Gene-therapy biotech Bluebird Bio's (BLUE +0.00%) stock price is down by 41% in the last 12 months, so it's no surprise that investors are wondering whether it's priced at a bargain. Bluebird's fortunes might turn soon, as it scales up its commercialized medicines, and potentially gets a new medicine approved by the end of the year.
But it will likely take more than that to make the stock look cheap. Here's why.
NASDAQ: BLUE
Key Data Points
A cash crunch and unprofitability don't bode well
The trouble with making an investment in this biotech right now is that it has a lot of upcoming spending it can't avoid, just when its resources are stretched too thin.
Bluebird has two gene therapies on the market: Skysona, which is indicated for cerebral adrenoleukodystrophy (CALD), and Zynteglo, which treats beta thalassemia. Both of those conditions are relatively rare, and as of the second-quarter earnings update, the two medicines combined were treating only 16 patients in total. In Q2 the company's sales clocked in at only $6.8 million.
That sum will likely increase soon, as the biotech assumes that up to 10 more patients will start on Skysona before the end of 2023. But it isn't profitable, and management hasn't provided any guidance on when that might change. The culprit is the complicated manufacturing process required for its gene therapies, which is logistically intense and can't benefit from economies of scale because each patient's therapy uses a portion of their own cells as raw material. That's why even after roughly a year out from Zynteglo's approval, Bluebird's quarterly cost of goods sold (COGS) is still a stubbornly high 139% of its quarterly sales and doesn't appear to be improving over time.
Furthermore, Bluebird has a pressing need to set up qualified treatment centers (QTCs) to administer its gene therapies. It's aiming to scale its treatment-center footprint from around 20 to between 40 and 50 by the end of the year, and that could be costly.
Beyond that, it's also hoping that its gene therapy for sickle cell disease (SCD) gets the OK from regulators at the Food and Drug Administration (FDA) in late December. So it's aiming for an early 2024 launch, which will no doubt require plenty of spending to make happen, even if administering the therapy uses the same treatment centers as the company's others.
Bluebird Bio expects to burn between $270 million and $300 million in cash this year. It only has $291 million in cash, equivalents, and marketable investments on hand, which management claims is enough to last it almost through the end of 2024, assuming it can utilize $45 million of its cash that's presently restricted from use.
Given that its trailing-12-month (TTM) cash burn is $366 million, it's difficult to see how that math would work out without some serious cuts -- or raising more cash via taking out new debt or doing a stock offering. Investors who buy the stock now would thus be exposed to a high risk of share dilution.
The price isn't right for Bluebird Bio stock
Because of its recent lack of significant revenue or earnings, Bluebird's valuation is excessively high. Its price-to-sales (P/S) ratio is 35 -- many times larger than the biopharma industry's average P/S of 4.4. What's more, Wall Street analysts don't expect it to be profitable this year or next year.
So it's safe to say that this company is not a bargain. Even if its sales climb rapidly, as management is anticipating, it might not be able to figure out how to make more money than it spends any time soon, or perhaps ever. And since it's had a medicine on the market for a year, despite a few hiccups in the launch, it's reasonable for investors to expect more than further cash-burning. But without dramatic changes to Bluebird's manufacturing efficiency -- which may not be possible -- this stock is on borrowed time.
