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Pharma Trouble: Drug Approvals at FDA Could Slow or Halt Due to Budget Squabbles

Three months after the latest version of the Prescription Drug and User Fee Act went into effect, the all-important legislation may come undone thanks to wrangling among lawmakers over budget cutbacks, Bloomberg News reports. And so, a large appropriation is at risk that may cause drug reviews to slow or come to a stop in January if the FDA does not receive scheduled funding from Congress, an agency spokeswoman tells the news service.

Why? Lawmakers are arguing over whether to follow through on $1.2 trillion of government-wide budget cuts through 2021. The stalemate “could result in the loss of whole user fee programs, programs that have become essential to public health and medical product innovation,” the agency spokeswoman says. Similarly, the National Institutes of Health may also lose $2.4 billion and have to cancel as many as 2,400 grants, a spokesman tells Bloomberg.

Drugmakers are scheduled to pay almost $2 million for each new drug application to the FDA beginning October 1, as well as a $527,000 establishment fee and $98,000 product charge. But the White House Office of Management and Budget missed a September 6 deadline to submit a plan to Congress for the first $109 billion in mandated spending reductions, which is known as sequestration, the news service write.

So, the budget battles are a potential problem for pharma stocks – Pfizer (PFE), Merck (MRK), Eli Lilly (LLY), AstraZeneca (AZN), Sanofi (SNY) and others. Filling their depleted pipelines is essential to the long-term health of these companies.

PFE Revenue TTM Chart

PFE Revenue TTM data by YCharts

PFE Chart

PFE data by YCharts

The FDA may lose 8 percent of appropriated funds, or a reduction of $200 million for fiscal 2013, the Alliance for a Stronger FDA estimates. The key element of the user fee program is known as the trigger, which sets a baseline of taxpayer funds to ensure that industry payments supplement congressional appropriations, Alan Goldhammer, an industry consultant, tells Bloomberg.

For fiscal 2013, the Obama administration has requested about $2.5 billion in taxpayer funds for the FDA. An additional $2 billion in industry fees are supposed to be collected as well; including $720 million for brand-name drugs, $299 million for generics, and $98 million from device makers, according to a Congressional Budget Office. The FDA spokeswoman declined to discuss trigger levels with Bloomberg.

To read the remainder of this article, go to Pharmalot.

Ed Silverman is the editor of Pharmalot and a contributor toYCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

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