505(b)(2) New Drug Applications: Is there an adequate ROI?

In this post, intended for a general audience, I share a few thoughts about the benefits and limitations of developing drugs using the 505(b)(2) regulatory pathway. Hardly a week goes by without a pharmaceutical company expressing the desire to reap the benefits of developing a drug using the “505(b)(2) regulatory pathway”. What are 505(b)(2) new drug applications (NDAs) and do they really provide a meaningful advantage to pharmaceutical companies?

The term “505(b)(2)” is derived from Section 505 of the Federal Food, Drug and Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984. The latter is informally known as the Hatch-Waxman Act, so named after its legislative sponsors, Representative Henry Waxman of California and Senator Orrin Hatch of Utah. Section 505(b)(2) refers to NDAs for whom some of the information required for approval comes from sources other than the applicant, or for which the applicant has not obtained a right of reference.

A 505(b)(2) NDA may differ from a previously approved reference product, including dosage form, dose, dosing frequency, route of administration or indication (medical use). Companies with limited R&D resources can forgo costly and more risky discovery and development of new chemical entities and instead make incremental innovations to existing drugs. In this manner, companies can use the 505(b)(2) regulatory pathway to repurpose or reposition drugs for new indication. The 505(b)(2) regulatory pathway provides five years of marketing exclusivity if the drug has never previously been approved in any form in the U.S., and three years of marketing exclusivity if the drug has previously been approved in another form in the U.S. In addition to the Hatch-Waxman exclusivity, a drug may be eligible for 6-months of pediatric exclusivity under the Best Pharmaceuticals for Children Act, and if the drug has any FDA “Orange Book” listed patents (even if such patents are not infringed), FDA is obliged to hold-off approval of a generic copy for up to 30-months to allow the parties to litigate.

The 505(b)(2) drug approval pathway was created to allow companies to innovate with currently available drugs without having to perform a full complement of studies which can take 12 to 15 years, cost approximately $2.5 billion from discovery to commercialization and exhaust most of a drug’s patent life. It is therefore not surprising that companies use the 505(b)(2) regulatory pathway to introduce “line extensions” of existing drugs to obtain further non-patent exclusivity.  More NDAs are approved each year using the 505(b)(2) regulatory pathway than the 505(b)(1) pathway which is usually used for the development of new molecular entities.

Although there are some benefits to the 505(b)(2) NDA pathway, they are far from impressive. Some in the investment community remain underwhelmed by the purported benefits of Hatch-Waxman exclusivity. In contrast to the limited period of market exclusivity in the U.S. for such repurposed drugs, pharmaceutical companies can avail themselves up to 11 years of exclusivity for in the E.U., based on the 2005 EU Data Exclusivity Directive. The E.U. exclusivity has been termed by the European Parliament as the “8+2+1” regime. It can include eight years of data exclusivity, two years of marketing exclusivity, and a potential one-year extension, not to mention a further six-month exclusivity for conducting pediatric studies. Najib Babul, PharmD, MBA