Late last week one of our cancer immunotherapy holdings, Juno Therapeutics (JUNO), announced a “clinical hold” on its JCAR015 leukemia treatment due to the deaths of two participants in the study group. The FDA suspended the trial to give Juno time to confirm the cause of death in both patients to determine if either one or both were directly due to the experimental treatment. As a result, shares of JUNO plunged 32% on Friday before leveling off near $28.

Juno has already released a statement expressing its belief that both deaths resulted from a new drug that was added to the pre-treatment regimen, and not from the therapy itself. It is important to note that all of the patients in this trial group suffered from an aggressive form of leukemia with little hope for survival, and had voluntarily submitted to the trial knowing its outcome was impossible to predict so Juno’s potential legal (and financial) liability is minimal.

Nevertheless, this is clearly a setback for the company but the FDA is expected to allow Juno to resume trial work on this form of treatment as soon as the pre-treatment drug in question has been confirmed as the immediate cause of death in the trial patients. The sad reality of this type of research is that setbacks of this type are not unexpected, and are in fact necessary to determine the optimal form of treatment through a painful process of trial and error.

Although this development may delay Juno’s ability to receive FDA approval for this treatment, it does not necessarily prevent it from eventually gaining permission to market the drug in the U.S. For that reason we view this recent sell-off as an excellent opportunity to open a new position in JUNO, or average down your cost basis if you already own it.

One of our other cancer stocks, Argos Therapeutics (ARGS), issued a press release this morning that is not getting much attention, but may turn out to have greater long term significance than Juno’s announcement. The company just hired Richard Katz as its Chief Financial Officer, after the previous CFO was released earlier this year under a shroud of mystery.

Although the statement released by Argos was predictably opaque, Katz’s background suggests he may have been brought in to engineer an eventual exit strategy for the large investor group that has already pumped $30 million into Argos over the past ninety days. Most telling is this statement buried midway through the announcement: “Previously, Dr. Katz served as chief financial officer for Icagen, Inc., where he was instrumental in the company’s initial public offering and subsequent financings, the formation of several strategic collaborations, and the company’s sale to Pfizer. Prior to Icagen, Dr. Katz worked as a vice president in the healthcare group at Goldman, Sachs & Company, where he executed a broad range of transactions, including equity and debt financings, mergers and acquisitions, and corporate restructurings.”

I view this development as potentially very good news, since someone of Dr. Katz’s stature would presumably not waste his time with a company like Argos unless he believed the 300,000 options he was awarded (that can be exercised at today’s closing price) were going to pay off down the road. And (equally presumably) the investor group would not approve the addition of Dr. Katz unless they wanted someone with his track record of successfully selling healthcare companies on the team.

Our third cancer immunotherapy stock, ZIOPHARM Oncology (ZIOP), also made a major announcement recently regarding its joint venture relationship with Intrexon, which markets ZIOPHARM’s cancer treatments. Instead of splitting profits 50/50 under the old deal, ZIOPHARM will keep 80% of the profits in exchange for issuing $120 million of preferred stock to Intrexon.

Of course, how good (or bad) of a deal this ends being for ZIOPHARM depends on what those future profits turn out to be. The pessimistic argument is that Intrexon would not have voluntarily reduced its share of future profits unless it felt they would be less than the value of the stock it is getting in return. The optimistic argument is that ZIOPHARM is willing to roll the dice on future profitability based on recent positive developments in the cancer immunotherapy sector.

Regardless of how you look at it, the fact of the matter is that this arrangement will have the effect of diluting the value of ZIOP’s equity. However, since the date of that announcement, June 30^th, shares of ZIOP have gained nearly 5%, rising from a closing price on June 29^th of $5.77 to $6.04 on July 8^th. That suggests there is mixed opinion among the analyst community as to which party got the better of the deal.

In the case of all three companies – Juno, Argos and ZIOPHARM – a critical crossroads has been reached and each company will be moving forward under a different set of conditions than previously. It is still impossible to predict which one(s) will successfully navigate the perilous path to FDA approval for their respective treatments, so we continue to recommend owning all three as a bundle to reduce risk and maximize the probability of owning a piece of what we believe will soon become a huge market.