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BLUE > SEC Filings for BLUE > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for BLUEBIRD BIO, INC.

Form 10-Q for BLUEBIRD BIO, INC.


14-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in the Prospectus that forms a part of our Registration Statement on Form S-1 (File No. 333-188605), which was filed with the Securities and Exchange Commission (the "SEC") pursuant to Rule 424 on June 19, 2013 (the "Prospectus").

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as "may," "will," "expect," "anticipate," "estimate," "intend," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a clinical-stage biotechnology company focused on transforming the lives of patients with severe genetic and orphan diseases using gene therapy. We believe that gene therapy has the potential to change the way these patients are treated by correcting the underlying genetic defect that is the cause of their disease, rather than offering solutions that only address their symptoms. We and our scientific collaborators have generated what we believe is human proof-of-concept data for our gene therapy platform in two underserved diseases, each of which has been granted orphan drug status by U.S. and European regulatory authorities. In late 2013, we expect to initiate a Phase II/III clinical study of our most advanced product candidate, Lenti-D, to evaluate its safety and efficacy in subjects with childhood cerebral adrenoleukodystrophy, or CCALD, a rare, hereditary neurological disorder affecting young boys that is often fatal. We also expect to initiate in mid-2013 a Phase I/II clinical study in the United States and have initiated a Phase I/II clinical study in Europe of our next most advanced product candidate, LentiGlobin, to evaluate its safety and efficacy in subjects with -thalassemia major and, in the European clinical study, sickle cell disease, or SCD, which are rare, hereditary blood disorders that often lead to severe anemia and shortened lifespans. For purposes of our clinical guidance, we refer to early 2013 as the first quarter of 2013, mid-2013 as the second or third quarter of 2013 and late 2013 as the fourth quarter of 2013. In addition, in March 2013, we announced a global strategic collaboration with Celgene Corporation to discover, develop and commercialize novel, disease-altering gene therapies in oncology.

Since our inception in 1992, we have devoted substantially all of our resources to our development efforts relating to our product candidates, including activities to manufacture product in compliance with good manufacturing practices, or GMP, preparing to conduct clinical studies of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We


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have funded our operations primarily through the private placement of preferred stock, common stock, convertible notes and warrants to purchase common stock. In addition in October 2012, we were awarded a $9.3 million grant from the California Institute for Regenerative Medicine, or CIRM, to fund our U.S. -thalassemia program. The award was conditioned upon terms and conditions by CIRM generally applicable to its grant recipients, including a revenue sharing provision and the requirement to conduct the covered research in California, among other requirements, and the negotiation of a grant agreement with CIRM. No amounts have been received under this award. We worked together with CIRM to develop milestones, identify California trial sites and recruit crucial talent in preparation for executing the development plan. Nevertheless, in light of our successful initial public offering in June 2013, we no longer expect that we will accept the CIRM award. We are currently exploring other opportunities to engage in CIRM programs.

In March 2013, we entered into a strategic collaboration with Celgene Corporation, or Celgene, to discover, develop and commercialize novel, disease-altering gene therapies in oncology. This collaboration has an initial term of three years, and Celgene has made a $75.0 million up-front, non-refundable cash payment to us as consideration for entering into the collaboration. During the three months and six months ended June 30, 2013, we recognized $6.2 million and $7.3 million, respectively, of revenue associated with our collaboration with Celgene related to the research and development services performed. As of June 30, 2013, there is $67.7 million of deferred revenue related to our collaboration with Celgene that is classified as current or long-term in the accompanying balance sheet based on the contractual term of the arrangement.

We have never been profitable and have incurred net losses in each year since inception. Our net losses were $11.1 million for the six months ended June 30, 2013, and our accumulated deficit was $84.5 million as of June 30, 2013. Substantially all our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing and planned activities, as we:

conduct clinical studies for our Lenti-D and LentiGlobin product candidates;

continue our research and development efforts;

increase research and development related activities for the discovery and development of oncology

develop product candidates in connection with our recently-announced strategic collaboration with Celgene;

manufacture clinical study materials and develop large-scale manufacturing capabilities;

seek regulatory approval for our product candidates;

add personnel to support our product development and commercialization efforts; and

operate as a public company.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. We have no commercial-scale manufacturing facilities, and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party contract research organizations, or CROs, to carry out our clinical development activities; and we do not yet have a sales organization. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. Accordingly, we will seek to fund our operations through public or private equity or debt financings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our products.

On June 3, 2013, our board of directors and our stockholders approved a one-for-18.967 reverse stock split of our outstanding common stock, which was effected on June 3, 2013. Stockholders entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of receiving fractional shares. Our historical share and per share information have been retroactively adjusted to give effect to this reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of our Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock were proportionately reduced; and the respective conversion prices were proportionately increased.


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On June 24, 2013, we completed our initial public offering, or IPO, whereby we sold 6,832,352 shares of common stock (inclusive of 891,176 shares of common stock sold by us pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering) at a price of $17.00 per share. The shares began trading on the NASDAQ Global Select Market on June 19, 2013. The aggregate net proceeds received by us from the IPO were $104.9 million, net of underwriting discounts and commissions and estimated offering expenses payable by us. Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 16,388,510 shares of common stock; and warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for 337,952 shares of common stock, resulting in the reclassification of the related convertible preferred stock warrant liability of approximately $0.7 million to additional paid-in capital. Additionally, we are now authorized to issue 125,000,000 shares of common stock and 5,000,000 shares of preferred stock.

Financial operations overview

Revenue

To date, we have not generated any revenues from the sale of products. Our revenues have been derived from collaboration arrangements, research fees, license fees, and grant revenues.

Collaboration revenue is generated exclusively from our collaboration arrangement with Celgene. The terms of this arrangement contain multiple deliverables, which include at inception: (i) discovery, research and development services, (ii) participation on the joint steering committee and
(iii) participation on the patent committee. We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC 605, are satisfied for that particular unit of accounting.

Revenue from the Celgene arrangement associated with discovery, research and development services, joint steering committee services and patent committee services is recognized ratably over the associated period of performance, which is initially three years.

Research and license fee revenue is primarily generated through license and research and development agreements with strategic partners and nonprofit organizations for the development and commercialization of our product candidates. There are no performance, cancellation, termination, or refund provisions in any of our arrangements that contain material financial consequences to us.

Nonrefundable license fees are recognized as revenue upon delivery provided there are no undelivered elements in the arrangement. Research fees are recognized as revenue over the period we perform the associated services or on a straight-line basis if the pattern of performance cannot be estimated.

Our ability to generate product revenue and become profitable depends upon our ability to successfully commercialize products. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

Research and development expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

expenses incurred under agreements with CROs and investigative sites that will conduct our clinical studies;

costs of acquiring, developing, and manufacturing clinical study materials;


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facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies; and

costs associated with preclinical activities and regulatory operations.

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. We cannot determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of clinical studies and development of our product candidates will depend on a variety of factors, including:

the scope, rate of progress, and expense of our ongoing as well as any additional clinical studies and other research and development activities;

future clinical study results;

uncertainties in clinical study enrollment rate;

significant and changing government regulation; and

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical studies, we could be required to expend significant additional financial resources and time on the completion of clinical development.

From inception through June 30, 2013, we have incurred $77.0 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we continue the development of our Lenti-D and LentiGlobin product candidates and conduct research and development activities under our strategic collaboration with Celgene. Our current planned research and development activities include the following:

We plan to initiate during late 2013 a Phase II/III clinical study to examine the feasibility, safety and efficacy of our Lenti-D product candidate.

We have initiated a Phase I/II clinical study in France to study the feasibility, safety and efficacy of our LentiGlobin product candidate in subjects with -thalassemia major and SCD.

We plan to initiate during mid-2013 a Phase I/II clinical study in the United States to study the feasibility, safety and efficacy of our LentiGlobin product candidate in subjects with -thalassemia major.

We will continue to manufacture clinical study materials in support of our clinical studies.


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Our direct research and development expenses consist principally of external costs, such as start-up fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not allocate personnel-related costs, costs associated with our general platform improvements, depreciation or other indirect costs to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses in the table below:

                                           Three months ended June 30,            Six months ended June 30,
                                            2013                2012               2013                2012
                                                                    (in thousands)
Lenti-D                                 $         952       $         371      $       2,026       $      1,465
LentiGlobin                                     2,514               1,132              3,875              1,674

Total direct research and
development expense                             3,466               1,503              5,901              3,139
Employee- and contractor-related
expenses                                        2,915               1,454              4,972              3,202
Platform-related lab expenses                     277                 143                625                408
Facility expenses                                 329                 176                623                363
Other expenses                                    260                  78                410                100

Personnel and other expenses                    3,781               1,851              6,630              4,073

Total research and development
expense                                 $       7,247       $       3,354      $      12,531       $      7,212

General and administrative expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance and human resource functions. Other general and administrative expenses include facility-related costs and professional fees for directors, accounting and legal services and expenses associated with obtaining and maintaining patents.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with being a public company. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Other income (expense), net

Other income and expense consists primarily of interest income earned on cash and cash equivalents and the re-measurement gain or loss associated with the change in the fair value of the preferred stock warrant liability. We use the Black-Scholes option pricing model to estimate the fair value of the warrants.

We base the estimates in the Black-Scholes option pricing model, in part, on subjective assumptions, including stock price volatility, risk-free interest rate, dividend yield, and the fair value of the preferred stock underlying the warrants. The re-measurement gain or loss associated with the change in the fair value of the preferred stock warrant liability each reporting period prior to becoming a public company is recognized as a component of other income (expense), net.


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Results of Operations

Comparison of the three months ended June 30, 2013 and June 30, 2012:



                                     Three months ended June 30,            Increase
                                     2013                  2012            (Decrease)
                                                    (in thousands)
   Revenue:
   Collaboration revenue         $       6,249         $          -       $      6,249
   Research and license fees                85                    85                -

   Total revenue                         6,334                    85             6,249
   Operating expenses:
   Research and development              7,247                 3,354             3,893
   General and administrative            3,281                 1,331             1,950

   Total operating expenses             10,528                 4,685             5,843

   Loss from operations                 (4,194 )              (4,600 )            (406 )
   Other (expense) income, net            (389 )                  37               426

   Net loss                      $      (4,583 )       $      (4,563 )    $         20

Revenue. Total revenue was $6.3 million for the three months ended June 30, 2013, compared to $0.1 million for the three months ended June 30, 2012. The increase of $6.2 million was due to the Celgene collaboration. In the three months ended June 30, 2013, we recorded $6.2 million in recognition of amounts allocated to research and development services from the Celgene collaboration, which was entered into in March 2013 and is expected to be recognized on a straight-line basis through March 2016, and $0.1 million of research fees.

Research and development expenses. Research and development expenses were $7.2 million for the three months ended June 30, 2013, compared to $3.4 million for the three months ended June 30, 2012. The increase of $3.9 million was primarily due to the increase in headcount and clinical trial related expenses to support the advancement of our programs including the new Celgene collaboration and included the following increases in expenses:

Direct research and development expenses:

$0.8 million of materials production costs and non-clinical services (e.g. site audits) in preparation for the ALD 102, HGB-204 and HGB-205 clinical studies planned in 2013.

$0.5 million of clinical trial related costs in advance of starting the clinical studies in 2013.

$0.4 million of costs for clinical and regulatory consultants to support regulatory filing and other clinical start-up activities.

$0.2 million of direct project lab supplies related to increased headcount and scale up process development activities.

Personnel and other expenses:

$1.5 million of employee compensation and benefits to support the increased development activities in anticipation of the three clinical studies planned in 2013. The increased headcount resulted in $0.1 million of recruiting and $0.1 million of travel expense.

$0.1 million of lab supplies due to increased headcount.

$0.2 million in facility related expenses to accommodate increased lab headcount.

General and administrative expenses. General and administrative expenses were $3.3 million for the three months ended June 30, 2013, compared to $1.3 million for the three months ended June 30, 2012. The increase of $2.0 million was primarily due to the following increasing in expenses: $1.2 million of employee compensation and benefits to support our overall growth; $0.4 million of contractors and consultants expenses incurred in connection with the preparation of the IPO; and $0.3 million of professional fees to support the requirements of being a public company.


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Other (expense) income, net. Other (expense) income, net, was $(0.4) million for the three months ended June 30, 2013, compared to $0.04 million for the three months ended June 30, 2012. The increase of $(0.4) million was primarily due to the re-measurement of our convertible preferred stock warrants.

Comparison of the six months ended June 30, 2013 and June 30, 2012:

                                      Six months ended June 30,           Increase
                                        2013               2012          (Decrease)
                                                     (in thousands)
      Revenue:
      Collaboration revenue         $       7,291        $      -       $      7,291
      Research and license fees               170              170                -

      Total revenue                         7,461              170             7,291
      Operating expenses:
      Research and development             12,531            7,212             5,319
      General and administrative            5,605            2,694             2,911

      Total operating expenses             18,136            9,906             8,230

      Loss from operations                (10,675 )         (9,736 )             939
      Other (expense) income, net            (452 )            105               557

      Net loss                      $     (11,127 )      $  (9,631 )    $      1,496

Revenue. Total revenue was $7.5 million for the six months ended June 30, 2013, compared to $0.2 million for the six months ended June 30, 2012. The increase of $7.3 million was due to the Celgene collaboration. In the six months ended . . .

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