Durable Obesity Therapies And GLP 1 Trends Will Drive Long Term Upside

Catalysts

About Fractyl Health

Fractyl Health is developing minimally invasive, procedure based and genetic therapies that target root causes of obesity and type 2 diabetes to deliver durable metabolic control.

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

• Growing global use of GLP 1 medicines is creating a large and recurring pool of patients who will discontinue drugs and need durable weight maintenance solutions. This positions Revita to drive high margin procedure based revenue growth as clinical adoption scales.
• Advancing REMAIN 1 and REVEAL 1 clinical programs toward pivotal data and a potential PMA filing in the back half of 2026 could unlock regulatory approval, accelerate top line growth and improve operating leverage as fixed R&D spending moderates.
• Real world German registry data showing consistent 1 and 2 year durability in weight loss and HbA1c reduction strengthens the value proposition for payers, supporting future reimbursement, higher procedure volumes and improving net margins through better pricing power.
• Leveraging existing endoscopy infrastructure and a ready to activate network of high volume centers enables an efficient commercialization model. This can limit SG&A growth relative to revenue and expand earnings as procedure throughput increases.
• Progress in the Rejuva Smart GLP 1 platform, including RJVA 001 entering the clinic and RJVA 002 obesity data, adds a second growth pillar that can diversify revenue, extend patent protected cash flows and support a higher long term earnings trajectory.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Fractyl Health's revenue will grow by 3066.5% annually over the next 3 years.
• Analysts are not forecasting that Fractyl Health will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Fractyl Health's profit margin will increase from -4073233.3% to the average US Medical Equipment industry of 13.0% in 3 years.
• If Fractyl Health's profit margin were to converge on the industry average, you could expect earnings to reach $12.4 million (and earnings per share of $0.07) by about December 2028, up from $-122.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 127.6x on those 2028 earnings, up from -2.3x today. This future PE is greater than the current PE for the US Medical Equipment industry at 29.2x.
• 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 8.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Revita's long term weight maintenance benefit may prove less durable or less consistent across broader, more heterogeneous real world obesity populations than seen in tightly controlled trials and the small German registry. This would lower procedure adoption rates and constrain revenue growth and gross margins over time.
• Regulatory or reimbursement pathways for a new endoscopic obesity category may be slower or more restrictive than anticipated. This could include delays in establishing CPT codes or unfavorable payer coverage decisions, which would limit procedure volumes and depress net margins despite growing clinical evidence.
• The rapid innovation cycle and increasing efficacy of next generation GLP 1 and related obesity drugs could reduce demand for post drug procedural off ramps. This could lead to lower than expected Revita utilization and weaker long term earnings power.
• Fractyl remains a loss making company with a finite cash runway only into early 2027 and multiple capital intensive programs running in parallel. Clinical or regulatory setbacks for Revita or Rejuva could force dilutive equity raises or pipeline prioritization that weighs on earnings and shareholder value.

Valuation

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

• The analysts have a consensus price target of $7.44 for Fractyl Health based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $5.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $95.2 million, earnings will come to $12.4 million, and it would be trading on a PE ratio of 127.6x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $2.04, the analyst price target of $7.44 is 72.6% 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.