Late in January, a subcommittee of the US House of Representatives released a bipartisan draft bill that proposes to drastically change the way many drugs are evaluated, approved, and regulated by the U.S. FDA.
Known as the 21st Century Cures Act, the goal of this proposed legislation is promote drug innovation in the U.S. and to streamline the development and commercialization of new therapies for unmet medical needs. The legislation, if passed in its current form, carries significant implications for biopharma investors. Here, we take a look at some of the most noteworthy elements of the proposed legislation.
First, Can Congress Even Deliver?
On January 27, the Subcommittee on Health, of the House’s Energy and Commerce Committee, released a draft version of the 21st Century Cures Act. The proposal, totaling almost 400 pages, was introduced by Representatives Fred Upton (R-MI, and Chairman of the Energy and Commerce Committee) and Diana DeGette (D-CO).
As is the case with almost every legislative proposal in Congress (aside from those related to denying Social Security payments to Nazis), the discussion around the legislative proposal has already become the subject of partisanship. In a statement accompanying the release Representative DeGette noted, “While I don’t endorse the draft document, I know that with continued engagement we can reach a bipartisan consensus to help advance biomedical research and cures.” In the Senate, meanwhile, Senators Lamar Alexander (R-TN) and Patty Murray (D-WA), the chairman and ranking member of the Senate’s Health Committee respectively, voiced their support for the idea of a proposal while avoiding explicitly supporting the proposal in its current form. The two Senators noted that they look forward to working with the House to craft a definitive bill.
From a cynic’s perspective, the passage of this bill hangs largely on support from the pharmaceutical industry, and by extension, the depth of concessions that Democrats are willing to extend in order to secure its passage. For Republicans, particularly members of the “establishment”, the slate of benefits afforded to pharmaceutical companies (primarily a meaningful extension of the period in which generics are legally barred from going after new drugs), will likely garner the industry’s support and give the GOP the political cover it needs from the business community to support a final proposal.
While the document released by the House in late January is not a formal bill but an initial proposal, the document contains a number of intriguing provisions.
Speeding the Drug Approval Process
Among the key goals of the proposed 21st Century Cures Act, as proposed in its current form, is to give the U.S. FDA greater authority to accelerate the review and approval of new medicines. While these provisions may very well lead to superior patient outcomes, many of them, if enacted, will quite clearly benefit biotechnology and healthcare investors.
Among the litany of changes are several that stand out. The first covers changes to the coveted Breakthrough Therapy Designation (BTD). Created in 2012, the FDA confers the designation on therapies that meet the following two criteria:
- Intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition
- Preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
In its current form, the designation accelerates the review process by granting the drug sponsor enhanced access to FDA staff and improved communication with the agency. BTD does not carry a mandated, shortened review time in the same way that a Priority Review designation reduces the review time for new drug applications from 10 months to 6 months.
The 21st Century Cures Act would dramatically alter the meaning of BTD. The proposed legislation gives the FDA the power to approve drugs with a breakthrough therapy designation based on early data. In essence, this change would allow for a more rapid time-to-market for BTD medicines. While the FDA would have the power to require companies to conduct post-marketing studies (and revoke approval if they fail to conduct these studies) the change to the regulations governing the BTD program, if implemented, would be a boon to drug developers. In its current form, the proposed legislation states that one or more Phase II trials would now be sufficient for the FDA to grant approval to a qualifying product, and the legislation directs the FDA to issue draft guidance on a formal framework to approve BTD-labeled therapies within one year of the bill’s passage.
The second set of proposed changes to the approval process concerns the development process itself, specifically the kind of data that the FDA requires for approval.
Under the current regulatory framework the FDA has the ability to confer an “Accelerated Approval” on drugs based on surrogate endpoints that stand in for more robust clinical endpoints. For instance, tumor shrinkage (Progression Free Survival, or PFS) as opposed to improved survival times (Overall Survival, or OS) in cancer patients.
The goal of using surrogate endpoints is to speed the time to market for promising or urgently needed therapies. According to the FDA, Accelerated Approval “allows a drug to be approved based on data that are not sufficiently complete to permit full approval.” It should be noted, however, that accelerated approval is not definitive (as was the case with Avastin in breast cancer), and is by no means a guarantee of final approval.
One component of the 21st Century Cures Act is to create a more robust system for qualifying surrogate endpoints as the foundation for the Accelerated Approval of more drugs. In its current form, the legislative proposal directs the FDA to improve this system of identifying and “signing off on” surrogate endpoints within 18 months of the bill’s passage, as noted by the Regulatory Affairs Professionals Society, or RAPS.
The goal is to formalize and legitimize the use of surrogate endpoints, spurring more companies to put them to work. As written in the proposal, however, the goal is not to allow the FDA to grant accelerated approval to all drugs based on surrogate endpoints but to create a superior framework for their use in specific situations where there is an unmet medical need and the drug in question is the best positioned to help patients.
Finally, the proposed legislation seeks to expand the role of patients in the approval process in order to reduce the time to market for therapies that patients clearly want.
The Cures Act would build on the FDA’s Patient-Focused Drug Development program, which was launched in 2012. The goal of the program in its current form is to allow the FDA the ability to consider patient perspectives in the drug approval process, covering both risks and benefits. Eventually, the goal of the Cures Act is to allow drug manufacturers to submit “patient experience data” to the FDA in order to develop a comprehensive framework through which the agency can assess real-world risks and benefits outside of clinical trials. In theory, this is designed to avoid further controversies over the perception that the FDA is denying needy patients access to working medicines: Sarepta Therapeutics’ (SRPT) eteplirsen comes to mind, given the long-running dialog between Duchenne’s Muscular Dystrophy advocates and the FDA over the agency’s perceived hesitance to accelerate the approval of eteplirsen.
In its current form, the Cures Act does not explicitly detail how the FDA would utilize “patient experience data” in the review process but directs the FDA to develop a framework to do so within two years of the bill becoming law.
A Changing World of Exclusivity
In our view, the most impactful components of the proposed 21st Century Cures Act relate to dramatic changes to the rules governing marketing exclusivity.
Under the current regulatory framework, novel approved drugs (New Chemical Entities) receive five years of exclusivity; drugs treating rare disorders (Orphan Designated) receive seven years; and biologics receive 12 years. At over a decade of complete market dominance, the exclusivity period for biologics has attracted criticism from President Obama as well as a variety of patient organizations, generic pharmaceutical companies, and healthcare reform advocates.
The Cures Act would alter the regulatory framework in a dramatic fashion by conferring 15 years of exclusivity for any drug that is approved for an “unmet medical need.” Unsurprisingly, this provision has already drawn criticism from both reform advocates and the generic pharmaceutical industry as leading to higher drug prices for longer periods, and reduced competition.
We expect that this portion of the Cures Act will be its most controversial given the debate between competing slices of the healthcare industry. However, should this portion of the Cures Act be included in a final bill and become law, it’s undoubtedly a strong positive for investors as companies developing novel therapies across the drug development spectrum will enjoy more than twice the length of time on the market without generic challengers.
The 21st Century Cures Act also seeks to create a market that would, in effect, allow companies to purchase even more exclusivity from antibiotic developers. In keeping with the government’s ongoing efforts to spur the development of a new generation of antibiotics, the Cures Act builds on existing legislation and regulations to incentivize antibiotic developers.
In 2012, the FDA introduced the QIDP (Qualified Infection Disease Product) designation. These products receive five additional years of exclusivity on the market.
The Cures Act allows these drug developers to transfer up to twelve months of this exclusivity to another drug product, and even another drug company. This program of selling/buying exclusivity builds on the FDA’s existing and somewhat similar Priority Review Voucher program. A Priority Review Voucher is granted to the successful developer of a treatment for rate pediatric disorders or tropical diseases (both underserved sub-segments). The vouchers reduce the normal 1-year review process at the FDA to 6 months and are transferable between sponsors. In the last year alone two of these PRVs have been sold for tens of millions of dollars. Regeneron and Sanofi paid over $67 million to buy a PRV from BioMarin, and Gilead paid $125 million to Knight Therapeutics late in 2014.
Undoubtedly drug companies will be willing to pay up for an additional year of marketing exclusivity if the QIDP changes stay in the bill as planned. Depending on the product in question, and margins, an additional year of market exclusivity could be worth hundreds of millions of dollars to the right company.
The 21st Century Cures Act is in its early stages, and passage is far from certain. Even in its initial form the proposal published by the House of Representatives has already generated controversy, and we expect the final bill will take on a much different form. The representatives hope to have draft in front of the house around mid-year and hope to have something on the President’s desk by the end of the year. That’s an aggressive timeline, and we’ll continue to monitor developments regarding the legislation in the months to come.
In the meantime, RAPS.org put together a deeper explainer on the bill.
