Ignore Event Driven Sentiment, Juno Therapeutics Inc (NASDAQ:JUNO) Looks Incredibly Cheap


Juno Therapeutics Inc (NASDAQ:JUNO) just announced a clinical hold on its lead CART candidate, and markets have sold off on the company more than 25% premarket on Friday. Yes, the driver behind the hold is tragic, but there has never been a better opportunity to pick up an exposure to either Juno or CART. Here’s why.

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First, let’s look at the drug. It’s a CART candidate called JCAR015, and it’s currently being tested in a phase II (now, of course, on hold) with a target indication of relapsed or refractory B cell acute lymphoblastic leukemia. For those not familiar with CART type therapy, it’s a new generation of cancer treatments that aims to stimulate a patient’s immune system into targeting and attacking cancerous cells. Specifically, and in the case of JCAR015, Juno takes a fragment of an antibody, called a single chain variable fragment, or scFv, and use this to engineer a T cell so that it it produces what’s called a chimeric antigen receptor (the CAR element). The result is a CART cell, and these can be replicated in a laboratory environment to create a treatment. When introduced into a patient’s body, the T cells target the cells that line up with their engineered receptors, which in this instance, are the B cell acute lymphoblastic leukemia cells.

So what’s wrong? Well, in the phase II ROCKET trial, a total of three patients in the active arm have now died, all of the same cause – cerebral edema (swelling in the brain due to excess water). There are around 20 patients currently enrolled, and Juno hopes to enroll another 90 before trial end. Three deaths in a 20 patient roster is not a good count, and the FDA has instructed a temporary discontinuation must be put in force while it and Juno investigate the situation.

Now, this is the important part.

Juno has already come out and said it has identified the issue. Specifically, it suggests a combination of a current standard of care chemotherapy drug called fludarabine and the company’s experimental CART candidate JCAR015 is the root of the edemas. Patients in the trial get a range of chemotherapy drugs while undergoing concurrent CART treatment, and in previous studies, Juno had some data that suggested the inclusion of fludarabine in this range of chemo drugs enhanced the efficacy of JCAR015. Mid way through ROCKET, therefore, the company decided to start adding fludarabine to some of its patients’ treatment regimen. All three of the patients that died of cerebral edema were in this subpopulation of patients that combined JCAR015 with fludarabine. Juno’s conclusion, therefore, is that the combination of the two is the root of the deaths, and – here’s the kicker – that the exclusion of fludarabine from the trial should eliminate the risk.

The company has submitted data to the FDA supporting this hypothesis, and expects to continue the trial once the issue is confirmed by the agency. To put this another way, this is probably one of the most easily resolved clinical holds in recent oncological history – assuming Juno is correct in its assumptions. More importantly, it seems to relate to a combination that can easily be avoided on commercialization with some relatively non restrictive labeling.

Despite this, and as mentioned in the introduction to this piece, Juno will open today’s session at a 25% discount to its pre-hold market capitalization.

So what’s next? Well, if all is as Juno thinks it is, there should be no reason for the FDA to extend the hold beyond a small investigational period. The standard response time is around 30 days, meaning the director in charge of the hold investigation has a maximum (excluding special circumstances, and it doesn’t look like there are any here) of 30 days to issue a response to Juno’s claim that the removal of the fludarabine addition from the trial will resolve the issue. With this in mind, we could be seeing a trial continuation before the middle of August. There’s no reason markets should remain down on the company if we see a swift resolution (and this author believes we will), so the current price is essentially a short term opportunity to get into Juno and CART at a 25% discount. A quarter off voucher, if you will. Obviously, there might be something we don’t know, but given currently available information, that described above seems the most logical path forward.

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