- Bluebird Bio (BLUE) is laying off scientists to save cash
- Many other biotech companies, especially in new areas like gene therapy, are doing the same
- Only the strong will survive, and it’s unclear if BLUE stock will be among them
Approval delays and pushback on prices have been crashing the whole sector in 2022. The iShares Biotechnology ETF (NASDAQ:IBB) is down 18.5% just since the start of the year. Smaller players like Bluebird, working on the bleeding edge of science, are being hit hardest.
Bluebird is a “pre-revenue” company that focuses on rare diseases and cancer. The company entered trade April 6 at about $4.82 per share with a market cap of $360 million. Last June, BLUE stock was trading at over $22.
Show Me the Money
Biotech stocks were big gainers during the heart of the Covid-19 pandemic. But many of these stocks have since crashed. The SPDR S&P Biotech ETF (NYSEARCA:XBI), which tracks the entire S&P biotech sector, is down 47% from its peak in early February 2021.
While the idea of treating DNA as a programming language is one of the decade’s big trends, it’s still in its earliest stages. For every Moderna (NASDAQ:MRNA) with a vaccine breakthrough, there are 100 companies like Bluebird, whose economics are like those of oil wildcatters in Texas in the 1930s.
In this case, research is the metaphorical oil well — and given how little is known in the field, dry holes are common. Bluebird is focused on diseases like Cerebral AdrenoLeukoDystrophy (CALD), Beta-thalassemia that may require blood transfusions and sickle cell disease.
Many targets of small biotechs are orphan diseases where tax credits, user fees and market exclusivity can maximize the potential gain and clear regulatory hurdles. But getting approval in the U.S. is no guarantee of success.
Bluebird’s problems start in Europe, where it couldn’t get reimbursement on its already approved gene therapies. Bluebird is also awaiting Food and Drug Administration (FDA) decisions on treatments called beti-cel and eli-cel. It hopes cutting 30% of its 518 employees will keep it solvent through the first half of 2023.
Layoffs and BLUE Stock
Bluebird is not alone in making scientists update their resumes. Fierce Biotech, a trade publisher, says more than 30 biotech companies have announced layoffs this year. These include Novartis (NYSE:NVS), Gilead Sciences (NASDAQ:GILD), Merck (NYSE:MRK) and Biogen (NASDAQ:BIIB).
You can’t get an unlimited draw from a limited pool of funds. Regulators have begun doing triage on expensive therapies. European officials do it by refusing reimbursement for drugs deemed unaffordable. American regulators, who must allow payment for anything available for sale, are slow-walking approvals.
The layoffs are hitting especially hard in genetic therapies, which are expensive to develop, don’t always work and often carry high price tags. It’s being called the worst shakeout to hit the sector since 2008.
The Bottom Line on BLUE Stock
You can blame the costs of Covid-19 for precipitating the crash. But given the realities of drug pricing and growing resistance among insurers and agencies buying medications, a crash was inevitable. No stock is safe in the near term, but biotech firms with cash should be able to come out of the dive.
That means companies like Pfizer (NYSE:PFE), which had more than $29 billion in cash at the end of 2021, and Moderna, with nearly $9 billion in cash and securities, should have their pick among deals and scientists.
Bluebird is doing the right thing in husbanding cash, but I would rate its chances of survival at only 50-50. To carry on with the oil wildcatting analogy, the government will exercise some control over production to maintain market stability.
It’s no longer enough to have something that works. Drug companies will need to broaden their scope of patients and reduce financial demands if they want some of that limited pool of medical funds.
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On the date of publication, Dana Blankenhorn held a long position in MRNA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.