GLOBE and GUARD approaches ignore the realities of out-licensing at small- and mid-size biotech companies, threaten innovation

There are a lot of reasons to be skeptical of the HHS effort to bring international reference prices into Medicare via the proposed GLOBE and GUARD models. Such efforts are counterproductive, hampering innovation without improving patient affordability.

But the GLOBE and GUARD models are also problematic because they pose a unique danger to small- and mid-size biotechnology companies that develop over half of all new drugs that patients need. These companies are the backbone of an American innovation ecosystem that is the envy of the world, driving the successive waves of innovation that have transformed the treatment of disease after disease.

When smaller companies invent new medicines, the funding that allows them to pursue research and development goals often comes from selling the rights to market their medicines in different countries. That means that the company that developed a given treatment may have no say in how its licensee sells that medicine in another country.

In some cases, a smaller biotech company may sell the rights to market the medicine to multiple different companies, creating an even more complicated arrangement where the company that holds the patent is different from the company that sells the product in the United States, with a third company marketing the medicine overseas.

This is a standard part of the biotech life cycle, a way for companies to raise the funds needed to finance R&D and keep a focus on moving science forward rather than making investments in commercial infrastructure in dozens of countries. But out-licensing also injects complexity into cross-border policymaking. The company that created a drug may have no control over the commercial decisions made by its licensees selling the product in Europe or Asia.

That’s a problem, because GLOBE and GUARD both demand that the prices paid in Europe and countries in other regions be used to determine prices in Medicare. As BIO detailed in its comment letters (see BIO’s comment letter on GLOBE here, and the BIO letter on GUARD here), the realities of biotech out-licensing make those programs unworkable. Once a medicine is licensed, the originator company often has no right to determine commercial decisions, such as price. Additionally, country-specific confidentiality rules create a further hurdle; in some cases, the company selling a medicine in Europe is prohibited by law from providing the licensing company details about net prices.

As a result, the company that controls the pricing of a medicine in the United States may have no legal authority or practical leverage to change international prices. That creates the risk that price controls will be imposed in the United States—harming innovation, particularly the work of smaller companies—without any mechanism to deter foreign freeloading. 

BIO’s View

International reference pricing is inherently fraught, imposing values around access and innovation that have devastated drug development in Europe and deprived patients in Europe and other countries of many new treatments. The damage that would be inflicted by international reference pricing is exacerbated by creating new barriers to the kind of collaborative arrangements that have served as a critical tool that sustains smaller biopharma companies at the early stage of research.

These smaller companies already face long odds, and out-licensing provides the fuel to accelerate efforts to bring new medicines to patients at exactly the moment those resources are needed.

Laws that create obstacles to this kind of licensing will inevitably harm the companies that need capital the most, raising the risk that tomorrow’s cures won’t make it over the finish line.

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