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.
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