The Apellis closing 8-K hit EDGAR this morning. The Tri Pointe Homes closing 8-K hit an hour later. By the time I had finished the second coffee, the EDGAR full-text search was showing twelve closing 8-Ks in the last four weeks alone, four of them biopharma take-privates with contingent value rights buried in the consideration mix. Apellis, Amicus, Day One, and a handful of smaller assets — the biopharma take-private wave is real and the CVR is back in fashion as the bridge across the buyer-and-seller valuation gap.
The CVR is also, in 2026, riskier to draft than the buyer’s deal team usually treats it as. The Court of Chancery’s September 2024 ruling in SRS v. Alexion — and the June 2025 damages award of just over $180 million against Alexion on a Syntimmune CVR — has reset the efforts-standard analysis in a way most biopharma form contracts have not caught up to. A buyer who treats the CVR as a soft promise of future payments tied to its own development priorities is paying for a CVR the Chancery will not enforce as written. A seller who accepts the standard inward-facing efforts language is leaving 25 cents of every dollar on the table.
This post walks through the trigger structure, the efforts-standard fight, and the drafting moves the Syntimmune line forces buyers and sellers to make in a 2026 biopharma deal.
The CVR is a hybrid instrument, not just an earnout
A contingent value right is, mechanically, a security that pays a contingent amount upon the occurrence of one or more future events. Biopharma deals use them because the lead asset’s value is often back-end-loaded behind a Phase 3 readout, an FDA approval, a label expansion, or a commercial-sales milestone. The seller’s stockholders want value for the asset’s upside. The buyer cannot pay for upside that may never materialize. The CVR splits the difference — closing-date consideration that covers the present-value piece, plus a CVR that pays out if the upside event hits.
That structure looks like an earnout. It is taxed like an earnout (mostly). It is drafted using earnout-style trigger and efforts language. But it is not, doctrinally, the same instrument as an earnout, and the Chancery has been careful in the last three years to keep the categories distinct in two ways that affect drafting.
The first distinction is that a CVR is typically a security held by former target stockholders after closing, sometimes through a representative agent under a CVR Agreement, sometimes via a rights-agent trust structure. The holders are not parties to the merger agreement after closing. They have whatever rights the CVR Agreement gives them and nothing more. An earnout, by contrast, usually lives inside the merger agreement, and the founders or sellers retain direct contractual standing.
The second distinction is the standing-and-representation problem. A CVR holder cannot typically sue the buyer directly — the action runs through the Stockholder Representative or the rights agent, who has its own contractual obligations and limitations. A breach claim that an earnout selling stockholder could bring on day one becomes, in CVR land, a multi-step process involving a representative who has read the agreement carefully and is now arguing about whether to pull the trigger.
Those two distinctions matter on the front end. A seller-side lawyer who treats the CVR Agreement as a copy-and-paste of the earnout section is missing the structural difference. A buyer-side lawyer who treats the CVR as a hard contractual obligation to specific stockholders is also missing the difference, in the other direction.
The three trigger types and how they fail differently
Biopharma CVRs almost always run on one of three trigger types, sometimes layered. The drafting risk is different for each.
The first is a regulatory milestone — typically FDA approval of the lead candidate by a specified date, sometimes EMA approval as a parallel trigger, sometimes a more granular approval like a particular label or indication. The risk on a regulatory trigger is timing. A buyer that pursues approval on a slower-than-anticipated schedule but ultimately gets the approval after the trigger date pays nothing on the CVR. The seller-side fight is to push the date back, build in extensions for FDA review delays outside the buyer’s control, and add a fallback trigger that captures the late approval at a reduced amount.
The second is a sales milestone — net sales of the product, or the entire portfolio, exceeding a specified threshold by a specified date. The risk here is accounting, accounting, and accounting. The CVR will pay only if “net sales” exceed the threshold as calculated under GAAP, less the contractual exclusions, less the rebates and chargebacks, less the returns reserve, less the discounts to specific channels. A buyer with motivated accounting can suppress reported net sales below a threshold by aggressive returns reserving or by channel reclassification. The seller-side drafting fight is on the exclusions list and the audit-rights clause.
The third is a development milestone — completion of a Phase 3 trial, achievement of a specified endpoint, dosing of the first patient in a registration study. The risk here is the most subtle. The buyer controls the development program. If the buyer deprioritizes the candidate — for portfolio reasons, for capital-allocation reasons, for “we acquired a better asset” reasons — the milestone never gets reached, and the CVR never pays. This is where the efforts standard becomes load-bearing.
The Syntimmune ruling rewrote the efforts-standard analysis
The September 2024 Chancery decision in SRS v. Alexion — and the resulting damages award — is the most important biopharma-deal opinion of 2024 for one reason. The Chancery enforced an outward-facing “commercially reasonable efforts” clause against a buyer that had deprioritized the acquired drug program for company-specific reasons. The buyer’s defense — that the buyer’s own priorities and capital-allocation decisions justified the deprioritization — failed. The Court held that the CRE clause, drafted with outward-facing language pegging the standard to what a hypothetical similarly-situated biotech would do, did not permit the buyer to substitute its idiosyncratic preferences for the objective standard the parties had bargained for.
The damages number — $180.9 million in expectation damages plus pre- and post-judgment interest pushing the total toward $220 million — is the headline. The doctrinal substance is in the efforts-standard analysis. The Court drew a hard line between outward-facing and inward-facing CRE clauses and made clear which one carries enforcement risk.
The drafting taxonomy that emerges from Syntimmune is now standard reading for any biopharma deal team. The Mayer Brown alert on efforts standards in life-sciences earnouts walks through the post-Syntimmune drafting choices cleanly. The short version is that an outward-facing CRE clause — one that pegs the required efforts to what a hypothetical similarly-situated company would do — gives the seller’s representative real leverage and exposes the buyer to substantial damages if the buyer deprioritizes the program. An inward-facing CRE clause — one that pegs the required efforts to what the buyer would do in respect of its own similar products — gives the buyer broad discretion and largely eliminates the seller’s enforcement leverage.
Most biopharma form contracts in 2026 still default to inward-facing CRE language. The default is buyer-friendly and most buyers want to keep it. A seller-side lawyer who accepts the default is conceding the post-Syntimmune leverage the Chancery has just made available.
What the drafting fight should focus on
The post-Syntimmune drafting fight on a biopharma CVR runs on five points. None of them is technically difficult. All of them are typically conceded in form-driven negotiations.
The first is the efforts-standard language itself. A seller-side lawyer who can get an outward-facing CRE clause — efforts that a hypothetical similarly-situated company would use, regardless of the buyer’s specific portfolio considerations — has done the most important work on the CVR. The clause should expressly disclaim the relevance of the buyer’s own commercial priorities and should name the comparison group with reasonable specificity. “A reasonable biotechnology company” is too vague. “A reasonable biotechnology company of comparable size and development stage to the Acquired Company at the time of the Merger” is better. The Chancery enforces specific language; it tolerates vague language but does not rescue parties from it.
The second is the development plan and reporting structure. A CRE clause that the seller cannot enforce in practice is worth less than the form suggests. The CVR Agreement should require the buyer to maintain a specified development plan, deliver quarterly or semi-annual reports to the rights agent or stockholder representative, and provide reasonable consultation rights when the development plan is materially modified. The deal-terms asymmetry on reporting rights shows up in most CVR Agreements with the buyer’s hand on the dial; the post-Syntimmune drafting move is to flip it.
The third is the audit rights clause. A sales-milestone CVR is only as good as the audit rights backing it. The seller’s representative should have the right to engage an independent accountant, with reasonable access to the buyer’s books and records, on a specified frequency. The buyer’s standard form drops this clause or limits it to once-every-three-years with broad cure rights. The seller’s lawyer who restores quarterly or semiannual audit rights with cost-shifting to the buyer if the audit finds a material discrepancy is restoring real enforcement leverage.
The fourth is the change-of-control protection. A CVR that survives a second sale of the buyer to a strategic acquirer is materially different from a CVR that does not. The CVR Agreement should require the buyer to obtain the acquirer’s assumption of the CVR Agreement as a condition to any subsequent change of control transaction, and should require the acquirer to maintain the development plan and reporting structure that bound the original buyer. A buyer that resists this clause is signaling something about its plans for the program.
The fifth is the dispute-resolution mechanism. CVR disputes are factually complex, doctrinally messy, and high-stakes. The CVR Agreement should specify a clear dispute-resolution path — typically expedited arbitration or a Delaware Chancery-bench mechanism — that the parties can actually invoke when a dispute arises. A poorly-drafted dispute-resolution clause is a deal-breaker in the litigation phase even when the substantive CRE clause is strong.
The middle path most biopharma CVRs should land on
When I am advising a biopharma seller on a CVR-heavy deal in 2026, the conversation starts with whether the CVR is being offered to bridge a real valuation gap or to make a low cash offer look better. The first is worth negotiating hard for; the second is usually best converted to cash, even at a discount. A CVR that pays at a 30% probability is worth less than a 25% discount to face value paid at closing, after taxes and after the litigation risk on enforcement.
When the CVR is real — when the lead asset has a clear regulatory or commercial milestone the buyer is genuinely motivated to hit — the negotiation moves to the five points above. An outward-facing CRE clause, a documented development plan with reporting rights, audit rights with teeth, change-of-control protection, and a workable dispute-resolution mechanism. Each of those points was conceded by the seller in roughly 80% of the 2024 biopharma deals I have seen on the back end of post-closing disputes. After Syntimmune, the leverage to push back on each is real and the buyer’s resistance is correspondingly softer.
For M&A counsel on the seller side of a biopharma deal, the CVR is now the single most important consideration line item to negotiate. The closing cash amount is largely market. The CVR is where the post-Syntimmune drafting leverage lives.
If you are negotiating a CVR Agreement on a biopharma transaction, or working through a CVR-bearing deal that has hit a milestone trigger, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
— John
