Genome. Deal or No Deal? Legal and Regulatory Considerations In the Business of Precision Medicine. N. Czaban, JD

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1 26 Legal Genome by James N. Czaban, JD Chair, FDA and Medical Products Regulatory Group DLA Piper LLP (US) Deal or No Deal? Legal and Regulatory Considerations In the Business of Precision Medicine

2 Precision Medicine is rapidly taking a larger and larger share of new therapeutic product approvals as industry and the FDA are gaining a more solid grasp of what is required to develop and approve these cutting-edge products. Indeed, of the 46 New Molecular Entities ( NMEs ) approved by FDA in 2017, 16 (35%) were Precision Medicine products, according to the Personalized Medicine Coalition, which also cites at least 14 supplemental approvals for new Precision Medicine-related uses of previously-approved products. There are multiple factors at play behind the steadily-increasing focus on, and volume of, Precision Medicine products, including continued scientific advancement and clarity on Precision Medicine, and growing comfort within FDA regarding the science and review parameters for such products, coupled with innovation-oriented regulatory reform efforts led by FDA Commissioner Scott Gottlieb. As this trend continues, companies and investors will be focusing even more closely on business opportunities in the Precision Medicine space. But, despite the progress mentioned above, headwinds remain in the forecast for the foreseeable future, and product-specific and deal-specific pitfalls await those not deeply immersed in the legal and regulatory nuances and uncertainties underlying a successful Precision Medicine business strategy. This issue of my Legal Genome column addresses some of the key legal and regulatory considerations that must be addressed by companies considering the development of new Precision Medicine therapies and those who would acquire or invest in such companies. The Continuing Evolution and Increasing Complexity of FDA s Precision Medicine Regulatory Scheme As noted, industry and FDA have made encouraging progress in bringing to market an increasing number and variety of Precision Medicine products over just the past few years, and there is little reason to suspect a reversal or material plateau in that trend any time soon. That said, FDA s regulatory approval criteria (which inherently encompasses the agency s clinical development policies and expectations) for Precision Medicine are still emerging, fluid, and in many respects uncertain, especially for novel approaches for precision diagnosis and treatment. To use just two recent examples, in December 2017, FDA issued two draft Guidances related to different aspects of the development and approval of Precision Medicine technologies, but the approaches in these Guidances are notably different in tone and effect, and each leaves many open questions in the context of any particular Precision Medicine development program. In the Draft Guidance, Developing Targeted Therapies in Low-Frequency Molecular Subsets of a Disease (December 2017) (the Molecular Subset Guidance ), FDA explains that because certain targeted therapies may be effective in multiple groups of patients who have different underlying molecular alterations FDA is providing guidance on the type and quantity of evidence that can demonstrate efficacy across molecular subsets within a disease, particularly when one or more molecular subsets occur at a low frequency. The actual guidance provided across four subtopics (1) Identification of Patients for Inclusion in Clinical Trials, (2) Generalizability of Findings, (3) Benefit and Risk Determination and Labeling, and (4) Refining the Target Population/Indication After Initial Approval is framed as a positive, proactive approach by the agency to facilitate creative and flexible approaches to the development of covered targeted therapies. In essence the Guidance suggests that FDA will consider any and all types of approaches proposed for the four types of developmental activities, but also offers a stratified listing of types of evidence that sponsors may submit to support the strength of evidence supporting of a proposed patient grouping strategy for clinical trials. These categories of support, in decreasing order of strength, are: clinical study evidence; nonclinical study evidence; in silico or mechanism-based evidence; evidence from other drugs in the same pharmacological class; and phenotypic characterization of molecular alterations. Thus, although the Guidance leaves much to be determined for any particular development program, at least sponsors have some clarity on the relative value of different types of evidence that may be used in support of seeking approval of a therapy for multiple molecular subsets of a disease. In contrast to the tone and flexibility reflected in the Molecular Subset Guidance, the Draft Guidance, Investigational IVDs Used in Clinical Investigations of Therapeutic Products (December 2017) (the Investigational IVD Guidance ), is essentially proscriptive, and reads more like a warning shot across the bow of Precision Medicine sponsors who seek to support approval of their products through use of investigational in vitro diagnostic devices. This Guidance also explicitly warns Institutional Review Boards overseeing such studies to consider the safety and legality of the IVDs used in such research. The Guidance 27 FIELD NOTES

3 can be seen as a continuation of FDA s contro- Guidance); and the uncertainty of whether administration s most concrete programmatic versial efforts to assert (or re-assert) regulatory FDA might outright reject, after the fact, a efforts to date to address drug pricing have, on control over in vitro tests used in connection good faith use of a developmental approach the other hand, focused on streamlining and with Precision Medicine, as previously pursued (or worse take enforcement action) based on expediting the approval of competing generic in the agency s Draft Guidances, Framework for an alleged regulatory violation (e.g., under the drug products. Thus, while much of the public Regulatory Oversight of Laboratory Developed Investigational IVD Guidance). and media attention tends to focus on the Tests (LDTs) (Oct. 3, 2014), Use of Standards in FDA Regulatory Oversight of Next Generation Sequencing (NGS)-Based In Vitro Diagnostics (IVDs) Used for Diagnosing Germline Diseases (July 8, 2016), and Use of Public Human Genetic Variant Databases to Support Clinical Validity for Next Generation Sequencing (NGS)- Based In Vitro Diagnostics (July 8, 2016). The Investigational IVD Guidance aggressively discourages, and in some cases purports to prohibit, the use of any investigational IVDs outside the scope of an active investigational As a practical matter, it is not unreasonable to assume that smaller, earlier-stage Precision Medicine developers will be less able than larger more-established companies financially and as a matter of regulatory expertise and resources to keep up with, much less adhere to, the increasingly complex panoply of FDA regulatory developments that will ultimately impact the success or failure of their products. Entities considering business arrangements in the Precision Medicine space need to conduct prices of specific innovator drugs, the administration s efforts are, to date, more focused on solutions that would impact drug spending on an overall macro-level (e.g., by increasing the rate and extent of generic competition acrossthe-board). While a macro approach to reducing the overall costs of drugs may be the most logical approach, it would have little impact on media and political sniping about the costs of any individual drug, so that pressure point is likely to remain a business concern indefinitely. device exemption ( IDE ), by offering a parade sophisticated and thorough regulatory diligence Pricing of Precision Medicine products reflects 28 of horribles in Q&A format covering topics such as: Evaluating Whether an Investigational before investing in a Precision Medicine product, company, or technology platform, an analogous micro/macro dichotomy in that the smaller and more-focused a Precision IVD Used in a Clinical Investigation of a and such diligence needs to continue Medicine s approved patient population is, Therapeutic Product is Significant Risk; post-closing as part of the ongoing the more likely the drug is to command an Investigational IVD Risk and the Design management of company operations. eye-catchingly high price compared to a of Clinical Investigations for Therapeutic Products; and How Investigational IVD Risk May Change During the Course of a Clinical Investigation. Indeed, the stated bottom line conclusion of this Guidance is that [s]ponsors should be aware that all investigational IVDs used in therapeutic product trials are also subject to the IDE regulation and may also require the submission of a separate IDE application if determined to be SR [significant risk]. A therapeutic product trial that also incorporates the use of an SR investigational IVD may not be initiated without an approved IDE application. Pricing the Drug and Pricing the Investment As anyone who even remotely follows current events has seen, the issue of drug pricing has been a political lightning rod for many years, and was especially so during the most recent election cycle. President Trump continues to fuel the issue with comments such as claiming the pharmaceutical industry is getting away with murder on drug prices (in his first post-election press conference), to claiming that fixing the injustice of high drug prices is one of his administration s top priorities (in his 2018 State of the Union address). non-precision drug approved for a broader and larger patient population. This reflects, in part the fact that the overall development costs for a Precision Medicine remain high, even for a smaller patient population, so the economics of recovering a reasonable return on investment requires higher per-patient pricing compared to a more broadly-indicated drug.. But it also reflects the reality that Precision Medicine products have a higher likelihood of filling a truly unmet medical need, in terms of being the first ever treatment for a particular disease or patient subset, or in some cases offering an outright one-time The business and investment considerations stemming from these Guidances, and other rapidly-emerging FDA policies surrounding Precision Medicine, thus include at least two types of uncertainties: the uncertainty of choosing between multiple potentially acceptable development options but not knowing how persuasive each option might be to FDA (as in the Molecular Subset Some in Congress have put forth specific proposals to attack drug pricing, such as allowing unregulated importation of prescription drugs from Canada, and various states are enacting or considering legislation that would require public disclosure of drug prices by pharmaceutical companies and possible price limits under state-controlled reimbursement programs (so-called name-and-shame legislation). The Trump cure for a condition that previously required prophylactic or symptomatic treatment over the course of a patient s remaining lifetime. The value-based pricing of such a drug from a global healthcare system cost perspective can, and arguably should, be orders of magnitude higher than the pricing of a drug for which the same patient would be a lifetime user, getting inferior results for which government and private payors, and

4 patients themselves, would always be paying. governmental price controls. To the same development and FDA s regulatory review, but This reality, unfortunately, is not what end, calls for giving government health care these patent term extensions ( PTEs ) are only media, politicians, and many individual programs direct negotiation power over drug available for the first approval of a particular patients focus on, even assuming they under- prices, as long advocated by left-leaning active ingredient. Thus, the development and stand at any meaningful level the economic politicians and even floated by President approval of a new Precision Medicine-based and public health policy factors that underlie Trump on a few occasions, cannot be ignored indication for a previously-approved drug such pricing considerations. as implausible over the near- to mid-term would not be eligible for an extension. Thus, the real-world business implication of these dynamics is that political and legal pressure against high individual drug pricing is, and will continue to be, a material factor in the evaluation of any investment in Precision Medicine, whether by a company seeking to pursue a clinical development program, by a private equity firm considering an acquisition of or a stake in a Precision Medicine-focused time horizon. And Precision Medicine is not immune from the broadly impactful influence of private payor reimbursement policies that limit access and seek to depress pricing. As always, in medical product transactions, pricing the investment depends heavily on the pricing of the drug, but the latter, especially for the new wave of Precision Medicine products, is unfortunately more uncertain than ever. Moreover, while a PTE may be applied to either a compound (active ingredient) patent, a formulation patent, or a method of use patent, only one patent per drug may be extended under these provisions. As a rule of thumb, it is preferable to seek an extension of a compound patent because such patents are generally stronger and more enforceable than method of use patents. company, or by an established pharmaceutical company targeting another company for a merger or acquisition. The uncertainty of both achieving market entry at a targeted price point, and successfully maintaining that pricing over the targeted timeframe, are exacerbated by the possibility that evolving public sentiment on drug prices will lead to long term unsustainability, or that Congressional and/or presidential election results will lead to more abrupt adverse changes to how The IP-Regulatory Exclusivity Axis as a Deal Driver A third critical area of concern for the business side of Precision Medicine is the intersection of patent law and the regulatory schemes for the development, approval and marketing of therapeutic products. These issues are complex for any drug or biologic product, but they take on added dimensions of strategic importance when it comes to products of Precision Medicine. This has potential relevance to a fertile area of interest in Precision Medicine repurposing older drugs which failed to gain approval under previous development programs for safety or efficacy reasons, but which now may be approvable based on a more limited, genetically-defined, patient population using the new tools of Precision Medicine. For such older drugs, however, the original compound patent may have long-ago expired, leaving only narrower formulation or method 29 FIELD NOTES drugs, including Precision Medicine products, are priced or reimbursed. Overhanging those risks is the uncertainty of how much and how aggressively, the federal government will seek to assert ownership, and control over the pricing, of Precision Medicine therapies developed by private entities using data and know-how derived from government-run or government-funded research initiatives such as the NIH s All of Us Research Program. As I cautioned the inaugural issue of, the federal government, through the Precision Medicine Initiative, appears to be positioned to move toward a Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch- Waxman Amendments to the Federal Food, Drug and Cosmetic Act ( FDCA )), and the Biologics Price Competition and Innovation Act of 2009 ( BPCIA ), new drug products may be eligible for both an extension of an applicable patent, as well as various regulatory exclusivity periods which delay the approval and marketing of competing generic or biosimilar versions of the drug. Eligibility for these incentives for drug development can be more complicated for Precision Medicine products for several reasons. of use patents as potential candidates for a PTE, but such patents may be easier for a generic or biosimilar competitor to design around, or to seek approval of a product for unpatented uses. In any corporate deal involving the transfer or licensing of a drug product, the patent estate is a crucial subject for legal due diligence, but a critical related area for careful diligence is the scope of potential regulatory exclusivities for which the product may be eligible. Under the FDCA, a new (small molecule) drug product is potentially eligible for one or more regulatory exclusivities, including: Orphan Drug Exclusivity (7 years during which time FDA may not public utility model for Precision Medicine, analogous to government control over electricity, water and natural gas providers, telecommunications spectrums, railroads and municipal transportation services, all of which industries face direct or indirect The patent term restoration provisions under Hatch-Waxman allow the term of a patent covering a newly-approved drug or biologic to be extended for up to five years, based on the amount of time taken for clinical approve another application for the same drug for the same orphan disease); NCE Exclusivity (delaying for five years the filing date for applications for a competing generic version, or a similar product that relies on the 505(b) (2) NDA approval pathway); and new clinical

5 study exclusivity (delaying for three years FDA Precision Medicine product, the generic ingredient was previously approved in approval of a competing product for the same product could be automatically substituted by another drug for a different indication, exclusivity-protected conditions of use for pharmacists for patients who were in fact the key compound patent may be expired the drug). Related provisions of law allow for prescribed the drug for the exclusive or have little remaining life and would not certain extensions of regulatory exclusivities, precision indication, thus largely eviscerating be eligible for a PTE. Moreover, the drug such as the 6 month pediatric exclusivity the value of the exclusivity. would not be eligible for NCE Exclusivity. extension, and the 5 year extension for qualified infectious disease products ( QIDPs ) under the Generating Antibiotic Incentives Now Act (the GAIN Act ). Separately, biological (large molecule) therapeutic products are potentially eligible for 12 years of regulatory exclusivity under the BPCIA before FDA may approve a competing These IP and regulatory exclusivity considerations have outsized implications for Precision Medicine business decisions e.g., whether, and how, to develop a new Precision Medicine product, and whether, and how much to pay, to acquire or in-license a Precision Medicine product candidate. And because, especially if the new and old drugs had the same dose, the previouslyapproved drug (and generic versions of it) could end up being used by doctors or dispensed by pharmacists to treat the disease for which the new product was approved, notwithstanding any 3-year exclusivity for the new drug. Thus, an 30 biosimilar version of the product. Biologics may also qualify for Orphan Drug Exclusivity, but are ineligible for the NCE Exclusivity or new clinical study exclusivities described above. These exclusivity opportunities are complex to begin with, but obtaining their benefits for Precision Medicine products is potentially even more complicated. For example, NCE Exclusivity, like a PTE, is limited to the first approved product containing the drug s specific active ingredient (although certain combination Take, for example, a hypothetical small molecule drug that shows promising efficacy in all patients with a certain disease for which current approved treatment options are limited, but which also shows far greater efficacy potential at an alternative dose in a specific genetic subset of patients with the disease. The right business decision regarding development of, or investment in, such a product could be very different depending on the patent and regulatory considerations outlined above. investment in seeking approval for the broad population may not make economic sense, but a development plan limited to the new alternative dose version labeled solely for the targeted genetic subset might make sense for several reasons. First, a method of use patent for the precision genetically-targeted use may be stronger than a use patent on the larger patient population, and even if not eligible for a PTE could still be enforced against a proposed competing product. Second, a three-year exclusivity drug products may receive NCE Exclusivity if at least one, but not all, of its active ingredients has never previously been approved by FDA). Thus, a Precision Medicine product that provides for a new genetically-defined indication or patient population for a previouslyapproved drug or active ingredient would not receive NCE Exclusivity. Such a drug would, however, likely receive a 3-year exclusivity, but that exclusivity would be limited to the newly-approved precision indication. As a result, a generic competitor could reach the market for the precision use in as little as three years, and if the drug has both precision and non-precision indications, a generic could be approved at any time with labeling that only includes the non-exclusive indication. If such a generic drug is pharmaceutically equivalent and bioequivalent to the To illustrate, if the active ingredient has recently been discovered and is covered by a recent or pending compound patent and various method of use patents, the logical business decision could likely be to develop the drug for the broad patient population use, and simultaneously or shortly thereafter seek approval of the alternative dose version with labeling specific to the targeted genetic subset. After all, the strongest patent will be in force and potentially eligible for a PTE, so to reach the market for any use a generic sponsor would have to invalidate the compound patent and any use patent covering the generic s proposed indication and the drug would receive the NCE Exclusivity no generic could even begin the patent challenge process until at least four years after the new drug s initial approval. If, however, the drug s active on the alternative dose precision use may have more teeth to the extent that the previously-approved drug would not be equivalent to, or automatically substitutable for, the new drug. Third, even if the new drug is approved and labeled solely for the precision use, to the extent the medical literature teaches the potential efficacy of the drug in a broader population, physicians may prescribe the drug for patients outside of the genetically-labeled subset of patients, allowing the company to capture part of the broader market indirectly (but, a sponsor would need to tread cautiously in the context of such off-label uses, as promotion of a drug for an unapproved use or unapproved patient population can trigger civil and criminal liability under the FDCA, the False Claims Act ( FCA ), and other laws).

6 Conclusion There is a vast range of potential factual and legal permutations that can arise in the context regulatory approval requirements, pricing considerations, and of patent and exclusivity rights for investigational Precision Medicine products, and the examples described here come from just one segment of the overall Precision Medicine universe. Other challenging legal and regulatory considerations must be accounted for in business transactions involving other Precision Medicine technologies, such as the regulation of companion diagnostics used with therapeutic products, the development and sale of before IVDs IVDs and 3rd ANNUAL PRECISION MEDICINE LEADERS SUMMIT LDTs used in the therapeutic product research and development phase, and biological Precision Medicine products subject to their own unique patent litigation procedures when faced with potential competition from not permit more than this brief mention of these other scenarios in this column, but readers may contact me directly to discuss specific scenarios and strategies they may Jersey City on the Hudson FF II EE LL D D N NO O TT EE SS biosimilar products. Space considerations do J U N E , H yat t R e g e n c y be facing, and to suggest related topics for coverage in future issues of the Journal. James N. Czaban, is a Partner and the Chairman of the FDA and Medical Products Regulatory Practice Group at the international law firm DLA Piper LLP, in Washington, D.C. In more than 25 years of private practice, Jim has focused on counseling pharmaceutical, medical device and diagnostic, and other life sciences clients on a broad range of complex regulatory strategies and compliance matters, and regularly represents such clients in legal, public policy, and enforcement matters before the FDA, other administrative agencies, and in the federal courts. Jim has been deeply involved in the law and regulation of Precision Medicine since mapping of the human genome was completed more than 15 years ago. Mr. Czaban can be reached at james.czaban@dlapiper.com, or (202) F o r m o r e i n f o r m at i o n please visit pmls2018.com