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 know-how licenses. Over 1,600 of those pharma agreements used a base of License Net Sales, and the mean royalty rate went from 5.74% with lower-royalty-rate deals to 10.03% in higher-royalty-rate deals. Licenses using a base of License Gross Sales, though considerably smaller in number, 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 and they do not inform this comparison.

BVR has 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.