Rhythm Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Rhythm is a late-stage biopharmaceutical company developing treatments for rare genetic obesity disorders. It had no product revenue and reported no debt.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $23.0 million | $35.3 million | $45.5 million | $58.1 million |
| Selling, general and administrative expense | $8.9 million | $8.8 million | $21.7 million | $16.6 million |
| Operating loss | $31.9 million | $44.1 million | $67.2 million | $74.7 million |
| Net loss | $31.1 million | $42.8 million | $65.3 million | $71.8 million |
| Basic and diluted loss per share | $0.71 | $1.24 | $1.48 | $2.08 |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $65.8 million | $56.9 million |
- At June 30, 2020, cash and cash equivalents were $59.1 million and short-term investments were $169.5 million, totaling $228.6 million; restricted cash was an additional $0.4 million. Total current assets were $237.8 million and current liabilities were $14.9 million.
- Total liabilities were $17.7 million, primarily lease liabilities; the company reported no borrowings. Operating lease liabilities totaled $3.3 million.
- Six-month investing cash inflow of $61.7 million principally reflected net maturities of short-term investments. Financing cash inflow was $0.9 million. Cash, cash equivalents and restricted cash declined $3.2 million.
- Margins are not meaningful because the company had no revenue. Accumulated deficit was $390.6 million.
Changes versus comparable periods
- Q2 net loss narrowed by $11.7 million year over year, mainly as R&D expense fell $12.3 million. Management attributed the R&D decrease principally to lower GO-ID study, genetic sequencing and setmelanotide API costs; increases included an Ipsen NDA-filing milestone and Basket Study activity.
- First-half net loss narrowed by $6.5 million, as R&D expense fell $12.6 million, partly offset by a $5.1 million increase in SG&A. SG&A included a $3.5 million charge related to the former CEO’s separation and equity-award modification, as well as increased commercialization preparation and professional services.
- Cash and short-term investments fell from $292.5 million at December 31, 2019 to $228.6 million at June 30, 2020. Operating cash use increased year over year, partly reflecting payment timing and lower accounts payable and accruals.
Outlook, developments and risks
- Management expected existing cash and short-term investments to fund operations through at least the end of 2021. It also expects continuing losses and substantial spending on trials, manufacturing, regulatory work and potential commercialization; additional financing may be required, with no assurance it will be available on acceptable terms.
- Setmelanotide’s U.S. NDA for POMC and LEPR deficiency obesity was accepted for filing and granted Priority Review; the FDA goal date was November 27, 2020. The company submitted an EU marketing authorization application in June, validated in July 2020.
- The pivotal Phase 3 BBS and Alström syndrome trial had completed enrollment in December 2019; topline results were expected at the end of 2020 or early Q1 2021. Additional Basket Study data were expected during 2020. These are company expectations, not assurances.
- COVID-19 had not, as of the filing, caused a material expected impact or altered disclosed trial timelines, but the company warned that pandemic-related enrollment, site, supply, regulatory and funding disruptions could cause delays or costs.
- On July 20, 2020, David P. Meeker was appointed President and CEO following Keith Gottesdiener’s departure. On July 15, the company amended its manufacturing agreement with Corden, revising setmelanotide milestone payments and ending certain employee-funding obligations.
- Key risks include regulatory review and approval uncertainty, clinical-trial results and enrollment, rare-patient population estimates, companion diagnostic requirements, manufacturing and supply continuity, product safety, future capital availability, reimbursement and commercialization execution. Setmelanotide remained unapproved and the company had not demonstrated commercial-scale launch capability.
- The company expected to cease qualifying as an emerging growth company and smaller reporting company on December 31, 2020, bringing additional reporting and auditor-attestation requirements. Management concluded disclosure controls were effective as of June 30, 2020; no material control changes were reported.
Important facts for investors to verify
- FDA review progress and outcome for the POMC/LEPR NDA, including any additional information, labeling or diagnostic requirements.
- Timing and results of the BBS/Alström Phase 3 trial and further Basket Study disclosures.
- Actual cash burn, investment balances and financing needs relative to the stated runway through at least year-end 2021.
- COVID-19 effects on enrollment, trial execution and manufacturing; and progress in validating setmelanotide supply.
- Whether the planned regulatory milestones and potential commercial preparations remain achievable, given ongoing losses and the absence of product revenue.