AAC

Actual Acquisition Cost or Average Actual Cost. AAC is state specific and has not been available for all states in the past. It is a state Medicaid agency’s estimate of retail pharmacy acquisition cost for a drug based on a review of actual pharmacy invoices. In theory, AAC accounts for discounts, rebates, chargebacks and other price adjustments.

aBLA (pronounced “a-b-l-a”)

Abbreviated Biologics License Application. The pathway for FDA approval of a biosimilar product.

Active Ingredient

See API.

ADR

Adverse Drug Reaction. ADR has reportedly been one of the leading causes of morbidity and mortality in health care. The FDA has a web-based search tool on adverse events associated with small and large molecule products through the Adverse Event Reporting System (FAERS).

AMP (pronounced “a-m-p”)

Average Manufacturer Price. AMP is defined by statute/regulation as the price, net of discounts, that a drug manufacturer charges wholesalers or pharmacies that purchase directly from the manufacturer. It is calculated based on actual sales transactions. Manufacturers must report AMP for Medicaid-covered drugs to the Centers for Medicare & Medicaid Services (CMS) quarterly as a requirement of the Medicaid drug rebate program. AMP data is not publicly available.

ANDA (pronounced “an-da”)

Abbreviated New Drug Application. The pathway for FDA approval that is generally used for generic drugs. Generic drug applications are called "abbreviated" because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness. Instead, a generic applicant must scientifically demonstrate that its product is bioequivalent (i.e., performs in the same manner as the innovator drug). See also NDA.

ANDA Number

A unique six-digit number that is assigned by the FDA to each ANDA.

API (pronounced “a-p-i”)

Active Pharmaceutical Ingredient. An active ingredient is the component of a drug that provides pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of man or animals. Also referred to as Active Ingredient.

Application

There are several types of applications for prescription pharmaceuticals. See NDA; ANDA; BLA; and aBLA.

Application Number

Also referred to as the NDA Number. It is a identification number assigned by the FDA to a new drug application. A drug can have multiple application numbers if it has different dosage forms or routes of administration.

Approval History

A chronological list of all FDA approval actions involving one drug product (having one NDA number). There are dozens of FDA approval actions including changes in the labeling, a new route of administration, and a new patient population for a drug product.

Approval Letter

A letter from the FDA to the sponsor of a new drug application that approves the commercial marketing of the product.

ASP (pronouced “a-s-p”)

Average Sales Price. ASP is defined by statute/regulation as the average price charged by a manufacturer to all purchasers (wholesalers and direct purchase retailers), net of discounts. Manufacturers must report ASP for Medicare Part B covered drugs to the Centers for Medicare & Medicaid Services (CMS) quarterly. ASP for drugs reimbursed by Medicaid and not covered by Medicare Part B are not reported to CMS.

At-Risk Launch

A drug product launch, typically generic product, that occurs during the course of ongoing patent infringement litigation and prior to full resolution of the litigation. “At-Risk” refers to the risk of liability that is taken by the alleged infringer when launching its product prior to a concluding determination that the patents-at-issue are invalid or not infringed.

Authorized Generic |AG (prounouced “a-g”)

A drug product that is marketed as a generic version of a branded drug product. While generic products typically receive marketing approval under the ANDA process, AG products are commonly marketed under the NDA of the branded drug. “Authorized” refers to the fact that the AG is marketed under the NDA of the branded drug with the consent of the NDA sponsor(s).

AWP (pronounced “a-w-p”)

Average Wholesale Price. AWP is the average price paid by a retailer to a wholesaler for a particular drug. It is not calculated net of discounts or rebates and is not defined by statute/regulation unlike other measures of price. AWP benchmark has been used for decades to determine pricing and reimbursement of prescription drugs to third parties such as the government and private payers.

Batch

A specific quantity of material produced in a process such that it is expected to be homogeneous within certain limits. Batch manufacturing is the stop-and-start process of manufacturing pharmaceutical products in successive steps.

Biologic or Biological Product

Biologics are isolated from a variety of natural sources: human, animal, or microorganism. These products can be composed of sugars, proteins, or nucleic acids or complex combinations of these substances, or may be living entities such as cells and tissues. These products are often referred to as large molecule drugs because of the complexity of their chemical makeup in comparison to that of small molecule drugs.

Biologic License Application

See BLA.

Biosimilar

A biologic that is demonstrated to be “highly similar” to and has “no clinically meaningful difference” from a reference biologic product in terms of safety, purity and potency (safety and effectiveness). There is an abbreviated approval pathway for these products that is referred to as the abbreviated Biologics License Application (aBLA). An interchangeable product is a biosimilar product that meets specific requirements. See Interchangeable Product for more information.

BLA (pronounced “b-l-a”)

Biologic License Application. The pathway for FDA approval of biologic drugs under the provisions of the Public Health Service (PHS) Act. A BLA submission contains information on the manufacturing processes, chemistry, pharmacology, clinical pharmacology and the medical affects of the biologic product. Upon FDA approval of a BLA, a license is issued allowing the sponsor to market the product.

BPCIA | BPCI Act (pronounced “b-p-c-i-a”)

Biologics Price Competition and Innovation Act of 2009. The Act created an abbreviated licensure pathway for FDA approval of products that are biosimilar to or interchangeable with an FDA-approved biological product through the submission of an abbreviated Biologics License Application (aBLA). Specifically, the Act amended the Public Health Service Act (PHS Act) to create this abbreviated approval pathway.

Branded Product

A drug marketed under a proprietary, trademark-protected name (i.e., brand name). While bBranded products are most commonly approved under an NDA or BLA/aBLA, some branded products are approved under an ANDA.

CBER (pronounced “c-ber”)

Center for Biologics Evaluation and Research. The Center regulates biological products for human use under the Public Health Service (PHS) Act and the Federal Food, Drug and Cosmetic Act.

CDER (pronounced “c-der”)

Center for Drug Evaluation and Research. CDER regulates over-the-counter and prescription drugs, including biological therapeutics and generic drugs.

CGMP (pronounced “c-g-m-p”)

Current Good Manufacturing Practice. The FDA’s CGMP regulations for drugs contain minimum requirements for the methods, facilities, and controls used in manufacturing, processing, and packaging of a drug product. FDA assessors and investigators determine whether a manufacturer seeking drug approval has the necessary facilities, equipment, and ability to manufacture the drug it intends to market as part of the drug approval process.

Chargeback

At a basic level, this is a payment made by a manufacturer to a wholesaler. However this is most commonly discussed in the context of prescription pharmaceutical contract pricing along the manufacturer-wholesaler-retailer distribution chain. Typically a wholesaler will purchase a drug product from a drug manufacturer at one contract price, referred to as WAC or Wholesale Acquisition Cost. The wholesaler will then sell the product to retailers (e.g., pharmacies) at a second contract price. If the second contract price exceeds the first contract price then the wholesaler will profit from the transaction. However the second contract price is sometimes pre-negotiated between the manufacturer and the retailer such that the wholesaler will sell the product to the retailer at a loss. In these instances, the wholesaler will request that the manufacturer provide the wholesaler with a chargeback—a credit for the loss incurred by the wholesaler in the transaction with the retailer.

Chemical Type

An FDA designation that identifies the type of “newness” of a drug formulation or a new indication for an existing drug formulation.

Clinical Trial

A clinical trial is the process in which potential treatments for humans are tested on volunteers to see whether the treatments should be approved for use in the general population. Types of treatments include but are not limited to a drug, medical device, or vaccine. These treatments are typically studied in laboratory animals to determine potential toxicity before they are tested on people. Clinical Trials can take many forms but the most common form includes several stages in which the number of volunteers being tested increases with each stage. Clinical Trials are also referred to as Clinical Studies.

CME (pronounced “c-m-e”)

Continuing Medical Education. CME is regulated by the Accredited Council for Continuing Medical Education (ACCME). The ACCME published a report that stated that the pharmaceutical and medical device industries have funded a portion of continuing medical education courses in the past.

CMS (pronounced “c-m-s”)

Centers for Medicare and Medicaid Services. CMS is part of the Department of Health and Human Services. Though Medicare and Medicaid started as basic insurance programs for Americans who didn’t have health insurance, they’ve expanded over the years. Notable events in the operations of CMS include the Medicare Prescription Drug Improvement and Modernization Act (MMA) of 2003, Children’s Health Insurance Program (CHIP) of 1997 and the 2010 Affordable Care Act (ACA).

Coinsurance

A fixed percentage of the cost of a prescription drug at the point of sale that a pharmacy benefit plan requires the patient to pay.

Compassionate Use

Provides a pathway for patients to gain access to investigational drugs, biologics and medical devices for serious diseases or conditions.

Compounding

Practice in which a pharmacist combines, mixes, or alters ingredients to create a medication. The process may or may not involve the use of commercially available drug products.

Continuous Manufacturing

Continuous manufacturing is the non-stop process of manufacturing pharmaceutical products. The process typically takes place in a single manufacturing facility from start-to-finish.

Contract Price

A price that is negotiated by two or more parties for the sale of a drug product.

Copayment

Typically a fixed amount that is paid by a patient to the retail pharmacy when obtaining a prescription. Copayment amounts generally vary by formulary tier. Generic drugs typically have a lower copayment amount than branded drugs listed on the same formulary.

Copay Coupon

A voucher distributed to patients by the manufacturer of a prescription drug. The voucher is redeemed at a retail pharmacy when purchasing the drug (i.e., the point of sale) and offsets some or all of the patients’ out-of-pocket costs (i.e., the portion that is charged by the retailer and not covered by health insurance) for the drug. Coupons will typically have restrictions such as a maximum amount or maximum number of uses per patient. Copay Coupons are sometimes referred to as Copay Cards.

CRL

Complete Response Letter. FDA communication indicating that an application for marketing approval has not been approved upon completed review.

CRO (pronounced “c-r-o”)

Contract Research Organization or alternatively referred to as a Clinical Research Organization. These organizations are contracted to perform some or all of the contracting firm’s clinical trials and related responsibilities. The act of contracting a research organization is referred to as clinical outsourcing.

DAW (pronounced “d-a-w”)

Dispense as Written. A notation made by a prescriber that informs the pharmacist that the prescription should be dispensed using the drug product written on the prescription and that no substitution should be made in its place. This is typically done in the context of a physician curtailing the substitution of a generic drug in place of the generic’s reference drug—the branded drug.

Detailing

Efforts made by sales representatives to educate prescribers about drug products sold by drug manufacturers. Sales reps will often have a portfolio of products to discuss with prescribers. Each of the products may have a priority-ranking that conveys how a sales rep should prioritize any discussions. There are federal restrictions on the information that sales reps can convey to prescribers. These restrictions extend to the actions that sales reps can take in interacting with prescribers as well. Manufacturers may track certain detailing metrics like the number of minutes spent on detailing or the number of office calls placed by sales reps. In addition, manufacturers may survey prescribers to surmise their recollection of the information shard by sales reps and further thoughts they may have about the products-at-issue.

Direct Contract

Contract between a drug manufacturer and a customer (such as a retail pharmacy) where the product does not pass through an intermediary wholesaler.

Direct Marketing

Pharmaceutical companies are permitted to market prescription drugs to prescribers and consumers. Types of direct marketing include, but are not necessarily limited to, Detailing; Samples; Educational and Promotional Meetings; Promotional Mailings; Journal and Web Advertisements; and Direct-to-Consumer Advertising.

Dispensing Fee

A contracted fee paid by a (public or private) third-party payer to a pharmacy for patient counseling and dispensing a prescription.

Drug-Device Combination Product

Combination products are therapeutic and diagnostic products that combine drugs, devices, and/or biological products.

DTC | DTCA (prounouced “d-t-c-a”)

Direct to Consumer Advertising. Pharmaceutical companies are permitted to advertise directly to the public in the U.S.

EAC (pronounced “e-a-c”)

Estimated Acquisition Cost. The estimated price, inclusive of the dispensing fee, that state Medicaid programs use to reimburse pharmacies for the cost of a prescription. Pricing formulas are specific to each medicaid state program.

FDA (pronounced “f-d-a”)

United States Food and Drug Administration.

Fill and Finish | Fill Finish | Fill-Finish | Fill/Finish

The final manufacturing step in transferring a drug to a sterile container. For example, a drug may be transferred from a filling needle to a sterile container such as a vial or prefilled syringe.

Formulary

A list of prescription drugs covered by a pharmacy benefit plan, including the level of coverage for each product, and any limits, restrictions, or exclusions to that coverage. Typically, prescription drugs that are not covered by a pharmacy benefit plan are excluded from the formulary. Formularies are uniquely structured but commonly have multiple (3 or 4) tiers that reflect the plan’s coverage: drugs listed on lower tiers have a lower copay than drugs on higher tiers. Typically, tier 1 is for generic drugs; tier 2 is for preferred brand drugs; tier 3 is for non-preferred brand drugs; and tier 4 (if there is a tier 4) is for specialty drugs that treat rare or serious medical conditions. The decision on where to list a drug is typically made by a group consisting of pharmacists, physicians and others who review new and existing drugs for quality, safety and cost-effectiveness.

FUL

Federal Upper Limit. A statutorily defined upper limit for Medicaid reimbursement of generic drugs. The Affordable Care Act revised FUL provisions to require the Secretary of HHS to calculate FUL as no less than 175 percent of the weighted average of the most recently reported monthly average manufacturing prices (AMP) for pharmaceutically and therapeutically equivalent multiple source drug products that are available for purchase by retail community pharmacies on a nationwide basis.

GDUFA

Generic Drug User Fee Amendments. First signed into law in 2012, GDUFA was designed with the purpose to speed up the delivery of safe and effective generic drugs to the public and improve upon the predictability of the review process. Specifically, GDUFA enables the FDA to assess industry user fees to fund enhancements to the performance of the FDA’s generic drugs program. GDUFA must be reauthorized every five years and is set to expire on September 30, 2022 barring re-authorization.

Generic Product | Generic Drug

A small-molecule medication purposely created to be the same as an existing approved brand-name drug in dosage form; safety, strength, route of administration, quality, and performance characteristics. Generic drugs are approved through an abbreviated new drug application (ANDA).

GLP

Good Laboratory Practices. A set of principles that form a framework within which laboratory studies are planned, performed, recorded, reported and archived. GLP is meant to assure regulatory authorities that the data submitted accurately reflects the results retained during the study.

GPO

Group Purchasing Organization including pharmacies and/or specialty medical practice members. A GPO leverages the collective buying power of its members to contract with suppliers on members’ behalf to attain improved price discounts and other efficiencies (such as tracking tools and clinical resources for practice support).

Hatch-Waxman Act

Also known as the Drug Price Competition and Patent Term Restoration Act (1984). The Hatch-Waxman Act created an abbreviated pathway for FDA approval of generic drug products, statutory exclusivity provisions for new and patented drug products, and a 180-day exclusivity period for ANDA filers that challenge patents listed in the Orange Book.

HCT/Ps

Human Cells, Tissues, and Cellular and Tissue-Based Products.

HCPCS (pronounced “hik-pik”)

Healthcare Common Procedure Coding Sytem. HCPCS is comprised of two distinct code systems: (1) CPT® (or Level I HCPCS) and (2) Level II HCPCS. CPT codes are maintained by the American Medical Association (AMA) by which physicians bill for the various services and procedures that they render. Level II HCPCS codes are used for drugs, medical equipment, and supplies. These codes are used by CMS to identify drugs and procedures for reimbursement.

IND (pronounced “i-n-d”)

Investigational New Drug.

Indirect Contract

Contract between a manufacturer and a customer (such as a retail pharmacy) where product passes through intermediary wholesaler.

Indirect Marketing

Pharmaceutical companies may engage in general marketing that does not directly market a product to prescribers or patients. Types of indirect marketing include, but are not limited to, continuing medical education and grants to health advocacy organizations (HAO).

IRB (pronounced “i-r-b”)

Institutional Review Board.

J-Code

Common term for Medicare HCPCS billing codes for Medicare Part B drugs.

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Label

FDA-required labeling provided with medicines. Provides prescribing information such as approved indications, contra-indications, common side effects, and recommended dosing.

Labeler

The entity that manufacturers, repacks, or distributes a drug product. See NDC.

MAC

Maximum Allowable Cost. Upper limit set by an insurer (Medicaid or private plans) for the reimbursement of multiple-source generic drugs.

MCO

Managed Care Organization.

Medicaid

A state/federal system of health insurance for those requiring financial assistance. Each state is responsible for its Medicaid program design, operation, and partial funding within federal guidelines managed by the CMS.

Medicare Part A

Federal hospital insurance program for the elderly (qualifying age is generally 65).

Medicare Part B

A federal health insurance program for the elderly (qualifying age is generally 65). Covers non-hospital medical services and supplies, including injectable drugs delivered in an office setting.

Medicare Part D

Optional additional Medicare coverage for prescription drugs. Covers the costs of medications not covered by Medicare Part B (e.g., oral medications obtained through a pharmacy).

NADAC

National Average Drug Acquisition Cost. A surveyed pharmacy drug invoice cost provided by CMS for use in drug reimbursement by state Medicaid programs.

NDA (pronounced “n-d-a”)

New Drug Application. The pathway for FDA approval generally used for small molecule drugs.

NDC (pronounced “n-d-c”)

National Drug Code. A numeric code that uniquely identifies drug products. The code includes three segments that identify the labeler, the product, and the packaging.

NRx (pronounced “n-r-x”)

New Prescriptions.

OOP Cost

Out-of-pocket cost. The cost that the patient pays at the pharmacy point of sale. For an insured patient being dispensed a covered drug, this cost will include any coinsurance amount or copayment.

Orange Book

The FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations.

OTC (pronounced “o-t-c”)

Over-the-counter. Typically refers to a drug product that can be purchased without a prescription.

P&T Committee

Pharmacy and Therapeutics Committee. A group of health care providers and other professionals working on behalf of a managed care plan, hospital, or pharmacy benefit manager to evaluate and manage a drug formulary.

PANDA

Pre-Hatch-Waxman abbreviated new drug application.

Paragraph IV Certification

A certification from an ANDA applicant that a patent (or patents) listed in the Orange Book for the brand-name reference product is invalid, unenforceable, or will not be infringed by the product for which the ANDA was submitted.

Patient Support Program

A program that may be offered by a drug’s manufacturer to provide personalized support (including financial support) to patients to improve health outcomes.

PBM

Pharmacy Benefit Manager. Manages pharmacy benefit plans on behalf of insurers and third-party payors, including, e.g., negotiation of network pharmacy discounts, drug manufacturer rebate contracts, and formulary management.

Pharmacodynamics

The study of the biochemical and physiological effects of drugs and the mechanisms of their actions, including the correlation of their actions and effects with their chemical structures.

Pharmacokinetics

The study of the movement of drugs in the body, including the processes of absorption, distribution, and localization in tissues.

Pharmacy Network

A contracted network of pharmacies that receive business from patients covered by a pharmacy benefit plan in exchange for discounts provided to the PBM or third-party payor.

PHS

Public Health Service. This term is commonly used in reference to the PHS Act. The Act requires a firm who manufactures a biologic for sale in interstate commerce to hold a license for the product.

POSA | POSITA | PHOSITA | PSITA

Person of Ordinary Skill in the Art or Person Having Ordinary Skill in the Art.

Prior Authorization

A formulary restriction that requires a patient or the patient’s physician to obtain approval from the pharmacy benefit manager before reimbursement for the product will be provided.

Purple Book

A compendium identifying biological products, including any biosimilar and interchangeable biological products, licensed by the FDA under the Public Health Service Act. Comparable to the Orange Book.

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Rebate

A post-sale payment or discount that may take various forms in the supply chain for a drug.

RLD

Reference Listed Drug.

Reference Standard

The reference standard is a drug approved under 505(j) that the FDA will select to serve in place of the reference listed drug when the latter is no longer marketed.

REMS (prounced “rems”)

Risk Evaluation and Mitigation Strategy. A post-approval monitoring program required by the FDA for certain drugs.

Sampling

Practice by which pharmaceutical companies and affiliates provide health care practitioners with free samples of pharmaceutical products to provide to their patients.

Small Molecules (SMOLs)

Small, chemically manufactured molecules.

SMD

Small Molecule Drugs.

Source Program

Generic drug purchasing programs provided by wholesalers to small chain and independent pharmacies as an alternative to having to order from (or contract with) manufacturers directly.

Specialty Drug

There is no standard classification that defines a set of specialty drugs. Industry participants (e.g., PBMs and CMS) generally define them based on cost per patient and/or handling requirements. They are often not stocked in a typical retail pharmacy.

Step Therapy

A formulary restriction that requires a patient to try and fail on one or more preferred products before a given product will be covered by the pharmacy benefit plan. Also known as a fail-first or step edit restriction.

Therapeutic Equivalence

Drugs classified by the FDA to be therapeutically equivalent can be substituted for one another. For example, generic drugs are typically given “AB” TE codes, which indicate substitutability with a reference product has been demonstrated through evidence supplied via the ANDA.

Tier

Drugs listed on a formulary are typically separated into groups or tiers. Lower formulary tiers are typically associated with lower out-of-pocket costs for the patient (see Formulary).

TPP (pronounced “t-p-p”)

Third-party payor. An entity, other than the patient, that pays health care expenses.

TRx (pronounced “t-r-x”)

Total Prescriptions.

U&C Price

Usual and Customary Price. In the context of pharmacy reimbursement, this is generally a price submitted by the pharmacy to be used in the absence of a contracted price.

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WAC (pronounced “wac”)

Wholesaler Acquisition Cost. The list price of a pharmaceutical product.

WAMP

Weighted AMP. Statutorily defined average of submitted AMPs computed by CMS for the computation of FUL.

Wholesaler

A wholesaler generally serves as an intermediary between drug manufacturers and hospitals, clinics, and pharmacies that purchase drugs. For example, it may provide logistical services (e.g., shipping and warehousing) and other services such as supplying data on purchasing to manufacturers, and managing generic source programs.