Publications
Publications
- November 2020
- HBS Case Collection
Valuing Celgene's CVR
By: Benjamin C. Esty and Daniel Fisher
Abstract
When Bristol-Myers Squibb (BMS) acquired Celgene Corporation in November 2019, Celgene shareholders received cash, BMS stock, and a contingent value right (CVRs) that would pay $9 if the U.S. Food and Drug Administration (FDA) approved three of Celgene’s late stage drugs by March 31, 2021. Akari Tanaka, a portfolio manager at Kendall Square Advisors, held 400,000 CVRs in her $1.2 billion Health Science Opportunities Fund, and must decide what to do with this holding given the rising concerns about the coronavirus pandemic in early 2020. The tradable CVR’s peaked at $3.70 in mid-February, fell to a low of $2.15 in mid-March, and were currently trading at just under $3.00 in late March. As part of her decision, Tanaka must value the CVRs using discounted cash flow (DCF) analysis which required an estimate of the expected cash flow and a risk-adjusted discount rate. Given this analysis, she must then decide what to do with her holding—should she sell the CVRs, hold them, or buy more?
Keywords
Mergers and Acquisitions; Value; Valuation; Judgments; Decision Making; Cash Flow; Financial Instruments; Cognition and Thinking; Pharmaceutical Industry; Biotechnology Industry; United States
Citation
Esty, Benjamin C., and Daniel Fisher. "Valuing Celgene's CVR." Harvard Business School Spreadsheet Supplement 221-705, November 2020.