Cynically, even if the school gets 100% of the profits, the feedback loop of "encourage drug development, get paid" functions properly. They would only have to pay their researchers just enough to continue working...

Depends on the school. The general rule of thumb is about 1/3rd to the inventors themselves, 1/3rd to the department, 1/3 to the school.

The guy at Northwestern who discovered Lyrica is a multimillionaire. The incoming royalties are usually split between the researcher and school.