Pharmaceutical Royalties in Licensing Deals: No Place for the 25% Rule of Thumb
The 25% rule of thumb is often quoted in the context of licensing royalty rates and in particular when deriving an appropriate rate of income due to a licensor for an innovative intellectual property asset. We have set out to conduct an in-depth analysis of historic market data from the pharmaceutical industry going back over ten years to check on the validity of this concept and found little if any evidence of its use, appropriateness or relevance. An abundance of anecdotal references and attempts can be found to make deal making data fit this incongruous notion, and which does not have a sufficiently robust foundation to make its utility appropriate in the pharmaceutical and biotechnology sector.
Our conclusion shows that this rule has no suitable place in the arsenal of licensing executives.