505(b)(2) Changes That Generic Manufacturers Should Know

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Regulatory changes to the 505 (b)(2) pathway will impact the go-to-market strategy for follow-on products that are not currently deemed therapeutically equivalent to the reference product.

While the 505(b)(2) pathway for follow-on products has existed in statute since 1984, it has recently received renewed attention and interest as an advantageous option for some manufacturers. Weighing the options on which follow-on pathway would be preferable entails multiple assessments and an understanding of how the environment is evolving.

Two major changes have occurred in recent months that will greatly impact the competitive environment for follow-on products approved under the 505(b)(2) pathway. First, the Centers for Medicare and Medicaid Services (CMS) clarified that 505(b)(2) products will generally only be assigned to the reference product Healthcare Common Procedure Coding System (HCPCS) J-code if they are deemed therapeutically equivalent (TE) by the Food and Drug Administration (FDA). This new decision framework represents a departure from previous practice, which typically placed 505(b)(2) products on the reference product’s J-code. The second change came from Congress in the Consolidated Appropriations Act of 2023, signed into law in late December 2022. The new law states that the FDA must evaluate therapeutic equivalence for certain 505(b)(2) drugs in the initial FDA approval or within 180 days of approval. This departs from the previous citizen petition process and also impacts previously approved 505(b)(2) products awaiting a TE decision. The FDA has not announced how it plans to implement new procedures or how the backlog of several dozen TE citizen petitions will be addressed.

505(b)(2) products still awaiting a TE determination have faced additional challenges with regards to substitution policies. Now, with the new CMS decision framework, the implications of a TE code will include whether a 505(b)(2) drug has its own J-code and, thus, its own average sales price. Manufacturers of 505(b)(2) products that have recently been approved are now faced with the decision of whether to request a TE assessment. They should be aware of the pros, cons, and implications in the marketplace.

Figure 1. Implications of Therapeutic Equivalence Rating for 505(b)(2) Products
Figure 1. Implications of Therapeutic Equivalence Rating for 505(b)(2) Products

With the clarity provided by CMS and Congress’s mandate that the FDA meet 180-day review deadlines for TE requests, manufacturers have greater certainty and flexibility to decide how to best commercialize their 505(b)(2) products. Making this decision requires generic manufacturers to understand the current landscape for their product, including relevant stakeholders, their motivations, and the factors with the most influence on their product selection decisions, whether clinical, operational, or economic.

The updated guidance and timeline from CMS and FDA will continue to shape manufacturers’ filing and commercialization strategy, including decisions on pricing and contracting, distribution, HCPCS code applications, payer and provider engagement, and field team sizing. For 505(b)(2) products launching in any therapeutic area, understanding these dynamics is crucial to launch success and rapid market penetration.

To discuss how Avalere’s regulatory and market access experts can help generic manufacturers with 505(b)(2) strategy, connect with us.

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