Rhythm Pharmaceuticals, Inc. (RYTM) Earnings Call Transcript & Summary

Good Afternoon, and welcome once again to the Morgan Stanley 18th Annual Global Healthcare Conference. I'm one of the biotech analysts from Morgan Stanley. My name is David Lebowitz. Before I get going, I'm going to do -- go through the requisite disclosures. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, I would like to introduce our next company is Rhythm Pharmaceuticals. And from the company, I have new CEO -- Chairman, President and CEO, David Meeker; and CFO, Hunter Smith. I guess, to start off, if you could give us a top level overview of the company. Some of the evolution that has occurred, certainly on the top level management side over the last year or so. And talk about the company's mission.

Yes. Great. Thank you, David. So Rhythm Pharmaceuticals is a company, I think one of the more exciting companies in the rare disease space, who's mission is to transform the lives of patients with rare genetic disorders of obesity. I think it's a somewhat of a classic rare disease challenge in the sense that these patients who have an underlying monogenetic cause or contributor to their obesity exists in this larger pool of obese patients, I think largely go unrecognized. And so Rhythm's mission challenge is to create the awareness and then provide tools to the community that allows these patients to come to awareness to be diagnosed. We have a drug setmelanotide, which works with the MC4R pathway. MC4R pathway is a pathway in the hypothalamus that drives our interpretation of hunger. So when this pathway is stimulated, it reduces our drive to eat. The hyperphagic component, stimulation of the pathway also increases our metabolic rate and so our energy consumption. And so it's a major driver influence in terms of our overall weight and homeostatic balance, if you will. Disruptions to that pathway, of course, lead to the converse, which is a constant feeling of hunger, and it's not your normal hunger that you and I might experience, but this is, I think, more akin to pain that these patients are experiencing in terms of being constantly hungry despite having eaten a full meal. And they increasingly suffer for -- more and more obesity and leading to very significant morbid obesity with all the consequences that come with that level of obesity. The company is past the proof-of-concept base, and we've completed a Phase III trial in our POMC, LEPR, 2 of the genes that are most closely linked to the pathway and are looking at the upcoming PDUFA date on November 27. We have 2 other genes, which are in Phase III at the current time for Bardet-Biedl and Alström, and they will read out at the end of December, early January. And then, David, we have, I think, what's underappreciated about Rhythm, but really exciting, I mean some other genes and perhaps over the course of this conversation, we can talk a little bit about how we want to get at those.

Certainly, certainly. MC4R pathway is certainly the basis of all the various indications you're pursuing. And these are all genetic obesities. One certainly top level question people have is these are ultra-rare forms of obesity. And then, of course, there are other attempts out there, more generalized obesity. Could you talk about how really these are very distinct and how people should not be confused with how setmelanotide would be used and that it's specifically for the ultra-rare and would not actually be a treatment that would work in the generalized population?

Yes. And we've confirmed that. I think it's a very important distinction. So we do a number of our early studies in normal individuals and specifically normal obese individuals, who, by definition, have an intact MC4R pathway. What's interesting about the drug is that, if you hit the pathway in the setting of normal functioning, if you will, you can drive a small amount of weight loss on the order of 2 to 3 kilograms. But I think that tells you, one, yes, you're getting activity. But secondly, this is not a drug for the normal obese population. And so I think it's an important distinction. We all know that there's been decades worth of trying to develop drugs for obesity, which work up and indirectly trying to modify appetite, stimulate metabolism and the like. What's unique -- somewhat unique about this, I mean, the leptin story, was one of the earlier stories about a true precision medicine for obesity that's targeted at a specific genetic feedback. We're now coming along as an arguably the second group there. Very specifically, this is indicated for patients who have a disruption in that pathway. And I like to think about it as a reduction in tone. If you have intact tone, you should not expect significant weight loss sort of respond. But if you have a disruption, we've seen with the POMC and LEPR patients, that's where we get the 10%-plus weight loss that we've defined as a positive readout in our clinical trials. And the second part of it is because we're restoring a normal balance, unlike many times, obesity, which work indirectly, it seems to be sustainable. And you also -- and many of the patients have continued to get steady weight loss over time. It's not a crash drop in weight. It's a reduction in hunger, decreasing -- increasing energy rate and a steady reduction in weight over time.

Now the first indication your NDA is for 2 different deficiencies. One is called the POMC deficiency, the other called LEPR deficiency. If you could speak a little bit to what are these 2 deficiencies? And what have you -- what did you ultimately show in your pivotal trials that enabled you to go through with the submission?

Yes. So POMC, the pro-opiomelanocortin molecule is broken down into a number of different peptides, one of which is alpha MSH, and that is the ligand, the signal that interacts with the MC4R receptor and drives that reduction in hunger that we get when that pathway is activated. So the POMC and LEPR similarly are 2 genes that are very closely linked in this pathway. And therefore, they were prime candidates to be proof-of-concept genes for us to say, if this pathway is dysfunctional, just regulated, can you restore it with setmelanotide, and that's what we showed. The big question, and maybe I'll step back here a little bit, David, and just provide sort of some concept for Rhythm in general as we think about this pathway. So these first 2 genes, proof-of-concept, incredibly important, very rare. So the number of patients that might respond or be eligible in that category as we've noted on our website, 100 to 500 patients over time for the POMC and more for LEPR. But the world should not expect a lot of patients to go on therapy. This will be a very small opportunity out of the gate. And the importance of it is very important for patients affected and very important for Rhythm in the validation step. The Bardet-Biedl world, which is the Phase III trial that we'll read out here in December or January, that's a larger population. 2,000 patients in the U.S., made the same number ex U.S., clearly larger, meaningful, and Rhythm will go after that accordingly. The piece that I think has been underappreciated about Rhythm over time is this the other genes that may be affected by -- or link to this pathway, who's -- when mutated, disrupted, could be restored and the problem of obesity that's associated with that gene could be reduced or addressed by setmelanotide. How we're going to get at that? And we've provided the world a very small insight into that a year ago when we released the HET data. So the POMC heterozygous data. And in this case, by definition, only one of the alleles is affected, you can expect that there's not complete loss of function in the pathway, but there's a reduction in tone. And so the question was, does that reach a level where it could be addressed. And in the data reported out, 8 patients, 3 to 4 of those patients met or nearly met the definition for a response, which is 10% weight loss. And I think that's the message for the world, which is, as we begin to look at some of these other genes upstream which are potentially many in number and may have a much larger number of potential patients who could benefit here, we're not looking for a 10 out of 10 response. What we're looking for is to try to figure out in that gene, what percentage of the patients may be responders, and it may well be on the order of 10%, 20%, 40%, 50%, not 10 out of 10, not 8 out of 10. And that's great. I mean, to me, that's -- and our challenge is not to figure out as a gene, a yes or no gene is who within that gene population could benefit. And so we are developing what was a strategy in terms of development as to how to get at those patients.

So these 2 initial indications are definitely very small, but they also get the drug on the market. How is the regulatory process going with that?

Yes. So like all companies, I'm sure, in our situation, we were concerned about the COVID impact. I'd say it's been negligible for us. We've had a very regular, quite traditional conventional regulatory review. There is -- we haven't had our final meeting. So until it's done, it's not done. There's probably only one outstanding question that's surfaced to date. There could be something late. But that's -- as we work through this companion diagnostic, so the FDA has decided that they would like a companion diagnostics, which now makes total sense to me for this opportunity. That brings in [ CDRH ]. So we now have both cedar and [ CDRH ]. So a little bit more complexity later in the process. But again, the signal again that, that's going to be a problem, but that's the one outstanding question I have in my knowledge at this point in the process.

Sure. And trying to launch into genetic obesity. Obviously, when BBS is ready, it might be a little different because it's a larger population. How do you get these types of physicians to test for something they've never tested before? And frankly, a lot of them probably would never occur to them to test for this.

Yes. I think, again, what's interesting, if we were looking for POMC patients alone, I think that's really challenging. And it's really challenging because you've got an ultra-rare patient population. Physician sends 10 tests, overwhelming odds are they're all negative and he doesn't test or she doesn't test again. But the way we're approaching this is it's not a POMC problem. It's a rare genetic disorders of obesity problem tied to the MC4R pathway. So we're developing and have in place and will add to it, a gene panel, which includes POMC and LEPR, includes Bardet-Biedl and Alström, and will include some significant number of additional genes that we believe are linked to the pathway. And what I'm would like to aim for and what we'll propose to the FDA is, we've done a basket Phase II. I'd like to do a basket Phase III. And that basket Phase III will include genes that we've studied in our current basket, but we would also look to study genes that we have not yet studied, but the literature tells us they are candidates and have a good probability of being associated with pathway. So that hit rate, let's say, you had 20 to 30 genes in that category. Now if a physician sends that panel out, we told you a couple of years ago when we released our initial original epidemiology data based on 13,000 patients' screen, we had 11% hit rate. This panel, with more genes in it would have an even higher hit rate. So how do we get physicians to test for it? You got to educate them, but you have to give them a tool, a call to action, that's the screen. And the screen needs to have a positive feedback loop, which is, if you screen, you're likely to find a patient who falls in this category. And then the next step, and that's the trial that we're going to be proposing is, we think you need to add one more step, which is a clinical test. 3 steps. You got to have the problem, you got to have a positive genetic test, which makes you eligible for the clinical test and the clinical test is a 3-month trial, basically test. And if you lose a certain amount of weight, let's say, 5% in 3 months, you would be deemed a responder, and we would roll you into a responder trial. If you don't lose that weight, you're a nonresponder, and it's done. And I think this will -- that's a strategy that allows us in a very precise way, precision medicine, precise way to identify the patients who benefit from this drug. I hope that's appealing to the FDA, it should be. There's precedent through this with BioMarin's KUVAN drug. And for sure, that's the real-world of medicine that will be attractive to a payer, who just wants to know, I don't mind paying in the most part, but I want to make sure I'm paying for somebody who's going to benefit.

That makes sense. I guess, when you think about it, you're going to put together a panel that it certainly includes the disorders that will be approved. But your objective is to provide a panel that provides a lot more objective, genetic mutations that affect the MCR pathway -- MCR4 (sic) [ MC4R ] pathway as far as not just creating a pool that will help now and help for the future, but also creates that kind of reinforcement that essentially these physicians will be more akin to realizing these patients exist and create that positive reinforcement loop.

Yes. That's it. Exactly, David. I mean, if we went out and put a sales force out for POMC and LEPR and we're knocking on doors, our return would be 0, truly. I mean our ability to find patients in that way, and I think there's other experiences in the rare disease world that would support that. What we need to do is to build a community that has an understanding of rare genetic disorders of obesity, thinking about it, as I said, the tools. And then like any learning process, right, if you tell me something I may or may not remember it. If you tell me something, give me a call to action, much more likely to remember that and reinforce. And so what's really interesting about the Rhythm challenges, rare disease challenges often in general is it's not just getting a drug approved, right, usual safety and efficacy challenge. It's about building a community in a place that doesn't exist. And this is a -- second additional challenge is not only do we have to build a community which doesn't yet exist, we have to change the practice of medicine, meaning physicians. We know how to treat obesity. We've treated obesity for a long time. So you've got to walk that back and say, look, no, not all obesity is the same. You need to be thinking differently. There's a segment of the obese population where they have this defect, need to be treated differently, and you need to think differently about that.

Upcoming later this year, you're going to be providing data or early in the next year for BBS. Unlike POMC, or LEPR, is this is a larger indication? And frankly, it's an indication that's probably easier to find patients. Could you set the tone for what we should expect with this data and also contrast that particular market with these first 2?