Out-licensing
Introduction
If in-licensing is existential, is out-licensing terminal? Sometimes yes, often no, and neither outcome is necessarily good or bad. Every asset a company has should produce a return. If intellectual assets lie fallow, they lose value daily instead of growing in value – for your firm and the in-licensee.
What
There are three typical occasions when out-licensing should be considered. Depending on the occasion, different aspects of out-licensing become more or less important. First, a terminating transaction: if the out-licensing of the IP results in the cessation of operational activity at your firm, this is an existential decision. It may be the golden ring, finally grasped, or it may be a fire sale. Either way, your company is not continuing after the deal. Second, specific IP assets may be un- or under-utilized, and not important to the core business. These have value, but the value is not being captured, and your company has no strategic intent to capture the value in the foreseeable future. Finding as many companies as possible to compete for the asset is now the goal. Third, certain types of IP assets are best monetized non-exclusively, i.e. rather than selecting a single partner to whom to out-license, out-licensing deals are sought with as many partners as is possible. While each individual non-exclusive deal will have less economic value than an exclusive deal, the multiplicity of deals can more than make up for it, both in dollars, and especially in risk-adjusted dollars and risk-adjusted clinical value. Finally, out-licensing is a popular, but by no means an exclusive mechanism. Mergers, acquisitions, assignments, joint ventures, and trade sales are among the many other mechanisms that should be considered.
When
Out-licensing may be the strategic endgame of a company, or it may be forced upon a company by financial constraints. Between these extremes, it is wise to regularly review a company’s IP assets and ask whether they are being managed optimally. For platform companies, out-licensing may be an omnipresent activity.
Why
A smart company knows it can’t be successful on its own. Out-licensing allows others to pick up your work and carry it forward, for their own benefit, but also for your benefit, and at their own risk and expense. The timing and terms of when out-licensing vs. going it alone is preferable are complex and multivariate decisions, intimately linked to company strategy.
Learning Goals
How product, platform, and service companies differ, buy-side vs. sell-side licensing, industry standard exclusive vs. non-exclusive terms.