RHYTHM PHARMACEUTICALS, INC. 10-Q

Item 1. Financial Statements Rhythm Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 185,087 ​ $ 59,248 Short-term investments ​ 162,708 ​ 235,607 Accounts receivable, net ​ ​ 3,328 ​ ​ 1,025 Prepaid expenses and other current assets ​ 10,751 ​ 12,507 Total current assets ​ 361,874 ​ 308,387 Property and equipment, net ​ 2,426 ​ 2,813 Right-of-use asset ​ ​ 1,273 ​ ​ 1,522 Intangible assets, net ​ ​ 8,097 ​ ​ 4,658 Restricted cash ​ 328 ​ 328 Other long-term assets ​ ​ 15,616 ​ ​ 11,815 Total assets ​ $ 389,614 ​ $ 329,523 Liabilities and stockholders’ equity ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 4,933 ​ $ 5,737 Accrued expenses and other current liabilities ​ 25,741 ​ 30,084 Deferred revenue ​ ​ 1,760 ​ ​ 7,000 Lease liability ​ 664 ​ 606 Total current liabilities ​ 33,098 ​ 43,427 Long-term liabilities: ​ ​ Deferred royalty obligation ​ ​ 72,961 ​ ​ — Lease liability ​ 1,440 ​ 1,945 Derivative liability ​ ​ 920 ​ ​ — Total liabilities ​ 108,419 ​ 45,372 Stockholders’ equity: ​ ​ Preferred Stock, $ 0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021 ​ — ​ — Common stock, $ 0.001 par value: 120,000,000 shares authorized; 55,756,256 and 50,283,574 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively ​ 56 ​ 50 Additional paid-in capital ​ ​ 949,043 ​ ​ 813,041 Accumulated other comprehensive loss ​ ​ ( 339 ) ​ ​ ( 1 ) Accumulated deficit ​ ( 667,565 ) ​ ( 528,939 ) Total stockholders’ equity ​ 281,195 ​ 284,151 Total liabilities and stockholders’ equity ​ $ 389,614 ​ $ 329,523 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements ​ 3 Table of Contents Rhythm Pharmaceuticals, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ 2022 2021 2022 2021 Product revenue, net ​ ​ $ 4,284 ​ $ 1,028 ​ $ 8,094 ​ $ 1,337 License revenue ​ ​ ​ — ​ ​ — ​ ​ 6,754 ​ ​ — Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ ​ ​ 497 ​ ​ 222 ​ ​ 1,105 ​ ​ 363 Research and development ​ ​ ​ 21,116 ​ ​ 27,539 ​ ​ 85,082 ​ ​ 72,554 Selling, general, and administrative ​ ​ 21,938 ​ 17,507 ​ 65,715 ​ 47,490 Total costs and expenses ​ ​ 43,551 ​ 45,268 ​ 151,902 ​ 120,407 Loss from operations ​ ​ ( 39,267 ) ​ ( 44,240 ) ​ ( 137,054 ) ​ ( 119,070 ) Other income: ​ ​ ​ ​ ​ Other expense ​ ​ ( 370 ) ​ — ​ ( 370 ) ​ 100,000 Interest expense ​ ​ ​ ( 2,144 ) ​ ​ — ​ ​ ( 2,190 ) ​ ​ — Interest income ​ ​ 920 ​ 138 ​ 988 ​ 313 Total other (expense) income, net ​ ​ ( 1,594 ) ​ 138 ​ ( 1,572 ) ​ 100,313 Loss before taxes ​ ​ ​ ( 40,861 ) ​ ​ ( 44,102 ) ​ ​ ( 138,626 ) ​ ​ ( 18,757 ) (Benefit from) provision for income taxes ​ ​ ​ — ​ ​ ( 8,995 ) ​ ​ — ​ ​ 7,989 Net loss ​ ​ $ ( 40,861 ) ​ $ ( 35,107 ) ​ $ ( 138,626 ) ​ $ ( 26,746 ) Net loss per share, basic and diluted ​ ​ $ ( 0.79 ) ​ $ ( 0.70 ) ​ $ ( 2.73 ) ​ $ ( 0.54 ) Weighted-average common shares outstanding, basic and diluted ​ ​ ​ 51,400,922 ​ ​ 50,246,303 ​ ​ 50,712,452 ​ ​ 49,374,336 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ ​ $ ( 40,861 ) ​ $ ( 35,107 ) ​ $ ( 138,626 ) ​ $ ( 26,746 ) Reclassification of losses on RareStone equity into net loss ​ ​ ​ 300 ​ ​ — ​ ​ — ​ ​ — Unrealized gain (loss), net on marketable securities ​ ​ 267 ​ — ​ ( 338 ) ​ ( 107 ) Comprehensive loss ​ ​ $ ( 40,294 ) ​ $ ( 35,107 ) ​ $ ( 138,964 ) ​ $ ( 26,853 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements ​ ​ ​ 4 Table of Contents Rhythm Pharmaceuticals, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ Total ​ ​ Common Stock ​ Paid-In ​ Comprehensive Accumulated ​ Stockholders’ ​ Shares Amount Capital Income (Loss) Deficit Equity Balance at December 31, 2021 50,283,574 ​ $ 50 $ 813,041 $ ( 1 ) $ ( 528,939 ) $ 284,151 Stock-based compensation expense ​ — ​ — ​ 4,611 ​ — ​ — ​ 4,611 Issuance of common stock in connection with ESPP ​ 61,518 ​ ​ — ​ ​ 399 ​ ​ — ​ — ​ ​ 399 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 48,639 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — Unrealized loss on marketable securities — ​ — ​ — ​ ( 628 ) ​ — ​ ( 628 ) Net loss — ​ — ​ — ​ — ​ ( 52,764 ) ​ ( 52,764 ) Balance at March 31, 2022 ​ 50,393,731 ​ ​ 50 ​ ​ 818,051 ​ ​ ( 629 ) ​ ( 581,703 ) ​ ​ 235,769 Stock-based compensation expense ​ — ​ ​ — ​ ​ 5,137 ​ ​ — ​ — ​ ​ 5,137 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 60,439 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 23 ​ — ​ ​ 23 Unrealized loss on RareStone equity ​ — ​ ​ — ​ ​ — ​ ​ ( 300 ) ​ — ​ ​ ( 300 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ( 45,001 ) ​ ​ ( 45,001 ) Balance at June 30, 2022 ​ 50,454,170 ​ ​ 50 ​ ​ 823,188 ​ ​ ( 906 ) ​ ( 626,704 ) ​ ​ 195,628 Stock compensation expense ​ — ​ — ​ 4,796 ​ — ​ — ​ 4,796 Issuance of common stock in connection with ESPP ​ 31,414 ​ ​ — ​ ​ 227 ​ ​ — ​ — ​ ​ 227 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 470,672 ​ ​ 1 ​ ​ 3,863 ​ ​ — ​ — ​ ​ 3,864 Issuance of common stock upon completion of public offering, net of offering costs ​ 4,800,000 ​ ​ 5 ​ ​ 116,969 ​ ​ — ​ — ​ ​ 116,974 Unrealized gain on marketable securities ​ — ​ — ​ — ​ 267 ​ — ​ 267 Reclassification of losses on RareStone equity into net loss ​ — ​ ​ — ​ ​ — ​ ​ 300 ​ — ​ ​ 300 Net loss ​ — ​ — ​ — ​ — ​ ( 40,861 ) ​ ( 40,861 ) Balance at September 30, 2022 ​ 55,756,256 ​ $ 56 ​ $ 949,043 ​ $ ( 339 ) $ ( 667,565 ) ​ $ 281,195 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2020 44,235,903 ​ $ 44 $ 625,762 $ 49 $ ( 459,327 ) $ 166,528 Stock-based compensation expense ​ — ​ — ​ 5,191 ​ — ​ — ​ 5,191 Issuance of common stock in connection with ESPP ​ 17,000 ​ ​ — ​ ​ 388 ​ ​ — ​ — ​ ​ 388 Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units ​ 198,855 ​ ​ — ​ ​ 3,466 ​ ​ — ​ — ​ ​ 3,466 Issuance of common stock upon completion of public offering, net of offering costs ​ 5,750,000 ​ ​ 6 ​ ​ 161,725 ​ ​ — ​ — ​ ​ 161,731 Unrealized loss on marketable securities — ​ — ​ — ​ ( 107 ) ​ — ​ ( 107 ) Net income — ​ — ​ — ​ — ​ 43,750 ​ 43,750 Balance at March 31, 2021 ​ 50,201,758 ​ ​ 50 ​ ​ 796,532 ​ ​ ( 58 ) ​ ( 415,577 ) ​ ​ 380,947 Stock compensation expense ​ — ​ ​ — ​ ​ 5,669 ​ ​ — ​ — ​ ​ 5,669 Issuance of common stock in connection with exercise of stock options ​ 24,981 ​ ​ — ​ ​ 383 ​ ​ — ​ — ​ ​ 383 Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 79 ​ — ​ ​ 79 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ( 35,389 ) ​ ​ ( 35,389 ) Balance at June 30, 2021 ​ 50,226,739 ​ ​ 50 ​ ​ 802,584 ​ ​ 21 ​ ( 450,966 ) ​ ​ 351,689 Stock compensation expense ​ — ​ — ​ 5,268 ​ — ​ — ​ 5,268 Issuance of common stock in connection with ESPP ​ 21,051 ​ ​ ​ ​ ​ 233 ​ ​ ​ ​ ​ ​ ​ 233 Issuance of common stock in connection with exercise of stock options ​ 20,522 ​ ​ — ​ ​ 180 ​ ​ — ​ — ​ ​ 180 Net loss ​ — ​ — ​ — ​ — ​ ( 35,107 ) ​ ( 35,107 ) Balance at September 30, 2021 ​ 50,268,312 ​ $ 50 ​ $ 808,265 ​ $ 21 $ ( 486,073 ) ​ $ 322,263 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 5 Table of Contents Rhythm Pharmaceuticals, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Operating activities ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 138,626 ) ​ $ ( 26,746 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ Stock-based compensation expense ​ 14,544 ​ 16,128 Gain on sale of priority review voucher ​ ​ — ​ ​ ( 100,000 ) Deferred tax provision ​ ​ — ​ ​ 7,989 Depreciation and amortization ​ 1,230 ​ 833 Non-cash interest expense and amortization of debt issuance costs ​ ​ 2,190 ​ ​ — Non-cash rent expense ​ ( 198 ) ​ ( 185 ) Loss on RareStone equity investment ​ ​ 1,040 ​ ​ — Changes in operating assets and liabilities: ​ ​ Prepaid expenses and other current assets ​ ( 1,072 ) ​ 1,591 Deferred revenue ​ ​ 474 ​ ​ — Other long-term assets ​ ( 4,841 ) ​ ( 10,533 ) Accounts payable, accrued expenses and other current liabilities ​ ( 14,169 ) ​ 5,392 Net cash used in operating activities ​ ( 139,428 ) ​ ( 105,531 ) Investing activities ​ ​ Purchases of short-term investments ​ ( 151,521 ) ​ ( 456,238 ) Maturities of short-term investments ​ 224,607 ​ 292,197 Proceeds from sale of priority review voucher ​ ​ — ​ ​ 100,000 Payment of milestone obligation under license agreement ​ ​ ( 4,000 ) ​ ​ ( 5,000 ) Purchases of property and equipment ​ ( 282 ) ​ ( 366 ) Net cash provided by (used in) investing activities ​ 68,804 ​ ( 69,407 ) Financing activities ​ ​ Net proceeds from issuance of common stock ​ ​ 116,974 ​ ​ 161,731 Proceeds from the exercise of stock options ​ 3,863 ​ 4,029 Proceeds from issuance of common stock from ESPP ​ 626 ​ 621 Proceeds from royalty financing agreement ​ ​ 75,000 ​ ​ — Net cash provided by financing activities ​ 196,463 ​ 166,381 Net increase (decrease) in cash, cash equivalents and restricted cash ​ 125,839 ​ ( 8,557 ) Cash, cash equivalents and restricted cash at beginning of period ​ 59,576 ​ 101,257 Cash, cash equivalents and restricted cash at end of period ​ $ 185,415 ​ $ 92,700 Supplemental disclosures: ​ ​ ​ ​ ​ ​ Deferred financing costs in accrued expenses ​ $ 957 ​ ​ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements ​ 6 Table of Contents Rhythm Pharmaceuticals, Inc. Notes to Unaudited Condensed Consolidated Financial Statements (In thousands, except share and per share information) 1. Nature of Business Rhythm Pharmaceuticals, Inc. (the “Company” or “we”) is a global, commercial-stage biopharmaceutical company committed to transforming the lives of patients and their families living with hyperphagia and severe obesity caused by rare melanocortin-4 receptor (MC4R) pathway diseases. Rhythm’s precision medicine, IMCIVREE ® (setmelanotide), for which we have exclusive worldwide rights, has the potential to restore dysfunctional MC4R signaling due to impaired MC4R pathway function. MC4R pathway deficiencies result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense feelings of hunger and to obesity. 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, or Bardet-Biedl syndrome (BBS). 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 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. The Company has wholly owned subsidiaries in the United States, Ireland, the United Kingdom, France, Italy, the Netherlands, Germany, Spain and Canada. The Company is subject to risks and uncertainties common to commercial-stage companies in the biotechnology industry, including but not limited to, risks associated with the commercialization of approved products, completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Commercialization of approved products will require significant resources and in order to market IMCIVREE, the Company must continue to build its sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. 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 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. 7 Table of Contents Liquidity The Company has incurred operating losses and negative cash flows from operations since inception. 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, 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 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. There is no guarantee that additional equity or other financings will be available to the Company on acceptable terms, or at all. 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 2025. 2. Summary of Significant Accounting Policies Basis of Presentation The Company's unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP, and the applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASU, of the Financial Accounting Standards Board, or FASB. 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 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 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 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. 8 Table of Contents Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Significant estimates relied upon in preparing these financial statements include estimates related to determining our net product revenue, license revenue, accruals related to research and development expenses, assumptions used to record stock-based compensation expense, interest expense on our deferred royalty obligation, assumptions used to value the embedded derivative in our deferred royalty obligation, assumptions used to value the common stock received from RareStone Group Ltd., or RareStone, and the valuation allowance on the Company's deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of Rhythm Pharmaceuticals, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Off-Balance Sheet Risk and Concentrations of Credit Risk Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents and short-term investments, which are maintained at two federally insured financial institutions. The deposits held at these two institutions are in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. The Company is exposed to risks associated with extending credit to customers related to the sale of products. The Company does not require collateral to secure amounts due from its customers. 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. The inability of the suppliers or manufacturers to fulfill supply requirements of the Company could materially impact future operating results. A change in the relationship with the suppliers or manufacturer, or an adverse change in their business, could materially impact future operating results. Segment Information Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company currently operates in one business segment, which is the development and commercialization of therapies for patients with rare diseases. A single management team that reports to the Chief Executive Officer comprehensively manages the entire business. The Company does not operate separate lines of business with respect to its product or product candidates. Accordingly, the Company has one reportable segment. Accounts Receivable, net 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 9 Table of Contents that affect the collectability of the reported amount. To date, the Company has not experienced any credit losses. The Company's contracts with its customers have standard payment terms that generally require payment within 45 days. The Company analyzes amounts that are past due for collectability, and periodically evaluates the creditworthiness of its customers. 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 We recognize revenue in accordance with Accounting Standards Codification ASC 606, Revenue from Contracts with Customers or ASC 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements, and financial instruments. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Product Revenue, net Subsequent to its regulatory approval, the Company began to sell IMCIVREE in the United States in March 2021 and in France and Germany in March 2022 and June 2022, respectively. The product is distributed through an exclusive third-party logistics, or 3PL, distribution agent that does not take title to the product. Once the product is delivered to the Company’s exclusive specialty pharmacy provider, our sole customer in the U.S., the customer, or wholesaler takes title to the product. The wholesaler then distributes the product to health care providers and patients. In our exclusive distribution agreement with the 3PL company, the Company acts as principal because we retain control of the product. The Company generally does not offer returns of product sold to the customer. Revenue from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, upon transfer of title to the customer because at that point in time we have no ongoing obligations to the customer. There are no other performance obligations besides the sale of product. We classify payments to our customer or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our condensed consolidated statements of operations and comprehensive (loss) income. Otherwise, payments to a customer or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. Taxes collected from the customer relating to product sales and remitted to governmental authorities are excluded from revenue. Because our payment terms are generally forty-five days , the Company concluded there is not a significant financing component because the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurred since the expected amortization period of the asset that we would have recognized is one year or less. Reserves for Variable Consideration 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 10 Table of Contents 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. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. The following are the components of variable consideration related to product revenue: Chargebacks: The Company estimates obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers and patients at prices lower than the list prices charged to our customers. The government and other entities charge us for the difference between what they pay for the product and the selling price to our customers. The Company records reserves for these chargebacks related to product sold to our customers during the reporting period, as well as our estimate of product that remains in the distribution channel at the end of the reporting period that we expect will be sold to qualified healthcare providers and patients in future periods. Government rebates: The Company is subject to discount obligations under government programs, including Medicaid programs, Medicare and Tricare in the United States. We estimate Medicaid, Medicare and Tricare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments. Trade discounts and allowances: The Company provides customary invoice discounts on IMCIVREE sales to our U.S. customer for prompt payment that are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, we receive and pay for various distribution services from our customer in the distribution channel. For services that are either not distinct from the sale of our product or for which we cannot reasonably estimate the fair value, such fees are classified as a reduction of product revenue. Product returns: Our customers have limited return rights related to the product’s damage or defect. The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized. Based on the distribution model for IMCIVREE and the price of IMCIVREE, the Company believes there will be minimal returns. Other incentives: Other incentives include co-payment assistance the Company provides to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue. The estimate is recorded as a reduction of revenue in the same period the related revenue is recognized. 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, 11 Table of Contents 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. If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize the transaction price allocated to the license as revenue upon transfer of control of the license. We evaluate all other promised goods or services in the agreement to determine if they are distinct. If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that is distinct. Optional future services where any additional consideration paid to us reflects their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations. If optional future services are priced in a manner which provides the customer with a significant or incremental discount, they are material rights, and are accounted for as separate performance obligations. We utilize judgment to determine the transaction price. In connection therewith, we evaluate contingent milestones at contract inception to estimate the amount which is not probable of a material reversal to include in the transaction price using the most likely amount method. Milestone payments that are not within our control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore the variable consideration is constrained. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each reporting period, we re-evaluate the probability of achieving development milestone payments that may not be subject to a material reversal and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license and other revenue, as well as earnings, in the period of adjustment. We then determine whether the performance obligations or combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress, as applicable, for each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded within deferred revenue. Contract liabilities within deferred revenue are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met. For arrangements that include sales-based royalties, including sales-based milestone payments, and a license of intellectual property that is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalties have been allocated has been satisfied (or partially satisfied). RareStone Group Ltd. In December 2021, the Company entered into an Exclusive License Agreement with RareStone Group Ltd., or the RareStone License. Pursuant to the RareStone License, we granted to RareStone an exclusive, sublicensable, royalty-bearing license under certain patent rights and know-how 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. RareStone has a right of first negotiation in the event that the Company chooses to grant a license to develop or commercialize the licensed product in Taiwan. The arrangement includes a license and an additional performance obligation to supply product upon the request of RareStone. ​ 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 12 Table of Contents 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. In accordance with the terms of the RareStone License , RareStone made an upfront payment to Rhythm of $ 7,000 and issued Rhythm 1,077,586 ordinary shares. The Company is eligible to receive development and commercialization milestones of up to $ 62,500 , as well as tiered royalty payments on annual net sales of IMCIVREE. As of March 31, 2022, the Company estimated the fair value of the RareStone equity to be $ 2,440 based on a preliminary valuation. 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 for the three and six months ended June 30, 2022. 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 September 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 nine months ended September 30, 2022. 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 We treat the debt obligation to HealthCare Royalty Management, LLC as discussed further in Note 10, “Long-term Obligations”, as a deferred royalty obligation, amortized using the effective interest rate method over the estimated life of the revenue streams. We recognize interest expense thereon using the effective rate, which is based on our current estimates of future revenues over the life of the arrangement. In connection therewith, we periodically assess our expected revenues using internal projections, impute interest on the carrying value of the deferred royalty obligation, and record interest expense using the imputed effective interest rate. To the extent our estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of our deferred royalty obligation. The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization period of the issuance costs requires that we make estimates that could impact the short-term and long-term classification of such costs, as well as the period over which such costs will be amortized. Cost of Product Sales Prior to receiving approval from the FDA in November 2020 to sell IMCIVREE in the United States, the Company expensed all costs incurred related to the manufacture of IMCIVREE as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates. Subsequent to receiving FDA approval in November 2020, the Company has capitalized a nominal amount of inventory related costs that 13 Table of Contents were incurred subsequent to FDA approval. 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. Cost of product sales may also include periodic costs related to certain manufacturing services and inventory adjustment charges. Intangible Assets, Net Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis over their remaining useful lives, which are estimated to be the remaining patent life. If our estimate of the product’s useful life is shorter than the remaining patent life, then a shorter period is used. Amortization expense is recorded as a component of cost of sales on the consolidated statements of operations and comprehensive loss. Impairment of Long-Lived Assets The Company evaluates its long-lived assets, which consist primarily of property and equipment and finite lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. 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 nine months ended September 30, 2022 and 2021, respectively. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1 — Quoted market prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 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, 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 September 30, 2022 and December 31, 2021, respectively. 14 Table of Contents 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 ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ 2022 2021 ​ 2022 2021 Stock options ​ ​ ​ 6,584,725 ​ ​ 5,966,664 ​ ​ 6,584,725 ​ ​ 5,966,664 Restricted stock units ​ ​ 726,080 ​ 439,957 ​ 726,080 ​ 439,957 Performance stock units ​ ​ ​ 811,128 ​ ​ — ​ ​ 811,128 ​ ​ — Potential common shares ​ ​ ​ 8,121,933 ​ ​ 6,406,621 ​ ​ 8,121,933 ​ ​ 6,406,621 ​ Subsequent Events The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. 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 From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. 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. 3. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2022 2021 Research and development costs ​ $ 9,192 ​ $ 17,480 Professional fees ​ 2,879 ​ 2,163 Payroll related ​ 8,482 ​ 8,371 Deferred financing fees ​ ​ 957 ​ ​ — Royalties ​ ​ 215 ​ ​ 791 Other ​ 4,016 ​ 1,279 Accrued expenses and other current liabilities ​ $ 25,741 ​ $ 30,084 ​ ​ 15 Table of Contents 4. Fair Value of Financial Assets 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. treasury securities and money market funds that invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1. The financial assets valued based on Level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated investment-grade corporations. The following tables present information about the Company's financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value Measurements as of ​ ​ September 30, 2022 using: ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Equivalents: ​ ​ ​ ​ Commercial Paper ​ $ — ​ $ 34,028 ​ $ — ​ $ 34,028 Money Market Funds ​ ​ 115,208 ​ ​ — ​ ​ — ​ ​ 115,208 Marketable Securities: ​ ​ ​ ​ Corporate Debt Securities and Commercial Paper ​ ​ — ​ ​ 162,708 ​ ​ — ​ ​ 162,708 Total ​ $ 115,208 ​ $ 196,736 ​ $ — ​ $ 311,944 Liabilities: ​ ​ ​ ​ Derivative on Royalty Financing ​ $ — ​ $ — ​ $ 920 ​ $ 920 Total ​ $ — ​ $ — ​ $ 920 ​ $ 920 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value Measurements as of ​ ​ December 31, 2021 using: ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Equivalents: ​ ​ ​ ​ Corporate Debt Securities and Commercial Paper ​ $ — ​ $ — ​ $ — ​ $ — Money Market Funds ​ 48,297 ​ — ​ — ​ 48,297 Marketable Securities: ​ ​ ​ ​ Corporate Debt Securities and Commercial Paper ​ ​ — ​ ​ 235,607 ​ ​ — ​ ​ 235,607 Total ​ $ 48,297 ​ $ 235,607 ​ $ — ​ $ 283,904 ​ 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. Changes in the inputs could result in changes to the fair value of each financial instrument. 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) income, net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of IMCIVREE, including worldwide net product sales, upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that includes a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument. 16 Table of Contents 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. The Company estimated equity volatility based on historical volatility of guideline public companies. The risk-free interest rate was based on the U.S. Treasury rates for a maturity similar to the expected holding period. Changes in our level 3 securities for the three months ended September 30, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended ​ ​ September 30, ​ 2022 2021 Beginning aggregate estimated fair value of Level 3 securities ​ $ — ​ $ — Initial recording of RareStone equity ​ ​ 1,040 ​ ​ — Total realized and unrealized losses ​ ​ ​ ​ ​ ​ Realized loss included in other expense ​ ​ ( 1,040 ) ​ ​ — Ending aggregate estimated fair value of Level 3 securities ​ $ — ​ $ — ​ Marketable Securities The following tables summarize the Company's marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost Gains Losses Value Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities and commercial paper (due within 1 year) ​ $ 163,047 ​ $ — ​ $ ( 339 ) ​ $ 162,708 ​ ​ $ 163,047 ​ $ — ​ $ ( 339 ) ​ $ 162,708 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost Gains Losses Value Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate debt securities and commercial paper (due within 1 year) ​ $ 235,608 ​ $ 50 ​ $ ( 51 ) ​ $ 235,607 ​ ​ $ 235,608 ​ $ 50 ​ $ ( 51 ) ​ $ 235,607 ​ ​ ​ ​ 5. Right Of Use Asset and Lease Liability The Company has a material operating lease for its head office facility and other immaterial operating leases for certain equipment. The Company’s office lease has a remaining lease term of 2.8 years. The Company measured the lease liability associated with the office lease using a discount rate of 10 % at inception. 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 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. This facility houses the Company’s research, clinical, regulatory, commercial and administrative personnel. The Company’s lease agreement commenced May 2019 and has a term of six years with a five-year renewal option to extend the lease. 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. 17 Table of Contents 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 2022 ​ $ 207 2023 ​ 834 2024 ​ 851 2025 ​ ​ 502 Thereafter ​ — Total operating lease payments ​ ​ 2,394 Less: imputed interest ​ ​ 290 Total operating lease liability ​ $ 2,104 ​ ​ ​ 6. Intangible Assets, Net 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 September 30, 2022, amortization expense for the next five years and beyond is summarized as follows: ​ ​ ​ ​ ​ 2022 ​ $ 214 2023 ​ 855 2024 ​ ​ 855 2025 ​ ​ 855 2026 ​ ​ 855 Thereafter ​ 4,463 Total ​ $ 8,097 ​ 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 $ 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. 7. Income Taxes 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. 8. Common Stock 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. 18 Table of Contents 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. 2022 Employment Inducement Plan or the Inducement Plan, without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Stock Market LLC listing rules or Rule 5635(c)(4). In accordance with Rule 5635(c)(4), awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company or a subsidiary, as a material inducement to the employee’s entering into employment with the Company or its subsidiary. An aggregate of 1,000,000 shares of the Company’s common stock have been reserved for issuance under the Inducement Plan. The Company will continue to grant awards under the 2017 Plan pursuant to the terms thereof. The exercise price of stock options granted under the Inducement Plan will not be less than the fair market value of a share of the Company’s common stock on the grant date. Other terms of awards, including vesting requirements, are determined by the Company’s board of directors and are subject to the provisions of the Inducement Plan. Stock options granted to employees generally vest over a four-year period but may be granted with different vesting terms. Certain options may provide for accelerated vesting in the event of a change in control. Stock options granted under the Inducement Plan expire no more than 10 years from the date of grant. 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" offerings, or the ATM. 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 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. The Company received $ 161,731 in net proceeds after deducting underwriting discounts, commissions and offering expenses. ​ 9. Related-Party Transactions 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. 10. Long-Term Obligations On June 16, 2022, we entered into a RIFA with entities managed by HealthCare Royalty Management, LLC, collectively referred to as the Investors. 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 19 Table of Contents 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 . 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. As the repayment of the funded amount is contingent upon worldwide net product sales and upfront payments, milestones, and royalties, the repayment term may be shortened or extended depending on actual worldwide net product sales and upfront payments, milestones, and royalties. The Investors’ rights to receive the Revenue Interests will terminate on the date on which the Investors have received payments equal to a certain percentage of the funded portion of the Investment Amount including the aggregate of all payments made to the Investors as of such date, each percentage tier referred to as the Hard Cap, unless the RIFA is earlier terminated. The total Revenue Interests payable by us to the Investors is capped between 185 % and 250 % of the Investment Amount paid, dependent on the aggregate royalty paid between 2028 and 2032. If a change of control of occurs, the Investors may accelerate payments due under the RIFA up to the Hard Cap plus any other obligations payable under the RIFA. The repayment period commenced on July 8, 2022 for the Initial Investment Amount, and expires on the earlier of (i) the date at which the Investors received cash payments totaling an aggregate of a Hard Cap ranging from 185 % to 250 % of the Initial Investment Amount or (ii) the legal maturity date of July 8, 2034. If the Investors have not received payments equal to 250 % of the Investment Amount by the twelve-year anniversary of the initial closing date, we will be required to pay an amount equal to the Investment Amount plus a specific annual rate of return less payments previously received by Investors. In the event of a change of control, we are obligated to pay Investors an amount equal to the Hard Cap in effect at the time, ranging from 185 % to 250 % plus any Under Performance Payment of the Investment Amount less payments previously received by Investors. In addition, upon the occurrence of an event of default, including, among others, our failure to pay any amounts due to Investors under the deferred royalty obligation, insolvency, our failure to pay indebtedness when due, the revocation of regulatory approval of IMCIVREE in the U.S. or our breach of any covenant contained in the RIFA and our failure to cure the breach within the prescribed time frame, we are obligated to pay Investors an amount equal to the Hard Cap in effect at the time of default ranging from 185 % to 250 % plus any Under Performance Payment of the Investment Amount less payments previously received by Investors. In addition, upon an event of default, Investors may exercise all other rights and remedies available under the RIFA, including foreclosing on the collateral that was pledged to Investors, which consists of all of our present and future assets relating to IMCIVREE. We have evaluated the terms of the RIFA and concluded that the features are similar to those of a debt instrument. Accordingly, we have accounted for the transaction as long-term debt and presented it as a deferred royalty obligation on our condensed consolidated balance sheets. We have further evaluated the terms of the RIFA and determined that the repayment of the Hard Cap in effect at the time which ranges from 185 % to 250 % of the Investment Amount, less any payments made to date, upon a change of control is an embedded derivative that requires bifurcation from the debt instrument and fair value recognition. 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 $ 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. 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 20 Table of Contents 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. 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 September 30, 2022 was 17.28 %. 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. 11. 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. ​