A new analysis from SRS Acquiom puts into perspective the headline values seen when a company announces a backloaded M&A deal. Biotechs have much on the line when they agree to deals with massive potential but little upfront.
Back-loaded, milestone-heavy deals have become the norm in biopharma, as major companies put billions on the line for candidates that may never amount to anything. How much of that is ever paid out?
About 9.5%, according to a new report from SRS Acquiom on deal earnouts across biopharma and the devices, diagnostics and research industries. That’s a 0.5% improvement from two years ago when the analysis was last performed but still a small fraction of the total potential value. Of the $95.1 billion in potential payouts for deals signed between 2008 and 2025, just $9 billion changed hands.
These numbers put into perspective the headline values seen when a company announces a buyout. It also showcases what is on the line for biotechs when they agree to deals with massive potential but little upfront.
SRS Acquiom calculated the potential earnouts from 342 life sciences deals signed since 2008 that had earnout potential. That’s 90 more than when the analysis was last done in 2023, when only $6.5 billion of a potential $72.2 billion was paid out. In the new analysis, biopharma represented 198 of the total deals, while devices, diagnostics and research contributed 144.
Biopharma deals alone had a payout rate of 19%, or $6.5 billion, out of the $34.8 billion in milestones that were due by mid-2025. The bulk of those payments were made in the first one to two years after the deal closed, with the payouts declining over time. Most of the payouts went to the top 10 performing deals, which SRS Acquiom did not list.
Most payouts were triggered by a Phase III milestone being hit; the firm tied $12.1 billion in missed milestone payments to late-stage trial outcomes, with $1.5 billion paid out for these events.
About a quarter of the deals examined included biobucks tied to sales of at least $1 billion, a risky proposition in this industry. SRS Acquiom said that in those deals, the “blockbuster” earnout makes up nearly half of the total milestone potential.
SRS Acquiom also noted that disputes tied to earnouts increased to 31% compared to 28% two years ago. More than double the dollar amounts were in dispute, as well. The vast majority of these disputes were tied to post-closure renegotiations.
With such a low payout rates, biopharmas are wise to push for a bigger upfront payment—like bluebird bio did earlier this year when being bought out by two private equity firms. SRS Acquiom found that across the 342 deals examined, upfront payments totaled $99 billion. Of the biopharma deals the firm examined, 55% had more than $100 million upfront.
