License-in and License-out are the two core models in biopharmaceutical BD transactions—the former buys equity with money, while the latter sells equity for money. Behind this lies completely different trading logic, risk-taking, and value judgments.

This article combines practical cases and recent transaction data to systematically outline the core differences between License-in and License-out, as well as key points of agreements.

License means “authorization.” Licensing transactions between pharmaceutical companies essentially mean: I authorize you the right to use my drug/technology/patent, and you give me the money.

---

For the same transaction, different perspectives lead to different terminology. A authorizes the project to B, A calls it License-out, and B calls it License-in.

1. What is License-in?

License-in refers to domestic enterprises acting as licensees, paying fees to overseas technology holders to obtain the rights to use their patents or intellectual property in China and other regions for subsequent development and market promotion. Essentially, it is about “bringing in” overseas technology.
Simply put, it means—spending money to buy others’ achievements and developing them on your own territory to sell them for profit.
For the introducer (licensee), the core value of License-in is: trading money for time, money for certainty.
Innovative drugs have a long-term R&D cycle of 10-15 years, with a very high failure rate. License-in, an asset already in Phase II/III clinical trials overseas, can rapidly advance in China using bridging trials or regional clinical data, potentially shortening the time-to-market cycle to 5-7 years. By exchanging relatively low upfront investment for the time window and certainty of proven assets, it reduces the full cycle risk and cost of new drug development.
Startup Biotech can quickly build pipelines and reduce the risk of R&D failure; Large pharmaceutical companies can use it to fill gaps in specific fields and supplement their product lines; Generic drug companies undergoing transformation can use this to undertake innovative products. In recent years, the scope of license-in transactions has gradually expanded from oncology to rare diseases, neuroscience, and other areas, and the product introduction stage has moved from late-stage clinical to early-stage development.

2. What is License-out?

License-out refers to domestic enterprises acting as licensors, licensing independent innovation achievements to overseas partners and charging licensing fees, thereby enabling the technology to “go global.”
Simply put, it means—you delegate your achievements, let others develop them, and you collect a share of the profits.
License-out has become the mainstream model for trading innovative drug BD in China. In 2025, the number of license-out transactions in China will reach 170, with a total annual amount of $134.8 billion and down payments of about $7.5 billion, representing a year-on-year increase of nearly 76%. China’s innovative drug transaction volume now accounts for 49% of the global total. In the first half of 2026, 3SBio reached a $1.25 billion upfront payment deal with Pfizer, setting a new record for the highest upfront payment for domestic innovative drugs licensed abroad.
The essence of this change is that the core driving force of China’s innovative drug industry has shifted from “capital introduction” to “capability output”—from “market for technology” to “technology for market.”

3. The Core Difference Between License-in and License-out

Dimension	License-in	License-out
Role	Buyer/Licensee	Seller/licensors
Trading direction	Technology/Product “Introduction”	Technology/Product “Going Global”
Payment direction	Payment (down payment + milestones + commission sharing)	Collecting Money (Down Payment + Milestones + Revenue Sharing)
Core purpose	Shorten R&D cycles and reduce the risk of failure	Verify asset value and obtain non-dilutive funds
Applicable scenarios	Quickly replenish pipelines and fill gaps in the field	Leveraging overseas expansion to advance international layout
Risk bearing	Assume risks related to clinical development, registration, and commercialization within the region	Transferring regional development risks to buyers

Underlying logical differences:

• Licensee-in parties trade “money + rights” for “time”—directly using verified assets to shorten the listing cycle
• License-out parties exchange “asset rights” for “money + partners“—they let others handle unfamiliar areas and earn their own money and profits

In the same cross-border licensing transaction, it is License-in for the buyer/importer and License-out for the seller/licensor. The two are relatively separate commercial activities, together forming a cooperation model of “shared risk and shared benefits” in the biopharmaceutical industry.

4. Core Transaction Structure

In a license transaction, the consideration paid by the licensee to the licensee usually consists of three parts: upfront payment, milestone payment, and sales revenue sharing.
The down payment is a fixed fee paid in a single transaction after signing the contract and is usually non-refundable. The upfront payment amount is influenced by factors such as the maturity of the licensed product’s R&D, potential market value, and degree of exclusivity.
Milestone payments are made in stages according to R&D and registration milestones, including obtaining clinical trial approvals, NDA submissions, and market approvals, serving as an important risk-sharing mechanism. When involving multi-regional cooperation, milestone events and corresponding payments must be agreed upon separately for each region.
Sales revenue sharing is a continuous payment based on a certain percentage of net sales after the product is launched, usually ranging from several percent to over ten percent. Net sales generally refer to the actual income after deducting taxes, insurance, transportation, packaging, and other expenses. Licensors typically retain some regional interests (such as Greater China) or joint development rights, rather than “selling out” all interests.

5. Four Models

of Transaction Structure According to the different participants and transaction structures, transaction structures are generally divided into four basic types:
1. Direct Authorization and Licensing Model
The licensor and licensee sign a technology license agreement directly. Domestic enterprises can directly (or indirectly through overseas related parties) grant technology licenses to overseas partners, or obtain technology licenses directly from overseas rights holders. This model has a clear structure and is suitable for the early exploration phase of enterprises in target markets where there is no mature business foundation.
2. Equity Cooperation Model
The licensee exchanges cash or their own equity or other assets to obtain shares in the licensor to become its shareholder and enjoy corresponding rights. A common form is for both parties to jointly invest in establishing a joint venture, with the joint venture company as the party involved in technology licensing transactions. The advantage of this model is that licensors not only receive licensing fees but also share in the equity appreciation of the joint venture.
3. The IP Holding Company (IPHC) model
enterprise establishes a dedicated IP holding company domestically and/or abroad to centrally hold and manage the group’s intellectual property assets, with the IPHC acting as the licensor to license the technology externally. This model is suitable for large enterprises with substantial intellectual property assets, enabling centralized management of IP assets and global strategic layout.
4. NewCo Model
This is a newly emerging structure in recent years, based on the traditional license-out model, increasing the proportion of shares held by domestic licensors in NewCo. Licensors will not only receive upfront payments, milestone payments, and revenue shares, but also acquire NewCo equity, with the potential to exit capital through IPOs or mergers and acquisitions in the future. Unlike the early model of Chinese companies that “only contributed assets and basically did not invest,” joint development means that Chinese innovative drug companies also need to invest capital, sharing risks and higher returns with overseas partners.

6. Core Terms

of a License Agreement Cross-border licensing transactions involve multiple dimensions such as intellectual property, regulatory approvals, and tax compliance. A complete license agreement typically covers the following core terms:
(1) License authorization terms

• Scope and boundaries of licenses: Clearly define the scope of licensed intellectual property (patents, trade secrets, data, etc.), strictly define the geographic scope (such as Greater China, global) and indication scope (core and extended indications), and avoid blurring rights boundaries that could lead to subsequent disputes.
• Licensing method: Clearly specify whether it is an exclusive license, exclusive license, or general license, and specify the rights for sub-licensing/sublicensing (such as whether sublicensing is allowed to affiliated companies or third parties, and the approval procedures for sub-licensing).
• Ownership of Improvement Results: During the agreed agreement period, both parties shall attribute, notify the winner, and authorize the use of the improvement results of the licensed subject matter (such as process optimization and new indication development) (independent improvements belong to the improver, joint improvements to both parties).
• Background and prospective intellectual property: Clarify the scope of authorization for “background intellectual property” existing before the agreement takes effect, as well as the ownership and distribution of benefits of “prospective intellectual property” arising after the agreement takes effect.

(2) Financial and consideration clause
: A one-time payment made immediately after signing the agreement, representing the licensor’s preliminary recognition of the value of the R&D in the early stages. The payment time, currency, and tax bearer must be clearly specified.

• Milestone payments: Payments made in installments based on specific achievements in drug development or commercialization (such as completion of clinical Phase I/II/III, first approval for marketing, or reaching specific sales targets). Clearly define milestones, trigger conditions, payment deadlines, and liability for late payments.
• Sales Revenue: Ongoing expenses paid based on a certain percentage (tiered or fixed rate) based on net sales after product launch. The calculation criteria (deductions), accounting timeline, and audit authority for net sales must be clearly specified.
• Other consideration: such as equity investment, provisions on withholding tax commitment, etc.

(3) R&D, Registration, and Commercialization Clauses
R&D and Registration Responsibilities: Clarify the specific responsibilities of both parties in drug development (such as clinical trial design, execution, cost allocation) and regulatory registration (such as IND/NDA submission, communication with regulatory authorities), as well as the reporting mechanism for R&D progress.

• Commercialization liability: Clarify the licensee’s marketing, sales, pricing strategies, and minimum sales commitments after the drug is launched, and agree on the licensee’s “commercial reasonable effort” standards and liability for breach of contract if the standards are not met.
• Production Responsibility: Clarify compliance standards, technical documentation handover, and supply chain responsibilities for drug manufacturing (such as CMO outsourcing).

(4) Representations and Warranties

• Rights and qualification guarantee: The licensor guarantees that it has legal and complete disposal rights over the licensed subject matter without any rights defects (such as no infringement disputes or conflicts of prior license).
• Compliance and Data Assurance: Both parties guarantee that the clinical data and technical materials provided are true and comprehensive, and that cooperation complies with relevant laws and regulations (such as data protection and antitrust filing requirements).

(5) Confidentiality and Compliance Clause

: Confidentiality obligations: Stipulate the scope, duration, and liability for breach of contract regarding trade secrets, clinical data, technical materials, etc. during the cooperation period.

• Compliance and Antitrust: Clarifies the cooperating obligations and responsibilities of both parties regarding antitrust filing, data compliance, and anti-commercial bribery.

(6) Termination and Exit Clauses

• Termination Circumstances: Clarify the trigger conditions for agreement termination, including normal termination (such as project clinical failure or expiration) and default termination (such as major breach or bankruptcy).
• Post-termination handling: Agreed to transfer intellectual property rights after termination of the agreement, return of technical materials, disposal of inventory products, as well as confidentiality obligations and non-compete restrictions after termination.
• Termination compensation: Clearly specifies economic compensation (such as termination fees) and cost sharing when the agreement is terminated due to reasons attributable to non-breaching parties (such as regulatory approval failures, force majeure).

(7) Other General Terms

• Applicable Law and Dispute Resolution: Clarify the applicable law (such as Chinese or foreign law) and the dispute resolution method (such as arbitration or litigation) and jurisdiction.
• Notification and Delivery: Agree on the effective method of notification and delivery between both parties.

Note: The above terms must be individually adjusted according to the actual negotiating positions of both parties, asset stages (early clinical or listed), and transaction structure to ensure rigor and enforceability.

7. Conclusion

The core difference between License-in and License-out essentially reflects the redistribution of asset value between different markets. Although the two may seem opposite, they are actually the most fundamental supply and demand relationship in intellectual property commercialization.

For industry practitioners, understanding the difference between License-in and License-out is not about learning two English words, but about grasping the core logic of BD trading: “Who bears what risk, who is exchanging for what return.” Whether buying or selling, the design of the transaction structure ultimately points to the same question: how to find the most reasonable balance between risk and return. This is the essence of BD trading and the core competitiveness of industry practitioners.

END

---

About Us

MeritsIP: Your Global Intellectual Property Partner

At MeritsIP, we provide comprehensive IP services in biomedicine, medical devices, manufacturing, semiconductors, and AI. We support 200+ top clients globally with strategic, high-quality IP services.

Stay Connected

• • Website: https://www.meritsipglobal.com

• • LinkedIn: Follow us on LinkedIn

• • Email: meritsip@meritsandtree.com

© 2025 MeritsIP. All Rights Reserved.