Juno Therapeutics Inc May Be the Ideal Takeout Target for a Large Pharma like Celgene: Jason McCarthy

In reaction to acquisition buzz in the market's grapevine, Maxim's Jason McCarthy is out boosting his price target on Juno stock.


Juno Therapeutics Inc (NASDAQ:JUNO) shares rocketed almost 52% on Wednesday on back of big biotech buzz: the rumor mill is churning with news that partner Celgene could be bracing to takeover the smaller drug maker.

Maxim analyst Jason McCarthy joins a slew of Street-wide voices wondering, “Is Juno about to be the next Kite?”

For context, flash back to the end of August, when biotech giant Gilead first revealed its intent to acquire Kite Pharma for $11.9 billion, or $180 per share in cash. Specifically, Gilead had its eyes on Kite’s experimental CAR-T therapy treatment Yescarta, designed to treat Non-Hodgkin’s lymphoma.

It makes sense that with “Juno’s pipeline of CAR-T candidates […] similar in size and scope to Kite, extending beyond CD19 into other hematological malignancies and solid tumors,” Celgene could be enticed to make the purchase.

In reaction, the analyst reiterates a Buy rating on JUNO stock while hiking the price target from $56 to $98, which implies a close to 38% upside from current levels. (To watch McCarthy’s track record, click here)

“Juno’s valuation, which pulled back coming out of ASH in December, has now exceeded its pre-ASH peak of $7B and is near where Kite’s valuation was (~$8B) prior to being acquired by Gilead (GILD – $81.74 – Buy) for $12B. The question is; at what valuation could Juno be acquired for? There are several factors to consider,” muses McCarthy.

Comparable to Kite’s Yescarta, Juno’s JCAR017 carries powerhouse potential to bring $3 to $4 billion in outyear revenue to the table between domestic and European Union sales alone, the analyst calculates. Keep in mind, this is not even assuming the China element of the equation, where just like Kite, Juno likewise boasts a “joint venture with a Chinese pharma.” Therefore, at three to five times revenue as fair value, the analyst wagers Juno’s valuation soars around $12 billion, or in other words, “near the takeout value of Kite, if not higher.”

McCarthy concludes, “Juno is the remaining unencumbered first-mover CAR-T company. As the oncology treatment paradigm shifts towards integration of T Cell therapies, Juno may be the ideal target for a takeout for a large pharma to establish itself, like Gilead did, as a major cell therapy player in the space,” determining that with a current valuation standing at $7.9 billion, it is “likely” for a player of the likes of Celgene to pay a premium to purchase Juno. Likewise, he analyst deems it not likely Juno will be bought at its present valuation or a discount.

TipRanks underscores an optimistic, yet cautious Wall Street surveying this biotech stock. Based on 12 analysts polled in the last 3 months, there are more bulls than analysts on the sidelines, with 7 out of 12 analysts rating a Buy on Juno stock and 5 maintaining a Hold. Yet, is the stock overvalued or undervalued taking under account these analyst expectations? Consider that the 12-month average price target of $66.89 indicates 6% in downside potential for the stock, perhaps lower now due to the stock’s massive jump on Wednesday.

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