The US Biotechnology Industry

A Market Report
March 2012

Bureau AWEX New York

Edith Mayeux, Attach conomique et commercial Patrizia Venditti, Assistante commerciale

Contents

I. INDUSTRY OVERVIEW AND MARKET SEGMENTATION................................................3 II. THE US BIOTECH LANDSCAPE...............................................................................................5 III. RESEARCH AND DEVELOPMENT........................................................................................6 DRUG DEVELOPMENT AND APPROVAL PROCESS........................................................6 R&D SPENDING.......................................................................................................................7 ACTIVE CLINICAL TRIALS...................................................................................................9 IV. BLOCKBUSTER BIOLOGICS IN 2010 - 2011.........................................................................10 TOP NINE CATEGORIES OF BIOLOGIC DRUGS IN TEMRS OF US SALES IN 2010....12 TOP SELLING BIOLOGICS ...................................................................................................13 TOP COMPANIES COMPRISING THE MAJORITY OF SALES OF BIOLOGIC DRUGS IN 2010........................................................................................................................14 V. THE US IN-VITRO DIAGNOSTIC TESTS MARKET............................................................16 VI. CURRENT TRENDS...................................................................................................................17 MERGERS & ACQUISITIONS...............................................................................................17 STRATEGIC ALLIANCES......................................................................................................18 VENTURE CAPITAL & FUNDING........................................................................................20 R&D OUTSOURCING............................................................................................................ .23 HEALTHCARE REFORM.......................................................................................................23 PERSONALIZED MEDICINE.................................................................................................23 GENERIC DRUGS...................................................................................................................24 STEM CELL RESEARCH: LIFTING THE BAN..................................................................24 REMS: MONITORING SAFETY.............................................................................................25 IX. FDA REGULATIONS.................................................................................................................28 BIOLOGICAL PRODUCTS.....................................................................................................28 IN-VITRO DIAGNOSTIC PRODUCTS REGULATION.......................................................35

I. Industry Overview and Market Segmentation The biosciences as an industry maintain a unique set of characteristics. They represent a varied set of companies that span manufacturing, services and research activities, a highly skilled workforce, and a whole range of products and services classified among nearly 30 industry segments. Much more than other sectors, the biosciences are dynamic and evolve with the latest research and scientific discoveries with tremendous widespread impact on food, medicine, and alternative fuels. The common link among this diverse set of companies is an application of knowledge as to how living organisms function. The biosciences transcend industry classification, making the sector difficult to define. The existing federal statistical system does not identify one single industry code that encompasses all bioscience activities; therefore, defining the industry requires a careful examination of all industries engaged in biosciencerelated activity. In assisting numerous states and regions in developing their bioscience industry base, Battelle has identified four major subsectors that represent the core of current and likely future bioscience economic activity.1 The four major subsectors of the biosciences include the following: Agricultural feedstock and chemicalsFirms engaged in agricultural production and processing, organic chemical manufacturing, and fertilizer manufacturing. This includes the emerging industry activity in the production of ethanol. Drugs and pharmaceuticalsFirms that develop and produce biological and medicinal products and manufacture pharmaceuticals and diagnostic substances. Medical devices and equipmentFirms that develop and manufacture surgical and medical instruments and supplies, laboratory equipment, electro medical apparatus including MRI and ultrasound equipment, dental equipment and supplies, and ophthalmic products. Research, testing, and medical laboratoriesCompanies engaged in research and development in the biosciences, testing laboratories, and stand-alone medical laboratories and other diagnostic centers. This includes firms involved in early-stage (often pre-clinical) research and development activities around new pharmaceuticals and medical devices. Research and economic activity within a fifth center of bioscience activity might include academic health centers, research hospitals, and other research-driven institutions. Many U.S. hospitals partner with universities and other research institutes to further advances in the biosciences with a particular focus on healthcare applications. Unfortunately, current industrial classifications and available data do not allow for an isolation of these research-oriented establishments outside of the larger hospitals sector. Though it cannot be reliably quantified, the sector should be recognized as an important element of the bioscience industry cluster.

__________________
1

Battelle 2008 State Bioscience Initiatives Report

Table 1. The Bioscience Subsector Industries

NAICS Code NAICS Description

NAICS Code NAICS Description AGRICULTURAL FEEDSTOCK & CHEMICALS 311221 Wet corn milling 311222 Soybean processing 311223 Other oilseed processing 325193 Ethyl alcohol manufacturing 325199 All other basic organic chemical manufacturing 325221 Cellulosic organic fiber manufacturing 325311 Nitrogenous fertilizer manufacturing 325312 Phosphatic fertilizer manufacturing 325314 Fertilizer (mixing only) manufacturing 325320 Pesticide and other agricultural chemical manufacturing DRUGS & PHARMACEUTICALS 325411 Medicinal and botanical manufacturing 325412 Pharmaceutical preparation manufacturing 325413 In-vitro diagnostic substance manufacturing 325414 Other biological product manufacturing MEDICAL DEVICES & EQUIPMENT 334510 Electro medical apparatus manufacturing 334516 Analytical laboratory instrument manufacturing 334517 Irradiation apparatus manufacturing 339111 Laboratory apparatus and furniture manufacturing 339112 Surgical and medical instrument manufacturing 339113 Surgical appliance and supplies manufacturing 339114 Dental equipment and supplies manufacturing 339115 Ophthalmic goods manufacturing 339116 Dental laboratories RESEARCH, TESTING, & MEDICAL LABORATORIES 541380* Testing laboratories 541710* R&D in the physical, engineering, and life sciences 621511 Medical laboratories 621512 Diagnostic imaging centers
*Includes only the portion of these industries engaged in biological or other life sciences activities. Source: Battelle 2008 State Bioscience Initiatives Report

The bioscience subsectors each operate in distinct markets, with their own sets of product and service offerings, suppliers, and regulatory environments. To varying degrees, the subsectors do intersect in beneficial ways. For example, bioscience research directly impacts the development of new drugs and devices and leads to new uses for agricultural feedstocks; testing laboratories enable breakthroughs in medical devices; and agricultural research contributes to further innovation in drugs and pharmaceuticals as well as research and testing. This report will focus on the drugs & pharmaceuticals subsector.

5 II. The US Biotech Landscape

The US biotech industry remains the benchmark in international terms. It is considered to be the most successful in the world and it is likely to maintain this leading position for the foreseeable future. The vibrant R&D environment and access to venture capital from investors have been the key to its success over the years. Growing at an annual rate of 14%, the industry in 2010 included about 1,726 companies of all sizes with combined annual revenues over $61 billion and total market capitalization of about $292 billion. Forecasts predict the worth of the industry revenues to touch US $95 billion by 2013.2 Top US Biotech Companies Ranked by 2011 Revenue Company Sales 2011 $15.6 billion Amgen $8.39 billion Gilead Sciences $5.05 billion Biogen Idec Inc. $4.84 billion Celgene Corp $4.05 billion* Genzyme/Sanofi-Aventis $3.78 billion Life Technologies Corp $2.81 billion* Cephalon, Inc./Teva Pharmaceuticals $783.43 mil Alexion Pharmactuticals, Inc. $753.97 mil Cubist Pharmaceuticals, Inc. $743.18 mil United Therapeutics Corp
*Sales 2010 Sources: http://www.americanregistry.com and http://www.hoovers.com

US biotechnology at a glance, 2009 - 2010 (US $b) 2010 Public company data Product Sales $52.6 Revenues 61.6 R&D expense 17.6 Net Income 4.9 Market capitalization $292.0 Number of employees 112,200 Financing Capital raised by public companies 16.3 Number of IPOs 15 Capital raised by private companies 4.4 Number of companies Public companies 315 Private companies 1,411 Public and private companies 1,726

2009 $48.1 56.2 17.1 3.7 $271.6 106,600 13.5 3 4.6 314 1,389 1,703

% change 9% 10% 3% 33% 8% 5% 21% 400% -3.2% 0.3% 2% 1%

Source: Ernst & Young Data were generally derived from year-end information (31 December). 2010 data are estimates based on JanuarySeptember quarterly filings and preliminary annual financial performance data for some companies. The 2009 estimates have been revised for compatibility with 2010 data. Numbers may appear inconsistent because of rounding.

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2

RNCOS report "Healthcare Industry: US Biotech Market Analysis", December 2010

6 The landscape for US biotech will continue to be a challenging one. For many smaller companies, raising capital has become quite difficult, and the results are appearing in restructurings, layoffs, bankruptcies and delistings on stock exchanges. According to the Biotechnology Industry Organization (BIO), there were 20% fewer active public US biotech companies in 2009 with total of 85 companies no longer listed. While almost half are accounted for by acquisition, the other half are missing in action either bankrupted, liquidated or "inactive", meaning they no longer report results to market authorities. At the other end of the spectrum, several mature, successful biotechs were acquired by big pharma companies during the year, and the merger & acquisition trend will continue to be the preferred exit strategy in 2010 as well. Demand for biotechnology research in the fields of medicine, agriculture, food, and science is driven by insurers' willingness to pay for new medical treatments, the global need to produce more food for a rapidly expanding population, and scientists' desire to find solutions for complex scientific and medical issues. Funding for biotech research is often provided by venture capital funds hoping to cash in on new products. The profitability of individual companies depends on the discovery and effective marketing of new products. Because the market for potential products is so large, small biotechnology companies can co-exist successfully with large ones if they have expertise in a particular line of research. The industry is capital intensive: average annual revenue per worker is more than $350,000. Biotech firms face stiff competition from pharmaceutical and other companies seeking to be first with a new product or discovery.

III. Research & Development

Drug Development and Approval Process The biopharmaceutical development process is research-intensive in nature, requires significant investments of time and money, and has uncertain outcomes. It begins with the identification and investigation of disease targets and often includes the screening of thousands of compounds. Promising drug candidates then undergo substantial preclinical and clinical testing prior to regulatory review by the FDA. The chart below highlights the US drug development and approval process, illustrating the activities that occur during the estimated 10 to 15 years needed for a new drug to reach the market. US Drug Development and Approval Process Once a new compound has been identified in the laboratory, medicines are developed as follows: Preclinical Testing - A pharmaceutical company conducts laboratory and animal studies to show biological activity of the compound against the targeted disease, and the compound is evaluated for safety. Investigational New Drug Application (IND) - After completing preclinical testing, a company files an IND with the U.S. Food and Drug Administration (FDA) to begin to test the drug in people. The IND becomes
Source: www.innovation.org

7 effective if FDA does not disapprove it within 30 days. The IND shows results of previous experiments; how, where and by whom the new studies will be conducted; the chemical structure of the compound; how it is thought to work in the body; any toxic effects found in the animal studies; and how the compound is manufactured. All clinical trials must be reviewed and approved by the Institutional Review Board (IRB) where the trials will be conducted. Progress reports on clinical trials must be submitted at least annually to FDA and the IRB. Clinical Trials, Phase I - These tests involve about 20 to 100 normal, healthy volunteers. The tests study a drugs safety profile, including the safe dosage range. The studies also determine how a drug is absorbed, distributed, metabolized, and excreted as well as the duration of its action. Clinical Trials, Phase II - In this phase, controlled trials of approximately 100 to 500 volunteer patients (people with the disease) assess a drugs effectiveness. Clinical Trials, Phase III - This phase usually involves 1,000 to 5,000 patients in clinics and hospitals. Physicians monitor patients closely to confirm efficacy and identify adverse events. New Drug Application (NDA)/Biologic License Application (BLA) - Following the completion of all three phases of clinical trials, a company analyzes all of the data and files an NDA or BLA with FDA if the data successfully demonstrate both safety and effectiveness. The applications contain all of the scientific information that the company has gathered. Applications typically run 100,000 pages or more. The average review time for the 26 new therapeutics approved by the FDA in 2007 was 11.1 months. Approval - Once FDA approves an NDA or BLA, the new medicine becomes available for physicians to prescribe. A company must continue to submit periodic reports to FDA, including any cases of adverse reactions and appropriate quality-control records. For some medicines, FDA requires additional trials (Phase IV) to evaluate long-term effects.

R&D Spending The biotech industry remains strong despite ongoing market volatility and research and development (R&D) cutbacks. According to the 2011 BDO Biotech Briefing, which examined the most recent 10-K SEC filings of the publicly traded companies listed on the NASDAQ Biotechnology Index (NBI), R&D spending at US biotech firms dropped 7% in 2010 to about $54 million, making the second Biotech R&D Spending 2008 - 2010 (mil) consecutive year biotechs have cut R&D 66 costs. These cuts are in line with the 64 64 global drug industry, which saw 62 expenditures for discovering and 60 developing new drugs decline nearly 3% 58 from the $70 billion spent in both 2008 and 58 2009, according to Thomson Reuters. The 56 54 decline is also expected to continue 54 through 2011 as US biotechs keep 52 sharpening their focus on the most 50 promising products and initiatives and 48 being more strategic with their cash 2008 2009 2010 reserves.
Source: 2011 BDO Biotech Briefing

8 Biotech's Biggest Spenders 2011

Amgen - $2.8B Biogen Idec - $1.25B Celgene - $1.13B Gilead Sciences - $1.07B Genzyme - $866.6M Vertex Pharmaceuticals - *$637.4M Actelion - $539M Regeneron Pharmaceuticals - $489M CSL - $334M Exelixis - $210.7M United Therapeutics - $171M Cubist Pharmaceuticals - $161.4M Amylin Pharmaceuticals - $157.3M BioMarin Pharmaceutical - $147.3M Seattle Genetics - $146.4M

Source: www.fiercebiotech.com

A recent FierceBiotech's article " The World's Biggest R&D Spenders" lists the top 10 players in the biopharma industry who shelled out a record $66.41 billion on drug development with big acquisitions and bold trial plans. FierceBiotech found that despite considerable cuts in a number of R&D operations, the top 10 players saw a collective jump of more than 10% in R&D spending. And despite plans by Pfizer--number one in R&D spending in 2010--to force through a major restructuring in R&D, big pharma is also going to be a big spender in 2011 when it comes to drug research. Top R&D budgets of Biopharma Companies Company R&D Spending R&D Spending 2010 (billion) 2009(billion) $9.4 $9.2 $8.12 $8.08 $6.84 $6.09 $5.94 $5.3 $4.88 $3.56 $3.5 $7.8 $9.7 $5.6 $7.28 $6.98 $5.61 $6.18 $4.4 $4.32 $3.64 $4.64 % Change from 2009 20% -5% 45% 11% -2% 8% -4% 20% 13% -2% -32%

Pfizer Roche Merck Novartis Johnson & Johnson GlaxoSmithKline Sanofi-Aventis AstraZeneca Eli Lilly Bristol-Myers Squibb Takeda Pharmaceuticals
Source: fiercebiotech.com

Active Clinical Trials America's biopharmaceutical research companies have 901 biotechnology medicines and vaccines in development to target more than 100 debilitating and life-threatening diseases, such as cancer, arthritis and diabetes, according to a new report by the Pharmaceutical research and Manufacturers of America (PhRMA). The medicines in development, all in either clinical trials or under Food and Drug Administration review, include 352 for cancer and related conditions, 188 for infectious diseases, 69 for autoimmune diseases and 59 for cardiovascular diseases.

Biotechnology has opened the door to the discovery and development of new types of human therapeutics. Advancements in both cellular and molecular biology have allowed scientists to identify and develop a host of new products. These cutting-edge medicines provide significant clinical benefits, and in many cases, address therapeutic categories where no effective treatment previously existed.

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Approved biotechnology medicines already treat or help prevent heart attacks, stroke, multiple sclerosis, leukemia, hepatitis, congestive heart failure, lymphoma, kidney cancer, cystic fibrosis, and other diseases. These medicines use many different approaches to treat disease as do medicines currently in the pipeline. According to the report, there are 300 monoclonal antibodies, a laboratory-made version of the naturally occurring immune system protein that binds to and neutralizes foreign invaders; 298 vaccines, a biological preparation that improves immunity to a particular disease; 23 antisense drugs, medicines that interfere with the communication process that tells a cell to produce an unwanted protein; and 20 interferons, proteins that interfere with the ability of a cell to reproduce.

The practice of medicine has changed dramatically over the years through pioneering advances in biotechnology research and innovation, and patients continue to benefit from the treatments that are being developed. As medicines that address significant unmet needs are developed, future innovations in biotechnology research will bring exciting new advances to help more patients. IV. Blockbuster biologics in 2010 - 2011 In the United States, spending on expensive biologic drugs3 is growing more than ten times faster than spending on traditionally-developed small moleculedrugs.4 Global biologic drug sales are expected to reach nearly $200 billion by 2015, up from $138 billion in 2010.5 Currently, just under half of biologic drug spending is concentrated in the United States.6 ____________________
3

Biologic drug prices are an average of 22 times higher than traditional drug prices. A.D. So and S.L. Katz, "Biologics Boondoggle," New York Times, March 7, 2010.
4

IMS Institute for Healthcare Informatics, "The Use of Medicines in the United States: Review of 2010," April 2011. IMS Institute for Healthcare Informatics, "The Global Use of Medicines: Outlook Through 2015," May 2011. IMS Institute for Healthcare Informatics, "The Use of Medicines in the United States: Review of 2010," April 2011.

11 In 2010, biotech sector sales in the US experienced a 6.5% growth rate, reaching 51.3 billion and outperforming the overall pharmaceutical sector, whose growth lagged at 2.3%.7 Sales in Q1 2011 grew by 2.9% and declined by 0.4% in Q2. Growth trends in the United States biotech market for biologic drugs (20062010)

Monoclonal antibodies (mAbs) remain the best selling class of biologics. In 2010, US sales of mAb products reached $18.5 billion, 9.7% higher than 2009 sales, keeping companies with mAb products in the lead in revenues.8 The growth rate of 2010 was similar to that of 2009 (8.3%), although the sales trends exhibited new dynamics.9 First, a substantial proportion of the growth in this sector was driven by new products. Second, most of the best-selling products are showing signs of saturation or in some cases even declining sales. With seven new mAbs reaching the market during 2010 - 2011, there are now 34 US Food and Drug Administration (FDA) approved mAbs in the market (Xigris was withdrawn in 2011), and sales of mAbs constitute 36% of the total biologics market. The two best selling indications for mAbs continue to be cancer and inflammatory disorders, with anti-inflammatory mAbs now constituting almost half (46%) of all sales, and mAbs focused on oncology, 41%.10 Six blockbuster products comprise 82% of the total sales of this sector. Among them, three of the top products are showing signs of saturation. The largest selling mAb, Janssen's (Horsham, PA) Remicade (infliximab) has been experiencing declining sales growth due to crowding in the anti-tumor necrosis factor market and competition from other novel mechanism-of-action biologics. Similarly, Genentech/Biogen Idec's (Cambridge, MA) Rituxan (rituximab) and Genentech's (S. San Francisco, CA) Herceptin (trastuzumab) are showing signs of saturation in their indications with sales growth in the 4-6% range. ______________________
7
8

IMS Institute for Healthcare Informatics, "The Use of Medicines in the United States: Review of 2010," April 2011.

Nature Biotechnology, "What's fueling the biotech engine - 2010 to 2011," Volume 29, Number 12, December 2011. Nature Biotechnology, "What's fueling the biotech engine - 2010 to 2011," Volume 29, Number 12, December 2011. Nature Biotechnology, "What's fueling the biotech engine - 2010 to 2011," Volume 29, Number 12, December 2011.

10

12

A substantial decline in sales growth was also observed for mega blockbuster Roche/Genentech's (Basel, Switzerland) Avastin (bevacizumab), whose sales growth declined from a high of 30% to 15% in 2007 2009 to 2% in 2010. During Q1 and Q2 of 2011, its sales further fell by ~5.3% and ~1.5%, respectively. This decline is due to FDA's withdrawal of its metastatic breast cancer indication. Top nine categories of biologic drugs in terms of US sales in 2010

The pie chart shows US sales of these drug categories. The table shows the growth rates of the categories between 2009 and 2010. The red boxes indicate the major categories showing the fastest growth rate during that period. For therapeutic enzymes, their manufacturers do not break out the US sales, so their sales were estimated assuming 20 30% of worldwide sales were generated in the United States. Source: Nature Biotechnology, "What's fueling the biotech engine - 2010 to 2011," Volume 29, Number 12, December 2011.

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One mega blockbuster mAb that has sustained its double-digit growth in sales is Abbott's (Deerfield, IL) Humira (adalimumab). In 2010, Humira's sales grew by ~15%, twice the growth rate of the antiTNF market (~7%). At the current growth rate, Humira will likely be the top-selling biologic in the United States in 2011 and 2012. One potential catalyst for Humira is indication expansion to include ulcerative colitis, spinal arthritis, uveitis and hidradenitis suppurativa. Another blockbuster, Genentech's Lucentis (ranibizumab, a humanized antibody FabV2 fragment that targets vascular endothelial growth factor; VEGF), grew by a double-digit rate, with ~28% growth, reaching sales of ~$1.8 billion in 2010. This robust growth could be due to less offlabel use of Avastin for wet agerelated macular degeneration (AMD).

* Based on La Merie, Top 30 Biologics 2010 (global sales), March 2011. Note: Numbers reflect annual sales in the United States; total (global) annual sales are considerably higher. U.S. sales for Avastin, Rituxan, Herceptin, and Lucentis have been converted from Swiss francs (CHF). Source: AARP Public Policy Institute, "Biologics in Perspective: The New Biosimilar Approval Pathway," October 2011.

14

Top companies comprising the majority of sales of biologic drugs in 2010

The pie chart shows the fraction of total biotech sales of the top 13 companies. The table shows the annual growth rates of the top ten companies. Red boxes indicate companies that had biologics sales growth of >10%. For the purpose of this analysis, Rituxan US sales have been split equally between Genentech and Biogen Idec; Erbitux US sales were split 40/60 between Lilly and BristolMyers Squibb. J&J, Johnson & Johnson; BMS, Bristol-Myers Squibb. Source: Nature Biotechnology, "What's fueling the biotech engine - 2010 to 2011," Volume 29, Number 12, December 2011.

15 One factor driving biologic spending is that the U.S. Food and Drug Administration (FDA) only recently acquired the authority to approve less-expensive generic versions of biologic drugs, known as biosimilars. Conventional drug products fall under the purview of the Federal Food, Drug, and Cosmetic Act, which has a streamlined process to approve generic drug products. However, the majority of biologics fall under the Public Health Service Act, which did not have an equivalent approval pathway until the passage of the Affordable Care Act in 2010. The new biosimilar approval pathway is expected to result in biosimilars entering the market by 2014.11 While the need for a biosimilar approval pathway was widely accepted, the newly created pathway is a source of considerable debate. One of the most prominent issues is the 12-year market exclusivity period, or the amount of time that brand name biologic manufacturers are protected from generic competition. Brand name biologic manufacturers maintain that a 12-year exclusivity period is needed to recover the costs associated with biologic drug development and support continued innovation. However, the U.S. Federal Trade Commission (FTC) concluded that 12 years of exclusivity was unnecessary and could negatively impact innovation.12 Based on drug manufacturers U.S. sales data alone, most top-selling biologic drugs are able to recoup their manufacturers development costs13 within a single year (see the chart of US Sales for Top-Selling Biologic Drugs in 2010, page 13 of this report).
The FTC also concluded that the costs associated with biosimilar development, manufacturing, and marketing will likely limit biosimilar entry to biologic drug markets with more than $250 million in annual sales. Thus, only biologic drugs that can quickly recoup their development costs are likely to face competition.

In addition, unlike traditional generic drugs, a variety of factors are expected to prevent biosimilars from rapidly gaining market share. Consequently, brand name biologic manufacturers will likely continue to earn substantial profits even after biosimilar versions of their products enter the market.14 Between the rapid rise in the number of biologic drugs15 and regularly expanding indications for the products that are already on the market,16 biologics are becoming an increasingly common treatment option for conditions that primarily affect older populations, such as cancer, rheumatoid arthritis, and multiple lessexpensive biosimilars should help patients facing the substantial out-of-pocket costs that can be associated with biologic drugs. However, an unnecessarily lengthy market exclusivity period will impede access to biosimilars and increase costs for consumers, employers, and publicly-funded programs like Medicare and Medicaid.

______________________
11

IMS Institute for Healthcare Informatics, "The Global Use of Medicines: Outlook Through 2015," May 2011. US Federal Trade Commission, "Emerging Health Care Issues: Follow-on Biologic Drug Competition," June 2009.

12

13

The average cost to develop a new biologic drug is $1.2 billion. This figure includes the costs associated with compounds that fail to reach the market. J.A. DiMasi and H.G. Grabowski, "The Cost of Biopharmaceutical R&D: Is Biotech Different?", Managerial and Decision Economics, 28, no. 4-5: 469-479.
14 15

US Federal Trade Commission, "Emerging Health Care Issues: Follow-on Biologic Drug Competition," June 2009.

W.H. Schacht and J.R. Thomas, "P.L. 111-148: Intellectual Property Provisions for Follow-On Biologics," Congressional Research Service Report, April 26, 2010.
16

For example, Avastin, which was approved in 2004, is currently involved in more than 1,000 clinical trials investigating its use in over 50 tumor types and different settings. "Roche 2010 Annual Report", 2011.

16 V. The US In-vitro Diagnostic (IVD) Tests Market According to RNCOS's new report "US Diagnostic Market Outlook 2014," the US represents world's largest and one of the most developed diagnostic markets accounting for 47% of the total global IVD market in 2011. The European region accounted for 31% of the global IVD market with Germany accounting for the largest share of 23.24% followed by France (16.89%) and Italy (16.41%). Huge investment in research and developments and commercially successful innovations in diagnostic industry has helped the US to outperform other prominent diagnostic markets including EU, Japan etc. Looking ahead, the US is expected to maintain its position of the world's largest IVD market, growing at a moderate CAGR of around 9.3% during 2010-2014. Favorable reimbursement policies for clinical lab testing, increasing awareness about early disease detection, and aging population that demands increased diagnostic testing will be the main growth drivers. Another report The World Market for Molecular Diagnostics released by Kalorama Information predicts the world market for molecular diagnostic tests will grow 11% annually, reaching $8.085 billion U.S. dollars in 2015. Back in 1995, the market for these nascent tests was estimated to comprise just 2% of the total in vitro diagnostic (IVD) market or $360 million. Today that number stands at $4.765 billion. The report highlights the primary growth drivers for molecular diagnostics, and describes challenges facing the IVD industry in the future. It attributes the continued growth in the market to the introduction of numerous assays over the past 5 years, as well as publication of the Human Genome Project and advances in functional genomics, bioinformatics, miniaturization, and microelectronics. At the same time, demand for testing has been fueled by an increase in cancer patients, proliferation of infectious diseases and growing interest in parental gene carrier analysis. Especially notable is the fact that many of these complex tests have been commercialized as proprietary lab-developed tests offered by reference labs and companysponsored lab services. But major challenges obstruct use of molecular diagnostic assays, including getting stakeholders, payers, physicians, researchers, and regulators to work together to close the gap between research and clinical applicability. Physician education is also lacking, and reimbursement problems threaten further implementation of these tests. More than 75% of the molecular diagnostics market is controlled by nine companies: Roche Diagnostics, Qiagen, Gen-Probe, Abbott Diagnostics, Siemens, Becton Dickinson, Cepheid, bioMrieux, and Beckman Coulter.17 Roche is the undisputed market leader with almost 30% share and an unparalleled product portfolio, which includes molecular diagnostic tests for oncology, virology, microbiology, and blood screening. Sales of molecular diagnostic tests for infectious diseases generate approximately 60% of overall molecular diagnostics market revenues.18 Market participants largely focus on developing and marketing infectious disease molecular diagnostics, which primarily include tests for human immunodeficiency virus (HIV), HPV, hepatitis B and C (HBV/HCV), and CT/NG. With the exception of the HPV molecular diagnostics ___________________
17

Genetic Engineering & Biotechnology News, "Infectious Disease Molecular Diagnostics: Market Review and Opportunities," (Vol. 31, No. 20), November 15, 2011.
18

Genetic Engineering & Biotechnology News, "Infectious Disease Molecular Diagnostics: Market Review and Opportunities," (Vol. 31, No. 20), November 15, 2011.

17 market, most of these testing areas are very mature with growth rates settling around 5%.19 HPV testing, however, remains an enormous market opportunity with growth rates expected to remain as high as 20% through 2014.20 VI. Current Trends Mergers & Acquisitions So far 2012 has provided plenty of action on the M&A front, from Roche's hostile $5.7bn bid for Illumina to Amgen's $1.1bn takeover of Micromet. These are encouraging signs of life compared to 2011, when global mergers and acquisitions between pharma and biotech companies slowed dramatically on the previous four years. Data from EvaluatePharma show that only 136 M&A deals were struck in 2011, down from 171 and 170 seen in the previous years. Most markedly, big pharma was almost moribund in 2011, the analysis shows, spending only $23.4bn in 13 deals. Outside of Johnson & Johnson's $21.3bn acquisition of Synthes, a medtech deal, the biggest purchase of a drug developer by big pharma last year was Bristol-Myers Squibb's $475m takeover of Amira.
Big Pharma M&A analysis 2011 Pharma deals Total deals Pharma deals Value ($bn) 0.2 0.5 0.4 0.05 0.04 1.2 1.2 Count 1 1 1 2 1 1 1 8 8 Value ($m) 0.6 0.5 0.5 0.4 0.05 0.04 21.3 23.4 2.1 Count 3 1 1 1 2 1 2 1 1 13 12 Value ($bn) 0.4 0.7 38.0 0.5 3.8 0.9 20.8 2.2 1.2 4.5 73.0 14.9

2010 Total deals Value ($bn) 0.7 0.7 38.0 0.5 3.8 0.9 21.4 2.7 1.2 4.5 74.4 16.3 Count 3 1 4 2 4 8 7 3 2 2 36 34

Count 1 1 4 2 3 8 6 2 2 2 31 29

Company Roche Bristol-Myers Squibb Novartis Merck & Co Pfizer GlaxoSmithKline Sanofi Johnson & Johnson AstraZeneca Eli Lilly Schering-Plough Abbott Laboratories Total Excluding mega mergers
Source: www.epvantage.com

Five Year Total (2007 - 2011) Value Count ($bn) 53.1 17 4.2 52.3 42.5 72.9 8.1 32.3 30.1 16.3 8.1 15.6 15.0 350.5 115 5 13 7 15 22 19 17 3 6 1 9 134 128

_____________________
19

Genetic Engineering & Biotechnology News, "Infectious Disease Molecular Diagnostics: Market Review and Opportunities," (Vol. 31, No. 20), November 15, 2011.
20

Genetic Engineering & Biotechnology News, "Infectious Disease Molecular Diagnostics: Market Review and Opportunities," (Vol. 31, No. 20), November 15, 2011.

18 After spending $74.4bn in 36 deals in 2010, the drop to $23.4bn in 13 deals represents a substantial decline for the big pharma group in 2011 but some pretty sizeable deals happened. By far the largest M&A deal was Takeda Pharmaceuticals $13.1bn purchase of Nycomed, a deal that broadened the Japanese pharmaceutical companys global footprint and boosted its position in the global marketplace. Another major acquisition is Gilead Sciences $11bn purchase of Pharmasset and its Phase III hepatitis C virus (HCV) nucleotide analogue, representing the largest acquisition ever of a clinical-stage biotech company.

Year
2011

Rank
1 2 3 4 5 6 7 8 9 10 1 2 3 4 55 6 7 8 9 10

Top 10 Pharma/Biotech M&A Deals in 2011 and 2010 Acquiring Company Deal Type Target
Takeda Gilead Sciences Teva Pharmaceutical Ind. Forest Laboratories Alexion Pharmaceuticals Amgen Alkermes Daiichi Sankyo Teva Pharmaceutical Ind. Shire Novartis Sanofi Teva Pharmaceutical Ind. Valeant Pharmaceuticals Astellas Pharma Abbott Laboratories Pfizer Grifols Celgene Johnson & Johnson Company Acquisition Company Acquisition Company Acquisition Company Acquisition Company Acquisition Company Acquisition Business Unit Company Acquisition Majority Stake Company Acquisition Majority Stake + Company Acquisition Company Acquisition Company Acquisition Company Acquisition Company Acquisition Business Unit Company Acquisition Company Acquisition Company Acquisition Company Acquisition Nycomed Pharmasset Cephalon Clinical Data Enobia Pharma BioVex Elan Drug Technologies Plexxikon Taiyo Pharmaceutical Ind. Advanced BioHealing Alcon Genzyme Ratiopharm Biovail OSI Pharmaceuticals Piramal Healthcare Solutions King Pharmaceuticals Talecris Biotherapeutics Abraxis BioScience Crucell

Deal Value ($bn)

13.1 11.0 6.8 1.3 1.0 1.0 1.0 0.9 0.9 0.8 38.0 20.1 5.0 4.5 4.0 3.8 3.6 3.4 2.9 2.2

2010

Source: www.evaluatepharma.com

Strategic Alliances Its no secret the pharma industry is facing some formidable challenges this decade. In 2011 alone, the patents to more than 10 blockbuster drugs worth nearly $50 billion in combined annual sales are due to expire.21 The year before that, major drug companies cut 53,000 jobs on top of the 61,000 jobs cut during 2009 much deeper cuts than most other sectors. And, though R&D spending has risen over the past fiveyear period, the FDA has approved fewer new drugs.22

_____________________
21

Life Science Leader, "Strategic Alliances: The Cure For What Ails Pharma?" Life Science Leader, "Strategic Alliances: The Cure For What Ails Pharma?"

22

19 To address these challenges, the pharma industry has begun to form strategic alliances, also called strategic partnerships. These relationships between pharma and CROs, pharma and biotech, and even large pharma can reduce costs and decrease product cycle times. Strategic alliances also allow companies to share risks and rewards as well as offer the opportunity to learn from each other.

Partners
Boehringer Ingelheim, Eli Lilly

Top 10 Pharma/Biotech Partnering Deals of 2011 Date Value Subject ($bn)

Jan 2011 2.4 Licensing, development and option agreement to co-market and co-develop insulin analogues Co-development and co-promotion agreement for up to five innovative psychiatric and neuroscience products Terminated their alliance for Bydureon (exenatide) Worldwide licensing agreement for ALS-2200 and ALS-2158 Collaborative R&D and commercialization agreement for tivozanib Contract Service and supply agreement for BioThrax Collaborative R&D agreement for BiTE antibodies against three undisclosed solid tumor targets Development agreement for miR-208 and miR-15/195 plus additional target Co-development, licensing and marketing agreement for PCI-32765 Worldwide development and licensing agreement for MAO-B inhibitor

Lundbeck, Otsuka

Nov 2011

1.8

Amylin Pharmaceuticals, Eli Lilly

Nov 2011

1.6

Alios Biopharma, Vertex

Jun 2011

1.5

Aveo Pharmaceuticals, Astellas

Feb 2011

1.4

Emergent BioSolutions, US Government Amgen, Micromet

Oct 2011

1.2

Jul 2011

1.0

Servier, miRagen Therapeutics Janssen Biotech, Pharmacyclics

Oct 2011

1.0

Dec 2011

975 mil

Evotec, Roche

Sept 2011

830 mil

Source: www.currentpartnering.com

20 Venture Capital & Funding Investment in biotechnology by venture capitalists jumped 22% in 2011, with $4.7 billion going into 446 deals, according to the MoneyTree Report released by PricewaterhouseCoopers and the National Venture Capital Association. Biotechnology was the second largest investment sector for the year, which totaled $28.4 billion and 3,673 deals across all sectors - the third highest annual investment total in the past ten years. Investment in medical devices rose 20%, finishing the year as the fourth largest sector with $2.8 billion going into 339 deals. The life sciences sector, which combines both biotech and medical devices, accounted for 27% of all venture capital dollars invested in 2011. At a time when access to capital has become more challenging and VCs are Source: www.pwcmoneytree.com and www.nvca.org having to hold their existing portfolio companies longer, it is worth examining where investors are placing their bets with regard to the next generation of start-ups. Not surprisingly the new released Ernst & Young report "Beyond Borders: Global Biotechnology Report 2011 " reveals that companies with a cancer focus commanded the largest share of significant rounds (those over US$5 million). Companies focused on diagnostics, inflammation and central nervous system ailments also attracted a healthy share of this What are VCs funding? US and European seed and first-round funding. It is worth noting financings over US$5 million
Hematology/ Cardiovascular, Blood and 2% lymphatic Infection, 3% system, 3% Autoimmune, 4% Respiratory system, 7% Ophthalmic, 7% Diagnostics, 13%

Other, 4% Cancer, 23%

Metabolic Endocrinology, 10%

Central nervous system/ Neurology, 11% Inflammation, 13%

that very little of the money going to fund new companies went to cardiovascular firms a sign, perhaps, that investors are increasingly wary of a segment that is likely to face stiff competition from blockbuster products that are going off-patent and also require large and expensive clinical trials at a time of increased regulatory opacity. The top five metropolitan regions receiving Life Sciences venture capital funding during 2011 were

21

New England ($987 million), Silicon Valley ($889 million), San Diego ($458 million), New York Metro ($245 million) and Philadelphia Metro ($176million).23 The four states with the nations largest biotech clusters were faced with similar challenges shared by most U.S. regions seeking to build their life science presence. Hurdles included a capital squeeze particularly for early-stage biopharmas, the reality of the industrys international growth, and the need to attract new businesses and retain existing ones. All four top-tier biotech statesCalifornia, Source: www.genengnews.com Massachusetts, North Carolina, and Maryland did, however, find numerous ways to address these challenges. They rolled out new financing programs or improved existing ones. In some cases they reached out to regions around the world and in others they identified promising niches within their clusters. Signs of success can be seen in a series of new construction and expansion projects that are under way. Biocom, the life science industry group for the San Diego region, is stepping up efforts to help smaller biotechs find partners, Joseph Panetta, president and CEO, told Genetic Engineering & Biotechnology News (GEN). San Diego biotechs captured $317.66 million in venture capital in the first three quarters of 2011, down from $331 million in the first nine months of 2010.24 The number of biotechs reportedly dipped from 45 to 41 between 2010 and 2011.25 During 2011, Massachusetts basked in the expansion activity of pharma and biotech giants. Seven projects totaling more than 1.5 million square feet began construction, according to Richards Barry Joyce & Partners LLC. The largest, at 1.1 million square feet, is composed of two 550,000 sq. ft. buildings for Vertex. Biogen Idec also has two properties under construction, Broad Institute is working on an expansion, Pfizer has lease with MIT to relocate the companys cardiovascular, metabolic, and endocrine diseases (CVMED) and neuroscience research units, and another facility is being built on a speculative basis by Skanska. The construction wave will continue into next year, Susan Windham-Bannister, Ph.D., president and CEO of the Massachusetts Life Sciences Center (MLSC) told GEN, fueled by cutbacks elsewhere in the nation. Novartis plans to break ground on a new building in 2012 and Ipsen announced plans to build a $45 million R&D facility. North Carolina is also dealing with a tight state budget, scrambling to plug a $2.4 billion deficit for the fiscal year that started July 1. State legislative leaders cut about $2 million, or 10%, of the North Carolina Biotechnology Centers $19.5 million subsidy, leaving the center with about $17.5 million for the fiscal year. Lawmakers also failed to create the proposed Life Science Development Corp., which was to finance companies with $100 million from a 15-year private investment from banks and institutions. ______________________
23

Biotechnology Historical Trend Data for the year 2011, PricewaterhouseCoopers MoneyTree Report.

24

Genetic Engineering & Biotechnology News, "Largest US Biotech Clusters Faced Similar Challenges This Year as Seen Elsewhere," December 27, 2011.
25

Genetic Engineering & Biotechnology News, "Largest US Biotech Clusters Faced Similar Challenges This Year as Seen Elsewhere," December 27, 2011.

22 Disappointments such as these were more than balanced out by other activity. In 2011, officials increased from 5% to 7.5% the percentage of pension funds the state can invest in alternative investments in biotech, green tech, and IT. Last month state treasurer Janet Cowell announced a $35 million accelerator offshoot to the $232.3 million North Carolina Innovation Fund launched last year. This accelerator offshoot is aimed at early-stage biotechs. Venture capital was a brighter spot for the state, with investors reportedly pumping about $146.2 million in biotech startups during the first three quarters of 2011 compared with $112.6 million a year earlier.26 But the number of biotech companies winning funding dipped during that period, from 11 to 8. Maryland biotech startups seeking capital will have a new option in 2012: the new InvestMaryland fund. The state will auction off up to $100 million of tax credits to insurance companies that pay state premium insurance taxes. The auction is expected to yield a minimum $70 million, of which 67% will be allocated to three or four venture capital firms to invest in promising startups in biotech as well as cleantech, green tech, and mobile health. The remaining 33% will be deposited into the states 15-year-old Maryland Venture Fund. The state this year kept stem cell program funding at FY 2011s $12.4 million, about half what was available three years earlier. State funding for Maryland Biotechnology Investor Tax Credits is also stable at $8 million, the same as FY 2011 and $2 million above FY 2010.27

Top 5 biotech venture capital deals, 1st half of 2011

Symphogen Tesaro Circassia Radius Health Merrimack
Source: www.fiercebiotech.com

$131M $101M $98M $91M $77M

Top 15 Biotech Venture Capital Deals of 2010

1. Pacific Biosciences - $109M 2. Reata Pharmaceuticals - $78M 3. Relypsa - $70M 4. Pearl Therapeutics - $69M 5. NanoInk - $65M 6. TetraLogic Pharmaceuticals - $59.83M 7. Achaogen - $56.31M
Source: www.fiercebiotech.com

8. Otonomy - $49.07M 9. Tetraphase Pharmaceuticals - $45M 10. Agile Therapeutics - $45M 11. Incline Therapeutics - $43M 12. NeuroTherapeutics - $43M 13. Cellular Dynamics International - $40.6M 14. Calistoga Pharmaceuticals - $40.22M 15. Sagent Pharmaceuticals - $40M

_______________________
26

Genetic Engineering & Biotechnology News, "Largest US Biotech Clusters Faced Similar Challenges This Year as Seen Elsewhere," December 27, 2011.
27

Genetic Engineering & Biotechnology News, "Largest US Biotech Clusters Faced Similar Challenges This Year as Seen Elsewhere," December 27, 2011.

23 R&D Outsourcing As biopharmaceutical companies look to cut costs and improve speed-to-market, more of them plan to outsource R&D and clinical trials and shift this work overseas to places such as China and India, finds a survey released by global consulting firm Booz & Company. This study confirms that outsourcing will become an increasingly important part of the competitive landscape and provides key insights into why and how the outsourcing process will radically evolve in the next two to three years. For example, many biopharmaceutical companies will begin outsourcing formerly core activities such as clinical trial monitoring and protocol development to contract research organizations (CROs). This shift will be driven by new service offerings in real-time data processing and virtual platforms that allow people around the world to securely access clinical data in real time. Outsourcing more of these critical activities along the entire R&D spectrum will transform the nature of outsourcing relationships. To see a full copy of the study, please visit: http://www.booz.com/media/uploads/BoozCo-BayBio-Outsourcing-Life-Sciences.pdf Healthcare Reform The United States may finally be on the verge of making its much-delayed, long-anticipated, often-feared transition to universal healthcare coverage. Like the coming wave of generic drugs, this change would be nothing short of momentous a dramatic expansion in the worlds largest (and most laissez-faire) drug market. Indeed, recognizing healthcares paradigm-shifting power, the Obama administration is positioning healthcare reform as one of three investments in the future (energy and education are the others) that will lay the foundation for a more competitive 21st-century economy. For drug companies, expanded coverage will likely bring new pricing regimes where buyers have concentrated bargaining power. Meanwhile, the push for electronic medical records to increase efficiency could produce vast volumes of data for companies to mine in developing better treatments creating new winners and losers, including perhaps from competitors and collaborators that emerge from outside the traditional healthcare sector. Healthcare reform will likely include the adoption of pay-for-performance metrics. The challenge for the drug industry will be to make sure that these metrics maintain the right incentives for innovation rather than simply aim to lower costs.

Personalized Medicine Since the mapping of the human genome in 2003, the pace of discovery, product development, and clinical adoption of what we know as personalized medicine has accelerated. Personalized medicine may be considered an extension of traditional approaches to understanding and treating disease, but with greater precision. A profile of a patients genetic variation can guide the selection of drugs or treatment protocols that minimize harmful side effects or ensure a more successful outcome. It can also indicate susceptibility to certain diseases before they become manifest, allowing the physician and patient to set out a plan for monitoring and prevention. Physicians will be able to go beyond the one size fits all model of medicine to make the most effective clinical decisions for individual patients. Pharmaceutical and biotechnology companies are increasingly turning to personalized medicine in order to improve the drug development process and also to speed up the approval of new drugs. One of the biggest challenges for the biotechnology and pharmaceutical companies in the 21st century will be to develop and deliver drugs that fit the individual patients biology and pathophysiology. This change from blockbuster medicine to personalized medicine will, to a large extent, influence the way that drugs are going to be developed, marketed and prescribed in the future.

24 According to a recent report "Personalized Medicine Market Worldwide (2010 - 2015)" issued by Research and Markets, the personalized medicine market worldwide is projected to grow 11.56% annually and reach U.S. $148.4 billion by 2015.28 The fastest growth is expected to come from the proteomics and genomics segment. Targeted biologics is one of the most exciting areas of therapeutic medicine and may represent one in every four newly commercialized drugs in the future. It is expected to grow steadily with a compound annual growth rate of 10%.29 Generic Drugs During the past five years, the use of generic small molecules has increased drammatically in the United States. In 2010, 78% of all prescriptions in the country were generics, compared with 63% in 2006.30 Because of several imminent patent expirations in the next three years, it is projected that by 2015, 86% of all small-molecule prescriptions in the United States will be filled by generics. Such high use of generics is likely to steal share from biologics and require cost and comparative effectiveness data to justify their use in approved indications.31 In 2010, FDA released a roadmap for the approval of biosimilars. This raised the debate about "interchangeability" (when one drug can be substituted for another by a pharmacist), which is a key facet of the rise of generics and erosion of sales for small-molecule brand drugs that are off patent; as yet, it remains unclear how many biosimilars will qualify for interchangeability. The FDA has established a pathway for two types of biosimilars, one of which will be a superior product (with interchangeability in the label) and the second, a "regular" standard product (with no interchangeability).32 Cheaper off-patent biologics could substantially lower the financial burden on patients and payers, but could lead to an overall decline in sales of the market and price erosion.33

Stem Cell Research: Lifting the Ban In an important symbolic victory for the biotech industry, President Obama issued an executive order in March 2009 lifting the restrictions imposed by President Bush on federal funding for research on human embryonic stem cells. The reversal was expected, as the president long a proponent of stem cell research and regenerative medicine had pledged a policy shift on the campaign trail. Advocates have stressed, however, that the change is more a symbolic move for industry than a true financial driver. Federal research grants, distributed almost exclusively to government agencies and academic research centers, will not generally end up in biotechnology companies. Thus companies pursuing embryonic stem cell research will still need to raise funding from investors, which has become more challenging during the economic crisis.

______________________

29

Research and Markets, "Personalized Medicine Market Worldwide (2010 - 2015)," February 17, 2011. Research and Markets, "Personalized Medicine Market Worldwide (2010 - 2015)," February 17, 2011.

30

IMS Institute for Healthcare Informatics, "The Use of Medicines in the United States: Review of 2010," April 2011. Nature Biotechnology, "What's fueling the biotech engine - 2010 to 2011," Volume 29, Number 12, December 2011.

31

32

Steven Kozlowski, M.D., Janet Woodcock, M.D., Karen Midthun, M.D., and Rachel Behrman Sherman, M.D., M.P.H., "Developing the Nation's Biosimilars Program," New England Journal of Med. 365, 385-388 (August 4, 2011).
33

PR Newswire, "Biosimilar erosion of branded ESA market share will be more rapid in the US than in Europe," November 4, 2010.

25 Breakthroughs in stem cell research are occurring at a rapid pace thereby providing exciting evidence of the potential for stem cells to treat many health problems from cardiovascular disease to neurological disorders. Menlo Park, California-based Geron Corporation, for example, has published the results of its experiments that show that when certain cells (called OPCs) derived from stem cells were injected in rats that had spinal cord injuries, the rats quickly recovered. According to the company, Rats transplanted seven days after injury showed improved walking ability compared to animals receiving a control transplant. The OPCtreated animals showed improved hind limb-forelimb coordination and weight bearing capacity, increased stride length, and better paw placement compared to control-treated animals.

REMS: Monitoring Safety Public attention has focused on drug safety in recent years, largely due to several high-profile products receiving media attention, including: Merck's Vioxx, a prescription painkiller that was pulled from the market in 2004 due to potential cardiovascular risks Selective serotonin reuptake inhibitors (SSRIs), a widely used type of antidepressant medication that was linked to higher suicide rates.34 Tysabri, a multiple sclerosis drug voluntarily withdrawn after three clinical trial subjects developed progressive multifocal leukoencephalopathy (PML), a serious viral infection of the brain.35 (Tysabri was later reintroduced with a mandatory risk minimization program).36

While there is some debate on the validity of the science behind these drug safety issues, the events attracted widespread media coverage and criticism of the FDA, creating a political climate in which there was strong support for major changes in the US drug safety system. With the signing of the Food and Drug Administration Amendments Act (FDAAA) in September 2007, sweeping changes were made in the FDA. The Acts greatest impact on future drug approvals could be through its mechanism for post-marketing safety surveillance, the risk evaluation and mitigation strategy (REMS). Of course, post-approval studies are not new, but as of 2008, these are no longer voluntary postmarketing commitments, but rather, enforceable studies with predetermined time frames and outcome targets. Most of the legislation dealing with drug safety is in Title IX of the Act. Below is a summary of the key changes related to drug safety introduced in the law.

1. Increased authority to monitor drugs after approval The FDAAA gives the FDA authority to require studies at the time of approval or after approval based on new safety information. The agency can also require labeling changes or other risk minimization activities,
_______________________________ 34

Food and Drug Administration, FDA Public Health Advisory: Suicidality in Children and Adolescents Being Treated With Antidepressant Medications (FDA, Rockville, MD, 14 October 2004)
35

FDA News, "FDA Approves Resumed Marketing of Tysabri Under a Special Distribution Program ", 5 June 2006 FDA News, "FDA Issues Safety Alert on Avandia", 21 May 2007

36

26 if necessary. The ability to require new studies must be based on scientific data and is limited to certain specific purposes including: Assessing a known serious risk related to the use of the drug Assessing signals of serious risk related to use of the drug Identifying an unexpected serious risk when available data indicates the potential for a serious risk.

The ability to require a study is further limited by the need to find that the adverse event reporting and the active post-market risk identification and analysis system, which are to be established under the Act, will not be sufficient to meet the purposes without the study. While the FDA has been able to request these actions for some time, their ability to enforce the requests was limited, and significant public concern arose over a 2006 FDA report that concluded that sponsors had failed to start 65% of the approximately 1200 requested studies.37 Under the new legislation, the sponsor must submit a timetable for completion of the study or trial, provide periodic reports on the status of the required study (including whether enrollment has begun), the number of participants enrolled, the expected completion date, and any difficulties encountered in completion. The study must also be registered on www.clinicaltrials.gov. The FDA can levy civil monetary penalties for noncompliance with post-approval study requirements.

2. New requirements for risk management The FDAAA enables the agency to require REMS (Risk Evaluation & Mitigation Strategies), both as part of the drug approval process and once the drug is on the market. REMS are comprehensive risk management programs aimed at ensuring that a drug's benefits outweigh its risks. As of December 2008, the FDA had approved 21 REMS from companies submitting new drug applications (NDAs). For an updated list, please visit the following website: www.fda.gov. The majority of these REMS have required the submission of a medication guide to address drug- and drug class-specific issues and provide further information to help patients avoid serious adverse events. In a few cases, the FDA also required that the programs include steps to assure safe use, such as the certification of prescribers and pharmacies and enrollment of patients in special programs to ensure that they fully understand the associated risks. REMS programs are not restricted to new drugs seeking approval; the FDA can also require them for existing, approved products. The FDA posted its first list of previously approved products requiring REMS in March 2008, which included products such as Biogen Idec and Elans multiple sclerosis drug, Tysabri, and Celgenes multiple myeloma and MDS therapy, Revlimid.

3. Safety-related labeling changes The Act gives the FDA new authority to require labeling changes based on new safety information. The FDA must promptly notify the sponsor if it becomes aware of new safety information that should be included _____________________
37

J. Wechsler; "Safety Concerns Drive Demand for Registries," Applied Clinical Trials, June 2006, 26-30.

27 in the labeling of the drug. After notification, within 30 days the sponsor must submit a supplement proposing changes or notify the FDA that they do not believe a labeling change is warranted and state why not. 4. Increased transparency The Act aims to improve transparency and communication about risks by requiring manufacturers to post the results of all clinical trials involving approved drugs. The FDA can then use the data, along with data generated from post-approval studies and risk management programs, to demand labeling changes to approved products. The FDA can also require labeling changes or other actions based on data that it gathers through its own surveillance system. The FDA can now require drug companies to develop and propose a REMS (which can include a medication guide, patient package insert or a communication plan) to ensure that the benefits of a drug outweigh the risks.

28 VII. FDA Regulations

Biological Products
Both the FDAs Center for Drug Evaluation and Research (CDER) and Center for Biologics Evaluation and Research (CBER) have regulatory responsibility for therapeutic biological products, including premarket review and oversight. The categories of therapeutic biological products regulated by CDER (under the FDC Act and/or the PHS Act, as appropriate) are the following: Monoclonal antibodies for in vivo use. Most proteins intended for therapeutic use, including cytokines (e.g., interferons), enzymes (e.g. thrombolytics), and other novel proteins, except for those that are specifically assigned to the Center for Biologics Evaluation and Research (CBER) (e.g., vaccines and blood products). This category includes therapeutic proteins derived from plants, animals, humans, or microorganisms, and recombinant versions of these products. Exceptions to this rule are coagulation factors (both recombinant and human-plasma derived). Immunomodulators (non-vaccine and non-allergenic products intended to treat disease by inhibiting or down-regulating a pre-existing, pathological immune response). Growth factors, cytokines, and monoclonal antibodies intended to mobilize, stimulate, decrease or otherwise alter the production of hematopoietic cells in vivo. Categories of Therapeutic Biological Products Remaining in CBER Cellular products, including products composed of human, bacterial or animal cells (such as pancreatic islet cells for transplantation), or from physical parts of those cells (such as whole cells, cell fragments, or other components intended for use as preventative or therapeutic vaccines). Gene therapy products. Human gene therapy/gene transfer is the administration of nucleic acids, viruses, or genetically engineered microorganisms that mediate their effect by transcription and/or translation of the transferred genetic material, and/or by integrating into the host genome. Cells may be modified in these ways ex vivo for subsequent administration to the recipient, or altered in vivo by gene therapy products administered directly to the recipient. Vaccines (products intended to induce or increase an antigen specific immune response for prophylactic or therapeutic immunization, regardless of the composition or method of manufacture). Allergenic extracts used for the diagnosis and treatment of allergic diseases and allergen patch tests. Antitoxins, antivenins, and venoms Blood, blood components, plasma derived products (for example, albumin, immunoglobulins, clotting factors, fibrin sealants, proteinase inhibitors), including recombinant and transgenic versions of plasma derivatives, (for example clotting factors), blood substitutes, plasma volume

29 expanders, human or animal polyclonal antibody preparations including radiolabeled or conjugated forms, and certain fibrinolytics such as plasma-derived plasmin, and red cell reagents. Please refer to the Transfer of Therapeutic Biological Products to the Center for Drug Evaluation and Research at http://www.fda.gov/oc/combination/transfer.html for updates that further define the categories of biological products that are regulated by CDER and CBER.

Establishment Registration Blood Establishments - All owners or operators of establishments that manufacture blood products are required to register with the FDA, pursuant to section 510 of the Federal Food, Drug, and Cosmetic Act, unless they are exempt under 21 CFR 607.65. A list of every blood product manufactured, prepared, or processed for commercial distribution must also be submitted. Products must be registered and listed within 5 days of beginning operation, and annually between November 15 and December 31. Blood product listings must be updated every June and December. Human Cells, Tissues and Cellular and Tissue-Based Products (HCT/Ps) Establishments Establishments that manufacture HCT/Ps that are regulated solely under section 361 of the PHS Act and the regulations in part 1270 are required to register and list under 21 CFR Part 1271 in 2001. Establishment that manufacture HCT/Ps that are: 1) Drug, 2) Medical Devices, 3) Biological Products, 4) Hematopoietic stem cells from peripheral and cord blood, 5) Reproductive cells and tissues; or 6) Human heart valves and human dura mater, are required to register with FDA and list HCT/Ps using the registration and listing procedures in 21 CFR part 1271, subpart B. HCT/P establishments that only manufacture HCT/Ps currently under IND or IDE do not need to register and list their HCT/Ps until the investigational HCT/P is approved through a Biologics License Application (BLA), a New Drug Application (NDA), or a Premarket Approval Application (PMA); or cleared through a Premarket Notification Submission 510(k).

Investigational New Drug Application - A drug that passes animal safety studies may move into human testing following the submission of an investigational new drug (IND) application to the FDA. Most studies, or trials, of new products may begin 30 days after the agency receives the IND. During this time, FDA has an opportunity to review the IND for safety to assure that research subjects will not be subjected to unreasonable risk. Almost every new drug goes through multiple clinical trials, beginning with early studies (Phase I) in small groups of patients to test safety. Larger mid-stage trials (Phase II) examine safety and obtain preliminary efficacy data. The final stage of pre-market testing (Phase III) seeks to gather convincing efficacy data in the specific patient population the drug's developer hopes to treat. There are three IND types:
o

An Investigator IND is submitted by a physician who both initiates and conducts an investigation, and under whose immediate direction the investigational drug is administered or dispensed. A physician might submit a research IND to propose studying an unapproved drug, or an approved product for a new indication or in a new patient population. Emergency Use IND allows the FDA to authorize use of an experimental drug in an emergency situation that does not allow time for submission of an IND in accordance with 21CFR , Sec.

30 312.23 or Sec. 312.34. It is also used for patients who do not meet the criteria of an existing study protocol, or if an approved study protocol does not exist.
o

Treatment IND is submitted for experimental drugs showing promise in clinical testing for serious or immediately life-threatening conditions while the final clinical work is conducted and the FDA review takes place.

There are two IND categories:

o o

Commercial Research (non-commercial)

The IND application must contain information in three broad areas:

o

Animal Pharmacology and Toxicology Studies - Preclinical data to permit an assessment as to whether the product is reasonably safe for initial testing in humans. Also included are any previous experience with the drug in humans (often foreign use). Manufacturing Information - Information pertaining to the composition, manufacturer, stability, and controls used for manufacturing the drug substance and the drug product. This information is assessed to ensure that the company can adequately produce and supply consistent batches of the drug. Clinical Protocols and Investigator Information - Detailed protocols for proposed clinical studies to assess whether the initial-phase trials will expose subjects to unnecessary risks. Also, information on the qualifications of clinical investigators--professionals (generally physicians) who oversee the administration of the experimental compound--to assess whether they are qualified to fulfill their clinical trial duties. Finally, commitments to obtain informed consent from the research subjects, to obtain review of the study by an institutional review board (IRB), and to adhere to the investigational new drug regulations.

All Biological IND submissions must be made in triplicate and should be addressed as follows: Center for Biologics Evaluation and Research HFM-99, Room 200N 1401 Rockville Pike Rockville, MD 20852-1448 Tel: (301)827-1800

Biologics License Application - Biological products are approved for marketing under the provisions of the Public Health Service (PHS) Act. The Act requires a firm who manufactures a biologic for sale in interstate commerce to hold a license for the product. A biologics license application is a submission that contains specific information on the manufacturing processes, chemistry, pharmacology, clinical pharmacology and the medical affects of the biologic product. If the information provided meets FDA requirements and the establishment passes the inspection, the application is approved and a license is issued allowing the firm to market the product. Form 356h specifies the requirements for a BLA. This includes:
o

Applicant information

31
o o o o

Product/Manufacturing information Pre-clinical studies Clinical studies Labeling

Some responsibilities of a licensed biologics manufacturer include:

o

complying with the appropriate laws and regulations relevant to their biologics license and identifying any changes needed to help ensure product quality reporting certain problems to FDAs Biological Product Deviation Reporting System reporting and correcting product problems within established timeframes recalling or stopping the manufacture of a product if a significant problem is detected

o o

Post-Approval - Every approved drug comes with an official product label, in a standardized format, whose contents are developed by the FDA and the company marketing the drug. The label contents include the approved indication, as well as a description of the drug, its side effects, dosage, clinical trial summaries and other information useful to physicians. Although doctors may prescribe a therapy "offlabel" for indications not expressly approved by the FDA, manufacturers are prohibited from marketing off-label indications, and insurance does not always cover such uses. The story does not end with approval and labeling. Companies often conduct additional Phase II and III trials in other indications and may apply for approval through a supplemental BLA. If approved, the new indication is added to the product label. Companies also conduct Phase IV trials to refine knowledge about the drug. In addition, drug makers are required by law to report adverse events to the FDA, and they are subject to ongoing manufacturing and marketing rules.

General Biological Product Standards Potency - Tests for potency shall consist of either in vitro or in vivo tests, or both, which have been specifically designed for each product so as to indicate its potency in a manner adequate to satisfy the interpretation of potency given by the definition in 600.3(s) of this chapter. General Safety Test - A general safety test for the detection of extraneous toxic contaminants shall be performed on biological products intended for administration to humans. The general safety test shall be conducted upon a representative sample of the product in the final container from every final filling of each lot of the product. If any product is processed further after filling, such as by freezedrying, sterilization, or heat treatment, the test shall be conducted upon a sample from each filling of each drying chamber run, sterilization chamber, or heat treatment bath.

32 Sterility Test Purity - Products shall be free of extraneous material except that which is unavoidable in the manufacturing process described in the approved biologics license application. In addition, products shall be tested as provided in paragraphs (a) and (b) of this section. Identity - The contents of a final container of each filling of each lot shall be tested for identity after all labeling operations shall have been completed. The identity test shall be specific for each product in a manner that will adequately identify it as the product designated on final container and package labels and circulars, and distinguish it from any other product being processed in the same laboratory. Identity may be established either through the physical or chemical characteristics of the product, inspection by macroscopic or microscopic methods, specific cultural tests, or in vitro or in vivo immunological tests. Constituent Materials Total Solids in Serums - Except as otherwise provided by regulation, no liquid serum or antitoxin shall contain more than 20 percent total solids. Permissible Combinations - Licensed products may not be combined with other licensed products either therapeutic, prophylactic or diagnostic, except as a license is obtained for the combined product. Licensed products may not be combined with non-licensable therapeutic, prophylactic, or diagnostic substances except as a license is obtained for such combination. Cultures Labeling Standards Container Label (a) Full label - The following items shall appear on the label affixed to each container of a product capable of bearing a full label: (1) The proper name of the product; (2) The name, address, and license number of manufacturer; (3) The lot number or other lot identification; (4) The expiration date; (5) The recommended individual dose, for multiple dose containers. (6) The statement: "`Rx only'" for prescription biologicals. (7) If a Medication Guide is required under part 208 of this chapter, the statement required under 208.24(d) of this chapter instructing the authorized dispenser to provide a Medication Guide to each patient to whom the drug is dispensed and stating how the Medication Guide is provided,

33 except where the container label is too small, the required statement may be placed on the package label. (b) Package label information - If the container is not enclosed in a package, all the items required for a package label shall appear on the container label. (c) Partial label - If the container is capable of bearing only a partial label, the container shall show as a minimum the name (expressed either as the proper or common name), the lot number or other lot identification and the name of the manufacturer; in addition, for multiple dose containers, the recommended individual dose. Containers bearing partial labels shall be placed in a package which bears all the items required for a package label. (d) No container label - If the container is incapable of bearing any label, the items required for a container label may be omitted, provided the container is placed in a package which bears all the items required for a package label. (e) Visual inspection - When the label has been affixed to the container a sufficient area of the container shall remain uncovered for its full length or circumference to permit inspection of the contents.

Package Label The following items shall appear on the label affixed to each package containing a product: (a) The proper name of the product; (b) The name, address, and license number of manufacturer; (c) The lot number or other lot identification; (d) The expiration date; (e) The preservative used and its concentration, or if no preservative is used and the absence of a preservative is a safety factor, the words "no preservative"; (f) The number of containers, if more than one; (g) The amount of product in the container expressed as (1) the number of doses, (2) volume, (3) units of potency, (4) weight, (5) equivalent volume (for dried product to be reconstituted), or (6) such combination of the foregoing as needed for an accurate description of the contents, whichever is applicable; (h) The recommended storage temperature; (i) The words "Shake Well", "Do not Freeze" or the equivalent, as well as other instructions, when indicated by the character of the product; (j) The recommended individual dose if the enclosed container(s) is a multiple-dose container;

34 (k) The route of administration recommended, or reference to such directions in an enclosed circular; (l) Known sensitizing substances, or reference to an enclosed circular containing appropriate information; (m) The type and calculated amount of antibiotics added during manufacture; (n) The inactive ingredients when a safety factor, or reference to an enclosed circular containing appropriate information; (o) The adjuvant, if present; (p) The source of the product when a factor in safe administration; (q) The identity of each microorganism used in manufacture, and, where applicable, the production medium and the method of inactivation, or reference to an enclosed circular containing appropriate information; (r) Minimum potency of product expressed in terms of official standard of potency or, if potency is a factor and no U.S. standard of potency has been prescribed, the words "No U.S. standard of potency." (s) The statement: "`Rx only'" for prescription biologicals.

Proper name; package label; legible type (a) Position - The proper name of the product on the package label shall be placed above any trademark or trade name identifying the product and symmetrically arranged with respect to other printing on the label. (b) Prominence - The point size and typeface of the proper name shall be at least as prominent as the point size and typeface used in designating the trademark and trade name. The contrast in color value between the proper name and the background shall be at least as great as the color value between the trademark and trade name and the background. Typography, layout, contrast, and other printing features shall not be used in a manner that will affect adversely the prominence of the proper name. (c) Legible type - All items required to be on the container label and package label shall be in legible type. "Legible type" is type of a size and character which can be read with ease when held in a good light and with normal vision. Divided manufacturing responsibility to be shown If two or more licensed manufacturers participate in the manufacture of a biological product, the name, address, and license number of each must appear on the package label, and on the label of the

35 container if capable of bearing a full label. Name and address of distributor The name and address of the distributor of a product may appear on the label provided that the name, address, and license number of the manufacturer also appears on the label and the name of the distributor is qualified by one of the following phrases: "Manufactured for _____", "Distributed by ______", "Manufactured by _____ for _____", "Manufactured for _____ by ____", "Distributor: _____", or "Marketed by _____". The qualifying phrases may be abbreviated. Bar code label requirements Biological products must comply with the bar code requirements at 201.25 of this chapter. However, the bar code requirements do not apply to devices regulated by the Center for Biologics Evaluation and Research or to blood and blood components intended for transfusion. For blood and blood components intended for transfusion, the requirements at 606.121(c)(13) of this chapter apply instead.

In-vitro Diagnostic (IVD) Products Regulation

Establishment Registration - Manufacturers (both domestic and foreign) and initial distributors (importers) of medical devices must register their establishments with the FDA. All establishment registrations must be submitted electronically unless a waiver has been granted by FDA. All registration information must be verified annually between October 1st and December 31st of each year. In addition to registration, foreign manufacturers must also designate a U.S. Agent. Beginning October 1, 2007, most establishments are required to pay an establishment registration fee. Please find below the schedule of registration fees for each fiscal year. Year FY 2008 FY 2009 FY 2010 FY2011 FY 2012 Fee $1,706 $1,851 $2,008 $2,179 $2,029 More information about FDA establishment registration can be found at: http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/Overview/default.htm#reg.

Classification of IVD Products - FDA classifies IVD products into Class I, II, or III according to the level of regulatory control that is necessary to assure safety and effectiveness. The classification of an IVD (or other medical device) determines the appropriate premarket process. Class I Devices: include commodity products such as stethoscopes, scalpels, and other commodity products that pose relatively little patient risk. Makers of these products need only register their establishment, conform to Good Manufacturing Practices (GMP) and notify the FDA at least 90 days before they start marketing the devices. GMP's are standards set by the FDA for ensuring manufacturing quality. More information about GMP requirements can be found at: http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/PostmarketRequirements/QualitySy stemsRegulations/default.htm.

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Class II Devices: include devices that present a moderate degree of risk to the patient. Examples include x-ray machines, endoscopes, and surgical lasers. Manufacturers have to provide the FDA with some evidence of safety and efficacy and meet certain performance standards. In addition, they are responsible for post-market surveillance and maintenance of patient registries. Class III Devices: these are sophisticated products that present significant risk to patients and must go through extensive clinical trials before undergoing FDA reviews. Included in this category are life supporting devices, such as implantable cardiac pacemakers, angioplasty catheters, stents, and similar devices that prevent potentially dangerous medical conditions such as heart attacks and cardiac arrhythmias.

Premarket Notifications - Premarket notifications are also known as 510(K). This is a more commonly used filing and applies to devices that are Substantially Equivalent (SE) to approved products already on the market. Many Class I devices are exempt from the 510(K) process, although other regulations apply. Once the device is determined to be SE, it can then be marketed in the U.S. The SE determination is usually made within 90 days and is made based on the information submitted by the submitter. Detailed information about the 510(K) process can be found at: http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/Overview/default.htm#reg In many cases, descriptive data and a labeling review are sufficient, though some devices may require further clinical studies to support a 510(K). Before marketing a device, each submitter must receive an order, in the form of a letter, from FDA which finds the device to be substantially equivalent and states that the device can be marketed in the U.S. This order "clears" the device for commercial distribution. The submitter may market the device immediately after 510(K) clearance is granted.

Premarket Applications - Premarket applications (PMA) apply to most Class III devices due to the level of risk. PMA is the most stringent type of device marketing application required by FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved PMA is, in effect, a private license granting the applicant (or owner) permission to market the device. The PMA owner, however, can authorize use of its data by another. FDA regulations provide 180 days to review the PMA and make a determination. In reality, the review time is normally longer. Before approving or denying a PMA, the appropriate FDA advisory committee may review the PMA at a public meeting and provide FDA with the committee's recommendation on whether FDA should approve the submission. After FDA notifies the applicant that the PMA has been approved or denied, a notice is published on the Internet (1) announcing the data on which the decision is based, and (2) providing interested persons an opportunity to petition FDA within 30 days for reconsideration of the decision. On October 26, 2002 the Medical Device User Fee and Modernization Act of 2002 was signed into law. This law authorizes FDA to charge a fee for medical device product reviews. These fees apply to Premarket Approvals (PMAs), Product Development Protocols (PDPs), Biologics Licensing Applications (BLAs for certain medical devices reviewed by FDA's Center for Biologics Evaluation and Research), certain supplements, and Premarket Notification 510(k)s.

37 The fee must be paid for the above listed applications, unless the applicant is eligible for a waiver or exemption. Small businesses may qualify for a reduced fee. Payment must be received on or before the time the application is submitted. If the applicant has not paid all fees owed, FDA will consider the application incomplete and will not accept it for filing.
FY 2012 Device Review User Fees (U.S. Dollars) Application Standard Fee Small Business $55,013

Premarket Application (PMA, PDP, BLA, PMR)* $220,050 First premarket application from firms with gross receipts or sales $30 million Panel-track Supplement Efficacy Supplement (for BLA) 180-day Supplement Real-time Supplement Annual Report 30-day Notice

Not Applicable Fee is Waived $165,038 $220,050 $33,008 $15,404 $7,702 $3,521 $41,259 $55,013 $8,252 $3,851 $1,925 $1,760

* PMA=Premarket Approval; PDP=Product Development Protocol; BLA=Biologics License Application; PMR=Premarket Report (for a reprocessed device) Source: www.fda.gov

The following types of applications require no fee.

Special PMA Supplements-Changes Being Affected PMA Manufacturing Site Change Supplements Humanitarian Device Exemption (HDE) BLA for a product licensed for further manufacturing use only.

The following exemptions or waivers apply. Fee Exemptions and Waivers (No Fee for These) Category First premarket approval submission (PMA, PDP, BLA, or premarket report) from a small business with gross receipts or sales <$30 million. Any application for a device intended solely for pediatric use. Any application from a State or Federal Government entity. Exemption or Waiver One-time waiver of the fee that would otherwise apply. Exempt from any fee. If an applicant obtains an exemption under this provision, and later submits a supplement for adult use, that supplement is subject to the fee then in effect for an original premarket application. Exempt from any fee unless the device is to be distributed commercially.

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Labeling Requirements - The label for IVD's must state the following information, except in cases where it is not applicable. In addition, all information must appear on the outside container or wrapper, or be easily legible through the outside container or wrapper. If the presence of any label information will interfere with the test, the information may appear on the outside wrapper or container instead of the label. If the immediate containers are too small, or otherwise unable to bear labels with sufficient space, then the required labeling as listed below annotated with an asterisk (*) may appear on the outer container labeling only.

Label requirements for the immediate container:

o * o * o The established and proprietary names of the product, e.g., cholestrolometers; The intended use or uses, e.g., pregnancy detection, diabetes screening, etc.; A statement of warnings or precautions for users listed in 16 CFR part 1500 (hazardous substances) and any other warnings appropriate to user hazards, and a statement "For In Vitro Diagnostic Use"; Name and place of business of the manufacturer, packer, or distributor; Lot or control number traceable to the production history - Multiple unit products must have traceability of the individual units; - Instrument lot numbers must allow for traceability of subassemblies; and - A multiple unit product that requires use of its components as a system should have the same lot number, or other suitable uniform identification, on all units.

o o

For Reagents: o
o Established (common or usual) name; Quantity, proportion, or concentration of all active ingredients: e.&., mg., weight per unit volume, mg./dl etc., and for reagents derived from biological materials the source and measure of its activity, e.g., bovine, I.U., etc.; Storage instructions, i.e., temperature, humidity, etc.; Instructions for manipulation of products requiring mixing or reconstitution; Means to assure that the product meets appropriate standards of purity, quality, etc., at the time of use, including one or more of the following: 1. expiration date (date beyond which the product is not to be used); * 2. statement of any visual indication of alteration; * 3. instructions for a simple check to assure product usefulness; * - The net quantity of contents.

o o o

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Label requirements for inserts and outer packaging:

Labeling must contain in one place the following information in the format and order listed below, except where information is not applicable, or as specified in a standard for a particular product class. If the device is a reagent intended as a replacement in a diagnostic system, labeling may be limited to that information necessary to adequately identify the reagent and to describe its use in the system. If the device is a multiple purpose instrument used for diagnostic purposes, and not committed to specific diagnostic procedures or systems, labeling can be restricted to those points annotated by an asterisk (*).

*
*

o The proprietary and established product name;

o The intended use of the product and whether it is a qualitative or quantitative type of procedure, e. g., screening, physician's office, home use, etc. ; o Summary and explanation of the test, including a short history containing methodology and the special merits and limitations of the test; o The chemical, physical, physiological, or biological principles of the procedure.

For Reagents: o The common name, if any, and quantity, proportion, or concentration or each reactive ingredient; and for biological material, the source and measure of its activity; o Appropriate cautions or warnings listed in 16 CFR Part 1500; the statement: "For In Vitro Diagnostic Use;" and any other limiting statements appropriate to the intended use of the product;
o Adequate directions for reconstitution, mixing, dilution, etc.; o Appropriate storage instructions; o A statement of purification or treatment required for use; and o Physical, biological, or chemical indications of instability or deterioration.

Exemptions from Labeling Requirements - Shipments or other deliveries of IVD devices are exempt from label and labeling requirements in the above headings and from standards listed under Part 861 provided the following conditions are met: o A shipment or delivery for an investigation subject to Part 812, Investigational Device Exemption (IDE), if the device is in compliance with the subject IDE; or o A shipment or delivery for an investigation that is not in compliance with Part 812 (most IVD are exempt from the IDE because of the following labeling) if the following conditions are met:

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- A product in the laboratory research phase, not represented as an IVD, that is prominently labeled: "For Research Use Only. Not for use in diagnostic procedures;" and - A product that is being shipped or delivered for product testing prior to full commercial marketing that is prominently labeled: "For Investigational Use Only. The performance characteristics of this product have not been established.

Investigational Device Exemption (IDE) - An investigational device exemption (IDE) allows the investigational device to be used in a clinical study in order to collect safety and effectiveness data required to support a Premarket Approval (PMA) application or a Premarket Notification [510(K)] submission to the FDA. Clinical studies are most often conducted to support a PMA. Only a small percentage of 510(K)'s require clinical data to support the application. Investigational use also includes clinical evaluation of certain modifications or new intended uses of legally marketed devices. All clinical evaluations of investigational devices, unless exempt, must have an approved IDE before the study is initiated. Many IVDs are exempt from IDE requirements.