1. Avalere Health LLC | The intersection of business strategy and public policy Overview of Drug Development: From Lab to Market to Generic Presented by Scott Gottlieb, M.D. American Enterprise Institute for Public Policy Research

2. © Avalere Health LLC Page 2 Session Objectives In this session, we will  Discuss the usual process a product undergoes from development through to launch »Laboratory Research »Pre-clinical Testing »Investigational New Drug Approval »Clinical Trials »New Drug Application Approval »Post-Marketing Commitments

3. The Path from Test Tube to Patient The intersection of business strategy and public policy

4. © Avalere Health LLC Page 4 The Typical Path Requires Several Testing Stages, FDA Approvals, and Commercialization Phase 1 Trials Pre-clinical Testing IND Research Phase 2 Trials Phase 3 Trials NDA/ BLA FDA Approval Pharma Activity Millions of compounds ~ 250 to pre-clinical testing ~ 10 to phase 1 ~ 3 to phase 2 ~ 2 to phase 3 ~ 1 approved Phase 4 Studies Product Launch

5. © Avalere Health LLC Page 5 The Process Starts with Laboratory Research* Basic (Bench) Research  Understand normal and abnormal body functions  Understand mechanism underlying disease with unmet need  Develop concept for a potential drug Target Identification  Identify mechanism associated with disease (target) Target Validation  Assess target association with disease  Assess target ability to regulate compounds in the body  Confirm that interactions are associated with desired change in diseased cell behavior and have potential for intervention with a drug  Identify compounds that effect target *Specific to drugs; biologics undergo a similar process

6. © Avalere Health LLC Page 6 The Process Starts with Laboratory Research (continued)* Compound Selection  Discover or invent compound that alters the target  Compare to known substances to estimate likelihood of success  Develop potential leads as collections, or libraries, of molecules and test each to confirm effect on the drug target Compound Optimization**  Compare various compound properties to assist in selection  Alter compounds to increase potential efficacy and minimize potential side effects, adjust PK/PD parameters *Specific to drugs; biologics undergo a similar process **Pre-clinical studies often occur concurrent with compound optimization

7. © Avalere Health LLC Page 7 Potential Drugs Undergo Pre-clinical Testing*  Pre-clinical testing assesses how much compound is absorbed, how the body breaks it down, and how it reacts to, or excretes, break-down products, how it hits its intended target  Uses two or more species of living animals because the potential compound may affect species differently  Determines the potential drug’s safety at different doses  Identifies any toxic side effects, latent toxicities (carcinogenicity)  Assesses on target effects, off target effects  Provides information for the design of proposed human studies *Specific to drugs; biologics undergo a similar process

8. © Avalere Health LLC Page 8 The FDA Must Approve Progression to Clinical Testing Chart is from http://www.fda.gov/cder/handbook/ind.htmhttp://www.fda.gov/cder/handbook/ind.htm Local institutional review boards (IRBs) concurrently review the clinical trial protocols The FDA reviews  Pre-clinical test results  Manufacturing information  Human test plans Investigational new drug (IND) application process 30 days for review

9. © Avalere Health LLC Page 9 Clinical Trials* Establish Safety and Efficacy in Humans Phase OnePhase TwoPhase Three Assess Safety (and sometimes efficacy) Assess EfficacyFurther Assess Safety and Efficacy  20-80 healthy volunteers  6-12 months  50-300 subjects  12-24 months  100s-1000s of subjects  18-24 months  Most frequent side effects  How the drug is broken down & excreted  Sometimes done in patients with condition being studied (cancer)  In people with the disease or condition compared to those receiving a placebo  Short-term side effects  Basis for discussion with FDA on how to conduct Phase 3  Different populations  Different dosages  Combinations with other drugs *Specific to drugs; biologics undergo a similar process

10. © Avalere Health LLC Page 10 The FDA Must Approve the Drug Before Launch Chart is from http://www.fda.gov/cder/handbook/nda.htmhttp://www.fda.gov/cder/handbook/nda.htm *Some biologic products must submit a biologic license application (BLA) instead 10 month review  Approved: Can be marketed in the US  Approvable: Not officially approved; can probably be approved after resolving specific issues  Not Approvable: Deficiencies that make it unclear that it can be approved in the future Assess  Safety & efficacy  Appropriate drug labeling  Adequate manufacturing methods Consider reviewer assessments New drug application (NDA) process* 60 days to decide if file is ready for review

11. © Avalere Health LLC Page 11 The Company Prepares for Product Launch During FDA Review and Approval  Define the current market and target customers  Set prices, have some advance discussions with payers where permissible  Determine distribution strategy, REMS, post market safety management  Determine strategies to address reimbursement hurdles  Define label strategy (life-cycle planning, follow-on studies and indications)  Execute launch plan* *Company launches drug at a time they determine appropriate, not necessarily immediately after FDA approval

12. © Avalere Health LLC Page 12 Post Launch Consists of Life-Cycle Management  Monitor product performance, e.g. revenue and market share  Tackle barriers to adoption, compliance  Address market or competitive changes  Incorporate new clinical findings, expanded indications, new formulations

13. © Avalere Health LLC Page 13 New drugs may undergo an expedited review* process  Drugs classified as a real advance over available treatments undergo a 6 month “priority review” instead of the 10 month “standard review”  Drugs that treat a range of serious diseases and fill an unmet need may request and receive a “fast track” designation at any point during drug development  Fast track drugs are eligible for accelerated approval or rolling review  Accelerated approval uses findings that are likely to predict clinical benefit rather than direct measurements & results  Rolling review allows companies to submit completed NDA sections individually rather than the entire application all at once, allowing earlier resolution to potential problems Some Drugs Take a Different Path * Accelerates review but does not guarantee approval

14. © Avalere Health LLC Page 14 Phase 4 Studies Monitor and Gather Additional Data Post-marketing commitments can occur when: »FDA requests phase 4 studies, often before approval, and sponsor agrees (most phase 4 studies, authority to require studies under FDAAA) »Approved drug that underwent accelerated approval »Approved drug not adequately labeled for children or with incomplete pediatric testing »Approved drug with only animal data or that could not ethically be tested in humans Phase 4 studies provide more information, e.g. about risks, benefits, efficacy, new indications, and optimal use

15. © Avalere Health LLC Page 15 FDA Has Regulatory Authority to Approve Innovator and Generic Small Molecule Drugs Through the FDCA  Applicants rely on data from bioequivalent drugs approved by an NDA for expedited approval »Typically, existing drugs used to gain approval for new therapeutic indications or new dosage forms, or for use in combination with another drug  Approval via the 505 (b)(1) pathway requires submission of significant clinical trial data, in three phases, proving drug safety and effectiveness; drug chemistry information; labeling; description of manufacturing Innovator Small Molecule Drug Generic Small Molecule Drug New Drug Application (NDA) 505 (b)(1) pathway New Drug Application (NDA) 505 (b)(2) pathway  Requires proof of bioequivalence to demonstrate that the proposed product is identical to a previously approved product based on safety and efficacy Abbreviated New Drug Application (ANDA) 505 (j)(1) pathway FDCA= Federal Food, Drug, and Cosmetic Act NOTE: Further detail on strategies for bringing biosimilars to market are included in Task D: Evaluation of Alternative Strategies for Bringing Biosimilars to Market

16. © Avalere Health LLC Page 16 Policy and Marketplace Challenges Facing Drug Developers  Rising cost of development, and a frontloading of clinical development process  Increasing data demands post market  Slowing sales ramps, tougher launches  Declining venture investments, shrinking R&D budgets as drug margins come down, and consolidation of facilities, manufacturing

17. © Avalere Health LLC Page 17 Drug Shortages: No Single Cause, or a Single Solution  Market for parenteral generics has been squeezed by declining profits, margins  At the same time manufacturing requirements have been tightened following safety issues  End result: about 30% of U.S. manufacturing capacity is now offline with no clear resolution

18. © Avalere Health LLC Page 18 Prior to the ACA, FDA Approval Pathway Existed Only for Innovator Biologics Manufacturer Submits Biologics License Application (BLA) via 351(a) to FDA Pending positive clinical evidence, approved under PHSA, but regulated as “drug” under FDCA Review by Center for Biologics Evaluation and Research (CBER) CBER reviews gene therapies, blood and blood components, and venoms Review by Center for Biologics Evaluation and Research (CBER) CBER reviews gene therapies, blood and blood components, and venoms Review by Center for Drug Evaluation and Research (CDER) CDER reviews monoclonal antibodies and recombinant proteins Review by Center for Drug Evaluation and Research (CDER) CDER reviews monoclonal antibodies and recombinant proteins Note: Some older types of biologics are approved under FDCA pathways, primarily insulin and human growth hormone.  Trials, in three phases, proving safety, purity, and potency; product information; labeling; manufacturing/ packaging  Particular emphasis on manufacturing process and licensing of facilities  FDA states that no regulatory authority exists to approve generics under PHSA  BLA was created under the US Public Health Service Act (PHSA)

19. © Avalere Health LLC Page 19 FDA failed to release guidelines by end of 2011 Final FDA regulation will likely follow a 60-day comment period FDA draft guidance regulations released Several Uncertainties Remain for Biosimilars HCPCS=Health Care Common Procedure Coding System; NCD=National Coverage Determination; LCDs=Local Coverage Decisions 1Q102Q103Q10-3Q114Q111Q12 Vehicle  FDA released draft guidance regulations to govern the biosimilar pathway  CMS may release guidance on how the agency will treat biosimilars for HCPCS coding assignments linked to payment rates  CMS also could release a NCD on biosimilars even in the absence of a biosimilar coming to market and/or in the absence of external requests for a NCD  In the absence of a NCD, local contractors could enact LCDs once a biosimilar enters the market  Private payers and Medicaid programs likely will evaluate each biosimilar on a case-by-case basis Drivers Affecting Implementation  Companies legally challenging biosimilars or the legislation could slow the release of final regulation  Looming questions remain on interchangeability standards despite the release of draft guidance Opportunity to Influence  Interested parties will be able to comment on the draft FDA regulation  FDA held a public meeting in December 2010 to hear from interested stakeholders and may hold other meetings in the future  Stakeholders can also work directly with individual private payers and Medicaid programs ACA passes creating the pathway for biosimilars