You know it's a good week when a stock in your portfolio soars 28%. Actually, good is probably an understatement. But that's exactly what three biotech stocks did this week. And two of them enjoyed much greater gains.
Juno Therapeutics (NASDAQ:JUNO), Jounce Therapeutics (NASDAQ:JNCE), and Sorrento Therapeutics (NASDAQ:SRNE) saw their stocks surge over the last few days. Here's why -- and whether or not any of these three hot biotech stocks are smart picks for investors right now.
On Tuesday, The Wall Street Journal reported that Celgene was in talks to buy Juno. Only nine days earlier, the big biotech announced plans to buy privately held Impact Biomedicines for $1.1 billion upfront and up to $7 billion with milestone payments.
Celgene and Juno began a partnership in 2015 to develop cell therapies focusing particularly on chimeric antigen receptor T cell (CAR-T) drugs, with Celgene buying a 10% stake in the smaller company. Juno is one of a handful of small biotechs with expertise in cell therapy, which made it an attractive acquisition target after Gilead Sciences bought Kite Pharma last year.
Another Celgene partner, Jounce Therapeutics, was also a big mover. Jounce stock gained over 32% this week and is up more than 60% so far in 2018.
What made Jounce bounce? Speculation that the small biotech might be next on Celgene's target list. Celgene already owns a small stake in Jounce after the two companies initiated a collaboration in 2016 to develop immuno-oncology drugs.
Jounce's lead candidate is JTX-2011, which activates the inducible T cell co-stimulator (ICOS) protein found on the surface of some T cells. Activation of the ICOS protein is believed to cause the body's immune system to fight cancer cells. Jounce is evaluating JTX-2011 in a phase 2 study targeting treatment of multiple solid tumors.
Sorrento Therapeutics stock jumped 28% this week. Is the biotech yet another acquisition candidate for Celgene? Probably not -- but it just might be for another big biopharmaceutical company down the road.
Sorrento has its own CAR-T research program, but is taking a different approach with its CD38 CAR-T candidate. The biotech uses a non-viral method to generate CAR-T cells. Sorrento thinks this approach should be quicker to develop than using CAR gene-encoding lentivirus, retrovirus, or adeno-associated virus (AAV), and could eliminate the need for a lengthy monitoring period of patients after treatment.
The big jump for Sorrento stock this week likely stems from two things. First, H.C. Wainwright analyst Raghuram Selvaraju raised his price target for the stock from $20 to $30. Selvaraju's outlook is more positive for the biotech, in part because of the potential for approval of lead candidate ZTlido in treating pain associated with postherpetic neuralgia. Second, Sorrento probably received a higher level of interest after news broke about Celgene's potential acquisition of Juno.
Are they buys?
Are any of these high-flying biotech stocks good choices for investors after their big runs? With Juno, it depends on whether or not the reports about the Celgene acquisition are true, and if they are, how much the big biotech is willing to pay.
My hunch is that the reports indeed are true. I can see why Celgene would want to buy Juno outright instead of only partner with the small biotech. As for the price tag, some think Celgene would pay up to $12 billion -- close to what Gilead shelled out for Kite. I don't think the price will be that high, but I could be wrong. My view is that Juno could still go higher, but to buy the stock now would be more speculation than investing.
Even after its nice gain, Jounce Therapeutics' market cap is around $700 million. If the company is successful with JTX-2011, Jounce should be worth a lot more. However, there's no way to know if the biotech's phase 2 results will be positive. Buying the stock could pay off in a huge way -- but it could also backfire.
Sorrento is the closest to having an approved product of the three, with the FDA scheduled to make a decision on approval for ZTlido by Feb. 28, 2018. There's a possibility that ZTlido could take a significant market share away from generic Lidoderm. And Sorrento's non-viral CAR-T program is intriguing. For now, however, I think Sorrento is still a stock to watch closely rather than buy.
Keith Speights owns shares of Celgene and Gilead Sciences. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.