Biotech company Bluebird Bio (BLUE -6.36%) is currently riding high. Over the past month, the gene-editing specialist has earned approval for not one but two innovative treatments in the U.S. That is a feat very few gene-editing experts have achieved. Despite these accomplishments, Bluebird is still a tiny company with a market cap of just $475 million.
It seems the market isn't putting much faith into the biotech's approved programs, but could that be a mistake? Let's consider whether Bluebird's shares are a steal at current levels.
Bluebird's gene-editing treatments
On Sept. 16, Bluebird announced the approval of Skysona in the U.S. Skysona is a gene-editing therapy for the treatment of cerebral adrenoleukodystrophy (CALD), a rare, progressive neurological disorder typically diagnosed in young children. Of note, Skysona had previously earned marketing authorization in Europe, but Bluebird exited the European market last year for reasons that may also prove to be a challenge in the U.S. (more on that in a bit).
Skysona's approval comes after Bluebird also earned the green light for Zynteglo, a therapy that targets a rare blood-related disorder called transfusion-dependent beta-thalassemia (TDT). Both CALD and TDT are illnesses with few treatment options that impose an incredibly high burden on patients, their families, and the healthcare sector.
Those with TDT typically receive regular blood transfusions, a costly method of care with severe potential side effects. Meanwhile, about 50% of CALD patients die within five years of experiencing symptoms of the illness. Zynteglo promises to be a one-time curative treatment for TDT, ridding patients of the need to have constant blood transfusions.
Skysona is also a one-time gene therapy option that targets the underlying causes of CALD and helps stop its progression while maintaining the patient's neurological functions. Both therapies are innovative and meet a dire need, but could things still go wrong for Bluebird?
Not an easy road ahead
The first reason to be skeptical of Bluebird's prospects despite its recent approvals is the price tag on both Skysona and Zynteglo. The former will cost patients (and/or their insurers) a whopping $3 million, with the latter's cost coming in at $2.8 million, making them the first and second most expensive medicines in the world. Last year, Bluebird got out of the European market because it had failed to reach coverage deals there for Zynteglo and Skysona.
Third-party payers thought the cost was too high. Could Bluebird encounter the same problem in the U.S.? Maybe. At any rate, it's essential to factor that into the company's valuation. It is likely one of the main reasons why Bluebird's shares aren't worth substantially more. But there are other things to worry about, too. Both Skysona and Zynteglo are gene-editing therapies that are complex to administer.
Bluebird will have to partner with qualified treatment centers to launch these therapies on the market. If these were pills that patients could take at home, Bluebird would be better off. But the complexity of these treatments adds another layer to Bluebird's potential problems. Further, it is worthwhile to mention the biotech's funding issues.
Bluebird expressed worries earlier this year that it may not have enough funding to complete the year. The company has since implemented cost-cutting strategies to extend its cash runway. However, the approval of these therapies and the commercialization efforts that are underway may increase the company's expenses. I wouldn't be surprised if Bluebird resorts to dilutive forms of financing before the end of the year.
Considering all these risks and uncertainties, Bluebird's market cap of about $500 million makes a lot more sense. Sure, the biotech could skyrocket if everything goes according to plan, but it could also drop substantially if third-party payers aren't willing to take on the cost of its gene-editing therapies or if it cannot reach enough patients for these rare illnesses through qualified treatment centers, among other potential pitfalls.
In short, Bluebird is a risky stock, and only those investors comfortable with that should consider initiating a position.
