Juno Has A Setback: Why I Don't Think It Will Stop The Approval

| About: Juno Therapeutics (JUNO)

Summary

CAR-T cell therapy has been one of the most exciting emerging treatment strategies in immunotherapy.

Companies developing CAR-T cells for diseases like ALL have been on a huge upswing due to favorable results.

The risk of toxicity has manifested, with a high-intensity pre-treatment regimen leading to the deaths of several patients in the adult trial and a clinical hold of ROCKET.

While this is a substantial setback, I explain here why I don't think it will affect the ability for Juno's therapy to get approved.

Taking a patient's own T cells and engineering them to express a chimeric antigen receptor (CAR) that ramps up an immune response against B cells has been a darling of the immunotherapy community ever since the first reports of massive response rates in 2014 for patients with heavily pretreated acute lymphoblastic leukemia (ALL). Juno Therapeutics (NASDAQ:JUNO) has been a leader in the development of this technology for patients.

The excitement of CAR-T cell therapy for ALL has led to major gains for Juno, with market capitalization topping at $4 billion, which is massive for a biotech with no product yet brought to market. Heck, Juno was able to reach the valuation on the strength of phase 1 data and a partnership with Celgene (NASDAQ:CELG).

As recently as this year's ASCO meeting, we received an update on the efficacy of CAR-T cells in adult relapsed/refractory ALL, reporting favorable response rates and less toxicity in patients with a lower disease burden.

The news

On July 7, Juno announced that the pivotal ROCKET trial was put on clinical hold by the FDA as it looks into the deaths of three patients over the last quarter.

These patients had been enrolled in a recently added treatment arm. In the ROCKET trial, patients receive a "conditioning" regimen that helps to reduce the tumor burden.

Cyclophosphamide is the go-to agent in the ROCKET trial, but in Q2 the trial transitioned toward a more intense conditioning arm: fludarabine+cyclophosphamide. The rationale here is simple. Patients who can get to a minimal disease burden before adding CAR-T cells have higher response rates, better survival and lower risk of adverse events like cytokine release syndrome which can be fatal.

Unfortunately, the fludarabine+cyclophosphamide arm had three patients die over several months due to cerebral edema. And with that, the trial is shut down for an unknown period of time.

The fallout

Juno stock fell by more than 30% during trading on Friday, and the general consensus I'm seeing is quite negative for the company's outlook. Some suggest that any misstep will put the company far behind Novartis (NYSE:NVS) and Kite Pharma (NASDAQ:KITE) in terms of CAR-T cell development. Furthermore, these safety signals may be the death knell for Juno's platform, possibly for CAR-T cells altogether.

I have a few issues with this negative sentiment. Let me throw up a disclaimer: I cannot tell the future and am not making firm predictions here. I'm only relating some of the nuances that might be missed by the broader market when it comes to this technology.

1) The safety may not end up being that big a deal. The deaths occurred exclusively in the patients conditioned with the fludarabine arm. It seems reasonable that the FDA will allow the trial to continue with just cyclophosphamide. This could impact efficacy, but that doesn't mean CAR-T cells will suddenly start failing to help patients.

On the flipside, if Juno has to use a lighter conditioning regimen, that may increase the proportion of patients who have higher disease burden, which may increase the risk of other neurologic toxicity and cytokine release syndrome, both of which can be severely debilitating or fatal.

As it stands, most of the patients in the phase 1 study have been given the lighter dosing regimen so far (42 cyclophosphamide only, 9 fludarabine+cyclophosphamide so far, according to the ASCO presentation). At the meeting, the two patient populations were not broken down, but the rate of complete remission ranged from 77% to 90% depending on whether patients had morphologic disease or minimal disease. While we have not seen a comparison between the two conditioning arms (and we probably won't, given the safety concern), it is reasonable to assume that this complete remission rate will hold for patients.

It's also worth noting that the cyclophosphamide-only conditioning regimen has not been associated with any deaths due to cerebral edema so far, and this is in a wider patient population so the treatment experience is more robust.

Furthermore, it is crucial to consider context when assessing the safety concerns. We're talking about a treatment that has so far been associated with substantial response rates in patients who are doomed to very poor outcomes. Less than 10% of patients live another 5 years once they relapse, making new treatment options a high priority.

Normally, dangerous side effects can tank the development of a therapy, but this is usually in cases where the efficacy is marginal, so the risk/reward is quite out of whack. In hematologic cancers, clinicians often accept a bit more risk. Allogeneic stem cell transplant is a good example of this. It is a potentially curative treatment procedure for patients with different forms of leukemia. However, it is also associated with a high risk of treatment-related disability and death.

Still, clinicians use allogeneic stem cell transplant. Even though it's dangerous. Even though it's expensive. This is because patients need these treatment options, despite the risk. I think CAR-T cell therapy may be another candidate in this vein. It presents some risk, but if they can figure out how to identify risk factors associated with severe toxicity, the safety risk can be mitigated. Given that the cyclophosphamide-only regimen has so far been associated with less severe toxicity, and given the evidence of efficacy seen in these studies, I will be very surprised if the FDA does not allow the trial to proceed.

2) The competition doesn't matter right now. Novartis and Kite are in advanced pursuit of totally separate diseases using substantially different CAR-T cell platforms. Kite is attacking forms of non-Hodgkin lymphoma and Novartis is handling childhood ALL, and both expect to file for approval in 2017.

You might think that the competition from Novartis would be particularly worrisome; however, it is worth noting that ALL in children and adults is almost a whole different entity. If Novartis wins approval in children, it will certainly look to move to adults, but you will not see that right away. There will need to be a whole new set of trials.

As such, first mover advantage here doesn't really matter so much, and it won't matter until there is more significant overlap in the approvals, in my opinion.

Conclusion

In all, I would hesitate to dump too hard on Juno just yet. On the surface, a clinical hold looks very serious. Absolutely, we cannot dismiss the severity of patient deaths during a clinical trial. However, there is still a lot to find out about its CAR-T cell platform before we can say anything definitive.

I think the 30% drop and potential subsequent drops in the short term might be a significant overcorrection, because the potential market for its therapy hasn't changed at all. Patients with relapsed/refractory ALL are still in dire straits and effective options are still needed. This may prompt the FDA to move quickly.

Furthermore, I wouldn't take what is happening with Juno and extrapolate to Novartis or Kite. The latter saw a dip of nearly 7% on the Juno news. But its platform is entirely different; its disease of interest is completely separate; its patient population is different.

The outlook for CAR-T cell therapy still looks favorable, despite this setback. I cannot say for sure, but ALL remains a major priority for the FDA, and this treatment appears to be highly efficacious. It seems reasonable that ROCKET will start up again with cyclophosphamide-only as the treatment arm, and Juno will resume its climb.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.