BPMC - Blueprint Medicines: Rating Downgrade Amid Growth Concerns

2023-08-03 12:51:01 ET

Summary

• Blueprint Medicines reported Q2 earnings with revenue of $57.6M (+57.6% Y/Y) but a net loss of $132.8M.
• The company unveiled a "precision at scale" growth strategy, targeting a $1.5 billion market, while emphasizing financial discipline and innovation.
• Despite strong growth and innovative strategies, concerns over valuation and profitability challenges persist, prompting caution in my investment approach.

Introduction

Blueprint Medicines (NASDAQ: BPMC ) is a precision therapy company focused on developing therapies for cancers and blood disorders identified by genomics. Using innovative research, they identify disease causes and develop selective drugs for long-term clinical response, with two approved therapies and multiple ongoing programs.

In my previous analysis of Blueprint, I emphasized the company's strong cash position and growth potential in the precision therapy market, particularly through Ayvakit/Ayvakyt sales. I noted that the anticipated FDA approval (later achieved in May) of avapritinib for ISM treatment may not majorly affect the stock price, but its long-term potential in systemic mastocytosis could exceed expectations. The promising PIONEER trial results and the company's focus on unmet medical needs kept my recommendation for Blueprint's stock at "Buy." Since that recommendation and the achievement of ISM label expansion, Blueprint's stock price is essentially unchanged, down 1%.

Recent developments: Blueprint Medicines reported Q2 GAAP EPS of -$2.19, revenue of $57.6M (+57.6% Y/Y), net loss of $132.8M, and cash of $836.6M.

The following article analyzes Blueprint Medicines' Q2 earnings, highlighting revenue growth, the development of therapies for cancers and blood disorders, and the financial challenges facing the company. It concludes with a revised stock recommendation from "Buy" to "Hold."

Financial & Stock Performance

In the second quarter of 2023, Blueprint Medicines reported revenues of $57.6 million, an increase from $36.5 million in the same period of 2022, with growth in both product and collaboration revenues. Cost of sales dropped to $2.3 million, mainly due to lower collaboration-related costs. Research and development expenses decreased to $110.1 million due to operational efficiency and manufacturing timing. Selling, general and administrative expenses grew to $71.9 million due to expansion efforts. The net loss was $132.8 million, and the cash position was $836.6 million.

Per Seeking Alpha data, Blueprint Medicines' stock presents a mixed picture with several noteworthy aspects. The company's earnings estimates show a consistent improvement over the next few years, with strong projected sales growth, suggesting a positive growth trajectory. Analysts' upward revisions further reinforce this optimistic outlook. However, the valuation seems concerning, with metrics such as P/E ratios being not meaningful and high Price/Book and EV/Sales ratios possibly indicating overvaluation. The growth aspect is strong, marked by a 3-year CAGR of 41.67% in revenue. Profitability is a significant challenge, with alarming figures like a Net Income Margin of -245.62% and a negative Return on Equity. Momentum is a bright spot, with BPMC's gains outpacing the broader market across various periods, highlighting a positive trend in the stock price.

The capital structure appears sound, with a market cap of $3.28 billion and relatively low debt.

Growth Initiatives

During Blueprint Medicines' Q2 earnings call , management unveiled a growth strategy referred to as "precision at scale." This initiative is anchored in the launch of Ayvakit for ISM patients, targeting a market opportunity exceeding $1.5 billion. With a promising start, Ayvakit is poised to become a market leader in both advanced and indolent SM. Blueprint's extensive research in SM disease biology, involving hundreds of patients globally, is shaping not only current treatments but future innovations. The company announced the development of wild-type KIT BLU-808, aiming for a best-in-class oral inhibitor for multiple diseases. Their growth plan emphasizes leveraging existing expertise and infrastructure to expand into new disease areas efficiently. M anagement also stressed financial discipline, focus on promising pipeline programs, and data-driven decisions to sustain growth. By combining their technical know-how in SM with disciplined financial management, Blueprint aims to build "precision at scale," driving value through diverse value drivers. The key priority is revenue acceleration with Ayvakit, but the overarching strategy includes a robust pipeline across oncology and allergy immunology, positioning the company for continued success.

My Analysis & Recommendation

Blueprint Medicines' Q2 earnings have indeed shed light on a complex scenario. The reported revenue of $57.6 million and a net loss of $132.8 million met my general expectations based on the growth potential I had previously identified, particularly the rise in revenues from Ayvakit/Ayvakyt sales. However, the stock's decline of 12% post-earnings may underscore some underlying investor concerns.

The positive aspects, such as a promising growth strategy with "precision at scale" and a 57.6% Y/Y increase in revenue, have been overshadowed by some alarming financial metrics. The net income margin of -245.62% and the increase in selling, general, and administrative expenses reflect an inherent risk tied to the company's aggressive growth initiatives. Investors may be wary of these figures, fearing that the pursuit of growth might come at the expense of profitability, contributing to the stock's decline. Furthermore, Blueprint's cash pile, now at $836.6M, may be under some pressure in the near future if its quarterly losses remain significant.

Yet, looking at the broader picture, Blueprint Medicines continues to innovate in a field that holds significant potential. Their new therapies are addressing unmet medical needs, and their management has articulated a clear and ambitious growth strategy. The momentum in the stock prior to the earnings, outpacing broader market gains, can't be ignored.

Taking into account the detailed analysis above, and by carefully balancing the prospects for growth against the challenges related to profitability, I am revising my previous "Buy" recommendation for Blueprint's stock to a "Hold" status. Despite my continued belief in the company's long-term potential, particularly in their unique focus on precision therapy and the advancement of Ayvakit/Ayvakyt, the existing valuation and profitability measures call for a more restrained approach. Those who are particularly interested in investing in Blueprint should pay close attention to the successful implementation of their growth strategies and be on the lookout for indications of enhanced profitability in the coming quarters, as this could prompt a reassessment of the investment's potential. It's worth stressing that, in the future, I am awaiting a reduction in net losses, supported by substantial progress in the ISM market.

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