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

Okay, everybody, good morning. Welcome back to the Bank of America Healthcare Conference. I'm Tazeen Ahmad. I'm one of the senior SMID biotech analysts here at the firm. It's my pleasure to have our next presenting company, Rhythm Pharmaceuticals. Sitting up here with me for the next 30 minutes is CEO, David Meeker. David, thanks for making the trip out here, good morning.

Good morning, Tazeen.

[indiscernible] And let's start with the most recent update, which was the executive order that was made public on Monday, with the emphasis on most favored nations. So based on the information that's available, albeit limited, can you talk about what you think the impact of that is in general? And what potential specific impact it could have to Rhythm?

Yes. I mean, I think all of the discussions, MFN or tariffs and the like are really challenging for the industry and so a ton of questions there and by no means, the expert that's going to tell you how that's going to all play out, but we -- I think everybody understands that whatever it is, it's going to be a bit of a journey getting to that final position, and I'm not sure what that is, number one. Number two, I think MFNs specifically, I'll speak for Rhythm, the goal of that is they're trying to find money. They're trying to solve a budget problem, Medicaid, of course, is a significant target. We don't cost the system a lot of money. I mean in rare diseases, in general, don't cost the system a lot of money. I mean the per patient costs are high, but the -- in the aggregate. So to solve that problem and some of the leadership there, both Kennedy and Makary, I think have spoken about things they want to do to help support rare disease development and the like. So again, I just think there's a lot still to play out here. I don't think Rhythm is particularly in the cross here of how this is going to happen. Tariffs, I don't know if you're going to go there. I mean, I think you had a question, our IP is domiciled here. We do manufacture in Europe. And for our next gens, we've looked at that, and we're going to look at U.S. options more -- I don't know if it's more seriously, but there are U.S. options, and that very well may tip us to developing those here where we might have been a little more neutral in terms of where we would have gone.

Okay. In the near term, for setmelanotide since it's manufactured in Europe. Is there a way of bringing that onshore in a shorter amount of time?

Nothing short in biotech. I think this is again what -- this kind of manufacturing, it's a -- we live in a highly regulated industry, and you got to transfer a process and you have to transfer it exactly. So it takes a good 18 months to 2 years really to be able to transfer something like that. I don't -- again, I don't see us doing that. And again, just the way our supply chain works, the value of material coming into the U.S. is relatively low. So the material impact to Rhythm is really, I'd say, relatively immaterial.

Okay. Got it. And then lastly, as it relates to FDA, any interactions that you've been having, let's say, over the last 2 months, can you talk about if there's been any change either to the people that you're talking to or to process these types of questions, et cetera.

Yes. No. And the reason I highlighted that on our last earnings call was just hopefully to reassure people because I'm reassured by it. Two things. We have -- in the lead up to the filing, there's not a lot of back and forth. I mean it's pretty operational. They're waiting to get the file. But everything that we've had, and we don't only have interactions around the filing, we have other interactions across our portfolio. So it's been very normal. Time frames have been normal. The people we're interacting with seem to be the same. The head of the division is still the same person. And then I did highlight the fact that we got an in-person meeting, which I haven't had in 5 years. And so pretty excited about that, and I see that as a huge positive. One of the strengths of -- again over my career and interacting with the FDA is we think about the FDA as a monolith, and it's not a monolith, it's people. And the better relationships you have, and it allows you to work through. It's a challenging industry and questions come up. And if you have a good relationship, it really helps get to a good outcome. And so in-person meetings help with that.

Okay. All right. So it sounds like nothing has noticeably changed?

No.

Okay. So let's talk about the indications that setmelanotide is approved in now, kind of the run rate that they're on, where do you expect these ultimately land, and then we'll talk about HO.

Okay. Yes. So we're approved for our first 2 indications, the Biallelic, POMC, leptin receptor, PCSK1. As we said, at the moment, those were launched or approved in 2020. We thought that we'd have tens of patients on treatment in the U.S. that's remained true, remarkably accurate forecast there. And we knew that because we do genetic screening, and it's just -- it's extremely rare. We did not put a sales force in place there. But a lot of advantages from that initial approval. We got the drug price. We were able to interact with the market and good learnings as we led up to our BBS approval in the summer of 2022. And BBS, again, we've described it very much in my experience, a classic ultra-rare disease, 4,000 to 5,000 patients in the U.S., has all the challenges of a classic rare disease, meaning the majority of patients aren't diagnosed and what you do as a company is you try to help them get to a diagnose. We're the only thing that's approved for that disease. So you're not trying to sell them a drug. There's no marketing battle here. It's really you're trying to get the system built in a way where it's easier for a patient with BBS to get to a diagnosis. And if that happens, then they tend to find you as many times as we find them. That dynamic is supported by the fact that 1/4 to 1/3 of the docs writing scripts tend to be quarter-over-quarter, doctors we haven't interacted with, which is almost for sure, these are -- that's the -- they're finding us side of the equation. So that works. We're on about $150 million run rate roughly coming out of the last 2 quarters. There's a -- suggesting there are the -- we had some inventory swings between the Q4 and Q1. But I think the trajectory going forward, we don't guide. But one thing is it's: a, rare disease or possible to forecast [indiscernible] by the reason we don't guide. But over time, they do settle in and they become a bit more predictable, they become more predictable because of size and they become more predictable if you're global and again, one of the things I've learned over a couple of decades working in rare diseases, and you think you know what's going on and you're expecting a certain amount out of a territory and you get surprised in that territory is low, but unexpectedly another territory is high. And so your numbers look relatively even, but in fact, inside of it, there's some noise. So long story short, I think we'll continue the steady cadence going forward. It's been very reassuring. I think the experience that patients have had has been good. So I do think we'll continue to -- patients will continue to be diagnosed and continue to seek therapy.

Okay. What would you say is the current discontinuation rate for patients?

Yes. So we've talked about 30% discontinuation, 20% to 30%, closer to 30%. It's -- we're more 30-ish. That's a global number. It's lower in Europe. There's a different dynamic in Europe than there is in the U.S. And part of that dynamic in Europe is just patients being treated more consistently out of centers of excellence and those centers of excellence provide more surround sound, more support for those patients. That makes a huge difference for their overall experience and obviously translates to a certain extent to the discon rate. So that's where we are.

And so now let's look ahead to HO. You recently presented your Phase III data for that program, which was much anticipated and I'll say the results came in at the top end of expectations. Can you just remind us what Rhythm was looking for in terms of what would have been good data on that BMI number? And then also going forward, what are the next steps that are needed in order to allow for the application.

Yes. I mean, as those of you who are interacting with us on a regular basis, leading up to that, there was a big focus on what percent changed, we think we were going to see [indiscernible] get people focused on this [indiscernible]. We've had a good percent change in our Phase II, and we were hopeful for that in Phase III. But what really has been remarkable about this -- the results and this opportunity has been the consistency. And I think it just speaks to the underlying biology, which is -- at its most simple level, is just hormonal replacement. The hormone that is deficient, Alpha-melanocyte stimulating hormone in patients who have -- whether it's a genetic impairment of that signaling pathway or injury as in the case of HO, low amounts of that and setmelanotide's an analog of that. And to the extent that, that biology or interpretation of the biology is correct. I'll use the thyroid example. If you take 10 hypothyroid patients and you give them thyroid replacement medicine, 10 out of 10 will feel better. So we've been very focused to see whether that experience carries through, and I think the answer on this Phase III is absolutely. Now back to the percent change, I've been trying to get people to think about 10% plus as being a drug that would have been a meaningful outcome there. And the reason we said that is based on a lot of work interacting with thought leaders and treating physicians in general is nothing consistently has worked in this population. So GLP-1s, for example, individually, patients may have some response to a GLP-1. It tends not to be durable. And to the extent that it is durable, it tends to be modest. And so the number of percentage of patients who are actually having a good outcome from GLP-1 has been remarkably low. And the consistency, and there's been lots of KOL work that's been done from the analyst side of the equation, investor side of the equation, our company side, of course, and the consistency there, which is -- was leading up to that, which is just give me something that helps them stop gaining weight. So that's where the 10% threshold and some people interpreted that as a lack of confidence because we did much better than that in our Phase II. So great. I mean the result was Phase II. We did what we saw more or less in the Phase II reconfirming that, that percentage was predictive or...

Okay. So if we think about the metrics that you just mentioned about your 2 approved indications versus how those same metrics would look for HO. Obviously, it's a much bigger opportunity. Can you talk about how easy it is to find these patients?

Yes. And that's the biggest difference. And I think people -- when we announced the data on the Phase II data in 2022, people pretty quickly understood the difference because the prevalent numbers we're working with, we talked about 4,000 to 5,000 patients with BBS, but the majority not diagnosed. For HO, we're talking about 5,000 to 10,000 patients. So not that much larger, still rare, even ultra-rare disease by those numbers. The fundamental difference is the majority and maybe the vast majority of that 5,000 to 10,000 is diagnosed. And the reason is that the way they get this disorder, this disease, is there's an injury. So there's a very specific point in time and there's a before and after. And so you're a skinny kid one day and you get diagnosed with a tumor and go to surgery and you come out ravenously hungry and suddenly exploding off your growth chart. And so it's well recognized. And the most important part of that, you've got this very specific point in time that people can look at and help -- it helps you get to a diagnosis is that 80% plus of these patients have some level of pituitary insufficiency. So where these tumors originate is between the pituitary and the hypothalamus. So both of those organs get injured. The pathway we're working on sits in the hypothalamus. But that fact that they have such a high prevalence of pituitary insufficiency at 1 level, maybe 1 hormone or maybe multiple hormones, means that they're going to be actively cared for by the endocrinologists. The BBS patients, they may see 5 or 6 specialists before somebody connects the dots and they get to a diagnosis. But once that diagnosis is made, they then tend to be sent back to their primary care. Whereas for the HO patients, they're going to be held on to or at least be seen more regularly by the endocrinologists to manage that part of it. So how -- what does that mean for how Rhythm approaches this? In a rare disease as I said, you don't build a sales force to knock on every door because you've got many specialties, basically impossible, ridiculous. But for HO, they're concentrated in the endocrinology and our initial work would say is often the case, you can tier that group and 80% may sit in the top 1 or 2 tiers. And so that's a specialty opportunity. And my favorite example, Stuart Arbuckle sits on our Board from Vertex. But if you ask what is an example of a rare disease specialty opportunity is cystic fibrosis. 35,000 patients in the U.S. [indiscernible] born screening. They're all diagnosed. They sit in these centers of excellence, and they're all cared for, manage, they reach them with a small -- relatively small sales force. So we're not saying we're going to be Vertex. But the point being is that this is a specialty opportunity, and we'll think about it that way. So we will build a sales force to knock on all of the -- the top tier is for sure, maybe a little less frequently in the lower tiers, but you can cover the endocrinology cost base.

And when do you think you'll start ramping up your commercial team for that?

So we're already ramping up. And you do it in different ways, right? You tend to lead with an MSL effort. And so we've repurposed -- refocused some of our MSL Group. We had another team that was very focused in Rhythm on supporting our genetic testing group. We call them area district managers, ADMs. They've been repurposed and expanded. And so -- and a significant, if not all of those may flip to being a sales force. And then we will hire the incremental number of salespeople we need, a reasonable period in front of the launch. So we're well underway. We're profiling endocrinologists and building our understanding of that world.

Okay. So our doctor checks indicate also that the patients who are HO are much more likely to be motivated to stay on therapy. So can you talk to that point?

Yes. So discons to the extent that's a measure, we had a little under 10% discontinuation rate for the trial. Only about half of the 14 we did discontinue. It was related to the drug per se. Others were personal reasons, probably maybe related to the trial itself. So yes, I think it's a very different dynamic than BB -- BBS is -- it's hard. I mean [indiscernible] it's a lot of diseases. It's a really challenging disease. It's a syndrome. They have multiple different things that they're dealing with as a family, as a patient. Those patients -- very high percentage go blind by the time they're 18. So it's a tough dynamic and staying on a daily injectable has its own challenges. HO, they are super complex. And what is -- and I tried to highlight this on the calls, what's amazing to me and by complex, meaning pages of medications, 2 pages easily in medication between all the hormonal replacements, a significant number of seizure disorders, they may have other. And you would say, well, they have all of that going on, how could correcting this part of their disease makes such a big difference? And the reality is this, like all [indiscernible] old and stabilized. They're living with this hyperphagia, the overwhelming fatigue, and there's an interesting [indiscernible] dynamic is just secondary to being overweight and having -- gone through brain surgery and how much of it is physiologically based around missing this piece of it. And we know that this target at the MC4 receptor interacts or is on the autonomic nervous system, so sympathetic, parasympathetic. So you can create a rationale for how it may actually have a direct benefit there. And we'll see. But a long story, your -- I guess your question was, why do I think it's different. And yes, I think they're, for the most part, will be highly motivated to stay on, and we'll have a very different discon rate, I think, than we did with BBS.

Okay. So can you talk about what your market data indicates the potential TAM of this is?

Yes. We're sticking with the 5,000 to 10,000 now. And what I would say -- we would say about that is it's all the work we've been doing is highly confirmatory, meaning we're not [indiscernible] high. I'll leave it there. I mean, I just -- the -- I'll give you a couple of examples of sort of how that model was built internally. It was very basic, simplistic at one level. There's good tumor registry. So you can have a very good understanding of the number of craniopharyngiomas, for example, in the incidence of that tumor. And then the literature has a range of the patients who have a tumor, any tumor, go to surgery, get the injury, what percentage will go on to develop hypothalamic obesity and that pretty wide range, as I said, but 50% is where people tend to coalesce around, but that's the biggest variable in this model. And then we used a 20-year time frame from the time of injury. Now they don't die it 20 years post injury and the French data and now the Phase III data was actually convincing amazingly the adults, including the 66-year-old do just as well as the 4-year old. So they live much longer than 20 years. So those are elements of the model that I would say, if anything, maybe we're a bit conservative. And then the other thing, which we just don't have a good handle on yet, but I know physiologically. Again, it's not about the tumor, it's about the injury and there's other ways you can injure hypothalamus. So if you look at the French day that just came out, I mean, there is some inflammatory conditions in there that -- and again, inflammation of the hypothalamus, again, it's just the damage, as we know, inflammation causes damage. So those are all elements that I'd say aren't robustly built in traumatic brain injury is by far the biggest unknown. Today, that's a case report literature. Now I don't know if it stays a case report literature, but I am 100% convinced that there are individuals who've had dramatic brain injury, car accident or whatever and positions -- KOLs or treaters have described these patients who have classic HO. The problem with that world is that if you have a car accident, and you suddenly start gaining weight, nobody's thinking HO, right? They're thinking at a car accident, you get trauma, you're not active, you're gaining some weight, but the picture is not being, unsure diagnosed. So those are things that we're excited to dig into and try to understand how this world is, but the short summary to a long answer is, no, I think those numbers are probably on the conservative side, but we're sticking -- we feel really good about that 5% to 10%. And I think that's a world we're chasing right now in the endocrinologists.

Okay. And then would pricing change for the product?

It would not.

Okay. So let's move on to pipeline. You've got 2 assets that I'd like to touch on. One is an oral and one is a weekly injectable. And so can you just talk about why you think you needed to have diversity beyond setmelanotide.

Yes, multiple reasons. I mean, again, every company, life cycle management, you're always trying -- I mean I think sometimes companies, they start out their first indication is just to get started and then they're looking to go into other things. What we realized pretty early on was that this pathway A it worked and the deficit was real and the unmet need was there, but that the opportunity and the unmet need was much larger than we thought. And so the whole strategy then evolved for Rhythm, which is -- we're an MC4R pathway company. We want to not own it, but we want to be -- have the definitive set of offerings. And a daily subcu injectable is not great. And so -- which is why every therapeutic class is looking for a weekly option or if you can get it daily. So that's -- it was normal we went there. The oral experience, historically, large pharma has tried to drug this pathway for a number of years unsuccessfully trying to develop oral medications, and they weren't able to separate out the cardiovascular side effect from the benefit. So when the LG Chem where we acquired this from, we've been -- we were following their development program and when we became convinced that they crack it, they had it. Then that, of course, was highly attractive. So yes, it's a long answer to say, it's just life cycle management, but we're here and then the big part also was, which I think people aren't recognizing, not only are these both better drugs and there are better drugs because: a, they're may be better tolerated and more convenient; b, they're more specific for the MC4 receptor. So current setmelanotide hits the MC1 receptor. That's an off-target, on target, meaning 100% of the patients will have some change in their pigmentation. And that, for some, it's nothing, it doesn't mind us something like it. But for some patient groups, that's they don't like and that is a reason for some of the discontinuations. So hopefully, neither of these oral, the weekly will have that because they've been built not to have that. And then lastly is the IP piece back to -- there's a lot to be done in this space, a lot of areas to continue to investigate, and that gives us this patent term coverage out to 2040 Plus.

Okay. So what should we be expecting to see data from these products?

So the Q3 for the -- so the oral, which we inherited that trial, so that's a 28-patient 4 dosing groups -- or 3 in placebo group, that will be read out in Q3. And that's fully enrolled and that timeline is locked.

What would be good data there?

What would be good data? So I'm back to my 10%, and I'm back to -- and the reason for that, again, nothing really works. I think if you'd ask me maybe before the Phase III, maybe I would have picked a lower number. But with the Phase III, you've got setmelanotide out there at 20% placebo-adjusted, 16-plus percent on its own. You don't have to be the same as setmelanotide to add value here given the virtues of that oral, right? I mean there'll be people who said, "If I can get 10%, 12%, 13%, whatever, I'm good." And I prefer the oral and the like. And again, it's compared to not really another option. So I think that's a drug. Now in the same way that am I guiding people to say, you should expect that? No. I think these are -- both the oral and the weekly are very good MC4 agonist and everything about our preclinical work is that we should have every expectation to do as well as setmelanotide. Why wouldn't you do as well? So dosing and things for the weekly, there's the daily versus the weekly PK kind of question, which is I would say, still a bit of an unknown year until we fully investigate. And then, of course, this is a new chemical entity for the -- for the oral. So there's unknowns. But from an MC4 agonism standpoint, we should be able to get it done.

And what about the safety profile, what are you expecting to see there?

Well, so far, I mean, we -- the good news for both of them, it's blended in the oral, but they had their Phase I data and then see blinded safety data for the Phase II. It looks just like the setmelanotide, meaning MCI agonism, I think you get an initial nausea, vomiting, GI. I mean there's a signal here that the body interprets that way. So to me, that's good news. I think if we weren't seeing anything at all, I'd be a little worried that our drug might not be doing anything.

Okay. So do you have a sense on how much the market could expand with the availability of an oral?

That's a very good question. So I think we will do better in discontinuation, so whatever we pick up there. There are populations, Hispanic population, Asian populations where this increased pigmentation is definitely an issue. I know we will have a lower discontinuation rate in that group, but I also don't have a good sense for, but I know there's some segment of the population that's on the sidelines right now just because there's concern, parents, families are concerned about putting their child on because of that side effect. So I can't put a number on it, but there is -- there will be an incremental population that will [ access ].

And then when should we expect to see the weekly?

So the weekly, what I've said, we're going to target being able to say something by the end of the year. As always, it's always getting up and going and to be honest, it's been a little bit of a struggle here for a variety of reasons, getting our -- we're starting to enroll it here. But our goal will be to -- it's open label to have treated enough patients for long enough to be able to say something by the end of the year. So how many patients is that? I don't know. It's not 3, it's not 30, but it's just enough so that we're confident that what we're seeing is real. I don't want to just rush out, so target is by the end of the year.

So when you define real, you mean like that 10% or something...

Whatever it is, it's just that there's a consistency across so that go, okay, it looks like that's how -- and we're doing it in HO. Again, the gift to HO, this hypothalamic obesity indication is it seems to be so sensitive that we should see something can't put a number on it, but we should see something. And then once we're pretty comfortable that what we're seeing consistently that, that is the effect. And the other thing to remember about this is we're going to read out 14-week data on the oral, all of it, including the French data we just put out this morning and the Phase III data we had, it deepens over time. And so at the -- and if you go back to our Phase II data, which was 16-week data, that was like 14% plus. It's sort of -- the French data this morning is around 11%-ish, but -- and then the patients who have been on for 9 months, 8 patients there, were 23%. So it just continues to go. So that's going to be a bit of a metric, but again, it doesn't have to be the same, but that's how the context in which we'll be looking at this.

Okay. Before we wrap, I did want to talk about your cash position.

Can I just make one other place?

Yes, sure.

Don't cite Prader-Willi. I mean we hopefully be able to say something by the end of the year as well there. That's a very challenging disease. I said 50-50 on the call, which people came back and said, "wow, that's high. Why are you so optimistic?" And I saw it as sort of a neutral read. But biologically, there's a rationale for why it could work in Prader-Willi. The challenge is that disease is so hard that complex. You can have a drug that works and not be able to show it because of the behaviors and other things that make a challenging study there. But I'll stick with my 50-50, but that's another angle or arm in which Rhythm can expand. So cash position?

Yes. So just remind us on how -- where you are and how far that will take you?

Yes. So we're about $300 million on our balance sheet. That takes us into 2027. It covers all of our launch expenses. What is not included in there is incremental work that we would do around the small molecule and the weekly. And so we budgeted for that was just we'll figure that out on success.

Sure. So if these are positive data reads.

We will require...

One should not be surprised if a financing might occur.

We would be looking at ways to address that gap.

Okay. Helpful. Maybe just we have a couple of seconds left. What do you think people need to better appreciate about Rhythm as a company?

Yes. I don't -- why would people sit on the sideline, why would people say, why do I need to own it now? I think what we've done to date is we have unequivocally the proof of concept in space. Then you've got this HO opportunity, we talked about specialty versus rare. And I think that's a piece that people don't fully understand, but reference cystic fibrosis. I mean I think there's a very fundamental difference there that. And then the third piece is the incremental opportunities around this pathway, whether it's other ways you can injure the hypothalamus. We talked about congenital, we didn't talk about that so much for, but there's been multiple, both on the injury side and the genetic side. So there's a lot of work still to be done. And we have near-term readouts that we're not -- we don't have a big information gap here coming up. So anyway, I think we're still a good opportunity for people.

Okay. Perfect. With that, we're out of time. So thanks, David, for coming and sitting with me for the last 30 minutes. Thanks, everyone, for listening. We'll talk soon.

Thanks, Tazeen.