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

Good afternoon. Welcome to day 1 of the Jefferies Healthcare Conference. My name is Dennis Ding, biotech analyst here at Jefferies. I have the great pleasure of having CEO, David Meeker, here with us from Rhythm Pharmaceuticals. Welcome.

Yes. Thanks, Dennis.

So perhaps just level set us in terms of where the company is today and just sort of the evolution of the company since -- over the last 12 to 24 months and just briefly talk about the outlook.

Yes. Thanks. So maybe I'll start one chapter earlier, but those not familiar, Rhythm is a focused biotech company based in Boston. Focused on developing therapies for this melanocortin-4 pathway deficit. So the pathway that sits in our hypothalamus and governs our energy balance. So basically, signaling through this pathway tells us we're full and you can increase your energy expenditure and you have a defect in that pathway, which by the way that pathway works, you're not producing enough of alpha melanocyte stimulating hormone. They're hungry all the time, and it's not the kind of hunger you and I feel when we miss lunch this is really a pathologic drive to eat, preoccupies these patients and their families. And your energy expenditure is low. So it's often complicated by severe obesity. So we've been developing -- we have an analog of the hormone, alpha-melanocyte stimulating hormone, which is called setmelanotide, brand name IMCIVREE. And our initial approvals were for the genetic defects in this pathway. The first 2 are extremely small, tens of patients. We didn't put a sales force on the field. The more recent one, Bardet-Biedl syndrome in summer 2022. We've launched that, and we're launching it globally, and that's done very much as expected, as Dennis asked over the past 12 to 24 months. We described that as a classic ultra-rare disease where you basically do the work each quarter. You have to find the patients, work them through the reimbursement process. And it tends to be -- it doesn't inflect as a market opportunity. It's just slow and steady and put the emphasis on steady, not slow, but it just continues, and we're very much in that path. And so we're about 3 years in now. And we're a global company. We have the drugs approved in Europe, and we're selling in about 14 countries around the world. More recently, a little bit unexpectedly, we discovered that the other way you can injure this pathway or have impaired signaling to this pathway is a direct injury to the hypothalamus. There's a classic well-recognized condition, which is related to these benign tumors that develop between the pituitary and the hypothalamus. The tumor itself can grow into the hypothalamus and injure it. or more commonly, the tumor is diagnosed and it's the surgery plus/minus radiation to treat the tumor that injures the hypothalamus and about half of the patients who go to surgery come out of surgery with this hypothalamic obesity. And what they experience is, in many -- most cases, again, this classic hyperphagia, severe hunger and their weight accelerates. And it's not just they gain a few pounds. They literally -- particularly the kids, they explode off their growth chart. So our treatment, which is basically an analog, as I said, of the endogenous hormone, really remarkably in our Phase II study, which we announced in 2022, very consistently improved all of the 18 patients in that trial, 17 and 18 had a response, and we just completed our Phase III. We can talk about the details of that, but it reconfirmed the consistency of response, and it was basically a best case in terms of the overall effect that we had. It was a 20% placebo-adjusted effect on weight comparing to treated in the placebo group. So we're looking forward to filing that drug and getting it launched and talk about.

Yes. Yes. I mean like for HO, maybe frame that market opportunity relative to BBS and some of the other genetic obesity indications that you guys are approved for and why HO is such a big deal, so transformational for the company.

Yes. So I'll start with BBS. So as I said, the classic ultra-rare disease, we think there's about 4,000 to 5,000 patients in the U.S. The majority of those patients are not diagnosed. So what you do as a company is you don't find those patients by knocking on every door. That's not very effective. They tend to be dispersed and as I said, not diagnosed. So you're trying to create a system where they have an easier time of getting to a diagnosis. And then if you've done that well, as many patients will find you once they get a diagnosis, they look what's available and they see a drug is available. So they find you as often as " you find them." HO is different. BBS is 4,000 to 5,000 in the U.S., similar numbers in Europe. We think HO is probably in the order of 5,000 to 10,000. So broad range there, but more patients, maybe significantly more than BBS. But what's strikingly different between BBS and this HO population is the extent to which they are diagnosed. So this is a pretty recognizable complication. There's a before and after. Otherwise, healthy kids get their tumor and go to surgery and they come out and it is different. And so that moment in time enables diagnosis. And the other thing is because of where in the brain, hypothalamus and the pituitary are quite close together, 80% plus of these patients will require some level of pituitary hormonal replacement. So they have some level of pituitary insufficiency, which means they're going to be managed by an endocrinologist. And again, unlike BBS, where they may see a specialist to get to a diagnosis, there's not much for that specialist to do, so they get sent back to their primary care. So they're dispersed. They're out basically, again, could be anywhere literally. Whereas this patient population, the acquired hypothalamic obesity population will be actively managed by an endocrinologist. So although it's very much an ultra-rare opportunity by the numbers, given the high rate of diagnosis and the concentration in the endocrinologists, we think about this very much as a specialty opportunity and put that in context and not to say we're going to be Vertex, but a classic rare disease specialty opportunity would be cystic fibrosis, Newborn screening, basically, every patient is diagnosed. They have centers of excellence. They're all being cared for in these centers of excellence. And so concentrated big unmet need. They have a good drug and, you know, obviously addresses that unmet need. So there's elements of HO, which are like that. And so as Rhythm prepares for it, we will prepare differently for HO than we did for BBS.

Perfect. Now if we can kind of shift over to maybe a very relevant topic in the near term is just around the pipeline. And just around life cycle management with setmelanotide. Maybe remind us when you expect the loss of exclusivity for setmelanotide and the opportunity for your oral, which is in Phase II in HO and your weekly subcu, which is also in Phase Ib in HO.

Great. So I'll start with the IP situation. So composition of matter for setmelanotide is up in 2032. Our formulation patents go to mid-2034. We actually think the formulation patents are quite important in that the FDA puts out a guidance document when you get your drug approved, which tells the world what they might need to do if they wanted to develop a generic for your drug. That guidance document basically says we think you have to go through our formulation. So we actually think the formulation patents may be quite helpful. And we think in terms of our -- the protected period out to 2034 -- mid-2034. One other note people don't always think about in an ultra-rare situation, there is no cliff in an ultra-rare disease loss of exclusivity situation. When the competitor comes in, they tend to price the drug similarly. The reason they don't come in and dramatically cut the price is because you can't make it up on volume. It is rare. And so they come in, they price similarly and the 2 companies have battled that out in the marketplace in that sense. And so yes, you may lose some share, but it's not a it's not the classic generic entry kind of model. So that said, we think in terms of 2034 as our current period for setmelanotide. Next generation is important for 2 reasons so as Dennis mentioned, we have 2 drugs. One is a daily oral, which we acquired in-license from LG Chem, who had cracked the ability to target this MC4 receptor with us an oral small molecule. And that is a Phase II study that will be reading out here in quarter 3. And then we have our own internally developed weekly formulation, which is a peptide that's very similar to our approved drug. It's a 7 amino acid peptide. Our current drug is an 8 amino acid peptide. And that will hopefully be able to say something by the end of the year. Both of those are being studied in HO, this hypothalamic obesity population. And the beauty of that population, if you will, from a pure drug development standpoint is because it seems to be so sensitive to this drug, to the MC4R agonism, it's a great model to use for development because we should know pretty specifically and relatively quickly does the drug work or not work. Now the features for those 2 aside from one is a daily oral, which might be [indiscernible] to a daily injectable, the other is a weekly injectable, also preferable is that our current drug hits the MC1 receptor, which is on the meta side, so on-target, off-target effect is that you get increased pigmentation and about 5% of patients in our current world -- real-world experience do stop the drug because of that. So it's not a huge percentage of patients, but it is a -- there's no added benefit to the hyperpigmentation. So both of these drugs have been designed not to have hyperpigmentation. We'll hopefully confirm that in the thing. And then the last piece from an IP standpoint is the IP for both of these with patent term extensions would take us to 2040 plus. So this part of the life cycle management does meaningfully increase our overall market opportunity.

Yes, definitely. From a valuation perspective, when you're out in 2034, when you are at billions of dollars of revenue, having that life cycle management tool to continue that even for 5 years, that's massive to the NPV. So the oral Phase II data is the most near term. I think the guidance is Q3, so it could literally come in a month. Can you help frame that readout for investors given that we already have setmelanotide Phase II, setmelanotide Phase III. How should people think about that data vis-a-vis what you guys have already reported?

Yes. We live in an interesting world. It used to be, I think, for anti "obesity" medications. It was just as a work or not work. Now it's, of course, all about the percent change. And as Dennis knows, we've worked hard to try to help people think a little differently about the world we live in from the [ glyphs ] where it's very much trying to compare percent changes. What was striking about our current drug, setmelanotide, as I said, was the consistency of response. So what we're looking forward to these readouts with both the daily oral and the weekly is, one, what's the consistency of response. That said, setmelanotide has put a bar in the sand -- or sorry, stake in the ground. And the -- we would expect in an apples-to-apples comparison that it should be at least 10% plus in terms of the weight loss. I don't think it needs to be exactly the same as setmelanotide to still be a drug. I mean, if you're an oral with a better profile, more convenient and maybe some other features, that may be great for some patients. And so we would definitely take that forward. Now the data set that you're going to see in quarter 3, it's a pretty small data set. It's 28 patients. There's 4 groups, 1 placebo group and 3 doses. So 7 patients in each one of those cohorts. And as you can imagine, 7 patients, so we're -- not so many. We're not going to be internally so focused on the mean percent change in those group. What we'll be looking to understand is, can we get conviction around the fact that it's working. And I use the example, like in your 7-patient cohort, if you had 5 patients where it looked pretty good, in 2 patients that didn't look good at all and your mean was kind of not so impressive, mean is not interesting. The question is, can you figure out why did the 2 patients who seem not to respond, not respond? And that's how we'll break down that data set. So we'll do our best when we report this out to try to explain it in a way that in an apples-to-apples comparison, the listener can have some appreciation for how this compared to our current drug at a similar point in time in a similar population. We'll try to provide whatever caveats we have in terms of what's needed to understand that data. And then the other part of the data, which is not part of this readout per se, is that all of these patients roll over into a open-label extension at the top dose. So every patient will go, which is 600 milligrams every patient will be on 600 milligrams rolling forward, and we'll begin to get that data at 3-month intervals. And I think that will be a really important part 2 of this data set to give us confidence that, a, if we have a drug, we know what we need to do to take it into Phase III.

And going into the Phase III readout for setmelanotide, I mean, you made some comments around, hey, look, like if you -- in the younger patients, there might be a little bit more variability, whereas in the older patients, then there'll be less variability, but the data ended up being pretty consistent, right, around 20% BMI regardless of what age cutoff. So now that -- with that data in hand and you're going into this oral Phase II data, should we kind of expect a similar consistency or like what may or may not be impacting that?

Yes, just so we're on the same page, what Dennis is referencing for those who haven't seen the data. In our Phase III data set, which was 120 patients, 2:1 randomization, 80 treated, 40 roughly in the placebo group, we had -- we stratified for 3 age groups, 6 to 12, 12 to 18 and 18 and above. And one of the earlier questions before we ran our Phase III was would it work as well because our Phase II was largely pediatric patients, and we weren't -- or the world wasn't so confident that it would work similar in adults. But amazingly, as Dennis said, it was literally 20%, 20%, 20% placebo adjusted for all 3 of those. So we didn't see the variability there. Inside every data set, of course, these are mean values. We got a spread and there was a spread. So in our Phase II, the kids 6 to 12 had a greater percentage change, and they drove the mean effect at our early 16-week readout in our Phase II. So the things we're alert to are those kind of imbalances. Our current data set, just because of the formulations that they had, they went -- set up to go below 12. So this data set is just 12 and above. So as we present this, for example, and try to give people insight into apples-to-apples comparisons, we'll try to -- not try. We will look at those other data sets in the population 12 and above and again, try to put it in the right context.

Got it. And then if you can speak a little bit to hyperpigmentation, given that the oral and the weekly is not really supposed to be hitting MC1R. So going into the Phase II data in Q3, like how should we think about hyperpigmentation?

Yes. So when we talk about not hitting MC1, it's all relative specificity. So it's much more specific for MC4 over the MC1 receptor, which is on the melanocyte. But it's not to say that either drug has no interaction with the MC1 receptor. So this is to be tested. Our preclinical data would give us some confidence that it should be less, if not significantly less, and we hope 0. But our expectation is it will definitely be different. I think in terms of a desired profile, 0 would be the optimal, but it doesn't have to be 0 to make a difference here. I think anything that's meaningfully less will be good. And the hyperpigmentation is not -- I won't call it -- it's more than cosmetic in the sense that it can be quite troubling for an individual, but it has no health impact beyond that. So it's not -- it wouldn't kill the drug if we see some hyperpigmentation. And as I said, I'm pretty confident if we did, it would be less. So yes, it's a feature, but not the most critical piece.

Okay. And last question on the oral. Just when you in-licensed this from LG Chem, and they have some data that's out there, preclinical Phase I. What additional due diligence have you -- or did you do and have done since then on the asset that could be driving some of your confidence into that data?

Yes. And just how that deal came together. We've been talking to LG Chem for over a year before the way that some of these things work out. So we've been following the work they were doing as they put it out. They really did an incredible job developing the drug. They ran the drug in more clinical -- preclinical models than we had, our own drugs. And so they had a very robust data set from that standpoint. And then in their Phase I study, we're basically looking for 2 things. One was, was there any change in BMI or weight? And it's not the percentage, again, that was not interesting. It's just -- was there a signal because this mechanism, MC4R agonism does not work in general obesity. In these Phase I trials, they did and we do run them in patients with general obesity. But it doesn't work. It's not a weight loss drug in that sense the way a GLP-1 is, but if you take it, you should feel something. You should feel full maybe sooner, a little more often or whatever. So they saw that. And the second thing we are looking for is were GI side effects. So if we had not seen any GI side effects, that would have been worrisome that they're not getting MC4 agonism because those GI side effects, the nausea vomiting specifically are very much a function of hitting that receptor. It's not a drug effect per se. It's an MC4R agonist effect. So we wanted to see that, and they had that. So that gave us a lot of confidence. Since then, we've repeated a couple of the models internally and have confirmed their findings. So I think we're very confident that we have both their drug and the one we developed, the weekly, 2 very good MC4R agonist. So I'm not worried or that we're testing to see if we're going to get an effect or not. I think it's more a question, are we dosing things correctly? Do we have that right dose? Is there something else about the drug that is not giving us the result we would expect. But from a pure MC4 agonism chemistry standpoint, it should work.

Okay. Shifting over to the weekly subcu RM-718. Can you speak to your confidence in that compound relative to the oral? And I'm not trying to make you pick your favorite child, but as we go into the second half of the year and you have these 2 readouts, I would love to kind of hear what you're thinking about that.

Yes, it's the right description or analogy. There is no favorite child. I think if they both work, we'll take them both forward. There's a place for both in the market. And we -- our objective there would be let patients and physicians make the choice of what's preferable and best for them. And you can imagine scenarios where one might be preferred over the other. I think in terms of handicapping the 2, the way we've answered that is that just from the pure chemistry, if you will, the weekly is closer to the -- our currently approved drugs. So you would argue there, maybe there's fewer unknowns. And so maybe that's a little bit of a higher probability bet. An oral small molecule maybe by definition, might have more unknowns. So I guess I'd say that. But if you look -- and these molecules have been run head-to-head in the preclinical models, and you get the same result. So I think that's as far as I can go. I'm just -- I'm theorizing why one might be better, but I have no evidence that one might be better.

Okay. Well, let's say both of these trials work, right? And you take them into Phase III and they work and they -- like how should we think about both products on the market? And how do you think about prioritizing one or the other? Or how does BBS factor into this? Because having both assets is quite valuable, but you also kind of run into the problem of like which ones do you prioritize?

Yes. So if they both work, we'll take them both into Phase III for HO. HO is a big opportunity. We want to maximize that. We want all options available. Your question about BBS becomes interesting. I think that will hinge on when we look at the data, is there anything about the data set that makes us think one might work better in BBS than the other? All things being equal, you might say, let's get them approved in all of our -- both of them approved in our current indications, and it's really a BBS question there, which then would make setmelanotide a little less relevant on the market, and we could see what might be the optimal case there, but at least that option would be there. Patients would be well served with 2 better drugs if we develop them in all indications. But going forward, and there's multiple additional indications, which we'll be researching, it's very unlikely we would take both indications, both molecules forward in every new indication.

Sure. There's also a third readout in the second half. You guys are running a open-label study in Prader-Willi. So maybe talk a little bit about that. And you guys did run a trial a few years ago, which didn't work. And what's different now?

Yes. So yes, we're pretty excited about the Prader-Willi opportunity. I mean, a lot of attention. That's a huge unmet medical need, and I think a big milestone with Soleno's drug getting approved, so first drug approved, which opens up a regulatory path at one level. The trial we ran back in -- that Dennis was referencing back in 2018 or so, the problem was it was a complicated trial. The dose we used were too low. That was earlier in the development. We didn't know as much about the drug as we do today. And it was too short, 4 to 8 weeks and the maximum dose was 2.5 mg. So there were patients who responded at the top dose on the 2.5 mg dose, but the trial design itself, there are some placebo patients who had a good response as well. It was uninterpretable. So we're trying again. But the current trial design is it's an open-label study, but we'll dose every patient up to 5 mg, so 2x the dose ultimately for 6 months. So I think from a duration standpoint, if it's going to work, we should see something. And part of the reason we're excited is that there's good biology that says this melanocortin 4 pathway is involved in Prader-Willi. Now it's not the only thing that's going on in Prader-Willi, and that's the challenge. There's a lot of other things that these Prader-Willi patients struggle with and the behavioral challenges and the like. And that's what can make running clinical trials very difficult and interpreting results from the trial very difficult. So it is possible, and it may have happened in the past where you have a drug that is active, but the trial is negative because you can't see it for reasons that confound your ability to read it out. So we'll see where it goes. Our goal is to hopefully be able to say something by the end of the year. Yes, that's it.

Okay. Can I ask you a question on Prader-Willi again? So you said a max dose is 5 milligrams a day. Is there a dose titration scheme like how can you ensure that patients can actually reach the top dose? And then what kind of implementations do you have in the trial to help them with that?

So good question. I mean for all -- anybody who's using an MC4R agonist in all of our trials, the GI symptomatology, the nausea predominantly that you get is mitigated by starting low and going slow. So dose escalation is a critical part of just using the drug correctly and getting a better outcome from it. So all these patients will dose -- they'll start at 1 milligram and dose escalate weekly as tolerated. If somebody is having some nausea, go a little slower, maybe stay at the dose for a couple of weeks and then go up. So -- and the only other thing we're working with Dr. Miller, who was part of the first trial. Her impression in the first trial was Prader-Willi patients tolerate this extremely well. So HO patients interestingly have a lot of background gastrointestinal complaints related to their underlying disease and complications. So actually, they maybe were a little more challenging, whereas in this case, the Prader-Willi. So I'm pretty confident we will get many, if not all, of the patients to the 5 mg.

Okay. Is there a set dose escalation protocol where like you have to get to 5 milligrams by, I don't know, 12 weeks?

No. Not in this trial. We did force titration earlier in drug development in Bardet-Biedl, for example. I think that what we've learned is probably not wise being that prescriptive. There is an individualized dosing here in the sense of -- based on how patients are tolerating the med, and that's quite, as I said, individualistic. So no. But the goal is they'll go weekly as long as it's tolerated and may take a little longer, but hopefully not too much.

Okay. And then what would you consider to be good data there from Prader-Willi?

Yes. So Soleno's drug is approved based on decreasing hyperphagia. I mean our drug works -- has an impact, decreases hyperphagia as well. I think -- I know we work by a different mechanism -- if we only saw hyperphagia, I think that wouldn't be enough. We really need to see weight loss. And -- but the weight loss bar, I would argue, is lower here. So for example, than the GLP-1 world we live in. So anything 5% or better to me would be a very clinically meaningful contribution to a community that doesn't have anything that does that today. So that's the goal I think.

5% at 24 weeks.

Yes, 6 months. I mean, again, with the caveat that if a patient isn't making it, but we have a good reason to why they didn't, we're not going to throw the drug out. So...

Yes. Okay. And assuming that readout is positive and it's encouraging and you guys will move forward, like would you prioritize setmelanotide in that indication? Or at that point, you would already know whether the oral works or the weekly subcu would work?

Yes. Still part of an internal discussion. I think the Prader-Willi opportunity is quite large and meaningful. If we see a meaningful result, I think there's an argument to be made that you just go aggressively and quickly with setmelanotide. Developing a drug as a supplemental NDA with multiple prior indications and a large safety database behind it. Of course, that's a huge advantage as opposed to starting with a new chemical entity. But the reason you wouldn't do that is that sooner or later, you're going to do it with the next generation. So maybe you could just skip that. So there's definitely a discussion to be had. But again, if it's compelling, I wouldn't be surprised if you saw us move quickly with setmelanotide.

Okay. Very good. I think that is all the time that we have. David, it's great to see you. Thanks for hanging out with us. And yes, we're very excited about the path ahead for you guys.

Thanks, Dennis. Yes. I appreciate the opportunity to be here.