Acquisitions of biotech companies with development-stage drug candidates often include earnout agreements. The buyer pays the seller’s stockholders with cash or stock upfront, and the seller’s stockholders are entitled to additional payments if the drug or drugs in development reach certain milestones, often culminating in FDA approval or commercialization. Achieving those milestones can take many years and requires the buyer to make substantial investments in clinical trials and regulatory approval. Because the right to earnout payments depends to a significant degree on a buyer’s actions in developing the asset, a seller will seek a provision in the acquisition agreement requiring the buyer to use commercially reasonable efforts in drug development.
The post Words Matter: Different Definitions of “Commercially Reasonable Efforts” Lead to Different Results in Drug-Development Earnout Disputes appeared first on Enhanced Scrutiny.