RHYTHM PHARMACEUTICALS, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the “safe harbor” created by those sections. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding: the promise or potential of any of our products or product candidates; the marketing, commercialization, and sales of IMCIVREE (setmelanotide), and the timing of commercialization; the design, success, cost and timing of our product development activities and clinical trials for setmelanotide and our other product candidates; our ability to obtain regulatory approval for setmelanotide in further indications, as well as for our other product candidates; our financial performance, including our expectations regarding our existing cash, operating losses, expenses and sources of future financing; the sufficiency of our cash, cash equivalents and short-term investments to fund our operations; our ability to hire and retain necessary personnel; patient enrollments and the timing thereof; the timing of announcements regarding results of clinical trials; our ability to protect our intellectual property; ongoing activities under and our ability to negotiate our collaboration and license agreements, if needed, and the impact of termination; our marketing, commercial sales, revenue generation, and cost of revenue; expectations surrounding our manufacturing arrangements; the potential financial impact and, the ongoing integration process of Xinvento B.V.; the impact of the current or future economic conditions on our business and operations and our future financial results; and other statements identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “likely,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms are forward-looking statements. These forward-looking statements are neither promises nor guarantees of future performance, and 26 Table of Contents are subject to a variety of known and unknown risks, uncertainties, and other important factors, many of which are beyond our control, and which could cause actual results to differ materially from those contemplated in such forward-looking statements. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including but not limited to those set forth in Part II, Item 1A under the heading “Risk Factors” of this Quarterly Report on Form 10-Q. Except as may be required by law, we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q . We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made . Overview We are 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 (MC4R) agonists, including our lead asset, IMCIVREE® (setmelanotide), as a precision medicine designed to treat hyperphagia and severe obesity caused by rare MC4R pathway diseases. While obesity affects hundreds of millions of people worldwide, we are advancing 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 genetic variants or traumatic injury. 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 rare diseases that is approved or authorized in the United States, European Union (EU), Great Britain, Canada and other countries and regions. IMCIVREE is approved by the U.S. Food and Drug Administration (FDA) for chronic weight management in adult and pediatric patients 6 years of age and older with monogenic or syndromic obesity due to: (i) proopiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1) or leptin receptor (LEPR) deficiency as determined by an FDA-approved test demonstrating variants in POMC, PCSK1, or LEPR genes that are interpreted as pathogenic, likely pathogenic, or of uncertain significance (VUS); or (ii) Bardet-Biedl syndrome (BBS). The European Commission (EC) has authorized IMCIVREE for the treatment of obesity and the control of hunger associated with genetically confirmed BBS or genetically confirmed loss-of-function biallelic POMC, including PCSK1, deficiency or biallelic LEPR deficiency in adults and children 2 years of age and above. Great Britain’s Medicines & Healthcare Products Regulatory Agency (MHRA) has authorized IMCIVREE for the treatment of obesity and the control of hunger associated with genetically confirmed BBS or genetically confirmed loss-of-function biallelic POMC, including PCSK1, deficiency or biallelic LEPR deficiency in adults and children 6 years of age and above. We have achieved market access or named patient sales of IMCIVREE for BBS or POMC and LEPR deficiencies, or both, in 14 countries outside the United States, and we continue to collaborate with authorities to achieve access in additional markets. In addition to initial commercial efforts, we are advancing what we believe is the most comprehensive clinical research program ever initiated in MC4R pathway diseases, with multiple ongoing and planned clinical trials. Our MC4R pathway program is designed to expand the total number of patients who would benefit from setmelanotide therapy or one of our new drug candidates, RM-718, which is designed to be a more selective MC4R agonist with weekly administration, or LB54640, an investigational oral small molecule MC4R agonist in Phase 2 clinical trials. With setmelanotide, we have completed enrollment in our Phase 3 trial in patients with hypothalamic obesity. Our Phase 3 EMANATE trial, comprised of four independent substudies evaluating setmelanotide in genetically caused MC4R pathway diseases, and our Phase 2 DAYBREAK trial evaluating setmelanotide in additional genetic indications, are ongoing. With RM-718, in March 2024 we initiated Phase 1 in-human trials, including a multiple-ascending dose study in patients with hypothalamic obesity, and in July 2024, we announced that we had dosed the first patients in our Phase 2 trial evaluating LB54640 in patients with hypothalamic obesity, and in July 2024, we announced that we had dosed the first patients in our Phase 2 trial evaluating LB54640 in patients with hypothalamic obesity. In our recently completed Phase 3 pediatrics trial in 12 patients between the ages of 2 and younger than 6 with BBS or POMC or LEPR deficiency obesities, setmelanotide achieved the primary endpoint with a 3.04 mean reduction in BMI-Z score (a measure of body mass index deviations from what is considered normal) and 18.4 percent mean reduction in BMI. We are seeking regulatory approval in the United States to expand the label for IMCIVREE to treat patients as young as 2 years of age with these diseases based on these data. We are leveraging what we believe is the largest known DNA database focused on obesity - with almost 80,000 sequencing samples as of December 31, 2023 - to improve the understanding, diagnosis and care of people living with severe obesity due to certain variants in genes associated with the MC4R pathway. Our sequencing-based epidemiology 27 Table of Contents estimates show that each of these genetically-defined MC4R pathway deficiencies are considered rare diseases, according to established definitions based on patient populations. Our epidemiology estimates are approximately 4,600 to 7,500 for U.S. patients in initial FDA-approved indications, including obesity due to biallelic POMC, PCSK1 or LEPR deficiencies, and BBS. We estimate the epidemiology for patients with hypothalamic obesity to be between 5,000 and 10,000 in the United States, based on our analysis of published literature. Our epidemiology estimates for the indications being studied in our Phase 3 EMANATE trial suggest that approximately 53,000 U.S. patients with one of these genetically driven obesities have the potential to respond well to setmelanotide. Similarly, our epidemiology estimates for patients with genetic indications who demonstrated an initial response in our Phase 2 DAYBREAK trial is approximately 65,300. We believe that all these patients face similar challenges as other patients with rare diseases, namely lack of awareness, resources, tests, tools and, especially, therapeutic options. Additional recent clinical, regulatory, corporate and commercial updates include: On August 6, 2024, we announced that approximately 100 new prescriptions for IMCIVREE for BBS were written by U.S. prescribers and that we had received payor approval for reimbursement for approximately 70 prescriptions during the first quarter of 2024. ​ On August 6, 2024, we announced that we dosed the first patients in the Japanese, 12-patient supplemental cohort of our global Phase 3 trial evaluating setmelanotide in hypothalamic obesity. ​ On August 6, 2024, we announced that we completed submission of our supplemental New Drug Application (sNDA) to the U.S. FDA to expand the label of IMCIVREE® (setmelanotide) to treat pediatric patients between the ages of 2 and younger than 6 years old in approved indications. ​ On July 31, 2024, we announced that the EC expanded the marketing authorization for IMCIVREE to include children as young as 2 years old with obesity due to BBS or POMC, PCSK1, or LEPR deficiency. ​ On July 23, 2024, we announced that we dosed the first patients in our Phase 2 clinical trial evaluating LB54640 in hypothalamic obesity. ​ Effective July 1, 2024, we appointed Alastair “Al” Garfield, Ph.D. to serve as Chief Scientific Officer. ​ On June 3, 2024, we presented the first patient and caregiver reported experiences from qualitative interviews following the completion of our Phase 2 trial that evaluated treatment with setmelanotide in hypothalamic obesity during the Endocrine Society Annual Meeting & Expo (ENDO 2024). ​ On May 22, 2024, the National Institute for Health and Care Excellence (NICE) in Great Britain issued guidance that recommends IMCIVREE as an option for treating obesity and the control of hunger (hyperphagia) in patients between 6 years old and younger than 18 with BBS. ​ We also expect to achieve the following near-term milestones: ● Announce DAYBREAK Stage 2 data during a medical meeting in the second half of 2024; ● Complete enrollment in two or more substudies in the Phase 3 EMANATE trial evaluating setmelanotide in genetically caused MC4R pathway diseases in the second half of 2024; ● Announce top-line data in the Phase 3 trial evaluating setmelanotide in hypothalamic obesity in the first half of 2025; Up until recently, our operations have been limited primarily to conducting research and development activities for setmelanotide. To date, we have not generated sufficient cash flow from product sales and have financed our operations primarily through the proceeds received from the sales of common and preferred stock, royalty interest financing, asset sales, as well as capital contributions from the former parent company, Rhythm Holdings LLC. From August 2015 through August 2017, we raised aggregate net proceeds of $80.8 million through our issuance of series A 28 Table of Contents preferred stock. Since our initial public offering, or IPO, on October 10, 2017 and our underwritten follow-on offerings through October 2022, we have raised aggregate net proceeds of approximately $791.5 million through the issuance of our common stock after deducting underwriting discounts, commissions and offering related transaction costs. We also received $100.0 million from the sale of our Rare Pediatric Disease Priority Review Voucher, or PRV, to Alexion Pharmaceuticals, Inc. in February 2021. In June 2022, we entered into the Revenue Interest Financing Agreement (“RIFA”), with entities managed by HealthCare Royalty Partners, collectively referred to as the Investors, and through December 31, 2023 have received cumulative proceeds of $96.7 million, net of certain transaction costs. IMCIVREE became commercially available to patients 6 years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency in the U.S. in the first quarter of 2021 and patients 6 years of age and older with obesity due to BBS during June 2022. Following marketing authorizations in the EU, Great Britain and Canada, we are pursuing a country-by-country strategy to establish market access and reimbursement for IMCIVREE in several additional countries. During March 2022, we treated the first patients with IMCIVREE in France under the paid early access program and we treated the first patients with IMCIVREE in Germany during June 2022. We expect to continue to fund our operations through the sale of equity, debt financings or other sources. We have built our own marketing and commercial sales infrastructure in the United States and are in the process of building a similar infrastructure in several European markets and the United Kingdom. We may enter into arrangements with other parties for certain markets outside the United States. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or commercialization of setmelanotide. As of June 30, 2024 we had an accumulated deficit of $1,068.4 million. Our net loss was $32.3 million and $173.6 million for the three and six months ended June 30, 2024 and 2023, respectively. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Our expenses may increase in connection with our ongoing activities, as we: ● continue to conduct clinical trials for setmelanotide and our other product candidates ; ● engage contract manufacturing organizations, or CMOs, for the manufacture of clinical and commercial-grade setmelanotide; ● seek regulatory approval for setmelanotide for future indications, and for our other product candidates ; ● expand our clinical and financial operations and build a marketing and commercialization infrastructure ; ● engage in the sales and marketing efforts necessary to support the continued commercial efforts of IMCIVREE globally; ● take into account the levels, timing and collection of revenue earned from sales of IMCIVREE and other products approved in the future, if any; and ● continue to operate as a public company. As of June 30, 2024, our existing cash and cash equivalents and short-term investments were approximately $319.1 million. On April 15, 2024, we entered into an Investment Agreement with certain investors resulting in the issuance of convertible preferred stock to certain investors and proceeds to the Company of $150.0 million, as disclosed in Note 10, “Series A Preferred Stock”, to the unaudited condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q. We expect that our existing cash and cash equivalents and short-term investments as of June 30, 2024 will be sufficient to fund our operations into 2026. 29 Table of Contents Corporate Background We are a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc. Financial Operations Overview Revenue To date, we have generated approximately $152.5 million in product revenue. Our lead product candidate, IMCIVREE, was approved by the FDA in November 2020 for chronic weight management in adult and pediatric patients six years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency confirmed by genetic testing. IMCIVREE became commercially available in the United States in the first quarter of 2021. We recorded our first sales of IMCIVREE in the United States in March 2021 and we made our first sales in France during March 2022 under the paid early access program. IMCIVREE was approval by the FDA and the EC in adult and pediatric patients six years of age and older with obesity due to BBS in June and September 2022, respectively. Following these approvals for BBS, we expect our sales of IMCIVREE will continue to grow as we identify and treat more patients with this disease and obtain reimbursement throughout the international markets in which we operate. Cost of sales All of our inventory of IMCIVREE produced prior to FDA approval is available for commercial or clinical use. Most of the manufacturing costs have been recorded as research and development expenses in prior periods. We expect cost of sales to increase in 2024 as we continue to sell inventory that is produced after we began capitalizing manufacturing costs for IMCIVREE commercial inventory. Research and development expenses Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery and genetic sequencing efforts, and the clinical development of setmelanotide, which include: ● expenses incurred under agreements with third parties, including CROs that conduct research and development and preclinical activities on our behalf, and the cost of consultants and CMOs that manufacture drug products for use in our preclinical studies and clinical trials; ● employee-related expenses including salaries, benefits and stock-based compensation expense; ● the cost of lab supplies and acquiring, developing and manufacturing preclinical and clinical study materials; ● the cost of genetic sequencing of potential patients in clinical studies; ● facilities, depreciation, and other expenses, which include rent and maintenance of facilities, insurance and other operating costs; ● acquired in process research and development costs associated with the acquisition of Xinvento B.V., or Xinvento in the three months ended March 31, 2023; and ● acquired in process research and development costs associated with the acquisition of LG Chem, Ltd.’s, or LGC’s proprietary compound LB54640 in the three months ended March 31, 2024. We expense research and development costs to operations as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The capitalized amounts are expensed as the related goods are delivered or the services are performed. 30 Table of Contents The following table summarizes our current research and development expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ June 30, ​ June 30, Research and development summary 2024 2023 2024 2023 Research and development expense $ 30,194 ​ $ 33,543 ​ $ 158,858 ​ $ 71,487 ​ We are unable to predict the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of setmelanotide, RM-718, LB54640, and a potential therapeutic product candidate for congenital hyperinsulinism (CHI) will depend on a variety of factors, including: ● the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development activities; ● the rate of enrollment in clinical trials; ● the safety and efficacy demonstrated by setmelanotide and other product candidates in future clinical trials; ● changes in regulatory requirements; ● changes in clinical trial design; and ● the timing and receipt of any regulatory approvals. A change in the outcome of any of these variables with respect to the development of our product candidates would significantly change the costs and timing associated with its development and potential commercialization. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our setmelanotide and other development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to commercialization and there can be no guarantee that we can meet the funding needs associated with these expenses. Selling, general and administrative expenses Selling expenses consist of professional fees related to preparation for the commercialization of setmelanotide, as well as salaries and related benefits for commercial employees, including stock-based compensation. As we further implement and execute our commercialization plans to market setmelanotide in new territories and as we explore new collaborations to develop and commercialize setmelanotide, we anticipate that these expenses will materially increase. General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, relating to our full-time employees not involved in R&D or commercial activities. Other significant costs include rent, legal fees relating to patent and corporate matters and fees for accounting and consulting services. The following table summarizes our current selling, general and administrative expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, Selling, general and administrative summary 2024 2023 2024 2023 Selling, general and administrative expense ​ $ 36,415 ​ $ 30,046 ​ $ 70,797 ​ $ 54,674 ​ 31 Table of Contents We anticipate that our selling, general and administrative expenses will increase in the future to support our continued and expanding commercialization efforts for IMCIVREE in the United States and the European Union as well as increased costs of operating as a global commercial stage biopharmaceutical public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, compliance with local rules and regulations in the United States and foreign jurisdictions, exchange listing and Securities and Exchange Commission, or SEC, expenses, insurance and investor relations costs, among other expenses. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances on an ongoing basis, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Results of Operations Comparison of the three months ended June 30, 2024 and 2023 The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023, together with the changes in those items in dollars and as a percentage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ June 30, ​ Change ​ 2024 2023 $ % ​ ​ (in thousands) Statement of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product revenue, net $ 29,078 $ 19,221 ​ $ 9,857 ​ 51 % Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ ​ 2,947 ​ ​ 2,236 ​ ​ 711 ​ 32 % Research and development ​ ​ 30,194 ​ ​ 33,543 ​ ​ (3,349) ​ (10) % Selling, general, and administrative ​ 36,415 ​ 30,046 ​ 6,369 ​ 21 % Total costs and expenses ​ 69,556 ​ 65,825 ​ 3,731 ​ 6 % Loss from operations ​ (40,478) ​ (46,604) ​ 6,126 ​ (13) % Other income (expense), net ​ 8,696 ​ (99) ​ 8,795 ​ (8,884) % Loss before income taxes ​ ​ (31,782) ​ ​ (46,703) ​ ​ 14,921 ​ (32) % Provision for income taxes ​ ​ 479 ​ ​ — ​ ​ 479 ​ 100 % Net loss ​ $ (32,261) ​ $ (46,703) ​ $ 14,442 ​ (31) % ​ Product revenue, net . Product revenue, net increased by $9.9 million to $29.1 million for the three months ended June 30, 2024 from $19.2 million for the three months ended June 30, 2023, an increase of 51%. We expect our sales of IMCIVREE to continue to increase following the FDA approval for the treatment of patients with BBS in the United States in June 2022. For the three months ended June 30, 2024 and 2023, a substantial amount of our product revenue, or 74% and 84%, respectively, was generated from sales of our product to patients in the United States. 32 Table of Contents Cost of sales. Cost of sales increased by $0.7 million to $2.9 million for the three months ended June 30, 2024 from $2.2 million for the three months ended June 30, 2023, an increase of 32%, which was driven by a corresponding increase in revenue in the three months ended June 30, 2024 . Cost of sales is composed of royalty expense due to Ipsen Pharma S.A.S., or Ipsen, on our net product revenue, amortization of our capitalized sales-based milestone payment made to Ipsen, upon our first commercial sale in the United States and European Union, the cost of product, as well as costs associated with our patient assistance programs. Specifically, the $0.7 million increase in cost of sales in the three months ended June 30, 2024 from the same period in 2023 was due to $0.5 million of additional royalties due to our growth in sales and $0.2 million attributed to increased product cost associated with higher sales volume. We expect cost of sales as a percentage of product revenue, net to continue to be in a range of 10% to 12% in the foreseeable future. Research and development expense. Research and development expense decreased by $3.3 million to $30.2 million for the three months ended June 30, 2024 from $33.5 million for the three months ended June 30, 2023, a decrease of 10%. The net decrease was primarily due to the following: ● a decrease in our clinical trial costs associated with decreased activity in our long-term extension trial for setmelanotide therapy of approximately $1.9 million, decreased activity in our weekly switch trial of $1.1 million, and decreased activity in our Pathway Phase II trial of $2.0 million; and ● a decrease in our clinical trial costs associated with our Phase 3 EMANATE trial and our Phase 2 DAYBREAK trial, totaling $3.6 million. The above decreases were partially offset by: ● an increase of $2.0 million in our clinical trial costs associated with increased activity in our Phase 3 hypothalamic obesity trial and $1.9 million associated with our RM-718 clinical trial; and ● an increase of $1.1 million in salaries, benefits and stock-based compensation related to the hiring of additional full-time employees in order to support the growth of our research and development program. ​ Selling, general and administrative expense. Selling, general and administrative expense increased by $6.4 million to $36.4 million for the three months ended June 30, 2024 from $30.0 million for the three months ended June 30, 2023, an increase of 21%. The increase was primarily due to the following: ● an increase of $5.4 million due to increased compensation and benefits related costs associated with additional headcount to support our expanding business operations as well as to establish commercial operations in international regions; and ● an increase of $0.8 million related to professional services costs, including legal, consulting and tax services. Other income (expense), net. Other income (expense), net increased by $8.8 million to $8.7 million for the three months ended June 30, 2024 from $0.1 million for the three months ended June 30, 2023. The increase was primarily due to the following: ● a gain of $8.9 million recognized for the change in fair value of a forward contract recorded with the issuance of convertible preferred stock; and ● an increase in interest income of $0.9 million earned on our short-term investments, based on lower higher investment balances from the proceeds of $150.0 million from the convertible preferred stock issuance. The above amounts were partially offset by: 33 Table of Contents ● recognition of $1.0 million of non-cash interest expense in the three months ended June 30, 2024 associated with accretion of the non-current liability payable to LGC in July, 2025; and ● an increase in non-cash interest expense of $0.7 million related to amortization of debt discount and deferred financing fees associated with our higher deferred royalty obligation balance, based on the receipt of our final $25.0 million sales milestone in the three months ended September 30, 2023. Comparison of the six months ended June 30, 2024 and 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ June 30, ​ Change ​ 2024 2023 $ ​ % ​ ​ (in thousands) Statement of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product revenue, net ​ $ 55,045 ​ $ 30,691 ​ $ 24,354 ​ 79 % Total revenues ​ ​ 55,045 ​ ​ 30,691 ​ ​ 24,354 ​ 79 % Costs and expenses: ​ ​ ​ ​ ​ Cost of sales ​ ​ 5,753 ​ ​ 3,657 ​ ​ 2,096 ​ 57 % Research and development ​ ​ 158,858 ​ ​ 71,487 ​ ​ 87,371 ​ 122 % Selling, general, and administrative ​ 70,797 ​ 54,674 ​ 16,123 ​ 29 % Total costs and expenses ​ 235,408 ​ 129,818 ​ 105,590 ​ 81 % Loss from operations ​ (180,363) ​ (99,127) ​ (81,236) ​ 82 % Other income (expense), net ​ 7,509 ​ 245 ​ 7,264 ​ 2,965 % Loss before income taxes ​ ​ (172,854) ​ ​ (98,882) ​ ​ (73,972) ​ 75 % Provision for income taxes ​ ​ 779 ​ ​ — ​ ​ 779 ​ 100 % Net loss ​ $ (173,633) ​ $ (98,882) ​ $ (74,751) ​ 76 % ​ Product revenue, net. Product revenue, net increased by $24.3 million to $55.0 million for the six months ended June 30, 2024 from $30.7 million for the six months ended June 30, 2023, an increase of 80%. We expect our sales of IMCIVREE to continue to increase following the FDA approval for the treatment of patients with BBS in the United States in June 2022. During the six months ended June 30, 2024 and 2023, a substantial amount of our product revenue, or 75% and 85%, respectively, has been generated in the United States. Cost of sales. Cost of sales increased by $2.1 million to $5.8 million for the six months ended June 30, 2024, an increase of 57%. Cost of sales primarily reflects a royalty due to Ipsen, on our net product sales and the amortization of our capitalized sales-based milestone payment made to Ipsen, upon our first commercial sale in the U.S. and EU, the cost of product as well as costs associated with our patient assistance programs. Specifically, the $2.1 million increase in cost of sales for the six months ended June 30, 2024 was due to $1.2 million of additional royalties due to our growth in net product revenue and $0.9 million due to higher product costs from higher net product revenue. We expect cost of sales as a percentage of product revenue, net to be in a range of 10% to 12% in the foreseeable future . Research and development expense . Research and development expense increased by $87.4 million to $158.9 million for the six months ended June 30, 2024 from $71.5 million for the six months ended June 30, 2023, an increase of 122%. The net increase was primarily due to the following: ● acquired in process research and development costs associated with the acquisition of LGC’s proprietary compound LB54640 of $92.4 million in the six months ended June 30, 2024; ● an increase of $2.3 million in salaries, benefits and stock-based compensation related to the hiring of additional full-time employees in order to support the growth of our research and development programs; ● an increase of $2.0 million in our clinical trial costs associated with increased activity in our Phase 3 hypothalamic obesity trial and $1.9 million associated with our RM-718 clinical trial; and 34 Table of Contents ● an increase of $1.3 million due to increased gene sequencing costs to support our expanded clinical programs. The above increases were partially offset by: ● the purchase of in-process research and development assets of $5.7 million from Xinvento in the six months ended June 30, 2023, which did not recur in the six months ended June 30, 2024; ● a decrease in our clinical trial costs associated with our Phase 3 EMANATE trial and our Phase 2 DAYBREAK trial, totaling $3.6 million; and ● a decrease of $0.9 million in costs associated with the manufacturing of clinical material. Selling, general and administrative expense. Selling, general and administrative expense increased by $16.1 million to $70.8 million for the six months ended June 30, 2024 from $54.7 million for the six months ended June 30, 2023, an increase of 29%. The increase was primarily due to the following: ​ ● an increase of $9.3 million due to increased salaries, benefits and stock-based compensation related costs associated with additional headcount to support our expanding business operations as well as to build out our commercial operations in the United States and internationally; ● an increase of $3.0 million related to professional services costs; ● an increase of $2.5 million due to increased costs associated with marketing, data analytics, website and sponsorships; and ● an increase of $1.2 million due to increased costs associated with information technology, international office space, and general corporate travel related expenses for our expanding workforce. Other income (expense), net. Other (income) expense, net was $7.5 million for the six months ended June 30, 2024 as compared to $0.2 million for the six months ended June 30, 2023. ​ The increase was primarily due to the following: ● a gain of $8.9 million recognized for the change in fair value of a forward contract recorded with the issuance of convertible preferred stock; ● a change in fair value of the embedded derivative in our debt royalty obligation of $0.7 million and realized foreign currency gains of $0.3 million; and ● an increase in interest income of $0.5 million earned on our short-term investments, based on lower higher investment balances from the proceeds of $150.0 million from the convertible preferred stock issuance; The above amounts were partially offset by: ● recognition of $1.9 million of non-cash interest expense in the six months ended June 30, 2024 associated with accretion of the non-current liability payable to LGC in July, 2025; and ● an increase in non-cash interest expense of $1.5 million related to amortization of debt discount and deferred financing fees associated with our higher deferred royalty obligation balance, based on the receipt of our final $25.0 million sales milestone in the three months ended September 30, 2023. ​ 35 Table of Contents Liquidity and Capital Resources As of June 30, 2024, our cash and cash equivalents and short-term investments were approximately $319.1 million. Cash flows The following table provides information regarding our cash flows for the six months ended June 30, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ 2024 2023 ​ (in thousands) Net cash (used in) provided by: ​ ​ ​ ​ ​ Operating activities $ (69,819) ​ $ (77,628) Investing activities 21,488 ​ 66,655 Financing activities 150,422 ​ (1,098) Effect of exchange rates on cash ​ (372) ​ ​ (27) Net (decrease) increase in cash, cash equivalents and restricted cash $ 101,719 ​ (12,098) ​ Net cash used in operating activities The use of cash in all periods resulted primarily from our net loss adjusted for non-cash charges and changes in components of operating assets and liabilities. Net cash used in operating activities was $69.8 million for the six months ended June 30, 2024 and consisted primarily of a net loss of $173.6 million adjusted for non-cash items of $108.1 million, which consisted of non-cash stock-based compensation, depreciation and amortization, rent expense and the change in the fair value of our embedded derivative liability, totaling $18.3 million. Our net loss adjusted for non-cash items also includes $92.4 million of acquired In Process Research and Development (IPR&D) assets, which are classified as investing activities. The change in operating assets and liabilities used net cash of approximately $4.3 million, primarily driven by net increases in accounts receivable and inventory of $6.1 million, net decreases in accounts payable and accrued expenses of $0.8 million, offset by net decreases in long-term assets of $2.2 million and net decreases in prepaid expenses of $0.3 million. Net cash used in operating activities was $77.6 million for the six months ended June 30, 2023 and consisted primarily of a net loss of $98.9 million adjusted for non-cash items of $22.6 million, which consisted of non-cash stock-based compensation, depreciation and amortization, rent expense and the change in the fair value of our embedded derivative liability. Our net loss also includes $5.7 million of acquired IPR&D assets, which are classified as investing activities. The change in operating assets and liabilities used net cash of approximately $6.9 million, primarily driven by a net increase in accounts payable and accrued expenses of $5.8 million due to the timing of payments, offset by increases in accounts receivable and inventory of $10.9 million and a net increase in prepaid expenses and other assets of $1.9 million. Net cash provided by investing activities Net cash provided by investing activities was $21.5 million for the six months ended June 30, 2024 and relates to gross maturities of short-term investments of $127.8 million, offset by purchases of short term investments for $66.3 million and cash used for the purchase of LGC’s proprietary compound LB54640 for $40.0 million in January 2024. Net cash provided by investing activities was $66.7 million for the six months ended June 30, 2023 and relates to $217.2 million of maturities of short-term investments, partially offset by $145.1 million of purchases of short-term investments. We also used approximately $5.4 million to acquire Xinvento’s IPR&D assets and $0.1 million to the purchase of property plant and equipment. 36 Table of Contents Net cash provided by (used in) financing activities Net cash provided by financing activities was $150.4 million for the six months ended June 30, 2024, and consisted of net proceeds of $147.8 million from the issuance of Series A Preferred Stock as well as proceeds of $8.4 million from the exercise of stock options and the issuance of common stock from our Employee Stock Purchase Plan. These proceeds were offset by $5.8 million of repayments of our deferred royalty obligation. Net cash used in financing activities was $1.1 million for the six months ended June 30, 2023, which comprised of $2.7 million of repayments of our deferred royalty obligation, partially offset by $1.6 million of cash proceeds from the exercise of stock options and the issuance of common stock from our Employee Stock Purchase Plan. Funding requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of and seek marketing approval for setmelanotide for future indications, continue the clinical development of our other product candidates and build out our global organization. In addition, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. We also expect to incur additional costs associated with operating as a public company. On April 1, 2024, we entered into an Investment Agreement with certain investors resulting in the issuance of convertible preferred stock to the investors and proceeds to the Company of $150.0 million, as disclosed in Note 10, “Series A Preferred Stock”. We expect that our existing cash and cash equivalents and short-term investments as of June 30, 2024, will be sufficient to fund our operations into 2026. Our cash and cash equivalents are maintained at financial institutions in amounts that exceed federally-insured limits. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all. We may need to obtain substantial additional funding in connection with our research and development activities and any continuing operations thereafter. If we are unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, including: ● the cost to continue to commercialize setmelanotide, by growing our internal sales force or entering into collaborations with third parties and providing support services for patients; ● the scope, progress, results and costs of clinical trials for our setmelanotide program as well as for RM-718 and LB54640, and in connection with a therapeutic product candidate for CHI ; ● the costs, timing and outcome of regulatory review of our setmelanotide program as well as for RM-718 and LB54640, and in connection with a therapeutic product candidate for CHI ; ● the obligations owed to Ipsen, Camurus and Takeda Pharmaceutical Company Limited, or Takeda, and LGC pursuant to our license agreements; ● the extent to which we acquire or in-license other product candidates and technologies; ● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; ● our ability to establish and maintain additional collaborations on favorable terms, if at all; and 37 Table of Contents ● the costs of operating as a public company Although IMCIVREE has been approved by the FDA in certain indications, and became commercially available in the first quarter of 2021, IMCIVREE may not achieve commercial success. In addition, developing our setmelanotide program is a time-consuming, expensive and uncertain process that may take years to complete, and we may never generate the necessary data or results required to obtain future marketing approvals and achieve product sales. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Further, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. All of these factors could impact our liquidity and future funding requirements, including but not limited to our ability to raise additional capital when needed on acceptable terms, if at all. The duration of this economic slowdown is uncertain and the impact on our business is difficult to predict. See “Risk Factors— Unfavorable global political or economic conditions could adversely affect our business, financial condition or results of operations.” Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, involves agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our setmelanotide program on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our setmelanotide program that we would otherwise prefer to develop and market ourselves. ATM program ​ On November 2, 2021, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which we may issue and sell shares of our 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, we sold approximately two million shares of our common stock in the ATM Program for net proceeds of approximately $48.9 million. 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 Securities Exchange Commission 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. Contractual obligations As of June 30, 2024, apart from additional contractual obligations under our acquisition of Xinvento and LGC’s LB54640 as disclosed in Note 3, “Asset Acquisitions” to the unaudited condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no other material changes to our principal 38 Table of Contents contractual obligations and commitments as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Item 3. Quantitative and Qualitative Disclosures About Market Risk As of June 30, 2024, there were no material changes to our quantitative and qualitative disclosures about market risks as reported in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risks” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.