In-Licensing, Out-Licensing, & Other Licensing Agreements in The Life Sciences
Last updated on January 31, 2023 by
Licensing has been highly useful in the life sciences industry, time and time again, because it allows companies to access and use new technologies and intellectual property developed by other organizations. This helps speed up the development of new products and treatments, while providing a source of revenue for the organizations that own the licensed technology.
Licensing can also help foster collaboration and partnerships between different organizations in the life sciences industry, allowing them to share knowledge and resources in order to advance the field and improve patient care.
The practice of licensing in the life sciences industry has been around for decades. However, the modern system of licensing as we know it today has evolved over time due to a variety of factors, including changes in laws, regulations, and business practices, including those that apply to technologies and intellectual property developed with federal and private funds.
For example, in 1980, the Bayh-Dole Act was passed, establishing a uniform patent policy for federally funded research and development in the United States. This act encouraged the transfer of federally funded research results to the private sector, and it made it easier for companies to license technologies and intellectual property developed at universities and other research institutions.
Since the passage of the Bayh-Dole Act and others, the life sciences industry has become increasingly reliant on licensing as a means of accessing new technologies and intellectual property. Today, licensing is a common practice in the life sciences industry and plays a key role in the development of new products and treatments.
A good example of the importance and impact of licensing in the life sciences is Gilead Sciences’ licensing of the drug sofosbuvir. Sofosbuvir is an antiviral drug used to treat hepatitis C, and it was developed by the pharmaceutical company Pharmasset.
In 2011, Gilead Sciences acquired Pharmasset in a deal worth over $11 billion, in large part because of the potential of sofosbuvir. As part of the acquisition, Gilead Sciences obtained the rights to sofosbuvir and was able to bring the drug to market under the brand name Sovaldi. The drug became a blockbuster for Gilead Sciences, generating billions of dollars in sales and helping to significantly improve the treatment of hepatitis C.
Gilead Sciences’ licensing of sofosbuvir illustrates how a licensing strategy can be used by biotech companies to access new technologies and intellectual property, and how it can help them bring new products to market quickly and efficiently.
In this article, we’ll review the basics of licensing in the life sciences, the types of licensing deals you can leverage, how licensing agreements work, and much more.
The In’s & Out’s of Licensing
Licensing a product from one biotech company to another generally involves the transfer of certain rights to use, manufacture, and sell a product or technology. In a licensing agreement, one company grants another company permission to use a specific technology or product in exchange for some form of compensation, often a royalty payment based on the sales of the licensed product.
The company or individual granting the right to use a product, process, or technology it owns is referred to as the “licensor”, and the company or individual that’s granted the right to use the asset is called the “licensee”.
There are several key concepts that are typically involved when licensing a product from one company to another, including intellectual property, royalty payments, territory, duration, termination, and confidentiality.
The licensor will typically retain ownership of any intellectual property (IP) related to the product or technology being licensed, such as patents, trademarks, and copyrights. The licensee will be granted the right to use this IP in accordance with the terms of the licensing agreement.
The licensee will typically pay the licensor a royalty for the right to use the product or technology. The royalty rate is often a percentage of the sales of the licensed product.
The licensing agreement will specify the territory in which the licensee is allowed to use and sell the licensed product. This may be a specific country or region, or it may be worldwide.
The licensing agreement will also specify the duration of the license, or the length of time that the licensee is allowed to use the product or technology.
The licensing agreement will usually include provisions for the termination of the license, either by the licensor or the licensee. This can be triggered by certain events, such as the failure to pay royalties or a breach of the terms of the agreement.
The licensing agreement may include provisions to protect the confidentiality of the product or technology being licensed, as well as any related business or technical information.
As mentioned above, a licensing agreement is a legal agreement in which a company or individual (the “licensee”) is granted the right to use a particular product, process, or technology that is owned by another company or individual (the “licensor”).
Licensing agreements can be either exclusive or non-exclusive. In an exclusive licensing agreement, the licensee is the only party that is allowed to use the licensed product, process, or technology for a specific purpose or in a specific market. In a non-exclusive licensing agreement, the licensor retains the right to grant similar licenses to other parties.
To illustrate this, let’s use a general example: XYZ therapeutics, a biotech company that has developed a new drug for the treatment of a particular medical condition, enters into a licensing agreement with a pharma company that allows the company to develop, manufacture, and sell the biotech’s drug. In exchange for this right, the pharma company agrees to pay royalties to the biotech based on the sales of the drug.
The licensing agreement will specify the terms of the royalty payments, such as the percentage of sales that will be paid as royalties and the duration of the agreement, among other terms and conditions. These can include the responsibilities of the parties with regard to the development and commercialization of the licensed product, and the ownership and control of intellectual property related to the product. These terms of the licensing agreement will be negotiated between the two businesses.
In contrast, if XYZ therapeutics wants to license a product from another company, the process is somewhat similar. The company will enter into a licensing agreement with the other business and agree to pay royalties in exchange for the right to use the product, process, or technology. Just like the previous example, the terms of the licensing agreement will be negotiated, and may include provisions such as the duration of the agreement, the scope of the rights granted, and the amount of royalties to be paid.
Licensing agreements can be valuable tools for both the licensor and the licensee. For the licensor, it can provide a source of revenue and help to protect their intellectual property. For the licensee, it can provide access to valuable technology or products that they can use to further their own business objectives.
However, it is important for the parties to carefully consider and negotiate the terms of the agreement, including the duration of the license, the scope of the rights granted, and the amount of royalties to be paid.
What Types of Licensing Are There?
There are many different types of licensing agreements used in the life sciences. These agreements can be tailored to meet the needs and goals of the companies involved, facilitating different types of transactions and partnerships. Some common types include:
- Patent licensing
- Technology licensing
- Non-exclusive licensing
- Field of use licensing
- Territory licensing
- Co-development and co-promotion agreements
- Collaborative research and development agreements
There are a number of differences and similarities between these types, and the specific terms and conditions of each arrangement will depend on the needs and goals of the parties involved.
For example, almost all licensing involves the transfer of the right to use intellectual property. A good example is the similarities and differences between In-licensing and patent licensing. Both involve the transfer of intellectual property rights from one party to another. However, there are some key differences between the two.
In-licensing typically involves the transfer of broader IP rights, such as the rights to use, manufacture, and sell a product or technology. Patent licensing, on the other hand, involves the transfer of specific IP rights related to a patent or patents.
Furthermore, in-licensing agreements can be long-term, covering the entire duration of the IP rights involved. Patent licensing agreements, on the other hand, are typically limited to the term of the patent or patents involved.
So while some licensing can feel similar, and even include elements of or provisions from other types of licensing, there are often distinct differences based on what’s being transferred, for how long, and who is involved.
In-licensing is the process of acquiring the rights to use a product or technology that has been developed by another company or organization. In other words, if your company licenses another company’s IP, that’s called in-licensing. In-licensing is used by companies as a way to access new products or technologies that they can use to expand their business or improve their existing products.
It can be a useful strategy for companies that do not have the resources or expertise to develop a particular product or technology in-house, or that want to access a product or technology that is already proven to be successful. It can also be a way for companies to reduce the risks and costs associated with product development, as they are able to access a product or technology that has already been developed and tested.
An example of in-licensing might be a company that in-licenses a patented manufacturing process from another company in order to use it to produce their own products. The company that owns the patent would receive royalties or other compensation for granting the rights to use the process to the company that is using it.
Out-licensing is just the opposite of in-licensing, essentially. One company grants a license to another company to use its intellectual property, such as a patent, trademark, or copyrighted material, in exchange for royalties or other forms of compensation. When your business licenses something to another company, that’s called out-licensing.
This business development strategy can be an attractive option for companies that have developed valuable IP but do not have the resources or expertise to commercialize it themselves.
Patent licensing agreements involve a patent holder granting another company the right to use that patent. Patents can be used to protect a wide range of inventions, including therapies, medical devices, diagnostic tests, and even vaccines.
Patent licensing can be used to accomplish a number of business development goals, including generating revenue, facilitating collaboration between licensor and licensee, expanding market reach, and enhancing product development.
In addition to patent licensing, there are different types of intellectual property licensing, including trademark and copyright licensing. Trademark licensing agreements allow a company to use a trademark that identifies and distinguishes the source of a particular product or service. Copyright licensing allows a company to use a copyright, which is a legal monopoly granted to the creator of a creative work such as literature, music, or art.
Trademark and copyright licensing can be used to achieve similar results to patent licensing, in that one business leverages another business’s intellectual property to generate revenue, increase market reach, or facilitate collaboration.
Patent licensing, trademark licensing, and copyright licensing can all be exclusive or non-exclusive, and it can be limited to a specific field of use or geographic territory.
Technology licensing agreements allow a company to use a particular technology owned by another company. This can include a wide range of intangible assets such as know-how, trade secrets, and software. Accessing new technology can help biotech and pharma companies speed up their product development and processes, and can provide a source of revenue for the organizations that own the licensed technology.
Like patent licensing, technology licensing can be exclusive or non-exclusive, and can be limited to a specific geographic area or field of use.
When a licensor and licensee enter an exclusive licensing agreement, it means the licensee is granted the exclusive right to use a particular product, process, or technology that the lessor owns.
In other words, the licensee is the only company that is allowed to use the licensed product, technology, or intellectual property for a specific purpose or in a specific market.
Exclusive licensing is often used in the life sciences to commercialize new products and technologies that have been developed through research and development.
Exclusive licensing can be useful in certain circumstances. It provides a strong financial incentive for companies to invest in the development and commercialization of the product or products, since they can recoup their costs and potentially earn a profit through exclusivity.
It typically helps ensure that a product or technology is developed and made available to the public in a timely manner, as the company holding the exclusive license has a financial interest in bringing the product to market.
And, it can offer a level of patent protection for the company holding the exclusive license, preventing competitors from entering the market and potentially undercutting their pricing.
However, it can also be controversial, as it may limit competition and access to certain products or technologies for other companies or individuals. It may also lead to higher prices for consumers, as the company holding the exclusive license may be able to charge a premium due to the lack of competition.
Like exclusive licensing, a non-exclusive licensing agreement grants the licensee the right to use a particular product owned by the licensor. However, the licensor retains the right to grant similar licenses to other parties. This means that the licensee is not the only company allowed to use the licensed product. Other companies or individuals may also be granted the right to use it.
Non-exclusive licensing agreements are useful to both the licensor and the licensee. For the licensor, it offers a source of revenue and helps promote the use of their products or technologies. For the licensee, it provides access to applicable and valuable technology or products that they can use to further their own business objectives, allowing them to retain the flexibility to pursue other options, if desired.
Non-exclusive licensing may also be seen as less controversial, as it allows for more competition and access to certain products or technologies for other companies or individuals.
Field of Use Licensing
Field of use licensing agreements grant the licensee the rights to a certain product for a specific use or application.
In the life sciences, the field of use licensing is often used to allow companies or organizations to use patented products or technologies for a specific purpose, such as for research or development, manufacturing, or commercialization. The terms of the licensing agreement may specify the field of use, such as a particular therapeutic area or indication, or may be more broadly defined to cover a range of uses.
Field of use licensing can be a useful way to allow multiple parties to access and use patented products or technologies, while still protecting the IP rights of the owner. It can also help to ensure that the IP is used for its intended purpose and is not misused or exploited.
However, field of use licensing can also have some drawbacks. It can limit the flexibility of the licensee to use the product or technology for other purposes, and it may also limit the potential market for the product or technology if it is only licensed for a narrow field of use.
Territory licensing refers to an agreement in which the rights to a particular product are granted for a specific geographic region or market.
Territory licensing is often used in the life sciences to allow companies or organizations the use of a patented product or technology in a specific country, region, or market. The terms of the licensing agreement may specify the specific territory or territories covered by the license, and may also include provisions for the distribution and sale of the product or technology within those territories.
These agreements can help ensure that the IP is used and marketed appropriately in different regions or markets. Some drawbacks include limited flexibility for the licensee to use the product or technology in other regions or markets and a limited potential market.
Sublicensing agreements allow the licensee, who has already obtained a license to use a product or technology, to transfer some or all of their license rights to a third party.
Sublicensing is often used to allow multiple organizations to access and use patented products or technologies, while still respecting the IP rights of the original owner. Sublicensing can help to expand the market for a product or technology by allowing multiple companies or organizations to sell or distribute it in different regions or markets.
It is often a good way to build partnerships and collaborations with other companies or organizations that can help to advance a product or technology. However, it can also limit control over the product or technology and limit the potential market for the product or technology.
Co-Development & Co-Promotion Agreements
Co-development and co-promotion agreements in the life sciences typically involve two or more companies or organizations that agree to jointly develop a new product, process, or technology and/or promote the asset. Co-development and co-promotion agreements can take many forms and can be customized to meet the specific needs and goals of the collaborating parties.
In a co-development and co-promotion agreement, the collaborating companies often agree to share the costs of research and development, as well as the profits or revenue generated by the resulting product. They often also agree to share the intellectual property rights related to the development project, or they may agree to assign certain rights to one business or the other.
In addition to co-developing, the companies may also agree to co-promote it, which means that they will work together to market and sell the product. This can involve jointly developing and implementing marketing and sales strategies, sharing information and resources, and coordinating the distribution and promotion of the product.
Co-development and co-promotion agreements are often used in the life sciences to accelerate the development and commercialization of new products, processes, or technologies, or to leverage the expertise and resources of multiple organizations.
Co-development and co-promotion agreements can help reduce costs, minimize risks, and accelerate the development and marketing process. However, it is important to carefully consider and negotiate the terms of the agreement, including the allocation of costs and profits, the ownership and control of intellectual property, and the rights and responsibilities of each party.
Collaborative Research & Development Agreements
Collaborative Research & Development Agreements (CRADAs) in the life sciences involve a company or organization collaborating with a government agency or research institution to jointly conduct research and development (R&D) for a specific project.
CRADAs are often used to facilitate partnerships between the private sector and the government or academia, and they can take numerous forms depending on the needs and goals of each organization.
Like co-development agreements a CRADA often involves both companies agreeing to share the costs of the R&D project, as well as any of the profits or revenue generated by the project. This also includes agreeing to share the intellectual property rights related to the development project or assigning certain rights to one party or the other.
CRADAs work similarly to co-development agreements in that they can be used to leverage the expertise and resources of multiple companies and advance scientific knowledge and technological development through collaboration. They also often help reduce costs and risks and accelerate development. It’s important to consider how costs, profits, and ownership and control of intellectual property will be allocated.
Other Types of Licensing
Drug licensing is the process by which a government regulatory agency, such as the US Food and Drug Administration (FDA) or the European Medicines Agency (EMA), reviews and approves the sale and marketing of new drugs. This process is designed to ensure that new drugs are safe and effective for their intended use before they are made available to the public.
To obtain a license for a new drug, a pharmaceutical company must submit a New Drug Application (NDA) to the regulatory agency, which includes data from clinical trials and other information demonstrating the safety and effectiveness of the drug. The regulatory agency will then review the application and, if the drug meets the necessary standards, grant a license for the drug to be marketed and sold in the country.
The process of drug licensing can be lengthy and complex, as it involves multiple stages of review and evaluation. It is an important step in the development and approval of new drugs, as it helps to ensure that the drugs that are made available to the public are of high quality and have been thoroughly tested for safety and effectiveness.
Facility licensing in the biotech and pharmaceutical industry refers to the process of obtaining regulatory approval for the manufacturing, testing, and distribution of pharmaceutical products at a specific manufacturing facility. This process is typically required by regulatory agencies, such as the FDA or European Medicines Agency (EMA), to ensure that the facility meets the necessary standards for producing safe and effective pharmaceutical products.
To obtain facility licensing, a company must submit a detailed application to the regulatory agency, including information about the facility’s design and layout, manufacturing processes, quality control measures, and other relevant information. The regulatory agency will review the application and conduct an inspection of the facility to ensure that it meets the necessary standards. If the facility is approved, the company will be granted a license to manufacture, test, and distribute its products at the facility.
Facility licensing is an important step in the pharmaceutical and biotech industries, as it helps to ensure that the products being produced are of high quality and meet the necessary regulatory standards. It is also important for companies to maintain their facility licenses, as regulatory agencies may conduct periodic inspections to ensure that the facility is continuing to meet the necessary standards.
When Would You Want to License a Product?
There are several reasons why you might choose to license a product to another company:
- To generate additional revenue: Licensing a product can provide a source of revenue for the company through royalty payments.
- To expand the market for the product: By licensing the product to another company, the licensor can expand the reach of the product to new markets or customer segments.
- To access expertise or resources: Licensing a product to another company can provide access to expertise or resources that the licensor may not have internally, such as manufacturing or distribution capabilities.
- To reduce risk: Licensing a product can help to share the costs and responsibilities associated with developing and commercializing the product with another company.
- To focus on core competencies: Licensing a product can allow a company to focus on its core competencies, such as research and development, rather than on the manufacturing and distribution of the product.
Licensing a product can provide a number of benefits, including additional revenue, access to expertise and resources, and the ability to focus on its core competencies.
What Are the Benefits & Drawbacks of Licensing?
From generating cash flow to legal fees, there are benefits and drawbacks to the licensing process that you need to consider.
- Licensing a drug can provide a company with access to valuable technology or products that they may not have been able to develop or produce on their own. This can help the company to expand their product line or enter new markets.
- Licensing can help a company to reduce the risks and costs associated with research and development (R&D). By licensing a drug from another company, a company can avoid the time and expense of developing the drug from scratch and focus on other aspects of their business.
- Licensing can provide a company with increased flexibility to pursue other opportunities. By retaining the option to license a drug rather than developing it in-house, a company can retain the flexibility to pursue other options if desired.
- It can provide a source of revenue for the company through the payment of royalties.
- It can help a company to protect its intellectual property rights and control how its product is used.
- Licensing a drug can help a company to promote the use of its product and increase its visibility in the market.
- When you license a drug to another company, you give up some control over how it is developed, marketed, and sold. This can be a concern if you believe the licensee will not act in the best interests of the drug or your company.
- Licensing a drug to another company can result in reduced profits for your company, as you will not be able to sell the drug directly and will have to share the profits with the licensee.
- Licensing agreements can be complex and time-consuming to negotiate, and may require the involvement of lawyers and other professionals.
- If you license a drug from another company, you may be at risk of infringing on patents or other intellectual property rights held by that company.
- Licensing a drug to another company may create competition for your own products, as the licensee may sell the drug in markets where you also operate.
- If the interests of the licensor and licensee are not aligned, it can lead to conflict and potentially damage the relationship between the two companies.
Licensing Opportunities Can Lead to Company Growth
Licensing deals can be a valuable part of any growth strategy for life science companies. They allow companies to access new markets, technologies, and brand recognition, which can result in increased revenue and exposure. Additionally, licensing agreements can reduce the cost and risk of product development and distribution, allowing companies to focus on core competencies.
Whether you’re looking to become a licensee or licensor, you will want to have up-to-date and well-maintained lab equipment in your lab to ensure your R&D activities are done right.
High-quality lab equipment is vital for research and development for several reasons: accuracy, efficiency, safety, reputation, and even funding. When you use high-quality lab equipment, it can enhance the reputation of your research and development efforts, as it demonstrates a commitment to producing reliable and accurate results.
Funding agencies and other potential partners may be more likely to invest in or collaborate with your research and development efforts as well when you use high-quality lab equipment.
However, rather than purchase with cash or a loan, you can lease high-quality lab equipment. Doing so can be more cost-effective than purchasing outright, especially for a biotech company that may not have a lot of financial resources.Leasing allows you to spread out the cost of the equipment over time, making it easier to manage your budget. Further, it does not require a large upfront investment, which can be beneficial if you need to use your financial resources for other purposes.
Leasing can also help you easily scale your operations up or down as needed, without being tied to a large upfront investment in equipment. This can be crucial for life science companies that may experience fluctuations in funding or research needs.
If you’re interested in leasing lab equipment with Excedr, let us know. We’ll get back to you as soon as possible.