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

Thank you for joining us on the last session of day 2 of the Bank of America Healthcare Conference. My name is Daniel Giraldo. I'm one of the associates in the smidcap biotech team at BofA. And joining me today is David Meeker, CEO of RHythm Pharmaceuticals. Welcome David. Thank you for joining us today.

Thank you, Daniel.

So maybe we can start by you giving us a brief overview of the company and maybe highlight key catalysts coming up in the next 12 months?

Yes. Sure. So Rhythm is a relatively small biotechnology company focused on rare genetic diseases of obesity. The -- we work on a pathway in the brain called the melanocortin-4 pathway, which governs our hunger and our energy expenditure. And so patients who have a defect in this pathway, they have a reduction in the amount of the endogenous ligand alpha MSH and setmelanotide, which is our lead product and approved -- has an approved indication, is basically a replacement therapy for the endogenous ligand. And so we started out as a company focused on a couple of genetic defects, which were best studied and with the basic premise that if it didn't work in those 2 genetic defects, it won't work anywhere, and we stopped. And extremely rare, is the first 2 indications. So our Phase III trials for those 2 were 10 patients and 11 patients each had worked profoundly. And so we got our approved indication in the U.S. and Europe in November of 2020. We purposely made a decision not to put any sales force on the ground because again, given the rarity of the disease, knocking on doors wasn't the right strategy. But we did launch the drug. And so we've got a number of things in place there in terms of getting a drug pricing and beginning to get a sense for what the market access issues are going to be in the initial experience with the patient. But the strategy for the company is then to build from there and to say, "okay, if it worked in those 2 genes, how many other genes in the pathway might be -- you have a defect respond to setmelanotide?" So we've expanded in Bardet-Biedl syndrome, which is another pathway. It's a syndrome meaning that it has other manifestations, disease manifestations, like kidney, for example, but works through the leptin receptor, again, very much central to the pathway. So our PDUFA date for that is coming up on June 16. And then we have a Phase III trial looking at 4 other genes in the pathway, which is up and running, and an exploratory Phase II pathway, which look at an additional 10 genes. So it's very robust in terms of the number of opportunities in expanding the potential patient population that might be addressed. And then we have a -- for the key milestones coming up in addition to the PDUFA date, we'll be releasing our long-term extension data from our Phase II study on the 4 genes. That will be at ENDO coming up in June. And then we have a different indication, which is hypothalamic obesity, and that is a complication of a surgery related to a benign tumor. Most of those are -- about 70% are craniopharyngiomas. They attack children as a rule, but adults can also be affected. And these are children who may be otherwise normal, they develop the tumor, they go in for surgery and they come out of surgery with classic symptoms of hypothalamic obesity, the hunger and very rapid weight gain. And this is a population that is truly desperate for a solution here. A number of things have been tried, different weight loss medications and the like, and nothing works. So we have a Phase II effort up and running, which we'll be reading out preliminary data on that, as I said, in midyear. So we're excited about that coming up.

Great. Thank you. So I think a good place to start is with Bardet-Biedl syndrome given the PDUFA's coming up. And so you recently -- or earlier in the year, you announced you received an extension on that PDUFA date. So maybe you can tell us about what the FDA asked for, what kind of data they wanted to see. In addition, what's the reason for the extension?

Yes. So we put in our file last fall. We got our PDUFA date in end of November. PDUFA date was a 4-month review. So this is a supplemental NDA. It's basically just an efficacy review, end of November, you have the month of December. And on February 5, we got a long list of questions from the FDA, which were basically asking for different cuts of the data. There was no new data requested. This is all data that we had, but there was every possible permutation around how you analyze the data basically as a function of age. So I won't take you through the great details, but they wanted it analyzed as adults and kids. Our original trial design had mixed the adults and kids together. So when you broke all that out with all the permutations, it was about a 400-page submission, and the FDA came back. So that's a major amendment, and they gave us a 3-month review. We've read through on that. It was fair enough. Actually, we're thrilled that they asked for those additional analyses. We think that's exactly the way you should look at the data. We also think that they needed an additional 3 months given that they -- I think they were a bit compressed for time. And that's probably the first time, at least in my Rhythm experience, that we've run into maybe some of the resource challenges that we all know the FDA is experiencing. So...

Good. So you're also expecting the CHMP opinion in Europe, I think, third quarter this year. Were those additional analyses also submitted to the EMA? Or...

No, no, not in the same way. I would say to the extent that was remarkable, the European review has been relatively unremarkable. We did announce that we had withdrawn the Alstrom syndrome. For both agencies, the pre-meetings, it was quite clear the Bardet-Biedl data is quite robust. The Alstrom's data, there was only 6 patients out of 38. So we did a combined trial with Alstrom's and Bardet-Biedl because they're both ciliopathies. That's why we combine them, but they are, in fact, 2 very different diseases, one much more rare. So we had to extend the trial to actually get the 6 patients on Alstrom's. So it was just a smaller data set. There's a clear signal. But for the EMEA, they had some questions, and it was quite clear that, that was potentially going to prolong the review. So we made a strategic decision to withdraw it from Europe. It also, to be honest, simplifies a bit the interactions with the authorities in terms of market access because going with Bardet-Biedl alone, it's a very, again, clean overall picture and what we'll be asking for, and it's the significant opportunity. We'll figure out how to help the Alstrom's patients in Europe, again, going forward. For the U.S., we've left it on the table when we hit the primary end point with a combined piece of it. I would handicap it as sort of 50-50 on Alstrom's. And like as I said, I think Bardet-Biedl, we're quite confident we will get approved.

Great. And so with the PDUFA date coming up, maybe you can tell us how you're preparing for the launch in Bardet-Biedl. And as you mentioned, you generally deploy a big sales force for the original indications. So maybe you can tell us how you're thinking about that and your expectations for the trajectory of that launch?

Yes. I mean, since we got the Bardet-Biedl data, I mean we've been quite convinced about the value proposition there, what impact it can have on the patients. So we put the sales force in place for Bardet-Biedl, they're not doing anything related to the original indication, in place last September. And people always ask about sizing. It's interesting in the rare disease world, the number doesn't have to be large. We started out with 12. Their efforts in the field were actually quite productive, and so we've increased it to 16. We have a tandem field force, which we call area development managers. And since this -- the premise -- the world that we live in for rare diseases as with many, it is about patient identification. And these patients, they're basically at loss and they can't see the tree for the forest. I mean, obesity is an epidemic in the U.S. These patients present with severe obesity. And so without genetic screening, many of them can't be diagnosed. Now Bardet-Biedl has the advantage in the sense that by virtue of being syndromic and they have other manifestations with their eye and their kidney findings and the like, that they do have other dots that can be connected by the physician to get to a diagnosis so many more are diagnosed. But the long story short is that the screening is still a very important part of this. And so Rhythm has a panel of 80 genes, which we've gradually built up to the 80, which we make available for free. Rhythm bears that expense. And so every time a patient who has a history of early onset obesity is screened, and they should be, and we think there's about 5 million patients in the U.S. who fall in that category. So that's the denominator. That if you have that history, presenting to a physician looking for help, you should have your genetics tested. About 1% of that group will be biallelic for a Bardet-Biedl gene. There's 23 different genes which get you to the cilial defect. So Bardet-Biedl has some complexity on the genetic side, but 1% of the time, you'll be positive for genetics that would suggest maybe that's driving your underlying problem. And the obesity and hyperphagia is one of the earliest presentations of Bardet-Biedl. So the testing is an extremely important part of that, and we have a field force that is focused on -- about 12 people who are focused on the screening part and helping build a community. So our sales force, the screening force and then MSLs. So that's all in place. We're building out -- and all since last fall, we've been building out our corporate accounts team. And then the last piece for a rare disease launch, which is really the special sauce in any rare disease equation, is your patient services group. And unlike -- you don't do this for Lipitor, but literally every single patient who will touch this drug, we want to be in contact with, meaning that they will be -- everyone we can who will consent in, allowing us to interact with them. And that relationship is just -- I mean, as you can imagine, from the basics of logistics, getting the drug and helping through the reimbursement and the like, but much more the side effect profile. There's some nausea and early on vomiting, which may be part of the sort of first several weeks of being on therapy. If you have somebody who's coaching you through that, you can manage through it. If you get the expectations set in the right way, you can manage through that. So -- and there's all kinds of learnings and silly little things like injection training. The patient may not be using the drug quite correctly. You can pick that up in this patient services group. So if you have a strong patient service group in that link, it's a very different overall opportunity and, like I said, experience for the patients. So we're building that out.

Great. And so I guess you touched upon patient identification. So maybe you can talk a little more about how that's going in the U.S. and Europe. And maybe you can also put into context how much bigger is the Bardet-Biedl indication compared to what you currently have.

Yes. So the reason we didn't put the sales -- any effort behind our original launch is that when you do the screening, the hit rate -- because I think that's probably a useful metric for our first indications, about 0.15% of the time, you'll get a positive test for somebody who's eligible based on our first indication, so very low. Over time, we will find these and we think there's maybe 500 to 2,000 patients in the U.S., but we will find them slowly through this overall screening effort. Bardet-Biedl, we think that number -- we started out with the belief that it's sort of around 3,000 as we've got a better -- in the U.S. only. As we got a better understanding of the epidemiology in Europe, knowing that the epidemiology shouldn't be different in terms of background genetics, you get to sort of a 4,000 to 5,000 number. And then when you do the screening and you start factoring that in, maybe you're thinking it's 5,000 to 10,000. So there's a much bigger opportunity here for Bardet-Biedl, number one. And then two, as I mentioned earlier, because it's syndromic, there's many more diagnosed. So we updated 2 or 3 months ago that we have 350-plus patients that Rhythm has confirmed and validated as a starting point. There's a registry independent of our effort, which is hosted by one of the experts that has on the order of 600-plus U.S. patients. Most of those in the registry are under 18. So obviously, there's an adult population that's not actively engaged in that registry. So all of this gives us a lot of confidence in this Bardet-Biedl opportunity. The European numbers, as a rule, rare diseases in Europe are always much better organized, single-payer health care systems, some patients get referred into centers of excellence. Centers of excellence develop KOLs who do research. They've got a lot of experience with those patients. So it's just -- it's a system where if you have a rare disease, you want to be in Europe. And those numbers are much more, again, reliable because the system drives it that way. So there's on the order of 1,500 patients in the EU4 plus the U.K. that have been identified. There's 20 centers with over 40 patients each. And so that's the starting point for a European opportunity.

Great. And then as we think about uptake of this drug in this population, what has been the feedback from KOLs and maybe patients too on the Phase III data you showed? And do they think this is clinically meaningful or...

Yes. I think, again, one of the challenges with this overall field is people are focused on what they can measure, which is weight, and they compare weight to other trials of drugs in obesity and people are saying, "Well, how significant is that?" So the reduction in BMI at 52 weeks for both the kids and the adults was 9% and 9.5% reduction, which is very significant. That's actually not probably the greatest value contribution we're making here. The weight loss is incredibly important, but we've come to appreciate and what we're working hard to help the system appreciate because the patients and their families get it, is the hunger. And it's the hyperphagia, which is this pathologic hunger. So it's not the hunger you and I experience if we miss lunch. This is a hunger where it just dominates the patient's life, the family's life, their siblings. You can't socialize, you can't go out to eat. Your siblings, their lives are disrupted by the fact that everything is centered around food and the control and trying to manage the caloric intake. These are the stores where you lock the cabinets. You have to -- the kid functioning in school because all I can think about is food. It's just dominating their life. And when you listen to the stories and the impact the drug has on removing that drive -- so one of the question is how compliant are these patients going to be? Actually, they're very compliant, and the stories you get back is they stop the drug and the hunger comes right back. And we have that as part of our first trial where it was an open-label trial, but we had a 4-week period where they had a -- in a blinded way they were put on placebo. And when they went on that placebo, it was just striking that the hunger came right back and they gained 5-plus kilos in a short period of time. And so that's the greatest contribution, and you don't get that from the numbers. You don't get it from a hunger score. You get it from listening to the stories. And so we did exit interviews, for example, of the patients coming out of the trials, either the patient or the caregiver and submitted all that as part of our regulatory filing. And remarkable consistency and heart wrenching in a certain extent to the role that, that part of the disease is playing in their overall presentation.

Great. So maybe now we can switch gears a little bit and talk about IMCIVREE and PPL, and the commercial launch so far. So I think 1Q sales came in a little lower compared to 4Q. Maybe you can comment on that. Was it just a normal seasonal effect or -- 1Q being lower usually or...

No. I mean I think, again, this is a great rare disease. So for the moment, I started in the role and working with the team, Hunter and Dave. We've been very clear. I said from the beginning, we only expected tens of patients on therapy in the first 1 to 2 years. And we weren't going to get patient numbers because when you start getting patient numbers -- and I've been in this trap before, you get in chasing sort of the individual stories around 1 patient here and 2 patients there, and what's important is completely lost. So we're thrilled with the launch. As I said, the learnings that we had, we got the drug priced at $360,000. We've got, I think, remarkably good coverage working through the payers. Now you work through that sort of payer-by-payer. And partly is educating and partly is getting patients in front of them and using the patient themselves as part of that educational process. So all of those things are positives coming out of this launch building the team. The variation quarter-to-quarter is a function of small numbers. So the detail on the quarter 4 versus quarter 1, we had exactly the same number of vials shipped to the patients. There was a small difference in amount that was shipped into our specialty pharmacy. Now the percentages become large when the numbers are small, which is again why it's not the story. So yes, there's going to be variation quarter-to-quarter, but there's no story in the Q4 to Q1.

Okay. And then so you mentioned you still have a very small number of patients. You mentioned payers. So what have been the biggest challenges patients have faced in getting access to IMCIVREE.

No different than any other rare disease drug at this point in its life cycle, if you will. Every rare disease drug literally requires a prior authorization so you have to go through that. Physicians often in the rare disease space because you're working particularly in the U.S. with physicians who have 1 or 2 patients at a time, you don't have experts who have a large number. They may have never written a drug prescription for a $360,000 drug. And so helping them through that process. If you get a rejection and there's many parts of our system where there's a -- they say no, and then what was the question? So you got to work through, so the prior auth denied, and you go back in on appeal. And then on appeal, you can get the patient through. And so it's just getting people used to what is a normal process. But if you're in it for the first time, it feels very challenging and abnormal. For patients who just want to get on the drug, right, I mean most things you write a prescription, you go to your local pharmacy and you get your drug. That's not this world. And so everybody's got to learn and understand and work their way through what are the new elements that they're dealing with, but they're not unusual for a rare disease world. They're just rare.

And so what kind of feedback have you been receiving from physicians using this drug now that maybe you have access to some real-world data usage?

Yes. I mean, the largest data set is still from our clinical trials, right, because that's our biggest expense -- experience and the investigators who are working with it. So the investigators are completely bought into the transformative, and there's 2 elements to appreciating a drug. One is you can see the effect, and two is you have to really understand the problem. And so the investigators because of their experience, have the deepest understanding around the role of hyperphagia and then, of course, the importance of weight loss to them. And the physician community may just be treating 1 patient. They don't have as much context. So all of that said, I'd say, in many ways, I think we're doing as well or better in the real world than we did in the clinical trial. And that's not always the case, right? You often think that the clinical trial is kind of your best case and that the real world is not going to be as good. Part of that relates to the fact that as we continue to build out our patient services group, the patients are going to get more structure and support in the real world than they got in the trial and as we build that in. So I think that's probably what's going to help push this through.

Okay. And you also recently announced you started sales in France and you're looking to move to Germany, I think, next. So maybe you can tell us about your expectations for the launch in Europe and how you're building your commercial infrastructure there.

Yes. And again, philosophically, and I've -- I firmly believe this and I've lived this. I mean, if you want to create real value out of rare disease drug, you have to be thinking globally. You can't just think, I'm going to take the U.S. market. Europe, if you can get the market access piece for the reasons I said, well organized, more patients identified as a rule, is an incredibly valuable from a pure value standpoint. So you have to get it right in Europe if you're going to get it. Getting it right in Europe is all about market access, and we have a very experienced team who's done this for decades, literally. Getting -- and their success recipe, if you will, is it's all about relationship and partnership. It's not coming to the system where they, take it or leave it. It's not holding a gun at their head. It's really trying to help the system understand the problem. The systems want to take care of the people who are in their health care system. And if you can help them understand and then find a way. So we're going to -- we've got the first -- so Germany, large market, largest market in Europe, doesn't reimburse for obesity. Weight loss drugs are viewed as lifestyle choices. We got the first exemption ever through their G-BA, which is their sort of joint oversight committee. And that -- so we will be reimbursed in Germany for this drug, and we helped them understand the rare genetic disease part of it. The France -- again, we're commercial through an early access program. The famous -- what used to be the ATU, which is now called AP1 and AP2 depending. So they're still working it through. But again, we did well navigating that. I think we're going to do extremely well in the U.K. We're late in our discussions with NICE, and we're late in discussions with Italy. So it's countries where you think this is particularly challenging, we're going to be successful. So people are going to increasingly see our European contribution as very meaningful in the overall context of what we're doing.

Great. So maybe now we can talk about further clinical development for IMCIVREE or setmelanotide. So you recently announced changes to the enrollment criteria for M&A and DAYBREAK. So maybe you can give us a little bit of background on the decision behind that, and why you decided to do that.

Yes. So I'm going to give you my 1-minute layman genetics lesson here, which is these trials are operated under American College of Medical Genetics framework. And this framework is to help categorize rare genetics variants as either pathogenic or likely pathogenic, meaning that they have a high probability that, that variant in the gene to lead to loss of function of the protein. So based on whatever data it is, it gets categorized that way. Other mutation variants, they can look at and say, look, very unlikely that that's going to affect the function of the protein, and therefore, it's going to get categorized as a benign or likely benign. And then in the middle of that is this big pool -- the tails are the small, is a big pool of variant of unknown significance. So it's just not enough data to say is that variant likely to be pathologic or not. So when we ran our Phase II trials, we were looking at pathogenic, likely pathogenic and VUS. And the end of our -- our end point for our Phase II trial was after an open-label 16-week trial what percentage of patients had 5% or more weight loss, 5% being clinically meaningful at a year, so we were looking for it in a 12- to 16-week period. So we had about a 50% response rate, 40% to 50% response rate in the pathogenic, likely pathogenic and a 20% response rate in the VUS, which is not surprising. Now 20% of the VUS category, which is a very large category, is meaningful in terms of the number of patients, but from a probability of response is less. So multiple discussions, long discussions with the FDA. But long story short is we ended up sort of rethinking the trial both with some advances in terms of how we -- the variants were being categorized and feedback from the FDA that if you're really working on these large populations, the VUS populations, you're highly likely to have to do a second confirmatory trial. So in rethinking, we said, look, this is the moment, and we restructured it. So we took out the large part of the VUS population, and we focused on just pathogenic, likely pathogenic and the upper tail of the VUS, which is a suspected pathogenic. So what we exited with in this modified design is 4 independent trials, and the 2 that were affected by this adjustment, both of those with a -- I think, a significantly higher probability of success. So in a way, it was just -- anyway, things aligned and that was the right adjustment, and we feel really good about how those trials are coming together.

Do you expect you'll continue to refine enrollment criteria as you learn more about...

No. We're done. Those trials are underway now. It's also -- there's been a little bit of confusion. The FDA didn't tell us to do anything. This was just indicating, look, if you keep going, you're highly likely to need a second trial for those indications, but we could have -- so no, there's no -- in this direction, we just went, the FDA is very much in support of based on other conversations.

Okay. And I think for DAYBREAK, so you're studying 10 genes in particular, but you mentioned that there might be 2 genes that you're more interested in that you think will give you an earlier answer on whether or not this is likely to work.

Yes. So DAYBREAK is our Phase III trial. That's what I was just talking about, which we refined, those are 4 genes -- sorry, EMANATE is our Phase III trial. Those are the 4 trials that you just talked about. DAYBREAK is our Phase II trial. And this was basically going big around what are the other genes -- all of the other genes we think might be linked to the pathway, and they're on the order of 31. And then as we were making this adjustment, rethinking it, like everybody, paying attention to our expenses as well, we've narrowed that 31 down to the top 10. So of the 31, which are the 10 we think we're most likely, with the option to expand to the 31, but we'll start with the 10. So this was just a very practical decision. Within the 10, 2 of the genes are linked to a sub-pathway, if you will, that has 11 other genes. So there are proxies. If it works in those 2, we'll go to the other 11. If it doesn't work in those 2, we'll stop. So again, we just made some practical decisions to manage our expenses and try to keep our overall program going.

Okay. And then do you expect to report data on those, like, specific subgroups as it becomes available?

Yes. So again, like the first part of it, it's a 2-part trial where it's an open label for the first part, and then at the end of the open label, if you are a responder, then we'll put you into a randomized blended withdrawal phase. So that open label part, we can read out when we get -- well, this is a little bit we've left open, we'll decide internally. But 10 to 20 patients enrolled in the open label for a gene, positive or negative, we'll look forward to reading that out. And then obviously, if it is positive, those that go on, that will be a while beyond that before we would read those out.

Okay. Great. And in the beginning, you mentioned hypothalamic obesity. So maybe you can just give us a little more background on what do you think the market opportunity is there?

Yes. Hypothalamic obesity, so back to Rhythm and how we think about developing it as a company. So we started with the rare genetic aspects of this pathway, the melanocortin-4 pathway. We talked about this hypothalamic related to the surgery. That opportunity, it's meaningful and arguably transformative for Rhythm. The number of patients -- again, we're early, still trying to understand this. There's a wide range of estimates. But we feel very good about what we would characterize as the lower limit, which is 4,500 to 5,000 patients. Now that's the number that's not so different from what I talked about with Bardet-Biedl, 4,000 to 5,000 patients maybe for Bardet-Biedl in the U.S. These are U.S. patient numbers only. The difference is Bardet-Biedl, a classic rare disease, that's our projection for the epidemiology. We're starting out with 10% to 20% of that group. We got an 80% part of the iceberg there we got to figure out. The 4,500, 5,000 patient number for hypothalamic obesity, they all know who they are. They are people who went to surgery, and they came out with a problem. They're diagnosed. They don't need diagnosed. They don't need any genetics to be diagnosed. They just need help. So that's very approachable. It's global. Again, this is a problem that's truly global. So again, we'll see. If that data is positive, it will be very much rethinking sort of our overall strategy at Rhythm. We are not going to abandon anything we do, but we'll be looking to figure out how we incorporate and rapidly get at that opportunity.

Okay. And then just one last question from me. So you have ongoing trials for your weekly formulation of IMCIVREE. What is the bar to hit in those trials? Are you trying to look for noninferiority versus daily dosing or...

Yes. So there's 2 -- I mean, again, in a large opportunity, you could have noninferiority, you can have big trials looking at PKs. Rare diseases, it's rare, right? So a, you have very few patients, b, you have a lot of heterogeneity. So the strategy we agreed on with the regulatory agency is 2 parts. So we're going to take our existing patients who have been on it, which are mostly Bardet-Biedl patients because that's our largest group, who have been on the drug and are stable. And we will do a cross-over trial and look at the pharmacokinetics and how it works for daily and weekly. And then we will have a separate second trial, which is a de novo Bardet-Biedl patients, which we'll run outside the U.S. and areas where we haven't been before, where it will just be a double-blind randomized controlled trial to show that with the weekly formulation, you get good efficacy. And those 2 pieces combined will be the basis for it.

Great. So I think we're done. We're out of time, but thanks so much, David.

Thank you, Daniel. Appreciate it. Thank you.