The past several years have been brutal for biotech company Bluebird bio (BLUE -1.13%). Shares of the gene-editing specialist are down by 85% since early 2020 as it has had to deal with clinical and regulatory setbacks, not to mention the marketwide headwinds that have impacted all equities.
However, last year may have been the turning point for Bluebird as the company earned important approvals for two gene-editing therapies in the U.S. The biotech still has some work to do, and the next few quarters will tell us more about its prospects. Let's see what could make Bluebird a solid contrarian buy this year.
The market opportunity for Bluebird's approved therapies
Last year, Bluebird bio earned approval for Zynteglo and Skysona, which treat transfusion-dependent beta-thalassemia (TDT) and cerebral adrenoleukodystrophy (CALD), respectively. TDT is a rare blood-related disease that typically requires regular blood transfusions, while CALD is a pediatric neurological disease that often leads to early deaths in patients. Bluebird's therapies unquestionably target unmet needs, but there is more to the story.
First, there is the price of these treatments. The biotech will offer Zynteglo for $2.8 million, while Skysona will go for $3 million. Further, both gene-editing therapies are complex to administer, and the process takes some time. As a result, patients have to travel to one of a few qualified treatment centers (QTCs) that have the right equipment and adequately trained medical personnel to undergo treatment. Bluebird bio will need to address these shortcomings for Zynteglo and Skysona to succeed.
Fortunately, there is some evidence that it is moving in the right direction. Bluebird recently reported outcome-based agreements with three of the largest pharmacy benefits managers in the country for Zynteglo; the company says that coverage policies it has been able to get for the TDT treatment cover about 190 million people in the country. Also, Bluebird has already enrolled 10 QTCs and is on track for that number to rise to between 40 and 50 in 2023.
Even so, Bluebird's potential with Skysona and Zynteglo is limited. The company estimates between 1,300 and 1,500 patients are eligible for Zynteglo, while only 40 are eligible for Skysona in the U.S. Let's assume the best-case scenario: Bluebird manages to treat all 1,540 patients. At their current prices, that rounds up to about $4.32 billion. That's not bad for a company whose market cap is only $687 million as of this writing.
But treating all these patients could take a long time due to the complexity of administering treatment and the process of enrolling various QTCs. So that revenue would have to be spread out over several years, decreasing its present value. And again, the $4.32 billion is an upper limit on how much Bluebird can earn from Skysona and Zynteglo. Thankfully, the company has another candidate it is currently working on that would significantly expand its target market.
Is another approval on the way?
Bluebird plans to submit an application for lovo-cel, a potential treatment for sickle cell disease (SCD), to the U.S. Food and Drug Administration in the first quarter. SCD is another rare blood-related disorder, although it is more common than TDT. Bluebird estimates that about 20,000 patients in the U.S. are living with severe SCD. We don't yet know how much Bluebird will charge for lovo-cel if it is approved.
But assuming a price of $2 million -- which is well within the range of the biotech's (and others') gene-editing therapies -- Bluebird could be looking at a potential market of about $40 billion, which dwarfs the target market for Zynteglo and Skysona combined. However, it's worth noting that the duo of CRISPR Therapeutics and Vertex Pharmaceuticals will likely seek approval for exa-cel this year, which is a gene-editing therapy that targets SCD and TDT.
So even if approved, lovo-cel may not be the only game in town.
Is Bluebird stock a buy?
Here is what Bluebird needs to do this year before it has any chance of getting back into the good graces of investors. First, the company will have to ramp up its enrollment of QTCs and treat patients with Zynteglo and Skysona as planned while not encountering any problems from third-party payers concerning the price of these therapies. Second, the biotech's application for lovo-cel will have to proceed without a hitch.
The company's shares will drop if anything goes wrong on these fronts. And that's before we account for the potential competition the company could encounter in the market for treatments for SCD and TDT by next year. All these issues illustrate why Bluebird remains too risky for most biotech investors, although that could change if the next 11 months proceed exactly as the company hopes.
