Celgene Needs a Boost, But Juno Therapeutics Isn't It

(Bloomberg Gadfly) -- Celgene Corp. apparently heard investor complaints about the paltry size of its last deal.

The Wall Street Journal reported Tuesday night that Celgene is hunting bigger game in Juno Therapeutics Inc. -- one of several companies developing so-called cell therapies, which use modified human immune cells to fight cancer. 

It's easy see why the company might be motivated to do a deal. Celgene's shares slumped after it slashed long-term guidance last year. But buying Juno would be a risky bet on a catch-up effort in a crowded field.  

Celgene Needs a Boost, But Juno Therapeutics Isn't It

For a while, Juno was a tarnished name. It had a chance at one point to bring the first cell therapy to market, but patient deaths forced it last March to shelve its treatment that was furthest along. 

It has recovered since then, producing promising efficacy and safety data for next-up treatment JCAR17 in lymphoma patients. Should current data hold up, it may prove superior to rival offerings from Gilead Pharmaceuticals Inc. -- which bought fellow cell-therapy pioneer Kite Pharma Inc. last summer -- and Novartis. But the product is unlikely to hit the market until 2019. Gilead's Yescarta is available in the U.S. to the patients that JCAR17 is intended to treat. Novartis's Kymriah will most likely become available this year.

There's a real risk that Juno's data will deteriorate, rendering the drug less competitive. And its rivals may make good use of their head starts to entrench themselves in the market. 

This generation of cell therapies as a whole has issues. They have to be made to order for individual patients -- an expensive manufacturing challenge -- and cost $373,000 and up for each course of treatment. They also have potentially deadly side effects, which make the treatments even more expensive to administer and will most likely slow acceptance. Bloomberg has reported long waiting lists, reimbursement issues and slow uptake for Yescarta

Celgene itself estimated JCAR17's peak sales potential at around $1 billion dollars in presentation slides at the J.P. Morgan Healthcare Conference in early January -- lower than an alternative cell therapy for a different condition from Celgene partner Bluebird Bio and below analyst consensus for rival Yescarta.

Celgene Needs a Boost, But Juno Therapeutics Isn't It

As a value play, a deal for Juno is middling. Celgene already owns a chunk of the company and some of its drug rights as part of an expensive 2015 deal, which would presumably tamp down the purchase price. Juno most likely wouldn't cost the $12 billion Gilead paid for Kite but much more than the $1.1 billion it paid upfront last week for Impact Biomedicines, a deal that underwhelmed investors. 

But earlier stage cell-therapy players are cheaper. And if Celgene was truly bargain hunting, it would have been better served by approaching the company early last year when its market cap fell below $2 billion. Before Celgene's approach, Juno's valuation had already more than doubled to $5.2 billion as of the close of regular trading on Tuesday. Shares of Juno rose more than 44 percent after hours.

There are appealing aspects to the deal. JCAR17's early data is intriguing. And while the market is intently focused on that lead product, Juno has an interesting longer-term pipeline as well. Because the companies have been collaborating for some years, Celgene presumably has better than average insight into Juno's potential.

But if Celgene is to reassure investors that it can grow through the eventual loss of its mega-blockbuster drug Revlimid, doubling down on Juno likely isn't the answer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

To contact the author of this story: Max Nisen in New York at mnisen@bloomberg.net.

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