What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-03 · 147 added, 149 removed, 224 unchanged (57% of the section changed)

8 unchanged sentences

our ability to protect our intellectual property;

ongoing activities under and our ability to negotiate our collaboration and license agreements, if needed;

ongoing activities under and our ability to negotiate our collaboration and license agreements, if needed, and the impact of termination;

our marketing, commercial sales, and revenue generation;

11 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 a 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 EU 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.

In the fourth quarter of 2022, the European Commission is anticipated to make a final decision on our Type II variation application the application to expand the indication for setmelanotide to treat obesity and control of hunger in adult and pediatric patients 6 years of age and older with BBS.

In July 2022, the European Medicines Agency’s (EMA) Medicinal Committee for Products for Human Use (CHMP) adopted a positive opinion, recommending this expansion of the current indication for IMCIVREE to include BBS.

In addition to United States, EU and UK, we and our partners are seeking approval and or market access for IMCIVREE to treat patients with these MC4R pathway-related obesities in Argentina, Israel, China, Hong Kong and Macau.

Following FDA approval on June 16, 2022, we launched our commercial efforts to bring IMCIVREE to patients in the United States living with BBS.

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

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.

We have achieved market access for IMCIVREE in France, Germany and Great Britain, and we expect to secure market access in Italy and the Netherlands in the fourth quarter of 2022.

In addition to United States, EU and UK, 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.

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.

1 unchanged sentence

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 programs evaluating setmelanotide in rare MC4R pathway diseases 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.

In November 2022, we announced plans to initiate a pivotal, Phase 3 trial to evaluate setmelanotide in patients with hypothalamic obesity in early 2023.

In addition, our broad clinical programs evaluating setmelanotide in rare MC4R pathway diseases include the ongoing 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 also intend to seek input from the FDA on a pivotal Phase 3 trial in hypothalamic obesity, which we plan to initiate in early 2023.

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

The FDA has acknowledged the importance of these results by giving setmelanotide Breakthrough Therapy designation for the treatment of obesity associated with genetic defects upstream of the MC4R in the leptin melanocortin pathways.

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

The Breakthrough Therapy designation currently covers indications for POMC deficiency obesity, LEPR deficiency obesity, BBS and, as of November 2022, hypothalamic obesity.

Additional recent clinical, regulatory and commercial updates include:

On August 2, 2022, we announced that more than 35 physicians have written more than 50 prescriptions for IMCIVREE in the first six weeks since IMCIVREE was approved by the FDA on June 16, 2022 for chronic weight management in adult and pediatric patients 6 years of age and older with obesity due to BBS.

On August 2, 2022, we announced we had completed enrollment in our Phase 3 study evaluating setmelanotide in pediatric patients with MC4R pathway deficiencies between the ages of 2 and 6 years old.

On July 22, 2022, we announced that the EMA’s 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.

On July 19, 2022, we announced that the French National Agency for Medicines and Health Products Safety (ANSM) and Haute Autorité de santé (HAS) granted post-marketing authorization AP1 (autorisation d’accès précoce), or early access authorization, for setmelanotide for chronic weight management in adult and pediatric patients 6 years old and older with monogenic or syndromic obesity due to BBS.

On July 18, 2022, we announced that the National Institute for Health and Care Excellence (NICE)in the United Kingdom has issued guidance that recommends IMCIVREE as an option for treating obesity and controlling hunger caused by POMC, PCSK1 or LEPR deficiency in people 6 years of age and over, which means IMCIVREE will be funded and available for use within 90 days in the National Health Service in England and Wales.

On July 12, 2022, we announced positive interim results from the Phase 2 clinical trial evaluating setmelanotide for the treatment of severe obesity and hyperphagia in people living with hypothalamic obesity.

We estimate that there are approximately 5,000 to 10,000 patients living with hypothalamic obesity in the United States.

The Phase 2 clinical trial is a multi-center, open-label, proof-of-concept study that enrolled 18 patients with hypothalamic obesity who are between 6 and 28 years old.

The Phase 2 clinical trial consists of 16 weeks of treatment with setmelanotide administered once daily by subcutaneous injection, including an initial period of dose titration.

The primary endpoint is the percentage of patients who achieve more than 5 percent reduction in body mass index (“BMI”) from baseline after 16 weeks of treatment, compared to a historic control of less than 5 percent in this population.

As of the data cutoff date of May 6, 2022, 11 patients were evaluable for assessment, including nine patients who completed 16 weeks of treatment and two patients who discontinued early.

Data highlights from the interim analysis of the full analysis set (n=11) include, as of the cutoff date of May 6, 2022:

• 100 percent of patients achieved a BMI decrease of more than 5 percent;

• 17.2 percent mean percentage change in BMI (range:

-37.2 percent, -6.7 percent);

• 15.8 percent mean change (range:

-34.9 percent, -6.7 percent) in body weight from baseline weight of 107.1 kgs (range:

39.0, 141.4 kgs) or 236.1 lbs;

• 15.9 kgs (range:

-28.2, -6.7) or -35.1 lbs mean weight loss from baseline.

Data highlights from the interim analysis of completers (n=9) include, as of the cutoff date of May 6, 2022:

• 19.5 mean percent change in BMI (range:

-37.2 percent, -10 percent);

• 17.8 mean percent change (range:

-34.9 percent, -10.7 percent) in body weight from baseline weight of 107.8 kg (range:

39.0 kgs, 141.4 kgs) or 236.1 lbs;

• 17.8 kgs (range:

-28.2, -9.5) or -37.7 lbs mean weight loss from baseline.

Setmelanotide also achieved a meaningful reduction in hunger scores.

The mean change in hunger score for patients older than 12 years old who completed 16 weeks on therapy (n=7) was -2.7 on a scale of 1-10, with 10 being most hungry.

Consistent with prior clinical experience in other rare MC4R pathway diseases, setmelanotide was observed to be generally well tolerated.

The most frequently reported treatment-emergent adverse events included nausea, vomiting, COVID-19, diarrhea and injection site reactions.

Of the 18 patients enrolled in this Phase 2 clinical trial, three discontinued due to adverse events, each of whom had achieved a reduction in BMI of more than 5 percent at the time they discontinued, and one patient was discontinued due to documented non-compliance to therapy.

In total, 14 of the 18 patients enrolled in this Phase 2 clinical trial remained on setmelanotide therapy as of July 11, 2022.

We plan to present the full data from the 18 patients enrolled in this Phase 2 clinical trial at an upcoming medical meeting in the fall of 2022.

Based on the positive interim results from the Phase 2 clinical trial, we intend to proceed to Phase 3 clinical development following consultation with regulatory agencies

On June 22, 2022, we announced the launch of IMCIVREE in Germany for patients with POMC, PCSK1 or LEPR deficiency obesity.

IMCIVREE is the first precision medicine designed to induce weight loss and control of hunger that has received a lifestyle exemption from the German Federal Joint Committee, which means it is now eligible for national coverage and reimbursement.

The Company also anticipates launching IMCIVREE in the U.K.

and Italy for patients with POMC, PCSK1 or LEPR deficiencies.

Also on June 22, 2022, we announced that the EC authorized a variation for IMCIVREE that allows for dosing in patients aged 6 years or older with POMC or LEPR deficiency who have mild, moderate or severe renal impairment.

On June 16, 2022, we announced that the U.S.

FDA approved IMCIVREE for chronic weight management in adult and pediatric patients 6 years of age and older with obesity due to BBS.

Also on June 16, 2022, we announced a non-dilutive revenue interest financing agreement, or RIFA with HealthCare Royalty Partners, LLC, or HealthCare Royalty, for a total investment amount of up to $100 million.

In exchange for the total investment amount to be received by Rhythm, HealthCare Royalty will receive a tiered royalty based on global net product sales generated by IMCIVREE.

For additional information, see Note 10, “Long-term Obligations” to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

On June 13, 2022, at the Endocrine Society Annual Meeting & Expo (ENDO), we presented new data from our long-term extension (LTE) trial, which showed continued body mass index (BMI) and weight reductions in patients with BBS or POMC or LEPR deficiency obesity (biallelic) receiving between 18 months and three years of setmelanotide therapy.

Also at ENDO, we presented initial data from the LTE trial demonstrating continued BMI and weight reductions in patients with SH2B1 or SRC1 deficiency obesity, or with POMC or LEPR insufficiency obesity (heterozygous).

On November 8, 2022, we announced that, as of September 30, 2022, more than 80 physicians have written more than 120 prescriptions for IMCIVREE for patients with BBS since IMCIVREE was approved by the FDA.

We have secured approval for reimbursement for more than 40 of those prescriptions.

On November 2, 2022, we also announced the design of our Phase 3 clinical trial in acquired hypothalamic obesity following recent discussions with the FDA.

The trial, which is anticipated to initiate in early 2023, is expected to enroll

120 patients randomized 2:1 to setmelanotide therapy or placebo for 60 weeks, including up to 8 weeks for dose titration.

The primary endpoint will be the percent change in body mass index (BMI) versus placebo.

Key secondary endpoints will include the proportion of patients who achieve ≥5% reduction in BMI from baseline in adults (≥18) or BMI Z-score reduction of ≥0.2 from baseline in pediatrics at Week 60 compared with placebo;

and mean change in the weekly average of the daily most hunger score in patients ≥12 years from baseline to Week 60 compared with placebo.

At The Obesity Society’s ObesityWeek ® 2022 conference held November 1-4, 2022 in San Diego, California, we and our collaborators delivered 11 presentations.

Highlights from the presentations include:

● Positive full dataset from our Phase 2 trial evaluating setmelanotide for the treatment of hypothalamic obesity demonstrating that 89% percent (16 of 18) patients had a 5% or greater reduction in BMI at 16 weeks;

14.5 mean percent reduction in BMI and 12.6 mean percent reduction body weight (N=18) at Week 16 from baseline;

● Additionally, we reported that 14 patients continued on therapy in our long-term extension trial.

As of a cut-off date of September 23, 2022, 13 of these patients who reached a total of 29 weeks on setmelanotide therapy achieved a mean BMI reduction of 21.1% (SD, 11.2%);

and five (5) of these patients who reached a total of 41 weeks on setmelanotide therapy achieved a mean BMI reduction of 26.7% (SD, 12.4%).

● Results from the Clinical Registry Investigating Bardet-Biedl Syndrome (CRIBBS):

We also presented results from CRIBBS, the international registry of patients with BBS that launched in 2014.

We collaborated with the Marshfield Clinic Research Institute on multiple analyses of blinded CRIBBS data.

The results demonstrated that children with BBS experience high disease burden due to hyperphagia and that hyperphagia was positively correlated with higher BMI weight categories.

Obesity was found to be highly prevalent in a large sample of children with BBS, and most children who had obesity continued to have it or experienced worsening weight gain over time.

On November 1, 2022, we also announced that the FDA has granted Breakthrough Therapy designation to setmelanotide for the treatment of hypothalamic obesity.

The FDA's Breakthrough Therapy designation is designed to expedite development and review of medicines that aim to address a serious condition with preliminary clinical evidence indicating that the drug may demonstrate substantial improvement over existing treatments on one or more clinically significant endpoints.

On October 12, 2022, we announced our sponsorship of the inaugural International Meeting on Pathway-Related Obesity:

Vision of Excellence (IMPROVE) 2022 in Berlin, Germany, bringing together approximately 100 specialists to share the latest scientific developments and patient care practices related to rare MC4R pathway-related obesities.

Also on October 12, 2022 at IMPROVE, we announced data from our exploratory Phase 2 Basket Study evaluating setmelanotide in patients stratified into two cohorts, one with predicted setmelanotide rescuable MC4R pathway deficiency and one with predicted nonrescuable MC4R deficiency.

On October 6, 2022, we announced the appointment of Dana Washburn, M.D., as Senior Vice President of Clinical Development and as a member of our Executive Leadership Team to lead our robust clinical development program, clinical operations, and data management.

On September 23, 2022, we announced the publication of a children’s book developed in collaboration with the BBS Foundation entitled, “Understanding Hunger & Bardet-Biedl Syndrome (BBS):

Gabe’s Story.”

On September 19, 2022, we completed a public offering of 4,800,000 shares of common stock at a price to the public of $26.00 per share for aggregate net proceeds to us of $117.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

On October 18, 2022, we 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 to us of approximately $131.2 million, after deducting underwriting discounts, commissions and offering expenses payable by us.

On September 19, 2022, we announced presentations during the 60th Annual Meeting of the European Society for Paediatric Endocrinology (ESPE 2022) held in Rome, Italy that detailed new findings on the burden of hyperphagia and obesity on patients with BBS and their caregivers and data from new analyses that showed setmelanotide achieved substantial weight loss benefit in adolescent and pediatric patients with rare MC4R pathway diseases across three separate pivotal trials.

On September 6, 2022, we announced that the EC has expanded the marketing authorization for IMCIVREE to include the treatment of obesity and control of hunger associated with genetically confirmed BBS in adult and pediatric patients 6 years of age and older.

Also on September 6, 2022, we announced that Health Canada granted Priority Review for our New Drug Submission (NDS) for setmelanotide, indicated in adult and pediatric patients 6 years of age and older with impairments in the MC4R pathway due to genetic diseases, for the treatment of obesity and control of hunger in BBS or biallelic POMC, PCSK1, LEPR deficiency.

Priority Review shortens Health Canada’s submission review performance target to 180 days, in comparison to 300 days for non-Priority Review.

In addition, we reported that we expect to achieve the following near-term milestones:

● Launch IMCIVREE in Italy and the Netherlands for patients with POMC, PCSK1 or LEPR deficiencies in the fourth quarter of 2022;

● Initiate pivotal Phase 3 trial to evaluate setmelanotide in hypothalamic obesity in early 2023;

● Initiate 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 2023;

● Complete regulatory review by Health Canada and, pending approval, make IMCIVREE commercially available in Canada for the treatment of obesity and control of hunger in adults and pediatric patients 6 years and older with BBS, or with POMC, PCSK1 or LEPR deficiencies in 2023;

● Announce topline data from our Phase 3, open-label trial evaluating one year of setmelanotide therapy in pediatric patients with MC4R pathway deficiencies between the ages of 2 and 6 years old in the second half of 2023.

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

1 unchanged sentence

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.

Since our initial public offering, or IPO, on October 10, 2017 and our underwritten follow-on offerings through October 2022, we have raised aggregate net proceeds of approximately $742.6 million through the issuance of our common stock after deducting underwriting discounts, commissions and offering related transaction costs.

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.

In June 2022, we entered into the RIFA with entities managed by HealthCare Royalty and received proceeds of $37.3 million, net of certain transaction costs at closing.

In June 2022, we entered into the RIFA (as defined below) with entities managed by HealthCare Royalty and received cumulative proceeds of $74.8 million, net of certain transaction costs at closing.

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.

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 patients 6 years of age and older with obesity due to BBS during June 2022.

5 unchanged sentences

If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or commercialization of setmelanotide.

As of June 30, 2022 we had an accumulated deficit of $626.7 million.

Our net (loss) income was ($45.0) million, ($35.4) million, ($97.8) million and $8.4 million for the three and six months ended June 30, 2022 and 2021, respectively.

As of September 30, 2022, we had an accumulated deficit of $667.6 million.

Our net losses were $40.9 million, $35.1 million, $138.6 million, and $26.7 million for the three and nine months ended September 30, 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 June 30, 2022, our existing cash and cash equivalents and short-term investments were approximately $235.6 million.

As of September 30, 2022, our existing cash and cash equivalents and short-term investments were approximately $347.8 million.

We expect that our previously announced changes to the EMANATE and DAYBREAK trials, 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 be sufficient to fund our operations into 2024 , and that such existing cash and cash equivalents and short-term investments, together with the second investment tranche under the RIFA expected in the second half of 2022, will enable us to fund our operating expenses into at least the second half of 2024.

We expect that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operations into 2025.

Corporate Background

6 unchanged sentences

As a result, we do not currently expect that the COVID-19 pandemic will have a material impact on our business, results of operations and financial condition.

At this time, however, there is still uncertainty relating to the trajectory of the pandemic and the impact of related responses, and disruptions caused by the COVID-19 pandemic have resulted and may in the future result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays.

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.

At this time, however, there is still uncertainty relating to the trajectory of the pandemic and the impact of

related responses, and disruptions caused by the COVID-19 pandemic have resulted and may in the future result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays.

For example, in 2020, 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, 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.

4 unchanged sentences

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.

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.

IMCIVREE was approval by the FDA and the EC in adult and pediatric patients six years of age and older with obesity due to BBS in June and September of 2022, respectively.

Following these approvals for BBS, we expect our sales of IMCIVREE will continue to grow as we identify and treat more patients with this disease and obtain reimbursement throughout the international markets in which we operate.

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 June 30, 2022 were insignificant.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three and nine months ended September 30, 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.

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Research and development summary

20 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Selling, general and administrative summary

10 unchanged sentences

Results of Operations

Comparison of the three months ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage:

Comparison of the three months ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage:

Three Months Ended

September 30,

(in thousands)

1 unchanged sentence

Product revenue, net

License revenue

Costs and expenses:

4 unchanged sentences

Loss from operations

Other income, net

Other (expense) income, net

Loss before taxes

2 unchanged sentences

Product revenue, net .

Product revenue, net increased to $2.3 million for the three months ended June 30, 2022.

There was no significant product revenue in the comparative period.

Product revenue, net increased by $3.3 million to $4.3 million for the three months ended September 30, 2022 from $1.0 million for the three months ended September 30, 2021, an increase of 317%.

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 to continue to increase following the FDA approval for the treatment of patients with BBS in the United States during June 2022.

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

We expect our sales of IMCIVREE to continue to increase following the FDA approval for the treatment of patients with BBS in the United States during June 2022 and by the EC in September 2022.

Through September 30, 2022, a substantial amount of our product revenue, or 81%, has been generated in the United States.

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

During June 2022, we completed our first sales of IMCIVREE in Germany.

License revenue.

License revenue increased to $6.8 million for the three months ended June 30, 2022 and was entirely related to the license we granted to RareStone in December 2021 to develop, manufacture, commercialize and otherwise exploit any pharmaceutical product that contains setmelanotide in the diagnosis, treatment or prevention of conditions and diseases in humans in China, including mainland China, Hong Kong and Macao.

We completed our activities required to transfer the license to RareStone during three month period ending June 30, 2022, which resulted in the recognition of the license revenue.

We do not expect to recognize additional license revenue related to the RareStone arrangement during 2022.

Cost of sales.

Cost of sales increased to $0.4 million for the three months ended June 30, 2022.

Cost of sales increased by $0.3 million to $0.5 million for the three months ended September 30, 2022 from $0.2 million for the three month period ended September 30, 2021.

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

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

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended June 30, 2022 and 2021 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 in the United States and European Union, as well as a royalty due to Ipsen on our net product sales.

Accordingly, the costs for IMCIVREE included in our cost of sales for the three months ended September 30, 2022 and 2021 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 in the United States and European Union, as well as a royalty due to Ipsen on our net product sales.

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

Research and development expense.

Research and development expense increased by $6.4 million to $31.5 million in 2022 from $25.1 million in 2021, an increase of 25%.

The increase was primarily due to the following:

● an increase of $4.6 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 reduced activity due to the winding down of our BBS, Phase 2 Basket and GO-ID studies;

● an increase of $1.3 million in compensation and benefits due to the hiring of additional full-time employees in order to support the growth of our research and development programs and expansion of regulatory affairs operations;

● an increase of $0.7 million due to increased gene sequencing costs to support our expanded clinical programs;

● an increase of $1.0 million in costs associated with support for regulatory filings and for clinical supply material .

The above increases were partially offset by:

Research and development expense decreased by $6.4 million to $21.1 million in 2022 from $27.5 million in 2021, a decrease of 23%.

The decrease was primarily due to the following:

● a decrease of $5.2 million in our clinical trial costs associated with the impact of study design amendments to our Phase 2 DAYBREAK study, as well as, reduced activity due to the winding down of our BBS, QT, Phase 2 Basket and renal studies;

these decreases were partially offset by increased costs associated with our Phase 3 EMANATE trials, and increased enrollment in our long-term extension study;

● a decrease of $1.3 million in costs associated with the manufacturing of clinical material;

● a decrease of $0.5 million of costs related to next generation research and development activities;

● a decrease of $0.4 million in costs associated with medical affairs;

● a decrease of $0.3 million in compensation and benefits.

The above decreases were partially offset by:

● an increase of $1.2 million due to increased gene sequencing costs to support our expanded clinical programs.

Selling, general and administrative expense.

1 unchanged sentence

The increase was primarily due to the following:

● an increase of $5.0 million related to increased costs associated with commercial operations, sales and marketing activities for IMCIVREE in connection with preparing for the U.S approval for BBS obtained in June 2022;

● an increase of $2.2 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 $1.0 million due to increased costs associated with office support and insurance costs for our expanding workforce.

Other income, net.

Other income increased by $0.1 million for the three months ended June 30, 2022.

The increase was primarily due to improving interest rates during the period.

Provision for income taxes.

There is no provision for income taxes for the three months ended June 30, 2022, as we project to generate operating losses during the year.

We recorded an income tax benefit of $5.0 million as a result of the sale of our PRV during the three months ended June 30, 2021.

Net loss increased by $9.6 million to $45.0 million for the three months ended June 30, 2022, from net loss of $35.4 million for the three months ended June 30, 2021.

● an increase of $1.6 million due to increased costs associated with insurance premiums, office support, travel and entertainment related costs for our expanding workforce and increased commercial operations;

● an increase of $0.7 million related to increased costs associated with sales and marketing activities for IMCIVREE in connection with preparing for the EC approval for BBS obtained in September 2022 and expanding our international market access.

The above increases were partially offset by:

● a decrease of $0.4 million related to professional services costs.

Other (expense) income, net.

Other (expense) income, net decreased by $1.7 million to ($1.6) million for the three months ended September 30, 2022.

Other (expense) income, net consists of ($2.1) million of interest expense related to our RIFA with HealthCare Royalty Partners, LLC and a ($1.0) million write off expense related to our RareStone equity partially offset by $1.0 million of interest income primarily due to improving interest rates during the period and $0.7 million fair market value adjustment related to our RIFA embedded derivative.

(Benefit from) provision for income taxes.

There is no provision for income taxes for the three months ended September 30, 2022, as we project to generate operating losses during the year.

We recorded an income tax benefit of $9.0 million as a result of the reversal of a tax provision recorded upon the sale of our PRV during the three months ended September 30, 2021.

Net loss increased by $5.8 million to $40.9 million for the three months ended September 30, 2022, from net loss of $35.1 million for the three months ended September 30, 2021.

The increase in net loss was a result of higher costs as noted above, offset by current period revenues, and the non-recurring nature of the impact of a tax benefit related to the sale of our PRV in the prior year period.

Comparison of the six months ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage:

Six Months Ended

Comparison of the nine months ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage:

Nine Months Ended

September 30,

(in thousands)

8 unchanged sentences

Loss from operations

Other income, net

(Loss) income before taxes

Other (expense) income, net

Loss before taxes

Provision for income taxes

Net (loss) income

NM=Not meaningful

Product revenue, net.

Product revenue, net increased to $3.8 million for the six months ended June 30, 2022 .

There was no significant product revenue in the comparative period.

Product revenue, net increased by $6.8 million to $8.1 million for the nine months ended September 30, 2022 from $1.3 million for the nine months ended September 30, 2021, an increase of 505%.

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 to continue to increase following the FDA approval for the treatment of patients with BBS in the United States during June 2022.

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

We expect our sales of IMCIVREE to continue to increase following the FDA approval for the treatment of

patients with BBS in the United States during June 2022 and by the EC during September 2022.

Through September 30, 2022, substantially all of our product revenue, or 86%, has been generated in the United States.

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

1 unchanged sentence

License revenue.

License revenue increased to $6.8 million for the three months ended June 30, 2022 and was entirely related to the RareStone license.

We completed our activities required to transfer the license to RareStone during six month period ending June 30, 2022 which resulted in the recognition of the license revenue.

License revenue was $6.8 million for the nine months ended September 30, 2022 and was entirely related to the RareStone license.

We entered into a license agreement with the RareStone in December 2021 and completed our activities required to transfer the license to RareStone during the second quarter of 2022, which resulted in the recognition of the license revenue.

We do not expect to recognize additional license revenue related to the RareStone arrangement during 2022.

Cost of sales.

Cost of sales increased to $0.6 million for the six months ended June 30, 2022.

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 six months ended June 30, 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 in the United States and European Union, as well as a royalty due to Ipsen on our net product sales.

Cost of sales increased by $0.7 million to $1.1 million for the nine months ended September 30, 2022 from $0.4 million in the nine months ended September 30, 2021, an increase of 204%.

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

Accordingly, the product cost component related for IMCIVREE included in our cost of sales for the nine months ended September 30, 2022 were insignificant and cost of sales 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 in the United States and European Union, as well as a royalty due to Ipsen on our net product sales.

The $0.7 million increase in cost of sales was due to an increase of $0.3 million of additional amortization, $0.3 million of additional royalties due to our growth in sales and $0.1 attributed to product cost primarily associated with higher sales volume.

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

Research and development expense.

Research and development expense increased by $19.0 million to $64.0 million in the six months ended June 30, 2022 from $45.0 million in the six months ended June 30, 2021, an increase of 42%.

Research and development expense increased by $12.5 million to $85.1 million in the nine months ended September 30, 2022 from $72.6 million in the nine months ended September 30, 2021, an increase of 17%.

The increase was primarily due to the following:

● an increase of $8.8 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.

increases were partially offset by reduced activity due to the completion and winding down of our BBS, Phase 2 Basket, renal and GO-ID studies;

These increases were partially offset by reduced activity due to the completion and winding down of our POMC LEPR, BBS, Phase 2 Basket, renal and GO-ID studies;

● an increase of $3.0 million due to increased purchases of clinical supply material;

● an increase of $2.4 million due to increased gene sequencing costs associated with our expanded clinical programs;

● an increase of $1.1 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 $1.2 million due to increased gene sequencing costs;

● 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 $0.5 million to support regulatory filings.

● an increase of $0.3 million related to IP and patent related filing activities.

The above increases were partially offset by:

● a decrease of $3.7 million in costs associated with medical affairs;

● a decrease of $0.7 million in costs associated with next generation research and development activities.

Selling, general and administrative expense.

Selling, general and administrative expense increased by $13.8 million to $43.8 million in the six months ended June 30, 2022 from $30.0 million in the six months ended June 30, 2021, an increase of 46%.

Selling, general and administrative expense increased by $18.2 million to $65.7 million in the nine months ended September 30, 2022 from $47.5 million in the nine months ended September 30, 2021, an increase of 38%.

The increase was primarily due to the following:

● an increase of $7.3 million related to increased costs associated with commercial operations, sales and marketing activities for IMCIVREE in connection with preparing for the U.S approval for BBS obtained in June 2022;

● an increase of $8.1 million related to increased costs associated with commercial operations, sales and marketing activities for IMCIVREE in connection with preparing for the U.S.

approval for BBS obtained in June 2022 and EC approval in September 2022;

● an increase of $6.6 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 $3.6 million due to increased costs associated with information technology, international office space, sponsorships and general corporate travel related expenses for our expanding workforce.

Other income, net.

Other income decreased by $100.1 million in the six months ended June 30, 2022.

Other (expense) income, net.

Other (expense) income, net decreased by $101.9 million to ($1.6) million in the nine months ended September 30, 2022.

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.

Other (expense) income, net consists of $2.2 million of interest expense related to our RIFA and a $1.0 million write-off expense related to our RareStone equity for the nine months ended September 30, 2022, partially offset by $1.4 million of interest income and $0.7 million of other income resulting from the remeasurement of our embedded derivative related to our RIFA.

Provision for income taxes.

There is no provision for income taxes for the six months ended June 30, 2022, as we project to generate operating losses during the year.

We recorded a provision for income taxes of $17.0 million as a result of the sale of our PRV during the six months ended June 30, 2021.

Net (loss) income .

Net loss increased by $106.1 million to $97.8 million for the six months ended June 30, 2022, from net income of $8.4 million for the six months ended June 30, 2021.

The increase in net loss was primarily 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, as well as higher costs in the current year as noted above.

There is no provision for income taxes for the nine months ended September 30, 2022, as we project to generate operating losses during the year.

We recorded a provision for income taxes of $8.0 million as a result of the sale of our PRV during the nine months ended September 30, 2021.

Net loss increased by $111.9 million to $138.6 million for the nine months ended September 30, 2022, from net loss of $26.7 million for the nine months ended September 30, 2021.

Liquidity and Capital Resources

As of June 30, 2022, our cash and cash equivalents and short-term investments were approximately $235.6 million.

The following table provides information regarding our cash flows for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

As of September 30, 2022, our cash and cash equivalents and short-term investments were approximately $347.8 million.

The following table provides information regarding our cash flows for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

Net cash used in operating activities

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 $92.4 million for the six months ended June 30, 2022 and consisted primarily of a net loss of $87.3 million adjusted for non-cash items, which consisted of non-cash stock-based compensation, depreciation and amortization and rent expense.

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

Net cash used in operating activities was $139.4 million for the nine months ended September 30, 2022 and consisted primarily of a net loss of $120.9 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 $4.9 million from a decrease in other long-term assets, prepaid expenses and other current assets coupled with a $13.7 million decrease in accounts payable, deferred revenue and accrued expenses and other current liabilities.

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

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

Net cash used in operating activities was $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 provided by (used in) investing activities

Net cash provided by investing activities was $108.5 million for the six months ended June 30, 2022 and relates to $163.1 million of maturities of short-term investments, partially offset by $50.4 million of purchases of short-term investments, a $4.0 million milestone obligation payment under our license agreement with Ipsen and $0.2 million related to the purchase of property plant and equipment.

Net cash used in investing activities was $132.2 million for the six months ended June 30, 2021 and relates to $226.9 million of net purchases of short-term investments and $5.0 million for the acquisition of an intangible asset, partially offset by the $100.0 million in proceeds from the sale of the PRV.

Net cash provided by investing activities was $68.8 million for the nine months ended September 30, 2022 and relates to $224.6 million of maturities of short-term investments, partially offset by $151.5 million of purchases of short-term investments, a $4.0 million milestone obligation payment under our license agreement with Ipsen and $0.3 million related to the purchase of property plant and equipment.

Net cash used in investing activities was $69.4 for the nine months ended September 30, 2021 and relates to $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, partially 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 $37.9 million for the six months ended June 30, 2022, which represents the net proceeds from the RIFA coupled with 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 $166.0 million for the six months ended June 30, 2021, which represents the net proceeds of $161.7 million from our common stock offering in February 2021 and $4.2 million of cash proceeds from the exercise of stock options and the issuance of common stock from the ESPP.

Net cash provided by financing activities was $196.5 million for the nine months ended September 30, 2022, which represents the net proceeds of $117.0 million from our common stock offering in September 2022, net proceeds from of $75.0 million from the RIFA, and $4.5 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 $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 the ESPP.

Revenue Interest Financing Agreement

6 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 be sufficient to fund our operations into 2024, and that such existing cash and cash equivalents and short-term investments, together with the second investment tranche under the RIFA expected in the second half of 2022, will enable us to fund our operating expenses into at least the second half of 2024.

We expect that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operations into 2025.

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

19 unchanged sentences

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties or other means, we may have to relinquish valuable rights to our setmelanotide program on terms that may not be favorable to us.

If we are unable to raise additional funds through equity, debt financings or other means, when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our setmelanotide program that we would otherwise prefer to develop and market ourselves.

If we are unable to raise additional funds through equity, debt financings or other means, when needed, we may be

required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our setmelanotide program that we would otherwise prefer to develop and market ourselves.

Contractual obligations

As of June 30, 2022, apart from additional contractual obligations under our RIFA as disclosed in Note 10, “Long-Term Obligations”, to the unaudited condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no other 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.

As of September 30, 2022, apart from additional contractual obligations under our RIFA as disclosed in Note 10, “Long-Term Obligations”, to the unaudited condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no other 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

1 unchanged sentence

Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 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.

As of September 30, 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