DavidBGray
bluebird bio, Inc. (NASDAQ:BLUE), because of the positive feedback from the FDA, is considered to have a lot of potential growth in the years ahead. Even so, having a therapy backed by the FDA is much different than being approved by the FDA.
This is why the company remains a highly speculative play, in spite of a number of financial writers considering it to be a buy.
In this article we’ll look at some of the pros and cons surrounding bluebird bio, Inc., and the best way to play it in light of the uncertainties surrounding its potential pipeline.
Latest earnings
For the quarter ended June 30, the company generated revenue of $1.5 million, pointing to the fact its potential performance lies in the future, not in the present.
In the reporting period the company had a net loss of $100.1 million, down from the $155.8 million net loss in the same quarter of 2021.
Research and development expenses in the quarter were $63.8 million, down $20.8 million from the $84.6 million in R&D expenditures year-over-year. The bulk of the decline was directly related to various employee expenses.
Selling, general and administrative expenses for the quarter were $36.7 million, down from the $55 million spent last year in the same reporting period. The decline in expenditures was also attributed to lower employee compensation, as well as its decision to focus on the U.S. market in regard to beti-cel, eli-cel, and lovo-cel, which lowered “commercial readiness activities.”
As for its balance sheet, the company had restricted cash, cash and cash equivalents and marketable securities balance of about $218 million, which included restricted cash of close to $45 million at the end of the quarter. The company projects a cash burn of under $340 million for full year 2022.
At the end of the earnings period the company had raised about $24.7 million via its At-the-Market (ATM) equity facility. Management said its searching for several ways to raise more capital, including through the monetization of priority review vouchers if beti-cel or eli-cel are approved.
I consider raising capital to be the biggest challenge the company faces at this time. It could raise some capital through traditional outlets, but it won’t be enough, in my opinion, to handle the significant cash burn it’s experiencing. That means the vouchers are extremely important to its financing issues, and there’s no guarantee there. And even if beti-cel or eli-cel are approved, the timing of that approval will be significant.
For that reason, bluebird bio may have to seek a cash infusion from a larger peer or shop itself around to be acquired.
Risk/reward
While acknowledging the cash burn issue bluebird bio faces, it doesn’t take away from the fact that the company does have the potential to be wildly successful if the products in its pipeline are approved.
For example, when eli-cel and beti-cel were given backing by the FDA, the share price of the company in pre-market soared 71 percent. If those therapies are approved, the upside potential is enormous, and in those cases, would be sustainable.
If approved, we would have to have clarity on what the support level looks like, along with top.
Under that scenario, I believe the potential for long-term growth for bluebird bio. For that reason, taking a small position with money set aside for speculative companies is worth the risk, because of the extraordinary reward that would come with FDA approval for therapies in its pipeline.
Investors do need to understand that they could lose all their capital when taking a position in bluebird bio, although I think that is largely mitigated by the probability a company would acquire its assets if it were to run out of operating capital.
As for the therapies themselves, eli-cel would treat a rare neurodegenerative disease cerebral adrenoleukodystrophy, while beti-cel has the potential to treat “patients with rare blood disorder β-thalassemia who require regular red blood cell transfusions.”
Conclusion
The key point to remember with bluebird bio, Inc. is that, at this time it is all unrealized potential that has no guarantee it’ll get approval for most of the products in its pipeline.
Even with the recent approval of “Zynteglo (betibeglogene autotemcel), a gene therapy for the treatment of the blood disorder β-thalassemia,” the share price of the company really didn’t do too much.
There are a couple of reasons for that, but for the purposes of this article, I think it’s because the share price of the company has doubled since the beginning of June, and a lot of the good news has already been priced in.
In August alone it has jumped over $2.00 per share, and I think shareholders are likely to start taking some profits or have already started doing so. I would wait for a pullback before taking a position at these price levels.
As mentioned earlier, I see bluebird bio, Inc. as offering good risk/reward because the upside, in my opinion, exceeds the downside. That said, because its share price has soared recently, there is now more downside than before it began its upward growth trajectory; now there’s more to lose than there is in June. That’s why I think waiting for a pullback is a good strategy, although any good news would frustrate that because it has the potential to take off if other approvals are offered by the FDA.
Finally, as usual, investors shouldn’t put any more money in bluebird bio, Inc. than they can afford to lose. But with the upside potential the company has, it is definitely worth putting some money in bluebird bio because of the support it has from the likelihood it wouldn’t be allowed to fail by larger competitors who would look to add to their own pipelines.
bluebird bio, Inc. has some support on the downside along with extraordinary upside potential. It could go bad if the FDA announces it isn’t going to approve of some of its therapies, and that would at least temporarily crush the share price of the company because expectations are so elevated.
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