BMS/Celgene merger payout evaporates as CVR deadline passes

Former Celgene shareholders holding on for a windfall payment from Bristol-Myers Squibb tied to FDA approval of three late-stage drugs saw their hopes dashed as 2020 drew to a close.

The contingent value right (CVR) offered by BMS as a sweetener for the $74 billion takeover of Celgene in 2019 is defunct, as one of the three drugs – CAR-T therapy liso-cel for lymphoma – failed to get approval from the FDA by the 31 December deadline.

The following day, BMS confirmed in a short statement that the CVR agreement had been “automatically terminated” and would no longer be traded on the NYSE.

CVRs are a financial tool used when two parties cannot agree the true value of the asset, and allow for payouts to be increased or decreased depending on the success of assets.

The BMS CVR had been worth $9 immediately after the acquisition went through, but saw its value drop sharply over the course of 2020, dropping as low as $1, as two of the three medicines covered by the deal ran into delays.

The first of the three – Celgene’s multiple sclerosis drug Zeposia (ozanimod) – was approved on schedule in March 2020, but things have not gone so smoothly with liso-cel and another CAR-T called ide-cel for multiple myeloma.

Liso-cel or lisocabtagene maraleucel was already looking like a long shot to meet the approval deadline last November, when the FDA delayed a decision on its marketing application, citing delays in an inspection of manufacturing facilities caused by COVID-19.

Now, BMS says that inspection took place in early December, and that it had responded to follow-up questions from the FDA by 18 December, with no outstanding information requests from the regulator. Nevertheless, approval didn’t come through by year-end, rendering the CVR defunct.

Liso-cel remains under review as a third-line treatment for adults with relapsed or refractory (R/R) large B-cell lymphoma, and the company is still hopeful of approval sometime this quarter.

The CVR has died with the liso-cel delay, but myeloma therapy ide-cel was also looking increasingly risky after the FDA rejected a first marketing application for the CAR-T because of issues with its chemistry, manufacturing and controls (CMC) data.

BMS refiled quickly, but was given an FDA action date of 27 March 2021 – just four days before the cut-off point set out in the CVR of 31 March – which left almost no wiggle room if the regulator had any further questions.

That’s academic now of course, and the demise of the CVR has saved BMS from making a payment of $6.4 billion, according to a Bloomberg analysis.

The only possible value left to CVR holders could be a settlement with BMS, although the drugmaker will argue that it made every effort to get the three medicines over the finish line in time.

That has happened before, for example in the wake of Sanofi’s takeover of Genzyme in 2011, which also included a CVR tied to the approval and sales performance of multiple sclerosis therapy Lemtrada (alemtuzumab).

While the approval date was missed by months, the trustees of the CVR eventually agreed a settlement after arbitration in which it argued Sanofi had scuppered the chances of a swift review because it filed a poor dossier.

Sanofi paid out $315 million to former Genzyme shareholders in that case, well below the $700 million to $3.8 billion range promised in the CVR.