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Why Rhythm Pharmaceuticals Stock Is Soaring Today

What happened

Shares of Rhythm Pharmaceuticals (RYTM 13.81%) bound Tuesday afternoon. As of 2:48 p.m. ET, the small-cap biotech stock was up 14.4% on sky-high volume.

What triggered this double-digit upward move? Ahead of Tuesday’s opening bell, Rhythm Pharmaceuticals reported second-quarter 2022 results. The biotech posted a lower-than-expected net loss on surprisingly strong sales of its genetic disorders drug, Imcivree, which is reported for patients with Bardet-Biedl syndrome.

So what

Bardet-Biedl syndrome is a rare inherited condition that manifests in a variety of ways. In June, the Food and Drug Administration (FDA) expanded the label of Imcivree to aid in chronic weight management in adult and pediatric patients with Bardet-Biedl syndrome.

In its second-quarter earnings report, Rhythm said 35 physicians have already written more than 50 prescriptions for the drug since its successful label extension application on June 16, 2022. The company also noted that the drug is was heading towards market access in Europe, which should provide further sales momentum later this year.

Now what

Are today’s better than expected financial results a buy signal? Despite Imcivree’s good start in this high value-added indication, Rhythm should still post negative cash flows for at least two more years. The good news is that the company has a cash trail that is expected to last through 2024, so capital raises shouldn’t be a big deal while Imcivree’s commercial launch picks up steam. That being said, this market has not been kind to negative cash trading lately. As such, this biotech stock is arguably only suitable for investors with a high tolerance for risk.

George Budwell has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.