M&A activity remains in the doldrums as we enter 2014. According to FactSet Mergerstat, in 2013, 446 transactions were announced involving a U.S. buyer or target in the life sciences sector, as compared to 527 in 2012. Many strategically sensible transactions are not getting done because of the inability of the seller and buyer to agree on price. In some cases, sellers see significant upside in the future trajectory of the business, while buyers may be unwilling to pay for that upside given the perceived risks in achieving it.

However, creative buyers and sellers are able to successfully bridge this value gap by using contingent consideration. Most recently, on January 8, 2014, Teva Pharmaceutical Industries Ltd. announced that it had agreed to acquire NuPathe Inc. in a deal valued at $213 million. In addition to the cash consideration of $3.65 for each NuPathe share, the merger agreement provided that the holder of each NuPathe share will also receive one contingent payment right, which entitles its holder to receive up to $3.15 upon reaching certain specified net sales thresholds related to ZECUITY®.