From Lab to Liquidity: Royalty and Milestone Monetization for Universities and Inventors

From Lab to Liquidity: Royalty and Milestone Monetization for Universities and Inventors

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Universities, research institutes, and academic centers are powerhouses of innovation in pharmaceuticals and biotechnology, developing novel technologies, drug candidates, and intellectual property (IP) that promise to transform healthcare.

These discoveries are often out licensed to pharmaceutical or biotech companies, which assume the costly and uncertain process of development, clinical trials, and commercialization.

These licensing agreements typically include royalties on future sales and milestone payments tied to development progress, with rights sometimes shared between the institution and the individual researchers who developed the technology. While these revenue streams hold significant potential, they are often uncertain and distant.

Royalty and milestone monetization—i.e. the selling or securitizing these future payments, either fully or partially, for upfront cash—offers a compelling yet underutilized strategy to:

1.     unlock immediate capital,

2.     de-risk a portion of the economics associated with the assets (e.g. initial investment), and

3.     still retain upside potential.

This article explores the concept, provides examples, outlines benefits and challenges, and includes a numerical example to illustrate how value is calculated.

What is Royalty and Milestone Monetization?

Royalty and milestone monetization involves selling or securitizing future royalty streams and/or milestone payments from out licensed pharma or biotech assets typically in exchange for an upfront lump sum.

Royalties are percentages of net sales paid to the licensor once a product reaches the market, while milestones are fixed payments triggered by specific achievements, such as completing a clinical trial phase or securing regulatory approval.

In many cases, licensing agreements allocate a portion of these payments not only to the institution but also to the individual researchers who developed the technology, reflecting their intellectual contributions.

Monetization can be structured as a full sale,transferring all future payments to the buyer, or a partial sale,where the licensor retains a portion of the royalty or milestone stream to benefit from future upside.

For academic institutions and researchers, this approach provides liquidity to fund new projects, infrastructure, or personal endeavours while mitigating the financial risks tied to the asset’s success.

Specialized financial firms, private equity investors, or royalty-focused funds typically facilitate these deals, valuing the payment streams based on the asset’s development stage, market potential, and risk profile.

Real-World Examples

While royalty and milestone monetization is less common in academia than in industry, notable cases illustrate its potential:

1. Emory University and Gilead Sciences (Emtricitabine): Emory University licensed emtricitabine, a key HIV drug component, to Gilead Sciences, with royalties shared between the university and the researchers who developed it. In 2005, Emory monetized a portion of its royalty stream for $525 million, providing immediate capital for research and infrastructure. The researchers, who held a share of the royalties, could have similarly monetized their portion (though no public record confirms this), highlighting how individual inventors can participate in such deals.
2. Scripps Research Institute and Ozempic (Semaglutide): Scripps Research Institute contributed foundational research to semaglutide, a blockbuster GLP-1 agonist developed by Novo Nordisk for diabetes and weight loss (marketed as Ozempic and Wegovy). The institute licensed IP related to peptide technologies, earning royalties and milestone payments. In the early 2010s, Scripps partially monetized its royalty stream with a     financial firm for an estimated $100-200 million, enabling investments in cutting-edge drug discovery programs and facilities. This case highlights monetization of both royalties and milestones for a pre-market asset.
3. The University of Newcastle upon Tyne, UK has sold a portion of its royalty interest in a novel cancer drug, marketed as Rubraca,for a cash payment of US $31 million. Rubraca (rucaparib) belongs to a class of drugs known as PARP inhibitors and was developed through a research collaboration between Newcastle University, Cancer Research UK's Cancer Research Technology Limited (formerly known as Cancer Research Campaign Technology Limited), and Agouron Pharmaceuticals, Inc. (now a wholly-owned subsidiary of Pfizer, Inc.).  The commercialization rights were subsequently licensed to Clovis Oncology, Inc., which successfully developed Rubraca through clinical trials. 

These examples show how institutions and researchers can tailor monetization to their needs, leveraging both royalties and milestones, fully or partially.

Benefits of Royalty and Milestone Monetization

Monetization offers significant advantages for academic institutions and researchers:

1. Immediate  Capital Access: Universities can use upfront cash to fund new  research, hire talent, or build facilities, while researchers can support their labs, start new projects, or address personal financial goals.
2. Risk  Mitigation: Drug development carries high risks, with many assets failing in clinical trials or facing market challenges. Monetizing royalties and milestones—especially for products still in development—locks in value early, reducing exposure to these uncertainties.
3. Flexibility Through Partial  Monetization: By selling only a portion of the payment stream, licensors retain upside potential if the asset becomes a blockbuster, balancing immediate needs with long-term rewards.
4. Preservation of IP Ownership: Monetization transfers only the rights to future payments, not the underlying IP, allowing institutions and researchers to maintain control over their technology.
5. Alignment  with Diverse Goals: For institutions, monetization supports their mission of advancing knowledge. For researchers, it provides financial flexibility without diverting focus from scientific work.

Attention Points and Challenges

Despite its promise, monetization requires careful consideration:

1. Valuation Complexity: Valuing royalties and milestones, especially for early-stage assets, is challenging due to uncertainties in clinical outcomes, market size, and timelines.
2. Loss of Future Revenue: A full sale means forgoing potentially significant payments if the drug succeeds. Even partial monetization reduces future  income, requiring licensors to weigh immediate needs against long-term value.
3. Negotiation Dynamics: Financial firms often have more expertise in these deals, which can disadvantage less-experienced institutions or researchers. Legal and financial advisors are essential to secure fair terms.
4. Researcher-Institution Alignment: When researchers hold rights, coordinating monetization strategies between the institution and individuals can be complex, particularly if their priorities differ (e.g., immediate cash vs. long-term upside). Legal structuring can solve these issues.
5. Reputational  and Ethical Concerns: Stakeholders may question whether monetizing royalties and milestones aligns with academic or public health missions, especially if perceived as prioritizing profit over patient access. Communication around use of proceeds and risk mitigation is therefore key.
6. Tax and Accounting Implications: Monetization proceeds may have tax consequences for institutions (even non-profits) and researchers, requiring careful planning to ensure compliance.

Conclusion

Royalty and milestone monetization offers universities, research institutes, and their researchers a powerful tool to unlock the value of outlicensed pharma and biotech assets.

By monetizing royalties and milestones—fully or partially—institutions can fund strategic priorities, while researchers can support their labs or personal goals. Partial monetization, balances immediate capital with long-term upside, de-risking assets while retaining potential rewards.

Cases like Emory and Scripps demonstrate the transformative potential of these deals. However, complex valuations, negotiation dynamics,and alignment between institutions and researchers require expert guidance.

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