Juno Therapeutics: Saving The Best Biotech IPO For Last In 2014

| About: Juno Therapeutics (JUNO)

Summary

Four key drugs in clinical trials.

IPO is set to mirror the success of Kite Pharma and Bluebird Bio.

Strong early results show 90% remission rate in acute lymphoblastic leukemia.

There have been a huge number of biotech companies hitting the open market with initial public offerings in 2014. This comes at a time when small companies need millions of dollars to get their drugs through trials. The majority of the biotech stocks have fared well and seen an increase in their current price over the IPO price. With recent IPO valuations of similar companies, strong partnerships, and impressive trial results, I believe Juno Therapeutics (NASDAQ:JUNO) is going to be an IPO you do not want to miss out on.

Juno is a well-known independent biotech company that has received major funding, and promises to be a hot IPO to end the year. The company is using TCR technology (T-cell receptor) to treat major diseases. Essentially, T-cells are taken out of the body and enhanced with chimeric antigen receptors (often referred to as CARs). The new cells are then inserted back into the body. The enhanced T-cells identify and kill infected or abnormal cells.

Juno has also signed a couple of exciting recent deals that lead into this anticipated IPO. In December, Juno signed a deal to license a complementary candidate from the National Cancer Institute. Juno paid an undisclosed sum to gain the license of an immunotherapy that targets CD22, a protein expressed on B cells in leukemia and lymphoma. The National Cancer Institute was working with Opus Bio to begin enrollment in a Phase I study, testing children and adults with relapsed acute lymphoblastic leukemia or non-Hodgkins lymphoma.

This deal brought Juno's portfolio up to four clinical CAR-T candidates. Here is a look at the current key pieces of the portfolio:

  • JCAR015: To treat acute lymphoblastic leukemia, had a stellar Phase I, received breakthrough therapy designation last month.
  • JCAR017: To treat acute lymphoblastic leukemia and non-Hodgkins lymphoma.
  • JACAR014: To treat various BB cell malignancies in early studies.

The company's gem is JCAR015 currently, which just posted stellar results for the treatment of acute lymphoblastic leukemia. The treatment spurred complete remission in 24 of 27 patients (89% rate). Broken down further, patients with a determined "low disease" saw complete remission (13/13 patients). Those deemed "high disease" level saw remission in 11 of 14 patients. A separate study for JCAR017 saw an 85% remission rate among 13 pediatric patients.

Before the end of 2015, Juno plans on initiating a Phase III trial for acute lymphoblastic leukemia. Currently, ALL patients have a 10% chance of responding to approved therapies. It is for this reason that a win by Juno here would greatly impact the market for ALL. The next year will also see a Phase I/II trial for non-Hodgkins lymphoma and five more additional candidates in the Phase I stage. As you can see, 2015 is already shaping up to be an exciting year with catalyst rich trial results coming, which could make or break this IPO investment for shareholders.

Juno Therapeutics has had strong published early results of its treatments. The company's lead drug for acute lymphoblastic lymphoma saw remission rates above 90%. With the proceeds from the IPO, Juno plans to spend the majority on research and development and furthering the existing drugs. Here is how they intend to spend the proceeds:

  • $25 million on JCAR015 filing.
  • $20 million on JCAR017 getting to registration trials.
  • $45 million on internal research and development.
  • $20 million on manufacturing operations.

The company's strategy laid out in the prospectus includes:

  • Expedite clinical development, regulatory approval, and commercialization of our CD19 product candidate
  • Invest in our platform to maximize the beneficial outcomes for cancer patients
  • Use our process development and manufacturer capabilities as a competitive advantage
  • Leverage our relationships with our founding institutions, scientific founders, and other scientific advisors

Popular medical news and research website Fierce Biotech highlighted Juno Therapeutics as one of its Fierce 15 companies for 2014. The site believes Juno is only scratching the surface of CAR-T's potential. Juno has already validated targets for some solid organ tumor treatments as well, according to the report, promising possible future trials for investors to look forward to.

The potential and addressable market, combined with the need for drugs in Juno's targeted areas, creates a huge buying opportunity for this IPO. In the United States, more than 6000 patients are diagnosed with acute lymphoblastic leukemia every year. More than 70,000 people in the U.S. are diagnosed with non-Hodgkins lymphoma each year. These areas continue to be seldom treated and the 89% remission rate in early testing has got to be encouraging for those patients currently suffering.

I waited to write this article as I believed the initial pricing seemed low. That turned out to be correct when Juno announced Tuesday it was raising its IPO price range to $21 to $23, up from a prior range of $15 to $18. Juno plans on offering a low total of 9.25 million shares. At the time of the IPO, there will be a total of 76.166 million shares of Juno out. That new pricing boosted the market capitalization to $1.7 billion, based on a price of $22.

Juno has raised more than $300 million in private funding before this IPO. The company most recently raised money back in August in a $134 million round. That round included 10 public funds and also prior investors. One of those prior investors was Jeff Bezos, the CEO and founder of Amazon.com (NASDAQ:AMZN).

If the hype in Juno and the large amount of funding isn't enough to convince you that the company is worth billions of dollars, take a look at two recent biotech IPOs. Kite Pharma (NASDAQ:KITE) went public in June this year. The company priced its shares at $17, raising $128 million. Since that time, shares have risen to $54 and have a market capitalization above $2 billion. Kite started its IPO pricing at a $12 to $14 range, before raising it to $15 to $16, and ultimately pricing at $17. Kite is a Juno competitor with a collaboration with the National Cancer Institute as well to treat similar areas.

Bluebird bio (NASDAQ:BLUE) is one of the hottest companies in recent weeks. Shares were up 72% Tuesday of last week and are trading in the $90 range. Bluebird now has a market capitalization above $2.5 billion. Bluebird had planned to sell 5 million shares in a range of $14 to $16 in its IPO. The company ultimately sold 5 million shares and saw its price hit $25 at open. Bluebird uses CAR T-cell technology as well. The company has a collaboration with Celgene (NASDAQ:CELG) that gave them $75 million up front, while Celgene received the rights to license any product in the future.

As you can see, these two IPOs were incredibly successful and doubled in a matter of weeks. Both companies trade with market capitalizations over $2 billion, despite no big drugs on the market. Juno is incredibly similar to these companies and I believe the IPO could follow the same path. Juno has already raised its pricing range, will likely price above that range, and then watch its shares shoot up more than 20% on the open market. Then months down the road, shares will take off again on trial results.

There is of course always risks with investing in any biotech company. Juno will be no different as it has no approved drugs or treatments on the market. The company could always see its stock fall sharply on failed trials or safety concerns. An example of this was when the FDA halted a trial conducted by Juno Therapeutics due to the death of two patients. After a study ruled the patients having heart condition and seizures, the trial resumed. Had the company been public at the time, shares likely would have been hammered on the halt.

Another big risk comes from the market of immunotherapies, which is beginning to get crowded. Juno will compete directly with Novartis (NYSE:NVS), Celgene (with partner Bluebird bio) and Kite Pharma. Johnson & Johnson (NYSE:JNJ) also recently entered the market with a new $292 million partnership. Big pharma is becoming more interested in this market, which means more competition for Juno, but could also point a clear arrow towards a late stage acquisition on more promising Phase II/III results. It's worth noting that Juno is also in a pending legal battle against Novartis regarding some of the technology used in the field.

Despite the small risks, I believe Juno Therapeutics is a home run stock and one of the best biotechs to put your money into at the current time. Shares will take off on Friday, but it is a matter of how much and where they land. I will be attempting to buy shares and believe a fair first day price will be in the $25 to $30 range. I think by the end of 2015, trial results could carry the stock to a $3 billion market capitalization, or close to $39 a share.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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