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

All right. Good afternoon, everyone. Thank you for joining us. My name is Whitney. I'm one of the biotech analysts here at Canaccord, and it's my pleasure to be joined by Rhythm Pharmaceuticals this afternoon. I'm joined by Al. I'm going to call you, Al -- Al Garfield, Chief Scientific Officer; as well as Dave Connolly, Head of IR. Thank you both for joining us.

Thank you for having us.

So for those who might not be familiar with Rhythm, just kind of an opener question. Can you give a few minute intro kind of overview of the company.

Yes, sure. So Rhythm Pharmaceuticals, we are located here in Boston, but we're a global company. We have operations in more than 10 countries, and our drug is available in more than 20 countries externally, and our drug is IMCIVREE setmelanotide. There's a pathway in the brain, the MC4R pathway that causes a number of rare genetic obesities or obesities caused by an injury to the hypothalamus, whether it's from a surgery or congenital injury -- and ultimately, the MC4R pathway is responsible for sending us satiety signal to the body to tell you to stop eating that you're full and it also regulates energy. And when it's impaired, you end up with severe obesity. And in the case of an injury, it could be a rapid onset obesity or genetic and an early onset obesity from birth. Our drug was approved first in 2020 in POMC and LEPR, very rare genetic diseases, only a few thousand patients worldwide, and we guided that we would be in tens of patients. And in 2022, we approved in Bardet-Biedl syndrome, a little bit bigger, but still an ultra-rare disease, about 5,000 patients in the United States. In these patients, the severe obesity of these patients for our BBS trial, for example, the average BMI was 47. So in a man who's about 5-foot 9, that's well over 300 pounds. And then lastly, we have -- we read out data in hypothalamic obesity, which I'm sure we'll talk about. And we're available in 20 countries, like I said, and we have 2 more assets following on. And with that, I think that's Rhythm in a nutshell.

And so you touched on this, but just to kind of double-click on it or drive the point home. When people hear obesity, they often think of GLP-1s and kind of these large broad obesity indications. Can you talk a little bit of why is targeting the MC4 different? Or how is it different relative to these -- like just general obesity indications?

Yes. Good question. I think there's 2 levels of differentiation. There's the mechanism and there's also the diseases that we're in. Dave has explained a little bit about the pathologies that arise due to deficits in this particular pathway. And it all comes down to sort of the intersection of physiology, pathology and pharmacology. So the MC4 receptor pathway is the pathway in the brain that regulates your body weight. And it does it by controlling your sense of hunger and satiety, as Dave spoke to. And then in that being able to modulate energy in as calories and energy out as energy expenditure. It is required for defining your body weight. And any perturbation to it, whether it's genetic due to mutations in the genes in the pathway or whether it's mechanical, like a literal obstruction or anatomical disruption of it results in a very severe form of accelerated weight gain that's accompanied by this very severe form of hunger called hyperphagia. Sort of the unrelenting hunger. You probably heard about it in various context, but having to lock the fridge from children, just their brains are not receiving the signal that they're ever full. So the pathway is critical for regulating body weight. Pathologically, there are patients out there in the world who suffer from the fact that their pathway doesn't work appropriately. And then our drug as a pharmacological agent is replacing what is deficit in each of those populations. So we rationalize our entry into a given population on the basis that a proportion, if not all, of their obesity is underscored by a deficiency in this pathway and the MC4 receptor agonist is able to compensate for that and reestablish normal physiology. GLP-1 as a mechanism is not required for body weight regulation. There are no diseases that arise due to GLP-1 deficiency. And from a pharmacological perspective, they're sort of hijacking another system within the brain to be able to override what might be going on in the individual. Now that only works so far in patients who have this really significant pathology. So GLP-1s don't address the underlying root cause in our patient population. So we sort of bring together the intersection of the physiology working on the system that evolution decided was best positioned to control body weight, the pathology, so the patients for whom that system is not working and then the pharmacology being the replacement of what is an endogenous system.

Perfect. So on IMCIVREE for those in the audience, IMCIVREE the brand name, setmelanotide is the generic name. I'll probably switch back and forth, but apologies. So for IMCIVREE, the currently approved indication, you just reported a strong second quarter coming in 11% above consensus. Should we all take that to mean that there's momentum building here? Or should we continue to think about the current indication commercialization is sort of -- I think you all characterize it as slow and steady.

Yes. And I think that still holds true. We are now 3 years since launch in Bardet-Biedl syndrome. And the growth in patients on reimbursed therapy has been slow and steady throughout. And we did. We have a really strong second quarter. We announced $48.5 million in global revenue and about $31.5 million of that was from the United States. And that represented about -- that represented about a $3 million growth quarter-over-quarter in the U.S. about $0.5 million was from an inventory fluctuation. So -- but ultimately, $3 million of growth in the U.S., which is a little over 10%. And that's been consistent. We've seen that $2 million to $3 million in growth quarter-over-quarter historically for the last 6 to 8 quarters for IMCIVREE sales. And the ex-U.S. revenue is about $16.5 million. $1.2 million from that was from a foreign currency exchange rate gain that benefited Rhythm. So only about 2/3 of that was legitimate, was growth. And the international revenues are unique in that. They're coming from sort of 3 sources: POMC, LEPR or BBS is approved and available in a number of countries. We also have named patient sales. And all in, we are in about 20 different countries ex U.S. And then there's another growth driver in the international sales, and that's hypothalamic obesity and the preapproval early access programs in France and Italy. These are unique. In France, for example, there's only 2 -- we're the second non-oncology drug to get approved paid access before the drug is approved. It's slow. It's an administrative process to get these patients on drug, but we're seeing some growth there. We reported our data on about 35 patients in the spring at a conference in Europe. So -- but that's where the growth is coming from BBS and POMC as well as some new growth happening in hypothalamic obesity. So overall, I would say it's been a positive experience with payers and prescribers and patients since launch. But it's been slow and steady. So I don't think there's an inflection point, but we expect that steady growth to continue.

Okay. Steady growth is good. But speaking of inflection points, the next indication is hypothalamic obesity, as you mentioned, [and you plan the trial] for approval in the coming months. This is an indication that investors have been excited about for a while, partially because of some of the commercial differences between it and the indications you were just referencing that are more slow and steady. So can you compare and contrast the markets here and why we're all modeling this launch differently?

Sure. Yes. Ultimately -- so Bardet-Biedl syndrome in the United States, we had said there's about 4,000 to 5,000 patients. Classic rare disease when we launched, really low awareness, very few experts, if any, under diagnosis. And the patients are dispersed, right? They've had this disease their entire lives. They may be not diagnosed at all or maybe they've been diagnosed and they're receiving their care from their primary care offices, not in a specialty. They're not all seeing endocrinologists. Over time, Again, we think it's a slow and steady ramp, but we'll -- can we get into 20% of these patients or 40% of these patients from a penetration rate? Yes, over time, we think we'll get there. Rare diseases tend to build slowly, steadily. Hypothalamic obesity is a little bit different. We're looking at this as a specialty opportunity. About 5,000 to 10,000 patients is our estimated prevalence. We're growing more comfortable with the higher end of that range in terms of the number of patients in the United States. And we know they're concentrated in treatment centers. They're seen regularly by endocrinologists. So we're looking at this as a specialty launch where we will focus on like 80% of the patients or so are seeing are under the care of an endocrinologist and regular care of their endocrinologist. They come out with a whole host of pituitary issues that are along with hypothalamic obesity. So, yes. So it will be steady. It will be a little faster and a little steeper uptake curve than for BBS. But ultimately, it's a specialty opportunity.

Okay. Perfect. And one question we get from investors and then a little less so now post -- after you guys have announced data, but it's just on the competitive landscape here and namely GLP-1. So -- and Al, maybe you touched on this a little bit earlier...

Yes.

Why should we or should we not be worried about that competitively?

Yes. I mean the incretin class do remarkable things for the right patients. They've certainly transformed the landscape of general obesity. But these patients are not general obesity, as I described. There is a very well understood and well-defined pathology that underlies their disease. GLP-1s in HO have largely been a sort of case report like literature, which obviously is biased towards positive data because no academic likes to publish negative data. The only 2 studies...

[indiscernible]

As a recovering academic, I can tell you that's definitely true. There's only been a couple of controlled studies using first-generation GLP-1s. They did not work. It isn't surprising just based on what we know of the mechanism of the disease and the mechanism of these GLP-1s. They're sort of trying to paper over a crack rather than actually filling it with exactly what was missing in the first place. So -- and our experience even from our Phase III has been that we see patients coming into our trial. We see their growth curves. We see the points at which they're on GLP-1s and very consistent from what we're hearing from physicians who are not publishing their negative data is around the fact that, yes, we may see a little bit at the beginning, but it doesn't do what it does in general obesity and it isn't sustainable. And then you see them on setmelanotide, which is a precision or more targeted therapy for the underlying pathology, and that's a completely different story. So there's nothing approved for these patients. Hopefully, setmelanotide will be in due course. But yes, just from a mechanism perspective and what we hear anecdotally and from the few trials that have been run in a controlled setting, the GLP-1s just don't have the play here that our mechanism does.

Perfect. Okay. So filing for approval and launch next year, we assume with IMCIVREE, which is a once-daily injectable. So you've also recently presented data with your oral MC4R inhibitor, bivamelagon, BIVA and that was received positively. So can you talk about the TPP for BIVA versus setmelanotide?

Yes. So setmelanotide, as you said, is a once-weekly injectable drug, and we've seen great efficacy across the disease states that were commercial in hypothalamic obesity as well. But it also has a side effect profile. Most commonly, it causes hyperpigmentation. And this happens in every patient. It's designed to agonize the MC4 receptor, but it also hits as a matter, of course, the MC1 receptor, which is known as the tanning receptor. So ultimately, you look like you've spent a few weeks in the sun if you're taking setmelanotide. Some people like it, many don't. And it is -- we don't know how many patients are on the sidelines and not coming to get setmelanotide therapy or IMCIVREE therapy because of the hyperpigmentation. But we know from our [discons], about 5% or 6% of patients who get on therapy cite hyperpigmentation as a reason for discontinuing that therapy. So bivamelagon is a small molecule. It's orally administered once daily, and it's been designed not to cause hyperpigmentation. And what we found in that trial is very limited, very few instances of hyperpigmentation. So that's a positive element there. And it had very similar weight loss efficacy to setmelanotide, which is crucially important. So yes, we read out that data in July. We're working towards an end of Phase II meeting with the FDA. We hope to have that by the end of the year, and then we'll move into Phase III in hypothalamic obesity, hopefully, at some point next year.

Perfect. Okay. And so with this differentiated profile, should we be thinking about BIVA more as a market expansion opportunity? Or is it kind of more focused on the life cycle extension? And can you actually, as part of that, touch on the IP of setmelanotide versus BIVA?