CMS Attacks Supplemental NDAs and Authorized Generics but Leaves the Door Open to Creative Thinking and 505(b)(2)’s
By Ed Allera - Chairman of The 505(b)(2) Platform
Our recent article on CMS’s attacks on 505(b)(2)’s has led to requests for a discussion on the status of CMS’s views on supplemental NDA’s. A recent court action upholding CMS’s attack on supplemental NDAs actions shows the need for increased long-term planning of product development because CMS is intent on increasing the rebates holders of NDA approvals pay. When an NDA is initially approved, the CMS rebate agreement applies using the Average Manufacturing Price as the basis for the best price and rebate calculation CMS has now restricted the ability of certain supplement NDA approvals from serving as the basis for a new, higher AMP and lower rebates to the government. Strategic planning of value by design has always been an essential element of product life cycle management. But the recent judicial and CMS action require more strategic planning, earlier in the life cycle management and utilizing the FDA review and approval process as an ally to increase the value of a drug. Like all other insurers and PBM’s CMS’s voracious appetite to the minimize costs that it pays for drugs and maximize the rebate payments by the pharma industry, no matter the impact on public health will continue. Long term thought and new, clever planning are required to increase the value of your drug product. Increased value can continue to be created, but one must really be diligent, creative, and aggressive.
Expanding the labeling of a new drug product is an essential part of improving healthcare. As more is learned about a new drug, e.g. its mechanism of action, its pharmacokinetics, the greater opportunity for increased and safer use of the drug. Labeling has normally been expanded by the holder of the initial NDA through supplemental NDAs (SNDAs) for new indications. An SNDA for a new indication that contains clinical data, results in 3 years of market exclusivity for that new claim. New patents can be involved, and the intricacies of patent litigation and labeling carve outs become involved. If a new indication for use is sought, a new CDER reviewing division can be involved, depending on the indication. And in such cases, the agency has permitted new NDAs to be filed. Also, if a new technology or method of delivery is involved, a new NDA may also be utilized.
Historically, the line between a SNDA and a new NDA is gray and often determined by the reviewing division, regardless of the need for clinical data. If the new claim is for an indication that is outside of the original reviewing division the opportunity for a separate application increases. The same is true if a new or different technology for the delivery of the drug in the initial NDA is involved. But new user fees can be involved, and as well as new Chemistry, Manufacturing, and Controls (CMC) review in addition to the new clinical review. Therefore, most companies have opted for incorporating everything into the same, original NDA through an SNDA, to the NDA which is approved under Section 505(b)(1) of the Federal Food, Drug and Cosmetic Act (FFDCA). Limitations and downsides exist, however as the recent events with CMS have shown.
When the labeling of a drug product is expanded under an SNDA and marketed under the same NDA, a court has now upheld CMS’s aggressively argued position that the new labeling/product is stuck with the same rebate formula calculation as the original application when the route of administration and dosages are the same. Regardless of how much clinical data are necessary to obtain the approval and market exclusivity. CMS’s position that this congruity of such new uses remains single source or an innovator multi-source drug under the Medicaid Act’s definitions. Because the changes retain the same dosage, strengths, and route of administration, they cannot give rise to a new “covered outpatient drug.” Ipsen Biopharmaceuticals, Inc. v. Azar.. There can be no reset to another pricing number that permits the company to pay a lower rebate calculation. CMS was adamant, and the district court judge thoroughly assessed the position in his decision.
Thus, the use of SNDAs to expand a drug product’s use, now has clear limitations in the view of CMS and likely with product developers. In addition, as discussed in our earlier article on 505(b)(2)’s, utilizing the (b)(2) pathway to supplement where an SNDA would normally be used will not work as CMS is defining that as a line extension as well and not allowing a change in pricing and rebates. To have success with a line extension on an existing product, more inventive value by design and strategic planning are required. New routes of administration, new dose regimens, new NDAs, and even planning with independent 505(b)(2) developers must now be considered in the initial stages of product development as we discussed in our previous article on CMS’s attacks on 505(b)(2)’s. 
In addition to the limitation of the definition of covered drug in Ipsen, and the attacks on the line extension (b)(2)’s described in our earlier article, CMS has also launched an attack on authorized generics. In its interpretation of the Health Extenders Act of 2019, CMS has announced a change in the calculation of Average Manufacturing Price (AMP). It announced that the transfer price of the pioneer’s sale to the authorized generic (AG) or to a secondary manufacturer will no longer be included in the AMP calculation. CMS states that the exclusion of these transfer sales from the primary manufacturer’s brand drug AMP will likely result in higher AMPs for the brand drugs and a potential increase in the manufacturer’s Medicaid drug rebates to the states.
The government attack on the pharma industry is continuing. Vigilance and longer-term planning are required, even if you are developing new chemical entities to be approved under 505(b)(1) of the FFDCA. We are sailing in tumultuous seas, but new opportunities are arising. The time is now to push back from the industry on CMS not only within their challenging response time to the proposal, but also by engaging with FDA. FDA must understand that CMS is attacking FDA’s role in helping to improve health care through product improvements that financial rewards for those creative product developers. CMS’ approach is also undermining the PDUFA funding, which subsidizes much of the orphan drug development and review processes. At The 505(b)(2) Platform we are actively working to be engage regulators to address these issues. Remember if one is not at the table, one usually gets the bill.
 16-cv-2372 (DLF) 2020 BL 229194 (June 19, 2020)
 Allera E, CMS launches double torpedo attack on 505(b) (2) s and FDA is following, available at 505b2.org/publications
 85 Fed. Reg. 37287.
By Ed Allera - Chairman of The 505(b)(2) Platform
CMS has launched two under the radar attacks on 505(b)(2)s in the last 60 days. The attacks focused on smaller, non-big Pharma companies so that the Administration can argue that it is doing something to address the costs of pharmaceuticals. Unfortunately, the Administration is attacking the companies that, for decades, have created improved dosage form delivery, safer and more convenient delivery of pharmaceuticals, and better delivery of healthcare. When these attacks are coupled with the FDA proposed increased user fees for 505(b)(2) applications, these uncoordinated attacks could be fatal to some companies. We will explore these ill-conceived attacks in more detail below.
On June 19, 2020 CMS proposed a rule to disrupt certain (b)(2)s for Part D reimbursement purposes. CMS proposed to expand the definition of a line extension for a Part D covered outpatient innovator initial single source or innovator multisource drug beyond the historic definition of oral controlled release drug products. CMS’ stated concern for this attack is that manufacturers have a financial incentive to expand new and improved versions of the single source drugs. In this way they are able increase the price of the drugs and reduce their rebates. CMS’ proposal is to increase the rebates to the government and decrease the government’s drug spend.
To accomplish this goal, CMS is proposing to sweep new formulations, extended release formulations, changes in dosage forms, combinations, pharmacokinetic and pharmacodynamics properties, changes in indications, and changes in device delivery systems into the definition of line extension. These applications are filed by both originator companies and others as 505(b)(2) applications.
Unlike generic product development, a 505(b)(2) line extension is much more involved. Regulated as a new drug, a (b)(2) must prove efficacy and safety for its intended use. Of course some avenues exist in the 505(b)(2) regulatory pathway that enable benefit to the developer from previous scientific work done on the active pharmaceutical ingredient(s). However, meticulous care must be taken to structure development of (b)(2) drug products to ensure market value. In today’s market, companies must develop plans for life cycle extensions beyond patents, Orange Book listings and formulary access. Developers must consider how to deal with pricing and the need to structure (b)(2) development independently to optimize the value to the patient and the healthcare system. This issue must also be considered when doing due diligence to acquire asset acquisitions. Huge benefits can still exist. Without a corporate relationship with the reference drug, the holder of the (b)(2) approval is still free to set its own price and a new rebate calculation can be established.
In this proposal, FDA’s sister agency within the Department of Health and Human Services, CMS, is ignoring all the health care benefits provided to patients and the healthcare system by 505(b)(2)s and their sponsors, through improved dosing, compliance, safety, etc. The impact on patients will be even worse. Research shows that more than 60% of the applications approved annually by FDA are for 505(b)(2)s – a number that has been relatively constant for decades. PDUFA (user fee) funds from these applications subsidize the reviews of the orphan drug applications that are driving the increasing numbers of New Drug Application approvals. The Draconian CMS actions run the clear risk of strangling orphan drug development by decreasing (b)(2) development and the user fee revenues that FDA uses to subsidize the review, cooperation with the applicants, and processing of those applications. .
The CMS proposal is focused on originator companies and their 5050(b)(2) “line extensions”. CMS is proposing that the regulation would only apply to those with a corporate relationship to the originator company. The term “corporate relationship” remains undefined by CMS in the proposal. Fortunately, many (b)(2)s are being developed by independent companies that have no corporate relationship with the original NDA holder. In addition, if one looks at various indicia provided by the FFDCA and FDA’s regulations, one sees that independence of management and control of the company are the primary criteria form e.g. the user fee provisions, and labeling provisions. For CMS to adopt a different definition of corporate relationship would be the ultimate in arbitrary and capricious agency action. Although the independent develop route could precipitate a potential avenue for “authorized line extensions,” it is still unfair and not something that will help advance the ability of the FDA to meet objectives and goals in orphan drug development and other growth areas e.g. cell and gene therapy.
Nevertheless, CMS’ assault on the industry is unnecessary and will likely cause more disruption than price stabilization. There was no need to propose a rule at this time. The administration gave a mere 30-day period for comments which some in the healthcare industry have termed criminally short. The proposal goes beyond therapeutic equivalence; it goes beyond pharmaceutical equivalence because it ignores dramatic differences in drug administration; it goes beyond pharmaceutical alternatives. The proposal is a crude effort that ignores the public health. It just wants to cut spending. To date, no formularies have been so unreasonable and blind to patient needs. With this proposal, CMS is ignoring decades of improving the patient experience, which improves compliance, and focuses only on cost. One would think we would have learned by now that cheapest is best approach leads to problems e.g. the debacle of off-shore supplying of 90% of the US drug supply caused by the race to the lowest price in generic medications.
The second shot came on Aug.17, 2020, when CMS proposed the Physician Payment Rule for 2021. CMS is attempting to reduce the drug spend under Part B by expanding the definition of multisource drugs to include certain 505(b)(2)s. In this way, certain 505(b)(2)’s will be included in the same code for the calculation for the volume weighted ASP calculation for the same active ingredients. Interrelatedly, CMS is proposing to minimize the instances in which (b)(2)s can qualify as single source drugs. The comment period is officially open until Oct.5, and traditionally the final rule is issued in mid- to late November.
Again CMS’ goal is to reduce the drug spend on non-big pharma products. CMS’ stated basis for the proposed rule is that certain (b)(2)s charge more that 10X the multisource calculation for the same active ingredient. CMS takes one cell from the Biopharma film and creates a distorted grand scenario. It ignores the fact that multisource drugs now can reduce the cost of the reference listed drug by well over 90% - at times 99% for oral drugs. To then argue that an increase in the price from 1cent to 10 cents or greater to provide improved clinical benefit is unreasonable is a biased argument that ignores decades of health care benefits. Do increasing patient and healthcare system benefits now have no or de minimus value?
To accomplish this expansion of the definition of multisource drugs, CMS has been expansive in its proposal to provide it with maximum flexibility. The definition of drug in this context is based on the active ingredient. The definition of drug product is based on the NDC package code.
Where two (2) therapeutically equivalent drug products with the same active ingredient exist, i.e. an NDA and one ANDA, a multisource drug exists, and as a Part B drug, it will have one HCPCS code.
In proposing to expand the definition of multisource drugs beyond these situations, subsequent (b)(2)s for the same active ingredient can be considered multisource drugs. Facts that CMS will consider include not only the bioequivalence data, but also labeling, summary bases of approvals and other review documents, including the potential prescribing information, pharmacokinetics, and other indications. This new effort constitutes a novel expansion of the long standing term and well recognized industry jargon “pharmaceutical equivalents, (active ingredients) and therapeutic equivalence. This expansion seeks to destroy drug product criteria that FDA has determined are clinically relevant and used for over 40 years Ostensibly, the rule will only apply to (b)(2)’s approved after the rule is finalized. But possible post-approval complications that can arise then too.
Multisource drugs and single source drugs are mutually exclusive by Social Security Act definitions. CMS defines (b)(2)’s as drug products that can have the same active ingredient but are non-generics that have different labels than the reference drug. But they share significant portions of the label.
Historically (b)(2)s are considered by CMS to be multisource if the active ingredient labeling especially prescribing information for the multisource drugs, drug description, dosage, administration, pharmacokinetics and indications for the (b)(2)s are the same as for other multisource drugs.
When new products can be used in a manner that is similar to an existing HCPCS code, therapeutic equivalence and under existing multisource code, CMS is proposing that it has the discretion to add the (b)(2)’s to the existing multiple source codes. Again, the agency, does not define similarity of labeling. Among drug products within the same route of administration. FDA has determined that a number of these drug products have unique or additional clinical benefit. They have separate FDA Orange Book listings. How they will fare in the future with CMS is unclear.
In summary we see CMS ignoring the almost half century of FDA interpretation and implementation of the terms that are the cornerstones of pharmaceutical/health care delivery: therapeutic equivalence, pharmaceutical equivalence, and pharmaceutical alternatives. This action is not directed at the new chemical entities and biologics which constitute over 90% of today’s drug spend. It is directed at more innovative, product-development companies that are taking existing chemical entities and enhancing them for the patient or finding new ways to use them for other patients in need. CMS’ action is a charade.
The third shot has not been fired yet. It could come from FDA. Virtual discussions have begun for the renewal of prescription drug user fee legislation which expires in 2022. The demands for increasing fees are coming from all sides as ideas for more types of guidance are flooding in to FDA. Ideas and concepts are forming. Major participants are beginning their internal calculations and what they want or are willing to spend. FDA is calculating the amount of money that it needs to accomplish its proposed tasks during the next 5-year user fee period. The agency then allocates the costs among the sources of fees. Because 505(b)(2)’s comprise over half of all new drug applications filed annually and have done so for decades, it is safe to assume that FDA will continue to look to 505(b)(2)’s to shoulder the brunt of the user fee costs and subsidize other actions like orphan drug development. Given the CMS actions and the actual review time of a 505(b)(2), the risk that PDUFA may cease to be a benefit for the pharmaceutical industry in the next cycle increases on a daily basis.
The time is now to push back from the industry on CMS not only within their challenging response time to the proposal but also by engaging with FDA and helping them understand the PDUFA funding risk their sister organization is thrusting upon them. At The 5050(b)(2) Platform we are actively working to be involved with FDA in their PDFUA negotiations and need you to become a member so we can collectively push back on CMS. Remember if one is not at the table, one usually gets the bill.
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