What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-03 · 120 added, 92 removed, 243 unchanged (47% of the section changed)

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in the first quarter 2021.

In July 2021, the European Commission granted marketing authorization to IMCIVREE (setmelanotide) 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.

We recently announced positive topline results from a pivotal Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with Bardet-Biedl syndrome, or BBS, or Alström syndrome.

The European Commission and Great Britain’s Medicines & Healthcare Products Regulatory Agency, or MHRA, in July and September 2021, respectively, granted marketing authorization to IMCIVREE 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.

We are making steady progress towards achieving market access in Germany, Great Britain, France, Italy and Spain.

Reimbursement dossiers have been submitted in The Netherlands and Israel, and we have recently initiated dossier development in Sweden.

We recently completed and submitted a supplemental New Drug Application, or sNDA, to the U.S.

Food and Drug Administration, or FDA, and a Type II variation application to the EMA for IMCIVREE for the treatment of obesity and control of hunger in adult and pediatric patients 6 years of age and older with Bardet-Biedl syndrome, or BBS, or

Alström syndrome.

These regulatory submissions were based on data from a pivotal Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with BBS, or Alström syndrome.

The trial met its primary and all key secondary endpoints, showing statistically significant and clinically meaningful reductions in weight and hunger scores.

All primary endpoint responders were patients with BBS.

There were three evaluable patients with Alström syndrome and none of them met the primary endpoint.

We are continuing to analyze the full data from patients with BBS or Alström syndrome, which we plan to present at a medical meeting in the second

half of 2021.

In August 2021, we announced that, based on feedback from both the FDA and EMA, we plan to submit a supplemental New Drug Application, or sNDA, to the FDA and a Type II variation marketing authorization application or MAA to the European Medicines Agency, or EMA, in the second half of 2021, which will cover both BBS and Alström syndrome.

All patients who met the primary endpoint defined as more than 10 percent weight loss had BBS and none had Alström syndrome.

However, data from this trial, supported by results from the Phase 2 trial, suggest that treatment with setmelanotide may result in decreased weight and hunger in people living with Alström syndrome.

Based on FDA timelines, we will know in November 2021 if our sNDA has been accepted with Priority Review, as we have requested.

If granted, the FDA typically has a review period of six-months from the date of acceptance.

We currently anticipate a commercial launch in the United States in mid-2022.

The review timeline in Europe is calendar-based, and we would expect a decision from the European Commission in the second half of 2022.

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

Alström syndrome;

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

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

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

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Consistent with prior clinical experience, setmelanotide was generally well tolerated in each of these rare genetic diseases of obesity.

In August 2021, we announced agreement with the FDA and EMA on the design of our pivotal Phase 3 EMANATE trial of setmelanotide.

In August 2021, we announced agreement with the FDA and EMA on the clinical design and primary endpoint of our pivotal Phase 3 EMANATE trial of setmelanotide.

The trial will be a randomized, double-blind, placebo-controlled study with five independent sub-studies evaluating setmelanotide in patients with:

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or PCSK1 N221D deletions within the MC4R pathway.

Each sub-study will be entirely independent of the others and, if successful, is designed to allow us to submit separate regulatory submissions to the FDA and EMA.

We also recently presented new data generated from our proprietary gene curation and selection strategy, which is designed to evaluate a gene’s relevance to the MC4R pathway with the goal of identifying genetic patient populations with the potential to benefit from setmelanotide therapy.

Using this proprietary approach, we identified an additional 31 MC4R pathway genes with strong or very strong pathway relevance.

We plan to initiate the Phase 2 DAYBREAK trial of setmelanotide in the second half of 2021.

Each sub-study will be independent of the others and, if successful, is designed to allow us to submit separate regulatory submissions to the FDA and EMA.

We plan to initiate the EMANATE trial in the fourth quarter of 2021 or the first quarter of 2022.

We also recently announced plans to initiate the Phase 2 DAYBREAK trial of setmelanotide in the fourth quarter of 2021.

This trial will be a two-stage, double-blind, placebo-controlled study in patients with specific variants within one of 31 genes within the MC4R pathway.

We also plan to initiate in the second half of 2021, a Phase 3 clinical trial in pediatric patients aged two to six years old and two Phase 3 potentially registration-enabling trials for the weekly formulation of setmelanotide.

In the first quarter of 2022, we plan to announce new top-line data from the ongoing exploratory Phase 2 Basket Study evaluating setmelanotide in patients with obesity due to a variant in the MC4 receptor.

We leveraged our proprietary gene curation and selection strategy, which is designed to evaluate a gene’s relevance to the MC4R pathway with the goal of identifying genetic patient populations with the potential to benefit from setmelanotide therapy, to identify an additional 31 MC4R pathway genes with strong or very strong pathway relevance.

We also plan to initiate in the fourth quarter of 2021, a Phase 3 randomized, double-blind trial in patients currently on daily setmelanotide therapy (“ switch study ”) to evaluate the efficacy of daily and weekly formulations of setmelanotide in patients with obesity due to BBS.

In the first half of 2022, we also plan to initate a Phase 3, randomized, double-blind trial in patients naïve to setmelanotide therapy (“ de novo study ”) to evaluate the weekly formulation of setmelanotide in patients with BBS.

In the first half of 2022, we plan to announce new top-line data from the ongoing exploratory Phase 2 Basket Study evaluating setmelanotide in patients with obesity due to a variant in the MC4 receptor.

Additionally, as an FDA post-marketing requirement, we are currently evaluating the effects of setmelanotide on the QT corrected for heart rate, or QTc interval, in healthy volunteers.

We are studying additional diseases as part of investigator-initiated protocols.

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The Breakthrough Therapy designation currently covers indications for POMC deficiency obesity, LEPR deficiency obesity, BBS and Alström syndrome.

Additional recent clinical and regulatory updates include:

● In July 2021, we initiated a Phase 2 clinical trial in hypothalamic obesity.

Hypothalamic obesity is a rare, acquired form of extreme obesity that occurs following damage to the hypothalamic regions of the brain, which are responsible for controlling physiological functions such as hunger and weight regulation.

We believe a subset of patients with hypothalamic obesity have the potential to see weight loss with setmelanotide if their MC4 receptor is sufficiently intact;

● In July 2021, we announced an exclusive distribution agreement with Medison Pharma, to commercialize IMCIVREE in Israel;

● In July 2021, we announced a collaborative research agreement with the Clinical Registry Investigating Bardet-Biedl Syndrome, or CRIBBS, to initiate a population study focused on the natural history of weight gain, hyperphagia and quality of life in patients with BBS;

● In Great Britain, our marketing authorisation application for IMCIVREE is under review by the Medicines & Healthcare Products Regulatory Agency.

We announced that IMCIVREE was selected for evaluation as a “Highly Specialised Technology,” (HST) by the National Institute for Health and Care Excellence (NICE).

HST is a specific status reserved for rare and severe diseases.

Additional recent clinical, regulatory and corporate updates include:

● In November 2021, at The Obesity Society’s ObesityWeek ® , a virtual conference, we delivered multiple data presentations including:

the first-ever health-related quality of life (HRQOL) data from patients with BBS

treated with setmelanotide;

efficacy and safety data from our Phase 3 trial of setmelanotide in BBS and Alström syndrome;

new hunger reduction data from the SRC1 and SH2B1 deficiency cohorts in the exploratory Phase 2 Basket Trial;

new data on utilization of URO;

an analysis of the frequency of melanocortin-4 receptor (MC4R) pathway variants in U.S.

patients with severe obesity;

and a review of single minded-1 (SIM1) missense variants associated with severe obesity.

● In October, at the Obesity Medicine Association’s Overcoming Obesity 2021 Conference (OMA), we presented new HRQOL data from the Phase 3 trials evaluating setmelanotide in POMC or LEPR deficiency obesities that confirmed setmelanotide treatment led to sustained, clinically meaningful HRQOL improvements in a majority of patients;

results from in-depth patient interviews conducted in POMC and LEPR patients enrolled in Rhythm’s pivotal Phase 3 trials, which highlighted that reduced hunger and improved satiety resulting from setmelanotide treatment substantially and meaningfully changed patients’ lives;

and two presentations detailing updated results from our URO genetic testing of approximately 8,500 people in the United States with early-onset, severe obesity.

● In September 2021, at the 59th Annual European Society for Paediatric Endocrinology meeting we delivered three oral and four poster presentations, including a new subgroup analysis of data from its Phase 3 clinical trial in BBS, which showed that patients treated with setmelanotide achieved statistically significant weight loss and hunger reduction compared to patients treated with placebo during a 14-week, double-blind treatment period;

an interim analyses from our exploratory Phase 2 Basket Trial, which showed that setmelanotide achieved clinically meaningful weight loss or BMI-Z reduction in 30% (9 of 30) of study participants with obesity due to variants of the SRC1 gene;

and 43% (15 of 35) of study participants with obesity due to variants of the SH21B gene, including 16p11.2 chromosomal deletions.

● In September 2021, we announced the promotion of Linda Shapiro Manning, M.D., Ph.D., to Chief Medical Officer.

She succeeded Murray Stewart, M.D., who transitioned to the role of Senior Medical Advisor.

On January 5, 2021, we entered into an asset purchase agreement with Alexion Pharmaceuticals, Inc., or Alexion, pursuant to which we agreed to sell our Rare Pediatric Disease Priority Review Voucher, or PRV, to Alexion, or the PRV Transfer.

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IMCIVREE became commercially available to patients 6 years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency in the U.S.

in the first quarter of 2021 and following approval in the European Union, we are pursuing a country-by-country strategy to establish market access and reimbursement for IMCIVREE in several countries.

in the first quarter of 2021 and following marketing authorizations in the European Union and Great Britain, we are pursuing a country-by-country strategy to establish market access and reimbursement for IMCIVREE in several countries.

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.

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 June 30, 2021 we had an accumulated deficit of $451.0 million.

Our net income (losses) were ($35.4) million, ($31.1) million, $8.4 million and ($65.3) million for the three and six months ended June 30, 2021 and 2020, respectively.

As of September 30, 2021 we had an accumulated deficit of $486.1 million.

Our net losses were $35.1 million, $33.8 million, $26.7 million and $99.1 million for the three and nine months ended September 30, 2021 and 2020, respectively.

We expect to continue to incur significant expenses and increasing operating losses over the foreseeable future.

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● continue to operate as a public company.

As of June 30, 2021, our existing cash and cash equivalents and short-term investments were approximately $368.2 million.

As of September 30, 2021, our existing cash and cash equivalents and short-term investments were approximately $328.4 million.

We expect that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses into at least the second half of 2023.

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For example, we experienced interruption of key clinical trial activities, such as patient attendance and clinical trial site monitoring, in our Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with BBS or Alström syndrome.

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 duration of the pandemic, the impact of variants, 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, the effectiveness of vaccines and vaccine distribution efforts and the effectiveness of other actions taken in the United States and other countries to contain and treat the disease.

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 duration of the pandemic, the impact of variants, 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, the effectiveness of vaccines and vaccine distribution efforts and the effectiveness of other actions taken in the United States and other countries to contain and treat the disease.

See “Risk Factors—The COVID-19 pandemic has and may continue to 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.

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Most of the manufacturing costs have been recorded as research and development expenses in prior periods.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended June 30, 2021 were insignificant.

expect cost of sales to increase in 2022 as we begin to sell inventory that is produced after we begin capitalizing IMCIVREE commercial inventory.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended September 30, 2021 were insignificant.

We expect cost of sales to increase in 2022 as we continue to sell inventory that is produced after we began capitalizing IMCIVREE commercial inventory.

The Company is currently evaluating the impact of this previously expensed inventory on the future cost of product sales.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Research and development summary

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Selling, general and administrative expenses

Selling expenses consist of professional fees related to preparation for the eventual commercialization of setmelanotide, as well as salaries and related benefits for commercial employees, including stock-based compensation.

Selling expenses consist of professional fees related to preparation for the commercialization of setmelanotide, as well as salaries and related benefits for commercial employees, including stock-based compensation.

As we accelerate our preparation for commercialization and start to market setmelanotide and as we explore new collaborations to develop and commercialize setmelanotide, we anticipate that these expenses will materially increase.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Selling, general and administrative summary

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Actual results may differ from these estimates under different assumptions or conditions.

Except for the application of ASC Topic 606, Revenue from Contracts with Customers, that was adopted during the year-ended December 31, 2018 but was not applicable until our first commercial sale, during the six months ended June 30, 2021, there were no other significant changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Except for the application of ASC Topic 606, Revenue from Contracts with Customers, that was adopted during the year-ended December 31, 2018 but was not applicable until our first commercial sale, during the nine months ended September 30, 2021, there were no other significant changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Results of Operations

Comparison of the three months ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage:

Comparison of the three months ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage:

Three Months Ended

September 30,

(in thousands)

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Loss before taxes

Provision for income taxes

Benefit from income taxes

NM=Not meaningful

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The increase is due to FDA approval of our lead product candidate, IMCIVREE in November 2020.

We recorded our first sales of IMCIVREE in March 2021 and the three months ended June 30, 2021 represent our first full quarter of sales subsequent to the launch of IMCIVREE.

We expect our initial sales of IMCIVREE will be limited by the ultra-rare nature of the disease and limited number of diagnosed patients in the United States.

We recorded our first sales of IMCIVREE in March 2021 and the three months ended September 30, 2021 represent our second full quarter of sales subsequent to the launch of IMCIVREE.

We expect our initial sales of IMCIVREE will be limited by the

ultra-rare nature of the disease and limited number of diagnosed patients in the United States.

To date, all of our product revenue has been generated in the United States.

Cost of sales increased to $0.2 million in 2021.

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Most of the manufacturing costs have been recorded as research and development expenses in prior periods.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended June 30, 2021 were insignificant and reflect the amortization of our capitalized sales based milestone payment made to Ipsen upon our first commercial sale as well as a royalty due to Ipsen on our net product sales.

We expect cost of sales to increase as we begin to sell inventory that is produced after we begin capitalizing IMCIVREE commercial inventory.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended September 30, 2021 were insignificant and primarily reflect the amortization of our capitalized sales based milestone payment made to Ipsen upon our first commercial sale as well as a royalty due to Ipsen on our net product sales.

We expect cost of sales to increase as we continue to sell inventory that is produced after we began capitalizing IMCIVREE commercial inventory.

Research and development expense.

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The increase was primarily due to the following:

● an increase of $2.3 million primarily related to purchases of setmelanotide API and drug product in both the daily and weekly formulation for clinical trials;

● an increase of $1.8 million due to the hiring of additional full-time employees in order to support the growth of our research and development programs.

● an increase of $4.4 million in our clinical trial costs associated with new and planned clinical trials, including our Phase 2 DAYBREAK and Phase 3 EMANATE trials, Phase 3 pediatrics trial, QTc study, Phase 2 hypothalamic obesity study, and increased enrollment in our long-term extension study;

these increases were partially offset by the conclusion of prior studies, including pivtal Phase 3 studies for POMC and LEPR, as well as GO-ID;

● an increase of $2.7 million in salaries, benefits and stock-based compensation related to the hiring of additional full-time employees in order to support the growth of our research and development programs;

The above increases were partially offset by:

● a decrease of $1.9 million primarily due to the absence of development milestone payments under our existing licesnse agreements during the three months ended June 30, 2021.

● a decrease of $1.4 million due to reduced purchases of clinical supply material;

● a decrease of $0.7 million in costs associated with accessing sequencing data from third-party biobanks to further our genetic research efforts.

Selling, general and administrative expense.

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The increase was primarily due to the following:

● an increase of $4.2 million due to increased compensation and benefits related costs associated with additions to our exeutive leadership team, increased headcount to support our expanding business operations as well as to establish our commercial operations in the United States and internationally ;

● an increase of $3.0 million due to increased compensation and benefits related costs associated with additions to our exeutive leadership team, increased headcount to support our expanding business operations as well as to establish commercial operations in the United States and internationally ;

● an increase of $1.9 million due to increased professional fees and consulting services to support the build out of our commercial operations in the United States and internationally as well as corporate legal and consulting support for our international expansion ;

● an increase of $0.5 million due to increased office support and insurance costs.

● an increase of $0.9 million related to marketing activities for IMCIVREE.

Other income, net.

Other income decreased by $0.8 million due primarily to historically low interest rates.

Other income decreased by $0.3 million due to lower interest rates.

Provision for income taxes.

We recorded a tax benefit of ($5.0) million for the period ended June 30, 2021, as a result of our operating expenses incurred during the three months ended June 30, 2021.

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

We recorded a tax benefit of $9.0 million as a result of our operating expenses incurred during the three months ended September 30, 2021, which offset a portion of the tax provision we recorded as a result of the sale of our PRV.

We expect to incurr sufficient operating expenses during the remainder of the current year to offset the income from the sale of our priority review voucher resulting in no current year tax liability.

Net loss increased by $1.3 million to $35.1 million in 2021, from $33.8 million in 2020.

The increase in net loss was driven by higher operating expenses incurred during the period.

Comparison of the six months ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage:

Six Months Ended

Comparison of the nine months ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage:

Nine Months Ended

September 30,

(in thousands)

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Other income, net

Income (loss) before taxes

Loss before taxes

Provision for income taxes

Net income (loss)

NM=Not meaningful

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The increase is due to FDA approval of our lead product candidate, IMCIVREE in November 2020.

We recorded our first sales of IMCIVREE in March 2021 and the three months ended June 30, 2021 represent our first full quarter of sales subsequent to the launch of IMCIVREE.

We recorded our first sales of IMCIVREE in March 2021 and the three months ended September 30, 2021 represent our second full quarter of sales subsequent to the launch of IMCIVREE.

We expect our initial sales of IMCIVREE will be limited by the ultra-rare nature of the disease and limited number of diagnosed patients in the United States.

To date, all of our product revenue has been generated in the United States.

Cost of sales increased to $0.4 million in 2021.

Thre were no cost of sales in the comparative prior period.

There were no cost of sales in the comparative prior period.

All of our inventory of IMCIVREE produced prior to FDA approval is available for commercial or clinical use.

Most of the manufacturing costs have been recorded as research and development expenses in prior periods.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended June 30, 2021 were insignificant and cost of sales are primarily comprised of amortization of our capitalized sales based milestone payment due to Ipsen upon our first commercial sale as well as a royalty due to Ipsen on our net product sales.

We expect cost of sales to increase as we begin to sell inventory that is produced after we begin capitalizing IMCIVREE commercial inventory.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended September 30, 2021 were insignificant and cost of sales are primarily comprised of amortization of our capitalized sales based milestone payment due to Ipsen upon our first commercial sale as well as a royalty due to Ipsen on our net product sales.

We expect cost of sales to increase as we continue to sell inventory that is produced after we began capitalizing IMCIVREE commercial inventory.

Research and development expense.

Research and development expense decreased by $0.5 million to $45.0 million in 2021 from $45.5 million in 2020, a decrease of 1%.

The decrease was primarily due to the following:

● a decrease of $2.0 million related to our clinical trials associated with setmelanotide.

We completed the GO-ID genotyping study, the POMC and LEPR Phase 3 studies and the once weekly formulation Phase 2 study in early to mid-2020.

These decreases were mostly offset by increases related to our extension study and ongoing BBS and renal studies;

● a decrease of $2.2 million related to lower patent and regulatory filing costs in the United States and internationally.

The above decreases were partially offset by:

Research and development expense increased by $4.1 million to $72.6 million in 2021 from $68.5 million in 2020, an increase of 6%.

The increase was primarily due to the following:

● an increase of $5.9 million in compensation and benefits due to the hiring of additional full-time employees in order to support the growth of our research and development programs and expansion of regulatory affairs operations;

● an increase of $0.7 million primarily related to purchases of setmelanotide API and drug product for clinical trials and preparation for potential commercialization.

● an increase of $2.4 million related to costs associated with new and planned clinical trials, including Phase 2 DAYBREAK and Phase 3 EMANATE trials, Phase 3 pediatrics trial, QTc study, Phase 2 hypothalamic obesity study, and increased enrollment in our long-term extension study.

These increases were mostly offset by decreases in our GO-ID study which has been completed;

● an increase of $1.1 million related to costs associated with pursuing the use of setmelanotide in additional indications;

The above increases were partially offset by:

● a decrease 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 ;

● a decrease of $1.1 million related to lower professional services fees related to regulatory filings;

● a decrease of $0.8 million related to reduced purchases of clinical supply material;

● a decrease of $0.7 million of costs associated with accessing sequencing data from third-party biobanks to further our genetic research.

Selling, general and administrative expense.

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● an increase of $1.6 million associated with the expenses incurred on the sale of our PRV to Alexion;

● an increase of $0.6 million due to increased office support and insurance costs.

● an increase of $1.1 million due to increased costs associated with office support and insurance costs for our expanding workforce;

● an increase of $0.7 million associated with the expenses incurred related to marketing activities for IMCIVREE.

Other income, net.

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Provision for income taxes.

We recorded a tax provision of $17.0 million for the period ended June 30, 2021, primarily related to the sale of our PRV , offset by a tax benefit from our ordinary losses.

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

Net income (loss).

Net income (loss) increased by $73.6 million to $8.4 million in 2021, from a loss of ($65.3) million in 2020.

The increase in net income was primarily due to the increase in other income discussed above.

We recorded a tax provision of $8.0 million for the period ended September 30, 2021, primarily related to the sale of our PRV , offset by a tax benefit from our ordinary losses.

Net loss decreased by $72.4 million to $26.7 million in 2021, from a loss of $99.1 million in 2020.

The decrease in net loss was primarily due to impact of the $100.0 million gain on the sale of our PRV, offset by higher operating expenses and the provision of income taxes recorded recorded as a result sale of the PRV.

Liquidity and Capital Resources

As of June 30, 2021, our cash and cash equivalents and short-term investments were approximately $368.2 million.

The following table provides information regarding our cash flows for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

As of September 30, 2021, our cash and cash equivalents and short-term investments were approximately $328.4 million.

The following table provides information regarding our cash flows for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

(in thousands)

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Financing activities

Net decrease in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Net cash used in operating activities

The use of cash in all periods resulted primarily from our net income (loss) adjusted for non-cash charges and changes in components of working capital.

Net cash used in operating activities was $65.4 million for the six months ended June 30, 2021 and consisted primarily of a net loss of $63.4 million adjusted for non-cash items, which consisted of non-cash stock-based compensation, the gain on the sale of the PRV, a deferred provision for income taxes, depreciation and amortization and rent expense.

The change in operating assets and liabilities reflected a total use of cash of approximately $0.6 million from an increase in accounts payables and accrued expenses associated with our CROs, CMOs and consultants due to the timing of payments, coupled with an increase of $1.2 million in prepaid expenses.

Net cash used in operating activities was $65.8 million for the six months ended June 30, 2020 and consisted primarily of a net loss of $56.6 million adjusted for non-cash items, which consisted of non-cash stock-based compensation, depreciation and amortization and rent expense.

Net cash used in operating activities was $105.5 million for the nine months ended September 30, 2021 and consisted primarily of a net loss of $102.0 million adjusted for non-cash items, which consisted of non-cash stock-based compensation, the gain on the sale of the PRV, a deferred provision for income taxes, depreciation and amortization and rent expense.

The change in operating assets and liabilities reflected a total use of cash of approximately $5.4 million from an increase in accounts payables and accrued expenses associated with our CROs, CMOs and consultants due to the timing of payments, offset by an increase of $8.9 million in prepaid expenses.

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 an increase in prepaid expenses and decreases in accounts payables and accrued expenses associated with our CROs, CMOs and consultants due to the timing of payments.

Net cash (used in) provided by investing activities

Net cash used in investing activities for the six months ended June 30, 2021 relates to the $226.9 million of net purchases of short-term investments and $5.0 million for the acquisition of an intangible asset, offset by the $100.0 million in proceeds from the sale of the PRV.

Net cash provided by investing activities for the six months ended June 30, 2020 relates to the net maturities of short-term investments.

Net cash used in investing activities for the nine months ended September 30, 2021 relates to the $164.0 million of net purchases of short-term investments, $0.4 million related to the purchase of property plant and equipment and $5.0 million for the acquisition of an intangible asset, offset by the $100.0 million in proceeds from the sale of the PRV.

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 financing activities

Net cash provided by financing activities was $166.0 million for the six months ended June 30, 2021, which represents the net proceeds of $161.7 million from our common stock offering in February 2021 and $4.2 million of cash

proceeds from the exercise of stock options and the issuance of common stock from our 2017 Employee Stock Purchase Plan, or the ESPP.

Net cash provided by financing activities was $0.9 million for the six months ended June 30, 2020, which represents net proceeds from purchases made under the ESPP and proceeds from the exercise of stock options.

Net cash provided by financing activities was $166.4 million for the nine months ended September 30, 2021, which represents the net proceeds of $161.7 million from our common stock offering in February 2021 and $4.7 million of cash proceeds from the exercise of stock options and the issuance of common stock from our 2017 Employee Stock Purchase Plan, or the ESPP.

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 the ESPP and proceeds from the exercise of stock options.

Funding requirements

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● the costs of operating as a public company, including those resulting from losing our emerging growth company status.

Although IMCIVREE has been approved by the FDA and EC in certain indications, IMCIVREE may not achieve commercial success.

Although IMCIVREE has been approved by the FDA and authorized by the EC and Great Britain in certain indications, IMCIVREE may not achieve commercial success.

In addition, 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 future marketing approvals and achieve product sales.

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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.

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties or other means, 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, debt financings or other means, 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 June 30, 2021, 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, 2020.

As of September 30, 2021, 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, 2020.

Recent Accounting Pronouncements

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Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2021, 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, 2020.

As of September 30, 2021, 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, 2020.

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 2. Management’s Discussion and Analysis