What changed in this filing

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Item 1. Financial Statements

2023-11-08 compared with 2023-08-01 · 119 added, 95 removed, 457 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

24 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at June 30, 2023 and December 31, 2022

no shares issued and outstanding at September 30, 2023 and December 31, 2022

Common stock, $ 0.001 par value:

120,000,000 shares authorized;

56,896,068 and 56,612,429 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

59,089,352 and 56,612,429 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

7 unchanged sentences

(in thousands, except share and per share data)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Product revenue, net

12 unchanged sentences

Total other income (expense), net

Loss before taxes

Provision for income taxes

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

13 unchanged sentences

Foreign currency translation adjustment

Unrealized gain on marketable securities

Net unrealized gains on short-term investments

Balance at March 31, 2023

2 unchanged sentences

Foreign currency translation adjustment

Unrealized gain on marketable securities

Net unrealized gains on short-term investments

Balance at June 30, 2023

Stock-based 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 ATM equity offering, net of offering costs

Foreign currency translation adjustment

Net unrealized losses on short-term investments

Balance at September 30, 2023

Balance at December 31, 2021

9 unchanged sentences

Balance at June 30, 2022

Stock compensation expense

Issuance of common stock in connection with ESPP

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

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

Unrealized gain on marketable securities

Reclassification of losses on RareStone equity into net loss

Balance at September 30, 2022

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

2 unchanged sentences

(in thousands)

Six months ended June 30,

Nine months ended September 30,

Operating activities

3 unchanged sentences

Non-cash interest expense and amortization of debt issuance costs

Unrealized gain on short-term investments

Non-cash rent expense

Loss on RareStone equity investment

Change in fair value of embedded derivative liability

8 unchanged sentences

Investing activities

Purchases of short-term investments

Purchases of short-term investments, net

Maturities of short-term investments

2 unchanged sentences

Purchases of property and equipment

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Financing activities

Net proceeds from issuance of common stock

Proceeds from the exercise of stock options

2 unchanged sentences

Proceeds from royalty financing agreement, net of issuance costs

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Effect of exchange rates on cash

4 unchanged sentences

Deferred financing costs in accrued expenses

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.

15 unchanged sentences

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 six months ended June 30, 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 June 30, 2023, the Company had an accumulated deficit of $ 808,940 .

As of September 30, 2023, the Company had an accumulated deficit of $ 853,103 .

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, the acquisition of in process research and development assets, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, commercialization activities and general and administrative

functions relating to these operations.

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

At June 30, 2023, the Company had $ 253,602 of cash and cash equivalents and short-term investments on hand.

At September 30, 2023, the Company had $ 299,260 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.

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

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 .

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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 June 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2023 and 2022 and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 and the related footnote disclosures are unaudited.

The accompanying condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 and the condensed consolidated statements of cash flows for the nine months ended September 30, 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 six months ended June 30, 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 results for the three and nine months ended September 30, 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 June 30, 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.

As of September 30, 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.

Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

8 unchanged sentences

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, the Company reclassified from other (expense) income to interest income $ 274 and $ 434 for the three and six months ended June 30, 2022, respectively.

The Company also reclassified from other (expense) income to interest expense $ 46 for each of the three and six months ended June 30, 2022.

In the condensed consolidated statements of cash flows, the Company reclassified $ 1,705 to accounts receivable and $ 1,580 to inventory from prepaid expenses and other current assets for the six months ended June 30, 2022.

The reason for the reclassifications was to conform with the current year’s presentation.

In the condensed consolidated statements of cash flows, the Company reclassified $ 2,303 to accounts receivable and $ 1,465 to inventory from prepaid expenses and other current assets for the nine months ended September 30, 2022.

The reason for the reclassification was to conform with the current year’s presentation.

Segment Information

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

For the three months ended June 30, 2023 and 2022, approximately 84 % and 86 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

For the six months ended June 30, 2023 and 2022, approximately 83 % and 90 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

As of June 30, 2023 and December 31, 2022, approximately 80 % and 78 %, respectively, of the Company’s accounts receivable was outstanding from a single customer in the United States.

For the three months ended September 30, 2023 and 2022, approximately 80 % and 86 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

For the nine months ended September 30, 2023 and 2022, approximately 84 % and 86 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

As of September 30, 2023 and December 31, 2022, approximately 73 % and 78 %, respectively, of the Company’s accounts receivable was outstanding 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.

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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.

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.

4 unchanged sentences

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.

As of June 30, 2023 and December 31, 2022, the Company determined an allowance for doubtful accounts was not required based upon our review of contractual payments and our customers’ circumstances.

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

As of September 30, 2023 and December 31, 2022, the Company determined an allowance for doubtful accounts was not required based upon our review of contractual payments and our customers’ circumstances.

Revenue Recognition

19 unchanged sentences

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.

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

28 unchanged sentences

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

Payments made by the customers may include non-refundable upfront fees, payments upon the exercise of customer options, payments based

upon the achievement of defined milestones, and royalties on sales of products and product candidates if they are approved and commercialized.

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.

1 unchanged sentence

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.

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.

18 unchanged sentences

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.

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.

1 unchanged sentence

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) .

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.

1 unchanged sentence

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

The Company further determined the supply of commercial product to RareStone contains a significant future discount and estimates the discount to be $ 1,286 , which is recorded as a component of deferred revenue on the condensed consolidated balance sheet at June 30, 2023 and December 31, 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 three and six months ended June 30, 2022 upon the Company fulfilling its obligations in transferring the license to RareStone.

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 three and nine months ended September 30, 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 and six month periods ended June 30, 2023, respectively.

No license revenue was recognized during the three and nine months ended September 30, 2023.

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

3 unchanged sentences

On May 10, 2023, RareStone provided written notice to the Company reaffirming its objections to the claims in our October Notice and March Notice, including to the Company’s termination of the RareStone License for cause.

The Company has had no additional correspondence with RareStone through September 30, 2023.

Deferred Royalty Obligation

6 unchanged sentences

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.

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.

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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 and six months ended June 30, 2023 and 2022, respectively.

No events or changes in circumstances existed to require an impairment assessment during the three and nine months ended September 30, 2023 and 2022, respectively.

Acquired IPR&D and Milestone Expense

4 unchanged sentences

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.

The majority of the Company’s operations occurs in subsidiaries that have the U.S.

dollar denominated as its functional currency.

The assets and liabilities of the Company’s subsidiaries with functional currencies other than the U.S.

dollar are translated into U.S.

dollars at exchange rates in effect at the balance sheet date.

Revenue and expense amounts for these subsidiaries are translated using the average exchange rates for the period.

Changes resulting from foreign currency translation are included in accumulated other comprehensive income (loss) on the Company’s consolidated

statement of stockholders’ equity.

Net foreign currency exchange transaction gains (losses), which are included in other (expense) income, net on our consolidated statements of operations, were immaterial for the three and nine months ended September 30, 2023 and 2022.

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 June 30, 2023 and December 31, 2022 were carried at fair value, determined according to the fair value hierarchy.

The Company’s cash equivalents and marketable securities, derivative liability and RareStone equity at September 30, 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 June 30, 2023 and December 31, 2022, respectively.

Net Loss Per Share

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Stock options

3 unchanged sentences

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.

No events or transactions occurred subsequent to the balance sheet date that require disclosure.

Application of New or Revised Accounting Standards

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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 $ 5,650 of purchase consideration as research and development expense in the six months ended June 30, 2023.

However, since the IPR&D assets were determined to have no alternative future use, the Company recognized the $ 5,667 of purchase consideration as research and development expense in the nine months ended September 30, 2023.

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

2 unchanged sentences

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

For the three and six months ended June 30, 2023, the net loss associated with the operations of Xinvento was de minimis in the Company’s condensed consolidated statements of operations.

For the three and nine months ended September 30, 2023, the net loss associated with the operations of Xinvento was de minimis in the Company’s condensed consolidated statements of operations.

Inventory consists of the following:

September 30,

Raw Materials

3 unchanged sentences

Accrued expenses and other current liabilities consisted of the following:

September 30,

Research and development costs

4 unchanged sentences

Fair Value of Financial Assets and Liabilities

As of June 30, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $ 253,602 and $ 333,288 , respectively, which approximates fair value.

As of September 30, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $ 299,260 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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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

June 30, 2023 using:

September 30, 2023 using:

Cash equivalents:

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

Six months ended

Nine months ended

September 30,

Beginning aggregate estimated fair value of Level 3 RareStone equity

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Ending aggregate estimated fair value of Level 3 RareStone equity

Six months ended

Nine months ended

September 30,

Beginning aggregate estimated fair value of Level 3 liabilities

Initial recording of embedded derivative

Change in fair value of embedded derivative

2 unchanged sentences

The following tables summarize the Company's marketable securities:

June 30, 2023

September 30, 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 June 30, 2023, the Company has not entered into any lease arrangements classified as a finance lease.

As of September 30, 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 June 30, 2023, all of which is under a non-cancellable operating lease:

The following table presents the maturities of the Company’s operating lease liability related to office space as of September 30, 2023, all of which is under a non-cancellable operating lease:

Operating Lease

3 unchanged sentences

Intangible Assets

As of June 30, 2023

As of September 30, 2023

As of December 31, 2022

1 unchanged sentence

Capitalized Milestones

As of June 30, 2023, the Company’s finite-lived net intangible assets, which totaled $ 7,456 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

As of September 30, 2023, the Company’s finite-lived net intangible assets, which totaled $ 7,242 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

in March 2021 and in France in March 2022.

As of June 30, 2023, amortization expense for the next five years and beyond is summarized as follows:

Amortization expense totaled $ 214 , $ 428 , $ 114 and $ 216 for the three and six months ended June 30, 2023 and 2022, respectively.

As of September 30, 2023, amortization expense for the next five years and beyond is summarized as follows:

Amortization expense totaled $ 214 , $ 641 , $ 114 and $ 560 for the three and nine months ended September 30, 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 June 30, 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 recorded an income tax provision of approximately $ 368 for the three and nine months ended September 30, 2023.

The income tax provision is a result of taxable income from the Company’s foreign jurisdictions.

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

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

As of June 30, 2023, an aggregate of 14,503,475 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 8,723,552 and 1,340,676 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

As of September 30, 2023, an aggregate of 14,351,007 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 8,545,136 and 1,323,026 shares available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

On November 2, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell shares of its common stock, having an aggregate offering price of up to $ 100.0 million, from time to time through an “at the market” equity offering program under which Cowen acts as sales agent (the “ATM Program”).

Between August 10, 2023 and August 21, 2023, the Company sold approximately two million shares of its common stock in the ATM Program for net proceeds of approximately $ 48.9 million.

The Company intends to use the net proceeds from the ATM Program to support its global commercialization efforts for IMCIVREE® (setmelanotide) and clinical development programs in hypothalamic obesity and other rare MC4R pathway diseases.

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.

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.

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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.

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 June 30, 2023, 469,430 stock option awards have been issued under the Inducement Plan.

As of June 30, 2023, 234,585 restricted stock unit awards have been granted under the Inducement Plan.

As of June 30, 2023, 295,985 shares of common stock are available for future grant under the Inducement Plan.

As of September 30, 2023, 521,436 stock option awards have been issued under the Inducement Plan.

As of September 30, 2023, 265,461 restricted stock unit awards have been granted under the Inducement Plan.

As of September 30, 2023, 213,103 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 $ 383 , $ 705 , $ 498 and $ 978 for the three and six months ended June 30, 2023 and 2022, respectively.

Outstanding payments due to these related parties as of June 30, 2023 and December 31, 2022 were $ 6 and $ 13 , respectively, and were included within accounts payable on the condensed consolidated balance sheet.

Expenses paid directly to related parties for the three and nine months ended September 30, 2023 and 2022, respectively were immaterial.

Outstanding payments due to related parties as of September 30, 2023 and December 31, 2022 were immaterial.

Long-Term Obligations

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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.

On July 28, 2023, we gave notice to the Investors that we achieved the specified cumulative net sales milestone and, based on the terms of the agreement, we expect to receive the remaining $ 24,375 of the Investment Amount net of debt issuance costs during the third quarter of 2023.

On September 12, 2023, we received the remaining $ 24,370 of the Investment Amount, net of debt issuance costs, following the 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.

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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.

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.

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.

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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 $ 1,320 and $ 1,340 as of June 30, 2023 and December 31, 2022, respectively.

The aggregate fair value of the embedded derivative liability was $ 1,190 and $ 1,340 as of September 30, 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 the three and six month periods ended June 30, 2023 we recognized other expense (income) of $ 30 and ($ 20 ), due to the remeasurement of the embedded derivative liability, respectively.

The carrying value of the deferred royalty obligation as of June 30, 2023 was $ 79,347 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 June 30, 2023 and December 31, 2022.

The effective interest rate as of June 30, 2023 was 16.18 %.

For the three and nine months ended September 30, 2022, we recognized other income of $ 130 and $ 150 , due to the remeasurement of the embedded derivative liability, respectively.

The carrying value of the deferred royalty obligation as of September 30, 2023 was $ 104,699 based on $ 100,000 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 September 30, 2023 and December 31, 2022.

The effective interest rate as of September 30, 2023 was 15.43 %.

In connection with the deferred royalty obligation, we incurred debt issuance costs totaling $ 3,287 .

2 unchanged sentences

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