On 2 October 2026, Novartis agreed to license an autoimmune candidate from Abogen for $575 million upfront. Abogen’s release said milestones could add up to about $7.2 billion if every option is exercised. Many headlines led with the combined figure of about $7.8 billion. Only the smaller sum is committed. That gap is the key to reading any biotech deal structure. This guide explains each payment type, who carries the risk, and how to read an announcement.
What is a biotech deal structure?
A biotech deal structure is the mix of payments one company makes for rights to another company’s drug programme. Most deals have three parts. An upfront payment is made at signing or closing. Milestone payments follow if agreed events happen. Royalties are a percentage of sales if the drug reaches the market.
The key terms are defined below.
| Term | Plain-English meaning |
| Upfront payment | Cash paid at signing or closing. The only guaranteed part, once the deal closes. |
| Equity investment | The buyer purchases shares in the seller. Sometimes counted within the upfront. |
| Development milestone | A payment triggered by a trial event, such as first patient dosed or a positive readout. |
| Regulatory milestone | A payment triggered by a filing or an approval, sometimes set market by market. |
| Sales milestone | A one-off payment the first time annual net sales pass a set threshold. |
| Royalty | A percentage of net sales, paid for the length of the royalty term. Usually tiered. |
| Option | A right, bought now, to license or acquire later on pre-agreed terms. |
| Profit share | Partners split development costs and profits, in place of a royalty. |
| Contingent value right (CVR) | A milestone promise made to shareholders in a public company acquisition. |
| Earnout | The same idea in a private company acquisition. |
| Biobucks | Industry slang for the headline total: the upfront plus every possible milestone. |
LSDN has examined how pharma chooses between licensing and acquisition in an earlier analysis.
Upfront payments: the only guaranteed money
The upfront payment is the cash paid at signing or closing. In any biotech deal structure, it is the only sum the seller can count on once the deal closes. It is usually a small share of the headline. J.P. Morgan’s deal report put announced licensing value at $166.7 billion in the first half of 2026. Upfront cash was 6% of total deal value. The bank called that modestly below the 7% seen from 2023 through 2025.
Size rises with development stage. The same report uses DealForma data on big pharma in-licensing. In 2025, the median upfront for a preclinical asset was $75 million, in cash and equity. It was $125 million at Phase 1, $180 million at Phase 2 and $240 million at Phase 3. These are medians from small samples, not norms.
Upfront does not always mean paid today. Some buyers add an equity investment. Others stage the early cash, with part of it due a year later. Payment may also wait for closing, which can depend on antitrust clearance.
The accounting can be immediate. Eli Lilly’s 10-Q records $3.4 billion of acquired in-process research and development charges in the first half of 2026. Lilly expenses such costs at once when a compound has no alternative future use.
For the buyer, a smaller upfront limits the loss if a programme fails. Gillian Hollenstein of Point Capital Navigator Fund told Reuters the Abogen deal “has a better risk profile”. Her reason was that Novartis pays a smaller amount upfront to secure the rights.
Milestone payments: development, regulatory and sales
Milestone payments are triggered by events. They are the part of a biotech deal structure that shifts risk back to the seller. If the drug fails, the buyer stops paying. Most deals use three kinds. They tend to grow larger and less certain as a programme advances.
Development milestones
These follow progress in the clinic. Typical triggers are the first patient dosed in a trial, or a positive data readout. Biohaven’s 2026 licence with SK Biopharmaceuticals carries up to $150 million in development and regulatory milestones.
Regulatory milestones
These follow filings and approvals. Contracts can set separate payments for each major market. In the Biohaven deal, $185 million of milestone obligations is tied to US and European approval of one drug.
Sales milestones
These are one-off payments made the first time annual net sales pass a threshold. They can dwarf the rest of a deal. AstraZeneca’s January 2026 deal with CSPC set development and regulatory milestones at up to $3.5 billion. Trade press citing CSPC’s filing put the total, including sales milestones, at up to $18.5 billion.
Sales milestones are also the least likely to be paid. The best public evidence comes from acquisitions of private companies, not licences. SRS Acquiom’s 2023 earnout study put achievement at 61% for preclinical milestones and 32% for Phase 1. The rate fell to 20% at Phase 2 and 15% at Phase 3.
Kip Wallen was senior director for thought leadership at SRS Acquiom at the time. He estimated the commercial milestone rate at just 3% that year, Fierce Biotech reported. “If they hit, they’re really lucrative earnouts,” Wallen told the outlet. “But we’re just not seeing achievement rates.”
Royalties: a share of net sales
A royalty is a percentage of net sales, paid for as long as the royalty term runs. Royalties are the longest-lived part of a biotech deal structure. Rates are usually tiered and rise as annual sales grow. Companies tend to disclose a range, such as “mid-teens to low twenties”, and not an exact figure.
Later-stage assets tend to command higher rates. Current Partnering reviewed licensing agreements from the first seven months of 2026. Royalty rates could reach double digits in 80% of deals for Phase 3, regulatory-stage or marketed assets. The figure was 50% for discovery, preclinical or Phase 1 assets. The vendor’s release did not state the sample size. Claire Nicholson, chief executive of Current Partnering, said the data “reinforces how strongly development risk can influence royalty economics”.
Royalty term and step-downs
The royalty term sets how long payments last. It is often fixed country by country. Biohaven’s filing with the US Securities and Exchange Commission gives a worked formula. Royalties run from first commercial sale in each country until the latest of three dates. Those are ten years after launch, the end of regulatory exclusivity, and expiry of the last composition-of-matter patent claim.
Rates can also fall. A 2017 analysis by Mark Edwards of BioScience Advisors listed the common triggers. They were patent invalidity, generic entry, combination products and third-party patent stacking. Biohaven’s royalties are likewise “subject to specified reductions and adjustments”.
Royalty stacking
Some drugs carry more than one royalty. The seller may itself owe payments to an earlier rights holder. In the Biohaven deal, SK assumes a mid-single-digit worldwide royalty owed to Knopp Biosciences. That sits on top of the royalties SK owes Biohaven.
Why the headline value overstates a deal
The industry calls the headline total “biobucks”. It adds the upfront to every possible milestone. It assumes every trial succeeds, every regulator approves and every sales target is met. The record suggests otherwise.
SRS Acquiom’s earnout study tracked 609 milestone events across 128 biopharma deals. Each deal had a milestone due by mid-2025. Only 22% of those events had been achieved, Fierce Biotech reported. Some 45% of the deals had collected no earnout money at all. Achieved milestones paid $6.5 billion in aggregate, and missed ones left $27.4 billion uncollected.
That data needs a caveat. It covers acquisitions of private companies, not licences. LSDN found no equally robust public dataset on licensing milestone payouts.
The upfront share also varies widely by stage. LSDN’s China out-licensing deals tracker shows the spread. An approved lung cancer drug earned 40% of its headline value upfront. Some early programmes earned as little as about 1%.
Milestones are not a trick. Biotech deal structures use them to bridge a gap in expectations. They let a buyer commit to more in total than it would pay in cash today. They let a seller share in success that neither side can yet price.
A worked example: one 2026 deal, line by line
Biohaven agreed to license its epilepsy candidate opakalim to SK Biopharmaceuticals on 26 August 2026. The headline value was up to $795 million, plus royalties. Biohaven’s release on the agreement sets out a full biotech deal structure in one document. About half the headline is near-term cash. The rest depends on events that have not happened yet.
| Component | Amount | What triggers it |
| Payment at closing | $350 million | Closing, which needs antitrust clearance |
| Deferred payment | $50 million | One year after closing; the release said 2027 |
| Development and regulatory milestones | Up to $150 million | Trial and approval events |
| Knopp Biosciences obligations assumed by SK | Up to $185 million | US and European approval of opakalim |
| Future Kv7 programme obligations assumed by SK | Up to $60 million | US approvals of up to three other Kv7 products |
| Headline total | Up to $795 million | Sum of the above. Royalties are extra. |
| Royalties, US | Mid-teens to low twenties, tiered | US net sales of opakalim |
| Royalties, outside US | Mid-single digit | Net sales of opakalim outside the US |
| Knopp royalty assumed by SK | Mid-single digit | Worldwide net sales of Kv7 products |
Biohaven itself is eligible for up to $550 million, on LSDN’s reading of the release. That is $400 million in cash and $150 million in milestones. The remaining $245 million is obligations that SK assumes from Biohaven. SK also takes on the programme’s costs going forward.
The example also shows why timing matters. The US Food and Drug Administration placed a partial clinical hold on opakalim on 4 September 2026. SK said on 11 September that the deal had not closed, Korea Biomedical Review reported. The upfront had therefore not been paid. An SK official told Seoul Economic Daily on 1 October that the hold could be lifted in October. LSDN found no announcement of closing as at 6 October 2026.
Beyond the standard licence: options, equity and profit shares
Not every biotech deal structure follows the three-part model. Johnson & Johnson announced agreements with Sail Biomedicines on 29 July 2026. Initial payments total $785 million, including a $465 million equity investment. A further $140 million depends on development milestones. Johnson & Johnson also holds an exclusive option to acquire Sail for $2.58 billion.
Some deals drop the standard parts altogether. AstraZeneca agreed in September 2026 to invest $2 billion in Summit Therapeutics through convertible preferred stock. Summit’s release said there were no additional financial considerations tied to milestones, royalties, revenue sharing or profit sharing.
In co-development deals, partners split costs and profits in place of a royalty. A further variant is the NewCo model, where a drugmaker spins assets into a new investor-backed company.
How acquisitions use the same tools: CVRs and earnouts
Acquisitions borrow from the same biotech deal structure. In a public company deal, the milestone promise is called a contingent value right, or CVR. Biogen completed its purchase of Apellis Pharmaceuticals on 14 May 2026. It paid $41 per share in cash. Shareholders also received one non-transferable CVR per share, worth up to $4 in cash. Payment depends on annual global net sales thresholds for Syfovre.
In a private deal, the same device is called an earnout. Jazz Pharmaceuticals completed its purchase of privately held Actio Biosciences on 15 September 2026. It paid $820 million upfront. Up to $500 million more depends on approval and sales milestones.
CVRs are now common. Ryan Udell of Ballard Spahr wrote in September 2026 that they appear in roughly one third of public-target deals. He added that the most negotiated, and litigated, term is the buyer’s level of effort. Kevin Eisele, a managing director at William Blair, described CVRs to BioPharma Dive in 2025 as “a clever workaround”.
Selling the royalty: monetisation and synthetic royalties
A royalty is an asset, and it can be sold. In a royalty monetisation, the holder sells future royalty income for cash today. In a synthetic royalty, a company creates a new royalty on its own product and sells that. Gibson Dunn’s database holds 133 life sciences royalty transactions from 2020 through 2025. The law firm valued them at more than $32 billion.
How to read a deal announcement: six questions
Six questions reveal the biotech deal structure behind any announcement.
- How much is paid at signing or closing, and is any of it equity?
- Does the headline include the upfront, or only the milestones? Hanmi’s total of about $2.3 billion with Genentech included its $190 million upfront.
- How do the milestones split between development, regulatory and sales?
- Is the royalty rate disclosed, and for which territory?
- Who pays for development from here?
- What is missing? Lilly did not disclose the upfront in its Merida acquisition of up to $2.875 billion.
Frequently asked questions
What is an upfront payment in a biotech deal?
It is the cash paid when a deal is signed or closes. It is the only guaranteed payment in a biotech deal structure, once the deal closes. In the first half of 2026, upfront cash was 6% of announced licensing value, according to J.P. Morgan.
What are biobucks?
Biobucks is industry slang for a deal’s headline value. It adds the upfront to every possible milestone payment. Much of it may never be paid, because milestones depend on trials, approvals and sales. Royalties are usually quoted separately from that total.
What is a typical royalty rate in a pharma licensing deal?
It depends on stage. Current Partnering reviewed 2026 licensing agreements with disclosed royalty terms. Rates could reach double digits in 80% of late-stage deals. The figure for discovery, preclinical and Phase 1 deals was 50%. Companies usually disclose a range, not an exact rate.
How often are milestone payments actually paid?
Less often than headlines imply. SRS Acquiom tracked 609 milestone events in private biopharma acquisitions. It found 22% had been achieved by mid-2025. Early milestones are hit more often than commercial ones. Comparable public data for licensing deals is limited.
What is a contingent value right?
A contingent value right, or CVR, is given to shareholders in an acquisition. It pays extra cash if a set event occurs, such as an approval or a sales target. Some CVRs can be traded. Biogen’s Apellis CVR was non-transferable.
