Morgan Stanley Just Cut Juno Therapeutics' Price Target

Shares of Juno Therapeutics Inc JUNO surged on Tuesday, after the company announced a decade-long collaboration agreement with Celgene Corporation CELG.

Morgan Stanley analysts Matthew Harrison and Matthew S Pommer updated their model for Juno to reflect the new deal, which implies that ex-U.S. sales will be booked by Celgene going forward (Morgan Stanley assumes), while Juno will receive a 17 percent royalty payment.

See Also: Analysts Diverge On Celgene's Deal With Juno Therapeutics

The new model contemplates:

• An updated share count and cash count that reflects the roughly 9.1 million shares that the company issued for Celgene’s purchase $93 each.
• The $150 million Celgene fronted Juno, which the analysts book as fourth quarter revenue.
• The assumed ex-U.S. reporting model and royalty payments.

The major change in Morgan Stanley’s model derives from a shift in its assumptions. The analysts had previously supposed that Juno would be retaining EU rights for CD19/CD22. The new model assumes lower royalty payments and different distribution agreements.

The analysts explain that, while they acknowledge the deal could generate significant upside “through LT value creation given the cross-pollination of assets and business development,” they find that “intangible difficult to model in light of the early stages of development.”

To account for this new model, the price target on Juno was trimmed from $59 to $54, while an Equal-Weight rating was reiterated.