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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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For the quarterly period ended March 31, 2022

OR

For the transition period from           to         

Commission file number 001-38223

RHYTHM PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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222 Berkeley Street

12^th Floor

Boston, MA 02116

(Address of principal executive offices)

(Zip Code)

(857) 264-4280

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒.

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The number of shares outstanding of the registrant’s Common Stock as of April 27, 2022 was 50,393,731.

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RHYTHM PHARMACEUTICALS, INC.

FORM 10-Q

INDEX

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PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

Rhythm Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Rhythm Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(in thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Rhythm Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)

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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Rhythm Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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Rhythm Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share information)

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the “safe harbor” created by those sections. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding: our financial performance, including our expectations regarding our existing cash, operating losses, expenses and sources of future financing; our ability to hire and retain necessary personnel; patient enrollments and the timing thereof; the timing of announcements regarding results of clinical trials; our ability to protect our intellectual property; ongoing activities under and our ability to negotiate our collaboration and license agreements, if needed; our marketing, commercial sales, and revenue generation; expectations surrounding our manufacturing arrangements; the impact of the novel coronavirus, or COVID-19, pandemic on our business and operations and our future financial results; and other statements identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “likely,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms are forward-looking statements.  These forward-looking statements are neither promises nor guarantees of future performance, and are subject to a variety of known and unknown risks and uncertainties, many of which are beyond our control, and other important factors which could cause actual results to differ materially from those contemplated in such forward-looking statements. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including but not limited to those set forth in Part II, Item 1A under the heading “Risk Factors” of this Quarterly Report on Form 10-Q. Except as may be required by law, we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Overview

We are a global, a commercial-stage biopharmaceutical company committed to transforming the treatment paradigm for people living with rare genetic diseases of obesity, which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia. Rhythm’s precision medicine, IMCIVREE™ (setmelanotide), for which for which we have exclusive worldwide rights, has the potential to restore dysfunctional melanocortin 4 receptor (MC4R) signaling due to impaired MC4R pathway function. MC4R pathway deficiencies result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense feelings of hunger and to obesity. IMCIVREE is the first-ever therapy developed for patients with certain rare genetic diseases of obesity that is approved or authorized in the United States, European Union (EU) or Great Britain. IMCIVREE was approved by the U.S. FDA in November 2020 for chronic weight management in adult and pediatric patients 6 years of age and older with obesity due to proopiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1) or leptin receptor (LEPR) deficiency confirmed by genetic testing demonstrating variants in POMC, PCSK1, or LEPR genes that are interpreted as pathogenic, likely pathogenic, or of uncertain significance. The European Commission (EC) and Great Britain’s Medicines & Healthcare Products Regulatory Agency (MHRA), in July and September 2021, respectively, granted marketing authorization to IMCIVREE for the treatment of obesity and the control of hunger associated with genetically confirmed loss-of-function biallelic POMC, including PCSK1, deficiency or biallelic LEPR deficiency in adults and children 6 years of age and above. These approvals were based on Phase 3 data demonstrating a statistically significant and clinically meaningful reduction of weight and hunger in patients 12 years old or older with severe obesity due to POMC, PCSK1 or LEPR deficiency. In addition to the United States and Europe/UK, we and our partners are seeking approval for IMCIVREE to treat patients with these genetic obesities in Israel, China, Hong Kong and Macau.  

Additionally, we are seeking regulatory approvals in the United States and Europe for setmelanotide to treat obesity and control hunger in patients with Bardet-Biedl syndrome (BBS) or Alström syndrome. In November 2021, we announced the U.S. Food and Drug Administration (FDA) has accepted for filing our supplemental New Drug Application (sNDA) for setmelanotide seeking to expand the approved label to include patients with BBS or Alström syndrome and granted us priority review for this sNDA. The FDA has assigned a Prescription Drug User Fee Act (PDUFA) goal date of

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June 16, 2022 for this sNDA. We are advancing physician and patient education and engagement efforts, patient identification and other strategies in support of a potential United States commercial launch of setmelanotide for the treatment of obesity and hyperphagia in patients with BBS and potentially Alström syndrome. Also a Type II variation application to the European Medicines Agency (EMA) seeking regulatory approval and authorization for setmelanotide to treat obesity and control of hunger in adult and pediatric patients 6 years of age and older with BBS also is under review.  We anticipate that the EMA’s Committee for Medicinal Products for Human Use (CHMP) will make its recommendation on the Company’s Type II variation application in the third quarter of 2022. We are advancing efforts to achieve market access for BBS in EU member countries and the UK, as well.

We also are advancing a broad clinical development program evaluating setmelanotide in several ongoing clinical trials, and we are leveraging what we believe is the largest known DNA database focused on obesity - with approximately 45,000 sequencing samples as of December 31, 2021 - to improve the understanding, diagnosis and care of people living with severe obesity due to certain variants in genes associated with the MC4R pathway. In April 2022, we enrolled the first patient in the pivotal Phase 3 EMANATE clinical trial, a randomized, double-blind, placebo-controlled trial to evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of the POMC/PCSK1 genes or LEPR gene or certain rare variants of the SRC1 gene or the SH2B1 gene. We also have initiated the Phase 2 DAYBREAK clinical trial designed to evaluate setmelanotide in patients who carry a confirmed variant in one or more of 10 additional genes with strong or very strong relevance to the MC4R pathway. Our broad clinical program evaluating setmelanotide in rare diseases of obesity also includes the ongoing exploratory Phase 2 Basket study, an ongoing Phase 2 study evaluating setmelanotide in patients with hypothalamic obesity, a Phase 3 study in pediatric patients with MC4R pathway deficiencies between the ages of 2 and 6 years old, and a potential registration-enabling study with our once-weekly formulation of setmelanotide. Additionally, as an FDA post-marketing requirement, we are currently evaluating the effects of setmelanotide on the QT interval corrected for heart rate, or QTc interval, in healthy volunteers.  We expect to announce preliminary data from the ongoing Phase 2 study in patients with hypothalamic obesity and new  data from the ongoing exploratory Phase 2 Basket Study in the middle of 2022.

There are currently no effective or approved treatments for these MC4R pathway related diseases. The FDA has acknowledged the importance of these results by giving setmelanotide Breakthrough Therapy designation for the treatment of obesity associated with genetic defects upstream of the MC4R in the leptin melanocortin pathways. The Breakthrough Therapy designation currently covers indications for POMC deficiency obesity, LEPR deficiency obesity, BBS and Alström syndrome.

Additional recent clinical, regulatory and commercial updates include:

On May 3, 2022, we announced that the first patients have been treated with IMCIVREE in France under the paid early access program. The French Haute Autorité de Santé (HAS) granted paid early access for IMCIVREE for patients with POMC, PCSK1 or LEPR deficiency obesity in January 2022.  In addition, we announced that we anticipate releasing preliminary data from the ongoing Phase 2 study in patients with hypothalamic obesity and new data from the ongoing exploratory Phase 2 Basket Study evaluating setmelanotide in patients with obesity due to a variant in the MC4 receptor in mid-2022.

On May 3, 2022, we also announced that six abstracts were accepted for presentation at the Endocrine Society Annual Meeting & Expo (ENDO), being held on June 11-14, 2022 in Atlanta, Georgia. Dr. Jesús Argente, Universidad Autónoma de Madrid in Spain, will deliver an oral presentation of 12-month data from long-term extension trials of setmelanotide in patients with obesity due to heterozygous variants in POMC, PCSK1, and LEPR. In addition, five abstracts will be delivered as poster presentations, including:

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On May 3, 2022, we also announced that on April 22, 2022, the CHMP recommended the EC approve a modification to the summary product characteristics (SmPC) for IMCIVREE for biallelic POMC, PSCK1 or LEPR deficiency that would allow for treating patients who have moderate or severe renal impairment with an adjustment for more gradual dose escalation and a lower maximum dose.  The final EC decision on this amendment is anticipated to come in July 2022, and this same dosing modification request is being considered as part of the scheduled review for BBS.

On May 2, 2022, we announced the presentation of new data supporting the potential for setmelanotide to treat the early-onset obesity, hyperphagia, and metabolic impairment associated with BBS.  This cumulative safety data from across the setmelanotide clinical development program demonstrated, that treatment was generally well tolerated consistent with prior clinical experience. These data were presented at the Pediatric Endocrine Society (PES) 2022 Virtual Annual Meeting, held April 28 - May 1, 2022.

On April 6, 2022, we announced the first patient was enrolled in its Phase 3 EMANATE trial. We also announced modifications to the trial design for EMANATE to focus on rare patient populations that we believe have the highest likelihood of success.  After receiving feedback from the FDA in April 2022 that indicated that additional clinical trials to support potential registration for non-rare patient populations would likely be required, we eliminated a fifth sub-study intended to evaluate setmelanotide in patients with a PCSK1 N221D variant. EMANATE now includes four independent sub-studies, evaluating setmelanotide in patients with obesity due to a heterozygous variant of the POMC or PCSK1 gene, the LEPR gene, the SRC1 gene or the SH2B1 gene. In the POMC/PCSK1 and LEPR sub-studies, we will focus enrollment on heterozygous variants classified as pathogenic and likely pathogenic, as initially planned. In addition, instead of enrolling across the entire spectrum of variants of uncertain significance (VUS), we will focus on patients with suspected pathogenic variants, or a subset of VUS, which are most likely to impair MC4R pathway function. We anticipate an enrollment period of 12-18 months to complete enrollment of approximately 400 patients in the trial.

Also on April 6, 2022, we announced modifications to the enrollment criteria in our Phase 2 DAYBREAK trial, which began enrolling patients in January 2022, to focus initially on rare variants associated with 10 prioritized MC4R-relevant genes, which we and key opinion leaders believe have the highest probability of success.  The trial is now expected to enroll approximately 100 to 200 patients with hyperphagia and severe obesity and a variant in one of these 10 genes. We decided to pause the enrollment of patients with variants in additional MC4R pathway genes and will evaluate expansion of DAYBREAK to these genes based on the early clinical data from the prioritized genes.

Our operations to date have been limited primarily to conducting research and development activities for setmelanotide. To date, we have not generated significant product revenue and have financed our operations primarily through the proceeds received from the sales of common and preferred stock, asset sales, as well as capital contributions from the former parent company, Rhythm Holdings LLC. From August 2015 through August 2017, we raised aggregate net proceeds of $80.8 million through our issuance of series A preferred stock.  Since our initial public offering, or IPO, on October 10, 2017 and our underwritten follow-on offerings through February 2021, we have raised aggregate net proceeds of approximately $611.4 million through the issuance of our common stock after deducting underwriting discounts, commissions and offering related transaction costs. We also received $100.0 million from an asset sale, specifically in connection with the sale of our PRV.  In December 2021, we entered into an Exclusive License Agreement with RareStone Group Ltd., and received $7.0 million in connection with the execution of that agreement. We will not generate significant revenue from product sales until we are able to successfully establish a marketing and commercialization infrastructure for IMCIVREE.  IMCIVREE became commercially available to patients 6 years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency in the U.S. in the first quarter of 2021 and following marketing authorizations in the EU and Great Britain, we are pursuing a country-by-country strategy to establish market access and reimbursement for IMCIVREE in several countries. As noted above, during March, 2022, we treated the first patients with IMCIVREE in France under the paid early access program.  We expect to continue to fund our operations through the sale of equity, debt financings or other sources. We intend to build our own marketing and commercial sales infrastructure and we may enter into collaborations with other parties for certain markets outside the United States. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable

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terms, or at all. If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or commercialization of setmelanotide.

As of March 31, 2022 we had an accumulated deficit of $581.7 million. Our net losses were $52.8 million, and our net income was $43.8 million, for the three months ended March 31, 2022 and 2021, respectively. We expect to continue to incur significant expenses and increasing operating losses over the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

As of March 31, 2022, our existing cash and cash equivalents and short-term investments were approximately $241.0 million. We expect that the changes to the EMANATE and DAYBREAK trials discussed above, coupled with a streamlining of our planned global network of clinical trial sites, will result in meaningful cost savings.  We expect that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses into at least the fourth quarter of 2023.

Corporate Background

We are a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc.

Impact of COVID-19

We are closely monitoring how the continued spread of COVID-19 is affecting our employees, business, preclinical studies and clinical trials. In response to the COVID-19 pandemic, we have limited access to our executive offices with most employees continuing their work outside of our offices and travel has been restricted.  Based on current information we do not currently anticipate any disruption in the clinical supply of setmelanotide.  Our CMOs have indicated that they have appropriate plans and procedures in place to ensure uninterrupted future supply of clinical and commercial-grade setmelanotide, subject to potential limitations on their operations due to COVID-19.  As a result, we do not currently expect that the COVID-19 pandemic will have a material impact on our business, results of operations and financial condition.  At this time, however, there is still uncertainty relating to the trajectory of the pandemic and the impact of related responses, and disruptions caused by the COVID-19 pandemic have resulted and may in the future result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. For example, we experienced interruption of key clinical trial activities, such as patient attendance and clinical trial site monitoring, in our Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with BBS or Alström syndrome. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the

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pandemic, the impact of variants, evolving travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, the effectiveness of vaccines and vaccine distribution efforts and the effectiveness of other actions taken in the United States and other countries to contain and treat the disease. See “Risk Factors—The COVID-19 pandemic has and may continue to adversely impact our business, including our preclinical studies, clinical trials and our commercialization prospects.” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Financial Operations Overview

Revenue

To date, we have not generated significant revenue from product sales.  Our lead product candidate, IMCIVREE, was approved by the FDA in November 2020 for chronic weight management in adult and pediatric patients six years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency confirmed by genetic testing. IMCIVREE became commercially available in the United States in the first quarter of 2021.  We recorded our first sales of IMCIVREE in the United States in March 2021 and we made our first sales in France during March 2022 under the paid early access program.  We expect our initial sales of IMCIVREE will be limited by the ultra-rare nature of the disease and limited number of diagnosed patients in the United States and throughout the rest of the world.

Cost of sales

All of our inventory of IMCIVREE produced prior to FDA approval is available for commercial or clinical use.  Most of the manufacturing costs have been recorded as research and development expenses in prior periods.  Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended March 31, 2022 were insignificant.  We expect cost of sales to increase in 2022 as we continue to sell inventory that is produced after we began capitalizing IMCIVREE commercial inventory.  We continue to evaluate the impact of this previously expensed inventory on the future cost of product sales, however we do not expect there to be a signicant impact based on the cost structure of the product.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery and genetic sequencing efforts, and the clinical development of setmelanotide, which include:

We expense research and development costs to operations as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

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The following table summarizes our current research and development expenses:

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We are unable to predict the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of setmelanotide will depend on a variety of factors, including:

A change in the outcome of any of these variables with respect to the development of our product candidates would significantly change the costs and timing associated with its development and potential commercialization.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our setmelanotide and other development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to commercialization and there can be no guarantee that we can meet the funding needs associated with these expenses.

Selling, general and administrative expenses

Selling expenses consist of professional fees related to preparation for the commercialization of setmelanotide, as well as salaries and related benefits for commercial employees, including stock-based compensation.  As we accelerate our preparation for commercialization and start to market setmelanotide and as we explore new collaborations to develop and commercialize setmelanotide, we anticipate that these expenses will materially increase.

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, relating to our full-time employees not involved in R&D or commercial activities.  Other significant costs include rent, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

The following table summarizes our current selling, general and administrative expenses: