Bluebird Bio – Quadrupling of the Share Price Through Healthy Data

By December 22, 2014 Trade Articles No Comments

For as long as civilization has existed, humans have enjoyed playing games of chance. As early as the ancient Egyptians, there is evidence of the local workers who built the pyramids or traded at the markets taking time out of their day to play games.

These ranged from simple guessing games where a vendor concealed a pea under one of three cups before shuffling them, and then invited the player to guess which one was concealing the pea. Eventually these games became more sophisticated with the invention of dice, playing cards and betting chips. And alongside these games developed a side market of betting and wagering on the outcome.

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Players were able to pair their entertainment with the ability to make money through gambling. While modern day casinos in dazzling locations such as Macau and Las Vegas are now the location for these activities, the founding premise is the same: the ability to make a lot of money in a short amount of time.

That feature is also represented in stock market investing. One of the sectors in particular which often experiences huge share price gains where stocks double or triple, or incredible falls where prices halve in a day is biotechnology.

Bluebird Bio (BLUE) is one example of a company in this space. Their shares have multiplied by over four times since the beginning of 2014 from levels around $20 to recent high of $94.48

So is Bluebird Bio a stock that can double again or are the gains already complete?

Understanding the Business

The pharmaceutical and biotechnology research field is dominated by some huge players. Companies like Astra Zeneca, Pfizer and Merck & Co have revenues in the many billions of dollars as well as tens of thousands of employees. The business success of these companies comes from the ability to devote huge research funds to curing diseases and medical ailments that affect large potential patient populations and therefore mean large profits.

In comparison, there are a number of smaller more niche biotechnology players that target a single issue or treatment that is the reason for their existence, and bet on making a big difference in a smaller market. Bluebird Bio (BLUE) is an example of this kind of company. With only 124 employees, it is tiny in comparison to its multinational peers, but has seen share price gains that well outstrip those same competitors.

The company is focussed on finding ways to treat severe genetic disorders that affect patients, meaning that for much of human history, they have been considered incurable. For example, one of their major research areas is the development of a treatment for adrenoleukodystrophy. This condition is a neurological disorder that affects the brains of young boys.

Another research focus is the treatment of sickle cell disease, which causes iron levels in the blood to be much lower than healthy levels because the cells are unable to carry the normal nutrients. Amoxicillin helps to avoid inflammation in the body. Of course, since Amoxicillin is a broad-spectrum antibiotic at, it is also used for the treatment of other diseases. The company has been around for over twenty years, but any investor researching the company should be aware that until 2010 the company was named Genetix Pharmaceuticals rather than Bluebird Bio.

Metrics and Measures

The financial results for biotechnology are very different to that of more predictable earners like supermarkets, utility companies or even technology companies. There is a significant level of “cash burn” as the business pays significant amounts of money to researchers and authorities to allow the drug to be certified as safe and legal after all the required testing.

After a drug is approved, and it begins sales, the revenues quickly begin to flow in and profits jump as the significant initial spending has already been completed. The share price usually jumps on product approvals or even good trial results, as investors try and jump on board in anticipation of good news.

That has been the pattern for Bluebird Bio (BLUE). The company reported a net loss of $17 million for the recent quarter, which was much wider than the $6.1 million loss from the same time last year.

However, the share price jumped strongly in response to positive trial results for their Lenti-G product in France, which could treat the many thousands who suffer from sickle cell anaemia.

In addition, the company has a strong cash position of over $260 million and some modest revenues of around $6 million a quarter resulting from a partnership with Celgene Corporation. This means that the company should have the financial backing to continue to fund trials to prove the effectiveness of their headline treatment for sickle cell genetic disorders.

The Investment Case

If you remember our story at the beginning of this article about games of chance, you will understand the risk and reward of investing in biotechnology stocks like Bluebird Bio (BLUE). Good trial results, a positive product approval process and a solution that actually improves patient outcomes can result in lottery like profits for the company with money flowing in rapidly.

However, a single poor result, running out of money or a bad outcome for a patient in a trial can completely blow apart the share price and leave investors with huge losses.

The other consideration for biotechnology and research companies is the incredibly long time taken for a drug to get to the market and be sold. While the share price moves in anticipation, the actual profits can take as long as a decade to flow as regulatory approvals, safety testing and first sales can be a long, expensive and tough process.


Bluebird Bio (BLUE) is a company with strong early trial results for a small company aiming to solve a big medical problem. Their share price has grown strongly in the last year, and their trial results would likely have attracted the attention of their rivals. If the data supports good outcomes and represents a profitable market position, there is every chance that one of the industry giants could come knocking with a takeover bid for the company.

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