What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-08 · 176 added, 165 removed, 411 unchanged (45% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

18 unchanged sentences

Deferred royalty obligation

Lease liability

Lease liability, non-current

Derivative liability

Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 14)

Stockholders’ equity:

1 unchanged sentence

10,000,000 shares authorized;

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

no shares issued and outstanding at March 31, 2024 and December 31, 2023

Common stock, $ 0.001 par value:

120,000,000 shares authorized;

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

60,964,468 and 59,426,559 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Accumulated deficit

( 1,036,108 )

Total stockholders’ equity

4 unchanged sentences

(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

Total revenues

5 unchanged sentences

Loss from operations

Other income (expense):

Other (expense) income:

Other income (expense), net

1 unchanged sentence

Interest income

Total other income (expense), net

Loss before taxes

Total other (expense) income, net

Loss before income taxes

Provision for income taxes

2 unchanged sentences

Other comprehensive loss:

Reclassification of losses on RareStone equity into net loss

Foreign currency translation adjustment

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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 as consideration for LGC license

Foreign currency translation adjustment

Net unrealized gains on short-term investments

Unrealized loss on marketable securities

Balance at March 31, 2024

Stock-based compensation expense

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

Foreign currency translation adjustment

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

( 1,036,108 )

Balance at December 31, 2022

2 unchanged sentences

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

Unrealized loss on marketable securities

Foreign currency translation adjustment

Net unrealized gains on short-term investments

Balance at March 31, 2023

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

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

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)

Nine months ended September 30,

Three months ended March 31,

Operating activities

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Non-cash interest expense and amortization of debt issuance costs

Non-cash accretion & amortization of short-term investments

Unrealized loss on short-term investments

Non-cash accretion of non-current liability

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, net

Purchases of short-term investments

Maturities of short-term investments

Payment of milestone obligation under license agreement

Acquisition of IPR&D assets, including transaction costs

Acquisition of IPR&D assets

Purchases of property and equipment

Net cash (used in) provided by 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

Repayments on deferred royalty obligation

Proceeds from royalty financing agreement, net of issuance costs

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rates on cash

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

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

1 unchanged sentence

Supplemental disclosure of non-cash investing activities:

Deferred financing costs in accrued expenses

Non-current liability issued in exchange for the acquisition of IPR&D

Issuance of common stock in exchange for IPR&D

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 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 that leads to abnormal food-seeking behaviors, and severe obesity due to an impaired MC4R pathway, which may be caused by traumatic injury or genetic variants.

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

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

While obesity affects hundreds of millions of people worldwide, we are developing therapies for a subset of individuals who have hyperphagia, a pathological hunger that leads to abnormal food-seeking behaviors, 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.

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

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.

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These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities.

Even though the Company has an approved product, and even if the Company’s further product development efforts are successful, it is uncertain when, if ever, the Company will realize sufficient revenue from product sales to fund operations.

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

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

As of March 31, 2024, the Company had an accumulated deficit of $ 1,036,108 .

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.

While the Company is generating product revenue, 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 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.

At March 31, 2024, the Company had $ 201,199 of cash and cash equivalents and short-term investments on hand.

On April 1, 2024, the Company entered into an Investment Agreement (the “Investment Agreement”) with certain affiliates of Perceptive Advisors LLC (“Perceptive”) and certain other investors (each, an “Investor” and collectively, the

“Investors”), relating to the issuance and sale of 150,000 shares of a new series of the Company’s Series A Convertible Preferred Stock, par value $ 0.001 per share, titled the “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”), for an aggregate purchase price of $ 150,000 , or $ 1,000 per share (the “Issuance”).

The Issuance closed on April 15, 2024.

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, proceeds from out license arrangements, 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

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 .

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 resources, together with the proceeds received from the sale of preferred stock in April 2024, 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, 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.

The accompanying condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023 and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 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, 2023 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, 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 months ended March 31, 2024 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, 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 March 31, 2024, 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, 2023.

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.

deferred tax assets.

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

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

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.

In the condensed consolidated statements of cash flows, the Company reclassified $ 2,341 to non-cash accretion and amortization of short-term investments from prepaid expenses and other current assets for the three months ended March 31, 2023.

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

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

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.

For the three months ended March 31, 2024 and 2023, approximately 74 % and 83 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

As of March 31, 2024 and December 31, 2023, approximately 72 % and 67 %, 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'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

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.

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

As of March 31, 2024 and December 31, 2023, the Company determined an allowance for doubtful accounts was not required based upon our review of contractual payments and our customers’ circumstances.

Revenue Recognition

8 unchanged sentences

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.

The Company offers returns of product sold to the customer on a limited basis.

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 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.

3 unchanged sentences

Reserves for Variable Consideration

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

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

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

1 unchanged sentence

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.

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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The government and other entities charge us for the difference between what they pay for the product and the selling price to our customers.

The Company records reserves for these chargebacks related to product sold to our customers during the reporting period, as well as our estimate of product that remains in the distribution channel at the end of the reporting period that we expect will be sold to qualified healthcare providers and patients in future periods.

Government rebates:

1 unchanged sentence

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 consolidated balance sheets.

For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program.

On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

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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.

For services that are not distinct from the sale of our product, such fees are classified as a reduction of product revenue.

Product returns:

1 unchanged sentence

The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized.

Based on the distribution model for IMCIVREE and the price of IMCIVREE, the Company believes there will be minimal returns.

Based on the distribution model for IMCIVREE, the Company believes there will be minimal returns.

Other incentives:

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License Agreements

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

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

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

If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize the transaction price allocated to the license as revenue upon transfer of control of the license.

We evaluate all other promised goods or services in the agreement to determine if they are distinct.

If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that is distinct.

Optional future services where any additional consideration paid to us reflects their standalone selling

prices do not provide the customer with a material right and, therefore, are not considered performance obligations.

If optional future services are priced in a manner which provides the customer with a significant or incremental discount, they are material rights, and are accounted for as separate performance obligations.

We utilize judgment to determine the transaction price.

In connection therewith, we evaluate contingent milestones at contract inception to estimate the amount which is not probable of a material reversal to include in the transaction price using the most likely amount method.

Milestone payments that are not within our control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore the variable consideration is constrained.

The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied.

At the end of each reporting period, we re-evaluate the probability of achieving development milestone payments that may not be subject to a material reversal and, if necessary, adjust our estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect license and other revenue, as well as earnings, in the period of adjustment.

We then determine whether the performance obligations or combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees.

We evaluate the measure of progress, as applicable, for each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded within deferred revenue.

Contract liabilities within deferred revenue are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

For arrangements that include sales-based royalties, including sales-based milestone payments, and a license of intellectual property that is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalties have been allocated has been satisfied (or partially satisfied).

In January 2024, we entered into a license agreement and share issuance agreement with LG Chem, Ltd.

Under the terms of the license agreement, we obtained worldwide rights to develop LGC’s proprietary compound LB54640 and will assume sponsorship of two ongoing LGC Phase 2 studies designed to evaluate safety, tolerability, pharmacokinetics and weight loss efficacy of LB54640.

The SIGNAL trial is a randomized, placebo-controlled, double-blind study designed to enroll and evaluate approximately 28 patients with acquired hypothalamic obesity.

Participants will receive one of three doses of LB54640 by oral administration once daily for up to 52 weeks, and the primary endpoint of the study is the change from baseline in body mass index after 14 weeks of treatment.

The open-label, single-arm, 16 -week ROUTE trial is designed to enroll five patients with POMC or LEPR deficiency obesity.

We paid LGC $ 40.0 million in cash and issued shares of our common stock with an aggregate fair value of $ 18.7 million.

The shares were issued at a per share price equal to the ten-day volume weighted-average closing price for our

common stock, calculated as of the trading day immediately prior to January 4, 2024.

We also agreed to make a $ 40.0 million payment in cash 18 months after the effective date of the license agreement.

This payment has been recorded at its present value and reflected in other long-term liabilities on our unaudited condensed consolidated balance sheet.

In addition, and subject to the completion of Phase 2 development of LB54640, the Company has agreed to pay LGC royalties of between low-to-mid single digit percent of net revenues from its MC4R portfolio, including LB54640, commencing in 2029 and dependent upon achievement of various regulatory and indication approvals, and subject to customary deductions and anti-stacking.

Royalties may further increase to a low double digit percent royalty, though such royalty would only be applicable on net sales of LB54640 in a region if LB54640 is covered by a composition of matter or method of use patent controlled by LGC in such region and the Company’s MC4R portfolio is not covered by any composition of matter or method of use patents controlled by the Company in such region.

Such increased rate would only apply on net sales of LB54640 for the limited remainder of the royalty term in the relevant region.

RareStone Group Ltd.

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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.

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, 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 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 nine months ended September 30, 2023.

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 years ended December 31, 2023 or 2021.

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

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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.

On November 29, 2023, RareStone wrote to us seeking to negotiate and execute a commercial supply agreement as contemplated under the Exclusive License Agreement, and on January 19, 2024, we responded in writing again reaffirming our position that RareStone has materially breached its obligations under the RareStone License and that we have terminated the RareStone License for cause.

Deferred Royalty Obligation

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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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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.

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.

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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 nine months ended September 30, 2023 and 2022, respectively.

Acquired IPR&D and Milestone Expense

No events or changes in circumstances existed to require an impairment assessment during the three months ended March 31, 2024 and 2023, respectively.

Acquired IPR&D and Milestone 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.

Where contingent development milestone payments are due to third parties, prior to regulatory approval, the payment obligations are expensed when the achievement of the underlying milestone becomes probable.

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.

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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.

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

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, 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 and derivative liability at March 31, 2024 and December 31, 2023 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, 2023 and December 31, 2022, respectively.

The carrying amounts reflected in the condensed 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, 2024 and December 31, 2023, 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

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

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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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

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The standard requires disclosure of incremental segment information on an annual and interim basis and allows for multiple measures of a segment’s profit or loss provided that one of those measures is consistent with GAAP.

The amendments in this update do not change how a public company identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments,

but rather requires public entities to provide in interim periods all disclosures about a reporting segment’s profit or loss and assets that are currently required annually.

ASU 2023-07 becomes effective for the annual period starting on January 1, 2024, and for interim periods starting on January 1, 2025.

Early adoption is permitted.

The Company is currently evaluating the disclosure requirements related to the new standard but does not anticipate a material impact to its net financial position.

Asset Acquisitions

LG Chem, Ltd.

On January 4, 2024, the Company entered into a license agreement and share issuance agreement with LG Chem, Ltd.

Under the terms of the license agreement, the Company obtained worldwide rights to LGC’s proprietary compound LB54640 and will assume sponsorship of two ongoing LGC Phase 2 studies designed to evaluate safety, tolerability, pharmacokinetics and weight loss efficacy of LB54640.

The total purchase consideration of $ 92.4 million was composed of $ 40.0 million of cash paid at closing and issued shares of the Company’s common stock with an aggregate value of $ 20.0 million.

The shares were issued at a per share price equal to the ten-day volume weighted average closing price for our common stock, calculated as of the trading day immediately prior to January 4, 2024.

As of January 4, 2024, the fair value of common stock issued was $ 18.7 million.

The total purchase consideration also includes a $ 40.0 million license fee payable in 18 months , whose present value at closing was $ 33.7 million, and $ 0.8 million of transaction costs which are recorded as selling, general and administrative expenses.

In addition, under the terms of the license agreement, we agreed to pay LGC up to $ 205 million in cash upon achieving various regulatory and sales milestones based on net sales of LB54640.

In addition and subject to the completion of Phase 2 development of LB54640, the Company has agreed to pay LGC royalties of between low-to-mid single digit percent of net revenues from its MC4R portfolio, including LB54640, commencing in 2029 and dependent upon achievement of various regulatory and indication approvals, and subject to customary deductions and anti-stacking.

Such increased rate would only apply on net sales of LB54640 for the limited remainder of the royalty term in the relevant region.

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 $ 92.4 million of purchase consideration as research and development expense in the three months ended March 31, 2024.

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 LG Chem transaction in the period in which the achievement of the underlying milestones becomes probable.

Xinvento B.V.

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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 $ 5,667 was composed of $ 4,520 of cash paid at closing, a $ 500 holdback, payable on the one-year anniversary of the acquisition, and $ 647 of acquisition-related costs.

The total purchase consideration of $ 5,667 was composed of $ 4,520 of cash paid at closing, a $ 500 holdback, paid in the three months ended March 31, 2024, and $ 647 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.

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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 $ 5,667 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.

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

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.

For the three months ended March 31, 2024, 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

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Accrued expenses and other current liabilities consisted of the following:

September 30,

Research and development costs

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Fair Value of Financial Assets and Liabilities

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.

As of March 31, 2024 and December 31, 2023, the carrying amount of cash and cash equivalents and short-term investments was $ 201,199 and $ 275,846 respectively, which approximates fair value.

Cash and cash equivalents and

short-term investments includes investments in U.S.

treasury securities and money market funds that invest in U.S.

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Fair Value Measurements as of

September 30, 2023 using:

March 31, 2024 using:

Cash equivalents:

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Changes in the inputs could result in changes to the fair value of each financial instrument.

The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 12, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation.

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

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

Nine months ended

September 30,

Beginning aggregate estimated fair value of Level 3 RareStone equity

Initial recording of RareStone equity

Change in fair value of embedded derivative

Ending aggregate estimated fair value of Level 3 RareStone equity

Nine months ended

September 30,

Three months ended

Beginning aggregate estimated fair value of Level 3 liabilities

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The following tables summarize the Company's marketable securities:

September 30, 2023

March 31, 2024

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

As of March 31, 2024, 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, 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 March 31, 2024, all of which is under a non-cancellable operating lease:

Operating Lease

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Intangible Assets

As of September 30, 2023

As of March 31, 2024

As of December 31, 2023

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Capitalized Milestones

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.

As of March 31, 2024, the Company’s finite-lived net intangible assets, which totaled $ 6,815 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, 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.

As of March 31, 2024, amortization expense for the next five years and beyond is summarized as follows:

Amortization expense totaled $ 214 and $ 214 for the three months ended March 31, 2024 and 2023, respectively.

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

The Company recorded an income tax provision of approximately $ 368 for the three and nine months ended September 30, 2023.

The Company recorded an income tax provision of approximately $ 300 for the three months ended March 31, 2024.

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 did not record an income tax provision for the three months ended March 31, 2023, 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 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.

As of March 31, 2024, an aggregate of 15,285,096 shares of common stock was 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 8,804,692 and 1,294,531 shares available for future grants under the Company’s 2017 Equity 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”).

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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 29, 2024, the Company and Cowen entered into Amendment No.

1 to Sales Agreement (the “Amendment”) to increase the aggregate offering price of the shares of Common Stock that may be issued and sold pursuant to the Sales Agreement to $ 200,000,000 (excluding the aggregate offering price of shares of Common Stock

issued and sold pursuant to the Sales Agreement prior to February 29, 2024).

In connection with the Amendment, on February 29, 2024, the Company filed with the SEC a prospectus supplement, dated February 29, 2024, which, combined with the Base Prospectus (together, the “New Prospectus”), amended the Prior Prospectus in its entirety.

The issuances and sales under the Sales Agreement, as amended by the Amendment, will be made pursuant to the Registration Statement and the New Prospectus.

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

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.

As of the three months ended March 31, 2024, 553,889 stock option awards have been issued under the Inducement Plan.

As of March 31, 2024, 281,196 restricted stock unit awards have been granted under the Inducement Plan.

As of March 31, 2024, 164,915 shares of common stock are available for future grant under the Inducement Plan.

On January 4, 2024, the Company issued 432,143 shares of common stock as partial consideration for its acquisition of the worldwide rights to LGC’s proprietary compound LB54640.

Related-Party Transactions

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.

Expenses paid directly to related parties for the three months ended March 31, 2024 and 2023, were $ 135 and $ 322 , respectively.

Outstanding payments due to related parties as of March 31, 2024 and December 31, 2023 were $ 5 and $ 1 , respectively.

See also Note 13, “Subsequent Events” for disclosure regarding transactions after March 31, 2024.

Long-Term Obligations

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

As the repayment of the funded amount is contingent upon worldwide net product sales and upfront payments, milestones, and royalties, the repayment term may be shortened or extended depending on actual worldwide net product sales and upfront payments, milestones, and royalties.

worldwide net product sales and upfront payments, milestones, and royalties.

We made repayments of $ 2,783 in the three months ended March 31, 2024.

As of March 31, 2024 we have made cumulative payments of $ 10,313 .

The Investors’ rights to receive the Revenue Interests will terminate on the date on which the Investors have received payments equal to a certain percentage of the funded portion of the Investment Amount including the aggregate of all payments made to the Investors as of such date, each percentage tier referred to as the Hard Cap, unless the RIFA is earlier terminated.

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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.

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.

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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 $ 1,190 and $ 1,340 as of September 30, 2023 and December 31, 2022, respectively.

The aggregate fair value of the embedded derivative liability was $ 660 and $ 1,150 as of March 31, 2024 and December 31, 2023, 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 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 %.

For the three months ended March 31, 2024 and 2023, we recognized other income of $ 490 and $ 50 , respectively, due to the remeasurement of the embedded derivative liability.

The carrying value of the deferred royalty obligation as of March 31, 2024 was $ 107,368 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 March 31, 2024 and December 31, 2023.

The effective interest rate as of March 31, 2024 was 15.15 %.

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

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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

The Issuance closed on April 15, 2024.

Prior to the closing of the Issuance, certain of the investors and certain of their affiliated entities held over 5 % of the Company’s common stock, par value $ 0.001 per share (the “Common Stock”).

On May 7, 2024, the Company filed an Amended and Restated Certificate of Designations in respect of the Convertible Preferred Stock containing certain technical amendments to the terms of the Convertible Preferred Stock.

The amendments contained in the Amended and Restated Certificate of Designations (x) limited the voting rights of the Convertible Preferred Stock to 24.9438 shares of the Company’s common stock per $ 1,000 liquidation preference of Convertible Preferred Stock and (y) eliminated a 1 % step up in the interest rate that otherwise would have applied in the unlikely event that the Company was required to obtain and failed to obtain stockholder approval for certain conversion shares underlying the Convertible Preferred Stock.

On May 2, 2024, the Company entered into an agreement to amend the current material operating lease agreement for its head office facility located at 222 Berkeley Street in Boston, Massachusetts.

Under the amendment, the current lease has been extended for five years through July 31, 2030, with $ 5,694 committed to future lease payments.

Commitments and Contingencies

Legal Proceedings

The Company, from time to time, may be party to various litigation arising in the ordinary course of business.

The Company is not presently subject to any pending or threatened litigation that it believes, if determined adversely to the Company, individually, or taken together, would reasonably be expected to have a material adverse effect on its business or financial results.

The Company is party to various agreements, principally relating to licensed technology, that require future payments relating to milestones whose achievement may become probable in subsequent periods, or royalties on future sales of specified products.

Additionally, the Company is party to various contracts with CROs and CMOs that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement.

Based on the Company’s current development plans as of March 31, 2024, the Company does not expect to make milestone payments due to third parties during the next 12 months from the filing of this Annual Report on Form 10-K, in connection with our license agreements.

These milestones are generally recognized in the period in which the achievement of the underlying milestones becomes probable.

When the achievement of these milestones or sales have not occurred, such contingencies are not recorded in the Company’s consolidated financial statements.

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