Penny stocks -- companies whose shares are trading for $5 or less -- look cheap for a reason: They have encountered severe issues, and the market has little faith that they will turn things around. That's the situation in which Bluebird Bio (BLUE +0.00%), a biotech focused on gene editing, finds itself. The company has made tremendous progress and has proven innovative abilities, but still faces severe headwinds.
On the bright side, buying shares today would translate to outsized returns in the long run if the company can mount a comeback. Is it worth the risk?
Three approved products -- with major asterisks
Many gene-editing specialists have struggled to launch just one product. Bluebird Bio has three, an impressive achievement. The first is Zynteglo, a therapy for transfusion-dependent beta-thalassemia (TDT), a blood-related disease. Then there's Skysona, which treats cerebral adrenoleukodystrophy (CALD), a rare, progressive neurologic condition. Lastly, Bluebird Bio earned approval for Lyfgenia to treat sickle cell disease (SCD), another blood disorder, in December of last year.
All three approvals were groundbreaking. There are few effective treatments for these conditions; Bluebird's products are one-time curative options. So why isn't the market giving Bluebird more credit for the important approvals it's received?
NASDAQ: BLUE
Key Data Points
Here's one reason: Gene-editing therapies are complex to administer. Doing so requires properly trained medical experts in dedicated qualified treatment centers (QTCs), and even then, the process takes some time. The fear is that Bluebird, a small-cap biotech with little cash in the bank, won't survive long enough to reap the benefits of its breakthroughs.
There are other problems. Zynteglo and Skysona have small patient populations -- a combined maximum of 1,540 between them. True, they're expensive therapies. Zynteglo costs $2.8 million, while Skysona is priced at $3 million. With prices that higher, there's no need for millions of patients. Still, when added to the fact that it could take a while to ramp up revenue for these products, the low patient population hardly inspires confidence.
Lyfgenia looks more promising. Bluebird Bio estimates that roughly 20,000 patients in the U.S. could benefit from it; it costs $3.1 million per treatment course, for a total opportunity of $62 billion. However, Lyfgenia will face competition from Casgevy, developed by the team of CRISPR Therapeutics and Vertex Pharmaceuticals, the latter of which has much bigger pockets than Bluebird. Furthermore, while Lyfgenia comes with a boxed warning for blood cancer, Casgevy does not -- and it costs just $2.2 million.
Is a rebound in the cards for Bluebird?
The good news is that Bluebird Bio is making some progress. It has activated 35 QTCs for Lyfgenia, and enrolled several third-party payers to cover the cost of the medicine. It plans to start treatment for the first SCD patient in the first quarter. In total, the biotech anticipates between 85 and 105 patient starts across its three therapies in 2024. Bluebird Bio thinks it has enough cash to last until the first quarter of 2025.
The biotech will have to generate enough funds from its products or find other ways to finance its operations, which won't be an easy task considering its situation. Perhaps the best outcome for Bluebird Bio would be for a larger biotech to acquire it. If that does happen -- and there's no guarantee that it will -- its stock will likely soar. It would also allow Bluebird to access more funds, and to treat patients without worrying about running out of money.
That said, Bluebird Bio looks like far too risky a company to buy into now. In a few years, perhaps even just one year, its shares could be worth little or nothing. Investors can find much more attractive biotech stocks to invest in.
