Juno Therapeutics (JUNO) is at the forefront of researching next-generation cancer treatments but its research and development program was dealt a blow recently when the Food and Drug Administration halted a key trial following patient deaths. Juno Therapeutics has since restarted its study with a new treatment protocol, but that doesn't necessarily make this stock a better buy than its competitors.
In this episode of The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes is joined by contributor Todd Campbell to discuss Juno Therapeutics' recent trial stop and restart and offer up two alternative investment ideas in cancer research. Additionally, the two provide insight into Johnson & Johnson's (JNJ -0.11%) second-quarter earnings and they highlight other healthcare stocks they're watching closely this earnings season, including Amgen, Inc. (AMGN -0.17%).
A full transcript follows the video.
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This podcast was recorded on July 19, 2016.
Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. I'm your host, Kristine Harjes, and we're recording this on July 19th, a day early. For today's healthcare show, we're going to talk earnings season a little bit, but, first, we're covering a game of red light-green light between the FDA and oncology developer Juno Therapeutics. I've got guest Todd Campbell on the line. Are you ready to dive in?
Todd Campbell: I am. What an interesting story this is.
Harjes: It really was interesting to watch, and it happened very quickly.
Campbell: Much more quickly than, I think, anyone was anticipating.
Harjes: Right. The initial coverage -- (laughs). Let's back up a little and say what happened. On July 8th, the FDA put one of Juno's trials on clinical hold, meaning nobody new can enroll and you can't give patients the experimental therapy. This was their lead trial. It was of their most important CAR-T therapy, called JCAR 015. It's being studied for acute lymphoblastic leukemia, a type of blood cancer. What happened was two patients in the trial died, and the FDA said, "Whoa, whoa, whoa, hold on!"
Campbell: Yeah. In cancer treatment in trials, they're very conscious of the fact that you have a disease that can kill you if it's not treated right, but the treatment has to be safe, too. So they're watching that dynamic very closely.
Harjes: Yeah, especially for earlier studies. This was phase 2, when safety is still a priority.
Campbell: Right. The phase 1 trials that have been done on this drug involve a relatively limited patient pool. Even if you include every trial that's being studied for the CAR-Ts that Juno's working on, you're only talking about 130-ish patients. It's not what you would call a lot of patients that you're trying to evaluate the data on. That being said, it was very surprising to people, because while there have been cases of adverse events, most of those cases have been tied to cytokine release syndrome, even cytokine in some cases, that had been pretty easily corrected by adjusting dosage and stuff like that using corticosteroids and some of the other things they used to try to keep those in check.
So, the fact that these patients had passed away because of brain swelling, which was the result of neurotoxicity in response to the therapy, that immediately caused the FDA and Juno to say, "Whoa, we have to figure this out. We can't enroll any more patients. Let's figure out what caused these deaths." You not only had the two that just happened, but there had been one back in May, and there have been one last fall, who had also passed away in these trials. So we now have four patients who had passed away. Obviously, you need to nail down the cause of that before you put more patients at risk.
Harjes: And it appears that they did nail down what the cause was.
Campbell: Right! Kristine, on the day that they announced that the FDA was putting the trial on hold, they were also announcing, "We believe we know what the problem is."
Campbell: It's crazy how quickly that happened.
Harjes: It really is. It seems like a pretty clear link when they added this new chemotherapy to this trial, thinking it would help these CAR-T cells take hold faster. Instead, they're saying that led to the neurotoxicity that caused the brain swelling.
Campbell: Right. Let's back up a little bit again for our listeners here. These CAR-T drugs, essentially what we're talking about is reengineering T cells from patients so they can be reintroduced back into the body, seek out and destroy cancer cells by binding to proteins that are expressed on those cancer cells. It's a targeted therapy. It's a brand-new approach or class of drugs. What they've found is, if patients get preconditioned with chemotherapy agents, then these drugs become more efficacious, they work better. So what Juno was saying caused the deaths was the addition of a chemotherapy agent known as fludarabine to the existing preconditioning regimen. Once they did include that -- we'll call it "flu" for short -- once they started including flu, that's when they started seeing these problems. So they went back to the FDA and said, "What if we just get rid of flu? We won't use flu anymore in the preconditioning regimen." And within days, the FDA had reviewed the documentation and said, "Yep, that's OK, you can continue enrolling, we'll restart the trial. From now on, though, just use that one preconditioning chemotherapy agent."
Harjes: It was really interesting to me to see how quickly that decision turned around. I remember in some of our initial coverage on Fool.com when we saw the red light from the FDA, our writers were saying, "We're not really sure how long it might be before Juno is allowed to proceed." Then, just days later, it was July 13th, that the FDA said, "Yep, you can proceed if you exclude flu and proceed as we have talked about."
Campbell: Right. The FDA had about 30 days. They could have taken as long as that to review the information, and they did it in a couple days. (laughs) I was one of those writers who was saying, "I don't know, it could take weeks. Who knows how long it'll be?" Obviously, though, the FDA has made a commitment to accelerate in the approval of cancer drugs, especially novel cancer drugs. That's probably why they wasted no time looking at this. The patient population that this drug treats is a tough-to-treat population. It's relapsing and recurring acute lymphoblastic leukemia, ALL patients. These patients have undergone two, three, four different treatments prior to that, so there are not a lot of treatment options available to them. And that is why this is such an important thing for the FDA to look at.
But from an investor standpoint, it's also a good reminder of what Foolish investing is all about. We saw this stock lose a third of its value and regain a lot of what it lost in less than a week.
Harjes: I will say, the stock is still down pretty substantially from before this news came out at all. What do you think, good buying opportunity?
Campbell: (laughs) For risk-tolerant investors, yes. With the caveat, I actually prefer another CAR-T developer more, that's Kite Pharmaceuticals. The symbol there is KITE.
Harjes: That's not the one I thought you were going to say. I'll pitch a different one when you're done with Kite.
Campbell: Alright. The reason I like Kite is they're also working on CAR-T therapy, they do use flu in their preconditioning regimen, which is a little bit worrisome, but they haven't reported any deaths. The dosing they use of this flu [...] preconditioning regimen is far smaller doses of these chemotherapy agents. We'll assume at this point that they have achieved a Goldilocks situation, they figured out with the right combination is in the dosing of it. We're going to get results from a trial in diffuse large B cell cancer later this year. If those results are good, they plan on filing for FDA approval before the end of 2016. Conceivably, that could allow for this drug to hit the market and begin generating out revenue for investors next year.
Juno had anticipated also delivering its JCAR 015 to market as early as next year. But even with a delay, and now they're going to have to get these patients treated with just the one chemotherapy agent, we may not see that drug, JCAR 015, until 2018. I think that's why you're saying the shares still trading down a little bit from where they were, even though the trial halt lifted pretty quickly.
Harjes: Makes sense. And I think Kite's shares actually took a pretty big hit when this news came out, because they're working on fairly similar therapies.
Campbell: Right. They're using flu in their preconditioning cocktail.
Harjes: That's a huge part of it.
Campbell: I think that made people a little bit nervous. Could we see a surprise from them prior to the data? We haven't seen that yet, though.
Harjes: I promised I would do a quick pitch on another option, if you're interested in the CAR-T space. This one's called Bellicum. It's a little bit of a dark horse. Its way smaller than the other two. Kite has a market cap of around $2.5 billion, Juno has $3 billion. Bellicum is tiny, it's $367 million. But one of the big issues that's going on right now with CAR-T is safety. It's something we just saw with Juno, and something that has been following these CAR-T drugs, their entire existence. Bellicum thinks it's found the answer to this safety dilemma. It has its own proprietary technology call CID, which basically created this molecular switching platform. What that means is, they think they've found a way to turn these T cells on or off. That way, if you get a patient that is suddenly showing signs of these bad after effects of CAR-T treatments -- neurotoxicities, cytokine release syndrome -- you can just switch them off.
It's a really intriguing idea, and it's still early and development. But I would be shocked, actually, if one of these other two, Juno or Kite, didn't have their eyes on Bellicum.
Campbell: I don't know how that will play out to. I haven't spent a lot of time with that stock. I'm going to leave investors to do their own research on it. I'd be very curious to see what kind of partnerships, if any, they've instituted so far. I'd also like to know what they have for cash kicking around on their balance sheet for their runway. But yeah, this whole space is very intriguing, it's very fast-moving, and a lot is going to be coming out over the course of the next year. Trial data, potential safety risk, all sorts of crazy information.
Harjes: Speaking of news coming out in the near future, we thought it would be a good time to do a little bit of earnings preview, now that earnings season has officially kicked off. Johnson & Johnson actually reported this morning, as in Tuesday the 19th. Remember, we're pre-recording this a day early. We have J&J that already pre-reported, and then maybe we can do a little preview after that of what be coming next. Sound good?
Campbell: Yeah, absolutely. J&J reported second-quarter sales and earnings that work better than industry watchers had hoped. They delivered $18.5 billion in sales, which is very solid, up about 4%. That's not great, but we're talking about big pharmaceutical companies here. Usually you're not going to see double-digit growth rates in big pharma. Four percent, that's fine. They had some currency headwinds that weighed that down just a little bit. But, overall, I think it was a pretty solid report. It sort of sets the bar for upcoming reports that are coming out of are there big pharma companies like Pfizer in the coming weeks.
Harjes: You mentioned currency. That's been a huge thing weighing on Johnson & Johnson's earnings back for a while now. Interestingly, the currency hit was just 1.4%, which is less than half the impacts from the second quarter one year ago in 2015. They're hoping this won't be damaging them quite as much, but it remains to be seen. You can't predict these kinds of things. But again, that long-term Foolish investing, we're not looking to predict currency headwinds. That's why you really do want to look at operational growth. If you look at their operational growth, it looks really good, particularly in pharmaceuticals, operational increase of 9.7%. That's pretty darn good.
Campbell: Yeah, that was all domestic, too, all U.S. I think the U.S. pharmaceutical business grew about 13% year-over-year. The other thing investors should recognize is that's occurring even as it's losing out on sales from its once-popular hepatitis C drug, Olysio, which has lost market share as new drugs have come on the market. So, it's overcoming that headwind and still being able to grow double digits here domestically.
Harjes: Some of the drugs to keep an eye on: you've got Imbruvica, Darzalex, Invokana, Stelara. There are actually a ton of irons in the fire here, and all of these drugs posted pretty solid growth.
Campbell: Yeah. There are a few I like to watch, I'm keeping my eye on quarter after quarter for Johnson & Johnson. Just to let investors know what's happening with those. Imbruvica's one of them. In Q1, sales had jumped 125% to $261 million. In Q2, they grew about 92% to $295 million. No one's going to fault them on that, but maybe we have to start looking at it and saying, "We've reached a certain level where we can't expect sales to continuously double year over year for this cancer agent." Still, very good. We see it at a $1.2-1.3 billion run rate. I was also very interested in seeing whether or not they would report individual sales for Darzalex, that's their multiple myeloma drug that got approved last year. They did not break out those sales yet. They did say sales are growing, we just don't know by how much yet.
Harjes: And that they're expecting additional indications on that one.
Campbell: Yeah. What'll be interesting too is it was the same situation a few years ago when they came out with Invokana. They didn't break those sales out until they became much more meaningful. You look at that truck, Invokana, they now have sales that are... I think it's a $1.6 billion annualized run rate for that type 2 diabetes drug. Just the fact that they're not breaking out Darzalex yet, investors shouldn't draw any major conclusions from that. But you will want to watch, quarter after quarter, just to see whether that's winning away some share in the pre-traded multiple myeloma market.
Harjes: Exactly. One more thing to keep an eye on going forward is the upcoming biosimilar impact on Remicade.
Campbell: Yeah. That's key. We have some fast-growing drugs at J&J like Stelara, a psoriasis drug that's growing very quickly. They have Zytiga, which is a multi-billion dollar prostate cancer drug which is very strong. They've got Xarelto, which is an anticoagulant, the sales are very strong. So you have things that can overcome the headwinds to Remicade. But Remicade is a $1.8 billion per quarter drug.
Harjes: Just per quarter! That's incredible. That's a really big drug right there.
Campbell: Yeah. You need a lot of these drugs to do very well to insulate Remicade from the risk when Pfizer finally does launch their approved Remicade biosimilar. That's supposed to happen some time in the next six months.
Harjes: Yeah. They do say the biosimilar competition is not built into their guidance right now, and that's understandable, because the drug was just improved in April -- the biosimilar, that is -- and it won't launch until later this year. But going forward, 2017, for sure, this is going to be something that Johnson & Johnson will have to overcome.
Campbell: Right. And for investors trying to figure out how to plan for that, overseas where biosimilar drugs have been approved previously and been around longer, it's won about 30% market share. Bear that in mind. We have about a $6 billion drug, 30% market share, $1.8 billion potential headwind. Then, you figure, over time, as doctors get more comfortable with those biosimilars, you'll probably see the market share percentage climb for those drugs. It's important enough that investors should be tracking that and seeing how they're offsetting it.
Harjes: Sounds good. That's your J&J recap on their earnings. Todd, what are you looking at going forward? We have a bunch more biotechs and big pharmas that are reporting over the next month or so.
Campbell: Yeah, it's going to be fast and furious. Listeners are going to want to pay a lot of attention to the Fool in the coming week, because we're going to have a lot of coverage on earnings for all of these big companies. I'm watching with some intrigue Amgen. One of the reasons I'm watching Amgen is, we were just talking about biosimilars and the potential risk to J&J and Remicade -- well, Amgen has some pretty big sellers that also could face the sting of biosimilars soon. I want to see whether or not their new drugs are making enough headway to offset any headwinds that could pop up from biosimilars there too.
Harjes: The name to watch there would be Enbrel, that's their big anti-inflammatory drug that could face biosimilar competition soon.
Campbell: Right. $1.4 billion per quarter in sales could be in jeopardy if we get a biosimilar approved by the FDA. There's also a biosimilar under way by Coherus that targets Neulasta, which is their white blood cell-boosting drug that's used in patients undergoing chemotherapy. That could come to market some time in the next year or two, who knows. There are risks here to billions of dollars of Amgen's sales. Now, Amgen isn't just sitting back. They have new drugs under development. They spend a lot of money in R&D. And, they have their own pipeline of biosimilars targeting other companies' drugs that are losing patent protection, most notably a biosimilar that targets Humira.
Harjes: Yeah, they're kind of playing both sides, offense and defense. By the way, for our listeners who may not know what a biosimilar is, it's essentially a generic version of a biologic drug. They're a little bit more complex, so they're not quite as easy to duplicate as generics that we're all very used to. If you're interested in more information about them, I can totally send that your way. Email us at [email protected], or you can tweet us @MFIndustryFocus. Just wanted to get that out there in case anyone was scratching their head on what a biosimilar is.
Campbell: I know, there's so many different terms we have to be familiar with as healthcare investors, especially when we're talking about biotechnology in pharmaceuticals. But hey, that's what we're here for, right?
Harjes: Yeah, we're here to help. Anything else to watch with Amgen?
Campbell: Again, I would say the most important thing that I'm trying to figure out is whether or not payers are actually starting to reimburse for Repatha, which is their next-generation cholesterol busting drug that won approval last summer, and it's pretty much been... we'll call it a dud for now. I think the sales are less than $20 million a quarter. We'll see whether or not they've gotten any new agreements in place with insurers, whether or not those sales are starting to watch higher or not. I'll be watching that.
Harjes: I totally agree with that one, that will be super interesting to watch. I'll also ad d to our watch list -- we talk about hepatitis C on this show all the time -- I'm also watching Gilead and Merck for their quarterly earnings. Gilead reports on the 25th of July, Merck comes out on the 29th. I want to know the first full quarter of sales from Zepatier, Merck's hepatitis C drug. I also want to get a first peek at Epclusa, which we talked about in a pretty recent show. That's Gilead's new pan-genotypic drug. They're not going to have substantial sales of Epclusa. It was just approved. But I'm looking for a bit of commentary, maybe on the initial strategy, or the pricing, in Gilead's conference call.
Campbell: Right, like, what's the inventory build situation look like? That would be interesting, if they give us a little insight into that.
Harjes: For sure. Alright, Todd, there's clearly lots to keep an eye on this earnings season. Anything else before I let you go?
Campbell: No. I hope you have a great week.
Harjes: Thank you very much, and thanks, as always, for doing this show with me! Folks listening in, thanks for listening. If you like what you hear, leave us a review, and be sure to check out The Motley Fool's suite of podcasts at podcasts.fool.com. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Todd Campbell, I'm Kristine Harjes, thanks for listening and Fool on!