What happened
Shares of Rhythm Pharmaceuticals (RYTM -0.88%) are surging Tuesday afternoon. As of 2:48 p.m. ET, the small-cap biotech's stock was up by a healthy 14.4% on sky-high volume.
What's sparking this double-digit move higher? Prior to Tuesday's opening bell, Rhythm Pharmaceuticals announced its 2022 second-quarter earnings. The biotech posted a narrower net loss than expected on the back of surprisingly strong sales of its genetic disorder drug, Imcivree, which is indicated for patients with Bardet-Biedl syndrome.
So what
Bardet-Biedl syndrome is a rare inherited disorder that manifests in a variety of ways. In June, the Food and Drug Administration (FDA) expanded Imcivree's label to help with chronic weight management in adult and pediatric patients afflicted with Bardet-Biedl syndrome.
In its second-quarter earnings report, Rhythm said that 35 physicians have already written 50-plus prescriptions for the drug since its successful label expansion application on June 16, 2022. The company also noted the drug is barreling toward market access in Europe, which ought to provide another boost to sales later on this year.
Now what
Are today's better-than-expected financial results a buy signal? Despite Imcivree's strong start in this high-value indication, Rhythm is still expected to be cash flow negative for at least another two years. The good news is that the company does have a cash runway that's projected to last until 2024, so capital raises shouldn't be a huge issue while Imcivree's commercial launch gains steam. That being said, this market hasn't been kind to cash flow negative operations lately. As such, this biotech stock is arguably only suited for investors with a high tolerance for risk.
