Understanding the 505(b)(2) Pathway

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Section 505(b)(2) is 1 of 3 pathways for submitting small molecule drug applications to the FDA. The name is derived from the section of the Federal Food, Drug, and Cosmetic (FD&C) Act where the pathway is described. Other small molecule drug applications are described in sections 505(b)(1) and 505(j). Sections 505(b)(1) and 505(b)(2) describe different types of new drug applications (NDAs), whereas 505(j) describes abbreviated new drug applications (ANDAs), including the petitioned ANDA described in section 505(j)(2)(C).

Pathways for Submission
Per the FDA, the 505(b)(1) pathway is considered to be a “stand-alone NDA” and contains full reports of safety and efficacy studies.¹ Under this pathway, the investigations are conducted “by or for the applicant or for which the applicant has a right of reference or use.”¹ Thus, 505(b)(1) applications are for completely new small molecule drugs whose active ingredients have not been approved previously.

Alternatively, the 505(j) pathway is used for a duplicate of another, previously approved drug, called the reference listed drug (RLD).¹ This is the generic approval pathway. Here, applicants rely on studies previously submitted for the RLD. Rather than requesting new investigations of safety and effectiveness, filers of 505(j) ANDAs instead submit findings demonstrating bioequivalence and sameness with respect to active ingredients, conditions of use, route of administration, dosage form, strength, and labeling.1 Drugs approved under this pathway are thus considered generic equivalents and generally can be substituted for the reference product.¹

Lastly, as NDAs, 505(b)(2) applications still contain full reports of safety and effectiveness, but this pathway is also abbreviated in that at least some of the information comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use.¹ This means that these applications still refer to an RLD. 505(b)(2) products often have the same active ingredient or drug name as the RLD but are not duplicates and do not meet the requirements for sameness as described in section 505(j). In most cases, drugs approved under the 505(b)(2) pathway are not considered therapeutically equivalent to the RLD and thus are not substitutable. Many of these drugs are considered to be “almost generic” but do not quite meet the full definition.² In this way, the 505(b)(2) pathway closely resembles the biosimilar approval pathway used for biologics. The products are similar, but they are not generic equivalents.

ANDA, abbreviated new drug application; NDA, new drug application.

What Changed?

The 505(b)(2) pathway is not new. In fact, it was established at the same time as the 505(j) generic pathway. In 1984, the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Amendments, added sections 505(j) and 505(b)(2) to the FD&C Act. The intent of the Hatch-Waxman Amendments was to balance the need for more low-cost drugs with new incentives for drug developers in the form of exclusivities and patent term extensions.¹ Additionally, in 2003, the Medicare Modernization Act added section 1847A to the Social Security Act (SSA). Subsection 1847A(c)(6) outlines separate payment requirements for single-source drugs and biologicals.

The process for assignment of Healthcare Common Procedure Coding System (HCPCS) Level II codes by the Centers for Medicare & Medicaid Services (CMS) is such that multiple-sourced, generic products are assigned to the same HCPCS Level II code as the RLD. Historically, if multiple-sourced generic products were already available, CMS would also assign a new 505(b)(2) product to the same HCPCS Level II code as the RLD and generics. However, in late 2022, CMS reviewed its policies in relation to the definition of single source under Section 1847A of the SSA. Based on this review, CMS determined that 505(b)(2) products not rated as therapeutically equivalent met the definition of single-source drugs.³

CMS, Centers for Medicare & Medicaid Services; HCPCS, Healthcare Common Procedure Coding System; RLD, reference listed drug.

Therefore, CMS updated its policies so that effective January 1, 2023, newly approved 505(b) (2) products not rated as therapeutically equivalent would each be assigned a unique billing and payment code.³ Additionally, CMS announced that it would review and revise previously approved 505(b)(2) drugs and code assignments dating to 2003.³ Thus, both new and old 505(b)(2) products are now getting unique HCPCS Level II codes.

How Are Health Care Organizations Impacted?

With these recent changes, the 505(b)(2) landscape presents both opportunities and challenges. In terms of opportunities, the 505(b)(2) pathway encourages innovation and cost improvement. These drugs may be new, optimized versions of older RLDs and/or may provide more affordable alternatives to high-cost drugs. Additionally, these products add to the overall market availability of certain drug molecules. Further, since the intent of the 505(b)(2) pathway is to encourage enhancements, new formulations may mean new, optimized manufacturing processes. These optimizations may enable more sustainable supply chains. In these ways, 505(b)(2) products have the potential to aid in the drug shortage crisis that continues to plague the health care industry.

However, significant challenges exist. Optics, packaging, wholesaler portals, electronic health records (EHRs), and other systems may not readily or overtly distinguish between true generics and 505(b)(2) products. Prior authorization teams may have grown accustomed to using 1 particular HCPCS code for a given drug name. Now with multiple HCPCS codes, teams may not readily know which codes are associated with which products, or which codes need to be submitted for prior authorization. Revenue cycle teams and coding personnel may also experience challenges in keeping up with the changes and/or navigating code assignments within the EHR.

Pharmacy buyers and drug preparation staff face the same challenges. EHRs may not clearly indicate which code(s) are approved on the prior authorization. Thus, buyers may not be readily aware of which products to purchase. Additionally, wholesaler portals may not contain HCPCS code information or may not include this in defaulted settings. Thus, even if the authorized code is known, the corresponding products may still be unclear. This is further complicated by the fact that codes for older, previously approved products are now being updated. “Reorder,” “buy again,” or “previously purchased” features may direct buyers to products that have a new HCPCS code.

In addition, drug preparation personnel may have difficulty selecting the appropriate products from inventory because HCPCS codes are not part of a product’s packaging and because the codes may change over time.

With all this, there is an increased risk of dispensing or administering a product that does not correspond with the HCPCS code that was approved during the prior authorization process. This mismatch then has the potential for claims to be denied, which may lead to adverse financial impacts, including lost revenue and/or labor expenses needed to correct and resubmit claims.

Lastly, because most of these drugs are not designated as therapeutically equivalent and are thus not substitutable, the use of 505(b)(2) products presents an increased risk for regulatory noncompliance.

What Can Health Care Organizations Do?

Health care organizations can take several steps to help mitigate the risks and/or take advantage of opportunities associated with 505(b)(2) products. First, the impacts are multifactorial and affect multiple departments across the organization. Organizations should work to increase awareness among caregivers across all service lines. Collaboration is crucial to finding comprehensive workflows that meet the specific needs of the organization.

EHR, electronic health record.

Organizations should also ensure that frameworks are in place for communication throughout the entire process, from prescribing to authorization, purchasing to inventory management, and drug preparation all the way through claims reconciliation. Identifying or developing resources to improve coordination may also be of value. On its website, CMS provides an updated National Drug Code/HCPCS crosswalk each quarter. Many third-party vendors also provide additional code listings and crosswalks.

Capabilities for differentiation within EHRs should also be explored. Some systems have capabilities for customized build. However, caution is advised because some customizations may be overridden by routine data feeds that are incorporated from drug database vendors.

Lastly, for organizations seeking to operationalize the use of these products, therapeutic interchange procedures, auto-substitution policies, and other workflows should be backed by the appropriate regulatory measures including review by pharmacy and therapeutics committees, standard operating procedures, and even collaborative practice agreements, if needed. Because regulatory requirements can vary, organizations should engage their risk and compliance teams to ensure all appropriate steps are followed.

References

1. Determining whether to submit an ANDA or a 505(b)(2) application guidance for industry. FDA. Accessed May 7, 2024. https://www.fda.gov/media/124848/download

2. Overview of the 505(b)(2) regulatory pathway for new drug applications. FDA. Accessed May 7, 2024. https://www.fda.gov/media/156350/download

3. HCPCS level ii coding for 505(b)(2)-approved drugs or biologicals – frequently asked questions. Centers for Medicare & Medicaid Services. Accessed May 7, 2024. https://www.cms.gov/files/document/frequently-askedquestions-
single-source-drugs-and-biologicals.pdf