Just weeks after its initial public offering, Fractyl Health is catching Wall Street’s attention as the next potential biopharmaceutical darling. Analysts at both Bank of America and Morgan Stanley initiated coverage of the biotech stock on Tuesday, rating it buy and overweight, respectively. Both firms, along with Evercore ISI, were joint book-running managers in Fractyl’s Feb. 2 debut . Bank of America analyst Jason Gerberry set a price target of $26, implying that shares of Fractyl could rally more than 242% from their Monday closing price. Morgan Stanley analyst Michael Ulz’s $18 price target corresponds to a rise of nearly 137%. Shares of Fractyl were priced at $15 each in the company’s IPO earlier this month. Analysts are highlighting the company’s groundbreaking therapies that directly target the gut and pancreas to ultimately induce Type 2 diabetes maintenance and weight loss. “Growing evidence indicates the gut is a core regulator of metabolism, placing gut dysfunction as a root cause of metabolic disease. Indeed, emerging consensus links modern diets to changes in the gut and pancreas that in turn increase an individual’s risk of developing Type 2 Diabetes and obesity,” Ulz wrote. “Fractyl is harnessing these insights to develop novel, potentially disease-modifying, treatments that directly target metabolic organs.” Specifically, Fractyl’s therapies Revita and Rejuva differ from current glucagon-like peptide 1 agonists such as semaglutide. The end goal of these procedures is to restore metabolic health back to the patient. “Lead asset Revita (pivotal stage) is a non-invasive endoscopic procedure that restores part of digestive system (duodenum) to a healthier state for better and durable glycemic control. Follow-on asset Rejuva (preclinical) is a one-time, GLP1 gene therapy aims at remission of diabesity, potentially with better tolerability than on-market GLP1 drugs,” Gerberry wrote. GUTS YTD mountain GUTS year to date performance Revita is currently being tested in a pivotal trial involving patients with Type 2 diabetes who are also insulin dependent, with topline results due for release in the fourth quarter of this year. Previous trials have already indicated positive benefits related to glucose control, reduced insulin intake and weight stabilization out to two years after the procedure, Ulz said. Ulz added that in the near term, Fractyl plans to test Revita’s success in a weight maintenance study of patients that have discontinued previous GLP-1 treatment. Going forward, he thinks the worldwide risk-adjusted peak sales for Revita in Type 2 diabetes management could total around $526 million, while peaking around $421 million for obesity-related sales. Meanwhile, gene therapy Rejuva has the potential to remit diabetes, Bank of America’s Gerberry said. “The value proposition for Rejuva is twofold: 1) one-and-done therapy for T2D/obesity, 2) local delivery to the pancreas could isolate therapeutic action to the organ, thereby driving treatment benefits of GLP1 potentially without increasing GLP1 in systemic circulation (avoiding side effects),” he wrote. Ulz forecast that worldwide risk-adjusted peak sales for Rejuva’s potential for diabesity remission could equal around $50.1 million. “Although T2D and obesity represent highly competitive markets, we believe Fractyl’s approach, directly targeting the organ-level (i.e. gut) root cause of disease, could result in a more durable, disease-modifying treatment, differentiated from current, more burdensome (i.e. frequent, daily or weekly, regimens) therapies,” he wrote. “Overall, we expect multiple catalysts over the next 12-18 months for Revita to drive upside, while Rejuva could emerge as a long-term value driver,” Ulz added. Shares of Fractyl popped 16% Tuesday.
