How best to respond to the impending generic cliff is a topic that is on the minds of CEOs of generic manufacturing companies. At the recent Generic Pharmaceutical Association (GPhA) annual meeting, CEOs from Mylan, Hospira, Teva, Apotex and Momenta, participated in a panel discussion with Ronny Gal, Ph.D., senior analyst with Sanford C. Bernstein, and Randall Stanicky, managing director for equity research, RBC Capital Markets. The discussion offered some interesting insights into what these CEOs see for the future for the generic industry.

A great deal of talk was sparked by a presentation made earlier in the conference by Doug Long, vice president of industry relations for IMS Health, Inc. In his session he pointed out that fewer small molecules were coming off patent in the next five years.

Additionally, the value of the products coming off patent is much lower than the past several years. Both of these, combined with an industry trend toward R&D investment in more costly biologically derived products, raise the issue of how generic companies can meet revenue forecasts.

The CEOs present told analysts that their companies were considering a spectrum of solutions, and one holding particular promise is to pursue products that can be developed in-house, partnered or licensed-in using the 505(b)(2) approval process. Section 505(b)(2) of the U.S. Food, Drug and Cosmetic Act allows companies to file new drug applications (NDAs) utilizing some pivotal data from the public domain. Following this pathway, drugs can be developed and achieve FDA approval in as little as 30 months, with only a fraction of the number of required clinical trials and with an ROI higher than many generic drugs.

Teva Pharmaceuticals is one company that is actively pursuing this strategy. Teva has 14 products in development to bolster its strength in key therapeutic areas. The company also won recent approval through the 505(b)(2) pathway for an in-licensed product, Adasuve, an inhaled powder for the treatment of agitation associated with schizophrenia and bipolar I disorder in the U.S.

Teva, as well as other generic companies, sees the 505(b)(2) development strategy as a route that offers a sustainable revenue source in the future. Its potential market exclusivity is also attractive. Unlike generic drugs approved under Section 505(j), where first-to-file exclusivity can be held for only 180 days, the 505(b)(2) applicant may qualify for three, five or even seven years of market exclusivity, depending on the extent of the change to the previously approved drug and the type of clinical data included in the NDA.

Investors in generic companies also see benefits from a strategy that lowers risk, reduces development time and costs and improves the return on investment. According to BioMed Tracker/BIO, the rate of success in Phase III for products developed under the 505(b)(2) pathway is 66%, compared to only 41% for products developed through 505(b)(1).

The 505(b)(2) process is ideal for reformulations of existing products that address different indications, populations or routes of administration. However, the route can be complicated. Investors with an eye on investment return need to examine key factors influencing the pharmaceutical marketplace and regulatory status, as well as the nonclinical and clinical strategy that would be involved in the development of a specific drug in order to avoid potentially destructive financial risks.

Section 505(b)(2) presents opportunities for development and, clearly, pharmaceutical developers are poised to explore this route. Within the next few years, the share of new drugs approved via 505(b)(2) is expected to reach more than 80%.

Investors are keenly interested in how the industry will respond to the change in market dynamics brought about by the reduced number of products available for generic development.

This discussion confirmed that generic CEOs are in fundamental agreement that the 505(b)(2) pathway can provide a useful mechanism for the industry to replace or augment revenues. 

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Ken Phelps
President and CEO, Camargo Pharmaceutical Services

Ken Phelps employed more than three decades of experience in the health science and services industry to found Camargo Pharmaceutical Services in 2003. As an expert in drug development, specifically the 505(b)(2) regulatory approval pathway, Mr. Phelps has aided in the successful FDA approval of numerous compounds.