Rhythm Pharma Stock: Rapidly Derisking Itself (NASDAQ:RYTM)

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Since my previous coverage of Rhythm Pharma (NASDAQ:RYTM), the stock has grown 50% on the back of an FDA approval of IMCIVREE (setmelanotide) for the treatment of obesity and control of hunger in patients with Bardet-Biedl Syndrome (BBS), while rejecting it in Alström syndrome. AS application was also pulled by the company in Europe. There are 2500 BBS patients in the US and EU each, and 1000 Alström syndrome patients worldwide. Analysts have modeled $280mn for BBS by 2025 in annual sales, compared to just $136mn for the previously approved indications for IMCIVREE, which are obesity due to pro-opiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1), or leptin receptor (LEPR) deficiency.

Surprisingly, setmelanotide didn’t do as well in its pivotal trial as it did in earlier phase 2 trials for BBS and AS. The drug did manage to reach statistical significance, however the trial used a historical comparator despite having a placebo arm. All in all, it was quite complicated, however the company still managed to get approved for these two indications, probably because of the small numbers of patients with a large unmet need.

The company is pursuing a number of other related indications with much larger patient populations. Just five of the 31 additional genes they are exploring may have more than 200,000 patients in the US. Setmelanotide has a price tag of approximately $300,000 per year – see here and here. That gives us a total addressable market of $60bn. This is huge – and somewhat unreal.

The company recently launched the drug in Germany after getting approval for reimbursement as a special case where Germany usually does not reimburse for drugs it considers lifestyle medicines. Positive interim data from a phase 2 trial showing setmelanotide helped reduce Body Mass Index (BMI) in patients with severe obesity and hyperphagia (excessive hunger) in people living with hypothalamic obesity also helped the stock. Recently, UK’s National Institute for Health and Care Excellence (NICE) also recommended the drug in a boost to the company. This was followed by France’s National Agency for Medicines and Health Products Safety (ANSM) and Haute Autorité de santé (HAS), which also approved the drug for their citizens. The EMA also recommended the drug for BBS, which is almost guaranteed to trigger European approval, in Q4.

Financials

RYTM has a market cap of $634mn and a cash balance of $240mn. Right after the BBS approval, the company entered into a royalty agreement with HealthCare Royalty for $100mn. As part of the deal, Rhythm will get an initial $37.5 million, followed by an additional $37.5 million pending European approval for Incivree in Bardet-Biedl syndrome and $25 million if it meets certain sales goals. In exchange, RYTM will provide tiered low double digit royalties to begin with, followed by low single digits after certain revenue goals are met.

In terms of revenue, the company made a modest $3.2mn in 2021 sales, however this year it already made $1.5mn in the first quarter.

These funds will be enough to see the company through 2024.

The company declares Q2 earnings tomorrow, and I may add an update below if there’s anything major.

Bottomline

RYTM is in a very attractive position right now. The stock is heavily derisked, having been approved in 3 indications and starting to generate some revenue. They have a number of label expansion opportunities that will enlarge the market potential. Their only problem is that setmelanotide is their only show in town, but other than that, RYTM is very interesting right now.

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