bluebird bio (BLUE) 14 Aug 242024 Q2 Earnings call transcript

Thank you for standing by. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the bluebird bio's Second Quarter 2024 Results Call. [Operator Instructions]

I would now like to turn the conference over to Courtney O'Leary of Investor Relations.

You may begin.

Good morning, everyone, and thank you for joining our second quarter 2024 results call today. My name is Courtney O'Leary, Director of Investor Relations of bluebird bio.

Before we begin, let me review our safe harbor statement. Today's discussion contains statements that are forward-looking under the Private Securities Litigation Reform Act of 1995, including expectations regarding our future financial results and financial position, in addition to statements of the company's plans, expectations or intentions regarding regulatory progress, commercialization plans and business operations. Such statements are based on current expectations and assumptions that are subject to risks and uncertainties and involve a number of risk factors that could cause actual results to differ materially from projected results.

A description of these risks is contained in our filings with the SEC, which are available on the Investor Relations section of our website, www.bluebirdbio.com.

On today's call, Andrew Obenshain, bluebird bio's CEO, will provide opening remarks. Then Tom Klima, Chief Commercial and Operating Officer, will provide updates on the commercial launches of LYFGENIA, ZYNTEGLO and SKYSONA. And lastly, bluebird's CFO, James Sterling, will provide a financial update before opening the call up for Q&A.

With that, I will turn it over to Andrew.

Thanks, Courtney, and thank you, everyone, for joining our call this morning.

Over the past year, bluebird has built what we believe to be an unrivaled commercial gene therapy foundation with 3 ongoing launches. We've seen that translate into a robust network of qualified treatment centers, proven access and reimbursement and demonstrated demand for our therapies for both patients and providers.

Today, we'll provide you with additional insight into our commercial performance grounded by a real-world experience that helps inform expectations and modeling for our launches. This morning, we announced that we've renegotiated our agreement with Hercules Capital. And on today's call, we will also provide you with details on our business execution and cash runway.

I will now hand it over to Tom to discuss the progress on our commercial launches in greater detail.

Thanks, Andrew, and good morning, everyone. Nearly 24 months following our first FDA approval, we have made incredible strides in building and strengthening our gene therapy commercial infrastructure.

We are beginning to see the results of this hard won experience with an unparalleled network of over 70 qualified treatment centers, far beyond our original goal of between 40 and 50 QTCs.

We have clear and established paths to access for all of our therapies and strong demand with rapid acceleration in patient starts on the horizon for both ZYNTEGLO and LYFGENIA.

We are extremely encouraged by the excitement from patients and providers.

We continue to hear consistently through direct conversations at QTCs, at conferences and even on recent KOL calls that there is immense enthusiasm for gene therapy among the patient communities we aim to serve. And there is confidence and belief in our data, which recently surpassed more than 1,000 patient years of experience.

Today, we announced 27 patient starts or cell collections have been completed across our portfolio so far in 2024 including 19 for ZYNTEGLO, 4 for LYFGENIA and 4 for SKYSONA. Looked at another way, we have completed 23 combined patient starts in the U.S. alone across beta thalassemia and sickle cell disease in 2024 with a total of 43 patient starts since approval of both. And our launch momentum continues to build with more than 40 additional patients already scheduled for cell collection across our commercial portfolio through the end of the year and more being added every week.

Importantly, approximately half of these patients are individuals living with sickle cell disease.

We are especially encouraged that because of our extensive QTC network, patients have broad access to our therapies. To date, patients have initiated or scheduled for treatment across more than 20 unique QTCs, and we clearly have tremendous room for additional growth as the 70-plus centers in our network begin to initiate the treatment process.

For ZYNTEGLO, demand continues to be very strong, and we anticipate continued growth in the second half of the year following the recent expansion at our Lonza facility, which doubles our manufacturing capacity for ZYNTEGLO and SKYSONA.

All of this reinforces the acceleration we projected in the second half of the year and gives us confidence in our ability to complete approximately 85 starts across our portfolio this year.

Additionally, we've recently completed the manufacturing and release testing for the first commercial LYFGENIA patient and first infusion is being scheduled. This is an incredibly exciting milestone. In this case, we completed this manufacturing and release testing on time, and we now anticipate recognizing our first LYFGENIA revenue in the third or fourth quarter.

Now moving to access and reimbursement.

Our goal has always been timely equitable access to our therapies.

We are extremely encouraged by the speed with which both commercial and many government payers are approving pathways to patient access, particularly with LYFGENIA for sickle cell disease. In just 7 months, more than half of sickle cell patients insured by Medicaid live in a state that has affirmed coverage to LYFGENIA. This includes multiple states, including California, Pennsylvania and Louisiana that have published coverage policies that are aligned to clinical trial criteria, 20% of patients live in a state that has already completed prior authorization approval for LYFGENIA for at least 1 patient. This means that Medicaid is moving patients through the process.

I specifically want to highlight that in June, LYFGENIA was placed in a preferred drug list in the state of Florida, a critical step to unlocking access for one of the largest sickle cell Medicaid populations in the country. We currently have 4 qualified treatment centers in the state of Florida and patients are eager for treatment.

On the commercial payer side, we have multiple outcomes-based agreements with national commercial payers in place for LYFGENIA and published coverage policies in place for more than 200 million U.S. lives.

Additionally, timely access to ZYNTEGLO and SKYSONA has continued with 0 ultimate denials for either therapy across both Medicaid and commercial payers.

Moving to our QTC network. Today, bluebird has activated over 70 total QTCs for LYFGENIA and ZYNTEGLO in the U.S., approximately 3x the size of others in the field.

Additionally, 6 of the centers in our network are also activated to administer SKYSONA for patients with CALD.

As I mentioned earlier, patients are scheduled for treatment with a bluebird gene therapy at more than 20 QTCs, showcasing the benefit of our vast experience network.

We continue to see key differentiators that are driving preference for LYFGENIA. Most recently in market research that we conducted in Q2 across our QTC network, we found that the majority preferred LYFGENIA over our competitor across a wide range of key measures, including efficacy, mechanism of action, manufacturing, turnaround time, cell collection and manufacturer flexibility and support.

To recap, the ZYNTEGLO launch is outperforming our initial expectations and we anticipate acceleration through the remainder of the year with our newly expanded capacity.

As projected, the LYFGENIA launch is accelerating with access expanding at a rapid clip and many patients scheduled to begin the treatment journey. And the SKYSONA launch continues to progress as planned with 5 to 10 patient starts expected this year.

As we look towards the back half of the year, we have more than 40 patient starts already scheduled, and we are on track for approximately 85 patient starts across our portfolio.

And now I would like to turn the call over to James.

Thank you, Tom, and good morning, everyone. It's great to be at bluebird, and I look forward to getting to know many of you in the months ahead. It's an exciting time to have joined the company in the midst of 3 transformative launches. I first want to acknowledge that our restatement is ongoing with a tremendous amount of work by our finance and accounting team.

We are moving as quickly as we can to complete the restatement, which, as we previously stated, is not expected to impact our cash or revenue, and we look forward to putting this chapter behind us.

In the meantime, we recognize the importance of providing you with an update on company performance, and I'm pleased today to highlight our Q2 results. In the second quarter, we reported $16.1 million of total revenue, up from $6.9 million in the prior year period.

As previously guided, in 2024, we continue to anticipate gross to net discounts in the range of 20% to 25%, with fluctuations based on product and payer mix as well as utilization of our outcomes-based agreements.

I also wanted to provide a few data points that you might find helpful for modeling. Since our first FDA approval 24 months ago, we have collected cells from 53 patients across our 3 products. Cell collections are the value creating moment. And to date, every patient who has had their cells collected has either completed an infusion or remains in the process. Of the 53 patients who started cell collection, 31 have been infused, so we've already recognized revenue associated with those patients.

We expect more than half of the remaining 22 patients will receive their infusions in the second half of this year.

As a reminder, revenue is recognized at the time of infusion.

For additional context, the process for ZYNTEGLO was designed to take between 70 to 90 days from cell collection to delivery.

While we have successfully completed manufacturing and release testing within this time frame, our real-world commercial evidence and experience to date is showing us that it is taking about a month longer on average for this first set of patients.

We are implementing process improvements and we expect this time line will improve over time.

Once the hospital receives the drug, the patient then needs to be scheduled for infusion, which is driven by scheduling preferences and availability of both the hospital and the patient.

As Tom noted, we have completed drug product manufacturing for the first commercial LYFGENIA run, which is still too early -- while still too early to predict the average real world time lines from manufacturing to infusion for LYFGENIA, for modeling purposes for both ZYNTEGLO and LYFGENIA, we recommend assuming 2 quarters between initial cell collection and revenue recognition.

Looking ahead, we want to manage expectations that revenue will fluctuate quarter-to-quarter, mainly due to varying manufacturing cycle times.

For example, we anticipate a drop in revenue in the third quarter, which is then projected to rebound in the fourth quarter based on our latest review of manufacturing schedules and anticipated infusion timing.

We are clearly on the right track with accelerating interest in our therapies and a clear path to translate patient starts into a growing consistent revenue stream over time.

As of June 30, 2024, we had $193.4 million of cash on hand which is inclusive of $49.2 million in restricted cash. Based on current operating plans, our cash runway is expected to take us into Q2 of 2025. This runway does not account for the cash minimums required by our covenants with Hercules and also excludes the receipt of any future tranches from them. Factoring in the Hercules minimum cash, the runway takes us to Q1. This recalibration of our cash runway was primarily driven by 2 factors: the first being the updated phasing of LYFGENIA starts that pushed out our revenue expectations and the associated cash collections. And second, the exclusion of additional borrowings from Hercules in our near-term runway estimates.

Finally, I'm pleased that we announced this morning that we renegotiated our debt facility with Hercules to better align with current expectations and timing of LYFGENIA patient starts with our ability to borrow additional amounts. Under the terms of the revised agreement, we are eligible to receive 2 funding tranches totaling $50 million, subject to the achievement of patient starts and product delivery milestones and contingent on the completion of additional financing. A potential -- a final potential tranche of an additional $50 million at the lender's discretion remains in the agreement. And with that, I will turn it back to Andrew.

Thank you, James. And to close this out before Q&A, I want to underscore the progress we've made in our business.

We have 3 ongoing commercial launches. We've seen significant -- and we see significant unrealized value of bluebird.

As you can see from the updates we've shared today, we have demonstrated clear patient and provider demand and ability to successfully secure reimbursement for all 3 of our therapies and our ability to turn patients starts a cell collections into revenue, and we're now leveraging these strengths to our competitive advantage. We look forward to continuing to update the investor community on our progress as our business continues to scale.

With that, we'd like to open it up for questions. Operator?

[Operator Instructions] And your first question comes from the line of Jeff Allen of Bird.

This is Jack Allen with Baird dialing in. Congratulations on the progress. I just wanted to ask about these 40 patients that are scheduled to receive or initiate cell collection in the remainder of the year. I guess, could you speak to the historical experience as it relates to the patients that have been scheduled? Have you seen anyone drop out of the process at this point in the, I guess, cell procurement, I'd love to hear any kind of historical context. And then I have one follow-up as well on the revenue recognition as it relates to ZYNTEGLO and SKYSONA.

Tom, why don't you describe it?

Thanks for the question. We feel, I think, very confident with the acceleration in the second half of the year when you look at both LYFGENIA and ZYNTEGLO. We're extremely encouraged that more than 40 patients are scheduled for treatment going forward. Historically, we haven't given guidance around how many have fallen out of the funnel. But in general, what we've seen is that it just takes time for patients to get through the process. And more often than not, it's more of a timing issue versus a getting treatment or not issue.

Yes. And Jack, I'd layer on that, the -- that's from the time from collection to actually infusion.

In terms of the number of patients that have rescheduled their collection, that's a very small number, a very, very small number.

So we feel very confident in that 40%. Go ahead on the revenue recognition question.

Got it. Great. And then as it relates to recognizing revenues, I think James mentioned that there were 30 million patients that had cells procured -- or had cells infused. And when I go back and look at the revenues that you estimate that you've realized since the launch of the therapy is about $65 million, which when I calculate, it seems like a 25% discount, I just wanted to -- or rebate. I wanted to understand, I guess, do you expect that 20% to 25% net price to take effect for both ZYNTEGLO and SKYSONA? Or is that more focused on ZYNTEGLO and LYFGENIA?

Go ahead, James.

Jack. No, it should be for both.

I think you can apply that percentage estimated range to all 3 products.

Your next question comes from the line of Eric Joseph with JPMorgan.

Just a point on how to think about revenue recognition for the incremental 3 patients that have started -- incremental 3 LYFGENIA patients that have started collections this past cycle. I guess, how should we be thinking about revenue recognition there, appreciating that there's been a little bit of an extension with the expected time line for the first patient.

And then just on this metric of 28% of Medicaid insured sickle cell patients living in a state where prior authorization has been completed. Can you just talk about the number of states comprised in that metric and where that might be expected to go with the additional LYFGENIA patient starts you anticipate in the back half of the year?

James, go ahead and talk about the 3 patients revenue recognition.

So we would expect that to come in within 6 months, 2 quarters is what we're thinking between cell collection and revenue recognition on infusion.

This is Tom. I'll follow up with the Medicare question.

So obviously, it's a very exciting statistic to see that 20% of patients live in a state where at least one prior auth has already been completed.

We expect that to continue to grow as we work on especially targeted states where people living with sickle cell disease live.

We haven't given a breakdown of that, but it continues to be our goal to provide timely and equitable access for patients.

Just -- sorry, if I could jump in.

I think you said something about the first LYFGENIA patient being delayed.

The first LYFGENIA patient was actually on time, right? Within our guidance of what of the 70 to 105 days.

Sorry, go ahead next question.

Your next question comes from the line of Jason Gerberry with Bank of America.

This is Dina Ramadane on for Jason Gerberry. Congrats on the progress this quarter. We just had a question on the kind of the initial feedback on the LYFGENIA launch. What is driving your anticipation for an acceleration of patient starts in the second half of this year? Is there a bolus of kind of patients waiting to get initiated and that they're just kind of bottlenecks in the process in terms of getting them started. Appreciate any color.

Go ahead, Tom.

Dina, so with LYFGENIA, we've always said that we would expect the acceleration to pick up in the second half of the year and continue into next year. And for LYFGENIA, there's just simply a longer path to patient starts. This includes both going through the payer approval process, but also the steps to clinical readiness within the patient community.

And so it's really just a timing thing.

Additionally, we are seeing patients schedule many months in advance.

So there -- as they did with ZYNTEGLO, but maybe a little bit more so with LYFGENIA, they're scheduling around life events.

So it's not a slower start than expected, and it's not a demand issue. Demand is actually strong. It's simply a timing issue.

Got it. And just a quick follow-up. Are you seeing any competitive dynamics in terms of how prescribers are making decisions on which sickle cell gene therapy to prescribe?

Go ahead, Tom.

Yes, it's a good question.

I think just -- I'll point you to a couple of different things. Number one, the size of our QTC network, we have over 70 qualified treatment centers, which is about 3x that of our closest competitor. When you look at number of starts across beta thalassemia and in sickle cell disease, we reported 23 starts in the U.S. so far this year.

So we continue to believe that we maintain a strong leadership position. beyond that, when you look at the market research that I talked about, we conducted market research across the QTC network, where we are seeing QTCs prefer LYFGENIA and prefer bluebird.

So we're seeing a number of indicators that lead us to believe that we continue to hold the lead in the market.

Awesome. Appreciate all the color.

Your next question comes from Gena Wang with Barclays.

So maybe I think last quarter, you mentioned that you are expecting 85 to 105 patient starts for all 3 drugs.

Now you have more definitive understanding on 85 patient starts. We still have a few more months like what makes you so confident that you only will have 85 rather than potentially additional patients that could get scheduled? And then my second question is regarding 2 quarters, you said will take from initial cell collection to infusion. What is your assumption for number of cycles in average for cell collection?

Okay. Go ahead, Tom.

Gena, as we move through the year and we have the 27 patients who've already gone through cell collection, we have more than 30 patients that are scheduled to go through cell collection between now and the end of the year, and that number continues to grow every week. But with the time line, what we're seeing is that patients are scheduling in advance.

So as we get into the second half of the year, you could expect some of those patients to start to schedule into 2025.

And so now that we have visibility, we believe that demand is strong, but we feel that we'll come in closer to approximately 85 starts.

And then, Gena, I'll take the -- recollections are a normal part of the process. We do indeed have -- we have experienced recollections, which we do anticipate will continue.

We are -- and to date, roughly 95% of commercial patients have needed only 1 or 2 collections in the commercial setting.

So it's really too early to provide an assessment of recollections rate for LYFGENIA, but in clinical trials, we got 85% of patients that require 1 to 2 collections.

Your next question comes from the line of Mani Foroohar with Leerink Partners.

This is Ryan on for Mani. We just have 2.

So on the last call, you guys talked about how half of the QTC network is in the process of evaluating patients. Can you kind of talk about if you're seeing a broadening across the network or more heavily concentrated uptake or progress within a select few networks or QTCs. And then I have a second one, but go ahead.

Go ahead, Tom.

Ryan, so we're pleased with not only the size of our qualified treatment center network, but also greater than 20 patients, 20 QTCs have started the process with the patient. We believe that a very broad subset of the QTCs are evaluating patients. Keep in mind that as they come on board and they do the work to become a qualified treatment center, they don't take that lightly and they really wouldn't commit to being a qualified treatment center unless they had patients that they openly wanted to screen..

So we're pleased with the growth that we're seeing.

I think there's a lot of upside with the 70 QTCs continue to go through the process, and we're excited about the acceleration we're seeing.

That's helpful. And then on the 1 month delay that you guys are seeing from cell collection to delivery for LYFGENIA, can you just provide any color on what some of the reasons would be for that?

Yes.

So we haven't given a breakdown as part of gene therapy recollections, as Andrew talked about a second ago as part of the process, but we are looking at different ways to improve our process and get back closer to the original guidance. We're still incredibly encouraged that the speed at which we can turn things around in the manufacturing process, experience that we're getting with our QTCs. Obviously, we're working very closely with our QTCs in becoming strong partners with them.

Your next question comes from the line of Jeff Hung of Morgan Stanley.

For ZYNTEGLO, the rate of new patient starts came down slightly in May since May. Were there any onetime headwinds that you saw in the quarter? Or is that mainly due to timing? And then is your confidence that it should increase over the remainder of the year, is that mainly from the patients that are already scheduled? And then I have a follow-up.

Yes.

So for your first question, that the dip you saw was just a timing issue.

So you called that correctly.

Our belief in the acceleration in the second half of the year is not only the demand we're seeing, but also the patients that are already scheduled going forward. And then also when you look at ZYNTEGLO specifically, we did double our manufacturing capacity at Lonza.

And so that will allow more patients that are already waiting to be treated in the second half of the year and going forward.

So we have confidence, obviously, with kind of what we're seeing going forward.

Okay. Great. And then you reported restricted cash of around $49 million, but last quarter it was around $52 million.

Just wondering if you could just talk about the slight difference there.

Yes, we had a small release of restricted cash this quarter related to some research, I believe, go ahead, James.

Yes. And a change in one of the banking relationships allowed that release of a bit of that restricted cash.

Your next question comes from the line of Yanan Zhu with Wells Fargo.

This is [ Quan Tang ] on for Yanan. I have a question regarding the QTC. I wonder if there are any centers that were clinical sites, but decided not to become a QTC?

Good question.

So all of our clinical trials sites have gone on to be commercial QTCs. Keep in mind that in some cases, they will continue to do clinical trials.

So they go on to become commercial QTCs, but they continue to do clinical trials with other gene therapies as well.

So they have all converted to commercial QTCs.

Got it. And one quick question on insurance.

So you mentioned that there was no ultimate denials on ZYNTEGLO and SKYSONA. How about LYFGENIA, any pushback or denial?

It's probably too early to tell. What we're seeing now, though, is we're encouraged by both commercial insurers as well as government insurers approving therapy for the patients that are going through the process.

So again, it's too early to say that there haven't been -- I mean, we'll kind of continue to monitor that and provide updates as we see more patients.

Your next question comes from the line of Salveen Richter from Goldman Sachs.

This is [ Sharnath ] on for Salveen.

Regarding your debt financing agreement with Hercules, could you provide any additional color on the renegotiated terms? And what would trigger the second 2 tranches in this agreement?

Go ahead, James.

So yes, Hercules has been a great partner through this and allowing adjustments to give us a chance to access those next 2 tranches given the update to the LYFGENIA phasing.

So the second tranche now becomes available, first, if we secure at least $75 million in gross proceeds from additional financing by December 20 of this year and at least 50 LYFGENIA starts by March 31 or 70 LYFGENIA starts by June 30.

So that would release tranche 2 of $25 million. And then Tranche 3 now becomes available, if we receive at least $100 million in gross proceeds from additional financing by December 20 or at least $125 million by June 30 of next year. And we complete at least 70 drug product deliveries within a 6-month period, no later than December 31 of next year.

Your next question comes from Luca Issi with RBC Capital Markets.

Congrats on the progress. I have 2 quick ones. Maybe circling back on the prior question on Sika. How should we think about the relative market share between you and Vertex now? Most of you guys have been in the market, obviously, for 8 months.

I think you have 4 patients start so far versus they actually have 20 cell collected. We don't have the breakdown between beta thalassemia and sickle cell disease for them, but I'm assuming that most of them are sickle cell disease.

So maybe if you go by that metric, you suggest that they could be ahead here. But again, we'd love to hear your pushback. And then maybe a quick one on the P&L. We obviously have not seen COGS for quite some time, but we'd love to hear kind of at high level, how should we think about where gross margins are today and where you think that can go as the product scales?

Go ahead, Tom.

Luca, it's Tom. I actually see it much differently than that. Keep in mind what we reported was 23 starts across beta-thalassemia and sickle cell disease and 43 starts since they were both approved, just in the U.S. alone. I have not seen a breakdown from what they reported, but it was 20 global starts from what I remember.

So if you look at both the starts that we're reporting and you look at the size of our QTC network, we continue to believe that we are securing the lead position in the market.

Go ahead, James, on the next question?

So since we haven't completed the restatement and so we haven't released the 10-K or the 10-Qs yet, I can't comment on specific gross margin right now, our COGS. But as we guided previously, we continue to anticipate a gross margin of at least 70% within the next 5 years. And I'm happy to walk through the updates to COGS once the restatement is done and we complete the filings.

Your next question comes from the line of Sami Corwin with William Blair.

I was wondering if you could discuss the negative opinion by HHS on the fertility treatment and if that's had an impact on LYFGENIA starts? And then also, I would love your high little thoughts on obtaining additional sources of funding since that seems to be largely tied to obtaining those next loan tranches.

Go ahead, Tom.

Sami, obviously, fertility preservation is a consideration for patients who would be considering gene therapy.

As a reminder, bluebird offers fertility preservation for eligible commercially insured patients through our patient support, which is called my bluebird support. And as you're referencing on July 22, the OIG released an unfavorable opinion on our request to provide fertility preservation services for patients that are insured through Medicaid and other federal health care programs.

We continue to focus on equitable access for patients.

We are, as Bloomberg engaged with a diverse group of stakeholders, including patients and advocates to encourage change. And in the meantime, I would say that both bluebird and our qualified treatment centers are highly experienced with helping patients and their families navigate the coverage process and our wide experience in navigating fertility preservation.

Go ahead, James.

So we have a wide range of options available to us on the financing in that include other sources of debt, equity, royalty, other alternatives.

So it's too early to comment on any specifics as we contemplate structure to satisfy the Hercules ask, which we consider quite appropriate.

There are no more questions. I will now turn the conference back over to Andrew Obenshain for closing remarks.

Thank you. And great. Thanks, everyone, for joining the call this morning and for your questions.

Our team is available for follow-up calls today. Please reach out to Courtney, if you would like to connect. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining.

You may now disconnect.