It's now official.
Reports generated excitement last week that Celgene (NASDAQ:CELG) planned to buy out Juno Therapeutics (NASDAQ: JUNO). Neither company commented on the rumors then. But Monday morning, Celgene confirmed that it was indeed acquiring Juno for $9 billion.
The deal was obviously a great one for Juno shareholders, who have seen their positions nearly double in value in less than a week. But is the acquisition a good one for Celgene investors? That's a harder question to answer.
What Celgene gets
The big price for Celgene is Juno's crown jewel, JCAR017. The chimeric antigen receptor T cell (CAR-T) therapy is viewed by some observers as a potentially best-in-class product due to its efficacy and safety profile.
Juno reported highly encouraging results last year from its Transcend early-stage study of JCAR017 in treating relapsed or refractory aggressive B-cell non-Hodgkin lymphoma (NHL). Updates from this study showed that 74% of patients experienced significant tumor reduction and 68% of patients had no tumors after three months of treatment. After six months, half of patients in the study had no detectable tumors.
JCAR017 is now in the pivotal phase 2 portion of the Transcend study. Assuming all goes well, the drug could potentially win U.S. regulatory approval in 2019. If that happens, Celgene would be the third company to market a CAR-T therapy, behind Novartis (NYSE:NVS) and Gilead Sciences (NASDAQ:GILD).
But JCAR017 isn't all that Celgene gets from an acquisition of Juno. Other CAR-T therapies in Juno's pipeline include JCAR014, JCAR018, JCAR020, JCAR023, and JCAR024. All five candidates are currently in early-stage clinical studies.
In addition, Celgene will lay claim to Juno's promising B-cell maturation antigen (BCMA) candidate, JCARH125. Juno is evaluating its BCMA therapy in a phase 1 study targeting treatment of multiple myeloma.
Juno also is studying T cell receptor (TCR) JCTR016 as a potential treatment for acute myeloid leukemia, non-small cell lung cancer, and mesothelioma. TCRs differ from CAR-T cells in that they can recognize tumor-specific proteins on the inside of cells instead of proteins expressed on the surface of tumors.
Was the price right?
While the headline numbers read that Celgene is paying $9 billion for Juno, the price tag is technically higher. As part of the 2015 collaboration between the two companies, Celgene bought a 9.7% stake in Juno for around $1 billion. Subsequent to this earlier deal, Celgene exercised its option to commercialize Juno's CD19 program outside of North America and China. The CD19 program included JCAR015, JCAR017, and JCAR014, but Juno abandoned the JCAR015 program after patients died in clinical studies.
Will Celgene's $10 billion investment in Juno pay off? Celgene says that JCAR017, if approved, should reach peak annual sales in the ballpark of $3 billion. If that estimate isn't too far off, the Juno acquisition will prove to be a good one over the long run for Celgene shareholders.
However, in Celgene's presentation at the recent J.P. Morgan Healthcare Conference, CEO Mark Alles showed a slide that projected JCAR017's sales would be around $1 billion. Was the big biotech sandbagging, knowing that an acquisition of Juno was imminent, or is Celgene now pumping up its peak sales estimates for JCAR017 to justify the price tag of the Juno deal? My guess is a little bit of both.
Gilead spent $11.9 billion to buy Kite Pharma. Celgene's total price tag will be less than that. However, the company is really paying more in a sense, because Kite had already filed for approval for axi-cel (later branded as Yescarta) while any potential regulatory submission for JCAR017 is a year or so away.
In my view, though, Celgene needed an acquisition to have any hope of staying in the cell therapy race with Gilead and Novartis. Juno presented the best option for a couple of reasons. First, Juno's CAR-T program was the farthest along of the potential acquisition candidates. Second, Celgene already owned a stake in the biotech.
It's also easy to overlook the other pipeline candidates that Celgene will get when thinking about the economics of the deal. I don't think Celgene got a bargain by any stretch, but my take is the acquisition of Juno will be seen as a smart move a few years from now.
Celgene has announced two acquisitions in a span of two weeks, first Impact Biomedicines and now Juno. I expect a third deal could be on the way.
The most likely next buyout target for Celgene is bluebird bio (NASDAQ:BLUE). Like Juno, Bluebird is already a partner with Celgene. Also like Juno, the small biotech is developing BCMA candidates for treatment of multiple myeloma.
However, due in large part to investors' expectations that Bluebird could be next on Celgene's list, the company's market cap now stands at over $9 billion. That means if Celgene wants to buy Bluebird, it will have to pay up even more than it did for Juno. If it does, we'll have yet another controversy about whether the price tag of a big acquisition was too steep.