Morgan Stanley: Celgene-Juno Partnership Good For One Side, But Neutral For The Other

In a report published Tuesday, Morgan Stanley analyst Matthew Harrison wrote about the implications of the recently announced 10-year deal between Celgene Corporation CELG Juno Therapeutics Inc JUNO to collaborate for cancer and autoimmune disease immunotherapies.

Analyst Matthew Harrison commented that the deal has significant implications in the long term, although there is limited clarity on any near-term upside. Harrison added, “Overall, we view the deal as positive for Juno and net neutral for Celgene.”

Under the terms of the collaborating, Celgene has agreed to make an initial payment of $150M, which will give it about 9.1M newly issued shares of Juno, at $93 per share. “These shares are subject to a lock up agreement and Celgene has the potential of increasing its ownership over time,” the report said.

Impact on Juno
Harrison wrote, “Juno receives a substantial cash inflow, gains a solid ex-NA commercial partner and potentially has access to additional novel agents. Further, the ability to collaborate with Celgene on business development allows Juno to potentially leverage Celgene's early-stage deal pipeline.”

Impact for Celgene
“Celgene gains access to a broad CAR-T pipeline with the ability to share in significant economics on some of the earlier stage (and thus less clinically de-risked) targets. Further, while Celgene has broad access to the Juno pipeline, it has been able to exclude a few key programs (IMIDs, PD-L1) from Juno's reach,” the Morgan Stanley report said.

Harrison added, however, that Celgene would pay about $1B to gain access to the Juno pipeline. Most of this would be at an estimated premium of around 45 percent to “the post-market trading price of JUNO at $63.50.”

Although there is opportunity to “grow into that value,” the current price being paid by Celgene suggests a “hefty premium” for assets that “are currently difficult to value given their early stage of development,” the report explained.

Analyst Matthew Harrison has Equal-Weight ratings on both Celgene and Juno.