Bluebird Bio (BLUE 1.13%), a leader in gene therapy, could be a great pick for growth investors. This company has two gene therapies that the U.S. Food and Drug Administration (FDA) has approved: Zynteglo (betibeglogene autotemcel) and Skysona (elivaldogene autotemcel). Zynteglo is the first gene therapy for patients with beta-thalassemia, a rare blood disorder that often requires regular blood transfusions. Skysona is indicated for boys aged 4 to 17 with cerebral adrenoleukodystrophy (CALD), a rare and progressive neurological disorder.
While estimates vary, Wall Street analysts aren't overly excited about the commercial prospects of either therapy. For instance, SVB Securities analysts think Bluebird is in line to eventually haul in approximately $100 million in annual sales from both Zynteglo and Skysona. That amount won't be sufficient to push the biotech into positive free cash flow territory. However, the biotech's experimental sickle cell disease gene therapy, lovo-cel, could be a game-changer for the company.
Here's what investors need to know right now.
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An explosive move could be close at hand
Bank of America securities analyst Jason Gerberry recently upgraded Bluebird's stock to a buy and raised its price target to $10 per share. This price target is noteworthy, as it implies an upside potential of 163% from current levels. The core reason for this bullishness is the commercial opportunity inherent in lovo-cel's target market. Bluebird's internal estimate suggests that lovo-cel may be a viable treatment option for up to 20,000 U.S.-based SCD patients. With a price point likely to top $2 million per patient and a modest 20% penetration rate, lovo-cel would see its annual sales come in at a whopping $8 billion per year.
In reality, Bluebird's SCD offering is likely to fall well short of $8 billion per year in peak sales. The therapy will launch into a market dominated by small-molecule drugs, and it could end up competing against next-generation gene-edited therapies as well. The broader point, though, is that lovo-cel could hit blockbuster sales status -- defined as greater than $1 billion per year -- fairly easily in this rare-disease setting. That's a considerable revenue estimate for a company with a $405 million market cap at the time of this writing.
So if the FDA greenlights lovo-cel by its target action date of Dec. 20, Bluebird's shares ought to shoot northward. An FDA-approved gene therapy for SCD, after all, will probably transform the biotech into a top buyout candidate in early 2024. Amgen, Regeneron Pharmaceuticals, and Biogen are three potential suitors with both the financial resources necessary to make a bid and the need from a portfolio standpoint.
What's the catch?
Why is Bluebird's stock trading at under $4 a share leading up to this pivotal regulatory decision? The key reason is the company's less-than-ideal financial situation. At the end of the most recent quarter, Bluebird had $291 million in cash, cash equivalents, restricted cash, and marketable securities.
The company estimates that this amount will cover its operating expenses until the second quarter of 2024. So if Bluebird doesn't fetch a compelling tender offer early next year, it may have to raise a sizable amount of capital through a public offering, which would undoubtedly put tremendous pressure on its share price.
Time to buy?
Bluebird's near-term prospects may hinge on whether it can attract a buyer following lovo-cel's potential green light from the FDA. This is not an unrealistic scenario, given that Bluebird's valuation is quite attractive in light of lovo-cel's market potential. Moreover, the company may not have enough resources to launch lovo-cel by itself, and raising more capital could weigh on its shares to the point where a reverse split becomes necessary to stay on the Nasdaq.
Management would surely want to avoid such an outcome. However, a buyout is not guaranteed. Big pharma may have reservations about the long-term profitability of a gene therapy for SCD, or about how the competition will shape up in this area in the coming years. There are many uncertainties surrounding this story. Hence, prospective investors may want to keep any starter position on the small side leading up to this all-important regulatory decision.
