Rhythm Pharmaceuticals, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also presents unaudited fourth-quarter results. Rhythm is a clinical-stage biopharmaceutical company developing treatments for rare genetic obesity disorders; it reported no product revenue.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $109.5 million | $50.3 million |
| Selling, general and administrative expense | $36.6 million | $28.1 million |
| Total operating expenses | $146.0 million | $78.4 million |
| Operating loss | $146.0 million | $78.4 million |
| Net loss | $140.7 million | $74.1 million |
| Basic and diluted net loss per share | $3.86 | $2.39 |
| Net cash used in operating activities | $122.8 million | $62.1 million |
Operating expenses rose 86% year over year, while net loss increased 90%. R&D expense more than doubled, mainly from setmelanotide trials, genetic sequencing and translational research, and increased staffing and manufacturing activity. SG&A increased 30%, principally from employee and infrastructure costs. No meaningful revenue-based margin is available because the company had no sales.
| Balance-sheet and liquidity metric | December 31, 2019 | December 31, 2018 |
|---|---|---|
| Cash and cash equivalents | $62.3 million | $49.5 million |
| Short-term investments | $230.2 million | $202.5 million |
| Working capital | $278.0 million | $245.1 million |
| Total assets | $308.5 million | $260.2 million |
| Total liabilities | $27.5 million | $14.0 million |
| Stockholders’ equity | $281.0 million | $246.3 million |
Cash, cash equivalents and short-term investments totaled $292.5 million. The filing reports no borrowings; liabilities include operating lease obligations. Financing activities provided $163.5 million in 2019, including $161.4 million net proceeds from an October stock offering. Management said available cash and investments were expected to fund operating expenses through at least the end of 2021, while noting that additional capital may be needed.
Fourth quarter (unaudited): Revenue was $0; operating expenses were $34.2 million; net loss was $33.0 million, or $0.78 per share. In Q4 2018, operating expenses were $27.2 million and net loss was $25.5 million, or $0.74 per share.
Business developments and outlook
- Setmelanotide: The lead candidate is a once-daily subcutaneous MC4R agonist for rare genetic obesity. In August 2019, the company reported positive topline Phase 3 results in POMC- and LEPR-deficiency obesity. In the POMC trial, 8 of 10 patients achieved at least 10% weight loss; mean body-weight reduction was 25.4%. In the LEPR trial, 5 of 11 achieved at least 10% weight loss; mean reduction was 12.5%. Hunger scores also improved. These are topline findings and may change after full data review.
- The company planned to submit NDAs for POMC- and LEPR-deficiency obesity in the first quarter of 2020. Setmelanotide had FDA Breakthrough Therapy designation for POMC deficiency, LEPR deficiency, Bardet-Biedl syndrome (BBS) and Alström syndrome; it also had EU PRIME designation.
- The pivotal BBS/Alström Phase 3 cohort completed enrollment in December 2019, with 32 BBS and 6 Alström participants. Topline data were expected in Q4 2020 or early Q1 2021.
- The Phase 2 basket study is investigating additional genetic obesity subgroups. The company reported sequencing more than 25,000 severely obese individuals across its programs; estimates of eligible populations remain uncertain and depend on genetic diagnosis and variant definitions.
- RM-853: This oral GOAT inhibitor for Prader-Willi syndrome remained preclinical. The company expected to file an IND in 2020.
Risks, contingencies and notable items
- The company has no approved products or product-sales revenue and has incurred substantial losses. Continued development, regulatory review and commercialization will require significant spending and potentially additional financing.
- FDA or European regulators could disagree with trial results, endpoints, patient definitions or diagnostic plans, require further studies, or delay or deny approval. A companion diagnostic may be required. The filing emphasizes that reported Phase 3 results are preliminary topline data.
- Safety monitoring remains important. Reported effects included skin darkening or changes to moles, injection-site reactions, nausea and vomiting; longer-term safety is based on limited patient exposure. One LEPR-trial participant died in a motor vehicle accident, which the company said was unrelated to treatment.
- Commercial prospects depend on identifying rare patients, obtaining coverage and reimbursement, establishing commercial capabilities, and scaling third-party manufacturing. The filing also notes competition, intellectual-property, regulatory-compliance and data-privacy risks.
- CEO Keith Gottesdiener announced plans to step down in 2020 following the planned NDA filing or other specified events; the company was searching for a successor. The separation arrangement was expected to result in a $3.0 million incremental compensation charge in Q1 2020.
- The company reported no material legal proceedings. Its independent auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Important facts for investors to verify
- Whether the planned NDAs were submitted and accepted, and what regulators ultimately decided on approval, labeling, pediatric use and diagnostic requirements.
- Final, fully reviewed Phase 3 data, including durability, safety and outcomes across trial participants; assess the small sample sizes and open-label elements.
- Actual cash burn and runway against management’s end-2021 estimate, including subsequent financing, commercialization costs and milestone obligations.
- Whether BBS/Alström trial results supported the company’s development and regulatory plans, and whether additional basket-study indications show reproducible benefit.
- Whether patient-population estimates translate into diagnosed, eligible and reimbursed patients, and whether manufacturing and commercial infrastructure are ready if approval is granted.