Biotech Licensing and Collaborations

Bringing a biopharmaceutical product to market requires the alignment of multiple critical factors. In an ever more complex investment, regulatory, and scientific environment, the combination of expertise from different market participants is increasingly seen as an effective and accelerated path to success. Biotech and pharmaceutical companies continue to prioritise licensing agreements and strategic partnerships as viable alternatives to fundraising through the sale of equity, whether privately or on the capital markets, or debt finance. Q1 2025 alone saw over $56 billion in announced licensing deal value, with a strong focus on oncology, immunology, and next-generation biologics such as antibody-drug conjugates (ADCs) and bispecific antibodies.

This article explores some of the factors that make licensing a compelling choice for both biotech licensors and pharma licensees while also highlighting some of the key challenges that business development teams and their advisors must address to maximise the value of collaborations whilst safeguarding their interests.

Why Licensing?

For biotech licensors, there are limited ways to secure the significant investment necessary to take a product candidate through to commercialisation. Much will depend on the nature of the technology and the expertise of the parties, but in many cases, a license arrangement will be preferable to surrendering equity or leveraging debt. Further, a licence facilitates access to the technical capabilities of an experienced counterparty who has the resources, skillset and infrastructure to complete late stage clinical trials and/or commercialise a product on a global platform, realising the true value of the asset.  By opting to licence out technologies, the biotech licensor also retains ownership over its key assets and puts them to work generating income immediately (in the form of an upfront payment), in the medium term (in the form of milestone payments) and in the long term (in the form of royalties), all the while limiting exposure to market volatility, dilution of ownership and loss of control. In collaboration agreements there is also the potential for the licensor to learn from its partner with a view to building its own expertise in late stage development and commercialisation, with a view to deploying this learning at a later date for another pipeline product. 
That is not to say that licensing deals do not come at a commercial cost for the licensor. A licensee will typically demand exclusivity in a particular therapeutic area and/or geography and may seek to impose further non-competes on the licensor to ensure maximum market potential for the resulting product.

From the perspective of the pharma licensee, licensing in new technologies enables rapid expansion of product pipelines and access to untapped markets, whether by geography or therapeutic area. This can be an attractive proposition for companies at risk of losing significant revenue due to expiry of patent protection on key products. Partnering through in-licensing can also be more cost-effective than developing products internally, helping companies mitigate the considerable time, expense and uncertainty of R&D, with the majority of payments due under a license being contingent on the achievement of certain events. If the licensed technology does not work as intended, the payment provisions may never be triggered. For the licensee, this may be deemed a safer bet than developing assets itself or an equity acquisition of a biotech. In some cases, a ‘try-before-you-buy’ arrangement may be appropriate, whereby a licensee has the option to acquire equity in the licensor or make a minority investment in the licensor at the same time as entering into the licence, with a view to then taking a greater equity investment or buying the company if the technology proves fruitful.

Sticking points

Licensing agreements are complex, heavily negotiated, documents. There is a balance to be struck between setting the right tone to the collaboration, particularly if the parties are going to be working closely together, and each party protecting its own intellectual property and commercial position. Below, we highlight some of the points that parties to a licensing transaction tend to focus on.

Timing: The stage at which a licensing agreement is entered into within the lifecycle of the licensed technology may significantly impact the price that a licensee is willing to offer for access to the licensor’s technology. Technologies that are further along in their development tend to attract higher upfront payments on the basis that their commercial viability is, to some extent, de-risked. Earlier-stage opportunities, on the other hand, which may yield higher returns in the longer term, typically attract a lower upfront fee, but the development and commercial milestones may be correspondingly increased to incentivise and reward a high performing asset.

The timing will often be dictated by the rationale behind the collaboration. For example, Biotech licensors may seek partnerships with pharma licensees if they lack the funding to advance development through a costly Phase II or Phase III trial (despite strong early stage trial data) or the expertise to bring a product to market. Alternatively, a novel early stage asset or platform technology with the potential to be a game-changer may attract the attention of a licensee who has a strategic focus on the relevant therapeutic area or has struggled to make a viable asset in the same therapeutic area to date.

Governance and control: Oversight of the activities performed under a collaboration agreement is often considered crucial to its success. A licensor is rarely content to grant an exclusive licence to its “crown jewels” (and main revenue generator) without visibility as to whether the licensee is maximising its efforts to develop and commercialise the product for its benefit. The extent of any governance will vary depending on the nature of the deal. A “straight licence-out” may result in periodic reporting and discussions in the context of a joint steering committee comprised of representatives from both parties. By contrast, a true collaboration is likely to result in quite significant governance provisions with a joint steering committee and subcommittees, comprised of representatives from both parties, responsible for decision-making, monitoring progress and potentially resolving disputes relating to different aspects of the collaboration. In a collaboration, decision making may be by consensus or subject matter dependent. For example, one party may have the deciding vote on certain matters and other matters may be decided by consensus.  Expert determination may be engaged to resolve commercial or scientific (rather than legal) disputes which occur.

Financials: The key financial components of a biotech licensing deal typically include upfront payments, milestone payments, and royalties. The parties have conflicting interests on these issues. Upfront payments provide immediate compensation to the licensor for granting access to the intellectual property or technology, reflecting the inherent value of the asset and allowing the licensor to recoup its sunk costs to date as well as fund its development of pipeline products. Milestone payments are contingent on the achievement of specific development, regulatory, or commercial objectives, such as successful clinical trial results, regulatory approvals or first commercial sale of products which utilise the licenced technology. These payments mitigate risks for the licensee by tying compensation to the asset's progress and the licensee’s likely return on investment.

Royalties, often calculated as a percentage of net sales, represent an ongoing revenue stream for the licensor and are a key consideration in structuring the deal. The parties must agree on the royalty rate, the duration of payments, and any tiered structures that adjust rates based on sales thresholds. The licensee may seek to negotiate reductions where the value of the licensed technology is depleted to ensure profitability, such as reductions in royalty amounts for royalty stacking, generic or biosimilar entry and loss of patent protection.

Profit-sharing arrangements may be used instead of, or in addition to, royalty payments in co-development or co-commercialisation agreements. These arrangements provide for the sharing of development and commercialisation costs, as well as profit, on an equal or otherwise split basis subject to guardrails.

Diligence obligations:  A prudent licensor will seek to include a provision requiring the licensee to actively pursue development and commercialisation of the licenced technology to provide comfort that the licensed technology will be exploited and the milestone and royalty payments achieved. A breach of this obligation would usually permit the licensor to terminate the agreement and then seek to engage a new licensee; though such breaches can be difficult to demonstrate. Without such a provision, a licensee might, for any number of reasons, “sit on” the licenced technology (and its exclusive share of the market and/or geography) precluding the licensor from being able to monetise its asset.  That being said, a licensee is unlikely to be able to categorically undertake to develop a product through to commercialisation “come what may”. Consequently, these clauses are subject to significant negotiation to find an obligation which provides the licensor sufficient comfort but offers the licensee appropriate latitude taking into account scientific challenges, the market, regulatory landscape etc.

Sublicensing: While sometimes overlooked, sublicensing may significantly impact the outcome of a collaboration for both the licensor and the licensee.

For the biotech licensor, sublicensing may raise concerns about control, oversight, and financial returns; the licensor may be comfortable doing a deal with the licensee but not with a third party in respect of which it has no knowledge. Licensors may therefore seek to retain approval rights over sublicensees to ensure that the sublicensee has the necessary expertise, resources, and reputation to develop or commercialise the licensed technology effectively. Alternatively, or in addition, the licensor may impose restrictions on sublicensing, such as limiting it to specific activities (e.g. manufacturing, certain development activities) or territories or fields of use. Financially, the licensor will also seek to ensure that it receives an appropriate share of any payments made by the sublicensee to the licensee, such as upfront fees, milestone payments, or royalties.

For the pharma licensee, sublicensing is often a critical tool for maximising the value of the licensed asset, particularly in cases where the licensee lacks the resources, expertise, or geographic reach to fully exploit the asset on its own. The licensee will typically seek broad sublicensing rights to allow flexibility in partnering with third parties however it sees fit. In any scenario, the licensee must consider its obligations to the licensor, including ensuring that any sublicense agreement complies with the terms of the original licence.

IP ownership: Intellectual property (IP) is fundamental in biotech licensing transactions; from precisely what underlying IP is available, the ownership of new IP generated and the scope of the licences granted, to the filing, prosecution, enforcement and defence of such IP. All of this goes to the protection of the licensed technology and resulting product and, therefore, the return on investment for both parties. The approach to IP can vary depending on a number of factors, including whether the licence relates to an asset or a platform technology, and if the former, the stage of development of that asset at the effective date.

For the biotech licensor, retaining ownership of its core IP is critical, as it represents the foundation of its value proposition. The licensor must ensure that the licence agreement clearly defines the scope of the rights being granted to the licensee, such as whether the licence is exclusive or non-exclusive, limited to specific territories or fields of use, or able to be sublicensed. Additionally, the licensor may want to retain ownership of any improvements or modifications made to the licensed IP by the licensee, or at least secure rights to use such improvements, to ensure that all rights related to the technology remain whole and controlled by it to increase overall value. Depending on the deal, this can present challenges as to what constitutes an “improvement” to existing IP versus IP generated in the development of the licensed product more generally.

The licensee must ensure that the licence provides sufficient rights to achieve its objectives to use, develop, manufacture, and sell products that utilise the licensed IP. The licensee may also seek ownership or co-ownership of any improvements it develops in the course of the agreement and will, depending on the stage of the asset, usually expect to own IP in any resulting product created using the licensed technology.

Prosecution, enforcement and defence of the IP under the agreement will need to be addressed in detail – balancing the parties respective interests.

In addition, a licensor is expected to provide comprehensive warranties confirming that (among others) the licensor has the right to grant the relevant licences, that use of the licensed IP will not infringe third party rights and that the IP is not currently being infringed. This provides the licensee with comfort that it’s getting the legal rights it believes it is and provides contractual recourse if these statements are incorrect. Likewise a licensee may expect indemnification from a licensor if its use of the licensed IP in accordance with the licence results in a third party claim alleging infringement.

Consequently IP provisions often run to several pages and are some of the most complex provisions in the agreement.

Effect of termination: Certain termination triggers are commonplace and objectively measurable (i.e. if one party enters a bankruptcy proceeding). Others are complex and introduce subjectivity, such as whether a material breach has occurred. Given the usually significant investment in the performance of these collaboration arrangements, parties may include alternatives to termination which, for example, seek to recognise that a breach may have occurred and provide an alternative solution to termination (such as loss of exclusivity or royalty reduction). Regardless of the events that the parties agree will trigger a right to terminate the collaboration, the question of ‘what happens then?’ is critical.

For the biotech licensor, reversion of intellectual property rights, regulatory approvals, clinical data, and any improvements or modifications made by the licensee during the term of the agreement would be an optimal outcome. This lets the licensor exit the partnership and return to the market with a new licensee and the benefit of any valuable work undertaken by the licensee. This is understandably unattractive to the licensee and so it is common to see consequences of termination vary depending on who is terminating and the reasons for doing so. For example, the above position for a licensor may be accepted where the licensee terminates for convenience or the licensor terminates for the licensee’s material breach or insolvency; but is unlikely to succeed in cases where the licensee is terminating for the licensor’s breach or insolvency. Likewise, the approach to termination may differ depending on what stage the product is at – if it is on the market and in patients, it may be unpalatable (and present regulatory challenges) to suddenly deny patients access to life-saving treatment due to a contractual breach of the licence.

The practicalities of termination will also need to be addressed appropriately, e.g. provisions that allow for the orderly wind-down of activities, such as the sale of remaining inventory, the transfer of ongoing clinical trials, and the resolution of any outstanding liabilities.

Conclusion

The biotech licensing landscape is being shaped by a confluence of regulatory, political, and economic forces. Despite these headwinds, the market remains active. Upfront payments as a percentage of overall deal value (currently at 8%) continue to gradually tick upwards towards the pre-pandemic high of 13% in 2019, particularly for those deals relating to later stage opportunities close to market approval.

While companies may strategically pause to reassess valuations and wait for more favourable conditions, innovation remains robust with continued breakthroughs in oncology, immunology, and advanced biologics fuelling long-term optimism. For those transformative technologies, well-funded global pharmaceutical companies are continuing to find money to pursue these assets, as seen in deals by AbbVie, Bristol Myers Squibb, Roche Pharmaceuticals, AstraZeneca and GSK this year alone. As the market stabilizes, licensing activity is set to increase, with licensees keen to maximise exciting new technologies from ADCs, multispecific antibodies, CAR-Ts and gene editing, through to AI and quantum computing. In conclusion, while the present market dynamics may be marked by caution, the future of biotech licensing is bright.

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