Successful Early-Stage Out-Licensing Requirements

The biotech sector has undergone dramatic shifts in recent years. Following the COVID-19 vaccine boom, valuations soared and IPO activity surged. However, more recent market headwinds have introduced greater caution: IPOs have slowed, valuations have dropped, and investors have become increasingly selective. Despite these changes, life sciences investors remain cash-rich, and big pharma continues to rely on external innovation to fill its pipelines.

For small biotech companies, this environment makes out-licensing not just an option, but a strategic necessity—a pathway to capital, validation, and sustained pipeline activity. Data from 2025 (as of September YTD) underscores this trend: of 389 licensing deals worldwide, 34% involved preclinical-stage assets. In certain therapeutic areas, such as cardiovascular and metabolic diseases, nearly half (49%) of deals were struck at the preclinical stage.

This white paper explores the requirements for success in early-stage out-licensing, including key deal-making trends, common hurdles, and best practices for preparation.

Executive Summary

• Out-licensing is strategic for small biotechs: Enables access to capital, validation, and big pharma resources in a market of slower IPOs and selective investors.

• Early-stage deals are increasingly common. Preclinical assets account for a significant portion of licensing activity.

• Understanding your potential licensor. Deals are typically motivated by either expanding an existing portfolio or building a new franchise. Aligning with these goals builds trust and drives engagement.

• Preparation drives success. Clear scientific data, strategic commercial arguments, targeted partner networking, disciplined execution, and understanding business development culture are all essential.

• Expert guidance accelerates outcomes. Experienced support—from data room preparation to partner scouting and negotiation—enhances the likelihood of successful early-stage licensing.

Licensing Deal Trends in 2025

Since 2018, more than 70% of new molecular entity (NME) revenues have come from externally sourced products. Analysis of nearly 400 licensing deals (YTD 2025) reveals several important dynamics:

China’s Out-Licensing Dominance: Roughly 21% of deals originate in China, primarily at Phase 1/2 or earlier (>70%), with oncology and immunology/inflammation representing more than 80%. With over $4B in upfront payments (average $109M per deal), the perception of “cheap China assets” is misleading. Western pharma often pays comparable prices but gains access to more advanced clinical data than for similarly priced preclinical assets in the US or EU. Deals such as GSK/Hengrui highlight how big pharma increasingly views Chinese partners as cost-efficient R&D engines.

Lilly’s Strategic Positioning: With long-term revenue protection from tirzepatide, Lilly can pursue higher-risk, long-duration assets that extend portfolio growth beyond 2035. Competitors facing loss-of-exclusivity cliffs by 2027 are constrained to shorter-term strategies.

Therapeutic Area Variance: Cardio-metabolic assets command the highest upfront payments, driven in part by the global obesity market race (e.g., Roche/Zealand as an outlier). By contrast, immunology and inflammation assets trade at roughly a 50% discount to oncology, despite being more advanced (61% Phase 2+ versus 47% in oncology).

These trends demonstrate that deal-making remains active, but pricing and partner priorities are increasingly nuanced.

Why Small Biotech Out-License

Small biotechs generally face three strategic options: go it alone, collaborate, or out-license. Independent development and collaborations require capital, infrastructure, and expertise that many early-stage companies lack. Out-licensing allows small companies to leverage big pharma resources, reduce R&D spend, and maintain an active pipeline.

The rise of early-stage deals underscores this shift. In 2025, in most TAs more than 30% of licensing agreements involved preclinical assets, reflecting big pharma’s growing willingness to assume risk earlier in development. With IPOs slowing and valuations compressed, out-licensing has become an essential mechanism for raising capital and generating validation.

Considering Your Partner's Rationale

A good understanding of your partner’s business needs can differentiate an out-licensor in a partner’s mind. Stepping away from personal goals and considering the opportunity from the in-licensor’s perspective can generate trust and interest during negotiations. That said, this insight is best used cautiously in the early stages.

Assumptions about why a partner might value the asset are usually introduced after several conversations rather than in initial communications.

Potential partners pursue licensing deals for many reasons, which generally fall into two broad categories:

• Expanding or evergreening an existing portfolio 

• Developing a new franchise, potentially in a new therapeutic area

A review of publicly available sources—company websites, press releases, or quarterly investor reports—can provide valuable insight into an in-licensor’s priorities. The following sections outline these considerations and how licensors can respond.

Expanding An Existing Portfolio

A licensee may seek to build out an existing portfolio for multiple, overlapping reasons:

Achieve Commercial Synergies in a Growing Portfolio. Acquiring an asset within an existing therapeutic area enables the sales force to engage the same physicians with a broader suite of related products. For example, Gilead has strategically expanded its liver franchise through multiple licensing deals.

Provide a Continuum of Product Offerings to Stakeholders. A partner may already have products in a disease area but lack coverage across all patient segments. For instance, they may have drugs for mild or moderate patients but seek a novel therapy for severe cases. Licensing complementary assets allows the partner to offer a “continuum of care.” Sunovion, for example, markets nebulized products such as Brovona for COPD and acquired Novartis’ inhaled COPD line to expand its product offerings across the continuum of care.

Capitalize on Potential for Combination or Sequential Therapy. In targeted oncology and immunotherapy, an out-licensor’s asset may pair with the partner’s existing drug for combination opportunities. Exelixis’ collaboration with Genentech, testing cobimetinib (MEK inhibitor) in combination with atezolizumab (anti-PD-L1 antibody) in three different cancers, illustrates this approach. Oncology alone provides many such examples, particularly around PD-(L)1 checkpoint inhibitor partnerships.

Limit Competitive Threats.  New therapies can pose competitive threats to companies with established products. In such cases, partners may seek novel assets to better compete and preserve long-term portfolio growth. Shire, for instance, acquired Dyax to gain access to its subcutaneous prophylactic pipeline agent, which represented a potential improvement over existing infused options in HAE.

Extend the Lifecycle of an Aging Brand. A potential licensee may have an aging product nearing patent expiration. Acquiring complementary assets can support lifecycle management and continued revenue generation. For example, Astellas acquired Ogeda to expand its genitourinary portfolio, building on Myrbetriq (mirabegron) and VESIcare (solifenacin succinate), with the latter losing patent protection in 2018.

Developing a New Franchise

Companies pursuing a new franchise or therapeutic area face the choice of building internally or acquiring externally. Internal development requires time and capabilities that may not exist in-house. Licensing or acquiring assets allows for faster market entry and access to necessary expertise.

Quickly Build Out a New Franchise. Partnering or acquiring assets allows rapid development in a new area. For example, Takeda has actively sought to expand into the rare disease space.

Garner Market Experience in a New Area.  Companies entering new markets may acquire or partner with later-stage assets to gain commercial experience and physician relationships ahead of their internal launches. Amgen’s in-licensing of U.S. rights to Servier’s heart failure drug, Corlanor, exemplifies this approach, providing market presence before the anticipated launch of omecamtiv mecarbil.

Acquire Internal Expertise or Technical Platform Capabilities. Entering a new franchise may require regulatory, manufacturing, or platform-specific expertise. Novartis, for example, has pursued multiple deals to gain access to new treatment approaches, including CAR-T therapies.

Challenges in Early-Stage Licensing

Despite its advantages, early-stage out-licensing is rarely straightforward. Common obstacles include:

• Identifying hidden opportunities through networking and industry knowledge

• Difficulty initiating discussions with the right partners

• Lack of experienced business development teams

• Insufficient scientific or clinical data

• Complex ownership structures with multiple stakeholders

• Misaligned expectations on value and deal terms

The central challenge is persuading partners that an early-stage asset has a high likelihood of clinical success. Clear, compelling packaging of scientific and commercial value is where many small biotechs struggle.

Preparing For Success

Interviews with senior executives highlight five critical steps to increase the likelihood of a successful licensing outcome:

1. Communicate the Promise of the Science.  Provide robust, well-organized data linking preclinical performance to clinical potential. Many companies use secure virtual data rooms (VDRs) from providers like iDeals, Intralinks, Datasite, or Firmex. Centralizing all relevant materials—preclinical study reports, IP summaries, regulatory filings, and clinical development plans—streamlines partner evaluation and signals preparedness and credibility.

2. Identify and Network with the Right Partners. Thorough research and proactive networking are essential. The best opportunities are not always with the “obvious” companies; for example, a big pharma known in one therapeutic area may be open to another. Evaluate potential partners’ pipelines, therapeutic focus, and strategic priorities to ensure alignment. Building relationships early fosters credibility and trust.

3. Develop Strategic and Commercial Arguments. Beyond presenting the science, articulate a compelling commercial rationale. Demonstrate how the asset strengthens a partner’s pipeline, addresses coverage gaps, and mitigates risk. For pre-IND assets, clearly link scientific potential and mechanism of action to business impact. Highlight competitive differentiation, potential market opportunities, alternative development strategies, and complementary assets. Preparing risk assessments and key value drivers in advance supports constructive negotiations.

4. Execute with Discipline. Closing an early-stage licensing deal requires alignment of expectations, rigorous due diligence, and proactive post-deal management. Ensure scientific and commercial assumptions are documented and risks addressed upfront. Transparent communication builds trust, identifies strategic opportunities, and cultivates strong post-transaction relationships, positioning the company as a trusted partner for future deals.

5. Foster a Strong Business Development Culture. Success also depends on understanding a partner’s business development culture. Thoughtfulness about deal preferences, past collaborations, and negotiation habits builds confidence, respect, and alignment. Licensors should review aspects of potential partners’ histories, asking:

• Does the partner typically engage in co-development or co-commercialization deals?

• What is the partner’s approach to geographic rights for early-stage assets?

• What degree of clinical validation or development stage does the partner typically seek?

• What are the usual deal terms, and how do these vary by asset or collaboration?

Answering these questions refines high-priority partner lists, informs pitch presentations, and shapes negotiation strategy.

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Outbound Pharma supports clients throughout the licensing process, including preparation, due diligence, partner scouting, and negotiation.

In a recent engagement, we helped a small biotech position an IND-ready asset by preparing all required data room materials, screening potential licensees, and securing meetings with qualified partners. Our guidance extended through asset valuation and negotiation, enabling the client to present a compelling case to big pharma decision-makers.

We continue to provide insights on value drivers and best practices for early-stage out-licensing, helping clients align scientific promise with commercial expectations to maximize the likelihood of successful partnerships.

About the Author

Dr. Claudio Rota is the Founder and Managing Director of Outbound Pharma, a boutique consultancy supporting business development in the life sciences sector. With over 20 years of international experience, he has led 120+ BD&L projects across many therapeutic areas. Dr. Rota was founder of LxGroup, a life science licensing company connecting early stage assets with the private sector. He now works with a global client base that includes many of the top 50 pharmaceutical companies and supports hundreds of organizations in scaling their commercial efforts. Before founding Outbound Pharma in 2017, he held senior M&A and BD&L roles at Dentsply Sirona, Reckitt Benckiser Pharmaceuticals, university tech transfer, and pharmaceutical spin-offs. His expertise spans IP licensing, forecasting and strategy consulting across global markets. Claudio holds a Ph.D. in Biomedical Engineering from the University of Rochester, a B.S. in Physics from Southern Polytechnic State University, and a Masters in Fundraising from Bologna Business School.