Rumors are swirling that Celgene Corp (NASDAQ:CELG) is considering a multibillion-dollar acquisition of Juno Therapeutics (NASDAQ:JUNO). That got me thinking: What other companies could be on Celgene's radar? One stock that might be a candidate is Jounce Therapeutics (NASDAQ:JNCE), a small-cap biotech that has important trial data coming this year. 

What's the story?

Celgene's been working with Jounce Therapeutics since July 2016, when it handed over $225 million in upfront cash to gain the rights to Jounce's immuno-oncology drugs.

A businessman listens through a wall using a styrofoam cup.


Jounce Therapeutics' most advanced drug is JTX-2011, a monoclonal antibody that binds to and activates the Inducible T cell CO-Stimulator (ICOS) protein that's found on the surface of certain T cells. Activating ICOS may stimulate an immune response against cancer that increases the effectiveness of other cancer-killing medicines, such as PD-1 inhibitors.

Results from a phase 1/2 study of JTX-2011 as monotherapy and in combination with Bristol-Myers Squibb's (NYSE:BMY) PD-1 drug Opdivo are expected in the first-half of 2018. The combination study includes patients diagnosed with six different solid-tumor cancers, including non-small-cell lung cancer, and patients who are resistant to PD-1 therapy, or who have limited PD-1 expression.

Why Celgene could get interested

All of the patients in Jounce Therapeutics' JTX-011 trial have advanced disease and are either refractory to PD-1 or express PD-1 at low levels. Because there are limited treatment options available to advanced cancer patients, the Food and Drug Administration (FDA) might be willing to expedite a review of JTX-2011 if phase 2 studies demonstrate it's both safe and effective. 

That thinking is backed-up by comments made by Scott Gottlieb, the FDA's commissioner. Since taking over the regulatory agency in May 2017, he often has said that he's open to solutions that get cancer drugs in patient's hands faster. As a result, he's approved a number of cancer drugs sooner than expected, including two gene therapies for B-cell cancer.

As it stands now, Celgene will only get 40% of any operating profit associated with commercializing JTX-2011. It's also on the hook for up to $2.3 billion in various milestones associated with JTX-2011 and other drugs that Jounce may develop with its platform for the collaboration. Because JTX-2011 could validate Jounce Therapeutics' platform, increasing the likelihood of Jounce developing more drugs that are attractive to Celgene, it's possible that Celgene will decide it makes sense to bring Jounce Therapeutics in-house, especially since Jounce's market cap is below $700 million.

What's next

Celgene already owns 2.8 million shares of Jounce Therapeutics, and the collaboration agreement means that Celgene has plenty of time to consider its options.

The most important thing for investors to watch for this year is the JTX-2011 mid-stage data. Management hasn't said when it will reveal its results, but it would make sense for that data to arrive early enough for Jounce Therapeutics to present it at the American Society of Clinical Oncology conference in June. If it's good, then the next question facing management will be whether it believes the results support accelerated approval. That may trigger a move by Celgene.

However, even if Celgene settles for the status quo, Jounce Therapeutics should be all set. Exiting the third quarter, it had $283 million on its balance sheet and management thinks that's enough money to last the company about two years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.