The Food and Drug Administration (FDA) plays a crucial role in protecting public health by ensuring the efficacy and safety of drugs, medical products, and cosmetics. If your business operates in the pharmaceutical, biotechnology, medical device, or food sectors, meeting FDA standards is a must. You cannot sell or market products without having its safety validated.
While the approval process involves strict health requirements, it also comes with significant financial considerations that can impact your overall budget. In this blog, our CPAs guide you through key financial aspects to help you avoid costly delays.
Understanding the FDA Approval Process
The following steps outline the general FDA approval process. It is important to note that in addition to consultant fees, if you choose to work with one, each of the following steps also incur their own expenses.
- Preclinical Testing: This initial stage evaluates your product in a lab and on animals to assess its safety. All of this costs money. From lab expenses to drug development costs, you need to factor this into your budget.
- Investigational New Drug (IND) application: After preclinical testing, an IND application is submitted to the FDA to allow your product to move on to human testing. Application fees should be included in your budget plan – pricing varies based on specific circumstances and exemptions available for certain types of drugs.
- Clinical Trials: This is often the most costly part of the approval process, as it involves testing your product on human participants. Factors like the number of participants and the length of the study typically increase costs, but may be necessary for certain medical products. Expenses to consider include recruiting and compensating participants, drug administration, and safety monitoring.
- New Drug Application (NDA) or Biologics License Application (BLA): With this submission you summarize how your product performed during clinical trials. It is necessary for transparency of the product’s safety, but it also comes at a cost.
- FDA Review and Approval: If all standards are met, the FDA grants product approval and you can start marketing your product.
Budgeting for FDA Approval
Once you have a view of the scope of your clinical trial requirements, you have a baseline from which to develop your budget plan. However, smart planning always factors in contingencies. Therefore our CPAs recommend the following budget considerations.
- Get a detailed cost breakdown for each FDA approval stage. Application fees vary depending on the type of product you are requesting approval for, so it’s important to budget accordingly.
- Secure funding: Explore potential partnerships to support your FDA approval journey. This can include anything from venture capital to government grants or other investors.
- Allocate funds effectively. Prioritize the most costly stages and regularly review your expenses against the projected budget. This proactive approach will help you avoid cash flow issues later in the process.
- Have a contingency budget in place. Plan for unexpected costs such as regulatory changes or additional study requests. Building a contingency fund into your budget will help you avoid delays.
Financing Your FDA Approval Process
Whether you choose to utilize investors or have your business self-fund your studies, a carefully considered funding strategy is essential to navigate the financial demands of FDA approval. Key considerations include:
- Self-funding. High FDA approval costs can strain your finances and limit resources available for other business operations.
- External funding options. If you use venture capital, angel investors, or grants, consider how much control over business decisions you would need to relinquish. Weigh this trade-off carefully.
- Debt financing. Traditional loans and credit typically require repayment with interest, so ensure that your revenue projections can cover these costs.
How to Manage Regulatory Compliance Costs
- Take a streamlined approach when it comes to clinical trials. Leverage technology to streamline data collection and analysis and eliminate waste without compromising research standards.
- Stay up to date with FDA guidelines. Avoid costly delays and penalties that may arise from using outdated regulatory information.
- Consider multi-state operational implications. If your product is sold across state and country lines then you would need to prepare for multi-state and international tax compliance.
- Partner with experts. From intellectual property consultants to medical writers and CPAs, partnering with experts that have a proven track record with the FDA process, is key to avoiding stalling and penalties.
The FDA approval process spans various fields of expertise, but it is a necessary step toward commercial success. At Fusion, our CPAs can assist you with the financial planning needed for this process. From budgeting for clinical trials to managing ongoing compliance costs, we can help you navigate each financial aspect of the FDA approval process with confidence. Contact us today!
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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
