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

Good morning, everybody. Happy to be here with Hunter Smith, CFO of Rhythm Pharmaceuticals, who I'm sure many people know well, and I'm sure most folks listening to the Rhythm story well. But maybe we can just have Hunter kick it off, give a quick sort of background update, and then I have a bunch of targeted questions. So Hunter, thanks so much, and take it away, if you don't mind.

Sure, Paul. And thanks to you, and thanks to the Stifel team for hosting us today. This is a very exciting time for Rhythm. There are a couple of pillars to the Rhythm story. I think the first and most fundamental, which everybody is familiar with, is the pending PDUFA in acquired hypothalamic obesity, where we had Phase III data back in the spring that was really aligned with the sort of the high end of people's expectations and our expectations. And I think what's been so profound about the response to IMCIVREE among acquired HO patients has been the fact that the response is both deep and it's quite consistent, certainly the most consistent we've seen in any large study that we've done. So it's a really exciting time. And last week, we hosted a commercial event to talk about our readiness for the launch that is we hope to embark on once we're approved. And we think we got a good response. There are a lot of investors engaged to learn about how we were preparing and how we're thinking about that market and stuff like that. Second thing is we do have an ongoing sort of an ongoing open-label Phase II study in Prader-Willi syndrome. I know you'll probably have some questions about that, Paul. And we're very excited to learn if we can provide help to that patient population. That is a very difficult disease with a lot of complexity. We think we can address -- we hope we can address some of it and maybe make a difference there. Nothing has worked in terms of delivering weight loss in Prader-Willi syndrome. And then thirdly, we have essentially the lifecycle management that we've been doing with new next-generation compounds. So we have 2 that are in development in humans. The first is bivamelagon, where in July, we read out Phase II data in acquired hypothalamic obesity, and that data was shown to be comparable to the IMCIVREE data at a similar time point. And then we are in the middle of or in the early stages of a Phase Ic effort in hypothalamic obesity patients for RM-718, which is a weekly injectable therapy. So that the combination of those 2 therapies, which may behave differently, but ultimately, they have a better AE profile than setmelanotide in terms of not delivering hyperpigmentation to the patients. And secondly, they have a patent life out to 2040. And then there's obviously the dosing convenience of not being a daily injectable but being oral or a weekly injector. So a lot going on, and we're very excited to be -- to have the opportunity at this moment.

Yes. Yes. Okay. Great. Thank you, Hunter. Well, I thought your event last week was great. I thought the most -- or I guess I continue to think one of the most interesting things about this market is just how big it is, right, which is always an intriguing question with given rare diseases. You guys are guiding to this 10,000 patient prevalent pool in the U.S. Can you talk about how you've arrived at that number? And how -- to what degree is that number anchored in like the surgical population that you can really sort of, I guess, more easily define versus some of these other populations, right, that I think have been harder to put our finger on.

Sure. And we're going to continue to learn here, and I think that's the nature of rare disease, especially a disease where you are the first therapy to show efficacy in these conditions. So our original estimates of 5,000 to 10,000 patients were anchored in 3 fundamental assumptions. The first was the incidence of craniopharyngioma, hamartoma and astrocytoma. The second was the number of incident patients who developed HO either following the tumor or the surgery to remove the tumor. And the third was overall survival. And I think what we've learned is that the incidence is driven by more heterogeneous diseases, including other tumor types in addition to craniopharyngioma, while craniopharyngioma remain the major drivers. They certainly were the largest in our studies and the largest we've encountered in talking to patients. And then the second component that we felt was conservative. I mean we essentially took a 20-year overall survival, haircut it by the patients who don't survive and then multiplied the incidence by 20 -- multiplied that reduced incidence by 20. And that is also somewhat conservative. Craniopharyngioma tends to occur in a barbell distribution sort of from the age of 5 to the age of 12 and then separately from the age of 50 to the age of 60 or thereabouts. And there are plenty of patients and there are cohorts that have been measured where there is a 30-year overall survival, it's lower, but it's still reasonable. So that combination has indicated to us that the 5,000 to 10,000 was conservative and at the upper end of the range is a better estimate of what we've learned. We've also done claims work in the U.S. since then, and we'll maybe talk about that some more, but that claims work was reinforcing to the higher end of that range. So that combination of clinical epi plus claims work was what caused the change.

Do you have a good sense of what percent of these patients are in the offices of physicians you're already talking to on setmelanotide?

So again, we are still learning, but about 25% of our BBS patients in the U.S. appear to have -- or I'm sorry, of the treating physicians for BBS that have written scripts appear to also have HO patients. Now that would be a smaller number of the Tier 1 and Tier 2 physicians, the sort of 2,400 top tier that we're focused on, just because there haven't been as many prescribing physicians for BBS and BBS tends to be more spread out in terms of who's caring for it. Part of the reason for that is they don't necessarily have the hormonal insufficiencies that tend to accompany acquired hypothalamic obesity and therefore, they can be cared for by a nephrologist, they can be cared for by an ophthalmologist or just a GP or an obesity specialist depending.

Right. Right, right. Okay. Okay. So as we just kind of look ahead here, what do you think is like the biggest risk to getting this launch right?

So we think that even though there is typically an association between an event, i.e., either the tumor or the surgery for the tumor and then the condition that results from the tumor, there can be significant lag, significant issues with treatment handoff, particularly when the patient may migrate from a surgery at one institution to ongoing care at a different institution or there's a significant time lag. So the issue is one of -- it's potentially less well diagnosed than we might have thought a couple of years ago. The causes, as I've described, are more heterogeneous. And so I think our biggest challenge is getting physicians to a differential diagnosis of acquired hypothalamic obesity and therefore, setmelanotide being the right therapy for them. I think we've been able to focus on that pretty quickly. Obviously, there are some physicians who are very tuned into both the disorder and setmelanotide is the appropriate therapy for the disorder, but there are a lot that we have to work on and a lot of disease education and education about the product that we need to do.

And so the 10,000 number, is that just an estimated number? Or is that a number you think is in care and seeing a doctor? Like do you have a...

It's an estimated number. It's an estimated number. I think what we've said is that -- so we've done this claims analysis where you -- there's no ICD-10 code for acquired hypothalamic obesity. So we start to triangulate or essentially do a waterfall -- not a waterfall, a bucket analysis of how we can get to potential patients, and that includes the occurrence of an event within a 10-year time frame, rapid weight gain and/or obesity following that event, evidence of diabetes insipidus or a pituitary insufficiency, hormonal insufficiency associated with acquired HO. And then finally, care and -- ongoing care from an endocrinologist within an 18-month time frame. That filtering mechanism leads us to a large pool of potential patients. And what we said last week was we've -- through that, we've encountered about 2,000 diagnosed or suspected HO patients at physicians in our top tiers based on that criteria. And that is the group of diagnosed and potential patients that we're focused on for launch.

Yes. Okay. Great. Thanks for reviewing all that with everybody. So as it relates to PWS, we, like I'm sure a number of my peers have hosted KOL calls, and I think there's this general sense of optimism that maybe we'll see something the bar is low. Obviously, we'll see the data that you put out. But one question that came up on this call last week was just the dose that you're pursuing is considerably higher in PWS. And so -- versus HO. So maybe just one, talk about the rationale behind that. And two, what is Rhythm's level of confidence that a higher dose in this population is going to keep a consistent safety profile?

Sure. So maybe I'll take the second part first. We had a -- we developed a weekly formulation of setmelanotide in conjunction with another company. It was a depot formulation that allowed for extended release. And that formulation -- we did a PK/PD study in about 82 obese patients -- general obese patients. And we compared the PK and PD for both that formulation at 10 milligrams, 20 milligrams and 30 milligrams as well as 3, 4 and 5 milligrams for setmelanotide. So that -- the daily setmelanotide. And so we had a number of patients exposed to the 5-milligram dose, and we did not see -- I'm sorry, we saw the types of AEs that were consistent with those at the lower doses of setmelanotide. Very comfortable there. And I think our -- you may recall, we did an earlier study, which goes back to 2016, I don't think anybody who's currently at the company was at the company at the time. But we did not have a very long dosing window in terms of duration at that point in time. It was a pretty complicated study, and we were looking for a very fast signal. And so we -- the max dose was 2.5 milligrams. I think nobody got really beyond 4 weeks of steady-state dosing on therapy. And so that was not a particularly good study in terms of signal seeking for a disease that we think is -- just frankly, it's a lot more complex, and there's a lot more stuff driving both behavior and obesity than simply nonproduction of POMC or something along those lines. So this is longer duration, higher dose and open label and working with an investigator, Jennifer Miller, who really works very carefully with these patients and knows them very well.

Yes. Yes. I was going to ask a question about that last point. So who -- is there a specific phenotype or even biological makeup of the types of patients that you're enrolling in this study?

No. There's no genetic screening of the patients beyond the PWS diagnosis. They obviously have to have a BMI greater than 30 and the BMI is equivalent if they're a pediatric patient. They're likely to have evidence -- they're likely -- and it's not an entry criteria, but they're very likely to have clinical evidence of hyperphagia that we've seen in our other indications. So yes, that's -- but we are taking the patients that she brings. So...

Makes sense. And this is an open-label study. How does that impact, in your view, like the interpretability of the efficacy data? I mean I know everyone loves to ask rhythm, what's the bar? And it's this whole game and cat and mouse game with companies and what bar are they setting. But just as it relates to seeing a signal that is not just like clinically significant, but also significant in a single-arm trial where you can be confident it's not placebo effect, like what's the conversation inside Rhythm around this issue?

So I think like we've had in other Phase II studies in our history with other rare indications, there has to be enough duration on therapy and enough patients and a representative pool of patients to be able to draw a conclusion that we believe that we could meet a regulatory bar and a substantive bar at 52 weeks on therapy in -- obviously, in a blinded study, which would be required for approval. So we will look at the totality of the evidence. We will look at individual patient by individual patient. I'll give you an obscure example in our 015 study in leptin receptor deficiency. This is going back to 2020 or so, 2019, we had 3 patients who were noncompliant at a single site. And that story was described in our filing document. They actually had very good responses. They were adolescents, adolescents are notoriously unreliable as we all -- as all of us who are parents know and all of us who have memory of those years know. Anyway, the point being that if there are people who have evidence of response and loss response or there are patients who don't seem to respond at all, understanding the story of the individual patient, the caregiving situation and do we have evidence that there's potential noncompliance or do we have evidence that there isn't -- this patient is a true nonresponder, those will be the types of things we might try to tease out. And if you can get comfortable with some of those things to say there's an outlier here, but we can explain that outlier, that helps give you confidence in the potential opportunity.

I think you guys have said you want to -- your ultimate goal will be at least 5% weight loss at a year because that's been the regulatory standard. And no drugs generate weight loss in PWS. This study is up to 26 weeks, right? Does that mean the 26-week bar is 2.5% if you just linearize it? Or is it more complicated than that?

Yes. I guess I would say it's potentially a little more complicated than that, but we want to see evidence that it's working.

Yes. Okay.

I'm not going to really put a number out there.

I get it. I get it. I get it. And how -- and look, like I think the interesting thing on our KOL call, Hunter, was this feedback that you really don't see weight changes on placebo in this indication. You might even see weight gain. But I think the other view was that the hyperphagia measures are just so much more noisy and confounded. And so how important is corroboration on hyperphagia in the study? And like do you guys feel like hyperphagia is a key part of the TPP here for setmelanotide?

So our general view is if we are not affecting hyperphagia, we are not as likely to be successful on weight. How it manifests itself either in a worst hunger score, the type of scores that we've used for HO and for BBS or how it manifests itself in an HQ-CT is TBD. These are very complex patients. They have a lot of OCD and they may have behavioral actions that are driven as much by OCD as by true hyperphagia. So it's a very complicated patient population to study.