The Rarely Used “Cost Recovery” Path to Orphan Drug Designation and Approval

By Kurt R. Karst –      

As a follow-up to our recent post on obtaining orphan drug designation and approval based on a major contribution to patient care – the so-called “MC-to-PC” orphan drug designation and approval – we thought we would post on another rarity in the orphan drug world: the “cost recovery” orphan drug designation and approval. 

The FDC Act, as amended by the Orphan Drug Act, and FDA’s orphan drug regulations at 21 C.F.R. Part 316 provide two routes for obtaining designation and approval of a drug for a rare disease or condition (i.e., an “orphan drug”).  Orphan drug designation and approval may be granted: (1) on the basis that a product is intended to treat a disease or condition that has a U.S. prevalence of less than 200,000 persons (FDC Act § 526(a)(2)(A)); or (2) if a disease or condition affects 200,000 or more individuals, then if a sponsor can show that there is no reasonable expectation that the costs of developing and making available the drug will be recovered from U.S. sales (FDC Act § 526(a)(2)(B)). 

An orphan drug designation request citing cost recovery as a designation basis must include certain documentation (with appended authoritative references) to demonstrate that “there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered by sales of the drug in the United States.”    Such documentation must include the following information (from FDA’s orphan drug regulations at 21 C.F.R. Part 316):

• “Data on all costs that the sponsor has incurred in the course of developing the drug for the U.S. market,” including “nonclinical laboratory studies, clinical studies, dosage form development, record and report maintenance, meetings with FDA, determination of patentability, preparation of designation request, IND/marketing application preparation, distribution of the drug under a ‘treatment'’ protocol, licensing costs, liability insurance, and overhead and depreciation.”  In addition, the sponsor must “demonstrate the reasonableness of the cost data.  For example, if the sponsor has incurred costs for clinical investigations, the sponsor shall provide information on the number of investigations, the years in which they took place, and on the scope, duration, and number of patients that were involved in each investigation.” 

• “If the drug was developed wholly or in part outside the United States,” then the designation request must also include: (1) “[d]ata on and justification for all costs that the sponsor has incurred outside of the United States in the course of developing the drug for the U.S. market,” including an explanation of “the method that was used to determine which portion of the foreign development costs should be applied to the U.S. market, and what percent these costs are of total worldwide development costs,” and “[a]ny data submitted to foreign government authorities to support drug pricing determinations;” and (2) “[d]ata that show which foreign development costs were recovered through cost recovery procedures that are allowed during drug development in some foreign countries” (e.g., revenues from charging for investigational drug). 

• “[A] clear explanation of and justification for the method that is used to apportion the development costs among the various indications” where “the drug has already been approved for marketing for any indication or in cases where the drug is currently under investigation for one or more other indications (in addition to the indication for which orphan-drug designation is being sought).” 

• “A statement of and justification for any development costs that the sponsor expects to incur after the submission of the designation request.” 

• “A statement of and justification for production and marketing costs that the sponsor has incurred in the past and expects to incur during the first 7 years that the drug is marketed.” 

• “An estimate of and justification for the expected revenues from sales of the drug in the United States during its first 7 years of marketing,” which should “assume the total market for the drug is equal to the prevalence of the disease or condition that the drug will be used to treat.”    

• Information on “each country where the drug has already been approved for marketing for any indication,” including “the annual sales and number of prescriptions in each country since the first approval date.” 

• “A report of an independent certified public accountant in accordance with Statement on Standards for Attestation established by the American Institute of Certified Public Accountants on agreed upon procedures performed with respect to the data estimates and justifications submitted pursuant to [21 C.F.R § 316.21].” 

In addition to the above-referenced documentation, a sponsor requesting orphan drug designation pursuant to FDC Act § 526(a)(2)(B) must, “at FDA’s request, allow FDA or FDA-designated personnel to examine at reasonable times and in a reasonable manner all relevant financial records and sales data of the sponsor and manufacturer.” 

To our knowledge, of the more than 325 designated and approved orphan drugs, there are only three drugs have been designated and approved based on a showing that a disease or condition affects 200,000 or more U.S. individuals and where the sponsor showed that there is no reasonable expectation that the costs of developing and making available the drug will be recovered from U.S. sales: (1) SUBUTEX (buprenorphine HCl) Sublingual Tablets; (2) SUBOXONE (buprenorphine HCl; naloxone HCl dehydrate) Sublingual Tablets; and, most recently, (3) EVISTA (raloxifene HCl) Tablets.

FDA approved SUBUTEX (NDA #20-732) and SUBOXONE (NDA #20-733) on October 8, 2002 for the treatment of opioid dependence.  FDA designated SUBUTEX as an orphan drug for this indication on June 15, 1994, and designated SUBOXONE for this indication on October 27, 1994.  In each case, the sponsor put forth two arguments for designation – based on FDC Act § 526(a)(2)(A) (prevalence) and § 526(a)(2)(B) (cost recovery).  Although FDA did not agree with the sponsor’s prevalence figures, the Agency concluded that the economic analysis and supporting documentation submitted by the sponsor were sufficient to support a cost recovery designation.

FDA approved EVISTA (NDA #22-042) on September 13, 2007 for reduction in risk of invasive breast cancer in postmenopausal women with osteoporosis and reduction in risk of invasive breast cancer in postmenopausal women at high risk for invasive breast cancer.  Despite some questions concerning the sponsor’s cost recovery analysis, FDA designated the drug as an orphan drug on July 14, 2005 pursuant to FDC Act § 526(a)(2)(B) for the reduction of the risk of breast cancer in postmenopausal women.  Interestingly, FDA notes in its designation recommendation that the sponsor should present certain information to the Agency post-approval to support the cost recovery designation.  FDA states that “[t]his information should be presented . . . after a certain period of postmarketing experience is available . . . .  At each of these time points, [FDA] will need to determine if the designation and/or marketing exclusivity should remain in place or whether the designation and/or exclusivity should be revoked as permitted under 21 CFR 316.29.”