What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-08 compared with 2022-08-03 · 123 added, 105 removed, 414 unchanged (36% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

24 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at June 30, 2022 and December 31, 2021

no shares issued and outstanding at September 30, 2022 and December 31, 2021

Common stock, $ 0.001 par value:

120,000,000 shares authorized;

50,454,170 and 50,283,574 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

55,756,256 and 50,283,574 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

5 unchanged sentences

Rhythm Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Product revenue, net

7 unchanged sentences

Other income:

Interest income, net

Total other income, net

(Loss) income before taxes

Other expense

Interest expense

Interest income

Total other (expense) income, net

Loss before taxes

(Benefit from) provision for income taxes

Net (loss) income

Net (loss) income per share

Weighted-average common shares outstanding

Other comprehensive (loss) income:

Net (loss) income

Unrealized (loss) income on marketable securities and other long-term assets

Comprehensive (loss) income

Net loss per share, basic and diluted

Weighted-average common shares outstanding, basic and diluted

Other comprehensive loss:

Reclassification of losses on RareStone equity into net loss

Unrealized gain (loss), net on marketable securities

Comprehensive loss

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

16 unchanged sentences

Balance at June 30, 2022

Stock compensation expense

Issuance of common stock in connection with ESPP

Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units

Issuance of common stock upon completion of public offering, net of offering costs

Unrealized gain on marketable securities

Reclassification of losses on RareStone equity into net loss

Balance at September 30, 2022

Balance at December 31, 2020

9 unchanged sentences

Balance at June 30, 2021

Stock compensation expense

Issuance of common stock in connection with ESPP

Issuance of common stock in connection with exercise of stock options

Balance at September 30, 2021

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

2 unchanged sentences

(in thousands)

Six months ended June 30,

Nine months ended September 30,

Operating activities

Net (loss) income

Adjustments to reconcile net loss to net cash used in operating activities:

3 unchanged sentences

Depreciation and amortization

Amortization of debt issuance costs

Non-cash interest expense and amortization of debt issuance costs

Non-cash rent expense

Loss on RareStone equity investment

Changes in operating assets and liabilities:

8 unchanged sentences

Proceeds from sale of priority review voucher

Milestone obligation under license agreement

Payment of milestone obligation under license agreement

Purchases of property and equipment

21 unchanged sentences

In the United States, IMCIVREE is approved for chronic weight management in adult and pediatric patients 6 years of age and older with monogenic or syndromic obesity due to pro-opiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1) or leptin receptor (LEPR) deficiency as determined by U.S.

Food and Drug Administration (FDA) approved test demonstrating variants in POMC , PCSK1 or LEPR genes that are interpreted as pathogenic, likely pathogenic, or of uncertain significance (VUS), or Bardet-Biedl syndrome (BBS).

In the European Union and Great Britain, IMCIVREE is indicated 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.

A Type II variation application to the European Medicines Agency 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.

In July 2022, the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion, recommending to expand the current indication for IMCIVREE to include the treatment of obesity and control of hunger in adult and pediatric patients 6 years of age and older with BBS.

The European Commission, which has the authority to grant and expand marketing authorizations for medicinal products in the EU, is anticipated to make a final decision on the application to expand the indication for IMCIVREE in the second half of 2022.

The European Commission (EC) has authorized setmelanotide for the treatment of obesity and the control of hunger associated with genetically confirmed BBS or genetically confirmed loss-of-function biallelic POMC, including PCSK1, deficiency or biallelic LEPR deficiency in adults and children 6 years of age and above.

The UK’s Medicines & Healthcare Products Regulatory Agency (MHRA) authorized 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.

In addition, we are advancing a broad clinical development program for setmelanotide in patients with hyperphagia and severe obesity caused by additional rare MC4R pathway diseases to expand the approved indications in the United States and Europe.

In addition to the United States, European Union and United Kingdom, we and our partners are seeking approval for IMCIVREE to treat patients with these MC4R pathway-related obesities in Israel, China, Hong Kong and Macau.

In addition to the United States, European Union and United Kingdom, we and our partners are seeking approval and market access for IMCIVREE to treat patients with these MC4R pathway-related obesities in Argentina and Israel.

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

5 unchanged sentences

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

While the pandemic did not materially affect the Company's financial results and business operations for the three and six months ended June 30, 2022, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods

due to numerous uncertainties.

While the pandemic did not materially affect the Company's financial results and business operations for the three and nine months ended September 30, 2022, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

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

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

As of June 30, 2022, the Company had an accumulated deficit of $ 626,704 .

As of September 30, 2022, the Company had an accumulated deficit of $ 667,565 .

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

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

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

The Company has devoted substantially all of its resources to its drug development efforts, comprising of research and development, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, commercialization activities and general and administrative functions relating to these operations.

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

At June 30, 2022, the Company had $ 235,596 of cash and cash equivalents and short-term investments on hand.

At September 30, 2022, the Company had $ 347,795 of cash and cash equivalents and short-term investments on hand.

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

1 unchanged sentence

If the Company fails to obtain additional funding when needed, the Company would be forced to scale back, terminate its operations or seek to merge with or be acquired by another company.

Management believes that the Company's existing cash and cash equivalents and short term investments will be sufficient to fund the Company’s operations into 2024, and that such existing cash and cash equivalents and short term investments, together with the second investment tranche under the Revenue Interest Financing Agreement, or RIFA, entered into with entities managed by HealthCare Royalty Management, LLC expected in the second half of 2022, will be sufficient to fund the Company's operations into at least the second half of 2024.

Management believes that the Company's existing cash and cash equivalents and short-term investments will be sufficient to fund the Company’s operations into 2025.

Summary of Significant Accounting Policies

3 unchanged sentences

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

The accompanying condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 and the related footnote disclosures are unaudited.

The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 and the related footnote disclosures are unaudited.

In management's opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2021 and include all adjustments, which are all normal recurring adjustments, necessary for the fair presentation of the interim financial statements.

The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

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

As of June 30, 2022, there have been no material changes in the Company's significant accounting

policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As of September 30, 2022, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

17 unchanged sentences

The Company does not require collateral to secure amounts due from its customers.

At June 30, 2022, substantially all of the Company’s revenue was generated from a single customer in the United States.

At September 30, 2022, approximately 86 % of all of the Company’s revenue was generated from a single customer in the United States.

The Company relies on third-party manufacturers and suppliers for the manufacture and supply of its product.

9 unchanged sentences

Accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts and any estimated expected credit losses.

The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company's measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts

that affect the collectability of the reported amount.

To date, the Company has not experienced any credit losses.

1 unchanged sentence

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

At June 30, 2022, the Company determined an allowance for doubtful account was not required based upon our review of contractual payments and our customers’ circumstances.

At September 30, 2022, the Company determined an allowance for doubtful account was not required based upon our review of contractual payments and our customers’ circumstances.

Revenue Recognition

24 unchanged sentences

Reserves for Variable Consideration

co-pay assistance and other allowances that are offered within contracts between us and our customers, health care providers and other indirect customers relating to the sale of IMCIVREE.

Revenues from product sales are recorded at the net sales price, or the transaction price, which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that are offered within contracts between us and our customers, health care providers and other indirect customers relating to the sale of IMCIVREE.

These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as

our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract.

25 unchanged sentences

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

During the three and six months ended June 30, 2022 and 2021, we recorded product revenue, net, of $ 2,312 , $ 274 , $ 3,810 , and $ 309 , respectively.

The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the three and six months ended June 30, 2022 and 2021, due to the immateriality of the revenue recognized during the periods.

During the three and nine months ended September 30, 2022 and 2021, we recorded product revenue, net, of $ 4,284 , $ 1,028 , $ 8,094 , and $ 1,337 , respectively.

The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the three and nine months ended September 30, 2022 to the immateriality of the revenue recognized during the periods.

License Agreements

We generate revenue from license or similar agreements with pharmaceutical companies for the development and commercialization of certain of our products and product candidates.

Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances, research and development services, and participation on certain committees with the counterparty.

Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances,

research and development services, and participation on certain committees with the counterparty.

Payments made by the customers may include non-refundable upfront fees, payments upon the exercise of customer options, payments based upon the achievement of defined milestones, and royalties on sales of products and product candidates if they are approved and commercialized.

21 unchanged sentences

According to the terms of the RareStone License , RareStone has agreed to seek local approvals to commercialize IMCIVREE for the treatment of obesity and hyperphagia due to biallelic POMC, PCSK1 or LEPR deficiency, as well as Bardet-Biedl and Alström syndromes.

Additionally, RareStone has agreed to fund efforts to identify and enroll patients from China in the Company’s global EMANATE trial, a Phase 3, randomized, double-blind, placebo-controlled trial to evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of POMC/PCSK1 or LEPR;

Additionally, RareStone has agreed to fund efforts to identify and enroll patients from China in the Company’s global EMANATE trial, a Phase 3, randomized, double-blind, placebo-controlled trial to

evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of POMC/PCSK1 or LEPR;

certain variants of the SRCI gene, and certain variants of the SH2B1 gene.

3 unchanged sentences

Upon completion of the valuation procedures during the three month period ended June 30, 2022, the Company concluded the initial fair value of the RareStone equity to be $ 1,040 .

The $ 1,400 change in fair value upon finalizing our valuation of the RareStone equity resulted in an adjustment to the contract liability account within our condensed consolidated financial statements.

At June 30, 2022, the Company estimated the fair value of the RareStone equity to be $ 740 based upon a valuation.

The $ 300 decline in fair value is recodered as an a component of other comprehensive (loss) income in our the condensed consolidated statements of operations and other comprehensive (loss) income for the three month period ended June 30, 2022.

The Company will remeasure the fair value of the RareStone equity on a quarterly basis.

At September 30, 2022, the Company estimated the fair value of the RareStone equity to be de minimis based upon the results of an updated valuation.

The Company also recorded an other-than-temporary impairment of $ 1,040 related to the decline in fair value as a component of other expense in our condensed consolidated statements of operations and other comprehensive loss for the three and nine month periods ended September 30, 2022, respectively.

The other-than-temporary impairment of $ 1,040 included the reclassification of a $ 300 unrealized loss previously recorded as a component of accumulated other comprehensive income (loss) in our condensed consolidated statement of stockholders’ equity during the second quarter of 2022.

The Company received total upfront consideration of $ 8,040 comprised of an upfront payment of $ 7,000 , and the estimated fair value of the RareStone equity of $ 1,040 .

The Company determined that the RareStone License contains two performance obligations, the delivery of the license and the supply of clinical and commercial product.

The Company further determined the supply of commercial product to RareStone contains a significant future discount and estimates the discount to be $ 1,286 , which is recorded as a component of deferred revenue on the condensed consolidated balance sheet at June 30, 2022.

The discount related to commercial manufacturing supply will be deferred and recognized over the commercial supply period.

Based on a relative fair-value allocation between the license and the manufacture of clinical and commercial product, the Company recognized $ 6,754 of license revenue during the three and six months ended June 30, 2022 as the Company fulfilled its obligations in transferring the license to RareStone.

As the Company fulfilled its obligations in transferring the license to RareStone during the second quarter of 2022 no license revenue was recognized for the three month period ended September 30, 2022.

Deferred Royalty Obligation

8 unchanged sentences

were incurred subsequent to FDA approval.

At June 30, 2022, the Company had $ 1,690 of inventory recorded as a component of prepaid and other current assets on the condensed consolidated balance sheet.

At September 30, 2022, the Company had $ 1,575 of inventory recorded as a component of prepaid and other current assets on the condensed consolidated balance sheet.

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

9 unchanged sentences

If such assets are considered to be impaired, the Company measures the impairment to be recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, less the cost to sell.

No events or changes in circumstances existed to require an impairment assessment during the three or six months ended June 30, 2022 and 2021, respectively.

No events or changes in circumstances existed to require an impairment assessment during the three or nine months ended September 30, 2022 and 2021, respectively.

Fair Value Measurements

6 unchanged sentences

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

The Company’s cash equivalents and marketable securities at June 30, 2022 and December 31, 2021 were carried at fair value, determined according to the fair value hierarchy.

The Company’s cash equivalents and marketable securities, derivative liability and RareStone equity at September 30, 2022 and December 31, 2021 were carried at fair value, determined according to the fair value hierarchy.

See Note 4 for further discussion.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses and other current liabilities approximate their fair values due to their short-term maturities at June 30, 2022 and December 31, 2021, respectively.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period, without consideration of potential dilutive securities.

Diluted net income

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

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

For the three and six months ended June 30, 2022, the common stock equivalents have been excluded from the calculation of diluted net income (loss) per share, as their effect would be anti-dilutive for the period presented due to the net loss incurred.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities.

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

For purposes of the diluted net loss per share calculation, stock options, performance stock units and restricted stock units are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented.

Therefore, basic and diluted net loss per share is the same for all periods presented.

The following table includes the potential common shares that were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Stock options

5 unchanged sentences

Subsequent events have been evaluated as required.

On October 18, 2022, the Company completed the sale of 580,000 shares of common stock at a price to the public of $ 26.00 per share, pursuant to the partial exercise of the underwriters’ option to purchase up to an additional 720,000 shares in connection with its public offering of 4,800,000 shares of common stock that closed on September 19, 2022.

The Company received aggregate net proceeds from the partial option exercise of approximately $ 14,175 , after deducting underwriting discounts and commissions and offering expenses payable by the Company.

Application of New or Revised Accounting Standards

1 unchanged sentence

Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In December 2019, the FASB issued ASU 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes , or ASU 2019-12.

ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted.

Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively.

We have adopted ASU 2019-12 as of January 1, 2021 and the adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

September 30,

Research and development costs

4 unchanged sentences

Fair Value of Financial Assets

As of June 30, 2022 and December 31, 2021, the carrying amount of cash and cash equivalents and short-term investments was $ 235,596 and $ 294,855 , respectively, which approximates fair value.

As of September 30, 2022 and December 31, 2021, the carrying amount of cash and cash equivalents and short-term investments was $ 347,795 and $ 294,855 , respectively, which approximates fair value.

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

5 unchanged sentences

Fair value Measurements as of

June 30, 2022 using:

September 30, 2022 using:

Cash Equivalents:

3 unchanged sentences

Corporate Debt Securities and Commercial Paper

Other Long-term Assets:

RareStone Common Stock

Derivative on Royalty Financing

6 unchanged sentences

Corporate Debt Securities and Commercial Paper

The estimated fair value of the shares of RareStone equity as of our initial recording date and June 30, 2022, as well as the estimated fair value of the derivative liability related to our RIFA with HealthCare Royalty was determined using Level 3 inputs.

The estimated fair value of the shares of RareStone equity as of our initial recording date and September 30, 2022, as well as the estimated fair value of the derivative liability related to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty was determined using Level 3 inputs.

The fair value measurement of the RareStone equity as well as the derivative liability are sensitive to changes in the unobservable inputs used to value the financial instrument.

1 unchanged sentence

The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 10, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation.

The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other expense, net.

The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other (expense) income, net.

The assumptions used in the option pricing Monte Carlo simulation model include:

5 unchanged sentences

and (6) the probability of a change in control occurring during the term of the instrument.

Our RareStone equity was valued at $ 740 at June 30, 2022.

The Company determined the estimated fair values using a discounted cash flow model under the income approach and an option pricing allocation model for the period ended June 30, 2022.

Our RareStone equity was valued at a de minimis amount and as such written-off at September 30, 2022.

The Company determined the estimated fair values using a discounted cash flow model under the income approach and an option pricing allocation model for the period ended September 30, 2022.

Inherent in discounted cash flow and option pricing allocation models are assumptions related to the equity value of the entity, expected equity volatility, holding period, risk-free interest rate and discount for lack of marketability.

2 unchanged sentences

Treasury rates for a maturity similar to the expected holding period.

Changes in our level 3 securities for the three months ended June 30, 2022 and 2021 are as follows:

Six months ended

Changes in our level 3 securities for the three months ended September 30, 2022 and 2021 are as follows:

Nine months ended

September 30,

Beginning aggregate estimated fair value of Level 3 securities

Initial recording of RareStone equity

Total realized and unrealized gains

Unrealized gain (loss) included in other comprehensive (loss) income

Total realized and unrealized losses

Realized loss included in other expense

Ending aggregate estimated fair value of Level 3 securities

1 unchanged sentence

The following tables summarize the Company's marketable securities:

June 30, 2022

September 30, 2022

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

6 unchanged sentences

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

As of June 30, 2022, the Company has not entered into any lease arrangements classified as a finance lease.

As of September 30, 2022, the Company has not entered into any lease arrangements classified as a finance lease.

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

2 unchanged sentences

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

The following table presents the maturities of the Company’s operating lease liability related to office space as of June 30, 2022, all of which is under a non-cancellable operating lease:

The following table presents the maturities of the Company’s operating lease liability related to office space as of September 30, 2022, all of which is under a non-cancellable operating lease:

Operating Lease

3 unchanged sentences

Intangible Assets, Net

As of June 30, 2022, the Company’s finite-lived intangible assets, which totaled $ 8,311 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

As of September 30, 2022, the Company’s finite-lived intangible assets, which totaled $ 8,097 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

in March 2021 and in France in March 2022.

As of June 30, 2022, amortization expense for the next five years and beyond is summarized as follows:

As of September 30, 2022, amortization expense for the next five years and beyond is summarized as follows:

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

Amortization expense totaled $ 216 , $ 114 , $ 346 and $ 114 for the three and six months ended June 30, 2022 and 2021, respectively.

Amortization expense is included in cost of sales in the condensed consolidated statements of operations and comprehensive (loss) income.

The Company did not record a tax provision for the three and six months ended June 30, 2022 as the Company generated sufficient tax losses during the period.

The Company recorded a tax (benefit) of ($ 5,022 ) and recorded a tax provision of $ 16,984 for the three and six month periods ended June 30, 2021, respectively, primarily related to the sale of the Rare Pediatric Disease Priority Review Voucher, or PRV, offset by a tax benefit from ordinary losses generated by the Company during the period.

Amortization expense totaled $ 214 , $ 114 , $ 560 , and $ 228 for the three and nine months ended September 30, 2022, and 2021, respectively Amortization expense is included in cost of sales in the condensed consolidated statements of operations and comprehensive loss.

The Company did not record a tax provision for the three and nine months ended September 30, 2022 as the Company generated sufficient tax losses during the period.

The Company recorded a tax benefit of $ 8,995 and recorded a tax provision of $ 7,989 for the three and nine month periods ended September 30, 2021, respectively, primarily related to the sale of the Rare Pediatric Disease Priority Review Voucher, or PRV, offset by a tax benefit from ordinary losses generated by the Company during the period.

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

The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year.

As of June 30, 2022, an aggregate of 13,300,876 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options, restricted stock units, and performance stock units that have been issued totaling 8,735,225 and 1,404,259 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

As of September 30, 2022, an aggregate of 12,798,790 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options, restricted stock units, and performance stock units that have been issued totaling 8,121,933 and 1,372,845 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

On September 19, 2022, the Company completed a public offering of 4,800,000 shares of common stock at a price to the public of $ 26.00 per share.

The Company received $ 116,887 in net proceeds after deducting underwriting discounts, commissions and offering expenses.

In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 720,000 shares of its common stock at the price to the public, less underwriting discounts and commissions.

On October 18, 2022, the Company completed the sale of an additional 580,000 shares of common stock at a price to the public of $ 26.00 per share pursuant to the partial exercise of the underwriters’ option to purchase additional shares, for aggregate net proceeds of approximately $ 14,175 , after deducting underwriting discounts, commissions and offering expenses.

On February 9, 2022, the Company’s board of directors adopted the Rhythm Pharmaceuticals, Inc.

8 unchanged sentences

Stock options granted under the Inducement Plan expire no more than 10 years from the date of grant.

As of June 30, 2022, 60,565 stock option awards have been issued under the Inducement Plan.

As of June 30, 2022, 30,295 restricted stock unit awards have been granted under the Inducement Plan.

As of June 30, 2022, 909,140 shares of common stock are available for future grant under the Inducement Plan.

As of September 30, 2022, 175,745 stock option awards have been issued under the Inducement Plan.

As of September 30, 2022, 92,910 restricted stock unit awards have been granted under the Inducement Plan.

As of September 30, 2022, 731,345 shares of common stock are available for future grant under the Inducement Plan.

On November 2, 2021, the Company entered into a sales agreement, or the Sales Agreement, with Cowen and Company LLC, or Cowen, as sales agent, pursuant to which the Company may, from time to time, issue and sell common stock with an aggregate value of up to $ 100,000 in "at-the-market"

1 unchanged sentence

Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through The Nasdaq Global Market or on any other existing trading market for Company’s common stock.

As of June 30, 2022, there was $ 100,000 of common stock remaining available for sale under the ATM.

As of September 30, 2022, there was $ 100,000 of common stock remaining available for sale under the ATM.

On February 9, 2021, the Company completed a public offering of 5,750,000 shares of common stock at an 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.

1 unchanged sentence

Related-Party Transactions

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 498 , $ 487 , $ 978 and $ 1,097 for the three and six months ended June 30, 2022 and 2021, respectively.

Outstanding payments due to these related parties as of June 30, 2022 and December 31, 2021 were $ 66 and $ 50 , respectively, and were included within accounts payable on the balance sheet.

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 467 , $ 450 , $ 1,445 and $ 1,547 for the three and nine months ended September 30, 2022 and 2021, respectively.

Outstanding payments due to these related parties as of September 30, 2022 and December 31, 2021 were $ 42 and $ 50 , respectively, and were included within accounts payable on the balance sheet.

Long-Term Obligations

1 unchanged sentence

Pursuant to the RIFA and subject to customary closing conditions, the Investors have agreed to pay the Company an aggregate investment amount of up to $ 100,000 , or the Investment Amount.

Under the terms of the RIFA, we received $ 37,500 on June 29, 2022 upon FDA approval of IMCIVREE in BBS, referred to as the Initial Investment Amount, and are entitled to receive an aggregate of up to an additional $ 37,500 of the Investment Amount fifteen business days after IMCIVREE receives EMA approval in BBS, and a remaining $ 25,000 of the Investment Amount forty-five business days following achievement of a specified amount of cumulative net sales of IMCIVREE between July 1, 2022 and September 30, 2023.

the terms of the RIFA, we received $ 37,500 on June 29, 2022 upon FDA approval of IMCIVREE in BBS, referred to as the Initial Investment Amount, and we received an additional $ 37,500 on September 29, 2022 of the Investment Amount upon EMA approval for BBS.

We are entitled to receive the remaining $ 25,000 of the Investment Amount forty-five business days following achievement of a specified amount of cumulative net sales of IMCIVREE between July 1, 2022 and September 30, 2023.

As consideration for the Investment Amount and pursuant to the RIFA, we agreed to pay the Investors a tiered royalty on our annual net revenues, or Revenue Interest, including worldwide net product sales and upfront payments and milestones.

The applicable tiered percentage will initially be 11.5 % on annual net revenues up to $ 125,000 , 7.5 % on annual

net revenues of between $ 125,000 and $ 300,000 and 2.5 % on annual net revenues exceeding $ 300,000 .

The applicable tiered percentage will initially be 11.5 % on annual net revenues up to $ 125,000 , 7.5 % on annual net revenues of between $ 125,000 and $ 300,000 and 2.5 % on annual net revenues exceeding $ 300,000 .

If the Investors have not received cumulative minimum payments equal to 60 % of the amount funded by the Investors to date by March 31, 2027, or 120 % of the amount funded by the Investors to date by March 31, 2029, we must make a cash payment immediately following each applicable date to the Investors sufficient to gross the Investors up to such minimum amounts after giving full consideration of the cumulative amounts paid by us to the Investors through each date, referred to as the Under Performance Payment.

13 unchanged sentences

We determined the fair value of the derivative using an option pricing Monte Carlo simulation model taking into account the probability of change of control occurring and potential repayment amounts and timing of such payments that would result under various scenarios, as further described in Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements.

The aggregate fair value of the embedded derivative liability was $ 1,590 as of June 30, 2022.

The aggregate fair value of the embedded derivative liability was $ 920 as of September 30, 2022.

We will remeasure the embedded derivative to fair value each reporting period until the time the features lapse and/or termination of the deferred royalty obligation.

The carrying value of the deferred royalty obligation at June 30, 2022 was $ 34,273 based on $ 37,500 of proceeds, net of the fair value of the bifurcated embedded derivative liability upon execution of the RIFA, and debt issuance costs incurred.

The carrying value of the deferred royalty obligation approximated fair value at June 30, 2022 and was measured using Level 3 inputs.

The estimated fair market value was calculated using an option pricing Monte Carlo simulation model with inputs consistent with those used in determining the embedded derivative values as described in Note 2, “Summary of Significant Accounting Policies.” The effective interest rate as of June 30, 2022 was 24 %.

For each of the three and nine month periods ended September 30, 2022 we recognized other income in the amount of $ 670 , due to the

remeasurement of the embedded derivative liability.

The carrying value of the deferred royalty obligation at September 30, 2022 was $ 72,961 based on $ 75,000 of proceeds, net of the fair value of the bifurcated embedded derivative liability upon execution of the RIFA, and debt issuance costs incurred.

The carrying value of the deferred royalty obligation approximated fair value at September 30, 2022 and was measured using Level 3 inputs.

In connection with the deferred royalty obligation, we incurred debt issuance costs totaling $ 2,662 .

Debt issuance costs have been netted against the debt and are being amortized over the estimated term of the debt using the effective interest method, adjusted on a prospective basis for changes in the underlying assumptions and inputs.

The assumptions used in determining the expected repayment term

of the debt and amortization period of the issuance costs requires that we make estimates that could impact the short and long-term classification of these costs, as well as the period over which these costs will be amortized.

The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make estimates that could impact the short and long-term classification of these costs, as well as the period over which these costs will be amortized.

Subsequent Events

On October 28, 2022, the Company delivered written notice, or the Notice, to RareStone that the Company has terminated the RareStone License for cause.

In accordance with the Notice, the Company maintains that RareStone has materially breached its obligations under the RareStone License to fund, perform or seek certain key clinical studies and waivers, including with respect to the Company’s global EMANATE trial, among other obligations.

RareStone has notified the Company that it objects to the claims in the Notice, including the Company’s termination of the RareStone License for cause, and that a formal response is forthcoming.

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

What changed 10-Q

Item 1. Financial Statements