Will a New FDA User Fee Discourage Medical Device Innovation?

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By Bronwyn Mixter

More medical device companies have been using an alternative pathway to get innovative products on the market faster, but a new user fee on industry could affect the use of this pathway.

The “de novo” classification pathway has been used to get devices on the U.S. market such as Accelerate Diagnostics Inc.'s PhenoTest BC Kit, the first test to identify organisms that cause bloodstream infections and provide information on the correct antibiotics for treatment. De novo is a way to get products on the market without going through the Food and Drug Administration’s most stringent review process, known as premarket approval.

However, if companies have to pay a new fee that is seen as relatively burdensome, it could dissuade applicants from seeking de novo classification, though not all sources contacted by Bloomberg BNA see this as a major concern.

There’s no current user fee on de novo, but that’s expected to change by the start of the next fiscal year in Oct. 1.

De novo is designed to accommodate novel devices that aren’t like a “predicate” device on the market. Most devices reach the U.S. market by a premarket notification or 510(k) submission, based on a predicate already on the market. As the FDA website notes, once a device gets a lower or moderate risk classification under de novo, it can be used as a predicate for someone else’s 510(k).

A de novo submission is a premarket request for the FDA to classify a novel device into class I (lowest risk) or class II (moderate risk). Receiving the class I or class II classifications means the devices aren’t subject to the most stringent FDA review process, premarket approval (PMA), which is for the highest-risk category, class III. A PMA must contain sufficient valid scientific evidence to assure that the device is safe and effective for its intended use.

As health-care attorney Bethany J. Hills told Bloomberg BNA, “PMAs are very extensive, they have lots of clinical data and they’re very expensive.” Hills is with Mintz Levin in New York.

Fee, Commitment From FDA

Because the new user fee comes with an FDA commitment to speed up review times, it could make the pathway more attractive. But the National Center for Health Research, a Washington-based nonprofit, said it’s concerned that the de novo pathway could cause safety issues since it doesn’t require the same scientific evidence as a PMA.

The de novo pathway was created in 1997, but the pathway was modified by the Food and Drug Administration Safety and Innovation Act of 2012 (FDASIA). Prior to FDASIA, before manufacturers could submit a de novo, they first had to submit a premarket notification or 510(k), to get an FDA determination on whether the device was not substantially equivalent (NSE) to any legally marketed predicate devices.

Under FDASIA, sponsors can submit de novos without a preceding 510(k), and the use of de novos has increased since 2012.

30 Percent of PMA Fee

The new user fee is included in the medical device user fee agreement for fiscal years 2018-2022. For de novo submissions, the user fee will be 30 percent of the premarket approval application fee. Small businesses receive a discount and pay 25 percent of the de novo fee.

Congress is still in the process of passing the legislation to reauthorize the user fees, so the user fee amounts for FY 2018 haven’t yet been announced. But the PMA fee in FY 2017 is $234,495 and that would mean a de novo fee of more than $70,000 and a small business fee of about $17,500. In return for the user fee, the FDA agreed to make a decision on a de novo product within 150 days for 70 percent of submissions by FY 2022.

The standard 510(k) fee for FY 2017 is much lower, only $4,690.

Recognizing New Technologies

Jeffrey K. Shapiro, an attorney with Hyman, Phelps & McNamara in Washington, told Bloomberg BNA June 5 “almost all of the FDA device classification regulations [before the de novo pathway] were developed based on the technology that was available in the 1970s” and many of the categories that are based on old technology “are still with us.” Shapiro specializes in medical device law.

The device classification process “didn’t account for the development of totally new technology,” Shapiro said. “The technology, of course, is better now.”

“So the de novo pathway is essential for allowing brand new technology to be incorporated into the whole 510(k) process because otherwise they’d all have to go PMA, which is completely unrealistic and would kill a lot of these technologies,” Shapiro said. “The de novo process is a really important one and it’s growing in importance because we’re getting further and further away from the 1970s. People are actually coming up with new ideas.”

Shapiro said the 2012 statute attempted to streamline the de novo process, but de novo review times have been long and unpredictable and typically take at least a year to get through.

“The 2012 statute helped but it didn’t really solve that problem. So I think that while the user fees are going to be a burden on industry, particularly small companies, there will be a trade off in terms of greater certainty and a reduction in the timeline and greater predictability,” Shapiro said. “I think investors are going to be happier factoring in paying the fees and getting that certainty of time to be able to get to market.”

But Shapiro said while the discounted fee for small business isn’t “too bad for those who have good investment backing,” it’s not trivial either. “And if FDA denies the de novo and they have to cycle through again, it gets to be pretty hefty” as even discounted fees pile up, he said.

Pathway Important for Innovation

Daniel A. Kracov, who is the co-chairman of the life sciences and health regulation practice at Arnold & Porter Kaye Scholer LLP in Washington, told Bloomberg BNA “the de novo pathway has obviously become incredibly important for innovation” and “I expect it to be a real center piece for the FDA over this administration in terms of trying to move some of these de novo requests through.”

Kracov, who is a Bloomberg BNA advisory board member, said the user fee commitments “are relatively reasonable in terms of timing and provide some assurance that you’re going to get feedback that’s useful” from the FDA.

“To me, it’s a very positive development” and “I think it’s going to be used even more than it is now,” Kracov said. “It’s become a really central strategy for companies in terms of innovative devices.”

Fee Could Discourage Innovation

“While in theory the de novo pathway serves a real need, the amount of the user fee could discourage innovation,” Bradley Merrill Thompson, a Washington-based health-care attorney with Epstein Becker & Green PC told Bloomberg BNA in a June 1 email. Thompson also is a Bloomberg BNA advisory board member.

“There are actually quite a few new product innovations that are clearly low risk, but don’t have a natural, existing predicate device so the 510(k) pathway isn’t available,” Thompson said. “Historically the problem has been that FDA has been a bit too demanding in terms of the evidence it requires, in some cases rising to the level of nearly a PMA.”

Thompson said “another problem has been time, in that the de novo process has historically taken way too long.”

“Both of those ‘problems’ are within the control of FDA, and my sense is that FDA has been a bit more practical in terms of the evidence demanded, and a bit speedier,” Thompson said. “But the ultimate problem with the de novo process is that unlike the PMA, anyone who pursues a de novo does so for the benefit of all of their competitors. Basically it creates an easy pathway for competitors to follow along at much less cost for them. That problem is inherent in the process, and is not going to go away. Nonetheless, if FDA is practical in terms of the evidence and speed in terms of the review, some companies will choose this pathway over the PMA.”

But Thompson said his fear “is that the FDA is making the user fee so high that it will actually make the PMA process look more attractive for larger companies. Or worse, it will simply discourage new technology from small companies that don’t have the resources to pay the fee” and the medical device industry “relies on small companies for many of the most groundbreaking innovations.”

“The bottom line is I started to see some hope for the process, but the amount of the user fee I fear will discourage innovation,” Thompson said.

No Other Option

Hills, with Mintz Levin, told Bloomberg BNA the user fee won’t keep companies from using the de novo pathway because they don’t really have another option. Hills is chair of the firm’s FDA practice and a Bloomberg BNA advisory board member.

For class II devices, if there isn’t a predicate device, “you have no choice” but to use the de novo pathway, Hills said. “You’re only other choice is to do a PMA and nobody wants to do that.”

“We’re constantly working with clients to think though a strategy of de novo versus PMA,” Hills said. “What you have to argue about the safety and effectiveness of your product is very similar between a de novo and a PMA. But a PMA application is much more rigorous, you usually have to have a site inspection before the FDA will approve you and there’s more ongoing regulatory controls with a PMA device post-approval. It’s a much more ongoing regulatory burden.”

When the FDA classifies a device as a de novo, it creates a device regulation for that category and the device becomes the first in the category, Hills said. “But everybody else after you can use you as a predicate and all they have to do is submit a 510(k).”

“If you’re talking about a 510(k) versus de novo, you have very little choice. If you don’t have a good predicate, you’re not going to get your 510(k) cleared,” Hills said.

Also, if a company submits a 510(k) without a good predicate device, they could get a letter from the FDA with a finding that the product isn’t substantially equivalent to the predicate, Hills said. “Nobody wants to have that” because then they’ll have to explain that to investors and partners. “So, it’s better to just bite the bullet and do the de novo,” she said.

Safety Issues

Diana Zuckerman, president of the National Center for Health Research, a Washington-based nonprofit, told Bloomberg BNA in a June 5 email her group is concerned about possible safety issues with the de novo pathway.

“We are concerned about de novo because we do not know what evidence the FDA is requiring, we only know they are not usually requiring clinical trials. We think that all de novo devices should be required to be proven safe and effective based on scientific evidence,” Zuckerman said.

To contact the reporter on this story: Bronwyn Mixter in Washington at bmixter@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

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