Sanofi / Genzyme Contingent Value Rights (GCVRZ)

See a different writeup on GCVRZ here for some background:

In my opinion, they are only slightly undervalued (maybe 20-30% at $1.03/CVR) and here’s why.

Drug potential

Now that the first set of phase III trial results are in, it seems that:


Efficacy better than the traditional CRABs/ABCRs for relapses. (The phase III trial only compared efficacy to Rebif.  But it is likely that doctors and patients will extrapolate.)

?Efficacy only slightly better in terms of disability.  However, the phase III results weren’t great as this was not statistically significant.

Arguably more convenient that most other treatments on the market.  You have to sit in a hospital for 5 days while on all sorts of drugs (with a small chance of being well enough during the infusions to be able to go home).  This may not be so bad compared to constant injections with Rebif, monthly injections with Tysabri, etc.


One person died during phase II trials from ITP.  This will be a huge cloud over this drug.

Major side effects… a chance of developing thyroid problems / Grave’s disease (treatable) and a heightened chance of developing ITP.  While ITP is treatable in theory, its mortality rate is not zero (e.g. as demonstrated in the phase II trials).

So here’s my quick analysis of the drug.  Its efficacy and mortality rate is similar to that of Tysabri.  In the initial phases, I feel that doctors and patients will rate Tysabri as safer because it has been around longer and therefore the long-term effects are better understood.  Over time, the tide will likely shift the other way as ITP is better understood than dying from PML with Tysabri (there is no cure for PML…).  So I make the simplifying assumption that Lemtrada will perform similar to Tysabri.

Tysabri is on track to doing about $1.3billion/year sales 7 years after its FDA approval.  If Lemtrada performs similarly to Tysabri, then it has a chance of hitting the $3 sales milestone of >$1.8billion sales after you figure in inflation.  It has an EXTREMELY low chance of hitting the $2 sales milestone of $400million sales during the launch year(s).  Tysabri never had sales that were that strong during its launch phase (and was even pulled off the market due to safety concerns over PML).  Sanofi may also have an incentive to sabotage/defer/stop sales during this initial period to avoid paying the $2/CVR.

Of course, it is likely that Lemtrada and Tysabri will split some of its market share as they are similar in risk/benefit.  So I wouldn’t count on the $3 milestone as being a sure thing.

Another way of looking at it is to realize that the payouts are rather lofty goals in the context of the drug industry.  A blockbuster drug is defined as one that makes $1billion/yr in sales.  Tysabri took several years to reach that point.  And the drug industry is having a very difficult time cranking out blockbuster drugs.

Bottom Line

At this point, I would say that analyzing future sales of Lemtrada is very hard.  I’m not that smart.  But I don’t see a margin of safety here.  FDA approval at 90% probability gives almost 90 cents of value.  The $3 sales milestone will take several years to materialize and its present value is worth tens of cents depending on what probability and discount rate you use.  But how much do I really know about pharmaceuticals?  In my opinion, these rights are easier to evaluate than a pharmaceutical company.  This market doesn’t look that inefficient.

Other factors

– Devaluation of the US dollar is slightly favorable for CVR holders.  Of course, this is a two steps forwards one step back kind of thing.  While the higher payoffs are easy to trigger, you will receive US dollars that aren’t worth a lot.

– Lemtrada is not cheap.  Some think that the treatment will be $60k.  Most people simply cannot afford this without health insurance.  Future changes to the health insurance industry may help or hurt sales of Lemtrada.  I don’t understand the industry well enough to know what will happen.

– I could be understating the potential of Lemtrada???  Maybe it is God’s gift to MS sufferers that cures the disease and reverses its effects, as Genzyme’s pre-marketing efforts would like you to believe.

– To be fair, a comparison to Tysabri may not be a great idea as doctors have to weed out patients who are susceptible to PML.  As well, you can only get Tysabri from a doctor who are part of its restricted distribution program (again, so people won’t die from PML).

– Sanofi is allowed to repurchase these rights.  After 2014, it can force all rights holders to sell their rights if they under $0.45 for a period of time.  This could be unfairly used against rights holders???

– Tax treatment is uncertain.

One thought on “Sanofi / Genzyme Contingent Value Rights (GCVRZ)

  1. Pingback: Genzyme contingent value rights (GCVRZ) post mortem | Glenn Chan's Random Notes on Investing

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