Regulatory Focus™ > News Articles > Generic Drug Industry Claims FDA's Labeling Rule will Cost $4 Billion per Year

Generic Drug Industry Claims FDA's Labeling Rule will Cost $4 Billion per Year

Posted 05 February 2014 | By Alexander Gaffney, RAC

As the battle over the US Food and Drug Administration's (FDA) proposed generic drug labeling rule has continued to heat up, an odd point of contention seems to be the source of increasing debate: the rule's cost.


In November 2013, FDA proposed to allow generic drug manufacturers to temporarily update their labels if they were made aware of new safety issues that might pose a risk for consumers. Those updates, which would be done through the submission of a Changes Being Effected (CBE) Zero-day (CBE-0) application, would allow the companies to immediately make changes while waiting for FDA and the owner (if they still existed) of the original reference listed drug (RLD) to decide if the change was necessary.

FDA's intent, it said, is to permit differences to exist between the NDA and the ANDA on a "temporary basis."

ANDA holders would need to send the NDA holder both the labeling change and a copy of the information supporting the change.  This requirement is waived if the original NDA has been withdrawn, but would otherwise "ensure that the NDA holder for the RLD is promptly advised of the newly acquired information that was considered to warrant the labeling change."

Any changes would affect both the generic and RLD owners' labeling, FDA said.

Generic drug manufacturers would also be able to distribute "Dear Health Care Provider" letters.

Proposed Rule Slammed over Legality, Cost

If FDA has learned anything in the months following the release of the rule, it's that it has almost no support whatsoever from industry. As Focus has previously explored, the rule has seen public rebukes from the generic drug industry, the innovative pharmaceutical industry, industry legal experts and even a large contingent of Congress.

But while early critiques of the rule tended to focus on the legality of its provisions, members of Congress and industry are increasingly speculating about its cost as well.

Take for example a letter sent by dozens of Republican lawmakers in January 2014, who claimed the rule would "impose significant costs on the drug industry and healthcare consumers."

"The proposed changes by FDA raise a number of concerns and potentially significant costs that FDA needs to explain to Congress and the American people," the letter said. And on that cost point, the legislators pressed FDA to explain how it determined that the proposed regulation would cost between just $4,237 and $25,852-a number far below the threshold ($141M) for an "economically significant rule" that would require review by the Office of Management and Budget (OMB).

"No explanation is given as to how the FDA derived such a low estimate," the legislators wrote.

FDA said it believed that "this proposed rule would not be an economically significant regulatory action as defined by Executive Order 12866," and said it would "generate little cost."

"The primary estimate of the costs of the proposed rule includes costs to ANDA and NDA holders for submitting and reviewing CBE-0 supplements," FDA added in the proposed rule.

Generic Industry Concerns

Since the release of the legislators' letter, the Generic Pharmaceutical Association (GPhA), the generic industry trade group, has routinely cited costs as a major concern.

The proposed rule "raises significant concerns for the generic drug industry, the country's healthcare system, and the nation's citizens" by jeopardizing the availability of low-cost generic medicines," GPhA wrote in comments to FDA.

The changes, they argued, would drive some generic companies out of business by increasing their legal liabilities, causing drug shortages and healthcare prices to increase. In the future, some drugs might never have a generic competitor, GPhA predicted.

Now, GPhA is making that argument more forcefully.

On 5 February 2013, GPhA released an economic assessment conducted on its behalf by Matrix Global Advisors, an economic consulting group, which claimed the proposed rule would increase pharmaceutical spending in the US by $4 billion per year.

Of that amount, $1.5 billion would be borne by taxpayers, while the rest would be incurred by private health insurers, the report said.

A $4 Billion Price Tag

The increase in costs was based on a number of assumptions, including that generic manufacturers would face higher insurance premiums and legal costs, may refuse to make product perceived to have high liabilities, and would have to implement pharmacovigilance operations.

"The Proposed Rule would drastically alter the existing legal landscape by eliminating preemption and exposing generic manufacturers, who supply 84 percent of all prescriptions, to product liability lawsuits," Matrix noted in its report. "Because the FDA fails to consider liability costs for generic manufacturers, the agency reaches the erroneous conclusion that the Proposed Rule would 'generate little cost,'" the report charged.

The increase in liability resulted in the greatest anticipated rise in costs for the industry. Matrix anticipated that based on the branded pharmaceutical industry's costs of liabilities (.4% of sales), it would be even larger for the generic drug industry, which constituted 84% of all drug spending in the US.

Assuming the analysis holds up to scrutiny, it could be another nail-a very expensive one at that-in the coffin for FDA's proposed rule.


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