bluebird bio Is Priced Beneath IP Worth (NASDAQ:BLUE)

I’m following up on my previous analysis for bluebird bio, Inc. (NASDAQ:BLUE) in gentle of the latest financing information.

In November and simply earlier than the FDA announcement on Bluebird’s Sickle Cell therapy, I rated Bluebird a purchase for the next causes:

• FDA Approval was probably primarily based on signaling.
• Money circulation was tight however manageable.
• The inventory had a flooring worth of roughly $300 million on IP alone.

Whereas the FDA did approve the treatment, it got here with a black field security warning and a 40% larger value than its competitor. This despatched the inventory plunging and it’s down 64% from my final evaluation.

Regardless of these challenges, I consider Bluebird Bio is priced beneath the worth it could promote for on mental property alone. As well as, the corporate has secured $175 million in debt financing to try development to profitability which might characterize further upside. With that in thoughts, I proceed to price Bluebird Bio a purchase.

Potential Sale Worth

As proven above, Bluebird’s market cap sits simply above $280 million at present. I consider that is beneath the probably sale worth if Bluebird was dissolved and offered for IP.

Bluebird Bio has three authorised gene therapies, with extra R&D within the pipeline, and hundreds of doubtless eligible sufferers.

Moreover, biotech acquisitions accelerated in 2022 and 2023, and the typical deal premium elevated to 50-60%.

Bluebird’s tangible guide worth has been trending down as money is burned, sitting round $200 million at present.

On the common deal premium of 50-60%, and with no debt, this implies a price of $300 to $320 million at present, a big upside from the market cap of $280 million.

Money Runway Has Been Prolonged

As of the corporate’s final presentation in January, it had $275 million in money available, zero debt, and an estimated runway into Q1 2025.

On Monday, March 18th, Bluebird introduced that they had secured an extra $175 million financing from Hercules Capital.

Adjusting for money burn since January (roughly $20 million) and a restricted $50 million tranche, Bluebird ought to have round $380 million in obtainable money. This might prolong them effectively into 2025 and additional if profitability improves. This offers the corporate some respiration room to proceed executing its technique and increasing distribution.

Path To Profitability

Whereas the IP worth alone gives an upside, we nonetheless wish to think about further worth from the corporate turning worthwhile, enabled by the prolonged money runway.

The corporate reaffirmed its 2024 commercial guidance with the primary LYFGENIA sufferers in Q1 2024 and 85 to 105 sufferers in 2024 in whole (roughly $180 million in lifetime worth). And within the absence of recent financials, Bluebird is on observe for my earlier evaluation. As a refresher, I assumed the next:

• Therapies will present linear development and the price of income will enhance with the dimensions.
• Lyfgenia (previously Lovo-cel) will develop on the identical price as prior therapies besides 10x reflecting the bigger market.
• No materials modifications to SG&A and a big discount in R&D following Lyfgenia’s approval.

Loads has to go proper on the distribution and acquisition aspect. As well as, Bluebird must persuade payers to pay, though preliminary discussions have reportedly gone effectively. Bluebird has signed outcome-based agreements with payers protecting over 200 million people within the US.

No matter how precisely this performs out, present income on high of recent therapies places profitability or if nothing else, a discount in money burn, throughout the close to time period. Close to-term profitability would characterize an outsized upside to the present value, however I’ll maintain again on a selected value goal from profitability till additional earnings are launched.

Draw back Danger

Whereas doable, I consider it’s extremely unlikely the IP would have $0 worth on a sale. The extra probably draw back danger is that Bluebird wouldn’t have the ability to command the identical premium as different biotechs and fall wanting the 50-60% premium mentioned above.

The opposite draw back danger is the FDA withdrawing approval since Bluebird’s therapies have gone by means of the accelerated approval course of. The excellent news is that solely 20-25% of medication that obtain accelerated approval are withdrawn placing this in a decrease danger class.

Verdict

Bluebird Bio’s inventory value plummeted following security warnings and a excessive value level on their modern gene remedy for sickle cell illness. Actually, it’s down 64% from my final evaluation in November.

Nonetheless, I consider there may be robust upside potential. Bluebird bio seems underpriced even for an IP sale with a market cap of $280 million versus a possible sale value of $300 – 320 million primarily based on comparable biotech gross sales.

Past the ground worth from IP, the corporate has prolonged their money runway and profitability continues to be doable throughout the subsequent yr primarily based on affected person tendencies and payer negotiations.

With the above in thoughts and dangers pretty effectively mitigated, I preserve my purchase ranking for Bluebird Bio.