Rhythm Pharmaceuticals, Inc. Q1 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Q1 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Connolly, Executive Director of Investor Relations and Corporate Communications. Please go ahead. Thank you, Stephen. I'm Dave Connolly here at Rhythm Pharmaceuticals. For those of you participating on the conference call, our slides can be accessed and controlled by going to the Investors section on the Investors page of our website, ir.rhythmtx.com. This morning, we issued our press release that provides our first quarter 2024 financial results and business update, and that is available on our website. As listed on Slide 2 is our agenda. Here with me today in Boston are David Meeker, our Chairman, Chief Executive Officer and President; Jennifer Lee, Executive Vice President, Head of North America; Hunter Smith, our Chief Financial Officer; and Yann Mazabraud, Executive Vice President, Head of International, is on the line joining us from Europe. And on Slide 3, I'll remind you that this call contains remarks concerning future expectations, plans and prospects, which constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent annual or quarterly reports on file with the SEC. In addition, any forward-looking statement represents our views as of only today and should not be relied upon as representing our views as of any subsequent dates. We specifically disclaim any obligation to update such statements. With that, I'll turn the call over to David Meeker, who will begin on Slide 5.

Good morning, and thank you for joining this morning. So we're pleased to report another solid quarter as we build out the opportunity in rare MC4R pathway diseases with a larger vision of becoming a leading company in rare neuroendocrine diseases. I only have two slides today, followed by some additional commentary. As listed on Slide 5, Rhythm's value drivers remain unchanged. Near term, it is about BBS commercial execution and making IMCIVREE the standard of care for those patients suffering from early onset obesity and hyperphagia in our approved indication. HO offers a significant expansion opportunity, and our MC1R-sparing next-generation programs offer the potential for much improved therapeutic options for both patients and both provide IP protection beyond 2040. Recent highlights include the recently completed convertible preferred financing, which extends our runway well into 2026 and fully funds our investment in the LG Chem molecule. Hunter will speak to that in more detail. Second, on Slide 6, our Phase II HO data was published in Lancet Diabetes & Endocrinology, reminding the world again why we are excited about the difference we can make in this disease. Mean BMI decreased by 14.5% at 16 weeks and 25.5% at 1 year for patients who had 12 months of data. The unmet need in hypothalamic obesity is significant with an estimated 5,000 to 10,000 patients in just the U.S., and there are no approved therapies. Our clinical programs continue on track with a 120-patient pivotal cohort of our Phase III HO trial fully enrolled and Japan set to enroll its first patients. We overenrolled the trial with a total of 131 patients, excluding the 12 patients expected to be enrolled in Japan, and the total number of dropouts remains remarkably low. And all that speaks to the commitment and enthusiasm of both patient community and the investigators. The first patients enrolled in the Phase III study will be finishing the blinded portion of that trial in the second quarter and moving into the open-label extension study. The Phase I study of RM-718, our next-generation MC1-sparing weekly injectable, is progressing in normal healthy volunteers with obesity, and we look forward to dosing the first clinical HO patients in Part C of this Phase I study in quarter 3. We also expect to dose the first patients in the Phase II HO study with a daily oral MC1R-sparing small molecule in quarter 3 of this year. Each of those programs positions us for an exciting set of top-line readouts in the first half of 2025. Our commercial teams had another solid quarter with a slow and steady build of the BBS opportunity. U.S. script volume remains steady with approximately 100 new scripts written and 70 new patients approved for reimbursement. As Jennifer will speak to, we continue to find new patients and engage new physicians and get strong feedback from the community with regard to how IMCIVREE is changing their lives. Internationally, we are moving to a really exciting time as new countries begin to come online and will begin to contribute in the second half of this year. Most encouragingly, as we expand our commercial presence and build out our clinical trial network, we continue to have strong support from leading thought leaders in Europe who are seeing the benefit of setmelanotide in their patients. Yann will provide more color. Last quarter, we spoke to two challenges: a change in one state Medicaid plan and patient discontinuations, where we have continued to get some questions. I want to reinforce what we communicated on that call. With regard to the one state Medicaid plan that increased the stringency of their approval criteria, that state continues to have a policy in place and continues to cover patients. We have been clear that there is no expectation that the 30 patients converted to our Bridge program will return to reimbursed therapy anytime in the near term. Importantly, as noted, this experience was limited to a single state. There has been no read through to any other state, nor do we expect to have any read through. While this was disappointing, we are more than compensating and continue to make good progress in the other 49 states, plus Puerto Rico. Second, the increase in the number of discontinuations we have seen recently is in line with our expectations given that the much larger number of patients, both in the U.S. and internationally, who are now on treatment for a prolonged period of time. We expect the rate of discontinuations to level out in the 20% to 30% range long term, as we have highlighted previously. Although the focus will increasingly shift to the revenue number as this opportunity matures, we thought it would be useful to provide a deeper dive into some of the reasons why BBS patients discontinued therapy. The short summary is that there is no major driver, and the majority remain related to patient-specific issues. First, age is an issue, with a discontinuation rate being highest in the adolescents, lowest in the pediatric patients under the age of 12 and in the middle for adults. The adolescent age group can be challenging in general, but particularly when it comes to a chronic daily injectable therapy. Overall, the specific reasons for discontinuation remain relatively unchanged. The most common and consistent are discontinuations due to hyperpigmentation, which represent about 5% of patients who have initiated therapy. This has crept up a bit as we penetrate more deeply in populations where this is more of a concern, such as the Hispanic population in the U.S. Approximately 4% of patients have stopped therapy due to a perceived lack of efficacy, which also represents an opportunity as a number of these patients have stopped after only a few weeks on treatment and likely before they have experienced the full effect of the drug. This is an area where expectation setting in education is incredibly important. About 2% of patients stopped because of nausea and vomiting, and another 2% stopped secondary to overall life challenges, where the burden of a daily injectable becomes too much. There's a longer list of reasons for discontinuing, which we have previously grouped together as Other, each of which occurs with a frequency less than 1%. These reasons include allergic reactions, severe headache, chest pain, back pain, leg numbness, fatigue and an increased frequency of erections, among others. The point is that the challenges facing BBS patients are complicated. Those who stop therapy do so for a variety of reasons, some related to the drug, many not related to the drug. Not surprisingly, there are items on this list we cannot do much about. But other areas where we can do something, and those are the areas we are investing in. These challenges, like the payer challenges from last quarter, are normal parts of the ups and downs of building out a novel therapy for a complex rare disease. Most importantly, the fundamentals of this business continue strong. Patient identification remains strong, a growing number of physicians are writing scripts. Reimbursement continues to be positive with good news on the reauthorization fund in the U.S., and we continue to receive positive patient feedback. On the clinical front, we look forward to filing our pediatric age 2 to 6 supplemental NDA with the FDA in the second quarter, and potentially receiving EMEA approval in quarter 4 of this year. Part 2 of the DAYBREAK study will read out in quarter 3, and we continue to make good progress with our Phase III M&A trial enrollment. With that, I'll turn the call over to Jennifer.

Thank you, David. The consistent steady demand for IMCIVREE we've seen in the recent quarters has continued into the first quarter of this year, and we are making ongoing progress with positive reimbursement decisions and adding breadth and depth to our prescriber base. Beginning on Slide 8, through all of our education efforts supported by our cross-functional teams, we continue to identify HCPs with already diagnosed BBS patients as well as help to facilitate an earlier diagnosis for additional patients. This provides us the opportunity to educate HCPs about the benefits of IMCIVREE as the first and only precision medicine to target the impairment in the MC4 pathway, the root cause of hyperphagia and early onset obesity in BBS patients. During the quarter, we received approximately 100 new prescriptions for IMCIVREE to treat patients with BBS here in the United States, in addition to gaining approximately 70 approvals for reimbursement. These top-level metrics reinforce the confidence we have in the BBS opportunity over the long term, as well as our team's ability to execute to pull through the opportunity. On Slide 9, we're pleased to report continued consistent growth with prescribers. We now have more than 425 prescribers for BBS launch to date. The breakdown by specialty remains consistent. Adult and pediatric endocrinologists account for 45% of prescribers launched to date, consistent with launch date metrics reported in the last few quarters. More physicians are seeing the potential benefit of IMCIVREE and prescribing for the first time. Among these physicians, we are also seeing consistency with new tourism prescribers, or physicians our territory managers had not called on prior to the prescription being received. We are pleased to see this source of growth continue as we find new prescribers through our non-personal promotion efforts to supplement our field team efforts. In addition, more of the physicians are becoming repeat prescribers of IMCIVREE, writing new prescriptions for their second and subsequent patients with BBS. Launch to date, more than 30% of prescribing physicians have written two or more IMCIVREE prescriptions for BBS. We hear stories of patients and the benefits they receive from the weight loss, such as an increased level of confidence and ability to participate more in various physical activities. We also hear about the improvements in their ability to focus on other areas in their lives, including developing relationships and friendships now that the preoccupation with food has been lifted. As a team, we are inspired by these stories from patients, families, and their HCPs. Overall, we remain quite pleased with what we have been able to achieve with access and reimbursement for IMCIVREE. The payer mix for BBS remains consistent with what we reported last quarter, with approximately 90% of prescriptions since launch falling under a commercial or Medicaid plan. We continue to see incremental improvements by securing an IMCIVREE-specific policy with additional state Medicaid programs. Overall, we have either a positive Medicaid reimbursement policy in place, or we have gained reimbursement even without an IMCIVREE-specific policy in the vast majority of states, representing more than 85% of Medicaid covered lives. With reauthorizations, we continue to see strong success. As of the end of the quarter, we have received more than 140 positive reauthorization decisions for patients to continue therapy. During the first quarter, we did see 11 denials for reauthorization before these have already been approved through appeal, and we are working through the remainder to maintain coverage for patients. Our Bridge program is in place to ensure patients maintain therapy at times when they may have lost coverage for reimbursement. Patients may be on Bridge because they have either lost insurance coverage, had a change in insurance coverage, or they were engaged in the appeals process for reauthorization for therapy. As often happens in Q1, patients may experience changes in insurance providers that impact reimbursement at the start of the new calendar year. In Q1, we saw an increase in the number of patients on IMCIVREE entering our Bridge program due to changes in insurance provider. Such changes are similar to any new prescription that comes in as our teams work through the authorization process to regain commercial coverage for these patients. Some of these patients have already secured new coverage and exited Bridge, and we are working with the remainder to regain reimbursement. We are very happy with our success in converting the vast majority of Bridge patients back as commercial patients. Overall, as we come up on two years since approval of IMCIVREE for BBS in June, we are quite pleased with our progress to date and remain fully confident that we will continue to see steady growth. We have ongoing focused efforts to drive patient identification and increase both the breadth and depth of our prescribing physicians. With that, let me hand it over to Yann.

Thank you, Jennifer. I will start on Slide 12. In the international region, we are seeing steady revenue growth as we continue to advance country by country within IMCIVREE, which is now available for POMC/LEPR and BBS in 14 countries, including the United States and Canada. We began laying the foundation with biallelic POMC and LEPR, and now we are advancing into BBS in close collaboration with the key centers of excellence and experts in the region. In Spain, where we completed pricing negotiation earlier this year, we are seeing the first patients come on commercial therapy as we navigate the access state by state. In Italy, we anticipate that the first reimbursed patients will come on therapy in the coming weeks. In Turkey, which we have not talked about much, IMCIVREE is available through named-patient sales, and we are seeing patients come online there, too. This is a typical approach for rare disease drugs in Turkey. And we have a very experienced team on the ground where we are making significant progress. Launches in this country build steadily over time, and we are pleased with our current base. We will begin to see an increasing contribution to our net sales from these new launch countries in 2025. And we look forward to completing pricing negotiation in Belgium, the Netherlands, and the United Kingdom, launching in those countries later this year. Next slide. In France and Germany, which account for over 50% of our international revenue, we are expanding our field teams to address operational needs due to increased demand and the decentralization of care. In France, we now have several patients with hypothalamic obesity accessing commercial drugs through the pre-EMEA approval paid early-access program. Based on our experience with POMC and LEPR when we first gained early access in 2022, followed by BBS, we anticipate that these programs will start slowly and build gradually. We are currently observing that steady gradual build for hypothalamic obesity, which commenced late last year. For POMC, LEPR, and BBS, we expect to finalize pricing negotiations by the end of this year. Our launch in Germany is progressing as expected, and our team is focused on engaging with physicians treating patients and the main centers where they are cared for. Recently, the first BBS treatment guidelines were published in a prominent German medical journal, developed by 17 clinicians from 13 treatment centers, led by the University Hospital. These guidelines provide detailed information on diagnosis, patient management, and treatment for setmelanotide. We are increasing our engagement with treatment centers and large hospitals. Nearly a year into the launch, we have received prescriptions from 15 treatment centers, all of which are located within large, well-resourced university hospitals. In addition, our German patient support program Rhythm@Home is performing very well, too. We provide tailored support for each patient and their caregivers, and since December last year, prefilled syringes have been available for both the BBS and POMC/LEPR patients. And now I will turn the call over to Hunter.

Thank you, Yann. Turning to Slide 15. As announced last month, Rhythm raised $150 million in gross cash proceeds through the issuance of convertible preferred shares. We are very pleased by the strong show of support from Perceptive Advisors and their discovery fund as well as by the support of an additional well-known life sciences investor who was and continues to be a top Rhythm shareholder. The preferred shares can be convertible into common stock at a price of $48 per share, which represented a 19% premium to the 10-day average trailing volume-weighted price at the time of issuance. The preferred shares are perpetual, but Rhythm can require conversion if the price of our common stock exceeds 250% of the implied conversion price of $48 for 20 trading days and the 30 trading-day period and can redeem the preferred shares after the fifth anniversary of the closing date. In addition to the conversion features, Rhythm is obligated to pay a 6% coupon in cash or in kind, which will not start accruing until two years after the closing date. This financing has provided us with enough cash to support all planned activities through 2026 and potentially beyond, including key milestones such as the top line data readout from our Phase III trial for hypothalamic obesity, expected in the first half of 2025. In the first quarter, we reported $26 million in net product revenue compared to $11.5 million in the same quarter last year. We also noted a quarter-over-quarter increase of $1.8 million, or 7% in net product revenue, mainly due to the continued rise in the number of reimbursed patients on IMCIVREE therapy both internationally and in the U.S. Our gross to net sales decreased slightly from 85% to 84% in the fourth quarter for U.S. sales. The cost of sales for the first quarter amounted to $2.8 million, roughly 10.8% of net product revenue, which represents a decrease of 2.5% compared to the fourth quarter of 2023. The main driver of costs was the 5% royalty to Ipsen under our original licensing agreement for setmelanotide, along with product costs, which remained stable in dollar terms from the previous quarter, leading to an improved percentage margin on higher total revenue. Research and development expenses reached $128.7 million for the first quarter of 2024, a significant increase from $37.9 million in Q1 2023, primarily due to considerations related to our in-licensing of LB54640, which I will discuss on the next slide. SG&A expenses were $34.4 million for the first quarter of 2024 versus $24.6 million for the first quarter of 2023, a 6.1% increase on a sequential quarterly basis. For the first quarter, weighted average common shares were 60.1 million, an increase of approximately 900,000 shares versus December 31. Included in this amount was approximately 432,000 shares issued through LG Chem as partial consideration for the in-licensing of LB54640. Quarterly net loss per share was $2.35 versus $0.92 in Q1 '23. Now on to Slide 17. Rhythm reported $201 million of cash and cash equivalents as of March 31, 2024. This does not include any of the $150 million in proceeds from the convertible preferred stock that we issued in April. On a pro forma basis, cash and cash equivalents would have been approximately $350 million. On the net revenue for this quarter of $26 million, 74% of those revenues were generated in the United States. U.S. revenue of $19.4 million represented a growth of $1.1 million or 6% versus Q4. The proportion of revenue generated by our international region increased from 24% to 26% quarter-over-quarter. This increase primarily reflects the ongoing contribution from the BBS launch in Germany as well as our two early access programs in France, including the AP1 program for hypothalamic obesity. The portfolio of markets contributing revenue also continued to grow. Revenue from these other countries is small today, but we expect it will grow into a significant contribution over time. First quarter operating expenses included total stock-based compensation of $7.8 million for the quarter as compared to $6.4 million for Q1 '23. To review the LB54640 impact on the quarter, we committed $100 million of fixed consideration to LG Chem for the global rights. In January, we paid $40 million in cash and issued LGC more than 430,000 shares of Rhythm stock valued at $18.7 million at the time of closing. We also committed to pay $40 million 18 months from January. Q1's R&D expenses included a total of $92.4 million, which was comprised of the cash payment, the equity issuance, and the present value of the $40 million payment. The present value adjustment of $6.3 million to that payment is solely related to a modeling of time value as required by U.S. GAAP and will be recognized as noncash interest expense over the 18-month period. For those of you modeling at home, that means you can expect $1 million of noncash interest expense per quarter between Q2 '24 and Q3 '25 related to this accretion. We are reiterating our OpEx guidance of approximately $250 million to $270 million in non-GAAP OpEx, which includes SG&A, non-GAAP operating expense of $105 million to $110 million, and R&D non-GAAP operating expense of $145 million to $160 million. This includes $10 million to $15 million of development costs related to LB54640. With that, I'll turn the call back over to David.

Thank you, Hunter. If we reflect on the 16-year history of Rhythm, it's clear we are in a strong position. Our approved treatment, IMCIVREE, is becoming recognized as a standard of care, and we have all the essential components to build a sustainable and profitable business in rare diseases. We are focusing on our largest opportunity, HO, and Alstein's input confirms our initial enthusiasm. We are well-capitalized to achieve our goals and reach those important milestones. Now, let's open the floor for questions. Stephen?

Just two from us. So I guess, through some of our KOL checks, we've heard some emerging clusters of Bardet-Biedl patients treated in the U.S. with Native American and Hispanic kind of heritage. So I just wanted to kind of understand if that's accurate and if you could kind of shed some light on those clusters? And then secondly, I just wanted to understand the gating factors for 54640 trial and getting it up and running. And I guess, how many of the experienced sites from your IMCIVREE experience will be incorporated there?

Yes. Jennifer, do you want to take the...

Sure. To your first question, just regarding clusters, I think similar to other rare diseases, there can be sort of pockets of patient populations. It's based off of how the different folks start to populate, and the genetics start to have potentially a different frequency impact based off of their population style. So we have seen in certain areas, the Native American as well as Hispanic population having a higher BBS prevalence in certain areas.

And yes. On the HO side, so we're still adding sites there. I think we anticipate having between probably 10 to 12 sites to run that HO small molecule trial. The vast majority of these are actually new sites. We will have a couple of those centers that were part of our original trial. But we're running two trials at the same time, essentially with our weekly injectable. So we're looking for sites for that. For the Part C, we're at four enrolled HO patients and then, of course, for the small molecule. So, but the small molecule itself will have about 12 sites, the vast majority of which are new to the program.

Got it. And just one follow-up, if I may. I want to make sure I heard you right regarding the timing of the readout. So, obviously, Phase III HO is in the first half of '25, but I believe you mentioned that the 718 data, along with the oral data, could also be in the first half of '25 for those HO patients or at least for the HO cohort, particularly for 718.

Exactly. That's the expectation. And once we get these trials up and running, as always, sometimes the biggest variable is the initiation, but so far, we look good, and that's my expectation. We will read those out in the first half.

Last quarter, you indicated 30 patients came off IMCIVREE because of the one state. Any updates on how many of those patients have had consults for proper documentation and how many are back on commercial drug? And then I have a follow-up.

Yes. What we've been emphasizing is that these patients are still undergoing evaluation. We have encouraged people to consider those 30 patients separately. I believe we will retain some of them, as they are still in the process, but we won't provide updates on each individual patient throughout this overall process. It has been quite challenging; obtaining these additional consultations is not straightforward. The requirements are stringent, which is why, as I mentioned earlier, I don't anticipate us getting all 30 patients back, and many may not meet the standards set by the state. That state has been covering patients and has done so since we removed these 30 patients, but we will not disclose more specific details about them.

Okay. And you guys talked about the Bridge program and then how some of the patients exited that program in Q1. Typically, how many patients enter the Bridge program in a given quarter? And then what is the average time that they remain in that program?

So I would say that in terms of the Bridge program, that number is variable, also just based off with the circumstances of each of these different patients. And as I outlined, it could be they change jobs, they change insurance and hence, we have to almost go through the authorization process from the start with this new payer. So that number varies over time. And I would say that in terms of time to transition them off of Bridge, that also is variable based off of the reason. But I would say that it's consistent and similar to the time in terms of even getting the authorization or the initial prior authorization in place for patients.

Yes, I think what Jennifer said is a good perspective. If it takes an average of four to six weeks for patients to complete their initial authorization, that’s a good way to consider it. I highlighted the Bridge program, which reflects our historical experience with other rare diseases. This program tends to be very successful, with over 90% of patients able to convert back to their insurance and coverage, excluding the 30 patients from one state who moved to the Bridge program. So, excluding that exception, about 90% or more of the remaining patients have managed to secure coverage through insurance. Overall, it has been a very successful program.

Congratulations on the progress. I have a couple of questions regarding the reimbursement or reauthorization for Jennifer. You mentioned over 140 reauthorizations and 11 that were denied. Can you provide us with the total number related to those reauthorizations? Additionally, for the 11 that were denied, how feasible is it to get them back on therapy, or are we losing them in terms of future planning?

So Dae, let me just clarify. So on your first question on the reauthorization. So as Jennifer said, more than 140 have had approvals, 11 have had denials, of which she's worked through. So that's about 150, 151 to be exact. But I don't know, was there additional question behind that?

Let me just speak to the 11 denials. So one, I will say that in terms of the reauthorizations, we've been very, very successful just overall, just in terms of being able to get approvals. The 11 within the quarter, let me just break this down. I would say it's sort of similar to the number that we had outlined, which is last quarter, but they can actually get a denial for a couple of different reasons. One, it may be that they simply be missing some information, and we just need to go back to the physician to provide this additional information. That's been an opportunity just in terms of going from a denial to gaining reimbursement back for the patient. Some of it could be because they may not be getting the exact 5% in terms of weight loss. The reauthorizations can happen at less than the 1-year time point. So that may be an opportunity just in terms of follow-up because these patients are definitely gaining clinical benefit, hence, they want to as well as their physician wants to maintain them on therapy. So I think there's various different reasons just in terms of the 11 denials. But as I mentioned, we already have several of these 11 that have already been reapproved and we continue to work through the remainder.

And Dae Gon, regarding your question on international sales, you are correct that 26% of our sales during the quarter came from outside the U.S. I will let Yann share their experiences in Germany and France as well.

Thank you, Hunter, for the question. I want to emphasize that the U.S. and international regions differ significantly when it comes to rare diseases. Addressing your point on how we can share insights between the two regions, I believe there are a few key areas we can focus on. Firstly, collaboration with centers of excellence is important, as there are significant centers in both the U.S. and Europe. We need to find ways to work with them, learn from their experiences, and integrate that into our publication plans. Secondly, we've made substantial changes to our medical marketing activities, both in the field and digitally. Another critical element is our patient identification programs; for instance, the URO program in the U.S. and the genetic testing program in Europe. Lastly, patient support programs play a vital role, with the U.S. having a robust support system and dedicated resources for patients. In Europe, we strive to provide similar support whenever possible, and our German program is notably comprehensive. These activities are central to ensuring patient engagement and care across both regions.

Okay, David, I was just wondering if there are any additional reauthorizations in the pipeline beyond the 140 and the 11 that you've disclosed today?

Yes. So once again, there's always going to be folks who are needing to get reauthorizations. And it depends on when they initiate therapy and when that timeframe is for the authorization requirements, which can vary, but the majority of these are at the one-year point. So that's a continued stream just based off of when they initiated, when they got approval, and hence, when they need to be reevaluated to ensure that they're still garnering benefit from being on therapy.

Congrats on progress. Just two from us. So first, on Q1 revenue for IMCIVREE, does seem to be that the increase in revenue quarter-over-quarter seems to be at the lower end of what you'd expect with 70 reimbursement approvals. Can you speak to those dynamics? Was that simply the timing of the reimbursement approvals? Or did some of the issues with insurance reauthorization that you discussed play into the reported revenue in Q1? That's the first question. And then second, on DAYBREAK, can you remind us what you are likely to release during Q3 from that trial?

Let me discuss the quarter-over-quarter growth. As always, there are various factors to consider. For instance, last quarter, we experienced a favorable impact of about $600,000 on sales due to Medicaid accruals that were based on actual invoices received, which slightly affected the quarter's performance. Additionally, we received shipments for the single state Medicaid program early in the quarter. However, patients transitioned off therapy around mid-October. While we did ship to that program for several patients in the first half of October, this accounted for some non-recurring revenue in the quarter. On the positive side, we saw a significant increase in patients on therapy and a rise in vials dispensed. A smaller adjustment came from patients entering and exiting the Bridge program during the first quarter, which is a common occurrence. I hope this information is helpful.

So Phil, regarding the DAYBREAK study, I haven't seen the data yet. As I mentioned from the start, this was a basket trial aimed at finding signals. During our December R&D Day, we noted that out of a large number of genes we initially considered, a smaller but interesting number emerged. My goal is to update you on those six specific genes and how they performed in the double-blinded placebo-controlled portion of the study. I will also provide some insights on our future approach. However, I want to emphasize that the standards will be very high. We will not rush into another trial unless we encounter something exceptionally compelling that requires immediate attention. Additionally, we fully anticipate that any further development will involve either the small molecule or our weekly formulation, as we believe that is the long-term direction for this franchise and any future approvals we aim to secure. Does that help?

Thanks for the color on all of the discontinuation drivers. I guess can you also help us understand when during the course of treatment patients are most likely to discontinue? And how you think about which of these factors maybe have read through, like the HL opportunity versus which ones might be more BBS-specific?

Yes. I will begin, and Yann or Jennifer can add anything. A significant portion of these cases happens early on. Part of the purpose of the detailed information we provided today is to remind everyone that we are not addressing a therapy for a group suffering from just one illness or challenge. Bardet-Biedl syndrome, by its nature, involves multiple challenges. For instance, in the U.S., there is a higher rate of discontinuations among the Medicaid population. This population faces not only health issues but also additional family challenges. In summary, there are many patient-specific reasons for these discontinuations. However, there are specific areas we can address to help with these issues, and I'll let Jennifer elaborate on that.

In terms of HO, it represents a distinct patient group. What stands out about the HO population is its clarity; these patients have essentially exhausted all treatment options. Biologically, it appears that setmelanotide is targeting a very specific abnormality, suggesting it may be the solution. This has possibly led to a different level of engagement compared to our other populations. During the Phase III trial, as we've noted, patients seem to be remaining on treatment, including those on placebo. We cannot identify who they are, but they might have an idea. In today’s environment, if they truly believed there was an alternative, they would likely switch, yet they are choosing not to. The reason may be that staying in the trial allows them to access the drug in the open-label phase. I believe there are distinguishing factors with HO, and it wouldn't be surprising if the discontinuation rate is lower for this group, though there is still much to uncover.

Helpful. And then can you help us understand the size of the market opportunity for this under the 2- to 6-year-old patient population and how that kind of expands the commercial opportunity for BBS?

Yes. I mean what we said about that previously is that when we do our genetic screening, the frequency, the positivity rate in that 0 to 2 specifically, but 2 to 6 tends to be higher than the rest of the other ages, the older age groups. And that's not a surprise because parents will present with a child who has early onset obesity and uncontrolled hunger; they know something's wrong. Genetic testing perhaps gets to be done a little earlier. And as a result, as opposed to a 20-year-old, for example, comes in and you're asking them when their obesity started and the like, it's just a different setting. So higher frequency hit rate, but the overall numbers are still quite small. So again, this will not dramatically increase the overall target population. But it does from a signaling standpoint, reinforcing standpoint, when you're treating 2-year-olds, some with your medication, that's really a remarkable indication that, A, it's important to do so, B, the drug must be safe. And as you know, most of the other available anti-obesity medications have not tested kids as young as 2 to 6. And so we've gotten positive feedback from the field just from our willingness to take that on.

I'm sorry if I missed this, but what were the discontinuation rates through the first quarter of this year? I believe it was around 20% as of the last quarterly update. And just given the discontinuation rates have ticked up a bit quarter-over-quarter, what gives you confidence that the rate will level out in that 20% to 30% range?

Yes, it has increased. We're not going to provide further details. Part of the aim of today's discussion was to convey that we believe it will stabilize in the range of 20% to 30%. In response to your question about our confidence, this aligns with trends observed in other chronic injectables, like daily insulin therapies, which often do not have discontinuation as a typical outcome, but adherence can be quite difficult in those cases. For this age group, it’s just an estimate, and while we don't know for certain, we feel it’s a reasonable expectation based on our experience with rare disease populations and the challenges that accompany this type of chronic injectable. What was the second part of your question?

We continuously learn as we evaluate various aspects of our business to identify opportunities for greater focus. As David pointed out, during the initial expenses, we face the highest risk of discontinuation. For instance, we identified injection issues early on and, after discussions, implemented at-home nurse support for patients. This initiative has helped them feel comfortable starting their therapy and self-injecting, which has reduced discontinuation related to this problem. We also recognized that our initial approach provided only one point of contact for patients who had to manage both reimbursement and reauthorization processes, which was overwhelming. Recently, we restructured our team to create a specific group focused on authorizations and reauthorizations, while a separate patient education team now has more time to maintain close contact with patients.

This is Sohana on behalf of Michael. Congratulations on the continued progress this quarter. We have two questions. The first is whether DAYBREAK Stage 2 could be reported separately or if there will be a staggered update. Should we anticipate another update in Q4 in addition to the one in Q3? The second question is whether there is any guidance on the start of the second trial route for LB54640.

Thank you, Sohana. We expect to receive the results of the DAYBREAK study in the third quarter. However, the exact timing for reporting could vary based on those results and how long it takes to analyze them, so I cannot confirm if it will be reported in Q3 or Q4 at this moment. We aim to ensure this information is shared within the year, but I do not have specific details on the method or timing for the announcement. Regarding the LB54640 small molecule trial, we're progressing well. Most of the necessary sites have been identified, and we are currently working on the initiation process. We anticipate starting this trial in the early part of the third quarter. That's the best update I can provide today.

First one, I guess, is just on the kind of steady-state dropout rate that you talked about, or discontinuation rate. Is that informed at all, I guess, by the age at which patients are starting? I'm just curious if you're seeing patients or a higher discontinuation rate in patients who start when they're older versus younger, and maybe there could be some shift in that average rate over time as patients start when they're younger with the label expansion?

The short answer is yes, and that involves breaking down the three different age groups. The focus is on adolescents. I’m not certain if we have a disproportionately high number of adolescents; however, we do see that about 60% of our patients are adults and 40% are pediatric. We're gradually moving towards a more typical patient distribution with adults living a more normal lifespan. That said, it’s additional insight that indicates the adolescent group presents more challenges, and we are seeing a higher number of discontinuations in that segment.

And perhaps I just misunderstood, but I think I understood the comments to be that patients with HO have been getting treated via the early access program, but maybe not so much for the BBS program. Did I interpret those comments correctly? And if so, I guess, can you talk a little bit about what you're seeing in I guess, maybe urgency to treat the process of getting patients through that to get to approval in BBS versus HO in France?

Yes. No, that's not the case. Yann, do you want to make some comments?

Yes, that's not accurate. We currently have three early access programs underway: one for POMC/LEPR, one for BBS, and the most recent one for HO. These programs are advancing simultaneously, and we are very pleased with the participation in all three. The HO program began at the end of last year. It's quite rare in France to obtain an early access program based on Phase II data alongside EMA approval. In fact, there are only two rare disease therapies with such recognition in France. As I mentioned earlier, we now have several patients receiving commercial treatment for HO. Regarding the second part of your question, BBS is also progressing well.

I think, Whitney, what we have said is when the HO program was approved, we had said for a while that it was very slow and bureaucratic to get patients approved within it, and that has only recently started. So that may have been the emphasis on the fact that we've started to get patients through the HO program despite it being approved a longer time ago may have caused that impression.

Great. Well, thanks, everyone, for joining in this morning. And again, we look forward to our next earnings call and updating you on further progress over the next three months. Thanks all.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.