Saturday, 16 December 2023
by Rose White
Despite the Food and Drug Administration (FDA) approving its sickle cell disease (SCD) gene therapy last week, Bluebird Bio (NASDAQ: BLUE) is having a very bad time right now. On Dec. 8, the day of the approval, its shares crashed by 40%. From market close Dec. 7 to market close Dec. 14, the stock dropped roughly 30%. To make matters worse, there’s reason to believe that the company is going to be in uncomfortably hot water for at least a while longer.
So what is happening with this stock, and what should investors make of it?
Bluebird’s victory with getting its SCD therapy approved by the FDA is, unfortunately, already looking like it’s going to be far more bitter than sweet.
The first issue is that a pair of Bluebird’s direct competitors, CRISPR Therapeutics (NASDAQ: CRSP) and Vertex Pharmaceuticals (NASDAQ: VRTX), saw their jointly developed gene therapy for SCD, called Casgevy, approved at the same time. That means Bluebird’s product, which is called Lyfgenia, will be forced to fight for market share from the get-go. Lyfgenia is priced at $3.1 million per dose, and it’s curative or near-curative. But CRISPR’s product costs $2.2 million per dose, and it’s also largely curative.
Then there’s the black box warning that regulators mandated for Lyfgenia. Black box warnings denote serious safety risks for patients taking the medicine. In Lyfgenia’s case, regulators were concerned about the risk of patients developing hematological malignancies (blood cancers) like acute myeloid leukemia (AML) as a result of treatment. While Bluebird conducted a study in 2022 showing that the two cases of its gene therapy patients developing AML were unrelated to their participation in Lyfgenia’s clinical trials, the FDA does not appear to be convinced. Now, the company will need to check in with patients twice per year for at least the next 15 years to screen them for blood cancers. That’ll be expensive.
Interestingly, the FDA opted not to require a black box warning for Casgevy. That’s bound to have competitive implications, as doctors may shy away from suggesting medicines they view to be riskier when there are safer alternatives.
The final problem is perhaps the most pressing in the short term. Bluebird Bio currently has around $174 million in unrestricted cash, equivalents, and investments; it also has $53 million in restricted cash. Its trailing-12-month total expenses are $147 million, and it will need to continue paying quite a bit each quarter to set up more qualified treatment centers for patients to actually receive Lyfgenia across the U.S. Furthermore, it burned more than $300 million in cash over the last four quarters, and it isn’t yet profitable, so it can’t generate sufficient funds for itself. Even if it can somehow free up its restricted cash, it’ll soon be running on fumes.
To scrape together some additional cash, management hoped to sell a priority-review voucher (PRV) to Novartis, a Swiss pharmaceutical company, for $103 million. The FDA doles out PRVs alongside approvals sometimes, and the vouchers grant the one-time right to an expedited regulatory process, so they’re quite valuable. Bluebird explicitly expected to pick up a fresh PRV with the Lyfgenia approval.
CRISPR Therapeutics and Vertex got one. But Bluebird didn’t. Now, burdened by a significant debt load of $303 million amid already difficult borrowing conditions, it’s running low on options to get Lyfgenia up and running. To make matters worse, Wall Street analysts were already predicting that it would take a good while to ramp up revenue from sales of the therapy.
Given the stark differences in pricing and mandated safety warnings between Lyfgenia and Casgevy, Bluebird’s chances of securing market share don’t look so hot, especially considering the medicines have comparable effects. In short, it has no competitive advantage. The fact that CRISPR and Vertex got a PRV and Bluebird didn’t when it was counting on one simply adds insult to the injury. Thanks to the slew of setbacks and issues, the situation just might be an existential threat for the company.
In other words, it’s absolutely no surprise that Bluebird’s stock tanked. Its competitive positioning is significantly behind that of its biggest rival precisely when it has few resources with which to close the gap. It’s unclear what management can cook up to change the situation, and they don’t have an abundance of time to figure things out. Don’t buy this stock until there’s a credible plan for the company to chart a course to survival.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.