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Bluebird bio Stock Up 70% On FDA Approval – Further To Go?

Tim Worstall
Tim Worstall trader
Updated 13 Jun 2022

Trade bluebird pharma Stock Your Capital Is At Risk

Key points:

  • Bluebird pharma has jumper on news of two FDA approvals
  • This is good of course it is
  • Better than good, for it shows the company's approach can find genetic treatments

Bluebird bio (NASDAQ: BLUE) stock is up 70% postmarket in Friday and premarket this morning on news of the FDA's approval of beti-cel as a treatment for Beta Thalassemia. This is a welcome turnaround for bluebird stock (they like their lower case letters) as the past 6 months has been pretty much a constant, 65% decline from their launching price over $10.

The concern is, like all development-stage pharma, that all the costs of development will have to be carried out before finding out whether it actually works. And works here in a business sense if getting it through the FDA. Fail to do that, and there's nothing of value there – get it though and there may well be.

It should be said that this was an FDA committee which recommended, that this isn't the final FDA signoff. But given the 13-0 nature of the committee's vote, we'd take this to mean approval will happen.

The day before, the FDA had endorsed beti-cell, a treatment for CALD. A useful guide to how long this approval system takes is that even though the committee has said yes the final approval is expected Sept 16th.

Also Read: Five Best Pharmaceutical Stocks To Watch In 2022

The effect on the bluebird bio stock prices is compressed – the two issues together – as the company had requested a suspension of the stock while the FDA meeting was ongoing. We'd all prefer that people who gain the news that fraction earlier not be able to clean up in trading the stock.

So, the reaction is to both pieces of news – but is that reaction enough? Is there more to come?

One issue here is that this is gene therapy. The current bet in the pharma markets is that these will become increasingly important as time goes by. It's a radical shift in possible treatments. More though, these are one-off treatments. That's what gene therapy means. Fix the body's own systems by changing the genes and thereby have the body itself performing the ongoing management of the problem. This also means that each instance of the drug is wildly excessive. Another such drug, Zilogensma, costs $2.1 million a treatment.

The point here is that the companies, upon approval, get to make up their own minds about what to change. They, therefore, pitch the fee at what they think they can get away with. A single-use drug does mean that no one is going to be a lifelong patient. But it does mean that if successful, the drug is only used once. We might, therefore, see folk pitching the price of their drug at about what is the statistical value of a life – About $5 million for the US.

So, yes, the drug is now ready for – and will almost certainly gain approval. This drug will be priced as Bluebird pharma decides, and so profit margins are going to be superb.

There is also the point that a company that has successfully shepherded two drugs to FDA approval has the capacity within itself to perhaps gain more such authorisations.

This is all undoubted positive news for Bluebird pharma stock. Our question is, how much further is this valuation going to go? A valid idea is that it's going to go much further. So, the decision is whether to climb aboard the pharma train or not?

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.