Rhythm Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Rhythm is a commercial-stage biopharmaceutical company focused on rare genetic obesity disorders. IMCIVREE (setmelanotide) was FDA-approved for chronic weight management in eligible patients aged six and older with POMC, PCSK1, or LEPR deficiency and became commercially available in the U.S. in March 2021.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net product revenue | $35,000 | $0 |
| Cost of sales | $4,000 | $0 |
| Research and development | $19.9 million | $22.5 million |
| Selling, general and administrative | $14.5 million | $12.8 million |
| Operating loss | $34.4 million | $35.3 million |
| Other income, net | $100.2 million | $1.1 million |
| Income tax provision | $22.0 million | None |
| Net income (loss) | $43.8 million | $(34.2) million |
| Cash used in operating activities | $33.5 million | $36.1 million |
| Cash, cash equivalents and short-term investments at March 31 | $404.8 million | $172.8 million at December 31, 2020 |
The company reported basic and diluted earnings per share of $0.92 and $0.90, respectively, versus a loss per share of $0.78 in Q1 2020. The 2021 profit was driven by the $100 million gain from selling its Rare Pediatric Disease Priority Review Voucher (PRV), not by product operations; operating activities remained cash-consuming. Revenue and gross margin are not yet meaningful measures of commercial performance given first-quarter sales of only $35,000.
Cash and short-term investments totaled $404.8 million at quarter-end. Current assets were $412.1 million and current liabilities $16.9 million. The company reported no material change in contractual obligations and no off-balance-sheet arrangements. The filing discloses lease liabilities but no borrowings or other financial debt. Management expects available cash resources to fund operations into at least the second half of 2023.
Material changes versus the prior comparable period
- IMCIVREE generated its first U.S. product sales in March 2021.
- Other income increased primarily because the PRV sale closed in February 2021. The related $22.0 million tax provision was primarily associated with that sale; management expected current-year tax losses to offset the sale income, with no current-year liability expected.
- R&D expense fell 12% to $19.9 million, mainly reflecting completed trials and lower drug-material purchases, partly offset by additional employees and ongoing studies. SG&A rose 13% to $14.5 million, including costs associated with the PRV sale.
- In February 2021, Rhythm raised $161.7 million net through a public offering of 5.75 million shares at $30 per share. Shares outstanding increased to 50.2 million at March 31 from 44.2 million at December 31, 2020.
- Cash and investments increased substantially from year-end, reflecting the equity offering and PRV proceeds; the company also made net purchases of short-term investments. Net cash, cash equivalents and restricted cash decreased by $13.7 million during the quarter.
Outlook, management commentary and risks
- Management expects operating losses and expenses to increase as the company expands clinical development, manufacturing, commercialization and global operations. It anticipates initial U.S. product sales will be limited by the ultra-rare nature of the approved conditions.
- Following positive topline Phase 3 results in BBS and Alström syndrome, management reported that the trial met its primary and key secondary endpoints, with all primary-endpoint responders among BBS patients. None of the three evaluable Alström patients met the primary endpoint. The company planned a fuller data presentation and BBS regulatory submissions to the FDA and EMA in the second half of 2021; next steps for Alström were to follow full data analysis.
- Management planned additional studies in 2021, including a potential pivotal Phase 3 trial in HET, SRC1 and SH2B1 obesity, a Phase 2 hypothalamic-obesity study, a pediatric study in ages two to six, a weekly-formulation trial, and an exploratory basket trial covering 31 additional genes. These plans are forward-looking and depend on regulatory discussions and development progress.
- The company expected European Commission approval and European commercial availability for the approved deficiency indications in the second half of 2021. This was an expectation, not an assurance of approval or launch.
- Key risks include failure to establish commercial uptake, coverage or reimbursement; uncertain patient numbers and genetic diagnosis; clinical, regulatory and safety setbacks; dependence on third-party manufacturers and clinical research organizations; and the possibility that financing may be needed sooner than expected or may not be available on acceptable terms. Equity financing could dilute shareholders.
- COVID-19 had not materially affected Q1 2021 financial results, but the company cited interruptions to BBS/Alström trial activities and potential future enrollment, supply-chain and operational disruptions. Management said it did not then anticipate a material overall impact, while noting uncertainty.
- No material legal proceedings were reported. Management concluded disclosure controls and procedures were effective as of March 31, 2021.
Important facts for investors to verify
- Whether IMCIVREE sales and patient access grow beyond the initial $35,000 of Q1 revenue, including payer coverage and reimbursement.
- Final BBS and Alström Phase 3 analyses, the planned BBS submissions, and regulatory outcomes in the U.S. and Europe.
- Progress, enrollment, safety and results in planned or ongoing studies, particularly the proposed pivotal trials and weekly formulation program.
- Cash burn relative to the stated runway into at least the second half of 2023, and the assumptions behind future funding needs.
- The PRV-related tax treatment and whether accumulated tax attributes can be used as management expects.