Thanks, everybody, for joining us. I'm really pleased to have Rhythm Pharmaceuticals joining us. This is a recently initiated coverage name for Guggenheim. Here we are at our inaugural Healthcare Innovations Conference, and our timing couldn't have been better because Rhythm is actually kind of hitting its rhythm. I didn't want to say that, but it does seem to be the path here. David, maybe just to kind of start us off high level, you've been CEO of Rhythm for quite some time, developed a robust portfolio of assets. I think there's a separation between treatment of rare obesity and how people think about obesity sort of writ large in the context of the GLP-1 space. Maybe just bring us into the Rhythm approach to treating rare obesity.
Yeah, thanks, Seamus. I think that is a good place to start. So just to highlight the time frame, I joined the board in 2015 and took the CEO role in 2020, so four years in the role. And to your point, what was most striking about me, particularly once I got into the CEO role, was just how much what we were working on was a classic rare disease. And our drug is labeled for weight management, and so in that sense, a quote-unquote "obesity drug." But everything about the challenges that the patients were trying to help are experienced as just classic rare disease. So our first two indications were incredibly rare. In fact, they were so rare that we didn't put a sales force on the ground.
They were very powerful proof of concepts that this pathway is important, and when you correct it for patients who have a problem, the effect can be quite dramatic. But extremely rare. Our second set of indications, if you will, which was Bardet-Biedl syndrome, that is a legitimate opportunity, but in the classic ultra-rare space. And those patients suffer from no experts, little to no testing. Again, the community is relatively nascent. And so we've spent the past four years or so really working to build that Bardet-Biedl community, and that opportunity has continued to grow in a slow and steady way. What separated this from the more general common obesity, and this is where Lilly and Novo have done a great job, is that historically, people think about obesity as a lifestyle choice. You got to exercise more and eat less.
I think they very convincingly, along with the experts, made the case that it's a disease with significant comorbidities. And our position is absolutely it's a disease, but it's not one disease, it's many diseases. And part of our challenge has been helping people understand that patients who have impaired signaling through the melanocortin-4 pathway, which if that signaling is impaired, you have a deficit in alpha-melanocyte-stimulating hormone. So literally, you have a hormonal deficiency. And our drug, setmelanotide, is an analog of that hormone. So in a very simple concept way, we're hormonal replacement, whereas most of the other treatments for general obesity are pharmacologic manipulations, as drugs are, of your normal circuitry to decrease appetite and the like. So yes, we see ourselves as quite different from the general obesity world.
Yeah. And we just had, in terms of building out Bardet-Biedl, one of the things that I think maybe the market was a little bit confused by was some fits and starts in terms of the sales progression. But I think there's a good understanding that there's a steady-state sales progression for Bardet-Biedl. We're getting a better understanding of hypothalamic obesity. And I think part of that was some data that was just presented. Can you talk a little bit about those data and your conviction in hypothalamic obesity and the size of that market opportunity as well?
Yeah. So if it's all right, I'll say a couple of words about Bardet-Biedl.
Yeah.
Because I think it sets up the understanding for HO. So as you said, since we launched that drug in 2022, we're literally two years into launch now, so quite early. We had emphasized the fact, look, it's going to be lumpy, and that's the nature of rare disease. You don't have a big pool of patients who just launch and have this inflection, if you will, of patients coming on treatment. And so every quarter, literally, you're doing the work. You're trying to diagnose new patients. You're trying to help them through the reimbursement process and the like. And so that leads to some variability quarter on quarter. Now, interestingly, our results have been remarkably stable in the slow and steady pace. But that is the nature of rare diseases. And I think people who follow Rhythm have gotten comfortable and understand that's the nature.
The positive side of that, it may be slow and steady, but it doesn't tend to peak. It just tends to go on, and you're continuing to work through this undiagnosed pool for many, many years, and so this steady growth creates a very meaningful opportunity, particularly over time, and it tends to be durable. HO is where people began to see Rhythm in a different light, and that's a different opportunity, although it's a very clear rare disease, unlike BBS, which is a genetically driven defect. This is an injury-driven defect to the hypothalamus, and it's a group of patients who initially, nothing's really worked. The biology wasn't understood. We, myself particularly, didn't think setmelanotide would work because you're injuring the site of action, and so how could the drug work, potentially?
But our results, again, which we put out, phase two results in 2022. What was dramatic is we had very significant percent weight decrease in this arms race for how much weight can you lose. But that wasn't the most important part of that data set. What was most important is every patient that took the drug had a response, which is back to we're replacing or we're doing something very fundamental. And since our drug is a precision medicine, it only works through the MC4 receptor. It tells us that the biology of that disease is linked to the MC4 receptor. So anyway, that data drove a whole new interest in Rhythm. The opportunity there, which we say there's 5,000 patients-10,000 patients, is our estimate in the U.S., comparable numbers in Europe. And interestingly enough, similar kind of numbers in Japan.
But what's different, Bardet-Biedl is 4,000-5,000, so same zip code to a certain extent. But the majority of the patients with hypothalamic obesity, they know they had their injury. And so the vast majority of them are diagnosed. And since 80% plus also have injury to the pituitary gland and have some level of pituitary insufficiency, meaning they're on one or more hormones, they tend to be cared for by the endocrinologist. So they're diagnosed and sitting in a call point where we are and concentrated. So it's rare, but at one level, those are elements of a specialty kind of disease opportunity. So back to ObesityWeek and why people got excited about the most recent. One is we've had no new data out since 2022 because we went immediately into a double-blind randomized controlled trial. And so people haven't had a chance to see.
In France and Italy, unusually, but occasionally, in these early access, paid early access programs, you get permission to treat patients. We did based on 18-patient phase two data, which those authorities found very compelling. They recognized the unmet medical needs. This is the early experience of patients being treated out of France, eight patients. It was highly confirmatory. What was most important about it is, one, it was confirmatory, and two, it was a slightly different population than what we had in our phase II. In our phase II, we had 13 pediatric patients and five adults. One of the adults didn't even take the drug. Two of the other ones had different challenges, so our adult pool was very small. These very positive results were different to a large extent by the pediatrics.
One question was, well, maybe this works great in peds, but won't work in adults. Maybe you need to be very close to the timing of injury for it to work well. The French data was eight adults. Mean age was 31. The average time away from their surgery was 12 years. Again, quite distinct. The response, again, we had good percentages, which I'll tell you, at one month, 5.8% decrease. At three months, a 12.8% decrease. For the five patients who had reached six months, a 21% decrease. Those are from the arms race of percent comparing it to GLP-1s, which you should not because it's apples and oranges, common obesity versus these are fundamentally different diseases. What, again, I think back to people being excited about this data is all eight patients responded.
Yeah. So that kind of brings us to another opportunity, which would be the Daybreak data and additional sort of genetic abnormalities. Can you talk a little bit about those data and the path to really developing that additional market?
Yeah. Yeah, I think there's two main drivers for value creation in a rare disease world. One is that the epidemiology might be wrong. And it could be wrong on the downside, or it could be wrong on the upside. I think we're being reasonably conservative, so I hope we fall into that category that the epidemiology may be wrong on the upside. The other opportunity is, are there other indications, if you will, where this pathway and your drug, in this case, setmelanotide and Imcivree, would work, be valuable? And so the Daybreak data was an ambitious attempt to canvas all of the genes, additional genes we thought might impact signaling through the pathway. We started out with 30. We ended up at the end of this phase two effort with about six or so genes or gene groupings, which seemed to very clearly have a signal.
And so when we treated their obesity with setmelanotide, we had a significant degree of weight loss. So that becomes interesting. And that's, again, opportunities for future development. The challenge in the genetic side of the equation is that genes that are rare and have not been extensively studied, people don't know whether a variant in that gene is necessarily a loss of function, i.e., pathogenic driving your disease, or a benign variant, in which case, arguably, it would have no you've got a variant, but it's not driving your disease.
Right.
If that knowledge isn't available, then how do you enroll patients who have true loss of function without having to enroll a lot of benign variants, which just make doing the clinical trial harder? We'll do more of that work, try to figure it out. There's some very clear next steps for the genetic exploration here. We will do that work with our next generation programs. Maybe we'll talk about that in a minute. There's just a good solid future there, I think, in terms of unexplored additional areas to create value.
Great. And one of the things that I think we've both been doing this a long time. You've been doing it a little bit longer than I, but that's not a comment on anything other than.
I was saying we have to get out the nice bare notes here. When were you born?
But one of the things that I think is really evident is that ability to grow the rare disease population over time in the global marketplace. Maybe you can just remind everybody what that looks like because I think that's a critically important piece of the story from an upside perspective. It isn't just, did we get the Epi right in the U.S.? Did we get the Epi right in Europe? It's did we get the Epi right globally? And that's a totally different question, I think.
No, it is. And, Seamus, thanks for the question because I do think for obvious and many times good reasons, as an industry, we tend to be very U.S.-centric because, quote unquote, the most valuable market. In rare diseases, it's not just the incremental patient revenue that's left on the table, but every disease, most diseases are global. They don't tend to respect national boundaries, if you will. And the communities, the expert communities, the patient communities, they tend to increasingly be global, particularly in our social network world. So you want, it's critical, I think, that you need to have a strategy for how you get at that. Now, if you go and you try to launch in every country in the world, you die and you're a small company. And so doing it in a measured way.
And two, the key, and we all recognize the challenges, and I certainly recognize the challenges, is always it comes down to people. And we have, I think, an unusually talented internationally, but not very talented U.S. force here. But these are people who have done it before. And they really understand what it takes to launch a rare disease drug in a challenging healthcare system, systems like Europe, very price-sensitive in ways, maybe the U.S. isn't, ways that have changed dramatically over the past 10 years-20 years. I mean, when we first launched early rare disease drugs into Europe, the pricing in Europe was higher than the U.S. That's not the case now. And there's a very different level of discussion and the like.
Having people who are sophisticated, thoughtful, disciplined in how we do that, and that's what I think we've been successful at, is that it's not quite a pay as you go, but it's an invest as it opens strategy. You don't get ahead of it. Yes, you have to have some boots on the ground, people on the ground in advance. That's how you get started. Then you add the investments as things begin to open up. Over time, patience is another key virtue, which isn't so great in our industry, but that takes a little bit of patience. Once you get it going, it creates enormous additional value for your rare disease opportunity. You don't need a partner. You can go direct in a surprising number of places if you have the right people.
Yeah. Brick by brick strategy. So let's talk about the pipeline and the sort of evolution of Rhythm from here beyond Imcivree. So first, just address potential concerns around a 2032 patent expiration and the possibility or a threat of generic competition as a starting point, and then how the pipeline can be a meaningful sort of extension of Imcivree's future.
Perfect. Yeah. Yeah, so needless to say, as most companies are, we're very focused on our patent estate and trying to build that in a robust way. Number one, we're not a single drug company, so your specific question was composition of matter for our currently approved drug, setmelanotide, brand name Imcivree, is 2032. We have what I think are significant methods patents for what those are worth, which go well beyond 2032. Second, this world, rare disease worlds tend to be quite sticky, so even when your composition of matter is up, it does not disappear overnight. I mean, that's just fact. That's not going to change in 2032. There's a bunch of reasons why it's very difficult for a generic to come in and just flip a market, and it tends not to be driven per se by price.
I mean, we're still working at a very small fraction of the total healthcare spend for this kind of opportunity. So that's our starting point. But we recognize that nobody wants to have a patent expiration and the like. And so that was one. And then two, we thought we could do better than setmelanotide. And setmelanotide is not a perfect drug. So our next generation, we acquired a daily oral, which we acquired from LG Chem. And they had done a great job. We became quite convinced of cracking that nut. Not an easy nut to crack and to have an active oral here in this space against this target. So that's in phase two development. That will have a 2040 plus patent expiry, composition of matter. And then in parallel, we've been developing our own weekly formulation with the goal of eliminating the MC1.
We have an off-target MC1 interaction, which causes hyperpigmentation, increased color of the skin, which isn't a safety risk in that sense, but it's not a bonus, and for many patients, it's not something they want, so we have engineered that out of our next generation, so it's a pure, very highly specific MC4R. We believe it will not have the hyperpigmentation, and it's weekly, and so both the daily oral will not have hyperpigmentation. That's our belief, and the weekly, and they offer not only convenience, tolerability, but that benefit, and both of them will have patent expiry 2040 plus, so we have a long runway to continue to work in a pathway that we think has a lot of work still to do.
Yeah. And the pace and the path to the Daybreak opportunity, is that something that you would say, okay, this is something we'll build that we'll approach that opportunity with setmelanotide? Or is that really one, as you achieve proof of principle with the second-gen pipeline or the next-gen pipeline, that that's the approach where you'll kind of take those programs through the Daybreak opportunity?
Yeah, it's the latter. I mean, as I highlighted, we firmly believe both of these next-generation drugs are better drugs. So to that extent, we'd like to use those drugs for any future development. Our goal also will be to get one or both, and we'll take both forward if they're successful in their phase II efforts, approved in all of our currently approved indications. So we'd look to get them approved in HO. We'd look to get them approved in BBS, and then even the very small POMC and LEPR. And if we're successful in executing on that, and we have some time to do that, then you could ask the question, is there a role for setmelanotide in that space? Because you have these, you're well covered with these two other better drugs.
Right. Got it. Let's talk a little bit about just sort of the path of the company from here, the path to profitability or breakeven, and what you see as sort of the key demarcation points along the way.
Yeah. Again, it's obviously always a balance between how much revenue you're generating and how much you spend. I think if we only had Bardet-Biedl syndrome and we're doing no incremental R&D, we could be profitable. I think that's a highly efficient opportunity. We're not profitable now, as you know. What we say about our current runway, we have $293 million coming out of our quarter three this year, that cash takes us well into 2026. Profitability, we haven't guided to that specifically, but again, it's a question of how much you have to invest in. It's fair to say that we're really bullish about the opportunities here and so where we can invest. We are going to spend there. I think much of that foreseeable spend is incorporated in the guidance well into 2026.
But it means that we're not going to project, we'll see how we do on the revenue side. We'll see exactly when we get HO approval. HO approval is going to be a very big factor in actually determining that moment when we transition to profitability.
Great. And help us understand just that trajectory for HO. BBS, maybe a little bit harder to identify the patients. Same thing with LEPR and POMC to some degree. This seems like the patients are identifiable, but I think rather than people getting over their skis and getting too excited, that easily identifiable patient means patient treated immediately. Maybe help us understand that sort of path as we get there.
Yeah. Sure. Perfect. I mean, we think it'll be fundamentally different than Bardet-Biedl syndrome for the reasons you outlined. It's still rare, and it's not like you're going to write a prescription and go to your local CVS and pick up your prescription for Imcivree, so all rare diseases go through a prior approval process at the level of the insurer. We've done incredibly well with our coverage for Bardet-Biedl syndrome, including in Medicaid, as we know. We have near total coverage, not complete coverage today, so all of those are positive things, but yes, there will be work to get each patient through, and we talk about it internally. There's an inherent drag on a rare disease opportunity like this relative to some of the other mass market opportunities, but it will be a fundamentally different trajectory than BBS.
We haven't talked about GLP-1s, the sort of general obesity product opportunities, and the various approaches that are starting to emerge there. Can you just talk a little bit more about what is it that really differentiates the MC4 approach versus a GLP-1-based approach or amylin or something like that?
Yeah. I think part of the, if there's an overhang on the Rhythm stock historically, as for many companies, it was, what's the role of the GLP-1s? And when they first came out, before we fully understood, I think they were viewed as a hammer and everything was a nail. And they're going to solve anybody who has excess weight. That's clearly not the case. Rhythm's not the only example as we know now. I think as I was talking before, at a very fundamental level, signaling through the melanocortin-4 pathway, that's the pathway that governs our satiety signal. So we eat a meal, signaling through that pathway tells us we're full. And so the gut to the brain, and you can stop eating now, your stomach's full.
Not only does it tell the body that we're full, but it also signals there's food on board, so you can increase your metabolic rate, so those, and your resting energy expenditure, so those patients who have a defect in signaling through them, they're hungry all the time. They eat a meal, but they don't get the signal they're full, so the desire is, I still want to eat, but perversely, not only that, the body thinks there's no food on board, so they keep resting energy expenditure low, so that's the challenge there and if you think about what we're doing, which is replacing a deficit, back to this hormonal replacement, you've got to correct that. Now, the GLPs, in a very simplistic way, they talk about changing our relationship to food, decreasing the appetite, quieting the food noise.
It's a little hard when we talk about hunger because people interpret it in different ways. It's a different aspect of hunger in that sense. It's a little more complicated than I'm making it, but I'll leave it there for the moment because I think it's enough. People gain weight for different reasons. It's not that you couldn't have a defect in signaling through your melanocortin-4 pathway, have it corrected, and still have excessive weight or still gain weight. If you're depressed, if you love ice cream, if you're, I mean, those parts of our personalities which can contribute to, then you might benefit from another drug. You might even benefit from another drug on top. I mean, that's medicine. You start in hypertension, many diseases. You start one, do you get it under control? If you don't, diabetes, right? You add another drug.
And so that's a world which makes total sense to us. But the biology for the patients who are suffering from this defect in signaling through this pathway, it starts there. And so I think the world's gotten more comfortable. We've certainly gotten more comfortable. I think experts increasingly, as they play with the different options here, they're getting more comfortable.
Great. Well, we only have 10 seconds left, so we're going to move to wrap it up here. David, thank you so much for joining us, and it's already been a fun ride covering Rhythm so far, so looking forward to many more successful years.
Thank you, Seamus. Appreciate it.
Thank you.