Is RYTM a good stock to buy? We came across a bearish thesis on Rhythm Pharmaceuticals, Inc. on BioEquity Watch’s Substack. In this article, we will summarize the bears’ thesis on RYTM. Rhythm Pharmaceuticals, Inc.’s share was trading at $87.72 as of April 20th.
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Rhythm Pharmaceuticals (RYTM) is a rare-disease biotech built almost entirely around setmelanotide, an MC4R agonist targeting genetic and hypothalamic obesity, but its concentrated strategy creates a fragile investment case. The company’s expansion into broader populations through the Phase 3 EMANATE program represents a high-stakes bet that heterozygous variants will respond similarly to homozygous deficiencies, despite early data showing inconsistent outcomes across subgroups.
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While the Phase 3 TRANSCEND trial demonstrated a statistically significant 16.4% BMI reduction versus placebo, the small sample size, patient heterogeneity, and inclusion of GLP-1 users introduce uncertainty around true efficacy and reproducibility. Safety risks remain a critical overhang, particularly psychiatric and cardiovascular concerns, which could limit long-term adoption or result in restrictive labeling.
The company’s financial position further compounds risk, with $388.9 million in cash offset by an annual burn rate near $200 million, driven by high R&D and SG&A expenses. This cost structure appears unsustainable without significant commercial scale, especially as payer dynamics tighten amid the dominance of GLP-1 therapies from Novo Nordisk and Eli Lilly. Competition is intensifying, with oral MC4R candidates and broader metabolic drugs potentially eroding Rhythm’s niche positioning, while its injectable model remains a commercial disadvantage.
Although intellectual property and orphan drug protections provide some insulation, the regulatory moat is narrow and dependent on continued FDA flexibility. The valuation heavily relies on EMANATE success; failure to demonstrate strong efficacy across heterogeneous populations could sharply reduce the addressable market and force dilutive capital raises. As a result, Rhythm Pharmaceuticals remains a high-risk, execution-dependent story with significant downside if clinical or commercial expectations are not met.
Previously, we covered a bullish thesis on CRISPR Therapeutics AG (CRSP) by MADD-Scientis in March 2025, which highlighted the strong commercial potential of Casgevy, robust pipeline expansion, and significant upside driven by gene-editing leadership. CRSP’s stock price has appreciated by approximately 40.81% since our coverage. BioEquity Watch shares a contrarian view but emphasizes on Rhythm Pharmaceuticals’ clinical risks, high cash burn, and dependence on uncertain trial outcomes.
Rhythm Pharmaceuticals, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 48 hedge fund portfolios held RYTM at the end of the fourth quarter which was 46 in the previous quarter. While we acknowledge the risk and potential of RYTM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RYTM and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
