Rhythm Pharmaceuticals - Q1 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Q1 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Connolly, Executive Director of Investor Relations and Corporate Communications. Please go ahead.

Dave Connolly (Executive Director, Investor Relations and Corporate Communications)

Thank you, Benny. I'm Dave Connolly here at Rhythm Pharmaceuticals. For those of you participating on the conference call, our slides can be accessed and controlled by going to the investors section on the investors page of our website at ir.rhythmtx.com. This morning we issued a press release that provides our first quarter 2023 financial results and a business update, which is available on our website. As listed on slide 2 is our agenda. Here with me today in Boston are David Meeker, Chair, Chief Executive Officer, and President of Rhythm Pharmaceuticals, Jennifer Chien, Executive Vice President, Head of North America, Hunter Smith, our Chief Financial Officer, and Yann Mazabraud, Executive Vice President, Head of International, who's on the line joining us from Europe. I'll remind you that this call contains.

On slide 3, I'll remind you that this call contains remarks concerning future expectations, plans, and prospects, which constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed on our most recent annual or quarterly reports on file with the SEC. Any forward-looking statements represents our views only as of today and should not be relied upon as presenting our views as of any subsequent date. We specifically disclaim any obligation to update such statements. With that, I'll turn the call over to David Meeker, who will begin on slide 5.

David Meeker (Chair, CEO, and President)

Thank you, Dave, and thank you all for joining this morning as we report another strong quarter. As we will keep reiterating, this company is built on strong, well-understood biology. That is the impairment in the MC4R pathway, which governs calorie intake, i.e., the hunger and energy expenditure. A clear unmet medical need in the patients who suffer with these rare diseases and a simple solution. IMCIVREE is a replacement therapy restoring function in that pathway. The near term value in Rhythm resides in our ongoing global launch of IMCIVREE for patients living with BBS and our phase III trial in hypothalamic obesity, which is now up and running. As we grow the organization, we continue to attract outstanding talent. When a small company executing a global program working in a challenging space continue to execute.

We are well capitalized with funding into 2025, with IMCIVREE revenues now beginning to make a meaningful contribution to the overall picture. Looking at slide 5, these are our three strategic pillars. Commercial launches are off to a strong start. Our conviction in the value we are bringing with IMCIVREE, particularly with regard to the less well-appreciated and less well-understood hyperphagia part of the disease, continues to grow. Obesity is not one disease, it is many diseases. Our educational efforts helping healthcare providers recognize these diseases and their need for a targeted solution are making a difference. Our personalized approach to supporting patients and their healthcare providers is working. We see each patient for who they are, we meet them where they are, and we don't give up.

In the U.S., scripts continue to be written by a growing number of physicians. We are making continued progress in expanding payer approvals, particularly in patients covered by Medicaid, as Jennifer will explain. Internationally, we have launched IMCIVREE for BBS in Germany, the largest European market, following a second exemption from the German Federal Joint Committee, which recognized that IMCIVREE is a therapy for a devastating rare genetic disease and not a lifestyle medication. As Jan will describe, the team is moving, and we look forward to updating you on the progress. The HO trial has initiated, with the first patients treated. We expect to complete enrollment as we had previously guided in Q1 of 2024. We look forward to providing updates on the 12-month data at a medical meeting in Q4.

We are continuing to make progress on our expansion opportunities with the M&A trial enrolling, pediatric trial finishing, the weekly switch study finishing, and DAYBREAK Part one data to be presented later this year. The Xinvento integration has gone extremely well as we work towards candidate selection for the lead indication of congenital hyperinsulinism. We will provide further updates on all of these programs in the fourth quarter. On slide 6. Slide 6 is our biology slide, which we will probably show on every earnings call. This is to remind you that this is a differentiated pathway which, when impaired, requires a targeted solution. These diseases are quite distinct from general obesity. The early onset obesity is severe, and the obesity is lifelong. The common thread across these diseases is hyperphagia, that insatiable pathologic hunger drive that leads to abnormal food-seeking behaviors.

On slide 7, you can see the two foundational opportunities. BBS and HO affect meaningful numbers of patients with a BBS prevalence of 4,000-5,000 and an HO prevalence of 5,000-10,000 in the U.S., with comparable numbers in Europe. The major difference between the BBS and HO opportunity is that the vast majority of HO patients are diagnosed and actively engaged with the healthcare system, specifically the doctors we are working with. The additional opportunities represented in the phase 3 MNA trial offer significant potential upside from there. As a reminder, no therapies are approved for HO, and no therapies have been shown to consistently work. The GLP-1 question is important. Earlier generations of GLP-1 did not show benefit. While we do not have trial data on the newer GLP-1 or combo therapies, anecdotally, as Dr.

Dr. Abuzzahab described on our first HO call last year, she believes 20% or so of HO patients may have some response to GLP-1, and the magnitude of that response might be on the order of 10% or less. These drugs are different. They work through different receptors on different pathways. It makes sense that some patients may have some response to other medications, including GLP-1 because obesity is a complex disease and more than one factor may be affecting any given patient. What we thought was most noteworthy about the phase II cohort is how consistently setmelanotide worked in those patients who are compliant with a therapeutic dose. The 18 patients had a mean BMI decrease of 14.5% at 16 weeks, associated with meaningful decreases in their hunger scores.

The consistency of those results strongly suggests setmelanotide is targeting the underlying cause of the disease. As with each of the diseases caused by impairment in the MC4R pathway, it is critical to correct the basic defect before deciding on the need for additional therapy. The obvious and most simple of those interventions is a diet and exercise program, which these patients have universally failed when tried in the presence of an MC4R pathway defect, but find greater success once function in that pathway is restored. Moving to slide 8. We are excited to have our phase III trial underway, with the design as shown here on slide 8. As a reminder, this trial in HO is a double-blind, randomized controlled trial enrolling 120 patients randomized two to one treatment and placebo.

Patients will be dose escalated over four to eight weeks and then followed for 52 weeks, with a primary endpoint of percent BMI reduction as compared to baseline. It is a challenging time to be running clinical trials, the team has done a great job working with our CRO, we expect to have all of our sites up and enrolling by the end of Q3. In slide 9, you can see our pipeline of approved indications and the trials thus far. Overall, we have worked with over 100 clinical sites in 15 countries, which in addition to testing our therapy, creates awareness, builds experience with the therapy, and most importantly, helps build a community of patients and physicians working to improve the lives of patients living with these MC4R pathway diseases. With that, I will turn the call over to Jennifer.

Jennifer Chien (EVP, Head of North America)

Thank you, David. I will be starting on slide 11 today. We are pleased with the continued demand and uptake we are seeing with our U.S. launch of IMCIVREE for BBS. At launch, we felt good about our starting point and our strategic plan to identify patients, to engage with physicians and educate them on the hyperphagia and severe obesity of rare MC4R pathway diseases, and to support both patients and physicians through the journey. Now, 3 full quarters into launch, we are excited by our progress and our team is thrilled by the success stories we are hearing from patients and their treating physicians. We continue to hear from patients, caregivers and physicians experiencing the benefits of not only weight loss, but also improvements in social activity and engagement, better sleep and more confidence.

Since IMCIVREE was approved for BBS by the FDA on June 16th, 2022, and through the end of the first quarter of 2023, we have received more than 300 new prescriptions for BBS patients, with more than 100 of them in Q1. The more than 300 new prescriptions since approval comes from more than 175 physicians. Importantly, we have received payer approval for more than 160 of these prescriptions since launch. The demand for IMCIVREE is strong. Physicians are writing prescriptions, patients are experiencing benefit on drug, and payers are increasingly recognizing the value of this therapy. Next slide. Looking at the prescribers of IMCIVREE, endocrinology, both pediatric and adult, remain the top specialty at a combined 44% since launch. pediatricians remain second, accounting for 20% of prescribers.

Approximately 27% of all IMCIVREE prescribers since launch are new to Rhythm, meaning that our territory managers had not called on them directly prior to writing a prescription. That share increased in Q1 versus prior quarters, as 37% of prescribers who wrote in the first quarter of 2023 were new to Rhythm. This trend continues to give us confidence in our non-personal promotion efforts, which supplement our field team by educating a broader physician and patient population. Next slide. For our payer mix for BBS prescriptions, the majority come from commercial plans and Medicaid, and a small percent, or less than 10%, come from Medicare. We have mentioned in the past that commercial coverage for IMCIVREE is good, with payers representing the vast majority of covered lives have a policy in place to cover IMCIVREE.

We are also pleased with Medicaid coverage and the progress we are making in securing approvals. I have outlined on prior calls that there is variation in coverage status as some states cover IMCIVREE, some states do not, and others decide on a case-by-case basis through the appeals process. In an effort to provide more granularity on Medicaid coverage, we outline on the next slide some data based on Medicaid-covered lives relative to IMCIVREE coverage. Next slide. According to Medicaid, there were approximately 85 million individuals enrolled in Medicaid in all 50 states, plus Puerto Rico and the District of Columbia as of December 2022.

Looking at the left-hand side of the pie chart, approximately 75% of Medicaid's covered lives are in states with a positive and separate IMCIVREE policy in place, or in a state where we have been able to get at least 1+ coverage decision in the absence of an IMCIVREE policy. Within this latter category, which represents about half of the 75%, there are some states where we have been able to consistently gain positive coverage decisions, whereas other states could be mixed with one or more approvals along with one or more denials. Moving to the right-hand side of the pie chart, the remaining 25% of Medicaid covered lives is a mix of states with no policy yet for IMCIVREE coverage. one, we have not yet had a prescription for IMCIVREE that would trigger a coverage decision.

Two, we have received a prescription, and we're still working to secure access. Finally, three, where we have received a prescription and have not been successful in gaining access through IMCIVREE through the appeals process. This last category represents less than 10% of covered lives. We remain committed in our payer education and outreach efforts to help them recognize BBS as a distinct disease that requires a targeted therapeutic approach. We continue to work persistently to explore reimbursement opportunities for all of our patients. For example, even when we have denial through the appeals process, we have had success in gaining Medicaid coverage through EPSDT or Early and Periodic Screening, Diagnostic, and Treatment benefits. This program provides comprehensive and preventative healthcare services for all children under age 21 who are enrolled in Medicaid. This dynamic is constantly evolving. Next slide.

The age breakdown of BBS patients for whom we have prescriptions is here. Adults count for approximately 50% of prescriptions received since launch. While prescriptions for adults, for children and adolescents continue to account for the other half. Nearly all or 97% of patients with prescriptions have consented to receiving direct connection and education from our patient services team, which we call Rhythm in Tune. This allows our team to work side by side with patients and their families to help them gain insurance coverage and to support them through our education efforts from initiation and maintenance on therapy. Next slide.

Based on the information available to us today, we know there are physicians who have prescribed IMCIVREE for one or more patients who have additional BBS patients for whom they have yet to prescribe, as well as physicians with BBS patients who may require additional education to prescribe IMCIVREE. Our territory managers are actively engaging with these physicians to increase a sense of urgency to treat the hyperphagia and obesity that comes with BBS and to set expectations about IMCIVREE therapy to support pull-through of prescriptions. In parallel, genetic testing, use of ICD-10 codes to narrow our physicians' targets, as well as digital non-personal promotion efforts, all of which we began well ahead of last June's launch, have driven our patient identification efforts. We are excited by the progress of these ongoing efforts and the opportunity that remains for IMCIVREE moving forward.

With that, let me hand it over to Yann.

Yann Mazabraud (EVP, Head of International)

Thank you, Jennifer. Good morning. Slide 18, please. Last week we announced the launch of IMCIVREE in Germany for the treatment of obesity and control of hunger associated with BBS with federal reimbursement. As you can see on the slide, the German Federal Joint Committee, or GBA, ruled that IMCIVREE for BBS is eligible for full reimbursement by statutory health insurances. The GBA unanimously voted to exclude IMCIVREE for the patients with BBS from its lifestyle exemption list, as it did previously for biallelic from PCSK1 and LEPR deficiencies, and exactly on time with regard to our plans. As David said, this is a very important recognition of the severity of BBS and further reinforces the distinction between general obesity and rare MC4R pathway diseases. Next slide. Germany holds a unique place in the history of Rhythm that is very favorable to us in setmelanotide.

Our first patients were treated at the Charité University Hospital in Berlin, where the local experts have the longest experience in the world treating patients with setmelanotide, more than 10 years. We are very well positioned in Germany with an experienced team on the ground, engaging with healthcare authorities, payers, physicians and patient organization. Our general manager in Germany comes from Alnylam, has successfully led many orphan drugs and high-value therapies launches in Germany, and he is leading a team of six people dedicated to the launch. Genetic testing is well established in Germany, and our own programs are supplementing it. Based on our interaction with the centers of excellence, we believe about half of the patients diagnosed with BBS in Germany have already been genotyped. This is quite important as genetic confirmation is required under our label. We also have strong starting points.

German BBS treatment guidelines are currently in development and will be published soon. There is a very well-organized patient advocacy group dedicated to BBS and also two existing academic registries for rare renal diseases and rare ophthalmological diseases. Next slide. Rare disease launches are difficult to forecast, especially the first 12-18 months. In Germany, in particular, we do anticipate a methodical patient-by-patient approach. However, we are confident that BBS in Germany represents a significant opportunity for IMCIVREE. Our team has already engaged with physicians in 18 major hospitals across the country in an effort to identify patients with BBS and prepare the launch and have set up a significant number of medical education and disease awareness activities. We estimate that the prevalence for BBS in Germany is approximately 1,200.

We believe that there are about 800 patients diagnosed, and of those 800, we have identified physicians caring for more than 250 of them, and we are focused on identifying more. Next slide. This slide is a reminder of how important the European market is to our global strategy. For rare genetic disease, we know that European countries are Sorry.

Hunter Smith (CFO)

Is that better, yeah?

Yann Mazabraud (EVP, Head of International)

Okay, I'm back. Sorry, I had a Wi-Fi issue. I was saying that the slide is a reminder of how important the European market is to our global commercial strategy. For rare genetic diseases, we know that European countries are more advanced than the U.S. with single-payer healthcare systems, government-funded genetic testing, rare disease organizations, center of excellence, and referral networks. For biotidic, POMC, and LEPR deficiencies, we know that there are about 100 patients identified in the EU4 and the U.K. For BBS, more than 1,500 patients are identified across those same countries. For POMC and LEPR, we have achieved access in 9 countries in addition to the U.S. We are launched in the U.K., Germany, Italy, and the Netherlands, and we have achieved ambition sales in France, Austria, and Turkey, and early access in Argentina.

In summary, we are very pleased with the progresses we are making in Europe in terms of market access. Next and last slide, please. We are also very pleased with the level of support we are receiving from key experts in MC4R pathway disease, including Bardet-Biedl syndrome. Europe is home to many of the world-leading experts, and Rhythm is fortunate to enjoy a strong and long-lasting relationship with many of them. In March, Professor Sadaf Farooqi from Cambridge, UK, one of the world's leading experts in MC4R pathway diseases, and Professor Phil Beales from London, who helped define how we diagnose BBS, both led a Rhythm-sponsored disease education webinar with Angela Scudder, who has son with BBS, and who is a BBS patient liaison officer for BBS UK clinics.

On this webinar, the speakers explored hyperphagia, severe obesity, the genetics of rare MC4R pathway diseases with a focus on BBS, and how to best care for these patients with a multidisciplinary approach. We were delighted to have more than 125 physicians from 17 countries join the webinar live, which speaks to the high level of interest in rare MC4R disease among European physicians. Thank you. And with that, Hunter.

Hunter Smith (CFO)

Thank you, Hervé and Matthew. Turning to slide 24, with the launch of IMCIVREE in Germany and additional global markets coming online this year, Rhythm is growing into a global commercial rare disease company. As we do, we approach all our operations and investments in our commercial R&D and operational programs with a financial discipline that governs our decision-making and focuses on building long-term value for our shareholders. We are grateful for your support. Let me review the highlights of the Q1 P&L. As mentioned, we recorded $11 and a half million in net product revenue during the first quarter versus $1.5 million during the first quarter last year, which was prior to FDA approval for BBS.

Compared to $8.8 million in net product revenue from simply the fourth quarter of 2022, that marks an increase of $2.7 million or more than 30% quarter-over-quarter. This growth is driven primarily by IMCIVREE sales for BBS in the United States. Cost of sales during the first quarter was $1.4 million or approximately 12% of net product revenue, which is consistent with Q4 '22. Cost of sales consisted of approximately $600,000 in royalties due to Ipsen under our original licensing agreement for setmelanotide, and approximately $200,000 of amortization of previously capitalized sales-based milestones, as well as product costs associated with increased sales of commercial product. R&D expenses were $37.9 million for the first quarter of 2023. This compares to $32.5 million during the first quarter of last year.

Compared to $23.5 million in Q4 2022, this quarter-over-quarter increase of $14.4 million is driven by several factors. First, there were $5.4 million in costs and fees associated with the Xinvento acquisition. The remainder of the quarter-over-quarter increase was due to a $6 million net increase in clinical trial expenses. These are mainly start-up costs associated with the HO Phase III trial and a substantial increase in activity associated with the MNA Phase III study. In Q4 2022, Rhythm received a $2.5 million credit during the closeout of our GO IV study during that quarter, which reduced R&D expenses. Overall, clinical trial costs are expected to be higher on a period basis during study startup and after all trial sites have opened.

Lastly, in Q1, there was a $2.1 million increase in clinical supply costs for these studies and for other programs. SG&A expenses were $24.6 million for the first quarter of 2023 compared to $21.4 million in the same quarter last year. This increase is largely due to the impact of $2.6 million in higher headcount costs, including stock compensation. For over a quarter, SG&A declined nearly $1.7 million or nearly 7% from $26.3 million in the fourth quarter of 2022. The decrease in SG&A versus Q4 is due primarily to lower marketing expenses in the U.S. For the first quarter, common shares outstanding were 56.7 million, and quarterly net loss per share was $0.92. Turning to slide 25.

We closed the quarter of 2023 well capitalized at $295 million in cash on hand, sufficient to fund all planned activities into 2025. This cash guidance includes the impact of projected milestones associated with Xinvento acquisition. To touch on a few other aspects of the quarter, of the first quarter net product revenue of $11.5 million, 83% of this revenue was generated from U.S. sales of IMCIVREE, as compared to 85% in the fourth quarter of 2022. As mentioned, $5.4 million of operating expenses represented consideration associated with Xinvento acquisition, which was included in this quarter. We accounted for this transaction as an asset acquisition. Q1 operating expenses included total stock-based compensation of $6.4 million as compared to $5.3 million in the fourth quarter of 2022.

Our non-GAAP operating expense guidance for 2023, which we disclosed last quarter, remains unchanged at 2,200 to $220 million. This guidance excludes the non-cash impact of stock-based compensation. With that, I'll turn the call over to David.

David Meeker (Chair, CEO, and President)

Thank you, Hunter. In summary, we're excited about the progress we have made, and we look forward to multiple data readouts in addition to continuing to update you on our global commercial launch with BBS in the upcoming quarters. With that, we'll open it up for questions. Operator?

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Phil Nadeau from TD Cowen. Please proceed with your question.

Phil Nadeau (Managing Director, Senior Biotechnology Research Analyst)

Good morning, and congrats on the progress, and thanks for taking our question. A couple commercial questions. First, in terms of reimbursement for BBS in the U.S., are there any new trends in terms of either faster or easier reimbursement as the launch continues? Or is it that the patients are spread among so many insurance plans that, it's still each plan evaluating their first patient?

David Meeker (Chair, CEO, and President)

Yeah. Jennifer? Yeah.

Jennifer Chien (EVP, Head of North America)

Thanks for the question. We're continuing to build the relationships, but as you outlined, there are just so many different payers. The scripts come in, is dependent on if we've interacted with the payer before or not. I would say that in terms of scripts that we've received, through a payer where we've been able to gain reimbursement, that process, also because we know what the process looks like for that particular payer, is quicker. We are also seeing trends through our education efforts that we have a higher percentage of payer approvals at the prior authorization stage, which is also a good sign. Once again, it's really, you know, one-on-one with these payers as they come in that our teams interact with.

Overall, the average time in terms of gaining reimbursement still remains within that one to three month period of time.

Phil Nadeau (Managing Director, Senior Biotechnology Research Analyst)

In the slides, there was a note that one of the opportunities for expansion in BBS in the U.S. are among those physicians who are treating BBS patients but are not yet ready to prescribe IMCIVREE. What are the objections those physicians have? Why what do they need to do, or what do you need to do to convince them that they should be prescribing IMCIVREE?

Jennifer Chien (EVP, Head of North America)

I would say that the gating factors could be either on the patient's level or the physician's level. You know, for both of them, some of these patients may not be of age and within our label. For patients specifically, the physician may have written a script, but the patient could be lost to follow-up. There may be, you know, concerns just in terms of injections or a parent just wants to get a bit more education in terms of the safety profile before putting their child on a chronic lifelong therapy, and many other reasons. From an HCP perspective, sort of similarly, they may require some additional education to truly appreciate and understand the difference in terms of the hyperphagia and the early onset obesity that these patients have.

In, in rare diseases, it's not uncommon for a physician to just have one patient, so there may be additional education needs. There's a lot of different reasons, but I will say that our teams are really on ground interfacing with the customers to try to pull through to scripts.

David Meeker (Chair, CEO, and President)

Phil, just to reinforce what Jennifer said, the hyperphagia component of this, in terms of the opportunity for education and creating that sense of urgency, not surprisingly, I mean, healthcare providers themselves, I think just don't understand, many of them don't understand the full impact of this on a, both the patient and the family. There's still a little bit of, you know, we understand you're hungry, but they don't understand the pathology and severity of that hyperphagia component. I think as Jennifer said, we are making good progress there, but that is a clear opportunity as we go forward.

Phil Nadeau (Managing Director, Senior Biotechnology Research Analyst)

Great. Then one last question from us. In terms of German reimbursement, can you remind us where you are in negotiating the final price for IMCIVREE in BBS in Germany? Thanks.

David Meeker (Chair, CEO, and President)

Yeah. John?

Yann Mazabraud (EVP, Head of International)

Yes, thank you. We are still in the midst of the pricing negotiation. So far, the dialogue has been very positive to date. The medical benefit assessment has been positive as well. BBS price negotiation will start in a few months, and the process takes approximately six to nine months. More to come for the German price for BBS.

Phil Nadeau (Managing Director, Senior Biotechnology Research Analyst)

Perfect. Thanks again for taking our question.

Operator (participant)

Thank you. All right, one moment, please, for the next question. All right, our next question comes from the line of Derek Archila from Wells Fargo. Please go ahead.

Derek Archila (Managing Director, Biotechnology Equity Research)

Hey, good morning, everyone, congrats on the progress. Thanks for taking the questions here. Just a couple from us. I know you said that the BBS launch and these types of rare disease launches can be lumpy, but I guess, you know, can you provide some more color on what's specifically deriving the acceleration that we saw in new patient adds from, you know, 4Q to 1Q here? Is that something that's gonna translate going forward into the following quarters? The second question is, do we have enough data yet to really understand the discontinuation rate for IMCIVREE in Bartter fetal patients in real clinical practice and just understanding how that's trending right now? I might have one follow-up. Thanks.

David Meeker (Chair, CEO, and President)

Thanks, Derek. Jennifer?

Jennifer Chien (EVP, Head of North America)

Sure. I would say that overall, just in terms of the level of demand and interest for this specific therapy for BBS has been really overwhelming and great to see, as well as, clearly there was a need in this patient population as we're hearing the benefits that the patients are actually receiving. Once again, a motivating factor for our teams overall. There, there were existing opportunities that still remain in terms of the patients that were identified through all of our cross-functional team efforts, and still remaining opportunity just in terms of pull-through to scripts.

In the meantime, I feel that in any disease, but particularly in this one, we have identified specific ways of going about to really have targeted approaches of patient find and identification, one, to get to physicians or patients that have already been diagnosed and lost in the system, as well as trying to expedite the path to get patients who are symptomatic to a diagnosis. All of these efforts are ongoing, which continue to fuel the increase just in terms of number of scripts that we have received. When we say that, you know, rare diseases are "lumpy," I would say that, you know, in terms of some of these efforts, you know, you can't predict quarter by quarter, that's gonna be the exact same, you know.

I wouldn't necessarily, you know, linearize or, you know, just make the same assumptions quarter-over-quarter at this point of time. I would just say that there still remains quite an opportunity just in terms of growth within this patient population for IMCIVREE.

David Meeker (Chair, CEO, and President)

May I just add one quick follow-on to that, Derek Archila? I think what we can say at this point, and this is what Jennifer Chien said, is that we are well beyond whatever pent-up demand existed in the system and the like, and that you're seeing now a quarter-on-quarter, as we would expect, stability and sort of ongoing strength in the overall opportunity, if you will. Again, I'll reference back to the, you know, the number of physicians who we had not been in contact with. That pool is growing. That's again, what we would see and speaks to overall health of, I think, a rare disease opportunity. Again, don't trend, as Jennifer Chien said. I think that's not.

You know, it could be less or more in any given quarter, but our confidence that this thing is real and working is very high.

Jennifer Chien (EVP, Head of North America)

There was another question just regarding discontinuations. We continue to be quite pleased. As I outlined in the past, there was a lot of effort, cross-functional team effort, really focused to make sure that the patients were able to go and tolerate the titration phase. You know, through that process and education, we still remain very, very happy just in terms of the level of maintenance of patients through that phase with the number of discons relating to nausea or vomiting being extremely low. We do have some discontinuation, you know, for various different reasons, including a very low number relating to hyperpigmentation. There's other reasons that a patient may continue that are also opportunities for follow-up.

I think one of the pieces that continues to be one factor that increases the compliance of this therapy is the hyperphagia because people feel the impact. They also feel the impact of stopping therapy. Once again, we also hear when patients stop therapy, that the hyperphagia comes back, and there may be interest to come back onto therapy. Very happy overall just in terms of the low discount rate.

Derek Archila (Managing Director, Biotechnology Equity Research)

Got it. Maybe just one follow-up here, on the prelim data that you're gonna put out for DAYBREAK. I guess, will you be kind of doing an in-depth, you know, kind of, you know, presentation on framing those opportunities? I don't know if you've kind of guided to, you know, what those opportunities look like from a commercial perspective. Are they more like a Pomfy or more like a Barnabeal or something different? Thanks.

David Meeker (Chair, CEO, and President)

thanks, Derek. We haven't guided, and not prepared to guide today. What I have said, and we just reiterate, is I expect to report out on 5-ish ± genes where we have enough data. The DAYBREAK trial is designed as an exploratory trial. It's done exactly what we wanted it to do and allows us to sort a relatively large number of genes that we knew had some link to the pathway with the goal of trying to understand which were the ones that had the strongest link versus the others. I will say that some of those, which we discontinued earlier on, were extremely rare and we just, you know, weren't able to enroll.

You know, back to your question about, you know, the Pomfy smaller opportunity kind of thing, but others have a much higher frequency, and more on the order of SHTV1, SRC1 that we're pursuing in our M and A trial again. More, more to come on that, but the expectation we should, you know, set is it'll be around five ± genes, but we have enough meaningful data to report out.

Derek Archila (Managing Director, Biotechnology Equity Research)

Got it. Thanks so much.

David Meeker (Chair, CEO, and President)

Great. Thanks. Next question.

Operator (participant)

Thank you. All right. One moment while we compile the Q&A roster. Our next question comes from the line of Corinne Jenkins from Goldman Sachs. Your line is now open.

Corinne Johnson (Managing Director, Equity Research)

Hi, good morning, everyone. Maybe a couple from us. Of the roughly 140 patients that don't currently have reimbursed product, and including the 40 in particular that had a prescription as of year-end 2022, what portion do you expect to ultimately get on reimbursed drug versus what portion do you think may just remain on free drug from here?

Jennifer Chien (EVP, Head of North America)

Within the 140 that you mentioned, that includes patients that are still within the pending category that we're still working through, and through 2 reimbursements, as well as patients that we have put onto our free drug program. I will say that, you know, in terms of our free drug program, we have outlined in the past that, you know, for reimbursements, Medicare patients have not been a patient population that we've been able to gain reimbursement for at this particular time. That's, you know, approximately less than 10% of scripts to date. The commercial coverage has always been very strong. The caveat here is, as with other rare diseases, there are very small commercial, you know, self-insured plans where, you know, cost of a therapy like IMCIVREE can be challenging.

We do have patients that are on small self-insured plans as well that are on path as well as, you know, as I went through today, some Medicaid patients as well. The caveat that I will say here is even though they're on our free drug program, I think the word that you're gonna keep on hearing is that we have a persistence just in terms of still working on those patient populations as well, whether it's further education with a payer, or just, you know, ongoing help for that patient itself. We have been successful in moving some of these patients off into commercially insured path as. It's constantly evolving from that perspective.

We are really just still, you know, starting and continue to engage with all of our customers on that point.

David Meeker (Chair, CEO, and President)

Thanks, Jennifer. Maybe just to Corinne, just to add to that, at this point, I think the number I would think about, and as Jennifer said, we're still learning and it's early, et cetera, but about 20% ± of the total scripts are patients who are likely to be on PAP. Again, reminding you that of that, you know, 20% ±, you have approximately, you know, 10%, a little less than 10% that are the Medicare, and they go straight there. Most encouragingly, and this has been true in our prior experiences as well, that, you know, patients who go on PAP don't necessarily stay on PAP, and you continue to find ways to move them over. Patients themselves actually, you know, don't wanna be on PAP.

They'd much rather be on a more stable, if you will, situation where, they are being paid through the system.

Corinne Johnson (Managing Director, Equity Research)

Thanks. That's helpful. Maybe on the clinical side, you highlighted you expect to complete enrollment for the study in HO in 1Q 2024. Are there any factors that could shift that timeline either to be more rapid or delayed for any reason?

David Meeker (Chair, CEO, and President)

Yeah, many. Probably on both sides. I mean, I think, you know, what we've shared and there's two parts to this. One is just the practical administrative issue of getting sites up and going. We've identified the sites that we need. You can continue to look for other, quote-unquote, "maybe outstanding sites" to have as backup if something happens at a site. In general, we have the sites we need. And so it's just a matter of working through contracting with these sites and the IRB approvals and the like. Again, as we said, we're in a queue, not just with our obesity trials. We're in a queue with any trial going on at that site. That's been slower than we would have liked.

Again, our goal is to have all of these sites open in an operational, enrolling by the end of Q3. That's one, and that could vary. I think we have quite a comfortable guidance there, but I, you know, you don't know what you don't know. The second is on terms of patient interest, and patient interest is high. We have our investigator meetings coming up in May, first one in the U.S., followed a week or two later in Berlin for the European sites. Again, what we've heard and what I expect to see there is a high level of interest and you know, also I would think, some competitive enrollment.

Again, I think we know there's patients out there eager, very eager to get in and, these sites are gonna know that, if all 25 sites are enrolling, there aren't that many patients per site, that will be have eligible slots. You know, some of the sites are clearly aiming for much higher than a even distribution. We'll see how it goes. I think, I'm pretty confident that once we're up and running that the patient enrollment.

Corinne Johnson (Managing Director, Equity Research)

Great. Thank you.

Operator (participant)

Thank you. One moment, please. All right, our next question comes from the line of Dae Gon Ha from Stifel. Please go ahead.

Dae Gon Ha (Director, Biotechnology Equity Research)

Hey, good morning, guys. Thanks for taking our questions, congrats on the progress as well. Just reverting back to Derek's question, just hitting it head on is, just apologies if I've missed it. The discontinuation rates, David, you were at a conference recently talking about mid-single digits. I just wanted to confirm that number is still true. In terms of the two questions I had, one, when you think about the patient dispositions across the 3 dose levels that are in the label, can you comment on any kind of... I guess Jennifer kind of went into education to get patients into sort of a more tolerant dose.

Any color you can provide across the 3 doses, what kind of disposition we should be expecting going forward and what work is being done to keep patients off of the 1 milligram and more skewed towards the 3 milligram arm? Secondly, on the strategies for the reimbursement, David, you spoke previously a number of times, Gaucher, as sort of the analog we should be thinking about for BBS going forward. Just hearkening back to your rare disease experience, what kind of reimbursement rate should we be expecting eventually? I mean, is this something that can near into 80%-90% or hovering in the 70%? What work needs to be done for IMCIVREE to get there? Thank you so much.

David Meeker (Chair, CEO, and President)

Thanks, Dae Gon. First on the discontinuation rates, we previously, as you noted, said mid. I would characterize we're drifting up a little bit there, not surprisingly, as we get more patients on for longer periods of time. I'd characterize this as high level single digits. As Jennifer said, and this is what's most encouraging overall, is, one, I think we've done much, much better than we did in the clinical trials for the reasons she outlined, the close contact with the patient through our rhythm of two. Second is the reason patients are discontinuing about half are related to side effects of the drug. Again, opportunity to just continue to educate and set expectations in the right way.

The other are, you know, personal issues specific to that individual patient, some of which may resolve over time and, you know, patients being willing to come back on therapy, and we have, you know, several of those examples. Including others that we're working. In regard to dosing, the whole strategy behind dosing here is we start low, and we're going a little slower than we did in the trial. Not surprisingly, if you go a bit more gradually, the early tolerability is better, number 1. Number 2, the vast majority of patients are getting to 3 mgs. I would say, the balance of the patient population is early and still working their way there. My expectation is that the truly vast majority of patients will be at or close to 3 mgs.

Younger patients, very young patients may in fact achieve their desired level of benefit at a lower dose level. If you go back to our phase 3 trial where we had a number, you know, about half the patients were under age of 18 and the other half were over, and BBS, again, that was, you know, those patients were literally virtually all on 3 mgs. If you have tolerability issues, you go down, you know, go a little slower, but you continue to dose yourself back up. You don't just go down and stay as a rule. Your third question was just on the Gaucher analog. I mean, I just referenced that to remind people that, you know, these opportunities in rare diseases, they may ramp somewhat more gradually.

You don't have a hockey stick as a rule, but you tend to have them for a long time, the Gaucher, you know, 30-plus years from its original approval is still a billion-dollar-plus opportunity. Again, I, you know, we'll see where it goes. BBS has many of the elements of what you wanna see in a rare disease opportunity in terms of the overall size of the opportunity, the ability to diagnose it. It's syndromic in this case, the, you know, strength of the community that's emerging, the patient community and physician community. We'll see where it goes. That was the analogy there. With regard to reimbursement, I don't expect to see in the U.S. specifically any decrease in price, including when we expand into HO.

you know, obviously, you don't necessarily take the same price increases that you might take in other parts of our industry here. There is an implicit decrease if you don't take a price increase just in terms of inflationary adjustments. In terms of actual price, Yeah, we don't expect any. These are rare diseases, and we think we're very fairly priced.

Dae Gon Ha (Director, Biotechnology Equity Research)

Great. Thanks for taking our questions.

David Meeker (Chair, CEO, and President)

Yeah. If everybody's

Dae Gon Ha (Director, Biotechnology Equity Research)

Oh, yep.

David Meeker (Chair, CEO, and President)

Thank you.

Operator (participant)

Thank you. One moment please, as we compile the Q&A roster. Our next question comes from the line of Michael Higgins from Ladenburg Thalmann. Your line is now open.

Michael Higgins (Managing Director, Equity Research)

Thanks, operator. Congratulations guys on the continued progress. Just wanna follow up on the HO trial, the pivotal that's enrolling. If you can give us some feedback on how the pace of enrollment, the pace of screening, failure rates, and the pace of site enrollment are coming in versus expectations? Thanks.

David Meeker (Chair, CEO, and President)

Yeah. Thanks, Michael. Early, we just started. We will give you metrics on as how that trial is evolving. Today, you know, the communication is we're up and running, again, it is much too early to have any sense there. I will say, again, probably my opinion, as opposed to sort of observed on hard data here. There are enough patients and enough interest out there that the pre-screening of patients should be pretty good. Patients who actually come to the site to be formally screened, I'm not expecting a high screen failure rate there to be determined.

Again, I think, this is one of those situations where you're not desperate to enroll just anybody, and therefore you can end up, you know, getting higher screen failure rates. We'll see. I can't give you more information today.

Michael Higgins (Managing Director, Equity Research)

Okay. Appreciate that. Also, you've noted that you're looking for three data readouts in second half. Curious if you can provide feedback as to the order of those events, and if they come in before or after the Obesity Society meeting in mid-October? Thanks.

David Meeker (Chair, CEO, and President)

Yeah. I think, and you're correct in highlighting that they are gonna be linked to a meeting. You know, abstract acceptance and the like will be a key driver there. We've guided to Q4. I think that's all I can do today. We will get that information out.

Michael Higgins (Managing Director, Equity Research)

Okay. Appreciate it. Thanks, guys.

David Meeker (Chair, CEO, and President)

Thank you, Michael. Next question.

Operator (participant)

Thank you. One moment, please. All right. Our next question comes from the line of Joseph Stringer from Needham & Company, LLC. Your line is now open.

Joseph Stringer (Principal, Equity Research)

Hi. Good morning. Thanks for taking our questions. Just wanted to get your updated thoughts on the European BBS launch and how it could compare to the U.S. launch to date. You know, it looks like European BBS patients, more of them are identified and the community is more organized, but you have the dynamics of the staggered reimbursement process. You know, how do you anticipate the European launch playing out and perhaps maybe using Germany as an example, if you have the 250 patients ID'd, could we expect a similar rate of TRx add relative to what has been seen in the U.S. to date?

David Meeker (Chair, CEO, and President)

Yeah. Thanks, Joey. I'll turn over to Yann, one second just to highlight. You are correct that the European is better experience or situation. It's better organized and more identified, but as Yann highlighted, may have a different pace. Yann.

Yann Mazabraud (EVP, Head of International)

Yes. Maybe I will start with the German launch versus U.S., and I will end on the overall European situation. First Germany and the U.S. You're right. There are similarities between the two countries, and the most important one is the decentralized health care and decentralization of the care. As I've said in my presentation, we already know more than or almost 20 large hospitals where there are diagnosed BBS patients and where patients will be treated. There is a main difference, which is really the pace of starting the treatment. The German physicians are well known to be more conservative than the average. We know that it will be patient by patient decisions like for any other rare disease. That's Germany versus the U.S.

Back to the overall question of Europe. It's a bit early to speak in terms of trajectories for IMCIVREE in Europe. First, because Germany is our first important launch. Second, most of the important European country will launch at the end of the year, Italy, Netherlands, Spain, et cetera, and at the end of 2024 for the U.K. Still a bit early.

David Meeker (Chair, CEO, and President)

Thanks, Yann. Joey, is that covered?

Joseph Stringer (Principal, Equity Research)

Great. Thank you for taking our questions.

Operator (participant)

Thank you. All right. Our next question comes from the line of Jeffrey Hung from Morgan Stanley. Your line is now open.

Jeffrey Hung (Equity Research Analyst)

Thanks for taking my questions. For the low number of patients discontinuing due to hyperpigmentation, do you have a sense from those patients how their hyperphagia was? You know, do they happen to have lower hyperphagia than the other BBS patients, so the hyperpigmentation overrides that? Then I have a follow-up.

David Meeker (Chair, CEO, and President)

Sure. Jeff, just to highlight again, you know, the number of patients stopping 'cause of hyperpigmentation is extremely low. One that's been reassuring, but I don't know on those specific cases. Jennifer?

Jennifer Chien (EVP, Head of North America)

Yeah. I don't, I don't think it's necessarily correlated with the hyperphagia in terms of the reasons for the discons. I think that, you know, it's patient by patient just in terms of how problematic the hyperpigmentation is for that particular patient. And once again, I think as the patients discon and they feel the resurgence of the hyperphagia itself, they can also be at a decision point once again just in terms of, you know, really deciding whether to discontinue or to reinitiate therapy. Our teams are there regardless to support them as they, you know, go on their path forward.

Jeffrey Hung (Equity Research Analyst)

Okay, thanks. I know it's a bit early, but with the recommended weight loss monitoring after one year of treatment, do you have a rough sense for the proportion of patients that started on commercial drug fairly early in the launch that have already seen at least, you know, 5% loss in body weight or BMI? Just trying to get a gauge the potential impact of discontinuations based on this recommendation. Thanks.

Jennifer Chien (EVP, Head of North America)

Yeah. As you outlined, I would say that, you know, for the most part, just in terms of those reoff periods, the payers are following our guidance or label. It's a bit early just in terms of really reaching that point of time within our launch. With that said, we feel very good just in terms of the positive feedback and the compliance and persistence on therapy to date, which speaks to the benefits. I think that in general, it will, you know, it will be interesting just in terms of what quote-unquote, clinical benefit is outlined.

I think for the most part, like payers just want to be reassured that these patients are actually receiving clinical benefit while being on therapy. That's something that, once again, our patients continue to monitor baseline, themselves versus on therapy. That can also be translated to the physician who can translate that as well to the payer.

David Meeker (Chair, CEO, and President)

Just to remind you, Jeff, the label, as Jennifer referenced is, it's 12 months is for BBS, is when the label suggests you should reevaluate. Payers of course, can choose to do so earlier, but Jennifer said people tend to be sticking to the label and we're less than a year out for launch.

Jeffrey Hung (Equity Research Analyst)

Right. Right. Thank you.

Operator (participant)

All right. Thank you. We do not have any other questions. I would now like to turn the conference back to David Meeker for closing remarks.

David Meeker (Chair, CEO, and President)

Great. Well, thank you, everyone again for tuning in this morning, and we very much look forward to the next quarter update on Rhythm therapy. With that we'll disconnect. Thank you.

Operator (participant)

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.