Recent research on the economic effects and benefits of the Prescription Drug User Fee Acts (PDUFA) have been compelling and suggest that this policy has generated net benefits for society.  This note reviews some recent empirical analyses on PDUFA, which was first enacted by Congress in 1992 over concerns that FDA-approval times had grown too long (they exceeded 2 years, on average, in 1991). PDUFA mandates strict performance and review-time goals for the FDA; it requires manufacturers pay user fees to the FDA to help meet these goals.  User fees are the main source of funding for the additional FDA staff hired to review new drug applications. Today, average FDA-approval times are much shorter; they are close to 1 year. Research suggests that the economic benefits of PDUFA have been, and continue to be, considerable: both in terms of more rapid access to new medicines for patients and improved incentives for investment in pharmaceutical R&D.

In a recent paper by University of Chicago professor Tomas Philipson and colleagues, PDUFA was found to be responsible for much of the reduction in FDA-approval times since 1992. As a result of the improved access to new drugs, they estimated PDUFA generated consumer welfare gains of between $5 and $19 billion in present value.  So long as safety and quality are not compromised, more rapid access to new drugs imparts net health benefits to patients and save lives.

Of course, ensuring the safety of drugs is challenging, both prior to marketing approval - when limited information from controlled and randomized trials is available - and post-marketing - when adverse events are under-reported and there is substantial uncertainty about the baseline rate of any adverse events and relevant exposed population. However, a recent FDA study, in which drug safety was measured over time using the frequency of black box warnings, found no evidence to suggest that the PDUFA has compromised drug safety.

There are also important benefits on the supply-side of the pharmaceutical marketplace attributable to PDUFA. This is because shorter FDA-approval times improve the economic conditions and incentives for R&D investment.  We estimate industry R&D spending has increased because PDUFA has resulted in higher present value expected returns to pharmaceutical R&D. In particular, we approximate that between 1992 and 2001, PDUFA induced an additional $13.5 billion in industry R&D spending.  Recent research on the productivity of pharmaceutical R&D suggests that the social rate of return to this activity, because of the value of pharmaceutical innovation, is remarkably high.
 
This supply-side benefit, when coupled with the welfare gains associated with improved access, suggests PDUFA has been a successful policy: one that has generated net economic benefits for society.

John A. Vernon is a professor in the Department of Finance in the Graduate School of Business at the University of Connecticut. He is on a one-year appointment at the FDA serving as the Senior Economic Policy Advisor to the Commissioner’s Office. He is also a Faculty Research Fellow with the National Bureau of Economic Research (NBER) and a member of the editorial board at PharmacoEconomics, where an earlier version of this letter appeared.  Vernon’s email address is jvernon@business.uconn.edu. The views in this essay are those of the author and do not necessarily represent those of the organizations with which he is affiliated.