Correspondence: Nigel Borshell, Magdalen Centre, Oxford Science Park, Oxford, OX4 4GA, UK. E-mail: nigel.borshell@pharmaventures.com

¹has over 30 years experience in life sciences including senior international commercial management roles in diagnostics and biotechnology gained at drug testing specialists Syva Company, Hoechst's Behring division, US diagnostics giant Dade Behring and as European Business Development Director for California-based Cepheid Inc. Nigel is the author of numerous pharmaceutical/biotech industry reports, papers and articles. Nigel joined PharmaVentures consultancy group in 2008.

²has 26 years experience in the pharmaceutical biotechnology and in vitro diagnostics, sectors. Cross-discipline expertise spans research & development (R&D) through sales, marketing and business development including; 10 years with Johnson & Johnson in R&D, product development and business development; R&D Management/Sales & Strategic development for drug discovery platform company Acumen Bioscience and Management and business consultancy for Execute Technologies working with a range of companies across the high technology and investment sectors. Adrian joined PharmaVentures in 2007.

Received 17 March 2009; Revised 17 March 2009; Published online 21 April 2009.

Abstract

The 25 per cent 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 individual asset. We have set out to conduct an in-depth analysis of historic market data from the pharmaceutical industry going back over 10 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. In this paper we review available data and present the case that the use of the 25 per cent rule is at best problematic and at worst inappropriate and misleading to the pharmaceutical and biotechnology industry. We look at the basic principles of value as they apply to the industry's intellectual property. Our conclusion shows that this rule has no suitable place in the arsenal of the thinking licensing executive.