Here’s Why Rhythm Pharmaceuticals Inc (NASDAQ:RYTM) Just Made A Splash With Its IPO

One of the biggest movers in the biotechnology space at the end of this week is a fresh NASDAQ entrant – Rhythm Pharmaceuticals Inc (NASDAQ:RYTM).

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The company conducted an initial public offering (IPO) on Thursday, with an offering price of $17 a share. By the end of close of play in the US, this had risen to $30 a share – an appreciation of a little over 76% across the period. The appetite for IPOs in the biotechnology space has been somewhat questionable over the last six months and Rhythm’s ability to draw the attention of speculative portions of the market was uncertain to say the least. However, the company has proven that there remains considerable appetite for this sort of entrant and there’s a good chance that we will see a wave of companies come forward to list now that Rhythm has set the tone from a sentiment perspective.

In terms of operations, Rhythm is trying to bring a drug to market called Setmelanotide. It’s currently under investigation as part of a phase 2 and a phase 3 study, targeting the treatment of patients with obesity in the US.

The drug itself is what’s called a selective agonist of the MC4 receptor.

MC4 receptors are found in the paraventricular nucleus of the hypothalamus and in the lateral hypothalamic area, both of which are regions in our brain and both of which are associated with appetite.

By activating MC4, the idea is that the drug can bring about appetite suppressant effects in the patient taking the drug. There is plenty of early-stage data to support this hypothesis and the MC4 receptor has long been a target for anti-obesity therapies, but the company has to prove its mechanism of action as part of a pretty wide scale phase 3 before it can apply for registration with the FDA.

And that’s what it is doing in the latter of the above mentioned clinical trials.

The specific type of obesity that the company is targeting is called proopiomelanocortin (POMC) deficiency obesity, which, as its name suggests, is rooted in a deficiency of a polypeptide called proopiomelanocortin. This deficiency derives from a mutation in the gene that would normally create the peptide and it presents itself as a constant hunger in patients. It’s generally early onset, meaning the constant hunger initiates from birth and doesn’t let up, leading to excessive feeding and weight gain during the first year and throughout life.

As side characteristics, these patients also generally have low levels of a hormone known as adrenocorticotropic hormone (ACTH) which leads to adrenal insufficiency and are often very pale with red hair.

When private companies take drugs through the early to mid stages of development, they will often list on a major exchange in order to attract the capital required to close out a phase 3 and bring a drug to the point where it can be submitted to the FDA. That’s exactly what’s happened here and the reason that this one is proving an attractive option for IPO participants is that the late stage nature of the drug removes a large portion of the risk associated with exposure to a company that is conducting early-stage trials.

Of course, this risk removal also means that traders or investors have to pay a premium for the exposure picking up, and that’s why this one ran up to $30 almost immediately subsequent to its shares hitting the exchange.

Where things go from here remains to be seen but there is a good chance we will see a degree of continued appreciation of the company moves towards completion of the phase 3 trial that, with any luck for shareholders, it can use to underpin an NDA submission to the FDA in the US.

The phase 3 trial is rooted in a reduction in appetite (hunger) and set up to measure both this aforementioned reduction as well as to try and identify any real term benefits – i.e. weight loss, quality-of-life improvement, that sort of thing.

Data from the study is expected to hit press during the first half 2019, meaning there’s plenty of time to pick up an exposure for anybody looking to draw benefit from topline release.

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