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

All right, everyone. I think we'll get started here with the next fireside. Again, my name is Derek Archila. I'm one of the senior biotech analysts here at Wells. Very excited to have Rhythm Pharmaceuticals here for our next discussion. We have David Meeker, CEO from the company. David, great to see you, continuation from our conversation this morning on the breakfast meeting. But maybe just to start out, kind of give us kind of the state of affairs, where we're at with the business. A lot of news flow this year, so a lot of exciting stuff. So maybe we can recap that before we get into Q&A.

Yes. Thanks, Derek. No, it's been obviously a really good year for Rhythm. I think maybe I'd characterize it by -- we've tried to follow the science, follow the biology here in the past 12 months, the biology has continued to open up in a really positive way. So I'll just give a quick recap. The company back in the early teens, strong proof of concept for this POMC biallelic, which just basically said, melanocortin 4 signaling, that's a key part of -- for patients affected, driving their obesity, their hyperphagia and the like. And setmelanotide as a precision medicine, analog of missing hormone seems to address that. So very strong early proof of concepts, then getting Bardet-Biedl syndrome approved back in June of 2022. That was a legitimate opportunity. I mean you could build a business around that, classic ultra-rare disease, blocking and tackling, steady as it goes, but you wouldn't spend a lot of money on R&D, but you can make a profitable business out of BBS alone. But the HO piece of it, which also we revealed the first data that summer, that wasn't so obvious to us. We knew that if you knock out that part, if you injure the hypothalamus, then of course, you could have a defect in signal of the pathway, it's gone. But it wasn't so clear that the drug would work because maybe you're knocking out the receptors as well and just how it works. So the fact that it works so well and so consistently, again, opened our eyes to a whole another avenue of potential developmental opportunities. Obviously, in the past 12 months, we've had the Phase III data. And then a big part of Rhythm or some of the concern about Rhythm was setmelanotide, like all drugs, has a composition of matter was up in 2032. One thing that people haven't, I think, fully appreciated, we try to highlight a little more is that when you get a drug approved, the FDA puts out guidance in terms of what a generic would have to do, and that guidance takes you more or less through the formulation patents. So actually, our formulation patents in the U.S. are up in 2034. So we think we might have a pretty good position out through 2034 in the U.S., a little longer in Europe actually on just that. But the really big opportunities, our big patent extension part of it was our next gen. And so a bivamelagon, which wasn't so obvious, meaning that many people asked between 718, a weekly formulation and the oral small molecule, which do you think is more likely? And we always answered that, well, the 718 weekly is probably more likely because it's much closer to setmelanotide and all the preclinical data was kind of almost milligram per milligram looks similar, whereas Biva, it's a new chemical entity, quite different oral, different bioavailability, different dosing, et cetera. So less certain. So we are thrilled, needless to say, about the data we saw. And I think it just -- I think we're getting good MC4R agonism with all of these -- well, Biva certainly and Set, and that was what came out in the HO. And so now as we look ahead, I think Rhythm is really at the beginning. I know there's a lot feeling like, wow, a lot has been happening. Is this story done? I don't think so. I mean we're -- there's a lot of just continuing to execute on our current businesses, BBS and HO. We got it filed in a rapid fashion and credit to the team there. And so we'll launch HO and hopefully do a good job with that. And looking ahead on the genetic side of the equation, we'll keep working these other genes, and there's a lot of ground and work to be done there. On the injury side, the HO side of the equation, there's other ways the brain gets injured other than with tumor and surgery and the like. And so we'll be exploring those. And then Prader-Willi, of course, that's a tough disease. But I've said 50-50, and I'll stay -- continue to say 50-50. I mean I'm optimistic about the biology there, but very respectful of the challenges of successfully developing a drug for that disease.

Got it. All right. A lot to cover. So maybe just starting off with the hypothalamic obesity and kind of the opportunity set you see there for setmelanotide. So obviously, like you said, your filing was recently accepted, probably launching early next year. How should we think about the trajectory of that launch relative to some of the other indications, but also, again, like a Prader-Willi, for instance, again, what does that look like?

Yes. So again, we're early in learning here. I think we've got a Bardet-Biedl syndrome experience and Bardet-Biedl, as I said, classic rare disease, but that disease, it's classic in the sense that it's not concentrated in any one specialty. Many of the physicians who are writing prescriptions for Bardet-Biedl syndrome are a family practitioner. They're the primary care doctor. They may have 1 or 2 patients that they're following, and they're not experts. They write the prescription because they know the patient needs to be treated. But that's a harder population to get at. The advantage of this HO, many, if not the vast majority of these patients, we believe, are with an endocrinologist. They may not all be diagnosed interestingly enough. And I think as we get out there and learn a little bit more about this, even in endocrine specialty, you're managing their pituitary insufficiency. They're presenting with obesity. You know they maybe had a history of an injury in the past, but you may not connect all those dots right away. And until there's a treatment available, the urgency to connect the dots or the way those things spread to the community and the community gets energized and educated around these things, it's all catalyzed by having a treatment. So hopefully, that -- we'll see some of that dynamic coming. But your question was around ramp. So yes, it's concentrated in endo. That's an advantage. So maybe it will come out a little bit more quickly than BBS in the initial ramp. The ultimate opportunity, obviously, is significantly larger. You asked about Prader-Willii, the drug, VYKAT just approved and a very good launch. There's different dynamics there with Prader-Willi. And one, it's a very well-diagnosed community population. So I think most of the patients if they have it, they know they have it, one. And then two, the behaviors are really challenging. And so -- and some of it's violent. And so if you're a family trying to manage a child with Prader-Willi, your motivation and urgency to treat is extremely high. And so you can imagine them seeking. And then another not insignificant factor is so many drugs have been tested in Prader-Willi. I mean there's been many trials run. That community is very well organized. And the roller coaster, we talked about this morning, but the roller coaster that community has been on with hopes, a new trial and then it doesn't work and then try another trial. And so they're really primed force, just give me something that works. So you get a drug approved like VYKAT did, credit to them, you would fully expect the quick take up there. So we're not that. There's been very little prior work done in HO other than us. So we're earlier on that curve. So we're going to be laying that foundation. So expect a more gradual launch there, but it's no diminution of overall opportunity here, which is significant.

Can you speak to the overlap between physicians that treat Bardet-Biedl and the other conditions setmelanotide is already approved for in HO. And I guess if you're thinking that maybe it's more gradual than Prader-Willi, although that's kind of more very straight up launch, I guess. But -- so that still means it could be pretty good. But I guess do you -- would you expect sort of a bolus effect? Are there people kind of being warehoused and kind of awareness growing since the Phase III data?

Awareness is growing. I mean, I think we had some -- there's a little bit of bolus which might not have been so [indiscernible] with Bardet-Biedl. I mean there's patients who are out there and talking to physicians and ready to go. But again, we're closer to Bardet-Biedl than we are to Prader-Willi, I think, in terms of how this thing will come out of the gates. But again, I think everything we're learning here is reinforcing of our general optimism and bullish view of this whole opportunity. I mean there's the size of the population; we talked about 5,000 to 10,000. I think we're -- our confidence we're at the higher end of that range is growing for a good reason. You continue to do claims work and the like. But what happens, a big part of validation of all this is the team is getting out in the field and talking to docs and that feedback is -- you can do the math on a lot of these other exercises but talking to physicians and getting a sense. So the need is there, clearly, and I think there's pretty good energy around it, so.

I know at ObesityWeek last year, I mean, we had heard that there's like some emerging like HO centers. Obviously, Prader-Willi has these and some others that are out there for other rare diseases. But do you think that will grow? And is that something that -- I don't know if we're helping with or kind of circling some different centers in the U.S. and Europe that could really be those centers of excellence around HO?

Yes. Europe lends itself much more naturally to that. I mean they have them anyway. But in the U.S., I mean, Bardet-Biedl, for example, there was one center in the United States. And so the teams when we launched or started, that was a place hard to get to in Wisconsin amazingly. But it was emblematic of the fact that the center developed around a person who was really the grandfather of BBS effort in the U.S. and people traveling there to see him. And that became a center of excellence, and they formalized it and had a very comprehensive visit 3 or 4 days kind of thing. But since then, the team, we have 4 or 5, at least other centers now who have taken an interest in BBS and are looking to set up the multidisciplinary part of it. So back to your question about HO, how I think this will happen. For sure, I mean, they're already -- because of the nature of this, if you -- if your entry point, your source of your injury is the tumor and the surgery, it's likely you're already at a specialized center and then potentially seeing an endocrinologist. Now how many of those patients then go from that center back to their local endocrinologists, that will be some -- we don't have a good handle on that, but that's obviously some. They'll need to continue to be seen by an endocrinologist because they almost all have pituitary insufficiency at some level, right? So they -- and that's not -- the primary care physician tends not to be the one who's directly managing their hormonal deficiencies as a rule. So a long story short is, yes, I do think centers will develop. The other thing that often happens in rare diseases is if you're a young developing physician and you're looking at a way to make your career new opportunities, right? I mean if you're in cardiology, it may not be so easy to go out and become a big leader in hypertension. I mean kind of that ship sailed. But in HO, you can look at this and the way departments, I've seen this over my career multiple times, the senior person in the department says, you set up a small clinic and suddenly you've got a few and you become the expert and you're giving talks and your career is launched on the back of this early opportunity where because you were in early, everything is news, you get to talk about that stuff. So that's a dynamic that for sure will play.

Got you. And then just in terms of the approval in HO, like are there any label considerations that we should be thinking about? I know the discussion this morning centered around not only just the weight loss, but potentially getting hyperphagia on the label and what that could do for setmelanotide.

Yes, that's critical. I mean we tried each time. So we -- the challenge with getting hyperphagia on label is not that it doesn't work, or we haven't decreased hyperphagia. And so we haven't made it an inclusion criterion. And so that's been a bit of a hiccup from the FDA standpoint just in terms of the way they view rules and the like. But every trial we've done, that's why the drug works, we reduced hyperphagia. This trial, we have 3 different measures, all of which robustly hit p-values in terms of reducing -- improving on the hyperphagia scores. So we'll try again on the indication statement we submitted includes hyperphagia in the indication. I think the -- I'll give you my optimism here. I know this division, they're receptive to the fact that the absence of it, given the statute, the Medicare statute that they don't cover obesity and that ripples through to some other payers in Medicaid in some cases. Certainly, Medicare, we don't -- we're not covered. We need to be differentiated, and we need something else in them. And hyperphagia, of course, we've shown it. So why can't that be in the indication statement. So I'm hopeful. It doesn't mean it's going to happen, but we're going to go at it.

Does it even -- does it really matter in terms of the opportunity as you see it? Or is it more just kind of from the Medicare component?

It's definitely the Medicare component. I think it's helpful. I think we'll do fine -- without it, we'll do fine. I mean this is one of the things, oh my God, I mean...

Like a bull case scenario, it would be nice to have because you...

It's nice to have. And these things, you don't get to run the opposite experiment. We've done fine with BBS without having it, right? It's not like that's been the end of the world. But it will help.

Got you. And then just in terms of like some of the pre-commercial work that you're doing with HO, like potentially with payers, how are they resonating with the data? And ultimately, again, like how do you think about the positioning there in terms of reauthorizations and stuff like that? Like again, you've seen that with Bardet-Biedl, but is this going to be a cleaner story? Or is there some sort of pushback that you might see on the payer side?

I think a big advantage, obviously, coming on the heels of POMC and BBS. And so they know -- they understand increasingly the biology. They know this drug. I think it's been relative -- not relative, it's been incredibly smooth so far with BBS up to date. And so this -- we're coming in with better data. We're coming with a very clear unmet medical need. So I don't -- there's nothing in our early interactions. I don't want to overread that, but nothing in the early interactions, which suggests this will be different and we'll have a problem. In terms of re-auth, I told you this morning, I mean, I think almost all BBS patients who've come up for re-auth have been reauthorized. And it's not a black and white. So for example, if you didn't make a 5% threshold on your weight loss and some of the BBS patients might not have reached that, but you're clearly benefiting. Hyperphagia is down, behavior is down, you're concentrating better at school, sleeping better, whatever, all the different factors which may be indicated, physician writes a letter and then it tends to get through. So it's just a matter you got to continue to work the system. There may be an additional step. Now the last part is I don't think, given the way we ran the trial and the results and the like that there will be a threshold in the label that said you should expect to see X, Y, Y number of months and then the payers would incorporate that into a re-auth plan. So I can imagine they might want to re-auth, which is just to say, look, we need an attestation, you're still benefiting, right?

But it's more of a subjective versus...

It's the doctor saying, yes, it feels good. Maybe they have to submit some of the data, but there won't necessarily be a number.

Got you. Okay. And then really just curious what you plan kind of highlighting at the HO Day or the upcoming Analyst Day. Obviously, you kind of -- were kind of suggesting that you believe that the HO population might be toward the higher end. So I don't know if that's indicative that you'll raise your potential prevalence numbers for HO. But yes, what should we be taking away from that event?

Yes. I mean we did one with BBS back in spring or early 2022 before we read out the Phase III data for BBS, similar. I mean, I think Jennifer and her team will share some -- first of all, we'll have 2 experts there. And so one probably well known to the community, one not so well known, but follows a large population of HO patients. So two different perspectives. And then Jennifer and her team will talk about what they're learning, and you'll have the experts there. And so you get hopefully a good sense of that. We gave some patient numbers in our BBS world. I think we'll try to figure out how we can give you some sense of what we're feeling, number of docs we've talked to. I mean there's different metrics. And maybe Jennifer will talk a little bit about the tiering and how we think about dividing or tiering these -- the endocrine specialists, subspecialists and the like. In terms of the TAM, I don't think we're going to update that then. That -- there's no urgency to do that, #1. I think we've signaled pretty strongly that we're more and more confident that we're at the upper end kind of thing. And I think that should hopefully work pretty well for people. And we'll see where we go over time, but look for more specifics, how we're going to structure sales force kind of thing and go at it.