bluebird bio Inc (NASDAQ:BLUE) just gave us a look at its latest trial data, and the company has taken a hit on the back of its market interpretation. Was the decline valid, or is the sell off an opportunity to pick up an exposure at a discount on an oversell? Here’s a look at what the data means for the trial in question, and where the company goes from here from a development perspective, in an attempt to answer these questions.

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So, first, a look at the treatment bluebird is trying to get approved.

It’s called Lenti-D gene therapy, and it targets a condition called cerebral adrenoleukodystrophy (CALD). CALD is a rare neurodegenerative disease that primarily occurs in children between the ages of 3-15. It’s similar to multiple sclerosis, in that it results in a breakdown of the myelin sheath that surrounds neurons (the sheath is the protective coating). When the coating is broken down, it leads to a type of short circuiting, which has – and to quote the official physician’s description here – devastating effects on cognitive and motor function.

The current SOC is what’s called allogeneic hematopoietic stem cell transplant (HSCT). Essentially, it’s a bone marrow transplant that aims to implant a functioning copy of the gene that causes the condition into the patient, and in doing so, initiate a reformation of the damaged sheath. Those familiar with the stem cell transplant process will be aware that the allogeneic part of this therapy’s name means the stem cells, or the bone marrow, comes from a donor patient. This makes the treatment extremely risky, and many patients develop what’s called host versus graft disease (HVGD) – a condition in which the patient’s own immune system recognizes the donor cells as foreign and attacks them. HVGD is deadly, and this potential complication limits the application of the current SOC.

Enter Lenti-D. With Lenti-D, bluebird extracts a patient’s own bone marrow cells, and genetically alters them so that they express a functioning version of the mutated gene that causes CALD. In doing so, it avoids the potential complications associated with another person’s cells in the hosts system, and if it works, it could completely replace the current SOC in the CALD field. And that’s not all. Looking further down the line, the technology behind the treatment could expand to cover a range of conditions for which HSCT is the current SOC. In short, it’s a billion-dollar potential therapy, even with its rare target indications.

So what did the data tell us? The data was interim, from a phase II/III called STARBEAM. It’s a pretty small trial (n=17) but give the rare nature of the condition, this shouldn’t be an issue as far as supporting an NDA is concerned. All patients had Lenti-D, with six months follow up, and eight patients had twelve months follow up.

The endpoint was rooted in what’s called major functional disabilities (MFDs), which essentially derives a score based on neurological function to help determine the efficacy of a treatment versus a pre-established baseline.

At the end of March, 2016, all patients had MFD = 0, which means they were free of MFDs – a big tick in the efficacy box for the treatment. So why the decline in market cap? Three patients suffered complications, and this is likely what’s putting pressure on bluebird. One suffered difficulty in speech, vision and walking. Two others suffered urinary incontinence, and stuttering episodes. General safety and tolerability looks to be ok, aside from the aforementioned, which may well have come about as a result of the condition rather than the treatment.

So what’s the takeaway here, and what should we be looking for going forward?

Well, the drug seems to be effective, albeit in a small patient population. The occurrence of some AEs is a little concerning, but in a condition where the current SOC has a high chance of causing HVGD, this will probably not be too much of an issue come completion.

Going forward, we’ll be look to the 24 month topline for all 17 patients as an indication of the treatment’s likely chances of approval. If things remain as are, carried through to the trial close point, it looks good for an agency green light. Safety and tolerability is going to play a big part in this one, so keep an eye on that side of the trial as further interim, and eventually topline, rolls out.