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

Good morning. I'd like to welcome you to the 19th Annual Morgan Stanley Healthcare Conference. Before I get started, let me get to the requisite disclosures. 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 am happy to have with me today this morning, for our opening session -- my opening session, from Rhythm Pharmaceuticals, Chairman, CEO and President, David Meeker. Let's get started. I guess to start off here, if you could briefly walk us through Rhythm Pharmaceuticals from a top level, what is the company's overall mission?

Thank you, David. Appreciate being on. So we are focused on rare genetic diseases of obesity. And we know that obesity is a global epidemic. But we're focused on that small segment of the population that has a genetic driver, specifically affecting the hypothalamus, part of the brain that governs our hunger, specifically and also our energy metabolism. So patients with a genetic defect in this melanocortin-4 pathway, they'll eat a full meal, and they won't be satisfied. I mean there's just this unrelenting hunger drive that is behind their obesity in addition to a reduction in their energy metabolism. So that's the problem we're trying to address. We think there is, for example, on the order of 5 million people in the United States, 40% of America may be overweight, but 5 million individuals who have a defect or that contributes to early onset obesity and hyperphagia, and they should be screened, and that's the group we're looking to identify and to address. The drug works by interacting directly setmelanotide with the melanocortin-4 receptor. And when it interacts with that receptor, it restores the functioning and you have a reduction in hunger. So when they eat a meal, they will feel full, and it also contributes to a restoration of the resting energy metabolism. That's the basic challenge that has all the challenges of a rare genetic disease, and we can dig into those a little bit in subsequent questions, but that's our goal.

Excellent. Thank you for that. Just I guess, to take -- get a little perspective here overall. Obviously, people are very acquainted with the obesity as an element. But can you distinguish what it is like for a person who has this genetic obesity, genetically linked obesity versus the standard obesity and what type of hunger they're feeling? And just as far as to sheer magnitude of obesity, how overweight are they compared to a typical patient?

Yes. No, thanks. It's -- we all experience hunger. So again, when you say somebody is excessively hunger, they go, well, I miss a meal, I know what that's like. No, that's not what this is like. This is more akin to pain. It's unrelenting. There's a complete preoccupation with hunger. You talk to parents, who are taking care of children with this genetic defect, and they will describe having to put locks on cabinets. They will describe having to have incredibly regimented meal times. And if they deviate from that in any way, family dynamics become extremely difficult. You can imagine performance in school is compromised because of the inability to concentrate. They're constantly thinking about food, worrying about that next meal. And as a result, with that drive to eat, even though you've "had enough calories," you're still driven to eat. They become morbidly obese and early. So it's severe obesity. They reach it at an earlier age than the general obese population with all the comorbidities that are associated with obesity in general, so the diabetes, the cardiovascular complications and the like, but they just happened earlier in this population.

Is bariatric surgery an option for these patients?

Bariatric surgery is clearly an option for the patient with severe obesity and is being tried in these patients. Anecdotally, and there's not a lot of data because, again, this population is small and not well identified, so many patients who may go for bariatric surgery won't know they have a genetic defect. But it's clear when you start looking that failures in bariatric surgery, not infrequently maybe associated with a genetic defect in this pathway. They lose weight initially, but they gain it back.

So you had a drug approved late last year. IMCIVREE, setmelanotide is the generic name. It was approved for 3 specific mutations, POMC, PCSK1 and LEPR. How would you characterize the launch to this point?

Yes. Well, actually I'm, to be honest with you, thrilled. But let me put that in context. These first 3 biallelic forms, so the homozygous form of POMC, PCSK1 and LEPR deficiencies, extremely rare populations. We think they are on the order of 500 POMC patients and maybe 1,500 LEPR deficient patients in the U.S., homozygous, but they're completely lost in the system. So no starting population, not identified, nobody testing. And as a result, we made the decision that it didn't make sense, and I'm saying this from my prior experience, to put a sales force on the ground and be knocking on doors, trying to identify these patients, you have to build a system that's going to allow these patients to come to light. So with no sales force, we launched the drug simply with the goal of making it available to those patients who were identified and out there, opportunity, obviously, to get the infrastructure in place as a price set. We're beginning to interact with payers. We're getting, obviously, patients through the system. Been very clear right from the beginning that our expectation here was tens of patients in the first 1 to 2 years. And one of the things people need to think about with rare disease is even if you have an identified population, the system is still waking up to that problem. A, it's rare, they don't know about it, they need to understand it. This group, it's obesity, they think they understand obesity, and they're coming to them and say, no, this is not obesity. This is a rare genetic disease that presents with obesity and severe hunger and family disruption and earlier onset of morbidity. So that part of the educational process is clear. The system has not seen a $360,000 drug for obesity before. So there's a whole education that comes back to, again, not obesity, rare genetic disease, physicians in this community, and this has been true with every rare disease they've worked on have never written a prescription for a drug like that, have never had to go through the appeals process that's required often to go through this. So these are the things that we've been working through in this first round of launch, and as I said, I'm frankly, thrilled where we are and right on track.

How is the process of bringing the payers up to speed with setmelanotide going?

Again, great. I would characterize it as we are classically truly below the radar screen. I mean, we are such a small number of patients in the overall system that we're not getting the attention, but we are getting the patients through. So it's not -- we're not the first thing on the review list, and we've been sitting in some payers for a while. They just haven't gotten to it. even though they haven't ruled on it, we've had patients go through their system and get approved. So it's -- I think it's classic in the sense of a very rare disease and the payer response to this has been quite positive overall, not 100%, but very positive. And again, it's -- you work it case by case, but it's working.

And as far as patient identification, now granted you're really not in the full year quite yet. What is the process of identifying these patients? And on these panels that ultimately go out to diagnose them, what mutations are included on the panels?

Yes. So that's one of the things, some rare diseases, they are a defect, and there's only that defect, only that disease, 1 treatment for that defect. What we have in this case is we have quite a large number, we think, potentially of genetic defects that may affect this pathway and may respond to setmelanotide. So the testing panel, the genetic screening panel that you referred to, include AD genes. And the way we find patients, this is the whole thing about you have to build the system. And once the system is working, it will begin to in a much more reliable, consistent way to identify these patients. So how do you build the system? You build it as part of your clinical trial strategy. So as we're running these trials, a Phase II trial in the Phase III trial, we'll talk about in a minute, we just finished the Bardet-Biedl effort. That screen, which supports all of those tests, all of those trials also is looking for the first 3 genes approved. So -- and the presentation of the patients is highly similar. So it's not that you can look at a patient and say, this one is more likely to be POMC and this one is more likely to be LEPR, and they look very much the same in most cases. So if you need to screen, and when we screen, we're screening for every gene. So as we accelerate testing, we will increasingly find more of these -- the first 3 genes it was approved for.

Excellent. Now just the last question on the initial launch. Is there a specific dynamic between the U.S. and Europe that we should be aware of?

Yes. So we just got approval in Europe, as you know, and that's a big step in any company. I think many U.S. biotechs tend to think outside the U.S. is a big black box and often don't go after it or try to go after it with a separate partner. We're going direct. We have a highly experienced team in Europe, and I am a big believer in the fact that in a rare disease world, you are best served, if you can go direct, go direct. The dynamic quite different actually. I wish the U.S. in some ways, look more like Europe with regard to the fact that Europe, historically, for virtually all rare genetic diseases are organized around centers of excellence. So there's a series of centers of excellence around Europe where patients get referred in. And unlike the U.S., they have patients, who they have identified and accumulated and are following and studying. They have experts who made this part of their academic career. So it's a very different dynamic in that sense. On the flip side, as we all know, it has a complexity and complexity from a market access standpoint. Every country has its own payer structure that you work through. The issue of health technology assessments is much more advanced in Europe and so -- which I find actually quite useful, and that's where the world is going. And so by being successful in Europe, you make yourself a much better company globally.

Awesome. Now you have presented data for Bardet-Biedl syndrome and Alström syndrome. I guess, could you run us through the meaning of that data first from a regulatory perspective, but also from a marketing perspective and trying to develop the market?

Yes. So again, very happy with the results of our Phase III trial. We just remind people briefly, we studied on the order of 40 patients with an additional 12, 14 patients who are supplemental to that. So about 50 patients in total. The vast majority of those were Bardet-Biedl patients. We hit the primary endpoint robustly. But the analysis, we've really tried to help people focus on because -- just as a quick background, studying a rare disease is a challenge to recruit. So we did both pediatrics and adults together. When you merge the primary analysis and you analyze both kids and adults, kids are growing, of course, and you're looking at weight loss. And so the kids growth is working against your weight loss as it should. But where we are with Bardet-Biedl is the adults, robust response on the order of 50% have had a response that is 10% or greater, 60% plus have had a response, which is 5% or greater. When you look at the kids, it's virtually 100% of the kids, that was less than 18 had an improvement in their BMI-Z score. So body mass index is a calculation, which incorporates both your height and your weight. So when you're growing [ fast ], the BMI is more reliable and the Z score is a way of comparing you to a normal growth curve. So it's a number of standard deviations you're off the curve. Anything greater than 0.2 is significant. And it's roughly analogous, the 0.2 change in your BMI-Z to 5%, a 0.3 change to 10% weight loss. And 100% of the kids had more than 0.2. And it's an interesting dynamic where the kids do better. And I think this is going to be a clear focus for Rhythm going forward, not surprisingly. In the kid, the child with obesity related to one of these rare generic diseases, they have the parental structure. There's some motivation. There -- they haven't had years of failure that may have caused them to check out and become disillusioned and the like. And so we think that the way we're going to change the practice of medicine around this part of caring for patients with obesity will be by focusing on pediatrics as a starting point, while we build into the adult popular because they clearly have the same problem.

That makes sense. Could you comment on the time lines? Regulatory submission is in the works. When could we expect to see approval for the indication and for Alström as well?

Right. So we will file for Bardet-Biedl and Alström. The data was stronger for Bardet-Biedl, but we -- in the small number of patients that we had with Alström syndrome, again, particularly in the kids, we had a very clear signal. So we're filing for both. It was a combined primary endpoint. So the FDA will see that and the EMEA. We asked them specifically how they would prefer to handle this. We indicated we've filed for both, and they agreed that they would look at it together and then they would also look at each one independently, so one would not overly burden the other. So to me, it's a perfect outcome. I think we have -- I think we'll get Bardet-Biedl approved. I think we have a shot at getting Alström approved, a much smaller population, but I think there's patients there that can benefit. Timing-wise, we'll file at the end of -- by the end of September, so third quarter for the U.S., very early fourth quarter on EU. It's a parallel filing, but there's just some administrative things that caused them to go out at slightly different times. U.S. approval, again, of all things, 2 months to review -- 2 months to accept the file, 6 months to review. So second half, third quarter potentially of next year. EU, again, a full year review, assuming no clock stops, so fourth quarter maybe. But those are the time lines we're hoping for.

So launching -- by the way, for investors paying attention, there is a Q&A portal but feel free to ask if you'd like, and I can relay those in. But for the launch, these are syndromes and they're very different than the initial mutations. So that could facilitate getting setmelanotide more access. Could you talk about that dynamic?

Yes. Bardet-Biedl, as you said, is syndromic. And by that, we mean that it's the genetic defect affects not only this pathway in the hypothalamus, the melanocortin-4 pathway. It's a cilial defect. And the belief is it's not totally understood, but disruption in that cilia disrupts singling, so that's how you get the disruption and leading to the obesity, but it also affects other organs. So these individuals may present with an extra digit, which is a clear sign that the [indiscernible] vision loss. They have renal insufficiency, hepatic insufficiency, cardiac involvement in time. So there are these other manifestations, which has in practice of medicine causes the doctor to say, okay, there's something going on here, and they're digging deeper. So they are diagnosed earlier as a rule, and it's well recognized. It's a clinical diagnosis, not a genetic diagnosis. So they stand out in a very distinct way. As a result, there are a much larger number of patients known. In the U.S., we've talked about this, CRIBBS registry, which has in order of 600-plus. In Europe, we talked about on the last earnings call. In the EU5, no longer, 4 plus 1, counting the U.K., 1,500 patients. And again, through these centers of excellence. So these are patients, who are actively followed. The -- another 500 in Turkey, as an example of a country that's going through a -- challenging from an access standpoint, but a significant number of patients there. So a much larger number of patients. This is a very serious opportunity. We are going after it seriously. We have, to date, fully hired sales force in the U.S. and a full medical [indiscernible] on the ground, and we have a complementary team whose job, we're calling area development managers whose specific role is to build a community regionally with a specific focus on testing as well. So they'll be very focused on expanding access to the genetic testing and ensuring that people have the education and the awareness we're looking for these patients. So Bardet-Biedl is a real opportunity, and we're going to pursue it as such.

With that in mind, you announced this morning that an expanded access program is now underway. And could you tell us more about that program and how it figures into the launch?

Yes, it's not a launch tool per se, but it's a recognition that having completed these 3 studies, we know this -- even more so, this is a drug that is approved already. So it already has the safety and is effective in the 3 genes it was approved. So that's a big step. Now we have efficacy confirmation plus additional safety in the Bardet-Biedl population. Knowing that, not wanting to deny patients access to therapy who need and want to get started earlier, that's the purpose of expanded access. So we have that program. Yes, our goal is to help this population. And again, to the extent that patients want earlier access, that's what it's there for.

Excellent. Now you...

I was just going to clarify, again, back to sort of what's different about the U.S. and Europe. The U.S., again, we do not do well with rare diseases, and we don't do well because these incentives to study them and organize around them just aren't there. So a big part for every company, and certainly ours as we embark here, is to develop the experts. And for example, there are very few "experts" today in the United States and, by expert, I mean people who individually treated 5 or more patients. There are many who follow 1 or 2 patients who happen to be part of their "regular care plan," but none without that concentrated. So a big part of our focus will be to develop that part of the world. Programs like expanded access provide an opportunity for those physicians, again, to get experience with the drug itself, the management of the patients, what they can expect. And so it will help not just the individual patients, but it will also help building this community and a group of experts, who can truly serve that community going forward.

That makes sense. Now beyond these initial indications, you are examining other mutations as well. There will be a Phase III MNA trial, which is on the horizon as well as the DAYBREAK trial, a Phase II study. Let's start on MNA, what are the -- what is this trial seeking to investigate as far as mutations go? And how does this -- these set of mutations differ from the mutations you initially pursued?

Yes. So there's 5 genes that we're looking at in our Phase III trial. Now 3 of them are the heterozygote forms of our initial approved indication, which was for homozygous, homozygous policy, PCSK1 and LEPR. For those, who know from genetics, the heterozygote, in essence, since, if this is the way it works biologically, may have a proportionately less amount about the ligand being produced. And so the question was, are those patients, if you have only a 50% defect or only a heterozygote defect in that gene, is it still driving your obesity? So the patients we studied in our Phase II were individuals who had the same presentation, severe morbidity. And when I talk about severe morbidity, these are individuals with BMIs in the 45, 50 plus range. So they have that same presentation. They have the hunger drive, and they're positive by virtue of having a heterozygous mutation. And what we understood looking at that Phase II data was that a group of those individuals responded to the drug, and we define those as responders. And the definition was in the first 3 months on drug, they lost 5% or more. So we think that the use of the drug is actually going to be a bioassay. Meaning that for this group of patients to be able to fully understand whether your pathway is broken, you give a drug, which fixes the pathway in a sense. And if you respond, then you could conclude it looks like your pathway is a significant contributor and the like. So that's the premise behind this. So 3 of the genes we're studying are the heterozygote forms of the POMC, PCSK1 and LEPR. And then there's 2 other genes, which are just in the signaling cascade. So as the signal comes in and back from our periphery and our fat cells and our gut and leptin and one of the major signaling factors hits the leptin receptor, there's a cascade of signaling down through this POMC neuron to the melanocortin receptor and these 2 other genes, SH2B1 and SRC1 are in that signaling cascade. And again, in the Phase II study, we saw clear signals in both of those. And the way the number is what -- excited to us, if you will, is I think the number of patients, I talked about 5 million individuals in the United States with this history of early onset obesity and hyperphagia, who should be screened for these 5 genes, 10% to 15% of them -- and we know that because we've screened over 40,000 individuals in the United States, and the prevalence rates have been highly consistent. So 10% to 15% of that population screened will be positive, that would get you to 500,000 to 750,000. And on the order of a 1/3, plus or minus, and we can break it down, it's a little more complicated. But on average, on order of 1/3 to 40% of that population may be responders to setmelanotide. So the target population of people we think with these 5 genes who might benefit, that's where we got to the 100,000 to 200,000 individuals, which is very different from the ultra-orphan end of the spectrum we're starting with, which is Bardet-Biedl and the biallelic forms of POMC, LEPR and PCSK1.

Now how is this trial actually designed? And when could we actually see data? Given there's multiple mutations, I would assume that data for each indication might come at a different pace.

Right. So originally, we had entertained the idea of running one trial with a common placebo group where we netted out after discussions with both agencies are, we're running 5 independent trials. So each [ listing ] will have its individually controlled classic double-blind, randomized controlled trial, 1 year in duration. And to your point, we'll run them under a master protocol because they're virtually identical. So there are some administrative advantages. And also each site that we engage will be running all 5 trials under this master protocol. And in most cases, they'll be running the Phase II DAYBREAK trial and identify patients for both trials, it's the same screen. So each one of these sites will run at one screen, the AD gene panel, you'll look and see which of the -- if the patient is positive for one of the genes in either the Phase III, the Phase II or our approved indication, the patients will be triaged to those opportunities. So -- and the primary endpoints I did mention is a mean BMI. So we will be enrolling children and adults, so the BMI, a mean BMI change is the primary endpoint for that assay.

Is there any pull-through with a panel, the panel going out, including these much larger indications because clearly, a positive reinforcement of actually seeing patients be diagnosed is going to make a physician more likely to continue using a panel going forward. Have you noticed in prepping for these trials to try to identify patients pull-through that's getting them to use these panels more?

Yes. It's a great point. And it is -- this is a -- I mean we're all human, right? It's -- in many rare diseases, if you test and you send 20 tests or 100 tests and you're over 20 or got a bit over 100, you're not testing again. Your conclusion is I'll never see that patient in my practice. Every single physician who tests for this problem, given that, that panel and the probability of response is going to have a positive response. And what we see in our testing program is exactly what you say, which is as physicians begin to get positive results, their use of our test, which Rhythm provides for free today, goes up.

That makes sense. Now let's jump over to the DAYBREAK study. DAYBREAK study is really more of a looking forward trials, trying to find amenable mutations. Could you tell us about that study, and how it's designed?

Yes. I mean, DAYBREAK, I love DAYBREAK. And I -- just as you said, it's a way we know there are other genes in this pathway, which are driving these patients obesity in this classic presentation. And the way we went through it, we went through literature. There's this NIH [ billing ] system, which basically allows you to rank different genes, and there's a possibility of being associated with the disease. In this case, the obesity and hunger. So there's 31 genes that we identify that are part of this DAYBREAK trial. And the way it's run is 2 parts. So the first part is an open label, that bioassay part of it, which says if you have early-onset obesity and hyperphagia, you have a positive test for one of the 31 genes, you get the drug for 14 weeks, 2 weeks titration up and 12 weeks on the drug. If at the end of that time, you have lost 5% or more or a BMI-Z change of 0.2 for the kids, you qualify for part 2. And then part 2 is a randomized withdrawal, placebo withdrawal. So you come in, having lost your 5%, 50% go on placebo withdrawal. And we know from our early studies that when you take patients who had their pathway fixed, their hunger goes down. And in our original POMC and LEPR Phase III trials, we took drug away for 2 to 4 weeks. As soon as you took the drug away, the hunger came back, their hunger scores went up and their weight came right back. So what we would expect in this 2-part study is we'll get the right patients in, and then when they go on placebo, we're expecting that group to have their hunger come back and their weight go back up, and those who stay on drug should continue to lose weight. So I think it will be a powerful design, highly efficient, highly effective in terms of its ability to sort a very large number of potential individuals to identify those who are most likely to benefit and then prove the fact they are benefiting from the drug.

For each of these trials, when is the earliest we could start seeing data?

Yes. So for Phase III, the MNA was on the order of 100-plus patients that will be in each one of the 5 groups. They have different frequencies, prevalences in the population. So the more common ones we would expect to read out more quickly. We've talked about -- we're still learning here, but I think this is reasonable. 12 to 18 months to enroll and then a 1 year to run. So for data for the Phase III is a 24 to 25 at the latest, but that's the time frame for getting a readout on the Phase III. The Phase II data because of the way it's designed is, yes, we could share data next year on the open-label part. And think about the open label, that first part, the bioassay, if you will, is akin to our original Phase II that we read out in January. So as -- and we will sort that out, I hope, pretty quickly, which is to say if we've enrolled a bunch of patients with 1 gene, and we've had 0 responders after -- we'll stop working for that gene. So that gene will come on. Conversely, where we've had positives, and they're entering the trial, they are down on those. So we can -- and we will be able to. So I think it's possible, we're not guiding to a specific date, but it's possible that we will be able to read out data from that first part, the open-label part of that Phase II in 2022. The other thing that will be coming in 2022, I know we're at the end of the time here, just to highlight, it's the weekly. And the weekly to me is an incredibly exciting thing because the simple goal there is just to show that it's no different than daily. We have a very well-behaved weekly formulation. I think it will do fine. We're doing a switch study. So patients who are stable on their current QD dose, they're by definition randomized weekly. The PK of that is interesting because the trough levels are what we believe drives efficacy, and we get more consistent trough levels with our weekly. So a really interesting question will be, will we actually not just get convenience benefit, but is there a possibility that that drug could perform better. That's it.

Excellent. Well, thank you so much for your time. We've reached the end, and I look forward to seeing you again soon. Cheers.