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Ranges of royalty rates, and royalty guidelines, U.S. Pharmaceutical Industry
Royalty rates for technologies run the range. Typically, technologies are licensed, not sold. One reason may be for tax depreciation advantages, another is risk. It is extremely risky for a licensee to drop millions of dollars to buy a patent. It just doesn't happen very often. Besides, licensors make more money from royalties anyway. The more product is sold, the more money they make. All parties benefit from royalties, where the licensee pays the licensor a percentage of gross sales, which usually range from 2-10 %...
- A raw idea is worth virtually nothing, due to an astronomical risk factor
- A patent pending with a strong business plan may be worth 1 %
- An issued patent may be worth 2 %
- A patent with a prototype, such as a pharmaceutical with pre-clinical testing may be worth 2-3 %
- A pharmaceutical with clinical trials may be worth 3-4 %
- A proven drug with FDA approval may be worth 5-7 %
- A drug with market share, such as one pharma distributing through another, may be worth 8-10%
"We have assumed that licensed foreign production generates a five percent royalty stream for PhRMA's member, which we understand to approximate the average pharmaceutical royalty rate."
Royalty rates will be based on product sales and the rates conventionally granted in the field identified in the CRADA's research plan for inventions with reasonably similar commercialpotential. Royalty rates generally will not exceed a rate within the range of 5 - 8 % for exclusive commercialization licenses. Contingent royalty schemes based on, e.g., patent issuance or nonissuance, and clauses treating the stacking of royalties or packaging of other inventions developed under the CRADA may be provided.
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Rate:
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0-2%
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2-5%
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5-10%
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10-15%
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15-20%
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20-25%
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>25%
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in-license
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23.6%
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32.1%
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29.3%
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12.5%
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1.1%
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0.7%
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0.7%
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out-license
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1.3%
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20.7%
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67.0%
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8.7%
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1.3%
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0.7%
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0.3%
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Typical royalty rates on pharmaceutical drugs start at 0.5-3% for the supply of extracts which lead to commercial products, and increase as PROVIDER adds more value to transferred MATERIAL or INVENTIONS. At the top end of the scale, transferring INVENTIONS as purified compounds with data on efficacy (animal tests, or human safety evaluations) might command 10% royalties or higher.
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PRODUCT
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ROYALTY RATE
(share of net sales) |
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Research Reagents (e.g. expression
vector, cell culture, media supplements)
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1 - 5%
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Daignostic products (e.g. monoclonal
antibodies, DNA probes)
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1 - 5%
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Therapeutic products (e.g. monoclonal
antibodies, cloned factors)
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5 - 10%
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Vaccines
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5 - 10%
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Animal health products
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3 - 6%
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Plant/agriculture products
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3 - 5%
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Royalty Recipient
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Average Share
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No. of Responses
|
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Inventors
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36.9%
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12
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Inventor's department
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20.9%
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9
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Inventors college
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13.0%
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2
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Inventors research account
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16.3%
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2
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University/institution
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48.1%
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4
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Research foundation
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33.8%
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8
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Tech development fund
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16.7%
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3
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a) The Company is committed to pay royalties to owners of know-how and to parties that financed research and development, at rates ranging from mainly 1% to 8% of net sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, the royalties will be paid for a period of up to 17 years, commencing on the date of the first royalty payment.b) The Company has also undertaken to pay royalties to the Government of Israel, at the rates of 2.0% - 3.5% of gross sales relating to a product or a development resulting from the research funded by the office of the Chief Scientist. The royalties due to the Government should not exceed the amount of participation, in dollar terms (in respect of research grants commencing 1999 - with the addition of LIBOR interest). The maximum amount of the contingent liability in respect of royalties to those entities at December 31, 2000 amounts to $ 40.6 million.
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Electronics
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0.5 - 5%
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Machinery
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0.33 - 10%
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Chemical
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2 - 5%
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Pharmaceutical
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2 - 10%
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C. Japanese Government (JPO) Published Rates
In view of the recent government-sponsored technology transfer initiative proposals, it should be noted that the government (JPO) has previously announced guidance on reasonable patent royalty rates. The basic rate should be 2-4% of the selling price.(53) In addition to the basic rate determination, other considerations, such as the technology used, required investment prior to commercialization, potential for industrial growth, etc., may increase or decrease the actual negotiated rate.
52. See Kenichi Nakano, Clauses in Licensing Agreements, Dispute Resolution in Japan, Japanese Patent Practice Prosecution/Licensing/Litigation, AIPLA 311, 330 (Jun. 1994)(Based upon a Japan Intellectual Property Association survey of its corporate membership).
53. Ibid.
Patents: Present law recognizes the possibility of compulsory licensing two years after registration of a patent with the Patent, Trademark and Technology Transfer Board, if the patented item is not being utilized in the Philippines on a commercial scale, or if domestic demand for the item is not being met to an "adequate extent and on reasonable terms." For pharmaceutical and food products, use, inadequate production for domestic demand, etc. need not be established. Royalty rates higher than five percent of net sales are allowed only in meritorious cases. Naturally occurring substances (plants or cells, for example) are not patentable.
(b) Share in royalties. - S & T scientists, engineers, researchers and other S & T personnel shall be entitled to receive share in royalties subject to guidelines of the Department. The share in royalties shall be on a sixty percent-forty percent (60%-40%) basis in favor of the Government and the personnel involved in the technology/ activity which has been produced or undertaken during the regular performance of their functions. For the purpose of this Act, share in royalties shall be defined as a share in the proceeds of royalty payments arising from patents, copyrights and other intellectual property rights;If the researcher works with a private company and the program of activities to be undertaken has been mutually agreed upon by the parties concerned, any royalty arising therefrom shall be divided according to the equity share in the research project;
CPT Page on Biotech and Gene Patents which focuses on the problem of overpatenting in biotech R&D: situations where genes used for research are patented before medical products have been developed, and the need for researchers to pay patent holders royalty rates stiffles further research on the genes.
Avoiding a Court award of a reasonable royalty - trebled for wilful infringement - plus attorney fees (for both the drug developer and the patentee in litigating the matter) and a permanent injunction against making, using, selling or offering for sale the US$1bn per year drug, [5] ie the certainty of being able to proceed with development of the drug beyond the enabling technology, easily could be worth a reach-through royalty as low as 0.25-0.50 per cent (US$2.5-5m a year) or even as high 1-3 per cent (US$10-30m) on a US$1bn per year drug. Thus, a reach-through royalty licence arrangement can be justified.
JOINT RECOMMENDATIONS: Mouse Genomics and Genetics Subgroup and Mouse Models of Human Cancers Subgroup#1. In concert with the NIH at large, develop and implement political initiatives that set limits on reach-through royalty clauses on technology transfer agreements proffered by the holders of intellectual property, whether in academia or industry. Establish fair and just standards that appropriately reward the developers of new technology, while at the same time providing incentive for such tools to be used widely in biomedical research and in the development of new therapeutics.
i. Develop a solution to the restrictive Dupont patents for the 'oncomouse' and for the cre/lox technology.
ii. Investigate the 'Transgenic Mouse Patent' owned by DNX, which is being aggressively protected, to the extent that smaller biotech companies are stopping the development of transgenic mouse models.
iii. Establish a national standard (and intellectual principles) for compensation associated with the transfer of tools and technologies, including those associated with mouse models, as contrasted to discoveries of specific product candidates that need broad protection to justify their development.
created: 27sep95 Lorrie Smith revised: 31jan00
Today,intellectual property rights impact every stage or vaccine development. As vaccine research and manufacturing become ever more complex, each step of the process is likely to be patented. The recombinant hepatitis B vaccine, for example, requires fourteen different patents to produce. Consequently, the resulting royalty payments significantly impact the vaccine's ultimate price and availability.
The university will receive five percent of the first $300 million in world wide sales, seven percent of sales from $300 million to $700 million and 10 percent of sales over $700 million annually. (University of Minnesota Press Service, October 5, 1999)
On March 13, 2000 . . . Doctors Without Borders supported South Africa's AIDS-activist Treatment Action Campaign (TAC), which on the same day organized a delegation of union leaders, church leaders, and others representing millions of South Africans asking that Pfizer either lower the price, or grant a voluntary license allowing TAC to import the drug or manufacture it locally, with a 5% royalty to Pfizer.
The Patent, which covers a procedure for ozone decontamination of blood and blood products through the treatment of blood and blood components, is the Company's principal asset, and was purchased, together with rights to other ozone-related inventions, from Immunologics Limited Partnership, L.P. ("ILP") in 1987, for an aggregate of 6,000,000 shares of the Company's common stock (the "Patent Purchase Agreement"). . . The Patent Purchase Agreement requires the Company to pay to ILP an annual royalty equal to 3% of the net receipts (i.e., net receipts after all credits, returns and customary deductions, and exclusive of all taxes) received by the Company in connection with the sale of any product, device or apparatus embodying the Patent.
Recently, Zonagen's stock has perked up on news that partner Schering-Plough (SGP:NYSE - news) will manufacture Vasomax, not a big surprise since the big drug company will sell the pill, if it's approved. Zonagen, of the Woodlands, Texas, will get a 20% to 22% royalty on U.S. Vasomax sales.
Peter Worrall, finance director, said the move would lift Vernalis's royalties on the drug from 17 to 24 per cent, although it would have little effect over the first four years, because of the staged payments to SB. Frovatriptan sales are forecast to reach Dollars 250m.
Under the agreement, Tanox will pay a $2.5 million non-creditable, non- refundable up-front fee for rights to obtain non-exclusive worldwide licenses under PDL's antibody humanization patents for up to four Tanox antibodies. The up-front payment was based on PDL's $4.0 million standard fee, less a credit of $1.5 million for a fee Tanox previously paid to PDL for a non-exclusive patent license for an antibody which was incorporated into the new agreement. Upon exercise of a license for a particular antibody, Tanox will pay PDL an additional license fee, annual maintenance fees and royalties on potential sales of the licensed antibody.
Under the terms of the Settlement Agreement, Vascular Solutions has agreed to pay a royalty of 2.5% of net sales of the Vascular Solutions Duett(TM) sealing device to St. Jude Medical, up to a maximum amount over the remaining life of the St. Jude Medical Fowler patents. In exchange, St. Jude Medical has granted to Vascular Solutions a non-exclusive license to its Fowler patents and has released Vascular Solutions from any claim of patent infringement based on sales of the Duett sealing device. Vascular Solutions has granted a non-exclusive cross-license to the Gershony patents to St. Jude Medical, subject to a similar royalty payment if St. Jude Medical utilizes the Gershony patents in any future device.
Miscellaneous
Suggestions, corrections or comments to James Love, at:
love@cptech.org.