Welcome once again to TD Cowen's 44th Annual Healthcare Conference. I'm Phil, one of the biotech analysts here at Cowen, and it's my pleasure to moderate a fireside chat with Rhythm Pharmaceuticals. We have David Meeker, Chairman, President, and CEO with us here this afternoon. David, maybe I'll hand it to you first to give a brief statement of the company review, your Rhythm's, your biggest strengths, its challenges, and how can Rhythm create short-term value for the industry.
Yeah, thanks, Phil. So Rhythm, as many know, we are a company focused on the melanocortin-4 pathway, which is a pathway that's central, governs our energy expenditure and our hunger, tells us that we're full. And so the consequence of having an impaired pathway is these patients present with early-onset obesity, and what's hyperphagia, which is we've worked hard to try to help people understand that that "hyperphagia" aspect is hunger, but it's not the hunger you and I experience when we miss lunch, for example. This is a total preoccupation with food. So the drug, setmelanotide that in IMCIVREE, which is now approved for four different genetic indications, is essentially a replacement hormone. If your pathway's impaired, you have a deficiency, a deficit in the endogenous hormone, alpha-melanocyte-stimulating hormone.
And by delivering this, in IMCIVREE or setmelanotide, which is a precision medication, that hormone, it interacts precisely with the MC4R receptor. We restore that deficit and, in a sense, restore a more normal physiologic state, i.e., hopefully your hunger is more normal, your relationship with food is more normal, and the like. So four genetic indications approved. We're commercial and we have a global approach, so we're selling in 14 different countries. The first three genetic indications were very much proof of concept, extremely small. Bardet-Biedl syndrome is a larger opportunity. It's a solid, very meaningful 5,000 patients in the U.S., and we're working and making good progress there. And then what I think has a lot of people excited about Rhythm is that, a little bit unexpectedly, another way you impair this pathway is through damage.
and that damage in the setting of a tumor, often a pediatric tumor, which grows between the pituitary and the hypothalamus. The net result, you in about 50% of those cases, either the tumor and/or the surgery injures the hypothalamus in a way where you also get impaired signaling through here and, setmelanotide in our phase II study had a pretty dramatic response. So, our strategy for building Rhythm and going forward is we're going to have 2024 is a big year for execution, both commercially as we continue to expand, executing on the phase III trials for hypothalamic obesity. And on beyond that is, working our way through, other, you know, these signaling cascades, other genes, in the pathway when, they're impaired. The end result also is perhaps a deficit in the melanocyte-stimulating hormone where setmelanotide would be of use.
So, I think we've got a lot to do with a platform and a product, kind of approach and some near-term readouts that are going to meaningfully move Rhythm's value.
So maybe starting with the launch in BBS, can you give us an update on where you are and where you think it's going to go? And in particular, I think you've disclosed about 645 scripts have been written since the approval about 18 months ago in BBS, 400 have been reimbursed. Is that a fair trajectory for the next 18 months? How do you think the near future is going to play out?
Yeah, sure. So one of the striking things, again, about BBS, at least for me, you know, it was defined by the weight gain, but again, it's a very specific, you know, weight gain, early-onset obesity with this hunger, hyperphagia component. How would that be received? And we're it's a rare disease, that five ultra-rare, a 5,000 prevalent population here in the United States. And remarkably, I think 18 months in, we've done incredibly well with the, on the reimbursement side, for example, we have about 85% coverage on Medicaid lives. We're, covered through all the commercial plans with the exception of, some small commercial plans, self-insured plans that don't usually cover any, of the rare disease drugs. So, we've done remarkably well helping people understand that this is a rare disease. And the corollary of that is, as a rare disease, rare diseases do not inflect.
It's really a steady as you go. And by that, I mean that you, every quarter you have to do the work, identifying patients, pulling them through. It's not that you, you know, reach a point of conviction and suddenly you spike, and have a hockey stick kind of pattern there. So it's just steady as you go. Your question was, can you expect the same general pattern going forward? Yeah, the same general pattern, slow and steady. We get the same question in Europe. Now Europe, as you bring on a new country, you know, bringing on a country may cause things to, to bump a little bit. But for the most part, you know, each country, same overall process and, and paradigm in a sense, steady as you go. So that's what we're trying to get people to focus is on the longer-term opportunity.
That's, again, rare diseases. You don't rapidly grow necessarily, but you have them for a long time and you build a base.
Maybe turning to that longer-term opportunity, what is your most recent estimates for the prevalence of BBS in the U.S. and Europe? And ultimately, what type of peak penetration is possible?
So what we've, you know, quoted as the 4,000-5,000, I think that's a, you know, rare disease epidemiology in general is difficult just because the number, you know, the data that supports it is not always very good. Often you, unless you're hyping it overly, your, your initial estimates are underestimates, not overestimates. So, but I think that 4,000-5,000 is pretty robust. And it's robust because it's informed by a fair amount of genetic screening data that we do. You don't always have that. So that gives us a pretty good sense for what the background genetics are in the space. It's informed by Europe, which is always, almost always, further ahead than the U.S. in terms of rare disease.
So if you look at the number of identified patients in a European country, that may give you a pretty good sense, assuming that it's, the disease is equally prevalent, U.S. and Europe. So long story short is that 4,000-5,000, I think, is pretty rough, pretty robust. Similar numbers in Europe, you top five, as a starting point. Not the genetic BBS, not in Japan, for example. So we did some early work there and, neither the genetic and none of the genetic opportunities are at all prevalent there. So we did not look further there. We got excited about the HO opportunity we can talk about. So we will be going into Japan, but it was not being driven by the genetics.
Looking at the very short term, on your most recent earnings call, you announced a, I think, about $2 million hit to revenue because of what happened with Medicaid in one state. We got a number of questions on that after earnings. For those less familiar, can you walk through what happened last quarter and what the implications are for the next few quarters?
Yeah. So, this was one state. We're not calling out the state just because we have a very good relationship. This state was trying to do the right thing. They had an early policy in place. They were covering these patients. And the number of scripts that got written in that state was disproportionate to what they expected. We essentially blew through their budget that they had outlined for that. They did some additional work. And the way they were managing that was they took their policy and they tightened it up a bit, requiring increased documentation to make the diagnosis of BBS. So they're on some of the more "conservative" or stricter definitions to get to that diagnosis and documentation required. That, the net effect of that was the 30 patients came off and they came off right at the beginning of the quarter.
So that was a full quarter hit on the revenue. The reason we're quite confident this is unique to that state is that, both from a demographic standpoint, there's an epidemiology within that state that would strongly suggest we have a founder effect going on. So there's a higher prevalence than you would expect elsewhere. And secondly, we had some physicians who were very motivated and eager to engage here. And so they were writing scripts at a rate that, again, was quicker than that Medicaid plan was expecting. So that's why I think it's unique to the state. We've looked at every other state and asked the question, if you take what is the expected prevalence for that state and the actual numbers being treated in their Medicaid plan in every other state, there's a big gap between the number treated and the expected prevalence.
So we're not putting that kind of pressure on any other Medicaid state plan. So again, there's no, we're, we've been out in the market long enough that I don't think there's any other pockets where, you know, there's suddenly a state's going to be confronted by this founder effect, kind of unexpected higher prevalent population, that, you know, does exist in this one particular state.
Turning to hypothalamic obesity, where I think there's a lot of excitement among investors. First, maybe for those less familiar, could you discuss the data that were presented last October, the long-term follow-up data from the phase II?
Yeah. So the phase II data was, it was an open-label trial. I told the story famously when I started as CEO in 2020 and looking to save money. I thought, you know, we could cut that trial because, I didn't think it was going to work. Fortunately, and it enrolled slowly, initially, but then there got to be a little bit of a buzz and it enrolled very quickly. So of those 18 patients, everybody who took the drugs, we had one patient who was noncompliant. Every patient except one lost 10% or more or was on track to lose 10% more in 16 weeks. So we knew right then at the 16-week mark that we had an unusual response, both in terms of the magnitude was good, but what's really remarkable was the consistency.
And then of that 18, 14 patients went into the long-term extension and we had data on 12, which we reported out on last October. And those 12 patients, their weight loss at 12 months was 25%. So it's, it's steep. Again, what we've really tried to so that's a, that's a good number. I mean, and what we've tried not to get caught up in the numbers game. I mean, this is not a, you know, a GLP-1 paradigm, right, where, you know, each GLP-1 comes out and it's an arms race to the percentage decrease. This is really, I think what the biology has taught us in HO is there's and they it wasn't understood before. It's part of the reason I didn't think it was going to work. The fact that they respond so consistently to this drug tells and this drug only works in one way.
It only interacts with the MC4 receptor. It tells us that the melanocortin-4 pathway is central to the biology of HO. So that piece, I think is what's most remarkable about the data. And our worst responder, if you will, the one patient that didn't reach 10% at six weeks, that patient, they lost, I think, about 4% at 16 weeks and that they were like 8.9% or something at 12 months. When you looked at their DEXA scan, both in terms of their lean body mass and their fat mass, their fat mass was down like 23%. Their lean mass was up like 15%. So the net effect was their BMI was not decreasing as much, but it was because they were gaining lean mass, which is exactly what you want. Now, not every patient gains lean body mass.
We don't have a magic drug in that sense. But we have a drug that in general, I think, puts you in the ability of more normal situation where you can gain lean body mass and lose fat mass. And, you know, as we know in the GLP world, if you in the GLP world, if you're developing an aversion to food, you're really just shutting down your calories completely, you're going to lose both, which is, I think, part of what the challenges in some cases the GLPs are working with is how, particularly in older individuals, how do you manage that, that problem?
An issue that consistently comes up mentioning the GLPs is whether they're going to be used in hypothalamic obesity and whether that's going to take away your opportunity. Sounds like you're saying no, but maybe go into that in a bit more detail.
Yeah. No, I mean, and again, let's be clear. I mean, the GLPs are amazing drugs and they've just opened up, you know, the management of obesity and the comorbidities in a way that we've never seen before. So, and I think what we're seeing, and I would just, my opinion is virtually everybody put on a GLP may lose some weight. And we all gain weight for different reasons and we may gain weight for more than one reason. And there may be a part of your equation, which is very responsive to the GLP. But if you have hypothalamic obesity and you have this deficit in the pathway, if you don't address the fundamental root cause, you're not going to get sustainable benefit.
So what I think the observations which support the belief that, no, the GLPs are not the answer to this is early generation GLPs have been around forever. They have not worked in more formalized studies. They have not, they're widely available. Was there no shortage of liraglutide, for example? They were not used; they were tried, but they were not universally effective. And if they had been, they would have been used. As Hunter Smith, our CFO, likes to point out, if the GLPs were the answer, even the current generation of GLPs were the answer, there's no way in this relatively desperate disease that physicians and parents would be putting their kids in a trial where they had a one in three chance of being on a placebo for 60 weeks if they knew they could go on a GLP.
And it's not like these investigators, the 25 sites around the world that we're using for this trial don't know about GLPs. So again, it's just there'll be case reports, as Phil and I were talking before. It'll never go. The question will never go away. The fact that there will be some response is in fact true. But I think what we're increasingly understanding and why I do think that we are quite differentiated in terms of the approach and solution to HO is that they will not get the consistency, the durability, or maybe over the overall magnitude. And they also these patients are super classic. And Dr. Miller, who spoke at our R&D day, as she described her experience, and she's got, you know, quite a bit relative to most people at this point in time, these patients are incredibly complicated.
They'll have like a page of medications. So they're on multiple pituitary hormone replacements often. They may be on seizure meds. They may be on antidepressant meds. They may be on a stimulant, you know, because their activity levels are low. When you're taking a ton of medications, nausea is not uncommon. You put on top a drug that has very significant nausea and vomiting as part of its side effect profile. So she finds it very difficult to use GLPs in this population. And even when you use them, the amount of weight loss you get, and she does see weight loss in some of the patients, that by a year, they've regained again. And the case reports that you see coming out that "say this looks interesting or promising" tend to be shorter term.
So again, long story saying, there's a lot more to be learned about GLPs, but I don't think they're going to be the, you know, just take care of the problem kind of solution here.
You've referred to something along the line moving into the pivotal study in HO. For those less familiar, can you review the design of the trial and particularly its primary endpoint?
Yeah. So it's a 120-patient trial. So we're famously 99% powered to show a 10% difference. The negotiation on 120 patients with regulators was wanting to have a safety database, which was met their needs. So we agreed on 120, two to one randomization. So 80 were treated, 40 on placebo for 60 weeks, which is an eight-week titration period with 52 weeks at the dose with the BMI, percent BMI decrease, as the primary endpoint. And the key secondaries, of course, will be related to hunger, other measurements of BMI. And particularly for pediatrics, you know, we most trials run adults only. Then they maybe run teenagers, adolescents only, and then they'll do, you know, children under 12 or whatever, only. In a rare disease, you often end up having to mix all of those patient groups and you have to find an endpoint which cuts across them.
So BMI cuts across them. It counts for the fact that their height is growing, but it's not a perfect, perfect measurement for kids, which is why the more sophisticated measures of BMI Z scores or percent of the 95th percentile, those are a way of trying to accommodate for that, both for the growth, but also for their age-appropriate, you know, where are they relative to where they should be for that height, that weight, and that age and sex.
You announced last month the addition of a Japanese cohort. What is the rationale for including this cohort and what's Rhythm's interest in the Japanese market?
Yeah. As I said in the intro, we, you know, we looked at Japan for the genetic. I mean, it's obviously a very important market in general, pharmaceutical market, was not there for the genetics. But for HO, the work we did and the work, again, relatively straightforward for the epidemiology for HO because you can look at the tumor registry. So you look at pediatric tumors, the craniopharyngioma specifically, those numbers are quite strong. Those are robust numbers. And so there's a pediatric neurosurgery registry in Japan, which we use. We did some claims database work ourselves, and they all supported the number for the number of craniopharyngioma tumors annual. And we used the same calculation that about 50% of that group that has the tumor and/or goes to surgery, will develop HO.
That got us to the 5,000-8,000 calculation, a well-organized market, about 100 centers that do neurosurgery, you know, this kind of surgery. Patients are cared for at that surgery. So, that's the same number of patients in the U.S. with a population that's a little more than half. So again, obviously very excited. Again, sophisticated healthcare system, you know, probably expect to get pricing that's, you know, reasonable. We've guided people to think Europe, you know, in Europe, we've given pretty broad ranges. But the point is it won't be U.S. pricing, but it won't, you know, be bad pricing.
So, you know, the other thing is, when it's just part of our strategy and we've believed this from the beginning and historically I'm a big proponent of this in rare diseases, again, by definition, you often can approach those country by country with relatively small teams. The key is just having the right people on the ground. And if you have the right people on the ground, you can do it very successfully, very efficiently. And the value of partnering, it's rare that a larger partner necessarily gets you a better outcome. So we will be looking seriously at going direct.
What do the Japanese regulators need to see to support approval?
Yeah. I think, again, as you know, I'm a little later in my career. I've been in many regulatory discussions. It was, we've benefited from a couple of things. So one was, the Japanese environment right now, regulatory environment, I think they are working hard to become a little more user-friendly with the goal of increasing the speed with which, Japanese patients can access innovative medicine. So that's just the backdrop. And I think we encountered that. And then secondly, they understood the unmet medical need. We had a leading KOL there, at the meeting, helped them understand it. And so they were just highly motivated to, try to make sure that they could be part of the phase III because that was by far the quickest route. What do they need with 12 patients?
We're not powered to statistically show something necessarily, but they'll need to see consistency in the results in the Japanese patients to what we see in the rest of the population. Don't ask me to define consistency. It'll be in the eye of the beholder, but that's the key. We'll get pharmacokinetic data. We'll obviously get careful safety data and the like. So, yeah, it was an unusual experience just in terms of the collaborative, constructive nature of those discussions.
Moving to the pipeline in genotypes that are further back in development. In December, you unveiled RM-718. Can you provide a brief description of that program? Where is it in development and how could it be differentiated from setmelanotide?
Yeah. So RM-718 is a next-generation weekly formulation. We developed it based on what we knew out of setmelanotide. So setmelanotide's an 8-amino acid cyclic peptide. RM-718's a 7-amino acid cyclic peptide. Through multiple preclinical experiments, it's preserving the activity in terms of weight loss. And we've eliminated, at least in those animal models, which are pretty good, in terms of predicting the risk of a cardiovascular signal. So what we'll do now is we're going into a very classic phase I, normal volunteer with obesity populations, single and multiple ascending doses. And then for both the small molecule, which we'll talk about in a minute, but and RM-718, we're going to follow exactly the same developmental paradigm.
And the gift now of one of the many gifts of HO is that because it's such a sensitive model, we will know if it doesn't work in HO, we're done. I mean, it will tell us, "A, do you have a drug?" And then hopefully, these are relatively small trials, hopefully it gives us a good sense of what the dose range is. And so if it gives us a good sense of what the dose range is, then we will be able to, you know, move quickly into a phase III, maybe phase II-III kind of thing. We might have more than one dose. But the point is that we're looking for to be a very meaningful stepping stone.
Once we have the HO confirmation, then in parallel, we'll start to explore or figure out what's the best route for BBS and the POMC and leptin receptor group. So our goal is to get the next generations approved for all of our current indications. And then ideally, with both of the weekly and the small molecule being a fundamentally better drug, then you know you would look whether you would keep a drug like, you know, IMCIVREE on the market if it's truly inferior. So all of that's to be decided. And, you know, but we're going to, you know, set ourselves up to be able to answer that question.
Last question on 718 before moving into the small molecule. In terms of IP, how long could it last?
Yeah. So this is, I think, really critical to the overall value of Rhythm. We had setmelanotide, you know, composition of matter out to 2032. Both the RM-718 weekly and then the oral small molecule, daily small molecule we acquired from LG Chem take us to 2040 + for both of those. So we very much extended the runway over which we had to develop this overall opportunity and all of its different formulations.
You referenced the oral small molecule. Could you give a brief overview of that compound, specifically its mechanism and what makes it attractive?
Yeah. So the small molecule, historically challenging to drug, in the sense that, you know, pharma has tried to drug it for many years. So I think we were a bit skeptical. But LG Chem, to their credit, and a very robust preclinical program, you know, have a very clear MC4 agonist. I think they've very documented that they don't get the hyperpigmentation preclinically. They didn't see it in their phase I. They don't have any evidence of cardiovascular signal preclinically or in their phase I. And, you know, again, in the phase I study, they had a very clear biologic signal, which is what you would expect, modest at one month, but very clear. So I think, you know, we'll see what the next trial brings.
But I'm pretty optimistic that they've cracked the code and they may, you know, have a small molecule that'll work.
With three compounds in development, how do you prioritize investment? How does the portfolio fit together?
So we have multiple approaches, but we remain completely focused on melanocortin-4 pathway, and extracting all the value that we can out of that pathway. It's, I think, as the beauty of, you know, when you start out, it looks maybe a little more limited. You don't know much. But, you know, the deeper in you get, the GLPs help, of course. You know, there's just an explosion of understanding of, you know, the biology around our metabolism and, you know, obesity and hunger and the like. And so, we'll continue to work that, with the best tools available, the only company that will have multiple options in terms of, addressing with high specificity, this MC4R pathway. So that's, strategy number one.
Beyond that, you know, we'll remain interested in other sort of, you know, as we develop the, quote-unquote, next indications, you look at that pathway and the signaling cascade. So all the different genes that, you know, are driving the protein production that are part of that signaling cascade are candidates. I mean, if you have impairment in one of those other, you know, in any of those genes in the pathway, and this was the phase II data we put out, they become potential, you know, indications, options for, you know, MC4R agonism. And, you know, we'll look at those and have a pretty high bar for how we go forward. And then we haven't talked a lot about it yet, because we're not ready to talk about it.
But the very small deal we did around congenital hyperinsulinism is just an indication of it. It was an opportunistic deal. It fits perfectly. I mean, it's highly complementary for many different reasons in terms of biology, our call points, where we are, and we'll be open to those kind of things, but we're not going to be distracted by trying to find something that's not core to what we're doing.
On additional indications beyond HO, the next group of indications are those being studied in the EMANATE phase III trial. For those less familiar, can you review that design and give us an update on the timelines?
Yeah. So again, we did the phase II trial early on in, earlier on in, Rhythm's history, and we got some very positive data for the four genes that are part of EMANATE. So EMANATE's our phase III trial, with these four genes. So the heterozygote form of the POMC and leptin receptor where we're approved for the homozygous indication and then two other genes, which are part of this signaling cascade. So that was designed as an umbrella trial with four individual arms, all individually powered. So the same study, individually powered. And when anyone is enrolled and reads out, we can file on that and the other three could continue. So they will function as independent and they will be filed as independent, number one. It's been challenging and, you know, a number of self-inflicted wounds there in terms of getting that going.
But we're now up and running and I think, you know, enrolling pretty successfully. What's clear is, not surprisingly, they're different, one of the arms of that are enrolling, you know, more easily, others less so. So our goal is to be, you know, fully enrolled or at least with two out of the four, maybe three out of the four by the end of the year. One of them is very slow to enroll. And so it's not clear to me that we'll actually finish that. But it's working. So we're increasingly optimistic about what that may yield as we go forward.
Beyond EMANATE is DAYBREAK. There was some initial data late last year. You've gotten to another look at DAYBREAK later this year. Can you remind people of what's been released and, and what will we see during the second half of 2024?
Yeah. DAYBREAK, our phase II. So this was an ambitious trial. Like, in hindsight, I think it's amazing. We got some good information out of it. So we start out saying, "Look, there's about 30 genes that we think may be relevant to this pathway beyond what we've already studied." And so we took a massive basket approach to that to say, "Look, let's just look at them. We'll recruit who we can." Some of those genes, we've had trouble bringing co-enrolling any patients. So we called it, you know, about halfway through and got it down to about, you know, I don't know, 10 or 12 genes totally and ultimately ended up with five or six genes, which, you know, had something that looked pretty interesting. The response rates in that group on average were sort of 30% plus or minus.
Now, at one level, you might go, "That's not like a hugely highly, you know, responsive group." But in a relatively short period of time, one, this was the open-label results. And within that 30%, there were patients who responded really well. And then, of course, others that didn't. So now the challenge is, can you dive in further into that gene set and figure out if you have a variant in one of those genes, is that variant actually a loss of function? Is it a pathogenic variant occurring loss of function? Because the problem with most of the genes we're studying is they don't have a lot of data. So many of the variants in that group are in this variant of unknown significance, which means it's like 80% of the variants of a gene might be in that group.
It could be a benign variant, in which case it's probably not driving their obesity. But if it is a loss of function variant... And so if we can figure out, and we've already done some early work there where in cases where we can narrow it down, as you might have predicted, the response rates get better when you start narrowing it down and just looking at those patients with loss of function. So how do we go forward for the next generation, this, you know, results of the phase II DAYBREAK study is to say, in that gene group, what looks interesting and what in which of those genes we have enough knowledge to say we can narrow it down and then enroll a phase III effort that gives us a high probability of having a positive trial. So a number of steps, bar will be high.
But I have to say I'm much more optimistic about a road forward here than I would have been two years ago.
Last question as we're running out of time. Balance sheet's always important in biotech. Can you remind us what your year-end cash balance was and how long that'll fund operations?
Yeah. So, about $270 million. It will. Right now we are guiding people into the second half of 2025. We are previously into the first half of 2026. We dropped back to 2025 with the acquisition of the small molecule. We have a number of options for thinking through financing, which we will continue to look at and evaluate.
Perfect. With that, we are out of time. Thanks, David, for a great overview.
Thank you.