The 505(b)(2) Primer: Entering Into The 505(b)(2) Development Program For The First Time
Many small-to-medium size pharmaceutical companies, whether they may be manufacturers or distributors, or both, are beginning to see, or are projecting for the near term, an erosion of their sales and/or profits. Many of these companies currently manufacture and/or sell DESI and ANDA products where sales and profits can be highly threatened due to market conditions and new FDA regulatory procedures. The question now for many companies is how do I maintain and grow my sales and profits for the next 5 to 10 year period? As discussed in previous RRI newsletters, the answer for many is the realization that the 505(b)(2) strategy is the best plan.
Once the realization has been made to start a 505(b)(2), the next questions are how do I proceed, what are the costs, and how do I finance this new venture? Those companies beginning their first 505(b)(2) often choose to start with a relatively simple and inexpensive development program. Such a program may include the development of a drug that combines two previously approved drugs into one tablet, where the formulation of the new drug is simple and the studies required for FDA approval will involve only simple and inexpensive bioequivalance (PK) studies. In this way, high development costs associated with difficult formulations, and the relatively higher costs of clinical endpoint studies can be avoided. Thus, the costs for such an entry level 505(b)(2) development program are often less than $1.5 million total for all phases of the program including formulation, manufacturing, regulatory management, and clinical trials.
Funding such a program can be accomplished in a number of ways. For example, many small pharmaceutical companies are able to fund the development from their current cash flow. This can be more easily accomplished than appears at first glance. That is, because the development program stretches over a period of 1.5 – 2.0 years, and because the costs of the program are spread over the period of development, payments for development are made in smaller increments and spaced over time according to developmental milestones. Other means to decrease the costs of development include partnering with other pharmaceutical companies to share the costs. Partnering can be in many different forms, such as shared distribution rights, or partnering with a contract manufacturer to eliminate the formulation and production costs in exchange for a percentage of sales. Borrowing is always an option, and borrowing can be in the form of creative financing where no equity is lost and the lender shares in the risk of development by not asking for a guaranteed payment, but instead asks for milestone payments associated with sales (companies such as Paul Capital Healthcare of San Francisco offer these types of innovative financing opportunities). In this way, the sponsoring company can avoid payments if the development program in some way fails expectations, but shares the rewards as the product goes to market and succeeds in sales goals.
Once the realization has been made to start a 505(b)(2), the next questions are how do I proceed, what are the costs, and how do I finance this new venture? Those companies beginning their first 505(b)(2) often choose to start with a relatively simple and inexpensive development program. Such a program may include the development of a drug that combines two previously approved drugs into one tablet, where the formulation of the new drug is simple and the studies required for FDA approval will involve only simple and inexpensive bioequivalance (PK) studies. In this way, high development costs associated with difficult formulations, and the relatively higher costs of clinical endpoint studies can be avoided. Thus, the costs for such an entry level 505(b)(2) development program are often less than $1.5 million total for all phases of the program including formulation, manufacturing, regulatory management, and clinical trials.
Funding such a program can be accomplished in a number of ways. For example, many small pharmaceutical companies are able to fund the development from their current cash flow. This can be more easily accomplished than appears at first glance. That is, because the development program stretches over a period of 1.5 – 2.0 years, and because the costs of the program are spread over the period of development, payments for development are made in smaller increments and spaced over time according to developmental milestones. Other means to decrease the costs of development include partnering with other pharmaceutical companies to share the costs. Partnering can be in many different forms, such as shared distribution rights, or partnering with a contract manufacturer to eliminate the formulation and production costs in exchange for a percentage of sales. Borrowing is always an option, and borrowing can be in the form of creative financing where no equity is lost and the lender shares in the risk of development by not asking for a guaranteed payment, but instead asks for milestone payments associated with sales (companies such as Paul Capital Healthcare of San Francisco offer these types of innovative financing opportunities). In this way, the sponsoring company can avoid payments if the development program in some way fails expectations, but shares the rewards as the product goes to market and succeeds in sales goals.
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