A decision to sell more shares to the public this week didn't help bluebird bio's (NASDAQ:BLUE) sagging share price this year. The equity offering dilutes investors and throws cold water on hopes that an acquisition will happen soon. Nevertheless, bluebird bio remains on track to file for FDA approval of two gene therapy drugs in the next year, and trials for these drugs so far suggest they could be big successes. Is bluebird bio a stock worth buying on sale?
Why investor optimism has faded
One of the most exciting areas of biotechnology research and development right now are gene therapies that tinker with DNA to help patients battle disease. Gene therapies' potential to revolutionize treatment fueled investors' optimism last year; however, that optimism has faded a bit this year, following the lackluster launches of Gilead Sciences' (NASDAQ:GILD) and Novartis' (NYSE:NVS) chimeric antigen T-cell receptor therapies, Yescarta and Kymriah, respectively, last year.
Yescarta and Kymriah work by re-engineering T-cells in patients with tough-to-treat blood cancer so that they can more easily spot and destroy cancer cells. In trials, both gene therapies delivered game-changing response rates in heavily pre-treated patients, prompting blockbuster forecasts. Sales have been slow to materialize, though, and as a result, investors may be ratcheting back their expectations for bb2121, bluebird bio's CAR-T for multiple myeloma.
Investors may also becoming more cautious ahead of the beginning of phase 1 clinical trials for Johnson & Johnson's (NYSE:JNJ) multiple myeloma CAR-T, JNJ-68284528, which uses the same mechanism of action as bb2121.
The sales potential for bluebird bio's beta thalassemia gene therapy, LentiGlobin, may also be shrinking following positive data for Acceleron Pharma's (NASDAQ:XLRN) and Celgene Corp.'s (NASDAQ:CELG) luspatercept last month, and a decision by gene-editing company CRISPR Therapeutics (NASDAQ:CRSP) to make beta-thalassemia the first disease it targets with its CRISPR/Cas9 approach.
Add to those headwinds the fact that bluebird bio announced plans on Monday to sell $400 million worth of shares, plus up to 15% more than that to cover any excess demand for shares, or over-allotments, and you begin to see why bluebird bio's share price has been under pressure lately.
A curious decision
The decision to issue shares is a bit curious, because companies typically raise money this way when cash is dwindling or share prices are rallying to new highs following the release of positive news. It's not common to see this type of offering following a sell-off such as the one bluebird bio's experienced this year.
At first glance, it doesn't appear as if cash is a pressing problem for the company. Management had $1.57 billion in cash, cash equivalents, and marketable securities at its disposal as recently as March. However, cash could become more scarce in the coming year following bluebird bio's decision to exercise an option to co-develop and commercialize bb2121 with Celgene, its licensing partner on the drug.
If bluebird bio hadn't exercised its option, then it's Celgene that would've been on the hook for bb2121's development and production costs. However, now that bluebird bio's exercised its option to split future U.S. profits on bb2121, it will have to share in bb2121's costs -- and those costs could be substantial. A phase 2 trial that's designed to support an accelerated approval in late-line multiple myeloma is already under way, and a larger, phase 3 trial is expected to begin later this year.
The company's expenses could also head higher if bluebird bio exercises a similar co-development and commercialization option on bb21217, a second-generation multiple myeloma CAR-T that the two companies are developing. Phase 1 trials of bb21217 began enrolling patients late last year, so we might not have to wait too long to find out just how safe and effective this drug may be.
Since bluebird bio's operating expenses were $132.6 million in the first quarter alone, the prospect of increasing expenses may have been enough of an incentive to shore up its finances, especially since LentiGlobin could receive an OK in the European Union next year, resulting in commercialization costs.
An opportunity to buy
Historically, about 90% of drugs that enter human clinical trials end up in laboratory dustbins rather than pharmacy shelves, so there's plenty of risk associated with bluebird bio's clinical-stage status.
Nevertheless, the data the company has reported so far for bb2121 and LentiGlobin are impressive enough to think bluebird bio can overcome the odds and get these gene therapies across the finish line.
In June, bluebird bio unveiled interim results from trials evaluating LentiGlobin, showing it may significantly reduce the need for blood transfusions. In the study, 12 of 13 patients who can produce some hemoglobin (non-beta 0/beta 0 genotypes), but were transfusion dependent, didn't require a transfusion for a median 27 months following a single infusion of LentiGlobin. Also, overall median transfusion volume was decreased by 73% in nine patients with the more severe form of beta-thalassemia (beta 0/beta 0 genotypes). If the data remains strong at the final analysis, then bluebird bio could file for approval of LentiGlobin in the European Union later this year.
LentiGlobin's potential might pale in comparison to the potential opportunity ahead for bb2121, however.
The multiple myeloma market is worth billions of dollars per year, and bluebird bio's partner, Celgene, is the Goliath in the indication. Celgene markets the top first- and second-line therapy, Revlimid, and the top third-line therapy, Pomalyst. Revlimid sales alone exceeded $8 billion in 2017, and altogether, sales of Revlimid and Pomalyst are expected to exceed $11 billion this year.
Celgene's dominance in the indication could mean bb2121 hits the ground running. Initially, bb2121 could be approved for the fourth-line or higher setting, but over time, it could win an OK for earlier use. If so, then bb2121 could wind up being Revlimid's successor when it loses patent protection in 2022.