Wednesday, November 28, 2007

DTC User Fees Clear First Hurdle; New Era for Advertisers Ready to Begin

An update on an item we reported last week: the status of the new direct-to-consumer advertising user fee program created as part of the huge Food & Drug Administration Amendments Act enacted in September.

As of November 26, FDA had received commitments from advertisers to submit at least 130 television ads for prescription drugs for pre-review by the agency.

That is well above the 68 commitments the agency needed to get by November 26 in order to launch the program. It is also way more than the 47 commitments the agency had received when Division of Drug Marketing Advertising & Communications Director Tom Abrams provided an update during a Food & Drug Law Institute conference 10 days earlier.

The program was designed with the assumption that there would be about 150 pre-reviews per year. That looks like a pretty sound estimate. FDA may be a little short of that number in advance commitments, but sponsors can decide later in the year to submit ads (albeit with a higher fee as a penalty).

“The next steps are to tally the number of ads and establish the fee per ad,” FDA says. The agency plans to “issue a Federal Register Notice stating the fee and will also invoice the participating companies.” The law requires FDA to have the money in hand by January 26, so there may still be some nervous moments early in 2008 while the agency waits for the checks to come in.

FDA is authorized to collect $6.25 million in fees to fund reviews in 2008, plus another $6.25 million to establish a reserve fund for future years. So if the agency ends up with exactly 130 commitments, the fee for a review will be just under $100,000.

That may sound like a lot to pay for the privilege of having a regulator criticize your ad before it airs.

But it is a pretty small price to pay compared to the alternatives. FDAAA didn't just authorize the new user fee program; it also gave FDA new authorities to punish advertisers that the agency thinks cross the line. Ads pre-reviewed by FDA are safe, as long as the sponsor made all the changes suggested by the agency. The new fines for violative ads start at $250,000 for a first offense, and increase to $500,000 for repeat violations. That’s not a ton of money, but then you have to factor in the cost of being made an example of by the agency.

More importanly, the pre-review program is probably the last chance for industry to fend off more draconian measures to restrict or even ban DTC ads. An outright ban is unlikely to survive Constitutional review by the courts, but that doesn’t mean Congress won’t find other ways to make advertisers miserable.

Now the question is: what exactly will FDA do with its pre-reviews? The agency has always been willing to make comments on ads prior to broadcast, but it has never before had enforcement tools to punish companies that decline to take its advice. We think that change in the balance of power will make a significant difference. You could read more of our thoughts on that in “The New Era of DTC,” from The RPM Report in October.

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