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Bristol-Myers Squibb Contingent Value Rights: Thinking Through The Options Around Litigation Financing


  • Bristol-Myers terminated the contingent value right related to the Celgene merger.
  • The right is related to the approval of three separate drugs.
  • 2/3 drugs have been approved and the final is one likely to get approved.
  • The second approval arrived a little over a month late, causing Bristol-Myers to terminate.
  • The trustee is seeking to fund litigation to potentially challenge this early termination.
  • This idea was discussed in more depth with members of my private investing community, Special Situation Report. Learn More »

This is a note on the contingent value rights tied to the merger between Bristol-Myers (NYSE:BMY) (NYSE:BMY.RT) and Celgene (CELG). Contingent value rights are unusual securities. This particular one was supposed to pay out $0 or $9 based on a set of milestones. In this case, all milestones needed to be hit for the payout to get triggered.

The CVR entitles its owner to receive $9.00 in cash upon FDA approval of all these drugs by the respective dates noted:

  1. Ozanimod (by Dec. 31, 2020)

  2. Liso-cel (JCAR017) (by Dec. 31, 2020)

  3. bb2121 (by March 31, 2021)

Ozanimod and Liso-cel have been approved. Here's what BMY's Chief Medical Officer Samit Hirawat said at the Cowen Health Care conference:

...we had the approval of liso-cel already this year. We are looking forward to the approval in the near term for ide-cel. We've already filed in terms of the extension or new indications we've already filed Zeposia for ulcerative colitis and we'll see the approval hopefully, at the end of May. We've already shown the positive top line -- that we will be showing the positive top line for deucravacitinib later this year. So that is going to be into filing and hopefully available to patients next year for psoriasis.

But even if he didn't say that my baseline expectations, without factoring in special designations for the drug, is that it's 80% to get approved given the stage it is at and the type of drug. I've written many articles on this situation;; some of the most recent ones are Bristol-Myers Squibb Contingent Value Rights: Increasingly Looks Like I've Been Wrong and Bristol-Myers Squibb Contingent Value Rights: Final Inspection Is Happening.

The problem is that Liso-cel was not approved by Dec. 31, 2020. BMY issued a press release declaring the rights terminated:

I write the Special Situation Report. I look at special situations like spin-offs, share repurchases, rights offerings and a lot of M&A events. The point is to make money with risks under control. Check it out here. Follow me on Twitter here or reach out through email at dehaas.bram at gmail dot com. 

This article was written by

Bram de Haas profile picture

Bram de Haas brings 15 years of investing experience to the table and has over 5 years of experience managing a Euro hedge fund. He is also a former professional poker player and utilizes his bundle of risk management skills to uncover lucrative investments based on special situations.

He is the leader of the investing group Special Situation Report where he offers his community several features, including: a portfolio of actionable special situations, weekly updates on current ideas, ideas across sectors for diversification, select foreign investment ideas in addition to the majority of US market ideas. Learn more.

Analyst’s Disclosure: I am/we are long BMY.RT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (82)

Rex Rode profile picture
So this just in...The 6.4 billion lawsuit was filed today.
Doesn’t the fact that this article was published in Barron’s mean that significant activity is taking place in the legal battle over this CVR? Nothing happens in a vacuum!
Good update here from Barrons.. www.barrons.com/...
Rex Rode profile picture
Some additional information on more reasons why Liso-cel's approval was delayed....www.fiercepharma.com/...
@Rex Rode "BMS, for its part, contends that COVID-related plant inspection delays were a key reason for a missed payout to investors."

Only the likes of Don Caforio could think that's a legitimate excuse to screw CVR holders. "Force majeure" would come into play if an asteroid wiped out BMY and made it impossible for them to ever fulfill the terms. COVID-19 at most delayed it a handful of weeks. They need to be made to pay the full $9 and then some. They are crooks, and it's clear the SP will remain suppressed until this is resolved.
Rex Rode profile picture
Great news everyone!! Ide-cel was approved today!!!

Couldn't find a lawyer to take this on contingency? That should tell you something.
Rex Rode profile picture
@Dag Nabbit Perhaps you should do a little homework...The Trustee hired a legal team in February...
Goomba69 profile picture
@Dag Nabbit the trustee is taking a more sophisticated approach so they and participating investors get some of that contingency.
autofocus111 profile picture
"my understanding is that the contracting holders get a larger share of an eventual settlement based on the additional funding risk." I could be mistaken but I don't think that's correct. If a company gets bought out, you can dissent your shares. The dissenting shareholders then go through a court procedure to determine fair value. Not all dissenters may choose to fund the legal costs of this action (typically those that held large positions put up litigation funds since they have the most to lose/gain), but as a group all dissenters receive the same payout amount when the case concludes or a settlement is reached. I don't see why the situation would be any different here. In my view, those who owned the CVRs on termination form a single class and would share equally in any settlement or ruling. Costs would be subtracted and distributed across the class (or paid by the defendant if ordered). At least that's my take.
May-Z Capital profile picture
@autofocus111 Hi autofocus. I know definitively the answer here. There cannot be anyone who dissents. The trustee will go to a judge and certify the settlement and require 100% of the CVRs to get the same settlement. People who choose not to fund the lawsuit or can't due to accredited investor requirements will get less. That's just the facts, can call the trustee and he will tell you the same thing. The good news is a large portion of the proceeds will go to CVR holders even if you don't fund the lawsuit. The exact split is only known if you sign an NDA and ask for the contract from the trustee.
autofocus111 profile picture
@CambiumInvestor I was merely drawing an analogy. Yes there is no dissent right in this case. In fact, ALL holders of the CVTs when it 'expires' are defacto dissenters.

My point was any settlement would be distributed equally across all the outstanding CVRs held. You seem to say the same thing "The trustee will go to a judge and certify the settlement and require 100% of the CVRs to get the same settlement." But then you contradict that by saying "People who choose not to fund the lawsuit or can't due to accredited investor requirements will get less." Why would they get any less if the settlement is the same for all the CVRs? I believe that in any settlement/award, the lawyer fees funded by large CVR holders will simply be distributed across the entire class by subtracting those costs off the settlement amount, just as it is in the case of company shareholders that dissent to a takeover, or a class action lawsuit.
autofocus111 profile picture
@CambiumInvestor I did a quick view of the video in this article. If it is correct (it's speculative because he did not see the prepaid funding contract details) then yes, those who don't participate in legal funding upfront will get less than those who do. But they will still see a decent portion of the payout. That's fine by me. The judge could also assign the defendant to pay all the legal fees of the plaintiffs, in which case the full settlement amount would go equally to all the CVR holders. On the flip side, if there is no payout (case is thrown out), those who put up funding for the lawsuit will lose that cash, maybe have to pay the defendant's legal costs, and recover zero on the CVR. I say let the big holders take the risks. I'll just tag along as I would if I was dissenting shares.
Goomba69 profile picture
Thanks for this information, very helpful and worthwhile for CVR holders to follow-up with the trustee.
anyone who thinks there will be CVR residual value paid out to investors doesn’t understand the piracy of lawyers, trustees and other middlemen....
Rex Rode profile picture
@Tawm It will be a glorious day when Ide-cel is approved!
“glorious” for parasitic middlemen!
Rex Rode profile picture
@Tawm Said the man that sold his CVR rights....
Is there a market for the CVR and who trades them?
May-Z Capital profile picture
@San Juan capital Can't trade them unless you are a fund - they are being bought and sold in the grey market in large blocks. Last trade went off at 90 cents I believe.
Brainfelt profile picture
@CambiumInvestor I would sell mine for $.90/each in a second.
May-Z Capital profile picture
@Brainfelt that's great. call Cowen if you have >1M shares. if not, you can't.
Good article, but I would forget about the stated returns from Burford (BUR) because they are fabricated. Just look at the Muddy Waters report.
Should a lawsuit proceed, is it correct to assume that the laywers will find final right holders through their brokers?
May-Z Capital profile picture
@Letterhead6 Matt here - it's almost certain the proceeds will go directly into your brokerage account even though the shares are no longer there. It's not the lawyers in charge it's the trustee. This is not a typical shareholder lawsuit.
Small Cap And Special Situations profile picture
After the debacle with the Genzyme CVR, it's likely the filings are filled with all sorts of verbiage to forestall just such a lawsuit.
I hope discovery finds a way to include the manipulation of Celgene that allowed Bristol to steal the company. By Sep-18, it had recovered from 75 to 95, and over the next three months, they drove it down below 60, with people buying 1000 weekly puts every week as late as Wednesday. They hit like 9/10 times and made millions. Then like magic, Bristol swooped in and announced the buyout in early Jan-19. Celgene had been as high as the 140's in 2018, IIRC. The usual suspects were advising Bristol, namely, Morgan Stanley. I can't say I'm surprised Caforio found a way to scuttle the CVR using COVID-19 as cover. It ain't gonna hold up to scrutiny, and I hope it's an inroad to a wider investigation.
Celgene insiders and management agreed to the deal, quit whining!
American society has become so litigious that they don’t stop to think that in any litigation it’s the LAWYERS who clean up. Greedy Contingency holders and BMY shareholders will all lose to those parasites.
Tom W Dorsey profile picture
Rights holders played the game and lost. The lawyers are the only winners. Turn the page and move on....
@Tom W Dorsey agree. Investing may result in loss of principle.
Rex Rode profile picture
@Tom W Dorsey A big pharma company has tried to use Covid & a delay game to their advantage and will lose.....This is just getting started! It's always best to understand greed never goes over very well in court.
Tom W Dorsey profile picture
@Rex Rode Who was greedy holding the RTS and hoping for a windfall when they could've sold them?
08 Mar. 2021
Between $2 and $5 should the last drug get approved in time is my opinion.
BMY did not file the paperwork properly for second drug and had to refile . They were negligent and will need to pay up .
They will also have to take into account everything BMY did to speed approval, such as getting approval for priority review from the FDA.
ZERO thats what they agreed upon, end of story.
Normal FDA delays and requests for data wouldn't implicate any wrongdoing by BMY, and the three drugs didn't hit the target date. The trustee -- if he/she/it collects funds to start litigation -- probably has to collect enough to cover attorneys' fees incurred by BMY (if BMY prevails) as well as fees to fund the litigation on behalf of the plaintiffs or the plaintiffs could become individually liable for fees. And what is the trustee looking to be paid for overseeing the litigation? There is an inherent conflict of interest there.It sounds like a nuisance suit to me.
May-Z Capital profile picture
@badbernanke no conflict of interest. the lawsuit is being funded by the 5 largest shareholders. if they didn't think it was worth pursuing, they wouldn't fund it! they are giving all holders right to fund it if they want to - if not they will happily fund all of it.
In the words of the great Eagles Get Over It . . . . . . . . 
“Kill all the lawyers, kill ‘em tonight”.
MathRulz profile picture

Or in the words of the late Warren Zevon:
The xxxx has hit the fan.
Send lawyers, guns, and money.
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