RYTM - Rhythm Pharmaceuticals: Putting It On The Scale Again

2023-06-07 19:08:50 ET

Summary

• Today, we check back in on Rhythm Pharmaceuticals, Inc., an entrant into the fast-growing weight management medicine space.
• The company is simultaneously trying ramp up sales from its franchise drug while advancing it in development for other indications.
• An updated investment analysis around Rhythm Pharmaceuticals, Inc. stock is provided in the paragraphs below.

A few fly bites cannot stop a spirited horse ."? Mark Twain.

We last took a look at Rhythm Pharmaceuticals, Inc. ( RYTM ) in October of last year. The company is in the early stages of rolling out its primary drug asset imcivree, which was recently approved in Canada. Rhythm is also evaluating this compound for new indications in the rapidly growing weight management medicine space. We update our analysis on Rhythm Pharmaceuticals below.

Company Overview:

The commercial staged biopharma concern Rhythm Pharmaceuticals, Inc. is based out of Boston, MA. The company is focused on developing and marketing therapeutics for the treatment of rare genetic diseases of obesity. Currently the stock trades for around $17.50 a share and sports an approximate market capitalization of $1 billion.

The company's main asset is called IMCIVREE. This is a rare melanocortin-4 receptor approved for the treatment of pro-opiomelanocortin ((POMC)), proprotein convertase subtilisin/kexin type 1, leptin receptor ((LEPR)) deficiency obesity, and Bardet-Biedl {BBS}.

Rhythm continues to focus on the melanocortin-4 receptor (MC4R) pathway with its development approach. This pathway is responsible for regulating weight and hunger.

The firm is looking to expand the indications that imcivree is approved for and boost its potential target population. Towards that end, the company recently initiated a Phase 3 study evaluating the compound to treat acquired hypothalamic obesity {HO}. The first patient in this trial was dosed in the first quarter and full enrollment of this study should be complete by end of the first quarter of 2024. The primary endpoint for this trial will be the percent change in Body Mass Index or BMI after approximately 52 weeks on a therapeutic regimen of imcivree versus placebo. A major difference between BBS and acquired hypothalamic obesity individuals is the vast majority of the latter are diagnosed and actively engaged with the healthcare system already. This should drive a faster marketing ramp up, if approved for the indication. There are no current FDA approved therapies for this condition.

Rhythm is also evaluating Imcivree across four genetic subtypes that impact over 50,000 individuals in the U.S. alone. More data from an open-label part of a Phase 2 trial 'DAYBREAK' from one or more genetically-defined cohorts will be out in the second half of 2023.

Finally, the company acquired a program from Xinvento in congenital hyperinsulinism ((CHI)). This is a natural strategic fit for the company's pipeline and a target should be chosen and an IND should be filed for this program in 2024.

First Quarter Results:

On May 2nd, the company reported its first quarter numbers . The company had a GAAP loss of 92 cents a share, just over 20 cents a share worse than expectations. Revenues did rise from just over $600,000 in 1Q2022 to $11.5 million, a tad less than the consensus. The company has now seen 300 prescriptions for imcivree to treat BBS since it was approved for that indication in June of 2022.

Management also stated that it continues to expect between $200 million to $220 million in Non-GAAP Operating Expenses in FY2023. $120 million to $130 million comprised of R&D expenses and $80 million to $90 million from SG&A expenses.

The company has had a couple of important launch milestones for IMCIVREE since the first quarter ended, it should be noted. The product launched in late April in Germany and won marketing approval in Canada one month ago as well.

Analyst Commentary & Balance Sheet:

Since first quarter results posted, four analyst firms including Goldman Sachs and Stifel Nicolaus have reiterated Buy/Outperform ratings on the stock. Two of these did contain slight downward price target revisions. Price targets proffered ranged from $35 to $52 a share. Bank of America maintained its Hold rating and $23 price target on RYTM.

Just over 20% of the outstanding float in the shares is currently held short. Several insiders have sold shares in the stock in the past few months. So far in 2023, they have disposed of approximately $450,000 worth of equity collectively.

The company ended the first quarter of 2023 with right around $295 million of cash and marketable securities on its balance sheet after burning through nearly $40 million worth of cash to support operations in the quarter. The company has no long-term debt. Management has stated that funding in place will carry it into 2025.

Verdict:

The current analyst firm consensus has the firm losing just over $3. a 25share in FY2023 even as revenues soar some 180% to around $66 million. They project revenues to rise over 90% in FY2024 and for losses to be cut to just north of $2.50 a share.

The company has numerous milestones calendared for the rest of 2023. A recent study predicted Americans will pay $10 billion for weight loss medicines annually by FY2027, a 378% rise from FY2023 projected sales. Therefore, Rhythm is targeting a significant and fast-growing market.

Rhythm is making some progress with its rollout of imcivree and in trying to expand its potential approved indications. It is obviously a large market that is seeing impressive growth.

That said, Rhythm Pharmaceuticals' cash burn is concerning, which is probably a key reason one out of every five shares are held short. The company is likely to do a capital raise over the next 12 months given its current burn rate. Therefore, until Rhythm Pharmaceuticals, Inc. makes more progress boosting sales and lowering that burn rate, RYTM stock only merits a small " watch item" position for aggressive investors within a well-diversified biotech portfolio.

The wishbone will never replace the backbone "? Will Henry.

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