Rhythm Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unless otherwise noted, financial amounts below are in millions of dollars. Rhythm is a clinical-stage biopharmaceutical company developing treatments for rare genetic disorders; it had no product revenue.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $26.6 | $10.7 | $84.6 | $31.6 |
| Selling, general and administrative expense | $10.5 | $8.5 | $27.1 | $19.7 |
| Total operating expenses | $37.1 | $19.2 | $111.8 | $51.3 |
| Net loss | $(36.0) | $(17.7) | $(107.8) | $(48.6) |
| Net loss per share, basic and diluted | $(1.04) | $(0.52) | $(3.13) | $(1.63) |
| Net cash used in operating activities | Not provided quarterly | $(90.5) | $(41.1) |
Margins are not meaningful because the company reported no revenue. At September 30, 2019, cash and cash equivalents were $71.7 million and short-term investments were $90.8 million, or $162.4 million combined. Current assets were $170.9 million; current liabilities were $25.2 million; total assets were $177.5 million and total liabilities were $28.4 million. The filing reports no borrowings or other debt; lease liabilities totaled $3.7 million. Accumulated deficit was $292.4 million.
For the first nine months, investing activities provided $111.2 million, primarily from net maturities of short-term investments; financing activities provided $1.5 million, principally from employee stock purchases and option exercises. Cash, cash equivalents and restricted cash ended the period at $72.1 million.
Material changes versus prior periods
- Q3 operating expenses rose 93% year over year and net loss increased 104%. Nine-month operating expenses rose 118% and net loss increased 122%.
- R&D drove most of the increase, reflecting expanded setmelanotide clinical trials, genetic sequencing and translational research, added personnel, and manufacturing and preclinical work. SG&A also increased with hiring and commercial-readiness activities.
- Cash and short-term investments declined from $252.1 million at December 31, 2018 to $162.4 million at September 30, 2019. A $161.3 million net-proceeds public offering closed after quarter-end.
Outlook, management commentary and risks
- Management expects existing resources plus the October 2019 offering proceeds to fund the operating plan through at least the end of 2021. The October 18 offering sold 9,324,324 shares at $18.50 per share, generating approximately $172.5 million gross and $161.3 million net. The quarter-end financial statements exclude the offering.
- Management reported positive topline Phase 3 results for setmelanotide in POMC- and LEPR-deficiency obesity, but cautioned that topline findings are preliminary and may change following full review. The company planned to complete an NDA submission for these indications in Q4 2019 or Q1 2020.
- The combined Phase 3 trial in Bardet-Biedl and Alström syndromes was ongoing; management expected enrollment to finish by year-end 2019 and topline results in 2020. The expanded Phase 2 basket study covers additional genetic obesity indications. An IND for preclinical candidate RM-853 was expected in 2020.
- Management expects continued significant operating losses and rising R&D and commercialization-preparation costs. Further financing may be required; availability and terms are uncertain and additional equity could dilute shareholders.
- Key risks include clinical and regulatory uncertainty, reliance on preliminary trial data, patient identification and enrollment, potential safety findings, manufacturing and third-party dependencies, uncertain market size and reimbursement, and the possibility that setmelanotide does not receive approval or achieve commercial acceptance.
- Unusual/reporting item: the company adopted lease accounting standard ASC 842 in 2019 and recognized right-of-use assets and lease liabilities. Management concluded disclosure controls were effective at a reasonable assurance level. The filing reports no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Full Phase 3 data, regulatory acceptance and review timing for the planned POMC/LEPR NDA.
- Enrollment completion and 2020 topline timing for the Bardet-Biedl/Alström Phase 3 trial, and progress in the expanded basket study.
- Actual cash burn, trial and commercialization spending, and whether the stated runway through at least end-2021 remains achievable.
- October 2019 offering proceeds, resulting dilution, and shares outstanding after the offering; the filing reports 43,926,406 shares outstanding as of October 31, 2019.
- Potential regulatory requirements, including companion diagnostics and preclinical safety studies, and their effect on approval timing and addressable patient populations.