Is Juno Therapeutics a Bad-News Buy?

Shares in Juno Therapeutics (JUNO) have tumbled since the company reported a voluntary halt to its lead drug program, JCAR015, which is intended to treat acute lymphoblastic leukemia.

JCAR015 attacks cancer in an entirely novel way. A chimeric antigen receptor T-cell, or CAR-T, therapy, JCAR015 reengineers T-cells to better find and kill cancer cells. JCAR015's efficacy in studies so far has been impressive, but a troubling safety profile that includes recent patient deaths due to brain swelling means that JCAR015 could end up in the laboratory dustbin.

Does JCAR015's stumble and resulting sell-off in Juno's shares make Juno Therapeutics' stock a bad-news buy? In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Michael Douglass and contributor Todd Campbell discuss the JCAR015 trial and what the future may have in store for Juno Therapeutics investors.

A full transcript follows the video.

This podcast was recorded on Nov. 30, 2016.

Michael Douglass: Juno is another relatively small, relatively early stage biotech that has had a lot of excitement about it because of its chimeric antigen receptor T-cell therapy, or CAR-T, as we're going to call it from here. Unfortunately, it had some pretty bad news in a trial, which caused them to halt it recently.

Todd Campbell: This is probably the most disappointing news for -- I'm not just going to say investors, but potentially patients, too. The reason I say that is, Juno was working on a drug called JCAR015. JCAR015 was being studied in very tough-to-treat acute lymphoblastic leukemia (ALL). These patients don't have a lot of treatment options. CAR-Ts had been amped up to be revolutionary in their ability to help battle back against this cancer. Unfortunately, sadly, earlier this year, there were a couple patient deaths that resulted in a very short trial halt of JCAR015 back in June or July. At the time, Juno had determined that they felt the deaths had been caused by the preconditioning regiment they were giving. Basically, what they were doing was, before giving patients their CAR-T therapy, they were giving them chemotherapy ahead of time to help kill off some of those cells and make the CAR-T more effective.

Douglass: And, of course, the problem with chemotherapy is that it comes laden with side effects and, unfortunately, in this case, two of the patients passed away -- according to Juno's belief, because of the side effects of chemotherapy.

Campbell: Right, and one chemotherapy in particular, fludarabine, that had been added to the preconditioning regimen very recently. They told the FDA, "Let's remove that fludarabine; let's stick with the one drug we used in preconditioning. We think that's going to solve the problem." The FDA signed off on it. Sadly, two more people have passed away in the JCAR015 ALL trial.

Douglass: Yeah, which is undoubtedly bad news. Management got out ahead of it immediately, very quickly, and issued a voluntary hold on their trial, and immediately hosted a call with analysts; and what they said on that was basically, it was pretty clear that they didn't have all the data to know exactly what was the issue. So, it's unclear whether or not they're going to move forward with JCAR015, whether they're going to modify things, or end the trial and the drug's development. That's still unclear.

One thing they did point out was: They do not believe it's a classwide or portfoliowide effect. The reason that matters is, think about it this way: If all CAR-T drugs had this problem, that would be a big issue with all of CAR-T, and would have serious implications for everybody working on that, and all the work that Juno is doing. So far, their sense is that that's not the case.

Campbell: Yeah. JCAR015 was an aggressive program. When you think about ALL, you have other competitors that are researching their own CAR-T drugs. Essentially what they're doing is taking T-cells out of a patient's body, reengineering them so they can better identify and kill cancer, and then reinserting them inside the patient. So, you have lots of different cancers that theoretically could benefit from this. ALL, however, has a historically high level of neurotoxicity anyways. The deaths were caused by brain swelling, which has not been evidenced, so far, in competitors' CAR-T programs.

Kite Pharma (NASDAQ: KITE), for example, is working on a drug, KTE-C19, that is being studied in non-Hodgkin's lymphoma -- typically lower neurotoxicity than you would see in ALL. They also, in the Kite program, are using a much lower dose of the chemotherapies in the preconditioning regimen. That could have something to do with it as well. It could be that the JCAR program was a little too aggressive on the preconditioning regimen versus competitors.

I think it's also important for investors to recognize, even if JCAR015 is permanently sidelined, that's not the end of the road for Juno. Juno has a very robust clinical pipeline of CAR-Ts being studied across a lot of different B-cell cancers. Some of these CAR-Ts that are still in trial, that are unaffected by this trial halt, are next-generation drugs that are designed to work better and be more targeted than JCAR015.

Douglass: Right. If this were a classwide problem -- and it's not that that's necessarily been ruled out, but so far the data indicates that they haven't seen the same issues with these other drugs -- that would be thesis-changing for Juno. For me, this doesn't necessarily change the thesis on Juno. What we really need is more detail.

Campbell: It pushes it back, though. We look at it, and if they do shelve JCAR015 permanently -- they had hoped that maybe this drug could hit the market in 2018 -- they shelve it now, who knows when the first CAR-T from Juno gets to the market? Meanwhile, Kite is still advancing their programs, and theoretically could have their drug on the market by the end of next year. So, investors do need to realize that it pushes back the timeline for commercialization and driving generalization for Juno, but that's not necessarily a deal-breaker.

Douglass: Right. Just like we discussed with Amicus, when you have a biotech that has bad news, that potentially pushes their timeline back. One of my first questions is: What about cash and cash burn? Juno has $1 billion on the balance sheet in cash. Looking at their cash burn, they have a runway. They have plenty of time to report -- potentially, hopefully -- good data in some of these other indications and trials, before potentially needing to figure out how else they're going to get money.

Campbell: Right. Michael, they're burning through about $60 million a quarter right now, so they figured they would shut down JCAR015, who knows if they'll start up another trial somewhere else. Let's just say they're going to burn through about $250 million a year. At the current cash on hand, that gives them four years' worth of cash.

Douglass: Right. And they may not even shut down JCAR015. There are definitely a lot of possibilities here. It's really just too soon to tell. As for me, at least right now, I'm not buying Juno. But I wouldn't have it on a sell list, personally, either. Does that sound about right?

Campbell: I hate to hedge and say I think it's watchful waiting, but I think you need to stick it out and see: Where's this going to go from here? How's this going to shape out? Are there going to be any other surprises from competitors? I think what I might do if I was an investor and wanted exposure: I might say I want to hold off on Juno right now, but maybe I'm going to spend some time getting to know Kite a little better.

Douglass: Yeah. I think that makes sense.