Jounce Therapeutics (JNCE) Loses a Bull; Here’s Why

Cowen's Boris Peaker is not expecting a big driver can change investor sentiment on JNCE in the next 12-months after the firm exposed dismal ICONIC data.

What the hell happened that sent Jounce Therapeutics Inc (NASDAQ:JNCE) shares to get pummeled 33% yesterday in the market? Investors got a bad taste of Phase I/Phase II ICONIC test results putting lead candidate JTX-2011 both alone and in combination with Bristol-Myers Squibb’s nivolumab under the microscope as a treatment for a slew of tumor types. In other words, the data proved massively underwhelming, sending the Street to jump ship from JNCE stock.

In reaction, Cowen analyst Boris Peaker is fleeing the bullish camp, critical of the “disappointing ICONIC data” and antsy that there is suddenly a “lack of near-term catalysts” for the drug maker.

Therefore, not expecting any meaningful driver to transform sentiment in the next 12-months, the analyst downgrades from an Outperform to a Market Perform rating on JNCE stock without listing a price target. (To watch Peaker’s track record, click here)

As a treatment on its own or when JTX-2011 was paired with nivolumab, the results spell out patient responses that simply were not impressive when treating patients with a range of tumor cancers. In gastric cancer, JNCE’s drug as a monotherapy reached 12.5% in a partial response rate, 3.5% as a combination therapy partial response rate, and 35.7% in disease control. In triple-negative breast cancer, the combination therapy achieved 5.9% as a partial response rate and 17.7% in disease control. In head and neck squamous cell cancer, the study revealed disease control of 12.5%. In non-small cell lung cancer, ICONIC posted disease control of 58.3%. For context, the reason Wall Street is up in arms today with frustration is that stellar partial response rates typically soar past 30% and strong disease control rates usually spiral beyond 50%.

“Patient drop-out was an ongoing issue in ICONIC which makes it difficult to draw firm conclusions from the data […] This means the data in the data available in the spider plots is limited, as most patients went off protocol by month 9. The combination arm also suffered from high levels of discontinuation, although not quite as high as monotherapy […] The reasons for patient discontinuation are unclear at this time, but discussions with management indicate that the process of determining ICOS expression delayed initial dosing by up to 6 weeks. This delay could have been a key concern for a population of highly advanced and rapidly progressing patients […] The early discontinuations also make it difficult to draw conclusions regarding what time to response can be expected with JTX-2011. Management indicated that safety was not the reason for patient discontinuations,” highlights Peaker, who notes that though there are new combinations in the works, they “will take more than 12 months to read out.”

At the ASCO conference, the JNCE team expressed in a presentation that a combination with ipilimumab was set to be on the table, also revealing at an ASCO investor event of plans to seek a combination with pembrolizumab. This may prove advantageous for the firm, as it allows JNCE to maintain its PD-1 target, albeit with a dosing schedule boasting better compatibility with JTX-2011. That said, the odds are the data will not surface until the back half of next year. Though the other drugs in the biotech player’s pipeline are slated to move forward this year, the analyst sizes up a “limited immediate impact on investor sentiment.”

Encouragingly, the firm’s second candidate anti-PD-1 JTX-4014 is poised for a submitted Investigational New Drug (IND) Application by the close of this year or the beginning of next year. Additionally, Jounce’s lead macrophage program is anticipated to get into motion IND-enabling trials this year. This approach in switching focus for JTX-2011 development along with pushing ahead the company’s other pipeline candidates should reveal further “clarity” by the close of this year. Peaker advises the next substantial driver to hit in roughly 18 months, or around the end of 2019.

The one piece of “good news” as far as Peaker is concerned is that the company’s cash flow has good odds to be enough to glean key data in its planned combinations for JTX-2011 along with getting JTX-4014 into the clinic. JNCE closed out the first quarter with $237 million in cash and investments. Looking ahead, Peaker looks for roughly $93 million of this cash to be used in operations this year and for the company to close out the end of 2018 with a cash balance circling $162.3 million.

TipRanks suggests an optimistic consensus circling JNCE stock prospects, with 2 bulls betting on the biotech player and 3 playing it safe on the sidelines. That said, the 12-month target expectations suggest far more confidence, with the consensus average price target of $15.25 reflecting a whopping 104% in return potential for JNCE shares.

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