bluebird bio, Inc. (BLUE) is a clinical-stage biotechnology company that engages in developing potential gene therapies for severe genetic diseases and cancer.
Its integrated product platform includes gene therapy, cancer immunotherapy, and gene editing. Its product pipeline includes Lenti-D, LentiGlobin, BCL11a shRNA, bb2121, and bb21217. The company was founded in 1992 and is headquartered in Cambridge, MA.
I am bearish on BLUE stock. The company is losing money but has a severe cash burn problem too that may soon lead to stock offering to raise cash. On top of that, with losses of about 65% in the past year, it is too risky now for investors trying to catch the bottom of the stock. Due to its financials, I do not consider bluebird bio among the top biotech stocks.
bluebird bio Business News
On December 20, 2021, the biotechnology company announced that “the FDA has placed its clinical program for lovotibeglogene autotemcel (lovo-cel) gene therapy for sickle cell disease (SCD) on partial clinical hold for patients under the age of 18.”
In other news, in mid-December 2021, bluebird bio announced that “the U.S. Food and Drug Administration (FDA) has accepted for priority review the Biologics License Application (BLA) for elivaldogene autotemcel (eli-cel, Lenti-D®), the company’s gene therapy for cerebral adrenoleukodystrophy (CALD), in patients less than 18 years of age. Eli-cel is an investigational one-time gene therapy custom-designed to treat the underlying cause of this irreversible neurodegenerative disease and to stabilize neurologic function. The agency set a Prescription Drug User Fee Act (PDUFA) goal date of June 17, 2022.”
In early November 2021, bluebird completed the tax-free spin-off of its oncology programs and portfolio into the publicly-traded company 2seventy bio (TSVT).
Q3 2021 Earnings: Negative Free Cash Flow Persists
Unlike other clinical-stage biotechnology companies that have no significant revenue, bluebird bio has collaboration and license agreements generating meaningful revenue. Its Q3 2021 earnings were worse than expected, as EPS GAAP of -$3.16 was a miss by $0.64. Revenue of $22.68 million was also a miss by $18.8 million.
Year-over-year, bluebird bio reported EBIT of -$196.7 million compared to -$190.5 million and a net loss of $216.81 million compared to a loss of $194.74 million in Q3 2020.
Fundamentals – Risks
Biotech stocks can be unsuitable as investments for investors looking for low-volatility stocks and strong fundamentals. In many cases, the majority of biotech stocks seem like a lottery ticket. Just like purchasing a lottery ticket, the odds of winning big are slim, but when gains do occur, they come on a massive scale.
Biotechnology companies move a lot upon clinical trial news, even if their underlying fundamentals are not good at all.
Interestingly, bluebird bio generated revenue over the past years that has increased from only $6.16 million in 2016 to $250.73 million in 2020. The huge spike of revenue growth in 2020 of 461.25% lost its steam, with TTM revenue being $53.6 million.
I have identified three core weaknesses for BLUE stock. First, the company is unprofitable with large net losses. In 2020, the net loss reported was $618.7 million. Looking at the gross margin of 97.8% for 2020, investors may be hard to believe that in the latest quarter, the gross margin fell to 8.9%.
Shareholders have been diluted in the past year, with total shares outstanding growing by 5.6%. The biggest problem, according to my analysis, is the cash burn problem.
The company has several of its product candidates in Phase III trials, meaning that when these products get approval by the FDA, commercialization will boost revenues. There is high uncertainty, though it could be several months or years away when this may happen.
In Fiscal 2020, bluebird bio reported a free cash flow of -$499.3 million, and in Q3 2021 alone, free cash flow was -$156.7 million. The cash and short-term investments of $777.6 million on the balance sheet in Q3 2021 signal that the bluebird bio may have a severe cash problem within the next quarters.
Wall Street’s Take
Turning to Wall Street, bluebird bio has a Hold consensus based on nine Holds and two Sell ratings assigned in the past three months. The average bluebird bio price target of $12.60 represents 28.4% upside potential.
bluebird bio is now a troubled biotech company with cumulative net losses, a serious cash burn problem, but a promising pipeline. The -$508.9 million of free cash flow in the first nine months of 2021 is indicative of the riskiness of this biotech stock now.
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Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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