Earlier this year, we looked at a privately held biotech called Jounce Therapeutics. At the time (Mid July) the company had struck a deal with Celgene Corporation (NASDAQ:CELG), which could be worth up to $2.6 billion longer term, and was immediately worth $225 million by way of an upfront payment, and a further $36 million equity investment. It’s a pretty far reaching deal, but it centers around Jounce’s lead asset – an immuno-oncology drug called JTX-2011. We’ll get to this asset in a bit more detail shortly, but it’s worth noting that – at the time Celgene committed $225 million for an option to (primarily) it – 2011 was preclinical.
That’s a big outlay for a preclinical asset, and one that had many scratching their heads as to exactly what is so unique about the drug that makes it worth Celgene taking such a risk this early on.
Well, Jounce has just filed for an $75 million IPO, so it’s time to try and figure that question out. If we can aim to justify Celgene’s risk, then we can also justify an investor’s risk in taking part in the IPO.
For the purposes of this attempt, we’re going to focus on the JTX-2011 asset, as that’s where the vast majority of the value lies right now. Having said that, we’ll also briefly point out a feature of the company’s pipeline that may be a longer term focus for Celgene. Getting back to 2011, however, the drug is a solid tumor target, and since the Celgene deal closed, it’s moved in to a phase I/II clinical trial called ICONIC. It is a monoclonal antibody that binds to and activates what’s called the the Inducible T cell CO-Stimulator (ICOS). These sorts of monoclonal antibody therapies will be pretty familiar targets for many reading – it’s a space we’ve focused on pretty heavily over the last couple of years or so – but this one’s slightly different. Very few (no late stage) development candidates target ICOS, and Jounce is hoping that by doing so, it can recruit certain types of T cells that wouldn’t normally respond to standard immuno therapy. The general MOA remains unchanged, but unlike, say, something like CAR-T, where the cells are engineered to recognize a specific antigen, this drug is programmed to activate ICON, which should – theoretically – improve the chances of the tumor responding (negatively of course) to the therapy.
Now, the important thing here is that this is essentially a second generation of immunotherapy, one that sort of combines the MOA’s of some already blockbuster first generation assets. ICOS is a member of the CD28 family of cell surface proteins, which is a family that includes PD-1, the target of Merck & Co., Inc. (NYSE:MRK)’s Keytruda and Bristol-Myers Squibb Co (NYSE:BMY)’s Opdivo, as well as CTLA-4, the target of Yervoy, another of Bristol’s lead oncology therapies. Combined, we’re looking at somewhere in the region of $1.5-2 billion annual revenues for these three as things stand, a number that is expected to increase dramatically between now and 2022. If Celgene can get this one to market with Jounce, therefore, and offer a consolidated treatment that essentially combines Merck’s and Bristol’s lead assets in the space, or even works in combination with those mentioned to improve on clinical benefit, it could make back its $2.5 billion in five years. That’s where we think the company has seen value, and that’s why it’s willing to pay hundreds of millions up front, and potentially a further couple of billion in milestones, to Jounce for a preclinical asset.
As mentioned earlier, there’s also w few assets included in the deal that focus on an even more advanced form of immunotherapy, targeting macrophages. These assets combine the immunomodulary effects of the current SOCs in the space with an action that sees it reduce a tumor’s suppression capability. This double barreled treatment should – theoretically – enhance the effects of even newer generation assets like JTX-2011.
That’s for some point farther downs the line, however. Right now, it’s all about JTX-2011 and the ICONIC trial.
To answer our initial question, then, is there any upside on an exposure to the IPO? We think there is. And Celgene is always nice to have as a due diligence partner.
