July 27, 2021

FDA MDUFMA Small Business Determination (SBD) at the Pre-Revenue Stage

Before addressing FDA’s MDUFMA fees and SBD program for a firm’s premarket submission when at a pre-revenue / premarket stage, my suggestion is to first remember that if a product clearance or approval [510(k) clearance, PMA approval, etc.] hasn’t happened yet, and assuming that the Sponsor is not engaged in other activities triggering the FDA establishment registration requirement, then the Sponsor should be sure it hasn’t unnecessarily registered its establishment.  This is because FDA instructs establishments not to register at the pre-approval stage.  Avoiding unnecessary establishment registration will save $5,546 / year (in today’s MDUFMA dollars) which could really add up to a lot of savings given that product development and FDA market authorization campaigns can often be multi-year efforts.

Regarding a firm’s lack of having yet submitted its first Federal U.S. income tax return, remember that section 738(d)(2)(B)(iii) of the Act is, as far as I know, still in effect and includes a bridging provision for firms that haven’t yet submitted their first Federal income tax return.  That provision says that, in the case of an applicant that has not previously submitted a Federal income tax return, then the applicant and each of its affiliates shall instead demonstrate the “small business” evidence via submission of a signed certification in the English language from the national taxing authority of the country in which the applicant or, if applicable, affiliate is headquartered, certifying that the applicant or affiliate meets the criteria for a “small business”.  Firms need to be sure to give due consideration to this bridging provision when at a pre-revenue / pre-taxation stage.

However, the Act’s section 738(d)(2)(B)(iii) bridging provision may not need to be used at all even though seemingly so at first glance.  Indeed, many corporations must submit periodic Federal income tax returns (e.g., Form 941 QUARTERLY Federal Tax Return) during the year leading up to the annual tax return.  Such periodic returns are in fact official Federal income tax returns.  Accordingly, leveraging such periodic Federal tax returns may also be a viable strategy, specifically, by submitting some or all of the year’s periodic Federal income tax returns in order to officially and statutorily demonstrate that year’s current Federal income status.  Some discussion with the Agency may be needed for that strategy in order to determine if the Agency interprets the Act’s phrase “most recent Federal income tax return for a taxable year” to only mean an annual tax return, or if that could also be interpreted to mean the current year’s Federal income tax returns to date.  If needed, I wouldn’t hesitate to assert with the Agency that a compilation of the year’s periodic Federal income tax returns would meet the statutory criterion “most recent Federal income tax return for a taxable year” called for by the Act.  And it seems that FDA would be amenable to that in light of its webpage guidance stating that if the firm has been in business for less than a year, it can provide the FDA with a copy its U.S. income tax return for a period of time that’s less than 1 year.  FDA says that the dates encompassed by the partial-year return need to be identified on the tax return.  For that scenario, FDA also asks that the firm provide documentation (such as Articles of Incorporation) identifying the business’s formation date in order to further justify the lack of a full year’s tax return.  FDA also says the firm may submit a personal income tax return if needed, where the personal return must identify the submitter’s business and gross receipts or sales under Schedule C of the Form 1040.

Finally, don’t forget that there is a one-time waiver of the MDUFMA PMA fee for a Sponsor’s inaugural PMA pursuant to section 738(d)(1) of the Act.