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Is Celgene's Big Bet on CAR-T Smart?

By Motley Fool Staff - Feb 1, 2018 at 3:31PM

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The company’s diversifying its revenue with new products.

Celgene (CELG) is the market share-leading manufacturer of medicine used to treat multiple myeloma, but lately it's been looking to expand its business into new indications. This week, it took a big leap toward its expansion goal when it agreed to acquire Juno Therapeutics (JUNO) for $9 billion. The deal puts Celgene at the forefront of a new class of drugs called chimeric antigen receptor T-cell therapies (CAR-T) that can be used to treat non-Hodgkin lymphoma. Will expanding into CAR-T move the needle for this big-cap biotech?

In this clip from the Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes is joined by healthcare expert Todd Campbell to discuss how Celgene's CAR-T plans may pan out for investors.

A full transcript follows the video.

This video was recorded on Jan. 24, 2018.

Kristine Harjes: Monday was extremely exciting in the world of healthcare M&A, mergers and acquisitions. A rumor that we covered in detail on last Wednesday's show of a deal in the making between Celgene and Juno Therapeutics came to fruition on Monday. Celgene will buy Juno for $87 per share in cash for a total of $9 billion. And we're not going to dwell on it, because we did talk about it quite a bit on Monday, but the deal has now been approved by both boards. It's expected to close this quarter. Interestingly, there was a 91% premium to the pre-buyout rumor levels of Juno's share price. Todd, were you surprised by the price tag?

Todd Campbell: You know, honestly, I wasn't. Gilead paid $11.9 billion for Kite, which is a Juno competitor. I thought it would come in less than that, because obviously Juno is going to be the third to market with a CAR-T for its indication in non-Hodgkin lymphoma, so I thought it'd be less than that. It was interesting to me. I had three big takeaways I wanted to share with listeners thinking about this deal and what it means. One of the takeaways was, it's actually a pretty fair price if Celgene is right about its forecast for peak sales on JCAR017, or liso-cel.

Harjes: Yeah, they're estimating $3 billion in peak sales. When you think about general buyout levels, you often see about 3 times peak sales, and that brings you right to the $9 billion total deal.

Campbell: And we've actually seen, in biotech, deals getting done at much higher levels. I've seen 5 to 7 times, and we're going to talk about one that's even bigger than that a little bit later on in the show. I think if you include the $1 billion or so upfront that Juno paid to get its 9.75% stake back in 2015, I think you're talking 3.3 times sales just on JCAR017.

And that's really interesting, because JCAR017 wasn't the only drug they got in this deal. They also get, what I think is, they insulated themselves a little bit against their bb2121 program with bluebird bio, because Juno was working on a drug for multiple myeloma that works similarly to bb2121. So, they protect the moat, as far as bb2121, with this deal. And they also now have a backbone gene therapy research program that they can leverage.

Juno is doing interesting work on TCR drugs, which is another approach to gene therapy. They're also working with Editas, which we've talked about on the show previously, working on CRISPR-Cas9 approaches to treating oncology conditions, cancer conditions. I think that's interesting as well, because theoretically that positions them, in 2025 or something, to maybe have a gene editing approach that they could roll out.

Harjes: Yeah, absolutely. There are a ton more interesting details of this story. If you missed last week's, Wednesday's, episode of Industry Focus, make sure to go back and check it out.

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