Sustaining Rare Disease Innovation: The Critical Role and Pricing Implications of Ex‑U.S. Licensing

Over the last 40 years, the United States has witnessed a surge in access to life-extending and life-saving treatments for rare diseases, defined as those diseases affecting fewer than 200,000 people in the United States. Today, there are over 650 rare disease treatments available to patients, up from 38 in 1983 when the Orphan Drug Act (ODA) was first passed by Congress. The ODA incentivizes biopharmaceutical manufacturers to invest in research for diseases with limited commercial appeal and is widely credited with creating an environment that has attracted scientific expertise to increasingly focus innovation on rare diseases. Despite this tremendous success, challenges and barriers to entry in the rare disease space remain, including economic structure, small patient population, limited commercial footprint for rare disease companies, and recoupment in investment. Despite progress made to date, 95% of the 7,000–10,000 orphan diseases identified to date still do not yet have treatments approved by the Food and Drug Administration. As U.S. policymakers navigate future changes to drug pricing policy, including potential “Most Favored Nation” (MFN) pricing policies, they should be careful not to disturb the delicate ecosystem that has enabled a robust pipeline of rare disease treatments.

This white paper explores the role of out-licensing for small biopharmaceutical manufacturers with rare disease assets, including the economic rationale for their adoption and the legal function and structure of such arrangements. Particularly, we focus on the limited control a rare disease biopharmaceutical manufacturer may have over the distribution and pricing of its licensed product as a result of both common business arrangements and legal restrictions, as well as the lack of transparency they have into the prices for out-licensed products. Policymakers evaluating drug pricing reforms, including MFN pricing proposals that could reference prices in geographies where prices are determined by a licensee, must understand a critical and often overlooked dimension of these arrangements: once a product is licensed outside the U.S., under typical arrangements, the licensee, not the manufacturer, maintains control over ex-U.S. pricing. Moreover, given the limited transparency provided to manufacturers on the prices of out-licensed products as a result of ex-U.S. competition laws and regulations, manufacturers may lack the ability to accurately report net pricing for countries where products are out-licensed.

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