Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) Q1 2023 Earnings Call Transcript

Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) Q1 2023 Earnings Call Transcript May 3, 2023

Operator: Good day and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Q1 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, David Connolly, Executive Director of Investor Relations and Corporate Communications. Please go ahead.

David Connolly: Thank you, Benny. I’m Dave Connolly, here at Rhythm Pharmaceuticals. For those of you participating on the conference call, our slides can be accessed and controlled by going to the Investors section on the Investors page of our website at ir.rhythmtx.com. This morning, we issued a press release that provides our first quarter 2023 financial results and business update, which is available on our website. And as listed on Slide 2 is our agenda. Here with me today in Boston are David Meeker, Chair, Chief Executive Officer, and President of Rhythm Pharmaceuticals; Jennifer Chien, Executive Vice President, Head of North America; Hunter Smith, our Chief Financial Officer; and Yann Mazabraud, Executive Vice President, Head of International is on the line joining us from Europe.

And I’ll remind you that this call contains – on Slide 3, I’ll remind you that this call contains remarks concerning future expectations, plans, and prospects, which constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent annual or quarterly reports on file with the SEC. In addition, any forward-looking statements represents our views only as of today and should not be relied upon as representing our views as of any subsequent dates. We specifically disclaim any obligation to update such statements. With that, I’ll turn the call over to David Meeker, who will begin on Slide 5.

David Meeker: Thank you, Dave, and thank you all for joining this morning as we report another strong quarter. As we will keep reiterating, this company is built on strong well understood biology. That is the impairment in the MC4 pathway, which governs calorie intake, i.e. the hunger and energy expenditure. A clear unmet medical need in the patients who suffer with these rare diseases and a simple solution. IMCIVREE is a replacement therapy restoring function in that pathway. The near term value in Rhythm resides in our ongoing global launch IMCIVREE for patients living with BBS and our Phase 3 trial and hypothalamic obesity, which is now up and running. As we grow the organization, we continue to attract outstanding talent when a small company executing a global program working in a challenging space continue to execute.

We are well capitalized with funding into 2025 with IMCIVREE revenues now beginning to make a meaningful contribution to the overall picture. So, looking at Slide 5, these are our three strategic pillars. Commercial launches are off to a strong start. Our conviction in the value we are bringing with IMCIVREE, particularly with regard to the less well appreciated and less well understood hyperphasia part of the disease continues to grow. Obesity is not one disease, it is many diseases. Our educational efforts helping healthcare providers recognize these diseases and their need for a targeted solution are making a difference. Our personalized approach to supporting patients and their healthcare providers is working. We see each patient for who they are, we meet them where they are and we don’t give up.

In the U.S. Scripts continue to be written by a growing number of physicians and we are making continued progress in expanding payer approvals, particularly in patients covered by Jennifer as Jennifer will explain. Internationally, we have launched IMCIVREE for BBS in Germany, the largest European market following the second exemption from the German federal joint committee, which recognized that IMCIVREE is therapy for a devastating rare genetic disease and not a lifestyle medication. As John will describe, the team is moving, and we look forward to updating on the progress. The HO Trial has initiated with the first patients treated. We expect to complete enrollment as we have previously guided in Q1 of 2024. We look forward to providing updates on the 12 month data at a medical meeting in Q4.

And we are continuing to make progress on our continued opportunities M&A trial enrolling, pediatric trial finishing, the weekly switch study finishing, and DAYBREAK Part 1 data to be presented later this year. The Xinvento integration has gone extremely well as we work towards candidate selection for the lead indication of congenital hyperinsulinism. We will provide further updates on all of these programs in the fourth quarter. On Slide 6, Slide 6 is our biology slide, which we will probably show in every earnings call. And this is to remind you that this is a differentiated pathway, which when impaired requires a targeted solution. These diseases are quite distinct from general obesity, the early onset obesity is severe and the obesity is lifelong.

The common thread across these diseases hyperphagia, that’s insatiable hyperphagia hunger drive leads to abnormal food seeking behaviors. On Slide 7, you see the two foundational opportunities BBS and HO affecting meaningful numbers of patients with a BBS prevalence of 4,000 to 5,000 and an HO prevalence of 5,000 to 10,000 in U.S. with comparable numbers in Europe. The major difference between the BBS and HO opportunity is at the vast majority of HO patients are diagnosed and actively engaged with the healthcare system, specifically the doctors we are working with. The additional opportunities represented in the Phase 3 M&A trial offer significant potential upside from there. As a reminder, no therapies are approved for HO and no therapies have been shown to consistently work.

The GLP-1 question is important. Earlier generations of GLP-1 did not show benefit. While we do not have trial data on the newer GLP-1 or combo therapies, anecdotally as Dr. described on our first HO call last year, she believes 20% or so of HO patients may have some response to GLP-1s and the magnitude of that response might be on the order of 10% or less. These drugs are different. They work through different receptors on different pathways. It makes sense that some patients may have some response to other medications, including GLP-1s because obesity is a complex disease and more than one factor may be affecting any given patient. What we felt was most noteworthy about the Phase 2 cohort is how consistently setmelanotide work in those patients who are compliant with a therapeutic dose.

The 18 patients had a mean BMI decrease 14.5% at 16 weeks associated with meaningful decreases in their hunger scores. The consistency of those results strongly suggest setmelanotide is targeting the underlying cause of the disease. As with each of the diseases caused by impairment in the MC port pathway, it is critical to correct the basic defect before deciding on the need for additional therapy. The obvious and most simple of those interventions is a diet and exercise program, which these patients have universally failed when driving the presence of an MC4 pathway defect, but find greater success once function in that pathway is restored. Moving to Slide 8. We are excited to have our Phase 3 trial underway with the design as shown here on Slide 8.

As a reminder, this trial and HO is a double-blind randomized controlled trial enrolling 120 patients randomized 2:1 treatment and placebo. Patients will be dose escalated over 48-weeks and then followed for 52-weeks with the primary endpoint of percent BMI reduction as compared to baseline. It is challenging – it is a challenging time to be running clinical trials, but the team has done a great job working with our CRO and we expect to have all of our sites up and enrolling by the end of Q3. In Slide 9, you can see our pipeline of approved indications in the trials of progress. Overall, we have worked with over 100 clinical sites in 15 countries, which in addition to testing our therapy creates awareness builds experience with the therapy and most importantly helps build a community of patients and physicians working to improve the lives of patients living with these MC4 pathway diseases.

With that, I will turn the call over to Jennifer.

Jennifer Chien: Thank you, David. I will be starting on Slide 11 today. We are pleased with the continued demand and uptake we are seeing with our U.S. Launch of IMCIVREE for BBS. At launch, we felt good about our starting point and our strategic plan to identify patients, to engage with physicians, and educate them on the hyperphagia, and severe obesity of rare MC4 pathway diseases, and to support both patients and physicians through the journey. Now, three full quarters into launch, we are excited by our progress and our team is thrilled by the success stories we’re hearing from patients and their treating physicians. We continue to hear from patients, caregivers, and physicians experiencing the benefits of not only weight loss, but also improvements in social activity and engagement, better sleep, and more confidence.

Since IMCIVREE was approved for BBS by the FDA on June 16, 2022 and through the end of the first quarter of 2023, we have received more than 300 new prescriptions for BBS patients with more than 100 of them in Q1. The more than 300 new prescriptions since approval comes from more than 175 physicians. Importantly, we have received pair approval for more than a 160 of these prescriptions since launch. The demand for IMCIVREE is strong. Physicians are writing prescriptions, patients are experiencing benefit on drugs, and pairs are increasingly recognizing the value of this therapy. Next slide. Looking at the prescribers of IMCIVREE. Endocrinology, both pediatric and adult remain the top specialty at a combined 44% since launch. Pediatricians remain second, accounting for 20% of prescribers.

Approximately, 27% of all IMCIVREE prescribers since launch are new to Rhythm, meaning that our territory managers had not called them then directly prior to writing a prescription. That share increase in Q1 versus prior quarters has 37% of prescribers who rose in the first quarter of 2023 were new to Rhythm. This trend continues to give us confidence in our non-personal promotion efforts, which supplements our field team by educating a broader physician and patient population. Next slide, For a payer mix for BBS prescriptions, the majority come from commercial plans and Medicaid, and a small percent or less than 10% come from Medicare. We have mentioned in the past that commercial coverage for IMCIVREE is good with payers representing the vast majority of coverage lives have a policy in place to cover IMCIVREE.

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We are also pleased with Medicaid coverage, and the progress we are making in securing approval. I have outlined on prior calls that there is variation in covered status. As some states cover IMCIVREE, some states do not, and others decide on a case by case basis through the appeals process. In an effort to provide more granularity on Medicaid coverage, we outline on the next slide some data based on Medicaid covered by relative to IMCIVREE coverage. Next slide. According to Medicaid, there were approximately 85 million individuals enrolled in Medicaid in all 50 states plus Puerto Rico and the District of Columbia as of December 2022. Looking at the left hand side of the pie chart, approximately 75% of Medicaid covered lives are in states with a positive IMCIVREE policy in place or in a state where we have been able to get at least one positive coverage decision in the absence of an IMCIVREE policy.

Within this latter category, which represents about half of the 75%, there are some states where we have been able to consistently gain positive coverage decisions, whereas other states could be mixed with one or more approvals along with one or more denial. Now moving to the right hand side of the pie chart, the remaining 25% of Medicaid covered by is a mix of states with no policy yet firms have recovered, and, one, we have not yet had a prescription for IMCIVREE that would trigger a covered decision; or two, we have received a prescription, and we’re still working to secure access; or, finally, three, where we have received their prescription, and have not been successful in gaining access through IMCIVREE through the appeals process. This last category represents less than 10% of covered lives.

We remain committed in our payer education and outreach efforts to help them recognize BBS as a distinct disease that requires a targeted therapeutic approach and we continue to work persistently to explore reimbursement opportunities for all of our patients. For example, even when we have denial through the appeals process, we have had success in gaining Medicaid coverage through EPSDT for early and periodic screening diagnostic and treatment benefits. This program provides comprehensive and preventative healthcare services for all children under age 21 who are enrolled in Medicaid. So, this dynamic is constantly evolving. Next slide. The age breakdown of BBS patients for whom we have prescriptions is here. Adults count for approximately 50% of prescriptions received since launch.

While prescriptions for adults – for children and adolescents continue to account for the other half. And nearly all, or 97% of patients with prescriptions have consented to receiving direct connection and education from our patient services team, which we call Rhythm in June. This allows our team to work side by side with patients and their families to help them gain insurance coverage and to support them through our education efforts from initiation and maintenance on therapy. Next slide. Based on the information available to us today, we know there are physicians who have prescribed IMCIVREE for one or more patients who have additional BBS patients for whom they have yet to prescribe, as well as physicians with BBS patients who may require additional education to prescribe IMCIVREE.

Our territory managers are actively engaging with each physicians to increase a sense of urgency to treat the hyperphasia and obesity that comes with BBS and to set expectations about IMCIVREE therapy to support pull-through of prescriptions. In parallel, genetic testing, use of ICD-10 codes to narrow our physician’s target, as well as digital, non-personal promotion efforts, all of which we began well ahead of last June’s launch, have driven our patient identification efforts. We are excited by the progress of these ongoing efforts and the opportunity that remains for IMCIVREE moving forward. With that, let me hand it over to Yann.

Yann Mazabraud: Thank you, Jennifer, and good morning. Slide 18, please. Last week, we announced the launch of IMCIVREE in Germany for the treatment of obesity and control of hunger associated with BBS with Federal reimbursement. As you can see on the slide, the German Federal Joint Committee G-BA ruled that IMCIVREE for BBS is eligible for full-reimbursement by statutory health insurances. So, G-BA unanimously voted to exclude IMCIVREE for the patients with BBS from its lifestyle exemption list as it did previously for from CPCK1 and LEPR deficiencies. And exactly on-time with regard to our plans. As David said, this is a very important recognition of the severity of BBS and further reinforces the distinction between general ability and the rare MC4R pathway diseases.

Next slide. Germany, holds a unique place in the history of Rhythm that is very favorable to us and setmelanotide. Our first patients were treated at the Charité University Hospital in Berlin, where the local experts have the longest experience in the world treating patients with setmelanotide more than 10 years. We are very well-positioned in Germany with an experienced team on the ground engaging with healthcare authorities, payers, physicians, and patient organizations. Our general manager in Germany comes from Alnylam, has successfully led many orphan drugs and high value therapies launches in Germany and he is leading a team of six people dedicated to the launch. Genetic testing is well-established in Germany and our own programs are supplementing it.

Based on our interaction with the centers of excellence, we believe about half of the patients diagnosed with BBS in Germany have already been genotyped. This is quite important as genetic confirmation is required under our level. We also have strong starting points. German BBS treatment guidelines are currently in development and will be published soon. There is a very well organized patient advocacy group dedicated to BBS, and also two existing academic registries for rare renal diseases and rare epidemiological diseases. Next slide. Rare disease launches are difficult to forecast, especially the first 12 to 18 months. In Germany, in particular, we do anticipate a methodical, patient by patient’s approach. However, we are confident that BBS in Germany represents a significant opportunity for IMCIVREE.

Our team has already engaged with physician in 18 major hospitals across the country in an effort to identify patients with BBS and prepare the launch and have set up a significant number of medical education and disease awareness activities. We estimate that the prevalence for BBS in Germany is approximately 1,200. We believe that there are about 800 patients diagnosed and of those 800 we have identified physicians caring for more than 250 of them and we are focused and identified in more. Next slide. This slide is a reminder of our importance in the European market is to our global strategy, for rare genetic disease, we know that few parent countries are – sorry. So, I was saying that the slide is a reminder of how important the European market is to our global commercial strategy.

For rare genetic diseases, we know that European countries are more advanced than the U.S. with single payer healthcare systems, government funded genetic testing, rare disease organizations, center for excellence, and referral networks. For biallelic POMC and LEPR deficiencies, we know that there are about 100 patients identified in the EU4 and the UK, and for BBS, more than 1,500 patients are identified across the same countries. For POMC and LEPR, we have achieved access in nine countries in addition to the U.S. We are launched in the UK, Germany, Italy, and the Netherlands, and we have achieved in France, Austria and Turkey, and early access in Argentina. In summary, we are very pleased with the progresses we are making in Europe in terms of market access.

Next and last slide, please. We are also very pleased with the level of support we are receiving from key experts in MC4 or pathway disease including Bardet-Biedl syndrome. Europe is home to many of the world leading experts and Rhythm is fortunate to enjoy a strong and long lasting relationship with many of them. March, Professor Sadaf Farooqi from Cambridge UK, one of the world’s leading experts in MC4 or Pathway diseases, and Professor Phil Beales from London, who helped define now with diagnosed BBS, both led a recent sponsor of disease education webinar with Angela Scudder, who’s on this with BBS and with the BBS patient liaison officer for BBS UK clinics. On these webinars, the speakers explored hyperphagia, severe obesity, the genetics of rare MC4R pathway disease with a focus on BBS and how to best care for these patients with a multidisciplinary approach.

We are delighted to have more than 125 physicians from 17 countries joins webinar live, which speaks to the high level of interest in rare and MC4R disease among European physicians. Thank you. And with that, Hunter.

Hunter Smith: Thank you, Yann Mazabraud. Turning to Slide 24 with the launch of IMCIVREE in Germany and additional global markets coming online this year, Rhythm is growing into a global commercial rare disease company. And as we do, we approach all our operations and investments in our commercial R&D and operational programs with the financial discipline that governs our decision-making and focuses on building long-term value for our shareholders. We are grateful for your support. Let me review the highlights of the Q1 P&L. As mentioned, we recorded 11.5 million in net product revenue during the first quarter versus 1.5 million during the first quarter last year, which was prior to FDA approval for BBS. Compared to 8.8 billion in net product revenue from the fourth quarter of 2022, that marks an increase of 2.7 million or more than 30% quarter-over-quarter.

This growth is driven primarily by IMCIVREE sales for BBS in the United States. Cost of sales during quarter was 1.4 million or approximately 12% of net product revenue, which is consistent with Q4 2022. Cost of sales consisted of approximately 600,000 in royalties to Ipsen under our original licensing agreement for setmelanotide. Approximately 200,000 of amortization, previously capitalized sales based milestones, as well as product costs associated with increased sales of commercial product. R&D expenses were 37.9 million for the first quarter of 2023. This compares to 32.5 million during the first quarter of last year. Compared to 23.5 million in Q4 of 2022, This quarter increase of 14.4 million is driven by several factors. First, there were 5.4 million in cost of fees associated with the Xinvento acquisition.

The remainder of the quarter-over-quarter increase was due to a 6 million net increase in clinical trial expense. These are mainly start-up costs associated with the HO Phase 3 trial and a substantial increase in activity associated with the M&A Phase 3 study. Also in Q4, 2022, Rhythm received a $2.5 million credit during the closeout of our GO-ID study during that quarter, which reduced R&D expenses. Overall, clinical trial costs are expected to be higher on a period basis during study start-up and after all trial sites have opened. Lastly, in Q1, there was a $2.1 million increase in clinical supply costs for these studies and for other programs. SG&A expenses were 24.6 million for the first quarter of 2023, compared to 21.4 million in the same quarter last year.

This increase was largely due to the impact of 2.6 million in higher headcount costs, including stock compensation. Quarter-over-quarter, SG&A declined nearly 1.7 million or nearly 7% from 26.3 million in the fourth quarter of 2022. The decrease in SG&A versus Q4 is due primarily to lower marketing expenses in the U.S. For the first quarter, common shares outstanding were 56.7 million and quarterly net loss per share was $0.92. Turning to Slide 25, we closed the quarter in 2023, well-capitalized to 295 million in cash on hand, sufficient to fund all planned activities into 2025. This cash guidance includes the impact of projected milestones associated with Xinvento acquisition. To touch on a few other aspects of the quarter, of the first quarter net product revenue of 83% of this revenue was generated from U.S. sales of IMCIVREE as compared to 85% in the fourth quarter of 2022.

As mentioned 5.4 million of operating expenses represented consideration associated with Xinvento acquisition, which was included in this quarter. We accounted for this transaction as an asset acquisition. Q1 operating expenses included total stock based compensation of 6.4 million as compared to 5.3 million in the fourth quarter of 2022. And our non-GAAP operating expense guidance for 2023, which we disclosed last quarter remains unchanged at 200 million to 220 million. This guidance excludes the non-cash impact of stock-based compensation. And with that, I’ll turn the call over to David.

David Meeker: Thank you, Hunter. So, in summary, we’re excited about the progress we have made and we look forward to multiple data readouts. In addition to continuing to update you on our global commercial launch with BBS in the upcoming quarters. And so with that, we’ll open it up for questions. Operator?

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Q&A Session

Operator: Thank you. Our first question comes from comes from the line of Phil Nadeau from TD Cowen. Please proceed with your question.

Phil Nadeau: Good morning. Congrats on the progress and thanks for taking our question. Couple commercial questions. First, in terms of reimbursement for BBS in the U.S., are there any new trends in terms of either faster or easier reimbursement as the launch continues or is it that the patients are spread amongst so many insurance plans that it’s still at each point in evaluating their first patient?

David Meeker: Yeah. So, Jennifer, yes?

Jennifer Chien: Thanks for the question. So, we’re continuing to build the relationships, but as you outlined, there are just so many different payers so the scripts come in is dependent on if we’ve interacted with the payer before or not? I would say that in terms of scripts that we’ve received through a payer where we’ve been able to gain reimbursement, that process also because we know what the process looks like for that particular payer is quicker. We are also seeing trends through our education efforts that we have a higher percentage of payer approval at the prior authorization stage, which is also a good sign. So, once again, it’s really one-on-one with these payers as they come in that our teams interact with and overall, the average time in terms of gaining reimbursement still remains within that 1-to-3 month period of time.

Phil Nadeau: In the slides, there was a note that one of the opportunities for expansion in BBS and U.S. are among those positions who are treating BBS patients, but are not yet ready to prescribe IMCIVREE, what are the objections those physicians have? What do they need to do or what do you need to do to convince them that they should be prescribing IMCIVREE?

Jennifer Chien: Yeah. So, I would say that the gating factors could be either on the patient’s level or the physician’s level. You know, for both of them, some of these patients may not be of age and within our label. For patients specifically, the physician may have written up scripts, but the patient could be lost to follow-up. There may be, you know, concerns just in terms of injections or a parent just wants to get a bit more education in terms of safety profile before putting their child on a chronic lifelong therapy, and many other reasons. From an HCP perspective, sort of similarly, they may require some additional education to truly appreciate and understand the difference in terms of the hyperphasia and the early onset obesity that these patients have.

In rare diseases, it’s not uncommon for a physician to just have one patient. So, there may be additional education needs. So, there’s a lot of different reasons, but I will say that our teams are really on ground interfacing with the customers to try to .

David Meeker: And Phil, just to reinforce what Jennifer said, the hyperphasia component of this in terms of the opportunity creating that sense of urgency, not surprisingly I mean, health care providers themselves, I think just don’t understand, many of them don’t understand the full impact of this on both the patient and the family. And so, there’s still a little bit of – we understand you’re hungry, but they don’t understand the pathology and severity of that hyperphasia component. So, I think as Jennifer said, we are making good progress there, but that is a clear opportunity as we go forward.