Advice offered to pharma and biotech on reducing their in-licensing royalty costs

Typically a biotech or pharmaceutical company will need to license another’s inventions in order to manufacture their own products. Lori M. Waldron of Sills, Cummins & Gross PC, writing in National Law Review, offered some tips on how to minimize these costs.

  1. Consider using a graduated royalty rate.
  2. If the basis for the license is sales, make sure it is PAID sales, not just invoiced
  3. Net sales works better than gross sales because of all of the deductions that can be negotiated
  4. Negotiate sublicensee sales separately
  5. Negotiate a lower royalty for patent applications
  6. Negotiate a lower royalty if unlicensed infringing occurs in a covered territory
Examples of each of these strategies can be found in Royalty Rates in Biotech: BVR’s Guide to Full-Text Licensing Agreements.