Contingent Value Rights: A Strategic Gamble in Theratechnologies' Acquisition

The acquisition of Theratechnologies Inc. by CB Biotechnology, an affiliate of Future Pak, marks a bold move in the biopharmaceutical sector. At its core, the deal offers investors a unique opportunity to capitalize on a milestone-driven structure that balances immediate returns with performance-based upside. However, the contingent value rights (CVRs) at the heart of the transaction also introduce layers of risk that demand careful scrutiny. For investors weighing whether to embrace this complex deal, the analysis hinges on understanding how EGRIFTA's commercial success could amplify shareholder value—or falter.

The Deal's Immediate Value and Upside Potential

Theratechnologies' shareholders will receive $3.01 per share in upfront cash, representing a 126% premium over the stock's Nasdaq closing price on April 10—the day before Future Pak's initial proposal. This immediate liquidity alone is compelling, but the CVRs add a critical layer of upside. Each CVR holds the potential for an additional $1.19 per share if Theratechnologies meets specific milestones tied to the performance of its flagship product, EGRIFTA, and the HIV therapy Trogarzo.

The milestones are structured to incentivize sustained commercial success:
1. EGRIFTA Gross Profit Milestones: For each 12-month period post-closing (at 12, 24, and 36 months), if EGRIFTA's gross profit exceeds $40 million, $50 million, or $60 million, 50% of the excess will be distributed to CVR holders.
2. Cumulative Milestones:
- A $10 million one-time payment if EGRIFTA's cumulative gross profit over 36 months exceeds $150 million.
- A $15 million one-time payment if combined EGRIFTA and Trogarzo gross profits over 36 months exceed $250 million.

The total maximum CVR payout is $65 million, meaning the deal's total potential value—$254 million—represents a 216% premium over the April 10 share price. This structure rewards investors who bet on EGRIFTA's ability to maintain or grow its market position.

Strategic Alignment: Future Pak's Biopharma Expansion Play

For Future Pak, a private contract manufacturer and distributor, the acquisition is a strategic pivot into biopharmaceutical commercialization. The deal aligns with its long-term goal to expand its portfolio beyond traditional pharmaceuticals and nutraceuticals. By acquiring Theratechnologies, Future Pak gains access to a company with two FDA-approved therapies and an established sales infrastructure. The integration of Theratechnologies' R&D and distribution networks into Future Pak's operations could create synergies in manufacturing efficiency and market reach.

Crucially, the CVR structure ensures Future Pak's commitment to maximizing EGRIFTA's value. The milestones are designed to keep Theratechnologies' management incentivized post-acquisition, as underperformance would mean no additional payouts. This alignment of interests is a hallmark of the deal's design.

Risks and Execution Hurdles

Despite the allure of the premium and upside, the transaction carries significant risks:
1. Milestone Uncertainty: EGRIFTA's gross profit must exceed thresholds in specific timeframes. If sales stagnate or competition intensifies, the CVR upside evaporates. The drug's current gross profit trajectory—$36.8 million in 2024—falls short of the first milestone, suggesting a steep climb ahead.
2. Regulatory and Operational Delays: The deal requires Quebec Superior Court approval and shareholder votes (needing a 66⅔% supermajority). Any delays could push the closing beyond the November 30, 2025 deadline, raising financing risks.
3. Termination Fees: Future Pak faces a $12 million fee if it walks away without closing, while Theratechnologies could owe $6 million for pursuing a competing bid.

Investment Takeaways: A High-Reward, High-Risk Bet

For investors, the decision hinges on two factors: confidence in EGRIFTA's performance and comfort with execution risk.

• Buy the CVRs if:
• You believe EGRIFTA's sales will grow steadily, possibly driven by expanded医保 coverage or new indications.

• You trust Future Pak's ability to navigate regulatory approvals and close by November 2025.

• Avoid or Hedge if:

• EGRIFTA faces pricing pressures or generic competition.
• The transaction's complexity raises concerns about regulatory pushback or financing gaps.

The $220 million credit facility secured by Future Pak reduces liquidity risk, but the CVRs' value remains entirely dependent on Theratechnologies' post-acquisition execution.

Final Analysis: A Strategic Gamble Worth Monitoring

The Theratechnologies-CB Biotechnology deal is a textbook example of performance-based M&A, where upside is tied directly to operational success. While the upfront premium provides immediate value, the CVRs make this a high-stakes bet on EGRIFTA's future. Investors with a long-term view and tolerance for risk may find the CVRs a compelling addition to their portfolio, especially if they foresee EGRIFTA's gross profits surging past the milestones.

For the risk-averse, the upfront cash offer provides a solid return, but the CVR component demands a deeper analysis of EGRIFTA's market dynamics. As the closing date approaches, tracking quarterly EGRIFTA sales figures and regulatory updates will be critical to gauging the deal's true potential.

In the end, this transaction underscores a broader theme: in a sector where biopharma innovation meets manufacturing scale, the right strategic alignment—and the courage to bet on it—can turn premiums into profits.