Investing in Cancer Immunotherapy

Last December, a company by the name of Juno Therapeutics (NASDAQ: JUNO) raised $304 million in its market debut.

If you haven’t been paying attention to this story, you probably should be.

You see, Juno’s IPO last year was one of the biggest offerings in the history of biotech. The company is also arguably the single most speculative firm on the market right now.

Today, Juno is valued at a whopping $4.7 billion, yet it’s plagued with a financial situation that should send chills up any rational investor’s spine.

Juno has no revenue stream whatsoever, is burning cash at the rate of nearly $400 million a year, and doesn’t even have a drug candidate in phase III trials yet.

These are some major red flags to say the least, but it’s difficult not to at least recognize the case for an upside…

The reason Juno is valued so highly is because the company is in the midst of developing a groundbreaking cancer cure… Specifically, it’s creating novel cellular immunotherapies based on two distinct and complementary platforms: chimeric antigen receptors (CARs) and T-cell receptors (TCRs).

In simpler terms, Juno supercharges your immune system. It extracts your T cells through a process called leukapheresis, genetically engineers them, and then sends an army back into your body to fight off cancer.

One of Juno’s primary indications right now is lymphoblastic leukemia. The chance of remission for the disease is normally just 10% once a patient proves resistant to conventional treatment. When treated with Juno’s therapy, patients have gone into remission an astonishing 90% of the time.

On the surface, the results seem nothing short of miraculous. However, there are some issues that must be taken into consideration.

First is the issue of initial sample size and trial design.

At the time of its IPO, Juno offered data on just 61 patients with leukemia or lymphoma. Further, the company’s studies did not use any control groups, which means Juno entered the public market with nothing more than proof of principle.

Of far more concern, though, are the potent side effects of T-cell treatments. Most patients undergoing these treatments end up suffering from “cytokine release syndrome,” a potentially deadly release of molecules generated as T cells fight the cancer inside your body.

Much in the way your own immune system can kill you with a bad enough fever, cytokine release can do the same. Instead of over-heating itself, though, your body literally eats itself alive.

Ultimately this happens because the T cells can’t recognize the difference between the antigens on cancer cells and the antigens on your own cells. What’s meant to be a precision strike ends up more like mass genocide.

As Memorial Sloan Kettering Cancer Center researcher Michel Sadelain states: “The problem is that cancer is you.”

This always has been and always will be the major hurdle in treating cancer.

The main value proposition for Juno is that its drugs target a specific antigen called CD19. CD19 exists only on B cells, and wiping these out isn’t especially life threatening. This bodes well for leukemia and lymphoma indications in particular, because these diseases primarily affect B cells.

However, translating this treatment to other cancer types will likely prove a serious challenge. The company would need to locate an entirely different antigen that can be safely wiped out. Doing so is not an easy task, because very few antigens appear exclusively on tumor cells.

It’s worth noting, however, that Juno was forced by the FDA to halt trials back in 2014 due to patient deaths. The hold has since been lifted, but it’s still unclear exactly how safe the treatment is at this point.

As is the case with most development-stage biotechs, only time will tell whether or not Juno will be a major success or a massive flop. The problem with this particular company is that with such a high valuation already, the upside is limited.

Juno’s burn rate is also a major concern considering how early it is in clinical development. It’s really not much of a surprise that the market has had no idea how to value this stock:

Personally, if I’m going to speculate and take a risk this big, the potential return needs to be of equal measure. This is something you’re far more likely to find with small- and micro-cap biotechs than you are with a company like Juno.

Today, there are over 30 biotech firms developing cancer immunotherapies. If you’re interested in this sub-section of the market, I suggest looking a bit deeper than Juno Therapeutics before you put any skin in the game.

As for a starting point, I highly recommend checking out the Loncar Cancer Immunotherapy Index. A full listing of immunotherapy stocks can be found here.

Until next time,

Jason Stutman

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