Juno Shares Exploded Post-IPO. Should You Consider Buying Them?

One of the most exciting companies in biotech just had one of the year’s most exciting initial public offerings.

Shares of Seattle-based Juno Therapeutics increased 60% from their listing price to $38 in late morning trading in the biggest biotech IPO of the year. The company will have a total market capitalization of $2.85 billion. Juno is raising $265 million from the offering, which will add to the $300 million war chest that Juno raised in private offerings.

When it began its roadshow, Juno was expecting to sell shares at $16 to $18. The much higher price is a sign of the excitement around the technology that Juno is developing: what are known as chimeric antigen receptor T-cells, or CARTs, genetically modified versions of a patient’s own white blood cells that have been trained to kill cancer.

Investors (as well as scientists and doctors) are exhilarated because these cells have the ability to do amazing things in patients with blood cancer who have failed other treatments.  Patients like Milton Wright, who I met while reporting a cover story on CARTs earlier this year. At age 17, he’d gone through two previous bouts of acute lymphoblastic lymphoma. He was modeling for The Gap and playing football when the disease came back. His own T-cells were removed, genetically modified using a virus, put back into him, and within a few weeks the cancer was gone.

But he also got fevers from the treatment, which can be much, much worse for some patients. This is called cytokine release syndrome, and it’s a serious side effect for CART treatments. Across various trials presented at the recent American Society of Hematology meeting, Juno CARTs resulted in complete remissions of between 60% and 90% of patients treated, depending on the disease. But researchers also saw cases of cytokine release syndrome, including one death, and neurological problems, including delirium. Not every patient who gets a complete remission remains cancer free.

Juno is not alone in the CART field. Novartis seems to have an early lead. Kite Therapeutics, which has a market capitalization of $2 billion, is targeting B cell lymphomas, an area where Juno and Novartis aren’t as far ahead. Celgene and Bluebird are collaborating on CARTs, and smaller companies, like Bellicum and Cellectis, are also in contention with technologies like CARTs with off switches, so they won’t keep working indefinitely, and off-the shelf CARTs that don’t need to be made from a patient’s own cells.

It’s early days for this field. As Stan Riddell of the Fred Hutchinson Cancer Research Center, one of Juno’s co-founders, told me earlier this year: “There have been more articles in the lay press about patients treated with CART cells than there have in the scientific press. We're talking about a handful of patients. Now what we need is really rigorous clinical trials that address the questions of how CART cells work and what the side effects are and that data.”

That’s the challenge for all the CART companies, but don’t expect it to happen slowly. Novartis, Juno, and KITE all say they expect to file for approval with the Food and Drug Administration to sell the CARTs for very sick patients in 2016. (Novartis started first, spent $43 million on a plant built by the now-defunct cell therapy company Dendreon, and seems to be likely to reach patients first.)

So what advantages does Juno have to warrant a valuation that is 50% greater than Kite’s? Well, for one thing, a lot of cash. But the other is that it is a company created from more of the scientific leaders in this field than any of its competitors. Novartis’ entire effort is based on the CART technology developed by Carl June at the University of Pennsylvania. Kite’s comes from immunotherapy pioneer Steve Rosenberg at the National Cancer Institute.

Juno is instead based on three separate programs: one based at Memorial Sloan-Kettering in New York, a second from the Fred Hutch, and a third (related to the Hutch work) from Seattle Children’s. The idea is that by being connected to a whole network of laboratory researchers and that by developing similar CART programs in parallel, Juno will have a scientific edge over other CART developers in creating cells that have fewer side effects and better efficacy.

Right now, though, it’s hard to know whether that will pan out. It’s also more difficult and expensive to manage more programs at once. Those are all questions investors should think about before buying Juno shares.

A few more big questions we don’t have answers to: How much will CART therapy cost? In some cases, it is replacing bone marrow transplants that cost $350,000 per patient, and this has been proffered as a potential cost for the treatment. But some CART patients still go on to have bone marrow transplant anyway. Novartis Chief Executive Joseph Jimenez has told me that figure is far too high as a price.

And what about intellectual property? The situation with CART cells appears to be very different from that with drugs, where often a single patent will allow a company to maintain a monopoly. There’s a lot of overlapping intellectual property, but most sources I speak to have trouble imagining a judge ordering an injunction on a lifesaving treatment. These are likely to result in some CART companies paying royalties to others, but the main question is how they can develop the safest, most effective treatments and deal with the high manufacturing and distribution costs inherent in this kind of treatment. It’s in these areas that Juno’s expertise should prove an advantage.

Another thing worth mentioning: right after an IPO pop may not be the best time to buy. Even in the fast-paced world of CARTs, there's going to be time to figure out exactly how good an investment Juno is.