Why Juno Therapeutics Stock Fell Last Week

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Juno Therapeutics (NASDAQ: JUNO) reported some pretty good data at last week's American Society of Hematology conference, but the stock bombed shortly after.

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In this clip from Industry Focus: Healthcare, analyst Kristine Harjes and contributor Todd Campbell explain why, and whether or not investors might want to see this as a buying opportunity. Find out how Juno's non-Hodgkin lymphoma drug is different form the current standard of care, and why it's so exciting for patients; what about the relatively good data has investors so nervous; why performing these trials is getting more and more expensive and difficult; why investors don't want to count Juno out just yet; and more.

A full transcript follows the video.

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This video was recorded on Dec. 13, 2017.

Kristine Harjes: Let's keep talking CAR-T. I want to talk about one of my favorite companies, which is Juno Therapeutics. They did not have too great of a week, if you were to look at their stock chart, anyway.

Todd Campbell: We just talked about bluebird bio (NASDAQ: BLUE) and how they reported this gangbusters data, and shares went soaring. This was the opposite scenario. You had what I view to be pretty darn good results that were presented by Juno for its CAR-T in non-Hodgkin's lymphoma. Yet investors just crushed the stock and sent it crumbling lower. I think it's important for us to talk about this situation for people coming out of ASH, because they may be scratching their heads and wondering what's going on here. Is the data good or is the data not good, and what does this really mean for Juno?

Harjes: The drug in question is JCAR017, which is a little bit behind its competitors -- [laughs] a good bit behind its competitors -- in terms of how close it is to market. For reference, you have approved drugs Yescarta and Kymriah working in a similar space, they're already out there and approved and being marketed, whereas 017 is not quite there yet. Juno reported that 50% of patients at the six-month mark in their trials were in complete response to the drug, and they reported there was far better safety than you saw in the trials for Yescarta and Kymriah. But I think the reaction that the market had to the news really has everything to do with how high expectations were. There were rumors of a response rate as high as 70%. So, even though these numbers look fairly good and very comparable to those numbers for efficacy for Yescarta and Kymriah, and better on the safety front, I think there's a lot of nervousness and unease that that's not going to be good enough to differentiate this drug.

Campbell: Yeah. We had a complete response rate for patients with advanced non-Hodgkin's lymphoma 50% at the six-month mark. What was interesting to me was you had 80% of the patients that were in complete response at the three-month mark were still in complete response at the six-month mark. Then, from the six-month mark to the data cutoff for the presentation, 92% remained in complete response. So, we're talking a pretty good, durable response to JCAR017. And if you look at how that matches up to Yescarta, which, again, is already approved in this patient population, and Kymriah, which has a pending application -- most people assume that's going to get approved in this indication -- if you look at how that matches up on an efficacy standpoint, it's pretty solid. You get 30%-40% complete response rates over a six-month period or so out of both of those drugs. So, the question then becomes, if you didn't have as big of a separation as maybe the whisper number out there was in response rates, is the safety advantage going to be enough to convince doctors to use JCAR017 vs. a Yescarta or a Kymriah in these patients? That's really what it's going to come down to if this drug does eventually make it to market. It's going to become: OK, I can get solid efficacy out of these three CAR-Ts, but is one of these safer for my patients to use than another one? In my view, the data that was presented on JCAR017 says yes. It does appear safer. There was a very low occurrence rate of neurotoxicity and cytokine release syndrome, which are two severe adverse events that have, I don't want to say plagued, but are much more common in the trials for Yescarta and Kymriah. So, I think that if this drug does make it across the finish line, it can indeed carve out a fairly substantial pool of the money. But I guess the end result here is, after looking at the data, there were some question marks about how much of a slam dunk it could be if it gets to market. And because of that, and the market hating uncertainty, you had a lot of "sell the news." Buy ahead of it, high expectations, report comes out, people sell it and move on to the next idea.

Harjes: I agree with you, but I think there are two more things that are making investors kind of nervous here. One is, there have been some accusations that Juno enrolled healthier patients in its trials than its competitors did, which of course the company says is not the case. The other point is there is a renewed concern that the viral-vector supply could be limited. This is a key component to how gene therapies work. Each virus must be custom-made for the treatment. Essentially how it works is that you input the working gene into an inactive virus and then give it to the patient in hopes that the working gene will start to produce whatever the protein is missing or start to make up for the faulty gene in the patient. But the virus is absolutely essential to this process. And it turns out that very few companies have both the facilities and the expertise to make them, particularly given the huge demand because of this surge in gene-therapy research. For example, Novartis signed a contract years ago with Oxford BioMedica just to give them the right to get these viruses for their gene-therapy research. It ended up giving Oxford Biomedica around $200 million plus royalties. And that's for a treatment that only a few hundred patients will receive. So, this is a really competitive market that, honestly, I just recently learned about the shortage and demand here. I find it fascinating.

Campbell: Yeah. The level of research and development activity going on right now in gene therapy is very much so straining the availability of these viral vectors. You have a few different viruses that are inactivated that are ideal candidates for use in gene therapy. And like you mentioned, there aren't very many companies that go out there and do it. All of these companies are taking a different approach. If you Google "viral vector Todd Campbell Motley Fool," you'll find an article that I put out there maybe two weeks ago on this subject, and it will go into a lot more depth than we can give on the show. But I guess the takeaway here is, companies are taking different approaches to try to lock up that supply, because the last thing you want is a ton of demand and not being able to produce enough of these gene therapies to be able to address all the patients that you need to be able to address. So, you have a company like bluebird bio, for example, recently buying their own manufacturing plant -- they're going to try to bring their own vital production in-house. Juno is still contracting for its viral vectors. It's obviously in tight supply, which means that these producers of viral vectors have pricing power have some pricing power, they can negotiate some good deals, like the one that you just mentioned with Novartis and Kymriah. And that can obviously be costly to these companies. So, that's something that, you're right, it's a really fascinating and interesting unintended consequence. Eventually, we'll have plenty of manufacturing to handle all of this. But for now, it is a little bit capacity constrained. The other thing I think people should know about Juno's program, the JCAR program, is that it's also partnered up with Celgene (NASDAQ: CELG). So, Celgene has the partnership with bluebird bio and bb2121 that we just talked about, it also has the ex-North America and China rights on JCAR017. So, if this drug does make it to market -- and again, we're thinking this could come to market in 2019 -- then Juno will benefit in North America, and it'll collect royalties from Celgene on ex-U.S. sales.

Harjes: I would love to be Celgene just sitting back and enjoying this conference, watching all of your partners present their data. Maybe you're a little bit nervous because you do get the volatility that we've seen. But I feel like, on the whole, they're just sitting back like, "yeah, we have the best partnerships out there," and these companies are absolutely killing it.

Campbell: Yeah. And it shouldn't be ignored, either, Kristine, we should probably throw this out, too, that Celgene just recently upped their position -- they own about 10% of Juno's stock. So, Celgene will benefit somewhat from the North American sales, just from their investment in the company. Of course, that raises all sorts of questions. Could Juno go out and buy -- whatever. We don't know, those are all just rumors and speculation.

Kristine Harjes owns shares of Juno Therapeutics. Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Bluebird Bio and Celgene. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.