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

Final day of the Barclays Global Healthcare Conference. My name is Carter Gould covering U.S. biopharma. I am pleased to welcome Rhythm Pharmaceuticals to the stage. Joining me is David Meeker, Chair and CEO and President of the company. David, welcome.

Thank you, Carter.

Maybe to get started, it would be helpful if you just provide a brief overview of the company and some opening comments, and then we'll jump into Q&A.

Sure. So Rhythm Pharmaceuticals is a company focused on developing treatments for patients who are suffering from genetic syndromic, which are have a genetic background and/or acquired forms of hypothalamic dysfunction, otherwise known as hypothalamic obesity. And we have a treatment, which is approved for 4 different indications, POMC, leptin receptor, PCSK1 and Bardet-Biedl syndrome. And so those are all genetically driven causes of obesity. And our drug IMCIVREE is a replacement therapy essentially for precision medicine replacement therapy for a hormone, alpha-melanocortin stimulating hormone, which is part of this melanocortin pathway. All of these genetic defects result in impaired signaling through this MC4 pathway. And as I said, patients who suffer from that have decreased amounts of this alpha-melanocortin stimulating hormone in our drug brand name IMCIVREE is an analog of that. So we've been commercial. The -- what's driving our commercial revenues at the current time is Bardet-Biedl syndrome, and we'll dig into that a little more, but that's a -- I think, a very solid meaningful ultra-rare disease opportunity, but has some all the elements of the kind of rare disease opportunity you can build a company around. And then what's gotten the world excited, I think, in terms of really tuning into Rhythm is the [indiscernible] another entity, which is called acquired hypothalamic obesity, which occurs in patients who have most commonly a tumor, a benign tumor of the brain, which arises between the two titering the hypothalamus and through just direct damage either the tumor or surgery, to treat the tumor results in impaired signaling to this pathway and or in Phase III trials for that.

Okay. Great. Why don't we start off by jumping into sort of the near-term commercial dynamics. When we think about Bardet-Biedl, just sort of the size of the opportunity and maybe you've had pretty solid ramp -- want. How you sort of bridge the gap from where you are today to where do you think ultimately you can get in terms of penetration and then opportunity?

Yes. I have -- my background as many people know, I spent 20-plus years at Genzyme, saw a number of different rare diseases. And what was striking about Bardet-Biedl syndrome is, again, it's a genetically driven cause. So these patients suffer from early onset obesity. Obviously, genetic starts at birth and severe hunger. And what they're suffering from, when I say severe hunger, this hyperphagia is literally the absence of satiety signal. So they eat a meal, and they're not getting the signal that their stomach is full. So they just keep eating. So that opportunity is -- we think in the U.S., there's about 4,000 to 5,000 patients. It -- as a syndrome, it has multiple different manifestations. And so those are close to the diagnosis. So it makes it a little easier to find and identify these patients. That said, it's a classic ultra-rare disease. It started out. There was almost no experts, very little awareness about the disease, no testing. So Rhythm makes available a genetic panel, which allows these patients to be at least clues. It's not a pure genetic diagnosis. It's actually a clinical diagnosis with the genetics can inform it. So you have to do all the work that you do in any classic ultra-rare disease even though we think of obesity as being common, this part of obesity is not common, and it's not so visible. So 4,000 to 5,000 patients in the U.S., I think the trajectory and the long-term opportunity here, we talk about what's the probability, if there's 1,000 -- 4,000 to 5,000 patients, you can get 1,000 patients on treatment. We've had over 600 scripts written today. Now it's a significantly lower number who are actually on treatment as you work through a number of those patients go on free drug. We can't work them through reimbursement, or we've had some discontinuations and the like, obviously. But the probability you can get to 1,000 patients, I think is extremely high.

Okay.

And our net -- if you think about a $360,000 per year, U.S. price with net various ins and outs, maybe it's around $300,000. That's a $300 million opportunity. And the other thing the last thing, I'll say on this, is the -- from the beginning, we believe strongly in a global approach. And we've -- from Day 1, we do our trials globally. We've had a European international team based in Europe on the ground, building it in an opportunistic way. As we get market access, we build out that particular country. And increasingly, that's become a more meaningful contributor and it's now contributing about 20% to 25% of our revenues.

Any reason to think that those ex U.S. regions are going to be a supportive, maybe not necessarily in terms of the output price, but in terms of access as we see in the U.S.?

Yes. Over my career, there's a -- these are single-payer health care systems. There's a real sense of solidarity, the strong desire of those systems to make sure that patients who need treatment can get the right treatment. So they're not easy markets. They become increasingly more difficult over time, as we know every health care system has, but particularly in Europe, but we have been very successful. We're approved in selling now in Germany for [indiscernible]. We just got Spain and Italy, market access set up for both the first genetic and Bardet-Biedl syndrome. So yes, it's doable. Any med is doable.

Okay. So as we think about the expanding beyond Bardet-Biedl into the HO opportunity and the other -- all the sort of -- kind of lay out that landscape for folks?

Yes. The first next step was we can completely focused on the genetics of this melanocortin-4 pathway. And we ran a Basket Study about 3 years ago and identified 4 different genes, the [indiscernible] the ones that we're currently approved for as well as 2 other genes. And those where we had a very clear signal, those 4 genes are now in Phase III trials. It's a -- basically umbrella trial, all 4 trial is exactly the same, but each gene is individually powered, and we'll read it out when the gene completes. So those will be coming. We look to have at least 2 of those fully enrolled by the end of this year, and then it's a year-long trial. So that's the main -- and we ran a Phase II trial, which we just read out at the end of December, the open-label portion of it. Again, an even bigger look -- looking at -- we started looking at 30 genes that might have where there was pretty good data to suggest that they were related to the pathway. We ended up paring it down. And there's probably 5 or 6 genes in that group that are of interest. And so we have a randomized withdrawal blinded portion that's going to read out sometime in the second half of this year. But that's the way we're approaching it. We're basically saying any gene genetic defect that impairs signaling where you get a decrease in alpha-melanocyte stimulating hormone and there's a role for this drug as a replacement therapy. And then, of course, the surprise all of us was that this type of hypothalamic obesity where you're damaging it -- physically damaging the hypothalamus, nothing works in that end, literally, nothing works. It's not that any other anti-obesity medication can't help the patient lose some weight. But in terms of really correcting -- fundamentally correcting the disease, nothing has worked. And so what was quite striking in our 18 patient Phase II is that we had a quite dramatic increase in overall [indiscernible]. But even more impressive, I thought, was the consistency of the results. Literally, everybody who took the drug lost 10% or more or they were on track to lose 10% or more at 16 weeks. We had 2 patients who discontinued because of adverse events.

All right. So maybe -- I guess there's the overlying question around this, and you touched on it a bit is in a world in which we have relatively cheap access to GLP-1s, how comfortable are you that GLP-1s will not be the answer in all those genetic variations and in the HO opportunity? Is that something that you're going to have to prove out or the field is going to kind of settle that for you and patients will have unmet need and we'll come looking for your drug and your trials?

Yes. Yes. I mean as we all know, I mean, the GLP-1s are amazing drugs and they've truly transformed a very challenging health care problem and we'll continue to read out, and we'll have many more versions of the GLP-1s. I think what -- and also Lilly and Novo have done an amazing job just helping the world think about obesity as a disease as opposed to just a choice, lifestyle choice. And so that part has helped everybody rising tide lifts all boats, number one. Number two, yes, it's a disease, but it's not 1 disease. It's many diseases and where we've really tried to help people think about like many things, cancer 20 years ago, right, it's not cancer, seeing what type of cancer and then try to get the right medication for your cancer. So that's where I think we're entering into Rhythm has a very specific role for the small segment of the population that's suffering with early onset obesity in this severe hyperphagia. The -- your question was will GLP-1s have a role, and this is back to we gain weight for different reasons. So I think virtually everybody put on a GLP-1 would lose some weight. And that's certainly true in the patients that we treat. It doesn't correct. The pathways are different. So it doesn't correct the fundamental underlying problem is you may lose some weight, but you haven't fixed the satiety signal problem. And I think in the hypothalamic obesity case, that's the extreme example. And so GLP-1s earlier generations have been tried and absolutely failed. I think it's too early to conclude on next generations, which are clearly better drugs. But mechanistically, it doesn't look like that an.

Okay. Maybe just go back to the Phase II. You shared some data late last year. Can you talk through about what additional data we might see from that study additional cuts as we then think about the next steps for the HO program?

Yes. We read out as you indicated last fall, the 12-month data on that group. We had 14 patients going to the long-term extension, 10 to 12 patients had the full 12 months, and they had a mean BMI decrease of 25%. But we've -- we've really tried to -- at least I have in our team deemphasized a little bit the extreme preoccupation this arms race around BMI percent decrease. It's not the end game and endlessly losing weight is and it's getting you back to a healthy state. And so hypothalamic obesity is interesting because it's not genetic. It didn't start at birth. It started at a point of injury. And so you can have a patient, often a child, who is an otherwise normal child, young, and they could be the 25th percentile weight, skinny child. They get their tumor develop this problem, they shoot up, they come obese. They have this severe hyperphagia and the like. On drug, if you could correct that, it's not unreasonable to expect that some of those patients can get back to their prestate normally. And in fact, in our Phase II grouping, the child, the 6-year-olds who lost the most weight at 16 weeks, he's now -- his BMI is increasing, but he's below the 50th percentile. So he's still [indiscernible]. In terms of what will come out, I mean, I think we'll look -- I'm not sure whether it will be this while a longer-term follow-up. We're obviously continuing to follow those. But what we're very focused on is our Phase III trial, which we talk a little bit more about and then our next few -- our next generation products, weekly and daily, which are both -- all 3 of those trials are being run in HO.

So let's talk about the Phase III. And in terms of what the agency wants to see alignment globally across the regulators. Maybe you can explain there?

Yes. It's been kind of [indiscernible] a rare disease world. The nature of rare diseases is the rare, and so you have to make compromises in your clinical trials. They tend to be highly heterogeneous because you can't select a pure population, you have to mix patients. You just take whoever you can find in ARNT trials, we have to enroll adults and peds together. That's not always optimal, particularly when you're looking at BMI as the primary endpoint. So these are just fundamental challenges that I think to be honest, the agency wasn't so sympathetic too. So we're running a classic obesity trial, which is way overpowered, we're 99% powered to show a 10% difference between placebo, 2:1 randomization. And unequivocally, they wanted a full 12 months on dose. So even your dose escalation part was incremental to the 12 months. So we're running a classic study. That's their threshold for obesity meds. They want to see not just that you can a little weight, but that it's sustainable. So all fair, but challenging, and it's been challenging for the community. Europe is totally aligned with that, I find the EMA a little more user-friendly, to be honest with you than FDA at this point around these kinds of questions, but everybody is aligned on that. And so that should be an approval trial with -- to retail positively, which we're quite optimistic about.

Okay. And I think one of the nuances of the design that we probably see a little bit less in some of the other obesity studies that maybe you're a little more higher profile is sort of that run-in period. And maybe talk about the importance of that in terms of the study design here [indiscernible]?

Dose escalations?

Yes.

Yes, I think what we learned and not importantly patients have differences in their tolerability. All of these medications, I think, which we all GLP-1s, our drug works centrally. They may have some critical effects, but they're basically working centrally and when you begin to alter signaling in our case, we've got somebody who's lived without the experience, having a satiety signal and you someone hit that receptor and give them a satiety signal that is a different feeling for a lot of these people and how they interpret it. A lot of it comes back is nausea. So what we've not surprisingly learned is start low go slow. So we allow 1 month 2 months maximum, but 1 month is sort of our goal to get people from the starting low dose titrated up. And when you do that, the side effect profile, those complaints are varied in their first 1 to 2 weeks, and then they resolve as you tolerize to that drug.

Okay. So if we think about the persistence you're seeing right now in Bardet-Biedl and then maybe overlay that with some of the other kind of -- life cycle management, next-generation approaches? And how do you see that playing out?

In terms of how we are think strategically in Rhythm in building this. Yes. So setmelanotide are simply are approved drug is a very clear first-generation drug. It hits an MC1 receptor, which causes an increase in skin pigmentation. So it's been a nonissue for the vast majority of patients, but further on the small percentage of patients. It is an issue. It has no adverse health effect other than increased pigmentation, but it's not a virtue. So our next-generation products don't have that and also then the whole tolerability, we're currently a daily injectable and our next-generation products -- sorry, weekly injectable in 1 case or a daily oral. And so that's our goal. We'll develop both of those. And the wonderful thing, if you will, about the hypothalamic obesity model is unlike when we started with our drug, and we didn't -- the models we were working, and I would say were not quite so easy. This is a very sensitive model. And so from a clinical development standpoint, it should give us a readout in relatively quick and reliable way. If either of those doesn't work in HO, we're done because, I would say, a little hope it would work in there and something else. So -- and then I'm also very hopeful that even in a relatively small trial that we can get a pretty good sense for what the post range should be. With that, and we would obviously move into Phase III for HO and in parallel to get to -- do more of the genetic work.

Okay. So as we think about the current Phase III plan and then those sort of efforts, are -- could we -- how do you then think about sort of staggering those launches or potentially maybe holding back on the market because it might have an oral that's a year or 2 years away, how are you kind of balancing those sort of...

Yes, that's a fair question. My whole philosophy over time is you just follow the science, right? It tells you where to go. So if everything went perfectly, which it won't because that's not right. But the end goal in a perfect world is both will be approved for all indications and we being different. I mean it's really -- the goal is to give patients, physicians a choice for what meets their needs and then -- both to get their clinical outcome either way.

Okay. As we think about the next-generation approaches, you talk about the -- I mean, the acquisition there of the assets and kind of why you think this is the specific asset as the best one and kind of the process [indiscernible] even went into the decision?

Yes. We did 2 things. We had our respect we had our first-generation weekly, if you will, which was our setmelanotide drug in formulation -- weekly formulation. We've started in the clinical trials with that. But behind the scenes, we've been working on next generation that did not have the hyperpigmentation and had some other potential virtues here. And so that has done great. And so we're entering into Phase I trials. We're imminent in terms of getting it started and that will have the standard single, multiple ascending dose and then our Part C of that trial will be in HO patients. The daily oral spoke, you mentioned, which is what we acquired from LG Chem chemical, a Korean company. And they've been working on this for several years. We've been following them closely, obviously, in the space and have been in dialogue with them for quite a while. And we've reached a point where the 2 companies thought -- this was a natural and that we were the right company to help to take this forward. What we got excited about there was it's not easy and historically, this target has worked on by pharmaceutical companies for many years, unsuccessfully to be able to get something that got to the benefit in terms of obesity reduction and hunger reduction without the cardiovascular side effect. And I think they did it. The data package was quite compelling. They've been through Phase I clinical trials. What they saw in clinical trials, again, was highly supportive of a tolerable drug with a very clear biological 'signal in patients' healthy volunteers with obesity. So we'll see. We're on the verge of starting a small 28-patient in 4-arm Phase II trial, which will have a placebo group as well. And so if you look ahead on Rhythm in terms of what's coming in terms of milestone Phase III will read out in the first half of 2025. I would expect both of the weekly and this daily oral HO portions of the trial to read out in the first half of 2025. So again, we're -- that's setting up is a pretty important period for them.

And when we think about that asset from LG Chem, I assume that would take the IP then way out to '24, one of the -- the pushbacks from the company today has been sort of the limited IP, but...

It's a -- yes, it's a critical aspect of this whole thing because it now both of those are internally developed and the oral from LG Chem give us IP out for both of those to 2040 plus, depending on patent term extension plus will tell you how far into 2040, but it gives us a very long runway. And why are we doubling down because we think that the size of this opportunity, you begin to work through the different ways you can impair this pathway is quite significant.

Okay. And when we think about those additional indications beyond HO, those being sort of studying an M&A, daybreak, excuse me. And just so -- I think you said time line in the first half of '25 there?

Yes. Well, so the HO portion of this, that's all first half 2025. The M&A, our goal is -- which is the Phase III we just spoke about.

Yes.

Goal there is to have at least 2 of the cohorts fully enrolled by the end of '24, which will mean that, that will be a '26 readout.

Okay.

And then the day breaks of Phase II. And I hope that we can by the end of '24, give some guidance as to how we would think about developing one or more genes coming out of that effort.

Okay. And going back to the weekly and the oral in terms of wrapping in the ex U.S. opportunity maybe at an earlier stage? How are you thinking about that with these sort of early efforts?

Yes. So ex U.S., again, we'll be global. Now we just expanded our definition of Global in Japan, which we talked about on the last earnings call. Japan, we did early work. There's no real significant genetically impaired population in the Japanese population. But HO is quite prevalent. And actually, the absolute numbers and therefore, the prevalence is much higher in Japan, the numbers are about the same as the U.S. population. And so we're quite excited about that. We had a highly constructive interaction with the PMDA, the Japanese regulatory authorities. And so they were quite motivated as we were, obviously, to try to get the Japanese patients into our current Phase III and so 12 patients will be added, which will allow us to our current Phase III trial, no one will impact the time line for U.S. and EU. But that will allow us to file for Japan slightly behind the Japan as [indiscernible] U.S.

Okay. So I guess stepping back, thinking about sort of obviously the investments you're going to make, your current cash position, you are also generating revenues. How do you think about the runway and impact to profitability here?

Yes. So about $30 million, $70 million plus coming out of the end of the year 2024 or 2024 -- 2023, sorry. We have previously guided that we had cash into the first half of '26. When we did the deal with LG Chem, we obviously, spent some money to acquire that asset. We're now guiding into the second half of 2025. So we have multiple ways we can -- there are several ways we can think about financing the company. We definitely will need to finance again before we get to the profitability. We're not guiding profitability. It's highly dependent on 2 obvious pieces, which is revenue, which has been slow and steady, and that's going to continue. And so increasingly, that will diminish narrow our cash needs as that continues to progress and will. And then on the spend side, it's highly dependent on our trials. And what we said about that is that we're probably peaking relatively in terms of our absolute spend because as some of this new work comes in around the next-generation products, the Phase III trials that we're running now will go down. And so that balance -- again, not guiding, but you can see a future where this company can absolutely profitable.

Okay. We'll leave it there. David, thank you very much for joining us.

Yes. Thank you.