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With $2B Market Cap and New Shareholder Rules, Juno Ready for Debut

Xconomy Seattle — 

Juno Therapeutics of Seattle set the price late Thursday for its initial public offering. It is selling 11 million shares at $24 each, which is where shares will start trading tomorrow morning on the Nasdaq.

That puts $264 million into Juno’s bank account, minus fees to bankers and others, for Juno to use as it presses forward with an ambitious menu of clinical trials for its cancer immunotherapy products. The company could pull in even more if its bankers decide to sell an extra 1.65 million shares in the next 30 days. Shares will trade under the ticker symbol “JUNO.”

The IPO price is even higher than Juno was shooting for right before the debut. Earlier today it hoped to sell 9.25 million shares between $21 and $23 per share, and about a week ago the range was $15 to $18 per share.

Juno’s cell-based immunotherapy technology and clinical programs, which have demonstrated remarkable yet still early results in hematological cancers, came from three research institutions: the Fred Hutchinson Cancer Research Center and Seattle Children’s Research Institute in Washington, and Memorial Sloan-Kettering Cancer Center in New York. All told, Juno’s cell-based cancer treatments have been tested in about 150 patients with grim prognosis—mainly leukemias that have not responded to other treatments.

Others have shown similar clinical promise in what’s known as CAR (chimeric antigen receptor) T-cell therapy: Novartis, in an exclusive partnership with a group at the University of Pennsylvania; Kite Pharma (NASDAQ: KITE) of Santa Monica, CA, which has a partnership with the National Cancer Institute.

There are still medical risks. Soon after treatment, a minority of patients have suffered immune system overdrives that can be serious, even fatal, but officials at Juno and elsewhere believe clinicians have good countermeasures at hand, either drugs such as steroids, or a growing understanding of which patients are more at risk for these reactions, known as cytokine release syndrome (CRS). Other safety risks have occurred, but not as acutely as CRS.

There’s another risk factor potential Juno investors should know about. The firm has added what’s known as a “fee shifting bylaw” to its charter, something relatively few corporations have done. Such bylaws require current and former shareholders or directors who unsuccessfully sue a company to pay the company for its legal fees. Fee-shifting bylaws, which are governed on the state level, have drawn the ire of pension funds and at least one U.S. Senator.

Fee shifting is legal in Delaware, where Juno and many other companies are incorporated, although still the subject of heated debate. Here’s what Juno chief financial officer Steve Harr wrote to Xconomy when asked about the bylaw:

“We welcome honest dialogue with our stockholders but want to discourage escalation of dialogue into asymmetrical attacks on the company. Our bylaws provide that stockholders who sue us may have to pay our attorneys’ fees if their lawsuit is unsuccessful. This is a brand new option under Delaware law and would help us deter nuisance lawsuits designed to shake down a company by seeking the settlement of non-meritorious claims for less than the cost of defending the lawsuit. But we hope it won’t discourage the dialogue we seek. We’re going to try this new approach and see if it works.”

Juno did not disclose the fee-shifting bylaw in its original S-1 filing with the government last month, but added it later. When asked why it wasn’t in the original document, Harr said in a follow-up conversation that the legal arena is in flux and the company wanted to take its time and make an “appropriate disclosure.”

Even with all the attention around this kind of T-cell therapy, the Juno IPO deal size is a surprise, both in the amount raised and the speed at which Juno the company has made it to market. The firm launched only one year ago and has raised $310 million, in large part from unusual sources such as a State of Alaska fund and the personal investment vehicle of Amazon.com founder and CEO Jeff Bezos.

As public investors get access for the first time to Juno shares tomorrow, Juno’s institutional partners will be watching keenly. In addition to giving them royalties—which would be standard practice for any academic-industrial licensing deal—Juno has pledged to them what it’s calling “success payments” based on the company’s stock performance.

It’s a very unusual structure. As the stock price increases from $20 to $160 a share, the payments to the Fred Hutch, as it’s known, will increase, up to a total of $375 million. The payments can be made with equity instead of cash.
For Memorial Sloan-Kettering, payments start when the stock price hits $40 and goes to $120, and top out at $150 million.

In addition, Fred Hutch owns 13 million Juno shares, and MSK owns 2 million.

The third academic partner of Juno is Seattle’s Children’s Research Institute; it has a more standard licensing agreement with Juno based on product milestones and royalties, but there is no mention of stock-based “success payments.”

CEO Hans Bishop told Xconomy earlier this month that the success payments are an extra … Next Page »

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