Royalty rates in pharma deals

A recent article in HeraldOnline quoted a Biopharma study and proclaimed the average royalty rate for deals with a pharma licensee to be between 11.74 to 14.9%, a report that was echoed elsewhere in the lay press.

IPValueWire tried to validate that rate in ktMINE, where there are nearly 2,500 Pharma patent and knowhow licenses. Over 1,600 of those pharma agreements used a base of License Net Sales, and the range of the means went from 5.74% to 10.03%. (Arguing against using the mean as a useful standard will be saved for another time.) Licenses using a base of License Gross Sales, though considerably smaller, produced a similar result, from 5.60% to 9.45%

Only when agreements using a base of License Gross Profit are examined does the royalty rate jump materially higher … but those licenses are significantly different in their terms, and so few agreements use that base, they do not inform this comparison.

BVR published a book of representative biotech licenses, comparing licenses that use License Net Sales as their base and License Gross Sales as their base, dividing each set into pre- and post-2001 agreements, isolating trends and giving full text of the agreements.