BMY RTs – Update on December 7, 2019


Why the BMY RT CVR’s traded up 10% in the after-hours on Friday, December 6 and why I expect them to be materially higher by the COB on Monday, December 9

Friday after the close, Bristol-Myers announced very positive results for its Phase 2 KarMMa study of ide-cel (aka bb2121) in relapsed and refractory multiple myeloma. This announcement has highly positive implications for the BMY-RT CVRs as bb2121 is one of the critical drug approvals required for the CVRs to payout. In terms of background on bb2121, the drug is a jointly developed (between Bristol/Celgene and Bluebird Bio) CAR-T (targeted chimeric antigen receptor) biologic. CAR-T’s are an exciting area of discovery and development in the cancer world as they have proved incredibly effective in stopping or even curing the poor prognosis cancer patients they have targeted with, typically, a single, very expensive, treatment. The two approved CAR-Ts currently on the market are Novartis’s Kymriah (for Acute Lymphoblastic Leukemia (ALL) and Large B-Cell Lymphoma) and Gilead’s Yescarta (for certain types of non-Hodgkin lymphoma and certain types of large B-cell Lymphoma).

To date every CAR-T that has submitted to the FDA (the two highlighted above) has not only been approved, but been approved on a highly accelerated basis. Typically, because these CAR-Ts are so effective and dealing with conditions with such poor prognoses, they are afforded an accelerated path through the FDA. The following table highlights the path to approval for Kymriah and Yescarta (and the estimated timeline for Ide-cel).
*Likely in FTIA’s estimates

So as highlighted above, while it’s typical for most drugs to have to go through successful Phase 3 trials to be eligible for FDA approval, that has decidedly not been the case for CAR-T’s to date due to their impressive efficacy and, again, the poor prognosis for those intended for the CAR-T therapy. Not only has impressive Phase 2 data been sufficient for CAR-T drug approvals, the FDA in each instance to date has granted priority review which meaingfully accelerates the review period by the end of which approval may be granted.

Based on the efficacy of the data announced on Friday as well as the fact that ide-cel is focused on previously highly treated relapsed and refractory (i.e. stubborn, unresponsive, intractable) multiple myeloma (not a me two CAR-T focuse on large B- cell Lymphoma), I believe the likelihood of a speedy FDA approval is very high (90%+).

Based on all the above, Friday’s announcement is very positive for the underyling value of BMY’s CVR’s on two primary accounts: 1) I believe it materially increases the likelihood of ide-cel’s FDA approval and 2) it effectively accelerates the likely payout date of the BMY CVR’s to YE 2020 from March 31, 2021. In terms of the likelihood of approval, I believe, again, it goes to over 90%+. As points of reference, in Mizuho’s most recent report prior to this BMS announcement they estimated a 68% likelihood of approval, In Gabelli’s initiation on the CVR’s they also put a 68% likelihood of FDA approval of ide-cel within its required “approval by” date.. In terms of how this pulls in the CVR payout timeline, if ide-cel follows a similar timeline to the other previously approved CAR-Ts, the market will learn of Ide-cel’s approval by Q4 next year and both the other drugs underyling the CVR must be approved by 12/31/20. So effiectively, we’ll know by December 31, 2020 whether these CVR’s payout.

In my initiation report on these CVRs, I highlighted that within the next, now, 3.5 months we would likely be materially de-risking these CVRs by an Ozanimod approval, a JCAR017 NDA filing and a likely FDA acceptance of that NDA filing. I submit that to that list of milestones we can now add the likely filing and acceptance by the FDA for priority review (by March end) ide-cel for relapsed and refractory multiple myeloma.

How all of the above impacts both the current and end of March warranted values for these CVRs is highlighted below and on the following page:

Few other relevant notes.

Ide-cel/bb2121 related – in both the cases for Novartis’s Kymriah and Gilead/Kite Pharma’s Yescarta, with the announcements of their strong Phase 2 data, both companies explicitly indicated that they would be filing for FDA approval in the coming months. While not as explicit, language in Bristol’s Friday announcement suggests that a filing in the next couple months is likely. Bristol states “we are actively preparing for submission of these data to Health Authorities for proposed initial registration of ide-cel as a first-in-class BCMA targeted CAR T cell therapy . . . with these data in hand, bluebird bio and Bristol-Myers Squibb remain fully focused on advancing ide-cel asa quickly as possible for patients in late-line myeloma.”

It also needs to be recognized that ide-cel/bb2121 is highly, strategically important for Bristol. The top drug Bristol gained with its Celgene acquisition was Revlimid which is a $10bn+ revenues drug focused, primarily, on multiple myeloma. Ide-cel/bb2121 is focused on multiple myeloma. Given the upcoming generic competition issues for Revlimid, Bristol is highly motivated to have ide-cel hit the market as soon as possible to gain scale and market acceptance in advance of Revlimid’s loss of exclusivity.

ASH (American Society of Hematology) related – Bristol has an investor event tommorrow night (Sunday, December 8 at 8pm) at the ASH conference. This will be the first time since the close of the Celgene acquisition that Bristol will be meeting with investors in a public forum and material information regarding JCAR017 filing and the recent ide-cel news may be discussed. If Bristol wishes to be able to conduct open market repurchases of these CVRs as a) they are very cheap vs. their warranted value and b) to mitigate the seemingly increasing likelihood that they could pay out at $9 vs. their current $2.65 price, it will effectively berequired by Bristol to disclose all relevant information they have on anticipated filing dates for JCAR017 and ide-cel. That investor presentation could be highly relevant to how these CVRs trade on Monday.


It was at ASH three years ago that Phase 2 data was released by Novartis and Kite Pharma for their respective CAR-T therapies that led to their late Summer and early Fall approvals by the FDA. Friday’s announcement by Bristol-Myers with regards to ide- cel/bb2121 sets that drug up for a similar accelerated approval sometime in the second half of 2020. While that news is broadly positive for Bristol-Myers and Bluebird Bio’s respective stocks, the security that should provide the most torque related to that news is the BMY-RT CVRs.

Based on a likely accelerated timeline over what was originally anticipated for the CVR payout as well as a higher likelihood of that payout coming about, I’m increasing the target price for the CVR’s to $5.25 from $4.20 by end of March 2020. I’m also taking my warranted price for the CVR’s as of today to ~$4.50 from ~$3.25. I arrive at these warranted prices by taking a <10% haircut to the probability adjusted, warranted, discounted back values calculated on pp. 2-3 of this update.

While the CVR’s popped 10% in the after-hours on Friday, absent something negative coming out of the ASH investor event on Sunday, December 8, I wouldn’t be surprised if the CVR’s were trading materially higher by COB on Monday. That ASH investor event will be webcast btw. For those following this situation, it’s a must listen.

Disclaimers: All information gathered from sources believed to be accurate, but the accuracy of the information cannot be guaranteed. Past performance is no indication of future results. A number of points made in this update are a matter of opinion and opinion is subject to change without notice.