A Breakout Year for CVRs: 2025 and First-Half 2026 Trends in Life Sciences Public M&A

Three years after our first survey documented the reemergence of contingent value rights (“CVRs”) in public life sciences M&A, 2025 marked their biggest year yet. A record 28 of 59 announced public life sciences transactions (approximately 47%) included a CVR, the highest ever annual count and share. The concentration was even greater in biopharma, where over half of announced public biopharma transactions included a CVR. CVRs also moved upmarket and carried more of the potential deal value. More than a third (approximately 37%) of the $1 billion-plus life sciences CVR deals in our full dataset (going back to 2008) were announced in 2025 and the first half of 2026. Moreover, nearly half of all life sciences CVR deals above $3 billion were announced in 2025 and the first half of 2026, with two additional CVR deals over $3 billion announced since June 30, 2026. In addition, 2025 produced more CVRs with maximum potential payouts exceeding 100% of the upfront consideration than any other year surveyed.

While biopharma remained the key sector using CVRs, the medical device sector saw a rise in the use of CVRs in 2025.

CVRs are now a recurring feature of life sciences M&A, including in larger transactions and among repeat strategic buyers, and continue to be used to bridge valuation gaps and allocate regulatory and commercial risk.

This article is the third installment in our CVR survey series, following our surveys covering January 1, 2018 through April 30, 2023 and January 1, 2019 through September 30, 2024. Like other recurring deal surveys, this series is intentionally cumulative so that deal teams and their advisors can track trends and changes in market practice over time. This installment extends the survey from January 1, 2021 through June 30, 2026 (unless otherwise indicated) and focuses on the developments and trends since our last survey.[1][2]

Executive Summary: What Changed Since Our Last Survey

• Life Sciences Industry Dominates CVRs. Life sciences continues to dominate the public CVR landscape. Of the 1,199 public deals announced across all industries since 2021, only 77 (or approximately 6%) included CVRs; however, of those deals, approximately 92% were in the life sciences industry.
• 2025 Saw Highest Usage of CVRs. 2025 was the breakout year for CVR usage, with the highest ever annual count and share of deals using a CVR: 28 of 59 announced life sciences transactions (approximately 47%) included a CVR. Approximately 24% of announced life sciences transactions from January 1, 2026 through June 30, 2026 have included a CVR, with the full-year trend yet to be determined.
• Biopharma Continues to Drive CVR Use. Approximately 56% of announced public biopharma transactions in 2025 utilized a CVR.[3] Over the longer term, approximately 38% of announced public biopharma transactions since 2021 included a CVR, compared to approximately 30% of all public life sciences transactions.
• Surge in CVRs in Medical Device Deals. While historically medical device deals saw little use of CVRs, last year marked an uptick in this sector. Of the only seven medical device CVR transactions in the last ten years, four were announced in 2025.[4]
• Use Rising in Larger Deals. Although most public life sciences CVR deals remain below $1 billion, there has been a recent and striking uptick in larger transactions using CVRs. From 2008 through the first half of 2026, there have been 35 life sciences CVR deals above $1 billion. Of those, 13 have been announced since 2025, comprising approximately 37% of these high-value CVR deals. The shift is even more pronounced at the top end: nine of the 19 CVR deals above $3 billion in the same period (approximately 47%) were announced since 2025.
• Contingent Portion of Deal Value is Getting Larger. Excluding seven high-value outliers, the maximum potential CVR payouts in deals announced since 2021 averaged 34% of upfront consideration, with a median of 24%. In 2025, CVRs came in above both figures, with an average of 39% and a median of 27%. 2025 also pushed the upper end of the distribution, alone accounting for approximately 64% of all deals with payout ratios exceeding 100% of the upfront consideration.
• Continue to Be Event-Driven. Every life sciences CVR announced since 2021 was event-driven. Sales/use (e.g., net sales or milestones based on total numbers of prescriptions issued) and regulatory milestones (e.g., drug approval by the FDA) together accounted for 74% of milestone types.
• Continue to See Small Number of Milestones. CVRs typically have fewer milestones than those seen in private company deals, with a strong majority (approximately 75%) of the CVRs in life sciences transactions announced since 2021 providing for only one or two milestones, consistent with previously surveyed periods.
• Post-Closing Efforts Tipped in Buyer’s Favor. Efforts remain a central negotiation point, particularly in light of recent high-profile litigation over whether buyers satisfied their diligence obligations. Between 2021 and June 30, 2026, the efforts required of buyers to achieve milestones shifted in buyers’ favor: objective standards for efforts declined, while buyers increasingly disclaimed efforts obligations altogether. The objective standard remains the most common formulation among life sciences CVRs since 2021, while larger pharma buyers more often use a subjective standard. Showing a move in favor of buyers, the objective standard, which is generally viewed as favoring sellers, declined from approximately 48% for deals in 2021–2023 to approximately 38% in deals from 2024 through June 30, 2026. In addition, in those same periods, formulations where efforts were disclaimed entirely increased from approximately 4% to approximately 16%.
• Looking Ahead. CVRs have evolved from a niche tool to a routine feature of life sciences M&A, and deal terms have changed as well. Deals using CVRs are getting larger and contingent payouts are growing, while post-closing discretion increasingly tilts toward buyers. CVR frequency has moderated in the first half of 2026, but the deals that include CVRs are among the largest on record, with five of the largest CVR transactions we have surveyed announced in 2026, including two announced after June 30. Whether 2025’s record pace resumes, and whether buyer-favorable terms persist as financing markets and M&A conditions evolve are questions we will revisit in our next survey.

CVRs remain an important component of deal structuring, particularly in a demanding financing[5] and regulatory[6] environment. When we published our first survey in 2023, it remained to be seen whether the CVR, which gained popularity during uncertain economic times, would have staying power. The record 2025 data suggests that it does. The next question is how CVRs will be used in larger transactions and whether post-closing standards continue to shift toward greater buyer discretion.

The Survey Results

CVRs, the public company analog to the earnout, were first introduced in the late 1980s and are still used today to provide additional value to public company shareholders in a transaction. CVRs can help bridge the valuation gaps in public M&A transactions, which can be especially significant in times of economic uncertainty. Despite their complexity, CVRs can be customized to address the circumstances of a particular transaction, including risks associated with the future performance of a specific target. While these valuation issues can occur for deals in any industry, CVRs may be more attractive in life sciences transactions because target companies already face high beta outcomes that depend on uncertain future events like clinical trial results, regulatory approvals, and successful product commercialization. Furthermore, sellers in the private life sciences industry are already accustomed to partial payment in “bio bucks”—where earnouts, or milestones, are common practice.[7] Although public-company CVRs remain more complex than private-company earnouts, they are now a well-established component of the life sciences public M&A toolkit.

Record Use—Still Overwhelmingly a Life Sciences Story

CVR usage in public deals remains concentrated in the life sciences industry. Of the 1,199 public deals announced across all industries from January 1, 2021 through June 30, 2026, only 77 (or 6.4%) included CVRs; however, of those deals, approximately 92% were in the life sciences industry.[8] In fact, between 2021 and the first half of 2026, there were only six deals using CVRs outside of life sciences transactions. In earlier periods, CVRs were less common across all industries, including in life sciences. See Table 1.

Table 1

2025 was a big change from prior years: a record 28 of 59 life sciences deals (47%) included a CVR, compared with 27% in 2024 and 38% in 2023. Across the full period since 2021, over one in four (30%) life sciences deals included a CVR.

Biopharma Still Drives the Market, But Medical Device CVR Use Jumped Sharply in 2025

Of those public life sciences transactions that used CVRs,[9] CVRs are most common in biopharma. There were two CVR deals announced in 2021 and both were in the biopharma sector, and CVR usage has climbed almost every year since. In 2025, 24 of 43 announced public biopharma deals (approximately 56%) included CVRs. In the first half of 2026, CVRs were featured in six of 19 (approximately 32%) biopharma transactions.

In contrast, the use of CVRs in other life sciences sectors has remained limited. The last healthcare service transaction to use a CVR was in 2013. Similarly, only two medical device transactions used CVRs from 2021 to 2024 (out of 26 total public medical device deals). Medical device deals saw a significant increase in CVR usage in 2025—out of the eight total medical device deals that include CVRs in our full dataset (going back to 2008), four were announced in 2025 alone. See Table 2.

Table 2[10]

Structural Differences Across Life Sciences Sectors

The concentration of CVRs in public biopharma transactions likely reflects differences across life sciences sectors. Public healthcare services and medical device companies are less likely than biopharma targets to be pre-revenue, and their values may therefore be less tied to uncertain future events. Medical device and diagnostics transactions may also involve more predictable development timelines and shorter regulatory pathways. The medical device transactions that have used CVRs are consistent with those differences. Approximately 67% of milestones in the medical device CVRs were sales/use-based (e.g., net sales or total numbers of units sold) while only 20% were regulatory (e.g., achievement of regulatory approval), compared with approximately 41% and 30%, respectively, in biopharma.[11] Private company earnout data provides another point of comparison. Achievement rates for earnouts in private company medical device and diagnostics transactions (based on earnouts due by mid-2025) were approximately 43%, compared with approximately 22% in biopharma.[12] Biopharma transactions (both public and private) more often involve earlier-stage companies whose value depends on various uncertain future outcomes, which may help explain why CVRs remain more common in that sector.

CVRs Move Upmarket but Remain Common in Smaller Deals

CVR use is heavily concentrated in relatively smaller life sciences transactions. From 2021 through June 30, 2026, approximately 45% of public life sciences deals below $500 million included a CVR, compared with 31% for deals between $500 million and $1 billion. See Table 3.

Table 3[13]

When the 2021 through June 30, 2026 dataset is narrowed to only public life sciences deals that include CVRs, approximately 51% of all CVR deals had an equity value below $500 million, with the next largest percentage at approximately 17% in the range between $500 million and $1 billion.

2025 showed a significant increase in higher equity value CVR transactions. Of the 35 public life sciences CVR deals with an equity value over $1 billion announced since 2008, 10 (approximately 29%) were announced in 2025 alone, which is substantially more than the next highest year (2023, with six deals). The concentration is even more pronounced in our study period: 2025 accounted for approximately 43% of the life sciences CVR deals with an equity value over $1 billion between 2021 and June 30, 2026, and approximately 55% of deals with an equity value of over $3 billion.

The upmarket trend has continued into 2026. As of the date of this article, 63% of life sciences transactions with CVRs announced in 2026 had an equity value of more than $3 billion—and, combined with the 2025 activity, 52% of CVR deals above $3 billion since 2008 have been announced after January 1, 2025. CVR deals remain concentrated in lower-value transactions overall, but they are no longer confined to smaller transactions.

Fundamentals of CVRs

The CVR Agreement

CVRs are typically incorporated into standalone agreements attached as an exhibit to the merger agreement, unlike private company earnouts that are generally included in the acquisition agreement itself. The CVR agreement is entered into between the buyer and a rights agent who acts as the representative of the CVR holders and oversees their rights under the CVR agreement.

CVR Types

CVRs generally fall into two categories: (1) price-protection CVRs and (2) event-driven CVRs. Because the basic structure and operation of these forms have not materially changed, our 2024 article provides a more detailed overview. Traditional price-protection CVRs remain exceedingly rare—only one publicly announced M&A transaction since 2019 has included one, and that transaction was outside life sciences. By contrast, every life sciences CVR announced since 2021 was event-driven and tied to specified post-closing milestones or other contingent events. See Table 4.

Table 4[14]

In our 2024 survey, we described post-closing monetization structures as “Hail Mary” CVRs. Their mechanics have not materially changed, and they remain infrequent, but distressed-company acquisitions continue to use them to preserve residual asset value. These CVRs permit former target shareholders to share in proceeds from a later sale or license of a CVR product.

CVR agreements for public deals also generally provide for fewer milestones that are less complex in nature as compared to private company deals,[20] with approximately 75% of the 2021 through June 30, 2026 CVRs providing for only one or two milestones.[21]

Cash Remains the Rule

CVRs can be paid out in cash, buyer stock, or a mix of both. Typically, the form of consideration is fixed at the signing of the merger agreement, but the CVR agreement may also provide that a buyer or a CVR holder may elect the form of payment as between cash and stock or a mix at the time the rights become due. Since 2021, all but one life sciences transaction involving CVRs provided for CVR consideration to be paid exclusively in cash.[22] [23]

Valuation of CVRs

Between 2021 and June 30, 2026, the average potential value of a CVR across all life sciences deals was approximately 91% of the non-contingent, upfront value a shareholder would receive in a deal and the median potential value of a CVR was approximately 32%.[24] The general trend was for the maximum payout available under the CVR agreement to represent a range between 1% and 25% of the upfront non-contingent value to a shareholder in cash or stock—however, some high-value outliers materially affect the average potential payout. For example, three CVRs provided that if the maximum payouts were made, between 220% and 310% of potential additional value could be achieved under the CVR as compared to the non-contingent upfront merger consideration; another three transactions provided for a potential CVR value between approximately 615% and 645% of the non-contingent upfront value; and a seventh transaction provided for a potential CVR value of approximately 748% of the non-contingent upfront value.

Once these seven outlier transactions are excluded from the 2021 through June 30, 2026 CVRs, the average and median maximum payout resemble each other much more closely: the average potential CVR payout value was approximately 34% of the upfront non-contingent value to a shareholder in cash or stock and the median potential value of a CVR was approximately 24%.

In 2025, potential CVR value was higher relative to upfront consideration. 2025 recorded the highest number of deals with potential CVR value above 100% of upfront consideration, with an average of 39% and a median of 27% of upfront consideration. More broadly, 2025 had the largest annual share across nearly all potential CVR value ranges—it accounted for approximately 64% of CVR deals with payout ratios above 100%, 50% of deals in the 25%–50% band and approximately 33% of deals in the 1%–25% band, in each case the highest annual share observed since 2021. See Table 5.

Table 5[25]

Transferability Remains the Exception

One consideration that buyers must weigh when drafting a CVR is the tradeoff between the transferability desired by sellers and the associated legal compliance obligations that are disfavored by buyers. If a CVR is transferable, it may be considered a “security” under U.S. federal securities laws, which may require the issuance of the CVRs to be registered under the U.S. Securities Act of 1933.[26] This would also require the CVRs to be registered under the U.S. Securities Exchange Act of 1934, which in turn would lead to SEC reporting obligations for the buyer under that statute as long as the CVRs are outstanding. These reporting obligations can be of particular concern to non-U.S. or private buyers that may not otherwise be required to comply with U.S. federal securities law reporting obligations. Accordingly, although CVRs may be structured to be transferable, no public life sciences transaction since 2019[27] has included transferable CVRs, underscoring buyers’ preference to avoid the regulatory burdens associated with transferability.[28]

Former shareholders of a target company generally prefer CVRs that are transferable and registered on a stock exchange so that the holders are able to achieve liquidity by selling the CVR instead of holding the CVR for the entire milestone period.[29] In all recent life sciences CVR deals, buyers have required non-transferable CVRs,[30] likely to avoid SEC registration requirements (and, to the extent applicable, stock exchange requirements), along with the costs and expenses of registration, listing, and continued compliance. Another reason is that hedge funds and other market participants often become the holders of a significant percentage of transferable CVRs and may even hedge their CVR exposure with the buyer’s stock, resulting in unnatural trading activity in a buyer’s stock and undesired consolidation of holdings in CVRs and buyer’s stock.

Additional Specific CVR Terms in Life Sciences Transactions

CVRs Are Typically Event-Driven, Cash-Settled and Non-Transferable

The life sciences industry has standardized around event-driven, non-transferable and cash-settled CVRs. Since 2021, only one life sciences CVR deal provided for consideration payable in cash and/or stock at the buyer’s election.[31]

Post-Closing Efforts to Achieve the CVR Events

Subjective, Objective and Set Metrics Efforts Standards

One of the principal issues negotiated in an event-driven CVR agreement is the extent of the buyer’s post-closing obligations to pursue the milestones underlying the CVR. Those obligations are typically set forth in a definition of “Commercially Reasonable Efforts,” “Diligent Efforts,” or a similarly defined efforts standard. Buyers and sellers continue to negotiate whether those obligations should be measured using a subjective (or inward-looking) standard, based on the buyer’s efforts with respect to its own comparable programs, or an objective (or outward-looking) standard, based on the efforts that a reasonable company would devote to a comparable program. The legal and commercial considerations underlying these standards are discussed in our 2024 article.

The objective standard is the most common in life sciences CVR agreements for transactions announced since 2021, as shown in Table 6; the shift between the two periods from 2021 through 2023 and 2024 through June 30, 2026 is shown in Table 7. However, when CVRs are used in transactions with larger pharma company buyers, a subjective standard of efforts is more typically seen. Of the life sciences CVR deals involving “Big Pharma” companies between 2021 and June 30, 2026, 58% had a subjective standard of efforts, as compared to only 29% with an objective standard. Some CVR agreements specifically disclaim that the buyer will have to use any specified efforts to achieve the milestones.[32]

Less frequently, parties may also move beyond general efforts standards by incorporating more specific contractual obligations or “set efforts,” such as minimum funding commitments, defined development activities, commercialization strategies, or other objective performance metrics. These approaches remain uncommon but can provide greater certainty regarding a buyer’s post-closing obligations.

We refer readers to our prior discussion for examples of these alternative drafting approaches.

Table 6[33]

Shift in Efforts Standards Favoring Buyers

CVR deals have increasingly adopted buyer-friendly deal terms, providing for increased post-closing discretion. Comparing CVR agreements announced from 2021 through 2023 with those announced from 2024 through June 30, 2026, objective efforts standards, which are generally viewed as favoring sellers, declined from approximately 48% of deal agreements to approximately 38%. At the same time, agreements expressly disclaiming any efforts obligation increased significantly from approximately 4% to approximately 16% of agreements. Taken together, these changes indicate a shift in leverage in favor of buyers, who increasingly avoid committing to any efforts standard at all. See Table 7.

Table 7[34]

Buyers’ increasing use of provisions disclaiming efforts obligations in CVR agreements is consistent with trends in private life sciences transactions. In particular, in private biopharma transactions, buyers have increasingly shifted away from agreeing to commercially reasonable efforts standards in favor of provisions granting the buyer express discretion in pursuing development milestones. Between 2017 and mid-2025, the percentage of development milestones subject to commercially reasonable efforts standards declined by 20 percentage points, while the percentage of development milestones subject to express buyer discretion increased by 16 percentage points.[35] And the shift is accelerating—the share of private biopharma deals with at least one development milestone subject to a commercially reasonable efforts standard fell from 92% in the mid-2021 to mid-2023 period to 74% in the mid-2023 to mid-2025 period.[36] This trend may be the result of a recent series of high-profile Delaware court decisions in which buyers faced substantial liability for failing to satisfy defined efforts standards, which may be prompting buyers to disclaim efforts.

Express Anti-Avoidance Provisions

As with any earnout negotiation, sellers seek contractual commitments from buyers, while buyers seek discretion to preserve flexibility in future business decisions. Sellers may seek additional assurance by expressly prohibiting bad-faith acts undertaken for the purpose of avoiding achievement of a milestone or payment (what we are calling a “purpose-based anti-avoidance provision”). Although the implied covenant of good faith and fair dealing attaches to every Delaware contract unless disclaimed, sellers may negotiate an express prohibition on bad faith actions.[37] These prohibitions appeared in approximately 27% of life sciences CVR agreements since 2021—approximately six percentage points lower than in the 2019–2024 study period.[38] Furthermore, the period starting October 2024 reflects notable use of purpose-based anti-avoidance provisions,[39] with 28% of agreements containing such provisions and only 13% requiring good faith efforts.[40][41]

May the Buyer Consider the Milestone Payment?

As discussed in our 2024 article, parties frequently negotiate the factors that a buyer may consider in determining whether it has satisfied its commercially reasonable efforts obligations. We refer readers to our prior discussion for a more comprehensive overview of these commonly negotiated considerations. As to whether a buyer may take the milestone payments themselves into consideration in exercising its diligence toward the achievement of the milestone events, the majority of diligence definitions specifically provide that a buyer may not take them into consideration[42] (60%), while 34% are silent and 6% specifically note that a buyer may take the milestone payments into consideration. Notably, 2025 was the only year in our study period in which any agreement expressly permitted the buyer to consider the milestone payments: all three such agreements were announced in late 2025. The data shows that the share of CVR agreements expressly prohibiting a buyer from considering milestone payments has declined since our 2024 survey, and a modestly greater proportion of CVR agreements are silent or expressly permit the buyer to consider milestone payments.[43] See Table 8.

Table 8[44]

Must the Same Efforts Standard Apply to Every Milestone?

Most CVR agreements either expressly require the same efforts standard across milestones (approximately 53%) or are silent on the issue (or are otherwise not applicable) (approximately 34%);[45] only approximately 13% expressly permit a buyer to apply different standards to different milestones or limit the diligence obligation to only one or some of the milestones. Because approximately 75% of CVRs provide for only one or two milestones, there is little room for milestone-by-milestone variation.

Acknowledgments that Milestones May Never Be Achieved

While a majority of CVR agreements with defined efforts standards include language that milestone payments cannot be taken into consideration by a buyer in its post-closing diligence efforts as noted above, a similar number of CVR agreements with defined efforts standards (i.e., approximately two-thirds of those CVRs) include acknowledgments by the target company in the merger agreement that the milestones may never be achieved, even if the buyer performs its efforts obligations.[46]

Buyer Reporting Obligations

As in private company deals, audit rights for the CVR holders in transactions involving net sales milestones and reporting obligations of the buyer are also common in CVR agreements.

Audit Rights

The provisions governing the audit procedures will generally set out the event triggering the audit rights, the period during which those rights may be exercised, the process for selecting the independent accountant that will review the records, limitations on the number of audits that may be conducted within a given period, and requirements for confidentiality agreements. These rights exist in approximately 56% of CVR agreements.[47]

Update Reports

A far less common buyer reporting obligation is the update report, which requires the buyer to provide written updates describing the progress made toward a certain milestone. Examples include a net sales report setting forth cumulative net sales for a given period or the status and trajectory of regulatory approval for the relevant product. These reports generally provide for only one update per calendar year and are found in approximately 28% of life sciences CVR agreements.[48]

Duration

CVR milestones vary in duration but, in our experience, are typically shorter than milestones in private company M&A transactions, which often survive for many years post-closing. Most of the CVR agreements for public life sciences transactions announced since 2021 provided for a specified time period for performance (i.e., a date by which the milestones must be achieved) or expiration date (i.e., a date upon which the milestones will expire if some or all of the milestones have not been achieved by that date). For the CVR agreements with an expiration date, the average milestone length was approximately 5.5 years and the median milestone length was five years. Approximately half of CVR agreements with an expiration date provided for an expiration date of five years or less; a significant percentage provided for an expiration date of over five but no more than ten years (approximately 36%); and only eight CVR agreements since 2021 provided for expiration dates in excess of 10 years (approximately 14%).[49]

Post-Closing Assignment by the Buyer

CVR agreements typically address a buyer’s ability to assign the CVR agreement and, where applicable, the underlying CVR product. These provisions often require an assignee to assume the buyer’s obligations under the CVR agreement and frequently provide that the buyer remains liable for the assignee’s performance, although some agreements permit a complete release of the buyer if the assignee satisfies specified financial or other negotiated criteria. We refer readers to our prior discussion for a more detailed analysis of these assignment provisions.

Other Considerations

Tender Offer HSR Waiting Period Considerations

Including a CVR as consideration in a cash tender offer generally eliminates the benefit of the Hart-Scott-Rodino Act’s accelerated waiting period applicable to all-cash tender offers. Because those considerations have not materially changed, we refer readers to our prior discussion for a more detailed analysis. Tender offers, however, continue to be used far more frequently in the life sciences industry than in other sectors. From January 1, 2021 through June 30, 2026, 962 non-life sciences transactions were announced, of which approximately 7% were structured as tender offers. During the same period, 237 life sciences transactions were announced, of which approximately 37% were structured as tender offers.

Litigation Risks

CVRs continue to present significant post-closing litigation risk, particularly with respect to disputes over buyers’ efforts obligations and milestone achievement. As we have noted in prior surveys, the large number of former public company shareholders who may hold CVRs amplifies this risk relative to private company earnouts. And these disputes are common.[50] The dollar amounts at stake are also substantial: contingent consideration disputes in the life sciences industry have produced some of the largest post-closing judgments on record. We believe this combination of frequent milestone disputes, together with a series of high profile, costly outcomes for buyers, may be contributing to the shift towards more buyer-favorable efforts standards.

Accounting Considerations

The accounting considerations applicable to CVRs under Accounting Standards Codification 805 remain substantially unchanged from our December 2024 discussion.

What We Are Watching in the Second Half of 2026 and Beyond

Three years ago, we asked whether CVRs were reemerging. After the record use in 2025, the question is no longer whether they are back, but how they are being used. The deals are larger, potential payouts are higher and buyers are preserving more post-closing discretion. CVRs remain an important tool for bridging valuation gaps in life sciences deals, but they are complex instruments that may result in disputes, even with careful drafting.

Looking to the second half of 2026 and beyond, we are watching three things. First, whether CVR usage returns to its record 2025 pace. CVR frequency has declined in the first half of 2026 as compared to 2025, but the deals that do include CVRs are getting bigger: 2026 has already produced five of the largest CVR transactions we have surveyed, including two announced after June 30, 2026. Second, whether the shift in CVR terms continues. Recent trends have favored buyers, but deal terms will continue to depend on financing markets, competition for assets and the pace of M&A. Third, how recent changes in drug pricing policy affect “Net Sales” definitions and the allocation of pricing risk in sales-based CVRs. We will revisit these questions in our next survey.

The views expressed in this article are exclusively those of the authors and do not necessarily reflect those of Sidley Austin LLP and its partners. This article has been prepared for informational purposes only and does not constitute legal or accounting advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers.

1The authors gratefully acknowledge AJ San Diego and Lauren Arrigo for their substantial contributions to the research, analysis and preparation of this article, including their extensive work on the underlying deal survey.(go back)

2This article examines all announced (even if later withdrawn or still pending) public transactions in the life sciences and health care industry from January 1, 2021 through June 30, 2026 providing CVRs as a specific form of consideration according to Deal Point Data. From 2021 through June 30, 2026, there have been only six acquisitions using CVRs that were not in life sciences transactions, and those CVRs are not included in the statistics presented in this article unless otherwise indicated. All data in this article, including statistics on deal frequency, have been determined from Deal Point Data unless otherwise cited and is from the 2021-2026 CVR dataset unless otherwise indicated. For purposes of determining transactions in the life sciences and health care industry, transactions were sorted by Deal Point Data’s “healthcare” industry sector, which includes pharmaceuticals, medical devices and equipment and health care services, among others. This article refers to all such transactions as “life sciences” transactions. Deal Point Data provides coverage for only select deals with non-U.S. targets and/or deal equity values below $100 million and covers all deals with U.S.-headquartered public targets with a deal equity value above $100 million. Calculated percentages have been rounded to the nearest whole number, which may cause certain statistics not to sum to 100%.(go back)

3For purposes of determining transactions in the biopharma industry, transactions were sorted by Deal Point Data’s “Healthcare” target industry category, and narrowed to “biotechnology” and “pharmaceuticals” target industry subcategories, excluding transactions involving healthcare services and medical equipment and devices.(go back)

4For purposes of determining transactions in the medical device industry, transactions were sorted by Deal Point Data’s “Healthcare” target industry category, and narrowed to “medical devices” and “medical equipment” target industry subcategories, excluding transactions involving healthcare services, biotechnology, and pharmaceuticals.(go back)

5According to Ernst & Young LLP’s 2026 Beyond Borders: Biotechnology Report, financing conditions remain challenging for many biotech companies. Approximately half of emerging biopharma companies have two or fewer years of cash needed to continue operations, while venture capital has become increasingly selective, with investors concentrating funding on later-stage, de-risked assets. Persistent inflation, higher-for-longer interest rates and escalation of geopolitical risks all heighten market volatility and make fundraising for biotechs difficult. In this environment, life sciences companies may need to look for M&A exits to continue to grow their programs.(go back)

6According to PricewaterhouseCoopers’s Pharmaceutical and Life Sciences: US Deals 2026 Midyear Outlook, “Regulatory uncertainty remains a key concern for industry players. MFN drug pricing proposals, potential tariffs on pharmaceutical imports, and IRA negotiation expansions are all shaping transaction strategy. In response, buyers are relying more heavily on contingent value rights, milestone-based structures, and assets with near-term clinical or commercial inflection points rather than long-duration platform bets. In this environment, the pressure to maximize value from biotech deals requires a holistic and surgical approach.”(go back)

7According to SRS Acquiom’s 2025 Life Sciences M&A Study, the most recent SRS Life Sciences study as of the date of this article, earnouts have historically been included in 86% of biotech/pharmaceuticals transactions, 74% of medical device transactions, and 48% of diagnostics and research technologies transactions (and at even higher rates in the most recent study period—89%, 84% and 75%, respectively, for deals closing mid-2023 through mid-2025).(go back)

8Where a CVR was announced but the applicable agreement was never publicly filed, deal-level terms may still be available (e.g., equity value and headline CVR consideration); such transactions are included in deal counts and payout figures where available, but are excluded from analyses of agreement-level terms when relevant data is not publicly available.(go back)

9According to Deal Point Data, public life sciences transactions in the 2021 through June 30, 2026 period that used CVRs occurred in the biopharma, medical device and diagnostics, and healthcare services sectors.(go back)

10Based on review of the CVR agreements from 2021 to June 30, 2026.(go back)

11Based on review of the CVR agreements from 2021 to June 30, 2026, excluding three transactions that were withdrawn before the relevant data was disclosed.(go back)

12According to SRS Acquiom’s 2025 Life Sciences M&A Study, the most recent SRS Life Sciences study as of the date of this article.(go back)

13Based on review of the CVR agreements from 2021 to June 30, 2026.(go back)

14Based on review of the CVR agreements from 2021 to June 30, 2026, excluding three transactions that were withdrawn before the CVR terms relevant to this chart were disclosed. Certain CVR agreements use more than one event milestone type.(go back)

15Developmental milestones included, for example, regulatory submissions, including investigational new drug applications or new drug applications, and successful initiation or results of clinical trials.(go back)

16Sales milestones included, for example, net sales milestones. Use milestones included, for example, milestones based on the number of issued prescriptions or treatment visits. For sales-based milestones, recent changes and developments in drug pricing policy have increased the focus on the definition of “Net Sales,” including the treatment of discounts and rebates.(go back)

17Regulatory approval milestones included, for example, approval by the U.S. Food and Drug Administration, the European Medicines Agency or another international regulatory authority of a drug or device or a first commercial sale.(go back)

18Material Event/Other milestones include specified events that do not fall within the traditional regulatory, development, disposition, or sales-based categories (e.g., resolution of litigation).(go back)

19Disposition milestones entitled the former shareholders of the target to share in the proceeds from dispositions or sales of the target or percentages of future net proceeds from any license or disposition of the target’s CVR products following the closing.(go back)

20For example, SRS Acquiom’s 2025 Life Sciences M&A Study reports that the mean number of milestone events for private biopharma deals from mid-2023 through mid-2025 was 6.9.(go back)

21Based on review of the CVR agreements from 2021 to June 30, 2026, excluding three transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

22Assertio Holdings, Inc.’s $275 million acquisition of Spectrum Pharmaceuticals, Inc., announced on April 25, 2023, provided for CVR consideration that could be paid in cash or stock (at buyer’s election).(go back)

23Based on review of CVR agreements from 2021 to June 30, 2026.(go back)

24Based on review of CVR agreements from 2021 to June 30, 2026, assuming all milestones are met so as to lead to the maximum payout possible without any discount for risk or time value of money and valuing a buyer’s stock at the time of signing based on the value of the buyer’s shares as defined in the merger agreement. Excluded from this analysis were 12 transactions with uncertain CVR values (e.g., disposition CVRs or CVRs entitling holders to percentages of future net sales).(go back)

25Based on review of the CVR agreements from 2021 to June 30, 2026, excluding 12 transactions with uncertain CVR values (e.g., disposition CVRs or CVRs entitling holders to percentages of future net sales).(go back)

26The SEC has provided a five-factor test for determining if a CVR is a contractual right, rather than a security. See Minnesota Mining and Manufacturing Co., SEC No-Action Letter, 1988 WL 234978 (Oct. 13, 1988). These are the five factors most commonly considered by the SEC when determining whether a CVR is a security, but some no-action letters have also included additional factors in support of a CVR being a contractual right and not a security. Under this test, the SEC will typically conclude the CVR is not a security if all of the following five factors are met: i. The rights are an integral part of the consideration to be received in the merger; ii. The holders of the rights have no rights common to shareholders such as voting and dividend rights; iii. The rights bear no stated rate of interest; iv. The rights are not assignable or transferable except by operation of law; and v. The rights are not represented by any form of certificate or instrument. The SEC places particular emphasis on whether a CVR is transferable. If a CVR is not transferable, it generally can be structured so that it is not considered a “security.”(go back)

27The most recent use of a transferable CVR in a life sciences transaction was in 2019 (Bristol-Myers Squibb Company’s acquisition of Celgene Corporation, announced on January 3, 2019), and the transferable CVR was publicly registered to trade on the NYSE.(go back)

28Given buyer concerns about SEC registration, CVRs typically provide for limited “permitted transfers” that are not considered to convert these CVRs from contractual rights into securities from an SEC perspective. These limited permitted transfers are generally transfers of CVRs: (a) upon death of a holder by will or intestacy; (b) pursuant to court order; (c) by operation of law (including by consolidation or merger) or without consideration in connection with dissolution, liquidation or termination of any corporate entity; or (d) in the case of CVRs held in book-entry or other similar nominee form, from a nominee to a beneficial owner.(go back)

29The listing of CVRs is governed by Nasdaq Listing Rule 5732 and by NYSE Listed Company Manual Section 703.18.(go back)

30In late 2024, there was one non-life sciences CVR deal that provided for transferability.(go back)

31Assertio Holdings, Inc.’s $275 million acquisition of Spectrum Pharmaceuticals, Inc., announced on April 25, 2023.(go back)

32One common formulation of this provision is, for example, “Notwithstanding anything in this Agreement or elsewhere to the contrary, in no event shall Parent or any of its Affiliates be required to undertake any level of efforts, or employ any level of resources, to achieve either of the Milestones prior to the end of the respective Milestone Period.”(go back)

33Based on review of the CVR agreements from 2021 to June 30, 2026, excluding seven transactions that were withdrawn before the CVR terms relevant to this chart were disclosed.(go back)

34Based on review of the CVR agreements from 2021 to June 30, 2026, excluding seven transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

35According to SRS Acquiom’s 2025 Life Sciences M&A Study.(go back)

36According to SRS Acquiom’s 2025 Life Sciences M&A Study.(go back)

37The following is a common formulation of this explicit bad faith prohibition: “Neither Parent nor any of its Affiliates shall act in bad faith for the purpose of avoiding achievement of the Milestone or the payment of the Milestone Payment Amounts.”(go back)

38Based on review of the CVR agreements from 2021 to June 30, 2026, excluding seven transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

39The following is a common formulation of this purpose-based anti-avoidance provision: Parent shall “not (A) take any action or (B) fail to take any action, in either case, with the primary purpose of avoiding the achievement of such Milestone or payment of the applicable Milestone Payment.”(go back)

40The following is a common formulation of this good faith requirement: “(a) With respect to each Milestone, from the Effective Time until the earlier of (i) the applicable Milestone Outside Date and (ii) the achievement of such Milestone, Parent shall, and shall cause each other applicable Selling Entity to, act in good faith and use Commercially Reasonable Efforts to achieve such Milestone.”(go back)

41Based on review of the CVR agreements from 2021 to June 30, 2026, excluding seven transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

42The following is a common formulation of this provision: “‘Commercially Reasonable Efforts’ means such level of efforts consistent with the efforts that [the Company] devote to their own internally developed… with the right for Parent to take into account… any other technical, commercial, legal, scientific and medical factors, in all instances, without taking into account the obligation to make any Milestone Payments under this Agreement.”(go back)

43Compare our 2024 survey (reporting 70%, 27% and 3%, respectively, for the 2019–2024 CVRs with defined efforts standards).(go back)

44Based on review of the CVR agreements from 2021 to June 30, 2026, excluding 17 transactions with silent, disclaimed, undefined, and set efforts standards and seven transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

45Based on review of the CVR agreements from 2021 to June 30, 2026, excluding 17 transactions with silent, disclaimed, undefined, and set efforts standards and seven withdrawn transactions.(go back)

46The following is a common formulation of this acknowledgment: “For the avoidance of doubt, Commercially Reasonable Efforts will not mean that a party guarantees that it will actually achieve the Milestone, and a failure to achieve the Milestone may still be consistent with Commercially Reasonable Efforts.”(go back)

47Based on review of the CVR agreements from October 1, 2024 to June 30, 2026, excluding three transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

48Based on review of the CVR agreements from October 1, 2024 to June 30, 2026, excluding three transactions that were withdrawn before the relevant CVR terms were disclosed.(go back)

49Based on review of the CVR agreements from 2021 to June 30, 2026, excluding four transactions where the expiration date was measured from a future date uncertain (i.e., the date of first commercial sale), seven transactions that were withdrawn before the relevant CVR terms were disclosed, and one transaction with no expiration date.(go back)

50For example, according to SRS Acquiom’s 2025 Life Sciences M&A Study, nearly one in three private life sciences earnout deals with a milestone coming due experienced a dispute over at least one milestone.(go back)