Juno Therapeutics: A Short-Term Trading Opportunity?

| About: Juno Therapeutics (JUNO)


Shares of immunotherapy concern Juno Therapeutics have dropped by a third since a key trial was suspended in November. The stock is near its lowest point as a public company.

However, Juno Therapeutics has potentially positive events on the horizon in the weeks ahead.

The stars seem aligned for a short-term trading opportunity or a solid entry point for longer-term investors.

"Get action. Seize the moment. Man was never intended to become an oyster." - Theodore Roosevelt

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Juno Therapeutics (NASDAQ:JUNO) has recently sold off late in November on news that it had suspended a Phase II trial for its JCAR 015 treatment of adults with relapsed or refractory B-cell acute lymphoblastic leukemia {ALL} after two patients suffered cerebral edema - both of who have died. The stock has declined approximately $30 a share to the $20 level since this announcement on November 23rd.

This is a simple (and sad) story. Juno Therapeutics announced on November 23rd that it had placed a Phase II clinical trial (ROCKET) on hold after two patients suffered cerebral edema. Both patients have died. The trial features its JCAR 015 treatment for adults with ALL. This is the second time the ROCKET trial has been placed on hold. A brief (five-day) hold occurred in July when two people died. It was believed that the primary co-factor in the July deaths was the addition of fludarabine to the pre-conditioning regimen. The trial resumed with fludarabine removed going forward. As a result, these more recent deaths call into question whether the problem is fully understood. Shares of Juno are off some $10 apiece since the trial suspension was announced.

So why buy it for a trade?

Despite the deaths, JCAR 015 has proven to be quite efficacious (in a Phase I ALL trial, complete response was observed in 23/30 (77%) patients with morphologic disease and in 18/20 (90%) patients with minimal disease) and the patients in these trials lack any meaningful alternatives. In other words - at the risk of being blunt - they are high-risk patients anyway. Therefore, it can be reasoned that chances for a resumption of this trial with some modification are much greater than a shutdown. As an aside, there is a lot of irony in a trial where immune therapy is being featured, but it is being given in conjunction with a known immune suppressant (chemotherapy).

According to Juno's management, the FDA views JCAR 015 and JCAR 017 as different drugs, so even if the worst-case scenario plays out for JCAR 015 (i.e. a discontinuation of the trial), there is little chance of any collateral damage to its promising JCAR 017 treatment. JCAR 017 is currently in Phase I studies for adult patients with relapsed or refractory B-cell NHL and a Phase I/II study for children and young adults with relapsed/refractory CD19+ Leukemia. JCAR 017 has not experienced any abnormal health setbacks and has proven early on to be quite efficacious.

Juno is presenting at the 58th American Society of Hematology Annual Meeting (ASH 2016) December 3-5. The company's executives will make seven oral and four poster presentations at this conference. There should be much positive data concerning company's immunotherapy protocols to be disseminated at these presentations. This should help the stock rebound nicely. In fact, yesterday the company released positive Phase I trial data from its compound JCAR 014 showing favorable results in heavily pretreated patients with chronic lymphocytic leukemia who failed to respond to Imbruvica.

Competitors such as Kite Pharma (NASDAQ:KITE) and Bluebird Bio (NASDAQ:BLUE) will also be making presentations at the conference, but this should be a situation where all boats get lifted. Immunology has the promise to be a meaningful alternative to the cut, burn, and poison (surgery, radiation, and chemotherapy) cancer modalities that have yielded very mixed results.

In conclusion, the bad news from Juno late last month that cratered the stock more than 30% should be followed by good news in the very near future. I have been accumulating some shares in JUNO this week starting at $22 a share. Thanks to the overall weakness in the biotech sector this week, the shares have fallen to around $20 a share.

If we do not get a pop in the next week or two due to some of the events outlined above, I plan to sell my position and take a small loss. However, the short-term risk/reward on JUNO looks worthy of a small prop bet into next week. Both Leerink Swann and JPMorgan have chimed in on Juno Therapeutics this week. The former reiterated a Buy rating and the latter a Hold. Ironically, both have the same $34 a share price target currently on JUNO, some 70% above current trading levels.

For longer-term minded investors, this recent drop could provide a more than solid entry point to one of the key, small CAR-T players in the emerging area of immunotherapy. It is important to keep in mind that JCAR 015 is just one of several early & mid-stage candidates within Juno's pipeline, which is extensive.

The median analyst price target on Juno currently is $39 a share. With the recent decline, the stock has a market capitalization of just $2.1 billion. The company ended the third quarter with $1.04 billion in cash and marketable securities on the balance sheet.

Finally, remember that biotech stalwart Celgene (NASDAQ:CELG) took a 10% equity stake in Juno in June of 2015 that valued this immunotherapy concern at a cool $8 billion. Several aspects of Juno's pipeline have advanced since then and you can now pay ~25 cents on the dollar to what Celgene did for Juno Therapeutics just 18 months ago.

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Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long CELG, JUNO.

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.

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