IJ, you wrote regarding BMY and IMCL, that BMY will not resort to litigation because <[T]he costs of litigation, direct and indirect, would not create value for BMY. The best course for them is to work with IMCL management to create value and participate in it.> I would agree that litigation is not a slam dunk from here, but I don't think BMY just swallows all this and walks hand in hand with Sam and Harlan into the sunset. So I disagree with your premise--I think litigation--or the threat thereof--by BMY is right now at the heart of the relationship between the two companies:
I think a primary reason that we haven't heard anything out of BMY yet is that it is now, finally, engaged in a careful DD phase, to assess whether it was BMY's utter failure of DD in the first place that led to its mess of an involvement with IMCL or IMCL's misrepresentations and/or failures to disclose material information. I have a feeling it was a combination of both.
We know heads have rolled in Princeton because of this.
We know that this has been an acutely public and embarrassing fiasco for a conservative pharma (too bad it wasn't Roche).
We know that, as of 1/21, BMY's balance sheet is approx. $720 million lighter than before the IMCL investment.
We know that BMY BMY's potential legal remedies out of all this are limited because of the structure of this deal. Some on the board have spoken about rescission. There can be no rescission here as there was no issuance of stock by IMCL. Practical and legal obstacles make it highly unlikely for BMY to proceed against all the public stockholders to recoup the $70 per share it paid for their stock. It could proceed against management, but as you point out, that would contribute to gutting the vehicle in which BMY is now unhappily an investor.
We have strong reason to believe that IMCL management misled BMY, as it does not seem likely that BMY would have made the investment it did, at the price it did, at the time it did, in the manner it did, had it known of the earlier FDA letter and had it known of the way the trial was structured and documented, unless BMY's own people made some very fundamental errors. I think that BMY, at the highest levels, is now making very sure it has a credible sense of apportionment of responsibility.
Once it has done that, and assuming the above assumptions are true, I think there will be negotiations to re-apportion BMY's risks, and if those fail to proceed to BMY's satisfaction, you could very well have your suit. The damages have been too great, (presumably) the material non-disclosures too fundamental.
BMY paid up for, if not a first in class, then for a first in time EGF treatment on the market. It may now not have that--how much does that dilute the IRR BMY was expecting over the next ten years?
The interesting question in my mind is--how does management structure a remedy with BMY without diluting the public shareholders and risking amended claims in the class actions that one management misdeed leads to a "remedy", at the public shareholders' expense?
Seems as though the Waskals should take shares out of their pockets and hand them over to BMY??
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