WILL BLUEBIRD BIO’S BIG GAMBLE PAYOFF?

By Aidan Asbill, Biotech Analyst 

In 2018, Bluebird Bio’s ($BLUE) impressive cell-based therapies propelled the company to stock prices as high as $231, but today the stock has collapsed nearly 90% to prices as low as $24 per share. Bluebird Bio was once at the forefront of innovation in the biotech world, with their leading drug, Zynteglo becoming the first gene therapy approved for the treatment of beta-thalassemia. Zynteglo had tremendous potential, showing promise in reducing the need for blood transfusions after just a single administration of the drug. However, investor sentiment quickly changed as the company had to delay the launch of Zynteglo because of manufacturing issues. On top of this, the company would be criticized for the $1.8 million price of the drug, making it the second most expensive drug in the world. Things went from bad to catastrophic, in 2021, when the company announced it was temporarily suspending two of its clinical trials for LentiGlobin, due to concerns the treatment caused cancer. With things looking grim for the company, Bluebird Bio made a bold move by announcing they would split into 2 companies by the end of 2021. Bluebird Bio will remain focused on severe genetic diseases, while another new company will be birthed to take on its oncology assets. By splitting the company into 2 entities, Bluebird Bio believes this will enable each business to be in a stronger position to deliver on its goals. This bold move has investors both interested and confused, as a move like this could make or break the company. With that being said, let’s look at how Bluebird Bio ended up in this perplexing situation.

Bluebird Bio History

The company was founded under the name Genetix Pharmaceuticals in 1992 by two MIT researchers Philippe Leboulch and Irving London. In 2001, Walter Ogier became the CEO of Genetix Pharmaceuticals and under his guidance, the company was focused on the development of LentiglobinTM in order to treat sickle cell disease and beta-thalassemia. After nearly a decade of research, preliminary results of clinical trials of LentiglobinTM in France showed promising results. A patient with severe beta-thalassemia had been successfully treated with the treatment, which marked the first-ever long-term treatment of a human using gene therapy. Shortly after this, in September 2010, Nick Leschly would become the CEO of the company, as well as the renaming of the company from Genetix Pharmaceuticals to Bluebird bio. In June 2013 the company would go public, with Bluebird Bios IPO selling 6.83 million shares, at $17 a share, raising $116 million. A year later, the company would acquire Precision Genome Engineering for $156 million, which would help bolster Bluebird Bio’s oncology department. With the company on the rise, in 2017, Bluebird Bio secured a collaboration with Bristol-Myers Squibb involving their CAR-T cell therapy candidate bb2121. Later that same year, the company reported bb2121 delivered a 100% response rate, in multiple myeloma patients. This shot up the stock by 33% as investors flocked to biotech’s hottest new stock. The company would continue to gain traction and in 2018, would announce a collaboration with biotech giant Regeneron Pharmaceuticals ($REGN)  to discover, develop and commercialize new cell therapies for cancer. With that being said, Bluebird Bio still didn’t have a product and was burning through cash at a concerning rate.

 The company would burn through cash at a worrying rate of $555 million in 2018 and $789 million in 2019. Bluebird Bio got to change this in 2019, by bringing its proof of concept to life with European approval to commercialize its star drug Zynteglo. However, things took a turn for the worse when Zynteglo, was forced to delay its launch due to manufacturing roadblocks. In January 2020, the company would finally get to commercialize the drug in Europe, but just a few months later, covid-19 would alter the course of the company.

With the Covid-19 pandemic in full swing, Bluebird Bio was once again forced to push back the drug’s launch. In May 2020 the FDA sent a refusal to file a letter to BMS and bluebird bio’s marketing application for its treatment of idecabtagene vicleucel for patients with relapsing multiple myeloma over manufacturing concerns. This was fixed a few months later when the FDA accepted bluebird’s marketing application for ide-cel. However, with so many other gene therapy companies showing promising pipelines investors began to slowly leave the stock as the company still was unable to market Zynteglo. In February 2021, things would go from bad to worse for $BLUE when the company stopped studies of sickle cell gene therapy after one patient developed leukemia during treatment. This has always been a big worry for researchers in the gene therapy space, as in the early 2000s several children developed leukemia after receiving gene therapy treatments. Research in gene therapies has accelerated tremendously in the last couple of years and scientists now use many different tools that are thought to be safer. This was nearly a death sentence for Bluebird Bio, to be associated with such a deadly disease. The stock dropped as low as $24, a share price that hadn’t been seen for the company since its IPO in 2013. 

At this same time, the company was also forced to halt all marketing of Zynteglo in Europe in order to evaluate the safety of the treatment. In April, the company also continued to struggle to market Zyntelgo, with the company withdrawing from Germany over pricing concerns. Last month, Bluebird bio was cleared by the FDA, with it being very unlikely leukemia developed from the lentiviral vector used in LentiGlobin treatment. While the company was able to pass safety evaluations on its treatments, investors have left the company in the dust, flocking to the plethora of other innovative gene-editing companies. 

Bluebird Bio Big Gamble

With Bluebird Bio stock prices near all-time lows, all the pressure is on $BLUE to turn the  company around with the splitting of the company into two at the end of the year. With the split, Bluebird Bio will retain its name as well as the company’s rare blood and brain diseases, including the beta-thalassemia treatment Zynteglo. Meanwhile, Nick Leschly, Bluebird’s current chief executive, will run the new oncology company 2seventy bio which is in charge of researching multiple myeloma treatments as well as drugs for lymphoma and solid tumors. The new company 2seventy bio will seek to further research their compelling oncology pipeline of cellular therapies, which includes treatments for non-Hodgkin’s lymphoma, acute myeloid leukemia, next-generation multiple myeloma, and solid tumors. Recently in March, the FDA approved bb2121, the company’s lead candidate for relapsing refractory multiple myeloma. Bluebird Bio is also hoping to win approval for LentiGlobin a treatment for sickle cell disease gene therapy.  However, the company said in November that it wouldn’t be able to file the drug with the FDA until late 2022, which is a delay of nearly a year compared to previous expectations. Splitting the company into two entities is meant to revitalize fortunes for both divisions of Bluebird Bio, which has failed to capitalize on the company’s lead innovating in gene therapy. Earlier in the year, the stock hit a 52 week low of $24 a share, after the devastating news of a patient developing leukemia. However, the stock has failed to gain much momentum and is nearly 1/10 the value it was at all-time highs, just a couple of years ago. 

Splitting a company into two separate companies is surprisingly not a new concept in the biotech world. In 2012, medical giant Abbot Laboratories split off its pharmaceuticals business . The new company formed would be named AbbVie and become a biopharma giant with a market cap of 206 Billion dollars. Before the split from January 2001 to January 2012 Abbot Labs gained only 37%. Since the company split at the end of 2012, AbbVie is up 250%, while its parent company Abbot is up 270%. Another medical giant Pfizer split off its animal health division into a new company named Zoetis around this same time. During this time Pfizer is up an impressive 73%, while its spin-off company Zoetis is up an astonishing 500%. While these numbers are very impressive, splitting off the company does not always equate to overnight success. Just this year, pharmaceutical giant Merck & Co split off their women’s health and biosimilar therapies into a new company named Organon. Merck has been stagnant, up only 1.5% year to date. While their new spin-off Organon is down nearly 20% in only just a few months since going public. To make matters worse, oftentimes these company splits can be used to alleviate debts off the parent company. With Organon going public, the company also brought with it an estimated $9.5 billion in debt. At the start of the year, Bluebird bio had $1.3 billion in cash on hand, however, the company is burning cash at an alarming rate with the company losing $600 million in just the last 3 quarters. Bluebird Bio splitting into two companies should alleviate debt as it will split its spending across two companies instead of one, which may be a good or bad thing depending on the investors. With that being said, while the split should slow down spending it may also reduce future growth as revenues are split between both companies.

Bluebird Bio’s Future

Bluebird Bio split is a defining moment that will make or break the company. Undoubtedly, the company has been extremely unlucky with its commercializing of Zynteglo. In 2019, before all the setbacks, Zynteglo was projected to make $1.87 billion in sales by 2024. However, the market is much different today, with many similar gene therapy companies ready to steal market share in just a couple of years. Last year the company made $250 million in revenue, but the vast majority of this came from royalties, while sales of Zynteglo have yet to be disclosed. Current estimates from GlobalData’s analyst forecast have Zynteglo’s sales expected to reach $906m by 2026. Much of this value hinges on Zynteglo getting FDA approval which it plans to apply for some time this year.  Pricing concerns over the steep $1.8 million price continued to plague the company, with them going as far as pulling out the drug from Germany over pricing concerns earlier this year. Bluebird is continuing discussions with other major European countries, including the U.K., Italy, and Spain. Recently, the company also announced it is the first ever to bring second gene therapy to the market with the EU approving its treatment for cerebral adrenoleukodystrophy Skysona. The disease is extremely rare and will probably only bring in a project $74 million in peak sales still, the company is proving that it is still at the forefront of gene therapy. Despite the setbacks, the company can still be near the front of countless companies to commercialize a sickle cell cure. When looking at Bluebird bio’s new spin-off 2seventy bio things get even more intriguing. 2seventy bio’s lead drug, bb2121 CAR-T therapy for relapsed multiple myeloma recently got FDA approval. Bluebird and Celgene signed a deal that will be a 50% split of U.S cost and profits and the drug could make over $2.5 billion in potential revenue. The company should further develop its Myleomma treatment options as well as treatments for Carcinoma and solid tumors in the early testing stages. The new split-off 2seventybio looks very promising.

Bluebird Bio company split is still a longshot in the sense that it won’t fix the company’s lack of sales overnight. However, if Bluebird Bio is able to secure FDA approval for Zynteglo, this may get investors excited again. Investors should be wary that Bluebird Bio’s splitting into two companies always has risk associated with it, especially when just a few months ago Organon, Merck spin-off had a 20% sell-off. If investors believe in Bluebird Bio long term, however, with FDA approval of Zynteglo the company may be interesting stock with the company sitting near IPO prices. Ultimately, it will be up to investors if they believe Bluebird Bio will be able to regain its footing or if it will continue to falter with setbacks.

Disclosure: The Sick Economist Owns $BLUE