BLUE -- Bluebird Bio

[nsa122]

They seem to have bona fide cures for several very bleak genetic diseases (adrenoleukodystrophy, sickle cell, thalassemia) , a viable CAR-T cell treatment for multiple myeloma, and obviously some expertise in gene therapy. $1.8B market cap with $1.2B in cash. Not paying much for some good science and it seems like big companies have paid a lot more for a lot less. Appreciate any input.

[scorpioncapital]

2 variables: cash burn and 'will it work'. the former tends to whittle away the cash of biotechs and the 2nd is , well, the cliffhanger.

[nsa122]

I don't think it's much of a cliffhanger at this point on whether the treatments will work.  The trials of each of their genetic diseases showed pretty resounding effects.  The specter of induced cancer does loom but the management's suggestion that it may be unrelated seems pretty plausible to me at least (I'm a doctor, not an oncologist, but an oncologist friend did confirm that there's a ~1% baseline incidence of AML in these populations and he would not be particularly concerned about the recent news).  Whether they will be able to commercialize them profitably or not and whether a competitor will get a product out sooner seem like bigger questions.  But I am willing to bet that a company that can cure these diseases can figure out a way to make a profit as well.  Does anyone who follows biotech care to weigh in? Thanks.

[Spekulatius]

Bluebirds sickle cell gene therapy has composition from VRTX using CRISP. VRTX is now in Phase II. a bluebird used to be in the lead, but VRTX appears to be catching up:
https://www.fool.com/investing/2020/12/12/watch-out-bluebird-bio-crispr-is-on-your-heels/

I just took some interest in VRTX and bought a small position the last few days. I think it is a cheap way to own a bleeding edge biotech/Pharma hybrid that may have a lot of growth in front of them.

[patience_and_focus]

Interesting post nsa122. Thanks for bringing to the attention of CoBF.

My high level understanding of bluebird's bear thesis is the following -
1. Their gene therapy LentiGlobin (bb1111) being tested for Sickle Cell has 2 patients develop AML and MDS and risk severe of side effect derailing the drug or lowering estimated revenue even if approved
2. Marketing for another approved drug Zynteglo suspended. It uses the same underlying technology (LentiGolbin) for thalassemia.
3. Their entire lentivirus based gene therapy pipeline is compromised as per analysts (see - https://finance.yahoo.com/news/don-t-bargain-hunting-bluebird-003840593.html)
4. Their other drug for Sickle Cell (BCL11A sh RNA) now is under competition from Vertex's competitor drug (based on crisper)
5. Bluebirds CAR-T is an important asset. But Ide-cel (tie up with BMS) has run into manufacturing issues with FDA delaying its approval.

I think the bear thesis has some legs but there is also some potential for mispricing due to the above information. Here are some thoughts -
1. For LentiGlobin in Sickle cell it is quite possible that the 2 patients would have developed these cancers as the disease itself is linked to higher incidence of cancer. (see - https://www.healio.com/news/hematology-oncology/20170920/sickle-cell-disease-doubles-risk-for-leukemia)
2. Drug companies frequently suspend clinical trials due to unrelated adverse events showing up in their cohort (clinical trial participants). An example is Astrazeneca's covid vaccine that was halted due to adverse effect with turned out to be unrelated to their vaccine.
3. Bluebird is still the leader as compared to Vertex (see - https://www.evaluate.com/vantage/articles/news/trial-results/bluebirds-early-stage-sickle-cell-gene-therapy-shows-promise) when it comes to curing severe Sickle Cell via targeting BCL11A gene.
4. The Vertex Crisper based (bleeding edge technology) for Sickle Cell targeting BCL11A gene has more uncertainty due to many unknowns. Crisper is very new tech that still has no approved drug on the market. Also it has been shown to have non-specific off-target mutagenesis (cutting off unrelated parts in your DNA) which can lead to severe side effects. This risk is not fully taken into account so far. Bluebird's tech also targets BCL11A but via shRNA. This tech has been around for some time now and has drugs approved (see - https://www.genengnews.com/resources/tutorial/a-new-lease-on-life-for-shrna/).

For the above reasons this may well indeed be a temporary set of hurdles for bluebird. If anyone here has more insights I am missing, I will appreciate their input.

[patience_and_focus]

More relevant information I could scrape -

Therapy regimen

Sickle Cell Disease -> Pre-therapy treatment using chemotherapy busulfan -> treat with bluebird bio drug LentiGlobin (lentiviral vector based) -> 2 patients develop leukemia in 2021, one in 2018 (reason for 2018 was claimed to be busulfan+patient specific issue)

Sickle Cell Disease -> Pre-therapy treatment using chemotherapy busulfan -> treat with VRXT/Crispr drug CTX0001 -> too early and very small sample size

beta-thalassamia -> Pre-therapy treatment using chemotherapy busulfan -> treat with bluebird bio approved drug Zynteglo ((lentiviral vector based)) -> no patients have developed leukemias so far

beta-thalassamia -> Pre-therapy treatment using chemotherapy busulfan -> treat with VRXT/Crispr drug CTX0001 -> too early and very small sample size

It is well known that busulfan treatment (e.g: for stem cell transplant conditioning) can cause rare secondary cancer (https://www.macmillan.org.uk/cancer-information-and-support/treatments-and-drugs/busulfan). Also sickle cell disease itself increase the risk of leukemia (see -  https://www.healio.com/news/hematology-oncology/20170920/sickle-cell-disease-doubles-risk-for-leukemia). This in addition to the fact that drug for beta-thalassamia using same lentiviral tech has not shown any issue so far may indicate sickle cell specific + pre-treatment issue. It does create issue with the entire class of gene therapies that use busulfan as pre-treatment in sickle cell (including for criper based therapy for sickle cell which also uses busulfan pre-treatment).

nsa122, if your oncologist friend can comment on this, it will be very useful. Right now the gene therapy side of bluebird is assumed to be of very little value to analysts due to the above issue.

[nsa122]

Yes, I asked him and he quotes a 1% risk of developing bone marrow side effects such as leukemia from alkylating agents. Hydroxyurea, another sickle cell drug, has also been implicated as having a risk of leukemia. It could end up that the gene therapy actually avoids exposure to leukemogenic drugs, rather than causing leukemia. In any event, I think they should be able to definitively figure out the genetic driver of the patient's cancer, and if the lentivirus did not insert at that gene, then the gene therapy is blameless as I understand it. This is how the exonerated their therapy in the previous MDS case a couple of years ago.

Just as a general note, if you compare this company to other biotechs in the ~$2B range, you are getting much more for your money in terms of pipeline and expertise. Most of these other $2B companies that I see have one main promising drug that is entering or midway through testing, with probably less than 50/50 odds that it will prove efficacy. Here you've got several proven treatments and the gene therapy expertise (and probably IP) that I would think is valuable apart from the drugs themselves.

[patience_and_focus]

Thanks. Now looking at their latest 10-Q, the cash burn rate is roughly 400M per year. That is roughly 3 years of runway. There is an important FDA decision on ide-cel on March 27 2021 but ide-cel franchise rights for bluebird are only in US with 50/50 split in profits with Celgene (now BMS).

The indication for ide-cel for starters is multiply myeloma (MM) in R/R patients which will certainly be expanded. Celgene was predicting $2 billion per year peak revenue for ide-cel eventually which seems high (see- https://www.biopharmadive.com/news/bristol-myers-celgene-blood-cancer-cell-therapy/545205/). Let's take a 50% haircut on these projections and say it is 1B per year out of which US market is half that revenue. That is 500M per year in US out of which bluebird gets to keep 250M just in US for Multiple Myeloma. Then there are other potential indications to expand to for ide-cel which is certainly easier than getting a new therapy to the market. So I am expecting ide-cel to get in at least 500M / annum in 2-3 years. They still need to get their manufacturing straightened out.

All of this without any modeling of their gene therapy pipeline or  other CAR-T therapeutics. There is also optionality of M&A given their solid science in-house. So unless lentiviral tech is really kaput, this is a good play.

Disclosure: Started a small(ish) 3% position. Will buy more as I dig deeper and learn more about their platform for CAR-T.

[gfp]

Forgive me if it has already been mentioned here, but isn't this company trying to split itself into two separate publicly traded companies?

[patience_and_focus]

I did look at it before dipping. Right now split will be very hard sell to wall street unless they can show some solid data ruling out mutagenesis (I agree with the analysis here - https://www.evaluate.com/vantage/articles/news/trial-results/bluebird-split-looks-premature). Not all analysts were onboard in the first place when split was announced earlier in the year. The articles also suggests "resolution" of this matter in weeks than months. Although I doubt this fast timeline, it is still in the interest of the management to one way or another put this behind them rather quickly while conserving cash. They cannot proceed with the split until then realistically speaking.

Most of the current value comes from with newco (oncology) and gene therapy is left for dead (more or less). The bet is that even in worst case for gene therapy (they shut it down) current valuation holds up with high probability and any other scenario is a positive for the stock. This is also why I want to dig deeper into their CAR-T side. So far I have not been able to find any red flags. Infact BMS is doubling down on ide-cel by scrapping another program orva-cel (same anti-BCMA target but their in-house effort) to focus on "best-in-class" molecule ide-cel.

As for what might happen in terms of split or otherwise, its completely uncertain at this point. I will be happy to listen to any alternative thesis poking holes in my argument.