First Mover In Prader Willi Treatment Will Transform Rare Disease Market Over Time

Catalysts

About Soleno Therapeutics

Soleno Therapeutics develops and commercializes VYKAT XR, the first FDA approved treatment for hyperphagia in people with Prader Willi syndrome.

What are the underlying business or industry changes driving this perspective?

• First mover position with the only FDA approved therapy for PWS related hyperphagia in patients 4 years and older, supported by Phase III data in 127 patients and over 400 patient years of exposure, can help sustain pricing power and support revenue resilience and potential scale benefits for earnings.
• Early commercial traction with 1,043 cumulative patient start forms, 764 active treated patients and 494 unique prescribers by the end of Q3 2025 points to growing treatment adoption in a defined rare disease population, which can support continued revenue growth and incremental operating leverage.
• Broad and expanding payer coverage, including approximately 132 million covered lives and reimbursed claims from about 40 state Medicaid programs, reduces access friction for new patients and can support more predictable cash collections and potential margin stability.
• Target market remains under penetrated, with management referring to a total addressable market of roughly 10,000 PWS patients in the U.S. and about 12,000 identified in claims data. Existing awareness and education programs, along with KOL engagement, may support further patient uptake and operating margin expansion as fixed commercial costs are spread over higher revenue.
• Progress toward European approval for DCCR, including EMA validation of the marketing authorization application and receipt of day 120 questions that are similar in nature to prior FDA discussions, creates the possibility of geographic expansion into an estimated 9,500 PWS patients across major European markets, which could add a new revenue stream and support earnings diversification.

Assumptions

This narrative explores a more optimistic perspective on Soleno Therapeutics compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Soleno Therapeutics's revenue will grow by 131.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -79.5% today to 77.2% in 3 years time.
• The bullish analysts expect earnings to reach $942.0 million (and earnings per share of $15.88) by about January 2029, up from $-78.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $397.5 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.3x on those 2029 earnings, up from -31.6x today. This future PE is lower than the current PE for the US Biotechs industry at 21.5x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Soleno relies heavily on a single product, VYKAT XR, in a rare disease with an estimated U.S. treatable population of roughly 10,000 PWS patients and about 12,000 identified in claims data. If physician enthusiasm, clinic set up, or patient willingness to start treatment slows over time, revenue growth could stall in what is a finite market and limit earnings expansion.
• The product profile includes on label adverse events such as edema, hyperglycemia and other fluid retention issues, and management already reports around 8% discontinuations related to adverse events and 10% total discontinuations. If long term real world safety concerns build among general community prescribers or caregivers, that could cap treatment duration and reduce both revenue and net margins.
• The short seller report in mid August and the company’s own comments about lower patient start forms, increased discontinuations for nonserious adverse events and September and October trends looking similar highlight that sentiment around safety can change quickly. If this type of perception risk persists or recurs, it could dampen new patient starts and pressure earnings.
• Launch success so far depends on broad payer coverage, including about 132 million covered lives and reimbursement from around 40 state Medicaid programs. As zero cost inventory is replaced with inventory recorded at cost and payers refine coverage criteria over time, cost of goods sold and access terms could move against the company and put pressure on net margins and cash generation.
• The growth story assumes successful expansion into Europe, anchored on EMA review of DCCR and an estimated 9,500 PWS patients in key EU markets. If regulatory questions on efficacy, study design or data consistency are not resolved in Soleno’s favor, or if commercialization there is delayed or requires heavy partnering economics, the expected new revenue stream and diversification of earnings may not materialize.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Soleno Therapeutics is $143.71, which represents up to two standard deviations above the consensus price target of $113.54. This valuation is based on what can be assumed as the expectations of Soleno Therapeutics's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $145.0, and the most bearish reporting a price target of just $75.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $1.2 billion, earnings will come to $942.0 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $46.14, the analyst price target of $143.71 is 67.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.