There is a huge cost of bringing a pharmaceutical product to market, with estimates ranging from US$1-2 billion to take a product from invention through development, clinical trials and the securing of marketing authorisations and pricing reimbursement. Pharma companies often look for strategies to accelerate market entry while sharing the risks, costs, and profits.

One way in which they achieve this is by entering into licensing deals. These deals typically involve one party acquiring the right to develop, manufacture, distribute and/0r sell a licensed product, although cross licensing and collaborations are also common. Licensing plays a critical role in the pharmaceutical industry and enables companies to expand their product portfolios (or conversely outsource a non-core product), to penetrate new markets, adopt cutting-edge technologies, and enhance their branding. All of which can lead to increased revenues/profits and greater visibility.

Collaborations, which include an element of licensing, can take place at any stage of a product’s lifecycle, but are mostly seen in development and commercialisation. These deals are often a vital way in which pharma, biotech and medical device products are brought to market.

In recent years, pharma companies have shown a preference for late-stage licensing deals due to a perceived lower risk of failure, but these are generally more expensive than earlier stage transactions. Early-stage licences can still result in mitigation of costs despite the higher risk profile of the product not successfully making it to market. The high demand and competition for promising assets has enabled licensees to demand better terms, and the relationships frequently evolve into more equal long-term partnerships, including co-development and co-marketing rights, rather than wholesale out-licensing.

We consider the upsides and downsides of licensing deals and the critical aspects of licensing by examining different licensing structures, looking at the vital components of licensing contracts, and current trends.

What are the advantages of licensing?

Licensing has the following advantages:

• Patent Cliffs and Expanding Product Portfolios – In-licensing allows companies to acquire new products or technologies, which can help diversify their offerings and reach new markets e.g. new geographies or fields of use. For companies facing patent expirations, in-licensing, as well undertaking acquisitions, can help to replenish the product pipeline;
• Reducing Costs and Risks – In-licensing can save companies time and resources compared to in-house development, while also reducing the risks related to product development and regulatory approvals. Later stage licensing will naturally be less risky but will generally be more costly. Similarly, out-licensing can help companies reduce the risks associated with product development, as the licensee assumes responsibility for developing, approving, and marketing the product;
• Revenues/Profits – Out-licensing allows companies to monetise their assets which they may not have the resources to develop, or which are considered non-core, generating revenues/profits through royalties, upfront fees, and/or milestone payments. Similarly, in-licensing provides opportunities to commercialize products and generate revenues (subject to sharing those revenues with the licensor);
• Accessing Innovation – By acquiring licenses to innovative technologies, companies can stay competitive and keep up with the latest scientific advancements; and
• Access to Licensee’s Expertise – By out-licensing their products or technologies, companies can leverage the licensee’s expertise in areas such as product development, regulatory approvals, and marketing.

What are the downsides of licensing?

Licensing has the following drawbacks:

• Profits/Revenues – Licensing a drug to another company can reduce the direct financial benefit for the licensor, as it may not be able to sell the drug directly in all markets and will have to share any revenues and profits with the licensee;
• Control – By licensing a drug to another company, the licensor will relinquish development, marketing, and sales control, and it will need to be confident that the licensee will give the necessary priority and support to the licensed product. A good licence agreement will include protections for the licensor in this regard;
• Negotiations – Negotiating licensing agreements can be a time consuming and lengthy process as they are complex arrangements. It’s advisable to call on the help of lawyers and other specialists to get the deal done;
• IP Infringement – When licensing a pharmaceutical from another business, there is the potential hazard of infringing patents or other intellectual property rights owned by the third parties;
• Competition – By licensing a pharmaceutical to another entity, you may inadvertently be fostering competition against your own products, especially if the licensee ventures into markets where you are also active; and
• Risks of Litigation – Non-alignment of the goals of the collaboration between the licensor and licensee can result in disagreements that may harm the partnership or even cause the agreement to fail. It’s important that the vision of both parties is clearly understood prior to committing to a licensing and clearly reflected in the legally binding agreements.

Why is licensing commonly used in Life Sciences?

Licensing offers a means of leveraging the latest innovations and proprietary knowledge created by other organisations and facilitates quicker development of innovative products and medical solutions, while also generating revenues and profits for technology owners. Additionally, licensing encourages partnerships and collaboration between different entities, fostering advancement in their selected domains.

Historically, the pharmaceutical and biotechnology industries have relied heavily on this practice, which has adapted to shifting legal, regulatory, and commercial conditions. These changes include the patentability of emerging technologies, fluctuating funding sources, the evolution of competition/antitrust laws concerning intellectual property, and the ongoing evolution of regulatory frameworks.

Furthermore, large pharma companies are losing patent protections on their blockbuster drugs. Licensing provides an effective way to help refill the pipeline or expand into new geographies or fields of use, and may be more attractive than conducting acquisitions.

The Ins & Outs of Licensing

In a licensing arrangement between pharma and/or biotech firms, the licensor allows the licensee to use, produce, and market a product or technology. This agreement usually requires the licensee to pay compensation, typically in the form of an upfront payment and royalties from the product’s ‘net sales’ to the licensor.

Licensing a product will encompass vital elements such as rights to intellectual property rights, royalties, territorial scope, agreement length, termination clauses, and confidentiality. We consider how these key provisions are approached in a licence agreement.

Intellectual Property

Rights to IP are at the heart of any licensing agreement. The licensor will typically retain ownership of any IP to the product or technology being licensed, such as patents. Licences often also include rights in know-how, data, copyright and software, and the right to use biological materials (e.g. cell lines). The licensee will be granted the right to use this IP in accordance with the terms of the licensing agreement.

Where patents are licensed, the licence must correctly identify all patents and patent applications that may protect the relevant technology, both at the date of the licence and during its term. These may include:

1. existing applications and granted patents;
2. future applications based on the same priority filings;
3. any re-issues or renewals of any patents falling within (i) or (ii) and any extensions of the exclusivity granted in connection with such patents including Supplementary Protection Certificates, if relevant. Supplementary Protection Certificates are sui generis IP rights that extend protection for the active substance contained within a pharma product up to a maximum of five years.

Know-how is confidential information. It can be “licensed” because the person generating it (or on whose behalf it was generated) can prevent its dissemination and use by an action for breach of confidence. Once the know-how becomes publicly known it loses its value, but a licensee who had access to it while it was secret may have an advantage over competitors because it was able to have a head start on them. As a result, many licensors argue that they are justified in continuing to charge royalties for a period of time on the sale of products developed or manufactured using know-how even after it has come into the public domain. Know-how may also consist of a patentable invention for which no patent application has yet been filed. This can be licensed in its own right, and the licence can subsequently be extended to include any patent application later filed to protect it.

For the EU Technology Transfer Block exemption (now a “retained block exemption regulation” under the Competition Act 1998 by virtue of The Competition (Amendment etc.) (EU Exit) Regulations 2019) to apply the know-how must be “secret, substantial and identified” (Article 1.1(I)). The “identified” requirement may be satisfied by either setting out the know-how in an annex to the agreement or recording it in a separate document referred to in the agreement.

Licences in the life sciences sector frequently include the results of pre-clinical and clinical studies conducted by the licensor. The licensee will require this information to obtain regulatory approval for the pharmaceutical or medical device to be commercialised by the licensee. These may also be protected by copyright and/or database rights.

It will often be necessary to consider whether the licence will include improvements to the licensed technology and/or new inventions in the same field subsequently made or acquired by the licensor. This is particularly important where a licence is being granted by an academic or research institution where the research group that generated the licensed IP is continuing its research in the same area.

The licensor may also want to receive a licence back from the licensee of improvements to the licensed technology made by the licensee, for its own use and potentially to license to other licensees.

Grant

IP rights give the owner the right to prevent others conducting specific activities laid down in the relevant statute, and so a licence can specify which of those activities the licensee has the right to perform, in other words which specific rights are granted under the IP. Consideration must be given to what the licensee intends to do with the technology and which acts need to be included in the grant clause having regard to patent (and other IP) infringement laws and to the type of invention concerned (e.g. is it a product or a process?)

Exclusivity

Licences should always state whether the licence is exclusive, sole, or non-exclusive, and set out what those terms comprise and what rights and restrictions apply.

The key types of licence are as follows:

• Exclusive – The licensor can neither license others nor exploit itself;
• Non-exclusive – The licensor can license others and can exploit itself;
• Sole/co-exclusive – The licensor cannot license others but can exploit itself;
• Exclusive in limited fields/territories – The licensor can grant licences and exploit itself the licensed technology outside the exclusive field and outside the exclusive territory. See below on field and territorial restrictions; or
• Mix-and-match – Often an exclusive licence also has non-exclusive elements, such as a non-exclusive licence to carry on certain activities, such as research or clinical trials, outside the exclusive territory, or the right for the licensor to manufacture, but not sell, in the licensee’s exclusive territory.

Financial Terms

The licensee is usually required to pay the licensor a range of fees in return for the right to use the product or technology. These often include a combination of the following:

• upfront payments (to secure access to the technology);
• milestone payments payable on the achievement of significant and defined and developments. In pharmaceutical licences, milestone payments are typically linked to development milestones (e.g. initiation of each phase of a clinical trial, application for regulatory approval, grant of regulatory approval, often in different countries and for different indications etc) and sales milestones (e.g. when annual sales reach particular levels in key markets);
• an annual licence fee (to retain rights to the technology) and;
• a share of any sublicensing income (if any).

Naturally, the provisions surrounding royalties and triggers for payment should be clearly set out and are likely to give rise to significant negotiation. For example, the definition of “net sales” in sales milestones is usually subject to some negotiation as ultimately it will impact what the licensor will receive.

Licensors can also receive an “exit payment” which is a share of the amount paid to the shareholders in the licensee on a future share sale, IPO, or other exit event. As this is an obligation on the licensee rather than its shareholders, the existing or departing shareholders would usually have to transfer funds to the licensee to fund the exit payment.

If the licensee needs to pay royalties to third parties to commercialise a licensed product, it may seek a royalty stacking provision. These provide that the royalties under the licence agreement will be reduced by a proportion of the amount paid in third party royalties. Generally, a licensor will want to:

1. limit the circumstances in which a third party IP licence may give rise to a royalty-stacking reduction. Whilst such a provision may be commercially essential to secure the grant of the licence, as the licensee will not want to be exposed to excessive or uncommercial payment obligations to a series of licensors (royalty stacking), the licensor will restrict the conditions under which the licensee may call for a reduction in royalty. Such conditions may typically include a situation where the licensee has to obtain a third party licence in order to practise the IP. It may also apply where the third party licence relates to “add on” technology which is helpful but perhaps not essential to the exploitation of the IP, perhaps a drug delivery system;
2. limit the proportion of third party royalties that can be deducted;
3. impose a maximum reduction in royalties that the licensee can make; and/or
4. only permit a royalty-stacking reduction for patents that cover the same area of technology as the licensed technology, and not for example some other technology required in the later-stage development of licensed products.

Exclusive Licensing

In an exclusive licensing agreement, the licensee is granted exclusive rights to use a specific product, process, or technology owned by the licensor. This means no other company except the licensee can use the licensed IP within the licensed field or within a designated market. Such arrangements are common in life sciences and help to bring research innovations to market.

Granting an exclusive license often helps ensure that a new product or technology is brought to market swiftly because the licensee has a strong financial incentive to invest in product development and commercialise the product. Moreover, this type of license can provide patent protection for the licensee (at least for the term of the patent), by preventing competition from entering the marketplace and undercutting on price. This practice can, however, be contentious as it may restrict other companies or individuals from accessing certain products or technologies and may result in increased consumer prices due to reduced market competition. There are sophisticated competition law regimes in most jurisdictions which provide limitations on the scope and terms of exclusive licences.

Non-Exclusive Licensing

In a non-exclusive licensing agreement, the licensee can use the owner's product, and the owner can issue similar licenses to others, meaning there can be multiple licensees and users of the licensed technology. These agreements benefit licensors by providing multi revenue streams. Licensees also benefit by offering access to valuable technology or products without limiting their ability to explore additional opportunities.

Non-exclusive licensing is often viewed as less contentious because it permits wider competition and access to specific products or technologies, but the financial incentives are more limited for the licensee.

Geographical Scope

Another key term is the permitted jurisdiction where the licensee can use or sell the product. The scope can vary from countries or regions to worldwide rights. The selling territory may not be the same as the territory for other activities, for example where manufacturing is taking place in a country outside the sale territory.

It is advisable to avoid ambiguous expressions such as “Europe”, and when referring to the European Union consideration should be given to whether the territory includes countries joining or leaving the EU in the future. Where patents are licensed on their own (i.e. without know-how or other IP rights) the licensor can only license the patents in territories where patents have been or will be applied for or granted.

Territory licensing is commonly adopted to permit entities the use of a patented product or technology within precise national, regional, or market boundaries. The conditions of the licence specify the designated territory or territories the licence encompasses and may permit the distribution and sale of the product or technology in those territories.

Such agreements are instrumental in managing the proper use and commercialisation of IP across different territories. Ideally the licensee will bring local knowledge, expertise, and presence to complement the licensor’s own experience.

Field of Use

The licence can be limited to a specific technical field of use e.g. a specific disease indication, or a specific product market or sector.

Licensing agreements for specific fields of use give licensees rights to a particular product or technology for specific uses or applications.

In life sciences, licensing is commonly used to enable entities to use patented products or technologies exclusively for certain purposes such as research, production, or sale. These agreements often define the permitted field of use quite narrowly, targeting particular therapeutic areas or applications, though they might alternatively be licensed to multiple potential uses.

This approach allows various parties to exploit patented innovations while safeguarding the IP rights of the patent owners. It helps ensure that the IP serves its original purpose without inappropriate use or exploitation.

There are some drawbacks to this form of licensing. It necessarily restricts the flexibility of the licensee to employ the product or technology beyond the licensed uses and could potentially narrow the marketable scope of the IP if licensed for a limited field.

Who is licensed?

It is important to clarify who is licensed to use the IP. A licensor should undertake some diligence on the licensee to understand whether they will be able to successfully develop and sell the product. A licensee will want to ensure the licensee has the necessary expertise and financial resources in place. On a more granular level, will affiliates of the licensee included be and if so, how will they be defined? Customers and end users need to be included, but with more limited rights. In the UK, there is the concept of an “implied licence” where a patentee sells a patented product, then, in the absence of an agreement to the contrary, the purchaser has the right to dispose of the product.

Another key question is whether sub-licensees are permitted. Where the licence is silent, sub-licensing of the rights licensed is not permitted. Therefore, if it is anticipated that the licensee will have the ability to sub-license any or all of the rights licensed this must be expressly provided for.

The licensee may also need to sub-contract the manufacture of licensed products to a third party, a sub-contractor, while remaining in control of sales. Although a form of sub-licensing, this does not raise the same concerns for the licensor and is often permitted by the grant of “have made” rights. The term “have made” means that the licensee can authorise a non-licensed manufacturer to make the licensed product, without being in breach of its licence.

The concept of assignment should also be considered. Unless expressly prohibited, the benefit of patent licences is generally assignable under English law. The licensor may wish to limit the transferability of the licence, for example if the licensor does not wish to license a tobacco company, or would have charged a higher licence fee or royalty to a larger company, or does not want the licence to fall into the hands of a competitor or party infringing the licensor’s IP rights.

US market practice is to deal with assignment and merger of the licensee in the same clause. In the UK, where mergers are not possible, the two matters are usually dealt with separately, with termination for change of control of the licensee covering an acquisition of the licensee by an undesirable third party. A prohibition on assignment covers the transfer of the licence to an undesirable third party.

It is common to permit assignment of the benefit of the licence in connection with a business sale or to an affiliate but not otherwise, or to make any assignment subject to the consent of the licensor, consent not to be unreasonably refused or delayed.

Performance obligations

Where the licence is exclusive, the licensor is entirely reliant for its reward for creating the licensed technology on the commercialisation efforts of the licensee. As a result, a licensor will seek to impose a variety of performance obligations on the licensee, including the following:

• to use “best”, “all reasonable”, or “reasonable” endeavours, or more commonly “commercially reasonable endeavours”, to exploit the licensed technology by developing and commercialising licensed products or services. As such terms have vague legal meanings it is commonplace to define “commercially reasonable endeavours” so it is clear what steps/actions the licensee must take;
• to pay minimum annual royalties;
• to achieve specific development and/or commercialisation milestones by specific dates; and
• to deliver a development plan to the licensor, which is updated regularly, typically every year, and may have to be approved by the licensor.

These obligations are usually coupled with a requirement on the licensee to regularly report to the licensor describing the efforts it is making, and/or to meet with the licensor to review its progress and answer questions.

Warranties, limits of liabilities and indemnities

While the licensee may want extensive warranty protection, the licensor will want to minimise its risk for breach of warranty claims. The licensor will need to consider whether it’s able to give the warranties requested by the licensee. For example, while it would be reasonable to give a warranty on title and against inconsistent agreements or rights, it would be unwise for a licensor to warrant that its patents are valid, given that patents are always liable to be invalidated on the basis of prior art not known to the patentee. It is also questionable whether a patentee should warrant that it is not aware of reasons why the licensed patents may be invalid given that during prosecution of the patents it will have been made aware of potentially invalidating prior art (which might ultimately be used to invalidate the licensed patents even though ignored by the patent office).

The licensor should similarly avoid giving a warranty that the operation of the licence will not infringe any third-party IP rights. Ownership of a patent confers no right to practise the patented invention, but only to stop others from doing so. Therefore, a licence to a patent gives no right to practise the licensed invention, but only a right not to be prevented from doing so by the patent owner. There could always be other dominating patents or other third-party IP. Also, it will be up to the licensee how it chooses to exploit the licensed invention, and this is outside the licensor’s control. However, if the licensor is aware of dominating third party patents it is reasonable that these are disclosed to a licensee, and an appropriate warranty will flush this out. A royalty-stacking clause gives the licensee some protection against the possibility that exploitation of the licensed technology may infringe third party IP.

Each party will also wish to limit its liability for any breaches. The licensor will wish to ensure that it is not liable for indirect losses and lost profits if it is in breach of the IP warranties. The licensee should consider what its potential losses might be if the licensor were to breach any exclusivity granted to the licensee.

The licensee will also wish to limit its liability for indirect losses and lost profits if it breaches the diligence provisions or does not achieve specific milestones. Consider whether such an exclusion would prevent the licensor claiming lost or unpaid royalties or milestone payments, and if so whether such an exclusion is appropriate.

Another factor to consider is whether liability should be capped. Certain licensors, such as university licensors, will invariably wish to impose a liability cap.

It is also commonplace for licensors to seek an indemnity in relation to any product liability claims resulting from manufacturing defects in licensed products manufactured or sold by the licensee.

Licensees may seek an indemnity for third party IP infringement claims relating to use of the licensed technology. Licensors should bear in mind that they may have little control over the way the licensed technology is used.

License Term

The licensing agreement will also set out how long the licensee can employ the product or technology. Typically, this will be for the life of the patents licensed under the agreement, but clever use of know-how licensing (not advised in the USA where different rules apply) can mean that the licence can be extended beyond the life of the patents.

Termination

The licensing agreement will usually include provisions for the termination of the license, either by the licensor or the licensee. The termination will be triggered by certain specified events, such as the failure to pay royalties or a breach of the terms of the agreement.

Confidentiality

The licensing agreement will normally include provisions to protect the confidentiality of the product or technology being licensed, as well as any related business or technical data owned by the licensor (or indeed both parties).

What Types of Licensing Are There?

There are many types of licensing agreements which can be used in life sciences. These agreements can be tailored to meet the needs and goals of the companies involved, facilitating different transactions and partnerships. Some common types include:

• Strategic alliances – These can take the form of joint ventures, co-development or co-marketing arrangements, or the equivalent of collaborative arrangements between two or more arm’s length entities, although sometimes a new entity is formed for the purpose;
• Research collaborations – These arrangements can be like, and are sometimes merely a sub-section of, strategic alliances. The key is that they are entered into by parties to pool resources and capabilities for researching early or late-stage technology. The critical terms in these sorts of arrangements relate to confidentiality, ownership, commercial and non-commercial usage of the work and resource allocation;
• Grant back – These arrangements involve the licensing back to the licensor of certain improvements or new technology developed by the licensee which is related to the original technology;
• Evaluation and option agreements – These agreements allow a party access to specific technology for the purpose of evaluating whether to enter into a more extensive agreement for the technology on pre-agreed terms or on terms to be negotiated. Such rights are time limited;
• Material transfer agreements – These are like many other technology transfer agreements in that they effect the transfer of certain rights, titles and interest in research materials, such as compounds, reagents or cell lines, between two or more parties;
• Co-development and co-promotion agreements – These agreements entail multiple enterprises or entities committing to jointly create and/or market a new product, method, or innovation; and
• Collaborative research and development agreements – These are partnerships where a business or organisation works together with a government body or research entity to perform R&D geared towards a particular initiative.

There are differences and similarities between these types, and the specific terms and conditions of each arrangement will depend on the arrangements of the parties involved.

By definition, licensing usually means giving someone the right to use IP. This is evident when comparing in-licensing and patent licensing, which both transfer IP rights between parties, but with distinct nuances. In-licensing can cover extensive IP rights including usage, production, and sales of a product or technology. Patent licensing, conversely, relates more specifically to the identified IP rights connected to one or more patents.

Additionally, in-licensing arrangements frequently extend over the full term of the intellectual property rights at stake. Patent licensing agreements are usually limited to the life of the patent or patents that are included.

Although certain licensing deals might seem similar and could incorporate elements from various licensing types, they usually have distinct differences depending on the type of IP/technology matter transferred, the duration of the agreement, and the nature of the parties participating (including their respective bargaining powers).

Sublicensing

A right to sublicense is frequently included in a licence agreement to enable the licensee, who has already obtained a licence to use a product or technology, the ability to transfer (or sublicense) some or all their licensed rights to a third party. It is particularly commonly in the life sciences sector, where a licensee, often exclusive, is given the freedom to develop and exploit the licensed product or technology and needs to bring in sublicensees either in particular fields of use, geographic markets, or to conduct further research or manufacturing. It also permits multiple organisations access and use of patented products or technologies, while the IP rights of the original owner are protected by the terms of the sublicence.

Sublicensing is used to build partnerships and collaborations with other companies or organisations 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.

It is essential that the terms of any sublicence include the same restrictions on use as are included in the head licence (more restricted rights can be granted, but not broader ones) and the financial provisions must be carefully set out to ensure that the licensor receives fair compensation for the use of its IP. Protections should be built in for the benefit of the licensor. For example, a licensor may wish to:

• make any sublicence subject to the licensor’s prior consent (so that the licensor can decide who is sub-licensed and/or approve the terms) – the giving of consent may or may not be subject to reasonableness;
• dictate the minimum terms on which sub-licences may be granted;
• give the licensor audit rights over the sub-licensee’s accounts and records, which will be necessary if the licensee pays royalties based on the sublicensee’s net selling price;
• require a copy of the sublicence agreement to be provided to the licensor;
• require that sub-licences automatically terminate on termination of the head licence;
• limit sub-licensing to a single tier or a limited number of tiers (i.e. prohibit sub-sub-licensing) – in the absence of a restriction multiple tiers are automatically permitted; and
• be indemnified for breaches of the sublicence by the sublicensee.

The licensee may require that if the head licence is terminated the licensor negotiates directly with the sublicensee or agrees to the novation of the sub-licence, to substitute the licensor for the licensee. This would not normally be permitted if the reason for termination was the sublicensee’s breach.

Co-Development & Co-Promotion Agreements

Co-development and co-promotion agreements in the biotech and pharma sector usually entail multiple enterprises or entities committing to jointly create and/or market a new product, method, or innovation. These agreements come in all sorts of structures and will be tailored to satisfy the objectives and requirements of the partners involved.

Under such an agreement, the collaborators typically agree to share both the costs of research and development as well as commercialisation. Collaborators often agree to joint ownership of patent and other IP rights arising from the co-development or they might agree to allocate specific rights to one company or the other. The terms of joint ownership of IP, or the terms under which one party owns the resultant IP, need to be very carefully set out to avoid either a standoff (neither party has rights) or a free for all (neither party has restrictions on use). This can be one of the most contentious areas of negotiation in collaboration agreements.

In addition to co-development, companies may also agree to co-promotion by collaborating on the marketing and sale of the product. This will entail the joint development and implementation of marketing strategies, sharing of resources, and coordination of distribution and promotion efforts.

In life sciences, co-development and co-promotion agreements are frequently used to speed up the creation and marketing of new products, processes or technologies, and to harness the knowledge and resources of various organisations.

Co-development and co-promotion partnerships may reduce expenses, lower exposure and risks, and hasten the development and promotion phases. It is important, nonetheless, to carefully consider and negotiate the contract terms, such as sharing of costs and profit distribution, IP ownership and management, plus each party's obligations and rights.

Collaborative Research & Development Agreements

Collaborative Research & Development Agreements (“CRADAs”) are partnerships where a business or organisation works together with a government body or research entity to perform R&D geared towards a particular initiative.

These agreements typically serve to foster collaborations between private industry and government or academic institutions, and can vary widely in structure according to the requirements and objectives of the parties involved.

Much like co-development agreements, a CRADA typically involves the parties agreeing to share both the R&D expenses and any resulting revenues and profits. It also requires an agreement on IP rights management or the assignment of specific rights to either party.

CRADAs mirror co-development agreements as tools to combine the skills and assets of different organisations, fostering scientific and technological advancements cooperatively while cutting down on expenses and risks and speeding up progress. The distribution of costs, earnings, and the governance of intellectual property rights should be carefully considered.

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.

Trends in Licensing

There are several trends which are affecting the shape and nature of licencing deals. These include:

• Post-COVID World – The pharma industry is said to be bouncing back after rollercoaster of the COVID-19 pandemic. COVID affected public expectations and made pharma more mainstream. Hastily but effectively constructed collaboration meant that we saw the art of the possible as there were so many collaborations, involving both private and public entities. It became clear that the industry had the drugs but not the delivery systems to deal with the pandemic, and it was licences and partnerships that helped to fill those gaps. COVID gave some a false hope of collaboration, and we saw unusual sources of finance, but normality has returned and we are seeing collaborations being entered into in a far more measured way;
• Tech & Life Sciences Collaborations – In recent years, there has been a considerable increase in the number of partnerships between AI or MedTech companies and traditional pharmaceutical companies. This is giving rise to increased licensing activity as pharmaceutical companies aim to maintain their cutting-edge expertise. AI is used extensively both at the target identification stage and during clinical trials, so pharma companies want to ensure they have access to these routes to efficiency and cost saving. Similarly, the increase in precision medicine and gene therapies means that pharma companies are licensing in the necessary technologies. Oncology remains a ‘hot’ area for R&D and, not least because new products can attract the highest prices, the sums involved in collaborations are significant; and
• IP Complexity – The IP structures in licensing deals are becoming increasingly complicated to reflect the bundle of rights in question, and the dicing and slicing of the fruits of the collaboration will often be heavily negotiated. At the same time, there tends to be inbuilt flexibility to allow movement in targets and therapeutic areas without setting up a new arrangement.

Irrespective of this, we expect to continue to see considerable licensing activity in a number of fields, and deal makers need to be flexible to ensure they produce collaboration and licensing agreements that are effective, appropriate and robust.

If you would like to discuss any of the issues raised in this article, please contact Sally Shorthose, transactional life sciences partners, and James Baillieu, a corporate life sciences partner, each based in the London office of Bird & Bird LLP.