Earnings Call Transcript - RYTM Q4 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Connolly, Executive Director of Investor Relations and Corporate Communications. Please go ahead.

David Connolly, Executive Director of Investor Relations and Corporate Communications

Thank you, Michelle. I'm Dave Connolly, IR 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 at ir.rhythmtx.com. And this morning, we issued a press release that provides our fourth quarter and year end 2022 financial results and business update, which is available on our website and as listed on Slide 2. And as listed on Slide 2 is our agenda. Here with me today in Boston are David Meeker, Chair, Chief Executive Officer and President of Rhythm Pharmaceuticals; Jennifer Chien, 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 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 report on file with the SEC. In addition, any forward-looking statements represent our views only as of 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, who will begin on Slide 5.

David Meeker, CEO

Thank you, David, and good morning, everyone. Thank you for joining the fourth quarter earnings call. We are going to talk about earnings, which look good, and this week's announced acquisition of Xinvento. However, before we do that, I want to reflect for a moment on this company's journey. It was almost a decade ago when we published the first case reports in the literature, describing the remarkable effect of setmelanotide in two patients with POMC deficiency. Since then, we have learned so much about the MC4 receptor pathway, the associated genetic deficiencies, the importance of hyperphagia, and energy expenditure in the development of obesity. At the same time, we started to learn about what it means to live with one of these rare diseases. There exists a complete lack of awareness on the part of the healthcare system, a relative shortage of experts, the almost complete lack of genetic testing, all compounded by the societal and medical bias that confronts individuals and families living with obesity. As a mother of a child with BBS said, when asked how bad hyperphagia and obesity can be when your child may be losing their sight, her response was, 'People are kind to blind people.' This week, we highlighted the challenges of living with rare diseases as we mark Rare Disease Day at Rhythm. We had a guest speaker, a mother of two children with BBS, who described the incredible challenges of living with hyperphagia. This severe preoccupation with food and the associated abnormal food-seeking behaviors have changed her family's life since starting treatment. Rare Disease Day leads into Obesity Care Week and World Obesity Day on March 4, which brings obesity to the forefront as a disease that requires new ways of thinking and new therapeutic options that work. Rhythm is at the center of these awareness events, and we recognize that obesity is not just one disease but many diseases, some of which are rare. Each disease deserves careful evaluation and the right treatment. 2022 was a transformative year for Rhythm as we embark on our next chapter as an established commercial-stage company expanding geographically and further diversifying our pipeline. The BBS launch continues to go extremely well, with more than 200 new prescriptions from 125 prescribing physicians and over 100 patients approved for reimbursement since FDA approval in June. Our confidence in this opportunity continues to grow. Internationally, IMCIVREE is now available in eight ex-U.S. markets for POMC and LEPR, with success in both regions speaking to the quality of our teams. We are executing on our strategy to expand the overall opportunity for setmelanotide, with strong proof of concept data in our Phase 2 hypothalamic obesity trial, and Phase 3 trial sites are being initiated with patient screening beginning. This week, we announced the acquisition of Xinvento, a preclinical Dutch company with a suite of drug candidates for congenital hyperinsulinism, which fits perfectly with Rhythm's focus, and we are targeting being in the clinic in 2024. We believe this acquisition will have no negative impact on our financial forecast, and we are well capitalized into 2025.

Jennifer Chien, Executive Vice President, Head of North America

Thank you, David. I'm going to be starting on Slide 13 today. We are excited about the current status of our U.S. IMCIVREE BBS launch. We remain focused on our efforts to educate about the diagnosis of BBS and the availability of IMCIVREE, the only FDA-approved therapy targeting the MC4R pathway, a root cause of hunger and obesity in people living with BBS. Through all the efforts of our cross-functional team, we have seen continued progress across the journey from diagnosis of BBS patients through to securing access and maintaining patients on therapy due to the benefits they receive. Since IMCIVREE was approved for BBS by the FDA on June 16, 2022, and through the end of the fourth quarter of 2022, we have received over 200 new prescriptions for BBS patients coming from over 125 physicians. The demand for IMCIVREE is strong, with physicians writing prescriptions and patients experiencing benefits from the drug. Time to payer approval remains approximately one to three months, but we are starting to see faster approvals from payers that have approved IMCIVREE previously. While the majority of remaining prescriptions are in the prior authorization and appeal stages, we have successfully transitioned some patients to our patient assistance program.

Yann Mazabraud, Executive Vice President, Head of International

Thank you, Jennifer, and good morning. I will start with Slide 20. In the international regions, we had a very strong year and a strong fourth quarter as well, making significant progress in securing access for IMCIVREE in multiple indications. IMCIVREE is now available in eight countries outside the United States, and we are optimistic about continued execution this year. For POMC, PCSK1, and LEPR patients, we have identified approximately 100 patients being cared for in medical centers in EU4 and the UK, with an estimated prevalence of around 600 to 2,500 patients in Europe. As for BBS, we have made significant progress since receiving marketing authorization from the EC in September last year. We now have around 1,500 patients diagnosed and being cared for in EU4 and the UK, with a significant unmet medical need. We look forward to bringing several other countries online in 2024 as we continue our market access efforts.

Hunter Smith, CFO

Thank you so much, Yann. Turning to Slide 24. As we begin 2023, we are well capitalized with $333 million in cash on hand, sufficient to fund all planned operations into 2025. In the fourth quarter, we recorded $8.8 million in net product revenue from IMCIVREE, marking an increase of 105% over the third quarter of 2022. U.S. sales represented 84% of total Q4 net sales and 85% for the full year. Cost of goods sold for Q4 was $1 million. R&D expenses were $23.5 million for the fourth quarter, and SG&A expenses were $26.3 million. We expect approximately $200 million to $220 million in non-GAAP operating expenses in 2023, with $120 million to $130 million for R&D and $80 million to $90 million for SG&A. We are excited about the Xinvento opportunity and look forward to seeing progress in this area.

Philip Nadeau, Analyst

Good morning. Thanks for taking our questions and congrats on a successful quarter. First question is on the BBS launch. The pace at which you're adding prescriptions is impressive. With 200 at year end and adding 80 a quarter, the simple math would say you'd be over 500 by the end of 2023. Can you tell, one, whether you're adding new patients to the prescriptions or are you giving prescriptions to patients who are not currently in the registry? And two, can you talk about new patient identification more broadly?

David Meeker, CEO

Thanks, Phil. We’ve been very happy with the level of demand for this product. It speaks to the need and the differential impact in terms of the hyperphagia and the patient population seeking treatment. That said, we continue to be ultra-focused on identifying additional patients to add to our view.

Derek Archila, Analyst

Hey, good morning everyone and thanks for taking the questions. Congrats on all the progress here. First, any commentary on more recent trends for scripts and particularly around BBS patients? Is there any seasonality as you should think about this first quarter relative to the rest of the year?

Jennifer Chien, Executive Vice President, Head of North America

So speaking to the seasonality, particularly it’s unusual for the fourth quarter to potentially be light as far as the November holidays. In terms of this particular therapy, during family gatherings around food, we did see some patients initiate therapy during that time. So, I don't think there's going to be much seasonality; it's more dependent on when physicians see their patients and getting through the reimbursement process.

David Meeker, CEO

Just to reinforce a couple of points, in the rare disease world, trends don't follow a linear fashion. So whether it will be 80 per quarter or not, that will also be lumpy, but we remain incredibly encouraged by the strength of the demand here.

Whitney Ijem, Analyst

Are there any early insights on compliance rates or refill rates as we head into 2023?

Jennifer Chien, Executive Vice President, Head of North America

What is interesting is that when patients feel a difference being on the drug, it tends to lead to a higher persistence and compliance rate. We have seen a very high compliance rate because of the benefits that patients receive.

Michael Higgins, Analyst

Regarding the state Medicaid programs that have decided they will not cover IMCIVREE, is that something that can be revisited within this next year?

David Meeker, CEO

Yes, there is never a definitive no. We continue to work this system, and we have seen opportunities that become yes over time.

Joseph Stringer, Analyst

Just going back to persistence rates for patients that have started on commercial drug, what are some of the main reasons that you're hearing for discontinuation?

Jennifer Chien, Executive Vice President, Head of North America

There is a variety of reasons, such as side effects or personal reasons, but we remain in contact with patients even after discontinuation to explore reinitiating.

David Meeker, CEO

We've had a very reassuring percentage of patients discontinuing due to known side effects as characterized, which speaks to the tolerability of our product.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.