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European Pharmaceutical Contractor

Beyond the Cliff

Current market analysis predicts a precipitous drop in patent expirations for small molecule drugs over the next few years. The so-called ‘patent cliff’ is over for pharma, but has only just begun for generic companies that have benefitted from the large number of drugs going off-patent in recent times. As the number of products coming off-patent declines, generic firms must seek new revenue sources.

Current industry trends suggest that large pharma is focusing R&D efforts on developing new biological medicines. Unfortunately, unlike small molecules, biologics are difficult to reproduce due to the complex techniques involved in their manufacture and validation. In addition, regulatory approval of copied biological medicines, known as biosimilars, is conducted through unique EMA or FDA processes with more requirements than for small molecule generics.

In light of the looming generic cliff, chief executive officers (CEOs) of generic companies report that they are considering a spectrum of solutions to bridge the revenue gap. These include counting on economies of scale to keep ahead of competitors; branding their own products; specialising in hard-to-make drugs; making large acquisitions; and/or developing drugs through the FDA 505(b)(2) pathway or the equivalent European hybrid process. While the decision regarding which avenue to pursue will depend on each business’s unique situation, there are compelling reasons for generic companies to consider 505(b)(2) drug development.

Why 505(b)(2)?

The current landscape suggests that generic firms that move toward development of 505(b)(2) products can enjoy some immediate benefits in terms of regulatory requirements. This is because, although they are considered to be a full new drug application (NDA), 505(b)(2) filings can be accompanied by existing data from outside sources. This means they are less expensive than traditional 505(b)(1) NDAs, and carry a lower risk for generic companies with limited research and clinical trial resources. In fact, the success rate in Phase 3 trials of 505(b)(2) products is 66%, compared to 41% for 505(b)(1) products (1).

Furthermore, because 505(b) (2) filings may require essential clinical data, there is the potential for three to five, and up to seven, years of patent exclusivity – compared to 180 days for first to file with 505(j)/generic/abbreviated NDAs (ANDAs) – depending on the amount of essential new data required.

Finally, although the FDA has recently promised to improve review times for ANDA filings, the current median approval time is 26 months. The approval process is also backlogged by 36-42 months and will take some time to recover (2). By contrast, there is no backlog for 505(b)(2) filings and, thus, their review is accelerated. The mean time for approval of all 505(b)(2) products approved since 2003 is 383 days.

Many seek to separate themselves from competitors by developing niche market products; 505(b)(2) applications provide a pathway for doing so, because there are many different options for specialisation. Investments in developing a specific delivery system, for example, can be applied to a number of different drugs, decreasing costs for each subsequent product modification. Lower costs for development of niche products and their approval combine to provide improved return on investment for 505(b)(2) drugs, compared to many generics.

Current Landscape

Analysts believe that 505(b)(2) is more than just a regulatory pathway; it is a competitive strategy that can lead to product approval with lower risk, reduced development costs and faster time to market – and generic companies appear to be getting the message. Over the past four years, 43% of all approved NDAs have been 505(b)(2) drugs (3). In 2014, this number was 50%, with 41 new 505(b)(2) drugs approved, compared to the same number of new molecular entities (4,5). This percentage is expected to rise to more than 80% over the next few years (6).

New dosage forms (38%) and new formulations or manufacturing techniques (31%) were the most common types of approved 505(b)(2) products between 2010 and 2013, but approvals were also sought and received for new combinations, new molecular entities, new indications and over-the-counter (OTC) versions (3). This trend has continued with novel formulations or manufacturing techniques comprising 41.5% of 505(b)(2) approvals in 2014, new dosage forms accounting for 31.7%, and new combinations contributing 14.6% (5). Generic giant Teva Pharmaceuticals had five drugs approved through the pathway between 2010-2013 – including Adasuve, an inhaled form of the oral anti-psychotic drug loxapine – and has as many as 14 other drugs in the 505(b)(2) pipeline (3,7). However, 2014 numbers show diverse and substantial competition in this area, with no single company having achieved more than two approvals using the pathway (5). 

South Korean business, Hanmi, is partnering with Amneal Pharmaceuticals in the US to market a new delayed-release version of Nexium approved through 505(b)(2) (8). Hanmi and Amneal will aggressively market the new product, Esomezol – which is a strontium salt version of the active ingredient, esomeprazole magnesium – to take advantage of the remaining patent protection for Nexium. The FDA is still determining whether it will grant patent exclusivity to Hanmi under 505(b)(2) (8).

Determining the Solution

For large pharma, prospects for new candidates exist through lifecycle management strategies within products, patents, technologies and intellectual property they already own or control. This may not leave much on the table for generic companies that must make their selection of 505(b)(2) candidates carefully, based upon their own manufacturing and therapeutic capabilities, as well as their marketing strategy. These decisions could be driven by R&D teams that may discover a new indication or formulation for an existing drug. Alternatively, choice of 505(b)(2) strategy may be determined by marketing factors. In these cases, opportunities may arise through market feasibility studies that highlight emerging niches. Beyond identifying candidates, there are significant challenges in assessing their feasibility, and businesses should consider the following:

  • Scientific viability: does the science make sense? For instance, is the formulation or chemistry practically and pragmatically achievable? Is it scalable? Are active pharmaceutical ingredients available and affordable?
  • Medical viability: does the product have a clear niche in the medical speciality? Is it effective for solving a unique problem or solving a problem in a unique way? Does it present an acceptable risk/benefit profile? 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 labelling 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?

To answer these questions and others, many companies enlist third-party consultants or global strategists to identify, evaluate and select the most viable development opportunities. This approach is beneficial to establish triage criteria for development pipelines/portfolios, and is a sensible first step in creating a comprehensive strategy.

Executing Development

Depending on their in-house capabilities, generic firms may need assistance in sourcing, developing or commercialising products. There are a number of models to choose from for strategic planning and execution of a 505(b)(2) development plan – including in-house capabilities, acquisitions, partnerships, outsourcing and licensing, or a combination of these.

Product Identification

  • In-house: a company identifies and develops the product in-house, based on its R&D capabilities
  • Acquisition: a generic business acquires another firm that provides new potential products in the therapeutic area of interest and develops these with existing in-house expertise

Development

  • Partnership: generic companies may partner with a product development organisation, which is owned by an outsourced service provider or a CRO. A separate entity – which the generic company contracts with – may be established for this partnership, and part of the agreement is that the outsourced service provider is used for development. With this agreement, both parties have an invested ownership in the product – and, ideally, the generic firm ends up successfully licensing it
  • Acquisition: a firm identifies a market opportunity in-house and acquires a company with the expertise to develop the product
  • In-house/outsource combination: a business identifies a product in-house and development is outsourced
  • Completely outsourced: an organisation outsources identification and development
Commercialisation
  • Licensed: an organisation is approached by, or gets in contact with, a manufacturer about a new product
Revenue Opportunity 

Working with in-house development teams or the right partners, generic companies can find new revenue sources through development of 505(b)(2) products. A recent review from BioPlan Associates on trends in biopharma manufacturing found that businesses are no longer using outsourcing as a cost-saving measure, but are viewing outsourcing partnerships as a strategic move toward improved quality and value (12). While the tactic of developing products via the 505(b)(2) pathway presents, perhaps, a greater opportunity for many generic firms, the way the right opportunities are identified – the strategy behind the strategy, if you will – is where the most value can be added.

References 

1. Phelps K, Generic company CEOs: 505(b)(2) development strategy to drive growth, Contract Pharma, 2014. Visit: www.contractpharma.com/ issues/2014-04-01/view_back-page/generic-company-ceos-505b2
2. Bernstein Research, US generics: FDA policy changes, growing use of 505b2, and supply shortages. From roundtable symposium on 11 March 2014
3. FDA Guidance, Applications Covered by Section 505(b)(2), 1999
4. Cundari A, 505(b)(2) approvals 2010 to 2013, 2013. Visit: http://akesis.com/blog/2013/12/505b2-approvals-2010-2013-2
5. Orans J, 2014 505(b)(2) NDA approvals, Camargo Pharmaceuticals blog. Visit: blog. camargopharma.com/index.php/2015/01/17/2014-505b2-nda-approvals
6. Phelps K, (B)(2) or not (B)(2) – That is the question. 505(b)(2) can result in product approval with lower risk, reduced costs, and faster time to market Contract Pharma, 6 November 2013. Visit: www.contractpharma.com/contents/view_expertsopinion/2013-11-06/b2-or-notb2--- that-is-the-question
7. Phelps K, Using 505(b)(2) to solve the financial shortfall coming because of the generic cliff, Applied Clinical Trials Online, 29 July 2014. Visit: www.appliedclinicaltrialsonline.com/ appliedclinicaltrials/article/articleDetail.jsp?id=850146
8. Pollock B, The 505(b)(2) pathway is alive and well – First South Korean NDA product approved, Lachman Consultants, 2013. Visit: www.lachmanconsultants.com/the-505b2-pathway-is-alive-andwell-first-south-korean-nda-drugproduct-approved.asp
9. Duggal E, Kashyap P, Ramandeep S and Kakar S, Fast track approaches for drug approval across the globe, Asian Pacific Journal of Health Sciences 1(1): pp2-12, 2014
10. FDA, Frequently asked questions about patent exclusivity. Visit: www.fda.gov/drugs/developmentapprovalprocess/ucm079031.htm
11. FDA Guidance, Applications Covered by Section 505(b)(2), 1999
12. Langer E, 11th annual report and survey of biopharmaceutical manufacturing capacity and production, BioPlan Associates, April 2014. Visit: www.bioplanassociates.com/11th


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Ken Phelps applied more than three decades of industry experience to found Camargo Pharmaceutical Services in 2003. As an expert in drug development and an industry authority on 505(b)(2), he leads a team that has guided more than 200 FDA approvals and has the largest percentage of 505(b)(2) proposals of any team submitting to the FDA. Ken hosts a yearly seminar in Israel geared toward the opportunities the pathway presents for global companies, and routinely presents on the financial challenges caused by the generic cliff.

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