2021 Special #9 - bluebird bio
Will the bluebird fly or the split fly?
We have always been at the forefront of understanding technology but just not the investing part. Being generalist, we do feel inept to jump into the more specialised segment of investing which is usually covered by PhDs.
Unless there is a
special situation,
coupled with odd observation,
coupled with some really bad luck,
coupled with some formidable competitors,
and coupled with a share price looking like this when the market is so bullish.
This following company is place in the Statistical Portfolio.
Catalyst: Split happening in end 2020
Holding Period: Up to 2 years (2023)
Special Situation
Excerpt: On January 11, 2021, bluebird bio (bb) intends to split the company into two. One tackling severe genetic disease and one tackling cancer.
Following the separation, bluebird bio intends to focus on delivery of its Core 3 therapies in β-thalassemia, cerebral adrenoleukodystrophy and sickle cell disease, expand access and reimbursement for our commercial product, ZYNTEGLO, in Europe and continue to explore innovative tools and technologies to ultimately bring these transformative medicines to more patients.
Oncology Newco plans to support commercial success of ide-cel and continued development of bb21217, deliver on the oncology pipeline of cellular therapies with a focus on non-Hodgkin’s lymphoma, acute myeloid leukemia, next-generation multiple myeloma and solid tumors and advance next generation product cycling engine with an overarching goal of 1-2 investigational new drugs (INDs) in each of the years 2021 and 2022.
-bluebird bio press release
Nothing too interesting here but then…
Odd Observation:
While scrolling through the slides for the split… We notice an anomaly…
Nick Leschly the current CEO of bluebird is going off with the still unnamed oncology spinoff?
That is not a regular sight. The CEO usually stays with the main ship unless the spinoff has a better risk reward ratio.
“You don’t build an oncology company by hiring people who are experts in severe genetic disease, nor do you do vice versa. A lot of this comes down to…priorities and focus.”
== Nick Leschly, CEO bluebird
We do not know what is his current priority and focus but we are sure that he is placing himself closer to success than failure.
Bad Luck:
Excerpt: On 16th February 2021, bb suspend their trials for their gene therapy because there is possibility that it may have cause cancer.
CAMBRIDGE, Mass.--(BUSINESS WIRE)--bluebird bio, Inc. (Nasdaq: BLUE) announced today that the company has placed its Phase 1/2 (HGB-206) and Phase 3 (HGB-210) studies of LentiGlobin gene therapy for sickle cell disease (SCD) (bb1111) on a temporary suspension due to a reported Suspected Unexpected Serious Adverse Reaction (SUSAR) of acute myeloid leukemia (AML).
On 10th March 2021, bb announced that based on the analyses, it is very unlikely that the cancer is cause by their treatment. The damage is done, the risk is permanently attached to the company.
Formidable Competitors:
In the United Kingdom, the National Institute for Health and Care Excellence ("NICE") recommended against adopting Zynteglo, which practically means the medication won't be covered in the UK despite Germany adding Zynteglo to its coverage. This refusal came even though BLUE organizes a three-year installment plan for Zynteglo and a reimbursement program that promises an 80% money-back guarantee if the treatment fails.
CRISPR Therapeutics’ CTX001 drug is in an advanced clinical trial stage. Editas also has a β-thalassemia program in the pre-clinical stage. The two companies utilize CRISPR technology, which is superior to the lentiviral vector used in Zynteglo.
Possible Thesis:
On 29th March 2021, Abecma which is being jointly developed and commercialized in the U.S. between Bristol Myers Squibb and bluebird bio was approved by the FDA.
The Oncology Newco will hold the assets that utilize CAR-T therapy. CAR-T is full of buzz now, and many companies are focusing on CAR-T therapies because of the lower risk than Lentiviral vector therapies (which Zynteglo uses).
Since the CEO is leaving Bluebird for the NewCo, it means that the CEO is setting the NewCo up for an acquisition. He will also be paid if the acquisition goes through. Shareholders who will received shares in the NewCo will be hugely rewarded if that happens.
Valuation:
On 2017 August 28, Gilead Sciences acquired Kite Pharma for $11.9 billion for phase 3 Yescarta (chimeric antigen receptor (CAR) T therapy).
On 2018 January 22, Celgene acquired Juno Therapeutics for $9 billion for phase 2 JCAR017 (lisocabtagene maraleucel; liso-cel) – CAR-T therapy.
On 2019 December 26, Astellas Pharma acquired Xyphos Biosciences for $665 million for preclinical “convertibleCAR-T” cell product, ACCEL (Advanced Cellular Control through Engineered Ligands) technology platform.
We do not know how much BlueBio CAR-T technology is worth. We know that we had gotten a leg in into a M&A deal and will be totally aligned with the exiting CEO.
Once we receive the shares of the NewCo, we will be selling Bluebird share to purchase more NewCo shares betting on the signs the CEO is telling us. Looking at all the CAR-T transaction above, we believe we have a good chance that we will be making a substantial profit if the NewCo is acquired.
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Thanks! Love the crisp and insightful analysis.