In the span of one month, the number of gene therapies approved in the U.S. to treat inherited diseases doubled from two to four. Both new therapies are from the same company, bluebird bio (BLUE 1.59%).
The stock has risen significantly since the beginning of August, but it still seems awfully low for a biotech with two brand new FDA-approved treatments to sell. At recent prices, bluebird bio still sports a minuscule market cap of about $530 million.
Is it time to buy this overlooked biotech stock or should investors remain cautious?
Reasons to buy
On Aug. 17, 2022, the FDA approved Zynteglo, making it the first cell-based gene therapy for the treatment of beta-thalassemia patients who require regular blood transfusions. On Sep. 16, 2022, the FDA sent bluebird another approval letter. This time it was for Skysona, a treatment for patients with a rare brain-wasting disorder called cerebral adrenoleukodystrophy (CALD).
Standard care for CALD is an old-fashioned stem-cell transplant, but many patients don't have access to a well-matched donor. That gives Skysona a good chance of becoming a standard treatment for this rare disease. It's manufactured from modified versions of a patient's own stem cells.
In a clinical trial supporting Zynteglo's approval, 89% of beta-thalassemia patients who received a single administration of the cell-based therapy achieved transfusion independence.
For beta-thalassemia patients, reducing dependence on transfusions isn't just a matter of convenience. Regular infusions of red blood cells can lead to serious health complications and enormous expenses for their healthcare plan sponsors. This is why the Institute for Clinical and Economic Review, an independent watchdog, didn't complain about bluebird bio's plan to charge $2.1 million for a dose of Zynteglo. Given the lack of treatment options for severe cases of CALD and beta-thalassemia, Skysona and Zynteglo could become blockbuster drugs with over $1 billion in annual sales.
Skysona and Zynteglo were approved for rare pediatric indications, so bluebird just received two rare pediatric priority review vouchers from the FDA. These vouchers can be used to shorten a new drug application's review process from 10 months down to six months, and they're transferrable. Earlier this year, BioMarin sold one for $110 million, and back in 2015, AbbVie paid a whopping $350 million to acquire one.
Reasons to remain cautious
First-time drug launches are expensive, and they rarely meet expectations. Bluebird bio hasn't announced any partnerships with established pharmaceutical companies eager to sell Zynteglo or Skysona. As a result, the company will probably end up using any proceeds from sales of its priority review vouchers to support the launch of its recently approved drugs.
Healthcare systems are generally fine with spending millions to treat people with serious diseases but only when hospitals and doctors' offices are responsible for most of the expenses. Giving millions to a drug company today to avoid higher hospital bills down the road is a new way of doing business that might never gain acceptance.
Investors should know that Zynteglo earned marketing authorization in Europe back in 2019. Few patients ever received it because government payers throughout the EU wouldn't accept bluebird's proposed pricing. A similar problem happened with Skysona, and both have already been withdrawn from the European market entirely.
A buy now?
On paper, bluebird bio looks like a bargain right now. It's sitting on a pair of priority-review vouchers that regularly sell for over $100 million each. The company also had $173 million in cash on its balance sheet at the end of June.
I'm not a buyer because I expect U.S. healthcare plan sponsors to behave the same as their European counterparts. The company's operations already burned through a stunning $228 million during the first half of 2022. With the future for Zynteglo and Skysona sales looking dark, it's a good idea to demote this stock from your buy list to a watch list.