Jounce Therapeutics (NASDAQ:JNCE) stock jumped after it sold rights to a cancer drug to Gilead Sciences (NASDAQ:GILD). Shares were trading as high as $1.30 in the pre-market, after closing under 75 cents on Dec. 27.
There may be more room to run, because Gilead is paying $67 million for the rights to what is now GS-1811, a potential first-in-class immunotherapy. Jounce closed on Dec. 28 with a market capitalization of $38 million. The deal raises the market cap of the company to no more than its cash.
JNCE Stock: Chasing Keytruda
Immunotherapies like Merck’s (NYSE:MRK) Keytruda are the hottest chemicals in pharmacology. They enable the body to use its own immune system to attack cancer, usually by promoting or inhibiting the production and use of enzymes called kinases.
Turning an immunotherapy into a useful drug, however, is a long and complex process. Cancer targets must be identified, animal and human trials must be run, and government approval must be obtained. Jounce didn’t have the money to run this gantlet. Gilead, which grew enormously thanks to its hepatitis-C treatments in the last decade, needs new blockbuster drugs to maintain its stock price.
Gilead had $31 billion in cash at the end of 2018 but just $6.2 billion at the end of September. Before Jounce, it had bought 15 different companies, mainly targeting cancer drugs. This has created a $106 billion market cap, up 17% this year, and about $27 billion in annual revenue.
TipRanks has Gilead listed as a moderate buy but fully valued, the price target just 3% ahead of where it currently trades.
What Happens Now?
Jounce retains a portfolio of drug candidates, three of them in clinical trials. One of those drugs, JTX-8064, recently completed a successful Phase 2 trial. This was aimed at reducing resistance to drugs targeting PD-1, a protein found in T-cells that keeps the body’s immune response in check.
Gilead saved up to $645 million in milestone payments and royalties for its new drug, under a 2020 development agreement. It now gets to run the gantlet.
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On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.