Contingent Value Rights: A Red Flag in Recent Biotech and Tech Mergers?

The recent wave of mergers and acquisitions has seen a growing reliance on contingent value rights (CVRs) as a tool to bridge valuation gaps. But for investors, these mechanisms often serve as a red flag—one signaling that upfront offers may be too low, and shareholders could be left holding the bag if uncertain milestones are not met. Nowhere is this clearer than in the deals involving Verve Therapeutics (VERV), Sage Therapeutics (SAGE), and Cantaloupe, Inc. (CTLP), where CVRs have become central to the risk-reward calculus.

The Promise and Peril of CVRs

CVRs are structured payments that shareholders receive only if specific milestones are achieved post-merger. While they can incentivize buyers to deliver on strategic goals, they also shift risk onto investors. In volatile sectors like biotechnology, where clinical outcomes and regulatory approvals are unpredictable, CVRs often mask the true value of a deal.

Take Verve Therapeutics, which agreed to be acquired by Eli Lilly for $10.50 per share in cash, plus a CVR of up to $3.00 per share contingent on milestones tied to its cholesterol-lowering drug, VERVE-100. The total potential payout of $13.50 per share hinges on FDA approval and commercial success—a gamble, given the drug's early-stage trials and the crowded gene-editing market.

The red flag here is the ongoing legal scrutiny. Brodsky & Smith is investigating whether Verve's board rushed to accept an inadequate offer, potentially leaving shareholders exposed if milestones are unattainable. This raises a critical question: Did the board prioritize a swift exit over maximizing shareholder value?

SAGE: A High-Reward, High-Risk Gamble

Sage Therapeutics' $8.50-per-share deal with Supernus Pharmaceuticals includes a CVR of up to $3.50 per share, tied to sales targets for its postpartum depression drug, Zurzuvae. To unlock the full $12.00-per-share potential, sales must reach $375 million by 2030—a steep climb given that 2024 sales totaled just $36.1 million.

Legal concerns compound the risk. Halper Sadeh LLC is probing whether Sage's board acted in shareholders' best interest, particularly after Supernus outbid Biogen's $7.22-per-share offer. The CVR's aggressive milestones suggest the upfront price may have been set artificially low, with shareholders effectively betting on an uncertain future.

CTLP and COLB: No Upside, No Excuses

In contrast, Cantaloupe's $11.20-per-share sale to 365 Retail Markets and Columbia Banking's all-stock deal with Pacific Premier include no CVRs. This lack of upside potential underscores a stark reality: investors in these deals are banking entirely on the buyer's operational execution.

For Cantaloupe shareholders, this means forfeiting any gains from post-merger synergies—a critical omission given the retail tech sector's rapid evolution. Similarly, Columbia's shareholders now rely solely on the merged bank's ability to deliver $88 million in cost savings. The absence of CVRs here is a silent acknowledgment that the upfront terms reflect the full value of the deal.

The Legal Lens: Fiduciary Duty Under Scrutiny

What unites these deals is the legal scrutiny they've attracted. Investors are challenging whether boards adequately negotiated terms or disclosed risks, particularly around CVR feasibility. In SAGE's case, the $3.50 CVR may have been a negotiating ploy to justify a low upfront price, leaving shareholders vulnerable if sales stall.

Analysts note that CVR usage has declined in life sciences deals this year (22% in 2024 vs. 38% in 2023), suggesting buyers are less willing to shoulder post-deal risks. Yet for investors, this shift may signal a narrowing of valuation gaps—or a trend toward buyer-friendly terms.

Investment Verdict

• CVR Deals (VERV/SAGE):
  Upside: Massive payouts if milestones are met.
  Downside: Legal risks, scientific uncertainty, and dependency on corporate execution.
  Verdict: Only suitable for aggressive investors willing to bet on high-risk, high-reward scenarios.

• No-CVR Deals (CTLP/COLB):
  Upside: Immediate, locked-in value with no uncertainty.
  Downside: Zero upside if the merger overperforms.
  Verdict: Hold only if the upfront price is deemed fair. Exit if valuation appears inadequate.

Final Take

CVRs are a double-edged sword. In biotech, they can align incentives but also mask undervalued deals. Investors must ask: Are CVRs a bridge to fair value, or a distraction from inadequate upfront terms? For now, the answer seems clear: CVR-heavy deals demand extreme caution unless the milestones are both achievable and transparently disclosed.

As for the no-CVR deals? They're simpler bets—but simplicity doesn't guarantee success. In a market where M&A outcomes are increasingly binary, investors must choose between taking calculated risks or settling for certainty.