Comparing the economic terms of biotechnology licenses from academic institutions with those between commercial firms

Licenses of drug-related biotechnologies from academic institutions to commercial firms are intended to promote practical applications of public sector research and a return on government investments in biomedical science. This empirical study compares the economic terms of 239 biotechnology licenses from academic institutions to biotechnology companies with 916 comparable licenses between commercial firms. Academic licenses had lower effective royalty rates (median 3% versus 8%, p<0.001), deal size (median $0.9M versus $31.0M, p<0.001), and precommercial payments (median $1.1M versus $25.4M, p<0.001) than corporate licenses. Controlling for the clinical phase of the most advanced product included in the license reduced the median difference in effective royalty rate between academic and corporate licenses from 5% (95% CI 4.3–5.7) to 3% (95% C.I. 2.4–3.6) but did not change the difference in deal size or precommercial payments. Excluding licenses for co-commercialization did not change the effective royalty rate but reduced the median difference in deal size from $15.8M (95% CI 14.9–16.6) to $11.4M (95% CI 10.4–12.3) and precommercial payments from $9.0M (95% CI 8.0–10.0) to $7.6M (95% CI 6.8–8.4). Controlling for deal terms including exclusivity, equity, or R&D in multivariable regression had no substantive effect on the difference in economic terms. This analysis suggests the economic returns associated with biotechnology licenses from academic institutions are systematically lower than licenses between commercial firms and that this difference is only partially accounted for by differences in the intrinsic terms of the license agreements. These results are discussed in the context of a reasonable royalty rate, recognizing that factors extrinsic to the license agreement may reasonably impact the negotiated value of the license, as well as economic theories that view government as an early investor in innovation and technology licenses as a mechanism for achieving a return on investment.