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Despite Celgene's Abraxane Stock, Trading Earn-Outs Is The Exception Not The Rule

Executive Summary

Though Abraxane (paclitaxel) is now part of Celgene Corp.'s growing oncology portfolio, you don't need Celgene stock to invest in its newest product, a reformulation of the generic chemotherapy that's approved to treat metastatic breast cancer. As part of Celgene's cash-and-stock $2.9 billion acquisition of Abraxis BioScience Inc. Celgene deferred at least $650 million in potential payments to Abraxis shareholders, plus royalty payments tied to Abraxane sales. Unlike most earn-out-laden deals, however, the contingency value rights, or CVRs, for the earn-outs have been securitized and now trade under the ticker CELGZ. Despite potential advantages - tradeable CVRs let shareholders bet on the success or failure of specific assets, for instance - these investment vehicles are still a rarity in the marketplace.

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