"CVRs have been gaining popularity in recent years, particularly in the life sciences industry. From May 1, 2022 through April 30, 2023, approximately 29% of the announced life sciences industry M&A deals included the use of a CVR, as compared to 17% in the period from January 1, 2018 through April 30, 2023 and 10% in the period from January 1, 2013 through December 31, 2017."
Simply put, Contingent Value Rights (CVRs) are a way of negotiating the difference between a buyer and a seller's view of the worth of an asset. Brad Stewart, Life Sciences National Leader at BDO USA, is quoted in BioSpace: “CVRs play a role when there’s a difference in people’s certainty on the outcome. It lets you set aside something that’s not necessarily tangible. You can’t put a valuation on a feeling or a belief or that sort of thing, but you can put a valuation on an event occurring.”
I ran across the initial quote in the Harvard Law School Forum on Corporate Governance. Turns out the authors included 2 partners from Sidley Austin LLP, Sally Wagner Partin and Sharon Flanagan. They are clearly well-versed in CVRs and if they still represent Cytodyn... I like that very much.
So, write a couple contingent milestones into the deal. In the case of leronlimab, write several. If the milestones are met, it's another payday. I'm thinking paydays, actually. From the buyers point of view it provides a great deal of cover, in regards to shareholders that might question a big straight-cash payout. It's a hedge. And for confident sellers like Cytodyn, it's a way of ultimately receiving fair/full value for a novel drug with limited clinical data. Smaller amount of cash upfront, a larger payout when the milestones are met.
Here's a couple more paragraphs from the Sidley piece, followed by a couple of examples from the BioSpace article:
"The use of CVRs is also much more concentrated in relatively smaller public M&A transactions in the life sciences industry, with CVRs used in approximately 45% of all public life sciences M&A deals announced from January 1, 2018 through April 30, 2023, where the transaction had less than a $500 million equity value.
All of the life sciences CVRs were event-driven (and none was price-driven) and the strong majority of life sciences CVRs provide for regulatory approval milestones or sales milestones... Based on the study sample, the median potential value of a CVR, as compared to the guaranteed value a shareholder will receive in a deal, is approximately 18%."
Some of the CVRs add a lot more value. The recent deal between Pfizer and Metsera, for $10 billion, included up to $24/share in contingent value (!). Here's an example from the BioSpace article:
"CVRs can have a long tail, with the triggering event sometimes years away. This is the case for gene editing specialist Verve Therapeutics, which is also up for a CVR in its buyout agreement with Eli Lilly.
The biotech agreed to be acquired for $10.50 per share—or about $1 billion total—plus a $3 CVR payable when the first patient is dosed with the base editing therapy VERVE-102 in a U.S. Phase III trial for atherosclerotic cardiovascular disease. This milestone must occur within 10 years of the transaction for the CVR to be payable. William Blair, which said the CVR could add $300 million in value to the deal, wrote in a June note to investors that the payout is likely and could occur in the first half of 2027."
One of the problems with CVRs is unrealistic milestones and/or underperformance of the drug. I don't think we will have a problem with the latter, and with Sidley on our side, I don't think we'll have to worry about the former. We know the molecule better than anyone. And it turns out that Sidley basically wrote the book on CVRs. That gives us leverage... but only if fully deployed.
If it comes to a buyout, I don't see Cytodyn receiving full/fair value without contingent value rights. Even with a partnership--take the maximum we can get now... or take less upfront and build value by letting the data mature in clinical trials funded by the acquirer? I think we'll do better letting Sidley negotiate some realistic and attainable contingent milestones. But that's just me. I don't have a mortgage to pay off or kids who expect help with college. I can see the value of a clean and simple buyout for many on this board. But achieving full/fair value is also about realizing some sort of justice... some kind of payback for all the mis-steps and malfeasance we have endured. I should probably just let it go... But I'm having a hard time with that.
One thing I am clear about--I'm heading to Respert's beach house when it's time to celebrate!
https://corpgov.law.harvard.edu/2023/06/16/ke...ma-deals/#
https://www.biospace.com/business/hectic-mark...k-on-cvrs#
Simply put, Contingent Value Rights (CVRs) are a way of negotiating the difference between a buyer and a seller's view of the worth of an asset. Brad Stewart, Life Sciences National Leader at BDO USA, is quoted in BioSpace: “CVRs play a role when there’s a difference in people’s certainty on the outcome. It lets you set aside something that’s not necessarily tangible. You can’t put a valuation on a feeling or a belief or that sort of thing, but you can put a valuation on an event occurring.”
I ran across the initial quote in the Harvard Law School Forum on Corporate Governance. Turns out the authors included 2 partners from Sidley Austin LLP, Sally Wagner Partin and Sharon Flanagan. They are clearly well-versed in CVRs and if they still represent Cytodyn... I like that very much.
So, write a couple contingent milestones into the deal. In the case of leronlimab, write several. If the milestones are met, it's another payday. I'm thinking paydays, actually. From the buyers point of view it provides a great deal of cover, in regards to shareholders that might question a big straight-cash payout. It's a hedge. And for confident sellers like Cytodyn, it's a way of ultimately receiving fair/full value for a novel drug with limited clinical data. Smaller amount of cash upfront, a larger payout when the milestones are met.
Here's a couple more paragraphs from the Sidley piece, followed by a couple of examples from the BioSpace article:
"The use of CVRs is also much more concentrated in relatively smaller public M&A transactions in the life sciences industry, with CVRs used in approximately 45% of all public life sciences M&A deals announced from January 1, 2018 through April 30, 2023, where the transaction had less than a $500 million equity value.
All of the life sciences CVRs were event-driven (and none was price-driven) and the strong majority of life sciences CVRs provide for regulatory approval milestones or sales milestones... Based on the study sample, the median potential value of a CVR, as compared to the guaranteed value a shareholder will receive in a deal, is approximately 18%."
Some of the CVRs add a lot more value. The recent deal between Pfizer and Metsera, for $10 billion, included up to $24/share in contingent value (!). Here's an example from the BioSpace article:
"CVRs can have a long tail, with the triggering event sometimes years away. This is the case for gene editing specialist Verve Therapeutics, which is also up for a CVR in its buyout agreement with Eli Lilly.
The biotech agreed to be acquired for $10.50 per share—or about $1 billion total—plus a $3 CVR payable when the first patient is dosed with the base editing therapy VERVE-102 in a U.S. Phase III trial for atherosclerotic cardiovascular disease. This milestone must occur within 10 years of the transaction for the CVR to be payable. William Blair, which said the CVR could add $300 million in value to the deal, wrote in a June note to investors that the payout is likely and could occur in the first half of 2027."
One of the problems with CVRs is unrealistic milestones and/or underperformance of the drug. I don't think we will have a problem with the latter, and with Sidley on our side, I don't think we'll have to worry about the former. We know the molecule better than anyone. And it turns out that Sidley basically wrote the book on CVRs. That gives us leverage... but only if fully deployed.
If it comes to a buyout, I don't see Cytodyn receiving full/fair value without contingent value rights. Even with a partnership--take the maximum we can get now... or take less upfront and build value by letting the data mature in clinical trials funded by the acquirer? I think we'll do better letting Sidley negotiate some realistic and attainable contingent milestones. But that's just me. I don't have a mortgage to pay off or kids who expect help with college. I can see the value of a clean and simple buyout for many on this board. But achieving full/fair value is also about realizing some sort of justice... some kind of payback for all the mis-steps and malfeasance we have endured. I should probably just let it go... But I'm having a hard time with that.
One thing I am clear about--I'm heading to Respert's beach house when it's time to celebrate!
https://corpgov.law.harvard.edu/2023/06/16/ke...ma-deals/#
https://www.biospace.com/business/hectic-mark...k-on-cvrs#
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