Why do companies license their products? Usually, the answer goes like "it is not our focus to commecialise products," or "we don't have the abilities to do so." But these answers fall short of the main reason. The companies actually could establish a development or commercialization department. They might have to raise money for that step, agreed, but other companies have already done so before them. The reason why they license is in general the universally valid driver for all sound business decisions: it is the more valuable option. First, taking the company from a research lab to a development company or even to a company with a sales force is a major business transformation that comes along with a wide range of costs. Second, the licensee does not have to spend these costs, as it is already an established player. The project is therefore more valuable in the licensee's eyes. Third, an established player might be able to penetrate the market much better than a new, inexperienced company. Again, the project is more valuable in the licensee's hands than in the licensor's. In some cases not all points are checked, but if taking the project to the market were more economically attractive then the licensor would do that. In the case of an academic institution, that has to respect some legal boundaries, this could also happen via a spin-out instead of a license. From the above considerations it becomes already clear that any value share principle should be increasing, i.e. the closer to commercialization, the higher should be the value share, because the licensee has to bear less transformation costs. If the licensor has several projects and can distribute the transformation costs to several projects, then it might start making sense establishing its own commercialization arm. This way the full value of the projects can be exploited instead of only a share of it through license agreements. This is what has happened, e.g., to Genentech, that first licensed its products and then started to commercialise its drugs on its own.
For the licensee the same reasoning applies. As soon as the licensee gets more value than it pays as a price (i.e. the license terms), then the deal makes sense. Or put differently, as soon as the overall deal has a positive value it is better than the alternative of rejecting the deal. Of course, the alternative can also be another deal, or even an in-house project. Usually, we talk about a stage-specific, or risk-adjusted cost of opportunity, i.e. the project must exceed a certain expected rate of return to be considered as valuable. This is exactly the discount rate that leads to the project NPV for the licensee.
Any form of value share model, be it the 25% rule or a stage-specific value share model, fails to explain whether the deal makes sense for the licensor. It certainly does make sense for the licensee—as long as the value is positive, of course—because it can claim 75 percent of the value, while the alternative is 0. For the licensor, on the other hand, it is less obvious that its alternative of taking the project alone to the market is worth less than only 25 percent of the project value in the licensee's hands. For an advanced project that is relatively close to commercialization, or for a company with a larger pipeline the value could easily be better than 25 percent. But in such cases it might still make sense to license for both parties, but obviously to higher terms than suggested by a value share method.