Celgene Values Juno at Twice Market Rate; Valid Upside Target?

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Juno Therapeutics

Just last week, we published an article highlighting the potential of CAR-T therapeutics in the oncology space, and suggested that – as a result of the continuing advancing of its pipeline – one of the most attractive methods of gaining exposure to the space for a large biotech was through an acquisition or a collaboration with Juno Therapeutics Inc. (NASDAQ:JUNO). At the time, we highlighted a quote from AstraZeneca (NYSE:AZN) Chief Executive Officer Pascal Soriot suggesting that his company may be interested in acquiring Juno, and we saw that this comment translated to what eventually amounted to an approximate 10% gain in Juno stock during the New York session that day. Now, off the back of our previous suggestion, an incumbent biotech company has indeed made a large investment in Juno and – in doing so – has leapfrogged a number of its competitors and become one of the leading companies in the CAR-T oncology space. However, it was not Astrazeneca. So, with this said, what is involved in the recently announced deal, is set to benefit, and what can expect going forward? Let’s take a look.

Shortly after markets closed yesterday evening, Celgene Corporation (NASDAQ:CELG) and Juno announced jointly that they had embarked upon a global corporation targeted at the development and commercialization of immune therapies. Specifically, that the corporation will leverage T-cell therapeutic strategies to target oncology and autoimmune sufferers. Alongside the announcement, both company CEOs put forward statements in support of the corporation. Bob Hugin, Chairman and CEO of Celgene had this to say:

“This transaction strengthens Celgene’s position in the emerging and transformative area of immuno-oncology… Juno has assembled world class experts and built impressive capabilities and technologies in the areas of T cell biology and cellular therapy.”

While Hans Bishop, CEO of Juno stated:

“Celgene is the ideal partner for Juno to help us realize the full potential of our science and clinical research while maintaining the independence we, our employees, partners, and investors believe is so critical for true innovation.”

That both sets of management are pleased with the collaboration comes as no surprise; after all, Celgene now has access to a strong pipeline of oncology breakthrough treatments and Juno has a huge financial backer going forward. What is a surprise, however, is the terms of the deal. At deal close, Juno will receive $150 million outright, and Celgene will purchase more than 9 million shares of Juno stock at – wait for it – a whopping $93 per share. Juno traded at last close around $46 a share. Meaning, that Celgene is paying a 100% premium on market valuation. The total amount Celgene is paying to gain access to Juno’s pipeline is close to $1 billion – just shy of 25% of the latter’s current market capitalization. On the news, Juno stock soared 40%, and will likely gain further throughout the rest of this week. With this said, any corrective behavior could present an opportunity to get in on a bull run at a discount.

So, why has Celgene taken such a position? Well, as mentioned, Juno has a number of candidates currently in development for oncology treatment – primarily based around immune therapies, which are hot topic in the biotech space at the moment. You can see the company’s pipeline here, but just to address the most recent advance, Juno announced on June 29 – just hours before the Celgene announcement – that the FDA had accepted the application for an investigational new drug called JCAR017 – and that’s right, you guessed it, it’s another CAR T cell product candidate, this time targeting non-Hodgkin’s lymphoma. The treatment has already expressed positive results in a phase 1 study when targeting lymphoblastic leukemia in children, and this fresh incidents could add value to an already promising candidate.

So, with all this said, what can we expect going forward? Well, the collaboration has a ten-year lifespan. During this period Celgene will develop a number of Juno pipeline candidates globally, while Juno will develop them domestically in the US. Rights will be shared, and global costs will be shared 70% Celgene and 30% Juno. The deal is expected to close around Q3 2015, so the primary takeaway here is that – with Celgene valuing Juno at $93 a share – there will likely be some upside momentum in the company’s stock between now and the closing of the deal. Therefore there is, it would seem, an opportunity to get in a a large discount to potential future value at current prices.

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