Buying Bluebird's Blockbuster Potential at a Discount

NEW YORK (TheStreet) --  Bluebird Bio ( BLUE) excited investors last month with the release of data from a clinical trial showing the first two beta-thalassemia patients treated with the gene therapy LentiGlobin were transfusion free starting two weeks after therapy and is continuing for three and six months respectively. While data from two patients are no guarantee a drug works, the fact that both patients became transfusion independent so quickly with robust production of the "healthy" inserted gene and recovery of hemoglobin is very encouraging and suggests these patients may remain transfusion independent for a long time.

Bluebird's B-Thal gene therapy program is currently in two separate trials, the aforementioned ongoing HB-205 trial, and the U.S.-based "Northstar" study. The positive data reported in June should accelerate enrollment in both studies, and the company to have significantly more data to present at the American Society of Hematology annual meeting in December.

Bluebird also has trials in two additional indications enrolling patients. The "Starbeam" phase II/III study in CCALD is expected to have data ready for release next year. CCALD is a fatal childhood disease caused by a defective ABCD1 gene which leads to the accumulation of very long fatty acids throughout the body.

The biggest upside for Bluebird may come from a phase I study in sickle cell disease -- a genetic disease without effective therapies which affects a relatively large number of people. A cure for sickle cell would be a massive blockbuster. The first patient in BlueBird's sickle cell trial should be enrolled this summer and we may see some data from this patient by year's end. Bluebird also has a cancer program partnered with Celgene ( CELG) but it's still in preclinical development. 

Read more: Why TheStreet biotech columnist Adam Feuerstein likes Bluebird Bio.

Bluebird is down nearly 30% from its recent highs, partly due to a secondary offering priced at $34 per share which raised $100 million for the company, and partly due to this week's report from the Federal Reserve calling small-cap biotech valuations "substantially stretched. The latter comment has caused a significant, two-day sell off in the biotech sector.  After the pullback, Bluebird is trading at a market cap of $800 million based on 26 million shares outstanding with nearly $300 million in the bank, taking into account the secondary offering. Bluebird's current enterprise value sits at $500 million -- relatively cheap, in my opinion, giving the data presented to date on the company's gene therapy and the commercial potential if approved. 

If further updates from the Lentiglobin B-thal study are positive, Bluebird shares could easily go up several fold from here as investors digest the large commercial market opportunity. There are approximately 15,000 beta-thal patients in North American and Europe. Assuming a 50% penetration rate and a one time price of $800,000, the beta-thal market for Bluebird could be around $6 billion. An $800,000 price tag for a gene therapy is eye-popping but remember this is a one-time treatment and potentially curative. An $800,000 one-time cure is actually cheap when you consider that several rare-disease therapies are priced at more than $400,000 annually and must be taken year after year, as long as the patient lives.

The Bluebird commercial opportunity could be even greater in Asia and the third world, where beta-thal is much more prevalent. Reaching these patients will be more challenging, but it's possible for Bluebird to add another 10,000 to 15,000 patients, especially in Asia. CCALD is a much smaller market, but if approved, a therapy there might generate $300 million, especially if genetic screening becomes more common.

An effective therapy against sickle cell disease could be Bluebird's real blockbuster prize because the patients numbers are so large: Around 100,000 patients (mostly African-American) in North America, and half that many patients in Europe. Sickle cell is possibly the most prevalent genetic disease in sub Saharan Africa, with an effected rate of over 2% of births. India also has several million sickle cell disease patients. In total there are as many as 25 million sickle cell disease sufferers worldwide. Even at a 10% penetration rate, the numbers get so high that I don't even want to make the revenue calculations. Let's just say that a cure for sickle cell could transform Bluebird's Lentiglobin into the biggest-selling therapy of all time.

Right now, Bluebird has no data on Lentiglobin in sickle cell patients, but that should change by the end of the year. And if those data look anywhere as good as the beta-thal data, analysts and investors will start to model sickle cell revenue in their Bluebird forecasts. That could be a huge, upward inflection point for the stock. 

I added to my Bluebird position this week. It's not often an investor gets the opportunity to buy a biotech stock with two blockbuster indications in the pipeline and major catalysts only months away at such a discount to its upside potential.

Rosenblum is long Bluebird.

Dan Rosenblum has been a full-time stock trader since 1999 after leaving a job at a publicly held medical-device company. Rosenblum joined that year and has been the online trading community's resident biotech expert ever since. Rosenblum writes the newsletter, which has outperformed the S&P 500 and the Nasdaq Biotechnology Index every year since its inception in 2006. Rosenblum lives with his wife and kids in Rockland County, New York.

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