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 granting the right to use a product it owns is referred to as the “licensor”, and the company that is granted the right to use the asset is called the “licensee”. Agreements can be either exclusive or non-exclusive and can take different forms, such as in-licensing, out-licensing, patent licensing, technology licensing, etc.

Licensing agreements can allow companies to access new markets and technologies and gain brand recognition, which can result in increased revenue and exposure. Licensing agreements can also reduce the cost and risk of product development and distribution, allowing companies to focus on their core competencies. However, there are a number of issues that need to be kept in mind for successful collaboration, and NLS asked Malin Ohlin, Partner, and Christoffer Nordin, Senior Associate, at the Nordic law firm Vinge, to share their advice and insights.

What kind of licensing agreements are most common today among your life science clients? Do you see a trend perhaps?

“Within the life science sector, licenses are often exclusive although they may be limited to a particular field of use or territory. Exclusivity is often a pre-requisite in this sector due to the often significant investments. The content of a license agreement will be fairly standard within the industry. However, the structure of the agreement will vary depending on the stage of the licensing deal, for example whether a project is out-licensed in an early pre-clinical phase or if the deal concerns licensing and supply of an approved product that is ready for market.”

“In terms of  trends, we’re seeing more fragmented types of license agreements – where the licensor will divide the rights across multiple jurisdictions/licensees. This may be why more specialized go-to-market companies have started to emerge internationally. Another trend is that companies are showing more interest in orphan diseases.”

Describe a typical life science client that needs your help with a licensing agreement?

“We are fortunate to have assisted clients with licensing agreements in all stages of development, from newly established biotech R&D companies to multinational pharmaceutical companies. Life science companies often have similar needs to control risk and the potential outcome of the project. In recent years (of course, with the exception of the past few years), we have had several clients involved in IPOs in order to attract financing from external parties. One option, instead of an IPO, could be to find early collaboration partners that are granted a license in exchange for financing such development work.”

Describe the advantages of entering a licensing agreement for a life science SME?

“For SMEs, the main advantage of licensing is that capital-intensive development work can be outsourced to the licensee – as an alternative to the SME developing the project all the way through marketing authorization. As we know, product development within the life science industry is extremely expensive and early out-licensing can be a way to transfer part of this risk and the need for investment to a licensee. Another advantage is that licensing can enable the SME to access new markets or customer segments, of course depending on the type of license agreement.”

Given that product development generally is time consuming, it may be difficult to predict which commercialization route will give the most commercial leverage some 10-15 years after the agreement is signed.

Are there any disadvantages the licensor should consider before entering a licensing agreement?

“It is important to start planning for the commercialization of the product early in the project, i.e. to have an idea of how the project will be financed, the potential time table, whether the company will try to transform from a development company to a marketing company, etc. This could affect licensing deals entered into in early development phase. For instance, if an exclusive license is granted in important jurisdictions, this might affect the commercial potential of the company and its ability to attract external financing. Given that product development generally is time consuming, it may be difficult to predict which commercialization route will give the most commercial leverage some 10-15 years after the agreement is signed.”

Christoffer Nordin, Senior Associate, Vinge. Photo: Magnus Lanje

For the licensor, what is the most important thing to keep in mind, consider or prepare for before entering a licensing deal?

“The licensor should have a clear vision of what they want to achieve from the licensing deal, such as revenue generation, market penetration, brand awareness, innovation, or strategic partnership. They should also communicate their expectations to the potential licensee and align them with the licensee’s goals and capabilities. As an example, the question of IP protection will always be a central element and sensitive in a life science license deal, in particular when development is carried out by licensees.”

The licensor should have a clear vision of what they want to achieve from the licensing deal, such as revenue generation, market penetration, brand awareness, innovation, or strategic partnership.

“For early stage licensing under which development work is carried out by the licensee, it is important to ensure that there are mechanisms in the agreement that drive the licensee to carry out the development diligently. It is difficult for a licensor to control the pace of development and whether the project will be prioritized by the licensee.”

“If the project is for some reason returned to the licensor, one important factor is to ensure that the licensor also receives access to all development data generated by the licensee. Otherwise, the licensor is at risk of losing several years of development work which may be critical if, say, patents have already been granted and several years of exclusivity therefore are lost. Such delay may severely impact the valuation of the project and the ability to attract financing or a new licensee.”