Just as Bluebird Bio (NASDAQ:BLUE) started gaining traction in the markets in August, the stock erased all those gains since the start of September. And the month is hardly over. Why did BLUE stock fall 12% last week when the company did not issue any news that would explain what changed, fundamentally?

The 3.48% weekly drop in the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) may partly explain why BLUE stock fell. Investors took profits in the sector. Companies like Global Blood Therapeutics (NASDAQ:GBT) fell nearly 7%, while Dicerna Pharmaceuticals (NASDAQ:DRNA) fell nearly 16% intraday on Sep. 6.

Strong Fundamentals

Fundamentals are strong for Bluebird Bio. On Aug. 23, the company announced it would collaborate with Gritstone Oncology to research, develop and commercialize cell therapies to target various cancers.

Gritstone will give 10 tumor-specific targets so that Bluebird may use them to establish cell therapy platforms. In return for its use, Gritstone gets a $20 million upfront payment and $10 million through a Series C preferred equity investment.

On Sep. 5, Bluebird presented updated data from its Phase 2/3 Gene Therapy study. This is a study of boys aged 17 years and under and suffering from cerebral adrenoleukodystrophy (CALD). The company said the study met its enrollment goal.

From the study involving 31 patients, 17 were treated with Lenti-D. After 24 months of followup, 88%, or 15 patients, were alive and MFD free. Patients who were MFD free at 24 months continued to be so. Twelve more patients received Lenti-D in the study but did not reach the primary endpoint of 24-month followup.

The safety profile is favorable since no acute or chronic GvHD was reported post-Lenti-D treatment.

In the allo-HSCT study, initial safety and efficacy results were in line with the results reported in the literature.

Clinical Programs Development

Bluebird now has two products on the market, two near commercialization, and four additional programs in the clinic. It could achieve first approval for LentiGlobin TDT as early as next year. First approval for both Lenti-D CALD and bb212 Multiple Myeloma are targeted for the year 2020.

Partnership With Regeneron

Blue and Regeneron Pharmaceuticals (NASDAQ:REGN) partnered to share each other’s best-in-class technology platforms to develop treatments for cancer. The five-year research collaboration gives Bluebird access to Regeneron’s VelociSuite Platform technologies.

In return, Regeneron gets to leverage Bluebird’s expertise in cell biology and vector technology. Bluebird will retain significant product rights, while Regeneron gets milestone payments and royalties. Still, Regeneron may opt in to become a 50/50 partner in many of the products under co-development.

Currently, both firms are sharing collaboration product development costs, as well as equal sharing of commercialization costs. So far, Regeneron invested $100 million in BLUE’s equity ($238.10 a share on 420,000 shares, or a 59% premium).

Valuation on Bluebird Stock

Bluebird could reward investors if the company’s revenue growth over the next five years is in the high-to-mid double digits at the very minimum. This growth depends first on the company commercializing its core products. From there, it must accelerate sales. In a five-year DCF Growth Exit model, the stock could have a fair value of at least 60% above its $148 closing price.

Source: finbox.io (click on this link to crunch the numbers)

Analysts are equally bullish. Via tipranks.com, the average price target, based on 14 analysts covering the stock, is $219.89. This implies upside of almost 49%.

Most recently, analyst John Newman of Canaccord Genuity called BLUE stock a buy and set a $250 price target. This analyst has a good track record. His average return over two years is 34%.

Bottom Line on BLUE Stock

The sudden drop in Bluebird Bio happened too quickly. With revenue growth set for 2019 and beyond, BLUE stock should bounce back.

Disclosure: Author does not own shares in any of the companies mentioned.