Gilead Sciences (NASDAQ: GILD) recently acquired Kite Pharma (NASDAQ: KITE), but that doesn't mean an acquisition of Juno Therapeutics (NASDAQ: JUNO) is off the table. Juno Therapeutics' next-generation CAR-T, JCAR017, could wind up being safer than its competitors' offerings, and if it is, then M&A could be in its future, too.
In this clip from the Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell discuss what's at stake for Juno Therapeutics and its investors.
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A full transcript follows the video.
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This video was recorded on Sept. 6, 2017.
Kristine Harjes: One place where there's been a ton of hype around potential acquisitions is none other than the CAR-T space. As a refresher, Kite Pharma, as I mentioned earlier, was bought by Gilead Sciences. It's a CAR-T cancer drug developer. On Kite's acquisition, a bunch of the other CAR-T developers also had their share prices pop, which to me is very indicative that people think that some of these other smaller players might also get acquired.
Todd Campbell: Yeah, that move up in Juno was pretty insane, wasn't it, Kristine?
Harjes: Yeah, I was pretty happy to see it. A long time ago, I realize I probably should have had my money in Kite instead of Juno, but I'm still sitting on my Juno shares. I was definitely a happy camper that day.
Campbell: Yeah, I think we got, what, a 40% move up in the span of a couple of days? Obviously, investors were extrapolating, "If Novartis gets their CAR-T approved, and Kite theoretically gets its approved in November, and Gilead just spent all this money acquiring Kite to be able to get that upside, and then Juno, Juno has these CAR-T drugs, too, and maybe those drugs will be even better. So perhaps I should get involved with that!"
Harjes: Yeah. I think there are a couple of different ways people might be looking at this. The first is, Gilead might not be finished buying CAR-T developers. I think there are some people out there who look at Gilead's strategy here and say, "They're not done; they don't want just Kite. They want to build an entire oncology franchise built around cellular therapy," which is exactly what you heard John Milligan say on the conference call regarding the Kite acquisition, that they're looking to do this, to see other companies they could fold in and augment what they've already built by buying Kite. So this is that string-of-pearls acquisition technique, where, instead of making one enormous splashy purchase, you can tuck in a couple of companies here and there, and they definitely have the money to do that. And on the other side of that coin, you could also have speculation that someone else is going to buy Juno. I'm not sure who exactly that would be, but it could be Celgene.
Campbell: I'll throw a name in the mix there, Kristine.
Harjes: Who are you going to throw?
Campbell: I'll say Celgene.
Harjes: Yep. [laughs]
Campbell: Why not?
Harjes: They've already been looking at Juno in terms of partnerships.
Campbell: Oh, absolutely! Correct me if I'm wrong, but they took a stake in it previously when it inked its deal on CAR-T development. I think Celgene has shown that it loves to tie itself to the wagon of emerging biotechnology. They don't have an internal CAR-T option. They do have some collaborations, one with bluebird bio, which was another stock that rallied significantly following the news on Kite. We've discussed that one on the show previously. So they've got a couple of deals externally for CAR-T, but they don't have anything internally. And since they've already shown that they want to be a major player in cancer, you could see that as being a possibility. But I always get so nervous when we start talking about ifs and buts and whens and what-ifs.
Harjes: Yeah, you sound like you're about to throw out some caveats.
Campbell: Well, yeah. If you look at what's been happening with CAR-T, Juno, I'm not going to call it an also-ran, but they went from being a front-runner to now being in, we'll call it third place. Their JCAR015, they had to shutter development of that. That was their lead product candidate, and they had to shutter development when safety risks caught up to them. Specifically, people were dying because of brain swelling. They had some patient deaths because of brain swelling. Well, they've now shifted their focus to JCAR017, which is a very intriguing drug. It's next-generation CAR-T, and they think it could be safer. But it's not like they've necessarily proven that out. They're not at the same stage as, say, Kite was, with a pending FDA application, or that Novartis was with their CAR-T in getting unanimous support from an adcom committee. So I think there's a significant amount of risk with all the remaining CAR-T players, and that does make me a little bit cautious on the idea of them being a buyout.
Harjes: Yeah. And they're, appropriately, a lot smaller than Kite. At their inflated market cap, Juno and bluebird are both around less than half the size currently. And that, of course, reflects the fact that they are earlier stage. Even bluebird is super early, but they also have this entire side gene therapy program. One more name that I want to mention, because Todd, you brought up the safety risks involved here with CAR-T, and this company that I think has a really a novel way of addressing the safety risks is so, so tiny. They're only $350 million in market cap, which, for Gilead to purchase them, that would be pennies to them. This company is called Bellacom. They have an interesting molecular switching technology that could potentially make it best-in-class down the road, but way down the road. It'll be years. Their lead candidate could maybe hit the market in 2019. So, super interesting technology that could potentially improve the outcomes of some of these CAR-T therapies, things like stem-cell transplants, which often have complications. But this, again, is an extremely early-stage company. I'm not even sure if Gilead would be interested in them, because it's so tiny that it probably won't even be a needle mover.
Campbell: Yeah. A company like Gilead, they like to focus on companies that are a little bit further along in their development, a little bit closer to market, where they can see a return on their investment in a relatively short period of time. They tied their wagon to Kite right now. I think, unless one of these other companies comes out there and shows that they really have drop-dead better efficacy, better safety -- safety is going to be key in CAR-T, Kristine. I think that's the differentiator.
Harjes: Well, that's a bunch of the Juno theory right now, that they're not going to be first but they might be safest.
Campbell: Exactly! And if they are the safest, that's critical, because right now CAR-Ts are getting approved for use in refractory disease, heavily pretreated patients, these patients don't have a lot of treatment options. If they want to be able to tap into the much larger pool of cancer patients and move that up into earlier forms of treatment, they need to be able to prove that these drugs are safe. Now, in clinical trials, I think Juno has shown some really interesting interim results that suggest, possibly, it may have a better safety profile than, say, Kite's Axi-Cel. But you need to roll this out in more patients, you need to evaluate this because the interim stuff that we saw in JCAR015 looked good, too, right?
Harjes: Yeah. You definitely need a bigger sample size.
Campbell: Oh, yeah, absolutely! Whenever it comes to investing in clinical-stage companies, I really do caution investors chasing the news and trying to buy something simply because it's running up because of something that's happened to another company. It's a risky way of investing. I think you're better off saying, do I like the technology, after doing the research? Reading everything there is on the Fool about Juno, am I convinced that this company has a better mousetrap? If you think that's the case, then be a little patient; wait for shares to balance out a little bit. They've had a big run-up. And then pick your spots. Again, keep it to a small, diversified position in your portfolio.
Kristine Harjes owns shares of Gilead Sciences and Juno Therapeutics. Todd Campbell owns shares of Celgene and Gilead Sciences. The Motley Fool owns shares of and recommends Bluebird Bio, Celgene, and Gilead Sciences. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.
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