Healthcare Business

After a 50% Drop, One Analyst Sees Bluebird Bio With Almost 50% Upside

On a day that the Dow Jones industrials and S&P 500 just hit all-time highs, many companies are not exactly feeling the same love as the market darlings that took the indexes up so much. A slew of companies have shares trading 15%, 30% and even over 50% under their highs but still have valuations at multi-billion levels. Bluebird Bio Inc. (NASDAQ: BLUE) is one such company that has fallen from grace.

In the doctrine of nothing lasts forever, one analyst sees now as the time for investors to jump back into Bluebird Bio. Wedbush Securities has raised its rating to Outperform from Neutral, and despite still having concerns, there is a lot of expected upside and clear air ahead. Wedbush’s David Nierengarten has a $124 price target, which was trimmed from $131 in this call but still implies close to 50% potential upside from the prior close of $82.86. That is down from a 52-week high of $163.43 and from a high of about $205 at the start of 2018.

Nierengarten believes that Bluebird Bio shares now reflect significant negativity regarding the Zynteglo launch at current prices. While he still also shares some of those concerns, Nierengarten’s valuation on its ide-cel (bb2121) and other non-Zynteglo revenues is over $70 per share, along with another $25 per share in cash on hand. At current the current share price, he feels that the negative Zynteglo sentiment should be more than accounted for.

One additional upside factor is that the company is said to be poised to provide updates from multiple late-stage programs before the end of 2019 from the ongoing Phase 3 Northstar-2 and Northstar-3 trials of Zynteglo for transfusion-dependent β-thalassemia (TDT) patients with certain genotypes and potential upside from the HGB-206 study in sickle cell disease.

The Wedbush report said:

We will also see earlier-stage bb2127 data from the CRB-402 study, and the company plans to initiate the rolling BLA for ZYNTEGLO in TDT in the USA. The company plans to enroll their first commercial ZYNTEGLO patient in Europe early next year. BLUE also plans to begin enrolling its Phase 3 trial for SCD (HGB-210) by year end. While LentiGlobin’s emerging clinical profile in SCD presented at EHA this year (see note) continues to be encouraging, we will continue to watch enrollment, which was relatively slow in prior studies(<1 patient per month between 9/2018 and 3/2019 in Group C), however, we believe our estimated 2024 SCD launch is appropriately conservative. Regarding the pipeline, we are also encouraged to see the first Merkel Cell Carcinoma patient treated out of the Hutch's TCR program, to which BLUE has the exclusive option to license. Despite our recognition we may be early recommending shares in front of the ZYNTEGLO European launch, we believe the risk/reward from these levels skews in favor of buying BLUE, and that current valuation can be achieved through its non-ZYNTEGLO programs. We recommend getting off of the sidelines for both valuation and near-term data catalysts.

One issue to consider in the report is that investors may have reached the point that they are discounting Zynteglo completely. Nierengarten’s report further said:

At these levels, we believe investors could well be assigning zero value to ZYNTEGLO, given we value BLUE/Celgene’s CAR-T programs in multiple myeloma at roughly $63 per share. That plus cash per share (~$25) would indicate a negative NPV assigned to ZYNTEGLO, or of course our bb2121/27 estimates are too high. While it is possible we are overestimating the CAR-T opportunity in multiple myeloma, we remind investors that Gilead recently reported $334 million in year-to-date Yescarta revenues in DLBCL, an indication far less prevalent than multiple myeloma. While there are also several competing therapies in multiple myeloma, we feel our ~1/3 share of the available market takes that into account. We remind investors that our valuation of BLUE’s portion of the program is still less than 50% of the acquisition price Gilead paid to acquire Kite (for Yescarta) in 2017 ($11.9 billion).

It is not unusual for analysts to upgrade their ratings on a stock, but frequently they downgrade stocks at the bottom and raise their ratings at the top. Nierengarten downgraded Bluebird to Neutral and lowered his target to $131 from $166 back in May of 2019, when shares were closer to $130. Most analyst target prices with Buy and Outperform ratings for Dow and S&P 500 stocks at this stage in the bull market come with 8% to 10% implied upside, and maybe 15% to 20% in the more speculative stocks.

Shares of Bluebird Bio were last seen up just 0.7% at $83.50, and the 52-week range is $79.91 to $163.43. The Refinitiv consensus target price is $159.18.