As we look back on the first three quarters of 2024, there have been a number of significant life sciences M&A deals, including in emerging sectors like antibody-drug conjugates, CAR T-cell therapy, GLP-1s and novel autoimmune candidates. Of the 10 life sciences transactions year to date in 2024 with an equity value of over $2 billion, seven were in the biopharma industry, two were acquisitions of medical device companies and one was an acquisition of a CDMO.
While the life sciences sector is constantly evolving, one important deal term that continues to hold significant relevance is the use of contingent value rights (“CVRs”), the public company analog to the earnout, in public M&A transactions. CVRs continue to be a valuable tool for bridging valuation gaps between buyers and sellers, particularly in an industry where future success is often contingent on uncertain events such as clinical trial outcomes, regulatory approvals and product commercialization.
In 2023, upon first publishing this article and survey, we observed a notable increase in the use of CVRs in life sciences M&A deals in the period from 2020 to 2023. The use of CVRs in life sciences deals has persisted into 2024, although with some signs of decreasing use, potentially indicating a narrowing of the valuation gap or a decrease in the number of sellers who financially must sell as reflected in the reduction in life sciences M&A activity generally in 2024.1 In 2023, there were a total of 53 life sciences deals announced, of which 20 (or 38%) included a CVR. In the first three quarters of 2024, there have been only 27 life sciences deals announced, of which six (or 22%) included a CVR. If the pace set in the first three quarters of 2024 continues through the fourth quarter of 2024, approximately 36 life sciences M&A transactions would be announced in 2024, down 32% from 2023; similarly in the first three quarters of 2023, 39 life sciences deals were announced, reflecting a decrease of 31% in life sciences deal activity in the first nine months of 2024 as compared to the same period in 2023. Even though life sciences M&A and CVR usage is down from 2023, CVRs were still found in nearly one quarter of life sciences transactions in 2024 and, in our experience, discussed as a possible deal term in many more. There are also a number of repeat players in the life sciences industry using CVRs, such as AstraZeneca, with three acquisitions involving CVRs in the past 12 months, demonstrating a familiarity and continued comfort with the practice.
This article updates CVR deal statistics and trends from our article in the May – June 2023 issue of Deal Lawyers, reviewing all recent life sciences deals, including the 19 new transactions that used CVRs from May 2023 to September 2024 and presenting new trends and additional surveyed topics.
