Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) Q4 2023 Earnings Call Transcript

Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) Q4 2023 Earnings Call Transcript February 22, 2024

Rhythm Pharmaceuticals, Inc. reports earnings inline with expectations. Reported EPS is $-0.7 EPS, expectations were $-0.7. Rhythm Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Rhythm Pharmaceuticals Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like now to turn the conference over to David Connolly, Investor Relations and Corporate Communications. Please go ahead.

David Connolly: Thank you, Michelle. 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, ir.rhythmtx.com. This morning, we issued a press release that provides our Q4 year end 2023 financial results and a business update, which is available on our website. 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 Li, 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 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 represent our views as of only 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. Good morning, everyone, and thank you for joining the call. So 2023 was truly a transformational year for Rhythm commercially, developmentally, financially and strategically as we have expanded potential indication to meaningful next generation products. 2024 will be a year focused on execution, setting up an exciting year of milestone achievements in 2025. So on Slide 5, we’ve got the three boxes, which highlight the important aspects of Rhythm. And on the first box, HO remains the cornerstone of Rhythm value. We finished the year having over enrolled our Phase 3 trial, now with all 120 patients in the primary analysis cohort dosed, and this 120 will form the basis of the U.S. and EMA filings, keeping us firmly on track for first half 2025 top line readout.

Execution in that trial remains strong with a high level of sight and patient engagement. We’re excited also to announce that today, we have concluded extremely constructive interactions with the Japan Regulatory authority, the PMDA, which will allow us to include 12 Japanese patients in the Phase 3 trial without requiring an independent study in Japanese patients. Japan is continuing to evolve their regulatory process to further facilitate the development of innovative medications for the Japanese population, and they were highly motivated to ensure that the Japan patients would be able to participate in the call, in the Phase 3 trial. We were joined in our interactions by one of the leading experts in Japan, who helped them understand the severe unmet medical need and the potential benefit of setmelanotide.

What’s particularly interesting about Japan opportunity is that the prevalence of HO is 2 times higher than in the U.S. with our initial epidemiology work suggesting there are 5000 to 8000 patients, which is about the same number as in the U.S, albeit with a population a little more than half the size of the U.S. So if this opportunity plays forward as we think it will, the Japan opportunity could become the second most valuable part of the overall Rhythm portfolio behind the U.S. HO opportunity. So Yann will expand more on that epidemiology and our plans going forward. Second, we made great progress advancing several programs. Both our newly acquired daily small molecule from LG Chem and our weekly formulation 718 are progressing well. I’ll comment further on those in a couple of slides.

With regard to the pediatric program, I will show again two slides you’ve seen before, reminding you of the strength of that data and why we think it is so important. We have filed, as previously reported, to expand the use of IMCIVREE patients between the ages of two and five in the U.S. — sorry, in the EU and will file in the U.S. in the first half of this year. Third, we had another solid quarter commercially with $24.2 million in revenue, over 100 new prescriptions and more than 70 approvals reimbursement. We are excited about our recent reimbursement approvals for BBS in Spain and Italy. And with those two approvals, IMCIVREE is now available commercially in 14 countries including the U.S. and Canada. Revenues in the quarter were impacted by a change in policy made by a single Medicaid program in one state in response to a disproportionately high volume of prescriptions.

The state has a favorable policy in place and continues to cover patients, but is now requiring a higher level of documentation than previously required. For example, if a patient has eye findings consistent with the diagnosis of BBS, they will now require an ophthalmology consult to confirm the diagnosis, whereas previously, it was simply the attestation of the prescribing physician. With this change in policy, 30 patients came off coverage early in the quarter and were transitioned to our bridge program, which is a free drug program provided, while we work through coverage issues. There is no read through to any other Medicaid program as this situation is unique to a specific demographic in this state with a higher prevalence of BBS patients who came on to treatment early.

The impact of 30 patients coming off reimbursed treatment early in the quarter and going on to the bridge program was about 2 million. Importantly, despite this dip in U.S. patient numbers at the start of the quarter, the remainder of the U.S. story continues to grow as expected, and we finished the quarter in a very good place, and Jennifer will, of course, provide more color in her section. So moving to Slide 6. So a little more in Japan. Typically, Japanese regulatory authorities require PK studies to be conducted in Japanese subjects in advance of testing and investigational therapy in patients. However, following extremely constructive discussions with Japan’s Pharmaceutical Medical Device Agency, or the PMDA, we have agreed on a plan to enroll 12 Japanese patients into our current Phase 3 trial.

We will collect PK data in those 12 patients and there will be no requirement to perform an independent study in Japanese subjects. Importantly, as I said, the additional cohort of Japanese patients and the timing for them to be added to and complete the study will have no impact on our timelines to complete the pivotal cohort, get to top line data and submit our filings in the United States and Europe. Specifically, we will file in the U.S. and EU on the results from the first 120 patients who finish the trial. The remaining patients, the approximately 10 plus patients who are part of the overenrolled patient group outside of Japan and the 12 Japanese patients will be part of a second close, which will be used to support Japanese approval.

And we will, of course, seek orphan drug designation in Japan in parallel. So on Slide 7, this is just to remind you our Phase 3 trial design for HO, which you all know well. The Phase 3 trials enrolled patients aged four years and older with hypothalamic obesity randomized two-to-one to setmelanotide therapy or placebo for a total of 60 weeks, which includes up to eight weeks for dose titration. The primary endpoint for this trial is the mean percent change of BMI from baseline after approximately 52 weeks on a therapeutic regimen of setmelanotide compared with placebo. We are 99, as I told you before, 99.5% powered to achieve a 10 point differential between the therapeutic arm and placebo and given our 12 month data showing consistent response across all patients who adhere to the prescribed therapy and the consistent safety profile of setmelanotide and other indications, we are quite confident in the outcome.

On Slide 8, I’ll speak a moment about LG Chem’s molecule. We’re particularly excited about the acquisition of the global rights for LB54640, and yes, we will be working on a name for that, which we announced early in January. We believe this drug candidate could provide patients with an important new treatment option and could be an important long term value driver for our company. LG Chem, a highly regarded company with deep chemistry and early translational experience and expertise has developed an oral drug candidate that based on the early clinical data generated to date, suggests they have identified a specific therapy for MC4R diseases that will not result in hyperpigmentation or have associated cardiovascular side effects. We have had a highly collaborative working interaction with the LG team as we move to transfer full responsibility for the program to Rhythm.

We anticipate the transfer to be largely complete within three months of signing and remain on track for that. In the meantime, we are jointly progressing the two trials with the primary focus being on-site initiation of the SIGNAL trial for hypothalamic obesity. A parallel focus will be on developing a pediatric formulation, which will allow us to move to treating the younger patients who as we know for both HO and the genetic causes of MC4R pathway diseases are in need of treatment. On Slide 9, a little more about the molecule LB54640. As previously described, we were impressed by the robust preclinical package and by the data in their Phase 1 study in healthy volunteers with obesity, which showed the expected dose dependent decrease in BMI at four weeks.

Importantly, they did not see hyperpigmentation nor any cardiovascular signal, which is consistent with their preclinical work. Slide 10 shows the design of the SIGNAL trial, a Phase 2 28 patient open label trial — sorry, placebo controlled trial to evaluate the molecule in patients with hypothalamic obesity. The trial is designed to evaluate safety, tolerability, pharmacokinetics, weight loss efficacy with an efficacy endpoint of mean percent change in BMI from baseline of 14 weeks. The trial is four arms, three different dose groups in placebo and would be followed by an open label extension period of up to 52 weeks. This is very similar to the exception of the placebo control to the trial we ran originally in — with setmelanotide in HO.

We are fortunate to have a model such as HO, which appears to be quite sensitive to the effects of an MC4R agonist. So our expectation is that, this relatively small trial will give us good insight into the efficacy, safety and importantly the dose range, which we will look to develop as the program advancing. On Slide 11, the 718 weekly program, as I highlighted [indiscernible] is advancing well. The IND is filed. We have selected our CRO and are looking to dose our first patients in the first half of this year. And I can tell you that we are aiming to have those first patients dosed in March here. We’re committing to the first half of this year. As a reminder, we will begin conventionally with single and then multiple ascending dose cohorts in normal volunteer patients with obesity followed by a Part C, which will enroll HO patients followed for 28 days.

Those patients will be eligible to enter into a long term extension study once we complete our chronic toxicity studies, which are required to support longer dosing, and those chronic toxicity studies are ongoing and running in parallel now. On Slide 12, on my last two slides, I want to revisit the data in pediatric patients we showed at our R&D Day in December. I find these results quite remarkable for a couple of reasons. One is that, despite the extremely young age, patients between the ages of two and five with either POMC LEPR deficiency or BBS, they were severely affected. That should not be a surprise given the genetic cause of the disease, which means, in most cases, it has been present since birth. Despite the severity, we know from multiple anecdotes, these patients are not being recognized as having an underlying disease.

And in the worst cases, the parents are blamed for their inability to control their child’s food intake. As you can see on this slide, patients responded extremely well to treatment with a mean decrease in weight of more than 18% at one year. Slide 13, I think this is where the real story lies in the individual results, which show a waterfall plot of the individual results for the 12 patients. Two takeaways. The Y axis shows the BMI Z score, which is basically the number of standard deviation the child is away from normal. The graph shows the change in BMI C score with treatment. For the first two groups starting from left to right, POMC and LEPR on the left hand side of the graph, these children are experiencing a five point to seven point decrease in their BMI Z scores from a starting point as high as 12.

It is important to remember, a BMI Z score change of greater than 0.2 is considered clinically meaningful. The BBS patients were not quite as severely affected still showed a 1 point to 2 point decrease. The only two patients who did not have a meaningful — highly meaningful change in their BMI Z score was one patient who has lost to follow-up early in the trial and a second patient who was non-compliant with the medication. Expanding the label to children two and above will not open up a significant additional market opportunity. It will add incrementally, of course, but it will reinforce the importance of thinking about genetic causes when confronted with early onset obesity. It will remind people the cumulative morbidity begins early, and the earlier you intervene with a specific therapy, the better your chance to modify the long-term outcomes.

And third, it reinforces the safety of the medication and then it can be given, and should be given to children as young as two, if clinically indicated. So, as I said, we filed for our European label expansion and we look forward to filing in the US in Q3 of 2024. With that, I’ll turn the call over to Jennifer.

Jennifer Lee: Thank you, David. We continue to see solid commercial execution this quarter with new prescriptions, prescribers and reimbursement. Beginning on Slide 15, we remain pleased with the growth and consistent demand for IMCIVREE since launching in June of 2022, marking six full quarters and our first full calendar year. In addition, we continue to see gains in the depth and breadth of prescribers and positive reauthorization decisions. During the fourth quarter of 2023, we received more than 100 new prescriptions and more than 70 approvals for reimbursement from payers. As David mentioned earlier, these positive trends were offset by a challenge associated with one payer. One state Medicaid, because of a higher than expected volume of prescriptions for BBS patients, which was above their estimated prevalence of BBS, had requested additional documentation to support the diagnosis for previously approved and reimbursed patients.

In the meantime, incentive coverage for these patients was rescinded. To ensure these patients did not have any gaps in treatment with IMCIVREE, we transitioned 30 patients to free drug through our bridge program. Therefore, during Q4, the total number of reimbursed patients dipped below where we exited Q3. This event was limited to one state where there appears to be a high prevalence of BBS patients, making this a unique situation. We are working with this Medicaid program and prescribers to ensure patients diagnosed with BBS continue to receive access to IMCIVREE therapy. It is important to note that this state Medicaid still has a policy in place to cover IMCIVREE. Going back to the 70 approvals in the quarter, we are seeing these come through faster and with fewer appeals than in prior quarters.

Over 70% of approvals for reimbursement during the quarter came at the time of prior authorization or sooner, a trend that has shown incremental improvement each quarter since launch. Next slide. More than half of IMCIVREE prescriptions for BBS continue to come from adult patients, accounting for 59% of BBS prescriptions launched to date. This is a positive trend as we believe many adult BBS patients, who may have aged out of participating in the annual surveys of the CRIBBS registry or were lost to receiving specific care or BBS, are re-engaging with their health care providers. As we’ve discussed, this is a typical rare disease, where the first approved therapy for this disease raises awareness and paves the way for reengagement of the broader diagnosed patient population.

Next slide. We see continued progress with additional first-time prescribers as well as repeat prescribers while the breakdown by specialty remains consistent. Adult and Pediatric endocrinologists account for 45% of prescribers launched-to-date, consistent with launch-to-date metrics reported during the last few quarters. New to Rhythm prescribers or physicians or territory managers had not previously called on prior to the prescription being received remains consistent at 28% of all prescribers. We are pleased to see this source of growth continue as we find new prescribers through our non-personal promotion efforts. In addition, first-time prescribers are those, who wrote their first IMCIVREE script has stayed very consistent, averaging 48 new prescribers per quarter in 2023.

And in Q4, we were consistent with this at 46 first-time writers. And we are seeing incremental increases in the depth of prescribers. 30% of prescribers launched-to-date have written two or more prescriptions, which marks an increase from prior quarters. Prescribers are seeing their patients benefit from IMCIVREE and they remain interested to prescribe for additional BBS patients identified. Next slide. Overall, the payor mix for BBS remains consistent with almost 90% of prescriptions since launched falling under a commercial or Medicaid plan. We continue to see incremental improvement in securing access and reimbursement with regard to overall coverage by state Medicaid programs. As we’ve done in recent quarters, we look at Medicaid coverage measured through covered lives.

We introduced this concept at the end of the first quarter when we reported that approximately 75% of Medicaid-covered lives were in states with either a positive IMCIVREE policy or in a state, where we had been able to gain positive coverage in at least one instance in the absence of an IMCIVREE policy. The remaining 25% of Medicaid lives were in states, where we either had not yet had a prescription for IMCIVREE or we were still working to secure access for a prescription, or finally, where we had not been successful in gaining access through the appeals process. In Q2 and Q3, this breakdown shifted to 80-20, and at the end of this quarter, it was 85-15. Within this 85%, we have stronger coverage for IMCIVREE as we have increased the number of states with a specific IMCIVREE policy in place.

Next slide. Lastly, we are seeing strong success in reauthorizations as the vast majority of reauths have been approved. This is indicative of patients benefiting from IMCIVREE therapy as well as pairs recognizing these benefits. Launch-to-date, we’ve had 110 approvals for reauthorizations for continued IMCIVREE therapy. Most of these come at the one-year on-therapy time point, but there are few pairs, whose policies call for reauthorization decisions at three months or six months. As of the end of the fourth quarter, we’ve only had 10 denials since launched, and six of these denials have been approved through appeal, and we are working to get the remaining four approved as well. Overall, the fourth quarter and the first full year of BBS commercialization has been strong.

We will continue focusing our efforts on expediting the diagnosis of BBS patients and supporting access to IMCIVREE. With that, let me hand it over to Yann.

Yann Mazabraud: Thank you, Jennifer. 2023 was a very successful year for the international organization. With the BBS launch in Germany, the pre-EMA approval Early Access Program in France for hypothalamic obesity, many commercial patients in new countries, and all the work that led up to our recent announcements about reimbursement for BBS in Spain and in Italy. We are looking forward to a strong year in 2024 as well as we’re beginning the year announcing our development strategy in Japan. Slide 21, Japan will become a very important market for us. The per capita prevalence for hypothalamic obesity in Japan is two to three times higher than the prevalence rates in the United States and Europe. Through our discussion with local key experts with the Japanese Pediatric Neurosurgery Society, data from the Japanese Brain Tumor Registry, and also a high-level hospital claims database analysis, it has been confirmed that there is a much higher prevalence of craniopharyngioma in Japan with the same frequency of obesity development as in the US and in Europe, and we believe that there are between 5,000 and 8,000 patients with hypothalamic obesity living in Japan.

There are more than 100 key hospitals or treatment centers in Japan that care for patients with craniopharyngiomas and other brain tumors that may cause hypothalamic obesity. Building relationships with these centers will be key to our strategy, and we have already started to do it. In addition, Japan, like many European countries, is a single-payer system with an established history of recognizing rare diseases and dedicating the resources to care for them. Japan is the third largest economy measured by GDP and, as David already said, in the long term we believe that it will become the second most important market for Rhythm behind the United States. In exploring this exciting opportunity, we considered multiple avenues to advance setmelanotide in Japan, we made a decision to move forward with a direct presence.

And with that Rhythm will truly become a global rare neuroendocrine disease company able to leverage our footprint in Japan for future opportunities. Next slide. Our work in Japan is off to a strong start. In our discussion with the Japanese PMDA, we had the benefit of one leading Japanese expert in hypothalamic obesity, who was able to emphasize the unmet medical need in Japan and the relevance of enrolling Japanese patients directly in our Phase 3 trial. Just last week, we held our first Rhythm-sponsored symposium in Nagoya City during the yearly Congress of the Japanese Society for Hypothalamic and Pituitary Tumors, and it was a very successful one. Slide 23, meanwhile, our launch in Germany is progressing well, meeting our expectations with approximately 250 patients living with BBS already identified and importantly a subset of approximately 800 patients diagnosed with BBS in Germany.

Our teams remained focused on engaging with physicians, caring for patients and with the many centers where they are treated. We are expanding the number of treatment centers and large hospitals we are engaging with. Now that we have more than nine months into the launch, we have received prescription from 15 treatment centers, which are all within large and very well structured and resourced university hospitals. In addition, our Rhythm@Home services program, through which we provide patient support for each patient and their caregivers, has been quite successful. Our team sets treatment expectations with physicians and offers very tailored services to patients with, for example, in-home visits when needed. And since December, pre-filled syringes have been available for both BBS and POMC LEPR patients.

Next slide. We also recently announced that we achieved reimbursement for IMCIVREE in Spain and Italy. In Italy, we received a positive reimbursement decision for BBS two weeks ago and we have started to launch IMCIVREE. We believe that there are approximately 200 patients diagnosed and identified under the care of a known physician, and our team in Italy is focused on engaging with physicians in hospitals and medical centers in 21 states throughout the country. In Spain, the recently announced positive reimbursement decision covers both BBS and POMC LEPR biallelic patients. There are approximately — there are 100 patients with BBS identified. And our team there is engaging with physicians and healthcare centers in 17 states throughout the country to bring IMCIVREE to patients in family.

In both countries, we now must navigate regional access and tender management at local hospital levels. It takes weeks for patients to begin treatment and we will start to see commercial patients come online in both countries during the second quarter. We will begin to see increasing contribution to our net sales from each of these countries in 2025. Slide 25, the last slide. We continue to advance country-by-country with IMCIVREE now available for POMC LEPR and our BBS in 12 countries outside the United States and Canada. In France, we have paid early access available for BBS as we negotiate with French authorities on pricing. We are in the midst of the negotiation now and hope to finalize it by the end of this year. For hypothalamic obesity in France, we have pre-EMA approval paid early access as well.

Both of these early access programs are administered patient-by-patient in tech time, but we are building a strong foundation in terms of a relationship with the government authorities, payers, leading experts, key centers of excellence and patient associations. Looking ahead, the next of the larger European markets to come online with reimbursement for BBS are the UK and the Netherlands, both in the second half of the year. Now, I will turn the call over to Hunter.

Hunter Smith: Thank you, Yann. Let’s start with a snapshot of the Q4 P&L on Slide 27. We recorded $24.2 million in net product revenue in the fourth quarter versus $8.8 million during the same quarter last year, an increase of $15.4 million or 175%. For the full year, net product revenue totaled $77.4 million versus $16.9 million in 2022. Quarter-over-quarter, we saw an increase of $1.7 million or 8% in net product revenue, driven primarily by continued growth in the number of patients on IMCIVREE therapy in our international region. In the US, revenues were relatively flat quarter-over-quarter due to the shift of 30 patients to our bridge program early in the quarter, as David and Jennifer mentioned, Given that the 30 patients lost reimbursement early in the quarter, that change represented approximately a little more than $2 million in foregone potential revenue in the fourth quarter.

Excluding that discrete event at the beginning of the quarter, drivers of revenue, i.e., prescriptions and reimbursement were as expected. This pattern is consistent with our belief that revenue growth in rare diseases is difficult to trend quarter-over-quarter, but in the long term and globally, slow and steady growth continues. In the fourth quarter, volumes of vials dispensed to patients were essentially the same as vials shipped to our specialty pharmacy, resulting in no significant impact on revenue from inventory growth at the specialty pharmacy. Gross-to-net for US sales quarter over quarter increased to 85% from 83% in the third quarter, primarily due to a Medicaid rebate adjustment in the quarter, which was based on actual rebates paid as compared to rebate levels accrued.

Our practice is to accrue for Medicaid rebates based upon the expected payer mix, and when actual Medicaid invoices are received, this may result in differences versus accrued amounts. Cost of sales during the fourth quarter was $3.2 million, or approximately 13.3% of net product revenue, representing a 2.6% increase quarter-over-quarter. Cost of sales consists primarily of product costs and our 5% royalty to Ipsen under our original licensing agreement for setmelanotide. R&D expenses were $29.9 million for the fourth quarter of ’23 compared to $23.5 million during Q4 ’22, and an 11% decrease compared to Q3 ’23. SG&A was $32.4 million for the fourth quarter this year versus $26.3 million in the fourth quarter of ’22, and an increase of 6.2% in the sequential quarter basis.

For the fourth quarter, weighted average common shares outstanding were 59.2 million, an increase of approximately 1.3 million shares over the last quarter, resulting primarily from the full weighting of this quarter of our equity issuance under the ATM program in Q3. Quarterly net loss per share was $0.70. A few highlights on Slide 28. Rhythm reported $276 million of cash and cash equivalents at December 31, 2023. This cash on hand is sufficient to fund all planned activities into the second half of 2025. On the net revenue for the quarter, $24.2 million, 76% of these revenues were generated in the United States. The proportion of revenue generated by our International region increased from 20% to 24% quarter-over-quarter, reflecting strong growth in BBS patients on therapy in Germany.

Fourth quarter operating expenses, including stock-based compensation of $8.7 million for the quarter and $23.6 million for 2023. For ’23, we guided to an OpEx range — a non-GAAP OpEx range, and our spend came within that range. Non-GAAP operating expenses for the year ending December 31, ’23 were $219.9 million inclusive of GAAP operating expenses of $261.8 million minus $9.3 million in cost of sales and minus $32.6 million in stock-based compensation. Turning to Slide 29. I ask that you all pay attention to the left-hand side of the guidance — the text box here and make sure this is modeled appropriately. We committed to pay $100 million in fixed cost to LG Chem for global rights to LB54640. That was $40 million in cash in January, and we issued to them more than 430,000 Rhythm shares of common stock valued at $20 million at the same time.

We have also committed to pay $40 million in cash 18 months from the close, which was in January. This $100 million will be accounted for in R&D expenses during Q1 2024. And when the achievement of development and commercial milestones becomes probable, we will recognize these costs as R&D expense as well. Also for ’24, as we did for 2023, we offer guidance on non-GAAP operating expenses. We anticipate approximately $250 million to $270 million in non-GAAP OpEx comprised of SG&A non-GAAP operating expenses of $105 million to $110 million, R&D non-GAAP operating expenses of $145 million to $160 million. This R&D amount includes $10 million to $15 million of development costs related to LB54640. This amount excludes both stock-based compensation and consideration paid to LG Chem in connection with the licensing of LB54640.

The growth rate at the midpoint of this range is 18% year-over-year. Excluding the impact of LB54640, the growth rate would have been just under 15%. Finally, we are not offering revenue guidance — we have not offered revenue guidance in the past and are not doing so again this year. IMCIVREE’s sales in the US will continue to be the main driver of revenue growth for Rhythm. For revenues from our International region, Germany will continue to be the main driver while Spain and Italy are coming online for BBS. It will take time to get up and running as we navigate the local hospital systems and their budgets. The Netherlands and the UK come on later in the year. We will not expect sales in those regions to be a significant contributor for 2024.

And with that, I’ll turn the call back over to David.

David Meeker: Thanks, Hunter. So thanks all. That concludes the formal presentation. I hope what you’re taking away from this is that Rhythm is maturing. We’re firming up the components, which are driving the underlying value of Rhythm. We’re executing on our global strategy. We’re executing on our developmental strategy, where we’re exploring all the incremental potential opportunities related to the MC4 Pathway. And we’re setting up, as I said, year 2024, it’s hard to believe we’re already two months into the year, given the amount that’s already happened, but 2024 will be about execution. And, as I said, 2025 will have a series of really impactful milestone readouts for Rhythm. So with that, I’ll open it up for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] The first question comes from Tazeen Ahmad with Bank of America. Your line is open.

Tazeen Ahmad: Hi, guys. Good morning. Thanks for taking my questions. David, I was hoping to get a little bit of color on the comments that you made in your prepped remarks about the cluster of BBS patients in a particular state. Just given all the work you’ve done on this ultra-rare disease, was this something that you would have anticipated happening? And can you also give us color on what would cause, you know, particularly large number of patients to be clustered in a close proximity? And how are you getting confidence you won’t be seeing similar events in other states as you said on the call? Thanks.

David Meeker: Yeah. Thanks, Tazeen. So it’s a good question. So your first part of that was, did we have line of sight to this, answer was no. What do we think is going on — there are pockets in every rare disease or many rare diseases where you have a concentration of patients related to a founder effect the most publicly and clear example of this in the BBS world is in Newfoundland, Canada, where if you look at an expected prevalence for BBS of one to 75,000 and one in 100,000, the prevalence in that Canadian province is about one in 18,000. So that element we know exists we weren’t expecting to see it in this state. But if you look at the demographics of this state there, the demographics do are consistent with the fact that you could have a founder effect and we think that’s what’s going on.

The second piece of this was that we also had physicians in that state, who were very interested, very motivated early on. And we’re, you know, writing scripts as I said early. And so for this specific state Medicaid plan, they saw — they were an early adopter in the sense that they had a policy in place early and we’re trying to “do the right thing”. But they saw a much higher level of scripts than what they had modeled in their plan and their expected prevalence. And Jennifer and I had a call with their leadership, which was incredibly constructive. I mean, they said there was no antagonism or, you know, concerns about wanting to treat BBS in that sense. We basically just, you know, overwhelmed them to a certain extent with — relative to what they had expected to see.

So long story short, that’s what we think drove the disproportionate. The second part of your question, I mean, I’ll let Jennifer, you know, speak to in terms of the other states here and, you know, why we see this as a very unique situation related to this one state Medicaid plan.

Jennifer Lee: Yeah. So just in terms of the uniqueness of this particular state, as David iterated, when you look what the estimated preference could be based off of, you know, sort of more broad-based preference estimates, the amount of scripts really surpassed, you know, the expectation in terms of this particular Medicaid. I will reiterate, we still have a positive policy in place and we’re just working through the system. In contrast, you know, not unusual. We’re just a little over a year from launch in terms of BBS. If you look at every other state Medicaid in terms of estimated prevalence versus the number of scripts that we have received in other states, we are, you know, vastly under just in terms of, you know, number of active patients versus what they might have projected in terms of potential for this product.

So we really do feel confident that this a unique situation, where the numbers were a bit surprising. But once again, we’re just working collaboratively together with the physicians and the Medicaid in terms of working this through.

Tazeen Ahmad: Okay. Thanks for all of that color. And maybe just one last quick question. What’s your current mix of Medicaid patients on reimbursement?

David Meeker: The question was the current mix of Medicaid. So —

Tazeen Ahmad: Right. In your current mix, what is the proportion of Medicaid patients?

Jennifer Lee: Right. So we said that 90% of patients approximately are commercial versus Medicaid with Medicaid accounting for slightly more than commercial patients in that mix.

Tazeen Ahmad: Okay. Thank you.

Operator: Please stand by for the next question. The next question comes from Jeffrey Hung with Morgan Stanley. Your line is open.

Unidentified Analyst: Hi, good morning. This is Catherine on for Jeff. Thank you so much for taking our questions. We just had one. With your MC4 Agonist profile now consisting of setmelanotide RM-17 and now LB54640, can you provide more color on how you’re thinking about positioning and potential points of differentiation here? For example, do patients place more value on the ease of route of administration? Or are they emphasizing other aspects related to safety, like hyperpigmentation?

David Meeker: Yeah. Thanks, Catherine. So I think both of our next-generation therapies, potential therapies, offer their own unique value proposition. So the weekly — both of them are hyperpigmentation sparing. So that’s a huge issue for some patients, not all. It’s not a huge percentage of patients, but what we’re seeing is there’s a very consistent number, you know, percentage of patients that, who are bothered by the hyperpigmentation 100% of the patients will have some change in their skin pigmentation, but a much smaller percentage are bothered by it. But, you know, particularly non-Caucasian populations, it’s an issue. So both of the next-generation products will offer that as a benefit. And then, you have the convenience issue, which is one is a weekly injectable, the other is a daily oral.

And that’s really going to come down to patient preference. So your question about what’s our strategy as we think about developing a portfolio of options for these patients is, we’ll be indifferent. Again, assuming that both of these molecules progress through development will be indifferent. The goal is to offer patients physician the ability to choose a treatment, which gives their patients the best chance of getting the result that they want in a compliant, tolerable, you know, well-accepted way. So that’s it? No more than that. It’ll be dictated by the data. We’ll see how they turn out. Again, if both products do well, they should clearly be better drugs than setmelanotide, and then, you know, we’ll reevaluate the role of setmelanotide in that world.

Of course, once, you know, as with always, you don’t keep an inferior, you know, molecule out there if you’ve got clearly better alternatives.

Unidentified Analyst: Thank you.

David Meeker: Thank you.

Operator: One moment for our next question. The next question comes from Corinne Jenkins with Goldman Sachs. Your line is now open.

Corinne Jenkins: Good morning. Maybe as a follow-on to that question, I guess, how are you thinking about what a successful efficacy outcome looks like from the SIGNAL Trial? Particularly, how does the oral form factor influence your view of what physician efficacy could be? And how do you think it’ll differ? Anything particular in, like the efficacy front versus the injectables?

David Meeker: Yeah. Thanks, Corinne. So, to be honest with you, I don’t expect it to be better than setmelanotide. And we did incredibly well with setmelanotide. And I think we’re probably getting, in terms of MC4 Agonists, we’re probably getting the desired effect, maybe at the maximal level you can achieve. What might allow either the weekly or a daily oral to do better, and that may show up more in the real world, is in terms of compliance. We know in our HO Phase 2 trial compliance was extremely high in that trial overall. So assuming a similar level of compliance. I’m not sure we’ll differentiate on efficacy. But — so long as to answer to your question is we’ll be looking for something that would be similar, but not exactly the same probably.

Corinne Jenkins: Okay. Thank you

Operator: One moment for our next question. The next question comes from Derek Archila with Wells Fargo. Your line’s open.

Derek Archila: Hey, good morning, and congrats on the progress here. Just a couple of questions. So just first on the reauthorization denials. I guess what typical reason why that occurs and, you know, how long does it take you to eventually get those approved? That’s question one. And then question two is, any color that you can share on what you’re seeing from a discontinuation rate in BBS thus far in the launch? Thanks.

Jennifer Lee: Thanks for the question. Starting with the first one. In terms of the re-auth denials, they sort of fall into a couple of different categories. The first category may be that the patient has received benefits, clinical benefits that were appreciated by the physician as well as the patient, hence their desire to continue on therapy. But they may be just shy in terms of reaching the 5% weight loss. Interesting enough, you know, several of these patients, as we went through the appeals process, actually did hit the 5%. So that’s one category just in terms of overall clinical benefit versus that particular measurement. The other piece is simply sometimes the physician just needs to provide some additional information to be able to move the process forward.

And just working with the physician in terms of making sure the package is full, we’ve been able to get some of those appeals through as well. And the final category, I would say, is you know there are certain plans where we’ve been able to get an approval, but they didn’t necessarily have a specific IMCIVREE policy in place. Some of those also don’t have a particular re-authorization policy in place. So we’re having to rego through the process and the teams just worked continuously just in terms of making sure that we are able to get those approvals moving forward and have been successful. On the question of discontinuation, you know, in, overall, the discontinuation rate has increased from what we last reported, currently being approximately 20% of net Rx’s.

We do expect this to increase, especially with a chronic lifelong therapy. And the reasons have remained consistent in terms of what we’ve outlined before, some personal reasons, some due to AEs, including nausea and hyperpigmentation. But I think that the main piece here for us is also there’s opportunities for follow-up. We noticed that in terms of the discons, you know, the highest prevalence of the discontinuations really are within the first two dispenses. So it’s an opportunity for our teams to focus just in terms of making sure our patients are titrating appropriately and also following up in terms of maintaining them during this period of time. So that’s an opportunity for us. The other piece is, as patients discon, we have seen patients who have restarted just because of the sort of resurgence in terms of the hyperphagia.

And there’s different examples of people coming back and maintaining on therapy even after they have originally discontinued. So opportunities here just in terms of the teams to work through.

Derek Archila: Very helpful. And then one more question, just in terms of Part C data for 718, is that something we should expect this year? Thank you.

David Meeker: Yeah. Thanks. No, I’d love it to be this year. I think as I indicated, that program is moving. We’re incredibly focused on it. We’re guiding in this to the first dosing in the first half here. I told you my comments here. I’m really focused on getting that first patient dosed in March. If everything goes well, you know, we should be comfortably enrolling HO patients in the back half of this year, but we won’t have the readout until 2025.

Derek Archila: Understood. Thank you.

David Meeker: Thanks, Derek.

Operator: One moment for the next question. The next question comes from Phil Nadeau with TD Cowen. Your line is now open.

Phil Nadeau: Good morning. Congrats on the progress and thanks for taking our questions. A couple on Japan and then one on commercial. In terms of Japan, just so we’re clear on the primary endpoint necessary for Japanese filing. Is it an analysis of all the patients in the trial — on the trial’s primary endpoint? So the 120 that will be used to file in the US and Europe, plus the 10 that are over-enrolled, plus the 12 in Japan? Or is there a special analysis that the Japanese regulators are required to do on the Japanese population, specifically?

David Meeker: Yeah, good question. So it’ll be both. It’ll be based on the full analysis of all patients treated. That’ll be the primary. We will analyze the Japanese patients independently, of course, and what they’ll be looking for since we’re not powered to have the standalone Japan cohort at twelve patients, of course. They’ll be looking for consistency with the other results.

Phil Nadeau: Got it. Okay. And then, in terms of the Japanese market, would you anticipate pricing similar to what you’ve been able to achieve in the US?

David Meeker: Yeah. Yann?

Yann Mazabraud: Yes. Thank you. So, pricing in Japan is usually consistent with European prices. The MoH either use a comparator model or a cost-plus pricing system is no comparator. So more in line with European prices. And they also look as references as the UK, the Germans, the French price and the US price, of course, so in that range.

Phil Nadeau: Got it. Okay. And then the last question. In terms of the 30 patients, who discontinued commercial therapy and went on the bridge therapy because of the Medicaid issue are all 30 of those patients back on commercial therapy now? Or any visibility on when they’ll be able to return to commercial therapy?

Jennifer Lee: Yeah. So the patients are still on our bridge program. You know, as we outlined, it is a bit of a process in terms of needing to get specific input from specialists on different clinical manifestations to support the diagnosis. And as you can imagine, it takes quite a bit of time sometimes to get those appointments overall. So we’re still in process and they are still in our bridge program at this point in time.

David Meeker: Maybe I just add a little bit, I mean, unlike, as Jennifer said, it’s going to take time. So one, we don’t expect them to drop back in next quarter. And secondly, there’s elements of the BBS diagnosis are a bit subjective. So with the requirement for MC’s documentation, there’s no guarantee that we get all 30 patients back on treatment, but we will for sure get some of them back on. What’s been the most important thing about this whole process is, from the constructive interactions we’ve had with all the different parties and stakeholders is the rest of the US is more than compensated and is running. And so this state is now, you know, it’s — it’ll be upside to our current equation, however, it comes back and whatever timing it comes back in.