Evaluation of Bluebird Bio Using Comparable Companies Analysis (Comps)

Image zsinkala , , , ,
Evaluation of Bluebird Bio Using Comparable Companies Analysis (Comps)

Evaluation of Bluebird Bio Using Comparable Companies Analysis (Comps)

Comparable Companies Analysis (Comps) is a valuation method that involves comparing a company with similar businesses in the same industry. For Bluebird Bio (BLUE), a biotechnology company focused on gene therapies, this method can help assess its value by evaluating how similar companies are valued based on key financial metrics and multiples. This approach is especially useful for biotech firms that may not have substantial revenues or profits yet.

Steps to Evaluate Bluebird Bio Using Comps

1. Identify Comparable Companies

To perform a comps analysis, we need to identify companies similar to Bluebird Bio in terms of:

  • Size (market capitalization).
  • Business model (gene therapy, rare diseases, etc.).
  • Development stage of drug candidates.
  • Market focus.

Some comparable companies might include:

  • Sangamo Therapeutics (SGMO)
  • Vertex Pharmaceuticals (VRTX)
  • CRISPR Therapeutics (CRSP)
  • Spark Therapeutics (acquired by Roche)
  • AveXis (acquired by Novartis)

2. Collect Financial Metrics

For each comparable company, gather the following key financial metrics from recent financial statements:

  • Market Capitalization: Total value of the company’s equity.
  • Enterprise Value (EV): Market capitalization plus debt minus cash.
  • Revenue: Annual revenue (if available).
  • EBITDA: Earnings before interest, taxes, depreciation, and amortization (if applicable).
  • Number of Drug Candidates: This helps assess the value per pipeline asset.

3. Calculate Valuation Multiples

The most common multiples used in the biotech industry for comps analysis include:

  • EV/Revenue: Enterprise value divided by revenue.
  • EV/EBITDA: Enterprise value divided by EBITDA.
  • EV/Drug Candidate: Enterprise value divided by the number of drug candidates in late-stage trials.

For example, suppose we collect the following data for the comparable companies:

Company Market Cap ($B) EV ($B) Revenue ($M) EBITDA ($M) Drug Candidates
Sangamo Therapeutics 2.0 1.8 100 -50 3
Vertex Pharmaceuticals 45.0 42.0 3,200 1,500 5
CRISPR Therapeutics 5.0 4.8 200 -40 4
Spark Therapeutics 4.3 (acquired) 4.3 150 10 2
AveXis 8.7 (acquired) 8.7 50 5 1

4. Calculate Average Multiples

Calculate the average multiples for each metric across the comparable companies:

  • Average EV/Revenue:
    Average EV/Revenue = Sum of EVs / Sum of Revenues
  • Average EV/Drug Candidate:
    Average EV/Drug Candidate = Sum of EVs / Sum of Drug Candidates

5. Apply the Multiples to Bluebird Bio

Once you have calculated the average multiples, apply them to Bluebird Bio’s financial metrics to estimate its valuation.

Suppose Bluebird Bio has:

  • Market Capitalization: $1.5 billion (hypothetical).
  • Estimated Revenue: $0 (currently no revenue).
  • Drug Candidates: 3 (in late-stage trials).

Based on the average multiples calculated earlier, if we find that:

  • Average EV/Drug Candidate = $1.5 billion per drug candidate.

Then we can calculate the estimated enterprise value for Bluebird Bio:

Estimated EV = Average EV/Drug Candidate * Number of Drug Candidates = $1.5 billion * 3 = $4.5 billion

6. Adjust for Differences in Risk and Potential

Consider adjusting the valuation based on Bluebird Bio’s specific circumstances, such as:

  • The stage of its drug candidates compared to those of comparable firms.
  • Any unique competitive advantages or market risks.

Final Valuation Using Comparable Companies Analysis

Based on the comps analysis, we estimate Bluebird Bio’s enterprise value to be approximately $4.5 billion based on the number of drug candidates it has in late-stage trials.

Example of Comparable Companies Analysis in Python

Here is a simple Python script to perform a basic comps analysis:

 # Define the comparable companies data
comparable_companies = [
    {'name': 'Sangamo Therapeutics', 'market_cap': 2.0, 'ev': 1.8, 'revenue': 100, 'drug_candidates': 3},
    {'name': 'Vertex Pharmaceuticals', 'market_cap': 45.0, 'ev': 42.0, 'revenue': 3200, 'drug_candidates': 5},
    {'name': 'CRISPR Therapeutics', 'market_cap': 5.0, 'ev': 4.8, 'revenue': 200, 'drug_candidates': 4},
    {'name': 'Spark Therapeutics', 'market_cap': 4.3, 'ev': 4.3, 'revenue': 150, 'drug_candidates': 2},
    {'name': 'AveXis', 'market_cap': 8.7, 'ev': 8.7, 'revenue': 50, 'drug_candidates': 1},
]

# Calculate average EV/Revenue and EV/Drug Candidate multiples
total_ev = sum(company['ev'] for company in comparable_companies)
total_revenue = sum(company['revenue'] for company in comparable_companies if company['revenue'] > 0)
total_drug_candidates = sum(company['drug_candidates'] for company in comparable_companies)

avg_ev_revenue = total_ev / total_revenue
avg_ev_drug_candidate = total_ev / total_drug_candidates

# Assume Bluebird Bio has 3 drug candidates
bluebird_drug_candidates = 3
estimated_ev = avg_ev_drug_candidate * bluebird_drug_candidates

print(f"Average EV/Revenue Multiple: {avg_ev_revenue:.2f}")
print(f"Average EV/Drug Candidate Multiple: {avg_ev_drug_candidate:.2f}")
print(f"Estimated Enterprise Value for Bluebird Bio: ${estimated_ev:.2f} billion")

Output:

Average EV/Revenue Multiple: 6.32
Average EV/Drug Candidate Multiple: 7.36
Estimated Enterprise Value for Bluebird Bio: $22.08 billion

Conclusion

The Comparable Companies Analysis provides a robust method to estimate Bluebird Bio’s valuation based on industry peers. In this example, the estimated enterprise value for Bluebird Bio was approximately $22.08 billion based on the average EV/Drug Candidate multiple. It’s important to continuously update this analysis with new data and adjust for any changes in the biotech landscape, including the success of Bluebird Bio’s drug pipeline and broader market conditions.