Bluebird Surges: Hot Biotech IPO Lacking Human Clinical Data

Editor's note: Bluebird shares were surging 54% to $26.15 in mid-day trading after Bluebird bio sold 5.9 million shares at $17 in an initial public offering Tuesday after markets had closed in New York.

CAMBRIDGE, Mass. ( TheStreet) -- There has been a rush to the biotech IPO window including both Bluebird bio ( BLUE) and Agios Pharmaceuticals ( AGIO). What makes these new companies a little different from other public biotech debuts is the lack of significant (or any) clinical data. While this is not unprecedented -- Verastem ( VSTM) went public in 2012 with only preclinical data on hand -- the relatively early stage of these biotech IPOs raises the risk level for investors.

A closer examination of Bluebird highlights both the risks and potential rewards of such early-stage biotech IPOs.

Bluebird is a gene therapy company that uses a lentiviral vector to ex vivo deliver functional genes into a patient's hematopoietic stem cells. Sangamo BioSciences ( SGMO) is probably the closest publicly traded company working on a similar therapeutic approach to Bluebird. Sangamo uses its zinc finger proteins for gene regulation and/or modification. Bluebird is focusing on monogenic diseases and has programs in childhood cerebral adrenoleukodystrophy (CCALD), beta-thalassemia, sickle cell disease (SCD) and chimeric antigen receptors T-cells (CAR T.)

While this is certainly a robust pipeline for a small-cap drug company, these programs are all essentially still in the preclinical phase, meaning no testing on actual patients has begun.

Bluebird did run what they called a phase I trial in CCALD but this was simply a non-interventional natural history study. In other words, no patients were actually treated with a drug but they followed patients to assess the natural course of the disease. These data were then used to generate endpoints that could be used to demonstrate efficacy and safety in an interventional study. Given the rarity of the CCALD, this was actually a very useful approach but it certainly does not provide any evidence to demonstrate the efficacy of Bluebird's drug. The money raised by Bluebird IPO will allow the company to move their Lenti-D product into a phase II/III clinical trial in CCALD, which will be the first time the drug will be dosed in humans.

Bluebird does have human dosing of a precursor drug to their LentiGlobin product for the treatment of beta-thalassemia major, where their collaborators in France treated six patients. While the efficacy was encouraging, one of the six patients showed the insertion of the functional gene into the HMGA2 gene and this lead to fears of a pre-leukemic event. While the inserted genes were there for two to three years, there appeared to be no negative consequences.

In order to generate a more consistent and precise insertion, Bluebird developed LentiGlobin with a different viral vector. The belief is that this new version of the drug will both decrease the risks of off-target gene insertion while mimicking (if not increasing) the efficacy. That being said, this new vector has not been dosed in humans and the IPO money will be used for a phase I/II trial.

Aside from the Lenti family of drugs, Bluebird also has a preclinical program in chimeric antigen receptor T-cells. The goal is to modify the T-cells to target specific cancer cells and re-infuse them back into the patient. There was some excitement generating at the recent American Society of Clinical Oncology meeting about other CAR T trials but the Bluebird Bio program remains preclinical with no data from use in humans.

So the question remains: What to make of the Bluebird IPO? Gene therapy has been around for awhile with limited success (Sangamo continues to struggle with its technology) because delivering genes into cells remains a challenge. Bluebird believes it has addressed this issue with their lentiviral vectors but we have limited clinical data to assess this claim. This both increases the risk as well as the potential rewards.

Of course, Bluebird also has its earlier program in CAR T, which is a hot area in oncology drug development. Celgene ( CELG) has taken an interest in Bluebird's work and signed on as a partner and investor. Given the lack of clinical data across the pipeline, the Celgene partnership is an important validation of Bluebird and its technology. Even successful, large-cap biotech companies make mistakes but Celgene's involvement with Bluebird de-risks the CART program by providing not just the validation but a source of non-dilutive capital. While the gene therapy aspect of Bluebird is interesting and will likely provide the nearest term catalysts, I think investors will be just as (if not more) interested in the CAR T program as this will be the only publicly traded company working in the area.

All of that being said, investors need to be careful and recognize the increased risks associated with a company that has such limited clinical data on their pipeline.

Sobek is long Celgene.
David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.