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

Good morning. Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. 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. For this session, we have Rhythm Pharmaceuticals with CEO, David Meeker. Welcome, David.

Thank you, Jeff.

For those who may not be familiar with Rhythm, can you provide a brief introduction?

Yes. So Rhythm is a biotechnology company focused on rare genetic diseases of obesity that are mediated through the melanocortin-4 pathway, and we've recently expanded a bit of that focus to put a greater emphasis on the pathway as opposed to purely genetic drivers. So patients that have a defect in the pathway experience increased hunger and decreased energy expenditure and as a consequence, gain weight. As a rule for the genetic disease component, the hyperphagia, which is the successive hunger, and it's not the hunger that you and I experience when we miss a meal. This is a disproportionate hunger that drives abnormal behaviors, often patients having to -- or parents having to lock cabinets, refrigerators and the like to manage the uncontrollable urge to eat. So we have a medication, which is a precision medication, basically a replacement therapy for the missing endogenous ligand called setmelanotide. It hits the MC4 receptor. We're approved for 2 indications initially. POMC and leptin receptor are 2 genes, the biallelic forms of that presentation approved in the U.S. and Europe. And in a very fortunate way, this is -- those are very, very small patient populations, we've described as tens of patients in the U.S. being available for treatment. That will grow over time, and we think that the full magnitude is probably 1,000 to 2,000 patients ultimately. But they're very rare, very hard to find. So the tens of patients was our guidance if you will. We didn't really launch the drug. We made it available, but the value of that initial indication was we got the drug priced in the U.S. with a price of $360,000, which is commensurate with the rarity of that opportunity. And in Europe, similarly, we've been able to work with the European health care systems, the health technology assessment process and it's been -- the key to that success has been very much helping those systems understand this isn't just another drug for obesity. This is really a very specific treatment for a rare disease, and you need to be looking at and thinking about this disease as a rare disease, and they've understand that. So we're in a very good shape and up and running. And the U.K., France, Germany, Italy, Spain and the Netherlands are coming. And so I think we're incredibly pleased with how we've done with this opportunity coming into Europe. The next piece, which is Bardet-Biedl syndrome, Bardet-Biedl syndrome is a rare disease as well, but it's much better organized. It's a syndrome, by definition. So it has multiple signs and symptoms, which give you a clue that something is wrong and it allows these patients to be diagnosed earlier and more easily. The number of patients there, may have said 1,500 to 2,500 on our website as we've gotten more comfortable with the numbers and understanding the opportunity in Europe specifically. Rare diseases in Europe universally are better organized. They have centers of excellence. Patients are referred to the centers of excellence. There's testing and all of that leads to a greater number of patients being diagnosed. So that Bardet-Biedl opportunity, we think, is more like 4,000 to 5,000 in the U.S., so it's significant. And again, if that's all we have, is Bardet-Biedl syndrome, with comparable numbers in the U.S. and Europe, we can build a great business. The final piece was HO, hypothalamic obesity, which is not a genetic cause. This is due to benign tumors, which sit right between the pituitary and the hypothalamus as a rule. They grow into the hypothalamus. They injure the hypothalamus; and either as a consequence simply of the tumor injuring the hypothalamus and/or surgery to treat it, there's damage to the pathway. And about half of the patients who have that come out with a classic presentation for a patient with a melanocortin-4 defect in that pathway, in other words, severe hyperphagia and explosive growth. And if you look at their growth charts, they exploded off their growth charts. So this is an opportunity, which was fundamentally different because the number of patients, we think, is on the order of 5,000 to 10,000 in the U.S., so 5,000 maybe at the low end, not so different from BBS. The difference is they're all identified. And because they're all identified and they're engaged with the system, it's a very different opportunity for Rhythm. So Jeff, a slightly longer explanation, but hopefully, we've covered some things we can dive into there. But those are the elements of value for us right now.

Yes. No, that's great. So maybe let's start with hypothalamic obesity. You reported positive interim results from the Phase II. Can you just remind us what you saw and based on that, what role do you think setmelanotide has for this patient population?

Yes. Part of the reason we and certainly myself were a bit skeptical going into that clinical trial was we knew the biology that the tumor injures the hypothalamus. But the concern was, okay, you're injuring the pathway, but aren't you going to potentially eliminate, injure the receptors and what's going to be left for the drug to interact with. And if you do see a response, it's probably going to be variable. A few patients might respond. Many wouldn't respond. So what was striking about the results when we presented interim results, so the trial was 18 patients, open label. We presented data on 11. Part of the reason we only put out 11 was just a timing issue where it was an open label. We were sitting on what we knew was an emerging positive story. And we knew we couldn't wait for the full 18 to get out for many reasons, of course. And so we set up fixed time and said everybody who has reached that point in May, we report on. So that was the 11 patients. The results were -- we saw very significant weight and BMI decrease. So the BMI decrease for the 11 patients was on the order of 17.5%, which in today's world, up in a very significant, very different kind of response than we had seen in our other genetic forms. And again, these are apples and oranges when you think about patients with general obesity and patients who have an impairment in this pathway. So the 17-plus percent was quite dramatic. And the -- but what's most striking about it was more so even in the amount of weight loss or BMI decrease, which was important was the consistency and literally, all 11 patients lost 5% or more. There was 2 patients that discontinued during the 16-week period, so the loss was -- there was a loss of that amount of weight or BMI decrease in a 16-week period. Two of the patients, one had an increase in their transaminase and had lost 7% at 4 weeks, and their LFTs went up, stopped the drug, came down, rechallenged. They went back up. It's the first time in over 600 patients that we've seen a transaminase increase. Many of the patients actually have slight elevations and they either stay the same or get better due to their fatty liver. So fully investigated, we're left with it as an idiosyncratic response here. But that patient, as I said, had cleared the 5% in a short period of time since coming off drug, has gone to regain all the weight plus another 14%. The other patient at 13 weeks had lost 8.2%, stopped because of some hyperpigmentation, has also started to regain weight since coming off drug. So my point is at 16 weeks, all 11 patients had lost 10% or more. And again, the average or mean was on the order of 17.5%.

So what should we look for in the upcoming presentation of the full data? And when might we see that data?

Yes, we've been -- at best, we've said the fall. So we're now accepted. So it'll be at The Obesity Society meeting, the TOS meeting beginning of November in San Diego. So there'll be a poster there that will have the full data set. That will be the 18 patients. We provided disposition. One of those 7 patients yet to be reported, as we indicated, when we reported on the 11 was just noncompliant and was dropped from the trial. So that data -- patient was obviously a nonresponder but is no longer in the trial. So this will be the data on the other 6 patients. We'll provide the background on that compliant patient as well, of course.

And then given that we know that you're planning to start the Phase III in the first half of '23, are there aspects of the full data that you think might increase investor confidence or help clarify outstanding questions?

I think 18 patients, it's a small cohort. I mean one of the things that we've spoken to, any small data set is just highly selected. And is there a reason to think that the data that you're seeing here won't be generalizable, that you can extrapolate to a larger population. In that 18 patients, we had 3 different tumor types, hamartoma, astrocytoma and the most common, which was craniopharyngioma. We had different levels of involvement in the hypothalamus, so unilateral lesions and bilateral lesions. We had a range of ages. So my point here is that, in a very small cohort of patients, 18 patients, I think it was highly heterogeneous, which gives us, again, a pretty high level of confidence that we didn't end up selecting for a sort of uniquely responsive group. And our expectation is -- for the upcoming trial is, if anything, we'll open up the inclusion criteria because our confidence that we can go broad is greater, and we don't obviously want to run a trial and create a label that would be restrictive in that sense. So a long way to say, no, I don't think people will be surprised. But we've told you the end points. It's not like there's new data that -- new end points that we'll be revealing data on there. We will try, and again, I'm hedging a little bit here, caveating again. If we can get the audited data on patients who are out into the long-term extension, so whatever number of patients have been able to reach on that first measurable point, 13 weeks out in the long-term extension with the audited data that we will also try to update.

Great. And have you had discussions with the FDA on the data? And how are you thinking about the design of the Phase III study?

Yes. So we've requested a meeting with the FDA and Europe, so we'll do everything in parallel, of course. The -- we've just -- the only thing we've said and which is what we know today is we've gone with their guidance, which is general guidance is not guidance in this situation. I'm sure it will be a double-blind, randomized, controlled trial. They characteristically won a year-long trial for drugs that are working on patients with obesity to make sure you have durability of effect. This is a very powerful result in that patient population with a high unmet medical need. And so we'll see where those discussions go. But that's the starting point in terms of what we expect.

And what differences are there in how you might identify, reach and treat patients with hypothalamic obesity compared to the currently approved indications?

Well, this goes back a little bit to, again, when people are looking at Rhythm and trying to understand the genetic impairment to the pathway and the opportunities in those patient populations, the genetic side of this equation, by definition, requires genetic testing for the most part. Bardet-Biedl has the syndromic. So that's a clinical diagnosis but supported by genetics. So you work at it over time. And every rare genetic disease that I've been involved in, which is multiple, now that's the way it works. And you just find them year after year after year. It's not like there's a bolus. It goes up and comes down. And then it's just pretty steady. You just keep working at it. It can be lumpy, but we keep working. What's different about hypothalamic obesity is that these patients, again, they know who they are. They went to surgery. They were otherwise normal individuals who developed a tumor, got it treated and came out with this unbelievably devastating health problem as a complication of their tumor, which is this dramatic weight gain and often, as I said, the severe hyperphagia. And a big part of it as well is this complete lack of energy. And it'll be interesting. Anecdotally, we'll see, but we're working both on the hyperphagia, the hunger side. We're also working on the energy side. So we'll see how the holistic benefit emerges here, but we're hopeful that we may be able to see something clearly on both sides of that equation. So the fundamental difference here, again, back to, Jeff, your question. Sorry for the long answer. The difference in opportunity from the rare genetic where you're going to test over time and it will emerge and it's going to be a significant opportunity, we believe, is hypothalamic -- they're there on day 1. And they're engaged because, again, they have injury to their pituitary as well in almost all cases and almost all cases are at least one replacement hormone for a pituitary insufficiency, so thyroid, adrenal, their reproductive, endocrine replacement. And that means they're engaged, and they're all engaged with endocrinologists and that's the call point that we're in. And so when we've been out there talking -- educating about BBS and the like, and we mentioned we're also running a trial in HO, we may or may not have a BBS patient, but almost universally, I'll say, HO, oh, my God, I have multiple HO patients, and there's nothing. And if there's anything, can I get in the trial? Can I -- so I think there's lots of reasons to think that that's going to be a very different opportunity for Rhythm.

Great. Well, let's move on to BBS. You provided strong early launch metrics on the 2Q call with over 50 scripts written by over 35 physicians in the first 6 weeks. Can you just remind us of the process from scripts being written to translating to sales?

Yes. So this is not, needless to say, you call your doctor and tell me you want to go on the drug and they call it into your local CVS. It's not how rare diseases work. So first, the patient obviously has to be diagnosed and want to go on treatment. Almost all cases, the physician will want to meet face to face with a patient and have a meeting to discuss the therapy. I mean it's a chronic therapy. It's a life-long therapy. It's a very high-priced therapy. I mean these are all elements that doctors, patients want to sit down and have a discussion about. Today's world, getting an appointment with your doctor is not so easy, particularly in the academic centers. And so maybe, look, we want to get John right away, but my next appointment is in 2 months from now, and I'll see you then. And so it's just that part of it is what it is, just the logistics of managing through that. Once the script is written, a strong part of what every rare disease company does, we do, the special sauce, if you will, of being successful in rare diseases is your patient services group and getting patients to consent in to allow us to talk to them. And so that's a really -- that's unbelievably critical part of this whole thing and the relationships that are built, they'll have a dedicated patient service representative who's working with them, comments back. You hear, wow, this is the first time anybody has ever been engaged and paid attention and cared about what I do. So my point being there is the level of trust that emerges out of there that's extremely important and we work with them. And so that's the critical next step. That patient services group will support the whole reimbursement process, so the application process. Every patient -- every payer structure is a prior authorization. And then if you get it approved, on the commercial side, it tends to be relatively straightforward. And the key to getting this approved is having it recognized as a rare disease. We're not coming in, I know I've said multiple times, not coming in as just another obesity drug. We're a very specific therapy for a rare disease and in the future in HO for a very specific problem. It's a precision medicine. And that's been very well understood in the like. So the commercial side tends to work better or more quickly if you will. Medicaid, where the significant number of patients also reside as mixed. Managed Medicaid may go a little more easily than more regular Medicaid. But we've been quite successful, and there's been -- very early on, it's similar to the experience we have with POMC and leptin receptor in our early experience here in the U.S. So that time frame, we've framed it to 30 to 90 days, 1 to 3 months as a rule, and not surprisingly, once we get things up and working, those times should go down a little bit. I think rare diseases, in general, settle out in sort of a 4- to 6-week cycle to be able to get patients through and you never really -- you never give up. It's the -- you get people through on third appeal. And a lot of this is -- there may be a policy against covering obesity drugs. But if you get the story, the patients, the doctor's letters, usual things, these -- the payers, Medicaid, commercial, they want to do the right thing. They want to help this. It's a matter of helping them understand the problem, understand what's different about it. And again, we can be successful on a remarkable number of cases.

And then going forward, what kinds of metrics should we expect to hear for the BBS launch? Will it be scripts and unique physicians in addition to sales and we continue to break out the percent of physicians that were new and not targeted by your sales force?

Yes. I mean we -- always a little bit careful about metrics. And part of it is we're not going to commit to any metric long term other than the revenues, of course, that will all be out there. And increasingly, you'll be able to read through from the revenues, what's going on. Early on, you can't do that. And so we've been looking for metrics that are meaningful and help people really to understand, so we've tried to do that on the first call. We have got a number of scripts. Of course, everybody, that's the fastest moving part of the equation here, are people writing them because if they're not, that's a problem. So I think what people understood on the August call was, yes, they're writing them and patients are seeking it. Doctors are willing. So that was a good first step. The second was in terms of the number of doctors who are writing scripts, there's one big clinic in the U.S. If they had written 20 of the scripts, of course, that would have been a different message. And we had 35 doctors who wrote scripts. Say you can see 1 to 2 scripts per physician, and that's exactly the way you would want it to happen. And a segment of that, the 20% to 30% of physicians who wrote scripts, we didn't know who they were. We hadn't been engaged with them, so they were people who, I'm guessing, their patients had reached out to them, and they decided to, yes, we'll give it a work, and I'm going to learn about it. And Rhythm gets involved, and we can help them work through that process. So back to metrics. I can predict that we will update that for the next call. But we'll evaluate call by call the metrics that we're going to do just with the goal of making sure that we're putting out numbers that are meaningful, one, and are not misinterpreted because, again, in rare diseases, you can get an isolated number or something that doesn't speak to what's actually happening and I'm very sensitive to that. I have a lot of experience with where people can misinterpret some of the data. So we'll be as thoughtful as we can but try to be as transparent as we can with what's going on.

Great. Last week, you announced that marketing authorization in Europe for BBS. How should we think about that launch? And what kind of differences should we expect from the launch in the U.S.?

Yes. So that was, of course, an important step for us. The -- again, every country is different. Just to highlight a couple of things, so France, again, a very forward-thinking country. We've had early access for our POMC and LEPR there. We got early access in literally record time for the Bardet-Biedl opportunity. So it is commercially available now in France. Now it's commercially available under this early access program, which is administered by 2 centers of excellence. And so the patients that go on the program need to be reviewed there and it'll have its start-up. And it'll start gradually, and that will continue to build as the system, those centers and everybody, gets a little more fluid. But -- so we're excited about that piece of it. Germany, we had to get an exemption. We got the first-ever exemption for an obesity drug, if you will, in Germany. They're not reimbursed. They're lifestyle -- considered lifestyle drugs, which, by definition, are excluded. So we got an exemption for the POMC LEPR. We've requested it for BBS, and we're well into that and optimistic that, again, they understand Rhythm, they understand these are rare diseases and the distinction, so we'll see where that goes. The U.K., again, we were seeing nice classic major hurdle often for companies trying to get their drugs approved in the U.K. gave us a favorable assessment in terms of the special program, the HST program, which gives you some benefits in terms of pricing around the threshold you have to meet in terms of your quality-adjusted life years. So all of that's to say, what you should look for in Europe is a gradual but meaningful contribution to the overall Rhythm picture with a foundation, which is what Europe is all about. It's all about market and access. Once you have market and access, it's better organized, and there's more patients diagnosed. So the opportunity itself can be larger, but it's all hinges off, can you get market access.

And then moving beyond BBS, can you just remind us what the treatment duration and discontinuation rate look like for the approved indications? And have those changed much over time since the initial approval and you see any difference based on age of patients?

Yes. A lot of questions in there. I think BBS, again, our trial was in the order of 42 patients total, including the Alstrom's community -- or 44 including Alstrom's patients and the supplemental patients. So it's a very small number. We had discontinuations in the trial in the order of 20% to 30% max for different reasons, some not drug related. That, I don't think is representative. And what -- the reason I say that is that, paradoxically, in the commercial realm, we will have a greater ability to interact with that patient. It's already true. I talked about our patient services group. And part of the challenge for many of these drugs or drug included, the nausea that you get is early. It's -- by early, it's in the first 1 to 2 weeks, and it's all about expectation setting. So as a patient, if you know it's coming, if you know it's going to end, if you know, you just have to manage through that part. And that's a lot of the handholding that we can do at the level of the patient services group, which will mitigate, I think, to a very significant degree, those parts of discontinuation. So we'll see. I'm pretty optimistic about that. Like I said, I think we will do better. I don't think there's a big difference, parents -- I mean, sorry, children and adults. Children obviously have the support structure of their parents, but again, adults pretty motivated as well. I mean, one of the questions about BBS, this is a syndrome where patients lose their sight. And the question was asked, well, your child is going blind. I mean how bad can that be -- I mean how bad can the hunger be? Isn't that so much greater challenge for the children? And the answer is yes, it's a big challenge. But the obesity is truly life threatening at the end of the day, and so that component. And then just living with blindness versus living with a hyperphagia. The hyperphagia just destroys family's lives. They can't socialize. They can't go out for dinner. Their siblings' lives are governed by the rules that are put in place to manage the hunger for the patient who is affected in that household. And so -- if you can get that under control and corrected, there's just a huge driver and benefit to that. And then, of course, if you control it and you lose weight, that's all secondary benefit, and people feel better about that and lots of reasons that works. But it's really getting control of the hunger that's a big driver for keeping people on drug.

And how about the same question for the other indications outside of BBS?

Well, POMC and LEPR, very early, I mean we've had some POMC and LEPR patients on now 6 years, so the long-term effect and they're maintaining the way -- you don't endlessly lose weight. So you do settle out at some point, whatever your set point is. It may be actually a normal BMI. It may be slightly above that, but you do settle out. For HO, we'll see. Again, there's a desperation in the hypothalamic obesity community, which is really quite striking, understandable as we learn more about it. But -- so again, I -- and we're not fixing anything -- I mean, we're correcting it, but it's not a permanent correction. And so again, it'll remain a chronic therapy for that population as well.

Great. So EMANATE and DAYBREAK could further expand the potential addressable market for setmelanotide. Can you talk about each of these studies and what the latest updates are?

Yes. So EMANATE is a Phase III study. So when we're thinking about the pathway, we started off with 2 genes, which -- where there was the most data around them, if you will, greatest probability of success, the POMC and leptin receptor. But then we said, okay, we got proof of concept. Now let's just look at the whole pathway and ask how many genes are linked to the pathway and may impair signaling through that pathway. And so we picked 4, 2 of which are the heterozygote form of the POMC and LEPR, which there's good data that those patients, there are patients who are heterozygotes, who look every bit as effective. They're as severely affected as patients with the biallelic form. So those are 2 of the trials. And then the 2 other trials, there's 4 individual trials that are running, are for 2 other genes that are more common and also -- but again, reasonably good data supporting and we had efficacy readouts in our Phase II study. So EMANATE's Phase III. That's up and running. It will take us 12 to 18 months from now to enroll, and it will be a year to run. So it's a 2025 story. The DAYBREAK is a Phase II study just to complete interrogation of this pathway. So we took all the genes that we hadn't studied yet and tried to put them through, in a very efficient way, a 3-month open label. And if you respond in the 3-month open label, you'll move into Part II, where it's a double-blind randomized withdrawal, so again, a more robust Phase II design than we had run on our previous one. And so that's up and going, and we're actually -- we've recruited a reasonable number of patients, and that's designed to sort. We have -- I know already some genes in there where we're seeing no response. We'll stop those; and then others where we think there might be a signal, we'll bear down on. But again, it's -- the goal is to finish the work around the pathway as quickly as we can.

Great. It looks like we'll have to leave it there. Thank you so much for your time.

Thank you, Jeff. Appreciate it.