Gene therapy has generated exceptional excitement and interest over its potential for over three decades, but actual clinical progress has been painfully slow and frustrating. Bluebird Bio (BLUE) (and I am choosing to capitalize the name, even though it is officially lower case) may be on its way to transforming at least part of the dreams and hopes of gene therapy into reality.
Bluebird has developed a platform that management believes will allow the company to deliver therapies via lentivirus vectors to treat single-gene rare/orphan disorders. The company's lead compound addresses a small market, but the second could be a potential billion-dollar therapy. The risks here are definitely elevated, but Bluebird may be in the early days of establishing a leadership position in a major therapeutic class.
Gene Therapy Made Real, And Commercially Viable
The idea of gene therapy has been around for quite a while now, but clinical development has had some very dramatic ups and downs. In particular, veteran biotech industry-followers may well remember the death of a teenaged patient in a gene therapy study back in 1999, as well as subsequent studies where several patients developed leukemia.
Scientists have learned a great deal since then, and the therapies have evolved. What is still challenging, and where I believe Bluebird may establish an edge, is in commercial-scale production of gene therapies. Bluebird believes it has developed systems, protocols, and processes that can reliably produce gene therapy in commercial scale (albeit scaled for rare diseases) despite the need to individualize the treatment for each patient.
The Bluebird approach basically boils down to this. Bluebird harvests hematopoietic stem cells from patients, transduces them with a lentivirus vector containing the correct gene sequence, and then injects/transplants them back into the patient. The lentivirus is a key factor here - the lentivirus is basically a gutted HIV-1 virus that loses its pathogenic traits, but retains the ability to insert into the genome. This is different than adeno-associated viruses (or AAVs), another popular vector, which do not integrate. The other important advantage of lentiviruses is that they can deliver relatively large genes.
Another key advantage to this approach is the use of the patient's own cells. Transplant-related issues like graft-versus-host disease and side effects of immunosuppression are problematic with stem cells from donors, reducing the opportunities for stem cell transplants.
Lenti-D Leads The Way
Bluebird's lead compound, Lenti-D, targets the rare disease childhood cerebral adrenoluekodystrophy (or CCALD). The only good thing that can be said about CCALD is that it is very rare; only about 40 boys are born with it each year in the U.S. CCALD is an X-linked disorder that causes long-chain fatty acids to accumulate throughout the body. These acids are particularly damaging to the myelin sheath of neurons, causing progressive neurodegeneration and usually resulting in a vegetative state within 10 years.
A very small study of a precursor to Lenti-D showed multi-year stabilization in the four patients who received the therapy (though one did worsen before showing stabilization), and at least one of the patients has made it to seven years with stable disease.
Lenti-D uses an improved vector, and the company is underway with the Starbeam pivotal study. Bluebird intends to enroll 15 boys, with the first transplant having taken place in October 2013. The endpoint for this study will be the percentage who experience no functional disabilities at 24-month follow-up after the transplant, with the control being the historical documented progression for CCALD patients.
Lenti-D will never be a lucrative product for Bluebird. It is possible that better screening (including newborn screening) will result in a higher number of diagnoses, and it is also possible that the therapy will show efficacy in other forms of ALD, including adult ALD and AMN. For my base case assumption, I assume 72 patients a year (90% of the 80 estimated diagnoses in the U.S. and EU) and a price tag of $1.5 million (in line with UniQure's lipoprotein lipase deficiency gene therapy, approved in 2013). That leads to about $100 million a year in revenue, excluding those mentioned potential expansion indications.
LentiGlobin Is The Bigger Opportunity
Lenti-D could be a great solution for a terrible disease, but LentiGlobin looks like the bigger commercial opportunity. LentiGlobin is designed to allow recipients to produce fully functional beta-globin, treating beta-thalassemia (beta-thal), while its anti-sickling properties make it a viable approach for sickle cell disease. The transgene that Bluebird has developed for this indication also will allow for tracking gene expression after the transplant.
An earlier study of a precursor to LentiGlobin given to three patients with beta-thalassemia resulted in one patient becoming transfusion-independent, and LentiGlobin uses a more potent vector. Bluebird is conducting the HGB-205 Phase I/II study in France to test LentiGlobin in up to seven patients with beta-thal or sickle cell disease, with efficacy measured in the reduction of transfusions required and hospital days (for beta-thal) and the reduction in vaso-occlusive crises and acute chest syndrome events.
HGB-205 should report data later in 2014, and the company is moving ahead with HGB-204, a U.S. Phase I/II study designed to enroll 15 beta-thal patients. Bluebird is also looking to start a dedicated study for sickle cell disease.
The market potential for LentiGlobin is an interesting discussion, which I cannot give full justice to here at this time. Beta-thal and sickle cell are pretty rare in the U.S. and EU, but the latter is much more common in areas like Africa and South Asia. Bluebird can likely charge $450,000 for the treatment in the developed world, as that figure is less than or equal to the estimated lifetime cost of treating the disease and its side effects. Given that these conditions can cause permanent issues beyond the scope of LentiGlobin's treatment effect, as it does not reverse damage already done, I would expect this to be given primarily to younger patients.
I conservatively calculate $750 million in revenue potential from the U.S. and EU, with potential upside if payers go along with treating older patients. The number of people who could benefit from this therapy outside of developed markets is much larger, but pricing and establishing the necessary clinical infrastructure will both be challenging.
The CAR-T Before The Horse
Last and not least is Bluebird's chimeric antigen receptor T-cell (CAR-T) technology. This technology modifies a patient's own T-cells to fight cancer, and academic studies have suggested impressive potential in applications like B-cell lymphoma. Bluebird has already partnered this technology to Celgene (CELG), with Celgene getting the right to acquire candidates after Phase I (Bluebird is responsible for them up to that point) in exchange for $225 million in milestone payments and royalties from the mid-single digits to mid-teens.
Much Can Still Go Wrong
These are still very early days for Bluebird. There are plenty of clinical risks, as the treatments may not work (or work well enough) and they may have unacceptable side effects. To that end, "no news is good news" is probably the order of the day - apart from occasional trial enrollment updates, any interim news is likely to be bad news (safety issues). It's also worth noting that Bluebird will likely need to raise money again at some point; rare disease trials are often smaller and cheaper than for trials in cardiology, immunology, and so on, but there is no such thing as "enough cash" for pre-revenue biotechs.
The Bottom Line
Factoring in the risks of clinical trial failure (50% odds of success for Lenti-D, 35% for LentiGlobin), assigning an 8x to future revenue, and discounting back eight years leads me to a fair value estimate of almost $40 today, and that is without pondering the "technology value" of a platform that could be applied to hemophilia, cystic fibrosis, Fragile X, Huntington's, and other single-gene diseases. Clearly, there are outsized risks to accompany those potential outsized rewards, but investors interested in the biotech sector should take a closer look at this name.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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