The patent cliff that rocked big pharma is now starting to reverberate in companies developing generic alternatives. As the slate of top-selling pharmaceuticals going off-patent declines, competition is heating up in generics to find new ways to remain profitable after the financial hits they expect to take starting as early as 2016.
Generic drugmakers are responding to the situation in a variety of ways. Some generic companies such as Watson, which acquired European competitor Actavis in October, are counting on economies of scale to remain profitable, while others are redefining themselves by specializing in hard-to-make products or by seeking to make their own branded products.1
Manufacturers may seek approval for their products through three possible types of applications under section 505 of the Federal Food, Drug and Cosmetic Act. Section 505(b)(1) is the traditional route of approval, which can require years of clinical trials and millions of dollars in development cost, but offers owners years of market exclusivity in which to recoup their investment. Once a product has gone “off-patent,” application can be made under 505(j) to produce an exact copy or generic version of the drug, but in this case, market exclusivity is only available to the first company to file, and then only for 180 days.
A third way to seek FDA approval is through the 505(b)(2) application process, which allows companies to file new drug applications (NDAs) utilizing some pivotal data already existing in the public domain. Using this pathway as outlined in the official “FDA Guidance for Industry: Applications Covered by Section 505(b)(2),” (PDF) drugs can be developed and achieve FDA approval in as little as 30 months, with only a fraction of the number of required clinical trials and with an return-on-investment higher than many generic drugs.
Additionally, unlike generic drug applicants, the 505(b)(2) applicant may qualify for three, five, or even seven years of market exclusivity depending on the extent of the change to the previously approved drug and the type of clinical data included in the NDA.
Given these advantages, it’s no wonder that generic companies might find 505(b)(2) appealing. But 505(b)(2) isn’t just another regulatory pathway, it’s a whole different process that requires its own understanding.
The foundation of 505(b)(2)
Prior to 1984, the FDA had an informal policy to review and approve NDAs based solely on literature. These “paper NDAs" were also used for exact copies of approved drugs—generics—which, at the time, lacked formal approval requirements.
Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act was established by the Hatch-Waxman Amendments of 1984 to allow sponsors to obtain approval of NDAs containing investigations of safety and effectiveness that were not conducted by or for the applicant, but for which the FDA has issued an approval. The section was added to avoid unnecessary duplication of studies already performed on the reference drug.
However, sponsors must still provide any additional data necessary to ensure that the differences from the reference drug and other existing information do not compromise safety and effectiveness. Today, 505(b)(2) can provide relatively fast-track approval for a wide range of products, especially for those that represent a limited change from a previously approved drug. Thus, an essential difference between an NDA filed for an innovator drug under 505(b)(1) and the NDA filed under 505(b)(2) is the reliance by the sponsors on the use of public information in lieu of conducting the studies themselves.
Because of the way they typically bring products to market, generic companies may lack the scientific staff required for sourcing the scientific literature, evaluating its utility, and presenting it to the FDA, and they often need to utilize external resources. However, whether an NDA is filed under 505(b)(1) or 505(b)(2), the FDA standards for the demonstration of efficacy and safety are the same. This underscores the necessity of a sponsor to be able to determine what constitutes sufficient evidence and to determine which specific studies can be replaced by existing information in order to gain approval of the investigational drug product under 505(b)(2).
When existing information may suffice
When published data provides a way to apply the known effectiveness of a drug to a new population or to a different dose, regimen or dosage form, the effectiveness of a new product may be adequately demonstrated without any additional clinical efficacy trials. These situations include:
- Pediatric. The FDA must conclude that the course of the disease and the effects of the drug are sufficiently similar to permit extrapolation from adult efficacy data to pediatric patients. Evidence may include common pathophysiology of the disease, common drug metabolism, and/or experience with other drugs in its therapeutic class.
- Bioequivalence. Alternative formulations and new dosage strengths may be assessed on the basis of evidence of bioequivalence.
- Modified-release dosage forms. In some cases, modified-release dosage forms may be approved on the basis of pharmacokinetic data linking the new dosage form to an approved immediate-release dosage form.
- Different doses, regimens, or dosage forms. Where blood levels and exposure are not very different, it may be possible to conclude that a new dose, regimen, or dosage form is effective on the basis of pharmacokinetic data alone.
In addition, a single clinical study of a new use, when combined with independent substantiation from published study data in related uses, can often provide adequate evidence of effectiveness in, for example, different doses, regimens or dosage forms; in other phases of the disease or closely related diseases; or in other populations.
The approval of FOSAMAX PLUS D illustrates the use of existing publicly available data. FOSAMAX demonstrated reduced risk of both hip and spine fractures in postmenopausal women with osteoporosis. In the clinical trials used for the original approval, Vitamin D was a required supplement. In 2005, the FDA approved a new product, FOSAMAX PLUS D, which added the benefit of a weekly dose of Vitamin D. Using 505(b)(2), only published data supporting the independent efficacy of Vitamin D and a single pharmacokinetic study were required.2
Unlocking profit potential
Significant value can result from the 505(b)(2) pathway. The following examples demonstrate the potential ROI from a strategic 505(b)(2) development program.
Although Pentamidine had been approved for sleeping sickness, research uncovered a new indication as a treatment and prophylaxis for AIDS-related Pneumocystis pneumonia (PCP)—an orphan indication eligible for seven years of market exclusivity. In addition, Pentamidine was reformulated through the 505(b)(2) into an aerosolized dosage form that reduced side effects. The company was sold for more than $1 billion.
- Amphotericin B
Amphotericin B is a polyene antifungal drug, often used intravenously for systemic fungal infections. Administered orally or intravenously, it is well known for its severe and potentially lethal side effects, including high fever, shaking, chills, hypotension, vomiting, headache, dyspnea, and tachypnea. Reformulated as a liposome through 505(b)(2), the new product discourages generic competition because it is difficult to copy and manufacture, yet it dramatically reduces side effects and improves efficacy. More than $300 million in sales have been made with only a small hospital-based sales force.
Originally approved for reducing gastric and other secretions intravenously before surgery as well as for use during anesthesia and intubation, a glycopyrrolate tablet formulation was approved for peptic ulcers. Research into new indications and formulations led to the development under 505(b)(2) of a liquid formulation for cerebral palsy patients to reduce drooling. The new drug was granted orphan drug status for new indications. It is also currently being developed as a long-acting muscarinic antagonist (LAMA) for COPD patients in multiple-dose inhaler, dry powder inhaler and nebulized dosage forms. The estimated market potential for these new indications exceeds $1 billion.
The key factor behind these successes is the strategic planning that occurred first. Because generic companies have historically produced only copies of other products, they often lack the background to evaluate the scientific, medical, regulatory, and commercial feasibility of proposed differentiated drug products—and all are vital to market success and return on investment.
The 505(b)(2) process is ideal for reformulations of existing products that address different indications, populations, or routes of administration. However, being able to technically prepare a new formula based on an existing drug is not enough on which to base a go/no-go decision to pursue a 505(b)(2) development program. Before deciding on a product to pursue, sponsors should know details of key factors influencing the pharmaceutical marketplace and regulatory status, as well as the nonclinical and clinical strategy that would be involved in the development of a specific drug, in order to avoid potentially destructive financial risks.
How to identify viable candidates
There are two distinct approaches companies are taking to identify candidates for possible development. Larger pharmaceutical and biotech companies often have a proprietary list of candidates and seek assistance in evaluating which candidates hold the greatest promise.Instead of a list of products, other companies are seeking assistance to identify viable products using selection criteria unique to their business.
In either situation, it is important to evaluate candidates against four interrelated criteria to determine if they can be successfully developed under 505(b)(2). It’s a process similar to Camargo Pharmaceutical Services’ proprietary Ready 4 Action process. This four-step process addresses:
- Scientific viability: Does the science make sense? For instance, is the formulation or chemistry practically and pragmatically achievable? Is it scalable? Are API ingredients available and affordable?
- Medical viability: Does the product have a clear niche in the medical specialty? Is it effective for solving a unique problem or solving a problem in a unique way? Does it present acceptable risk/benefit? Is it appealing to the proposed patient population?
- Regulatory viability: What clinical trials or other data will be required to gain approval? Can development be expedited? What distinguishing information can be presented on the labeling for eventual promotional activity?
- Commercial viability: Is there a viable market for the product? What is the potential for future competition or substitution? What is needed to ensure reimbursement? What is the optimal pricing?
Evaluating candidates on all four of these criteria is critical. For example, assessing whether a product can be effectively marketed at a profit and verifying market requirements before development begins helps inform the design of studies to meet various objectives, such as gaining essential labeling language.
One essential tool now being used in the development and strategic management of new or modified drugs/biologics/devices is the Target Product Profile (TPP). Basically, it is a summary of the proposed drug development program described in terms of the labeling concepts. Its purpose is to focus discussions and aid in the understanding between sponsors and the FDA.
As the FDA itself says in its guidance, “The TPP embodies the notion of beginning with the goal in mind.”3 Utilizing this methodology, the sponsor must envision the end product, including the target population, the formulation, the dosage form and strength, etc., as a means of expressing the goals of the product along with the specific studies needed to support the labeling concepts.
By evaluating candidates on these four criteria, sponsors can identify candidates with sound scientific footing to meet the requirements of a 505(b)(2), and those that also have enough differentiation to be commercially viable. A comprehensive drug development plan must be provided that includes testing, formulation, and manufacturing, along with a plan for conducting any needed preclinical and clinical studies. With this plan in hand, it is advisable to gain FDA’s concurrence, usually by requesting a pre-IND meeting.
Choosing viable candidates
Furthermore, before choosing a product to develop, it’s important to have an assessment of the sponsor’s assets, specific goals, and business needs. The criteria that are germane to this are many and may include everything from existing products or APIs the client holds, to market areas it wishes to enter or targeted populations/therapeutic segments it wishes to address.
Identifying viable candidates is essential, but deciding whether a company should pursue development is also critical. There are four steps to deciding what product to pursue: criteria selection, criteria evaluation, candidate narrowing, and candidate selection. Although every company will utilize a unique set of criteria, a typical chart and range of values may look something like the chart below.
Once the criteria are established, potential products are evaluated against the criteria as part of the second step. In the third step, candidate narrowing, the object is to refine the list by choosing the most important criteria and investigating in sufficient detail to clearly identify the most attractive options. If, for example, conducting Phase III trials in order to gain market exclusivity is a key goal of the sponsor, candidates that didn’t meet that criterion would be deleted from the list.
This narrowing of focus is essential to get beyond broad and unmanageable marketing segments, such as indications or diseases, in order to pinpoint highly specific definitions of unique products and discrete market segments. The research effort required will span the scientific, medical, regulatory, and commercial space because all these elements must work in tandem to create a product that can be defined, differentiated from what else is available, and effectively marketed at a profit.
In the final stage, candidate selection, detailed research is undertaken. Consideration should be given to a broad range of research concerning the market, the product, manufacturing, and regulatory affairs, as well as marketing and investor strategy.
To gain the depth of understanding required, research may begin with a detailed overview of the disease or condition under consideration, including analyses of the current standards of care and a market-needs assessment. This, along with a strengths-weaknesses-opportunities-threats (SWOT) analysis of the product’s potential to strategically address market needs, helps develop product positioning and the target product profile.
Additionally, sponsors must evaluate the regulatory issues that must be addressed and establish the physicochemical properties of the product, including its chemical makeup, stability, and solubility, as well as the specific route of administration. Determining whether the product may be made available as a capsule, tablet, aerosol, liquid, or as a subcutaneous, intramuscular, or intravenous injection will also have a bearing on the suitability of a 505(b)(2) approach to approval.
Finally, because maximizing ROI is the ultimate goal, it’s important to have a firm grasp on the market you’ll be entering, including the competitive landscape and the issues that may impact your distribution plan. Having developed answers to these questions in addition to having a pricing and payer reimbursement plan in place will put you in a much stronger position to identify potential partners and negotiate with investors.
With this research, a company can ascertain the viability of a product and also whether the product is a good fit for their particular business. And, with these results in hand, companies can begin to devise a comprehensive development plan with confidence.
Understanding market dynamics
The traditional dynamics of the generic market allow for all the competing generic manufacturers to calculate the potential value of the total market for a drug once it loses patent protection. What they don’t know is how many rivals are likely to enter the same market and what impact that number of competitors will have on their profits.
A study of generic drug industry dynamics showed that generic drug prices fall with a significant increase in the number of competitors, but remain above long-run marginal cost until there are eight or more.4 However, because a generic version of an off-patent drug still requires FDA approval, firms must make a significant application investment before knowing when or how much competition they will face, or when or if they will make a profit.
The same cannot be said for the differentiated products developed under 505(b)(2). By partnering with companies that specialize in 505(b)(2) development, generic companies can acquire the specialized expertise they need to gain market approval. However, to determine true product viability, generic companies should seek help from companies not just experienced in the 505(b)(2) pathway, but from companies that can also demonstrate expertise in a variety of areas, including clinical development, intellectual property, and product revenue forecasting.
To effectively develop products under 505(b)(2), it’s vital to have a robust relationship with the FDA, as well as a firm understanding of the types and sufficiency of product patents that are acceptable with this strategy. Generic companies can also benefit from specialized knowledge in developing sales and marketing strategies, as well as cogent advice on compendia positioning, pricing, distribution, product liability, and risk management.
Given the cost of drug development today, the time and money involved in planning represent a prudent investment to move forward with development of a successfully marketable product.
Facing the future
In the future, pharmaceutical and biotech companies of all sizes are going to have to adjust their strategies to remain competitive. Some big pharma companies still have their sights set on blockbusters coming from biologics. For example, Johnson & Johnson’s and Pharmacyclics’ ibrutinib was approved by the FDA as Imbruvica in November 2013 for the treatment of mantle cell lymphoma and in February 2014 for the treatment of chronic lymphocytic leukemia. Ibrutinib had been designated a breakthrough therapy by the FDA, granting it an accelerated approval process, and is one of the most promising late-stage cancer treatments on the market, with a potential to earn $1.3 billion a year.
But these biologic drugs cost several-fold more to develop than small molecules, and are out of reach financially for most generics companies. The patent cliff will shrink the opportunities for making generics and cause big pharma to consider means of extending the value of existing products. Thus, both generics and big pharma companies will need to find additional sources of revenue. The 505(b)(2) pathway can provide a useful mechanism for the industry to replace or augment revenues.
Research-based companies with products facing patent expiration may ﬁnd that the 505(b)(2) pathway can provide a useful mechanism to extend market exclusivity. For generics companies, the 505(b)(2) pathway can be a powerful tool to improve the revenue stream by identifying niche branded products and marching in a different direction than competitors.
As previously stated, products approved through the 505(b)(2) pathway may qualify for three, five, or even seven years of market exclusivity, depending on the extent of the change to the previously approved drug and the type of clinical data included in the NDA. 505(b)(2) success hinges on identifying products that have documented market differentiation, low development risk, and high proﬁt potential. Moreover, the 505(b)(2) pathway comes with unique and demanding requirements that are difﬁcult to navigate. Sponsors beneﬁt from employing a deliberative, step-by-step approach led by a team of experts with the commercialization, drug development, and regulatory expertise to synthesize a viable 505(b)(2) development plan.
In 2012, approximately 50% more products were approved through 505(b)(2) development than through 505(b)(1),5 and within the next few years, the share of new drugs approved via 505(b)(2) is expected to reach more than 80%. In the ﬁnal analysis, 505(b)(2) development is more than just a regulatory pathway; it is a unique strategy that can often result in product approval with lower risk, reduced development cost, and faster speed to market.
Ken Phelps is President and CEO of Camargo Pharmaceutical Services.
- Thomas, Katie, “Generic Drug Makers See a Drought Ahead,” New York Times, Dec. 3, 2012, http://www.nytimes.com/2012/12/04/business/generic-drug-makers-facing-squeeze-on-revenue.html?_r=0
- Center for Drug Evaluation and Research, Food and Drug Administration, 2005, http://www.accessdata.fda.gov/drugsatfda_docs/nda/2005/021762s000_Fosamax_Plus_D_MEDR.pdf
- “Guidance for Industry and Review Staff: Target Product Profile,” Food and Drug Administration, March 2007, http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm080593.pdf
- Reiffen, David and Ward, Michael N., “Generic Drug Industry Dynamics,” Federal Trade Commission, 2002, http://www.ftc.gov/be/workpapers/industrydynamicsreiffenwp.pdf
- K. Phelps, “2012 505(b)(2) Approvals – Record Year,” Ken’s Kennel, Camargopharma.com, January 2013, http://blog.camargopharma.com/index.php/2013/01/02/2012-505b2-approvals-record-year/