bluebird bio (BLUE) PT Lowered to $85 at Maxim Group, 'Buy' Maintained

Maxim Group analyst Jason McCarthy reiterated a Buy rating on bluebird bio (NASDAQ: BLUE) but lowered his price target to $85.00 (from $105.00).

McCarthy commented:

• bluebird reported 2Q16 with a net loss of $58.8M or $(1.59) per share. The company began 3Q with $779M in cash. Operating expenses increased as oncology and gene editing make progress in addition to gene therapy programs, however, with $779M in cash we estimate bluebird is funded through 2018.
• The biotechnology bear market that emerged in late 2015 continues to drive an increase in the cost of capital and the dilution that companies face. In addition, a lack of data, or "data trough," has emerged for many companies, including bluebird. The "sizzle" of gene therapy in 2015 and the "N=1" stories that resulted in valuations reaching all-time highs have cooled off. For LentiGlobin in sickle cell, the positive data in one patient was followed by "so-so" data in the second patient. As such LentiGlobin, and as management had stated all along, "is going to take more time, more patients and more data" (more data at ASH 2016, December).
• In addition, as multiple therapies for sickle cell move forward and knowledge of the treatment modalities and patient/physician sentiment towards different therapies expands, we believe the perceived risk/reward associated with a gene therapy requiring a bone marrow transplant may be skewed more towards risk. As such we believe uptake of LentiGlobin (if approved) could be slower and limited to a smaller niche of the sickle cell community.
• Modeling adjustments. We have adjusted our therapeutic model for LentiGlobin in sickle cell disease to reflect slower uptake, resulting in reduced market share in out years. The net effect is a reduction in our 12-month price target to $85 from $105.
• Valuation. We apply a 30% discount rate across our valuation metrics (FCFF, discounted EPS, and SOP models), which combined with adjustments to our therapeutic model reduce our price target to $85, from $105.
• Conclusion. We believe it is prudent to adjust our assumptions given a combination of the bearish biotech market environment, catalysts, and revisions to our therapeutic model, as well as other related assumptions. The net result is a reduction in our price target to $85, from $105, which still supports a Buy rating given bluebird's valuation today.

For an analyst ratings summary and ratings history on bluebird bio click here. For more ratings news on bluebird bio click here.

Shares of bluebird bio closed at $59.41 yesterday.

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