bluebird bio Q3 2023 Earnings Report

bluebird bio EPS Results

• Actual EPS: -$13.20
• Consensus EPS: -$13.80
• Beat/Miss: Beat by +$0.60
• One Year Ago EPS: -$18.40

bluebird bio Revenue Results

• Actual Revenue: $12.40 million
• Expected Revenue: $13.56 million
• Beat/Miss: Missed by -$1.16 million
• YoY Revenue Growth: +17,364.80%

bluebird bio Announcement Details

• Quarter: Q3 2023
• Date: 11/7/2023
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 7, 2023
• Conference Call Time: 8:00AM ET

bluebird bio (NASDAQ:BLUE), a biotechnology company, researches, develops, and commercializes gene therapies for severe genetic diseases. Its product candidates for severe genetic diseases include ZYNTEGLO (betibeglogene autotemcel) for the treatment of transfusion-dependent ß-thalassemia; lovotibeglogene autotemcel for the treatment of sickle cell disease (SCD); and SKYSONA (elivaldogene autotemcel) to treat cerebral adrenoleukodystrophy. The company's clinical development programs include HGB-205, HGB-206, and HGB-210 to evaluate the safety and efficacy of lovo-cel in the treatment of patients with SCD; and HGB-204, HGB-205, HGB-207, and HGB-212 to evaluate the safety and efficacy of beti-cel in the treatment of patients with ß-thalassemia. It has license agreement with Orchard Therapeutics Limited. The company was formerly known as Genetix Pharmaceuticals, Inc., and changed its name to bluebird bio, Inc. in September 2010. bluebird bio, Inc. was incorporated in 1992 and is headquartered in Somerville, Massachusetts.

bluebird bio Q3 2023 Earnings Call Transcript

Key Takeaways

• LOVACEL is on track for its FDA PDUFA date on December 20, 2023, with approval expected to be a major profitability driver and transformative therapy for sickle cell disease patients.
• Bluebird’s ZYNTEGLO and SKYSONA commercial launches have generated 22 combined patient starts, delivered $12.4 million in Q3 product revenue, and faced zero ultimate payer denials.
• The company signed outcomes-based agreements with Michigan and Massachusetts Medicaid for ZYNTEGLO and is finalizing a third, indicating strong payer support for gene therapy payment models.
• As of September 30, Bluebird held $227 million in cash and equivalents, excluding a potential $103 million from a priority review voucher sale, extending cash runway into Q2 2024.
• Bluebird expects the LOVACEL label to include warnings on the two cases of acute leukemia in its early trials—events related to transplantation—potentially affecting market perception.

Presentation

[Operator]

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the bluebird bio third quarter 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at any time, please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one one again. At this time, I would like to turn the conference over to your host, Miss Courtney O'Leary. Ma'am, please begin.

[Courtney O'Leary, Director of Investor Relations at bluebird bio]

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

[Courtney O'Leary, Director of Investor Relations at bluebird bio]

On today's call, Andrew Obenshain, our CEO, is going to provide some opening remarks on our overall business and potential lovo-cel approval. Then Tom Klima, Chief Commercial and Operating Officer, will discuss the positive momentum in our ZYNTEGLO and SKYSONA commercial launches, as well as launch preparations for lovo-cel. And finally, Chris Krawtschuk, Chief Financial Officer, will provide some color on our financial results before opening the call up for Q&A. With that, I will turn it over to Andrew.

[Andrew Obenshain, CEO at bluebird bio]

Thanks, Courtney, and thank you everyone for joining our call this morning. I'm excited today to update you on bluebird's Q3 results and our preparations for the potential upcoming FDA approval of lovo-cel. This has been a transformative year for the field of gene therapy and for bluebird bio. We validated the commercial model for gene therapy with our ZYNTEGLO and SKYSONA launches. As a reminder, bluebird occupies a unique strategic position as one of the only standalone commercial gene and cell therapy companies with an extensive platform of gene therapy expertise that will potentially enable growth, profitability, and expansion for years to come. We are at an incredibly exciting moment for our company, but most importantly for patients, as we approach the potential FDA approval of lovo-cel for sickle cell disease in December.

[Andrew Obenshain, CEO at bluebird bio]

In a minute, Tom and Chris are going to provide more details on our commercial launches and financials, but I want to focus my comments this morning on lovo-cel as we approach this key regulatory milestone. We are six weeks away from our lovo-cel PDUFA date of December 20. This potential approval will be a significant moment for the sickle cell disease community, a major milestone for our company, and if approved, will be the main driver of profitability for bluebird bio for years to come. The review remains on track, and our team remains confident in the robustness and maturity of our BLA package for individuals twelve and older with sickle cell disease and a history of vaso-occlusive events, or VOEs.

[Andrew Obenshain, CEO at bluebird bio]

We believe the fact that an FDA advisory committee wasn't requested for lovo-cel is a testament to the breadth and the depth of the lovo-cel data, significantly more than any other gene therapy program for sickle cell disease. Additionally, this is the third lentiviral vector gene therapy that the FDA has reviewed from bluebird, and thus a technology they are very familiar with. Our lentiviral vector technology is also uniquely traceable, giving us an unrivaled understanding of our therapies and the ability to conduct rigorous monitoring. We understand it can measure how we modify the cell and monitor effects over time.

[Andrew Obenshain, CEO at bluebird bio]

Last week, we announced that in early December, we'll be presenting long-term follow-up data from our ZYNTEGLO and lovo-cel programs at the 65th ASH Annual Meeting with an unparalleled up to 9 years of follow-up in transfusion-dependent beta-thalassemia and 5 years of follow-up in our sickle cell disease program. We continue to progress plans for our anticipated lovo-cel commercial launch in early 2024, following its potential FDA approval. With that, I will turn it over to Tom to highlight how our launches are progressing.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Thanks, Andrew, and good morning, everyone. We have made tremendous progress this quarter, and it's exciting to be here this morning to discuss our commercial advancement in greater detail. For ZYNTEGLO, we continue to see strong linear growth with 16 patient starts or unique cell collections since launch. As a reminder, patient starts remains the key commercial metric to watch in the early stages of the ZYNTEGLO launch, as it's the value-creating moment for the company and represents a commitment from the patient. It is our experience that once a patient goes through cell collection, they will continue on the treatment journey, and this will ultimately result in revenue for the company. Our qualified treatment center activation has accelerated this quarter and has nearly doubled since Q2, with 29 QTCs now activated at leading adult and pediatric centers across 16 states.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

We remain on track to scale our QTC network to between 40 and 50 by the end of this year as we prepare for the lovo-cel launch. Looking ahead to 2024, we will carry our momentum into the new year, likely continuing to expand our QTC footprint to extend our reach and meet patient demand. We anticipate patient demand for ZYNTEGLO will continue to grow steadily through the end of 2023 and into 2024 as more QTCs are activated and gain experience treating multiple patients. Shifting to reimbursement, I'm thrilled to announce this morning that we have signed outcomes-based agreements for ZYNTEGLO with Michigan and Massachusetts state Medicaid agencies. Additionally, we are finalizing an agreement with a third state, which may enable us to reach a large portion of patients with beta-thalassemia.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

This significant development demonstrates government payers' support for these types of innovative arrangements and eagerness to bring gene therapy to patients. We continue to see strong access for ZYNTEGLO and have received zero ultimate denials across commercial and government payers. Prior authorization approvals for drug product remain consistent at approximately two weeks. All of this progress continues to underscore that payers recognize the value of ZYNTEGLO and the high burden of disease for patients with beta-thalassemia who require regular transfusions. We look forward to closing out the year on a strong note, having delivered on every key milestone, and anticipate giving 2024 guidance on commercial launch metrics early next year. Moving to SKYSONA , we have completed 6 patient starts, activated 4 QTCs, and received zero ultimate denials from government or commercial payers to date.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

We remain on track with our guidance of 5-10 patient starts this year and anticipate giving 2024 patient start guidance early next year. In recognition of growing patient demand we are seeing across ZYNTEGLO and SKYSONA launches, we recently signed an agreement with Lonza to enable increased manufacturing capacity. Shifting to lovo-cel. Preparations are well underway for launch in early 2024, and we are operationally ready to capitalize on our 18-month head start in gene therapy against our nearest competitor. Patients are waiting for this transformative therapy. We have consistently seen strong patient excitement, and in market research that more than 70% of patients say they would consider gene therapy if recommended by their doctor. Demand is clearly there and continues to grow.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Bluebird has been a trusted partner of the sickle cell patient community for over a decade, and we recently expanded our team as part of an investment in patient education about gene therapy, which was in direct response to patient community feedback. As mentioned, our QTC network, which is 100% synergistic between ZYNTEGLO and lovo-cel, is rapidly scaling. The network can be converted to include lovo-cel within weeks, a key competitive advantage, and our intent is to reach an estimated 65% of sickle cell patients within 50 mi of a planned QTC and 95% within 200 mi of a planned QTC. Moving to access and reimbursement. A particular focus has been on ensuring timely and equitable access to lovo-cel at launch. Bluebird has long been a leader in value-based payment models, and lovo-cel for sickle cell is no exception.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

We are currently in late-stage negotiations with a number of national payers on our innovative contracting approach. These pending contracts represent a significant percentage of sickle cell-covered lives. The positive response we are seeing in advance of our potential FDA approval underscores payers' confidence in our offering and the recognized value of lovo-cel and gives us further confidence as we prepare to make gene therapy available for individuals living with sickle cell disease in early 2024. And finally, on manufacturing, we are applying many learnings from ZYNTEGLO to optimize commercial manufacturing, from cell collection through delivery of the therapy back to the hospital. We are excited about a potential lovo-cel approval next month, and we are well-positioned to compete. We plan to share more details on launch plans at that time. And with that, I'll turn it over to Chris to talk through the financials.

[Chris Krawtschuk, CFO at bluebird bio]

Thanks, Tom, and good morning, everyone. As Tom mentioned, to date, there have been 22 combined patient starts for ZYNTEGLO and SKYSONA . This translates over time to a potential $63 million in gross revenue. In Q3, we reported $12.4 million in total revenue, primarily driven by product revenue from ZYNTEGLO and SKYSONA , again, underscoring that strong linear growth. We remain on track with our full year 2023 cash burn guidance in the range of $270 million-$300 million and continue to prudently deploy capital to bring our therapies to our patients. Additionally, last week, we announced that we've entered into an advanced agreement to sell a priority review voucher, if granted, for lovo-cel for sickle cell disease for $103 million.

[Chris Krawtschuk, CFO at bluebird bio]

This would be an important source of non-dilutive capital and has the potential to strengthen our financial position ahead of the anticipated launch of lovo-cel. As of September 30th, we had $227 million in cash, cash equivalents, restricted cash, and marketable securities. Not including the potential proceeds from the PRV sale or the release of our $53 million in restricted cash, we have a cash runway into Q2 of next year. We plan to provide an updated cash runway guidance by early 2024 and continue to explore additional financing opportunities to further extend our cash runway. And with that, I'll turn it back over to Andrew.

[Andrew Obenshain, CEO at bluebird bio]

Thanks, Chris, and thanks, Tom, for walking us through those updates. It's an exciting time for bluebird bio as we stand six weeks out from our lovo-cel PDUFA date and our largest opportunity yet, the potential to bring a gene therapy to individuals living with sickle cell disease in the U.S. Looking further into the horizon, we remain committed to our near-term path of profitability and delivering on the promise of bringing potentially curative gene therapies to patients and their families.

[Andrew Obenshain, CEO at bluebird bio]

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

[Operator]

Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one one again. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Dane Leone from RJF. Mr. Leone, your line is open.

[Dane Leone, Managing Director and Senior Biotechnology Analyst at RJF]

Hi, thanks for taking the questions, and congratulations on all the progress and moving towards the approval of lovo-cel. Maybe a few questions for me. Firstly, could you just give us some color in terms of the patients that were actually infused and recognized as revenues in the quarter, and what the remaining balances of patients that have had cell collections that you would expect to infuse and recognize revenue before year-end? So just a little bit more color on the general guidance for the remainder of the year. And then secondly, could you provide us some expectations around R&D burn as it relates to lovo-cel? That's still probably the biggest bucket of R&D burn on a quarterly basis.

[Dane Leone, Managing Director and Senior Biotechnology Analyst at RJF]

Is the expectation that after the approval, the burn will maybe go down a bit, or is there still just obligations given the long-term follow-up required from the clinical studies? Thank you.

[Andrew Obenshain, CEO at bluebird bio]

Great. Thanks, Dane. So I think two questions in there, how the patients infused and versus collected and guidance for the rest of the year, and R&D burn and how it'll change. So, Chris, do you wanna address those?

[Chris Krawtschuk, CFO at bluebird bio]

Yeah. So let me start with the patients infused. We'll continue to provide cumulative guidance on both ZYNTEGLO and SKYSONA , not individually, because we're just in the early stages of where we are in our commercial launch. As you see, we've infused, we have 22 patient starts in both pro- in both products. And this translates again to about $63 million in gross revenue, and that will come in over time. Again, our KPI for the company is patient starts. And then as it relates to your question on what has been deferred, and patient revenue that's been deferred, it's about $8.5 million that's sitting on our balance sheet. And then, can you repeat your question two and three? R&D, I believe.

[Dane Leone, Managing Director and Senior Biotechnology Analyst at RJF]

Yeah. Yeah, so, thank you for that. So just on that subject, the correct interpretation of what you just said is there's $8.5 million of deferred revenue recognition that would still occur before year-end. And would there be incremental revenue recognition beyond that deferred amount? And then secondly, on R&D, I was just commenting that, you know, in the queue, there's. I think there's somewhere around $17 million-$18 million of R&D burn still associated on a quarterly basis with lovo-cel. Is that expected to go lower as we head into 2024 post the approval of the drug? Or are there still substantial remaining commitments for long-term follow-up from the clinical studies?

[Chris Krawtschuk, CFO at bluebird bio]

Yeah. So let me take that. So as it relates to R&D, the predominance of the R&D spend in the quarter contributes to lovo-cel and lovo-cel spend because that product's unapproved. There's also R&D spend that sits in the R&D line for both ZYNTEGLO and SKYSONA , and that's attributable to our long-term follow-up and then any ongoing clinical work associated with the programs that we've got today. As it relates to 2024 and beyond, certainly as if and when lovo-cel gets approved, the R&D expense will go down and you'll see those costs coming through either in COGS or inventory and no longer in R&D. However, there will likely be long-term follow-up and optional patient registry costs for all three programs.

[Dane Leone, Managing Director and Senior Biotechnology Analyst at RJF]

Thank you, Chris.

[Operator]

Thank you. Our next question or comment comes from the line of Jason Gerberry from Bank of America Securities. Mr. Gerberry, your line is now open.

[Jason Gerberry, Managing Director and Equity Research Analyst at Bank of America Securities]

Thanks, guys, for taking my questions. So, when you're launching lovo-cel, just wanted to understand a little bit more of the dynamics with the Medicaid reimbursement, and how you expect that to phase in. You know, how long will that roughly take? And absent, you know, Medicaid policies in place at key states, would you just expect revenue recognition to be deferred? So just if you could speak to those dynamics. And then, you know, appreciate the comment about sort of the 70% of patients more interested, but do you expect there to be an early bolus of sickle cell patients that are pent up? And when we think about the early launch, just curious if you can speak to that dynamic.

[Andrew Obenshain, CEO at bluebird bio]

Yeah. Thanks, Jason. Good morning. I'm gonna hand that to Tom to respond.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah, good morning, Jason. Let me start with the last question first. We would expect that the launch of lovo-cel would look like other gene therapies, specifically would look like the ZYNTEGLO launch, in that we expect strong linear growth. We believe that there is a bolus of patient excitement and patient demand, but as we've seen, it just takes time to get patients through the process of getting gene therapy. And then on top of that, the QTCs, Qualified Treatment Centers, are going to be working through the reimbursement process upfront. So, although we believe there's a bolus of excitement and bolus of patients that are eager for gene therapy, we would expect it to be a strong linear growth like we've seen with ZYNTEGLO.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

It'll be on a much higher scale, given that it's a much larger patient population and that we already have qualified treatment centers in place, but we don't expect a bolus like a traditional oncology launch. As far as the Medicaid dynamic, about 50%, we're estimating, of patients who have sickle cell disease are covered by Medicaid. We have put an outcomes-based agreement in place and are working with both commercial payers and Medicaid payers right now to get the outcomes-based agreement in place, hopefully as soon as possible and as close to launch as possible. Clearly, patients who have Medicaid might take a little bit more time than a patient with commercial coverage.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

But, you know, if you reflect back on the ZYNTEGLO launch, we've seen no denials, either with commercial payers or with Medicaid payers. So the yearly patients will go through the medical exception process, and we would expect, you know, fair and equitable, coverage for, patients, both with commercial payers and Medicaid.

[Jason Gerberry, Managing Director and Equity Research Analyst at Bank of America Securities]

If I could just squeeze a follow-up in with ZYNTEGLO, were patients on Medicaid getting coverage through medical exceptions before an official policy was in place? Is it sort of a-

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah, that's correct.

[Jason Gerberry, Managing Director and Equity Research Analyst at Bank of America Securities]

Okay.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Early in launch there, you know, right now we have, I believe it's 17 states have coverage policies, Medicaid coverage policies. We now have the 2 outcomes-based agreements with Massachusetts and Michigan. We have a third that's really close, but early on, patients were going through and getting approved through the medical exception process, and we would expect the same to be true for lovo-cel.

[Jason Gerberry, Managing Director and Equity Research Analyst at Bank of America Securities]

Great. Thanks, guys.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Thank you.

[Operator]

Thank you. Our next question or comment comes from the line of Eric Joseph, from JPMorgan. Mr. Joseph, your line is now open.

[Eric Joseph, Executive Director of Biotech Equity Research at JPMorgan]

Sounds great. Good morning. Thanks for taking the questions. I guess just, just in thinking about or at least helping us frame expectations for a lovo-cel launch curve, next year, can you just talk a bit about sort of the capacity at qualified treatment centers or the expected capacity at qualified treatment centers in terms of, you know, bed capacity, beds reserved for patients looking to undergo treatment? And then from a sort of, pricing and, and reimbursement, perspective, just looking for a little more color on these outcomes-based agreements, what outcomes in particular are gonna be, you know, tracked for success?

[Eric Joseph, Executive Director of Biotech Equity Research at JPMorgan]

And then sort of where there how, I guess, a negative outcome sort of might get reflected ultimately in in on the top line, whether that's in the form of a of a sort of repayments or ultimately, we're kind of looking at a protracted revenue recognition pattern. Thank you.

[Andrew Obenshain, CEO at bluebird bio]

Hi, Eric. So, so three questions in there. Number one, bed capacity in hospitals. Number two, what kind of metrics are you gonna measure in outcomes-based agreements if there's one for lovo-cel? And then number three, if that's the case, how that gets reflected in the financials. So let me hand those first two to Tom, and then the third to Chris.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah. Hi, good morning, Eric. So capacity at qualified treatment centers has not been an issue, and we don't anticipate it being an issue going forward. Part of that is many of these hospitals have built out huge cell and gene therapy wings and big capabilities. Also because our diseases are not acute, hospitals and patients have the luxury and have the convenience of being able to schedule around life events and schedule around, you know, busier times or less busy times at the hospital. So so far we have not seen capacity at a, at a QTC be an issue. Number two, you asked a little bit about price and then outcomes-based agreements. Obviously, those go hand in hand. We will be talking more about price as we get closer to launch.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Outcomes-based agreements, I'm not gonna give the specific endpoint right now for competitive reasons, but we did take into consideration, obviously, a different disease state with sickle cell disease, different primary endpoints, and then a higher Medicaid population. What I will say is that we've received very positive feedback from payers. In fact, we're close right now to signing with a few large national payers around our outcomes-based agreement, which we feel reflects how it's being received and the positive momentum that we have.

[Chris Krawtschuk, CFO at bluebird bio]

Great. Perfect, Tom. And then just capping off on that, the way that we'll recognize revenue and constrain the revenue associated with any of the rebates that we'll offer is we effectively estimate the number of patients that are coming through that particular class of trade and then constrain the revenue commensurate with that rebate that are being offered. Particularly like in Medicaid, you'd constrain it by 23.1%, if that's the statutory rebate for that particular product. Remember, SKYSONA is 17.1. So we'd estimate that. And then as it relates to the amount of estimated revenue coming through the outcomes-based agreement, we take a conservative approach here because of accounting standards require us to ensure there's no significant reversal of revenue.

[Chris Krawtschuk, CFO at bluebird bio]

We'll estimate the outcomes-based agreement, the number of patients coming through that in conjunction with Tom's market analysis, and then we'll constrain the revenue accordingly and periodically look at the markers associated with that outcomes-based agreement and release the revenue accordingly, based on the contractual terms.

[Eric Joseph, Executive Director of Biotech Equity Research at JPMorgan]

Okay, great. I appreciate the color. Thanks again. Thanks for taking the questions.

[Chris Krawtschuk, CFO at bluebird bio]

Thank you. Our next question or comment comes from the line of Jack Allen from Baird. Mr. Allen, your line is now open.

[Jack Allen, Senior Research Analyst at Baird]

Great. Thanks for taking the questions, and congratulations to the team on the progress. A lot of discussion about the commercial dynamics around sickle cell, and rightfully so. One of the questions I had was: how are you looking to leverage your long-term follow-up as you look to commercialize the medication? Do you have any thoughts on ability to get that into the label and how you see that shaping up?

[Andrew Obenshain, CEO at bluebird bio]

Yeah, go ahead, Tom.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah. Hey, Jack, good morning. Obviously, as we've looked back over the last many years in the market research and been out there in the QTCs recently, the amount of long-term data that we have and the most robust package of any gene therapy in sickle cell disease is a big difference when you talk to a thought leader, you talk to a prescribing physician, both either a referring community physician or a transplanter. So we obviously will continue to leverage the amount of long-term follow-up that we have, and that will continue to be an advantage for us.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah, and I would just say, you know, a lot of times you see just a point in time efficacy. In this particular case, we will be publishing all this long-term follow-up, so it's a much more robust picture of the overall profile of the product, which I think will be important in differentiating the product in the market. But, next question?

[Operator]

Thank you. Our next question or comment comes from the line of Gena Wang from Barclays. Mr. Wang, your line is open.

[Gena Wang, Managing Director of Biotech Equity Research at Barclays]

I have, I think, three quick questions. The first question is regarding this quarter, the product revenue, $12.3 million. Could you give a little bit more color on the breakdown regarding ZYNTEGLO and the SKYSONA revenue? And then my second question is regarding the Lonza amendment, increase the manufacturing capacity. So what is—how much increase that is, and what is the expanded capacity in terms of the patient numbers? And then lastly, regarding the outcome-based Medicaid outcome-based for ZYNTEGLO, just wanted to have a clarification. For the revenue recognized or released, will you also proactively track, taking into account of a possible outcome failure, say, like a 10% discount for your revenue recognition?

[Andrew Obenshain, CEO at bluebird bio]

Yeah. Okay, great. I will, I'm going to take the first bit of that, which is about Lonza, and then I'll hand the second bit, to Chris for the, the breakdown. And then what I'm going to ask you to do, Gina, once we get through those two, if you can actually repeat your last question, because I'm not sure we got it. But the, regarding the Lonza amendment, we are not providing manufacturing forecasts. Our plan has always been to scale up commensurate with demand, and we initiated this process in Q1, and we're pleased to have completed this agreement, as we see encouraging demand for ZYNTEGLO. So it's really just part of our plan. And then, Chris, do you want to talk about the-

[Chris Krawtschuk, CFO at bluebird bio]

Sure.

[Andrew Obenshain, CEO at bluebird bio]

Quarterly, the quarterly revenue.

[Chris Krawtschuk, CFO at bluebird bio]

So, Gina, thanks for the question. And look, while we're not reporting infusion numbers, but you can see that patients are completing and moving through the process, which effectively then is translating to cash collections and reinforcing our balance sheet. And as a reminder, you know, we have had 22 patient starts, which effectively represents approximately $63 million in gross revenue. So you can see that it's strong linear growth as we've described, and that will continue. And then can you do me a favor and repeat your question on the outcomes-based agreement? I'm not sure I understood it. I'm sorry.

[Gena Wang, Managing Director of Biotech Equity Research at Barclays]

Sure. Yeah. So I think that, you lay out very clearly, like, Medicaid, 23.1%, 17.1%, discount when you recognize, but there is another layer, say, outcome-based. Do you proactively, book a pre-book, say, like, you assume maybe 90% success or 10% will be failure, were you proactively putting that 10% discount on top of, say, 23.1 and 17.1 when you recognize the revenue?

[Chris Krawtschuk, CFO at bluebird bio]

Yeah, so I'll start here, and of course, Tom and I will complement this because I think it's a mutual question. So what we do is we look at how the patients will flow through a particular channel, which rebate they qualify for, and then we make estimates based on that. I think Tom threw out an estimate earlier on how many patients would in market research on his perspective, what I'll call professional expertise, estimates the number of patients that will come through the outcomes-based rebate or would qualify for an outcomes-based rebate. So you then whittle down the population in that regard.

[Chris Krawtschuk, CFO at bluebird bio]

And then what we do is we evaluate the patient coming through that outcomes-based agreement, the duration of time that patient enters in and, and kind of hits a particular marker, and then we constrain the revenue associated with that particular patient's rebate. In that case, each quarter, we will then look at that outcomes-based agreement rebate and that patient, and we'll follow that patient through, using not only the clinical trial information as it's informed our, our outcomes-based agreement, but actually the patient's health, et cetera. So it's a very collective effort that we look at and and make estimates on that outcomes-based agreement. We will never be in a situation where we recognize revenue ahead. We will, for conservative purposes, we will constrain the revenue, and then what we'll do is we'll release the revenue when that particular endpoint is met.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

And maybe, hi, Gena, this is Tom. Maybe just to add to that, for ZYNTEGLO, keep in mind that based on claims data, historically, about 70%-75% of patients are covered through commercial insurance, and the remainder covered through Medicaid. So even in the states where we announced this morning that we have an outcomes-based agreement, we would still expect the majority of the patients to be covered through commercial payers.

[Gena Wang, Managing Director of Biotech Equity Research at Barclays]

Thank you.

[Operator]

Thank you. Our next question or comment comes from the line of Mani Foroohar from Leerink Partners. Your line is now open.

[Mani Foroohar, Senior Research Analyst at Leerink Partners]

Hoping I can help provide a little bit of quantitative clarity around operating leverage. So presuming that the approval comes through as expected, and presuming that we see the linear growth that we're expecting as well, so you've got a couple different products launching, growing, compounding linearly, how should we think about potential improvement in gross margin profile? Should we expect gross margin to be relatively flat until there's some prescribed level of absolute scale? And if that's true, how should we think about that scale? Is it proportion of the market? Is it absolute number of patients? Is there some threshold in terms of absolute amount of revenue at which you think that the operating leverage starts to kick in and margins improves? How should we think about that?

[Andrew Obenshain, CEO at bluebird bio]

Yeah, so Mani, I'm going to answer that qualitatively, then hand it to Chris. So we're not going to give you the, you know, how many patients do we need or anything like that to, to go profitable, but the, or to get to a po-- you know, to maintain a robust positive gross margin. But sickle cell is different from beta thalassemia and, and SKYSONA in, in two ways. Number one, is the patient numbers are higher, so you're starting at a higher base, more QTCs, just, it's going to start at a higher base right away and grow from there. So linear growth takes off from a different start point, number one.

[Andrew Obenshain, CEO at bluebird bio]

Number 2, we switch vectors, so we have a much more efficient vector production system for lovo-cel, which will mean that lovo-cel has a significantly better gross margin than ZYNTEGLO or SKYSONA , which are, you know, relatively rare indications and therefore didn't require that vector change. So there's two things working in favor of lovo-cel for improving margins. And so that really is what's going to be driving it. Chris, did you want to add anything to that?

[Chris Krawtschuk, CFO at bluebird bio]

The other things I'll add there are the operating leverage that we see in the business. Certainly, we have a level of fixed costs in the business, and those fixed costs are commensurate with our ability to continue to reserve our capacity and pace our capacity commensurate with our sales. And then the improvement in our margin is really driven by volume and manufacturing production yields. And those two things will really drive our company from the margins that you see today to effectively the margins that we believe are attainable, which are a minimum of 70%.

[Operator]

Thank you.

[Mani Foroohar, Senior Research Analyst at Leerink Partners]

Okay. Okay, as a quick follow-up, now we're talking about the scaling out in terms of gross margin, and I understand the why you guys are answering that qualitatively. Let's move down the income statement a little bit. As how should we think about potential expansion on the SG&A side line, as lovo-cel grows, over time? Do we, do we expect a fairly stable scale of the sales force in the U.S.? Should we expect the sales force to expand reasonably linearly in a step function? You know, should opportunities, should opportunities expand by number of, of, of QTCs? Like, how, how should we be modeling that?

[Chris Krawtschuk, CFO at bluebird bio]

I think Tom has historically described in other forums and discussions that setting up QTCs is relatively low cost, really principally focused on time and time commitment. That SG&A, to answer your question, spot on, will grow linearly at the pace of revenue, and we continue to kind of look at that. We believe our infrastructure, our commercial infrastructure, is pretty well set up to achieve the opportunities that we have in front of us, and that was part of what Tom and Andrew described as leveraging our 18-month head start, and that's what we've invested in. So you should see SG&A pace with sales, and we'll continue to make investments in that regard, but they will pace with revenue.

[Andrew Obenshain, CEO at bluebird bio]

I would just add, it will, it will increase as revenue increases, but not necessarily the same percentage-

[Mani Foroohar, Senior Research Analyst at Leerink Partners]

Okay.

[Andrew Obenshain, CEO at bluebird bio]

because we do have a lot of good leverage. It is a rare disease market. We're going after very targeted transplant centers. So the infrastructure that we need to build, most of it has already been built, and then it will, we'll be adding to it to supplement it versus actually adding wholesale cost.

[Mani Foroohar, Senior Research Analyst at Leerink Partners]

Great. Thanks, guys.

[Operator]

Thank you. Our next question or comment comes from the line of Salveen Richter from Goldman Sachs. Mr. Richter, your line is now open.

[Analyst at Goldman Sachs.]

Good morning. This is Anuhya on for Salveen. Thank you for taking our question, and congratulations on the progress. I just had one question on manufacturing. What issues have you seen to date with manufacturing ZYNTEGLO, and has this been a hurdle to cell collection and treating patients to date? And then just a follow-up on the QTCs that are being activated by the end of the year. I guess, what proportion of the sickle cell patients are these QTCs able to address? Thanks.

[Andrew Obenshain, CEO at bluebird bio]

Yes. So Tom, why don't you start with the QTC question about what, how much they can address?

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah. Hi, good morning. So we designed our QTC network with the end goal being getting to the sickle cell community. And our goal with the 40-50 QTCs that we plan to have on board by the end of this year was to be within 95% or reach 95% of patients who have sickle cell disease within 200 miles of a planned QTC. So we feel that we have excellent coverage for the sickle cell community. We will likely continue to expand QTCs into next year because we wouldn't want a patient being unwilling to travel to be a barrier for treatment.

[Andrew Obenshain, CEO at bluebird bio]

Yeah. Regarding manufacturing, so in our clinical trials, we did show that we had recollections in manufacturing. That same remains true on commercial. This is really just part of gene therapy, specifically gene therapy, where you're collecting stem cells, not T cells. The critical difference is with T cells, you can expand them or re-expand them. With sickle cells, with sorry, with stem cells, your only option is to collect them. We have one mobilization agent to do it. So we do see or two in the case of beta thalassemia, one in the case of sickle cell. So we do see recollections for various reasons, and we uphold the highest quality standards for manufacturing.

[Andrew Obenshain, CEO at bluebird bio]

That means at times we have steps in the process that need to be repeated, but I think this is going to be a very normal dynamic across all of the stem cell gene therapies.

[Analyst at Goldman Sachs.]

Got it. Thank you.

[Operator]

Thank you. Our next question or comment comes from the line of Eric Schmidt from Cantor Fitzgerald. Mr. Schmidt, your line is open.

[Eric Schmidt, Biotechnology Analyst at Cantor Fitzgerald]

Thanks for taking my question. It's about lovo-cel manufacturing. I think you have two different facilities that are supporting the manufacturing, one for vector and one for drug product.

[Eric Schmidt, Biotechnology Analyst at Cantor Fitzgerald]

... maybe you could just confirm whether that's the case, and, and comment as to whether these facilities have been approved to support any other existing commercial products or, or whether they've been already inspected by the FDA? Thanks.

[Andrew Obenshain, CEO at bluebird bio]

Yeah. So the last one, I can't comment whether they're inspected by the FDA or not, because we don't go back and forth with just we don't do the blow-by-blow with FDA interactions. But you're correct, we do have two facilities. We make the vector in Belgium with Thermo Fisher, and we make the drug product in New Jersey with a company called Minaris. We've been working with these companies for quite a long time now, so I have a really established relationship. No, those ones have not gone through other FDA inspections, but our team has. They've gone through two inspections in Europe. They've gone through the EMA inspection with one company. They've gone through the SKYSONA 's ZYNTEGLO inspections. So this is their sixth time around. So we feel very confident in our process.

[Eric Schmidt, Biotechnology Analyst at Cantor Fitzgerald]

Thank you very much.

[Operator]

Thank you. Our next question or comment comes from the line of Yanan Zhu from Wells Fargo. Mr. Zhu, your line is open.

[Yanan Zhu, Equity Research Analyst at Wells Fargo]

In our questions. If I may, I have three questions. First, could you talk about whether for the BLA, for lovo-cel, whether you're in a labeling discussion stage with FDA? Second question also on lovo-cel. You know, you talked about this launch for lovo-cel, it's going to be at a higher scale as a starting point. I think there are 20,000 severe sickle cell patients versus perhaps 1,500 TDT patients. That's 10x in scale, or actually a little more than 10x. Is that how you see this launch as well, or could there be some other factors like willingness to get treated that could affect that scale? And lastly, a question on TDT launch.

[Yanan Zhu, Equity Research Analyst at Wells Fargo]

Could you give some color on adult versus pediatric patients so far? Thank you.

[Andrew Obenshain, CEO at bluebird bio]

Yeah, thank you for the question. So on a BLA, we don't comment on ongoing interactions with the agency. So we've submitted the for the lovo-cel for the treatment of patients with sickle cell disease, age 12 and over, who have a history of vaso-occlusive events, and we are confident in the robustness and maturity of our BLA package and the review process. Then the last next two, I'm going to pass to Tom. I think there was a question about, you know, the sickle is 10x, though, should we be expecting to see that dynamic in the play out in the market? And then the third is about TDT, adult versus pediatric. Go ahead, Tom.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah. Hi, good morning, Yannan. So the lovo-cel, obviously a much larger opportunity. Just to remind everyone, there are about 100,000 patients in the United States who have sickle cell disease, and we believe that there are about 20,000 who have more severe sickle cell disease that could potentially be qualifying for gene therapy. With beta-thalassemia TDT, there are about 1,500 patients in the United States, and we're estimating that about 850 of those 1,500 would be potentially eligible for gene therapy. So it's actually greater than 20 times the market size. So it's obviously a much larger patient population, addressable patient population.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

And then, you know, it's hard to comment on individual dynamics with patients coming in for treatment for the beta thalassemia with ZYNTEGLO, and that's because we haven't seen a huge N yet, but we've seen just such a huge range. We have both adult and pediatric centers online now. We've seen a lot of patients come forward that you know obviously meet the criteria, and we've seen a lot of different stories. So it's hard to say that there's a common theme there, but we're just excited that the demand is there, and the demand is there from a wide range of patients.

[Operator]

Thank you. Our next question or comment comes from the line of Luca Issi from RBC Capital. Mr. Issi, your line is now open.

[Luca Issi, Senior Biotechnology Research Analyst at RBC Capital Markets]

Thanks so much for taking my questions. Two quick ones here. Maybe the first on pricing. I believe your PDUFA date is 12 days after your competitor, which means you'll have an opportunity to see their pricing before you make a final call. Is there a scenario where you'll price the drug at a discount versus them to gain faster commercial adoption? Or should we assume that you'll price on par with them? Any color there would be much appreciated. Then maybe on safety, any update on the 2 patients that developed AML in the trial for sickle cell disease, wondering if you could comment on how they're doing today, and maybe bigger picture, whether there is a scenario where you get a label that includes risk of secondary malignancies while your competitor does not, and in that scenario, how should we think about implications for the launch?

[Luca Issi, Senior Biotechnology Research Analyst at RBC Capital Markets]

Thanks so much.

[Andrew Obenshain, CEO at bluebird bio]

Thanks, Luca, for the question. Tom, do you want to take the first bit there?

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Sure. Hey, good morning, Luca. Yeah, we're gonna run the same process on our price for lovo-cel that we ran with ZYNTEGLO and SKYSONA . Obviously, different dynamics in sickle cell disease, but we'll take into, you know, into consideration and clinical benefit, quality of life improvements, cost saving the system, impact to society, just like we do with our other therapies. Obviously, a one-time potentially curative therapy in a chronic condition. Many, many are seeing the value is recognized by payers, is recognized recently by ICER, so clearly the models are out there. But we won't comment on our competitors' pricing. We don't obviously have any privy to that.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

We believe that we are leaders in establishing a value and setting price for these therapies, and we will continue to price the way that we price.

[Andrew Obenshain, CEO at bluebird bio]

And then look at just on the safety issues, as a reminder, there have been no cases of insertional oncogenesis with lovo-cel. However, there have been cases of cancer related to the transplant procedure with involving lovo-cel. And unfortunately, 2 of those patients in our early clinical trials, where our procedures were in the earlier phase of generation one procedures, this is the Group A, did develop leukemia and AML, and those 2 patients did pass away. So although they are not, those 2 patients are not in our efficacy data set, they. It is likely that we will have a mention of those safety events in the label. In what part of the label or where is, you know, yet to be determined, but certainly, they will be in there.

[Andrew Obenshain, CEO at bluebird bio]

That's something that we've known for quite a while. Again, I think the really important point is there are no cases of insertional oncogenesis. This is, these are cases that were related to the procedure.

[Luca Issi, Senior Biotechnology Research Analyst at RBC Capital Markets]

Got it. Thanks so much. Appreciate it.

[Andrew Obenshain, CEO at bluebird bio]

Yeah.

[Operator]

Thank you. Our next question or comment comes from the line of Sami Corwin from William Blair. Mr. Corwin, your line is now open.

[Sami Corwin, Equity Research Analyst at William Blair]

Hi there. Thanks for taking my question. I was curious, is there an incremental cost to opening new QTCs? And then thinking about your commercial manufacturing time for lovo-cel, how should we be thinking about that? Will it likely be closer to the duration of manufacturing time to produce ZYNTEGLO, or will it be closer to SKYSONA ? And then across all three products, do you think that it's possible to increase efficiencies and decrease that manufacturing time in the long term?

[Andrew Obenshain, CEO at bluebird bio]

I'll take the first one. I'll take the second too, Tom.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah, sure. So we've done a lot of ROI analysis on our QTC network, and the only cost is really just the time and the headcount to get the qualified treatment center up and running. So, you know, in our ROI analysis, if they just treat one patient over the course of two years, then that it's a very profitable endeavor for us. So we will likely continue to expand our qualified treatment center network beyond the 40-50 that we said we would do this year. No, not hardly any incremental cost at all.

[Andrew Obenshain, CEO at bluebird bio]

On the commercial time for release, lovo-cel will be closer to ZYNTEGLO than it will be to SKYSONA , just because the release tests are relatively similar for those products, and that's what drives timeline. I will say, just in terms of your question about timelines overall, the biggest impact to timeline will be how many times you have to collect cells from the patients, right? And that's going to be the biggest driver of timelines, and we do anticipate bringing that down nicely over time. We think we have a robust process that allows us to do that. And then the second consideration is just how long those release tests take. Some of those release tests are just long lead time.

[Andrew Obenshain, CEO at bluebird bio]

They have to incubate, so you're never going to get down below a certain threshold, but you can imagine some time being taken out of those lead times.

[Sami Corwin, Equity Research Analyst at William Blair]

Great. Thank you.

[Operator]

Thank you. Our next question or comment comes from the line of Jeffrey Hung from Morgan Stanley. Mr. Hung, your line is now open.

[Michael Riad, VP of Biotech Equity Research at Morgan Stanley]

Hi, this is Michael Riad on for Jeff Hung. Thank you for taking our question. On the outcomes-based agreement, specifically for ZYNTEGLO with Michigan and Massachusetts State Medicaid agencies, given that there have been zero ultimate denials, is this slowly becoming a formality, or do the state agencies generally have uncertainties on outcomes and feel that they can benefit from the agreement? I guess I just want to understand the rationale, given that there's been zero denials to date. Thanks so much.

[Andrew Obenshain, CEO at bluebird bio]

Go ahead, Tom.

[Tom Klima, Chief Commercial and Operating Officer at bluebird bio]

Yeah. Hi, good morning. So, you know, I think what we're seeing is that state Medicaid agencies obviously recognize the value of one-time therapies in a disease state like beta thalassemia, that's very costly to the system. However, I think they also appreciate our outcomes-based agreement, where we're saying if a patient doesn't achieve transfusion independence and maintain transfusion independence, then they should be rebated at least a percentage of the cost of the therapy. That just gives them the additional security that they're not paying for something that doesn't work. So it's an added assurance, and in this case, we feel that it's, you know, obviously a testament to the value of ZYNTEGLO and their willingness to work with us.

[Michael Riad, VP of Biotech Equity Research at Morgan Stanley]

Great. Thanks so much. That's really helpful.

[Operator]

Thank you. I'm showing no additional questions in the queue at this time. I would like to turn the conference back over to Mr. Andrew Obenshain for any closing comments.

[Andrew Obenshain, CEO at bluebird bio]

Great, and thanks, everyone, for joining our Q3 call this morning and for your thoughtful questions. A very exciting time for bluebird bio and the patients that we aim to serve. If you have any additional questions or would like to set up a follow-up call, please reach out to Courtney. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Participants

Executives

• Andrew Obenshain, CEO
• Chris Krawtschuk, CFO
• Courtney O'Leary, Director of Investor Relations
• Tom Klima, Chief Commercial and Operating Officer

Analysts

• Dane Leone, Managing Director and Senior Biotechnology Analyst at RJF
• Eric Joseph, Executive Director of Biotech Equity Research at JPMorgan
• Eric Schmidt, Biotechnology Analyst at Cantor Fitzgerald
• Gena Wang, Managing Director of Biotech Equity Research at Barclays
• Jack Allen, Senior Research Analyst at Baird
• Jason Gerberry, Managing Director and Equity Research Analyst at Bank of America Securities
• Luca Issi, Senior Biotechnology Research Analyst at RBC Capital Markets
• Mani Foroohar, Senior Research Analyst at Leerink Partners
• Michael Riad, VP of Biotech Equity Research at Morgan Stanley
• Sami Corwin, Equity Research Analyst at William Blair
• Yanan Zhu, Equity Research Analyst at Wells Fargo
• Analyst at Goldman Sachs.