This small biotech is struggling to fly — and investors should probably steer clear.

If a little bird told you to think about buying Bluebird Bio (BLUE -5.17%) stock recently, there’s a lot of information you’ll need to evaluate. Between the new product that this small biotech has brought to market and recent launches that are expected to pick up steam, it might be reasonable to view the stock as a potential buy.

Alas, the company’s financial constraints may well clip its wings and prevent it from truly taking off. Here’s what you need to know about whether Bluebird Bio is worth buying or not.

Despite a fresh infusion of money, the clock is ticking

One of Bluebird Bio’s long-standing issues is that its gene therapies are extremely complex and expensive to manufacture and administer to patients. Despite having three products on the market, the company isn’t profitable, and its trailing-12-month revenue was only $21.7 million, while its total expenses were $157.8 million. Something will need to change to close that huge gap between costs and income, and soon.

At the end of 2023, Bluebird Bio held $222 million in unrestricted cash, cash equivalents, and short-term investments, as well as $53 million in restricted cash. On March 18, it initiated a new term loan facility with Hercules Capital that on paper could provide it with up to $175 million in additional cash over the coming five years. But it is unclear whether the biotech will actually have access to that entire amount.

While it has already drawn the first tranche of $75 million, there are a total of four tranches. The next two tranches of $25 million each are linked to the company meeting specified commercialization milestones, and the final tranche of $50 million is to be dispensed only at the discretion of the lender. For the first three years of the loan, Bluebird Bio only needs to pay interest, so the biggest financial impacts will only start in April 2027, when it begins paying back principal as well.

With the new capital in hand, management is signaling that if it can meet the milestones and secure the two $25 million tranches, the company will be able to operate until roughly Q1 2026. That may be enough time for it to reach the milestones Hercules Capital is looking for, but there’s no guarantee. For investors, the bigger question is what comes afterward.

Stay away from this one

Bluebird Bio’s prospects look limited. Aside from financial challenges that could become unmanageable before too long, its pipeline only has two programs, both of which are gene therapies for sickle cell disease. One is in phase 3 clinical trials; the other is in early-to-mid-stage trials.

Clearly, Bluebird Bio is not in a financial position to engage in capital-intensive research and development with any gusto at the moment, and for a biotech company, that is a tremendous problem. Without a constant flow of programs moving through the discovery and pre-clinical testing stages, the company can’t bring new candidates to the point of conducting clinical trials in humans.

And without a stream of clinical programs taking their turns at bat, over the long run a biotech has no future as its portfolio of commercialized treatments will eventually lose their exclusivity protections and market share to generic competitors. Plus, if a company doesn’t launch new treatments in the first place, it has little hope of bringing in more revenue.

The situation here is actually worse on that front than it appears given the company’s sparse pipeline. Even if Bluebird Bio succeeds in commercializing one or both of its candidates for sickle cell disease, they will be arriving late to a market that’s already being penetrated by heavyweights like Vertex Pharmaceuticals, which recently got its sickle cell gene therapy approved.

Across its three approved products, the company expects to onboard as many as 105 patients this year. Given the steep price tags for these curative therapies (they list in the $3 million per patient range), that means its top line will probably grow substantially. But it’s a big risk as more patients mean manufacturing more doses of its therapies, so it may just be burning investors’ money at a higher rate than before as it has not yet demonstrated that it can turn a profit.

In short, there does not appear to be a strong reason to buy Bluebird Bio stock right now, and it might even be a good idea to sell it.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.

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