Why a Celgene-Juno Marriage Makes Perfect Sense

Deal

As reported yesterday, there are rumors that Celgene Corporation is in talks to acquire Juno Therapeutics. The rumors drove Juno stock up more than 50 percent, while Celgene’s dropped slightly. Now that a little more time has gone by, investors and analysts have given it some thought and mostly think it’s a sensible acquisition.

An oncology company, Celgene’s best-selling drug, Revlimid for blood cancers, is losing patent protection. It also had some pipeline failures in 2017, suggesting that diversifying its portfolio is a good idea. Juno, once a leader in the CAR-T immuno-oncology field, fell behind in the race, shuttering its lead program, JCAR015 in April 2017, after five patient deaths. But two months later, it rebounded with stellar interim data from another CAR-T program, JCAR017. The company also has a strong pipeline.

Reni Benjamin and Bin Lu, analysts with Raymond James, wrote in a note to clients that the acquisition makes “perfect sense for Celgene. Celgene currently owns about 10 percent of Juno shares and they have complementary pipelines. Juno appears ready to bounce back from its early failures with JCAR017, which if it continues to show such positive data, could potentially nudge Gilead and Novartis’s own CAR-T products out of their first and dominant positions.

In a note to clients, Leerink analyst Geoffrey Porges wrote, “While we are rarely fans of high premium takeovers, this deal probably makes sense for Celgene, and won’t surprise the company’s shareholders.”

But, like most investors and analysts, Porges notes that the competition from Gilead and Novartis is likely to be fierce. He compares Gilead’s Kite, which it acquired last summer, to Juno. “They will commercialize similar products for similar indications within 18 months of each other and with approximately similar clinical results. This suggests to us that they are much more similar than any other two biopharma companies could be.”

Prior to the news and subsequent stock jump, Juno’s market cap was around $5 billion. Now it is closer to $7.7 billion. That’s likely to require a price for Juno similar to the one Gilead paid for Kite, around $11.9 billion. Porges writes, “in the end, Juno will recognize that they are now competing with Novartis and Gilead, and probably need the resources of at least a Celgene to be successful in the market.” As a result, they’re unlikely to kill the deal over what Porges calls “price hubris.”

It’s also important to note that CAR-T specifically and immuno-oncology in general is in its infancy. Subsequent generations of the technologies are likely to have more efficacy and have fewer side effects. Also, current CAR-T therapies are individualized to each patient, which is both time-consuming and expensive. Any company developing an off-the-shelf CAR-T or I/O approach with the same or better efficacy is going to have a major blockbuster on their hands. None of these I/O companies are resting on their initial successes.

That said, Max Nisen, writing for the Bloomberg Gadfly, pointed out that Juno is lagging behind. “But the product is unlikely to hit the market until 2019. Gilead’s Yescarta is available in the U.S. to the patients that JCAR017 is intended to treat. Novartis’s Kymriah will most likely become available this year.”

It seems that the acquisition would be a big plus for Juno, and a reasonable plus for Celgene. Other companies may think so as well, and Celgene may not be the only company taking a look at Juno.

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