Pharmaceutical Licensing Agreements Explained: Types, Key Terms and How Deals Are Structured

What Is a Pharmaceutical Licensing Agreement?

A pharmaceutical licensing agreement is a contract in which the owner of a drug candidate, technology or know-how, the licensor, gives another company, the licensee, the right to develop, manufacture and commercialize it, usually in a defined field and territory, in return for payments. The World Intellectual Property Organization describes licensing agreements as “legally binding contracts” under which the owner of intellectual property gives someone else permission to use it on terms spelled out in the agreement.

A license is different from an assignment. As WIPO puts it, in a license “the right to use the IP is temporarily transferred,” whereas an assignment “has a definitive effect, like selling tangible assets.” It is also different from an acquisition, in which the buyer purchases the company that owns the asset. That distinction matters in practice: when a license ends, the rights can return to the licensor.

Why Companies License

For the licensor, licensing brings capital without selling equity, a partner with development and commercial reach it lacks, and the chance to keep rights in its home market. For the licensee, it fills a pipeline with external innovation at a lower cost and risk than discovering drugs internally.

Licensing has become the main channel for moving assets from China to global pharma. IQVIA found that 40% of the assets in-licensed by large pharma companies in 2025 came from China, and that the announced value of licensing deals for Chinese-originated assets reached $92 billion in the first half of 2026, already 88% of the 2025 total. Our guide to in-licensing and out-licensing compares the two sides of these deals.

Types of Licensing Agreements

Licenses can also grow over time. In 2024 Summit paid Akeso a further $15 million to add Latin America, the Middle East and Africa to its ivonescimab territory, and the amendment added a clause on US export controls and sanctions. Many large deals combine several types. Pfizer’s 2026 agreement with Innovent covers 12 programs: four global licenses, four licenses outside Greater China and four co-developed programs with shared profits. Our guide to biotech partnership structures covers co-development, options and platform deals in more depth, and our NewCo blueprint explains the NewCo model.

Kailera Therapeutics shows how a NewCo license is paid for. According to its IPO prospectus, Kailera was incorporated in May 2024 and licensed Hengrui’s GLP-1 portfolio outside Greater China for $100 million upfront, a $10 million technology transfer fee and preferred shares then valued at $96.4 million, giving Hengrui a stake in the company’s success. Academic licensing is also growing: AUTM reports that licenses signed by US universities rose more than 7% in fiscal 2025 and option agreements 10%, with licenses to startups up 15%.

Key Clauses, With Real Examples

Licensing agreements filed with the US Securities and Exchange Commission show how the main clauses are written. The examples below come from two such agreements: ImmuneOnco’s 2024 license to SynBio Tx, a subsidiary of Instil Bio, and CSPC’s 2023 license to Corbus Pharmaceuticals.

• Grant. What is licensed and how exclusively. ImmuneOnco granted “an exclusive (even as to ImmuneOnco or its Affiliates), royalty-bearing license,” meaning the licensor itself cannot compete in the licensed territory.
• Field. The uses covered. ImmuneOnco’s license covered “all therapeutic and diagnostic uses in humans and animals”; Corbus’s license from CSPC was limited to oncology.
• Territory. ImmuneOnco kept “China, including mainland China, Hong Kong, Macau, and Taiwan” and licensed the rest of the world; Corbus took the US, the EU, the UK, Canada and Australia.
• Diligence. What the licensee must do. Both agreements require “commercially reasonable efforts,” which the ImmuneOnco agreement defines as “reasonable, diligent, good faith efforts and resources as normally used by a similarly situated” company, judged country by country.
• Sublicensing. ImmuneOnco’s agreement allows sublicensing “through multiple tiers,” excluding debarred parties; CSPC’s also allows multi-tier sublicensing but requires its consent, which cannot be unreasonably withheld, for certain sublicenses.
• Governance. The CSPC agreement sets up a joint steering committee of six members, three from each side, that meets at least quarterly before the first sale, acts by unanimous consent and cannot amend the agreement.
• Intellectual property. Who prosecutes and enforces patents. Typically the licensee has the first right in its territory and the licensor in its own.
• Payments. ImmuneOnco’s deal had a $10 million upfront payment, described as “non-refundable, and non-creditable,” development milestones capped at $290 million, sales milestones of up to $1.82 billion and tiered royalties.
• Termination. Both agreements let the licensee terminate for convenience on 180 days’ notice. The CSPC agreement gives 90 days to cure a breach and lets CSPC terminate if a competitor acquires Corbus, unless the competing product is divested within six months.
• Disputes. ImmuneOnco’s agreement uses Singapore law and arbitration at the Singapore International Arbitration Centre; the CSPC–Corbus agreement uses New York law and arbitration in New York.

Royalty Term and Royalty Reductions

How long royalties last is one of the most valuable terms in any license. Both filed agreements use the standard three-part definition: royalties are paid “on a Product-by-Product and country-by-country basis” until the latest of ten years after the first commercial sale, the expiry of the last valid patent claim, and the end of regulatory exclusivity in that country.

The CSPC–Corbus agreement also shows the usual royalty reductions, although the percentages are redacted:

• A reduction where no valid patent claim covers the product.
• A credit for royalties the licensee pays to third parties for rights it needs, down to a floor.
• A permanent reduction when a biosimilar enters the market.
• A cap on the combined reductions in any quarter.

Royalty rates themselves are rarely published in full, but announced ranges follow the stage of the asset. AstraZeneca’s 2025 preclinical research deal with CSPC carries single-digit royalties; Summit’s 2022 license of ivonescimab, a clinical-stage antibody, carries low double-digit royalties; and Pfizer’s 2025 license from 3SBio carries tiered double-digit royalties.

Deal Economics in 2025–2026

Announced deal values combine three kinds of payment: an upfront payment at signing, milestones paid when development, regulatory and sales targets are met, and royalties. The table shows how much of the headline value of recent large deals was paid upfront.

Upfront shares are our calculation from the companies’ announcements: upfront divided by upfront plus maximum milestones. The median across these 11 deals is about 6.5%. The exception proves the rule: AstraZeneca’s license of Dizal’s Zegfrovy, a drug already approved in the US and China, paid 40% upfront, because most of the risk had already been resolved.

The largest upfront payments announced in 2026 so far include AstraZeneca’s $1.2 billion to CSPC for an obesity portfolio, $650 million each from Pfizer to Innovent and from AbbVie to RemeGen, and $600 million each from Bristol Myers Squibb to Hengrui and from AstraZeneca to Dizal. Our licensing deal tracker and China Out-Licensing Report follow these transactions.

Cross-Border Rules to Know

Licenses between Chinese and Western companies have to work under two regulatory systems. The main points:

• Human genetic resources. China’s 2019 regulations bar foreign entities from collecting or storing Chinese human genetic resources in China or taking them abroad on their own, require approval for international research collaborations, a filing to provide such data abroad and substantive participation by the Chinese partner. Clinical trials run in China for marketing approval, where no samples leave the country, need only a filing before they start, but exporting samples needs approval and providing the data abroad needs a filing and a backup copy kept in China. Clinical data generated in China therefore needs a compliant route to the licensee.
• Technology export. China classifies technology exports as prohibited, restricted or unrestricted; even unrestricted technology licensed abroad requires a contract filing, and in December 2023 China added cell cloning and gene editing technologies used in humans to the prohibited list.
• Tax. China levies a 10% withholding tax on royalties paid to non-residents, a rate the US–China tax treaty does not reduce for patent and know-how royalties, while technology transferred overseas and used entirely outside China can be zero-rated for VAT. Agreements should say which party bears these taxes.
• Payments. Royalties and other current-account payments can generally be made in foreign currency without prior approval from China’s foreign exchange regulator, subject to documentation.
• US rules. The BIOSECURE Act, signed in December 2025, restricts federal procurement from biotechnology companies of concern; exclusive licenses of federally funded university inventions for the US market generally require products to be “manufactured substantially in the United States” unless that is not commercially feasible, and the government keeps march-in rights under the Bayh-Dole Act; and Summit’s 2024 amendment with Akeso added a clause on US export controls and sanctions. Tariffs matter too: royalties tied to imported product can form part of its customs value, as our guide to the Section 232 pharma tariffs explains.
• Disputes. Neutral arbitration seats are the norm. The Hong Kong International Arbitration Centre handled 582 cases in 2025, including 388 arbitrations, most of them international, and the Singapore International Arbitration Centre, chosen in the ImmuneOnco agreement, is another frequent choice. For intellectual property disputes, the WIPO Arbitration and Mediation Center has handled more than 5,200 cases and reports that 70% of its mediations and 33% of its arbitrations end in settlement.

When Licensing Deals End

Not every license runs its full term. Two 2026 examples show how rights come back:

• ImmuneOnco and Instil Bio. In January 2026, Instil’s subsidiary and ImmuneOnco ended the 2024 license quoted above. The rights returned to ImmuneOnco, which agreed to pay $1.8 million, after Instil’s side had paid a $10 million upfront, $5 million of development prepayments and a $10 million payment for an IND.
• Arcturus and CSL. The two companies ended their collaboration on Arcturus’s self-amplifying mRNA vaccines in 2026; CSL agreed to pay $12 million and release about $16 million of liabilities, and Arcturus regained global rights to Kostaive.

Termination clauses decide what happens to data, regulatory filings, inventory and sublicenses when rights return, and they deserve as much attention at signing as the payment terms.

From First Contact to Closing

1. Confidentiality agreement. WIPO notes that confidentiality agreements are “often used before an IP license or other agreement is established.”
2. Non-confidential presentation and data room. The licensor shares a summary, then confidential data for diligence; our due diligence checklist lists what licensees review.
3. Term sheet. The economics, territory and key rights are agreed in principle; our cross-border term sheet guide covers the negotiation.
4. Definitive agreement and closing. Large deals usually close one or two quarters after signing, once antitrust and other conditions are met: Merck’s license from Hengrui was signed in March 2025 and expected to close in the second quarter, and AstraZeneca’s deal with Dizal was signed in July 2026 with closing expected in the second half of the year.

Terms That Cause Trouble Later

In our experience advising on cross-border licenses, the disputes that arise years after signing usually trace back to a handful of terms:

• Vague territory definitions, especially whether “China” includes Hong Kong, Macau and Taiwan.
• Diligence obligations without measurable milestones, which leave the licensor unable to show the licensee has under-invested.
• Data and regulatory rights that do not say who can use clinical data from the other party’s territory, or how it will be transferred lawfully.
• Manufacturing and supply, including technology transfer and readiness for FDA inspections, which have delayed approvals for several China-originated drugs, as our PDUFA calendar discusses.
• Change of control and termination provisions that do not anticipate the licensee, or the licensor, being acquired.

The Bottom Line

A pharmaceutical licensing agreement is the legal form of most partnerships that bring new medicines to patients across borders. The headline value attracts attention, but the real deal sits in the upfront and near-term payments, the royalty term and reductions, the diligence and termination clauses, and, for licenses involving China, the rules on data, technology export, tax and manufacturing.

If you are negotiating a license in or out of China, the US, Europe or Japan, talk to our team.