What happened

Shares of Rhythm Pharmaceuticals (NASDAQ:RYTM) soared 37% today after the company announced the pricing of a public offering of common stock. The rare-disease-focused biopharma will sell up to 6.6 million shares at $26.42 apiece, for gross proceeds of up to $174 million.

Shares fell precipitously earlier this week when Rhythm Pharmaceuticals paired the announcement of promising topline data from an ongoing phase 2 trial for its lead drug candidate with news of its intention to conduct the offering. Now that investors have had a few days to interpret the data and know the share price of the offering, they're giving the early-stage biopharma another look.

As of 2:26 p.m. EDT, the stock had settled to a 25.7% gain. After a volatile week, however, shares have only posted a 1% gain in the last five days.

Several lines drawn on a chalk board showing growth.

Image source: Getty Images.

So what

The recent share offering wisely takes advantage of a soaring stock price. Rhythm Pharmaceuticals ended March 2018 with $136.5 million in cash, cash equivalents, and short-term investments, so adding another $174 million in gross proceeds will pad the coffers quite a bit. It'll be needed to fund pipeline-development activities.

The company's focused on developing treatments for rare diseases. Its lead drug candidate, setmelanotide, is currently being evaluated in mid- and late-stage trials as a potential therapy for rare metabolic diseases that cause obesity. "Rare" is the keyword, as there are literally only a handful of patients currently enrolled in the study and they have three different diseases.

While the small size of the trial may give investors pause that the results will hold up in larger populations, Rhythm Pharmaceuticals is moving ahead to a phase 3 trial in 2018 for two of the rare metabolic diseases. There will be at least 26 patients in the pivotal study, which will take 12 months to complete. If successful, the company estimates there are about 5,000 individuals in the United States who could benefit from setmelanotide across the three diseases.

Now what

Today's jump in share price simply erases the losses piled on earlier this week. That puts Rhythm Pharmaceuticals' market cap back at $900 million. Considering it soon will have just shy of $300 million in cash and phase 3 trials evaluating its lead drug candidate's potential to treat four distinct rare diseases (not to be confused with four different studies), that might be a fair price for the early stage biopharma. Of course, it will need to find success in the clinic, gain marketing approval, and then successfully commercialize its drug candidate to earn that valuation and more. Since phase 3 data isn't expected until mid- to late-2019 at the earliest, investors could be waiting around a little while.