bluebird bio, Inc. (NASDAQ:BLUE) Q3 2023 Earnings Call Transcript

bluebird bio, Inc. (NASDAQ:BLUE) Q3 2023 Earnings Call Transcript November 7, 2023

bluebird bio, Inc. beats earnings expectations. Reported EPS is $-0.66, expectations were $-0.69.

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 speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to your host, Ms. Courtney O’Leary. Ma’am, please begin.

Courtney O’Leary: 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. 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: 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 preparation 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. And as a reminder, bluebird occupies 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. And we are in incredibly exciting moment for our company, but most importantly, for patients as we approach potential FDA approval of lovo-cel for sickle cell disease in December.

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 for years to come. The review remains on-track and our team remains confident in the robustness, maturity of our BLA package for individuals 12 and older with sickle cell disease and a history of vaso-occlusive events, or VOEs. We believe the fact an FDA advisor 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 a rigorous monitoring. We understand it can measure how we modify the cell and monitor effects over time. Last week, we announced that in early December, we will 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 nine years of follow-up in transfusion-dependent beta‑thalassemia and five 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: 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 collection 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.

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 ’23 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 the third state which may enable us to reach a large portion of patients with beta-thalassemia.

This significant development demonstrates government payer 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 six patient starts, activated four QTCs, and receive zero ultimate denials from government or commercial payers to date.

We remain on track with our guidance of five to 10 patient starts this year, and anticipate giving 2024 patient start guidance early next year. And, 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. 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 miles of a planned QTC and 95% within 200 miles 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. 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’re 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: 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 to $300 million and continue to prudently deploy capital to bring our therapies to our patients. Additionally, last week, we announced that we have entered into an advanced agreement to sell a priority review voucher if granted for lovo-cel for sickle cell disease for $103 million.

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 30, 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: Thanks, Chris, and thanks, Tom, for walking us through those updates. It’s an exciting time for bluebird 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 to profitability and delivering on the promise of bringing potentially curative gene therapies to patients and their families. And with that, we’d like to open it up for questions. Operator?

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Q&A Session

Operator: [Operator Instructions] Our first question or comment comes from the line of Dane Leone from RJF. Mr. Leone, your line is open.

Dane Leone: 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 balance is of patients that had cell collections that you would expect to infuse and recognize revenue before year-end? Also 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. Is that 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: Great. Thanks, Dane. So, I think two questions in there, how the patients infused versus collected and guidance for the rest of the year, and R&D burn and how it’ll change. So, Chris, do you want to address those?

Chris Krawtschuk: Yeah. So, let me start with the patients infused. So, we’ll continue — we’re going 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 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 in — 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: Yeah. So, thank you for that. So, just on that subject, the — then 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, in the Q, 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: 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 is 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: 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: 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, how long would that roughly take, and absent 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, appreciate the comments 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 you think about the early launch, just curious if you can speak to that dynamic.

Andrew Obenshain: Yeah. Thanks, Jason. Good morning. I’m going to hand that to Tom to respond.

Tom Klima: 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.

It’ll be on a much higher scale given that there’s — 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. But 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 fair and equitable coverage for patients both in commercial payers and Medicaid.

Jason Gerberry: 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?

Tom Klima: Yes, that’s correct.

Jason Gerberry: Okay.

Tom Klima: Early in launch there — right now, we have — I believe, it’s 17 states have coverage policies, Medicaid coverage policies. We now have the two 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: Great. Thanks, guys.

Tom Klima: Thanks, Jason.

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: Great. Good morning. Thanks for taking the questions. I guess just been 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 — or the expected capacity at Qualified Treatment Centers in terms of bed capacity, beds reserved for patients looking to undergo treatment? And then, from a sort of pricing and reimbursement perspective, just looking for a little more color on these outcomes-based agreements. What outcomes, in particular, are going to be tracked for success? And then, sort of, where — how, I guess, a negative outcomes sort of might get reflected, ultimately in — on the top-line, whether that’s in the form of a sort of repayments or, ultimately, you’re kind of looking at protracted revenue recognition pattern? Thank you.

Andrew Obenshain: Hi, Eric. So, three questions in there. Number one, bed capacity at hospitals? Number two, what kind of metrics you’re going to measure outcomes-based agreements if there’s one for a lovo-cel? 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: 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 event and schedule around busier times or less busy times at the hospital. So, so far, we have not seen capacity 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.

Outcomes-based agreements, I’m not going to 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. And 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: Great. Perfect. 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 the accounting standards require us to ensure there’s no significant reversal of revenue.

So, 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 outcome-based agreement and release the revenue accordingly based on the contractual terms.

Eric Joseph: Okay. Great. I appreciate the color. Thanks for taking the questions.

Operator: 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: 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 [indiscernible]. So, one of the questions I had was, how are you looking to leverage your long-term follow-up as you look to commercialize medication? Do you have any thoughts on the ability to get that into the label? And how you see that shaping up?

Andrew Obenshain: Yeah, go ahead, Tom.

Tom Klima: 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 in the most robust package of any gene therapy and 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.

Andrew Obenshain: Yeah. And I would just say 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 will be important in differentiating the product in the market.

Jack Allen: Got it.

Andrew Obenshain: Next question?

Operator: Thank you. Our next question or comment comes from the line of Gena Wang from Barclays. [Mr. Wang] (ph), your line is open.

Gena Wang: 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 to break down 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] (ph) that is? And what is the extended 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, were you also proactively taking into account of a possible outcome failure, say like a 10% discount, for your revenue recognition?

Andrew Obenshain: 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 breakdown. And then what I’m going to ask you to do, Gena, once I get through those two, if you can actually repeat your last question, because I’m not sure we got it. But 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 quarterly revenue?

Chris Krawtschuk: So, Gena, 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, reinforcing our balance sheet. And as a reminder, 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: Yeah. So, I think 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 or 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: Yeah. So, I’ll start here, and of course, Tom and I will complement this. 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, 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. 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 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 in that patient and we’ll follow that patient through using not only the clinical trial information, as it’s informed our outcomes-based agreement, but actually the patient’s health, et cetera. So, it’s a very collective effort that we look at 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: And maybe — hi, Gena, this is Tom. Maybe just add to that, for ZYNTEGLO, keep in mind that based on claims data, historically, about 70% to 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: Thank you.

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

Mani Foroohar: Hoping you guys 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 we’ve got a couple different products launching, growing, compounding linearly, how should we think about potential improvement in the 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 which you think that the operating leverage starts to kick in and margins improves? How do you think about that?

Andrew Obenshain: Yeah. So, Mani, I’m going to answer that qualitatively, then hand it to Chris. So, we’re not going to give you how many patients do we need or anything like that to go profitable, but the — or to get to a — to maintain as a robust positive gross margin. But sickle cell is different from beta-thalassemia and SKYSONA in two ways. Number one is, the patient numbers are higher. So, you’re starting at a higher base, with more QTCs, just — it’s going to start at higher base right away and grow from there. So, linear growth takes off from a different start point, number one. Number two, 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 relatively rare indications and, therefore, didn’t require that vector change.

So, there’s two things working in favor of lovo-cel for improving markets. So that really is what’s going to be driving it. Chris, did you want to add anything to that?

Chris Krawtschuk: 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%.

Mani Foroohar: Okay…

Operator: Thank you…

Mani Foroohar: Okay. A quick follow-up. I know we talked about the scaling in terms of gross margin, and I understand why you guys are answering that qualitatively. Let’s move down to income statement a little bit. How should we think about potential expansion on the SG&A line as lovo-cel grows over time? 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, should opportunities expand by number of QTCs? Like, how should we be modeling that?

Chris Krawtschuk: 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: So, I would just add it will increase as revenue increases, but not necessarily the same percentage, because we do have a lot of good leverage. There’s 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 it — we’ll be adding to it to supplement it versus actually adding wholesale cost.

Mani Foroohar: 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.

Unidentified Analyst: Good morning. This is [Anumit] (ph) on for Salveen. Thank you for taking our question, and congratulations on the progress. I just have 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: Yeah. So Tom, why don’t you start with the QTC question about how much they can address?

Tom Klima: 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 to 50 QTCs that we plan to have on board by the end of this year was to be within 95% — 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 in the next year, because we wouldn’t want a patient being unwilling to travel to be a barrier for treatment.

Andrew Obenshain: And regarding manufacturing, so in our clinical trials, we did show that we had recollections in manufacturing. The 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 — 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 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. So 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.

Unidentified Analyst: 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: [Technical Difficulty] 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. Maybe you could just confirm whether that’s the case and comment as to whether these facilities have been approved to support any other existing commercial products or whether they’ve been already inspected by the FDA? Thanks.

Andrew Obenshain: So, on 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 — 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, have a really established relationship. No, those — the 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 Abecma inspection when [indiscernible] company. They’ve gone through the SKYSONA and ZYNTEGLO inspections. So, this is their sixth time around. So, we feel very confident in our process.

Eric Schmidt: 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: [Technical Difficulty] taking 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 talked about this launch for lovo-cel is going to be at a higher scale at the 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. If that’s 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. Could you give some color on adult versus pediatric patients so far? Thank you.

Andrew Obenshain: 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 lovo-cel for the treatment of patients with sickle cell disease aged 12 and over. So, this is the 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 it was a question about the sickle’s 10x, how should we expect to see that dynamic in the — play out in the market. And then the third is by TDT adult versus pediatric. Go ahead, Tom.

Tom Klima: Yeah. Hi, good morning, Yanan. So, the lovo-cel, obviously, a much larger opportunity. And 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. And then, it’s hard to comment on individual dynamics with patients coming in for treatment with — for beta-thalassemia with ZYNTEGLO, and that’s because we haven’t seen a huge [end] (ph) 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 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: 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 the 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 there’s a price on par with them? Any call there much appreciated. And then, maybe on safety. Any update on the two patients that developed AML in the trial for sickle cell disease? Wondering if you can 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? Thanks so much.

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

Tom Klima: Sure. Hey, good morning, Luca. Yeah, we’re going to 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 consideration clinical benefit, quality of life improvements, cost saving system, impact of society, just like we do with our other therapies. Obviously, a one-time potentially curative therapy in a chronic condition, many are seeing the values recognized by payers, is recognized recently by ICER, so clearly the models are out there. We won’t comment on our competitors’ pricing. We don’t obviously have any privy to that. We believe that we are leaders in establishing value and setting price for these therapies and we will continue to price the way that we price.

Andrew Obenshain: And then, Luca, 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 involving lovo-cel. And unfortunately, two of those patients in our early clinical trials where our procedures were in the earlier phase of Generation 1 procedures since Group A did develop leukemia and AML, and those two patients did pass away. So, although they are not — those two patients are not in our efficacy data set, it is likely that we will have a mention of the safety events in the label. In what part of the label or where, is yet to be determined. But certainly, they will be in there. It’s something that we’ve known for quite a while. Again, I think the really important point is that no cases of insertional oncogenesis. These are cases that were related to the procedure.

Luca Issi: Got it. Thanks so much. Super helpful.

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: Hi, there. Thanks for taking my questions. 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 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: Do you want to take the first one, I’ll take the second two, Tom?

Tom Klima: 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, in our ROI analysis, if they just treat one patient over the course of two years, then it’s a very profitable endeavor for us. So, we will likely continue to expand our Qualified Treatment Center network beyond the 40 to 50 that we said we would do this year, not hardly any incremental cost at all.

Andrew Obenshain: And then, 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 how long those release tests take. Some of those release tests are just long lead time after 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: 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: Hi, this is Michael Riad on for Jeff Hung. Thank you for taking our questions. 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 could 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: Go ahead, Tom.

Tom Klima: Yeah. Hi, good morning. So, 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 obviously a testament to the value of ZYNTEGLO and their willingness to work with us.

Michael Riad: Okay. 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: Great. And thanks, everyone, for joining our Q3 call this morning and for your thoughtful questions. It’s a very exciting time for bluebird 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.