The Prescription Drug User Fee Act, or PDUFA, was arguably lawmakers' greatest gift to drugmakers and their investors. Before PDUFA was enacted in 1992, reviews of marketing applications were long, drawn-out affairs. The act allowed the FDA to reduce review times by hiring more reviewers funded by fees the companies pay. The review times aren't set in stone, but the FDA has a goal of responding to 90% of applications within the allotted time, which is where the term PDUFA date comes from.
The act comes up for renewal every five years. The FDA and drugmakers sit down and negotiate a new deal. The newest agreement, set to begin a year from now, extends the time the FDA has to review the marketing applications.
That's right, drugmakers have agreed to extend the review times from the current allotment -- six months for a priority approval and 10 months for a standard one -- to eight months for a priority approval and a year for a standard one. The extension applies only to new molecular entities. Drugs going for a second indication, Bayer and Johnson & Johnson's Xarelto, for instance, would still get a 10-month review for subsequent indications; atrial fibrillation in the case of Xarelto, since it's already approved to treat the formation of blood clots.
Why the heck would they agree to that? Aren't faster approvals better? The simple answer is that the companies think the added approval time will actually increase the approval rate and/or increase the speed at which companies can get back to the drawing board if they're going to get rejected anyway.
In exchange for more time to review applications, companies will get more meetings with the FDA during the review cycle. The additional face time might give drugmakers the ability to more fully explain their data, perhaps avoiding needless rejections. Alternatively, the meetings might help drugmakers realize early on that they need more data for approval.
Imagine if Amylin Pharmaceuticals
The myth of the six-month review
In the case of priority reviews, companies may not be giving up much with the longer review times. The FDA is supposed to review priority applications in six months, but PDUFA gives the agency an out, allowing it to extend review times -- and therefore not count as a miss in its 90% goal -- when drugmakers present additional data during the review process, called a major amendment. Regeneron Pharmaceuticals
As far as I can tell, it's up to the FDA's discretion whether the review time is extended; the definition of a major amendment is somewhat subjective. It's possible that extra data that would trigger an extension under the current system might be handled by the FDA when it's given two additional months to review an application.
What this means for investors
Keep in mind that the FDA and drugmakers don't set laws. This system, where they sit down and hash things out, certainly works better than letting elected officials draft the law, but Congress does have the final say.
You can count on some representatives and senators claiming that drugmakers' funding around 60% of the FDA's drug review budget puts the agency in the back pocket of the industry, but the renewal of PDUFA should pass as long as most of them continue to realize that's ridiculous. Ever had to deal with a building inspector? They don't seem to be all that interested in bending the rules, despite their salaries being paid by building permit fees.
Assuming the PDUFA renewal is close to the form drafted by the FDA and drugmakers if passed, it certainly looks like a win for the industry, which is ultimately a win for investors. The extended review time isn't ideal, but over the course of the patent life of a drug, it isn't that big of a deal.
The only downside I can see for investors is that we don't know whether the added FDA meetings will shine a light on the approval process or just add more black boxes that investors don't have insight into. Will companies report the outcomes of meetings they have with the FDA, like MannKind
Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Pfizer and Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.