Rhythm(RYTM) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the period ended September 30, 2019, show a significant increase in net loss and operating expenses compared to the same period in 2018, driven by higher research and development costs Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $71,680 | $49,542 | | Short-term investments | $90,755 | $202,519 | | Total current assets | $170,877 | $258,689 | | Total assets | $177,533 | $260,210 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $25,207 | $13,582 | | Total liabilities | $28,418 | $13,954 | | Accumulated deficit | $(292,375) | $(184,602) | | Total stockholders' equity | $149,115 | $246,256 | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $26,572 | $10,705 | $84,641 | $31,575 | | Selling, general, and administrative | $10,535 | $8,539 | $27,135 | $19,691 | | Loss from operations | $(37,107) | $(19,244) | $(111,776) | $(51,266) | | Net loss and comprehensive loss | $(36,003) | $(17,686) | $(107,773) | $(48,557) | | Net loss per share, basic and diluted | $(1.04) | $(0.52) | $(3.13) | $(1.63) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(90,529) | $(41,073) | | Net cash provided by (used in) investing activities | $111,157 | $(99,423) | | Net cash provided by financing activities | $1,511 | $164,533 | | Net increase in cash, cash equivalents and restricted cash | $22,139 | $24,037 | Notes to Unaudited Condensed Consolidated Financial Statements - The company is a biopharmaceutical firm focused on developing setmelanotide, an MC4R agonist for rare genetic disorders of obesity. It has incurred operating losses since inception, with an accumulated deficit of $292.4 million as of September 30, 2019[18][21] - Management believes existing cash, combined with proceeds from the October 2019 public offering (approx. $161.3 million net), will fund operations through at least the end of 2021[22][60] - Effective January 1, 2019, the company adopted the new lease accounting standard (ASC 842), resulting in the recognition of a right-of-use asset of $3.3 million and a lease liability of $3.6 million[44] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The company is focused on the development and commercialization of setmelanotide for rare genetic disorders of obesity, with an NDA submission planned for Q4 2019 or Q1 2020 following positive Phase 3 data, and its financial position strengthened by a public offering in October 2019 Overview - The company's lead product candidate is setmelanotide, an MC4R agonist for treating rare genetic disorders of obesity such as POMC and LEPR deficiency[63] - Following positive topline Phase 3 data for POMC and LEPR deficiency obesity, the company plans to complete its NDA submission in Q4 2019 or Q1 2020[64] - A pivotal Phase 3 trial for Bardet-Biedl syndrome and Alström syndrome is ongoing, with topline data expected in 2020[65] - The company acquired exclusive worldwide rights from Takeda for RM-853, a preclinical GOAT inhibitor for Prader-Willi Syndrome, and expects to file an IND in 2020[68] Results of Operations Comparison of Operating Expenses (in thousands) | Expense Category | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $26,572 | $10,705 | $84,641 | $31,575 | | Selling, general, and administrative | $10,535 | $8,539 | $27,135 | $19,691 | - R&D expenses for the three months ended Sep 30, 2019 increased by $15.9 million (148%) year-over-year, primarily due to a $10.2 million increase in clinical trial costs for setmelanotide and a $3.4 million increase in translational research and genetic sequencing[96] - R&D expenses for the nine months ended Sep 30, 2019 increased by $53.1 million (168%) year-over-year, driven by a $30.0 million increase in clinical trial costs, $11.0 million in translational research, and $6.2 million in hiring additional R&D personnel[98] - SG&A expenses for the nine months ended Sep 30, 2019 increased by $7.4 million (38%) year-over-year, mainly due to a $5.6 million increase in employee-related costs from hiring to support commercial activities and a $2.1 million increase in consulting services for disease awareness[99] Liquidity and Capital Resources - As of September 30, 2019, the company had approximately $162.4 million in cash, cash equivalents, and short-term investments[100] - Net cash used in operating activities increased to $90.5 million for the nine months ended Sep 30, 2019, from $41.1 million in the prior year period, primarily due to higher net loss[101][103][104] - The company expects that existing cash, along with proceeds from the October 2019 public offering, will fund operating expenses through at least the end of 2021[108] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate sensitivity due to its investments in money market funds and marketable securities, though a 100 basis point change is not expected to have a material effect, and it is not materially exposed to foreign currency exchange rate risk - The company's main market risk is interest rate sensitivity from its cash equivalents and investments in U.S. government obligations[118] - Due to the short-term and low-risk nature of its investments, management believes a 1% change in interest rates would not materially impact the fair market value of its investments[118] - The company has no material exposure to foreign currency exchange rate risk[119] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2019, concluding they were effective at a reasonable assurance level, with no material changes to internal control over financial reporting during the quarter other than those related to the adoption of the new lease accounting standard (ASC 842) - As of September 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[124] - No material changes were made to internal control over financial reporting during the quarter, except for controls added in connection with adopting the new lease accounting standard, FASB Topic 842[125] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company reports that it is not currently involved in any material legal proceedings[126] Item 1A. Risk Factors The company faces significant risks, including a history of operating losses and the need for substantial additional capital, with success heavily dependent on its single product candidate, setmelanotide, which faces numerous clinical development, regulatory, and commercialization hurdles - The company is a clinical-stage biopharmaceutical company with a history of significant operating losses ($292.4 million accumulated deficit as of Sep 30, 2019) and expects to incur continued losses for the foreseeable future[128][130] - Success is highly dependent on the clinical development and commercialization of a single product candidate, setmelanotide. Positive results from early trials may not be predictive of later-stage trials[130][153] - The number of patients for the company's target rare genetic disorders is small and not precisely established, which could impact revenue potential and the ability to recruit for clinical trials[163] - The company relies on third-party CROs to conduct clinical trials and CMOs to manufacture setmelanotide, creating risks related to performance, compliance, and supply chain[259][264] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period and confirms no material change in the planned use of proceeds from its public offerings in June 2018 and October 2019 - There were no unregistered sales of equity securities during the reporting period[434] - The company confirms no material change in the planned use of proceeds from its public offerings in June 2018 and October 2019[437] Item 3. Defaults Upon Senior Securities Not applicable Item 4. Mine Safety Disclosure Not applicable Item 5. Other Information None Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act and XBRL data files