RAPP shares react to RAP-219 trial update and new China partnership

Rapport Therapeutics (RAPP) has drawn fresh attention after reporting encouraging follow-up data from its Phase 2a RAP-219 trial in focal onset seizures, accelerating Phase 3 timelines and signing a partnership with Tenacia Biotechnology for Greater China rights.

The recent Phase 2a RAP-219 update and China licensing deal come on top of first quarter results that showed a net loss of US$19.86 million and a narrower loss per share than a year ago. The 1 year total shareholder return of about 3x coincides with strong momentum in the 7 day share price return of 20.53% and 90 day share price return of 47.40% from the latest close at US$39.93.

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With RAPP up about 3x over 1 year and trading around US$39.93, yet still sitting roughly 34% below the US$53.60 analyst target, you have to ask: is there still upside here, or is the market already pricing in future growth?

Preferred Price-to-Book Multiple of 4x: Is it justified?

On a P/B of 4x, Rapport Therapeutics trades at a richer level than many US pharmaceutical peers, which suggests the current $39.93 price already bakes in a lot of optimism around future progress.

The P/B ratio compares the stock price with the company’s net assets, so a higher multiple usually reflects investor willingness to pay up for pipelines, growth potential or intangible assets that do not yet show up in earnings. For Rapport, this sits against a backdrop of a US$107.28 million net loss, a negative return on equity of 22.75% and forecasts that it will remain unprofitable over the next three years while revenue is expected to grow at about 22.9% per year.

Compared to a peer average P/B of 3.6x and a wider US Pharmaceuticals industry average of 2.6x, RAPP is priced at a clear premium. That signals the market is assigning extra value to its CNS pipeline and RAP-219 franchise relative to many loss making biotech peers, while analysts’ target price is also more than 20% above the current share price despite limited agreement between their models.

Result: Price-to-book of 4x (OVERVALUED).

However, the story could change quickly if RAP-219 data underwhelms or if the Tenacia partnership fails to translate into meaningful revenue in Greater China.

Next Steps

Given this mix of optimism and concern, it makes sense to review the full picture yourself and act while the data is fresh with 1 key reward and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.