Evolving Deal Terms

Contingent Value Rights

Waiting for the Dough

Mark Edwards Mark Edwards
Of approximately 2,600 acquisitions and asset purchases over the past decade, 225 (8.9%) include a CVR or earn-out component. Last year, of 273 biopharma acquisitions and asset purchases, 34 (12.4%) have a CVR.
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Contingent Value Rights (CVRs) and other forms of earn-outs are increasingly common features of biopharma acquisitions and asset purchases. However, much like Samuel Beckett’s 1950s play, Waiting for Godot, for many CVR recipients these features resemble waiting for someone who never arrives.

Of approximately 2,600 acquisitions and asset purchases listed in BiosciDB.com over the past decade, 225 (8.9%) include a CVR or earn-out component. Last year, of 273 biopharma acquisitions and asset purchases, 34 (12.4%) have a CVR.

To understand the importance and variability of CVR provisions in biopharma agreements, we analyzed approximately 260 acquisitions and asset purchases having a CVR or equivalent earn-out clause. In addition, we tagged key CVR-related contract provisions in 128 of these agreements.


For purposes of this analysis, we looked at acquisition and asset purchase agreements since the early 2000s which are known to have a CVR or earn-out component based on one or more of the following: (i) press release, (ii) financial notes disclosure, or (iii) SEC-filed contract. We found 261 such agreements, all of which are listed in the All CVRs spreadsheet accompanying this article. In addition, we tagged the following CVR-related contract provisions, where applicable, in 128 of the SEC-filed contracts:

  • Development/Regulatory (Dev/Reg) Milestone Event(s) & Payment(s) for 1st Approval
  • Additional Dev/Reg Milestone Event(s) & Payments, plus Sublicense Revenue sharing
  • Sales Milestone Event(s) & Payment(s)
  • CVR Diligence Obligations of Buyer
  • CVR Payout Term (in years post-closing)

As with most BioSci analyses, the deal-specific CVR provisions included in this analysis are accessible directly via the embedded “Tags” in the spreadsheets. Subscribers to BiosciDB.com may also access the deal press release, financial notes disclosures and full contract(s) from which these provisions were extracted by following the “Deal” link.

Deals Involving Sellers with Late Stage Assets have Least Reliance on CVR Payments.

As shown in Figure 1 and the CVRs By Stage spreadsheet accompanying this article, 40% (105 deals) of the dataset involved Sellers with Late Stage Assets (Phase III or later Stage), 30% (77 deals) were Sellers with Mid-Stage Assets (Phase I or II Stage), and 13% (34 deals) were sellers with Early Stage Assets (Discovery, Lead or Preclinical Stage). The balance of the dataset involved Device (21 deals), Diagnostic (12 deals), Formulation (6 deals) and Other (6 deals) assets.

Figure 2 shows the average and median Total Deal Size for each of the three cohorts of Early Stage, Mid-Stage and Late Stage Sellers. Upfront Payments (cash to Sellers plus Buyer’s equity at fair market value) are roughly one-third of Total Deal Size for Early Stage and Mid-Stage deals; such Upfront Payments are two-thirds of Total Deal Size for Late Stage deals. Figure 2 also shows the average and median payments associated with Dev/Reg Milestones, Additional DevReg Milestones & Sales Milestones for each of the three Seller cohorts.

Commercially Reasonable Efforts is the Buyer’s Typical Diligence Standard Post-Closing.

As shown in Figure 3 and the CVRs Tags spreadsheet accompanying this article, Commercially Reasonable Efforts (CRE) is the standard of diligence most often adopted for achievement of CVR milestones. Of the 85 contracts with tagged diligence-related provisions, 56% (48 deals) used CRE, followed by 25% (21 deals) with Diligent Efforts. “Reasonable best efforts” was the diligence standard in 5% (4 deals), and post-closing performance was at the Buyer’s “sole discretion” in 6 instances.

Figure 4 shows the frequency of each diligence standard by Total Deal Size. For the largest 15 deals ($1 Billion or more in Total Deal Size), there was a fairly even split between CRE, Diligent Efforts and “sole discretion,” with no instances of “best efforts.” By contrast, CRE is the predominant diligence standard for the 54 deals with less than $500 Million in Total Deal Size.

CVR Payout Term is Longest for Smaller Deals and Has Shortened Recently.

Figure 5 shows the average and median maximum length of CVR Payouts in years by cohorts of Total Deal Size. Of 73 deals for which we have the CVR Payout Term based upon tagged contract provisions, the cohorts having Total Deal Size of less than $500 Million had average CVR Payouts of 7.2 years. The cohort for deals of $500 Million to $1 Billion had the shortest average CVR Payout of 3.4 years.

Finally, Figure 6 shows that CVR Payout Term has recently returned to its historical average of approximately 5 years, after spiking to an average of 9.6 years for transactions signed from 2015-17.


As the use of CVR provisions is growing in frequency in biopharma acquisition and asset purchase transactions, the parties to such deals will want to pay greater attention to industry custom and practice with respect to CVR-related provisions. To the extent there exist generally accepted terms regarding diligence especially, it may be possible to minimize costly disagreements regarding post-closing outcomes and payouts.