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Using contingent value rights (CVRs) in biotech and pharma deals

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Contingent Value Rights (CVRs) are contractual instruments used in biotech and pharmaceutical M&A transactions to bridge valuation gaps between buyers and sellers. In industries where future revenues depend on drug approvals, clinical trial outcomes, or regulatory milestones, CVRs allow sellers to receive additional payments if certain predefined events occur after the deal closes. By linking part of the purchase price to future performance, CVRs balance risk and reward while enabling deals that might otherwise fail due to uncertain asset valuations.



CVRs help overcome valuation challenges in life sciences M&A.

Biotech and pharma companies often have significant portions of their value tied to pipeline products or experimental therapies that lack predictable cash flows. Buyers are hesitant to overpay for assets that may fail, while sellers want compensation for potential upside. CVRs resolve this conflict by:

  • Deferring part of the purchase price until critical milestones are met.

  • Sharing risk between buyers and sellers on uncertain outcomes.

  • Aligning incentives around regulatory approvals, clinical trial success, or commercial performance.

  • Enabling deals where valuation gaps would otherwise block negotiations.

This structure is particularly common in early-stage biotech acquisitions and mega-deals involving multiple drug portfolios.



Types of contingent value rights used in pharma deals.

CVRs are structured based on milestone triggers, which define when sellers receive additional consideration:

Type of CVR

Trigger Event

Use Case

Regulatory CVRs

Approval of a specific drug or medical device by the FDA, EMA, or other agencies

High in pre-commercial biotech acquisitions

Sales-based CVRs

Achieving revenue thresholds for specific products

Used when market uptake uncertainty exists

Clinical CVRs

Success in Phase II or III clinical trials

Common in early-stage pipeline-driven transactions

Patent CVRs

Securing key intellectual property rights

Relevant in deals involving breakthrough therapies

By linking payments to objective, measurable milestones, CVRs reduce disputes and increase confidence in deal execution.


CVR mechanics and payout structures.

CVRs define the timing, size, and structure of milestone-based payments:

  • Fixed payments → Predetermined amounts tied to specific events.

  • Tiered payouts → Increasing compensation for exceeding performance thresholds.

  • Time-limited rights → CVRs typically expire within 3 to 7 years post-closing.

  • Cash or stock settlements → Payments can be structured as cash, additional equity, or a mix.

Properly drafted CVRs must specify measurement criteria, data sources, and timelines to ensure clarity and enforceability for all parties.


Accounting, tax, and legal implications of CVRs.

CVRs impact deal valuation, financial reporting, and regulatory compliance:

  • Accounting treatment → CVRs are classified as contingent consideration and recorded as liabilities or equity depending on structure.

  • Tax planning → Sellers may defer taxation until payments are received, while buyers deduct payouts when triggered.

  • Securities regulations → In publicly listed deals, CVRs often require SEC filings and disclosures due to investor impact.

  • Litigation exposure → Ambiguities in CVR definitions can lead to disputes, especially if data or measurement methods are contested.

Close coordination between legal, accounting, and tax advisors is essential to manage these complexities effectively.


Examples of CVRs in major biotech and pharma acquisitions.

CVRs have played a pivotal role in several high-profile transactions:

  • Bristol-Myers Squibb and Celgene (2019) → $74 billion deal included a CVR linked to FDA approval of three therapies, worth up to $9 per share.

  • Sanofi and Genzyme (2011) → $20 billion acquisition included a CVR tied to the success of Lemtrada, a multiple sclerosis treatment.

  • Gilead Sciences and Forty Seven (2020) → Structured CVRs based on clinical milestones for oncology drug development.

These cases illustrate how CVRs enable parties to finalize transactions without forcing buyers to pay upfront for unproven assets.


Risks and challenges in using CVRs.

While CVRs can unlock deal value, they introduce unique challenges:

  • Complexity in drafting → Requires precise definitions of triggers and timelines.

  • Potential disputes → Disagreements over data interpretation or performance measurement are common.

  • Regulatory uncertainty → Delays in FDA or EMA approvals can affect payouts.

  • Integration conflicts → Buyers may deprioritize products linked to CVRs, leading to seller dissatisfaction.

To mitigate these risks, deals often include reporting obligations, audit rights, and dispute resolution mechanisms to protect both parties.



CVRs enhance deal flexibility and bridge valuation gaps.

In biotech and pharma M&A, where asset value depends heavily on unpredictable clinical and regulatory milestones, CVRs allow buyers and sellers to align economic interests without overcommitting capital upfront. By combining structured payouts with clearly defined triggers, CVRs create a flexible, risk-balanced mechanism for completing transactions in high-volatility industries.


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