Stocks are often cheap for a reason, so when investors come across a company whose shares are trading for under $3.50 apiece and with a market capitalization of $350 million, that naturally raises eyebrows. That's the situation Bluebird Bio (BLUE -6.29%) finds itself in right now.

The biotech has severely underperformed in recent years, but it hasn't given up on its goal of developing effective gene-editing therapies for rare diseases. It continues to make progress; the company is even looking at an important potential catalyst.

But will that be enough to help it turn things around? Let's find out. 

Progress is a slow process

Last year, Bluebird Bio earned approval for two gene-editing therapies. The first was Zynteglo, a treatment for transfusion-dependent beta-thalassemia (TDT), a rare blood disease. The second was Skysona, a treatment that targets early active cerebral adrenoleukodystrophy (CALD), a progressive neurogenerative disease typically diagnosed in young boys. These approvals were important milestones for Bluebird and for patients who have these illnesses.

There are few safe and effective treatment options for either condition. But Zynteglo and Skysona are predictably taking a while to have a meaningful effect on Bluebird's financial results. While these treatments earned the green light in August and September 2022 (respectively), Bluebird reported total revenue of just $2.4 million in the first quarter -- although that was an improvement of about 22% year over year.

Still, $2 million isn't a lot for a company of this size. The problem lies with the complexity of Bluebird's treatments. Here's the short version of how Zynteglo is administered: A patient's cells are collected, edited, then inserted back into the patient through intravenous infusion. The real-life process is even more complex (and lengthy) than that sounds. That's why Zynteglo and Skysona are only administered in selected qualified treatment centers (QTCs).

Fortunately, Bluebird does not seem to have gotten significant pushback for the price of these therapies yet. Zynteglo and Skysona cost $2.8 million and $3 million, respectively. The company estimates that there are between 1,300 and 1,500 TDT patients eligible for Zynteglo in the U.S., but just 40 people with CALD eligible for Skysona.

Still, that gives Bluebird a total addressable market of more than $3.6 billion, although the fact that the company could take a while to treat all these patients makes its potential here uncertain. 

A massive opportunity ahead

Bluebird recently submitted an application to the U.S. Food and Drug Administration for lovo-cel, a potential gene-editing therapy for sickle cell disease (SCD). The agency set a PDUFA goal date (when it should complete the review) of Dec. 20. Lovo-cel could be a game-changer for Bluebird since its addressable market size would dwarf that of the company's two approved treatments.

Bluebird estimates about 20,000 SCD patients in the U.S. could benefit from lovo-cel. That puts the company's opportunity in this space at $40 billion, assuming a price tag of $2 million for lovo-cel. For a company worth well under $1 billion, that's a mouthwatering potential.

But lovo-cel could encounter many of the issues Zynteglo and Skysona are seeing. It isn't a pill that patients can take in the comfort of their homes. That's one of the reasons why Bluebird's shares aren't performing too well, even as the approval of lovo-cel seems to be getting closer. While the biotech could launch the therapy in early 2024, that's provided that it does not run into any regulatory issues, which it has encountered before.

Then there is the problem of funding. Zynteglo and Skysona don't generate enough cash yet to bankroll Bluebird, but the company's expenses will rise as it continues marketing and commercialization efforts for its approved therapies. In January, Bluebird resorted to a secondary offering to raise cash, a move that small-cap biotech companies are fond of making. The company ended the first quarter with $364 million in cash and equivalents.

Bluebird expects cash burn between $270 million and $300 million for the current fiscal year. Investors should expect another round of dilutive financing within the next 12 months. Finally, Bluebird will encounter some competition, notably from Vertex Pharmaceuticals and CRISPR Therapeutics. The two partners are getting close to earning approval for exa-cel, a potential therapy for SCD and TDT.

With all that going on, it's no wonder the market continues to be unimpressed with Bluebird. The company's shares look too risky for most investors to consider initiating a position. There are much more promising biotech stocks on the market today.