Celgene Shoots for Moon With Juno

30 Jun 2015 | Author: | No comments yet »

Celgene Shoots for Moon With Juno.

Celgene is paying dearly to invest in Juno’s so-called CAR T-cell therapy, which aims to engineer the body’s T cells to recognize and attack cancer cells. Late yesterday, Celgene placed a big bet on a hot therapy that harnesses the immune system to fight cancer, by striking a deal with Juno Therapeutics . The deal calls for Celgene to pay $150 million for certain marketing and other rights while purchasing $846 million in newly issued stock at $93 a share, or roughly double Monday’s closing price.

Many of the large fund systems that are invested in too-good-to-be-true Puerto Rican bonds are also invested in many household biotech and pharma companies. Under terms of the agreement, Celgene will pay Juno $150 million in upfront fees, and purchase 9.1 million or $846.3 million of newly issued shares, in exchange for the certain options to market Juno’s experimental immunotherapy treatments. The deal underscores the ongoing and intense interest in immunotherapies – in this case, T cells that attack tumors for treating leukemia and other blood cancers. Add to the mix other headwinds coming out of both Europe (remember Lagarde just asked Yellen not to raise rates in a very public forum) and China’s market deterioration and consequent rate cut all indicate that we are in for some market turbulence. Executives said the pact would combine strengths of both companies to speed development of such treatments and increase their presence in the broader race to develop cancer-immunotherapy treatments. “We are now in a stronger than ever position to become a leader in the cellular immunotherapy space,” Hans Bishop, Juno’s chief executive officer, told analysts in a conference call announcing the deal. “The collaboration also brings together unique and complementary strengths that promise to create a leader in immuno-oncology more broadly.” The agreement underscores growing interest in the bioengineered T cell technologies, which ramp up the power of the cells to see and attack tumors.

Here are some of their thoughts… In an investor note, Robyn Karnauskas, a Deutsche Bank analyst, points out that Celgene has assembled an array of different types of medications for attacking cancer. But yesterday’s announcement by Celgene to invest $1 billion in Juno Therapeutics through a ten-year collaboration might just keep the biotech bull market running for a bit longer. Juno, based in Seattle, was launched just 19 months ago based on discoveries by scientists at Fred Hutchinson Cancer Research, Memorial Sloan Kettering Cancer Center and the Seattle Children’s Research Institute. Meanwhile, other companies such as European giant Novartis AG NVS -0.32 % and the upstart Kite Pharma KITE 3.93 % are racing to develop competing treatments. This places the biotech in a unique and enviable position, analysts say. “Celgene has many critical technologies in its arsenal,” she writes. “While it may be hard to model the precise revenue streams that will come out of the Juno deal, the best way to think about it is that Celgene will have a big stake in the blood cancer space well beyond” the 2027 patent expiration for Revlimid in the U.S.

Juno Therapeutics Inc. executives, employees, and their families gather for a photograph during the company’s initial public offering at the Nasdaq MarketSite in New York, U.S., on Friday, Dec. 19, 2014. No such drug is approved for sale yet, but in small clinical trials the approach has led to some substantial remissions among patients with various blood cancers. “Celgene is the ideal partner for Juno to help us realize the full potential of our science and clinical research while maintaining the independence we, our employees, partners and investors believe is so critical for true innovation,” Hans Bishop, the chief executive of Juno, said in a statement.

Celgene’s management are to be congratulated on the audacity of their deal making, but we expect investors to bridle at the company’s increasingly aggressive front-end loading of their transactions. UBS Securities analyst Matthew Roden, meanwhile, was somewhat circumspect. “If the programs fail and Juno loses value, it will have been an expensive experiment,” he writes in his investor note. “Big picture: we like the investment in innovative programs to drive long-term growth, though it will take time for the fundamentals to play out.” A key issue that some Wall Street analysts are raising is the structure of the deal. It is also known for entering into what some analysts see as generous deals with smaller companies for new drugs and technology, giving it access to a wide variety of potential approaches to treating cancer.

Blue/Bloomberg Celgene is simultaneously being criticized by some and lauded by others for its decision to lock up the technology at early stage immunotherapy company Juno Therapeutics, but the deal is in Celgene’s best interest. Front end loading such terms defy good judgment in an industry known for its development failures and technological disappointments; CAR T has yet to be proven beyond the relatively narrow CD19 B cell malignancy arena and the clinical utility of the increasingly commonly pursued TCR technology alternative has not been proven.

He also opines that combining a checkpoint inhibitor with a CAR-T cell treatment, which is what Juno brings to the table, could be a “match made in heaven.” In general, he adds, more medicines also means more “shots on goal… but whether they have the same ability to convert shots to goals is an open question. It remains possible that alternative approaches (such as the NIH’s individualized T cell therapy or off-the-shelf bispecific antibodies) could be more effective or easier to use than allogeneic T cell approaches.

Speed and decisiveness in development have not been Celgene’s hallmark.” Overall, he remains skeptical the deal will be embraced. “Normally, we would evaluate programs such as this based on the product’s profile, time to market, relative competitive position, likely patient demand, pricing and profitability. But like so many biotech deals lately such discipline seems pointless. “We have very little idea about the ultimate product profile for Juno’s CAR-T program, or about the treatment’s efficacy, pricing or value proposition or competitive position or even addressable patient population.

With several companies in the CAR-T space, including Kite Pharma and bluebird bio, any one of these companies could rise to threaten Celgene’s franchise, including Juno Therapeutics. If one views the nearly 100% premium being paid for JUNO’s stock as a form of upfront payment, then Celgene is essentially paying ~$577MM (~$427MM in stock premium + $150MM in cash) to Juno while buying 10% of Juno’s stock at market price.

Given that Juno featured a ~$4B valuation (before the deal), and that Celgene’s ex-U.S. rights might represent ~50% of the WW value associated this pipeline, then Celgene’s payment does not appear particularly aggressive. Celgene, based in Summit, N.J., has been on a deal-making spree in recent years as the threat of generic competition to its biggest drug by revenue, Revlimid, has loomed larger. Meanwhile, Celgene (1) could also enter a global profit sharing arrangement on up to three other candidates originating at Juno, (2) gains the right to nominate a Juno Board member, and (3) can increase its ownership to 30% by buying shares at a premium. Rather than acquiring companies and potentially disrupting their discovery ecosystems, Celgene often makes investments in private or public companies through collaborations, thereby allowing teams to continue their work adequately resourced. Celgene derived nearly a third of its $7.67 billion in global sales last year from Revlimid, a blood-cancer treatment whose patents are being challenged by generic drug makers.

As threats to Revlimid have grown, Celgene has undertaken an aggressive research and development strategy, entering partnerships with companies including Bluebird Bio Inc. and Agios Pharmaceuticals Inc., that have expertise in promising, if risky areas of biotechnology. Juno is up almost 57% since the company went public in December, dramatically beating the 15% gain by the Nasdaq Biotechnology Index during the same time span. In exchange, Celgene receives the added benefit of maintaining its core focus and keeping its balance sheets as lean as is possible for a $90 billion market company. By lending these companies its name and cash resources, banks and investors had a great deal more confidence entering into transactions with the Celgene targets.

Had Celgene simply acquired these companies outright, it would have caused delays in programs, distracted both Celgene and the target companies, and bogged down Celgene’s financials. Some analysts have said that investors have become overly enthusiastic about engineered T cells, given that the therapies can have severe side effects. Of course there are control considerations implicit in the deal with Celgene and there is the need for Juno shareholders to perceive this as a truly meaningful, if not transformative, deal. What’s more likely to happen is a feeding frenzy as companies rush to announce partnerships with the first CAR-T immunotherapy company they meet who will accept a term sheet. Those shaking their heads at Celgene know that while Juno’s technology has shown incredible promise, there’s always the potential for a disproportionate amount of risk to reward in the biotech space.

Celgene is not known for being hostile in its business development pursuits, and the management and shareholders of a company like Juno would be unwilling to sell the company at $45 or even $85 a share given the valuations and stock price of many of its peers. By now Celgene has looked at hundreds of immune oncology plays from around the world, and it seems to have found what it wants in Juno, at least for now.

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