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Draft Bill Seeks Personalized Rx Incentives via Exclusivity Extension, Improved Reimbursement

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By Turna Ray

A proposed bill, soon to be introduced in Congress by Representative Leonard Lance (R-NJ), would reward drug companies developing personalized medicines with corresponding companion tests by extending the period during which competitors would be barred from gaining marketing approval for treatments with similar compositions.

Additionally, the bill, called "Modernizing Our Drug & Diagnostics Evaluation and Regulatory Network Cures Act of 2011," or MODDERN, includes proposals for improving the reimbursement prospects for diagnostic tests, as well as incentives for drug companies to revive unapproved compounds in their pipelines that have limited patent protection as treatments for unmet medical needs.

The drafters of the bill believe that MODDERN, if passed, will spur the development of personalized therapies by freeing drug developers from the limitations of the current regulatory and patent system.

The text of the draft bill states that despite $80 billion spent annually on R&D, many diseases lack effective treatments, with commonly used drugs benefitting only 50 percent to 75 percent of the intent-to-treat population.

While "advanced and innovative diagnostic tests … have the potential to dramatically increase the efficacy and safety of drugs by better predicting how patients will respond to a given therapy," many of these drugs and diagnostics "go undeveloped due to uncertain regulatory and reimbursement processes," the bill states.

"In addition, there is reason to believe that potential treatments with tremendous value to patients are never developed or are discontinued during research and development due to insufficiencies in the intellectual property system," the bill notes, adding that "it is in the public interest to address the hurdles that may be precluding new treatments from reaching patients and to remove the disincentives for the development of therapies for these unmet needs."

According to a Sept. 19 memorandum circulated by the National Health Council, a patient advocacy organization that has been organizing support for the bill, Lance is close to getting a commitment from a Democratic co-sponsor for MODDERN, after which the bill will be introduced on the legislative floor.

Oft-Cited Barriers

Test makers often cite the uncertain reimbursement environment for diagnostics as a major barrier to getting financial backing from the investment community. Diagnostic firms and laboratories currently use reimbursement codes that describe procedures that don't reflect the complex technologies underlying their tests and receive reimbursement amounts from payors that don't capture the value that a diagnostic adds to patient care. As such, many diagnostic developers have taken to negotiating coverage policies insurer by insurer, which can be a time-consuming and costly endeavor.

Meanwhile, drug firms complain of the lack of regulatory and market incentives for developing personalized medicines — drugs that by design are intended for a subset of a larger disease population and therefore may have lower revenue potential. When drug companies do decide to ink deals with diagnostic firms to advance individualized treatments, the collaborations are often challenged by divergent development timelines, separate regulatory pathways, and different reimbursement criteria for therapies and tests. These challenges can deter or delay the development of Rx/Dx combination products.

The provisions in MODDERN attempt to tackle some of these oft-cited barriers to advancing pharmacogenomically guided drugs. Even though industry stands to benefit from the bill, stakeholders knowledgeable of its evolution say that MODDERN was spearheaded by patient advocacy groups. "It is our understanding that this bill originated within the patient community," Amy Miller, public policy director at the Personalized Medicine Coalition, told PGx Reporter. "Patient advocates believe that new treatments can be developed and drugs that failed for one type of patient may have utility for other types of patients."

While there is no specified date yet for the introduction of MODDERN, which has been under development for the past five years, policy experts PGx Reporter spoke to believe that certain segments of the bill may have the best chance of passage if they are successfully incorporated into the Prescription Drug User Fee Act. "Since PDUFA is the main 'must pass' [healthcare] legislation of this Congress, Lance may try to get parts of MODDERN attached" to that bill, Miller said.

Prevailing fiscal pressures in Washington, DC, mean that any new bill presented in this Congress will have a difficult path ahead, but the NHC has gotten input and support from congressional staffers on both sides of the aisle on MODDERN and believes that the bill is unlikely to be beleaguered by partisan politics. "When we crafted the bill we were very careful to put together something that was low-cost, bipartisan, and that faced little opposition from different stakeholder groups," Nancy Hughes, assistant VP of communications and marketing at NHC, told PGx Reporter.

In drafting MODDERN, the NHC has gathered input from the US Food and Drug Administration, the White House, the National Institutes of Health, and various industry stakeholders among others. "We've received mostly positive reactions and incorporated a lot of the feedback into the legislation," Hughes said.

Promoting Dx Codevelopment

MODDERN would establish under HHS an Advanced Diagnostics Education Council that would issue a report outlining key concepts in diagnostics development and establishing common definitions for terms that regulatory officials, payors, policymakers, and test developers can use when discussing and making decisions about such products.

The bill also sets forth specific criteria the HHS Secretary should consider when setting payment levels, such as the impact a test has on patient care, the resources it took to develop and validate the test, medical claims data, private insurance rates for such tests, laboratory charges for self-pay patients for the test, as well as the recommendations of an independent advisory panel with diagnostics experts from industry, academia, patient groups, and government. By factoring in all these elements, the drafters of MODDERN are attempting to move away from outmoded diagnostics reimbursement policies and get closer to the value-based reimbursement that test developers are seeking.

The diagnostic reimbursement proposals in MODDERN come as the American Medical Association is developing new current procedural terminology codes for molecular diagnostics and the Centers for Medicare & Medicaid Services is mulling payment rates for such tests. In this vein, the bill would facilitate a process by which HHS can issue temporary codes for tests. This would mitigate the two years or more that diagnostics firms often have to wait to receive permanent CPT codes from the AMA, a delay that hampers patient access, as well as a company's ability to recoup its investment in developing a test.

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The section of the bill describing temporary codes for tests was developed before the AMA and the CMS began working on reimbursement issues surrounding molecular diagnostics. "We're keeping an eye on how those discussions go to see how those provisions need to be modified," Eric Gascho, NHC's associate director of government affairs, told PGx Reporter. "Really, the key thing we wanted to address with [the temporary codes] is to make sure that patients are getting access to advanced diagnostics as soon as they're approved, or as soon as possible."

Encouraging Early Rx/Dx Codevelopment

On the regulatory side, MODDERN attempts to encourage simultaneous drug and diagnostic codevelopment by awarding one year of additional data exclusivity to biopharmaceutical companies developing such products. If the drugmaker codevelops a companion test to personalize an already marketed drug, then the firm receives an added six months of exclusivity.

Currently, the FDA awards five years of data exclusivity when it approves a new chemical entity, and tacks on another three years for a supplementary new drug application. These supplemental applications can be initiated when, for example, the sponsor wants to add another indication to an already approved drug. For so-called orphan drugs approved for rare diseases affecting fewer than 200,000 people, the exclusivity period is seven years. An approved drug that receives a pediatric indication has six months of additional exclusivity. Following FDA approval of a new drug, the agency cannot green-light a marketing application from another sponsor for an agent with the same chemical composition during the period of exclusivity.

Drug developers often bemoan the lack of regulatory incentives for pursuing drug/diagnostic codevelopment strategies, which can be costly, filled with uncertainties associated with applying an evolving science, and often target small patient populations. However, pharma is making use of the existing data exclusivity structure to get the most return out of its R&D investments into personalized medicines.

A recent example is Pfizer's Xalkori. Indicated for non-small cell lung cancer patients with ALK rearrangements and approved simultaneously with Abbott Molecular's companion ALK diagnostic earlier this month, Xalkori received orphan drug designation from the FDA prior to its approval (PGx Reporter 9/7/2011).

In another example, Roche partner Astellas is in discussions with the FDA about filing an application for Tarceva as a first-line treatment for NSCLC patients with EGFR mutations (PGx Reporter 6/8/2011). Tarceva is already approved for second- and third-line treatment in advanced-stage NSCLC. If Astellas files a new regulatory application for Tarceva in EGFR-mutated NSCLC and gains FDA approval, it may grant additional data exclusivity to the drug sponsors, limited to the PGx indication.

The drafters of MODDERN are hoping that the data exclusivity provisions of the bill can counter the threat of lost market share associated with pharmacogenomically guided drugs by providing a strong incentive to pharma to engage in collaborations with diagnostic firms early in the development of the treatment.

Although pharma is becoming more comfortable engaging in Rx/Dx codevelopment strategies, there have been cases where industry observers have criticized drug developers for waiting too long to pursue a PGx indication for a profitable, broadly marketed drug, even though there was compelling data suggesting that patients with certain gene mutations were unlikely to benefit from it.

For example, when the FDA updated the labeling for Amgen's Vectibix to recommend that patients with KRAS mutations shouldn't receive the drug, many personalized medicine stakeholders claimed that the company deliberately held off on pursuing a personalized medicine strategy because it would have shrunk the market size of the drug. In defense, Amgen has argued that the biomarker leads weren't mature enough to justify a PGx strategy when the company launched Vectibix in the broader colorectal cancer population in the US. Amgen did not file a supplementary NDA for Vectibix in this regard, but did submit retrospective analysis showing that CRC patients with KRAS mutations didn't respond to the drug, which moved FDA to update the treatment label.

According to Benjamin Roin, an assistant professor of patent law at Harvard University who provided input on MODDERN, although there is no specific language in the bill that would restrict drug developers from delaying the introduction of companion tests for their drugs, he believes that the additional data exclusivity for drug developers — combined with the proposals to speed access and reimbursement for diagnostics through temporary codes — may encourage Rx/Dx partnerships in a timely fashion.

"The act does not appear to force companies to develop their companion diagnostics early," Roin told PGx Reporter over e-mail, noting that there could be situations when the bill's provisions may not be sufficient to drive early Rx/Dx partnerships. "To the extent that the act would be successful in encouraging companies to develop companion diagnostics that they otherwise would not develop, there may be an incentive for firms to hold back on developing certain types of diagnostics (i.e., the ones that will reduce the sales of their drug) until the latter part of their drug patent term," he said.

While getting an extra year of exclusivity for simultaneous Rx/Dx codevelopment — compared to six months of exclusivity for a test that comes after a drug is already on the market — may spur more early Rx/Dx deals, one can envision instances where drug companies' cost/benefit analysis for a drug may not support a PGx strategy at all.

"I do not know how important this six month difference would be in a company's decision about when to develop their diagnostic, but it might avoid this problem under a lot of circumstances," Roin said. "It is possible that the bill [could also] avoid many of these situations by changing the reimbursement system for diagnostics, so that companies can make money from the diagnostics that offset any lost revenues from lower drug sales, and thus will no longer have an incentive to delay the release of these diagnostics."

Awaking Dormant Drugs

MODDERN would also provide 15 years of data exclusivity to pharmaceutical companies that gain regulatory approval for a drug that hasn't previously been FDA approved and has limited patent life. The bill calls such agents "dormant therapies."

To gain this additional period of exclusivity, however, the sponsor must develop the drug to treat a serious or life-threatening illness for which patients have few options. If treatments exist for such a condition, then the dormant therapy must have a better safety and efficacy profile than those other options.

The fact that "dormant therapies" cannot be previously approved drugs provides a safeguard against drug developers who might use this mechanism to thwart generic competition. Moreover, this type of incentive may be just what drug companies need to apply pharmacogenomic strategies to revive agents that are collecting dust in their pipelines.

"As everybody knows, companies are almost never willing to invest the huge amounts of time and resources needed to develop a drug if they don't have strong patent protection on it," Roin said.

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When it comes to developing personalized medicines, although there may be valid research data suggesting that certain unapproved compounds have benefits in molecularly defined patient population, if the patent lives of those agents are running out, then drug developers aren't much inclined to invest in PGx research or develop a companion test for them.

MODDERN's "dormant therapy" proposal draws from a 2009 article Roin wrote for Texas Law Review on the limitations of the current patent system in encouraging innovation in the pharmaceutical industry.

In the article, titled "Unpatentable Drugs and the Standards of Patentability," Roin points out that by awarding IP protection to products on the basis of novelty and non-obviousness, the current patent system provides no motivation to drug developers to research new uses for compounds that are at the end of their patent life. "Congress can easily avoid this problem" by encouraging drug makers to take a treatment with weak patent protection through FDA's regulatory process, after which, if the application is approved, the sponsors are "rewarded with a lengthy exclusivity period enforced by the [agency]," writes Roin in the TLR article.

This is essentially what MODDERN proposes. For drugs granted the 15-year exclusivity, MODDERN would restrict the FDA from approving applications for competing drugs that contain an active moiety that is the same as or similar to the dormant therapy unless the information provided on the new drug is different "in scope and extent (including with respect to design and extent of preclinical and clinical testing)," according to the text of the bill.

This means that while MODDERN wouldn't restrict other companies from conducting research on a dormant therapy for different uses, the evidence and development program would have to be substantially different for a drug with a similar active ingredient to receive marketing approval from the FDA during the exclusivity period.

"If a company develops a dormant therapy for a particular medical use and receives the specified term of protection, its competitors cannot get around that protection by getting FDA approval to sell that same drug for a different indication that required comparatively little development expense," Roin explained.

Additionally, in order to receive designation as a "dormant therapy," the sponsor must waive any patents rights on the drug or biologic after the exclusivity period ends, the bill notes. However, the sponsor's patents on the dormant therapy would be extended for the period of specified exclusivity, so that would enable the company to use those patents to thwart competition during that time.

"If the company has a patent on the core compound or the important medical uses of the drug, and it receives a longer term of protection as a dormant therapy than under the old patent rules, then the MODDERN Act would allow it to block competitors from selling the drug for a different indication for longer than otherwise would have been possible," Roin said.

Although the data exclusivity extension in MODDERN is only for unapproved compounds, there are plenty of approved drugs that are losing patent protection for which PGx and other strategies can find applications in new indications. In this regard, policies that would further limit competition for drugs that have already enjoyed a significant period of exclusivity while on the market would have significant drawbacks.

"It would be great if we could create incentives for companies to invest in these new uses of existing drugs, but there's this problem: If firms can get additional protection on their existing drugs by developing them for new uses, they might be able to significantly lengthen their monopoly period, perhaps far beyond what we want them to be able to do," Roin said. "No one has yet come up with a good solution to this problem."

To further study the impact of patent laws on drug and diagnostics development, MODDERN would fund a study conducted by the Institute of Medicine. The IoM would then issue a report recommending how to promote research to find new uses for drugs currently available on the market.


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