By Dr Carlos Velez, expert trainer of Business Development & Licensing Course For Pharma & Biotech.
Pharma and biotech companies use three fundamental partnering models to collaborate, access technology, and drive corporate growth:
Research Agreements
Licences
Mergers & Acquisitions (M&A)
Each model differs in the level of access granted, the degree of control transferred, and the strategic and financial implications, for both the party offering the asset (out-licensing) and the party seeking it (in-licensing).
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The Three Fundamental Partnering Models
1. Research Agreement
A Research Agreement gives a licensee limited access to a technology, compound, tool, or material for internal experiments and evaluation, without transferring full rights. The licensor receives a modest cash payment. This type of agreement often includes an Option to License or a preliminary Licence Term Sheet, making it a low-risk first step toward a deeper partnership.
A typical sequence looks like this: the technology company provides the larger pharma partner with a sample of the drug or compound; the pharma company runs internal experiments (often comparing it with their own candidates in animal models or cell assays); results are shared; and the next step is either a full licence negotiation or the end of the relationship.
2. Licence
A licence gives the licensee permission to perform well-defined activities with the technology, such as conducting experiments, manufacturing, or selling a product. It does not transfer ownership of the technology itself. Licences can be structured to cover specific therapeutic areas (for example, oncology only, not dermatology) or specific geographies (Country A, but not Country B). The final contract defines governance, financial terms, responsibilities, and conditions for breach.
3. Mergers & Acquisitions (M&A)
An acquisition means complete ownership and control of an entire company: all its assets, liabilities, and employees. For the acquired company, it represents an exit for shareholders; for the acquirer, it delivers full strategic control over the asset and pipeline.
Implications: Out-Licensing vs In-Licensing
The right model depends on your position and strategic goal. Here is how the implications differ:
| Model | Out-Licensing | In-Licensing |
|---|---|---|
| Research Agreement | Generates early revenue (small); sets the stage for a future licence | Low-risk due diligence; useful data and validation; direct comparison with internal candidates |
| Licence | Generates revenue and future milestone/royalty upside; increases company valuation; enhances prestige; attracts new investors | Less risky than a full acquisition |
| Acquisition (M&A) | Exit for shareholders; the company ceases to exist as an independent entity | Complete control over all assets, technology, and people |
Download the Guide & Take This Insight with You:
🎓 If you want to learn about:
- The role of the BD&L function and partnering models for corporate growth.
- Key success factors and tips for the planning and execution of both the in- and out-licensing process.
- What you need to know about patents and intellectual property.
- Overview of forecasting and valuation tools, methods and approaches.
- Introduction to term sheets, negotiation, closing the deal and managing the alliance.
- Where and how AI can be used along the BD&L process.
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Business Development & Licensing Course For Pharma & Biotech
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