In February 2023, Chris Anzalone, CEO of Arrowhead Pharmaceuticals, received unexpected news. Janssen, their partner in a $3.7 billion collaboration, was exercising its "termination for convenience" clause. The partnership was over.

This wasn't a small deal. Arrowhead had announced the partnership in 2018 with all the fanfare you'd expect of a deal bringing in $175 million upfront, $75 million equity investment, and up to $3.5 billion in potential milestone payments for their hepatitis B program and three additional targets. Janssen got worldwide exclusive rights. Arrowhead got validation from a major pharma and capital to advance their science.

Then, five years in, Janssen decided to shift priorities. As Anzalone later told reporters, the termination came "out of the blue" - not just to Arrowhead, but possibly even to parts of Janssen itself.

That's how these decisions happen at large pharma companies. Strategies shift. Portfolios get reprioritized. Programs that were important yesterday become expendable today.

$3.5 billion in potential milestones, gone. Years of collaborative work, ended with a 60-day notice.

But here's where Arrowhead's story diverges from disaster: their lawyers had negotiated something crucial five years earlier that most founders overlook. According to the SEC filing, the agreement stated that upon termination, "all rights and licenses granted thereunder shall revert back to the Company."

Because of those reversion terms, Arrowhead wasn't trapped. By November 2023, just nine months after Janssen walked away, Arrowhead had re-licensed the hepatitis B program to GSK in a deal worth approximately $1 billion.

Without those reversion rights? Arrowhead might have been stuck in legal limbo, unable to move forward with another partner while the compound gathered dust. Or worse, they might have had to buy back rights at an inflated price, burning cash that they didn’t have.

But the lesson here isn't that pharma partnerships are bad or that big pharma is out to get you.

It's that the terms you negotiate on day one determine whether your partnership sets both parties up for success or leaves you powerless when priorities shift.

Good terms align incentives, preserve optionality, and ensure you can recover if things don't go as planned.

To help you get a head start, here's the partnership framework I use to help founders understand the key components of pharma partnerships and the variables that truly move the needle in negotiations.

The biggest mistake therapeutics founders make is approaching pharma partnerships with a one-size-fits-all mentality. The right deal structure depends entirely on where your asset sits in development, your cash position, and your long-term vision.

Best Structure: Research collaboration or option agreement

Why this works: You preserve operational flexibility while getting pharma validation and capital. Think of it as "dating before marriage." You lead the research, pharma gets first look at results, and they have the option to pursue development if it works.

Typical Terms: $10-100M upfront, tiered milestones up to $500M-2B, mid-single to low-double digit royalties

Real Example: AbbVie/Gilgamesh Pharmaceuticals (May 2024) - preclinical neuroplastogens for psychiatric disorders, $65M upfront, up to $1.95B in option fees and milestones. Gilgamesh leads early research with AbbVie having option to take over development.

Key Decision Factor: Can you self-fund through proof-of-concept? Option agreements give you early validation and capital, but you're potentially setting deal terms before clinical data. If you can wait and generate strong Phase I/II data, you'll command significantly better economics - potentially 2-3x higher upfronts and better royalties.

Best Structure: Co-development or regional licensing

Why this works: At this stage, you're balancing substantial capital needs against maintaining control of high-value markets. Co-development lets you share costs and risks while keeping skin in the game. Regional licensing can allow you to retain high-value markets like North America and Europe (70% of global market value) while partnering for Asia-Pacific expansion.

Typical Terms: $50-350M upfront for Phase I, $100M-$1B+ for Phase II (hot therapeutic areas like obesity, oncology, and rare diseases command premium pricing), shared development costs, geographic profit splits, royalties 5-15% (varies by region)

Real Example: Roche/Zealand Pharma (March 2025) - $1.65B upfront for petrelintide (Phase 2b obesity drug), up to $3.6B in additional milestones. 50/50 profit & loss sharing in US and Europe, Roche gets rest-of-world rights with Zealand receiving double-digit royalties.

Key Decision Factor: Do you have capital to co-fund through Phase 3 AND commercial capabilities in key markets? Regional profit-sharing can deliver more value than royalties, but only if you can execute. Geography matters - partner where you lack infrastructure.

Best Structure: Full licensing or strategic acquisition

Why this works: You've de-risked the asset substantially. Now it's about maximizing upfront value and leveraging pharma's commercial infrastructure for launch.

Typical Terms: $500M-$1.5B+ upfront, $500M-$1B+ in milestones, royalties 8-15% (if licensing) or full acquisition

Real Example: GSK/Boston Pharmaceuticals (May 2025) - $1.2B upfront, up to $800M in milestones for efimosfermin, a Phase 3-ready MASH therapy with strong Phase 2 data. Full acquisition allowing Boston Pharma to monetize and return capital to investors.

Key Decision Factor: Do you want to build commercial operations or monetize and have an exit? Most biotechs lack the infrastructure for global commercialization, unless they are in the rare disease space. Boston Pharma chose to sell, letting GSK handle Phase 3 trials and commercialization.

The majority of pharma partnership negotiations come down to these five key levers. Founders typically fixate on upfront payments alone but understanding all five - and how they trade off against each other - is what separates good deals from great ones.

This is immediate validation and capital. The market is shifting: upfront payments now represent 8% of total deal value in 2025 (up from a low of 6% in 2022), signaling that pharma is competing more aggressively for high-quality assets.

More importantly, pharma is paying significantly more upfront for earlier-stage programs - preclinical median upfronts more than doubled from $45M (2024) to $110M (2025), and Phase I deals jumped from $168M to $350M.

Current Market Benchmarks:

Your Leverage: Multiple interested pharmas, strong IP position, clinical data showing clear differentiation, therapeutic area with unmet need (especially oncology, obesity, rare disease)

Strategic Trade-Off: Higher upfront usually means lower royalties. If you believe deeply in your asset's commercial potential, negotiate for lower upfront and higher royalties (10-15% vs. 5-8%).

Critical Mistake & Counterpoint: Accepting too low an upfront because the "total deal value" looks impressive. Remember: only 22% of milestones are typically achieved, but upfront cash is guaranteed.

Milestones sound great in press releases. The reality is harsher. According to SRS Acquiom's analysis of 383 biopharma deals, only 22% of milestone events are achieved, and only 16% of total milestone potential is actually paid out.

Achievement rates decline sharply as programs advance - from 60% for preclinical milestones down to just 3% for commercial milestones targeting $1B+ sales thresholds.

Yes, 3%. That $5B commercial milestone you may read about in the press release is often mostly marketing.

Current Market Benchmarks:

Why the low hit rate? Clinical trials fail (especially at Phase II/III), regulatory approval is uncertain, sales targets are calibrated for blockbusters only, and assets may get deprioritized by pharma - often due to factors that may have nothing to do with the asset itself.

Your Leverage: Milestone triggers YOU control (IND filing, enrollment completion, Phase initiation) vs. ones you don't (FDA approval timing, sales targets exceeding $1B+)

Strategic Trade-Off: Front-load development milestones that are achievable and tied to objective events (trial initiation, enrollment completion). A deal with $500M in realistic development milestones is worth more in present value than $2B in commercial milestones you'll never see.

Critical Mistake: Accepting milestone triggers tied to sales thresholds that only blockbusters hit. If your asset has realistic peak sales potential of $500M, don't accept milestones that only trigger at $3B+ in sales. Also avoid subjectively defined milestones like "successful completion" of trials - insist on objective triggers like "enrollment of first patient" or "regulatory filing submission."

Royalty rates are typically the most opaque part of deal negotiations - pharma companies usually describe them in vague terms like "high single-digit to low double-digit royalties." Most deals use tiered royalty structures with 2-6 different rates based on sales thresholds, not a single flat rate.

Benchmark Effective Royalty Rates (EFRs) by Licensor Type:

Benchmarks By Development Stage at Signing:

From my experience, the median corporate royalty rate has hovered around 8%, with the broader range at 3%-17%, with rates typically increasing ~3% from pre-clinical to Phase I/II and increasing ~6% from Phase I/II to Phase III.

Your Leverage: Later-stage assets command higher royalties. Strong Phase II data can push you from 6% to 10%. Phase III data with clear regulatory path can push you to 12-15%. Exclusive worldwide rights justify lower rates; regional rights (US-only, ex-US) can command 15%+.

Strategic Trade-Off: Royalty rates almost always include tiers that adjust at different sales volumes - sometimes declining at higher volumes, sometimes increasing. Negotiate floor royalty rates and protect against steep declines. A deal that pays 10% on first $500M in sales but drops to 3% above $2B could cost you hundreds of millions if you have a blockbuster.

Critical Mistakes:

Geographic splits can make or break your long-term economics. The numbers tell the story: North America represents 39-45% of the global pharmaceutical market value, while Europe adds another 20-25%. Together, US + Europe account for approximately 60-70% of global pharma sales value, despite representing a small fraction of the global population (in comparison to RoW).

Most Common Geographic Split Patterns:

Your Leverage: If you have strong clinical data (Phase II/III), therapeutic focus in rare disease or specialty care, and can demonstrate clear path to US commercialization, you can retain North America and still get meaningful upfront capital for ex-US rights.

Strategic Trade-Off: Keeping North American rights means you need to fund US commercialization (a significant investment) but can capture 40-50% of global market value. Licensing NA rights gets you more upfront capital but limits your upside - the difference could be $500M-$1B+ in long-term value for a successful drug.

Critical Mistakes:

Many major pharma licensing deals now include equity investments alongside upfront cash. This trend has become more common in recent years as pharma seeks to align incentives and gain upside exposure.

Typical Structures:

Your Leverage: Competitive interest from multiple pharma, strong upcoming data catalysts, or robust existing investor support

Strategic Trade-Off: Equity at 30-50% premium to your last round can be attractive capital - often better terms than VC financing. But board seats and veto rights that come with 15%+ stakes can limit your flexibility on future M&A or partnerships.

Questions to Ask: What governance rights come with the equity investment? Does pharma get veto power over future M&A or financing? For stakes under 15%, can you limit their role to information rights or board observer? Does the valuation premium (typically 20-50%) fairly reflect the progress you've made since your last round?

Here’s a quick reference sheet with all the pharma deal benchmarks in one place. Keep it on hand for BD conversations or send it to a founder friend who's about to negotiate their first partnership.

GRAB IT HERE

Most founders approach pharma partnerships reactively - they're running out of cash or just got clinical data back. Start preparing 12-18 months before you need a deal.

Here's your 30-day sprint to get partnership-ready.

☐ Audit your data package
Do you have: IP position summary, freedom-to-operate analysis, competitive landscape, preclinical/clinical data package, regulatory pathway clarity? Identify gaps that would prevent serious discussions. Pharma wants to see you've done your homework.

☐ Define your ideal partnership structure
Use the Decision Tree framework above. Be honest: What's your stage? Capital needs? Commercial capability? Risk tolerance? Write down your ideal structure and your walk-away alternative.

☐ Calculate your "walk-away" terms
What's the minimum acceptable upfront? Royalty floor? Milestone triggers you must have? Know your BATNA (best alternative to negotiated agreement). If pharma won't meet these terms, you need to be prepared to walk.

☐ Assemble your partnership team
Who negotiates? If you’re a first-time founder, having a BD advisor or lawyer with pharma deal experience can go a long way.

☐ Build your pharma target list
Identify 8-12 pharma companies with therapeutic area fit. Research their recent deals, pipeline gaps, and partnering history. Look for where your asset fills a strategic need. Tools: Cortellis, BioCentury, company investor presentations, BIO partnering platform.

☐ Map internal champions
Identify BD leads, therapeutic area heads, licensing directors at target companies. Find warm introductions through investors, advisors, board members, or scientific conferences. Cold outreach works but make sure you lead with value - E.g. what pipeline or R&D gaps your therapy addresses.

☐ Research comparable deals
Find 3-5 deals in your therapeutic area and stage from the past 24 months. Document deal structure, economics, what made them attractive. Use this to anchor your discussions. Example: "Similar Phase II oncology assets have commanded $200-400M upfronts with 8-10% royalties."

☐ Prepare your partnership deck
NOT your fundraising deck. Create a non-confidential BD-specific deck focusing on: asset profile, clinical/preclinical data, development plan & timeline, market opportunity, partnership rationale, and proposed deal structure options. Keep it under 15 slides. Have a secondary, more in-depth deck with scientific data and deep dives that can be shared under NDA.

☐ Craft personalized outreach messages
Customize for each target pharma's strategic priorities. Reference their recent deals, pipeline gaps, or therapeutic area strategy. Keep initial messages under 150-300 words. Remember - the goal of these messages is to get the BD representatives interested in learning more, not closing the deal on the spot via email or LinkedIn DM.

☐ Execute warm introduction strategy
Reach out to connectors for introductions. Attend relevant conferences where target pharma BD teams will be present (JP Morgan Healthcare in January, BIO International in June). Engage thoughtfully on LinkedIn with BD leads - comment on their posts, share relevant insights.

☐ Schedule exploratory calls
Goal: 3-5 exploratory calls scheduled. Frame as "exploring potential strategic fit," not "we need a deal now." Desperation kills leverage. Even if you're 6 months from running out of cash, never communicate urgency.

☐ Conduct mock negotiation
Practice with an advisor or board member who has pharma BD experience. Role-play common objections: "Your asset is too early for us," "We can only offer $X upfront," "We need worldwide rights." Prepare thoughtful responses.

☐ Prepare your data room
Organize: IP documents, regulatory filings/correspondence, clinical protocols and data, financial model, cap table. Make it easy for pharma to conduct due diligence quickly. A messy data room signals operational weakness.

☐ Develop negotiation playbook
Document responses to common pushback. Know which terms are negotiable vs. non-negotiable. Have counteroffer scenarios ready: "If you can't do $300M upfront, we'd accept $150M with accelerated milestones and 10% royalties instead of 7%."

And have you explored pharma partnerships yet? How do these terms and market benchmarks compare with what you’ve seen? I'd love to hear from you.

By the way, the pharma partnership landscape looks different depending on what you're building:

Are you building in one of these spaces and would you like to see a similar breakdown? Let me know!

Until next week!

- Vadim

PS: Are you considering a pharma partnership for your therapeutic?

I'm offering 5 complimentary strategy calls in November for therapeutics founders who are:

We'll talk through your specific situation, and I'll offer my perspective to support your pharma partnership strategy.

Grab a time here (first come, first served).