Once a rising star in the biotech industry, Bluebird Bio (BLUE 1.13%) has had a difficult past few years. The company's shares are down by 94% since late 2018, a horrible performance by any metric. However, this biotech specialist has some redeeming qualities. Unlike most of its peers in the gene-editing niche, Bluebird has earned approval for several of its products, a testament to the company's innovative abilities.
Furthermore, Bluebird's market capitalization is just $314 million as of this writing, lower than many of its clinical-stage competitors. Is Bluebird Bio stock a buy at current levels?
What happened to Bluebird Bio?
Developing gene-editing therapies is a challenging and expensive process. These medicines are also difficult to administer, hence their often exorbitant price tags. Over the past few years, Bluebird Bio ran into clinical and regulatory challenges, including suspected adverse events in clinical trials of some of its products, as well as approval delays.
The company also had to exit the European market after it failed to strike deals with third-party payers on the continent for its approved therapies: Zynteglo and Skysona. The former treats a blood disease called transfusion-dependent beta-thalassemia (TDT), while the latter targets patients with cerebral adrenoleukodystrophy (CALD), a progressive, neurodegenerative pediatric disease.
Last year, Bluebird Bio earned approval for Zynteglo and Skysona in the U.S. However, both have small target populations in the country, so they do little to improve Bluebird's prospects substantially. No wonder the company's shares are struggling.
A major catalyst on the way
Not all is lost for Bluebird Bio and its shareholders. The company is awaiting approval for lovo-cel, a potential gene-editing treatment for sickle cell disease (SCD), another blood disorder. The U.S. Food and Drug Administration (FDA) set a PDUFA goal date (when it should finish reviewing Bluebird's application) of Dec. 20. This approval would be in a different league from Bluebird's two other marketed therapies.
The biotech estimates a potential target market of roughly 20,000 patients in SCD. It's hard to say how much will lovo-cel cost, but we do have some clues.
First, Zynteglo is priced at $2.8 million while Skysona costs $3 million. Lovo-cel won't be that much cheaper (if at all) than either one of them. Second, the Institute for Clinical and Economic Review (ICER), a non-profit organization working to ensure affordable medical care, has estimated that lovo-cel should be cost-effective at a price of up to about $2 million.
For the sake of argument, let's suppose Bluebird opts to sell a treatment course for exactly that -- $2 million. This would produce a nice round figure of $40 billion for the total addressable market for lovo-cel in the U.S.
The company won't capture this entire market as it might not be the only game in town. The pair of Vertex Pharmaceuticals and CRISPR Therapeutics looks close to earning approval for a competing therapy called exa-cel. However, the ICER rated lovo-cel as being slightly more effective than exa-cel -- giving a B+ to the former and a C++ to the latter. Translation: Bluebird could capture a decent share of this space.
What should investors do?
Unfortunately, a company being innovative isn't enough reason to invest in its stock. Otherwise, Bluebird Bio would be a no-brainer buy. The reality is very different. It could run into significant obstacles that would render its shares worthless practically overnight; the company could fail to earn approval for lovo-cel, for instance. If it does get the green light in December, that would improve the biotech's prospects.
But even then, they would remain somewhat shaky. As previously mentioned, gene-editing therapies are complex to administer. The process of administering Zynteglo takes a while and involves collecting a patient's stem cells, "editing" them, and reinserting them back into the patient. Bluebird could make decent sales from lovo-cel if it can ramp up the pace and treat enough patients, but given all these factors, nothing is set in stone.
Meanwhile, the company remains deeply unprofitable. Bluebird Bio is worth keeping on a watch list, in my view. But only those who can stomach substantial amounts of risk should even consider initiating a small position in this biotech stock right now, even at a price of just $2.94 per share.
