With its shares down by around 84% in the past year, it's a wonder that investors are still interested in Bluebird Bio (BLUE -2.73%) at all. It withdrew its beta thalassemia drug, Zynteglo, from the E.U. market over persistent pricing conflicts with regulators there in August 2021. And with minimal sales revenue after a mere two years on the market, its annual revenue has collapsed from upward of $250 million in 2020 to just over $3.6 million last year.
Now, the company hopes to get two drugs approved for sale in the U.S. before the end of 2022, but it faces a nasty cash crunch that could spell doom if it fails. Is this stock ripe for a turnaround or is it a trap for speculators? In my view, it's worth staying away from this company, and here's why.
Image source: Getty Images.
Problems abound
There are quite a few reasons I would not suggest buying Bluebird stock, starting with the contents of this chart:
BLUE cash and equivalents (annual). Data by YCharts.
In short, Bluebird's net losses are quite deep, and its cash reserves aren't going to be enough to cover its operating expenses from 2021 if those expenses remain the same size this year.
And that's why the company announced a major restructuring on April 4. It is anticipated to save the company $160 million over the next two years, including a forthcoming reduction in its cash burn to under $340 million per year before the end of 2022. That reduction comes at an incredibly steep cost with 30% of its workforce expected to be laid off and operating expenses slated to drop by up to 40%.
Management says that the cuts will help Bluebird keep the lights on through the first half of 2023. But to reach that point, something else has to budge. With no profits and only $161 million of cash and equivalents in the bank, limiting the cash burn rate to $340 million per year won't be enough, which means that the company will likely need to issue new equity or take out new debt to survive. Neither of those solutions are attractive for new investors.
Why board a sinking ship?
Later this year, the Food and Drug Administration (FDA) will weigh in on two of Bluebird's proposed therapies, which leaves the door open to two commercial launches before 2023. That might (finally) provide the revenue growth that the company has been starved for since its failed attempt to compete in the E.U. with its beta thalassemia drug, Zynteglo.
The first candidate is betibeglogene autotemcel, or beti-cel for short, which is the still-to-be-approved U.S. brand name for Zynteglo. Also on deck is elivaldogene autotemcel, known as eli-cel, which seeks to treat cerebral adrenoleukodystrophy (CALD), a rare hereditary disorder.
Nonetheless, it's important to understand that shareholders are still paying for Zynteglo's whiffed launch in 2019 as shown in the following chart.
BLUE SG&A expense (annual). Data by YCharts.
To support Zynteglo's commercialization over the last five years, the company's selling, general, and administrative (SG&A) costs have exploded, and research and development (R&D) expenses have risen significantly too, driving a major increase in total annual expenses. These additional costs haven't exactly dropped off very quickly in the aftermath of the company's withdrawal from the E.U. market.
And given that Bluebird is banking on those two new drugs to hit the market before the end of the year, it's hard to see how expenses could actually shrink while still leaving enough resources to support the launches. After all, the medicines will need to be marketed, and there might need to be ongoing clinical development to support patients or address requests from regulators.
So the biotech looks to be between a rock and a hard place at the moment, even when considering the recent cost cuts. And since there are plenty of other biotech stocks that don't have the same problem, investors should definitely look elsewhere and consider selling their shares while they still hold (some) value.
