Andrew Bary

An increasingly important element of payments made in merger deals in the biotech industry has significant drawbacks: Financial instruments meant to reward shareholders if a target company's drugs meet certain hurdles can't readily be bought and sold.

In the bidding war for Metsera, a biotechnology company developing weight-loss drugs, suitors Novo Nordisk and Pfizer are offering investors so-called contingent value rights as partial payment. They pay off, or not, depending on whether the drugs reach milestones such as approval by the Food and Drug Administration.

CVRs have become common in biotechnology deals this year, with more than half of all transactions including them, according to a Jefferies report in October. Through the middle of last month, there had been 30 biotech deals in 2025, and 19, or 63%, contained CVRs, according to Jefferies analyst Dennis Ding. That percentage is up from 38% in 2023 and zero in 2018.

The instruments, designed to limit the risk for buyers of biotechs while ensuring that sellers are compensated for development successes, can also help to bridge gaps on deal pricing between buyers and sellers. If a buyer wants to pay $60 a share for a biotech trading for $45 and the seller wants $70, the buyer might offer $50. They could include a CVR worth $20 a share if a drug gets FDA approval or hits certain commercial milestones.

CVRs account for an average of about 30% of deal prices, according to Jefferies. That makes them more than a cherry on top for holders of biotech targets.

The problem with CVRs is that they are generally not traded and are nontransferable. This means that an investor who receives one in a biotech deal probably has to hold an illiquid instrument, often for several years, to see if there will be a payout.

Some institutional investors seek to monetize them though a "proceeds agreement," which is a private contract between the buyer and seller. But that is tough for an individual holder.

In the bidding war for Metsera, both Pfizer and Novo Nordisk are offering a CVR. The Novo CVR accounts for about a quarter of the deal value with the rest payable in cash. Novo's most recent offer is for $62.20 in cash and a CVR worth as much as $24 a share.

Metsera stock was up 12% to $80 Thursday on speculation that Novo and Pfizer will boost their existing bids.

Novo also has a deal to buy Akero Therapeutics that is due to close by year end. It plans to pay $54 a share in cash, but will also give Akero holders a CVR worth as much as $6 a share based on the progress of Akero's liver cirrhosis drug.

Akero stock now trades just below $54 because investors ascribe little value to the CVR -- a frequent problem for the instruments. One takeover arbitrager says that many institutional investors can't own CVRs because of the lack of liquidity.

The last major publicly traded CVR was one issued to Celgene holders as part of Bristol Myers Squibb's takeover of the company in 2019. That CVR was an all-or-nothing security keyed off milestones involving Celgene drugs. It expired worthless because one of the drugs missed an FDA approval deadline.

That prompted lawsuits from Celgene holders that Bristol-Myers had delayed that drug's approval, highlighting the risk that a buyer might slow a drug's progress to avoid paying out on a CVR. Bristol-Myers said at the time that it had done everything it could to win approval as quickly as possible. It didn't immediately respond to a request for comment on Thursday.

Given the problems with nontraded CVRs, it is surprising that buyers of biotech companies don't make the securities tradable. One issue appears to be the cost of listing them, but that seems small in comparison to the deals' value and would offer a significant benefit to investors.

Write to Andrew Bary at andrew.bary@barrons.com

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November 06, 2025 15:02 ET (20:02 GMT)

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