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Is bluebird bio, Inc. a Buy on the Dip?

Cory Renauer, The Motley Fool

Shares of bluebird bio Inc. (NASDAQ: BLUE) have tumbled from all-time highs reached just a few weeks ago. That's a little surprising when you consider this pre-commercial biotech is heading into the home stretch with not one, but three experimental gene therapy treatments that could be worth billions.

Is the recent pullback an opportunity to pick up a top biotech stock at a fair price? 

Person scratching their head while looking at a bunch of question marks on a chalkboard.

Image source: Getty Images.

Reasons to be excited

Bluebird bio Inc. doesn't have anything it can sell yet, but a bursting late-stage pipeline could make it one of the best gene therapy stocks to own over the next several years. By mid-2018 the company expects to release data from the pivotal Northstar-207 study intended to support a European marketing application the company thinks it can submit before the end of the year.

Northstar-207 is testing LentiGlobin's ability to help patients with transfusion-dependent beta-thalassemia (TDT) reduce their dependence on frequent blood transfusions. By allowing patients to produce functional hemoglobin on their own, the drug has allowed a majority of patients enrolled in earlier studies to go over a year without a transfusion.

Early LentiGlobin studies include similar success stories from patients with another hemoglobin related disorder, sickle cell disease. Marketing applications that could eventually expand LentiGlobin's addressable population from beta-thalassemia to the larger sickle-cell indication might not be that far behind. A successful launch for both indications could drive annual LentiGlobin sales past $3 billion at its peak.

Bluebird has a second gene therapy program nearing the finish line that uses the same delivery technique as LentiGlobin called Lenti-D. This candidate gets a lot less attention because it addresses an ultra-rare disease called cerebral adrenoleukodystrophy, but its ability to help children born with the debilitating disease lead more normal lives has been downright incredible. So far 15 of the first 17 patients treated reached the main goal in a study the company is expanding to include 30 patients total. Investors can expect regulatory filings in 2019.

Laboratory scientist looking close-up at a medicine capsule.

Image source: Getty Images.

In addition to two proprietary programs nearing the finish line, bluebird also sports a blood cancer candidate that's being developed in partnership with Celgene (NASDAQ: CELG). The big biotech recently agreed to share 50% of costs and profits associated with bb2121, an experimental chimeric antigen T-cell (CAR-T) therapy for the treatment of multiple myeloma. Celgene already records around $10 billion in annual sales from its existing multiple myeloma drugs, and there's a good chance bb2121 can become a $1 billion-plus blockbuster as well.

Multiple myeloma patients that have relapsed after more than one line of therapy are notoriously difficult to treat, but 94% of patients in a group receiving bb2121 showed responses. Moreover, 9 of 10 evaluated for minimal residual disease showed no trace of the disease.

Reasons to be nervous

Given the amazing early results we've already seen, odds of approval for all three of the company's late-stage candidates seem better than average, if early observations hold up. Perhaps the most troubling problem with bluebird is that its $8.9 billion market cap is supported by data from fewer people than you'll probably find in a mid-western shopping mall on a Tuesday. At the very least, investors should remain braced for long delays if regulators send applications back with requests for further lengthy studies.

If bluebird's lucky enough to earn on-schedule approvals for all three of its late-stage drugs, getting end payers to foot the bill for treatments likely to carry six-figure price tags for a single dose could be tougher than hoped. Treatment with bb2121 involves a lengthy and expensive process that trains a patient's own T-cells to recognize a target often found on cancer cells. LentiGlobin also involves removal and reinfusion of blood cells after their individual off-site training sessions.

Bluebird's Celgene partnership could also run headlong into competition from a similar CAR-T treatment directed against the same target. Chinese upstart, Legend Biotech popped up out of nowhere last winter with solid multiple myeloma results from an initial 35-patient trial with LCAR-B38M. After seeing 94% of these relapsed, drug-resistant patients enter complete remission following treatment with the therapy, Johnson & Johnson quickly offered the company $350 million upfront for co-development rights.

The treatment is already under review in China. J&J will probably need to run another trial to satisfy the FDA, but you can count on the world's largest healthcare company to steer the program through America's regulatory maze as quickly as possible.

Putting it together

If bb2121, Lenti-D, and LentiGlobin launch, but fizzle on the tarmac, there isn't much for the company to fall back on. Bluebird's pipeline beyond the trio is limited to another Celgene partnered multiple myeloma candidate in very early human testing, called bb21217, and a second sickle-cell candidate ready to begin clinical trials later this year.

A recent market cap of around $8.9 billion could rise in the long run, but LentiGlobin and bb2121 need to succeed in the commercial setting to make that happen. Until we see complex, cell-based therapies put up blockbuster sales, it would be irresponsible to assume any company will do so in its first few attempts. I'll reconsider the stock if it dips further, but for now, bluebird bio stays on my watchlist.

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Cory Renauer owns shares of Celgene and Johnson & Johnson. The Motley Fool owns shares of and recommends Bluebird Bio, Celgene, and Johnson & Johnson. The Motley Fool has the following options: short May 2018 $140 calls on Johnson & Johnson. The Motley Fool has a disclosure policy.