It’s been a great summer for Juno Therapeutics Inc (NASDAQ:JUNO). JUNO stock is up 50% over the past month and has more than doubled year-to-date. It’s been quite the reversal of fortunes after a rough period that saw JUNO stock reach $70 in 2015, then plummet to $20, as investors lost faith in its CAR-T platform.
What’s caused shares to spike back up to $45?
Gilead Sciences Inc. (NASDAQ:GILD) has served as the main force behind the improved sentiment. Gilead’s decision to buy out CAR-T peer Kite Pharma Inc (NASDAQ:KITE) has re-energized the CAR-T trade. But what does that mean for JUNO stock? Will Juno be able to deliver as well, or will it be the odd man out as Kite partners up with a biotech giant?
Reasons to Sell JUNO Stock
Juno Isn’t Kite
On Aug. 28, Gilead offered to buy Kite Pharma for $11.9 billion in cash. That was a sizable premium to Kite’s previous market cap, causing KITE stock to soar from $140 to $180. JUNO stock went right up with it, heading from $30 to $43 in the two days following Gilead’s announcement.
Oddly enough, Juno actually scored a bigger percentage gain on the news that Gilead was buying a rival. It certainly isn’t bad news for Juno that Gilead wanted into the CAR-T space. It validates the technology. However, Gilead undoubtedly looked at Juno as well, and decided to buy Kite instead. There’s been a perception that Kite was the winner and Juno the loser within the advanced CAR-T programs for a while now. Gilead’s M&A decision hasn’t changed that — Juno will still have to deliver results from the clinic to prove it deserves similar regard as Kite.
CAR-T Competition Is Heavy
There are many reasonably sized biotech firms pursuing CAR-T-based programs for blood cancers such as leukemia and lymphoma. In addition to Kite and Juno, bluebird bio Inc (NASDAQ:BLUE), and Novartis AG (ADR) (NYSE:NVS) have strong candidates in the space. Bellicum Pharmaceuticals Inc (NASDAQ:BLCM) and Cellectis SA (ADR) (NASDAQ:CLLS) are among others targeting the same cancers with similar technology.
Assuming that Gilead is onto something and CAR-T, in fact, becomes a highly successful treatment, there’s no guarantee that Juno specifically will reap the rewards. There was a similar frenzy around hepatitis C stocks a few years ago. In the end, Gilead was the main winner, since its treatments were more effective. While an estimated potential $20 billion market (in the US alone) seems huge for CAR-T based therapies, it’s far from certain that JUNO stock will ultimately benefit.
Biotech’s Future Still Looks Hazy
Biotech shares have soared in 2017. A leading sector fund, the SPDR S&P Biotech (ETF) (NYSEARCA:XBI) is up from a 52-week low of $53 to $84 today.
In 2016, investors dumped biotech stocks, as politicians such as Hillary Clinton loudly complained about profiteering within the sector. Trump’s initial rhetoric on health care reform also appeared to be a negative for drug pricing going forward. However, with Trump’s health care bill failing, investors seem to have forgotten about the political risk associated with biotech stocks.
The government still faces a difficult situation with health care spending in coming years, and drug prices will certainly come under scrutiny again fairly soon. Don’t mistake the calm now for a real solution to the problem.
Reasons to Buy JUNO Stock
Celgene Is A Fan
Given the difficulty ordinary investors have in determining the small degrees of difference between competing drugs, high-profile investors can play a huge role in confirming a potential company’s clinical program.
And Juno could hardly have found a better backer.
Celgene Corporation (NASDAQ:CELG) invested $1 billion in Juno back in 2015 to acquire close to 10% of the company and become the firm’s main collaborator. Following a major clinical setback for Juno earlier this year, Celgene stepped up and purchased more JUNO stock at $22/share. This commitment reflects most positively on Juno’s prospects.
Buyout Target
Gilead’s decision to buy Kite, rather than Juno, isn’t the strongest vote of confidence for JUNO stock, but it does support CAR-T as a whole. Now that one industry giant wants in on CAR-T — and paid a stiff price to play — other biotech firms will take a second look at the space as well.
JUNO stock still sports a sub-$5 billion market cap, thus making it a somewhat smaller target to digest for a potential acquirer. Who might want to make a bid? Celgene, as noted above, clearly has an interest in what Juno is doing. Additionally, Novartis was forced to pay more than $12 million to Juno to resolve a patent dispute, along with future royalties on Novartis’ CAR-T therapies. Novartis might decide to bring that back in house, while also finding synergies in the two companies’ research efforts.
Huge Cash Position
As of its most recent quarterly report, Juno has more than $800 million in cash and marketable securities. That’s an enormous treasury for a clinical-stage biotech firm. In biotech, having cash in the bank is one of the most important features of a viable investment. A strong cash position leads to better deals, whereas a firm running out of cash tends to dilute its stock or give up partnership rights on the cheap.
Those potential negative outcomes won’t impact JUNO stock anytime soon. The company has forecast cash burn for 2017 to be around $260 million, suggesting that Juno has around three years’ worth of expenses saved up. That gives it plenty of time to find an acquirer, partner or, perhaps, even bring a drug to market.
Conclusion
Gilead’s move to buy Kite Pharma has put JUNO stock firmly back in play. It’s tempting to buy the shares here and hope Juno is next in line to get a buyout bid.
However, such a trade is fraught with risk. JUNO stock has already more than doubled in 2017. Profit-taking could come swiftly if there are any more clinical setbacks or Juno’s competitors show signs of bringing their treatments to market more quickly.
At the time of this writing, the author owned GILD stock. He had no positions in any of the other aforementioned securities. You can reach him on Twitter at @irbezek.
