Phase 2 PWS data and what it could mean for Rhythm Pharmaceuticals stock

Rhythm Pharmaceuticals (RYTM) recently reported six month interim Phase 2 data for setmelanotide in Prader Willi syndrome, highlighting clinically meaningful changes in BMI, fat mass, hyperphagia, and anxiety, and outlined plans to move into Phase 3 development.

The latest PWS data arrives after a mixed share price stretch, with the stock down 15.84% year to date on a share price return basis but posting a 40.51% total shareholder return over the past year, suggesting longer term enthusiasm has outweighed recent volatility.

If this kind of clinical progress has your attention, it can also be worth scanning other rare disease and biotech opportunities through the 40 healthcare AI stocks

With Rhythm shares down 15.84% year to date, but up 40.51% over the past year and trading at $88.38 compared with an analyst price target of $138.20, should you see untapped value here, or has the market already priced in future growth?

Most Popular Narrative: 36% Undervalued

At a last close of $88.38 versus a narrative fair value of $138.20, Rhythm is framed as materially undervalued, with that gap resting on bullish long term assumptions.

Upcoming potential regulatory approvals and launches for setmelanotide (IMCIVREE) in new indications like acquired hypothalamic obesity and Prader-Willi syndrome, alongside expansion into younger age groups, are set to materially grow Rhythm's commercial opportunity and topline over the next several years.

Curious what sits behind that optimism? The narrative leans on aggressive revenue expansion, margin uplift, and a rich future earnings multiple to back into its fair value.

Result: Fair Value of $138.20 (UNDERVALUED)

However, that optimism can crack quickly if high R&D spending keeps Rhythm in heavy losses or if fresh safety or efficacy questions slow the broader use of setmelanotide.

Another angle on valuation

That narrative fair value of $138.20 leans heavily on future earnings forecasts, yet Rhythm is still loss making today with a net income loss of $207.84 million. Our DCF model presents a higher valuation scenario, with an estimated future cash flow value of $483.85 per share compared with the current $88.38 price. This raises a simple question: how comfortable are you with the assumptions needed for either view?

Next Steps

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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.