On Thursday, Goldman Sachs updated its outlook on Rhythm Pharmaceuticals (NASDAQ:RYTM), increasing the stock's price target to $66.00 from the previous $59.00, while maintaining a Buy rating. Currently trading at $60.37, InvestingPro analysis suggests the stock is slightly overvalued, with analyst targets ranging from $58 to $84. The firm based its decision on the performance and potential of Rhythm's setmelanotide in treating hypothalamic obesity (HO).
Since July 12, 2022, Rhythm Pharmaceuticals' shares have seen a significant surge, outperforming the XBI, a biotech index, with an increase of 805.1% compared to the index's 20.7%. The momentum continues with a 31.32% gain year-to-date and 64% over the past year, according to InvestingPro data. This uptick followed the company's presentation of positive Phase 2 open-label study data for setmelanotide in HO.
Goldman Sachs revisited the prior data and the structure of the ongoing trial, expressing confidence in the success of the upcoming Phase 3 readout, expected in the first half of 2025. The firm highlighted the substantial treatment benefit demonstrated in earlier phases and the trial's design, which they believe supports a positive outcome.
The analyst pointed out that a placebo-corrected 10% change in percent BMI from baseline to the end of the study is likely to be significant enough to ensure widespread commercial adoption, particularly in the newly identified congenital HO population. With an impressive gross profit margin of 88.61% and current revenue of $112.53 million, this segment alone could generate incremental peak sales of $200 million. For deeper insights into Rhythm's financial health and growth potential, InvestingPro offers 12 additional key tips and comprehensive analysis in its Pro Research Report.
Despite the recent stock rally, Goldman Sachs acknowledged that the market might have already priced in the anticipated positive Phase 3 results, estimating an 85-100% probability of success. Post-data, the focus is expected to shift to the adoption rate of setmelanotide, the prospects of next-generation assets, including bivamelagon with data expected in mid-2025, and potential mergers and acquisitions activity, with Rhythm currently holding a rank of "2" in Goldman Sachs' valuation for M&A prospects.
In summary, Goldman Sachs has raised its 12-month price target for Rhythm Pharmaceuticals to $66, reiterating its confidence in the stock with a continued Buy recommendation.
In other recent news, Rhythm Pharmaceuticals reported a successful third quarter in 2024, showcasing a 48% increase in global net revenue, which reached $33.3 million. This significant increase was primarily driven by sales of its drug IMCIVREE for Bardet-Biedl Syndrome (BBS). The U.S. played a major role, contributing $23.3 million, which accounted for 70% of total sales. International revenue also experienced growth, reaching $10 million, marking a 35% increase from the previous quarter.
In addition to its financial achievements, Rhythm Pharmaceuticals presented new data at a medical conference, underlining the positive outcomes for pediatric patients using setmelanotide, its treatment for certain obesity conditions. The findings were well-received, leading H.C. Wainwright to maintain its Buy rating and $69.00 stock price target for the company.
The company also reported $298.4 million in cash reserves and reduced its 2024 operating expense guidance to $245-$255 million. Looking ahead, Rhythm Pharmaceuticals expects to complete enrollment in a Phase II trial for bivamelagon and a Phase I trial for RM-718 in early 2025. Furthermore, top-line data from a Phase III trial for acquired hypothalamic obesity is anticipated in the first half of 2025.
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