With sequestration scheduled to take effect today, the looming cuts to the U.S. Food and Drug Administration are concerning for the whole of the life sciences industry.  The budget sequestration will cut 8.2% from the federal budget, resulting in about $320 million less in spending for the FDA in FY 13 than it had in FY 12.  This will put pressure on the FDA to furlough or lay-off employees.  The concern is that these effects will result in slower drug and device approvals, and substantially hamper product development.

The Prescription Drug User Fee Act (PDUFA) law, passed by Congress in 1992, allows the FDA to collect fees from drug manufacturers to fund the new drug approval process.  This added funding source allowed the FDA to increase the number of new drug reviewers by 77% in the first eight years of the act, which substantially decreased approval time.  This year, new, increased user fee rates have gone into effect.  In its current, renewed version, PDUFA V collects about $41 million from prescription drug and biosimilar fees.  FDAs access to these fees is capped, though.  In an attempt to avoid a move backward in the pharma industry that could be caused by sequestration, the Obama administration is asking Congress to lift the cap on user fees, to help the FDA’s continued efforts to speed up the review process.  If the cap is not lifted, the increased user fee rates will continue, requiring life sciences companies to pay, without proportionate benefit to the FDA review process.

If the cuts significantly affect staffing at the FDA, concerns about the period of time required for approval in the review process will be exacerbated.  Lay-offs would not only slow the approval process, but also negatively affect the research process.  In medical device development, during the clinical trial phases, the FDA is statutorily required to let manufacturers know, within 30 days, if they need to stop the trials to fix an issue.  With limited personnel resources at the FDA due to lay-offs, it is possible that the 30-day time frame will come and go.  This means that the manufacturer will be allowed to proceed with trials, but will ultimately hit a road block when reaching the point of final approval from the FDA.

With significant pressure on life sciences companies to bring new products to market, sequestration is a serious worry.

This article was written by Michael Shapiro-Bar, Health Group Analyst.