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What's Juno Therapeutics Worth to Celgene?

Todd Campbell, The Motley Fool

Celgene Corp. (NASDAQ: CELG) owns ex-U.S. rights to Juno Therapeutics' (NASDAQ: JUNO) lead drug, liso-cel (formerly JCAR017), and it owns nearly 10% of Juno Therapeutics' stock, yet that may not be enough to satisfy Celgene's desire to become a gene-therapy leader. According to The Wall Street Journal, Celgene is thinking about acquiring Juno Therapeutics outright. If the rumors are right, a buyout could cost Celgene billions of dollars, so let's take a closer look at what's at stake.

First, some background

Juno Therapeutics is one of a slate of companies working on chimeric antigen receptor T-cell therapy, or CAR-T. These complex gene therapies re-engineer a patient's T-cells so that they can more easily spot, bind to, and destroy cancer cells.

A businessman points at dollar signs floating in front of him on a monitor.

IMAGE SOURCE: GETTY IMAGES.

So far, the data suggests that liso-cel could be the safest and most effective CAR-T developed yet for non-Hodgkin lymphoma. At the six-month mark, it delivered a complete response rate of 42%, and at the dose being studied in pivotal trials, it did so with no observed cases of severe cytokine response syndrome (CRS), a life-threatening condition that's been observed in competing CAR-Ts.

For perspective, Gilead Sciences' (NASDAQ: GILD) Yescarta, which won FDA approval for use in refractory or relapsing adult patients with certain types of large B-cell lymphoma last October, had a complete response rate of 36% and a grade 3 or 4 CRS rate of 13% at six months.

Celgene's ties to Juno Therapeutics

With a potential filing for FDA approval later this year, it wouldn't be too surprising if Celgene is considering a bid.

In 2015, Celgene paid Juno Therapeutics $1 billion for options to license certain CAR-Ts, including liso-cel, and a nearly 10% equity stake at an aggregate cash price of $93 per share. 

Celgene executed an option that gives it ex-U.S. and China liso-cel rights in 2016, and between its annual top-up option and a private placement it did in September 2017, Celgene owns 11,109,160 shares, or 9.76%, of Juno Therapeutics already.

Ex-U.S. licensing rights and its ownership stake mean Celgene has exposure to liso-cel, but Celgene might prefer to do an outright acquisition to lock up 100% of liso-cel's North American revenue opportunity.

Don't expect a bidding war

Juno Therapeutics' CAR-T portfolio would probably be attractive to many biopharma companies. However, Celgene's ownership stake makes it less likely that a third party will swoop in with a hostile offer that puts Celgene on its heels, or that Celgene would try to do a hostile deal if it couldn't negotiate an acquisition with Juno Therapeutics' board.

Juno Therapeutics' officers, directors, and 10% or greater stockholders own about 23% of Juno Therapeutics' equity, and under certain circumstances, Juno Therapeutics would have to provide Celgene with a 30% equity stake.

Since Celgene has members on Juno Therapeutics board and it can vote its shares against a change of control, the potential for a Celgene competitor to successfully acquire Juno Therapeutics without Celgene's support isn't very likely.

What it will cost

Given today's move higher, many people think a deal could be in the works, especially since Celgene is arguably negotiating with itself.

It's anyone's guess what a purchase price would be, but it might not rival the $11.9 billion Gilead Sciences paid last year to acquire Kite Pharma to land Yescarta. Unlike Celgene, Gilead Sciences didn't have any rights to Yescarta or ownership of Kite Pharma beforehand. Also, Yescarta was more derisked than liso-cel because pivotal trial results were already available. 

Furthermore, Yescarta deserved a buyout premium at the time of Gilead Sciences' acquisition because it was on track to become the first-approved CAR-T in the NHL indication. That won't be the case with liso-cel. In addition to Yescarta's approval already, the FDA recently awarded Kymriah a priority review in this indication, clearing the way for there to be two competitors on the market by the time the FDA weighs in on liso-cel.

If Juno Therapeutics' board isn't willing to negotiate a favorable price, Celgene also has the option of sitting on its hands. Celgene has the right to increase its ownership to 19.99% at any point between June 29, 2019, and June 29, 2025, and to 30% between June 29, 2024, and the expiration of the collaboration agreement.

Having said all that, Celgene reports that spending on non-Hodgkin lymphoma (NHL) medicine could eclipse $17 billion in 2022, and it thinks liso-cel's peaks sales opportunity exceeds $1 billion. If so, then a purchase price around or slightly above Juno Therapeutics current $7.7 billion market cap doesn't sound crazy to me.

 

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Todd Campbell owns shares of Celgene and Gilead Sciences. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool recommends Juno Therapeutics. The Motley Fool has a disclosure policy.