I know nothing about licensing novels, movies etc. for stage musicals. So rights lapsing is a new concept to me. I mean, we have that in music tech all the time, where the license for musical works is for a few years. But to create a musical and do all that creative work based on a time limit for the rights? I wouldn’t have thought of that.
I don't know the specifics in the case of this show, of course.
But musical theater people (maybe producers, maybe writers, maybe anyone) might, for example, be purchasing the exclusive stage rights for a certain option period, depending on how interested the property owner is in having a musical made of his or her property by these particular theater people. Maybe as an example $5,000 for the first 18 months, then another $5,000 for an additional 18 months, then maybe another $5,000 for an additional 12 months, and on as extensions to the contract are executed.
At SOME point, to describe the "merger" concept simply - usually based on reaching a specified number of certain types of performances, the rights would "merge" so that the musical may from then on be "exploited" forever, and usually the original rights holder gets a percentage of the royalties from the writing. (A normal split might be 25% music, 25% lyrics, 25% book, and 25% original underlying rights holder).
If the rights don't "merge" before the end of the option period, as extended, the rights would "lapse."