Five Weeks That Cost Billions -By Fransiscus Nanga Roka

It is five weeks that can separate scientific delay from corporate calculation in the pharmaceutical business.

This is why application of a $6.7 billion lawsuit against Bristol Myers Squibb, measure by the US Court of Appeals for the Second Circuit in Manhattan, through the sector more than one merger dispute. It begs a painful question: if a company saves billions of dollars because the deadline slips, was that merely bad luck or is it how they do business?

Class action: Former Celgene stockholders thru UMB Bank, as trustee v. Bristol Myers Squibb, which acquired Celgene in a stunning $80.3 billion transaction: 2019 U.S. District Court for the District of Delaware; case number 1:22-cv-01651

As a result of that takeover, Celgene holders received Contingent Value Rights (also known as CVRs) with a pledge for an additional $9 per share should three drugs be granted FDA approval prior to December 31, 2020: Ozanimod (brand-name pending), Ide-cel (Abecma) and Liso-cel now branded as Breyanzi. Two made it. Breyanzi did not. On February 5, 2021, FDA approved it. The deadline expired. The payout vanished.

In federal court in Manhattan. The original case was dismissed in September 2024 by Judge Jesse Furman on a technical standing point, asserting UMB Bank had not been correctly appointed pursuant to the CVR agreement. The appeals court has now unanimously overturned that dismissal, ruling Bristol Myers did not have its working ability misled or impeded by UMB. The case is back.

A missed deadline, and instead of generating huge investments to be used as a springboard into outer space, billions saved by the (new) buyer and billions lost to the ex-owners of the acquired company. Such a large contract does not end up collapsing into symbolism. Race against the clock: When the acquirer controls time, merger promises become a test of corporate governance.

And because the theory of shareholders is not that Bristol Myers just lost. It is that the company has acted in bad faith by purportedly slow rolling steps regarding the approval of Breyanzi. On deteriorating inspection practices at manufacturing facilities, Reuters also reported following FDA approvals. So there is no clear evidence of deliberate delay. However, it does put the conduct, culture and incentives of the company itself front and center in the case.

After all, that’s what CVRs are meant for right, erasing uncertainty in the world of high-stakes biotech transactions. If an acquirer can control post-merger development, miss a deadline, dodge a billion-dollar payout and then hide behind technical defenses to escape enforcement of that promise what the CVR is left with is no longer contingency value, but contingent illusion.

At this stage, however, it is not definitive evidence of price manipulation by Bristol Myers. But the resurrected lawsuit removes the most convenient shield: procedure. The merits now matter.

Three strategic recommendations are urgent:

First, courts need to enforce good faith obligations at least as rigorously in merger earnouts and CVRs as they do the text of the contract itself.

Second, regulators should impose post-merger transparency on milestone drugs from MergerCo with respect to manufacturing readiness, any communication from the FDA with respect to the drug and production delays that flood contingent payments.

Third, boards and investors should insist on independent oversight when any of management controls both the execution of any regulation that has a deadline and the financial benefit for missing that date.

The question now is as simple and agonising as it can get: did Bristol Myers lose a race with time or win one against its own investors?

Fransiscus Nanga Roka

Faculty of Law University 17 August 1945 Surabaya and Managing Partner Law Firm Victorious Indonesia