Bristol Myers dodges one $6.4B Celgene buyout CVR suit, but the battle is far from over

Did Bristol Myers Squibb deliberately drag its feet with Breyanzi’s FDA application to avoid paying former Celgene shareholders $6.4 billion? A federal judge found no proof of that intent.

U.S. District Judge Jesse Furman on Wednesday dismissed a lawsuit that accused BMS of lying about getting CAR-T therapy Breyanzi a timely FDA approval, which would have enabled a $6.4 billion payout to investors.

But as Mizuho analyst Salim Syed pointed out in a Thursday note, BMS’ legal battle around the contingent value rights is far from over.

The current case, No. 21-08255 in New York, can be traced back to BMS’ $74 billion Celgene acquisition in 2019. At that time, BMS promised then-Celgene shareholders an additional $9 per Celgene share if three late-stage drugs won FDA approvals on time.

One of the conditions required that Breyanzi, or liso-cel, get its FDA go-ahead in lymphoma by the end of 2020. But the actual green light arrived in February 2021 after BMS and its manufacturing contractor Lonza messed up preapproval inspections.

The fraud claims were brought by CVR holders under the U.S. securities laws, alleging that BMS made false statements as the company “slow-rolled the liso-cel approval process” so it could avoid the $6.4 billion CVR payout.

But Furman found that the plaintiffs failed to provide strong enough evidence of “conscious misbehavior or recklessness” to show BMS’ “intention” to deceive. The plaintiffs brought up 10 alleged missteps BMS made during Breyanzi’s approval process, arguing that these events couldn’t have all happened accidentally in the same direction of delaying FDA’s decision.

But Furman said the plaintiffs are missing the point. “[T]he relevant question is whether the allegations in the complaint support an inference that the executive defendants knew (or should have known) of the alleged missteps,” Furman wrote in an opinion. “They do not.” The plaintiffs don’t have one single instance in that area, Furman noted.

BMS may breathe a sigh of relief for now. But, as Mizuho’s Syed noted, Furman has given the plaintiffs a chance to amend their claims to address the deficiencies. They can file a revised complaint within 30 days of Furman’s order.

A more palpable threat to BMS, according to Syed, is a separate case, No. 21-04897. Rather than relying on the securities law’s false claims clause, the second case alleges breach of contract. Specifically, that plaintiff—the CVRs’ trustee—doesn’t need to show fraud but only needs to provide evidence on whether BMS fulfilled its contract obligation and made “diligent efforts” to meet the three drug approval milestones laid out in the CVR agreement, Syed said.

The 21-04897 case has moved forward into the fact-finding phase after the judge in June denied BMS’ motion to dismiss. The two cases are very different and don’t affect each other, he said.

Losing the contract breach suit could cost BMS around $8 billion to $9 billion after adding more damages and interest, Syed said in an email response to Fierce Pharma. But he argued the two sides will likely settle. Although the CVRs could have yielded $9 per share, the average cost to their final holders were about $2 apiece, and these securities never traded above around $4.5, Syed noted. 

“So so there should be plenty of room here for both sides to make peace in the range,” Syed said. For the CVR investors, they could break even or get a profit; and for BMS, settling the case could help the company avoid paying out a larger sum of money and could “free up fiscal, mental and operational real estate.”

CVRs have regained popularity in biopharma mergers and acquisitions lately. Most recently, Ipsen’s deal for Albireo Pharma includes a $10-apiece CVR tied to the FDA approval of Bylvay in biliary atresia by the end of 2027. AstraZeneca’s $1.3 billion buyout of CinCor this year also includes a $10-per-share CVR, which is payable upon a regulatory submission of a baxdrostat product.

Editor's Note: The story has been updated with additional comments from Mizuho analyst Salim Syed.