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Hawk’s Nest

Assessing BridgeBio Options Flow, Catalysts, Takeout Potential and Strategy

by | Apr 13, 2023

BridgeBio (BBIO) was highlighted on 3/27 by Bloomberg as attracting takeover interest from larger drug companies and flows have been positioning for this to become a reality. The April $17.50 calls have seen 4800X bought, the August $17.5 calls with a buyer of 1000X for $320K and on 4/5 the July $20/$25 call spreads opened 10,000X. The August $20 calls have also seen notable lot buys and over 5000 in open interest, BBIO has been consolidating the news driven move and even filled the gap nearly with a key volume node retest before heading back higher. BBIO’s measured move out of this range is to $25, interesting considering the call spread target. BBIO seeks to develop transformative medicines to treat patients who suffer from Mendelian diseases, which are diseases that arise from defects in a single gene, and cancers with clear genetic drivers. Its pipeline includes over 30 development programs. Acoramidis (also known as AG10 and BBP-265), a small molecule stabilizer of transthyretin, or TTR, is in an ongoing Phase 3 clinical trial for the treatment of TTR amyloidosis-cardiomyopathy, or ATTR-CM. Low-dose infigratinib (also known as BBP-831), a small molecule selective FGFR1-3 inhibitor is in an ongoing Phase 2 clinical trial for the treatment of achondroplasia in pediatric patients. BBIO now has a market cap of $2.5B and trades less than 3X forecasted 2027 revenues while short interest is still fairly high at 15% of the float. UBS was out with a M&A note on 3/30 saying BBIO’s diversified pipeline is underappreciated, but that investor focus broadly remains cautious given high debt balance and ATTR setback in December 2021. UBS sees high value programs across achondroplasia, ADH1 and LGMD2i and see favorable risk/reward into ATTR ph3 data in July given investor caution. UBS also valued the BBIO pipeline at $36-$40 per share. Mizuho doubts BBIO will sell itself but sees potential for a royalty deal and has a $23 target on shares. BAML said BBIO is worth $3B-$4B in a takeover deal, implying 20-60% upside.

BBIO is slated to report the first week of May with IV30 currently at 103.7% and May options implying around a 12% move while July volatility is the most jacked up for the key data release and where July spreads positioned. BBIO IV Skew remains bullish inverted showing the options market does see potential for a deal and also makes upside call spreads an attractive strategy. BBIO open interest put/call shows 49,550/74,550, or 0.66. The options market seems to agree a deal near-term is less likely but upside is more likely out to July/August with data and potential partnership/royalty catalysts.

An optimal strategy to consider would be selling the May $15 puts for $1.60 and buying August $20/$25 call spreads for $1.20, leaving you with a $0.40 net credit, a willingness to own shares at $15 ($14.60 Net) and potential upside of $500 per spread. BBIO should stay bid through May as it avoids the catalysts and leaves the potential upside drivers in place supportive of shares though could see some volatility if it comes out on its earnings call and says it is not for sale.