bluebird bio Inc (NASDAQ:BLUE) may have secured FDA approval for its sickle cell disease cell therapy, Lyfgenia, but market reaction has been mixed.
Despite the FDA greenlight, BLUE shares experienced a sell-off, driven by concerns over pricing and label dynamics.
That hasn’t deterred analysts at Baird, however, who are maintaining an 'Outperform' rating with 'Speculative Risk' suitability and a revised price target of $7, indicating potential upside.
“Though BLUE sold off on the news, we believe the concerns surrounding pricing and label dynamics are overdone,” analysts wrote.
“(We) continue to believe Lyfgenia will see uptake in a segment of patients, however, we have reduced our PT to $7 to reflect the risks surrounding near-term dilution and the potential for incremental commercial headwinds.”
Baird acknowledged market anxieties about Lyfgenia's black-box warning for hematologic malignancy, differentiating it from Casgevy, a similar product from Vertex Pharmaceuticals (NASDAQ:VRTX). According to Baird, physicians, particularly those in academic centers, are unlikely to be swayed significantly as outcomes were influenced by a consistent preconditioning regimen.
Baird analysts also highlighted Lyfgenia's longer durability data, potentially appealing to physicians and differentiating it positively in the market.
One of the market's primary concerns has been the pricing delta between Lyfgenia and Casgevy. The former is priced at $3.1 million compared to the latter's $2.2 million. Baird, however, emphasizes the fungibility of pricing in biotech, noting that net prices, considering rebates, may make the two therapies more comparable than initially perceived.
Both products are likely to secure coverage from commercial payers, leaving uncertainty about government plan reimbursement.
That said, analysts highlighted a substantial risk for bluebird in the form of a financing overhang. Prior to the FDA approval, bluebird had expected a priority review voucher (PRV) that would have provided $103 million in non-dilutive financing. With the unexpected denial of the PRV, Baird suggests bluebird may need innovative financial strategies to extend its cash runway, currently projected into the second quarter of 2024.