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An Unusual Investment With 125% Upside

Discussion of the Bristol-Myers contingent value right

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Bram de Haas
Dec 30, 2019
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One of my better investments of 2019 was Celgene (

CELG, Financial), which was acquired by Bristol-Myers (BMY, Financial). At first, the merger was threatened by activist ValueAct, which really widened the spread. However, the merger was eventually completed.

In addition to making a nice return on the deal, Bristol-Myers also issued a contingent value right, or CVR, upon closing. This CVR is now publicly traded under the ticker (

BMYRT, Financial) for approximately $3.

The contingent value right is worth either $0 or $9. It pays out $9 and is subsequently dissolved if the following drugs have received FDA approval by a certain date:

  1. Ozanimod (December 31, 2020)

  2. Liso-cel (JCAR017) (December 31, 2020)

  3. Bb2121 (March 31, 2021)

While looking into the probabilities of these late stage therapies receiving approval, I found this table by Alacrite Consulting very helpful:

1121671311.jpg

Based on this chart, my estimate is that Ozanimod will get approved with 94% probability. Liso-cel should have a chance of around 92% to get approved, and bb2121 should be in that range as well. There's a minor possibility that even if the Phase 3 trials for these drugs fail, the therapies will still get FDA approval for a secondary indication.

To get to the combined probability of success here you multiply these probabilities. I've calculated a probability of around 76% that these drugs will all get approved and the CVR will pay out the $9 per share. Based on these odds, the expected value of the CVR is about $6.75, which is quite a bit higher than the $3 it is trading at as of the writing of this article.

I have chosen to ignore the time value of money here to simplify things. This will all be resolved before 2021, and if successful, the upside is about 125%. The expected value is about 68%. Although the outcome is binary and a 100% loss is possible, this is a very interesting security.

Disclosure: long BMYRT

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