This article was originally posted on August 27, when we first saw these ads circulating… apparently lots of folks missed it, and the ads are running hot and heavy again, so we’re re-posting it here to help answer a flood of new reader questions. The stock teased has popped 40-50% or so on the Stansberry attention, but we have not updated or revised what follows since 8/27:
Well, there’s no question about which teaser pitch Gumshoe readers want me to cover today — the tsunami of requests for coverage of Dave Lashmet’s “20X gains” pitch for a weight loss drug is a little overwhelming.
And we aim to please, so let’s put the Thinkolator to work for you. The ads are from Lashmet’s Stansberry Venture Technology newsletter, which generally focuses on tech and biotech names… and Lashmet is apparently riding high from some big gains in Inovio (INO) due to the COVID-19 vaccine race, so he’s got some past 1,000%+ gains to use in bolstering his claim that this obesity treatment is going to turn into 2,000% gains. The offer is for what they say is an unusual “sale” price of $2,500/yr, and like most high-end letters that’s completely nonrefundable. So let’s look into it and see if you want to think over the stock before you make that kind of nonrefundable commitment, shall we?
Here’s how the pitch is introduced, with talk about a “disease spreading across the nation”…
“I’m not talking about COVID-19. This disease leads to 10 times as many deaths every year.
“And despite the fact some of the biggest drug companies in the world have poured billions into finding a cure…
“The breakthrough from one tiny drug company is set to take the prize.
“This company – which is a fraction the size of big pharma competitors – is on-track to be the first drug maker to enter this market with a unique product.
“They have the only drug that can treat this disease at the source of the problem.”
That disease, of course, is “obesity,” which probably shouldn’t be thought of as a single disease but is certainly a dangerous condition that impacts health in many ways. And we all know the size and scope of the problem, of course, we see it when we walk the streets — and some of us see it in the mirror, particularly after being cooped up with easy access to the solace of junk food and beer for the last five months. I know I’ve put on my ten pounds during these “stay at home” coronavirus months.
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Then the ad itself launches, this is from the beginning of their long sales presentation…
“One company’s product will fulfill a fantasy shared by nearly every American. (You may want it yourself, if you can get your hands on it.) That’s why a 2,000% gain could be low.
“But once this hits mainstream headlines, this opportunity will likely disappear overnight.”
So what clues do we gather from the presentation?
That the stock is under, or at worst somewhere near $50 a share, and is considered “small,” at least compared to big pharma.
And that their clinical trial results have been phenomenal…
“Over 80% of patients in one study saw life-changing results. And their families were amazed.
“One medical write-up called the results ‘unprecedented’ in ‘natural history.'”
And there’s a little veritas added by some brand-name science authorities…
“The New England Journal of Medicine and Nature ran feature stories on this breakthrough, calling the results “profound.”
“But the news was hidden behind scientific headlines like this: ‘Melanocortin 4 Receptor'”
Lashmet says that there are a few factors making this story fly below the radar for investors … it uses those scientific terms like that above and people have grown more skeptical of weight-loss drugs, it isn’t approved yet, and they have intentionally targeted a small subset of the market to start. Here’s a bit more from the ad:
“Outside of a few researchers, doctors, and a small group of lucky patients, almost no one knows about this new drug yet… or how it’s about to change the world.
“The fact is, no drug ever created has been able to do what this one can.
“With almost no side effects… especially compared to the severity of this condition.
“By our calculations, up to 70% of the United States population could soon be prescribed this medication.
“That’s 38 times more than the single most-prescribed drug in the world today, the arthritis drug Humira.”
And on that skepticism:
“… tapeworms, fad diets and supplements all have one thing in common. They pretend to treat what research firm McKinsey has dubbed “a critical global issue”: obesity.
“None of these alleged obesity cures have any basis in science, of course. They are not rational.
“It seems generous to call them a fiction, instead of simply a scam.
“The truth is, they’ve done untold damage.
“A popular drug in the ’90s, Fen-Phen, was found to cause heart damage in many patients. The drug maker ended up paying out $3.75 billion in legal claims.
“But as sad as it is, all of these ineffective and false claims actually give us a huge advantage today.
“They’re part of the reason why almost nobody’s paying attention now, when a real science-based cure for obesity has finally arrived.”
And on the FDA timeline…
“… it’s weeks away from FDA approval. So, when MarketWatch reviewed the top drug makers for anti-obesity pills this past May… this small biotech didn’t make the list.”
And then on that targeted group, which Lashmet implies is essentially making the company seem like it’s hiding this anti-obesity secret…
“You won’t find the words ‘general obesity’ anywhere on this company’s website.
“In fact, they added words like ‘rare genetic deficiencies’ and ‘rare genetic disorders’ to their company slogan and About Us page.
“Because they report that their drug only treats around 2,500 children with a rare genetic condition.
“Why would a drug company go to such efforts to hide the fact their drug could cure hundreds of millions of people?
“As it turns out, there are 350 million reasons why.”
That’s a reference to the priority review voucher this company received for targeting a rare pediatric disease — apparently AbbVie once bought one of these “golden tickets” for $350 million, so it’s a valuable hidden asset of this secret company now. And as we’ve seen from other drug companies plenty of times, it’s fairly common for a drug to be tried out first in a very targeted population, where clinical trials can be relatively small and inexpensive and where the pathway to approval is seen as easier, since the unmet need is high for those patients… then, once the drug is approved, it can be prescribed off-label if it’s seen as safe and effective for other patients, and they can use their initial success to fund more clinical trials that expand the universe of possible customers for that medicine.
What else does Lashmet say to get our clues going?
“… after months of studying this company and their miracle drug… I can say: FDA approval is practically guaranteed.
“The FDA is expected to rule any day now.
“How do I know this?
“Because even regulators called this drug a “breakthrough.”
“And the FDA doesn’t use that word casually. It comes with a special drug designation that guarantees a ruling within six months…”
How about some hints about the actual clinical trial results?
“… this new discovery has yielded weight loss results never before seen in the 50-year history of biotech.
“On average, obese patients in trials lost around 25% of their weight in 12 months.
“Meaning a 250-pound man could lose more than 50 pounds in a year and a half. Using a simple drug with virtually NO side effects – no sweating or sacrifice.
“In fact, the patients in one drug study each lost an average of 70 pounds.”
OK, that’s impressive. What else?
“This drug essentially gives you a higher metabolism… meaning you can suddenly burn more fat while doing absolutely nothing.”
I don’t know if I’ll buy this stock — but that makes me want to try to drug, for sure. Other clues?
Well, it’s not Ozempic…
“To be fair, there’s one other competitor in the works – an injectable drug called Ozempic. But that’s not FDA approved either. In fact, we think our drug will be first…
“For investors, the important part is, the little company we found is 100 times smaller than the company behind Ozempic.”
Ozempic is owned by Novo Nordisk (NVO), so now we know that we’re dealing with a market cap below $1.5 billion or so (NVO is a $150 billion company), with a drug that helps with weight loss and that has the FDA’s Breakthrough Therapy designation… and with some sort of catalyst point coming soon, presumably in the form of an FDA decision. Enough?
Indeed, the Thinkolator sez this is Rhythm Pharmaceuticals (RYTM). Which seems like a personal affront, because there’s no way I’m going to be able to type Rhythm a few dozen more times without misspelling it at least once.
Rhythm is a fairly new company to the public markets, they went public in late 2017 on the strength of their early clinical trials for their obesity drug, Setmelanotide, and they do indeed have a FDA decision coming — the PDUFA date for their first indications is November 27. This is how Rhythm describes itself:
“Rhythm is a late-stage biopharmaceutical company focused on the development and commercialization of therapies for the treatment of rare genetic disorders of obesity. The FDA has accepted for filing an NDA for setmelanotide for the treatment of POMC deficiency obesity and LEPR deficiency obesity with Priority Review and assigned a PDUFA goal date of November 27, 2020. Rhythm also submitted an MAA for setmelanotide to treat individuals living with POMC deficiency obesity or LEPR deficiency obesity to the EMA in June 2020. Rhythm is also evaluating setmelanotide for reduction in hunger and body weight in a pivotal Phase 3 trial in people living with Bardet-Biedl and Alström syndromes, with topline data from this trial expected in the fourth quarter of 2020 or early in the first quarter of 2021. Rhythm is leveraging the Rhythm Engine — comprised of its Phase 2 basket study, TEMPO Registry, GO-ID genotyping study and Uncovering Rare Obesity program — to improve the understanding, diagnosis and potentially the treatment of rare genetic disorders of obesity.”
That PDUFA date in three months does give some urgency to the story — though it’s important to think about the difference between treating several hundred or thousand people with identified “rare genetic disorders of obesity” and treating 100+ million obese Americans. This drug, if it is approved, will no doubt be overprescribed as market forces and huge demand push doctors to prescribe it for people who do not have the specific genetic disorders for which the drug is approved, but it’s not necessarily going to immediately have a huge market. T
hey are actively trying to increase that market, doing a lot of genetic testing in obese patients to identify commonalities or other genetic disorders and variants for which the drug might be indicated, but the size of the market is not “everyone who’s overweight”. At least, not yet. Dave Lashmet might be right that “2 Billion People Need This Drug” … but they’re not all going to get it, at least not anytime soon.
And who knows, it might end up being more dangerous than expected once it’s tested in larger cohorts of people — it is certainly not yet convenient, requiring frequent injections (though they are working on a once-weekly formulation as well).
So far, Setmelanotide has only been given to 440 people — they say that discontinuations are rare, the adverse effects are mostly mild and there have been no association between setmelanotide and changes to heart rate or blood pressure, so that’s all encouraging (many past diet drugs have failed because they cause cardiovascular side effects, sometimes deadly ones), but we’re still talking about small numbers of people.
In looking through the company’s investor presentation, I get the impression that the impact of the drug is pretty phenomenal — I have no idea whether it will have the same impact on people who do not have genetic disorders that predispose them to obesity, but it’s pretty clear that the drug works and has been well-tolerated on the relatively small number of people who tried it. And it looks like it might be a maintenance drug, not something you take just to lose weight but something that is taken to keep hunger under control in perpetuity — the data they share from last year’s trials in their investor presentation indicate that after a period of weight loss, shifting to a placebo several months in caused the weight gain to bump right back up immediately, bolstering both effectiveness claims and, perhaps, the market opportunity if the drug has to be taken long-term.
And here’s some more from the ad on the size of the opportunity — what Lashmet seems to believe is the secret that leads to this being a mass-market drug eventually:
“There’s no doubt in my mind that this tiny company has the next great blockbuster drug.
“But they also have an ace in the hole… a secret that makes this opportunity even bigger….
“… when this new weight loss drug popped up on my radar, I dug up the 200-page report company executives filed with the U.S. Securities and Exchange Commission back in September of 2017.
“And a sentence I found buried a hundred pages in… revealed something valuable.
“It’s worth its weight in gold, saffron, and diamonds.
“Read it for yourself, right here:
‘Initial [drug name] clinical trials were in patients with general obesity, which provided preliminary evidence of the safety and efficacy of the drug…'”
That language is from Rhythm’s IPO filings in late 2017, here’s some more detail from the S-1:
“Initial studies in general obesity provided preliminary evidence of efficacy and of good tolerability, and served as a foundation for the clinical development of setmelanotide. The general obese population is defined as having a BMI of equal to or greater than 30 kg/m2. In our initial clinical trials, we delivered setmelanotide with continuous SC infusion using an insulin pump. More recently, our administration has been converted to a once daily SC injectable formulation. In addition, we have an ongoing trial to assess the pharmacokinetics of a new, long-acting formulation of setmelanotide.”
My quick take is that there were challenges in those Phase 1 and Phase 2 studies among the “general obesity” population, partly in finding the right way to deliver the drug (insulin pump vs. daily injections) and partly in the much better results for inpatients than outpatients, so it may be that there are other things going on, and perhaps that cooled investors interest in the stock as a big-market diet drug company to some degree (the shares have generally drifted down from their $30 IPO price)… but it is pretty clear from their recent trials that it at least works really well in those targeted patients with genetic disorders, and the early trials in “general obesity” patients, as far as I see in their filings, did not create any scary side effects — it was effectiveness and difficulty in compliance that seemed to moderate the results a bit, not adverse effects, and the drug was still effective in many of those trials, even if not to the dramatic “25% weight loss” degree of some of their more recent trials among the genetic disorder patients.
More from Lashmet:
“And the best part is, this small drug company can choose to hit the general obesity market any time after their drug is approved.
“It could literally be used ‘off-label’ on day one.”
Will it be? I have no idea. It certainly has been very effective at weight loss in their clinical trials, and the stock doesn’t seem wildly priced given even a chance at a larger market emerging — the market cap is right around $1 billion, and they have more than $200 million in cash in addition to the “golden ticket” priority review certificate that Lashmet mentioned, and there will be that FDA catalyst that probably brings more attention to the stock later this year (it could be bad attention, of course, even a high likelihood of approval doesn’t mean 100% certainty).
The market will take time to grow, I imagine, but it is somewhat interesting… even for a guy like me, who rarely invests in biotech stocks. Their target market is officially very small, and the market cap reflects that… but it’s certainly possible that the market could grow rapidly, particularly if doctors embrace the drug for off-label prescribing to patients with persistent or dangerous obesity that hasn’t been connected to a genetic disorder.
And incidentally, if you like the idea but aren’t crazy about Rhythm specifically, there’s also at least one partner working on one of their formulations — the European pharma company Camurus (CAMX in Stockholm). Camurus is best-known for an extended-release opioid addiction treatment, which is the focus of the company, but among their other earlier-stage projects they’re also partnering with Rhythm in the development of an extended-release version of Setmelanotide, using their FLuidCrystal formulation, and if that extended release version is effective and ends up being commercialized Camurus will earn a tiered royalty — they describe it as “mid to mid-high, single digit”, so I guess that’s 4-7% or so of sales. I don’t know much about Camurus, and that extended-release version is not what’s hitting a PDUFA date in November, so that’s a further-in-the-future story, but sometimes a royalty-earning partner can be a nice way to play a blockbuster if it works out.
So that’s all this non-biotech guy can tell you about Lashmet’s new biotech pitch — he’s teasing Rhythm, which does indeed have an impressive anti-obesity drug… and I’d (inexpertly) guess that it probably is likely to be approved in November for that first cohort of patients, and given the general impression I have that it has been well-tolerated and effective, I would further guess that it’s not outside the realm of possibility that a big off-label market could emerge quickly, though it’s an inconvenient once-daily injection, it seems to work better for inpatients, and we have no idea what the cost might be.
That’s a lot of guessing about the future and a lack of real biotech expertise talking, and I expect Dave Lashmet’s report is probably far more detailed for his subscribers… but, well, I’m at least sure that the Thinkolator is correct in identifying Rhythm as the company being teased… and I didn’t charge you $2,500 to find that out. Maybe the notion of this stock makes you crave Lashmet’s advice and makes the idea of subscribing to his letter make sense — maybe it just takes away that “learn the secret” urge and gives you some time to think it over for yourself, that’s your call.
Whether the stock takes off from here and goes on to cure our plague of roundness, I don’t know, but I’d be delighted to hear what the biotech mavens and science folks out there think of the prospects… just use our happy little comment box below.
P.S. if you’re looking for Lashmet’s other teased “special report” ideas, he talks up a “universal cancer cure” that is probably a repeat of what we covered last Fall… and his “first and best Alzheimer’s treatment” pitch was covered here in April.
P.P.S. If you’ve ever subscribed to Lashmet’s newsletter, whether at that “sale price” of $2,500 or some other cost, please click here to let your fellow investors know if Stansberry Venture Technology was a hit for you.