J.P. Morgan Weighs in on Two Falling Healthcare Giants: Juno Therapeutics Inc (JUNO), Eli Lilly and Co (LLY)

J.P. Morgan analyst Cory Kasimov weighs in on two falling healthcare stocks in his coverage universe, Juno Therapeutics Inc (NASDAQ:JUNO) and Eli Lilly and Co (NYSE:LLY). The analyst reflects on Juno’s white blood cell cancer therapy, JCAR015, which has been placed on clinical hold, and the failure of Eli Lilly’s EXP-3 trial in Alzheimer’s disease. Let’s take a closer look:

Juno Therapeutics Inc

Juno’s shares are currently falling nearly 27%, after the drug maker disclosed that it has voluntarily placed on hold its Phase II clinical trial of JCAR015 in adult patients with relapsed or refractory B cell acute lymphoblastic leukemia, known as the “ROCKET” trial. The clinical hold was initiated after two patients suffered cerebral edema earlier this week. One patient died and as of last night the other is not expected to recover.

In reaction, Kasimov reiterated a Neutral rating on Juno shares, while reducing the price target to $34 (from $39), which implies an upside of 54% from current levels.

Kasimov commented, “JUNO’s announcement this morning that it has voluntarily placed the JCAR015 pivotal ROCKET study on clinical hold (again) is disappointing, albeit not necessarily as surprising as over the summer. As we noted at the time of the first clinical hold: the issues that have popped up in this trial highlight just how early this technology is in its evolution, and the number of important unanswered Qs that remain (not to mention the relatively increased possibility of negative surprises coming out of left field given the substantial potency of the products). As such we are reiterating our Neutral rating as we await further clarity on some of these issues that may give greater confidence that the negative surprises are in the rearview mirror.”

“Lowering probability of JCAR015 success to 35% (from 50%) pending further information. Following this morning’s update we are more conservative on the potential of JCAR015. We are leaving our assumptions around JCAR017 (in pediatric ALL and NHL) unchanged for now as the co has reiterated that timelines there remain on track, and we’d note that JCAR017 in NHL remains the key value driver at this stage,” the analyst concludes.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Cory Kasimov has a yearly average return of -10.7% and a 34.3% success rate. Kasimov has a -25.4% average return when recommending JUNO, and is ranked #4129 out of 4240 analysts.

Out of the 5 analysts polled by TipRanks, 3 rate Juno Therapeutics stock a Buy, while 2 rate the stock a Hold. With a return potential of 117%, the stock’s consensus target price stands at $47.67.

Eli Lilly and Co

Kasimov reiterated an Overweight rating on shares of Eli Lilly, with a price target of $384, after the healthcare giant announced that its Phase 3 EXPEDITION-3 trial evaluating solanezumab in Alzheimer’s failed. LLY noted that while secondary endpoints directionally favored sola, the magnitude of benefit was small. Based on these results, the company not surprisingly will not file for approval. Many investors had expected this trial to work so today’s news will likely be viewed as a negative surprise for most drug investors.

Eli Lilly shares are currently trading at $67.63, down $8.36 or -11.00%.

Kasimov commented, “In our view, this morning’s development will only enhance the level of prevailing skepticism around the overall “amyloid hypothesis;” we assumed a failure of EXP-3 could hit BIIB shares by as much as 5-15%. Nevertheless, as detailed in our recent preview, there are meaningful differences between solanezumab and aducanumab that limit direct read-through. That said, we’ve always seen BIIB’s aducanumab program as high risk/high reward (we assign 50% probability of success), and our view hasn’t changed following this morning’s data. All eyes will now turn to the updates from the Phase 1b PRIME study of aducanumab at the CTAD meeting in early Dec (where we’ll also get more details from the EXP-3 study). It will be important that aducanumab’s updated data are meaningfully differentiated, but we suspect there will be a healthy dose of skepticism until proven otherwise.”

As of this writing, all the 9 analysts polled by TipRanks (in the past month) are bullish on LLY stock. With a return potential of 44%, the stock’s consensus target price stands at $97.38.

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