Contingent Value Rights Gain Traction in Biotech M&A Deals Amid Market Turbulence

In a volatile biotech market characterized by fluctuating stock prices and economic uncertainty, dealmakers are increasingly turning to contingent value rights (CVRs) to bridge valuation gaps and facilitate mergers and acquisitions. This decades-old financial tool has seen a resurgence in popularity, helping to catalyze a recent uptick in biotech deals and offering a potential lifeline to cash-strapped drug developers.

CVRs Emerge as Key Deal Facilitator

Since July, at least two dozen biotech acquisitions worth $50 million or more have been signed, marking a significant acceleration from the latter half of 2024. Data compiled by BioPharma Dive reveals that a third of these deals incorporated CVRs, which essentially promise additional payouts to a seller's shareholders if certain milestones are met post-acquisition.

The growing prominence of CVRs is illustrated in a mid-October report from Jefferies, which examined biotech mergers and acquisitions worth more than half a billion dollars. The report found that not only has the number of buyouts with CVRs increased "substantially" in recent years, but the proportion of deal value tied to these rights has also grown. In 2025, CVRs have, on average, accounted for 37% of the total size of larger transactions that incorporated them.

Notable Deals Showcase CVR Appeal

Several recent high-profile acquisitions highlight the significant role CVRs are playing in deal structures:

• Day One Biopharmaceuticals agreed to buy Mersana Therapeutics for $25 per share, with an additional CVR worth up to $30.25 per share.
• Eli Lilly's bid for Adverum Biotechnologies includes a CVR potentially worth 2.5 times the upfront payment of $3.56 per share.
• Pfizer's acquisition of Metsera for $10 billion includes a CVR worth up to $20.65 per share.

These examples demonstrate how CVRs can substantially increase the potential value of deals, providing upside for sellers while allowing buyers to mitigate risk.

Navigating Challenges and Controversies

While CVRs have proven effective in facilitating deals, they are not without challenges. Structuring CVRs can be complex, particularly when tied to research or sales goals rather than binary events like FDA approvals. Additionally, past disputes have arisen over the execution of CVR agreements.

In 2019, Sanofi paid $315 million to settle claims that it intentionally delayed development of the multiple sclerosis drug Lemtrada to avoid a CVR payout related to its Genzyme acquisition. More recently, Bristol Myers Squibb faces renewed litigation from former Celgene shareholders over a $9-per-share CVR tied to cancer cell therapy approvals.

Despite these challenges, industry experts like Kevin Eisele, managing director at William Blair, expect CVRs to "stick around" as a valuable tool in biotech M&A. As the industry continues to navigate economic headwinds and valuation pressures, CVRs offer a "clever workaround" to help close deals in an increasingly complex market landscape.