RHYTHM PHARMACEUTICALS, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the “safe harbor” created by those sections. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q,, including without limitation statements regarding: our financial performance, including our expectations regarding our existing cash, operating losses, expenses and sources of future financing; our ability to hire and retain necessary personnel; patient enrollments and the timing thereof; the timing of announcements regarding results of clinical trials; our ability to protect our intellectual property; our ability to negotiate our collaboration agreements, if needed; our marketing, commercial sales, and revenue generation; expectations surrounding our manufacturing arrangements; the impact of the novel coronavirus, or COVID-19, pandemic on our business and operations and our future financial results; ceasing to qualify as an emerging growth company or a smaller reporting company as of December 31, 2020; and other statements identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “likely,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms are forward-looking statements. These forward-looking statements are neither promises nor guarantees of future performance, and are subject to a variety of known and unknown risks and uncertainties, many of which are beyond our control, and other important factors which could cause actual results to differ materially from those contemplated in such forward-looking statements. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including but not limited to those set forth in Part II, Item 1A under the heading “Risk Factors” of this Quarterly Report on Form 10-Q. Except as may be required by law, we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q . We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made . Overview We are a late-stage biopharmaceutical company focused on the development and commercialization of therapeutics for the treatment of rare genetic disorders which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia. Our lead product candidate is setmelanotide, a potent melanocortin-4 receptor, or MC4R, agonist for the treatment of rare genetic disorders of obesity. We believe setmelanotide, for which we have exclusive worldwide rights, has the potential to restore dysfunctional MC4R signaling due to impaired MC4R pathway function. MC4R pathway deficiencies result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense feelings of hunger and to obesity. Our development efforts are initially focused on obesity related to several single gene-related, or monogenic, MC4R pathway deficiencies: pro-opiomelanocortin, or POMC, deficiency obesity; leptin receptor, or LEPR, deficiency obesity; Bardet-Biedl syndrome, or BBS; Alström syndrome; POMC or LEPR heterozygous deficiency obesity; steroid receptor coactivator 1, or SRC1, deficiency obesity; SH2B adapter protein 1, or SH2B1, deficiency obesity; MC4R deficiency obesity and Smith-Magenis syndrome, as well as additional disorders as part of investigator-initiated protocols. There are currently no effective or approved treatments for these MC4R pathway-related disorders. We believe that the MC4R pathway is a compelling target for treating these genetic disorders because of its critical role in regulating appetite and weight by promoting satiety and weight control, and that peptide therapeutics are uniquely suited for activating this target. We have previously reported positive topline Phase 3 data in POMC deficiency obesity and LEPR deficiency obesity, and have demonstrated proof of concept in Phase 2 clinical trials in BBS and Alström syndrome. In these four genetic disorders of extreme and unrelenting appetite and obesity, setmelanotide has dramatically reduced both weight and hunger. The U.S. Food and Drug Administration, or the FDA, has acknowledged the importance of these results by giving setmelanotide Breakthrough Therapy designation for the treatment of obesity associated with genetic defects upstream of the MC4R in the leptin melanocortin pathways. The Breakthrough Therapy designation currently covers indications for POMC deficiency obesity, LEPR deficiency obesity, BBS and Alström syndrome. The European Medicines Agency, or 15 Table of Contents EMA, has also granted PRIority MEdicine, or PRIME, designation for setmelanotide for the treatment of obesity and the control of hunger associated with deficiency disorders of the MC4R pathway. Both the FDA and EMA have granted orphan drug status to setmelanotide for POMC and LEPR deficiency obesities. The FDA has granted rare pediatric disease designations for setmelanotide in POMC and LEPR deficiency obesities. Subject to FDA approval of setmelanotide for the treatment of POMC and LEPR deficiency obesities before September 30, 2022, we would be eligible to receive one priority review voucher, which could then be redeemed to receive priority review for any subsequent marketing application, or sold or transferred to other companies for their programs. The FDA has accepted our NDA for setmelanotide for the treatment of POMC and LEPR deficiency obesities for filing, granted Priority Review of the NDA and assigned a Prescription Drug User Fee Act, or PDUFA, goal date of November 27, 2020. We submitted a marketing authorization application, or MAA, for setmelanotide to treat individuals living with POMC deficiency obesity or LEPR deficiency obesity to the EMA in June 2020, which was validated in July 2020. We demonstrated proof of concept in our Phase 2 clinical trial in BBS and Alström syndrome, and met with the FDA in May 2018 to discuss a combined pivotal Phase 3 clinical trial in these indications. Based on these discussions with the FDA, we initiated this Phase 3 trial in December 2018 and we completed enrollment in December 2019 and expect to report topline data at the end of 2020 or early in the first quarter of 2021. We have ongoing Phase 2 clinical trials, referred to as our Basket Study, in MC4R pathway heterozygous deficiency obesity and POMC epigenetic disorders, which we expanded in the second half of 2019 to include the following additional indications: SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity and Smith-Magenis syndrome. We reported preliminary results in MC4R pathway heterozygous deficiency obesity in March 2019 and expect to report additional data in this indication in early 2021. We also plan to report additional data from one or more of the other Basket Study indications in early 2021. As of September 30, 2020, an aggregate of approximately 465 obese subjects and patients have been treated with setmelanotide in previous and ongoing clinical trials in which setmelanotide demonstrated statistically significant weight loss with good tolerability. We have acquired exclusive, worldwide rights from Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize T-3525770, now RM-853. RM-853 is a potent, orally available ghrelin o-acyltransferase inhibitor currently in preclinical development. Through our preclinical development pipeline, we continue to assess the therapeutic potential of RM-853 as well as opportunities to identify populations that may benefit from a mechanistically rationalized therapeutic approach. We have assumed sole responsibility for the global product development and commercialization of RM-853. Takeda received an upfront fee of $4.4 million in shares of our common stock, and will receive back-end development milestones, and single-digit royalties on future RM-853 sales. We are currently evaluating next steps for pre-clinical development of RM-853. Our operations to date have been limited primarily to conducting research and development activities for setmelanotide. To date, we have not generated any product revenue and have financed our operations primarily through the proceeds received from the sales of common and preferred stock as well as capital contributions from the former parent company, Rhythm Holdings LLC, or the LLC entity. Since our initial public offering, or IPO, on October 10, 2017 through our October 18, 2019 public offering, we have raised aggregate gross proceeds of our common stock of approximately $484.5 million before deducting underwriting discounts, commissions and offering related transaction costs. We will not generate revenue from product sales until we successfully complete development and obtain regulatory approval for setmelanotide, which we expect will take a number of years and is subject to significant uncertainty. We expect to continue to fund our operations through the sale of equity, debt financings or other sources. We intend to build our own marketing and commercial sales infrastructure and we may enter into collaborations with other parties for certain markets outside the United States. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or commercialization of setmelanotide. As of September 30, 2020 we had an accumulated deficit of $424.4 million. Our net losses were $33.8 million, $36.0 million, $99.1 million and $107.8 million for the three and nine months ended September 30, 2020 and 2019, respectively. We expect to continue to incur significant expenses and increasing operating losses over the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we: ● continue to conduct clinical trials for setmelanotide; 16 Table of Contents ● engage contract manufacturing organizations, or CMOs, for the manufacture of clinical and commercial-grade setmelanotide and the manufacture of RM-853 for preclinical development; ● seek regulatory approval for setmelanotide; ● expand our clinical and financial operations and build a marketing and commercialization infrastructure; and ● continue to operate as a public company. As of September 30, 2020, our existing cash and cash equivalents and short-term investments were approximately $201.8 million. We expect that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses through at least the end of 2021. Corporate Background We are a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc. Prior to our organization and a corporate reorganization, we were part of Rhythm Pharmaceuticals, Inc., a Delaware corporation which was organized in November 2008 and which commenced active operations in 2010. We refer to this corporation as the Predecessor Company. Impact of Novel Coronavirus We are closely monitoring how the spread of COVID-19 is affecting our employees, business, preclinical studies and clinical trials. In response to the COVID-19 pandemic, we have limited access to our executive offices with most employees continuing their work outside of our offices and travel has been restricted. We currently continue to expect to meet disclosed timelines for reporting data from our pivotal Phase 3 trial in BBS and Alström syndrome. We have recently updated our timelines on the Basket Study but the changes were unreleated to COVID-19. We are continuing our regular interactions with the FDA and EMA and based on current information, we do not anticipate COVID-19 to materially affect our regulatory timelines for POMC deficiency obesity or LEPR deficiency obesity. We do not currently anticipate any disruption in the clinical supply of setmelanotide and our CMOs have indicated that they have appropriate plans and procedures in place to ensure uninterrupted future supply of clinical and commercial-grade setmelanotide, subject to potential limitations on their operations due to COVID-19. As a result, we do not currently expect that the COVID-19 pandemic will have a material impact on our business, results of operations and financial condition. At this time, however, there is significant uncertainty relating to the trajectory of the pandemic and the impact of related responses, and disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. See “Risk Factors—The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our preclinical studies, clinical trials and our commercialization prospects.” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Financial Operations Overview Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of setmelanotide unless and until we receive regulatory approval of setmelanotide. We cannot predict if, when, or to what extent we will generate revenues from the commercialization and sale of setmelanotide. Setmelanotide is currently our most advanced product candidate in clinical development, and we may never succeed in achieving regulatory approval for setmelanotide or any other product candidate that we decide to pursue in the future. 17 Table of Contents Research and development expenses Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery and genetic sequencing efforts, and the clinical development of setmelanotide and RM-853, which include: ● expenses incurred under agreements with third parties, including CROs that conduct research and development and preclinical activities on our behalf, and the cost of consultants and CMOs that manufacture drug products for use in our preclinical studies and clinical trials; ● employee-related expenses including salaries, benefits and stock-based compensation expense; ● the cost of lab supplies and acquiring, developing and manufacturing preclinical and clinical study materials; ● the cost of genetic sequencing of potential patients in clinical studies; and ● facilities, depreciation, and other expenses, which include rent and maintenance of facilities, insurance and other operating costs. We expense research and development costs to operations as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The capitalized amounts are expensed as the related goods are delivered or the services are performed. The following table summarizes our current research and development expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, Research and development summary 2020 2019 2020 2019 Research and development expense ​ $ 22,995 ​ $ 26,572 ​ $ 68,496 ​ $ 84,641 ​ We are unable to predict the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of setmelanotide will depend on a variety of factors, including: ● the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development activities; ● the rate of enrollment in clinical trials; ● the safety and efficacy demonstrated by setmelanotide in future clinical trials; ● changes in regulatory requirements; ● changes in clinical trial design; and ● the timing and receipt of any regulatory approvals. A change in the outcome of any of these variables with respect to the development of our product candidates would significantly change the costs and timing associated with its development and potential commercialization. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to 18 Table of Contents increase significantly for the foreseeable future as our setmelanotide and RM-853 development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to commercialization and there can be no guarantee that we can meet the funding needs associated with these expenses. Selling, general and administrative expenses Selling expenses consist of professional fees related to preparation for the eventual commercialization of setmelanotide, if approved, as well as salaries and related benefits for commercial employees, including stock-based compensation. As we accelerate our preparation for commercialization and, if it is approved, start to market setmelanotide and as we explore new collaborations to develop and commercialize setmelanotide, we anticipate that these expenses will materially increase. General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, relating to our full-time employees not involved in R&D or commercial activities. Other significant costs include rent, legal fees relating to patent and corporate matters and fees for accounting and consulting services. The following table summarizes our current selling, general and administrative expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, Selling, general and administrative summary 2020 2019 2020 2019 Selling, general and administrative expense ​ $ 11,289 ​ $ 10,535 ​ $ 33,006 ​ $ 27,135 ​ We anticipate that our selling, general and administrative expenses will increase in the future to support continued and expanding development efforts, potential commercialization of setmelanotide and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, compliance with exchange listing and SEC expenses, insurance and investor relations costs, among other expenses. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances on an ongoing basis, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. During the three months ended September 30, 2020, there were no significant changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 19 Table of Contents Results of Operations Comparison of the three months ended September 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019, together with the changes in those items in dollars and as a percentage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Change ​ 2020 2019 $ % ​ ​ (in thousands) Statement of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Expenses: ​ ​ ​ ​ ​ Research and development ​ $ 22,995 ​ $ 26,572 ​ $ (3,577) ​ (13) % Selling, general, and administrative ​ 11,289 ​ 10,535 ​ 754 ​ 7 % Total operating expenses ​ 34,284 ​ 37,107 ​ (2,823) ​ (8) % Loss from operations ​ (34,284) ​ (37,107) ​ 2,823 ​ (8) % Other income, net ​ 466 ​ 1,104 ​ (638) ​ (58) % Net loss ​ $ (33,818) ​ $ (36,003) ​ $ 2,185 ​ (6) % ​ Research and development expense. Research and development expense decreased by $3.6 million to $23.0 million in 2020 from $26.6 million in 2019, a decrease of 13%. The decrease was primarily due to the following: ● a decrease of $5.2 million related to our clinical trials associated with the GO-ID genotyping study and the once-weekly formulation study. These studies were nearing or at completion during the period and we had begun to gather and analyze the results from the studies; and ● a decrease of $3.2 million related to translational research and genetic sequencing efforts, as the near-completion of the GO-ID study resulted in lower sequencing volume. The above decreases were partially offset by: ● an increase of $3.6 million related to purchases of setmelanotide API for clinical trials and commercial scale up; and ● an increase of $1.0 million related to a milestone expense associated with the license agreement with Ipsen on filing the MMA for setmelanotide for the treatment of POMC and LEPR deficiency obesities with the EMA. Selling, general and administrative expense. Selling, general and administrative expense increased by $0.8 million to $11.3 million in 2020 from $10.5 million in 2019, an increase of 7%. The increase was primarily due to the following: ● an increase of $1.3 million related to stock compensation expense associated with a grant to our new Chief Executive Officer and other new hire grants during the period, and the modification of certain awards in connection our Chief Commercial Officer’s separation agreement. The above increase was partially offset by: ● a decrease of $0.8 million related to consulting services associated with patient engagement, disease awareness and unbranded education about rare genetic causes of obesity. Net loss. Net loss decreased by $2.2 million to $33.8 million in 2020, from $36.0 million in 2019. The decrease in net loss was primarily due to the decrease in research and development expense discussed above. 20 Table of Contents ​ Comparison of the nine months ended September 30, 2020 and 2019 The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019, together with the changes in those items in dollars and as a percentage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Change ​ 2020 2019 $ ​ % ​ ​ (in thousands) Statement of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Expenses: ​ ​ ​ ​ ​ Research and development ​ $ 68,496 ​ $ 84,641 ​ $ (16,145) ​ (19) % Selling, general, and administrative ​ 33,006 ​ 27,135 ​ 5,871 ​ 22 % Total operating expenses ​ 101,502 ​ 111,776 ​ (10,274) ​ (9) % Loss from operations ​ (101,502) ​ (111,776) ​ 10,274 ​ (9) % Other income, net ​ 2,403 ​ 4,003 ​ (1,600) ​ (40) % Net loss ​ $ (99,099) ​ $ (107,773) ​ $ 8,674 ​ (8) % ​ Research and development expense. Research and development expense decreased by $16.1 million to $68.5 million in 2020 from $84.6 million in 2019, a decrease of 19%. The decrease was primarily due to the following: ● a decrease of $16.0 million related to our clinical trial associated with the GO-ID genotyping study, the POMC and LEPR clinical studies and the once-weekly formulation study. These studies were nearing their completion during the period and we had begun to gather and analyze the results from the studies; and ● a decrease of $7.5 million related to translational research, pathway validation and genetic sequencing efforts, as the near-completion of the GO-ID study resulted in lower sequencing volume. The above decreases were partially offset by: ● an increase of $3.0 million related to a milestone expense associated with the license agreement with Ipsen on filing the NDA with the FDA and filing the MAA with the EMA; ● an increase of $2.5 million related to our Phase 2 Basket Study clinical trial, as we continue to expand patients and trial sites into this study; and ● an increase of $1.2 million related to purchases of setmelanotide API for clinical trials and commercial scale up. Selling, general and administrative expense. Selling, general and administrative expense increased by $5.9 million to $33.0 million in 2020 from $27.1 million in 2019, an increase of 22%. The increase was primarily due to the following: ● a charge of $4.0 million related to the separation agreements and modification of stock options for our former Chief Executive Officer and Chief Commercial Officer upon their departures; and ● an increase of $1.0 million in various consulting and professional services related to legal and IT support costs for continued support of the growth in personnel and systems. Net loss. Net loss decreased by $8.7 million to $99.1 million in 2020, from $107.8 million in 2019. The decrease in net loss was primarily due to the decrease in research and development expense discussed above, partially offset by the increase in selling, general and administrative expense discussed above. 21 Table of Contents Liquidity and Capital Resources As of September 30, 2020, our cash and cash equivalents and short-term investments were approximately $201.8 million. Cash flows The following table provides information regarding our cash flows for the nine months ended September 30, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2020 2019 ​ ​ (in thousands) Net cash provided by (used in): ​ ​ ​ ​ ​ ​ Operating activities ​ $ (92,857) ​ $ (90,529) Investing activities ​ 96,644 ​ 111,157 Financing activities ​ 1,589 ​ 1,511 Net increase in cash, cash equivalents and restricted cash ​ $ 5,376 ​ 22,139 ​ Net cash used in operating activities The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was $92.9 million for the nine months ended September 30, 2020 and consisted primarily of a net loss of $85.6 million adjusted for non-cash items, which consisted of non-cash stock-based compensation, depreciation and amortization and rent expense. The change in operating assets and liabilities reflected a total use of cash of approximately $7.3 million from a decrease in prepaid expenses and accounts payables and accrued expenses associated with our CROs, CMOs and consultants due to the timing of payments. Net cash used in operating activities was $90.5 million for the nine months ended September 30, 2019 and consisted primarily of a net loss of $97.9 million adjusted for non-cash items, which consisted of the non-cash stock-based compensation, depreciation and amortization and rent expense. The change in operating assets and liabilities reflected a total use of cash of approximately $4.6 million for an increase in prepaid expenses associated with our CROs and CMOs due to the timing of payments offset by an increase of $11.0 million in accounts payables and accrued expenses. We also received proceeds of $0.9 million from tenant improvement allowances related to our new office space. Net cash provided by investing activities Net cash provided by investing activities for the nine months ended September 30, 2020 relates to the net maturities of short-term investments. Net cash provided by investing activities for the nine months ended September 30, 2019 relates to the net maturities of short-term investments of $114.5 million, partially offset by $3.4 million of cash used for tenant improvements and new furniture and fixtures related to our new office space. ​ ​ ​ Net cash provided by financing activities Net cash provided by financing activities was $1.6 million for the nine months ended September 30, 2020, which represents net proceeds from purchases made under our 2017 Employee Stock Purchase Plan and proceeds from the exercise of stock options. 22 Table of Contents Net cash provided by financing activities was $1.5 million for the nine months ended September 30, 2019, which represents net proceeds from purchases made under our 2017 Employee Stock Purchase Plan and proceeds from the exercise of stock options. Funding requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of and seek marketing approval for setmelanotide. In addition, if we obtain marketing approval for setmelanotide, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. We also expect to incur additional costs associated with operating as a public company. We expect that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses through at least the end of 2021. We may need to obtain substantial additional funding in connection with our research and development activities and any continuing operations thereafter. If we are unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, including: ● the scope, progress, results and costs of clinical trials for our setmelanotide program; ● the costs, timing and outcome of regulatory review of our setmelanotide program; ● the costs to commercialize setmelanotide, if approved, by building an internal sales force or entering into collaborations with third parties and providing support services for patients; ● the obligations owed to Ipsen Pharma S.A.S., or Ipsen, Camurus AB, or Camurus, and Takeda pursuant to our license agreements; ● the extent to which we acquire or in-license other product candidates and technologies; ● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and ● our ability to establish and maintain additional collaborations on favorable terms, if at all. Developing our setmelanotide program is a time-consuming, expensive and uncertain process that may take years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, setmelanotide, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of setmelanotide following regulatory approval, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q as this continues to evolve globally. See “Impact of Novel Coronavirus” above and “Risk Factors— The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our preclinical studies, clinical trials and our commercialization prospects.” in Part II, Item 1A of this Quarterly Report on Form 10-Q for a further discussion of the possible impact of the COVID-19 pandemic on our business. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. 23 Table of Contents From August 2015 through August 2017, we raised aggregate gross proceeds of $81.0 million through our issuance of series A preferred stock. Since our IPO, in October 2017, through our October 2019 public offering, we have raised aggregate net proceeds of approximately $450.0 million through the issuance of our common stock after deducting underwriting discounts, commissions and offering related transaction costs. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, involves agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our setmelanotide program on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our setmelanotide program that we would otherwise prefer to develop and market ourselves. Contractual obligations As of September 30, 2020, there were no material changes to our principal contractual obligations and commitments as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Off-Balance Sheet Arrangements We did not have during the period presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules. Item 3. Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2020, there were no material changes to our quantitative and qualitative disclosures about market risks as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.