Wall Street analysts' opinions are often well worth considering, but should the small investor always heed them? Let's look at Bluebird Bio (BLUE +0.00%). Per Wall Street's analysts, its shares could rise 118% by this time next year despite losing 51% of their value so far in 2023.
Bluebird's gene therapy lovo-cel for treating sickle cell disease (SCD) could be approved before the end of this year, bringing in fresh sales. And so it's easy to see what makes analysts hopeful. If approved, lovo-cel would be the third gene therapy commercialized by the biotech. But the picture is a bit more complicated, seeing as how the company still isn't anywhere near profitable.
Let's delve into its current prospects and analyze whether its stock has a chance of actually doing what the analysts are predicting.
NASDAQ: BLUE
Key Data Points
Lovo-cel might not be the break some think
At the start of the first quarter, Bluebird had two medicines on the market in the U.S., Zynteglo, and Skysona. Zynteglo, which treats beta thalassemia, has started seven patients on the treatment process so far, with as many as 1,500 being eligible. Skysona, for cerebral adrenoleukodystrophy (CALD), has initiated the process with three patients out of an estimated 40 who are eligible. Sales of both gene therapies will register for the first time with the company's second-quarter earnings, which are expected in August. For lovo-cel, the addressable patient population is perhaps 20,000 people.
In light of the above, two things are immediately clear about Bluebird's next 12 months. First, it'll be adding significantly to its trailing-12-month total revenue of $4 million. That's likely the most important factor in Wall Street's estimates -- and with good reason.
Second, it's targeting tiny patient populations. To actually deliver any of its therapies, it needs those patients to live near a qualified treatment center (QTC), of which there are a finite quantity nationwide, with more on the way. Then, those patients need to wait up to three months for their therapy to be manufactured and ready for infusion, as the manufacturing process requires using a sample of their own cells as a raw material.
Furthermore, for Zynteglo, the cost of treatment is $2.8 million, so getting insurers to cover it may be an obstacle for patients to get treated. So it's probable that accessing the full depth of its relatively shallow addressable markets will take some time due to factors inherent to its gene therapies as they are currently implemented.
It may not have that time. Management thinks that the company's unrestricted and restricted cash, equivalents, and short-term investments totalling $364 million should be enough to last it through the end of 2024. But it hasn't yet demonstrated that its medicines can be manufactured and sold profitably, and given the significant overhead required, that is not a minor point.
It makes sense to wait and see
Wall Street is doubtlessly betting that Bluebird will be able to figure out how to make money from its gene therapies in the near term. There is a good chance that the analysts are correct. Even with the company's debt load of more than $273 million, it should be able to raise more money by taking out loans to bridge the gap between its finances today and the expected cash flows generated by profitable sales in the future.
But investors should probably stay on the sidelines and not invest in this stock anyway. While the company just did a $120 million stock offering at the start of 2023, the uncertainty surrounding its complicated manufacturing process is substantial, and shareholders could easily see another round of dilution in 2024. Plus, the stock's valuation is in the sky, with a price-to-sales (P/S) ratio of 89.
As long as there's a risk of it not becoming profitable in the near term, people who buy the stock now are shouldering an even larger risk of massively overpaying. And there's simply no reason to take that on when there are other investments without that kind of risk.
