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

Good afternoon. Thanks, everybody, for joining us here at the Bank of America Healthcare Conference. I am Tazeen Ahmad, one of the senior SMID biotech analyst here. It's my pleasure to have our next presenting company, Rhythm Pharmaceuticals, with me for the next 30 minutes. Sitting next to me is CEO, David Meeker. David, thank you so much for joining us this afternoon.

Thank you, Tazeen.

So we'll have, I think, a lot to discuss on Q&A. But just for anybody who might be sitting in here who is not as familiar with Rhythm, maybe you can just give us a quick overview of the company, and then we can go into the specifics.

Yes. Great. So Rhythm is a company that was founded back 2008. We're focused on this melanocortin-4 pathway, which is located in the hypothalamus and it governs hunger and energy expenditure. So it's all part of the gut-brain axis. So when we eat a meal, we get the gut hormone signaling through pancreas in the adipose side and then leptin back to the hypothalamus and activating this pathway, which tells us that we're full. We don't need to eat anymore and it keeps us in balance. Setmelanotide, now our commercial brand name is IMCIVREE, was approved initially for POMC and LEPR, 2 quite rare genetic diseases, in which when you have an impairment or a defect variant on one of those 2 genes. You have an impaired signaling through the pathway. And those patients, as do all patients who have this defect, kind of defect, have early-onset obesity and hyperphagia. And so the clues that you might be looking at a patient that has one of these genetic defects are really those 2 factors. If you have it, then you should be genetically screened. And so Rhythm has been developing the drug in those 2 indications. Most recently, we were approved last June for Bardet-Biedl syndrome, which is a syndromic form of early-onset obesity, also associated with hyperphagia, and we'll dive into that, I think, as part of this discussion. And then last year, a little after the approval in July, we announced data on hypothalamic obesity, another indication, which is not genetic. It's traumatic. So you have an injury to the hypothalamus, damages the pathway, but the presentation is similar. Has some differences we can talk about as well. So the value in Rhythm really resides in those 2 pillars, which is this Bardet-Biedl opportunity, which has a meaningful number of patients, 4,000 to 5,000 in the U.S., similar in Europe, and hypothalamic obesity, which is fundamentally, again, we'll get into it, quite distinct and a true multiple, if you will, of the Bardet-Biedl opportunity. And then on top of that, we're continuing to explore other genes that may be impairing the pathway, and we just acquired a very small company for a different indication as well.

Okay. Perfect. So maybe just talking about your current indications. So BBS is one of the bigger ones that you could potentially be in over time. The launch is going well off the bat. I would probably ask for a little bit of color on how you're going about identifying these patients. So you had an increase of like, I guess, over 100 new scripts or so over the last quarter. And what are the major drivers that you think are helping you find these patients? Because they may not be the easiest to diagnose because they may not even be aware that they have these defects necessarily.

Yes. For me, when I got involved with Rhythm, one thing that was quite striking was that obesity is an epidemic. And of course, it's got a tremendous amount of attention. But Bardet-Biedl syndrome is just a classic rare disease that happens to present with obesity as one of the early presenting signs. But a classic rare disease and what does that mean? It means that there's very few experts, very little overall awareness about the disease. The patients, the vast majority probably are not diagnosed. Or if they are diagnosed, they're being taken care of by their primary care physicians. And that's just indicative of diseases that don't have a treatment. And once the treatment becomes available, then the whole dynamic changes. There's a reason to diagnose and you can get people motivated and the like. So what the company does to try to enable that build of the community and that awareness and creating more experts and the like are a number of things. One is there's a starting point as a rule that we're here. So there were physicians who had patients we were engaged with and we reconnected with them. There's networks once you start to identify physicians because it's a syndromic disease. They have eye findings. They have kidney findings. They have cognitive defects. They have other challenges, so they'll see other specialists. And if you can get inside those networks and see where they're being referred to, then you can work backwards and figure out who the primary care physicians are. So that's one major source. Two is that they're like, again, many rare diseases, testing is not often available. And so the company that's developing a treatment for a rare disease has to create the testing. So we did. We created a genetic panel, 80 genes, but it includes the 23 genes for BBS. And that's a free test. Rhythm pays for it. And so getting more people testing, and there's a very specific hit rate that's been quite reproducible over time. It's going to sound low, 0.3% of the patients who are tested turn out to be pathogenic, have a pathogenic variant for one of the 23 biallelic, so this is a homozygous disease, autosomal recessive. So -- and there's about 5 million people in the United States who should be screened for early-onset obesity and hyperphagia. So 0.3 times 5 million, 15,000 is -- we don't think that's necessarily the number. But the point is it's -- we think there's a reasonable number of patients, and that testing is a key way that we get at it. And the last thing. A number of things that you can do are ICD-10 codes. And the world has got more and more sophisticated in that sense. There's a code that codes for syndromic diseases. Inside of that is BBS and algorithmically, you can begin to break that down for a syndromic with kidney findings, eye findings and the like. And that gives you a target population, which is not small. So that's a list that we continue to work our way through.

Perfect. So as you think about what you've done thus far in the launch, what do you want to do more of in order to increase your penetration there? Is it doctor education? Is it simply just getting more people tested?

Yes, it's a little bit of everything. It's -- again, building these communities, if there's one thing, of course, you could really get it. But you got to do it all together. They're all -- they're interrelated, and they support each other. The nonpersonal promotion. Again, I spent a lot of time in my industry career working on rare diseases. And 10, 15 years ago, very different than it is now. I mean you can be incredibly sophisticated, incredibly targeted in how you do your nonpersonal promotion. And one indication of success there is that as we reported on our last call, we have about 175 doctors who are writing scripts at this point. 25% or more of those 175 were physicians we're not engaged with. So how did they learn about us? A couple of ways. One is the nonpersonal promotion is working. Secondly is they may well be primary care physicians who are taking care of a patient, who came to their doctor and said, look, I just heard there's a treatment for BBS now, and I'd like to see if we can get on it. And Rhythm gets involved and helps with that process.

And what is the process that a doctor has to go through to put the patient on drug today? It's maturing in its launch, but what have you noticed that's improved?

Well, everything -- not everything, but it progressively gets easier, I would say. So what happens, a physician -- a patient wants to go on therapy is, number one, we try to get the patient to consent into Rhythm. And in a rare disease world, again, the ability to talk to a patient is, I'm going to call it, almost everything. So 97% plus of the patients who are on drug do consent in. And that starts a process where they get assigned a patient education manager, who's dedicated to them. They start building a relationship. There's regular calls that happen, sequentially leading up to helping them walk them through the reimbursement process. There's a scripts reading -- written, helping them get their expectation for what's going to happen when they go on drug, when they hit a problem, helping them understand that and work and, of course, all this is done in conjunction with the patient's doctor as well. So that's the critical first step. The reimbursement process, as we've talked about, the commercial side of the equation is largely pretty straightforward. We're essentially full coverage with the exception of some very small self-insured plans, which we can't cover. So that's submitted and it tends to go through. Medicaid is -- with every rare disease in Medicaid, difficult in general. Rare diseases in a Medicaid world can be difficult. And on top of this, there's a Medicare statute, which says Medicare does not cover obesity drugs. And that reads through, in some states and situations, to the Medicaid setting. So Medicaid, you just have to work. And what we've found over our first 3 quarters here is that we have made steady progress, and we've divided that world into those states where we call them green. They have a policy in place, and you can submit it as you would with a commercial player and it gets paid. Others where it is patient by patient, and you just work the process often having to go through an appeals process. And at this point, there's only about 10% of the Medicaid-covered lives, which we think are in a state where the near-term prospects of getting approved are low. But even that world, and we'll always have a caveat, it's dynamic. You find ways and we never give up. I said that on the call. I'll say it endlessly. You just keep working it and a no is never a no. Once we exhaust that process, if we have, we cover everybody, we treat them. They will go on free drug in our patient assistance program. But even once they move to that, you're still looking for opportunities. Occasionally, patients can get another insurance. And that opens up a whole new door. You go back. And so again, it's just a pretty classic rare disease in terms of the challenges and what you need to do as a company to confront them.

So I guess with regards to that, what have you been hearing back from the -- from your field force about compliance rates, for example, among patients? And related to that, maybe discontinuation? And if they are discontinuing, why are they?

Yes. Compliance, always a little bit difficult to get at. Maybe early, but we have the advantage of these relationships with their patient education managers. We have an unusual level of knowledge. So based on that, I'd say compliance is high. Biologically, this is one of those medical problems and treatments where the hyperphagia -- and when we talk about this hyperphagia, define it, because we work to help the world to understand this and help people have a language to describe it, but it's a pathologic hunger. It's this overwhelming preoccupation with food, which is associated with abnormal food-seeking behaviors. So you and I might crave ice cream, but we don't necessarily have abnormal behaviors pursuing the ice cream, whereas these individuals are really challenged. It's just they're dominated by this fact. And so what's -- that simple. When they go off their drug, they take the drug and the quieting down of that hunger is almost instantaneous, as you might expect, because that's how our bodies work, right? We eat a meal and then we signal, and we know we're full. And so when we artificially replace that, they get the same effect. You go off the drug and that sensation comes back. So there's a reminder that you're off drug, unlike our antihypertensives or other drugs where you can go off your drug and not know that you're not treating yourself. So that's a big factor in terms of overall compliance. In terms of discontinuations, we said mid to high single digits. We were 20% plus in the clinical trial. Now the clinical trials are more difficult. People have other reasons. They drop out of clinical trials. But we're thrilled with being under 10% on the discontinuation rates. About half are due to the side effects of the drug, nausea and vomiting, predominantly. But we've been able, again through expectation setting and helping people undergoing a little slower on the dose escalation, we like to say, look, you're going to get through this and patients and families really understand that. About half are due to very patient-specific issues, meaning personal, all kinds of family dynamics and the like, which sometimes we can help with in terms of getting in there. Aside from 1 or 2 patients, we've had almost no one stop because of "lack of or perceived lack of efficacy." And again, one of the things we've been able to do, people are very focused on the weight and their expectations for weight loss, how much they think. So yes, weight loss is occurring. But again, where these conversations are is helping families, who lived with this all their life and they may not fully recognize that the -- how abnormal that is and then how much better your life is when it's gone, when it's corrected, and you're able to live without it. So again, that's the kind of, even at the family level, help that we can provide and that helps people stay on drug.

Okay. What's the average amount of weight loss that patients are seeing in the real world versus what you saw in the trial?

So that, we don't have. As you know, in the trial, people weigh themselves on regulated scales and the like. And so again, I truly have no sense. You hear -- I've heard the full range. I've heard very significant amazing kind of weight loss, and I've heard pretty modest weight loss. But the consistent piece has been the hyperphagia reduction. And so -- and the other thing you have to realize, not surprisingly, is again in the world we live in, there's other reasons we gain weight. So even if you correct this underlying defect, if you are adopting in some of the behaviors that we all follow, it's not magic. I mean you've got to change your diet, and you got to do the things of healthy living. And so we can also build that in as trust is built through these conversations with their patient education manager to help people think about, okay, I know you gave your child a snack 2 to 3 times a day because that's how you manage their hyperphagia. You probably don't need to do that anymore. And again, amazingly, they need that kind of education and help to change.

Okay. So where do you think the market opportunity is for BBS? And then we'll move on to hypothalamic obesity after this.

Yes. So what we've hoped people are coming to understand and will continue to come to understand. So rare diseases, of course, 7,000, they come in all forms and opportunities. The thing about BBS, which we tried to help people understand, 4,000 to 5,000 people in the U.S., similar numbers in Europe. This is a really solid rare disease opportunity. It has those ingredients, you can diagnose it. It has -- it's syndromic. There's a way to diagnose this, not completely lost. It has a community that's coming together. It has patient organizations somewhat early and the like. So it has all the ingredients that say you should be able to get at it. Now what does that mean? The vast majority of BBS patients are undiagnosed today. That's rare diseases. And again, what companies do, what we're doing is we work your way up through that. So what can you expect? So if there's 4,000 to 5,000 patients in the U.S., is it reasonable to expect you could get 1,000 patients on treatment? I think so. It's 20% of that population, seems completely doable. We're well on our way. I mean, 300 scripts written today, I mean, less than a full year of launch. That's a $200 million to $300 million opportunity U.S. alone. Europe, which we've been building out and getting ready to go, that's -- we're going to get Germany BBS launch started this year, and it'll start to contribute. But Europe is really going to be a 2024 phenomena. It just takes longer. You get your market access. You get the thing set up. It just takes a little longer, but it will start contributing. So BBS, again, as I said, you could build a very good company around BBS alone. You wouldn't be doing the development work in the others. You'd be profitable based on BBS. So people, I think, jump over BBS and probably not the right thing to jump over because it's solid, and it's one of the 2 pillars. And then, of course, the HO thing, we'll talk about. But BBS -- and we also -- the last thing on it, as I mentioned, the global rare diseases. If you're going to see the full opportunity, you do need to be thinking globally. It's not a -- I'll take the U.S. and kind of figure out the rest later. You want to start thinking globally early. You tend to do global development programs, most valuable in most diseases, treatments. But certainly, a rare disease is where you do your clinical trials. And if you're doing your clinical trials outside the U.S. and not taking advantage of the relationships, the centers of excellence and the things that you're building just in the process of running your trials, you're leaving value on the table. And so we've tried to be very attentive to that.

Okay. So -- let's move on to HO. So you talked about this a little bit at the beginning. This is caused by damage to the hypothalamus. What have patients been given up until now or through now because this is not an approved indication? And where do you think setmelanotide can be better?

So very, very different population. If you think about the genetic causes, they've lived with them since birth. And so there's an adaptation to it. There may not be an immediate awareness that you have a problem. I mean many of the mothers or families were told, you have a hungry child or your child is very healthy. They have a great appetite kind of thing. Not the case with HO. HO is my child was "normal." They develop this brain tumor, surgery, radiation, and coming out of that, in addition to the other challenges with the tumor and the surgery, suddenly, they're exploding off their growth chart. So they have very materially had a shift. 50% of it is associated with this severe hyperphagia. The other is not so prominent, although they still tend to eat more. But energy expenditure is low. They don't want to do a lot. So a very different population, number one. Number two, this is a population who because they had the tumor and the surgery, they know who they are. They're not lost in the system. They're not thinking that I'm just a person who's living with obesity, and I'm kind of like all these other people. No, no, no. They know something very specifically had changed. Three, it's devastating. Everything we've learned talking to patients and certainly the physicians is -- and there's -- everything has been tried. Nothing has reliably worked. So then you get to the question of the GLP-1. So the GLP-1s, the early first, second-generation GLP-1s have been tried. Not worked, which is not to say, it'll never work. And I'll come back to it in a second, but basically, not worked, including the biggest trial, which was 40 patients, but at least double-blind, randomized, controlled, but showed no effect on the weight loss. Now Dr. Abuzzahab, who was one of our 5 thought leaders in our Phase II trial, who we had on the first call, I think she put it well. And I pressure tested her assessment of this situation is -- so the patients she showed on that call, if you go back to August last year, had tried liraglutide, didn't respond, went on setmelanotide in the trial and had a very dramatic response. She has another patient who's on semaglutide and is having a good response, is managed well. As far as she's concerned, he's fine. Now -- asked, well, what percent of the population? How do you think about that? She thinks -- said that, she thinks about as many as 20% of the population may have some response, and the magnitude of that response is 10% or less. So that pressure testing with others, if anything, they say it's a little high, not a little low, so I think it's probably a good number. Why is that? So the hypothalamus is destroyed. One of the major sites of actions for the GLP-1s are in the hypothalamus. So obviously, if you lose that, then you're not working. How does setmelanotide work? We think that a significant part of the setmelanotide benefit is on the energy expenditure side, which is mediated by receptors, which are outside the hypothalamus. So there's a reason why setmelanotide might work and other therapies might not work. So I think the GLP-1 story is still to be written. But what's interesting about the setmelanotide data is because the results were so consistent, it's telling you something about the biology. If it had worked in a few and not worked in others, then you're sort of what is it, you don't know. But when you get consistent results, and we can talk about it, but of the 18, basically, they either responded very well or there was a reason why they didn't. So again, I think we've learned something fundamental about the biology through this use of setmelanotide. I think I went off the question you had.

No, that's okay. Thanks for that extra color. So you're enrolling Phase III now for HO. How is that pace of enrollment going relative to where you thought you would be? You're looking at a change in BMI as your primary endpoint. What would be a good result for people to feel would be not only statistically significant, but clinically meaningful?