The next generation of the US pharmaceutical industry

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The pharmaceutical industry in the United States is in a constant state of evolution, not only with regard to technological innovation, but also in terms of patent and regulatory strategies covering those products in development and on the market. This is particularly true with respect to what has been occurring between branded and generic pharmaceutical manufacturers since the introduction of the Drug Price Competition and Patent Term Restoration Act 1984, also known as the ‘Hatch-Waxman Act’. The Hatch-Waxman Act created a structure by which branded pharmaceutical companies identify those patents covering their products and generic pharmaceutical companies can address those patents while seeking approval for their products.

The basis for this evolution is grounded in the US Food and Drug Administration’s (FDA) drug approval process. This process is guided by the Federal Food, Drug and Cosmetic Act, as amended by the Hatch-Waxman Act, that sets forth the rules that the FDA follows when considering whether to approve both brand-name and generic drugs. Under the act, an applicant seeking to market a new brand-name drug must prepare a new drug application (NDA) for review and approval by the FDA. With respect to intellectual property, an NDA must include, among other things, the number of any patent that allegedly claims the drug or a method of using the drug for which the NDA was submitted and for which a claim of patent infringement could reasonably be asserted against a party. On approval of the NDA, the FDA publishes patent information for the approved drug in its list, Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.

Under the Hatch-Waxman Act, a generic manufacturer submits to the FDA an abbreviated new drug application (ANDA). Among other things, an ANDA must also contain a certification for each patent that the NDA holder has submitted to the FDA for listing in the Orange Book in connection with the reference listed drug. There are four possible certifications:

  • Paragraph I – no patents cover the listed drug;
  • Paragraph II – patents covering the listed drug have expired;
  • Paragraph III – the ANDA applicant will delay seeking approval until after the listed patents have expired; and
  • Paragraph IV – the listed patent is invalid, unenforceable and/or will not be infringed and, on that basis, the applicant seeks FDA approval of the generic product prior to patent expiration.

There are significant incentives available for one or more ANDA applicants to challenge patents listed in the Orange Book because the first applicants to do so and who are also successful in patent litigation will be entitled to 180 days of market exclusivity for their generic product.

Given the incentives for market exclusivity against potential competitors, the straightforward legal nature of this process and available FDA guidance for performing bio-equivalence studies, many generic companies flocked to this business model. At the same time, branded pharmaceutical manufacturers began to experience the effects of the patent expiration cliff for those products that enjoyed blockbuster status (ie, no generic competition) for many years due to their patent protection. Because of these changes and the ever-increasing number of generic competitors in this space, there is a need for new business and IP strategies to be considered by both branded and generic pharmaceutical manufacturers.

What has emerged as the common point of interest for both branded and generic pharmaceutical manufacturers are those drugs that can be approved in a Section 505(b)(2) NDA. These products make use of known active pharmaceutical ingredients (APIs) in order to develop new dosage formulations, strengths, API salts, dosing regimens, routes of administration, indications and combination products. As a result, these products require unique IP strategies. For example, generic manufacturers must develop patent portfolios similar to branded pharmaceutical companies, and branded pharmaceutical companies must consider issues unique to generic manufacturers. In either case, the companies will target potential opportunities that may require a specific patent certification in their Section 505(b)(2) NDA.

Pharmaceutical landscape

In the pharmaceutical industry, there are two distinct ends of the product spectrum. At one end, branded and innovator pharmaceutical manufacturers seek approval for NDAs under Section 505(b)(1) of the Federal Food, Drug and Cosmetic Act, while at the other end, generic manufacturers seek approval for ANDAs under Section 505(j). However, the business opportunities that are emerging for both branded and generic manufacturers lie in the middle of this spectrum with those products that require approval under Section 505(b)(2) of the act and necessitate unique IP strategies.

In order to grasp how these strategies come into play for Section 505(b)(2) products, it is important to contrast the FDA’s approval standards, timelines and potential market exclusivities for each of these types of application.

Approval standards

Among other requirements, traditional brand pharmaceutical manufacturers must demonstrate that their products are safe and effective through pre-clinical and clinical studies to obtain approval. In most cases, approval will require at least two adequate and well-controlled clinical trials that can exceed $100 million. The magnitude of financial resources necessary to enter such an industry prevents many companies from getting off the ground.

At the opposite end of the spectrum, generic manufacturers rely on a reference listed drug that has already been approved as a Section 505(b)(1) or 505(b)(2) NDA to demonstrate safety and efficacy for their proposed Section 505(j) product. While generic manufacturers can rely on these previous studies, they are, however, required to run clinical studies to demonstrate bio-availability and bio-equivalence to the reference listed drug. The cost for these studies is typically less than $5 million. The proposed generic product must have the same APIs, conditions of use, route of administration, dosage form, strength and labelling, although some labelling differences are permitted (eg, to name a different manufacturer).

On the other hand, Section 505(b)(2) products rely on both existing and new data. The extent of the new data required depends on which product (known as the ‘listed drug’) is selected, as well as the particular changes that the company proposes to make to the listed drug. The data required will include bridging studies between the proposed new product and the listed drug to support the changes being made.

Patents and intellectual property

With regard to intellectual property, branded pharmaceutical manufacturers typically file patents covering their products, methods of use and formulations from the start of research and development in a particular area. These patents must be identified if they cover the approved product and the FDA will publish these patents in the Orange Book.

Generic drug manufacturers, on the other hand, may or may not seek patent protection for their proposed products. Regardless of their patent strategy, generic drug manufacturers are not required to list any patent that they may obtain in the Orange Book. However, the ANDA applicant must provide certification for each patent that the NDA holder has submitted to the FDA for listing in the Orange Book in connection with the reference listed drug.

Section 505(b)(2) manufacturers reside in a unique position based on the fact that the products they are pursuing use known APIs in products with new dosage formulations, strengths, API salts, dosing regimens, routes of administration, new indications and new combinations. Each of these changes presents an opportunity to obtain patentable subject matter. Thus, Section 505(b)(2) NDA applicants will be motivated to seek patent protection for their product in order to halt competitors from using their technologies and to maintain their market share. As a result, any patents that claim a Section 505(b)(2) product must be listed in the FDA’s Orange Book.

In addition, not only must Section 505(b)(2) manufacturers list any patents that claim their product, they must also file a Paragraph I, II, III or IV certification against any Orange Book patents that cover the listed drug. If a Paragraph IV certification is made, the company holding the application for the listed drug product can file a patent infringement suit in the US Federal District Court within 45 days’ notification, and a 30-month stay of FDA approval will issue on the Section 505(b)(2) NDA’s approval unless the applicant is successful in litigation prior to the stay expiring. If not, the FDA will only tentatively approve the Section 505(b)(2) application. Therefore, based on this potential delay, it is best to understand the patent landscape as early as possible in product development.

Market exclusivity

While patent-related strategies are significant to the success of Sections 505(b)(1), 505(b)(2) and 505(j) applicants, so too are the marketing exclusivity rights that they may be eligible to obtain. For example, Section 505(b)(1) NDAs may be entitled to five-year new chemical entity (NCE) exclusivity. If the application is for an orphan drug, then the Section 505(b)(1) application may be entitled to seven-year orphan drug exclusivity (ODE). Finally, if one or more indication is for paediatric patients (and other requirements are met), then either the five-year NCE or seven-year ODE may be extended by an additional six months of paediatric exclusivity.

Section 505(b)(2) products may also receive marketing exclusivity; however, because they do not represent the same scientific and medical innovation as a Section 505(b)(1) NDA for an NCE, they are eligible for less time. In this case, the applicant may be entitled to a three-year period of exclusivity when the application contains reports of new clinical investigations (other than bio-availability studies) conducted by the applicant and that were essential to approval of the application and that supported the particular changes from the listed drug. These applications may also be eligible for seven-year ODE and/or six months of paediatric exclusivity.

For ANDAs, market exclusivity is limited. These applications may be entitled to 180 days of exclusivity only if the applicant is deemed to be a first filer (ie, if the applicant filed a substantially complete application on the first day that such an application could be received by the FDA).

User fees

Finally, all three of these types of application are associated with different FDA user fees. For Section 505(b)(1) and 505(b)(2) NDAs, fees are required under the Prescription Drug User Fee Act. For fiscal year 2019, the Prescription Drug User Fee Act application fees are approximately $2.6 million for NDAs containing clinical data, and approximately $1.3 million for NDAs with no clinical data. If either NDA is for an orphan drug, then the application fee is waived. For Section 505(j) applications, sponsors are required to pay fees under the Generic Drug User Fee Amendments. These fees are significantly less than for either type of NDA. In fiscal year 2019, the Generic Drug User Fee Amendments application fee is approximately $180,000. While sponsors of both types of NDA may be eligible for waivers of application fees under the Prescription Drug User Fee Act if they qualify as a small business, there are no small business waivers for ANDA sponsors under the Generic Drug User Fee Amendments.

Why consider a Section 505(b)(2) product and when are they feasible?

Considerations for entering the market with a Section 505(b)(2) product include business and development factors, among others.

With regard to business factors, the evolution of the generic industry has led to a deflationary market where the profits and incentives for first to file ANDAs have decreased immensely over the past decade. This has led sophisticated generic manufacturers to look to new markets for profitable products. Similarly, branded pharmaceutical manufacturers are experiencing a loss in revenue due to profitable products going off patent and being faced with generic competition. This has led these manufacturers to consider developing Section 505(b)(2) products that represent innovation for an existing product (eg, offering a controlled-release formulation in addition to an immediate-release formulation). Ongoing prescription drug price scrutiny by regulatory bodies and insurers is also causing sponsors to adapt their business strategies, as competition for formulary placement and reimbursement amounts is increasing.

Section 505(b)(2) products may solve many of these dilemmas. For example, compared to traditional ANDA products, Section 505(b)(2) products can enjoy a longer exclusivity period than traditional first-to-file generic products. Further, Section 505(b)(2) sponsors – whether branded or generic – have the ability to differentiate their products from their competitors and develop specific niches that may be critical to certain patient populations.

In the case of developmental factors, sponsors must identify and leverage existing data to demonstrate the safety, efficacy, viability and utility of a potential product. Because Section 505(b)(2) NDAs require fewer new studies than traditional Section 505(b)(1) NDAs, and different studies than Section 505(j) ANDAs, Section 505(b)(2) manufacturers must have a keen understanding of the safety issues and the bridging studies required for FDA approval.

In light of the fact that Section 505(b)(2) NDAs occupy the developmental and regulatory space between traditional branded Section 505(b)(1) products and generic Section 505(j) products, there are numerous opportunities to develop new products that leverage known data. For example, an underserved patient population may benefit immensely from new dosage formulations and strengths, as well as new dosing regimens, routes of administration and uses. Similarly, if an alternative salt, ester or enantiomer of a known API yields greater formulation or drug delivery compatibility, this represents a key opportunity. Additional opportunities may exist if an API in a combination product is changed, such that the change provides a benefit for a particular patient population. For example, if a product contains two APIs, then it may be possible modify the combination to include a different combination of APIs. Finally, based on historical post-marketing surveillance and a favourable regulatory history, it may be possible to switch a prescription drug product to an over-the-counter product using a Section 505(b)(2) NDA.


With these opportunities in mind, as well as an understanding that the costs for developing branded products is rising while generic competition is growing and profit margins are decreasing, the Section 505(b)(2) NDA presents a possible path forwards for all pharmaceutical manufacturers. The regulatory and IP nuances and strategies involved with these products require an understanding of both the branded and generic pharmaceutical industries from the very early stages of product identification, through development, approval and marketing. Sophisticated pharmaceutical manufacturers – whether branded or generic – can take advantage of these opportunities and use their market experience for this next generation of pharmaceutical products in the United States.

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