Merck (MRK) announced a $200/share buyout of Prometheus (RXDX) on 4/17 that sent shares soaring after we identified a large bull trade in RXDX May $130 calls which soared on the announcement.

On 2/21 I wrote:

“Prometheus Bio (RXDX) on 2/2 with 2000 May $130 calls bought that have a current value over $3M up 16% from the purchase price and shares showing relative strength since the trade. RXDX since then has seen 1250 March $130 calls sold to open and 1000 May $165 calls sold to open as well as a small opening seller of 200 May $125 puts. RXDX spiked higher in December on positive data and since consolidating tightly with $150 a current measured move target out of the range. RXDX is a clinical-stage biotechnology company pioneering a precision medicine approach to the discovery, development, and commercialization of novel therapeutic and companion diagnostic products for the treatment of immune-mediated diseases, starting first with inflammatory bowel disease (IBD). Prometheus360 includes one of the world’s largest gastrointestinal (GI) bioinformatics database and sample biobank, to identify novel therapeutic targets and develop therapeutic candidates to engage those targets. RXDX’s lead product candidate, PRA023, is a humanized IgG1 monoclonal antibody (mAb) that has been shown to block tumor necrosis factor (TNF)-like ligand 1A (TL1A), a target associated with both intestinal inflammation and fibrosis that was clinically validated in Pfizer’s Phase 2a clinical trial in ulcerative colitis (UC). PRA023 has the potential to substantially improve outcomes for moderate-to-severe IBD patients, especially those predisposed to increased TL1A expression. When you look at the UC and CD, these are large categories. Combined, roughly $20 billion, globally expected to go to $32 billion. The company has set high watermarks for the entire inflammatory bowel disease field, with JAK-like efficacy both in UC and CD coupled with a remarkably clean safety profile. PRA023 therapeutic profile is unprecedented and likely moves the program to the front of the line in both indications. RXDX has a market cap of $5.5B and trades 21X Cash and 11X expected FY26 Sales. RXDX priced a 4.55M share secondary at $110 on 12/8. The next key driver is expanded cohort data due in Q2 2023, the likely rationale for this options position. Analysts have an average target of $150 with short interest rising 65% Q/Q to 15% of the float. CSFB raised its target to $142 noting a substantial commercial optionality and possibly more favorable pricing/broader access in earlier lines than originally expected. BTIG raised its target to $181 on the impressive clinical profile. Guggenheim with a $185 target citing game-changing efficacy and peak sales of $4.2B seen from its programs.”