One of the most effective strategies for commercializing intellectual property (IP) is joint product development combined with licensing. This approach allows businesses to leverage their IP with a strategic partner, accelerating product development while minimizing costs and risks.
A great example is the recent exclusive license and development agreement between Avecho Biotechnology and Sandoz to commercialize a CBD-based treatment for insomnia in Australia.
This deal highlights key elements of a successful licensing strategy, including exclusive rights, financial structuring, milestone payments, and expansion options. In this article, we’ll explain how joint product development and licensing work, the critical role of financial structuring in these agreements, and how you can apply this strategy to scale your business.
Understanding Joint Product Development & Licensing
Joint product development (JPD) is when two or more companies collaborate to create a new product. On the other hand, licensing allows one company (the licensor) to grant another company (the licensee) the rights to use its IP in exchange for royalties, fees, or other benefits. Combined with these two strategies, the result can be faster market entry, lower development costs, and reduced risk for both parties.
This strategy is potent for IP owners because it enables them to leverage the resources of a larger, more established partner while maintaining ownership of their innovation. Instead of developing a product alone—which can be costly and time-consuming—partnering with an industry leader can strengthen the distribution network, regulatory expertise, and market credibility.
Case Study: Avecho & Sandoz Licensing Agreement
A great real-world example of this strategy is the licensing and development agreement between Avecho and Sandoz. According to the agreement, Sandoz gains exclusive rights to develop, manufacture, and commercialize Avecho’s CBD soft-gel capsules for insomnia in Australia.
Key elements of the deal include:
• Exclusive License: Sandoz has exclusive commercialization rights in Australia for Avecho’s CBD product, meaning no other company can develop or sell it in this market.
• Joint Development Efforts: Avecho and Sandoz will work together on further product development, leveraging each other’s expertise.
• Expansion Options: The deal includes an option to expand into “traditional territories” where IP protection and regulatory frameworks for pharmaceuticals are well established. This ensures future growth potential if the product succeeds in Australia.
• Licensing Agreement Duration: The agreement is structured for an initial multi-year term, with options for renewal based on regulatory approvals and commercial success.
• Financial Terms: The agreement includes upfront payments, milestone payments, and royalties on sales, ensuring both parties benefit as the product progresses.
How Financial Terms Ensure a Successful Licensing Deal
A well-structured licensing agreement includes multiple financial components that work together to ensure success for both the licensor and the licensee. Here’s how they function:
1. Upfront Payments
Upfront fees compensate the IP owner immediately for granting the license. These payments help cover the costs of past research and development and demonstrate the licensee’s commitment to the agreement.
2. Milestone Payments
Milestone payments are structured when specific development, regulatory, or commercial goals are achieved. These can include:
• Successful completion of clinical trials
• Regulatory approvals (such as TGA approval in Australia or FDA approval in the U.S.)
• Commercial product launch
• Reaching a specific sales volume threshold
These payments ensure that the licensor benefits financially as the product progresses while motivating the licensee to push forward with development and commercialization.
3. Royalties on Sales
Once the product reaches the market, the licensor earns ongoing royalty payments based on a percentage of sales revenue. These royalties typically range from 3% to 10%, depending on factors such as:
• The strength of the IP
• The exclusivity of the license
• The level of development investment by the licensee
4. Performance Obligations
Many licensing agreements include minimum sales targets or performance requirements. These ensure that the licensee actively markets and sells the product. If these obligations aren’t met, the licensor may have the right to reclaim the license, renegotiate terms, or seek additional compensation.
Together, these financial terms create a win-win scenario:
• The licensor receives financial security through upfront and milestone payments.
• The licensee minimizes risks by structuring payments around product development success.
• Both parties share in the long-term commercial success through royalties.
Why This Strategy Works for IP Owners
A joint development and licensing approach can significantly accelerate your path to market if you own valuable IP, whether a medical device, pharmaceutical technology, or another innovative product. Here’s why:
1. Faster Market Entry
Rather than building everything from the ground up, you can partner with an established player with regulatory approvals, distribution channels, and manufacturing capabilities.
2. Lower Financial Risk
Developing and commercializing a new product requires substantial capital investment. A licensing deal allows you to share development costs with your partner while still profiting from your innovation.
3. Leverage a Bigger Brand
Working with a well-known company gives your product immediate credibility and trust in the market. Instead of struggling to build your brand, you can ride on the coattails of an industry leader.
4. Expansion Potential
Like the Avecho-Sandoz deal, a strong licensing agreement should include expansion options into new markets. This allows you to scale your IP without entering multiple markets.
5. Revenue Growth Over Time
With the right combination of upfront payments, milestone payments, and royalties, you create a long-term revenue stream while minimizing the risks associated with direct commercialization.
How to Apply This Strategy to Your IP
If you’re sitting on valuable IP and wondering how to commercialize it, the joint development and licensing model could be the perfect solution. However, structuring a successful agreement requires careful planning:
• Finding the Right Partner – Your licensing partner should have market expertise, distribution power, and a shared vision for your product.
• Negotiating Favorable Terms to maximize your earnings. Ensure your agreement includes royalties, milestones, and future expansion rights.
• Protecting Your IP—Strong IP protection is critical. Before entering any deal, ensure that your patents, trademarks, and proprietary technology are secure and enforceable.
Ready to Explore Licensing for Your IP? Let’s Talk!
At Licensing Consulting Group, we specialize in helping IP owners, startups, and businesses structure and launch successful licensing campaigns. Whether you’re looking to develop a product with a strategic partner or license your IP to a larger company, we can guide you through the process and help you maximize your revenue potential.
Schedule a free consultation today to discuss your IP and explore the best licensing strategies for growth.
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Let’s turn your IP into a profitable asset!
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters, including the Batman Movies (1 and 2) and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money-Making Power of Licensing, was released in 2019 and is available on Amazon.com. He’s also a published writer, and his articles have appeared in several prestigious trade magazines, including The Licensing Journal, Intellectual Property Magazine, and License India.
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