Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) Q3 2022 Earnings Call Transcript

Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) Q3 2022 Earnings Call Transcript November 8, 2022

Rhythm Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $-0.79, expectations were $-1.

Operator: Good day, and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Third Quarter 2022 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Dave Connolly, Investor Relations and Corporate Communications at Rhythm Pharmaceuticals. Please go ahead.

David Connolly: Thank you, and good morning, everybody. I’m Dave Connolly, IR and Corporate Communications here at Rhythm. For those of you participating via 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 had a press release that provides our third quarter financial results and business update, which is available on our website. And as listed on Slide 2 here today with me in Boston for the conference call are David Meeker, Chair, President and Chief Executive Officer; Jennifer Chien, Executive Vice President, Head of North America; Hunter Smith, our Chief Financial Officer; and Yann Mazabraud, Executive Vice President and Head of International is on the line joining us from France.

With Slide 3, I’ll remind you 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 report on file with the SEC. In addition, any forward-looking statements represent our views as only 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, who will begin on Slide 5.

David Meeker: Thank you, Dave, and good morning, everyone, and thank you for joining our third quarter earnings call. So we had a really strong quarter. Last week, we presented the full Phase II hypothalamic obesity data set, and we will review that data briefly on today’s call, but the real focus of today is on the progress we are making with our commercial launches in both the U.S. and Europe. BBS is a really good rare disease opportunity, both in terms of the number of patients potentially needing treatment and the syndromic nature of the disease, which facilitates patient identification. Fundamental question has been whether we can get this system to work, and we felt good about the early signals in August and we feel even better about those signals today as we walk you here.

On Slide 5, since BBS approval in June, we have received 120-plus scripts, 80-plus physicians have written prescriptions from 40-plus patients have been approved for reimbursement. Jennifer will go into some depth on all these. Country-specific launches are happening in Europe, and of course, we received EC authorization for BBS, which was followed in record time with approval for the early access program in France. Yann will provide the international update. In clinical development, we continue to progress our multiple programs with the opportunity for significant label expansion. Slide 6. So we had a strong presence at the BBC Society meeting with 11 presentations, both our presence at TOS and Improve meeting, which we hosted in Berlin are good examples of how this should work.

In addition to being intensely focused on understanding and meeting the individual patients’ needs, we want to lead with the science. We continue to learn more about the genetics, the diseases we are treating and the impact of setmelanotide. In rare diseases, when the first therapy becomes available, there is an acceleration in both the awareness of the disease and disease understanding. We want to be leaders in that effort. At Tos we presented data showing the sustained effect on BMI reduction in patients with POMC and LEPR deficiencies and body composition data showing that BMI reduction is largely due to the loss of fat mass with relative reservation our genetic testing program continues to support the observation that approximately 5% of patients will be positive for a gene where INSIVRI is either approved or the patient would be eligible for the Phase III M&A trial.

Slide 7. So now let me briefly review our acquired hypothalamic obesity program, although the estimated patient population of 5,000 to 10,000 patients may be similar or somewhat larger than the BBS population, the fundamental difference is that these patients are identified, have ongoing engagement with the health care system and for the most part, we believe they are being actively followed by endoprinologists, a primary call point for our current commercial efforts. This is a transformational opportunity for them. So on Slide 8, near the results for all 18 patients, which we announced last week, 16 of 18 met the primary end point decrease in their BMI by 5% or more at 16 weeks. 14 of ’18 decreased their BMI by 10% or more at some point during the 16-week trial.

Mean BMI decrease was 14.5%. As you can see on the next slide, in addition to the magnitude of the BMI decrease, we think the consistency of the response is quite remarkable. So this is Slide 9. So on the waterfall plot last week, we focused on the purple box, highlighting the 5 patients who had not decreased the BMI by 10% or more at 16 weeks. To remind you, patients were either the patients in that box were either on track to lose 10% or more when they discontinue the drug due to AEs. That’s the first two patients on the left-hand side of the box. They did lose 10% but regained when the dose was decreased to allow us lower retitrate location. That patient has now again lost approximately 10% as the dose has been increased or they were noncompliant, the last patient on the right.

In short, there was only one patient who was compliant and failed to reach 5% at 16 weeks. This was Dr. Ross patient, who, as we showed, was having rapid weight gain, which continued through the dose escalation period and then reverse course once the therapeutic dose was reached and since that time has been slowly but steadily losing more weight. Slide 10. 13 of 14 patients reaching their first visit in the long-term extension. It’s 29 weeks on therapy, had a mean BMI decrease of 21.1% and the five patients who have reached their second visit decreased their BMI by 26.7%. In summary, we see this data as highly supportive of a strong, consistent and durable effect in this heterogeneous population of patients with acquired HO. Slide 11. We had a positive Type C meeting with the FDA for our program and acquired hypothalamic obesity.

We’re pleased to have received breakthrough designation and to have reached alignment on the Phase III trial design, which is diagrammed here. We will enroll 120 patients randomized 2:1 to treatment or placebo with an 8-week dose titration period followed by 52 weeks at their therapeutic dose. The primary endpoint will be the change in BMI at 60 weeks. On Slide 12, here, we summarize our multiple ongoing clinical programs, and we look forward to updating you further on those efforts in 2023. And with that, I will turn the call over to Jennifer.

Jennifer Chien: Thank you, David. We continue to execute on our ancillary commercial launch in BBS, and we are very pleased by the reception across the BBS community, including physicians, payers and, of course, patients. Today, we plan to share some metrics that are cumulative through September 30, the close of the third quarter. I’ll just remind you, we received our BBS approval on June 16 with just two weeks remaining in the second quarter. On our last earnings call, we shared some initial metrics of the BBS launch, which covered the first six weeks through July 28. Those numbers will be included in the metrics we report today. So let’s go ahead and start on Slide 14. This slide outlines the journey that we are on with patients and physicians.

Early on in this journey, we are educating physicians and patients to recognize symptoms to get to an accurate BBS diagnosis. Once a diagnosis is made, we engage physicians and patients in a dialogue on the impact of the disease itself, outlining hyperphagia and early onset obesity that results from impaired MC4R pathway signaling. This hasn’t the opportunity to further educate on IMCIVREE as the only approved therapy that targets the root cause by restoring MC4 signaling. All this is aimed at driving the decision to treat. Once a decision to treat with IMCIVREE made, we help secure insurance coverage for patients with a prescription, transition them on to drug and provide support as they experience the benefits on Imcivree. Next slide. We are very pleased with our first full quarter results in BBS.

These numbers are cumulative from launch through September 30. We have received over 120 IMCIVREE prescriptions for BBS patients, and we are pleased that these are coming from more than 80 unique prescribing physicians distributor across the nation. And importantly, of these 120-plus prescriptions, we have already received approval for reimbursement for more than 40 of these. It is still early in the launch for BBS and rare disease launches are difficult to predict or even project from here. However, we are pleased with the first full quarter results as the system we are helping to support for patient diagnosis and identification, customer engagement and education around treatment and early interactions with payers is working. Let’s move to the next slide, so I can go into a little more detail on who is prescribing.

Of the 80-plus prescribers, the #1 specialty accounting for 46% of prescribers is pediatric and adult endocrinologists, which is not surprising. Pediatricians is second accounting for 24% of prescribers. Interestingly, 24% of these prescribers are new to Rhythm and were not called on by our territory managers prior to the receipt of prescription. This speaks to the success of our non-personal promotion efforts targeting both healthcare providers and patients, along with our ongoing engagement with the BBS Patient Association and community. Next slide. We continue to be encouraged by the payer mix on prescriptions received to date as well as the early coverage decision. Here, we break down the payer mix on the prescription. 48% of prescriptions are covered by commercial plans.

42% by Medicaid, a total of 7% are Medicare and 3% are federal plan. Additionally, with more than 40 approvals for our reimbursement in hand, the vast majority of remaining prescriptions are in the initial benefit verification, prior authorization or first appeal stages, and the teams continue to work to secure reimbursement. This process typically takes between one to three months. While on average, commercial plans start to review new indications four to six months post approval, we are pleased to see the first commercial policies come in with updated BBS language aligned with our FDA-approved label. On Medicaid, typical review periods for rare disease drugs vary by state. A few states will review a new indication within six months. Others can take eight to 12 plus months.

With IMCIVREE, we are starting to see some states which is favorable policies. There are also some states that are excluding of IMCIVREE sitting in obesity exclusion. However, even in these states, we do see positive reimbursement on a case-by-case basis through an appeals process. For those we are unable to gain reimbursement at this time, including our Medicare patients, and we have exhausted all levels of appeal, we have our patient assistant program for free jab. Even for these patients, we continue to pursue options for coverage. We remain confident we will see more patients reimbursed on therapy due to IMCIVREE coverage policies that are developed or through the appeals process. Moving on to the patient characteristics in the next slide.

These numbers include the 20 patients that we have transitioned from clinical trials. We see the age range of patients for whom we have received prescription. Children and adolescents account for almost 60% of prescriptions and adult 18 and older account for more than 40%. More than 90% of BBS patients with prescriptions have consented to participate in our patient support service program, Rhythm InTune, enabling us to help patients achieve access, prepare them to initiate IMCIVREE treatment and ensure ongoing continuity of therapy. As these patients engage with our InTune support team, we hear positive feedback on their experience on therapy and with the support provided. Next slide. As you see from the quote one patient highlighted that her daughter has more energy is less hungry and had lost 10 pounds.

Another is sleeping better at night, smiling more during the day. Separately, a wonderful change in one boy after being on IMCIVREE was due to a new found confidence. And lastly, here, we see how an InTune patient education manager, we call them PEMs, was able to set expectations to educate on family on the potential side effects of IMCIVREE, so they were able to manage through the titration stage to then be able to experience the benefits from decreased hunger and food craving behaviors with noticeable change at school. We are so pleased to hear that IMCIVREE is making a positive difference to these patients and families. Next slide. We have had a strong start on our BBS launch, and there is still more opportunity for growth as we continue to identify additional physicians with diagnosed patients.

We have segmented patients with BBS into four main buckets. First, there are patients under the care of physicians already known to Rhythm that we continue to engage and educate. Second, there are already diagnosed patients under the care of new physicians that we discover through the work of our field teams. Third, there are patients who physicians may suspect of having BBS, where the availability of genetic testing can help inform their diagnostics. And fourth, the largest group, which is applying our efforts to help undiagnosed patients find an answer in their journey to diagnosis. For each segment, we leverage a multichannel approach to supplement the efforts of our field team to educate a broader group of healthcare providers and patients so they can get to a quicker diagnosis and are aware of the availability of the IMCIVREE as a targeted treatment option.

With that, let me hand it over to Yann to provide an update on the progress in the international region.

Yann Mazabraud: Thank you, Jennifer, and good morning, everyone. It has been again a very dynamic quarter for the international region. I will start Slide 22 with a quick reminder that Europe is an important market for IMCIVREE, thanks to the European Rare Disease Center of Excellence and more advanced genetic testing capabilities, both leading to many patients with POMC and LEPR deficiencies and many patients with Bardet-Biedl Syndrome already identified. For POMC, PCSK1 and LEPR patients, the estimated European prevalence is 600 to 2,500 patients, and we have identified about 100 patients already diagnosed and receiving care. For Bardet-Biedl Syndrome, the European prevalence is estimated to be approximately 2,500 patients, and we know that there are more than 1,500 patients who are diagnosed and receiving care in EU4 plus UK.

Slide 23. Regarding the European launch for POMC, PCSK1 and LEPR deficiency obesities, we have made tremendous progress in securing access in Europe. A few weeks ago, we launched IMCIVREE in the UK. And as you can see on the left of the slide, we do enjoy the support from leading obesity experts like Professor Sadaf Farooqi from Cambridge UK, who is widely recognized as one of the most influential leaders in genetic obesity and who treated about our first prescriptions. Now we are able to deliver IMCIVREE to patients in the UK, in France and in Germany. We are on track to launch very soon in Italy and in the Netherlands, also in Israel by the end of this year and in Spain, Sweden and Argentina in 2023. Slide 24. Regarding Bardet-Biedl Syndrome in Europe, we are beginning to deliver IMCIVREE to patients with BBS.

who are looking for precision medicines that can significantly reduce hunger and body weight. We received the final authorization from the European Commission in September. As we announced over the summer, we achieved a very specific and rare reimbursed early access program called AP1 in France, even before the CHP recommendation and the EMEA approval and just 32 days following the FDA approval, which is, as David said, a record time. API allows for reimbursed early access to innovative therapies when a positive risk-benefit balance is recognized and when no other therapeutic alternatives are available. With approximately 700 patients with Bardet-Biedl Syndrome diagnosed in France, there is a clear unmet chemical need there. In Germany, we have engaged again with the joint federal committee, the GBA, with very positive interaction so far.

As we did for POMCPCK1andLIPA, we are seeking the exemption from the lifestyle drugs reimbursement exclusion list, and we are looking forward to launching IMCIVREE in Germany in the first half of 2023. In the meantime, we are also engaging with health care authorities in United Kingdom, Italy, Spain and the Netherlands. Slide 25. Last but not least, we did support last month, the first-ever international meeting on pathway-related obesity called Improve 2022. It was in Berlin, and we are very pleased with the turnout and the level of engagement in scientific discussion. It was led by Professor Peter Kennan from Lasarte in Berlin, who was the Chair of the meeting and Professor Martin Habit of the old University Medical Center as cochair. There were nearly 100 physicians and scientists to share ideas and best practices on how to address unmet need in the diagnosis and treatment of people with hypertensvere alliances obesity and how to integrate genetic test and therapeutics as part of route in patient care.

It was truly focused on science and evidence-based care practices for NC4 pathway disease. No doubt that it has helped and will help the field to move forward, and we are already planning for the next improved meeting. Hunter?

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Hunter Smith: Turning to Slide 27. We closed the quarter very well capitalized with $348 million in cash on hand, plus $14 million in additional proceeds from the green shoe from our offering. Pro forma, that would put cash on hand of $362 million. Including this partial exercise of the greenshoe, we raised $140 million in our public offering in September. Importantly, we successfully expanded and deepened our investor base, anchored by some of the most sophisticated long-term investors in biotechnology. In addition, following EC Marketing Authorization for IMCIVREE and BBS, we received the additional $37.5 million from Healthcare Royalty Partners during the quarter as per the terms of the revenue interest financing agreement concluded in June.

ACR’s investment demonstrates confidence in IMCIVREE for BBS and our potential to generate strong revenue growth in this indication. We remain eligible to receive an additional $25 million upon the achievement with certain sales milestones in 2023. Together, these transactions provide Rhythm with significant financial resources to execute on our global development and commercialization strategies and extend our runway into 2025. On Slide 28, the third quarter represented a strong start to our BBS launch with the more than 120 scripts written since PDUFA in June. Revenues of $4.3 million represent an early start to the sales growth we expect for BBS as the patient access process takes approximately one to three months following the receipt of a patient start form from a physician.

In addition, given the additional the initial dose titration schedule, the first one month shipment of IMCIVREE to patients once approved, includes fewer vials of drug than the second and subsequent shipments. The initial product shipment has approximately 55% to 70% of the volume for the typical as dose shipment beginning in month two and continuing on from there. This lower per patient shipment volume is reflected in revenues during the first quarter of BBS sales. Cost of goods sold for the third quarter was $496,000, approximately 12% of product revenue. This is primarily driven by the amortization of milestones previously paid to Ipsen as well as 5% royalty due to Ipsen under our original licensing agreement. These two factors represent over 86% of total costs.

R&D expenses for the quarter were $21 million compared to $27.5 million for the third quarter last year. There was also a decrease in R&D from $31.1 million in the second quarter of this year. The year-over-year quarterly reduction was the result of a $5.2 million decrease in clinical trial costs and a $1.3 million decrease in CMC costs. The decreased clinical trial costs were due to study design amendments to our Phase II Daybreak study as well as reduced activity or completion from the phase from the BBS Phase III, the Phase II basket, QTC and renal studies. These decreases were partially offset by increasing — increased spending on our M&A, open-label extension and weekly formulation switch in de novo studies. The quarter-over-quarter decrease was largely related to the same factors.

Gene sequencing expenses decreased by $1.2 million — I’m sorry, increased by $1.2 million in the quarter. SG&A expenses for the third quarter were $21.9 million compared to $17.5 million in the same quarter last year or down slightly from $22.3 million in the second quarter of this year. The year-over-year increase is primarily due to BBS commercial launch in the U.S. as well as increases in headcount for our U.S. and international commercial organizations. Our share count as of September 30 was 55.7 million basic and diluted shares, an increase of 5.5 million shares versus September 30, 2021, primarily reflecting the impact of our recent share offering. Loss per share was $0.79 versus $0.70 in Q3 of ’21. As I indicated on my prior slide, following our September offering and received a second tranche from the HCR cap royalty financing agreement.

We closed this quarter with $348 million in cash on hand and subsequently received an additional $14 million from the shoe. That gives us approximately $362 million, which will be sufficient to fund planned Rhythm operations into 2025. With that, I’ll turn the call back over to David.

David Meeker : Thank you, Hunter. So I hope what you’ve heard today is this is a really good quarter. We feel great about it. Moving forward, we remain laser-focused on executing against our strategic priorities for 2022 and 2023. That is continued execution in our U.S. BBS launch and internationally, continuing to work to market access for both POMC LEPR deficiency and now BBS and continued execution on our clinical development programs, not only in the transformative opportunity. We’ve talked about now twice on hyperchylobesity, but also continued progress in our ongoing M&A Daybreak pediatric and weekly trials. We look forward to our next update. With that, we’ll open it up for Q&A.

Q&A Session

Operator: our first question comes from the line of Philip Nadeau from Cowen.

Philip Nadeau : Congrats on the progress. A couple of commercial questions for us from us. First, can you speak a bit more about the InTune program? What is the team at InTune do to get the patients on therapy stay compliant with therapy? And how does InTune help the physicians with the appeals process? That’s the first question. And then the second question, you mentioned the average time from script to reimbursements 1 to 3 months. Is that likely to decrease as the launch progresses? Where do you think ultimately that time will settle…

Jennifer Chien : Right. So a little bit about InTune. So what we built here was a program that was to be quite customized for the needs of the customers overall. So everything here starts with a patient consent. And once we actually receive a patient consent, our patient education manager or pan then reaches out to the patient for introductions and also to just educate just in terms of what the process will look like moving forward. Similarly, for any new prescriber, there is a joint meeting with the PAN, the physician and our territory manager to once again outline expectations moving forward. So as a prior authorization stage, which is required for every script that we receive, the InTune service executes benefit verifications and then really works to understand that specific payers exact prior authorization requirements that needs to be filled out.

At this stage, I will say that some of our patients have complicated insurance background. I mean we’ve had a patient that had three different insurers where we need to figure out who was the primary insurer and then work the process from there. So there’s a lot of work done upfront to understand that. The InTune services initiates the prior authorization on behalf of this physician through CoverMyMeds, which then pushes all the relevant information to the doctor and in his account. The ACP does need to complete all required documentation. But one thing that we continue to do is we learn from the experiences that we have. And for example, what we found out quickly is at the PA state, a lot of these denials were either because of incomplete information or because they outlined BBS not to be included or approved for the indication.

So we recommend just in terms of the first stage of preauthorization that is supplemented with a medical — a letter of metical necessity as well as an FDA approval just to once again minimize these upfront denials. So upon submission, we then fall off in terms of the payer decision every two days and keep everybody updated on the status. If the PA is denied, we go through the same process just in terms of the appeals process to exactly understand what documents need to be submitted to who, et cetera. So following reimbursement approval, then the InTune team schedules the shipments to the patient and does injection training sets up appropriate expectations in terms of what is to be like on drug. And once the patient initiates the therapy, there is very regular touch bases just to answer any questions to make sure that the patient is being titrated appropriately.