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

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 CEO, David Meeker. Welcome, David.

Thank you, Jeff.

So maybe for those who are not as familiar with Rhythm, can you just provide a brief introduction?

Yes. So Rhythm is a company that's focused on this pathway in our brain, melanocortin-4 pathway, which governs hunger and energy expenditure. And we have a molecule setmelanotide, brand name IMCIVREE, which is replacement hormone for the endogenous ligand, the alpha-melanocyte stimulating hormone, which is deficient if you have an impairment in that pathway. And we're pursuing a number of different indications, both from a genetic side, which were formed the basis of our initial approvals, and more recently, a traumatic form of injury to the brain. So there're several ways in which this pathway can be impaired. And Again, that's the focus of the company. We're global and have always personally and as a company thought that if you want to be successful in rare diseases, you should think globally and it's doable with the right people. So we have a global approach to the background in developing this drug for this pathway.

Great. Maybe 1 question before we dive into the indications. For the indication, setmelanotide is approved in and going after. Can you just talk about the role of GLP-1s for treating obesity?

Sure. yes. I think GLP-1s, of course, we all are inundated by that evolving story. It's, I think, a rising tide phenomena for Rhythm and that does lift all boats. So the greater awareness around obesity has been incredibly helpful. The recognition of obesity as the disease and the role that Rhythm has played in that story is trying to reinforce, yes, obesity in one level is a disease, but it's not just one disease, it's multiple diseases and it's critical as always to try to figure out which disease you have and then match the appropriate therapy. So in that sense, all the good work that Lilly and Novo is doing is, I think, really helped elevate. Best thing that's happened with that is that many more doctors are getting their obesity certification, managing obesity previously, maybe not so interesting, but with the CRIBBS and multiple tools now, it's become more interesting. And if you're a specialist in obesity medicine, it's not normally -- it's not always the common forms of the diseases that you're looking at, but it's the unusual ones to make it really interesting. So all that's beneficial. Now with regard to GLPs use in these diseases, they're really apples and oranges, which is not to say that they can't be used, but there won't be necessarily a response of a GLP in this. But that response for the most part, as we understand it, we gain weight for different reasons. And if you love ice cream and you're eating a lot of ice cream, you're going to gain weight. You take a GLP and you decreased your craving for ice cream that's beneficial. However, if your pathway is impaired and you haven't addressed the underlying fundamental problem here, and that's what we're finding, which is GLPs have been out. There are glutides certainly since 2014, and they -- if they solve the problem, they'd be used much more widely. So, they're not.

Great. Well, almost universally, the program that gets the most interest from the investors is type of hypothalamic obesity. So maybe for those that are new to Rhythm, can you just talk about this condition and how it's different from other indications you were already approved in such as patient identification?

Yes. This was -- we announced our Phase II results about a year ago, and it was a surprise, [indiscernible], certainly to the world and to some of us, including myself internally. So it's a form of -- it's a disease where it's secondary to an injury to the hypothalamus and that injury occurs and the vast majority are due to these benign tumors, which grow and develop between the pituitary and the hypothalamus. And as they grow, they invade and injure both of those organs. And so melanocortin-4 pathway sits largely in the hypothalamus, but there's MC4 receptors and the receptor where our drug works that are also in the brain stem and the upper spinal cord, which govern other elements of our energy expenditure side of the equation. So these patients, when they get their -- the tumor gets resected and then plus/minus radiation, that injury leads to this remarkable change in their overall growth curve. They gain a tremendous amount of weight in a shorter period of time. They literally explode off of their growth. Most of these are kids get it, explode off of their growth charts. And it's completely refractory to what's been tried. And again, CRIBBS have been tried in this as well. You can get variable amounts of weight loss in some patients. But the underlying problem, there's been nothing that's really addressed the underlying problem. So what was remarkable about the results that we had in our Phase II was -- that was an 18-patient trial. And literally, with the exception of 1 patient, who was noncompliant, 17 out of 17 who took the drug had a meaningful response. And our results at 16 weeks of therapy, which was the original readout, was about a little less than 15% of weight loss in that period -- or BMI decrease in that period. But again, that was a good magnitude of response in a short period of time. But what was really striking, again, was the consistency, which suggested that we were fixing or correcting a fundamental defect. And just -- one thing just to remind just how the biology works here is what's missing is alpha-melanocyte-stimulating hormone. So the endogenous ligand is a hormone and setmelanotide or IMCIVREE drug is essentially a more potent form of that hormone. So we're a replacement therapy for that. And as there are many things with medicine, you can do end runs around the problem, trying to use other medications to solve it. But usually, you don't get at it until you fix the underlying defect.

And with 2Q earnings, you announced that the enrollment for the Phase III HO study will be completed this year. So can you just talk about that study and the factors that help accelerate the time line?

Yes. So. Pretty profound results coming out of Phase II. We've gone into the FDA, pretty bullish on those results and have recommended to the FDA that we do a shorter trial, a 6-month trial, and from a powering standpoint, it didn't require a large number of patients. But this is a very strong rule book sensor at the FDA. These trials should be 1 year in duration. So this is a 1-month -- 1-year trial plus 2-month dose titration, so 60 weeks in total. And then the total number of patients was negotiated on the safe size of the safety database. So it's 120 patients, randomized 2:1, treatment to placebo, and where we are now in this trial is we are enrolling. We did move up our time line in terms of time to be fully enrolled from end of first quarter to end of the year. And that was predicated largely on -- the gating factor here is getting these sites open. We'll have about 25 sites participating in the trial. Every site that we've talked to has their list of patients. This is not one of those trials or situations where you get as many sites as you can and then they go out and they look for the patient of interest. These are all sites who are more actively following HO patients. And the other thing is they have their list and they also know the inclusion criteria for the trial. So they're calling patients who they believe will be eligible. So the screen failure rate is very low. So back to the point, it's really getting sites open issue. We've gone pretty well on the U.S. side. Europe has taken a little bit longer, and that will start opening up here on the fall.

And talking about Europe, you secured premarketing early access authorization in France. What kind of impact or benefit do you expect from this?

Yes, that was really exciting. I mean, we -- for those of you who follow our French legislation, they have a mechanism where you can receive early paid access for your therapies, both after EMA approval, but before you've agreed on a reimbursed price, but also before EMA approval. So this was 1 of -- there's been a lot of -- 21 drugs, I think is a number that have this AP1 designation. And of that 21, only 7 have been approved on Phase II data. So we were 1 of that small group and of the 7, 5 were for oncology. So we were 1 of the other 2. But I think it's highly validating, just on the importance that they recognize the unmet medical need here and also the potential impact or significance of the results that we had even in that small number. So the -- aside from the validation part, the prevalence numbers, actually, I didn't mention that I should come to that in a minute. In France, aren't different. Europe, I think different from the U.S., we believe. So there's a good number of patients. But what fundamentally makes HO different and part of the excitement around this beyond purely the results, which says, okay, we see you have a drug that works in this indication is the fact that we think there's about 5,000 to 10,000 patients in the U.S. Our Bardet-Biedl world, which is our genetic, the other very significant genetic opportunity, I guess, we'll come to in a moment, is up 4,000 to 5,000. But what's different between Bardet-Biedl and HO is Bardet-Biedl patients, the vast majority are undiagnosed and the work that a company does like Rhythm is to try to help the system get those patients to a diagnosis. HO conversely, that 5,000 to 10,000, they had their tumor. They know who they are. So they're carrying a diagnosis, and it's a pretty well-recognized complication of that entity. So that's one. And then; two, Again, somewhat unlike BBS, they stay with a specialist. The vast majority of those patients, 80% plus, because of injury to the pituitary means they need 1 or more pituitary hormonal replacement, so it's thyroid or on a reproductive side and the like. So that fact, again, keeps them in a call point in a concentration that is directly where we're working today. So long story short, I think that France i,s, it's really, like I said, exciting. It won't be a big bolus of patients right away because the process is you go through a review committee, so it's gated, it won't be an avalanche. But I think in terms of getting patients on drug and exposure in France, both for the physicians and the patients really significant step.

Great. Well, maybe let's shift to BBS. The trajectory for the new scripts has remained robust and encouraging. Can you just remind us the process for how the translation to new scripts and start forms?

Yes. So again, in a rare disease world the way it works, it's pretty controlled in the sense you have 1 specialty pharmacy that provides the drug, so everybody goes through them. We have a relatively small sales force. We don't sell the drug. I mean, much of the work that our teams do is to help create awareness around this. I mean if diagnosis of BBS is made and this is an approved therapy, people will use the approved therapy. So much of the work is around, again, the diagnosis and then supporting this reimbursement, getting patients through the system. So the start form, doctor wants to write a script, it's -- writes a script, it's in a start form. A big piece of this is we encourage and ask the doctors to encourage patients to consent to allow Rhythm to talk to the patients, and over 90% of the patients have consented. And what that means is that we have a patient support group with patient education managers. So every patient gets assigned a patient education manager. And particularly in the beginning, they have regular contact. So there'll be weekly calls with that patient. So in many ways, it's a tighter relationship often than they have with the site itself. And we're obviously not there to play a doctor, but we can play -- we can provide a tremendous amount of sort of support. And a lot of the -- where drugs early on, you have side effects, particularly in this drug, the side effect profiles in the first few weeks, nausea and vomiting, but that goes down. I'm just helping patients anticipate the right expectations, manage through things that come up, help them through with personal stuff, which has nothing to do with the drug, but can interfere with their ability to be able to continue and to be compliant with the drug. So it's a support system that in a rare disease world can be quite profound and helpful. So all those are elements of trying to get this. And then the last thing is the reimbursement process itself, which we're thrilled about where we are. Virtually everything is a prior opt, although now many of the payers were going through perfectly routinely, if you will. Many go through an appeals process, and that appeals can be 1, 2, 3 appeals. And again, part of what you have to be prepared to do as a rare disease company is you don't give up. You keep working that problem. And more often than not, you get to a satisfactory outcome and patients are able to access drug maybe if it's on the third appeal.

And you mentioned earlier that the prevalence you estimate 4,000 to 5,000. And I believe there's over 600 in the CRIBBS Registry. So how is the patient identification going for Rhythm? And what initiatives do you have to continue advancing that?

Yes. So 1 of the big peers -- big peers, [indiscernible] certainly, patients or investors, other people who are looking at this understood there was a pool of patients we were starting with the CRIBBS, although we didn't know the names of the patients. That was obviously an identified group of patients. And what happens once that pool is depleted, I mean, if that isn't sort of the end and you fall off a cliff, and now, a year later, I think there's growing confidence and certainly internally there is a tremendous amount of confidence that no, it's not going that those prevalent numbers of 4,000 to 5,000 are very real. And again, if anything, I'd push to the 5, not before. And that's just coming as we get more experience. The patients are out there. And unlike a lot of rare diseases, so our original approvals for POMC and LEPR, these were very -- there are less than 1,000 patients, right? And they're -- a, they don't have signs and symptoms that help you diagnose them other than it's mostly a history and the presence of the early onset obesity. And they're just -- it's low prevalence, low frequency. And so they -- this is not that. If you look for patients with BBS, you will find them. They're out there. And there's a lot of very healthy discussion going on now about how do you make the diagnosis, evolving from the classic way you make the diagnosis, which was the original review article and the deals criteria for those who are familiar with that, where you have to have 4 of these and 2 of that or it's the classic sort of syndromic kind of description of a disease. Now we have genetics, but the genetics, unlike some diseases, which are monogenetic and black and white are complex. There's probably 26 genes, which are associated with it. And there's all kinds of readings that you may get. And what the world is doing now is struggling a little bit. If you don't have full-blown deals, but you have some genetics or -- that's what we're playing in, but it's leading to, I think, as it should. Physicians and patients thinking about what constitutes a BBS diagnosis and the fact that it's a genetic disease, and if you can make an earlier diagnosis, why wouldn't you make an earlier diagnosis because particularly if there's a therapy. So that's the world we live in. The specific question was on patient ID. Once you get the system up and going and it's starting to work, as you can see from the results, there's a virtuous circle here, which is the more awareness there is, the more people looking, more patients are found and that's happening. Other things we do, the genetic testing is helping. Again, we test on the order of 12,000 to 15,000 patients a year, and that could be amped. It's still a small fraction that need to be, but I think it's a good balance for Rhythm. We have not in significant results coming out of that. And they get a positive result there, even if it's not a classic positive, they start doing some more work on maybe this patient could have BBS. So those are a couple of examples. The ICD-10, I think you have a question there on the code that's coming up. So we just got a ICD-10 code. Previously, we had an ICD-9 code -- sorry, ICD-10, but it was a syndromic code, meaning it was a bucket of different diseases. So you didn't know if you had that, whether you had BBS in there or whether you had something else or whether you just got thrown in there without a diagnosis. So I think what's going to happen here is; a, prospectively will give us a better road map to those patients. So that will be huge. And then, secondly, a side benefit is I think the fact that you have a code is going to force physicians to think about making a diagnosis as opposed to, I'm not really sure, I'm just going to put them in the syndromic bucket. Now it's like, there's a BBS code. Do they have BBS, they not have BBS, make the call. So again, I think that will be really helpful in terms of how this all plays forward.

And then can you just talk about the age dynamics for BBS and where you see greater opportunity going forward?

Yes. We -- it's a genetic disease. We skewed to the pediatric side. The CRIBBS Registry is 80% of the participants are less than age 18. They don't die. They just -- I think it's a participation issue. They age out and they choose not to continue to participate. But the adults are out there. So what was really gratifying is we have a little more than 50% of our patients are adults. And that -- and again, it's not completely our focus. We don't ignore the adult population. We're talking to them. I mean to the adult patients and the like. But I think it speaks to a large segment of the population who is out there with a diagnosis who are finding us. And I think a lot of the adults are people who they were diagnosed by a specialist, the specialist doesn't hold on to the BBS patients. There's nothing to do. There's no treatment. So they send them back to the primary care physician. And then, over time, you can get a scourge or whatever, you're not asking every week as a therapy for BBS. So I think gradually what's happening is, they are finding us. We do a lot of work with the patient organizations. We have patient ambassadors and social networks and the like that you can try to get the word out a little more thoroughly, but that is a positive development.

Any update on discontinuations? You have sufficient numbers to see whether the rate is normalizing yet?

Yes. So we're a year out. Do I think it's enough numbers to stabilize? It's a good number, meaning the #1 treatment for a rare disease, I think we're getting into a robust space. Does it tell us where we're going to level out? I don't think so. I think another year will put us in a pretty good place. So we have a lot of -- I think once you've got a large population that's been on a year, we start to have a much better sense. So we have a population, of which maybe 50% has been on for a year and the others are coming. So that's how I think that's playing. But I feel really good about our discount rate. I think a lot of it has to do with our patient support system and our ability to -- when there's something that comes up that might cause somebody to step out or stop treatment, a lot of that stuff can be supported and patients are happy to stand on them.

And then maybe 1 follow-up question on the ICD-10 code. So previously, I guess, with the prior code, do you have a sense for what proportion of patients with that diagnosis code had BBS?

No. It's -- we've been trying to work it algorithmically. I mean you start with that big bucket and then you look for other codes within that, where somebody has a eye finding or a kidney finding and try to narrow it down that way. So that is a bucket we've been working. But I'd say, I don't have a number for what percentage have BBS.

Okay. And then with 200 -- over 250 unique prescribers, where do you see the main opportunity going forward? How do you think about capturing additional unique prescribers versus increasing depth of prescribing and refills?

Yes. I think as always, it's both. You want to see -- we're, again, thrilled. I'm thrilled with the breadth. I mean, when you see a lot of these physicians who are writing 1 script that's great. I mean these are the patients, I think we're finding us, and that's what that metric tells us, one. Then, yes, we very actively want to, for physicians who have expressed an interest, move them to taking a little more of an interest in BBS. And in my former life, the Genzyme enzyme replacement world, we had a number of people who became global thought leaders who started out as primary care physicians. They just -- they had a couple of patients, they started treating them, and they took an interest, made a hobby of it and it went. So you're going to try to move and then you have a smaller number of people who are the classic thought leaders, academic endocrinologists and the like. And you want that to be robust, but that's a busy group. And I'm not counting on them. Like I said, in many ways, people who aren't burdened by all of the other activities and can really say, no, I want to make BBS part of my, like I said, some specialty, if that's it. That's where we'll work on both.

Great. Maybe one question on the R&D Day. So in the fourth quarter, you're hosting that. Maybe just high level, what should we expect to see at that event?

Yes. So things that will come up. So we'll put out the DAYBREAK, and that's our Phase II basket study, and we'll talk about what we're signaling there is probably 5 plus or minus genes where we have enough data of patients enrolled. It will be the open-label portion. Responders have gone into a double-blind portion of the trial, Part 2. That will read out next year or mid-year probably. So we're not going to make any decisions based on the data, but we'll share the open-label part, which is about 3 months of treatment. And I'll just say now, I mean, I'm pretty happy with how the DAYBREAK has worked in the sense that it was designed to allow us to pretty efficiently screen a large number of genes and figure out what would be a most interest to pursue next. So we'll have that. We'll show you data from the pediatric trial, which we're filing on now. That's about 11 patients, a mix of POMC, leptin receptor, and Bardet-Biedl syndrome, [indiscernible] -- it won't change a whole new epidemiology. It's still a relatively small percentage of the overall population. But it's really important for a genetic disease. So being able to start a patient age 2 as opposed to having [indiscernible] till age 6, that's critical. I mean we know them. The GLPs, for example, aren't getting done into the younger ages so quickly. And there's, like I said, the earlier the better for that world. So we'll show you the peds data. We'll update where we are on the SWITCH trial, just we can talk about that. And we'll do reinforcement. We have presented the HO, the 12-month HO data at the TOS meeting coming up in October. And so we'll reinforce the findings there and may have an expert there to help put in greater context.

Okay. And then for the weekly formulation, you'll have PK and tolerability data from that SWITCH study. Can you just walk us through the study and what you'd like to see?

Yes. So our weekly strategy, just to bring over through this, has evolved a little bit. So a weekly, it's a critical aspect of the whole Rhythm story and portfolio management. So we're obviously fully committed to that. Our current weekly formulation is a form of setmelanotide or current drug in a weekly formulation. And that's the 1 that's in the SWITCH study. What we announced on the earnings call -- last quarter 2 earnings call is that we have a next-generation molecule, which is just as a number now, 718, and that's MC1 sparing. So one of the side effects of setmelanotide is that it hits the MC1 receptor. So you get an increase in pigmentation so you get skin darkening and for some, that's no problem, for others it's been a little bothersome. So if you can eliminate it, great, and we can eliminate it with 718 -- 718 also has IP protection out to 2041. And that's a critical element, again, just in terms of the over life cycle management of this. So -- and it's fully owned by Rhythm. It's a new chemical entity. So there's a lot of things about 718 that are highly attractive. So as long as 718, will hopefully be in Phase I, Phase I/II next year, as long as things look good, then we won't pursue the other one. But right now, we have both of them available and we'll see how it plays. The SWITCH study, which was done, as I said, with the current setmelanotide weekly formulation. That was basically a 3-month trial where double dummy where patients were randomized to either receiving continuing -- they were previously on drug, continuing their daily or going on a weekly. So we'll -- as I said, at the current numbers, we didn't enroll as many as I hope because yes, they enroll patients who have been on drug. It'll be mostly PK showing us. Now we know the PK was pretty good based on work we've done in all the volunteers. So I'm not expecting so much of a surprise there. And then on the tolerability side, again, it's just inpatient, so we'll get more data there. And it may help us. I'm hoping, again, give us more insight into dosing is best because you're extrapolating from daily to weekly dosing, and it's obviously not the same. And so those are the kind of insights as we look to preparing for the next trial that even if we use a 718, I think there's things we could learn from our weekly -- current weekly.

And you talked about 718. What should we look for at the R&D Day from that program? Is there anything that...

Yes, sorry, I mentioned that. We'll present preclinical data. The early work has been done. We've spoken to some of that, but we'll show you the data on it. We'll show you some of the animal models that give us confidence and [ encourages ] to be excited about what's evolving there.

Okay. Great. Maybe one last question. I mean, you recently raised $50 million through an at-the-market equity offering. Can you remind us how much cash you have, how far that gets you? And how confident are you that the cash will get you through the HGO data?

Yes. So we finished quarter 2 with roughly $250 million in cash. We had hit -- we have this capped royalty with health care partners, which we have drawn $50 million on and -- sorry, $75 million on, we had the ability to draw an additional $25 million based on hitting some sales milestones for Bardet-Biedl, which we hit early. So we were counting on drawing that down and taking additional $25 million and then raise the $50 million. So that additional $75 million on top of our $250 million. And we did -- the calculations that say we can get into 2026 is based on an evolving revenue stream that we see emerging BBS and a reasonably conservative calculations that we did to make that forecast. So I think we feel really good about getting into 2026 and on our current time line for HO, which read out in the first half of 2025 that puts us well beyond that readout. So...

Great. Well, looks like we're absolutely there. Thanks so much for your time.

Thanks, Jeff.