Licensing is, perhaps, the most common commercialization pathway for a company, outside of having a technology owner exploit the technology itself. Licensing occurs when the owner of a technology (or other entity with rights to a technology), the licensor, grants a third party, the licensee, the right to exploit the technology in some fashion.

In-licensing enables a company to acquire a technology without taking the time and/or using the resources necessary to develop the technology in-house. Specific reasons for in-licensing include:

  1. Reduce time and cost of development – By in-licensing a product or technology, the time and cost required to bring a product to market can be significantly reduced. In fact, a study by Mercer Capital Management ( suggested that big pharmaceutical companies should abandon drug discovery and focus on in-licensing compounds from other sources. The study found that the revenues generated from investing $1 billion dollars into in-house drug discovery were $14 billion, while the return from in- licensing $1 billion dollars of third-party developed compounds was $22 billion. The reasons for the higher return on the licensed compounds, was that products could be launched more quickly, and thus generated revenue more quickly.
  2. To meet the market standard – Many current manufacturing/production standards specify proprietary technologies. In order to compete in the market, companies must obtain all of the necessary licenses to such technologies.
  3. Freedom to operate – In-licensing can provide a company with freedom to operate. A risk for any company, particularly in sectors in which there is extensive patenting, is that it may introduce a new product that incorporates third party intellectual property. In such cases, without prior authorization of the patent owners, the risk of being accused of infringement is high. In-licensing the relevant technology can be a cost-effective way for a company to avoid expensive legal actions and/or disruption to the company’s business.