Holding a contingent value right in uncertain times

Funds holding the contingent value right Bristol-Myers Squibb issued to Celgene holders probably have more pressing things to worry about at present, but yesterday brought a reminder. US approval of ozanimod means that one of three conditions necessary for this instrument to pay out has now been met.

With Bluebird Bio claiming that its ide-cel filing remains on track, and liso-cel having secured US priority review, hitting the jackpot might seem assured. So is the fact that the CVR still trades at barely 30% of its payout value down to the risk of the Covid-19 pandemic derailing the FDA review process?

Maybe. However, the CVR has been trading at depressed levels ever since it was issued when Bristol completed the Celgene acquisition, at least partly on account of the appalling track record previous securities of this type have had.

Another factor is that many of the funds now holding the CVR are generalist in nature, having earlier held Celgene among other big caps rather than as a specific biopharma investment. It is possible that many are unfamiliar with the nuances of the underpinning drug development and regulatory processes.

Three-horse accumulator

The CVRs were issued as part of the payment Celgene holders got for their company’s buyout by Bristol. Each of these tradeable securities will pay $9 only if liso-cel and ozanimod, now called Zeposia, get US approval by the end of this year, and ide-cel by the end of March 2021.

Liso-cel always looked like the riskiest bet, given that until last December the final update of its pivotal trial had not even been reported, let alone a filing made. But things moved quickly, and the project was filed last year and secured priority review in February (Ash 2019 – former Celgene holders look anxiously at contingent value, December 8, 2019).

Priority review seemed generous, given that two other Car-T treatments, Kymriah and Yescarta, were already available for lymphoma, the indication sought. Be that as it may, the accolade resulted in a speedy FDA action date of August 17.

Ide-cel looks to target a more unmet need, third/fourth-line multiple myeloma, so looks virtually assured to get priority review. However, it trails liso-cel in development, so whether Bristol/Bluebird would get it filed on schedule in the first half had been up in the air given the coronoavirus pandemic.

On track?

Yesterday, however, Bluebird updated the markets, saying plans to submit the BLA remained “on track”, though there would be delays to other key projects. Thus the question now, for liso-cel and ide-cel alike, is whether the US agency will be able to complete site inspections and do the necessary admin, including holding any advisory panels, in light of the Covid-19 lockdown.

If the FDA has not yet carried out its inspection of liso-cel’s manufacturing plant in Bothell, Washington, there is at least a three-month cushion between the Pdufa date and the CVR deadline. One consideration is that Seattle is currently an epicentre of the coronavirus pandemic.

Ide-cel’s Summit, New Jersey, manufacturing inspection is important, but the project must first be filed. The March 2021 CVR deadline means that a BLA could be accepted as late as September for priority review approval to still be on the cards, but the FDA’s ability to act will depend on the state of the pandemic at the mid-year, which can only be guessed at.

It will not be forgotten that Bristol, the party paying out, is largely in control of timelines, and retains the right to buy back the CVR at any time. Of course there is no suggestion that it will game the system, and the SEC is there to prevent this from happening.

But the combined uncertainty will weigh heavy, and beyond short-term price fluctuation the CVR looks likely to remain depressed.