Milestones and Mirages: Biotech's Big-Deal Delusions

The Allure of the "Up To" Deal

Every so often, a biotech startup announces a blockbuster partnership with a big pharmaceutical company, and champagne corks start popping. The press release trumpets a headline number: "Small Biotech X signs deal worth up to $500 million!" Founders daydream about future riches, and investors suddenly see dollar signs dancing in petri dishes. In truth, that magical phrase "up to" carries a world of uncertainty.

The only thing immediate in many of these deals is the upfront payment – often a modest slice of the eye-popping total. The rest is a mirage shimmering on the horizon, dependent on hitting a series of ambitious milestones that may be years away, if they ever arrive.

It's easy to see why people get carried away. Human nature (especially the variety found in optimistic biotech entrepreneurs) loves a big round number. Announcing a partnership with potential half-a-billion dollars in milestones makes for great headlines and bragging rights at networking events.

The founders have to believe – after all, faith in a rosy future is practically a job requirement in this industry. They've spent years nurturing a molecule or a platform, so when a pharma giant validates it with a deal, it's vindication.

Of course the full $500 million will come in eventually, they tell themselves – "we just have to smash every hurdle they throw at us." And so the startup team clinks glasses, while the lawyers quietly note all the "ifs" and "contingents" in the contract fine print.

A Reality Check on Payouts

Time for a sobering reality check. Those glittering milestone payments are far from guaranteed -- in fact, the odds of collecting them are about as slim as a pipette tip. Recent data on biotech M&A earnouts (those milestone-based deal sweeteners) show that very few ever fully pay out. In 2023 the commercial milestone achievement rate was a measly 3% – essentially, out of all the billion-dollar promises, only a tiny drip of rewards actually materialized.

Even looking at all types of milestones (like clinical or regulatory events), only 16% of the potential earnout value has been achieved on average, a sharp drop from about 34% just two years prior. In other words, for every $100 of "promised" future payments, companies are seeing about $16 in real money – the rest evaporates like ether.

Why the huge gap? As one industry wag put it, these deals let companies "put those numbers in their press release" to wow the world, but in the end "those sorts of things rarely hit."

The intentions may be sincere on both sides at signing – buyer and seller hope the drug will succeed wildly – but drug development is a harsh realm where hope meets statistical reality. Most drug programs fail somewhere along the way, or at least slip on timelines, meaning those carefully tiered milestone payments never get triggered.

A financial services firm that tracks biopharma deals recently crunched the numbers and found something startling: based on deal terms, about $7.5 billion in milestone payments should have been due by now – but well under $1 billion has actually been paid out. That's a vast desert between the promise and the payout, suggesting that milestone numbers in deal announcements are more fiction than future fact.

Even when a drug makes progress, delays and disagreements can interfere with cashing in. Companies sometimes bicker over whether a milestone was truly achieved. (Surprise: the paying party tends to interpret the criteria much more strictly than the receiving party does.)

A case in point: in March 2023, Michigan-based Esperion Therapeutics proudly announced data for its cholesterol-lowering drug and looked forward to a $300 million milestone from partner Daiichi Sankyo.

But when the data arrived, the two firms clashed over definitions – Esperion said the results met the agreed target (a 23% reduction in heart-attack risk), but Daiichi insisted on a different yardstick (saying the primary study endpoint showed only 13% risk reduction). The dispute moved toward legal action as Esperion "strongly" disagreed with its partner's interpretation and vowed to enforce its contractual rights.

In the meantime, investors saw the writing on the wall: Esperion's stock lost more than half its value in a single day on fears that this $300 million payment might never materialize. It turns out even reaching a milestone is no guarantee of getting paid if your partner has second thoughts or a different statistical lens.

When Milestones Become Millstones

For every jubilant press release about a potential jackpot, there's a quiet story (or an outright cautionary tale) of a deal that didn't deliver.

In biotech, a promised "future payment" can quickly turn into a millstone around a company's neck, weighing down its plans when the money doesn't show up on time -- or at all.

Consider NextRNA Therapeutics, a Boston-area startup working on cutting-edge RNA science. In 2024, NextRNA inked a high-profile alliance with Bayer AG that could be worth "up to $547 million."

It was exactly the kind of deal that makes a young biotech feel it has it made: they received an initial $56 million funding, and Bayer's partnership held the prospect of hundreds of millions more if research milestones were hit. Unfortunately, by mid-2025 that dream crumbled. NextRNA failed to achieve a crucial scientific milestone that would unlock the next tranche of Bayer's funding.

With a tough biotech market making new fundraising hard and the expected partner cash not coming, NextRNA simply ran out of runway. Within five years of its founding, the company wound down operations entirely – a stark reminder that "potentially $547M" in a deal headline can translate into $0 when milestones are missed. The grand alliance touted in 2024 became an elegy for a shuttered startup in 2025.

Another common scenario is the deal that changes course before the big payouts ever happen. Big Pharma might decide to pull the plug on a partnered program if early results disappoint, instantly erasing those rosy milestone figures.

In 2023, for example, Gilead Sciences walked away from its partnership with Pionyr Immunotherapeutics, which had included an exclusive option to acquire the smaller company.

Pionyr had received some upfront cash and R&D support, but the juicy part – a takeover with milestones – never came to pass once Gilead saw underwhelming data and bowed out. Pionyr ended up being acquired for a fraction of that imagined value, and all those hypothetical milestone dollars vanished like a puff of laboratory smoke.

Entire swaths of biotech R&D can go out of fashion, leaving promised payments orphaned. A recent BioSpace analysis of the great TIGIT antibody boom-and-bust in immuno-oncology is telling.

A few years ago, TIGIT inhibitors were the hot ticket in cancer therapy, and major companies rushed into partnerships: Bristol Myers Squibb, Gilead, GSK, Novartis – they collectively committed over $5 billion in milestones across various TIGIT deals.

Fast forward to 2024-2025, and one by one those firms dropped their TIGIT programs after lackluster trial results. The "overwhelming majority" of those $5 billion in milestone promises remained unpaid when the music stopped. Gilead is one of the last players still standing in TIGIT, and even it might owe up to $500M only if – a big if – their candidate secures FDA approvals down the road.

In effect, a pile of notional money went up in flames as scientific fortune turned against that drug target.

High expectations can even spur legal battles. If a buyer and seller disagree on whether a milestone was reached (or if a buyer loses enthusiasm), lawyers may get involved. One seasoned litigator famously quipped at a biotech conference: "You're basically just inviting litigation" by structuring huge earnouts in M&A deals.

There have been cases of companies suing for milestone payments they "believe they are entitled to" (Esperion's combative stance being a prime example). These fights can drag on, meaning even if the biotech wins in court, the payout might arrive years late -- too late to save the company from a cash crunch. In short, a milestone can turn into a millstone, dragging the parties through court or arbitration rather than into the promised land of profits.

Why Biotech Keeps Chasing Rainbows

Given the sobering stats and frequent flame-outs, one might wonder: why do biotechs and their big pharma partners keep structuring deals this way? Why subject yourselves to potential disappointment (and a 97% chance of not hitting that big commercial payout)?

The answer lies in a mix of incentives, psychology, and risk-sharing. For large pharmaceutical companies, milestones are a way to hedge their bets. Drug development is inherently risky – so rather than pay, say, $1 billion upfront for a promising but unproven asset, a pharma might pay $100 million now and dangle another $900 million later if (and only if) the product meets ambitious targets (like getting FDA approval or hitting a sales benchmark).

This structure makes the headline number big and impressive, but keeps actual shareholder expenditures tied to success. It's a bit like buying a lottery ticket in installments: pay a little now, and pay the rest only if you actually hit the jackpot.

For the biotech sellers, it's about maximizing the perceived value of their company. They know that touting a potential "billion-dollar deal" puts them in a different league of prestige. Those milestones also serve as motivation.

Frequently, when a small company is acquired or partnered, its key scientists and executives will stick around to shepherd the product through development.

Dangling huge future payments is a way to keep the team engaged – a psychological carrot for the sellers to stay invested in the drug's success even after they've technically sold it. If the drug becomes the next big blockbuster, the original team can feel they'll share in the upside (sometimes handsomely).

As one dealmaker noted, "if they hit, they're really lucrative" – it's a lottery mentality, but one grounded in the slim chance of a truly big win.

Biotech founders, by nature, are optimists (they have to be, to navigate years of scientific setbacks). They genuinely believe in their products. So when a pharma partner validates them with a milestone-laden deal, it reinforces their conviction that success is just around the corner.

A founder might say: "Sure, these are success-based payments – but we fully expect to succeed!" In many cases, milestones also help bridge valuation gaps. The biotech thinks their drug could be huge; the pharma isn't so sure.

Rather than deadlock or overpay upfront, the pharma says "Okay, we'll pay you more later if your rosy predictions come true." Each side convinces themselves they've made a smart bargain.

There's also a bit of showmanship involved. Big numbers make everyone look good. The pharma company's CEO can boast about securing a pipeline of innovative drugs "for only $50M upfront plus milestones" – implying fiscal prudence – while the biotech's backers can claim "our baby was worth half a billion in the eyes of Big Pharma."

Both can be true, in a way, even if the full payout never happens. In the theater of biotech, milestones are the special effects: flashy, attention-grabbing, and not entirely "real."

Deal Biases and Cherry-Picked Perceptions

The prevalence of these mirage-like deals has introduced some biases in how industry watchers perceive value. One common bias is anchoring on the headline number. If a startup announces a partnership "worth up to $400 million," that figure tends to stick in people's minds – even if the upfront is only $40 million and the rest is highly speculative.

Boards and investors might start benchmarking other opportunities against that illusory full deal value. This can skew judgment, making a modest but guaranteed $50 million deal seem unspectacular because it lacks a shiny "hundreds of millions" tag attached.

Another effect is selection bias in the stories we hear and celebrate. Big milestone deals that do pan out are trumpeted as triumphs – they become the lore of biotech. But they are the exceptions.

The far more numerous cases where milestones quietly don't materialize get far less attention (nobody puts out a press release that says "Drug failed, we only got 10% of those milestone dollars, sorry folks").

This cherry-picking of success stories can give a warped impression that these deals are more valuable than they truly are. Insiders know the score: one industry report notes that early-stage development milestones (like a drug candidate entering Phase 1 trials) are reached more often – about 61% of preclinical milestones, for instance, have been paid.

These are typically smaller payments for easier-to-reach steps. But the big-ticket milestones – like a drug approval or hitting $1 billion in sales – are a rarity, often with success rates in the teens or single digits.

We tend to hear about the rare winners (because they make great news), while the many "near misses" are quietly swept under the rug.

There's also what one might call "deal bias" -- a distortion introduced by the deal-making process itself. Negotiators want to satisfy both parties and often settle on an inflated total value to make everyone happy on paper.

It's psychologically easier for a biotech to accept a lower upfront payment if they can tell themselves (and their investors) that "don't worry, we have hundreds of millions coming later."

The bias here is that everyone starts treating the hypothetical as somehow likely. It takes discipline (and perhaps a touch of cynicism) to remind oneself that those milestone dollars are monopoly money until proven otherwise. As SRS Acquiom's data showed, many milestones are "still pending" long after the deal, and the likelihood of payout only gets lower as time drags on.

In many cases the timeline for milestones can stretch 5-10 years into the future – practically an eternity in biotech-land, with ample time for things to go awry.

Even regulators have started to eye these practices warily. There's concern that some smaller companies might be overselling early deals (with big attached numbers) to pump up their value, even when the actual economics are shaky.

In late 2023, for instance, the U.S. Federal Trade Commission even moved to challenge a licensing deal on grounds that it might be anti-competitive – signaling that big upfront payments to nip competition could draw scrutiny.

While that's a slightly different angle (focused on competition), it underscores that not every deal touted as enormous is necessarily good for the ecosystem or destined to pay out. Sometimes these "big" deals are more about signaling and optics than substance.

Industry veterans often develop a healthy skepticism. As one expert advised, when you see a deal announcement with massive earnouts, apply a generous dose of doubt -- surprises happen, deals can be renegotiated, or end up in court. In other words, don't inhale too deeply from the hopium.

A milestone-laden deal is not the same as cash in the bank, just as a lottery ticket is not the same as a paycheck.

Balancing Hope and Reality

All this isn't to pour cold water on ambition. Biotech thrives on visionary founders who truly believe their science will change the world – and sometimes they're right.

Milestone-rich deals do serve a purpose: they allow high-potential projects to move forward with shared risk, and they keep dreamers dreaming while giving bean-counters something to cling to.

And indeed, a handful of deals do eventually deliver the goods.

Now and then, that 1-in-100 long shot comes home, and a small company's faith is rewarded with a jackpot that justifies all those "up to $X" proclamations. Those stories fuel the industry's optimism and, frankly, we need optimism to keep inventing medicines.

However, as the old saying goes, "hope is not a strategy." For every founder counting on a mega-milestone payday, it's wise to plan as if it might never come. That means valuing deals based on the sure thing, not the maybe. A $50 million upfront payment with a possibility of $450 million later is not a $500 million deal – it's a $50 million deal with a lottery ticket thrown in.

Business development folks will tell you to heavily discount those future payments when modeling a company's prospects. In practical terms, if the milestones hit, it should be treated as a pleasant surprise (and perhaps a reason to buy a nicer bottle of champagne). If they don't, it's just par for the course.

For founders and investors, the trick is to stay encouraged but clear-eyed. By all means, celebrate that partnership – it is a vote of confidence in your science.

Use the existence of those milestones to show that big pharma sees big potential in your work. But don't let the glitter of maybe-money blind you to the hard path ahead.

Most of those dollars are still locked behind daunting clinical hurdles, regulatory roulette, and even marketing battles years down the line. As one savvy commentator observed, it's "really fun" to issue a sexy press release about all the potential upside, but those who've been around the block know the reality is that it's "probably not going to hit" – especially the largest, most lucrative milestones.

In the end, biotech is a field of both miracles and mirages. Great discoveries do happen, and when they do, everyone is happy to pay out every last milestone (and then some, in royalties).

But until that day, a bit of cynicism can be healthy. Call it the milestone paradox: you must believe in the big dream to make it happen, yet you must also discount it heavily to manage your business sanely.

The most successful biotech leaders seem to embrace this duality – dream like a visionary, but budget like a pessimist. As the deals of the past two years have shown, counting your milestone chickens before they hatch is more likely to leave you with egg on your face than money in the bank.

So raise a glass to the deal you've struck, but maybe keep the second bottle of champagne on ice -- perhaps indefinitely. Biotech's future fortunes may well come, but they tend to arrive not in one lavish cascade, but in cautious, measured drops.

That dollar-filled pipette might yet fill the beaker, but it's going to take many careful drops – and a lot of science and luck – to get there. In the meantime, hope for the best, plan for the less. After all, in this business it's fine to trust in tomorrow's miracles, as long as you also "prefer not to" bet your whole company on them.