The modern pharmaceutical industry as we know it is one of the newest industries in the world. This is because the tools that the industry needs to examine, research and test the molecular compounds that make up the building blocks of pharmaceutical drugs have only been invented in the last two centuries.
Before modern drugs, treatments for common diseases and ailments were likely to be plant-based, with mass production almost impossible.
Modern science and pharmacy has given us the means to treat a range of diseases and symptoms, from common pain right through to high cholesterol and heart disorders. And the companies that come up with these treatments earn many billions of dollars. Just imagine how many packages of the most common form of pain relief worldwide, paracetamol, are sold every single day!
Newer pharmaceutical companies are pioneering a “second wave” of drugs and testing that may deliver even more promising results. That optimism has seen the share price of Juno Therapeutics Inc (NASDAQ:JUNO) go from lows below $40 to recent highs above $65. Options trading services are now analysing the company to figure out if the share price has further to go.
Understanding the Business
Juno Therapeutics is a company that is attempting to develop drugs based on a completely novel way of treating serious diseases. Traditional drug companies develop drugs that insert non-natural compounds and chemicals into the body to fight off infection and cancer.
Juno is attempting to develop therapy that uses the bodies own T-Cells and Chimeric Antigen Receptors as the building blocks for the fight against disease. It helps to think of the diseased body as the battlefield, and cancer as the invading force. The body has the immune system, made up of a range of defenders, including T-Cells.
But cancer is often stronger than these T-Cell defenders, and the defence often becomes overwhelmed, resulting in the need for “reinforcements” from outside the body in the form of drugs.
Juno is attempting to develop therapies that effectively “train” and “arm” the defenders of the body better, and make them more effective at doing their job of protecting the body.
The benefits of this form of treatment are that it is much more natural, and lessens the huge impact on the body that modern drugs can have. It also has the potential to be more effective than drugs alone, or result in lower doses being needed as the body defends itself more effectively.
Metrics and Measures
The recently disclosed first quarter results for Juno Therapeutics were fairly standard for a company that is yet to commercialize their first product or treatment. In the absence of revenues and profits, the financial analysis turns to other measures.
For pharmaceutical companies, one of the most important numbers that options trading advisory services is what is known as the “cash burn rate”. To simplify the concept, this means how much the company is spending, compared to how much money they have in the bank to pay their bills. Research, especially when it is a complex and highly regulated field like drug research, is a very expensive business.
When companies do not have sufficient cash to fund their activities, they are forced to take out larger bank loans or raise more equity via the share market. Both are not ideal for different reasons, as loans are debt, and require interest repayments, while raising equity dilutes the shareholdings of existing stock holders.
For the first quarter, Juno had a strong cash position of $447.6 million to fund their future activities. They also confirmed that for the full year of 2015, they were only budgeting a “cash burn” of between $125 and $150 million. This would mean that of they spend their cash at a consistent rate, the company has a cash buffer of around 3.5 years, which is a positive sign. For the quarter, the company only spent $26.4 million.
The company also settled a number of one off expenses, including some relating to litigation and the costs of their recent IPO.
The Investment Case
The investment case for Juno Therapeutics is largely based on talent and trial results. In the first instance, the company needs to be able to attract the best minds and
keep them. This is because drug development is a costly, long term process, and researchers are required to make long term commitments to successfully complete the process.
Trial results are the other major factor in the success of pharmaceutical companies. Large multinational companies that develop drugs have the luxury of profitable products that they can use to fund their ongoing research. Juno does not have that same advantage, so their first few batches of trial results will be crucial in moving the share price up or down. Small companies that report strong trial results can sometimes double and triple over time.
Juno has also acquired several smaller companies to help with these goals, including the X-Body Inc team. This approach can bring strong talent and research minds into the company in a more effective way than recruiting staff one at a time, which can be costly and expensive.
Juno Therapeutics is a small company with big ambitions to change how drugs are developed and serious diseases are treated. If they can attract strong talent and retain them during the long term drug development and trial stages, they have a strong opportunity to give themselves a better chance of achieving good trial results and growing their share price.
To find out about companies like Juno Therapeutics that are pursuing new ways of solving old problems, and that might be on the way to huge profits as a result, it is incredibly valuable to be a subscriber to a high quality, in depth options trading newsletter like Financial Markets Wizard.
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