Life Sciences M&A Milestone Payments Fall Short of Expectations, New Analysis Reveals

In a revealing analysis of life sciences mergers and acquisitions (M&A), SRS Acquiom has shed light on the stark reality of milestone payments in the industry. The report, which examined 342 deals signed between 2008 and 2025, found that only 9.5% of potential earnouts have been paid, highlighting the risks and challenges faced by biotechnology companies in back-loaded deals.

Biopharma Deals: High Potential, Low Payout

The analysis focused on deals with earnout potential, with biopharma representing 198 of the total 342 deals examined. Despite the headline-grabbing potential values often announced in M&A deals, the actual payout rate for biopharma deals was just 19%, or $6.5 billion out of a potential $34.8 billion in milestones due by mid-2025.

Most of these payments were made within the first two years after deal closure, with a declining trend over time. Notably, the majority of payouts were concentrated among the top 10 performing deals, although specific details of these transactions were not disclosed in the report.

Milestone Triggers and Blockbuster Bets

Phase III clinical trial milestones emerged as the primary trigger for payouts, with $12.1 billion in missed milestone payments attributed to late-stage trial outcomes. Of this amount, only $1.5 billion was actually paid out for these events, underscoring the high-risk nature of late-stage drug development.

The analysis also revealed that approximately 25% of the examined deals included "biobucks" tied to sales of at least $1 billion. In these cases, the potential blockbuster earnout comprised nearly half of the total milestone potential, representing a significant gamble for acquiring companies.

Dispute Resolution and Upfront Payments

The report noted an increase in disputes related to earnouts, rising from 28% two years ago to 31% in the current analysis. The dollar amounts in dispute more than doubled, with the majority of these conflicts stemming from post-closure renegotiations.

Given the low payout rates, the importance of upfront payments has become increasingly apparent. SRS Acquiom found that across all 342 deals examined, upfront payments totaled $99 billion. In the biopharma sector specifically, 55% of deals included upfront payments exceeding $100 million, suggesting a growing preference for more substantial immediate compensation.