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What Is Licensing Transaction in Pharmaceutical Industry?
Licensing Transactions are a common collaboration model in the biotech and pharmaceutical industry. In such agreement, the developer (i.e., licensor) grants the licensee rights to use, develop, manufacture, or commercialize a drug when the licensor has achieved defined development milestones. In short, licensing transaction enables the licensor to capture value and expand market reach, while enabling the licensee to commercialize the drug—thereby creating mutual benefit.
Licensing Transaction Models
Licensing transactions can take various forms, depending on factors such as whether the drug is a small molecule or biologic, the complexity of the formulation, and the completeness of the regulatory dossier. These agreements may also differ based on the stage of development, sales rights, distribution rights, and manufacturing rights. Two commonly used models are:
- Licensing-Out — The licensor advances the drug to a defined stage and then grant the licensee rights to complete regulatory approval and commercialization in designated territory.
- Co-development — Both parties clearly define their respective contributions, costs, and responsibilities for development, and share risks and rewards as milestones are acheived.
Key Financial Components of Licensing
Licensing transactions typically include three financial components:
- Upfront payment — A one-time payment made upon signing the agreement; the size of which often reflects the product’s stage of development.
- Milestone payments — Payments made when predefined development, regulatory, or commercial milestones are achieved.
- Royalty fees — Ongoing payments based on sales once the product is commercialized.
Classic Case in Cell Therapy Licensing
A successful example is the 2016 agreement in which Vericel Corporation licensed the rights to Carticel®, MACI®, Ixmyelocel-T®, and Epicel® to Innovative Cellular Therapeutics Co., Ltd., in China, South Korea, and Singapore. The deal was valued at US$14 million, comprising US$6 million upfront, US$8 million in milestone payments tied to development and launch stages, and subsequent royalties on net sales.
GWOXI’s Approach to Licensing Transaction
GWOXI is actively advancing four stem cell medicines in clinical trials while exploring licensing and co-development opportunities to expand access to international markets. Licensing transactions are among the most effective strategies for research-driven biotech companies to capture product value. Through strong partnerships, we aim to continue advancing innovation, enhance manufacturing processes, and deliver advanced stem cell medicines to a broader patient population.