Generic Drugs and GDUFA Reauthorization: In Brief

Summary

A generic drug is a lower-cost copy of a brand-name chemical drug. Marketing of the generic drug becomes possible only when the brand-name—also called innovator—drug is no longer protected from market competition by patent and other protections, called regulatory exclusivity.

Prior to marketing, the sponsor of a brand-name drug must submit to the Food and Drug Administration (FDA) clinical data in a new drug application (NDA) to support the claim that the drug is safe and effective for its intended use. The FDA uses the information in the NDA as a basis for approving or denying the sponsor’s application. Once a drug is approved, the brand-name manufacturer has free rein in setting the drug price due to a government-sanctioned monopoly for a defined period of time. This enables the company to recoup its research and development expenses, allow further R&D investment, as well as provide a profit to stock holders.

The branded drug is protected from market competition by (1) patents issued by the U.S. Patent Office and (2) regulatory exclusivity granted by the FDA following enactment of the Drug Price Competition and Patent Term Restoration Act of 1984 (P.L. 98-417), also called the Hatch-Waxman Act. These congressionally established incentives allow the brand name company to charge a much higher price for the drug product than the cost of manufacture. In one extreme example, the annual price for a patient taking the cancer drug Gleevec would be $216—including a 50% profit—far lower than the current annual price of $107,799 in the United States.

The Hatch-Waxman Act amended the Federal Food, Drug, and Cosmetic Act (FFDCA) allowing a generic drug manufacturer to submit an abbreviated NDA (ANDA) to the FDA for premarket review. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved drug and thereby relies on the FDA’s previous finding of safety and effectiveness for the approved drug. Because the generic sponsor does not perform costly animal and clinical research—and usually does not pay for expensive advertising, marketing, and promotion—the generic drug company is able to sell its drug product at a lower price compared with the branded drug product. The cost of a generic drug is, on average, about 85% lower than the brand name product.

According to FDA, the success of the Hatch-Waxman Act led to significant regulatory challenges for the agency. FDA’s resources did not keep pace with the increasing number of ANDAs, resulting in delayed approvals of generic drugs, “a major concern for the generics industry, FDA, consumers, and payers alike.” In March 2012, median review time for generic drug applications was approximately 31 months and FDA had a backlog of over 2,500 ANDAs. In addition, FDA had to conduct more inspections as the number of manufacturing facilities grew, “with the greatest increase coming from foreign facilities.”

To expedite ANDA reviews and provide resources for more inspections, FDA had proposed generic drug user fees in each annual budget request to Congress beginning with the FY2008 request. Such fees became possible when the Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144) became law in July 2012. Title III of FDASIA, the Generic Drug User Fee Amendments (GDUFA), authorized FDA to collect fees from industry for agency activities associated with generic drugs. Under what is now called GDUFA I, such fees are allowed to be collected from October 2012 through September 2017.

Between October 2015 and August 2016, FDA held negotiation sessions with industry on GDUFA reauthorization. In October 2016, FDA posted on its website the draft agreement—GDUFA II—setting fees and FDA performance goals for FY2018 through FY2022. A final GDUFA II recommendation will be submitted to Congress by January 15, 2017.