What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-05-03 · 70 added, 52 removed, 325 unchanged (27% of the section changed)

26 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at March 31, 2021 and December 31, 2020

no shares issued and outstanding at June 30, 2021 and December 31, 2020

Common stock, $ 0.001 par value:

120,000,000 shares authorized;

50,201,758 and 44,235,903 shares issued and outstanding March 31, 2021 and December 31, 2020 , respectively

50,226,739 and 44,235,903 shares issued and outstanding June 30, 2021 and December 31, 2020 , respectively

Additional paid-in capital

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income

Accumulated deficit

5 unchanged sentences

(in thousands, except share and per share data)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Product revenue, net

9 unchanged sentences

Income (loss) before taxes

Provision for income taxes

Provision for (benefit from) income taxes

Net income (loss)

19 unchanged sentences

Balance at March 31, 2021

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Balance at June 30, 2021

Balance at December 31, 2019

4 unchanged sentences

Balance at March 31, 2020

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Balance at June 30, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

2 unchanged sentences

(in thousands)

Three months ended March 31,

Six months ended June 30,

Operating activities

14 unchanged sentences

Proceeds from sale of priority review voucher

Milestone obligation under license agreement

Purchases of property and equipment

20 unchanged sentences

Food and Drug Administration, or FDA, for chronic weight management in adult and pediatric patients six years of age and older with obesity due to proopiomelanocortin, or POMC, proprotein convertase subtilisin/kexin type 1, or PCSK1, or leptin receptor, or LEPR, deficiency confirmed by genetic testing.

IMCIVREE is now commercially available.

IMCIVREE also has been approved by the European Commission for the treatment of obesity and the control of hunger associated with genetically confirmed loss-of-function biallelic POMC, including PCSK1, deficiency or biallelic LEPR deficiency in adults and children 6 years of age and above.

IMCIVREE is now commercially available in the United States, and we are pursuing an international strategy to establish access and reimbursement for IMCIVREE in the European Union, or EU.

The Company is a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc.

The Company’s continued development efforts are focused on obesity related to several single gene-related, or monogenic, MC4R pathway deficiencies:

Bardet-Biedl syndrome, or BBS;

Alström syndrome;

HET obesity due to a genetic variant in one of the two alleles of the POMC, PCSK1 or LEPR gene, or HETs;

Bardet-Biedl and Alstrom syndromes;

obesity due to a genetic variant in one of the two alleles of the POMC, PCSK1 or LEPR gene, or heterozygous POMC, PCSK1 or LEPR obesity (collectively HETs);

obesity due to steroid receptor coactivator 1, or SRC1, deficiency;

and obesity due to SH2B adapter protein 1, or SH2B1, deficiency;

MC4R deficiency obesity and Smith-Magenis syndrome, as well as additional diseases as part of investigator-initiated protocols.

obesity due to SH2B adapter protein 1, or SH2B1, deficiency;

hypothalamic obesity;

and MC4R deficiency obesity.

In addition, we have expanded our development program to explore setmelotide’s potential efficacy in patients with severe obesity which may be due to variants in an additional 31 genes that are related to the MC4R pathway.

There are additional diseases being studied as part of investigator-initiated protocols.

Currently, there are no effective or approved treatments for these MC4R pathway-related diseases.

5 unchanged sentences

The Company has incurred operating losses and negative cash flows from operations since inception.

As of March 31, 2021, the Company had an accumulated deficit of $ 415,577 .

The Company has primarily funded these losses through the proceeds from the sales of common and preferred stock, asset sales as well as capital contributions received from the former parent company, Rhythm Holdings LLC.

As of June 30, 2021, the Company had an accumulated deficit of $ 450,966 .

The Company has primarily funded these losses

through the proceeds from the sales of common and preferred stock, asset sales as well as capital contributions received from the former parent company, Rhythm Holdings LLC.

To date, the Company has minimal product revenue and management expects operating losses to continue for the foreseeable future.

The Company has devoted substantially all of its resources to its drug development efforts, comprising of research and development, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, pre-commercialization activities and general and

administrative functions relating to these operations.

The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations.

1 unchanged sentence

As the PRV did not have a carrying value, the gain recognized within Other income (loss) was equal to the gross proceeds received, with costs related to the sale of the voucher recorded within selling, general and administrative expenses.

At March 31, 2021, the Company had $ 404,750 of cash and cash equivalents and short-term investments on hand.

At June 30, 2021, the Company had $ 368,154 of cash and cash equivalents and short-term investments on hand.

In the future, the Company will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, product sales and funded research and development programs to maintain the Company's operations and meet the Company's obligations.

7 unchanged sentences

As permitted under these rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted.

The accompanying interim balance sheet as of March 31, 2021, the statements of operations and comprehensive income (loss) for the three months ended March 31, 2021 and 2020, the statements of stockholders equity and the statements of cash flows for the three months ended March 31, 2021 and 2020 and the related footnote disclosures are unaudited.

The accompanying interim balance sheet as of June 30, 2021, the statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020, the statements of stockholders equity for the three and six months ended June 30, 2021 and 2020 and the statements of cash flows for the six months ended June 30, 2021 and 2020 and the related footnote disclosures are unaudited.

In management's opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements as of and for the year ended December 31, 2020 and include all adjustments, which are all normal recurring adjustments, necessary for the fair presentation of the interim financial statements.

The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The results for the six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements.

As of March 31, 2021, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As of June 30, 2021, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Certain amounts totaling $ 63 in the consolidated statement of stockholders’ equity for the three months ended March 31, 2020, related to unrealized gains on marketable securities, have been reclassified from additional paid-in capital to accumulated other comprehensive income to conform to the current period presentation.

2 unchanged sentences

There are many uncertainties regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will impact its patients, employees, suppliers, vendors, business partners and distribution channels.

While the pandemic did not materially affect the

Company's financial results and business operations for the three months ended March 31, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

While the pandemic did not materially affect the Company's financial results and business operations for the six months ended June 30, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

30 unchanged sentences

The product is distributed through an exclusive third-party logistics, or 3PL, distribution agent that does not take title to the product.

Once the product is delivered to the Company’s exclusive specialty pharmacy

provider, our sole customer in the U.S., the customer (or “wholesaler”) takes title to the product.

Once the product is delivered to the Company’s exclusive specialty pharmacy provider, our sole customer in the U.S., the customer (or “wholesaler”) takes title to the product.

The wholesaler then distributes the product to health care providers and patients.

3 unchanged sentences

There are no other performance obligations besides the sale of product.

The Company records shipping and handling costs within cost of goods sold on our consolidated statements of operations.

We classify payments to our customer or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our consolidated statements of operations.

19 unchanged sentences

These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses on our consolidated balance sheet.

For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program.

For Medicare, we also

estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program.

On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

5 unchanged sentences

Product Returns:

Our customer has limited return rights related to the product’s expiration date or instances of damage or defect.

Our customer has limited return rights related to the product’s damage or defect.

The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized.

Based on the distribution model for IMCIVREE and the price of IMCIVREE, we believe there will be minimal returns.

Based on the distribution model for IMCIVREE and the price of IMCIVREE, the Company believes there will be minimal returns.

Other incentives:

2 unchanged sentences

The estimate is recorded as a reduction of revenue in the same period the related revenue is recognized.

During the quarter ended March 31, 2021, we recorded product revenue, net, of $35.

The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the quarter ended March 31, 2020 due to the immateriality of the revenue recognized during the period.

During the three and six months ended June 30, 2021, we recorded product revenue, net, of $ 274 and $ 309 .

The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the three and six months ended June 30, 2021 due to the immateriality of the revenue recognized during the period.

Cost of Product Sales

Prior to receiving approval from the FDA in November 2020 to sell IMCIVREE, the Company expensed all costs incurred related to the manufacture of IMCIVREE as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates.

Subsequent to receiving FDA approval in November 2020, the Company has not capitalized any inventory related costs during the three month period ended March 31, 2021.

Prior to receiving approval from the FDA in November 2020 to sell IMCIVREE in the United States, the Company expensed all costs incurred related to the manufacture of IMCIVREE as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates.

Subsequent to receiving FDA approval in November 2020, the Company has capitalized a nominal amount of inventory related costs that were incurred subsequent to FDA approval.

At June 30, 2021, the Company had $ 28 of inventory recorded as a component of other current assets on the condensed consolidated balance sheet.

Cost of product sales will consist of manufacturing costs, transportation and freight, amortization of capitalized intangibles, royalty payments and indirect overhead costs associated with the manufacturing and distribution of IMCIVREE.

2 unchanged sentences

Accounts Receivable, Net

In general, accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts, product returns, and chargebacks.

In general, accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts and chargebacks.

The Company's contracts with customers have standard payment terms that generally require payment within 45 days .

The Company analyzes accounts that are past due for collectability, and periodically evaluates the creditworthiness of its customers.

As of March 31, 2021, we determined an allowance for doubtful accounts was not required based upon our review of contractual payment terms and individual customer circumstances.

As of June 30, 2021, we determined an allowance for doubtful accounts was not required based upon our review of contractual payment terms and individual customer circumstances.

Intangible Assets, Net

Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis over their remaining useful lives, which are estimated to be the remaining patent life.

If our estimate of the product’s useful life is shorter than the remaining patent life, then a shorter period is used.

If our estimate of

the product’s useful life is shorter than the remaining patent life, then a shorter period is used.

Amortization expense is recorded as a component of cost of sales on the consolidated statements of operations and comprehensive income (loss).

11 unchanged sentences

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents and marketable securities at March 31, 2021 and December 31, 2020 were carried at fair value, determined according to the fair value hierarchy.

The Company’s cash equivalents and marketable securities at June 30, 2021 and December 31, 2020 were carried at fair value, determined according to the fair value hierarchy.

See Note 4 for further discussion.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses approximate their fair values due to their short-term maturities at March 31, 2021 and December 31, 2020, respectively.

Net Income (Loss) Per Share

1 unchanged sentence

Diluted net income (loss) per common share is computed by adjusting the weighted-average shares outstanding for the potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method.

For purposes of the diluted net income (loss) per share calculation, 781,404 stock options and 82,591 restricted stock units were considered to be common stock equivalents for the three months ended March 31, 2021.

For the three months ended March 31, 2020, the common stock equivalents have been excluded from the calculation of diluted net income (loss) per share, as their effect would be anti-dilutive for the period presented.

For purposes of the diluted net income (loss) per share calculation, 640,318 stock options and 73,259 restricted stock units were considered to be common stock equivalents for the three and six months ended June 30, 2021.

For the three and six months ended June 30, 2020, the common stock equivalents have been excluded from the calculation of diluted net income (loss) per share, as their effect would be anti-dilutive for the period presented due to the net losses incurred for such periods.

The following table includes the potential common shares, presented based on amounts outstanding at each period end, that were excluded from the computation of diluted net loss per share due to their anti-dilutive effect, for the periods indicated:

Three Months Ended

Six Months Ended

Stock options

30 unchanged sentences

Fair Value of Financial Assets

As of March 31, 2021 and December 31, 2020, the carrying amount of cash and cash equivalents and short-term investments was $ 404,750 and $ 172,792 , respectively, which approximates fair value.

As of June 30, 2021 and December 31, 2020, the carrying amount of cash and cash equivalents and short-term investments was $ 368,154 and $ 172,792 , respectively, which approximates fair value.

Cash and cash equivalents and short-term investments includes investments in U.S.

5 unchanged sentences

Fair value Measurements as of

March 31, 2021 using:

June 30, 2021 using:

Cash Equivalents:

12 unchanged sentences

The following tables summarize the Company's marketable securities:

March 31, 2021

June 30, 2021

Corporate debt securities and commercial paper (due within 1 year)

6 unchanged sentences

The Company estimated the incremental borrowing rate for the leased asset based on a range of comparable interest rates the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

As of March 31, 2021, the Company has not entered into any lease arrangements classified as a finance lease.

As of June 30, 2021, the Company has not entered into any lease arrangements classified as a finance lease.

The Company’s corporate headquarters is located in Boston, Massachusetts.

2 unchanged sentences

The Company has not included the five-year renewal option to extend the lease in its measurement of the ROU asset or lease liability.

The following table presents the maturities of the Company’s operating lease liability related to office space as of March 31, 2021, all of which is under a non-cancellable operating lease:

The following table presents the maturities of the Company’s operating lease liability related to office space as of June 30, 2021, all of which is under a non-cancellable operating lease:

Operating Lease

4 unchanged sentences

Intangible Assets, Net

As of March 31, 2021, the Company’s finite-lived intangible assets, which totaled $ 5.0 million, resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

As of June 30, 2021, the Company’s finite-lived intangible assets, which totaled $ 4,886 , resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the

Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

in March 2021.

The Company began amortizing its finite-lived intangible assets in March 2021 over IMCIVREE’s initial regulatory exclusivity period.

Amortization expense was not material for the three months ended March 31, 2021.

The Company began amortizing its finite-lived intangible assets in April 2021 over an 11 year period based on IMCIVREE’s expected patent exclusivity period.

Amortization expense totaled $ 114 for the three and six months ended June 30, 2021.

Amortization expense will be included in cost of sales on the consolidated statements of operations and comprehensive loss.

The Company recorded a tax provision of $ 22,006 for the period ended March 31, 2021, primarily related to the sale of the PRV, offset by a tax benefit from the Company's ordinary losses.

The Company recorded a tax ( benefit) of ($ 5,022 ) for the three month period ended June 30, 2021.

The Company recorded a tax provision of $ 16,984 for the six month period ended June 30, 2021.

The sale of the PRV resulted in a tax provision of $ 22,006 recorded during the three month period ended March 31, 2021, which will be offset by ordinary losses generated by the Company over the remainder of current year.

The Company expects to have sufficient tax losses in the current year to offset the income from the sale and thus no current year liability is expected.

6 unchanged sentences

The modification included the continuation of vesting of stock options through the end of December 31, 2020 and an extension of the post-termination exercise period for vested options from 90 days to up to two years .

In connection with this modification, the Company recorded an incremental compensation charge of $ 2,811 during the three months ended March 31, 2020.

As of March 31, 2021, an aggregate of 10,039,110 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options and restricted stock units that have been issued of 6,365,832 shares of common stock and 983,993 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

In connection with this modification, the Company recorded an incremental compensation charge of $ 2,811 during the six months ended June 30, 2020.

As of June 30, 2021, an aggregate of 10,014,129 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options and restricted stock units that have been issued of 6,277,702 shares of common stock and 983,993 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

Related-Party Transactions

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 636 and $ 860 for the three months ended March 31, 2021 and 2020, respectively.

Outstanding payments due to these related parties as of March 31, 2021 and December 31, 2020 were $ 42 and $ 187 , respectively, and were included within accounts payable on the balance sheet.

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 487 , $ 916 , $ 1,097 , and $ 1,776 for the three and six months ended June 30, 2021 and 2020, respectively.

Outstanding payments due to these related parties as of June 30, 2021 and December 31, 2020 were $ 0 and $ 187 , respectively, and were included within accounts payable on the balance sheet.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements