Biopharma licensing deals carried more than $252 billion in announced value through Q4 2025, the highest total since 2016 [1]. Upfront cash was 7% of that value [1]. The remaining 93% is payable later, if it is payable at all.
This article shows how those deals are built, how to value the IP inside them, and where they fail in court. It uses primary sources where they exist: SEC filings, court opinions, and company releases. It also contains original calculations. We label each one as analysis.
DrugPatentWatch tracks the patent and litigation records that sit under many of these deals. We point to it where it helps. We do not use it in place of FDA, USPTO, or court records.
The Short Answer: What a Pharmaceutical Licensing Agreement Prices
What is a pharmaceutical licensing agreement?
A pharmaceutical licensing agreement is a contract in which an owner of patents or know-how gives another company defined rights to develop, make, or sell a drug. The licensee pays for those rights. Payment usually has three parts: an upfront fee, milestone payments, and royalties on sales.
What do most licensing agreements look like in practice?
Goodwin tracks more than 200 life sciences licensing and collaboration transactions. In its database, 73% are exclusive, royalty-bearing licenses, and 88% are worldwide licenses [2]. The database covers biologics (48%), small molecules (27%), devices (6%), and other products (19%) [2].
Who pays whom, and for what?
The licensee pays the licensor. In exchange, the licensee gets the right to use the licensed patents inside a field and a territory. The licensor keeps ownership. The contract also decides who runs trials, who files and defends patents, and what happens if the licensee stops work.
The Five Findings That Matter
Upfront cash is a small share of deal value, and the share depends on stage. J.P. Morgan puts it at 7% for 2025 licensing overall [1]. Goodwin puts it at 3.7% for discovery and preclinical deals [2]. In four deals we calculated, the share ranged from 1.4% to 20.7% (analysis, Table 3).
Royalty tiers fell in 2025. Median tiers for later-stage deals were 9.3% (low) and 13% (high). For early-stage deals they were 4.5% and 8% [2].
China is now a main source of in-licensed assets. IQVIA reports that Chinese assets were 40% of all assets in-licensed by big pharma in 2025 [6].
Courts police conduct after signing. On September 24, 2026, a federal jury found that Eli Lilly breached the implied covenant of good faith in a 2017 license with Nektar and awarded $90 million [25]. The jury also found that Lilly met the express efforts clause [25].
A royalty can fall by calendar date. Merck pays 6.5% on Keytruda net sales through 2023, then 2.5% through 2026, to BMS and Ono [23]. At 2025 sales, we calculate the 2.5% rate at about $792 million (analysis, Table 5).
Methodology: How We Built the Numbers in This Article
What data did we use, and for what period?
We used four kinds of source. Benchmark reports came from J.P. Morgan, Goodwin, IQVIA, and Blue Matter. Primary documents came from SEC filings by Pfizer and Merck and from company press releases. Legal analysis came from court opinions and law-firm summaries. Deal data covers 2025 through September 2026. Legal authorities run from 2007 to October 2026.
How did we select and calculate?
We put a deal in Table 3 only if both the upfront payment and the total potential value came from a company release, an SEC filing, or a Reuters table. We counted each deal once. We did not add benchmark datasets together, because they overlap.
We calculated upfront share as upfront payment divided by upfront plus disclosed milestones. We excluded equity investments from the total. We calculated expected royalty as probability of approval times royalty rate times sales. We derived later-phase approval odds by dividing the Phase I likelihood of approval by the cumulative earlier transition rates.
What are the limits?
Headline deal values include milestones that are unlikely to be paid in full. Many royalty rates appear only as ranges such as “tiered double-digit.” Benchmark reports differ in scope. We did not review confidential agreements. A calculated figure in this article is analysis. It is not a reported statistic.
How Big Is Pharma Licensing in 2025 and 2026?
Why do four datasets give four different answers?
Four sources measure the same market and report different figures. The reason is scope. J.P. Morgan counts therapeutics and platform R&D licensing [1][3]. Blue Matter defines total deal value as upfront plus milestone payments [4]. Goodwin counts upfront plus development and sales milestones, and it splits deals by stage [2].
Source
Period
Finding
J.P. Morgan [1]
Through Q4 2025
More than $252 billion in announced licensing value; upfront 7% of total
J.P. Morgan [3]
H1 2025
$119.9 billion in announced value; 9% paid upfront
IQVIA [5]
Full-year 2025
$232 billion licensing total deal value, a 10-year high
Blue Matter [4]
H1 2025
Upfront about 15% of total deal value; partnerships about 60% of all deal value
Goodwin [2]
2025, early-stage deals
Upfront 3.7% of deal value; median total deal value $470 million
Two lessons follow (analysis). First, a headline figure without a stated scope is not citable. Second, upfront share is not one number. It moves with stage, deal type, and who is counting.
China out-licensing: how large and how fast?
IQVIA reports that total value of in-licensing deals for China-originated assets, excluding AI partnerships, rose from $45 billion in 2024 to $105 billion in 2025 [5]. In the first half of 2026 the figure reached $92 billion, or 88% of the 2025 total [6]. IQVIA also reports that Chinese assets made up 40% of all assets in-licensed by big pharma in 2025 [6].
Why do China deal counts and values differ by source?
Data providers use different filters. Pharmcube counted $137.7 billion in 2025 for companies in the greater China region, and Reuters reported 186 deals [7]. China’s drug regulator and the South China Morning Post reported 157 deals worth $135.7 billion for the same year [8]. For the first half of 2026, China’s NMPA reported about $110 billion in 81 deals [9]. IQVIA’s figure for the same half-year is $92 billion [6]. On these numbers, the NMPA figure is about 20% higher than IQVIA’s (analysis: 110 divided by 92).
Which therapy areas lead China-to-big-pharma deals?
Oncology led 2025 with 49% of China-to-big-pharma out-licensing deal count. Immunology had 22% and cardiovascular-renal-metabolic had 20% [5].
Deal Architecture: Upfront, Milestones, Royalties, and Equity
What share of deal value is paid upfront?
It depends on stage. For discovery and preclinical deals, Goodwin reports that the upfront share of deal value rose from 1.5% in 2024 to 3.7% in 2025 [2]. Development milestones rose from a median 23% to 33% of deal value. Sales milestones fell from 73% to 64% [2]. Money moved earlier in the schedule.
Component
2024
2025
Source
Upfront share of deal value
1.5%
3.7%
[2]
Development milestones
23%
33%
[2]
Sales milestones
73%
64%
[2]
Median total deal value
$460 million
$470 million
[2]
What royalty rates do licensing deals carry?
Goodwin reports 2025 median royalty tiers. In later-stage deals (Phase 1 and later) the low tier was 9.3% and the high tier was 13%. Both fell from 2024, by 0.7 and 2 percentage points [2]. In early-stage deals the low tier was 4.5% and the high tier was 8% [2].
Deal stage
Median low tier
Median high tier
Change from 2024
Source
Early-stage (discovery, preclinical)
4.5%
8%
-0.5 / -2 points
[2]
Later-stage (Phase 1 and later)
9.3%
13%
-0.7 / -2 points
[2]
Four royalty shapes: an original classification
Royalty clauses differ more in shape than in rate. We sort them into four shapes. This is our classification. It is not an industry standard.
Flat royalty
One rate applies to all net sales for the whole term. The royalty in Kimble v. Marvel was flat: 3% on sales of a toy, with no end date [19].
Sales-tiered royalty
The rate rises as annual sales rise. Pfizer’s license from 3SBio pays “tiered double-digit royalties” on SSGJ-707 sales if the drug is approved [10].
Time-stepped royalty
The rate changes on fixed calendar dates. The Keytruda settlement is the clearest public example. The rate is 6.5% through December 31, 2023 and 2.5% from January 1, 2024 through December 31, 2026 [23].
Event-reduced royalty
The rate falls when a defined event occurs, such as patent expiry or generic entry. U.S. law forces this shape for patent royalties. A royalty for use of a patented invention cannot run past the expiry of the last licensed patent [17][19]. Section “The Legal Rails” covers this.
How common are equity grants, options, and control rights?
Licensees granted equity in 22% of 2025 deals in Goodwin’s database, with a median amount of 20% for those deals [2]. The summary does not define the base for that percentage. Opt-in rights appeared in 17% of deals [2]. Licensees held the first right to prosecute patents in 66% of deals and the first right to enforce in 74% [2]. In practice, the party with first right to enforce controls how the patents are defended.
Case Study: Pfizer and 3SBio, Priced Line by Line
What did Pfizer pay, and what did it get?
Pfizer completed an exclusive, global, ex-China in-licensing agreement with 3SBio in July 2025 for SSGJ-707, a bispecific antibody that targets PD-1 and VEGF [10]. 3SBio received $1.25 billion upfront [10]. It can earn up to $4.8 billion in development, regulatory, and commercial milestones, plus tiered double-digit royalties if the drug is approved [10].
The contract has two more payments. Pfizer paid $100 million for an option on China rights and would pay up to $50 million more if it exercises the option [10]. Pfizer also made a $100 million equity investment in 3SBio [10].
How does upfront share compare across four 2025 and 2026 deals?
The table below holds only deals whose upfront and total values came from a company release, an SEC filing, or a Reuters table. The last column is analysis.
Deal
Asset
Upfront
Total potential value
Upfront share (calculated)
Source
Pfizer / 3SBio
SSGJ-707, PD-1 x VEGF bispecific
$1.25 billion
$6.05 billion ($1.25B + $4.8B), excluding equity
20.7%
[10]
Merck / SciBrunch
SPR2015, experimental cancer drug
$400 million
Up to $2.13 billion
18.8%
[12]
Novo Nordisk / Hengrui
HRS-1596, oral GLP-1/GIP agonist, Phase 1-ready
$300 million
Up to $2.6 billion
11.5%
[11]
Madrigal / Suzhou Ribo
Experimental liver-disease programs
$60 million
Up to $4.4 billion
1.4%
[7]
The spread is wide. The Pfizer deal paid 20.7% upfront. The Madrigal deal paid 1.4%. The 2025 market-wide share was 7% [1]. A single average hides this range. A deal team should compare against deals of the same stage and modality.
IP Valuation: How to Value a Licensed Pharmaceutical Asset
What is rNPV and why do licensing teams use it?
Risk-adjusted net present value (rNPV) is the standard way to price a drug that has not launched. It multiplies each future cash flow by the probability that the program reaches that point. Then it discounts the result to today. A Phase II asset earns nothing unless it passes Phase II, Phase III, and review. The model charges for that risk.
What clinical success rates should feed an rNPV model?
The BIO, Informa, and QLS Advisors study of 2011 to 2020 covers 9,704 development programs and 12,728 phase transitions [13]. It reports a 7.9% likelihood of approval from Phase I [13]. Biologics had a 9.1% likelihood of approval and new molecular entities had 5.7% [13]. Citeline’s later data for 2014 to 2023 puts the Phase I figure at 6.7% and shows oncology at 4.7% [15].
Step
Rate
Type
Source
Phase I to Phase II
52.0%
Reported
[14]
Phase II to Phase III
28.9%
Reported
[14]
Phase III to NDA/BLA
57.8%
Reported
[14]
Phase I to approval
7.9%
Reported
[13]
Phase II start to approval
15.2%
Calculated: 7.9% / 52.0%
Analysis
Phase III start to approval
52.6%
Calculated: 15.2% / 28.9%
Analysis
One caution applies. These are broad historical averages. Do not paste them into a model for one drug without matching time period, indication, modality, and the evidence available at the valuation date [14].
Worked example: what a royalty stream is worth by stage (hypothetical)
The inputs below are hypothetical. They are not a real drug. We assume peak annual sales of $1.5 billion and a 13% royalty. The 13% matches the 2025 median high tier for later-stage deals [2]. Expected peak-year royalty equals probability of approval times 13% times $1.5 billion. The result is before discounting and before launch timing.
Phase II asset
Probability of approval is 15.2% (Table 4). Expected peak-year royalty: 0.152 x 0.13 x $1,500 million = $29.6 million.
Phase III asset
Probability of approval is 52.6% (Table 4). Expected peak-year royalty: 0.526 x 0.13 x $1,500 million = $102.6 million.
The same asset is worth about 3.5 times more in expected royalty after it clears Phase II (analysis: 102.6 divided by 29.6). This is why licensors often prefer to wait for data, and why licensees want options and milestones that shift payment to after the data.
Why did the Federal Circuit reject the 25% rule?
Many teams still quote the “25% rule,” which sets a licensee’s royalty at one quarter of expected profit. On January 4, 2011, the Federal Circuit held in Uniloc v. Microsoft that the 25 percent rule of thumb is a fundamentally flawed tool for a baseline royalty and is inadmissible in patent damages cases [16]. The court said the rule is not tied to the facts of the case [16]. The ruling concerns litigation damages. It does not ban the rule in a negotiation. It is a warning that a number with no link to the specific patent and product will fail under challenge.
What patent data should you pull before pricing an asset?
Pull the full patent estate first. Then pull the challenge history. A valuation that assumes the headline patent date is the end of exclusivity can be wrong in either direction.
Patent estate and exclusivity
List each patent by type: composition of matter, formulation, method of use, and manufacturing process. Record expiry dates, term extensions, and FDA exclusivity. Check the Orange Book for small molecules and the Purple Book for biologics. Confirm each entry against USPTO and FDA records.
Litigation, PTAB history, and sales
DrugPatentWatch combines Orange Book patent listings, PTAB petition history, litigation records, and drug sales data in one database [39]. That helps a deal team build the patent timeline before pricing. DrugPatentWatch also publishes a guide on how to check whether a drug patent has already been licensed [40]. Use these as a starting map. Then verify key dates in the primary records.
Royalty Case Study: Keytruda’s Time-Stepped Royalty to BMS and Ono
What are the public terms of the Merck settlement license?
Merck settled worldwide PD-1 patent litigation with Bristol-Myers Squibb and Ono Pharmaceutical in January 2017 [23]. Merck made a one-time payment of $625 million to BMS and Ono [23]. It took a non-exclusive license to market Keytruda in any market where the drug is approved [23]. Merck pays 6.5% of global net sales from January 1, 2017 through December 31, 2023, and 2.5% from January 1, 2024 through December 31, 2026 [23]. BMS receives three-quarters of the royalty, and Ono receives the rest [23].
What do those terms cost at 2025 sales?
Merck reported 2025 sales of Keytruda and Keytruda Qlex of $31.7 billion, or $31,680 million [24]. We applied the contract rates to that figure. The royalty base in the contract is net sales of Keytruda, and Merck’s reported line includes $40 million of Keytruda Qlex [24]. The result is therefore an estimate.
Item
Calculation
Result
Royalty at the 2.5% rate in force for 2025
2.5% x $31,680 million
about $792 million
Same sales at the earlier 6.5% rate
6.5% x $31,680 million
about $2,059 million
Annual saving from the step-down
$2,059 million – $792 million
about $1,267 million
BMS share of the 2.5% royalty (75%)
0.75 x $792 million
about $594 million
Ono share (25%)
0.25 x $792 million
about $198 million
The public terms end the royalty on December 31, 2026 [23]. If sales stay flat and no other terms apply, the royalty cost of about $792 million a year drops out from January 1, 2027 (analysis). Sources: [23][24].
The Legal Rails: Kimble, MedImmune, and HSR
Can a license charge royalties after the patent expires?
No, not for use of the patented invention. In Kimble v. Marvel Entertainment, 576 U.S. 446 (2015), the Supreme Court declined to overrule Brulotte v. Thys [17]. Marvel had agreed to pay Kimble 3% on sales with no end date [19]. Marvel stopped paying when the patent expired in 2010, and the courts agreed [19].
The Court also confirmed what parties may do. A licensee may defer payment for use before expiry into the period after expiry. The Court’s example is a 10% royalty during a 20-year term, amortized over 40 years [18]. Royalties may run until the last-running patent in the agreement expires [19].
Scenario
Royalty after the licensed patent expires
Source
One licensed patent, royalty tied to sales
Must stop or step down at expiry
[17][19]
Several licensed patents with different expiry dates
May run until the last-running patent expires
[19]
Payments for pre-expiry use, spread over a longer term
May continue after expiry
[18]
Can a licensee challenge the patent it licenses?
Yes. In MedImmune v. Genentech, decided January 9, 2007, the Supreme Court held 8-1 that a licensee does not have to breach or terminate its license before it asks a court to declare the patent invalid or not infringed [20]. The dispute involved Synagis and Genentech’s Cabilly II patent [20]. The Court did not decide whether a licensee that keeps paying is excused from its contract duties if it wins [21]. Licensors who want a no-challenge clause or a termination right on challenge should say so in the contract and check that it is enforceable.
When does an exclusive license need an HSR filing?
Some do. Under FTC rules adopted in 2013, an exclusive pharmaceutical patent license that transfers “all commercially significant rights” is an asset acquisition under the Hart-Scott-Rodino Act [22]. A licensor can keep limited manufacturing rights and co-rights and still transfer all commercially significant rights [22]. The September 2026 Novo Nordisk and Hengrui license, for example, closes only after U.S. antitrust clearance [11].
Diligence Obligations and Shelving Risk: What Nektar v. Lilly Changed
What did the jury find in Nektar v. Lilly?
On September 24, 2026, a federal jury in the Northern District of California found that Eli Lilly breached the implied covenant of good faith and fair dealing under its 2017 license with Nektar for rezpegaldesleukin [25]. The jury awarded Nektar $90 million [25]. Nektar had sought about $1 billion [25]. The jury also rejected Nektar’s claim that Lilly breached the express commercially reasonable efforts (CRE) clause [25].
The facts matter for drafting. Lilly led development and began trials in late 2019 [25]. In early 2020 it acquired Dermira, whose asset Nektar said would compete with rezpegaldesleukin [25]. Lilly ended the collaboration at Nektar’s request and returned the asset in July 2023 [25]. New York law governed the contract [25]. Lilly has said it intends to challenge the result [25].
A federal jury found on September 24, 2026 that Lilly met its express efforts clause yet still owed Nektar $90 million for breaching the implied covenant of good faith. [25]
What should licensors and licensees change in the contract?
Goodwin’s analysis of the verdict lists four drafting priorities [25]. We restate them in plain terms.
Write specific duties next to the CRE clause
A general CRE standard leaves gaps. Development plans, timelines, budgets, reporting duties, and decision criteria reduce the room for an implied covenant claim [25].
Define the CRE comparator and the competing-asset rules
The contract should say whether performance is measured against similar companies or against the licensee’s own programs. It should say whether the licensee may weigh its competing internal assets. Anti-shelving and competing-program clauses can add segregation, firewalls, or reversion rights if a competing asset arrives [25].
Goodwin also notes that deal economics can protect a licensor. A licensee that paid a large upfront has a stronger reason to advance the asset. A licensor that takes a small upfront and relies on milestones carries more shelving risk [25]. Our Table 3 shows how wide that choice is: upfront share ran from 1.4% to 20.7% across four deals.
Goodwin cites two Delaware Chancery decisions, SRS v. Alexion and Fortis v. Johnson & Johnson, as part of a recent group of CRE rulings [25]. It advises holders of older agreements to check whether those contracts cover the conduct at issue in Nektar [25].
Platform Licensing Risk: Halozyme, Merck, and Alteogen
What is the Halozyme and Merck patent timeline?
Halozyme says its MDASE patents cover an ingredient in Merck’s subcutaneous pembrolizumab [26]. Merck’s subcutaneous product combines Keytruda with Alteogen’s ALT-B4 [30]. The dispute shows what happens when a platform owner and a drug owner do not reach a license.
Date
Event
Source
November 2024
Merck begins filing PGR petitions against Halozyme MDASE patents
[26]
March 2025 (reported)
Press reports say Halozyme offered Merck a license to its MDASE patents
[29]
April 24, 2025
Halozyme sues Merck in D.N.J., alleging infringement of 15 patents
[29]
September 2025 / November 2025
Keytruda Qlex approved in the U.S.; Keytruda SC approved in Europe
[28]
December 4, 2025
Munich court grants Halozyme a preliminary injunction in Germany; Merck appeals, hearing set for November 19, 2026
[28]
May 12 and May 18, 2026
PTAB final written decisions find all challenged claims of two Halozyme patents unpatentable
[27]
By Q2 2026 10-Q
Four instituted PGRs decided, every challenged claim found unpatentable; one petition denied institution
[26]
July 14, 2026
Hague district court denies Halozyme a preliminary injunction for Denmark and Sweden
[41]
Early October 2026
Hague patent court finds EP 2,797,622 valid and infringed; orders MSD BV to stop supplying Keytruda SC in eight countries
[28]
What should a licensee take from this dispute?
Courts in different places reached different results on related patents. The U.S. PTAB found claims unpatentable [26][27]. A Dutch court found a European patent valid and infringed [28]. The European patent expires on December 27, 2032 [41]. A license from one platform owner does not clear patents held by another. Diligence for a platform-enabled product should cover third-party platform patents in each major territory, not only the licensor’s own estate.
Halozyme says the Dutch injunction does not cover intravenous Keytruda and does not affect its ENHANZE partners [28].
China In-Licensing and Policy Risk: BINSA, COINS, and the Draft Executive Order
What would the Biotech Investment National Security Act do?
On August 6, 2026, Senators Pete Ricketts and Elissa Slotkin introduced the Biotech Investment National Security Act (BINSA), S. 5316 [32]. The bill would add pharmaceutical and biological product development to the sectors covered by the Comprehensive Outbound Investment National Security (COINS) Act, which was enacted in December 2025 [32]. It would make U.S. pharmaceutical licensing deals, joint ventures, and equity investments with Chinese covered foreign persons subject to Treasury review [32]. Treasury would issue regulations within one year of enactment [32]. A House companion bill was introduced on June 2, 2026 [33][34].
As introduced, the bill does not apply retroactively [34]. Retroactivity under Treasury’s separate rulemaking authority has not been tested [34].
What happened to the draft executive order on Chinese drugs?
In September 2025 the New York Times reported a draft executive order that would require CFIUS review of deals in which U.S. companies acquire rights to experimental drugs from Chinese developers [35]. A White House spokesperson told the Times the administration was not actively considering the draft [36]. The sources we reviewed show no signed order.
Did upfront payments for Chinese assets change?
Yes. Evaluate data show that the average upfront value of licensing deals between Western and Chinese biopharma companies rose 230%, from $52 million in 2022 to $172 million in early 2026 [33]. Our check: $172 million divided by $52 million is 3.3 times, which matches a 230% increase (analysis).
Scenario analysis: what could BINSA change for a deal team?
Scenario
Stated assumption
Effect on a new China license
A. Not enacted
Bill dies; current rules apply
No new Treasury step. HSR and other existing reviews still apply [11][22].
B. Enacted as introduced
Prospective only; rules issued within one year [32][34]
New licensing deals face Treasury review. Signed deals are unlikely to be undone [34].
C. Broad Treasury rule
Treasury rulemaking reaches earlier deals
Open question; retroactivity under that authority is untested [34].
In every scenario, a contract signed now should say what happens if a government review blocks or delays closing. Include a closing condition, a long-stop date, and a rule for refunding or holding the upfront payment.
IRA and Orphan Rules: How Pricing Policy Changes Licensing Math
When does a drug become eligible for Medicare price negotiation?
The Inflation Reduction Act makes a single-source drug eligible 7 years after first approval for a small molecule and 11 years for a biologic [37]. A negotiated price then takes effect about 9 or 13 years after approval [38]. The gap between small molecules and biologics is four years (analysis: 11 minus 7).
What did the ORPHAN Cures Act change?
The One Big Beautiful Bill Act, signed in July 2025, included the ORPHAN Cures Act. A drug with two or more orphan designations or approvals is never eligible for negotiation while it has no non-orphan indication [37]. Eligibility is delayed until a non-orphan indication is approved [37].
For a royalty model, the effect is direct. The royalty tail of a small molecule faces a negotiated price sooner than the tail of a biologic. A multi-orphan drug may avoid negotiation for longer. A valuation should model the likely negotiation date, not only the patent expiry date.
Licensing Due Diligence Checklist: Eight Questions Before Signing
Which questions should a deal team answer before it prices a license?
The cases above point to a short list. Each question below ties to a documented dispute, a court rule, or a benchmark. Treat the list as a starting point for counsel and analysts. It is not legal advice.
Question
Why it matters
Where to look
1. Which patents cover the product, by type and expiry date?
Royalty term and exclusivity depend on the last licensed patent [17][19]
Orange Book, Purple Book, USPTO; DrugPatentWatch as a map [39]
2. Has any licensed patent faced PTAB review?
Merck’s petitions led to unpatentability findings on Halozyme claims [26][27]
PTAB records, litigation dockets
3. Do third-party platform patents apply in each territory?
A Dutch court enjoined Keytruda SC in eight countries on a platform patent [28]
Freedom-to-operate searches by region
4. What is the royalty shape, and what happens at expiry?
Rates can step down by date or by event [23][19]
Draft royalty clause
5. How does the contract define efforts and the comparator?
Meeting CRE did not prevent a $90 million verdict [25]
Efforts, governance, and reporting clauses
6. Does the licensee hold competing assets?
Lilly’s acquisition of Dermira shaped the jury’s view [25]
Licensees hold first enforcement rights in 74% of deals [2]
IP management clause
8. Does the deal need HSR or other government review?
Exclusive pharmaceutical licenses can be reportable [22]; China deals may face new review [32]
Antitrust counsel, closing conditions
What This Means for Licensors, Licensees, and Challengers
What this means for licensors
Ask for more upfront when the asset has clinical data. The four deals in Table 3 show that upfront share rises with stage. Add anti-shelving and competing-program clauses [25]. Plan for the step-down at expiry [17][19].
Can a licensor sell its royalty stream?
Yes. In November 2014 the Cystic Fibrosis Foundation sold its royalty rights on Vertex’s cystic fibrosis drugs to Royalty Pharma for $3.3 billion [31]. The foundation had given Vertex about $150 million for the program [31]. A royalty is an asset that can be priced and sold. That requires a clear contract and a clean patent record.
What this means for licensees
Document why each development decision was made, especially when you own a competing asset [25]. Check third-party platform patents in each major territory [26][28]. Build government-review risk into the closing terms [32][34].
What this means for generic and biosimilar challengers
Merck’s use of post-grant review shows that PTAB petitions can reach platform patents as well as product patents [26][27]. A challenge filed before launch can run in parallel with court cases abroad, and the results may differ by forum [26][28].
Key Takeaways
Licensing deal value passed $252 billion through Q4 2025, and upfront cash was 7% of it [1].
Upfront share depends on stage. In four deals we calculated, it ranged from 1.4% to 20.7% (analysis, Table 3).
Median 2025 royalty tiers were 9.3% to 13% for later-stage deals and 4.5% to 8% for early-stage deals [2].
Approval odds drive value. Our derived Phase II to approval figure is 15.2%, and Phase III to approval is 52.6% (analysis, Table 4).
Royalties on patents cannot run beyond the last licensed patent, but payments for earlier use may be deferred [18][19].
A licensee may challenge the licensed patent without terminating the license [20].
Meeting an express efforts clause did not protect Lilly from a $90 million implied covenant verdict [25].
Chinese assets were 40% of big pharma in-licensing in 2025, and a pending bill would add Treasury review to new China licensing deals [6][32].
FAQ
1. What is the difference between an exclusive and a non-exclusive pharmaceutical license?
An exclusive license lets only the licensee use the patent in the licensed field and territory. A non-exclusive license lets the licensor grant the same rights to others. Goodwin’s database shows 73% exclusive, royalty-bearing licenses [2]. The Merck license for Keytruda from BMS and Ono is non-exclusive [23].
2. What does “commercially reasonable efforts” mean in a license?
It is the contract standard for how hard the licensee must work to develop and sell the product. The standard can refer to similar companies or to the licensee’s own comparable programs. The Nektar verdict shows why the contract should define it [25].
3. Who usually controls patent enforcement?
Licensees held the first right to enforce in 74% of 2025 deals in Goodwin’s database [2]. A licensor who wants control should negotiate it.
4. Can royalties continue for longer than the patent?
Not for use of the invention after expiry. Parties may defer payments for earlier use into later years, and they may tie royalties to the last-expiring licensed patent [18][19].
5. Does a licensee have to stop paying to challenge a patent?
No. MedImmune v. Genentech held that a licensee need not break or terminate the license first [20].
6. Do licensing deals need antitrust clearance?
Some do. An exclusive pharmaceutical patent license that transfers all commercially significant rights can be reportable under HSR [22]. Novo Nordisk’s September 2026 license from Hengrui is subject to U.S. antitrust clearance [11].
7. How should I use industry success rates in a valuation?
Use them as a starting point. Adjust for time period, indication, modality, and the data you hold at the valuation date [14]. The BIO study reports 7.9% from Phase I, and Citeline’s later data shows 6.7% [13][15].
8. Why do Chinese assets appear in so many deals?
IQVIA links the trend to low development cost and to high-quality first-in-class and best-in-class assets [6]. Reuters reports that drugmakers are looking for China-developed medicines as they cut costs ahead of patent expirations [9].
9. Could a U.S. law restrict licensing from Chinese companies?
A bill could. BINSA, introduced in the Senate in August 2026, would add licensing deals with Chinese covered persons to Treasury review [32]. It has not been enacted in the sources we reviewed. As introduced, it applies only to future deals [34].
10. How do patent challenges change a licensor’s leverage?
They lower it when claims fall. The PTAB found every challenged claim unpatentable in four instituted Merck petitions against Halozyme patents [26]. A licensor should price its patent risk before it sets a royalty.
