We rarely cover biotech.
We like leaving biotech stocks to the biotech funds. Occasionally though, something special comes across our screen that fits the mold for the best biotech companies that often become acquisition targets.
Janux Therapeutics Inc. (JANX) checks all the above boxes:
On December 2, Janux reported EARLY Data (only from Phase 1, with only 16 patients, a very small set of patients) that could TRANSFORM Prostrate Cancer care:
In plain English: ALL 16 patients saw their PSA drop over 50%. Almost 2/3rds of the patients saw their PSA drop by 90%. Literally, these improvements in PSA SIGNIFICANTLY SURPASSED historical benchmarks.
Importantly, safety data was very clean, with only 6% of patients experiencing any bad side effects. This may sound like a lot, but it is actually an impressive safety profile.
Janux should price a deal by tomorrow morning. It could slip to Thursday night pricing but we doubt it.
We are already long a starter position but plan to buy more of it once the deal prices. Here is why.
This science is groundbreaking. Yes, IT'S EARLY and based on only 16 patients. But, with a very clean safety profile and eye-opening efficacy in reducing PSA levels dramatically, odds are high the data will get better with higher forthcoming doses in Phase 1B trials set to run in 2025.
From The American Cancer Society:
When treatments such as hormone therapy, chemotherapy, or immunotherapy are used for more advanced prostate cancer, the PSA level can help show how well the treatment is working or when it might be time to try a different treatment.
Treatments should lower the PSA level (at least at first), although in some cases they may just help keep it from rising further, or even just slow the rise.
Janux is trying to solve a very difficult problem:
Importantly, Janux has already assembled a very strong roster of Biotech Investors. Without RA, Fidelity, Orbimed, Cormorant, and Point72 being shareholders, we would not have stayed up late last night. RA owns quite a big slug:
JANX should raise $350-$400M by selling 6.5-7M shares. We expect the deal to be taken down by ALL the existing Page 1 holders.
Once the deal is complete, JANX will trade for a $4B market cap, with $1B in cash and ~60M shares outstanding.
Stifel raised their PT to $115 after the data came out. They see 50-65% odds the company is successful in becoming the new standard for second line and third line metastatic castration-resistant prostrate treatment with $3B of peak sales, or $1.7B of risk-adjusted peak sales.
Cantor went from a $100 to a $200PT. They too think the data will get better as higher doses are administered in upcoming trials. Cantor stated:
"There were only minor things to nit-pick and that '007 demonstrated unprecedented rates of PAS50, PSA90, overall response rate and a very well tolerated profile."
When you net out the cash, Big Pharma would only be paying $3B at current levels for a compound that could do $1.7-$3B in peak sales. Mid-point is $2.35B, so only 1.3X price-to-sales at current levels.
We think a take-out for 5x peak sales is a very viable shot on goal to take for a big pharma company with deep pockets due to the incredible reductions in PSA levels from Janux's drug.
Remember, Janux possesses a key element to what Big Pharma loves to write big checks for, a platform technology with MULTIPLE INDICATIONS:
Janux is also working on Solid Tumors in Phase 1. So, again, very early there too:
With Janux securing $1B on its balance sheet, it will now be in a very strong negotiating position should Big Pharma come knocking.
Because the safety profile is so clean, there is such a huge TAM for the company, AND the potential peak sales of $2.35B WAY DOWN THE ROAD, it would not be unreasonable for Big Pharma to scoop it up at this early juncture to take over the programs from here. What is it worth?
We think $8-$12B in a take-out. Call it $10B at mid-point. But that is not for a few quarters, at a minimum.
In the near-term, we think JANX has a lay-up set up to go to $80… $85… $90. That is what we are playing for here.
Why? Well, we LOVE this LONG BASE SET-UP, not to mention the 4M shares JANX traded today. At one point, JANX was up ~$10, touching $70.
This deal is going to be super tight and we think it cleans up fast. We think it trades 6M-8M shares tomorrow and will open up strongly, thereafter. Similar to what we saw in NBIS the last two days when it ran from $28-$32.
Note how JANX ran ~$10 on only 1.6M shares off of the open yesterday (Wed, Dec 4):
We plan to buy a VERY SMALL POSITION in JANX and trade out of most of the position on any move to $80-$85-$90. We think such a move takes place by Xmas.
Stop Loss: We will use a stop 7% below cost in case we are wrong.
Should the short-term thesis prove correct, we then plan to keep 20% of our position on for the longer-term, looking for any take out.
For this tranche, we will use a Trailing Stop below the 50-day SMA.
And, because we are revenue/earnings inflection point specialists, we acknowledge the need to size very small when veering out of one's sweet spot.
So, our allocations will be much smaller than recent names of interest to us, i.e., BE, CRDO and PSTG.
As for risks, there are many, especially the fact we are not biotech specialists, biotech is not a group we have had huge success in previously, biotech is still spotty as a group, and this is a very early stage company.
Still we like our odds and this is why we wanted to get it in front of you, as it possesses all the traits we have seen in previous top tier biotech companies that got taken out for hefty premiums.
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Disclosure: We are long JANX stock and calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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