BBIO - What To Do After BridgeBio Pharma Soared By Over 50%

2023-03-07 08:15:48 ET

Summary

• Markets sent BridgeBio sharply higher after the company posted clinical Phase 2 results for infigratinib.
• After the close, BBIO announced a stock sale that would raise $150 million.
• Price target implying nearly 45% in upside discussed.

Biotech investing is not for the faint of heart. Innoviva ( INVA ), which posted a loss in the last quarter despite quadrupling its revenue, lost almost half its value in the last year. ImmunityBio ( IBRX ) accelerated its sell-off when it launched a $50 million stock and warrants offering . Those are examples of companies I either researched or followed.

The 51.98% rally in BridgeBio Pharma ( BBIO ) is a welcome positive turn of events for the sector. On Mar. 6, 2023, the company announced Phase 2 data for infigratinib. For investors new to biotech investing, the "nib" is a verbal shorthand for "inhibit"). The drug is a small-molecule inhibitor of kinase. Infigratinib is an investigational therapy for children with achondroplasia.

The company said that the oral molecule, which treats dwarfism, added 3.03 cm/yr for the first 10 children with at least six months of follow-up in Cohort 5. 80% of the children with six-month visits responded favorably to the treatment. The company said that the average change from the baseline annualized height velocity was at least 25%.

The table above is an illustration of the blue line exceeding the baseline AHV among the 10 subjects.

Opportunity

Markets reacted positively to the data after the company shared the efficacy and safety results. The drug is well-tolerated. None of the subjects in Cohort 5 demonstrated severe adverse events. More importantly, none of the subjects discontinued due to adverse events.

The results allow BridgeBio to advance its study. It will begin enrollment for a pivotal trial. In addition to enrolling children in the run-in for a Phase 3 trial, it will expect to start development for infigratinib in hypochondroplasia. This is a skeletal dysplasia. FGFR3 gain-of-function variants drive both achondroplasia and hypochondroplasia.

The wider addressable market suggests that BridgeBio has more revenue potential than investors initially expected. Still, BBIO stock trades at less than half of its value of a $40 share price in Dec. 2021.

Above: BBIO stock is up by 119% in the last year.

Bearish investors accumulated a short float of 19.6%. The short squeeze on Mar. 6 may either continue or fade. Investors who are considering a position should let the dust settle for at least the next few days.

Risks

After the stock rally, BridgeBio began an underwriting for $150 million of common stock . It will likely grant its underwriters the right to buy up to another $22.5 million worth of shares.

Timely stock sales after a major rally are nothing new in any sector, especially in the biotech world. The company did not meet EPS consensus estimates in two out of the last four quarters:

Since 2017, losses mounted, as Seeking Alpha's compiled income statement shows :

BridgeBio Pharma Stock Valuation

Biotech investors need to estimate the risk-adjusted revenue potential from its pipeline through 3034:

Investors may time BBIO's positive inflection points by referring to their anticipated milestones calendar:

First, assume that markets trade with neutral to positive sentiment. In that scenario, markets should react positively again when BBIO posts data readout for programs in the Phase 3 stage.

BridgeBio Stock Price Target

Given the speculative nature of revenue forecasting, readers may rely on analysts for a price target. The average price target of $23.90 implies an upside of nearly 45%:

BridgeBio has very weak stock grades. It scores a D and D+ on valuation and profitability, respectively. The company's growth score could rise to a B- or higher if it brings its key drugs to market by 2024. By 2025, revenue would accelerate at a brisk pace.

Your Action on BBIO Stock

BridgeBio's stock sale after market close just after the positive data read may pressures shares. Just as ImmunityBio broke down from a year-long support price of $5.00 to close at $1.76, BBIO stock could fall back to the $10.00 range.

Cautious investors fearful of losses should not chase BridgeBio's rally. Instead, watch the market's reaction to the stock sale. Start with a small position and increase the allocation whenever the company reports positive clinical results.

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