What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-08 · 186 added, 194 removed, 343 unchanged (53% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

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10,000,000 shares authorized;

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

no shares issued and outstanding at March 31, 2023 and December 31, 2022

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

56,852,404 and 56,612,429 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

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(in thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Product revenue, net

License revenue

Costs and expenses:

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Other income:

Other expense

Other expense, net

Interest expense

Interest income

Total other (expense) income, net

Loss before taxes

(Benefit from) provision for income taxes

Total other income (expense), net

Net loss per share, basic and diluted

1 unchanged sentence

Other comprehensive loss:

Reclassification of losses on RareStone equity into net loss

Foreign currency translation adjustment

Unrealized gain (loss), net on marketable securities

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

Unrealized loss on marketable securities

Balance at March 31, 2022

Stock-based compensation expense

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

Unrealized gain on marketable securities

Unrealized loss on RareStone equity

Balance at June 30, 2022

Stock compensation expense

Issuance of common stock in connection with ESPP

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

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

Foreign currency translation adjustment

Unrealized gain on marketable securities

Reclassification of losses on RareStone equity into net loss

Balance at September 30, 2022

Balance at March 31, 2023

Balance at December 31, 2021

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

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

Unrealized loss on marketable securities

Balance at March 31, 2022

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Balance at June 30, 2021

Stock compensation expense

Issuance of common stock in connection with ESPP

Issuance of common stock in connection with exercise of stock options

Balance at September 30, 2021

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

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(in thousands)

Nine months ended September 30,

Three months ended March 31,

Operating activities

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Stock-based compensation expense

Gain on sale of priority review voucher

Deferred tax provision

Depreciation and amortization

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Non-cash rent expense

Loss on RareStone equity investment

Change in fair value of embedded derivative liability

Acquired IPR&D assets classified as investing activities

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

1 unchanged sentence

Other long-term assets

Accounts payable, accrued expenses and other current liabilities

Accounts payable, accrued expenses and other liabilities

Net cash used in operating activities

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Maturities of short-term investments

Proceeds from sale of priority review voucher

Payment of milestone obligation under license agreement

Acquisition of IPR&D assets, including transaction costs

Purchases of property and equipment

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Financing activities

Net proceeds from issuance of common stock

Repayment of deferred royalty obligation

Proceeds from the exercise of stock options

Proceeds from issuance of common stock from ESPP

Proceeds from royalty financing agreement

Net cash provided by financing activities

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

Net cash (used in) provided by financing activities

Effect of exchange rates on cash

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

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosures:

Deferred financing costs in accrued expenses

Supplemental disclosure of non-cash investing activities:

Holdback payable associated with the acquisition, in accrued expenses

Transaction costs associated with the acquisition, in accounts payable

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

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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” or “we”) is a global, commercial-stage biopharmaceutical company dedicated to transforming the lives of patients and their families living with rare diseases.

We are focused on advancing our lead asset, IMCIVREE ® (setmelanotide), as a precision medicine designed to treat hyperphagia and severe obesity caused by rare melanocortin-4 receptor (MC4R) pathway diseases.

While obesity affects hundreds of millions of people worldwide, we are advancing IMCIVREE ® (setmelanotide) for a subset of individuals who have hyperphagia, a pathological hunger, and severe obesity due to an impaired MC4R pathway, which may be caused by traumatic injury or genetic variants.

The MC4R pathway is an endocrine pathway in the brain that is responsible for regulating hunger, caloric intake and energy expenditure, which consequently affect body weight.

IMCIVREE, an MC4R agonist for which we hold worldwide rights, is the first-ever therapy developed for patients with certain ultra-rare diseases that is approved or authorized in the United States (US), European Union (EU) and Great Britain.

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 has wholly owned subsidiaries in the US, Ireland, the United Kingdom, the Netherlands, France, Germany, Italy, 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.

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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.

While the pandemic did not materially affect the Company's financial results and business operations for the three months ended March 31, 2023, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

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

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

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

As of March 31, 2023, the Company had an accumulated deficit of $ 762,237 .

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.

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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.

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 March 31, 2023, the Company had $ 294,582 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.

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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.

Management believes that the Company's existing cash and cash equivalents and short-term investments will be sufficient to fund the Company’s operations through at least the next twelve months from the filing of this Quarterly Report on Form 10-Q with the SEC .

Summary of Significant Accounting Policies

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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.

The accompanying condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2023 and 2022 and the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 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, 2022 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 results for the three months ended March 31, 2023 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.

As of March 31, 2023, 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, 2022.

Use of Estimates

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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.

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.

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All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification of Prior Year Balances

Certain prior year amounts have been reclassified to conform to the current period presentation.

These reclassifications had no effect on the reported results of operations or cash flows.

Specifically, in the condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2022, the Company has reclassified $ 160 of interest income which was previously recorded within other (expense) income, net to interest income.

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.

Off-Balance Sheet Risk and Concentrations of Credit Risk

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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.

As of March 31, 2023 and December 31, 2022, approximately 83 % and 85 % 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.

1 unchanged sentence

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

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.

The Company relies on separate third parties to perform genetic testing in the United States and Europe, respectively.

The inability of the vendor to fulfill testing services for the Company could materially impact future operating results and adversely impact our ability to further develop setmelanotide.

A change in the relationship with the genetic testing service providers, or an adverse change in their business, could materially impact future operating results.

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

that affect the collectability of the reported amount.

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

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

The Company's contracts with its customers have standard payment terms that generally require payment within 45 days.

The Company's contracts with its customers have customary payment terms that generally require payment within 90 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.

As of March 31, 2023 and December 31, 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.

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers , or ASC 606.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

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.

In the United States (the “U.S.”), which accounts for the largest portion of our total revenues, the Company sells its product to a limited number of specialty pharmacies.

The product is distributed through third-party logistics, or 3PL, distribution agent that does not take title to the product.

Once the product is delivered to the Company’s specialty pharmacy provider, our customer in the U.S., the customer (or “wholesaler”) takes title to the product.

The wholesaler then distributes the product to patients.

In our distribution agreement with the 3PL company, the Company acts as principal because we retain control of the product.

Internationally, we make sales primarily to specialty distributors and retail pharmacy chains, as well as hospitals, many of which are government-owned or supported.

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.

Revenue from product sales is 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.

We classify payments to our customers 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 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.

Because our payment terms are generally ninety days or less, 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.

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

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

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

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

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

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.

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.

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Government rebates:

The Company is subject to discount obligations under government programs, including Medicaid programs, Medicare and Tricare in the United States.

The Company is subject to discount obligations under government programs, including Medicaid programs, Medicare and Tricare in the United States as well as certain government rebates and pricing adjustments in certain international markets that we operate.

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.

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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.

The Company provides customary invoice discounts on IMCIVREE sales to certain of our customers 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 customers 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.

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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.

Provisions for cash discounts are recorded as reductions of accounts receivable, and fees, rebates, and other incentives are recorded as a component of accrued expenses.

During the three months ended March 31, 2023 and 2022, we recorded product revenue, net, of $ 11,469 and $ 1,498 , 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 months ended March 31, 2023 due to the immateriality of the revenue recognized during the periods.

License Agreements

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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 Company initially estimated the fair value of the RareStone equity to be $ 2,440 based on a preliminary valuation during the first quarter of 2022.

Upon completion of the valuation procedures during the second quarter of 2022, the Company concluded the initial fair value of the RareStone equity to be $ 1,040 .

During the third quarter of 2022, the Company estimated the fair value of the RareStone equity to be de minimis based upon the results of an updated valuation and recorded an other-than-temporary impairment of $ 1,040 related to the decline in fair value as a component of other expense in our consolidated statements of operations and other comprehensive loss for the year ended December 31, 2022 (recorded in the third quarter of 2022) .

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.

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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.

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 in the consolidated statements of operations and comprehensive loss during the year ended December 31, 2022 (recorded in the second quarter of 2022 upon the Company fulfilling its obligations in transferring the license to RareStone).

The discount related to commercial manufacturing supply will be deferred and recognized over the commercial supply period or upon termination of the agreement.

No license revenue was recognized during the three-month periods ended March 31, 2023 or 2022, respectively.

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

In accordance with the Notice, we maintain 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 our global EMANATE trial, among other obligations.

On December 21, 2022, RareStone provided written notice to us that it objects to the claims in the Notice, including our termination of the RareStone License for cause.

On March 16, 2023, we provided written notice to RareStone reaffirming our position that RareStone has materially breached its obligations under the RareStone License and that we have terminated the RareStone License for cause, and also requested documentation supporting RareStone’s purported dispute notice objecting to the claims in the Notice.

RareStone may attempt to cure the alleged breaches, which the Company believe to be incurable, within the timeframe specified under the RareStone License.

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

The Company treats the debt obligation to HealthCare Royalty Management, LLC as discussed further in Note 12, “Long-term Obligations”, as a deferred royalty obligation, amortized using the effective interest rate method over the estimated life of the revenue streams.

The Company recognizes 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, the Company periodically assesses its expected revenues using internal projections, imputes interest on the carrying value of the deferred royalty obligation, and records interest expense using the imputed effective interest rate.

To the extent the Company’s estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company 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 the Company to make estimates that could impact the classification of such costs, as well as the period over which such costs will be amortized.

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

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.

The Company values inventories at the lower of cost or estimated net realizable value.

The Company determines the cost of inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis.

Raw materials and work in process includes all inventory costs prior to packaging and labelling, including raw materials, active pharmaceutical ingredient, and drug product.

Finished goods include packaged and labelled products.

Raw materials and work in process that may be used for either research and development or commercial sale are classified as inventory until the material is consumed or otherwise allocated for research and development.

If the material is intended to be used for research and development, it is expensed as research and development once that determination is made.

Cost of Product Sales

Cost of product sales consists 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.

Finally, cost of sales may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, and manufacturing variances.

Intangible Assets, Net

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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.

No events or changes in circumstances existed to require an impairment assessment during the three months ended March 31, 2023 and 2022, respectively.

Acquired IPR&D and Milestones Expenses

In an asset acquisition, payments incurred prior to regulatory approval to acquire rights to in-process research and development projects are expensed as acquired IPR&D and recorded as a component of research and development expense in the condensed consolidated statements of operations and comprehensive net loss unless the project has an alternative future use.

These costs include upfront and development milestone payments related to licensing arrangements, or other asset acquisitions that provide rights to develop, manufacture and/or sell pharmaceutical products.

Where contingent development milestone payments are due to third parties, prior to regulatory approval, the payment obligations are expensed when the milestone results are achieved.

Regulatory and commercial milestone payments made to third parties

subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.

Foreign Currency Translation

The functional currencies of the Company’s foreign subsidiaries are Euros and British pound sterling.

Foreign subsidiary earnings are translated into U.S.

dollars using average exchange rates.

The net assets of foreign subsidiaries are translated into U.S.

dollars using period-end exchange rates.

dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other comprehensive income (loss) in the condensed consolidated statements of operations and comprehensive loss.

Fair Value Measurements

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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.

The Company’s cash equivalents and marketable securities, derivative liability and RareStone equity at March 31, 2023 and December 31, 2022 were carried at fair value, determined according to the fair value hierarchy.

See Note 6 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.

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 March 31, 2023 and December 31, 2022, respectively.

Net Loss Per Share

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Three Months Ended

Nine Months Ended

September 30,

Stock options

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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

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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.

Asset Acquisition

Xinvento B.V.

On February 27, 2023, the Company, through its wholly-owned Dutch subsidiary, Rhythm Pharmaceuticals Netherlands B.V., a Dutch private limited liability company (“Rhythm BV”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with Xinvento B.V., a Dutch private limited liability company based in the Netherlands (“Xinvento”), and the other parties named therein, pursuant to which, and concurrently with the execution thereof, Rhythm BV acquired all of the issued and outstanding shares of Xinvento.

The aggregate consideration at closing was approximately $ 5,400 , inclusive of transaction costs, as adjusted pursuant to the terms of the Purchase Agreement and subject to the distribution and payment terms set forth therein (the “Closing Purchase Price”).

In addition to the Closing Purchase Price, the Purchase Agreement provides for the payment of additional contingent consideration totaling up to $ 206,000 upon achievement of certain development, regulatory and commercial milestones by Xinvento, as follows:

(i) up to an aggregate of $ 6,000 in clinical development milestones;

(ii) up to an aggregate of $ 125,000 in regulatory approval and commercial milestones;

and (iii) up to an aggregate of $ 75,000 in sales milestones in the event a second molecule is selected, developed and approved.

The total purchase consideration of $ 5,400 was composed of $ 4,520 of cash paid at closing, a $ 500 holdback, payable on the one-year anniversary of the acquisition, and $ 375 of acquisition-related costs.

The Company determined that substantially all of the value as of acquisition date related to Xinvento’s In-Process Research and Development.

As a result, the Company determined this transaction should be accounted for as an asset acquisition.

The assets acquired were In-Process Research and Development (IPR&D) assets.

However, since the IPR&D assets were determined to have no alternative future use, the Company recognized the $ 5,400 of purchase consideration as research and development expense in the three months ended March 31, 2023.

The Company determined that the additional contingent consideration did not meet the definition of a derivative as of the acquisition date.

Therefore, the Company did not record a contingent consideration liability on the acquisition date.

The Company will recognize any future contingent consideration payments related to the Xinvento transaction in the period in which the achievement of the underlying milestones becomes probable.

Xinvento's results of operations are included in the condensed consolidated financial statements from the date of acquisition.

For the three months ended March 31, 2023, the net loss associated with the operations of Xinvento were de-minimis in the Company’s condensed consolidated statements of operations.

Inventory consists of the following:

Raw Materials

Finished Goods

Total Inventory

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

September 30,

Research and development costs

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Payroll related

Deferred financing fees

Sales Allowances

Accrued expenses and other current liabilities

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.

Fair Value of Financial Assets and Liabilities

As of March 31, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $ 294,582 and $ 333,288 , respectively, which approximates fair value.

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

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Fair Value Measurements as of

September 30, 2022 using:

March 31, 2023 using:

Cash equivalents:

Commercial Paper

Money market funds

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Corporate debt securities and commercial paper

Derivative on Royalty Financing

Derivative liability

Fair Value Measurements as of

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Cash equivalents:

Corporate Debt Securities and Commercial Paper

Commercial paper

Money market funds

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Corporate debt securities and commercial paper

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.

Derivative liability

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 derivative liability is 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.

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

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,

Beginning aggregate estimated fair value of Level 3 securities

Three months ended

Beginning aggregate estimated fair value of Level 3 RareStone equity

Initial recording of RareStone equity

Total realized and unrealized losses

Realized loss included in other expense

Ending aggregate estimated fair value of Level 3 securities

Change in fair value of embedded derivative

Ending aggregate estimated fair value of Level 3 RareStone equity

Three months ended

Beginning aggregate estimated fair value of Level 3 liabilities

Change in fair value of embedded derivative

Ending aggregate estimated fair value of Level 3 liabilities

Marketable Securities

The following tables summarize the Company's marketable securities:

September 30, 2022

March 31, 2023

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

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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.

As of March 31, 2023, the Company has not entered into any lease arrangements classified as a finance lease.

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

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

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

The following table presents the maturities of the Company’s operating lease liability related to office space as of March 31, 2023, all of which is under a non-cancellable operating lease:

Operating Lease

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Total operating lease liability

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.

Intangible Assets

As of March 31, 2023

As of December 31, 2022

Estimated life (years)

Capitalized Milestones

As of March 31, 2023, the Company’s finite-lived net intangible assets, which totaled $ 7,669 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:

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.

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.

As of March 31, 2023, amortization expense for the next five years and beyond is summarized as follows:

Amortization expense totaled $ 214 and $ 130 for the three months ended March 31, 2023 and 2022, respectively Amortization expense is included in cost of sales in the condensed consolidated statements of operations and comprehensive loss.

The Company did not record an income tax provision for the three months ended March 31, 2023 and 2022, respectively as the Company generated sufficient tax losses during the period.

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

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

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

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

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

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

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

As of March 31, 2023, an aggregate of 14,547,139 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 8,632,792 and 1,340,676 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

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

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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.

As of March 31, 2023, 384,840 stock option awards have been issued under the Inducement Plan.

As of March 31, 2023, 197,165 restricted stock unit awards have been granted under the Inducement Plan.

As of March 31, 2023, 417,995 shares of common stock are available for future grant under the Inducement Plan.

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.

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 322 and $ 480 for the three months ended March 31, 2023 and 2022, respectively.

Outstanding payments due to these related parties as of March 31, 2023 and December 31, 2022 were $ 75 and $ 13 , respectively, and were included within accounts payable on the condensed consolidated balance sheet.

Long-Term Obligations

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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.

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.

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

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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.

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.

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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.

The aggregate fair value of the embedded derivative liability was $ 1,290 and $ 1,340 as of March 31, 2023 and December 31, 2022, respectively.

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

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 %.

For the three-month period ended March 31, 2023 we recognized other income in the amount of $ 50 , due to the remeasurement of the embedded derivative liability.

The carrying value of the deferred royalty obligation as of March 31, 2023 was $ 77,520 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 as of March 31, 2023 and December 31, 2022.

The effective interest rate as of March 31, 2023 was 16.37 %.

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

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

Subsequent Events

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

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

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

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

What changed 10-Q

Item 1. Financial Statements