What happened

Shares of bluebird bio (NASDAQ:BLUE) sank more than 21% last month, according to data provided by S&P Global Market Intelligence. The biopharma announced second-quarter 2019 operating results, and although there wasn't much for the clinical-stage company to report, investors are beginning to worry about the financial health of the business.

In the second quarter and first half of 2019, bluebird bio delivered operating losses of $202 million and $374 million, respectively. While the business exited June with $1.25 billion in cash and is preparing to launch its beta thalassemia drug Zynteglo in the European Union in 2020, analysts are beginning to doubt that will be enough to fix the company's financial trajectory in the near term.

A chart drawn on a chalkboard showing a steady increase and a sudden decline.

Image source: Getty Images.

So what

In June, European regulators approved Zynteglo to treat transfusion-dependent beta thalassemia. The drug was priced at $1.8 million due to its curative potential ($1.8 million costs the healthcare system less than receiving transfusions for years on end). Patients who don't respond will pay "only" $356,567 if the treatment doesn't work. Not all patients in the company's clinical trials achieved durable transfusion independence.

However, it hasn't been all smooth sailing for bluebird bio. The company delayed the launch of Zynteglo after encountering manufacturing issues, which will ultimately determine the success of gene therapy developers. Wall Street is also skeptical of just how quickly sales can scale. William Blair analyst Raju Prasad downgraded the stock in mid-August after taking a conservative view on the transition to commercial operations. Dr. Prasad thinks that far from being a growth stock, the shares will perform about as well as the broader stock market.

Now what

The late-stage nature of bluebird bio's pipeline suggests the business will continue to report staggering operating losses for the foreseeable future. Manufacturing, marketing, and sales expenses will also begin to accumulate as the company prepares to launch Zynteglo. Knowing that, investors cannot be surprised that the company's market cap has fallen from over $10 billion to just $5.5 billion -- and it has a lot of work to do to prove it deserves that valuation.