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

Good afternoon, everybody. Thanks for continuing to join us at the Bank of America Healthcare Conference, the yearly event. We're coming to you virtually. We hope to be back in Las Vegas next year, fingers crossed. My next presenting company is a rare disease-focused company known as Rhythm Therapeutics. Speaking for Rhythm is David Meeker, who is President and CEO. David, good afternoon. Thank you for joining me this afternoon.

Thank you, Tazeen. I'm glad to be here.

For those who might not be familiar with what Rhythm is focused on, maybe if we can start off with a quick, just 2-minute or less, overview of the company, and then we can go into some details about your data.

Great. Yes. So Rhythm is pursuing obesity. And as we all know, obesity is an epidemic. 40% of the United States is overweight. But what we're focused on is a subset of -- a subsegment of that population that has severe obesity and it's driven by a genetic defect. So it's a monogenetic, in a sense a rare genetic disease, quite different from the more generally obese population. The biology behind it is we're focused on a pathway, the melanocortin-4 pathway, which sits in the hypothalamus. This pathway controls hunger and energy expenditure. So that balance basically determines our weight. If you have a defect in that pathway, you're hungry all the time. And I think one of the things that people are just coming to appreciate is that this is not the normal hunger that you and I experience when we miss a meal, this is really severe pathologic hunger, more akin to pain. And Rhythm's approach to that problem is we have a drug, setmelanotide, which is a precision medicine. It's basically a mimic of the ligand for the MC4 receptor. And that biology has been validated in our first -- the genes that we've studied. So in brief, the way we tackle this problem has been -- we went after the 3 genes, which were most downstream or most closely linked to this pathway, POMC, PCSK1, leptin receptor, a bit of an alphabet soup. But the idea was if it didn't work there, it wasn't going to work anywhere, and we were going to stop. So we had profound results in those first 3 genes that we studied. And now we're working our way upstream. And I think the story of Rhythm is not so much how many patients can we find, and we'll talk about that for these first 3 genes, but how do you fully dissect this pathway and understand which patients who have a defect in the pathway, again, might benefit from setmelanotide. So that's where we are. We're well on that journey. We have our first product approved -- sorry, the first 3 genes approved in November of last year. So we have an approved drug.

Yes. So you're officially a commercial company.

We are.

And you've been very detailed about talking to the Street about the opportunity for your lead indication and that it's encouraging to be on the market, so you can start to educate doctors about setmelanotide, but that the specific indication, based on the gene defects that you have your current label for are in the ultra-orphan range. So you've talked to us about how to generally think about it, but can you just explain what's -- in detail, what your patient-finding efforts have been and will be to support your commercial launch. And then, how the other indications that you're looking at would differ in terms of size of addressable patient population?

Yes. Sure. So exactly as you said, Tazeen, these first 3 genes, so we use U.S. numbers, but you can double or something more than double for the rest of the world. The number of patients, we think, for POMC and leptin receptor deficiency is on the order of 1,500 to 2,000. The problem is, is that they are not at all identified. So our expectation, and as you said, we've been very clear with everybody that the number of patients we expect to have on drug for the next 1 to 2 years is in the 10s. And very specifically, we made the decision that we would not put a sales force on the ground. And the idea to find these rare patients who look like the generally obese population is incredibly challenging, and you don't find them by knocking on doors, you find them by screening in a very systematic way, meaning doing the genetic testing. So it didn't make sense to put a sales force on the ground for this. The way we will find those patients, and I think 2, 3, 4 years, we'll look back and quite meaningfully, I think that will be a significant contributor to the rare disease part of Rhythm, but the way we'll find those patients is through this systematic screening effort, which is being driven by the trials we are running for the upstream genes. And we're talking about the 2 trials that are large and driving that. But the idea is as people screen for patients to enter into that trial, they will also identify some of these patients. So very small initial opportunity, no focus or specific commercial effort in that sense, but actually a very large systematic attempt to increase screening. The next opportunity, which is Bardet-Biedl, that trial Phase III read out in December. That is a population on the order of, again, 2,000 to 3,000 patients. What's different? Although the numbers aren't so different, what's different is it's syndromic. So Bardet-Biedl syndrome, meaning that they present with other manifestations, including eye, kidney, polydactyly, an additional digit. So they become -- people see that individual. They know something's wrong, and that leads to a diagnosis. So there's many more of these patients diagnosed. There's an existing registry here in the United States, which has on the order of 600 patients in it. They tend to concentrate around experts, centers of excellence, if you will. So that will be our first very meaningful effort. And we can talk, I know, a little bit more later about where we are in that process, but we will put a sales force on the ground in the fourth quarter to prepare for next year's launch and go after that in a more conventional way. The big upside, I don't know if you want to go there right now or we can come back to, it is on the additional genes as we work our way through the options.

Okay. So yes, let's spend a few minutes talking about the 2 bigger indications, Alström and Bardet-Biedl. The data that you presented for those indications were certainly compelling in terms of being able to induce weight loss. But I think a couple of questions that I always get from investors, and I'm hoping you can provide color on, is would you expect to see uniform response rate from someone who is classified as Alström or who is classified as Bardet? And if not, how -- is there a way, other than just trial and error of knowing if a person is going to have meaningful weight loss when put on setmelanotide therapy?

Yes. What's interesting about obesity is there's just an inherent noise in the system for all of our challenges, right? I mean we can correct the defect, but if you don't change your eating behaviors and some of this is learned, so it is calories-in, calories-out kind of equation. So no, it won't be uniform in the sense that people have to -- if we correct the defect, they will combine, that's number one. Number two, what's absolutely clear, and I think this is -- as we learn more, if you think about the first gene, POMC, and we don't have a cartoon here of the cell, but POMC, as we said, that's the gene. The protein made from that gene breaks down, that is the ligand for the receptor. In a homozygous state, that's the most pure demonstration of this problem. They had a profound response. The leptin receptor, which sits upstream and then signals down in a cascading way, ultimately through POMC to the receptor, had a very significant but less profound effect. And so the concept, I think, is that we know what absolute loss looks like, probably POMC. We know that if you have reductions in tone, it can be a very significant driver, so a reduction in tone in terms of the level of a ligand that you have that's controlling your hunger. As that tone drops, you have less of it, and it's more likely to be a significant driver. There's heterogeneity in that, and there's heterogeneity within population. So your question was about Bardet-Biedl. Would I expect a uniform response? No. What I thought was incredibly reassuring and positive about the Bardet-Biedl results was there was high consistency. So just to remind you, without breaking down the data because we had some aggregated data sets, but if you just look at the adult Bardet-Biedl population, so those greater than 18, and I'm focusing on them because they've stopped growing, in theory, and so you just have a pure weight readout. 50%-plus, 53% of them lost 10% or more and 70% lost 5% or more, and most of them had a very significant reduction in their hunger. So 5% is viewed as what is clinically meaningful weight loss. As a rule, we've targeted 10%, meaning that, in this population, we will be looking for more. And that result is without a specific diet and exercise program. So long story short, I think we're going to get good consistency, but -- like most drugs, but certainly not in this situation. We will not have the uniform 100% kind of response rates.

Okay. Now in a steady state, let's say, 100 patients -- to have like a round number, 100 patients start on therapy, who are either Alström or Bardet-Biedl. What percent, on average, would you say would see meaningful weight loss? And let's define what meaningful weight loss is because we also get that question. Doctors say that for patients that have difficulty losing this type of weight then -- that historically any kind of weight loss is meaningful. But let's use like 10% or somewhere around 10% as an unofficial target. What percent of patients do you think would be able to achieve that type of weight loss in percent?

Yes. So for -- from this trial, that was the 53% number for the adults. The kids, interestingly enough, you need to do a different calculation because they're growing. So you look at their BMI and then there's what they call the BMI-Z score, which corrects for that factor. What's meaningful in that change, just to put it into perspective, is a 0.3 change in your BMI-Z scores felt to be meaningful. These patients were quite severe. They had BMI-Z scores of 3.7 on average to start. And that's -- the number is the number of standard deviations away from the norm. So they were more than 3 standard deviations away from the norm. So they had a drop of 0.8. So my -- what I would say here is that of the 10%, 50%, but 70% had 5% or more. And the way I envision this drug is, for the clinical development, we've set 10% as the target as the clinical development framework. In other words, that's an end point which will clearly demonstrate the drug works and give you some expectation. From the practice of medicine and benefit to the patient, 5%, with a significant reduction in hunger, that is very meaningful. And we hear stories about the lives of these patients and the families being incredibly disruptive. And these are the classic ones where you lock the refrigerator. There's constant battles about meal time and the like. So hunger is a big part of the benefit.

Right. And so how should one think about the clinical meaningfulness of therapy on setmelanotide? Is it simply a percent of weight loss? Or is it a composite of different things?

No, it's composite. Again, I go back to hunger. The challenge with hunger is it's hard to measure reliably. We use pain scores essentially, simple 0 to 10 kind of scores. But if you think about pain, our baseline pain state should be 0. So when you score in a pain score, of course, that's very meaningful. The problem is with hunger, my baseline hunger score is not 0, I go up and down, of course, as we should, through the day. So we're measuring abnormal hunger on top of hunger. And that's been a more challenging thing to gather. But what's been very clear is, universally, patients describe a reduction in their hunger from what they are experiencing. So what's meaningful? Yes, I go back to the 5%, and that combination of hunger and the piece that will get added in is -- then you combine that with lifestyle adjustment, meaning exercise and better nutritional intake, that will go deeper. That's my prediction.

And so seeing that you have to look at several different angles to determine success, how does one manage that in the clinical program when you're not just doing something that's traditional, like going in and getting weighed, or going in and getting certain blood markers measured, for example? When you have to do all of what you're saying, how do you kind of make sure that you're equilibrating to get to the right answer?

Well, I mean, if I understand the question, so we very specifically did not include diet and exercise. We left it as more of a real-world experience with the belief that this mechanism was strong enough, that you didn't have to couple it with diet and exercise. And what's been interesting, if we look at the areas where we've had a placebo control group, our placebo control group, so for example, in this trial, was very short, 14 weeks, have not been losing weight. So I think this structure, which is real-world drug versus not has allowed it to separate quite meaningfully. So I have 2 conclusions from the Bardet-Biedl world. One robust and we're hitting on the primary end point, the p=0.0024, number one; and number two, done without diet and that the expected benefit group, as again, I would put that in the 70% for the Bardet-Biedl, those clearing the 5% with the associated hunger, yes, clinically meaningful.

And so, if you think about the real world setting and durability of response, how should we be thinking about how long a patient could stay on therapy? Is this something that ideally once they learn to manage with lifestyle change, diet change, they should wean off the drug? Or would they need to be on some form of therapy forever?

No, in theory and the evidence we have today supports this. I think, in, more or less, it's less of an obesity drug, where you might learn to modify your behavior, and it's more -- think of the enzyme replacement therapy world, where I came from, you have a defect. You go off drug, the disease comes back. Here, when we took patients in the POMC and the LEPR portion of it, we had a randomized withdrawal. So in that small trial, they went on drug and started to lose weight, hunger went down and in blinded fashion, when we took the drug away, put them on placebo. And in a 2-week period, their hunger was right back, and an accompanying weight gain was right back. So this is a situation where your pathology doesn't correct itself. You will go back to your prior hunger state.

Okay. So this is something that a patient would likely have to take for several years, if not for the duration…

Right. I mean if you -- no. If you don't eat, you will lose weight. If you can just override whatever you're experiencing here, that is true. But whatever drove you to take it, if you're not going to just grin and bear it and not eat, you need to be on the drug. So yes, it should be a lifetime.

Okay. We did get some questions about the side effect profile of setmelanotide, namely the TAM that some patients have once they've been put on therapy. Can you talk about that, what the physician feedback has been on that particular side effect?

Yes. So virtually universal, so I would say 80%-plus of the patients, the scoring has been a bit variable, but it's pretty universal and it should be universal in the sense that the drug hits both the MC4, which is the desired receptor. It also hits the MC1 receptor as the natural ligand does. It hits both of those. The MC1 receptor mediate is what stimulates our melanocytes to make melanin, which is what is released and causes us to darken. So all patients have some degree of darkening. What we've come to learn over the course of time is that it plateaus. So it rises. It tends to be most severe -- or gets to its most severe point in the first 1 to 2 months as a rule. You tend to plateau. It's reversible if you do come off drug. Now as we talked about, in theory, if you're benefiting, you're going to stay on drug. For the most part, that has not been a challenge. It has been more of a question in individuals, African Americans, for example, people of color who -- so for in that group, that has, for some of them, been more of an issue. And what we are doing as a company is just to make sure that everybody who goes on the drug is very clear about that expectation, that if you go on drug, you will have a darkening, and we'll have pictures and here's what it looks like, and…

Okay. So let's talk about the next data readout that you have upcoming this year, which is a basket of indications. Can you talk to us about the different types of gene defects that you're looking at in this basket, how you decided that those would be the ones to look for? And any kind of preliminary thoughts on what you would expect to see in terms of general level of efficacy?

Yes. So the way we've worked to develop the drug, as I said, starting with the genes most likely to benefit, working up to Bardet-Biedl. Bardet-Biedl, interestingly enough, its biology is it works through the leptin receptors. And not surprisingly, we had a good result with the leptin receptor specifically and then Bardet-Biedl, likely. Then we looked at 5 other genes. These are the heterozygote form. So obviously, if you knock out both alleles in the homozygous state, you would predict that to be more severe. The question is, if you have only one allele knocked out and you're severely obese, because that's how -- you have to have both to get in the trial, could you still benefit? And these individuals with the heterozygote form, we studied 35 of them, then in average BMI of 50. So again, it's -- these are individuals who are suffering with the same exact presentation of the homozygous population. And we studied 2 other genes. We had 5 genes in this basket trial, and we read that out in January, the initial results. And the question we asked was, in a prospectively defined way, what percentage of patients would lose 5% more of their weight in 12 to 14 weeks? And we had 2 questions. One is does it work in these genes? And second is, is that a paradigm that would allow us to identify patients who would benefit? And one of the earlier questions is, is there another way to identify these patients other than just trying them on the drug? And I'm increasingly convinced it's a 3-step process. I'll tell you the results of the trial in a minute, but it's a 3-step process. So one is you have to have a history of early onset obesity. This is genetic. It starts at birth. And invariably, kids will know, I was obese as a child, that was not normal. So that's a key part of the history. If you have that history, get tested, and you have a screen for these genes. Rhythm provides that. As is often the case in rare diseases, you need to -- there's no awareness, no testing, et cetera. The company drives that. So we have a panel that historically read out 40 genes. We just expanded it to 80 genes. It covers all of the genes that are of interest to us, the community as a whole, for this pathway. So that group, the 3 heterozygotes, we had 35 patients, 1/3 of them responded. Now -- so 1/3 cleared the 5%. Those 1/3 that cleared the 5% in the 12 to 14 weeks went on to lose 10% of their weight. Those that did not clear, on average, lost 0.2. So we did seem to have a clear separation by using the drug as a test between those who respond and not respond. Then there's a -- the genetics get a little more complicated here, in that not every mutation is the same, and you can have a gene defect with a variant in that gene which causes it to be benign or likely benign. In other words, yes, you have a mutation, but your pathway is intact, it's not broken. Or you can have a variant where it's more likely to be pathogenic or likely pathogenic, based on what we know about genetics, in which case your pathway is likely to be broken. So when we -- and then you have a big group in the middle, which is the variant of unknown significance, and it's just what it says. There's just not enough data to know is it more likely to be benign or is it more likely to be pathogenic? So this is why I think the 12 weeks on the drug is going to be a critical part of sorting this population. And when we looked at our 35 patients, of the responders, we had a 50% response rate in the pathogenic, likely pathogenic, and a 20% response rate in the VUS. So those are the paradigm, and that's the world that we're going to go after as we move into Phase III for these patients. The other 2 drugs: SH2B1 had a 50% response rate; SRC1 had a 30% response rate, both of them with a similar kind of 7% and 8% response rates, with 1% plus or minus the nonresponders. So that's the paradigm. We've reported that out. At the recent Endocrine meeting, we reported out for the HETs, because that group started much earlier, the 6 and 9-month data and the responders at 6 months and 9 months were 12.2% and 12.3%. So they deepened a little bit, but they basically had maintained their weight and all in the background of COVID, which we might talk about that a little more, but I'll mention it now. COVID is -- it's disrupted routines. All of us, many of us, have put on some weight during COVID. We know increasingly more articles are being written that the obese individual has had more challenges there, and this group, particularly, because the way they manage their problem with that drug is structure. And of course, COVID is disrupting the structure. So I was thrilled with the results we got, to be honest with you, on the back of that kind of environment. And so long story short, we have completed the Phase II. We have proof of concept for these 5 additional genes. We're in active discussions with the FDA about the design of the Phase III. We can talk about it in a minute. And this opens up a very significantly increased opportunity. And I'm looking at a time thinking that maybe -- let me mention that because that's a key part of the message. 5 million individuals in the United States have a history of early onset obesity. If you were to screen that group, and we've tested 40,000 patients to get to this confidence in this number, 10% to 15% of them will be positive for one of the genes in our Phase II basket study. So that's 500,000 to 750,000 individuals in the U.S. If you apply the responder rates to that 570 -- 750,000, we believe that the target population for this expanded group is 100,000 to 200,000. So the world has us correctly now as a rare, genetic, ultra-rare opportunity here, with 5,000 in the first set of genes. What we're looking at in this next group is a jump to 100,000 to 200,000, with proof of concept in that group. And then, in parallel, there's 30 -- 31 genes in the pathway where there's data to suggest it is strongly linked to the pathway and contributing to the obesity. We're running a second basket trial, a new basket trial with those 31 genes, more robustly designed than our current. That opens up -- that's all north, upside to the 100,000 to 200,000. So that's the Rhythm story. It's -- we've started carefully. We've built a rare disease opportunity. We've got a safe and approved drug. And we've got good data in these first genes. But there's an upside here, which I think is, for sure, real, and as I said, proof of concept in 5, and we'll see where it goes.

Okay. So you said a lot, and we only have 2.5 minutes left. So we'll try to talk about some important points related to what you just -- so the 200,000 patients, how do you think -- or how long do you think it would take you to identify those patients?

Yes. So we're doing the screening right now. And think about this as it's a pyramid, right? It starts a little bit slowly, and it will accelerate as you gain momentum. So Rhythm is motivating most of the study. What drives testing? One is availability and knowledge. But two, is you got to have a reason to test, now we have a treatment. And if you test, you want to know if you're going to get a positive hit rate. So the likelihood of getting a positive test is 10% to 15%, as I said, for these 5 genes, if you test that group. If you now include, you're also at the same time testing for an additional 30 genes, that number becomes significantly higher. So you're going to get that reinforcement. So how long will it take us? So our goal is we're going to run 2 trials. The goal is in parallel, this Phase III and then this Phase II basket. The goal is to get them enrolled a year, plus or minus, and then the time it will take to run that trial, right now, is a year. All this is in negotiation with the FDA, but that's rough [ number ].

Okay. So what do you think, in the last minute that we have left, is the most underappreciated aspect of Rhythm?

Yes. I just hit it. I think it's -- which is totally understandable, right? What I would encourage people to think about is we're living in a market where there's, of course, some -- lots of exciting technology and lots of preclinical companies with great prospects. But we all know where drugs fail, and half have been failing in safety and efficacy. And so we've cleared that hurdle. And I think that's worth just reminding people that we have an approved drug, and we have treated 600 people and we understand the safety. It's been quite consistent and the biology works. And the underappreciated part is, okay, can you get to this 100,000 to 200,000? And then, as I said, I think we're progressively derisking that.

Okay. Great. With that, we're at the end of our 30 minutes together. I wanted to say thank you very much for spending this time with me and elaborating on the plans of the company. There's a lot going on at Rhythm for sure, and we're going to look forward to seeing those additional data readouts that you highlighted. In the meantime, I hope you enjoy the rest of the conference, and thanks again for participating. And thanks, everyone, for joining.

Thank you, Tazeen.