Rhythm(RYTM) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, for periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Assets | | | | Cash and cash equivalents | $135,586 | $89,137 | | Short-term investments | 155,444 | 231,428 | | Accounts receivable, net | 26,122 | 18,512 | | Inventory | 18,872 | 18,741 | | Prepaid expenses and other current assets | 24,656 | 16,382 | | Total current assets | 360,680 | 374,200 | | Property and equipment, net | 297 | 632 | | Right-of-use asset | 3,262 | 3,477 | | Intangible assets, net | 5,747 | 6,174 | | Restricted cash | 527 | 464 | | Other long-term assets | 2,220 | 7,326 | | Total assets | $372,733 | $392,273 | | Liabilities, Convertible Preferred Stock and Stockholders' equity | | | | Accounts payable | $15,982 | $12,328 | | Accrued expenses and other current liabilities | 69,185 | 62,658 | | Other current liability - LG Chem | 40,000 | 37,704 | | Lease liability (current) | 510 | — | | Deferred revenue | — | 1,286 | | Deferred royalty obligation, current | 3,778 | 1,541 | | Total current liabilities | 129,455 | 115,517 | | Deferred royalty obligation (long-term) | 106,014 | 108,269 | | Lease liability, non-current | 3,681 | 3,938 | | Total liabilities | 239,150 | 227,724 | | Series A convertible preferred stock | 145,491 | 142,820 | | Common stock | 64 | 61 | | Additional paid-in capital | 1,241,744 | 1,177,045 | | Accumulated other comprehensive (loss) | (2,248) | (39) | | Accumulated deficit | (1,251,468) | (1,155,338) | | Total stockholders' equity | (11,908) | 21,729 | | Total liabilities, convertible preferred stock and stockholders' equity | $372,733 | $392,273 | - Total assets decreased by $19.54 million from $392.27 million at December 31, 2024, to $372.73 million at June 30, 2025, primarily driven by a decrease in short-term investments and other long-term assets, partially offset by an increase in cash and cash equivalents and accounts receivable[10] - Total liabilities increased by $11.43 million, from $227.72 million at December 31, 2024, to $239.15 million at June 30, 2025, mainly due to increases in accounts payable, accrued expenses, and the LG Chem liability[10] - Total stockholders' equity shifted from a positive $21.73 million at December 31, 2024, to a deficit of $11.91 million at June 30, 2025, primarily due to an increased accumulated deficit[10] Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share data) | | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue, net | $48,502 | $29,078 | $86,220 | $55,045 | | License revenue | — | — | (5,014) | — | | Total revenues | 48,502 | 29,078 | 81,206 | 55,045 | | Cost of sales | 5,543 | 2,947 | 9,191 | 5,753 | | Research and development | 42,308 | 30,194 | 79,281 | 158,858 | | Selling, general, and administrative | 45,947 | 36,415 | 85,034 | 70,797 | | Total costs and expenses | 93,798 | 69,556 | 173,506 | 235,408 | | Loss from operations | (45,296) | (40,478) | (92,300) | (180,363) | | Net loss | $(46,632) | $(32,261) | $(96,130) | $(173,633) | | Net loss per share, basic and diluted | $(0.75) | $(0.55) | $(1.56) | $(2.89) | - Product revenue, net, increased by 67% to $48.50 million for the three months ended June 30, 2025, from $29.08 million in the prior year period, and by 57% to $86.22 million for the six months ended June 30, 2025, from $55.05 million in the prior year period[12] - Net loss for the three months ended June 30, 2025, was $46.63 million, an increase from $32.26 million in the same period of 2024, while for the six months ended June 30, 2025, net loss was $96.13 million, a significant improvement from $173.63 million in the prior year period, primarily due to lower R&D expenses[12] - Research and development expenses decreased by 50% for the six months ended June 30, 2025, to $79.28 million, compared to $158.86 million in the same period of 2024, largely due to non-recurring acquired IPR&D costs in 2024[12] Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - Total stockholders' equity decreased from $21.73 million at December 31, 2024, to a deficit of $11.91 million at June 30, 2025, primarily driven by net loss and foreign currency translation adjustments[13] - Common stock shares outstanding increased from 62,390,654 at December 31, 2024, to 63,913,185 at June 30, 2025, due to stock compensation, ESPP, stock option exercises, and ATM equity offerings[13] - Accretion of preferred stock dividends totaled $2.67 million for the six months ended June 30, 2025, increasing the carrying value of Convertible Preferred Stock[13] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(63,664) | $(69,819) | | Net cash provided by investing activities | 78,847 | 21,488 | | Net cash provided by financing activities | 31,610 | 150,422 | | Effect of exchange rates on cash | (281) | (372) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $46,512 | $101,719 | | Cash, cash equivalents and restricted cash at end of period | $136,113 | $162,128 | - Net cash used in operating activities decreased to $63.66 million for the six months ended June 30, 2025, from $69.82 million in the prior year, primarily due to a lower net loss and favorable changes in operating assets and liabilities[16][195][196] - Net cash provided by investing activities significantly increased to $78.85 million in 2025 from $21.49 million in 2024, driven by higher maturities of short-term investments and no acquisition of IPR&D assets in 2025[16][197][198] - Net cash provided by financing activities decreased to $31.61 million in 2025 from $150.42 million in 2024, mainly due to the absence of proceeds from Series A Preferred Stock issuance in 2025, partially offset by proceeds from ATM equity offering[16][199][200] Notes to Unaudited Condensed Consolidated Financial Statements 1. Nature of Business Rhythm Pharmaceuticals is a commercial-stage biopharmaceutical company focused on MC4R receptor agonists for rare neuroendocrine diseases - Rhythm Pharmaceuticals is a global, commercial-stage biopharmaceutical company focused on developing melanocortin-4 (MC4R) receptor agonists, with IMCIVREE (setmelanotide) as its lead asset, to treat hyperphagia and severe obesity caused by rare MC4R pathway diseases[17] - The company has incurred operating losses and negative cash flows since inception, with an accumulated deficit of $1.3 billion as of June 30, 2025, and expects losses to continue[20] Cash and Short-Term Investments | As of | Amount (in millions) | | :---- | :------------------- | | June 30, 2025 | $291.0 | | December 31, 2024 | $320.6 | - Management believes existing cash resources will fund operations through at least the next twelve months from the 10-Q filing date[23] 2. Summary of Significant Accounting Policies Outlines significant accounting policies for financial statements, including revenue recognition and inventory, with no material changes - The financial statements are prepared in conformity with GAAP and SEC interim reporting rules, with certain footnotes condensed or omitted[24] - The company operates and manages its business as one operating segment, with segment disclosures updated per ASU 2023-07[29][30] - Revenue from product sales is recognized when the customer obtains control, with reserves for variable consideration (discounts, rebates, co-pay assistance) established as reductions of accounts receivable or current liabilities[42][44] - Inventory is valued at the lower of cost or net realizable value, determined on a first-in, first-out basis, and includes raw materials, work in process, and finished goods[60] 3. Asset Acquisitions Details the January 2024 acquisition of bivamelagon from LG Chem for $92.4 million, expensed as R&D - On January 4, 2024, Rhythm Pharmaceuticals acquired worldwide rights to LG Chem's (LGC) proprietary compound bivamelagon for a total purchase consideration of $92.4 million[76][77] - The consideration included $40.0 million in cash, $18.7 million in common stock, and an additional $40.0 million license fee payable in 18 months (present value $33.7 million at closing), with the final $40.0 million payment made on July 1, 2025[77] - The $92.4 million purchase consideration was recognized as research and development expense in Q1 2024 because the acquired IPR&D assets had no alternative future use[79] 4. Inventory Inventory remained stable at $18.87 million at June 30, 2025, with finished goods increasing and raw materials decreasing Inventory Composition (in thousands) | | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :------------------ | | Raw Materials | $4,477 | $6,776 | | WIP | 767 | 1,250 | | Finished Goods | 13,628 | 10,715 | | Total Inventory | $18,872 | $18,741 | - Finished goods inventory increased by $2.91 million (27.2%) from December 31, 2024, to June 30, 2025, while raw materials decreased by $2.30 million (34.0%) and WIP decreased by $0.48 million (38.6%)[81] 5. Accrued Expenses and Other Current Liabilities Accrued expenses increased to $69.19 million at June 30, 2025, driven by higher sales allowances and R&D costs Accrued Expenses and Other Current Liabilities (in thousands) | | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Research and development costs | $21,725 | $17,871 | | Professional fees | 4,875 | 4,280 | | Payroll related | 13,261 | 18,216 | | Royalties | 2,425 | 2,091 | | Sales allowances | 22,522 | 15,850 | | Other | 4,377 | 4,350 | | Total | $69,185 | $62,658 | - Sales allowances increased by $6.67 million (42.1%) and research and development costs increased by $3.85 million (21.5%) from December 31, 2024, to June 30, 2025[82] - Payroll-related accruals decreased by $4.96 million (27.2%) over the same period[82] 6. Fair Value of Financial Assets and Liabilities Financial assets at fair value decreased to $281.49 million at June 30, 2025, with the derivative asset increasing Fair Value Measurements of Financial Assets (in thousands) | | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Cash equivalents: | | | | Commercial Paper | $27,907 | $2,984 | | Money market funds | 97,450 | 71,334 | | Marketable securities: | | | | US treasury securities | 53,409 | 65,118 | | Corporate debt securities and commercial paper | 102,035 | 166,310 | | Derivative asset | 690 | 270 | | Total | $281,491 | $306,016 | - The fair value of the embedded derivative asset related to the Royalty Interest Financing Agreement increased by $0.42 million for the six months ended June 30, 2025, from $(0.27) million to $(0.69) million[85][86] - Marketable securities, primarily corporate debt and U.S. Treasury securities, decreased from $231.43 million at December 31, 2024, to $155.44 million at June 30, 2025[87] 7. Intangible Assets Net intangible assets decreased to $5.75 million at June 30, 2025, due to amortization, with $0.4 million expense Intangible Assets (in thousands) | | As of June 30, 2025 | As of December 31, 2024 | | :------------------- | :-------------------- | :---------------------- | | Capitalized Milestones | $5,747 | $6,174 | - Amortization expense for intangible assets was $0.2 million for each of the three months ended June 30, 2025 and 2024, and $0.4 million for each of the six months ended June 30, 2025 and 2024[89] - Future amortization expense is projected to be $0.43 million for the remainder of 2025, and $0.86 million annually from 2026 to 2029[89] 8. Income Taxes Income tax provisions of $0.4 million for six months ended June 30, 2025, from foreign jurisdictions Income Tax Provision (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three months ended June 30, | $337 | $479 | | Six months ended June 30, | $417 | $779 | - The income tax provision is primarily due to taxable income from the company's foreign jurisdictions[90] - The company is evaluating the impact of the recently signed 'One Big Beautiful Bill' (OBBB) Act on its consolidated financial statements, effective for fiscal year ending December 31, 2025[91] 9. Series A Convertible Preferred Stock Issued 150,000 shares of Series A Convertible Preferred Stock for $147.8 million in April 2024, with 6% dividends - On April 1, 2024, the company issued 150,000 shares of Series A Convertible Preferred Stock for an aggregate purchase price of $147.8 million, net of issuance costs[92] - The Convertible Preferred Stock ranks senior to common stock in liquidation, with holders entitled to the greater of 1.75 times liquidation preference plus unpaid dividends or the as-converted common stock amount[95][96] - Dividends accrue quarterly at a 6% annual rate after the second anniversary of issuance and are accreted using the effective interest method, with accrued dividends for the six months ended June 30, 2025, totaling $2.67 million, increasing the carrying value to $145.5 million[103] - Holders have conversion options into common stock based on liquidation preference and a $48.00 conversion price, subject to certain ownership restrictions[104] 10. Common Stock 16.17 million common shares reserved; $32.1 million net proceeds from ATM offering; shares issued for bivamelagon - As of June 30, 2025, 16,174,070 shares of common stock were reserved for issuance under stock plans (9,883,607 shares) and for conversion of Series A convertible preferred stock (3,124,995 shares)[107][109] - Between January 1, 2025, and January 21, 2025, the company sold 587,510 shares of common stock through its ATM Program, generating approximately $32.1 million in net proceeds[110] - On January 4, 2024, 432,143 shares of common stock were issued as partial consideration for the acquisition of bivamelagon from LGC[111] 11. Related-Party Transactions Related-party expenses and outstanding payments were immaterial for the three and six months ended June 30, 2025 - Expenses paid directly to related parties and outstanding payments due to related parties were immaterial for the three and six months ended June 30, 2025 and 2024[114] 12. Significant Agreements Terminated RareStone license and share purchase agreements in March 2025, reducing license revenue by $5.0 million - On March 14, 2025, Rhythm Pharmaceuticals terminated its Exclusive License Agreement and Share Purchase Agreement with RareStone Group Ltd[115] - The termination involved a $6.3 million repayment to RareStone and resulted in a net reduction in license revenue of $5.0 million for the six months ended June 30, 2025[117] - All rights and obligations under the RareStone Agreements ceased upon termination, and both parties released each other from all claims[118] 13. Long-Term Obligations RIFA with HealthCare Royalty Management, LLC, totaling $100.0 million, with $29.4 million cumulative payments - The company entered into a Revenue Interest Financing Agreement (RIFA) for up to $100.0 million, with the full amount received by September 2023[119] - Under the RIFA, the company pays tiered royalties on annual net revenues (11.5% up to $125M, 7.5% between $125M-$300M, 2.5% over $300M)[120] - Cumulative payments made under the RIFA totaled $29.4 million as of June 30, 2025, including $8.9 million repaid in the six months ended June 30, 2025[120] - The obligation is accounted for as long-term debt with an embedded derivative, and the effective interest rate was 17.01% as of June 30, 2025[126] 14. Commitments and Contingencies No material legal proceedings; future licensed technology payments are contingent and not probable within 12 months - The company is not currently subject to any pending or threatened litigation that would have a material adverse effect on its business or financial results[127] - Future payments for licensed technology milestones or royalties are contingent on achievement and sales, and no material milestone payments are deemed probable within the next 12 months[128][129] 15. Segment and Geographic Information Operates as a single segment; net product revenue increased 57% to $86.22 million, with U.S. contributing 65% - The company operates in two business segments (U.S. and international) but meets aggregation criteria for ASC 280, reporting as one operating segment[130] Net Product Revenue by Geographic Area (in thousands) | Geographic Area | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | US | $31,982 | $21,637 | $56,352 | $41,080 | | International | 16,520 | 7,441 | 29,868 | 13,965 | | Total product revenue, net | $48,502 | $29,078 | $86,220 | $55,045 | - For the six months ended June 30, 2025, U.S. product revenue increased by 37.2% YoY to $56.35 million, while international product revenue increased by 114% YoY to $29.87 million[132] 16. Subsequent Events Closed a public offering on July 11, 2025, raising approximately $189.2 million in net proceeds - On July 11, 2025, the company completed a public offering of 2,367,647 shares of common stock at $85.00 per share[134] - The offering resulted in net proceeds of approximately $189.2 million, after deducting underwriting discounts and commissions[134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition, operations, and outlook, covering revenue, expenses, liquidity, and capital Overview IMCIVREE approved for rare neuroendocrine diseases; positive Phase 3 results for setmelanotide; $48.5 million Q2 2025 sales - IMCIVREE (setmelanotide) is approved in the U.S., EU, UK, and Canada for specific rare neuroendocrine diseases causing hyperphagia and severe obesity, including Bardet-Biedl syndrome (BBS) and POMC/PCSK1/LEPR deficiencies[138][139] - Positive topline results from the pivotal Phase 3 TRANSCEND trial for setmelanotide in acquired hypothalamic obesity were announced in April 2025, showing statistically significant BMI reduction[141][142] - Global sales of IMCIVREE reached $48.5 million in Q2 2025, a 29% sequential increase, with U.S. sales at $32.0 million (66%) and international sales at $16.5 million (34%)[146] - The company closed a public offering on July 11, 2025, raising approximately $189.2 million in net proceeds from the sale of 2,367,647 common shares[147][155] - Key near-term milestones include submitting regulatory applications for setmelanotide in acquired hypothalamic obesity in Q3 2025, disclosing Phase 2 Prader-Willi syndrome results in H2 2025, and announcing Phase 3 EMANATE trial data in Q1 2026[153] Financial Operations Overview Growing product revenue, one-time license revenue reduction, increasing cost of sales, and fluctuating R&D and SG&A Product revenue, net Product revenue increased by 67% to $48.5 million for three months and 57% to $86.2 million for six months Product Revenue, Net (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three months ended June 30, | $48,502 | $29,078 | $19,424 | 67% | | Six months ended June 30, | $86,220 | $55,045 | $31,175 | 57% | - For the three months ended June 30, 2025, 66% of product revenue was generated in the United States, compared to 74% in the same period of 2024[179] - For the six months ended June 30, 2025, 65% of product revenue was generated in the United States, compared to 75% in the same period of 2024[184] License revenue A $5.0 million reduction in license revenue for six months ended June 30, 2025, due to agreement termination - A $5.0 million reduction in previously-recognized license revenue was recorded for the six months ended June 30, 2025, due to the termination of the exclusive license agreement with RareStone[164][185] Cost of sales Cost of sales increased by 88% to $5.5 million for three months and 60% to $9.2 million for six months Cost of Sales (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three months ended June 30, | $5,543 | $2,947 | $2,596 | 88% | | Six months ended June 30, | $9,191 | $5,753 | $3,438 | 60% | - The increase in cost of sales for the three months ended June 30, 2025, was driven by $0.9 million in additional royalties and $1.6 million in increased product costs due to higher sales volume[180] - The company expects cost of sales as a percentage of revenue to remain in a range of 10% to 12% in the foreseeable future[180][186] Research and development expenses R&D expenses increased 40% for three months but decreased 50% for six months due to non-recurring IPR&D costs Research and Development Expense (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three months ended June 30, | $42,308 | $30,194 | $12,114 | 40% | | Six months ended June 30, | $79,281 | $158,858 | $(79,577) | (50)% | - The 50% decrease in R&D for the six months ended June 30, 2025, was primarily due to a $92.5 million decrease in acquired IPR&D costs related to the LGC bivamelagon acquisition in 2024, which did not recur in 2025[187] - Offsetting decreases, R&D expenses for the six months ended June 30, 2025, saw increases of $7.5 million in CMC costs, $6.6 million in personnel costs (including $3.2 million in stock-based compensation), and $0.7 million in professional services[191] Selling, general and administrative expenses SG&A expenses increased by 26% for three months and 20% for six months, driven by personnel and marketing Selling, General and Administrative Expense (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Three months ended June 30, | $45,947 | $36,415 | $9,532 | 26% | | Six months ended June 30, | $85,034 | $70,797 | $14,237 | 20% | - For the three months ended June 30, 2025, the increase was primarily due to $6.9 million in personnel costs (including $4.0 million stock-based compensation), $1.4 million in marketing, and $1.1 million in professional services[181] - For the six months ended June 30, 2025, the increase was primarily due to $13.0 million in personnel costs (including $7.4 million stock-based compensation) and $2.6 million in marketing and promotion costs[191] Critical Accounting Policies and Estimates Financial statements rely on estimates for net product revenue and R&D accruals; no significant policy changes - Significant estimates are made for net product revenue and accruals related to research and development expenses[27] - No significant changes to critical accounting policies were reported since the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[178] Results of Operations Details financial performance for three and six months, highlighting product revenue growth and R&D decrease Comparison of the three months ended June 30, 2025 and 2024 Product revenue increased 67% to $48.5 million, leading to a $46.6 million net loss due to non-recurring gain Summary of Operations (Three Months Ended June 30, in thousands) | Statement of Operations Data: | 2025 | 2024 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Product revenue, net | $48,502 | $29,078 | $19,424 | 67% | | Total costs and expenses | 93,798 | 69,556 | 24,242 | 35% | | Loss from operations | (45,296) | (40,478) | (4,818) | 12% | | Other income (expense), net | (999) | 8,696 | (9,695) | (111)% | | Net loss | $(46,632) | $(32,261) | $(14,371) | 45% | - Other income (expense), net, decreased by $9.7 million to $(1.0) million, primarily due to a non-recurring $8.9 million gain on settlement of a forward contract in Q2 2024[182] Comparison of the six months ended June 30, 2025 and 2024 Total revenues increased 48% to $81.2 million, costs decreased 26%, resulting in a $96.1 million net loss Summary of Operations (Six Months Ended June 30, in thousands) | Statement of Operations Data: | 2025 | 2024 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Product revenue, net | $86,220 | $55,045 | $31,175 | 57% | | License revenue | (5,014) | — | (5,014) | (100)% | | Total revenues | 81,206 | 55,045 | 26,161 | 48% | | Total costs and expenses | 173,506 | 235,408 | (61,902) | (26)% | | Loss from operations | (92,300) | (180,363) | 88,063 | (49)% | | Other income (expense), net | (3,413) | 7,509 | (10,922) | (145)% | | Net loss | $(96,130) | $(173,633) | $77,503 | (45)% | - The $79.6 million decrease in R&D expense was primarily due to a $92.5 million decrease in acquired IPR&D costs in 2024 that did not recur in 2025, partially offset by increases in CMC, personnel, and professional services costs[187][191] - Other income (expense), net, decreased by $10.9 million to $(3.4) million, mainly due to the non-recurring $8.9 million gain on forward contract settlement in 2024 and increased non-cash interest expense[192] Liquidity and Capital Resources Cash and investments of $291.0 million, plus $189.2 million from offering, expected to fund operations for 24 months Cash flows Operating cash burn decreased, investing cash increased, and financing cash decreased due to no preferred stock issuance Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :----------------------------------- | :----- | :----- | | Net cash used in operating activities | $(63,664) | $(69,819) | | Net cash provided by investing activities | 78,847 | 21,488 | | Net cash provided by financing activities | 31,610 | 150,422 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $46,512 | $101,719 | - Net cash used in operating activities decreased by $6.16 million, driven by a lower net loss and favorable changes in operating assets and liabilities[195][196] - Net cash provided by investing activities increased by $57.36 million, mainly from higher maturities of short-term investments and no IPR&D asset acquisition in 2025[197][198] - Net cash provided by financing activities decreased by $118.81 million, primarily due to the $147.8 million net proceeds from Series A Preferred Stock issuance in 2024 not recurring in 2025, partially offset by $34.0 million from ATM equity offering in 2025[199][200] Funding requirements Existing cash and offering proceeds of $480.2 million expected to fund operations for 24 months - As of June 30, 2025, cash and cash equivalents and short-term investments were approximately $291.0 million[160][190] - Combined with $189.2 million net proceeds from the July 2025 public offering, existing cash is expected to fund planned operations for at least 24 months[160][202] - Future capital requirements depend on factors such as commercialization costs for IMCIVREE, clinical trial expenses for product candidates (setmelanotide, RM-718, bivamelagon, CHI program), regulatory review costs, and potential acquisitions[204] - The company expects to finance cash needs through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements[207] ATM Program ATM equity offering increased to $200.0 million; $32.1 million net proceeds from 587,510 shares sold in early 2025 - The ATM Program's aggregate offering price was increased to $200.0 million in February 2024[110][211] - From January 1, 2025, through January 21, 2025, 587,510 shares were sold in the ATM Program, yielding approximately $32.1 million in net proceeds[110][212] Contractual obligations No material changes to principal contractual obligations and commitments since the December 31, 2024, 10-K - No material changes to principal contractual obligations and commitments were reported as of June 30, 2025, compared to the Annual Report on Form 10-K for December 31, 2024[213] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures since the December 31, 2024, Annual Report on Form 10-K - No material changes to quantitative and qualitative disclosures about market risks were reported as of June 30, 2025, compared to the Annual Report on Form 10-K for December 31, 2024[214] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025; no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2025[216] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[217] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[219] Item 1A. Risk Factors Outlines various risks including financial position, product development, commercialization, intellectual property, and regulatory Risks Related to Our Financial Position and Need for Capital Limited operating history, significant losses, and $1.3 billion deficit necessitate additional funding, with RIFA restrictions - The company has a limited operating history, has incurred significant operating losses since inception, and had an accumulated deficit of $1.3 billion as of June 30, 2025[221][226] - The company will need to raise additional funding, which may not be available on acceptable terms, and failure to obtain capital could force delays or termination of product development[229][237] - The Revenue Interest Financing Agreement (RIFA) imposes tiered royalty payments on annual net revenues and minimum payment obligations, which could restrict the company's ability to commercialize IMCIVREE and limit cash flow[238][239][242] Risks Related to the Development of Setmelanotide and Other Product Candidates and our CHI Program Clinical trial unpredictability, small patient populations, enrollment delays, and side effects pose development risks - Positive results from earlier clinical trials of setmelanotide may not be predictive of later clinical trials, and not all trials have demonstrated statistically significant weight loss in all patient populations[243] - The number of patients with MC4R pathway variants is small and not precisely established, with estimates ranging from 100-500 for POMC deficiency obesity to 63,500 for SEMA3 family, PHIP, TBX3 or PLXNA family variants, impacting potential revenue[259][260][262] - Delays or difficulties in patient enrollment and retention in clinical trials, or failures by third-party CROs, could delay regulatory submissions, increase costs, and prevent or limit commercialization[266][275][328][329] - Setmelanotide, RM-718, or bivamelagon may cause undesirable side effects (e.g., cardiovascular effects, nausea, skin darkening) that could delay or prevent regulatory approvals, limit commercial labeling, or result in negative post-marketing consequences[294][295] Risks Related to the Commercialization of IMCIVREE and, if Approved, our Products Candidates Commercial success depends on reimbursement, sales, and competition; product liability and third-party manufacturing pose risks - Commercial success depends on obtaining and maintaining coverage and adequate reimbursement from governmental authorities and private health insurers, which is uncertain and subject to increasing efforts to cap or reduce healthcare costs[335][337] - Failure to establish, maintain, or expand sales, marketing, and distribution capabilities, or to secure third-party agreements, could prevent revenue generation[344][346] - The biotechnology and pharmaceutical industries are intensely competitive, with many competitors having greater resources, and new products or generic competition could reduce sales or force price reductions[351][354] - The company relies completely on third-party suppliers for manufacturing clinical and commercial drug supplies, and any failure to comply with GMPs or supply disruptions could delay regulatory approval or commercialization[361][363] Risks Related to Our Intellectual Property Rights Protecting IP and patents is critical; validity is uncertain, and reliance on licensed IP and generic competition pose risks - Failure to adequately protect proprietary technology or maintain issued patents for setmelanotide, RM-718, and bivamelagon could allow competitors to erode competitive advantage[369] - The issuance, scope, validity, and enforceability of patents are uncertain, and patents may be challenged, deemed unenforceable, invalidated, or circumvented, leading to costly proceedings[372][373] - The company is dependent on licensed intellectual property from Ipsen and LGC; termination of these licenses would result in loss of rights to develop and commercialize setmelanotide and bivamelagon[395] - Failure to obtain patent term restoration under Hatch-Waxman Amendments or similar foreign legislation, or facing generic competition after data exclusivity, could materially and adversely impact future revenue[401][403][404] Risks Related to Regulatory Approval and Marketing of Setmelanotide and Other Legal and Compliance Matters Regulatory approvals are uncertain; healthcare reform, compliance with laws, and evolving data/AI regulations pose significant risks - The regulatory and marketing approval process for product candidates is expensive, time-consuming, and uncertain, with potential for delays, denials, or conditional approvals[407][409][410] - Future healthcare reform legislation, such as the Inflation Reduction Act of 2022 (IRA) and the One Big Beautiful Bill Act, could increase costs, reduce reimbursement, and negatively impact drug pricing and sales[428][431][437] - Failure to comply with federal, state, and foreign healthcare laws and regulations, including fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act) and health information privacy laws (e.g., HIPAA, GDPR), could result in criminal sanctions, substantial civil penalties, and reputational harm[456][458][460][466][470] - The evolving regulatory framework for AI technologies, data protection, and privacy laws (e.g., GDPR, UK GDPR, CCPA) could increase compliance costs, limit business operations, and expose the company to liabilities[468][470][475][476] Risks Related to Employee Matters and Managing Growth Attracting personnel, managing growth, cybersecurity, and AI integration risks could disrupt operations and incur costs - The company's success is highly dependent on retaining key employees and attracting qualified scientific, technical, clinical development, regulatory, and sales and marketing personnel[489][491] - Managing anticipated development and expansion, including the transition to a commercial-stage company and international operations, may lead to operational difficulties, increased expenses, and reduced revenue generation[492][493] - Information technology systems are susceptible to security breaches and cyberattacks, which could result in material disruption of development programs, regulatory investigations, and significant financial and reputational harm[494][495][496][499] - The increasing integration of AI technologies introduces risks such as inherent flaws in algorithms, insufficient or biased data, and inadvertent release of confidential information, which could lead to competitive disadvantages and legal liabilities[497] Risks Related to Our Common Stock Stock price volatility, potential future sales, no dividends, and anti-takeover provisions could affect stock value - The market price for the company's common stock has been volatile and may fluctuate significantly due to factors such as clinical trial results, regulatory approvals, competitor announcements, and general market conditions[501] - Substantial future sales or perceived potential sales of common stock, including the conversion of 3,124,995 shares underlying Convertible Preferred Stock, could cause the stock price to decline significantly[507] - The company does not intend to pay dividends on its common stock, meaning investment return depends solely on stock price appreciation[509][510] - Provisions in the certificate of incorporation, bylaws, and Delaware law (e.g., classified board, blank check preferred stock, super-majority votes) could discourage, delay, or prevent a change in control[516][517] General Risk Factors Acquisition benefits, global economic conditions, public company costs, internal controls, and short sellers are risks - The company may not realize the benefits of future acquisitions, strategic alliances, or joint ventures if integration is unsuccessful or expected synergies are not achieved[523] - Unfavorable global political or economic conditions, including volatility in financial markets, rising inflation/interest rates, and geopolitical conflicts, could adversely affect business, financial condition, and ability to raise capital[528] - Operating as a public company incurs substantial legal, accounting, and compliance costs, requiring significant management time and potentially diverting resources from core business activities[530][532] - Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial reporting, fraud, and a decline in stock price, as experienced with a material weakness in 2023 and 2024[534][535][536] - Increasing focus on environmental sustainability and social initiatives could raise costs, harm reputation, and impact financial results, while short sellers may manipulate stock prices through negative information[537][539][541][542] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities were reported[543] - No use of proceeds to report[544] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report for the period - No defaults upon senior securities were reported[546] Item 4. Mine Safety Disclosure Mine safety disclosure is not applicable to the company - Mine safety disclosure is not applicable[547] Item 5. Other Information No disclosures in lieu of Form 8-K, no material changes to board nominee procedures, and no Rule 10b5-1 arrangements - No disclosure in lieu of reporting on a Current Report on Form 8-K[548] - No material changes to procedures for security holders to recommend nominees to the board of directors[548] - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2025[548] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including organizational documents, certifications, and XBRL-related documents - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Certificate of Designations, Non-Employee Director Compensation Program, and various certifications (Section 302 and 906 of Sarbanes-Oxley Act)[549] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, and Presentation Linkbase Documents are also filed[550][552] SIGNATURES Report signed on August 5, 2025, by the President and CEO, and the CFO and Treasurer - The report was signed on August 5, 2025, by David P. Meeker, M.D., President and Chief Executive Officer, and Hunter C. Smith, Chief Financial Officer and Treasurer[556]