Life sciences M&A in uncertain markets with a focus on Brazil: earnouts, CVRS, contingent milestones and IP driven valuation mechanics

João Gustavo Santiago
Souto Correa, Brazil
gustavo.santiago@soutocorrea.com.br

Anderson Ribeiro Nascimento
Souto Correa, Brazil
Anderson.ribeiro@soutocorrea.com.br

Introduction

Life sciences Mergers and Acquisitions (M&A) usually requires reconciling scientific uncertainty with long‑term value creation. In emerging yet sophisticated markets such as Brazil, this challenge is magnified by regulatory complexity, pricing controls, and heightened sensitivity to execution risk. Brazil is the largest healthcare and pharmaceutical market in Latin America and a strategic gateway for regional expansion, yet it remains structurally different from the United States and European markets.

In periods of macroeconomic and capital‑market volatility, Brazilian life sciences transactions increasingly rely on contingent consideration structures – including earnouts, contingent value rights (CVRs) and milestone payments – to bridge valuation gaps. These mechanisms are closely tied to regulatory and IP‑driven valuation inputs, particularly those involving ANVISA (the Brazilian Health Regulatory Agency) approvals, patent strength before INPI, and market access through Brazil’s dual public/private healthcare system.

Uncertainty as a structural feature of Brazilian life sciences M&A

Brazilian life sciences deals reflect all the inherent risks of global pharma and biotech M&A, with additional local dimensions:

• Regulatory timelines: ANVISA approvals should legally take six to 12 months, but reality shows substantial delays in the past couple of years due to the increase in work volume and complexity, combined with a reduced human resource. Although ANVISA is gradually using reliance as a decision tool, products already approved by FDA or EMA may still face overall delays, postponing revenue realisation and affecting valuation models.[1]
• Pricing risk: CMED (the Brazilian Pharmaceutical Price Chamber) price caps and CONITEC (the Brazilian HTA Body) reimbursement decisions add layers of uncertainty beyond regulatory approval.
• Capital market volatility: Brazil experienced a meaningful slowdown in pharma M&A activity in 2023–2024, with deal value compressions and increased use of minority stakes and structured pricing.[2]
• Intellectual property (IP) unpredictability: Patent prosecution timing at INPI (the Brazilian Patent and Trademark Office) and judicial scrutiny of secondary patents materially impact exclusivity assumptions.[3]

These factors explain why cash‑only upfront valuations are increasingly rare in Brazilian life sciences M&A.

Earnouts in Brazilian life sciences transactions

Earnouts are among the most widely used contingent consideration mechanisms in Brazilian M&A, particularly in regulated industries such as healthcare and pharmaceuticals.

As in many other jurisdictions, in Brazil earnouts are commonly employed to address information asymmetry and macroeconomic volatility, especially where future performance is difficult to forecast.

Brazilian‑specific characteristics of earnouts

In life sciences deals in Brazil, earnouts can be usually tied to:

• ANVISA approval or validation steps involving certain products;
• commercial performance once CMED price ceilings are confirmed;
• market penetration in the public and private healthcare segment.

However, empirical research shows that while earnouts are widely adopted, Brazilian public companies often under‑disclose key earnout parameters, increasing post‑closing dispute risk.[4]

As a result, best practice in Brazil tends to increasingly mirror US life sciences agreements: tight drafting around commercially reasonable efforts, detailed operational covenants, and dispute resolution mechanisms aligned with Brazilian arbitration forums.

CVRs and public‑market sensitivity in Brazil

CVRs remain less prevalent in purely domestic Brazilian deals, but they are increasingly relevant in cross‑border transactions involving Brazilian assets, particularly where the seller is overseas or publicly listed.

Globally, CVRs are disproportionately used in life sciences M&A, accounting for 84 per cent of all CVR‑containing public deals between 2018 and 2023.[5] Brazilian assets tend to be included in CVR structures when:

• regulatory approval in Brazil trails FDA/EMA approvals;
• local commercialisation depends on CMED’s price approval; CONITEC’s reimbursement recommendations and ANS’s (The Private Healthcare Regulatory Agency) HTA procedure and listings;
• long‑dated expansion into Latin America affects terminal value.

In practice, Brazil‑related CVRs often treat ANVISA approval as a secondary or staged milestone, discounting near‑term impact while preserving optionality for shareholders.

Contingent milestones and development risk allocation

Milestone‑based consideration is ubiquitous in Brazilian‑related life sciences deals, especially for early‑stage biotech and medtech assets with limited commercialisation history.

Typical Brazil‑linked milestones are:

• filing or acceptance of regulatory dossiers by ANVISA;
• completion of local clinical bridging studies;
• final pricing approval by CMED; and
• first sale into SUS or private hospital networks.

Brazil’s regulatory framework – including evolving reliance mechanisms and risk‑based review pathways – has encouraged milestone structures that reflect regulatory de‑risking over time, rather than binary approval events.[6]

Market practice increasingly favours fewer, higher‑value milestones, aligned with meaningful economic inflection points rather than granular procedural steps.

Intellectual property‑driven valuation mechanics in Brazil

IP considerations are central to valuation in Brazilian life sciences M&A, often more so than near‑term financial performance.

Key IP valuation factors in Brazil:

• patent grant timing at INPI, which can materially shorten effective exclusivity;
• legal treatment of secondary (incremental) patents, currently under policy and litigation scrutiny;[7]
• regulatory data protection, which does not amount for any legal exclusivity; and
• Know‑how and trade secrets, particularly for biologics, biosimilars and CMOs.

Buyers often use risk‑adjusted NPV (rNPV) models incorporating Brazil‑specific probabilities of regulatory and IP success. This frequently translates into contingent consideration tied to IP outcomes, such as patent issuance, successful defensce against invalidity challenges, or territorial expansion.

Strategic implications for deals involving Brazil

The stakes for each side are pretty clear. For buyers, Brazil‑focused contingent structures allow capital deployment while minimising exposure to regulatory, pricing and IP turbulence. For sellers, they preserve upside participation in a market where full value realisation may take years.

Key success factors include:

• early integration of ANVISA and IP diligence into valuation modeling;
• alignment between contingent pricing triggers and real economic value drivers;
• clear drafting of effort standards and local execution responsibilities; and
• awareness of disclosure, accounting and enforceability standards under Brazilian law.

Conclusion

Brazil exemplifies how uncertainty reshapes life sciences M&A. Regulatory complexity, pricing controls and IP dynamics make valuation inherently forward‑looking and imperfect. As a result, earnouts, CVRs and milestone structures have become essential – not optional – tools in transactions involving Brazilian life sciences assets.

In this environment, intellectual property is the anchor of value, while contingent consideration serves as the bridge between promise and proof. The most successful Brazil‑related life sciences deals are those that treat uncertainty not as a discount, but as something to be priced, structured and managed over time.