It's a shame to say, but if you bought and are still holding shares of Bluebird Bio (BLUE +0.00%) or Teladoc Health (TDOC 1.98%) at practically any point in the last three years, you've lost money. Between the bear market in the Nasdaq, the market's recent distaste for overvalued growth stocks, bad news, and the pair's weak earnings, the last 12 months have been especially difficult for investors.
And there's a solid chance that the next 12 months (and beyond) will be just as hard. So, as tempting as it might be to buy the dip with these two stocks, you should probably invest in more appealing companies instead. Here's why.
NASDAQ: BLUE
Key Data Points
Bluebird's recent approval may not be enough
Bluebird's business is to develop gene therapies for rare diseases, and on Aug. 17, its medicine called beti-cel (also known as Zynteglo) for beta thalassemia, a rare hereditary blood disorder, was approved by the Food and Drug Administration (FDA).
That news drove its shares to rise by 74.6% over the last 30 days. And by Sept. 16, regulators will weigh in on its other therapy, eli-cel, which is intended to treat a rare inherited neurological disorder called cerebral adrenoleukodystrophy (CALD).
By the end of the month, the company might be commercializing both candidates. But that's unlikely to be a panacea for bruised longtime shareholders, who are down some 90% in the last five years.
Bluebird estimates that there are at least 850 patients in the U.S. who are eligible for beti-cel. However, the therapy needs to be administered at qualified treatment centers, of which there are very few; management estimates that only 50 patients (!) are potentially both eligible and within physical range of one of the existing centers. More centers will need to be spun up to reach the entire market, and that might get expensive, though other problems are even more pressing.
To manufacture beti-cel, the company needs to harvest a patient's cells, ship them to a manufacturing facility, process the cells to transform them into the drug product, ship them back to a treatment center, and then infuse the therapy back into the patient. That process takes as long as 90 days, and it's also almost certainly quite expensive for the biotech. In fact, Bluebird is planning to price the medicine at $2.8 million per course of treatment.
Getting insurers to agree to that price tag up front will be a major challenge, and there is no guarantee that Bluebird will succeed. In fact, the entire reason the company unceremoniously exited the EU market in 2021 was because public insurers there found the company's asking prices to be far too high.
Whether U.S. public and private insurers will come to a different conclusion is to be determined, but in the meantime, it's far too big of a risk to take on for the sake of buying the dip, even if Bluebird stock keeps rising in advance of any decisions about coverage. After all, without insurers agreeing to cover its therapies, patients simply won't have the money to be treated.
NYSE: TDOC
Key Data Points
Teladoc still hasn't managed to be profitable
Telehealth provider Teladoc has long struggled with one big issue: profitability. Its service allows consumers to contact a doctor and have a video conference with them on short notice to deal with pressing health issues, which drove the stock to wild heights during the early phase of the pandemic.
But now, growth of its base of subscribers is slowing, and breaking even is nowhere in sight. Likewise, it isn't getting much more revenue per user today than it was a year ago; in Q2 of 2021, each user was worth $2.31 in revenue per quarter, and in Q2 of this year, each user translated to only $2.60.
That means the company might need to cut costs to have any hope of continuing to expand without taking out fresh debt or issuing new stock. Its gross margin has improved in the last year by around a third of a percentage point, which is hardly enough, given its net losses of $428.7 million in 2021. With cash holdings of $883.7 million, it can survive for a couple of years longer if its margins don't improve, but it will need to make some radical changes between now and then to recover to its prior heights.
What's more, management has already slashed its 2022 guidance once, and it's now cautioning that its financial performance could fall on the lower end of the new guidance, which implies annual revenue of around $2.4 billion. So, buying the dip now might well leave investors exposed to more downside if it whiffs on the newly lowered estimates. More importantly, there doesn't seem to be much of an explanation for the underperformance, aside from economic turbulence, nor does there seem to be a concrete plan for how to rectify its money-losing business model.
In the long run, Teladoc will probably survive the next few years, even if its shares sustain more damage. Still, there's no reason to buy the dip when problems are mounting, risks remain high, and there aren't any saving graces in sight on the horizon.
