In the research and development of many products, especially pharmaceuticals, the costs can be get extremely high, causing companies to have second thoughts about the possibility of developing a drug. Inlicensing takes risk away in any one of a number of different ways to mitigate some of the hazards associated with the product, such as a new drug. Inlicensing is something many of the phamaceutical companies, such as Pfizer, GlaxoSmithKline, Novartis and others look at on a regular basis.
Inlicensing is a partnership that develops between two companies that have shared intentions, goals or fields of interest. In the case of drug companies, these goals can be the research and development of a product, or perhaps its distribution. Inlicensing is so popular because it allows the expertise of each company to be used in a way that is very beneficial. Further, the profit sharing that happens between the two companies can be a very lucrative investment.
If Pfizer, for example, needed help developing a new cancer drug, it may turn to a smaller, lesser-known research firm and ask what they can help with. If the other firm believes there could be a mutually beneficial arrangement, the two may enter into an inlicensing agreement. Pfizer may help by providing facilities, other experts, materials and money. The other company will help by providing some capital of its own, as well as the researchers.
When the final drug is developed, goes through testing and is on the market, the companies will share in the profits of the venture through the terms laid out in the inlicensing agreement. In some cases, this agreement may sunset after a certain period of time, allowing one company to retain total licensing rights for a time, but ensuring the other company is able to recoup its investment, plus some additional pay. If a product is never developed and put on the market, then the inlicensing deal dictates they both share in the loss.
In other cases, an inlicensing deal may be struck with a pharmaceutical company for distribution in foreign countries. It may be that the pharmaceutical company with the rights to the medication does not have the network built up to properly introduce the product into a given country. Building that network would take time and resources, both of which would cost money. Instead, it may be better to allow a different company to handle the distribution. The drug may be marketed under either company's name, depending on the inlicensing agreement, and both share in the rewards.