Licensing Basics For Life Sciences: Getting Paid Through License Fees

In life sciences, licensing fees are often upfront payments, ongoing royalties (usually a percentage of net sales) or milestone payments after a certain event in product development. Examples of typical events would be synthesizing a humanized antibody, finishing a Phase II clinical trial successfully, or first commercial sale.

The milestone payment can be an incentive to work diligently to achieve an endpoint, such as overcoming the production hurdles to produce a commercial grade product. Milestone payments are also an interim payment that helps pay for R&D and other expenses, since royalty-based license fees will not have kicked in yet. If the company has not yet finished the manufacturing process, there would be no product made, no regulatory approval, no sales, and no ongoing royalty from sales revenue.