independent drug-industry consultant.

For fiscal 2013, the Obama administration has requested about $2.5 billion in taxpayer funds for the FDA. An additional $2 billion in industry fees are supposed to be collected as well; including $720 million for brand-name drugs, $299 million for generic medicines, and $98 million from medical-device companies such as Medtronic Inc. (MDT) and Boston Scientific Corp. (BSX), according to a Congressional Budget Office assessment in May.

Riley of the FDA declined to discuss the actual user-fee trigger levels, which are based on formulas that take into account consumer inflation and past spending.

While the initial “$200 million will be devastating,” a cut of that size shouldn’t set off the trigger, said Steven Grossman, deputy executive director of the Silver Spring, Maryland-based Alliance for a Stronger FDA. The Obama administration may still subject user fees to sequestration to meet broader spending-reduction goals, he said.

FDA Layoffs

Grossman calculates that about $68 million in drug and device user fees and $40 million in tobacco-company payments would be diverted to a U.S. Treasury Department account. While the fees wouldn’t go directly toward the deficit, the FDA’s inability to use the money would “reduce government because it would reduce what they can do,” Grossman said.

“The user fee part of it adds to the problem of there not being enough money to get the job done,” he said.

As much as 90 percent of user fees go toward personnel costs so the budget cuts would likely result in layoffs at the FDA, according to Goldhammer, who was once a vice president at the Pharmaceutical Research and Manufacturers of America, the drugmakers’ main lobbying group in Washington.

The FDA maintains a surplus to allow for an orderly shutdown of the user fee program if needed, he said.

Serious Mission

The budget predicament arose after talks failed last year on a bipartisan plan to curb the nation’s increasing debt. The nation now faces the expiration of income-tax cuts first enacted under President George W. Bush, the end of payroll-tax reductions and automatic decreases in government expenditures.

That budgetary soup has created a “fiscal cliff” that economists and the nonpartisan Congressional Budget Office have said may lead the U.S. economy back into recession.

“I personally doubt very seriously that the White House is going to let sequestration affect FDA because of the serious mission that it does,” Goldhammer said in a phone interview.

Based on the five-year agreement set to start next month, drug reviews would be funded 60 percent by industry fees, about $4.1 billion over the length of the deal. Medical device manufacturers will pay fees that make up about 35 percent of funding for the industry’s review program, or $609 million over five years. Generic-drug companies, which had been exempt from user fees, will pay $1.58 billion over that time.

The fees were increased and expanded from the previous five-year period to help the FDA speed product review times, especially after U.S. drug approvals rose to a seven-year high last year.

“Even without sequestration, FDA’s workload and statutory responsibilities have grown far faster than its budget,” Riley said.