Medicinal chemistry generally involves the preparation of a lead drug candidate on a milligram scale and uses non-optimized chemistry that will produce the target in the shortest time possible. Often hundreds to thousands of compounds must be synthesized for testing against the target. The chemistry to the specific target is therefore typically not optimized but is phase-appropriate for this stage of development. The process chemistry group then develops safe, robust, and efficient chemistry to enable the preparation of multi-kilogram quantities of the API. This approach is the case for complex heterocyclic APIs. Recent efforts at Genentech and Pfizer and by Phil S. Baran at The Scripps Research Institute have led to improved, practical methods for the synthesis of such complex heterocyclic compounds.


	In one case study from Genentech, the PI3k β-sparing inhibitor Taselisib (GDC-0032) was discovered as a potential treatment for breast cancer (1). The main structural feature of Taselisib is a seven-membered benzoxazepine core that is substituted with a functionalized pyrazole at one end and an 

-isopropyl-3-methyl-1,2,4-triazole heterocycle at the other end.

	The discovery route to prepare the benzoxazepine core of Taselisib required eight chemical steps from commercially available 3-bromophenol, according to Travis Remarchuk, a scientist in the small molecule process chemistry group at Genentech. He notes that while this chemistry was successful for producing the first five kilograms of the benzoxazepine core, it involved the use of hazardous reagents including carbon monoxide gas, 

-dimethylacetamide dimethyl acetal, and 1,2-dibromoethane and, therefore, was not amenable to the large-scale production of hundreds of kilograms. As a result, it was necessary to consider alternative and more practical routes for the preparation of the benzoxazepine core.

	In the second-generation process route, Remarchuk explains that a pre-assembled 

-isopropyl-3-methyl-1,2,4-triazole was prepared via a one-pot, two-step synthesis from isopropylhydrazine. This triazole was then converted to a chloroketone derivative, which was directly reacted in a convergent manner with an aryl amidine to generate the fluoroaryl imidazole ring system. The seven-membered benzoxazepine core compound was then installed via alkylation with ethylene carbonate. “Notably, this reagent is a much safer alternative to 1,2-dibromoethane,” says Remarchuk. Following alkylation of the imidazole, the hydroxyl group underwent S

2 substitution with the aryl fluoride of a second equivalent of the imidazole in the same reaction pot to afford the carboxylic acid precursor to the API. “Using this approach, which involved more efficient methods for assembling both the imidazole ring system and the 1,2,4-triazole component, more than 60 kg of the product was manufactured for the Phase I resupply of the API,” Remarchuk observes.

	A third-generation route was then developed that involved an efficient three-step, one-pot synthesis of the carboxylic acid precursor. In addition, in the final step of the API synthesis, the carboxylic acid group was converted to the primary amide using 1,1-carbonyldiimidazole (CDI) in place of the guanidinium coupling reagent HATU, which is not attractive for use in the last step of the synthesis due to release of several byproducts (tetramethylurea, hydroxybenzotriazole, and hexafluorophosphate anion) that require rigorous analytical testing to mitigate any safety risk for the patients, according to Remarchuk. The CDI coupling reagent is used in several other Genentech small molecule APIs in development.

Pyrazinyl-imidazo and pyrazinyl-pyrazolo pyridines from Pfizer


	Pfizer was interested in compounds containing 5/6 fused ring systems as candidates for oncology treatments. One of the lead compounds, a 3-pyrazinyl-imidazo[1,2-a]pyridine was initially prepared via a palladium-catalyzed reaction of 2,6-dichloropyrazine involving direct arylation at the 3 position of the imidazo ring. This reaction was not amenable to the synthesis of a library of compounds. In addition, few imidazo pyridines are commercially available, and they were synthesized using chloroacetaldehyde, which is a toxic reagent. Therefore, an alternative route to 3-pyrazinyl-imidazo[1,2-a]pyridines for both compound library synthesis and potentially larger-scale preparation was needed.

	Based on the known reaction of a dithiane with 2,6-dichloropyrazine involving nucleophilic tele-substitution, Michael R. Collins, a senior principal scientist at Pfizer, attempted the reaction of 2,3-dichloropyrazines with methyl vinyl ether (metallated), which proceeded as desired to afford the 2,6-disubstituted pyrazine products in good yields (50-60%) (2). A range of 3-pyrazinyl-imidazo[1,2-a]pyridines were then obtained in 31-76% yield by reacting the enol ether intermediates with N-bromosuccinimide in dioxane/water to generate the corresponding hemiacetals, followed by the addition of a 2-amino pyridine without isolation (2). In this reaction, the ring nitrogen of the pyridine displaces the bromide of the bromohydrin. “This reaction is very advantageous because it is done in one pot,” says Collins. The overall yields for both steps were also higher than those obtained for the palladium-catalyzed direct arylation route. “Not only does the reaction proceed fairly rapidly in decent yields, it is possible to prepare a wide variety of imadazo heterocycles, which is important for library synthesis,” Collins observes. He adds that substituents in the 6-position of 2-amino pyridine do not hinder the reaction with the enol ether.  The analogous compound was formed only in trace quantities using the Pd catalyzed procedure.

	Separately, Collins and his colleagues developed an efficient route to 3-pyrazinyl-pyrazolo[1,5-a]pyridines via the [3+2] cycloaddition of enol ethers and 4-substituted 1-aminopyridinim iodides that is, according to Collins, simple to perform, scalable, and proceeds at room temperature. In addition, the reaction proceeds in good yield with 1-aminopyridinium iodides bearing both electron withdrawing and electron donating substituents at the 4-position (3). In this case, to identify the optimum reaction conditions (base and solvent), a high-throughput reaction screen was performed. According to Collins, the best results were obtained using potassium tert-pentylate, sodium hydride, or potassium hexamethyldisilazide in tert-amyl alcohol with a pyrazinyl enol ether.

Sulfur reagents for the alkylation of heterocycles from Scripps and Pfizer


	The Baran group at The Scripps Research Institute, in conjunction with Collins and his colleagues at Pfizer, has also recently developed new reagents for the functionalization of heteroarene compounds. In one example, inexpensive, carboxylic acids are converted to sulfinate salts via an interrupted Barton decarboxylation reaction (4). The generated sulfinate salts are high value reagents and efficient radical precursors. The researchers readily prepared 10 different sulfinate reagents. One of the most interesting, according to Collins, is trifluoromethyl cyclopropyl sulfinate (TFCS-Na), which is effective for the C-H functionalization of various heterocycles. Most importantly, the reaction of the sulfinates is highly tolerant of a wide variety of functional groups, thus allowing for the introduction of substituents in the later stages of a synthesis, according to Collins.

	In a second example, Baran and the Pfizer researchers developed a practical method for the methylation of heteroarenes via C-H functionalization using zinc bis(phenylsulfonyl-methanesulfinate), or PSMS (5). This reagent was designed based on S-adenosylmethionine (SAM), a biologically relevant methylating reagent. In the reaction with PSMS, a (phenylsulfonyl)methylated intermediate is generated that is readily separated from the reaction mixture, and subsequent desulfonylation reveals the methylated (or deuteriomethylated) product. As with the previous sulfinate-based C-H activation reaction, this transformation proceeds under mild conditions in air at room temperature and tolerates numerous functional groups, allowing for functionalization of pharmaceutical intermediates in the later stages of complex synthetic routes, according to Collins.


	1. C.O. Ndubaku et al., J. Med. Chem., 56 (11) 4597-4610 (2013).
	2. M.R. Collins et al., Tet. Lett., 51 (27) 3528-3530 (2010).
	3. M.R. Collins et al., Tet. Lett., 53 (33), 4372-4375 (2012).
	4. P.S. Baran et al., Ang. Chem. Int. Ed., 53 (37) 9851-9855 (2014).
	5. P.S. Baran et al., J. Am. Chem. Soc., 136 (13) 4853-4856 (2014).


	Cynthia A. Challener is a contributing editor at 

Articles

API Synthesis and Manufacturing

New practical approaches to the synthesis of complex heterocycles are reviewed.

Practical Approaches to Large-Scale Heterocyclic Synthesis

	At the 2014 CPhI trade show, held Oct. 7–9 in Paris, executives from CDMOs and contract labs whose operations are solely in Europe expressed their desire to expand their operations into North America. These executives, however, were stymied about how to do it.

	Their interest in North America is not surprising: opportunities there are much greater than in Europe. There is far more venture capital financing in North America than in Europe and the level of drug development activity is significantly greater. Many European economies are contracting, and government budgets to pay for drugs are under stress. Further, with its large number of former bio/pharma facilities converted to contract services businesses, Europe experiences price competition in the drug-development market that seems more aggressive than in North America.


	European companies are challenged on several levels to enter North America. For one thing, European contractors don’t have a good understanding of the North American market. While some may have had an FDA inspection, many haven’t and don’t understand FDA requirements and how they differ from European requirements.

	Further, they have minimal experience in trying to sell their services in North America; some may have one sales representative based in the US, but many have none. Sales and marketing in particular can be different in North America versus Europe. For instance, tradeshow marketing is important in Europe and cold calling is uncommon, but in North America it is the other way around. Even if they have sales representation in North America, European CDMOs suffer from low brand recognition and can have a hard time getting clients to travel overseas for services that are readily available domestically.

	Another challenge for European contractors is that there is a higher barrier to market entry in North America than they are used to. Most European CDMOs were founded as buyouts of facilities that global bio/pharmaceutical companies wanted to get rid of. Facility closures are difficult in Europe because of labor laws and because of fears that mass layoffs could hurt companies tendering for government drug supply contracts. As a result, pharma companies have been willing to offload unneeded facilities to management teams or private equity investors at a fraction of their replacement value and with contracts to continue to manufacture legacy products for some period. This has made it relatively easy to enter the contract services business in Europe, although the resulting overcapacity has hurt pricing for contract manufacturing and development.

	Opportunities to acquire facilities on such favorable terms are fewer and farther between in North America. Because North America consists of just two large markets, versus the 20-plus small to mid-size markets in Europe, there weren’t so many facilities built in the first place, so there have been fewer facilities to divest. As result, European companies looking to enter North America may have to “pay retail” to acquire a facility or services business. Acquisition valuations of CDMOs in recent years have been especially high.

	European CDMOs are also hindered by a lack of capital necessary to acquire their way into North America. They are often poorly capitalized, given that their initial buy-in to the industry didn’t require a lot of investment. Further, their low profit margins mean they haven’t been able to accumulate a significant amount of equity through retained earnings. Also, some European CDMOs are employee-owned and may have particular challenges raising additional capital without threatening their ownership structure.


	The barriers to European entry into the US CDMO market are high but not insurmountable. Examples of European contractors that have successfully established themselves in North America in the past 10 years include CDMOs Vetter and Almac as well as contract labs like SGS and Eurofins. Those companies, however, had favorable ownership structures (family trusts or publicly-traded) that gave them access to adequate capital.

	Further, it is occasionally possible to acquire facilities in North America under favorable terms. In 2013, European CMO Unither acquired a dose manufacturing facility with contracts in Rochester, New York, from UCB Pharma; and Fareva was able to acquire a manufacturing and packaging facility with contracts in Richmond, Virginia, from Pfizer in 2011.

	It’s also worth noting that North American companies have challenges similar to the Europeans’ when considering entry into Europe. A common problem has been the failure to realize that Europe is not a single market--not even the European Union--but rather a collection of more than 20 countries with different languages and cultures, and a wholly different concept of distance. So, for instance, North American companies have established facilities in Ireland intended to serve all of Europe, only to learn that continental companies view the Irish facilities as far away and foreign.

	As the bio/pharmaceutical and contract services industries consolidate, having a global network of facilities, at least in North America and Europe, has become increasingly important for competitive success. Mid-size European CDMOs and contract labs must figure out how to overcome the barriers to their entry into North America if they intend to succeed over the long term.


	Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, Twitter@JimPharmSource, 

Outsourcing

European CDMOs want into the US market, but limited options leave them on the outside, looking in.

European CDMOs Venture Into US Market

Having a robust corrective action and preventive action (CAPA) system in place is essential to ensure that the drug products are safe and effective. Inadequate CAPA procedures, however, continue to be a top compliance observation cited by FDA during inspections and warning letters.

	CAPA started as an International Organization for Standardization (ISO) term and has been adopted by FDA as well as other global regulatory authorities. ICH Q10, a global guidance document from the International Conference on Harmonization (ICH) regarding quality systems for the pharmaceutical industry, has been adopted as the standard by most nations’ regulatory authorities. ICH Q10 defines the four elements of a pharmaceutical quality system: process performance and product quality monitoring system; CAPA system; change management system; and a process for management review of quality issues. Core to these four elements is the CAPA system, because this is the source of information for the other three.

	A CAPA process begins with an event that may indicate that there has been a product related non-conformance event. These events can be discovered if a deviation happens during the manufacturing process, an issue is discovered during an audit or laboratory testing, or from customer complaints. Complaints are particularly troubling because they mean a potential product problem has been released to the market.

	In many companies, auditing, manufacturing and laboratory issues, and complaints are tracked and managed in unconnected systems. These disparate processes may be managed differently by R&D, manufacturing, and supply chain management. Sometimes processes may vary from product to product. Also, it is not uncommon for companies to have different systems in place in different regions. These point solutions are disconnected and make it difficult to provide accurate quality information for the required management review.

	Some companies have created global standard operating procedures (SOPs) for their quality processes, but still track and manage these processes in different systems. SOPs provide more control than a disparate system described previously, because management is able to understand where in the process issues are happening. With the data in different systems designed by different groups, however, these companies are not always comparing apples to apples.

	More mature companies have implemented related quality processes on a single platform, following a single process. This integration allows global visibility into potential problems and makes management review easy because there is a global system following the same processes for a single source of truth. An enterprise quality management system (EQMS) provides for fact-based decision making.

	Some companies have taken EQMS systems a step further and integrated them with the other core strategic platforms. An example of an integrated approach is a laboratory information system (LIMS) that detects a non-conformance event in a manufactured product. The LIMS system automatically creates a deviation record in the EQMS system. If the deviation is related to a batch, the EQMS can automatically put a quality hold on the product in the company’s enterprise resource planning  (ERP) system, where product release is controlled. Once a quality investigation is concluded in EQMS, the results can automatically update ERP to release, remanufacture, or destroy the batch in question. A quality system maturity model is illustrated in 

In many companies, quality is thought of as a necessary evil, the internal police force that stands in the way of a product release. In fact, companies that are at level 3 or 4 in the maturity model in 

 have shown dramatic and measurable cost savings. When the root cause of a quality event is discovered, companies can fix it at the point where the issue was discovered, query other systems to see where else in the enterprise those same conditions may exist, and prevent the reoccurrence elsewhere. The ultimate goal of a CAPA system is to be proactive and take more preventive actions than corrective actions, turning the CAPA system into a preventive action/corrective action (PACA) system.

	The concepts discussed to this point work well for processes managed and controlled within a pharmaceutical company. Today, outsourcing of materials, research, and manufacturing are the norm. According to FDA, more than 80% of the raw materials used in drugs sold in the US are from offshore (1). Using contract research organizations (CROs) to manage clinical trials has become common practice.  As the use of contract manufacturing organizations (CMOs) has risen, so have the number of pharmaceutical product recalls as some companies use CMOs to make part or all of their products (2). According to a Deloitte study across multiple industries (2), the root cause of 52% of all recalls are due to issues at CMOs and third parties, including CROs, packagers, and raw material suppliers.

	The pharmaceutical industry relies on quality agreements and contracts to ensure that these third-party suppliers and CMOs are manufacturing according to GMPs and reporting quality issues. To collect information and data from third parties for CAPAs, investigations, and analysis, companies may use emails, phone calls, and other correspondence. Then, someone in the pharmaceutical company must accurately enter this information into a system so it can be used in the CAPA process. This same information is also critical to scoring suppliers and for the required management review of product quality issues.

	The Food and Drug Administration Safety and Innovation Act (FDASIA) of 2012 changed the rules for oversight and inspection of the pharmaceutical industry and, along with existing regulations, pays closer attention to outsourcing and the global supply chain. FDA and the European Medicines Agency expect pharmaceutical companies to assure that suppliers are following GMPs and have CAPA processes in place with written proof through audits. FDA has cited companies for not extending their quality and CAPA systems to their supplier and contractor network. In a warning letter dated Sept. 3, 2014, a pharmaceutical company was cited for not investigating or putting CAPAs in place with effectiveness checks for deviations at a CMO. FDA found the company had no procedures in place to manage quality issues at suppliers. The company also was found to be out of compliance for not measuring complaints or having a CAPA process related to complaints; in addition, these complaints were not part of key performance indicators in the management review process. Finally, it was found that the company was not auditing key suppliers and contract manufacturers according to its SOPs (3).

Companies can continue to be at risk by manually handling CAPA and quality information from suppliers. An alternative is to use technology to extend an EQMS to their network of suppliers and contractors. A cloud-based system can include third parties in a CAPA process without giving them access to a company’s internal systems and network. The third parties can perform investigations, CAPAs, respond to audit observations, and more by entering data in a secure system that is automatically entered it in the company’s EQMS. EQMS is the system of record and the single source of truth. All of the quality data can be managed and analyzed in one place. Mobile applications allow data to be entered remotely via smartphone or tablet. 

 shows an EQMS can look; a CAPA system that delivers critical quality information from within the company’s four walls, as well as its supply chain of third parties.

Food and Drug Administration: Improvements Needed in the Foreign Drug Inspection Program 

(Publication No. GAO/HEHS-98-21) (March 1998).	

		Deloitte, GMA, FMI, and GS1, Recall Execution Effectiveness Report (May 2010).	

		FDA, “Valeant Pharmaceuticals International 9/3/14,” Warning Letter (Rockville, MD, Sept. 3, 2104).


	KR Karu is industry solution director of Sparta Systems, Inc.,

Regulatory

Enterprise quality management systems can help shift the quality emphasis from corrective to preventive actions.

Moving from Corrective to Preventive Actions

	The 30th anniversary of the Hatch-Waxman Act in September generated widespread recognition of how the legislation created today’s vibrant generic-drug industry. Generic drugs now account for more than 85% of US prescription drug use, and the development of biosimilars promises to extend this trend to large molecules. Such transformation was unanticipated back in 1984 by the authors of the legislation, Sen. Orrin Hatch (R-Utah) and Rep. Henry Waxman (D-Calif), who is retiring from Congress but continues to urge vigilance to ensure that Americans retain access to low-cost quality medicines.

	A September conference commemorating Hatch-Waxman sponsored by the Food & Drug Law Institute (FDLI) described the world with few generic drugs prior to 1984 and how the legislation was born of a compromise between brand-name firms seeking patent extensions and consumers demanding a clearer pathway for bringing low-cost drugs to market. Former FDA officials recalled the challenges in establishing new policies for testing and evaluating generic medicines and how the program’s success has generated thousands of abbreviated new drug applications (ANDAs) and supplements that are requiring major operational changes at FDA. Hatch-Waxman also has generated a host of legal, regulatory, and economic issues that complicate generic drug oversight and distribution.


	The Hatch-Waxman anniversary also coincides with the beginning of year three of the Generic Drug User Fee Act (GDUFA), the fee scheme approved by Congress in 2012 to speed up ANDA approvals. The program expands FDA review staff, supports timely field inspections, and funds research on developing more complex generic dosage forms. One result is the elevation of the relatively small Office of Generic Drugs (OGD) in the Center for Drug Evaluation and Research (CDER) into a “super office” to accommodate a larger cadre of scientists, reviewers, and policy experts to support new regulatory approaches.

	GDUFA requires OGD to meet certain time frames for assessing and approving ANDAs and supplements, while also whittling away at a massive application backlog. Specific goals for reviewing ANDAs kick in this year, and manufacturers have concerns about OGD meeting the schedule. An unanticipated problem is that more than 1400 applications were filed this past year, many more than projected, making it even more necessary for OGD to implement a new review process that sets priorities based on product risk, medical importance, review goal dates, and internal workload factors.

	Chemistry reviewers will provide “appropriate scrutiny” to high-risk areas, while streamlining the review of lower-risk products, explained Susan Rosencrance, then acting deputy director for generic drug chemistry in CDER’s Office of Pharmaceutical Science (OPS), at the FDA/PQRI conference in September 2014. The risk-based review approach has already paid off with a 50% reduction in chemistry review times this past year, she noted.

	A main strategy for speeding up ANDA review and approval is to reduce the number of application review cycles. OGD is implementing a “real-time communication” program that allows staff to discuss minor deficiencies that can be resolved quickly with manufacturers. The agency also is adopting a “block review” approach that assigns a team to three or more ANDAs with the same reference listed drug or same drug master file. This system moves away from OGD’s random assignment approach, established to avoid any appearance of favoring one application over another. Block reviews aim to reduce repeated efforts, promote information sharing, and produce more consistent decisions.

	CDER also is working hard to cut the massive backlog of some 5000 generic-drug manufacturing supplements. An efficient supplement review process is key to encouraging product modernization and quality improvements for marketed drugs, and Rosencrance’s office has almost halved the backlog through a “strategic plan of attack” by a special supplement review team of external and internal chemistry reviewers.

	Not all is rosy with FDA’s GDUFA implementation process, though, as seen in concerns raised by manufacturers about still-slow ANDA approvals at a GDUFA public hearing in September. Small manufacturers asked FDA for reduced annual facility and filing fees, and several industry executives urged more clarity in how new guidance would be implemented. They offered specific comments on recent guidance documents on ANDA content and format and on the refuse-to-receive policy. The loudest complaints focused on OGD’s new communications policy ending informal phone conversations between FDA staffers and industry representatives. Manufacturers say such communication is key to resolving problems quickly and helps them plan for production changes and product launches. FDA officials maintain that constant queries are a burden, lead to inconsistent practices, and raise the specter of favoritism. But they now plan to review and revise the policy in response to industry concerns.


	Meanwhile, the continued growth in generic drug market share has generated more legal challenges to product development and marketing. Recent Supreme Court decisions have raised questions about the adequacy of safety information in generic-drug labels, prompting FDA to propose a new rule on labeling changes that generics manufacturers strongly oppose as likely to lead to different labels on brands and generics. The Generic Pharmaceutical Association (GPhA) says FDA’s policy raises liability issues that could curb development of new low-cost medicines and has sought Congressional support for its position. The legal battle is escalating as brand manufacturers seek to avoid added liability for patients harmed by generic drugs, and generic-drug companies insist they can’t have labels different from the brand. GPhA has proposed that FDA itself establish a fast, efficient process for updating labeling changes on both brand and generic drugs, and to transmit such updates electronically to prescribers, dispensers, and patients.

	Generic-drug makers also are fighting innovators over allegations that brands use risk evaluation and mitigation strategies (REMS) to block the development and testing of new therapies. GPhA backs legislation to make it harder for innovator firms to claim that a restricted distribution program required by a REMS prevents it from making available drug samples needed for bioequivalence testing.

	The emergence of biosimilars continues to fuel debate over the assessment of similarity between reference products and follow-ons. Although there is general agreement that in-depth analysis of product structure and function plus pharmacology testing can combine to document similarity, there’s much disagreement over extrapolation of data by a biosimilar sponsor to support approval of additional uses and over product “naming” to distinguish innovators from biosimilars, as brands look to discourage interchangeability and substitution of future biosimilars.

	Successful biosimilar development must consider manufacturing costs and quality commitments, pointed out Parexel Vice-President Cecil Nick at the September biosimilars conference sponsored by the Drug Information Association. In addition to assessing non-clinical and clinical data requirements, sponsors must weigh the costs and efficiencies of in-house production versus contract manufacturing in terms of production yield, media costs, disposable versus fixed production train, needed purification steps, and fill/finish arrangements.

	The generic-drug industry is “at a crossroads,” commented Mylan Senior Vice-President Carmen Shepard at the FDLI conference. GDUFA promises to provide more predictable regulatory actions and to encourage high quality production. But manufacturers fear that an over-emphasis on meeting review goals could actually delay final approvals and end up with first filers losing exclusivity, undermining incentives for developing new generic products.

’s Washington editor, tel. 301.656.4634, 

Manufacturers face regulatory overhaul, while brand-generic debates escalate over biosimilars and labeling changes.

Generic Drugs Face New Regulatory Future

*Editor's Note: This article appeared in 

	Manufacturers exploring opportunities in global markets face dynamic demographic and disease trends, changing market demands, and evolving regulatory requirements-all of which differ from one country to another. While emerging markets continue to represent a new channel of demand for pharmaceutical products, manufacturers have quickly realized that significant attention must still be given to more established markets, such as Germany. It’s no longer sufficient to expect that regulatory data from prospective randomized clinical studies alone will be enough to convince payers to provide a price premium for new products. In this article, the authors take a look at some of the recent developments in the German pharmaceutical market, identify pricing and reimbursement challenges, and discuss strategies manufacturers should consider for sustainable success.


	Germany is the third largest pharmaceutical market worldwide and accounts for approximately 23% of the European pharmaceutical market (1). Of equal importance to manufacturers, drug prices in Germany are often used as reference prices in 19 other countries. Taken together, gaining access to this market at an acceptable price has major implications for long-term success. In a cost-constrained economy, the German government has taken steps to reduce healthcare spending, and unfortunately for manufacturers, one way they have sought to do this is through The Act on the Reform of the Market for Medical Products (Arzneimittelmarkt-Neuordnungsgesetz-AMNOG). This piece of legislation was enacted in 2011 and mandates a more rigorous benefit evaluation procedure for new pharmaceuticals (and their subsequent label expansions), thereby adding significant challenges to the market access process.

	In AMNOG’s new system, manufacturers continue to set the initial price for new prescription drugs after regulatory approval. This price is valid for one year. During this time, the manufacturer’s value dossier is reviewed by the Federal Joint Committee (G-BA), which represents the self-governance structure of the German healthcare system. With the help of the Institute for Quality and Efficiency in Health Care (IQWiG), an expert Health Technology Assessment (HTA) body, the G-BA determines the level of added benefit of the new drug relative to the appropriate comparative therapy (ACT) chosen by the G-BA as well as the certainty of evidence presented by the manufacturer. A brief description of these two inputs that go into the G-BA’s final decision is included in 

. Patient-relevant criteria for additional medical benefit include improving health, extending survival, shortening the burden of illness and reducing side effects, or improving quality of life, and are outlined in the IQWiG methodology paper (2). Originally, the law was written to include the possibility that patented products already on the market would have to undergo retrospective benefit assessments; however, manufacturers were recently spared from this potential headache (3).

Decision criteria for G-BA’s/IQWiG’s benefit assessment.

Factors shown to impact categorization decision

					Number of appropriate clinical studies available; Use of valid measurement instruments; Risk of bias (e.g., non-blinding); Endpoint type (e.g., hard, surrogate)

					Major, considerable, minor, non-quantifiable, no added benefit, or reduced benefit

					Effect size at outcome level, confidence interval associated with effect

	Once the G-BA reaches a final conclusion, pricing negotiations begin with the statutory health insurance (SHI) umbrella organization, GKV
	SV (Gesetzliche Krankenversicherung-Spitzenverband), which negotiates on behalf of all SHIs and also private sickness funds in Germany. It is important to highlight that the ACT is not only used by the G-BA in its assessment, it is also the price anchor for these negotiations. For drugs found to have no added benefit, their price is capped in reference to the price of the comparator. Reference pricing to the comparator can be either advantageous if the ACT is already a high-priced therapy or devastating if the ACT is a generic drug. Thus, manufacturers looking to enter breakthrough therapeutic areas where the current standard treatment is a generic will be particularly challenged. Therapeutic products that demonstrate added benefit are priced above the ACT but may still face a minimum price reduction of 7% (formerly 16%) by law, unless it has been replaced as part of the price negotiations. Unfortunately for manufacturers, while the number of products that have gone through the entire assessment and pricing process remains small since the law was enacted three years ago, early evidence suggests only limited correlation exists between benefit ratings and price reductions. Rather, G-BA’s benefit rating has primarily served as a door opener for price negotiations (4).

Snapshot of Benefit Assessments and Pricing Negotiations under AMNOG


	As of May 2014, 79 products have been assessed by the G-BA within 169 patient subpopulations. More than 50% of these early benefit assessments have led to ‘no added benefit’ rulings by the G-BA (see

) (5). Not surprisingly, there has been considerable variance observed in the levels of additional benefit reported by pharmaceutical manufacturers and the G-BA. In contrast, the G-BA’s decisions have more closely resembled IQWiG’s recommendations with a few notable exceptions (e.g., belimumab, cabazitaxel, eribulin) (6). Reasons the G-BA has offered for ‘no proven added benefit’ include inadequate comparator, lack of a relevant study to back claims of benefit, lack of data on potential harms, and omission of data for relevant patient subpopulations. A more detailed breakdown of the G-BA’s negative rulings as of October 2013 is presented in 

 G-BA decision breakdown on “Degree of Added Benefit” for new pharmaceuticals within a specific patient subpopulation (N=169).

 illustrates, even though the outcome of benefit assessment is a key driver of price negotiations, manufacturers have not always prepared dossiers adequately. This, in turn, compromises the outcome of the assessment and subsequent price that is agreed upon. Such problems with incomplete or inadequate evidence may be overcome as drug makers gain better understanding of the requirements. To this end, the Federal Joint Committee offers consultation opportunities for manufacturers to give advice on trial design (e.g., patient segmentation, comparator selections, and endpoints). Not all manufacturers, however, have communicated with the G-BA to discuss the technical issues and challenges around preparation of the benefit dossier, or earlier to discuss the clinical trial (6).

Despite the market access challenges that manufacturers have experienced so far, only a few products have been pulled despite negative G-BA rulings and demands for substantial rebates. Novartis became the most recent manufacturer to do this, withdrawing its oral anti-diabetic Galvus from the German market after failing to secure a mutually beneficial price with payers (8). Given the size and revenue potential associated with this marketplace, the fact that few products have been pulled is not surprising. However, Hagen Pfundner, the chairman of Germany’s pharma lobby VFA and head of Swiss drugmaker Roche’s German unit, believes that a recent update to the AMNOG legislation could lead to “an increasing number of opt-out decisions” (9). In the past, a product’s original launch price in Germany served as the published list price for other markets. This approach is no longer the case. Since April 2014, the newly negotiated reimbursement amounts are published as visible ex-factory prices, effectively replacing the original list prices as source for referencing. Drug makers fear the information could challenge the entire pricing framework within Europe (and globally) either causing a downward spiral in reimbursement across the region or heavy parallel exports from Germany to other countries. If this new law is not overturned, it poses a significant risk to profits in the industry, especially considering that price discounts have been as high as 70% following G-BA’s benefit assessment and range on average between 1630% (10).  More broadly, the new rule reinforces the importance of manufacturers understanding the nuances of this market and having strategies in-place to achieve successful market access.


	While Germany is certainly not the only market that is enforcing more stringent pricing and reimbursement policies for new therapeutic products, it is perhaps scrutinizing the quality and appropriateness of clinical data more so than any other country. Taken together with the fact that other markets look to Germany to determine pricing, manufacturers should place a greater emphasis on G-BA’s recommendations when structuring clinical studies. To date, the majority of AMNOG submissions did not have much guiding input from the G-BA prior to clinical study design and were based on evidence generated on a pre-AMNOG world. Moving forward, proactively consulting with the G-BA to define the comparator(s), clinical endpoints and patient cohorts will be essential. Manufacturers need to do this early in product development, especially prior to starting Phase III trials. Internally, manufacturers should also enhance communication between regulatory and market access teams to strategically plan for both market authorization requirements and G-BA’s requirements.

	Even before G-BA consultations, manufacturers need to give greater consideration to the product’s indication. While the indication does not determine how the benefit assessment is conducted, completed assessments indicate that it can influence the G-BA’s comparator choice and a pivotal trial’s relevance. For products with broad indications, IQWiG and the G-BA are demanding clinical data for multiple patient subpopulations and against multiple ACTs. For example, these commissioning bodies recently distinguished between four subpopulations and ACTs for Roche’s Kadcyla (see 

) (11). Manufacturers that have failed to anticipate and include such data are seeing a significant reduction in the overall level of added benefit granted to their products (e.g., Pixuvri and Inlyta) (12). Moving forward, manufacturers will need to ensure that all relevant subpopulations have robust and statistically significant clinical endpoints to support reimbursement, with increasing demand for quality of life data. If the resources required to study multiple populations using multiple comparators are too great, pursuing a narrower indication for a clearly defined patient population and against a single comparator serves as a viable alternative.

Manufacturers will also have to keep in mind that every new indication for a product will trigger another round of benefit assessment and a new price negotiation. Here, attempts to negotiate a higher price with subsequent indications may be met with resistance by the GKV-SV and prove to be a significant challenge for manufacturers. Thus, drug makers should give greater consideration to the trade-off between a fast product launch and the highest value launch.

	Aside from data collection and defining a product’s indication, manufacturers must also develop a solid pricing strategy earlier on in the product development process and have capabilities to better predict a products negotiated price. There is currently no formula regarding the rebate amount the pharmaceutical company has to grant on its retail price.  Furthermore, while evidence demonstrating added benefit is required to avoid reference pricing, it is by no means the sole determinant of pricing decisions. Rather, the extent to which a product’s price will be marked down following a positive benefit assessment is largely dependent on its original launch price as well as the market size and price of the appropriate clinical comparator. As more products go through the product review and pricing process and as more data become available, manufacturers should consider developing algorithms to forecast the benefit assessment outcomes and the product’s final net price.

	The first three years of the AMNOG reform have proven that demonstrating added benefit is no small feat for manufacturers, and while complaints continue to be heard from pharmaceutical stakeholders, the law shows no signs of slowing down. AMNOG has not only set new rules for reimbursement and pricing of pharmaceuticals in Germany, it also forces the industry to adapt at a global level, rethinking how it brings new products to market. Manufacturers that prepare thoroughly for benefit assessment and the negotiation processes within it will be best positioned for success.


	The authors would like to thank Stefan Seliger, PhD, for his review and insights.

		German Pharmaceutical Industry Association/BPI, based on IMS World Review 2012.	

		IQWiG, General Methods Version 4.1.  (Nov. 28, 2013).	

A tweak or an outrage? Germany passes new pricing law

		LEO Pharma Germany, It´s difficult to meet HTA criteria according AMNOG - reason why?  (June 10, 2014).	

 PRMA Insights Focus: Pricing and Reimbursement Success in Germany

		F. Kermani, “Novartis Pulls Galvus From Germany After Failed Price Negotiations,”  

Germany’s stance on pricing threatens drug firm profits

,” Reuters, Feb. 18, 2014, accessed Aug. 14, 2014.	

Comparing the Effectiveness of Prescription Drugs: The German Experience

” (May 21, 2014), accessed Aug. 14, 2014.

		Institute for Quality and Efficiency in Health Care, Trastuzumab emtansine 

 Benefit assessment according to §35a Social Code Book V	

		C. Henry, “Oncology drugs under AMNOG,” 


	Jill E. Sackman, DVM, PhD, senior consultant, and Michael Kuchenreuther, PhD, research analyst, at Numerof & Associates, Inc., St. Louis, MO, 

Business

The authors take a look at some of the recent developments in the German pharmaceutical market.

Drug Benefit Assessment Challenges Market Access in Germany

The Tufts University Center for the Study of Drug Development (CSDD) released its 

 on the costs and timeframes required for launching a new drug.  Although the study acknowledges that it still takes about 10 years to launch a new brand-name pharmaceutical, this year, the costs required were estimated at $2.6 billion (in 2013 dollars), $1.4 billion of that for out-of-pocket costs and another $1.2 billion in time costs (i.e., the cost of missed opportunities, when resources are channeled from other potential activities to the development of a specific drug). In 2003, CSDD put the figure at $802 million (in 2000 dollars, which would be $1044 in 2013 dollars), so the latest figures reflect an increase of 145%, or a compound annual growth rate of 8.5%.

Factors leading to higher costs, researchers say, include more extensive and complex clinical trials and high failure rates for other drugs in testing. Only 12% of new candidate drugs entering clinical trials wind up being approved for use, according to CSDD. After a drug has been approved, there is the need to test new indications, new formulations, new dosage strengths and regimens, and to monitor safety and long-term side effects in patients, as required by FDA. CSDD estimates that these post-approval costs run to $312 million, increasing the full product lifecycle cost per approved drug to $2870 million (in 2013 dollars).

Tufts based its new data on information provided by 10 pharmaceutical companies on 106 randomly selected drugs first tested in human subjects between 1995 and 2007, including 87 small molecule drugs and 19 biopharmaceuticals.  “Drug development remains a costly undertaking despite ongoing efforts across the full spectrum of pharmaceutical and biotech companies to rein in growing R&D costs,” said Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study, in a 

. The study was authored by DiMasi, Henry G. Grabowski of the Duke University Department of Economics, and Ronald W. Hansen at the Simon Business School at the University of Rochester. 

“Because the R&D process is marked by substantial technical risks," DiMasi added, “with expenditures incurred for many development projects that fail to result in a marketed product, our estimate links the costs of unsuccessful projects to those that are successful in obtaining marketing approval from regulatory authorities.”

Rising drug development costs have been driven mainly by increases in out-of-pocket costs for individual drugs and higher failure rates for drugs tested in human subjects, according to the study. Factors that likely have boosted out-of-pocket clinical costs include increased clinical trial complexity, larger clinical trial sizes, higher cost of inputs from the medical sector used for development, greater focus on targeting chronic and degenerative diseases, changes in protocol design to include efforts to gather health technology assessment information, and testing on comparator drugs to accommodate payer demands for comparative effectiveness data. Lengthening development and approval times were not responsible for driving up development costs, DiMasi said.

These latest figures have provoked strong response from those on both sides of this issue. The Pharmaceutical Research and Manufacturer's Association (PhRMA; Washington, DC) noted the challenges faced by cancer drugs, citing a recent PhRMA study on failure rates for melanoma, lung and brain cancer therapy candidates. “In the past 16 years, there have been 96 unsuccessful attempts to develop drugs to treat melanoma, 167 for lung cancer, and 75 for brain cancer. In this same period, there were some medicines that beat the odds and advanced care: 7 to treat melanoma, 10 for lung cancer, and 3 for brain cancer were approved by the Food and Drug Administration,” noted the 

“These findings underscore the ongoing challenges the biopharmaceutical industry faces as R&D efforts focus on some of the most costly and challenging diseases, where the science is more complex and the failure risks are compounded," said a PhRMA spokesperson in a press release. 

  However, some industry observers question CSDD’s figures. 

Indiana University Medical school professor and 

 blogger Aaron Carroll has questioned the study’s objectivity and its failure to account for public funding in industry R&D in a 

, Doctors Without Borders’ director of policy and analysis Rohit Malpandi puts it bluntly. “If you believe [the study numbers], you probably also believe the earth is flat.” 

Malpani cites Andrew Witty’s reaction to CSDD’s previous estimates, when he called the 2003 figure “one of the great myths of the industry” 

As drug pricing and increased access to medicine remains a sensitive issue, for both payers and the public, the debate promises to continue. If nothing else, CSDD’s figures suggest a need for pharma companies to “fail fast,” or to take an approach to early development that considers all possible risks and points of failure very closely for its new candidate drugs.  

Tufts research suggests costs to launch a new drug have doubled since 2003, but some question conclusions.

PTSM: Pharmaceutical Technology Sourcing and Management-12-03-2014

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