Editor’s Note: This month, we offer updates on three significant topics. As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or consulting@integrichain.com and we would be happy to talk you through it.

Table of Contents:

• 340B Contract Pharmacy Restrictions & Updates
• M&A and Venture Capital Funding in Biotech
• FDA Proposes Stricter Accelerated Approval Criteria

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340B Contract Pharmacy Restrictions & Updates

The US Court of Appeals for the Third Circuit (i.e., federal court with appellate jurisdiction over the district courts in DE, NJ, and Eastern, Western, and Middle District of PA) recently ruled in favor of pharmaceutical manufacturers being able to provide 340B pricing restrictions to covered entities (CE) that contract with contract pharmacies (CP). One of the main points the court hung its hat on was the premise that the statute references the manufacturer’s requirement to “offer” 340B price drugs to covered entities and does not indicate anything about “delivering” 340B discount drug prices to contract pharmacies, especially to unlimited contract pharmacies. With the lack of specificity within the statute, it is reasonable to assume the statute intended for covered entities to be contracted with a single contract pharmacy, not multiple. According to the court, “Congress never said that drug makers must deliver discounted Section 340B drugs to an unlimited number of contract pharmacies.” The caveat to this is that although the court was in agreement with manufacturers, they did note that manufacturers would not hold up their statute obligations if they refused to “offer” 340B pricing to covered entities in all cases (e.g., manufacturers must offer 340B pricing to covered entities that contract with a single contract pharmacy). 

Prior to this Third Circuit appeals ruling, two of the four federal district courts had ruled in favor of HRSA indicating manufacturers should not be restricting sales of 340B discounted drugs to contract pharmacies. The 340B regulation indicates that manufacturers cannot “cherry pick” whom they offer 340B pricing to and if they offer pricing to one covered entity, they “must offer” the pricing to all covered entities – presumably even if those covered entities contract with pharmacies (“contract pharmacies”) for sale/dispensing of product to patients. By way of context, section 340B of the Public Health Service Act (Pub. L. 102-585), as amended by the Patient Protection and Affordable Care Act (Pub. L. 111-148), Health Care and Education Reconciliation Act (Pub. L. 111-152), and Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309), indicates that manufacturers “shall require that the manufacturer offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.” However, as noted earlier, the statute does not specify the intent of the “offer” and whether that term also includes “delivery” of such outpatient drugs to contract pharmacies and whether delivery is intended for a single contract pharmacy or multiple pharmacies. 

Similar appeals (as in the Third Circuit) are currently pending decisions within the appellate courts of the D.C. Circuit and the Seventh Circuit (i.e., federal court with appellate jurisdiction over the district courts in IN, IL, and WI).  If the ruling in these two courts is in favor of manufacturers, then the use of 340B contract pharmacies will likely be severely limited; however,  if the appellate decisions are split between the DC Circuit and the Seventh Circuit, this case will be taken to and appealed within the US Supreme Court.

HRSA commented on the recent court ruling on their website: “HRSA respectfully disagrees with the recent District Court opinion finding that two other manufacturers had not violated the statute, and continues to evaluate its options.”

References

• Third Circuit Ruling

M&A and Venture Capital Funding in Biotech

When it comes to drug development, finances might sometimes be just as important as scientific breakthroughs. Many of today’s most influential medicines might not have become the lifesavers that they are without venture capital funding or mergers and acquisitions (M&A). While the latter appears to be gaining momentum over the last few years, the former may be experiencing the opposite effect.

While M&A was a hot topic in the industry in 2018 and 2019-2020, 2021 and 2022 were much quieter in terms of activity. More recently, however, the level of activity has begun to increase, and over the last few months, biotech M&A activity has been picking up steam after a lengthy drought. Pharmaceutical companies are looking to reload their pipelines and have the cash to do it. In fact, there have already been $64 billion in M&A deals this year, a pace which could come close to approaching the all-time deal record of $328 billion in 2019. 

M&A deals often focus on areas that could have a significant effect on which drugs get funded and advanced in the future (e.g., cancer, rare diseases, immune system disorders). However, not all biotech companies have been successful in reaping these benefits. In fact, while M&A activity appears to be increasing, venture capital investment appears to remain cautious, especially due to the recent failure of Silicon Valley Bank (SVB). 

M&A deals typically target later-stage biotech companies, either revenue-generating businesses with growth prospects or late-stage potential blockbusters. Although some M&A activity does occasionally happen with early-stage biotech companies, they are primarily funded through venture capital investment. While Series A financing (the initial financing round) has been relatively easy to secure in the last few years, industry watchers say that they have not seen a corresponding increase in Series B funding (subsequent financing rounds). Biotech startups facing this “Series A cliff” might need to get creative when it comes to securing new investments. This gap between Series A and Series B funding appears to show that investors are becoming more cautious. They want to see drug programs nearing or already in clinical trials before they are willing to invest their money in subsequent financing rounds.

The failure of SVB has left a vacuum with respect to which bank will become the “new SVB” for biotech. A major reason for SVB’s role in biotech funding was its willingness to lend money to early-stage companies on better terms than a traditional bank would offer. It remains to be seen which bank or banks will take SVB’s place. As it currently stands, biotech startups might be experiencing the Series A cliff for the foreseeable future and might need to look into other measures to obtain subsequent financing. 

IntegriChain is following this news very closely and will provide further updates as they are available.

References

• Biotech M&A
• Biotech Startups
• SVB’s Failure
• ‘Blistering’ Start to M&A in 2023

FDA Proposes Stricter Accelerated Approval Criteria

In late March, the FDA proposed more rigorous clinical trial criteria for cancer drugs seeking to utilize the accelerated approval pathway. This proposal follows what some believe to be a series of controversial drugs being approved via the accelerated pathway. The controversy stems from the clinical trial design, and the trial’s ability to bridge the efficacy-to-effectiveness gap. What does this mean for pharma? Let’s look at some considerations below.

The accelerated approval pathway has existed since 1992. The pathway was generally the result of large amounts of pressure coming from two directions: highly expensive, rigorous, and lengthy clinical trials being demanded of pharma and advocacy groups seeking access to emergent therapies for which patients had a high unmet need. The accelerated approval pathway was the FDA’s compromise to both pharma and patients seeking to address serious health needs in the absence of unlimited resources.

As is the case with most regulations, the recent surge in attention to potentially controversial drugs showing limited clinical benefit has put the FDA back in the hot seat to determine how the agency plans to move forward. Determining a drug’s clinical benefit has been at the forefront of new efforts to evaluate the wave of advanced therapies in pipelines and ones already coming to the market. Organizations around the world are looking to develop clinical benefit frameworks for cancer therapies to aid in addressing how to prioritize drugs for review, Phase 4 trials, and ongoing evidence generation.

Regardless of the FDA’s preference to install additional requirements on manufacturers of cancer drugs looking to use the accelerated approval pathway, there are poorly known clinical trial limitations – outside of the pharma industry – that bar the easy accommodation the public would hope to see. Most drugs being approved via the accelerated approval pathway utilize preliminary studies, potentially Phase 1/2 for drugs with low-risk profiles. They use surrogate endpoints, often with limited access to ideal patient populations, and possibly single-arm studies or crossover trials. These study designs introduce a greater number of potential variables than the gold standard double-blind randomized clinical trial traditionally used in Phase 3, which takes a drastically longer time to implement, run, and requires a substantial amount of resource input above the already costly research and development process.

How the FDA plans to manage the strong pressure from advocacy groups and the pharmaceutical industry and what is tangibly feasible will be something to watch closely. Amidst the already increasing drug development pressure via considerations implemented by the Inflation Reduction Act, adding additional R&D obligations for approval could further impact drug development. Steps have also been taken by the government for commercial products that further acknowledge the shifting focus towards developing clinical benefit, such as regulations incorporating value-based purchasing (VBP) agreements into Multiple Best Prices. VBP agreements are a growing trend, especially for novel therapies with unique clinical trial designs. The slow-moving regulatory shift in focus to value-based healthcare vs. fee-for-service is starting to be seen across the life cycle of a drug. 

References

• US FDA
• Accelerated Approval
• Inflation Reduction Act Impact
• Value-Based Purchasing

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