In every market cycle there are deals whose subsequent unravelling marks the peak of unrealistic expectations; think Bristol-Myers Squibb’s $1bn investment in Imclone in 2001, or AstraZeneca acquiring Medimmune for $16bn in 2007. Then there are those, like Gilead Sciences buying Pharmasset for $11bn in 2011, which at the time look overpriced but actually pay off in spades.
What everyone wants to know is into which of the two categories yesterday’s monster $1bn tie-up between Celgene and Juno falls. Unfortunately no fundamental valuation can come close to giving an answer, since the relevant metrics just do not exist.
Certainly, pumping $846m into new Juno equity at double yesterday’s closing price plus giving it $150m of up-front cash could call into question Celgene’s reputation as a canny dealmaker. Juno has just a handful of early-stage projects, and all Celgene has bought is a 10% stake and an option to strike deals sometime later.
And the actual tie-up is rather sketchy. Last night’s analyst call was marked by puzzlement from the sellside as to what precisely it involved, though some have been quick to liken it to Roche’s groundbreaking Genentech deal in the 1990s.
What we do know is that over the next 10 years Celgene will be able to opt into practically all of Juno’s pipeline, in return for up-front fees and royalties, as well as buying further Juno equity up to a 30% stake. The points at which opt-in rights can be exercised and equity purchased are predetermined; the later Celgene opts in the higher the exercise fee and royalty rate.
Celgene expects a 2020 first product launch, suggesting that Juno is not even the most advanced CAR-T player. That honour belongs to Novartis, which is further ahead in manufacturing capability, and is targeting US and European filings for CTL019 in 2016 and 2017 respectively.
For its part Juno can opt into Celgene assets excluding next-generation IMIDs, AstraZeneca’s MEDI4736 and an anti-BCMA project partnered with Bluebird. Juno and Celgene executives highlighted the potential of using CAR-T in autoimmune disease, but the general theme was of accelerating development, including starting a pivotal ALL trial with a lead CAR-T project shortly.
Winners and losers
Celgene’s chief executive, Bob Hugin, said the Juno tie-up had come together relatively recently, which probably explains the lack of detail. In hindsight, Celgene amending the Bluebird deal, and stepping back from Bluebird’s CAR-T technology, was the giveaway.
Thus Bluebird is a clear casualty of Celgene’s $1bn bet, and investors must again look on it as basically a gene therapy play – notwithstanding its chief executive’s claim to becoming a CAR-T leader.
As for winners, look at other CAR-T companies like Kite Pharma, up 7% this morning, and Cellectis, up 6%. If one reason for Celgene stumping up $1bn was that it needed to outbid others then it makes sense for those others to shop around for another CAR-T business, and indeed Pfizer was recently rumoured to have been looking at bidding for Cellectis.
And the chances of Juno now being bought out? A standstill agreement exists under which Celgene cannot make a move, though a bid by a third party would obviously change that. At the level of Celgene’s $93-a-share investment Juno would be worth almost $10bn.
There is bound to be more work for investment bankers, of course, since Juno will now boast a war chest of about $1.3bn, and says new technologies could be brought in as the Celgene deal evolves.
The speculation aside, however, the deal comes down to something simple: Celgene recognised the game-changing potential of CAR-T therapy and paid whatever it took to get its hands on the most advanced player available.
If Juno stumbles Celgene management will look like dunces, but if it delivers they will go down in biotech history as geniuses.