Valuing Celgene's CVR

Posted: 8 Nov 2020

See all articles by Benjamin Esty

Benjamin Esty

Harvard Business School

Daniel Fisher

Harvard University - Business School (HBS)

Date Written: November 4, 2020


When Bristol-Myers Squibb (BMS) acquired Celgene Corporation in November 2019, the consideration paid to Celgene shareholders included 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 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. She then must decide what to do with her holding—should she sell the CVRs, hold them, or buy more?

This short case has four objectives. First, it is designed to teach basic concepts underlying DCF valuation: calculating expected cash flows and discounting them with a risk-adjusted discount rate. Second, it teaches students how to identify and incorporate two kinds of risk (systematic and unsystematic) in DCF analysis. Third, there is an opportunity to estimate a beta using regression analysis and to discuss the implications for the valuation analysis. Fourth, the case can be used to analyze the structure of and motivations for using a CVR in the acquisition of a public company. The various CVR structures discussed in the case illustrate the potential for valuation errors due to cognitive biases in assessing the probability of conjunctive events

Keywords: valuation, discounted cash flow, DCF, expected cash flow, discount rate, CAPM, systematic risk, M&A, diversifiable risk, cognitive biases, behavioral economics

JEL Classification: G34, G11, G4

Suggested Citation

Esty, Benjamin C. and Fisher, Daniel, Valuing Celgene's CVR (November 4, 2020). HBS Case No. 221031 (2020), Available at SSRN:

Benjamin C. Esty (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

Daniel Fisher

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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