Canaccord Genuity lowers Rhythm Pharma shares target, cites pipeline progress

On Wednesday, Canaccord Genuity adjusted its financial outlook for Rhythm Pharmaceuticals (NASDAQ:) shares, reducing the price target to $77 from $79 while reaffirming a Buy rating on the stock. The adjustment follows Rhythm Pharmaceuticals’ second-quarter results for 2024, which aligned with consensus expectations.

The company reported an increase in its bottom line, attributed to a one-time gain of $8.9 million from the settlement of a forward contract linked to the issuance of convertible preferred stock during the quarter.

Rhythm Pharmaceuticals has seen continued quarter-over-quarter growth in the U.S. with its Bardet-Biedl Syndrome (BBS) treatment launch, and is gaining momentum in the European Union.

The company’s pipeline development appears to be progressing as planned, with particular emphasis on the forthcoming first-half 2025 top-line data from the Phase 3 study of setmelanotide in patients with hypothalamic obesity (HO).

The significance of the Phase 3 study of setmelanotide cannot be overstated, as it is considered the primary value driver in Canaccord Genuity’s model for Rhythm Pharmaceuticals.

The trial is notably powered at 99% to detect a 10% difference versus placebo in the primary endpoint of Body Mass Index (BMI) reduction. This level of power is indicative of the study’s robust design and the high likelihood of detecting even modest treatment effects.

Previous Phase 2 trial results for setmelanotide showed an approximate 26% reduction in BMI after 12 months of treatment in a sample of 12 patients. These outcomes have been described as “fantastic” by a key opinion leader in the field, suggesting strong potential for the drug’s efficacy.

Canaccord Genuity’s stance remains optimistic, as indicated by the reiterated Buy rating, despite the slight decrease in the price target. The firm’s commentary underscores the continued progress of Rhythm Pharmaceuticals’ product launches and development pipeline, with a keen focus on the anticipated data from the Phase 3 setmelanotide trial.

In other recent news, Rhythm Pharmaceuticals reported a strong Q2 in 2024, with revenues reaching $29.1 million, primarily driven by sales of their drug IMCIVREE. This drug, used for treating Bardet-Biedl syndrome (BBS), has achieved pediatric approval in the European Union for children aged two to younger than six.

The company has also initiated Phase 2 trials for two new MC4R agonists, adding to their development pipeline. Despite facing reimbursement issues with a Medicaid state program, Rhythm Pharmaceuticals remains hopeful about its commercial strategy.

They anticipate consistent new prescriptions and payer approvals for BBS treatment and expect their cash on hand to support operations until 2026.

However, the company has also acknowledged a discontinuation rate for IMCIVREE between 20% to 30%. These recent developments indicate the company’s commitment to growth and its strategic approach to overcoming challenges.

InvestingPro Insights

Following Canaccord Genuity’s outlook adjustment for Rhythm Pharmaceuticals (NASDAQ:RYTM), insights from InvestingPro provide a deeper understanding of the company’s financial health and market position. With a market capitalization of $2.69 billion, Rhythm Pharmaceuticals is navigating a challenging financial landscape. The company has been trading at a high Price / Book multiple of 68.39 as of the last twelve months leading up to Q2 2024, indicating a premium valuation by the market despite the absence of profitability during this period. The company’s gross profit margin stands impressively at 88.8%, reflecting efficient cost management relative to revenue, which has grown by a notable 132.56% over the last twelve months.

InvestingPro Tips highlight that the stock has experienced volatility, with a significant downturn over the past week, and analysts have revised their earnings expectations downwards for the upcoming period. Despite these concerns, Rhythm Pharmaceuticals has shown a strong return over the past year, with a 77.15% price total return, showcasing investor confidence in its long-term prospects, particularly with its BBS treatment and setmelanotide’s Phase 3 study.

For readers interested in a comprehensive analysis, there are additional InvestingPro Tips available that delve into the company’s financial metrics and market performance (https://www.investing.com/pro/RYTM).

InvestingPro Data Metrics:

• Market Cap (Adjusted): $2.69B

• Price / Book (LTM as of Q2 2024): 68.39

• Revenue Growth (LTM as of Q2 2024): 132.56%

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