Milestone-Based Pricing: Examples & Companies

What is it

Milestone-based pricing is a billing unit used in drug discovery and biotech AI where payment is tied to achieving defined research milestones rather than time or compute consumed.

The structure borrows from the pharmaceutical industry’s long-established R&D collaboration model and applies it to AI-powered platforms. Instead of charging per seat or per API call, a vendor receives an upfront payment at deal signing, then earns a series of predetermined payments as the engagement clears verifiable scientific gates: a target validated, a candidate molecule identified, a preclinical study completed, an IND filing submitted, a Phase I trial initiated, or a drug approved and on the market. Isomorphic Labs — the DeepMind spinout led by Sir Demis Hassabis — uses exactly this structure in its partnerships with Eli Lilly ($45M upfront, up to $1.7B in milestones) and Novartis ($37.5M upfront, up to $1.2B in milestones), both announced in January 2024.

What distinguishes milestone billing from other outcome-based approaches is the explicitness of the gate. Each milestone is written into the contract as a binary event — it either happened or it didn’t — with a specific dollar amount attached. This removes the ambiguity that plagues looser outcome models and gives both parties a shared, auditable record of when payment is owed. Recursion, which operates one of the largest AI drug-discovery platforms (models trained on more than 50 petabytes of proprietary biological data and a 504-GPU BioHive-2 supercomputer), structures its Roche/Genentech partnership around exactly this logic: the $150M upfront unlocked access to the platform, while each program carries more than $300M of individual milestone potential payable only as science progresses. For a primer on how these value metrics compare to seats and tokens, see the guide to usage-based pricing models.

Because the largest payments arrive only after years of clinical and regulatory work, milestone pricing is radically back-loaded. The headline “biobucks” figures that populate press releases — Recursion’s Sanofi deal at up to $5.2 billion in aggregate milestones across 15 programs, Insilico Medicine’s US$4.6 billion in cumulative collaboration value — are ceilings reachable only if many gates clear across a decade-long arc. Upfront and near-term payments are far smaller, and most of a deal’s potential value is never realized because most drug candidates fail. The conditionality is deliberate: the vendor shares the risk rather than collecting regardless of results, which is what makes large pharma willing to sign these deals at all.

How it works

A milestone-based deal has three structural layers that stack over the life of a drug program.

Layer 1: Upfront payment. At signing, the pharma partner pays a cash sum that compensates the AI platform for its prior investment and secures access to the platform for the collaboration. Upfronts in the corpus range from $20M (Exscientia’s Merck KGaA deal, and Recursion’s own Merck KGaA deal) to $150M (Recursion’s Roche/Genentech deal). The upfront is earned regardless of downstream outcomes — it is the one non-contingent element of the deal.

Layer 2: Milestone payments. The contract defines a ladder of discrete research, development, regulatory, and commercial events, each with an associated payment. The milestone types and their typical relative sizes appear in the table below.

Layer 3: Tiered royalties. Once a drug is commercialized, the AI vendor receives a percentage of net sales that escalates as revenue crosses defined thresholds. Royalty rates in the corpus run from mid-single-digit percentages to the mid-teens — Exscientia’s Sanofi agreement quoted high-single-digits to mid-teens, with a co-investment option that would have elevated royalties to 21%. Choosing the right billing gate is itself a design decision; the guide to choosing the right usage metric covers the trade-offs.

Unit math example: A three-program collaboration with a $30M upfront, five milestones per program totalling $120M per program, and a 10% royalty on $200M net peak sales would yield: $30M (upfront) + up to $360M (milestones across three programs) + ~$20M/yr (royalties at peak). Total potential: ~$390M before royalties, with royalties compounding annually until patent expiry or drug withdrawal.

The payment trigger is always a binary event verified externally — a regulatory filing date, a trial initiation confirmed in a clinical-trials registry, a published Phase II readout. This makes milestone accounting more straightforward than many outcome-based models: there is no disputed measurement of what “resolved” or “completed” means, only whether a dated, public event occurred.

Companies using this

Four companies in the corpus use milestones as a primary billing unit, all operating in AI-powered drug discovery. Isomorphic Labs and Recursion are the largest by deal volume; Exscientia (now absorbed into Recursion after an ~$688M all-stock merger completed in November 2024) and Insilico Medicine complete the group.

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