Bluebird Bio's Wings Clipped, Morgan Stanley Downgrades

Shares of bluebird bio Inc BLUE have gained more than 100 percent since the start of 2017 and, more recently, 40 percent on CAR-T "excitement." But now may be a time for investors to turn cautious, at least according to analysts at Morgan Stanley. The firm's Matthew Harrison downgraded Bluebird's stock rating from Equal Weight to Underweight with an unchanged $105 price target.

Heading into the end of 2017 there are underappreciated risks that the Street may be ignoring, Harrison commented. Specifically, data related to LentiGlobin sickle cell data is unlikely to show any significant improvement in hemoglobin production that will be good enough to "increase investor confidence" in its sickle cell gene therapy.

"Based on prior data, our premise is that to improve hemoglobin production in sickle cell patients, the correlation between drug-product vector copy number (DP VCN) and peripheral VCN (pVCN) needs to increase substantially," the analyst explained. "We do not believe the evidence supports current investor optimism that this can be solved by ASH."

The analyst's concerns are based on the following three points:

1. EHA data did not demonstrate that increased use of myeloablation and transfusions had a significant impact on influencing the correlation between DP VCN and pVCN.
2. Process 2 β- thalassemia data at EHA did not provide a read-through to sickle cell.
3. Other factors such as CD34 engraftment site do not have a greater impact than the factors management is pursuing.

At time of publication, shares of Bluebird Bio were down 6.52 percent at $128.40.

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