Rhythm Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated financial statements; dollar amounts below are in millions unless stated otherwise. Rhythm is a commercial-stage biopharmaceutical company developing and commercializing IMCIVREE (setmelanotide) for rare genetic obesity disorders.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net product revenue | $1.50 | $0.04 |
| Cost of sales | $0.23 | $0.00 |
| Research and development | $32.51 | $19.91 |
| Selling, general and administrative | $21.45 | $14.52 |
| Operating loss | $(52.69) | $(34.40) |
| Net income (loss) | $(52.76) | $43.75 |
| Cash used in operating activities | $(53.63) | $(33.53) |
Gross profit was approximately $1.27 million, or 84.6% of revenue; cost of sales remained low in part because much of the manufacturing cost for inventory produced before FDA approval had been expensed as R&D in prior periods. The operating loss widened as R&D and SG&A rose 63% and 48%, respectively.
Q1 2021 net income included a non-recurring $100 million gain from selling a priority review voucher (PRV), partly offset by a $22.0 million income tax provision. Excluding this unusual prior-year item, the reported year-over-year swing to a net loss largely reflects the absence of the PRV gain and higher operating expenses.
At March 31, 2022, cash and cash equivalents were $78.54 million and short-term investments were $162.43 million, totaling $240.96 million, down from $294.86 million at December 31, 2021. There was no reported debt; lease liabilities totaled $2.41 million. Current assets were $253.45 million and current liabilities $47.27 million. Investing cash inflow of $72.52 million primarily reflected maturities of short-term investments, not operating cash generation. Financing cash inflow was $0.40 million, primarily ESPP proceeds.
Changes, outlook and material developments
- Product revenue increased from $35,000 to $1.50 million as IMCIVREE sales expanded from the U.S. launch; the first French sales took place in March 2022 through a paid early-access program. Substantially all revenue was still generated in the U.S., largely from one customer.
- R&D rose by $12.6 million, driven mainly by clinical-trial costs and clinical supply purchases. SG&A increased by $6.9 million, reflecting added personnel, commercialization and marketing costs, and support for international expansion.
- Management expects significant expenses and operating losses to continue and anticipates R&D and SG&A will increase as development and commercialization expand. It expects the existing $241.0 million of cash and short-term investments to fund operations into at least Q4 2023. Management said changes to EMANATE and DAYBREAK and streamlining planned trial sites are expected to produce meaningful cost savings. No specific revenue or earnings guidance was provided.
- The FDA had set a June 16, 2022 PDUFA goal date for the BBS/Alström syndrome supplemental application. The European review of a BBS application was ongoing, with a CHMP recommendation anticipated in Q3 2022. These were forward-looking milestones at filing.
- After quarter-end, Rhythm reported first enrollment in Phase 3 EMANATE and revised the trial to four sub-studies, removing the PCSK1 N221D sub-study following FDA feedback. DAYBREAK enrollment was narrowed initially to 10 prioritized genes, with planned enrollment of approximately 100–200 patients. The filing anticipated EMANATE enrollment of approximately 400 patients over 12–18 months.
- The RareStone China license included a $7.0 million upfront payment and RareStone shares valued preliminarily at $2.44 million. Because Rhythm had not yet transferred the relevant know-how, the $9.44 million was recorded as a contract liability. The agreement also provides for up to $62.5 million in milestones and tiered royalties.
- Key risks include continued losses and the possibility that additional financing may be needed; uncertainty in clinical results, patient identification and enrollment, regulatory review, reimbursement and commercial adoption; reliance on third-party manufacturers and CROs; and potential COVID-19-related clinical or supply disruptions. Management said COVID-19 had not materially affected Q1 results, but future effects remained uncertain.
Investor facts to verify
- Track IMCIVREE sales, geographic expansion, access and reimbursement, and the company’s reliance on a single U.S. customer.
- Monitor cash burn against the stated runway into at least Q4 2023, and assess whether operating plans or financing needs change.
- Confirm FDA and European regulatory decisions and subsequent clinical-trial enrollment, design and data updates.
- Evaluate whether planned trial and site changes deliver the projected cost savings while preserving development timelines and data quality.
- Follow the transfer of RareStone know-how, recognition of the contract liability, and the preliminary valuation of RareStone shares.