Section 505(b)(2) new drug applications – untapped opportunities

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

Each year, the US Food and Drug Administration (FDA) approves approximately 120 new drug applications (NDAs). But contrary to what many might believe, the majority of these NDAs are not, in fact, new chemical entities (NCEs).

New drug applications

Instead, many sponsors of these NDAs are leveraging data and information already known about existing FDA-approved drugs to develop new applications. 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. These products are commonly known as Section 505(b)(2) NDAs.

The Section 505(b)(2) NDA is one of three FDA pathways for drug approval. The pathway was created by the Hatch-Waxman Amendments 1984, with Section 505(b)(2) referring to a section of the Federal Food, Drug and Cosmetic Act. The provisions of Section 505(b)(2) were created, in part, to help avoid unnecessary duplication of studies already performed on a previously approved and reference listed drug. As a result, the section gives the FDA express permission to rely on data not developed by the NDA applicant. It also represents an appealing regulatory strategy for many pharmaceutical manufacturers. For example, a Section 505(b)(2) NDA contains the full safety and effectiveness data but allows at least some of the information required for NDA approval (eg, safety and efficacy information on the active ingredient) to come from studies not conducted by the applicant.

This likely results in a much less expensive and faster route to approval compared to the traditional development path for Section 505(b)(2) NDAs.


These products offer some significant advantages over other more expensive, time-consuming and complex options, as well as advantages over generics as well. While they may not offer the same kind of ‘home run’ potential as NCEs, they can be a way for investors and manufacturers to make a strong return on their investment of time and money. But, as always, Section 505(b)(2) NDAs come with their own challenges, risks and IP hurdles.

IP hurdles

Branded pharmaceutical manufacturers typically file patents covering their products, methods of use and formulations when they begin their research and development in a particular area. These patents must be identified if they cover the approved product, and the FDA will publish them in the Orange Book. Generic drug manufacturers, on the other hand, may or may not seek patent protection for their proposed products. However, the abbreviated new drug application (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 are in an even more unique position. Since the products that they are pursuing use new dosage formulations, strengths, API salts, dosing regimens, routes of administration, new indications and/or new combinations, there is plenty of patentable subject matter. Recognising this, Section 505(b)(2) NDA applicants should be motivated to seek patent protection to maintain their market share and halt competitors from using their technologies. As a result, any patents that claim a Section 505(b)(2) product must be listed in the Orange Book.

However, not only must Section 505(b)(2) manufacturers list any patents, 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 within 45 days of 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.

Marketing 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 bioavailability 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 orphan drug exclusivity or six months of paediatric exclusivity.

Points of consideration

There are a number of factors to consider when it comes to entering the market with a Section 505(b)(2) product.

Regarding business factors, the evolution of the generics 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 generics manufacturers to look to new markets for profitable products. Similarly, branded pharmaceutical manufacturers are experiencing a loss in revenue with their profitable products going off-patent and facing generic competition. 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. Interestingly, Section 505(b)(2) products may solve many of these problems.

Further, Section 505(b)(2) sponsors can differentiate their products from those of 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.

As 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 tremendous opportunity as well. Additional opportunities may exist if an API in a combination product is changed, so that the change provides a benefit for a particular patient population. For example, if a product contains two APIs, then it may be possible to 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.

Four things to look out for in the year ahead

First, expect more investors and manufacturers to get into Section 505(b)(2) NDA development. As costs and complexities for development of NCEs continue to rise and the generic space gets even more crowded, it is safe to say that more players will likely get into the Section 505(b)(2) NDA space in 2020. Many investors see an untapped opportunity to jump into the Section 505(b)(2) NDA space. With its higher likelihood of success relative to Section 505(b)(1), Section 505(b)(2) NDAs are a good bet for investors looking to make a somewhat lower-risk investment.

Second, accelerating evolution with artificial intelligence (AI). In many instances, AI often gets conflated with advanced robots or smart automation. In reality, AI in the pharmaceutical industry is most often used to mean predictive data. Using decades of data and information about past pharmaceutical performance and, increasingly, patient diagnosis, manufacturers are getting better at predicting a potential NDA’s success and market value. While not a perfect science (at least not yet), the more information manufacturers and investors have at their disposal, the better they will be able to anticipate whether a drug is worth the investment in time, intellectual property and marketing. AI is going to become an even bigger part of the pharmaceutical industry and Section 505(b)(2) NDA development in 2020.

Third, the user fee issue needs to be addressed. In fiscal year (FY) 2019, fees required under the Prescription Drug User Fee Act for Section 505(b)(1) and Section 505(b)(2) NDAs were identical. For NDAs containing clinical data for FY 2019, application fees were approximately $2.6 million. With no clinical data, the fee was approximately $1.3 million. That means the fee is the same whether you are a brand-name drug company that develops a new chemical or molecule, or if you use an old chemical or molecule and simply create a new dosage formulation, strength, API salt, dosing regimen, route of administration, indication or combination product. These fees have risen (again) in FY 2020 (1 October 2019) and stand at approximately $2.9 million for NDAs with clinical data and approximately $1.5 million for NDAs with no clinical data. Although that may seem unfair, the fact that Section 505(b)(2) NDA manufacturers have not had a seat at the table with lawmakers means that there has been little movement to change this result.

In 2020 there needs to be a greater sense of urgency from the industry to address this fee disparity and level the playing field for NDA development. The Prescription Drug User Fee Act will be reauthorised in 2022, so the time is right for Section 505(b)(2) NDA sponsors to organise and act in 2020.

Fourth, Section 505(b)(2) NDA manufacturers have not put the same value on intellectual property as some of their peers, especially those who spend hundreds of millions of dollars in research to develop an NCE. In most cases, this is a mistake. As big pharmaceutical companies know, there is incredible value in developing an ownable IP portfolio and creating a market where competitors can be excluded from developing their own NDA. It is easier to make the case to investors when they can clearly see the marketing opportunity of exclusivity and potential rates of return by owning the intellectual property on a specific NDA. Too often, Section 505(b)(2) NDA manufacturers have been in the business of avoiding patents while missing patent opportunities of their own. In 2020 these businesses must place a higher priority on intellectual property and owning what they create.

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