How earnouts, contingent value rights, milestones and royalties work in biotech and medtech deals, with a worked example and a checklist for buyers and sellers.
Last updated: November 9, 2026
Quick answer: Contingent payments let a buyer and seller agree on a price when they disagree about the future. An earnout pays the seller if a product hits a sales or regulatory target, a CVR does the same for public shareholders, and a royalty shares revenue over time. Each shifts risk from buyer to seller.
Scope: the main contingent consideration tools in life sciences M&A and licensing, how they differ, where they go wrong, and what to check before signing or investing.
Why do biotech deals use contingent payments at all?
Because the value of a drug or device depends on events nobody can price with confidence at signing: an FDA decision, a Phase 3 readout, a launch curve. Contingent payments let the buyer pay a lower fixed price today and pay more only if the risk resolves in the seller’s favor.
That makes them a bridge across valuation gaps. A seller who believes in peak sales can take part of the price in a bet on those sales. A buyer who doubts them limits its downside. The same logic applies whether the target is a clinical stage biotech, a commercial product line or a device maker waiting on a coverage decision.
Usage has risen sharply. Foley Hoag, citing Deal Point Data, reports CVRs in 27 publicly disclosed life sciences deals in 2025, up from 7 in 2024. Citing the 2025 SRS Acquiom Life Sciences M&A Study, the firm says earnouts appeared in 89% of private biopharma deals that closed between mid 2023 and mid 2025, and in 84% of medical device deals.
What is the difference between an earnout, a CVR, a milestone and a royalty?
They all pay later and only if something happens, but they differ in who gets paid, what triggers payment and whether the right can be traded. This table is our summary of the standard forms.
| Tool | Typical setting | Who receives it | Common triggers | Tradable? |
|---|---|---|---|---|
| Earnout | Private company or asset acquisitions | The selling company or its owners | Net sales thresholds, approvals, launch dates | Usually not; a contract right |
| Contingent value right (CVR) | Public company acquisitions | Each target shareholder, per share | Approvals by a deadline, sales thresholds | Sometimes listed; often non transferable |
| Milestone payment | Licensing and collaboration deals | The licensor | Trial starts, filings, approvals, sales tiers | No |
| Royalty | Licensing, asset sales, royalty financing | Licensor, seller or a royalty buyer | A percentage of net sales, often tiered | Royalty streams are frequently sold |
How does an earnout work in practice?
An earnout is a contractual promise to pay more if defined targets are met within a defined window. The definitions do the real work: what counts as net sales, which period is measured, and what effort the buyer must put behind the product.
The CorMedix purchase of Heron Therapeutics’ assets, announced November 9, 2026, is a clean example. According to the companies’ release, CorMedix pays $145 million in cash and 14,583,333 shares at closing, and then:
- $25 million if ZYNRELEF net sales reach $65 million in calendar 2028.
- Another $30 million if ZYNRELEF net sales reach $95 million in calendar 2028.
- A 5% royalty on combined annual net sales of CINVANTI, SUSTOL and licensed products above $25 million, in 2027, 2028 and 2029.
Notice the design. The earnouts sit on the one product the buyer says has untapped potential, measured in a single year, with two steps. The royalty covers the mature products and only starts above a floor. Both the measuring period and the floor keep the buyer’s downside limited. We cover the full deal in our CorMedix and Heron breakdown.
What is a contingent value right in a biotech acquisition?
A CVR is a right issued to each target shareholder at closing that pays a set amount per share if a milestone is reached, usually by a deadline. It lets a public company buyer offer a headline price above what it will pay in cash while keeping the extra contingent on results.
Because a CVR goes to thousands of holders rather than one seller, its terms are written into a CVR agreement, typically with a rights agent acting for holders. Some CVRs are listed and trade; many are not transferable. Foley Hoag notes that in some 2025 deals the CVR represented over 70% of total potential deal value, which means the shareholder is effectively taking clinical or commercial risk after the sale.
The best known cautionary case is Bristol Myers Squibb’s 2019 acquisition of Celgene. The CVR required FDA approvals of three drugs by set deadlines. As reported by pharmaphorum, liso-cel was not approved by its December 31, 2020 deadline and BMS confirmed the CVR agreement had “automatically terminated.” Holders sued, a fight we covered in our report on the revived Celgene CVR lawsuit.
How often do contingent payments actually pay out?
Less often than sellers hope. Foley Hoag, citing the SRS Acquiom study, reports that across 342 private life sciences deals with an earnout, aggregate earnout potential totaled approximately $95 billion, yet only 9.5% of that had been paid to date. Some of those earnouts are still running, so the final figure will rise, but the gap is the point: a contingent dollar is not a dollar.
That is why sophisticated sellers price contingent consideration at a steep discount to face value, and why public market CVRs often trade well below their maximum payout.
Asset purchase, stock purchase or merger: how does the structure change the risk?
The legal form decides what transfers. In an asset purchase, the buyer chooses the assets and the liabilities it takes on, and the seller entity survives. In a stock purchase or merger, the buyer takes the whole company, known and unknown liabilities included.
| Structure | What the buyer gets | Seller after closing | Typical approvals |
|---|---|---|---|
| Asset purchase | Selected products, contracts, IP and named liabilities | Survives; may hold cash, stock or tax assets | Seller board, often seller shareholders, antitrust if thresholds met |
| Merger | The entire company | Absorbed or becomes a subsidiary | Both boards, target shareholders, antitrust |
| Tender offer plus second step merger | The entire company, usually faster | Becomes a subsidiary | Majority tender, antitrust |
| Court supervised sale in bankruptcy | Assets free of most claims | Wound down or reorganized | Bankruptcy court, creditors |
The CorMedix and Heron deal shows why a seller might prefer an asset sale: Heron says it will remain public, keep roughly $2.3 billion of net operating losses and hold CorMedix stock. Distressed sellers sit at the other end of the table, where a court supervised auction decides the price, as in the Sangamo asset auction and the Karyopharm Chapter 11 filing.
Do contingent payments affect antitrust review?
They can affect whether a filing is needed, because deal size drives the Hart Scott Rodino test. The FTC’s revised thresholds took effect February 17, 2026, and the size of transaction threshold for the main test is $535.5 million. Under the statute, the initial waiting period ends on the 30th day after filing, or the 15th day for a cash tender offer.
How contingent payments count toward deal size is a technical question that turns on the HSR rules and the specific terms, so treat this as a point for antitrust counsel rather than a rule of thumb.
What goes wrong with earnouts and CVRs?
Most disputes come down to three things: effort, definitions and deadlines.
- Effort. Sellers want the buyer bound to push the product; buyers want freedom to reprioritize. Vague efforts language invites litigation.
- Definitions. Net sales deductions, which indications count and how bundled sales are allocated can move a payout across a threshold.
- Deadlines. A hard date turns a regulatory delay into a total loss for holders, as the Celgene CVR showed.
- Control. After closing, the buyer controls pricing, launch spend and filings, all of which drive the payout.
Our framework: a checklist before you sign or invest
- Split the price. Separate fixed consideration from contingent. Value the contingent part at a probability, not at face value.
- Read the trigger. Is it an approval, a label, a sales figure? In which year, measured how?
- Check the clock. Single year tests and hard deadlines concentrate risk. Ask what happens on a delay.
- Find the effort clause. Know exactly what the buyer must do to support the product.
- Know who holds the right. A seller entity, scattered shareholders or a royalty buyer will enforce it very differently.
- Look for floors and caps. Royalty floors and stepped earnouts tell you where the buyer expects the product to land.
- Map the structure. Asset sale, merger or court sale changes what liabilities and tax assets move.
- Check antitrust timing. Confirm whether an HSR filing and waiting period apply.
What to watch next
- The CorMedix and Heron 8-K filings and proxy, which should show the full earnout and royalty definitions.
- Whether CVR use keeps climbing in 2026 public deals as buyers lean on contingent pricing for late stage assets.
- Earnout payout rates as the 2023 to 2025 cohort of private deals reaches its measurement dates.
Frequently asked questions
What is an earnout in a biotech acquisition?
An earnout is an extra payment to the seller that is due only if the acquired product hits defined targets, such as an approval or a net sales level, within a set period.
What is a CVR?
A contingent value right is a right issued to each target shareholder in a public acquisition that pays a set amount per share if a milestone is met, usually by a deadline.
What is the difference between a CVR and an earnout?
A CVR goes to many public shareholders and may trade; an earnout is usually a private contract right held by the selling company or its owners. The triggers can be similar.
Are CVRs worth their face value?
No. They pay only if the milestone is met on time, so the market prices them at a discount that reflects the odds and the wait.
How often do earnouts pay out?
Foley Hoag, citing the SRS Acquiom study, reports that only 9.5% of about $95 billion in potential earnout value across 342 private life sciences deals had been paid to date.
Why would a company sell assets instead of merging?
An asset sale lets the buyer pick what it takes and lets the seller survive, which can preserve a listing, tax assets or stock in the buyer.
What is a milestone payment?
A milestone payment is a fixed amount a licensee pays a licensor when a development, regulatory or sales event occurs.
How do royalty tiers work?
A tiered royalty pays different percentages at different sales levels, and some only start above a floor, like the 5% royalty above $25 million in the CorMedix and Heron deal.
What is the 2026 HSR filing threshold?
The FTC’s size of transaction threshold for 2026 is $535.5 million, effective February 17, 2026.
How long is the HSR waiting period?
By statute, the initial waiting period ends 30 days after filing, or 15 days for a cash tender offer.
Sources
- Primary: CorMedix Therapeutics and Heron Therapeutics joint release, GlobeNewswire, November 9, 2026.
- Primary: Federal Trade Commission, current HSR thresholds page, and Federal Register notice 91 FR 2133 (January 16, 2026).
- Primary: 15 U.S.C. 18a(b)(1)(B), waiting period.
- Attributed: Foley Hoag, “The Rise of Contingent Value Rights and Earnouts Reshape Life Sciences M&A in 2026,” June 18, 2026, citing Deal Point Data and the 2025 SRS Acquiom Life Sciences M&A Study.
- Attributed: pharmaphorum, January 4, 2021, on the termination of the Celgene CVR.
Related coverage
- CorMedix to buy Heron’s assets in a $222.6 million upfront deal
- The revived Celgene CVR lawsuit
- Sangamo’s bankruptcy asset auction
- Karyopharm’s Chapter 11 filing
- Rhythm and the reported AstraZeneca takeover bid
- BioMed Nexus company directory
Get the daily briefing in your inbox: subscribe to BioMed Nexus.
