Rhythm Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results; amounts below are in U.S. dollars, converted from the filing’s thousands unless otherwise noted.
Business context
Rhythm is a commercial-stage biopharmaceutical company focused on rare genetic obesity disorders. Its lead product, IMCIVREE (setmelanotide), was commercially available in the U.S. from March 2021 for specified POMC, PCSK1 or LEPR deficiency-related obesity. The European Commission and Great Britain authorized it for specified POMC/PCSK1 and LEPR deficiency-related indications. The company remains reliant on development of setmelanotide and has not generated significant product revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net product revenue | $1.03m | — | $1.34m | — |
| Cost of sales | $0.22m | — | $0.36m | — |
| Research and development | $27.54m | $23.00m | $72.55m | $68.50m |
| Selling, general and administrative | $17.51m | $11.29m | $47.49m | $33.01m |
| Operating loss | $(44.24)m | $(34.28)m | $(119.07)m | $(101.50)m |
| Net loss | $(35.11)m | $(33.82)m | $(26.75)m | $(99.10)m |
| Basic and diluted loss per share | $(0.70) | $(0.77) | $(0.54) | $(2.25) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(105.53)m | $(92.86)m |
For the nine-month period, the $100.0m gain from selling a Rare Pediatric Disease Priority Review Voucher materially reduced reported net loss; it does not represent recurring product revenue. The company recorded a $7.99m income tax provision for the nine months, partly offset by a $9.00m tax benefit in Q3. Q3 product gross margin is not a meaningful indicator given the very small launch-stage revenue and the company’s disclosure that most pre-approval manufacturing costs had already been expensed as R&D.
At September 30, 2021, cash and cash equivalents were $92.37m and short-term investments were $235.98m, totaling $328.35m. Current assets were $335.64m and current liabilities $23.47m. Total liabilities were $33.56m, including lease liabilities and a $7.99m deferred tax liability; the filing reports no borrowings. Management expected existing cash and investments to fund operations into at least the second half of 2023, while anticipating continued operating losses and the potential need for additional financing.
Changes and notable items
- Product revenue began in March 2021; all reported product revenue through Q3 was generated in the U.S. Revenue was $1.03m in Q3 and $1.34m for the first nine months.
- Q3 R&D rose 20% year over year, primarily reflecting clinical trial activity and additional personnel. Nine-month R&D rose 6%.
- Q3 SG&A rose 55% year over year and nine-month SG&A rose 44%, reflecting commercial build-out, international expansion, increased personnel and professional fees, and marketing.
- Nine-month net loss narrowed to $26.75m from $99.10m, principally because of the $100.0m voucher-sale gain, partly offset by higher operating expenses and tax provision. Operating loss increased to $119.07m from $101.50m.
- Operating cash use increased to $105.53m from $92.86m for the comparable nine months. Financing provided $166.38m, mainly from a February 2021 public offering that generated $161.73m net proceeds. Shares outstanding increased to 50.27m from 44.24m at year-end 2020.
Outlook, risks and contingencies
- Management expected R&D and commercial, selling and administrative expenses to increase as trials advance and the company expands commercialization and global operations. It did not provide revenue or earnings guidance.
- The company submitted U.S. and European applications for IMCIVREE for Bardet-Biedl syndrome (BBS) and Alström syndrome. It anticipated a possible U.S. launch in mid-2022, subject to regulatory review; it requested Priority Review. These were expectations, not approvals.
- Planned development included the Phase 3 EMANATE trial, the Phase 2 DAYBREAK trial, and trials of weekly setmelanotide formulations. Timing and outcomes were subject to clinical, regulatory, enrollment and manufacturing uncertainty.
- Key risks include limited diagnosed patient populations and uncertain market access and reimbursement; clinical-trial and regulatory uncertainty; potential adverse effects; reliance on third-party manufacturers and CROs; intellectual-property and licensing risks; and COVID-19-related disruption. The company reported prior interruption of some BBS/Alström trial activities, although it did not expect a material COVID-19 impact at that time.
- The company reported no material legal proceedings, no material changes to contractual obligations, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Progress and regulatory decisions for the BBS/Alström applications, including the status of any requested Priority Review and the timing of any commercial launch.
- IMCIVREE uptake, net revenue, payer coverage and reimbursement, and the size of the diagnosed and treatable patient populations.
- Cash burn and whether the stated runway into at least the second half of 2023 remains achievable as trial and commercialization spending increases.
- Clinical-trial milestones, enrollment, safety and efficacy data, and the feasibility and regulatory path for weekly formulations.
- Manufacturing capacity, supply continuity, and the company’s ability to meet post-marketing and companion-diagnostic commitments.