What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-02 · 125 added, 203 removed, 160 unchanged (67% of the section changed)

17 unchanged sentences

We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made .

We are a commercial-stage biopharmaceutical company focused on changing the paradigm for the treatment of rare genetic diseases of obesity, which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia.

Our lead product candidate is IMCIVREE ® (setmelanotide), a potent melanocortin-4 receptor, or MC4R, agonist for the treatment of rare genetic diseases of obesity.

We believe IMCIVREE, for which we have exclusive worldwide rights, has the potential to restore dysfunctional MC4R signaling due to impaired MC4R pathway function.

We are a global, a commercial-stage biopharmaceutical company committed to transforming the treatment paradigm for people living with rare genetic diseases of obesity, which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia.

Rhythm’s precision medicine, IMCIVREE™ (setmelanotide), for which for which we have exclusive worldwide rights, has the potential to restore dysfunctional melanocortin 4 receptor (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.

We believe that the MC4R pathway is a compelling target for treating these genetic diseases 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.

IMCIVREE has been approved by the U.S.

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, leptin receptor, or LEPR, deficiency confirmed by genetic testing.

IMCIVREE became commercially available in the U.S.

in the first quarter 2021.

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 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:

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;

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

hypothalamic obesity;

and MC4R deficiency obesity.

On January 26, 2021, we announced new interim data from our ongoing Phase 2 Basket Study across individuals with HET obesity and SRC1 and SH2B1 deficiency obesities that we believe demonstrate proof of concept in these diseases.

The primary endpoint of the study was the percent of patients in each subgroup showing at least a 5 percent loss of body weight over three months.

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 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:

heterozygous POMC/PCSK1 obesity;

heterozygous LEPR obesity;

certain variants of the SRC1;

certain variants of SH2B1 genes;

or PCSK1 N221D deletions within the MC4R pathway.

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 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.

IMCIVREE is the first-ever therapy developed for patients with certain rare genetic diseases of obesity that is approved or authorized in the United States, European Union (EU) or Great Britain.

IMCIVREE was approved by the U.S.

FDA in November 2020 for chronic weight management in adult and pediatric patients 6 years of age and older with obesity due to proopiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1) or leptin receptor (LEPR) deficiency confirmed by genetic testing demonstrating variants in POMC, PCSK1, or LEPR genes that are interpreted as pathogenic, likely pathogenic, or of uncertain significance.

The European Commission (EC) and Great Britain’s Medicines & Healthcare Products Regulatory Agency (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.

These approvals were based on Phase 3 data demonstrating a statistically significant and clinically meaningful reduction of weight and hunger in patients 12 years old or older with severe obesity due to POMC, PCSK1 or LEPR deficiency.

In addition to the United States and Europe/UK, we and our partners are seeking approval for IMCIVREE to treat patients with these genetic obesities in Israel, China, Hong Kong and Macau.

Additionally, we are seeking regulatory approvals in the United States and Europe for setmelanotide to treat obesity and control hunger in patients with Bardet-Biedl syndrome (BBS) or Alström syndrome.

In November 2021, we announced the U.S.

Food and Drug Administration (FDA) has accepted for filing our supplemental New Drug Application (sNDA) for setmelanotide seeking to expand the approved label to include patients with BBS or Alström syndrome and granted us priority review for this sNDA.

The FDA has assigned a Prescription Drug User Fee Act (PDUFA) goal date of

June 16, 2022 for this sNDA.

We are advancing physician and patient education and engagement efforts, patient identification and other strategies in support of a potential United States commercial launch of setmelanotide for the treatment of obesity and hyperphagia in patients with BBS and potentially Alström syndrome.

Also a Type II variation application to the European Medicines Agency (EMA) seeking regulatory approval and authorization for setmelanotide to treat obesity and control of hunger in adult and pediatric patients 6 years of age and older with BBS also is under review.

We anticipate that the EMA’s Committee for Medicinal Products for Human Use (CHMP) will make its recommendation on the Company’s Type II variation application in the third quarter of 2022.

We are advancing efforts to achieve market access for BBS in EU member countries and the UK, as well.

We also are advancing a broad clinical development program evaluating setmelanotide in several ongoing clinical trials, and we are leveraging what we believe is the largest known DNA database focused on obesity - with approximately 45,000 sequencing samples as of December 31, 2021 - to improve the understanding, diagnosis and care of people living with severe obesity due to certain variants in genes associated with the MC4R pathway.

In April 2022, we enrolled the first patient in the pivotal Phase 3 EMANATE clinical trial, a randomized, double-blind, placebo-controlled trial to evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of the POMC/PCSK1 genes or LEPR gene or certain rare variants of the SRC1 gene or the SH2B1 gene.

We also have initiated the Phase 2 DAYBREAK clinical trial designed to evaluate setmelanotide in patients who carry a confirmed variant in one or more of 10 additional genes with strong or very strong relevance to the MC4R pathway.

Our broad clinical program evaluating setmelanotide in rare diseases of obesity also includes the ongoing exploratory Phase 2 Basket study, an ongoing Phase 2 study evaluating setmelanotide in patients with hypothalamic obesity, a Phase 3 study in pediatric patients with MC4R pathway deficiencies between the ages of 2 and 6 years old, and a potential registration-enabling study with our once-weekly formulation of setmelanotide.

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

We expect to announce preliminary data from the ongoing Phase 2 study in patients with hypothalamic obesity and new data from the ongoing exploratory Phase 2 Basket Study in the middle of 2022.

There are currently no effective or approved treatments for these MC4R pathway related diseases.

1 unchanged sentence

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

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.

We were awarded the voucher under a FDA program intended to encourage the development of certain rare pediatric disease product applications.

We received the PRV when IMCIVREE was approved by the FDA.

Pursuant to the transfer agreement, Alexion agreed to pay us $100.0 million in cash upon the closing of the sale.

The PRV Transfer closed on February 17, 2021.

On February 9, 2021, we completed an underwritten public offering in which we sold 5,750,000 shares of our common stock at a public offering price of $30.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 750,000 additional shares of common stock.

We received aggregate net proceeds from the offering of $161.7 million after deducting underwriting discounts and commissions and offering expenses payable by us.

Additional recent clinical, regulatory and commercial updates include:

On May 3, 2022, we announced that the first patients have been treated with IMCIVREE in France under the paid early access program.

The French Haute Autorité de Santé (HAS) granted paid early access for IMCIVREE for patients with POMC, PCSK1 or LEPR deficiency obesity in January 2022.

In addition, we announced that we anticipate releasing preliminary data from the ongoing Phase 2 study in patients with hypothalamic obesity and new data from the ongoing exploratory Phase 2 Basket Study evaluating setmelanotide in patients with obesity due to a variant in the MC4 receptor in mid-2022.

On May 3, 2022, we also announced that six abstracts were accepted for presentation at the Endocrine Society Annual Meeting & Expo (ENDO), being held on June 11-14, 2022 in Atlanta, Georgia.

Jesús Argente, Universidad Autónoma de Madrid in Spain, will deliver an oral presentation of 12-month data from long-term extension trials of setmelanotide in patients with obesity due to heterozygous variants in POMC, PCSK1, and LEPR.

In addition, five abstracts will be delivered as poster presentations, including:

● Long-term Efficacy of Setmelanotide in Patients With Obesity Due to POMC, PCSK1, and LEPR Biallelic Deficiency;

● Setmelanotide in Patients with Heterozygous POMC, LEPR, SRC1, or SH2B1 Obesity:

Design of EMANATE – A Placebo-Controlled Phase 3 Trial;

● Long-term Efficacy of Setmelanotide in Patients with Bardet-Biedl Syndrome;

● Body Mass Index and Weight Reductions in Patients with SRC1 Genetic Variant Obesity After 1 Year of Setmelanotide;

● Body Mass Index and Weight Reduction in Patients with SH2B1 Genetic Variant Obesity After 1 Year of Setmelanotide.

On May 3, 2022, we also announced that on April 22, 2022, the CHMP recommended the EC approve a modification to the summary product characteristics (SmPC) for IMCIVREE for biallelic POMC, PSCK1 or LEPR deficiency that would allow for treating patients who have moderate or severe renal impairment with an adjustment for more gradual dose escalation and a lower maximum dose.

The final EC decision on this amendment is anticipated to come in July 2022, and this same dosing modification request is being considered as part of the scheduled review for BBS.

On May 2, 2022, we announced the presentation of new data supporting the potential for setmelanotide to treat the early-onset obesity, hyperphagia, and metabolic impairment associated with BBS.

This cumulative safety data from across the setmelanotide clinical development program demonstrated, that treatment was generally well tolerated consistent with prior clinical experience.

These data were presented at the Pediatric Endocrine Society (PES) 2022 Virtual Annual Meeting, held April 28 - May 1, 2022.

On April 6, 2022, we announced the first patient was enrolled in its Phase 3 EMANATE trial.

We also announced modifications to the trial design for EMANATE to focus on rare patient populations that we believe have the highest likelihood of success.

After receiving feedback from the FDA in April 2022 that indicated that additional clinical trials to support potential registration for non-rare patient populations would likely be required, we eliminated a fifth sub-study intended to evaluate setmelanotide in patients with a PCSK1 N221D variant.

EMANATE now includes four independent sub-studies, evaluating setmelanotide in patients with obesity due to a heterozygous variant of the POMC or PCSK1 gene, the LEPR gene, the SRC1 gene or the SH2B1 gene.

In the POMC/PCSK1 and LEPR sub-studies, we will focus enrollment on heterozygous variants classified as pathogenic and likely pathogenic, as initially planned.

In addition, instead of enrolling across the entire spectrum of variants of uncertain significance (VUS), we will focus on patients with suspected pathogenic variants, or a subset of VUS, which are most likely to impair MC4R pathway function.

We anticipate an enrollment period of 12-18 months to complete enrollment of approximately 400 patients in the trial.

Also on April 6, 2022, we announced modifications to the enrollment criteria in our Phase 2 DAYBREAK trial, which began enrolling patients in January 2022, to focus initially on rare variants associated with 10 prioritized MC4R-relevant genes, which we and key opinion leaders believe have the highest probability of success.

The trial is now expected to enroll approximately 100 to 200 patients with hyperphagia and severe obesity and a variant in one of these 10 genes.

We decided to pause the enrollment of patients with variants in additional MC4R pathway genes and will evaluate expansion of DAYBREAK to these genes based on the early clinical data from the prioritized genes.

Our operations to date have been limited primarily to conducting research and development activities for setmelanotide.

To date, we have not generated any significant product revenue and have financed our operations primarily through the proceeds received from the sales of common and preferred stock, asset sales, as well as capital contributions from the former parent company, Rhythm Holdings LLC.

To date, we have not generated significant product revenue and have financed our operations primarily through the proceeds received from the sales of common and preferred stock, asset sales, as well as capital contributions from the former parent company, Rhythm Holdings LLC.

From August 2015 through August 2017, we raised aggregate net proceeds of $80.8 million through our issuance of series A preferred stock.

Since our initial public offering, or IPO, on October 10, 2017 and our underwritten follow-on offerings through February 2021, we have raised aggregate net proceeds of approximately $611.4 million through the issuance of our common stock after deducting underwriting discounts, commissions and offering related transaction costs.

As noted above, we also received $100.0 million from an asset sale, specifically in connection with the PRV Transfer.

We also received $100.0 million from an asset sale, specifically in connection with the sale of our PRV.

In December 2021, we entered into an Exclusive License Agreement with RareStone Group Ltd., and received $7.0 million in connection with the execution of that agreement.

We will not generate significant revenue from product sales until we are able to successfully establish a marketing and commercialization infrastructure for IMCIVREE.

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 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.

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

As noted above, during March, 2022, we treated the first patients with IMCIVREE in France under the paid early access program.

We expect to continue to fund our operations through the sale of equity, debt financings or other sources.

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.

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, 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.

As of March 31, 2022 we had an accumulated deficit of $581.7 million.

Our net losses were $52.8 million, and our net income was $43.8 million, for the three months ended March 31, 2022 and 2021, respectively.

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

7 unchanged sentences

● continue to operate as a public company.

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.

As of March 31, 2022, our existing cash and cash equivalents and short-term investments were approximately $241.0 million.

We expect that the changes to the EMANATE and DAYBREAK trials discussed above, coupled with a streamlining of our planned global network of clinical trial sites, will result in meaningful cost savings.

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 fourth quarter of 2023.

Corporate Background

1 unchanged sentence

Impact of COVID-19

We are closely monitoring how the spread of COVID-19 is affecting our employees, business, preclinical studies and clinical trials.

We are closely monitoring how the continued 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.

4 unchanged sentences

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, evolving 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.

2 unchanged sentences

Our lead product candidate, IMCIVREE, was approved by the FDA in November 2020 for chronic weight management in adult and pediatric patients six years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency confirmed by genetic testing.

IMCIVREE became commercially available in the U.S.

in the first quarter of 2021.

We recorded our first sales of IMCIVREE in March 2021.

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.

IMCIVREE became commercially available in the United States in the first quarter of 2021.

We recorded our first sales of IMCIVREE in the United States in March 2021 and we made our first sales in France during March 2022 under the paid early access program.

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 and throughout the rest of the world.

Cost of sales

1 unchanged sentence

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 September 30, 2021 were insignificant.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended March 31, 2022 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.

We continue to evaluate the impact of this previously expensed inventory on the future cost of product sales, however we do not expect there to be a signicant impact based on the cost structure of the product.

Research and development expenses

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Research and development summary

20 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Selling, general and administrative summary

1 unchanged sentence

We anticipate that our selling, general and administrative expenses will increase in the future to support continued and expanding development efforts, commercialization of IMCIVREE in the United States and the European Union as well as increased costs of operating as a global commercial stage biopharmaceutical 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.

These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, compliance with local rules and regulations in the United States and foreign jurisdictions, exchange listing and Securities and Exchange Commission (SEC) expenses, insurance and investor relations costs, among other expenses.

Critical Accounting Policies and Estimates

4 unchanged sentences

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 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.

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, 2021.

Results of Operations

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:

Comparison of the three months ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021, together with the changes in those items in dollars and as a percentage:

Three Months Ended

September 30,

(in thousands)

7 unchanged sentences

Loss from operations

Other income, net

Loss before taxes

Benefit from income taxes

NM=Not meaningful

Product revenue, net increased to $1.0 million in 2021.

There were no product revenues in the comparative prior period.

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 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.

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 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.

Research and development expense increased by $4.5 million to $27.5 million in 2021 from $23.0 million in 2020, an increase of 20%.

The increase was primarily due to the following:

● 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 $1.4 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.

Selling, general and administrative expense increased by $6.2 million to $17.5 million in 2021 from $11.3 million in 2020, an increase of 55%.

The increase was primarily due to the following:

● 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 $0.9 million related to marketing activities for IMCIVREE.

Other income, net.

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

Other (loss) income, net

(Loss) income before taxes

Provision for income taxes

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 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)

Statement of Operations Data:

Net (loss) income

NM=Not meaningful

Product revenue, net .

Operating Expenses:

Product revenue, net increased to $1.5 million for the three month period ended March 31, 2022.

There was no significant product revenue in the comparative period.

The FDA approved our lead product candidate, IMCIVREE in November 2020 and we recorded our first sales of IMCIVREE in March 2021.

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

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

During March 2022, we completed our first sales of IMCIVEE in France through an early access program.

Cost of sales.

Research and development

Selling, general, and administrative

Total operating expenses

Loss from operations

Other income, net

Loss before taxes

Provision for income taxes

NM=Not meaningful

Product revenue, net increased to $1.3 million in 2021.

There were no product revenues in the comparative prior period.

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 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.

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

Cost of sales increased to $0.2 million for the three month period ended March 31, 2022.

There were no significant 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 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.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended March 31, 2022 were insignificant and primarily reflect the amortization of our capitalized sales based milestone payment made to Ipsen Pharma S.A.S., or 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 sell inventory that is produced after we began capitalizing IMCIVREE commercial inventory.

Research and development expense.

1 unchanged sentence

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 $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;

● an increase of $9.4 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 activtivty in our BBS, basket as well as GO-ID studies;

● an increase of $3.8 million due to increased purchases of clinical supply material;

● an increase of $1.0 million in development milestones earned by Camurus AB, or Camurus related to development milestone achieved related to our weekly formulation;

● an increase of $0.4 million due to increased gene sequencing costs;

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.

● a decrease of $2.0 million in costs asscoated with medical affair consulting costs.

Selling, general and administrative expense.

1 unchanged sentence

The increase was primarily due to the following:

● an increase of $7.1 million due to increased compensation and benefits related costs associated with additions to our executive 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 $4.0 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 $1.6 million associated with the expenses incurred on the sale of our PRV to Alexion;

● an increase of $3.3 million due to increased compensation and benefits related costs associated with additional headcount to support our expanding business operations as well as to build out our commercial operations in the United States and internationally ;

● an increase of $2.3 million related to marketing activities for IMCIVREE;

● an increase of $1.0 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.

● an increase of $0.2 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 ;

Other income, net.

Other income increased by $97.9 million due primarily to the sale of our PRV in February 2021.

Other income decreased by $100.2 million.

The decrease was primarily due to the sale of our PRV in February 2021.

The sale of our PRV in the prior year was a non-recurring transaction.

Provision for income taxes.

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.

There is no provision for income taxes for the three months ended March 31, 2022, as we project to generate operating losses during the year.

We recorded a provision for income taxes of $22.0 million as a result of the sale of our PRV during the three months ended March 31, 2021.

Net loss increased by $96.5 million to $52.8 million for the three months ended March 31, 2022, from net income of $43.8 million for the three months period ended March 31, 2021.

The increase in net loss was a result of the non-recurring nature of our PRV sale in 2021, which resulted in $100.0 million of other income during the prior year period.

Liquidity and Capital Resources

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,

As of March 31, 2022, our cash and cash equivalents and short-term investments were approximately $241.0 million.

The following table provides information regarding our cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

Financing activities

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

Net increase (decrease) 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 $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 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.

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

Net cash used in operating activities was $53.6 million for the three months ended March 31, 2022 and consisted primarily of a net loss of $47.9 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 $2.6 million from an increase in accounts payables and accrued expenses and other current liabilities primarily associated with our royalty payment owed to Ipsen, coupled with a decrease of $3.2 million in other long-term assets and prepaid expenses and other current assets.

Net cash used in operating activities was $33.5 million for the three months ended March 31, 2021 and consisted primarily of a net loss of $28.9 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 $6.3 million from an increase in accounts payables and accrued expenses and other current liabilities associated with our CROs, CMOs and consultants due to the timing of payments, offset by a decrease of $1.7 million in prepaid expenses and other current assets.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $72.5 million for the three months ended March 31, 2022 and relates to the $112.1 million of maturities of short-term investments, offset by $39.5 million of purchases of short-term investments, and $0.1 million related to the purchase of property plant and equipment.

Net cash used in investing activities was $145.7 million for the three months ended March 31, 2021 relates to the $245.7 million of net purchases of short-term investments, offset by the $100.0 million in proceeds from the sale of the PRV.

Net cash provided by financing activities

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.

Net cash provided by financing activities was $0.4 million for the three months ended March 31, 2022, which represents the net proceeds of the issuance of common stock from our 2017 Employee Stock Purchase Plan, or the ESPP.

Net cash provided by financing activities was $165.6 million for the three months ended March 31, 2021, which represents the net proceeds of $161.7 million from our common stock offering in February 2021 and $3.9 million of cash proceeds from the exercise of stock options and the issuance of common stock from the ESPP.

Funding requirements

2 unchanged sentences

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 into at least the second half of 2023.

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 fourth quarter of 2023.

We may need to obtain substantial additional funding in connection with our research and development activities and any continuing operations thereafter.

4 unchanged sentences

● the costs, timing and outcome of regulatory review of our setmelanotide program;

● the obligations owed to Ipsen Pharma S.A.S., or Ipsen, Camurus AB, or Camurus, and Takeda pursuant to our license agreements;

● the obligations owed to Ipsen, Camurus and Takeda pursuant to our license agreements;

● the extent to which we acquire or in-license other product candidates and technologies;

7 unchanged sentences

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 as this continues to evolve globally.

See “Impact of COVID-19” above and “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 for a further discussion of the possible impact of the COVID-19 pandemic on our business.

“Impact of COVID-19” above and “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 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.

4 unchanged sentences

Contractual obligations

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.

As of March 31, 2022, 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, 2021.

Recent Accounting Pronouncements

For a discussion of pending and recently adopted accounting pronouncements, see Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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.

Quantitative and Qualitative Disclosures About Market Risk

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.

As of March 31, 2022, 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, 2021.

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