Almost exactly a year ago I wrote about the merger between Celgene and Bristol-Myers Squibb (NYSE:BMY). To make things interesting, the merger consideration included a contingent value right (NYSE:BMY-RT) that would payout $9/right if, and only if, three separate drugs would get approved by the FDA before their respective deadlines. I have not written about the CVR since, because I did not have much to add compared to all the information that was already out there.
Initially my position in the CVR was miniscule, since it was just a small part of the Celgene merger consideration. Over time I continued adding to my position, and earlier this month I hit the 5% mark, making this probably the highest amount of risk I have taken in a single name. I have frequently positions sized bigger, but most stocks don’t have (a realistic) potential to go to zero overnight on bad news. And because I don’t just want to share stories of success here, I felt obliged to post an update on this name since it is now probably my biggest loser.
Yesterday was the big day because liso-cel had it’s PDUFA date. Unfortunately, the news was bad. Because the FDA was unable to inspect a manufacturing facility in Texas due to corona travel restrictions it decided to defer action. The news did not came as a total surprise, since a week before Bristol-Myers Squibb already told the market that the FDA did not inspect the facility, and that it had told them previously that it would be required. Written like this you would probably question why I was still in the name, but the FDA did inspect the main facility in Bothell, Seattle. Maybe you should not try to ascribe too much logic to the actions of a bureaucratic organization, but I did not think it was far fetched to assume that the FDA had a plan to meet the PDUFA deadline.
Obviously that was not the case, and since the CVR has a deadline of 31 December 2020 for the approval of liso-cel I don’t see a realistic path forward for approval in time. The press release does contain a single line, that might have given people some hope:
The company is committed to working with the FDA to progress both applications to achieve the remaining regulatory milestones required by the CVR.
You could make a case that the company did not need to put this line in the press release, and if they would have thought that meeting the regulatory milestones would be completely impossible they would not have put it. At the same time, it is an empty statement. Bristol-Myers might be committed to do it, but the thing that matters: is the FDA committed? I think they would like to approve this as soon as possible, if they can, but they don’t give a s*ht about the CVR deadline. The biggest deadline they would care about would be the PDUFA deadline, and they missed it. The FDA also did not provide a new anticipated action date, which probably means that they don’t have a concrete plan with a clear timeline on how to do the final inspection.
Given that we are close to the end of the year with Thanksgiving and the Christmas holidays coming up as well I just don’t see how this remaining inspection can be done in time. The inspection would need to be scheduled, could take a few days to a week, the company would need a few weeks of time to be able to respond to the results of the inspection and then the FDA would need to make a decision. Theoretically it could be done, but it just seems very far fetched to me. Corona cases have been going up in Texas, so if they didn’t want to go in October, they certainly would not want to go now. If they would have thought a virtual inspection could be a viable option, they would probably have done that already so they could meet the PDUFA date. And with vaccines around the corner it seems that just waiting a few months could solve all issues.
Because of that I’m actually very surprised that the rights were yesterday still trading at $1. Assuming that the rights would trade between $5 and $7 if liso-cel gets approved (high-end might be a bit optimistic, since ide-cel approval is still pending) the market implied probability of approval before the end of the year is between ~15% and ~20%. I think that’s very optimistic, and would personally put it below 5%. I hope I’m wrong for the patients that need this treatment even though it would make me look double stupid for selling. But I am pretty happy with my decision to do so, and I am also still happy with my decision to buy as much as I did. Sometimes things just don’t work out, even if the odds are in your favour.
And yes, I know, if liso-cel does not get approved in time, there might still be some litigation value in the rights. But I highly doubt that is meaningful. Getting a decision to defer action from the FDA because they don’t inspect a facility because of corona is beyond any doubt not the fault of Bristol-Myers. And given the size of the CVR, with a potential $7 billion payout, Bristol-Myers can spend a lot of money on lawyers before a settlement would make financial sense.
No position in the rights anymore