New FDA Regulations for Drugmakers

The Food and Drug Administration's performance over the past fiscal year has been a mixed bag for generic-drug makers. The agency approved one-third more drugs in that time, but the backlog of pending applications increased from about 800 a year ago to 1,300 this year.

In addition to announcing its performance last week, the agency also released its plan to handle the rising number of applications that will only get worse with the coming patent cliff.

The FDA plans to stop its first-come, first-served system and instead process applications for drugs that have already gone off patent before considering applications for patented drugs. I don't think the change will have a major effect on the likes of Teva Pharmaceutical (Nasdaq: TEVA  ) or Barr Pharmaceuticals (NYSE: BRL  ) , which have extensively used the strategy of breaking patents to increase their product lines. Because the patent dispute starts on the filing of the Abbreviated New Drug Application (ANDA), the application just needs to be processed before the dispute ends -- years later.

On the other hand, the change will likely hurt drugmakers such as Pfizer (NYSE: PFE  ) , GlaxoSmithKline (NYSE: GSK  ) , and AstraZeneca (NYSE: AZN  ) . Each has blockbusters coming off patent in the coming years. The applications getting to jump ahead might mean earlier and more robust competition from generics.

What the generic-drug makers really need is the FDA to hire more employees to process the applications faster. The administration's recent budget request included additional funds for more employees, but there's no guarantee Congress will approve it.

A simple solution would be for generic-drug makers to set up a user fee system similar to the Prescription Drug User Fee Act (PDUFA) to help pay for an expanded FDA budget, but that idea has been opposed by the Generic Pharmaceutical Association, whose membership includes Mylan Laboratories  (NYSE: MYL  ) . In my opinion, that's a big mistake -- fees the companies pay could be easily recouped by the sales of drugs that aren't taking place while the generic drugmakers wait for FDA approval.

The generic-drug makers should plan on continuing to wait. I don't see these changes having a major effect on the speed of the agency.