RYTM - Rhythm Pharma: An Incremental Approach Works Well For Setmelanotide

Summary

• Rhythm Pharmaceuticals is planning to get approvals for setmelanotide in an incremental fashion.
• Each new approval in a rare disease will add to the topline.
• Existing approved indications have shown a decent launch.

Rhythm Pharmaceuticals, Inc. ( RYTM ) is up 124% since my last, positive article in August. I like to say that because, a few months ago, it was rare for me to be able to say such things. Every stock used to be down. Not so anymore; biopharma is picking up, and if you were lucky enough, or gutsy enough, to have picked up a few stocks like those during those days of tamas (Sanskrit for darkness), you would be set for life.

So anyway, Rhythm Pharma has finally found its rhythm, and while there's been major news only in the form of a couple of label expansions in the EU and UK, the "real" news is that Imcivree sales have picked up every quarter. In the August quarter , "product net revenues relating to sales of Imcivree were $2.3M for the second quarter vs $0.3M, a year earlier." That helped the stock go up 20% just a day after my article. Two other bits of news that helped were:

• License revenue relating to the company's out-license arrangement with RareStone was $6.8M. There were no comparable transactions in the prior year.

• Rhythm also announced that it had completed enrollment in the Phase 3 trial testing setmelanotide therapy in pediatric patients with MC4R pathway deficiencies between the ages of 2 and 6 years old.

The licensing agreement between RareStone and Rhythm was signed in December last year, giving RareStone rights to develop and commercialize Imcivree in China to treat obesity due to biallelic POMC, PCSK1 and LEPR deficiencies and Bardet-Biedl and Alström syndromes.

"According to the terms of the licensing agreement , RareStone will make an upfront payment to Rhythm of $7 million and issue $5 million in equity to Rhythm. Rhythm will be eligible to receive development and commercialization milestones of up to $63.5 million, as well as tiered royalty payments on annual net sales of IMCIVREE."

Setmelanotide is the company's only asset. It has been approved by the FDA, first in November 2020 for obesity due to POMC, PCSK1 or LEPR Deficiency, and then again in June 2022 for Bardet-Biedl Syndrome. It is currently running through two phase 3 trials, one for pediatrics patients (age 2 to <6 years) with POMC or LEPR deficiency obesity or BBS, and the other, called EMANATE. This first trial has now been fully enrolled.

Please note :

The company noted that Imcivree is not indicated for the treatment of patients with obesity due to suspected POMC, PCSK1 or LEPR deficiency with POMC, PCSK1 or LEPR variants classified as benign or likely benign, or other types of obesity not related to POMC, PCSK1 or LEPR deficiency, or BBS, including obesity associated with other genetic syndromes and general obesity.

Previously, the company ran a combined trial in both BBS and Alström syndrome. However, the FDA did not approve setmelanotide in Alström syndrome, while approving in BBS, which was from the same trial. The company also pulled its application in Alström syndrome from Europe. In this regard, the company made the following announcement in February:

Withdrawal of Alström syndrome from Type II variation application to EMA for BBS

Rhythm recently decided to withdraw the proposed Alström syndrome indication from its pending Type II variation application to the European Medicines Agency (EMA) for setmelanotide for the treatment of obesity and control of hunger in adult and pediatric patients 6 years of age and older with BBS. Rhythm made this decision based on feedback from the EMA in order enable the review for BBS within the planned timeline. The Company continues to evaluate next steps relative to seeking marketing authorization for use in patients with Alström syndrome in the European Union.

The company does not seem to have this specific indiction in its pipeline any longer. I noted in my previous coverage how setmelanotide did better in phase 2 trials in BBS and AS compared to how it did in the phase 3 trial. In a complicated move, the trial used historical comparator despite having a placebo arm. BBS is a rare disease, with just 2500 patients in the UK and EU , and AS has even fewer patients, at just 1000. The FDA took a flexible view of the trial and approved setmelanotide.

The molecule now has a rare disease price tag of $300,000 per year. It is pursuing various other indications, which together have over 200,000 patients in the U.S. alone. Based on data from a phase 2, 16-week trial, the FDA granted breakthrough therapy designation to setmelanotide in Hypothalamic obesity. A breakthrough therapy designation allows for quicker review and more intense interactions with the FDA during the review process. A late-stage study in this indication is expected to start in early 2023. A weekly formulation of setmelanotide is also being developed, which may increase the patent protection for the molecule to 2038.

The company noted that there are 5000-10,000 patients in the hypothalamaic obesity indication. This is double the BBS population, but there are also other critical differences :

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.

One would thus hope that the company will see stronger success in this indication. The company recently posted data from the phase 2 trial, which showed:

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%.

The phase 3 trial will be a 60-week trial in 120 patients. This should read out sometime in late 2024.

Financials

RYTM has a market cap of $1.65bn and a cash reserve of $348mn, plus another $14mn more. The company raised $140mn in September through a public offering. They also received another $37.5mn from Healthcare Royalty Partners, with whom they have a royalty licensing deal. They may receive another $25mn in 2023, based on the completion of certain milestones. R&D expenses for the quarter were $21 million, COGS was $496,000, and G&A was $21.9mn. At that rate, and ignoring incoming revenue, the company has a long cash runway of 7-8 quarters.

RYTM had a strong BBS launch, with 50 patients being prescribed the medicine by August. Product net revenues from the sales of Imcivree were $2.3M for the second quarter vs $0.3M, a year earlier. About the BBS launch, here's what the company stated:

For further details see: