Annual Report for Fiscal Year Ending 12-31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual Report.

In this Item 7, we discuss the results of operations for the years ended December 31, 2024 and 2023 and comparisons of our cash flows for the year ended December 31, 2024 to the year ended December 31, 2023. Discussion and analysis of our 2022 fiscal year, as well as the year-over-year comparison of our 2023 financial performance to 2022, are located in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024.

Overview

We are a global, commercial-stage biopharmaceutical company dedicated to transforming the lives of patients living with rare neuroendocrine diseases. We are focused on advancing our melanocortin-4 receptor (MC4R) agonists, including our lead asset, IMCIVREE® (setmelanotide), as precision medicines designed to treat hyperphagia and severe obesity caused by MC4R pathway diseases. While obesity affects hundreds of millions of people worldwide, we are advancing therapies for a subset of individuals who have hyperphagia, a pathological, insatiable hunger and impaired satiety accompanied by persistent and abnormal food-seeking behaviors, decreased energy expenditure and severe obesity due to diseases such as acquired or congenital hypothalamic obesity, Bardet-Biedl syndrome (BBS) or other diseases caused by impaired MC4R pathway signaling. The MC4R pathway is a neuro-endocrine pathway in the brain that is responsible for regulating hunger, caloric intake and energy expenditure, which consequently affect body weight. IMCIVREE, an MC4R agonist for which we hold worldwide rights, is the first-ever therapy developed for patients with certain rare diseases that is approved or authorized in the United States, European Union (EU), United Kingdom, Canada and several other countries and regions.

IMCIVREE is approved by the U.S. Food and Drug Administration (FDA) to reduce excess body weight and maintain weight reduction long term in adult and pediatric patients aged 2 years and older with syndromic or monogenic obesity due to BBS or proopiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1), or leptin receptor (LEPR) deficiency as determined by an FDA-approved test demonstrating variants in POMC, PCSK1, or LEPR genes that are interpreted as pathogenic, likely pathogenic, or of uncertain significance (VUS). The European Commission (EC) and the United Kingdom's Medicines & Healthcare Products Regulatory Agency (MHRA) have authorized IMCIVREE for the treatment of obesity and the control of hunger associated with genetically confirmed BBS or loss-of-function biallelic POMC, including PCSK1, deficiency or biallelic LEPR deficiency in adults and children 2 years of age and above. In addition to the United States, we have achieved market access or named patient sales for IMCIVREE for BBS or POMC and LEPR deficiencies, or both, in 15 countries outside the United States, and we continue to collaborate with authorities to achieve access in additional markets.

With our efforts in hypothalamic obesity and other potential indications, we are advancing what we believe is the most comprehensive clinical research and development program ever initiated in MC4R pathway diseases, with multiple ongoing and planned clinical trials. Our MC4R pathway program is designed to expand the total number of patients who we believe could benefit from setmelanotide therapy or from one of our new drug candidates. Our Phase 3 EMANATE trial, comprised of four independent substudies evaluating setmelanotide in genetically caused MC4R pathway diseases is ongoing. Following the completion of our Phase 2 DAYBREAK trial, we identified six genetically-defined cohorts that we believe merit further investigation for potential setmelanotide efficacy. We also are evaluating setmelanotide for the treatment of Prader-Willi syndrome (PWS) in a 26-week, open-label Phase 2 trial which was initiated at a single site in the United States during the first quarter of 2025.

In addition to setmelanotide, we have two earlier-stage investigational MC4R agonists in clinical development, RM-718, designed for weekly administration, and bivamelagon, an oral small molecule, which are each advancing in Phase 1 and 2 clinical trials, respectively. These investigational assets are designed to be highly selective for the MC4R and MC1R sparing and thereby not cause hyperpigmentation. We completed enrollment in our Phase 2 trial evaluating bivamelagon, in acquired hypothalamic obesity in the first quarter of 2025. With RM-718, we anticipate initiating Part C of our Phase 1 trial to evaluate this weekly MC4R agonist in patients with acquired hypothalamic obesity in the first quarter of 2025.

We are leveraging what we believe is the largest known DNA database focused on obesity - with approximately 100,000 sequencing samples as of December 31, 2024 - to improve the understanding, diagnosis and care of people living

with severe obesity due to certain variants in genes associated with the MC4R pathway. Our sequencing-based epidemiology estimates show that each of these genetically-defined MC4R pathway deficiencies are considered rare diseases, according to established definitions based on patient populations. Our epidemiology estimates are approximately 4,600 to 7,500 for U.S. patients in initial FDA-approved indications, including obesity due to BBS and biallelic POMC, PCSK1 or LEPR deficiencies. Our epidemiology estimates for the two more prevalent indications being studied in our Phase 3 EMANATE trial (SH2B1 and POMC/PCSK1) suggest that approximately 29,000 U.S. patients with one of these genetically driven obesities have the potential to respond well to setmelanotide. Similarly, our epidemiology estimates for patients with genetic indications who demonstrated an initial response following stage 1 of our Phase 2 DAYBREAK trial is approximately 65,300. All these patients face similar challenges as other patients with rare diseases, namely lack of awareness, resources, tests, tools and, especially, therapeutic options.

We are developing setmelanotide to address additional patients with acquired hypothalamic obesity. In our Phase 2 trial evaluating setmelanotide as a treatment for hypothalamic obesity, as announced in November 2022, 16 of 18 patients achieved the primary endpoint with a body mass index (BMI) decrease greater than 5 percent on setmelanotide therapy, and we observed a 14.5 mean percent reduction in BMI across all patients. As part of our November 2022 presentation, we detailed that fourteen of these patients transitioned from this Phase 2 trial into our open-label, long-term extension trial and they remained on therapy, as of November 3, 2023. Twelve of these 14 patients had achieved a 25.5% reduction in mean BMI from baseline at one year on setmelanotide therapy. On February 22, 2024, we provided an update on progress of our pivotal, Phase 3 clinical trial evaluating setmelanotide in patients with acquired hypothalamic obesity. We completed enrollment in the Phase 3 clinical trial is designed to enroll 120 patients aged 4 years or older randomized 2:1 to setmelanotide therapy or placebo for a total of 60 weeks, including up to eight weeks for dose titration. The primary endpoint is the percent change in BMI after approximately 52 weeks on a therapeutic regimen of setmelanotide versus placebo. Key secondary endpoints include the proportion of patients who achieve ≥5% reduction in BMI from baseline in adults (≥18) or BMI Z-score reduction of ≥0.2 from baseline in pediatrics after approximately 52 weeks on a therapeutic regimen of compared with placebo, and mean change in the weekly average of the daily most hunger score in patients ≥12 years from baseline after approximately 52 weeks on a therapeutic regimen of setmelanotide versus placebo. We expect to report top-line study results in the first half of 2025.

To date, we have not generated sufficient cash flow from product sales and have financed our operations primarily through the proceeds received from the sales of common and preferred stock, royalty interest financing, asset sales, as well as capital contributions from the former parent company, Rhythm Holdings LLC. From August 2015 through August 2017, we raised aggregate net proceeds of $80.8 million through our issuance of Convertible Preferred Stock (as defined below). Since our initial public offering, or IPO, on October 10, 2017 and our underwritten follow-on offerings through October 2022, we have raised aggregate net proceeds of approximately $832.7 million through the issuance of our common stock after deducting underwriting discounts, commissions and offering related transaction costs. We also received $100.0 million from the sale of our Rare Pediatric Disease Priority Review Voucher, or PRV, to Alexion Pharmaceuticals, Inc. in February 2021. In June 2022, we entered into the Revenue Interest Financing Agreement ("RIFA"), with entities managed by HealthCare Royalty Partners, collectively referred to as the Investors, and through December 31, 2024 have received cumulative proceeds of $96.7 million, net of certain transaction costs. We also received $147.8 million in net proceeds under the Investment Agreement, with certain affiliates of Perceptive Advisors LLC, or Perceptive, and certain other investors, relating to the issuance and sale of 150,000 shares of a new series of the Company's Series A Convertible Preferred Stock, par value $0.001 per share, titled the "Series A Convertible Preferred Stock", or the Convertible Preferred Stock, for an aggregate purchase price of $150.0 million, or $1,000 per share. As of December 31, 2024, our cash and cash equivalents and short-term investments were approximately $320.6 million. We expect that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operations into 2027.

We expect to continue to fund our operations through the sale of equity, debt financings or other sources. We have built our own marketing and commercial sales infrastructure in the United States and are in the process of building a similar infrastructure in several European markets and the United Kingdom. We may enter into collaborations with other parties for certain markets outside the United States. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or commercialization of setmelanotide.

As of December 31, 2024, we had an accumulated deficit of $1,155.3 million. Our net losses were $260.6 million and $184.7 million for the years ended December 31, 2024 and 2023, respectively. We expect to continue to incur significant expenses and increasing operating losses over the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

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continue to conduct clinical trials for setmelanotide and our other product candidates;

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engage contract manufacturing organizations, or CMOs, for the manufacture of clinical and commercial-grade setmelanotide;

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seek regulatory approval for setmelanotide for future indications, and for our other product candidates;

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expand our clinical and financial operations and build a marketing and commercialization infrastructure;

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engage in the sales and marketing efforts necessary to support the continued commercial efforts of IMCIVREE globally;

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take into account the levels, timing and collection of revenue earned from sales of IMCIVREE and other products approved in the future, if any; and

●

continue to operate as a public company.

As of December 31, 2024, our cash and cash equivalents and short-term investments were approximately $320.6 million. We expect that our cash and cash equivalents and short-term investments as of December 31, 2024, will enable us to fund our operating expenses into 2027.

Corporate Background

We are a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc.

Financial Operations Overview

Revenue

To date, we have generated approximately $227.6 million of revenue from product sales. Our lead product candidate, IMCIVREE, was approved by the FDA in November 2020 for chronic weight management in adult and pediatric patients six years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency confirmed by genetic testing. IMCIVREE became commercially available in the United States in the first quarter of 2021. We recorded our first sales of IMCIVREE in the United States in March 2021 and we made our first sales in France in March 2022 under the paid early access program. IMCIVREE was approval by the FDA and the EC in adult and pediatric patients six years of age and older with obesity due to BBS in June and September 2022, respectively. Following these approvals for BBS, sales of IMCIVREE have grown, and we expect will continue to grow as we identify and treat more patients with this disease and obtain reimbursement throughout the international markets in which we operate.

Cost of sales

All of our inventory of IMCIVREE produced prior to FDA approval is available for commercial or clinical use. Most of the manufacturing costs have been recorded as research and development expenses in prior periods. We expect cost of sales to increase in 2025 as we continue to sell inventory that is produced after we began capitalizing manufacturing costs for IMCIVREE commercial inventory.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery and genetic sequencing efforts, and the clinical development of setmelanotide, which include:

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expenses incurred under agreements with third parties, including CROs that conduct research and development and preclinical activities on our behalf, and the cost of consultants and CMOs that manufacture drug products for use in our preclinical studies and clinical trials;

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employee-related expenses including salaries, benefits and stock-based compensation expense;

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the cost of lab supplies and acquiring, developing and manufacturing preclinical and clinical study materials;

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the cost of genetic sequencing of potential patients in clinical studies;

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facilities, depreciation, and other expenses, which include rent and maintenance of facilities, insurance and other operating costs;

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acquired in process research and development costs associated with the acquisition of Xinvento B.V., or Xinvento in the three months ended March 31, 2023; and

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acquired in process research and development costs associated with the acquisition of LG Chem, Ltd.'s, or LGC's, proprietary compound bivamelagon in the three months ended March 31, 2024.

We expense research and development costs to operations as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

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The following table summarizes our current research and development expenses:

​	​	​	​	​	​	​
​	​	​	​	​	​	​
​	​	December 31,
Research and development summary		2024			2023
Research and development expense	​	$	237,957	​	$	134,951

​

We are unable to predict the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of setmelanotide, RM-718, bivamelagon, and a potential therapeutic product candidate for congenital hyperinsulinism (CHI) will depend on a variety of factors, including:

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the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;

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the rate of enrollment in clinical trials;

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the safety and efficacy demonstrated by setmelanotide in future clinical trials;

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changes in regulatory requirements;

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changes in clinical trial design; and

●

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of our product candidates would significantly change the costs and timing associated with its development and potential commercialization.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our setmelanotide and other development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to commercialization and there can be no guarantee that we can meet the funding needs associated with these expenses.

Selling, general and administrative expenses

Selling expenses consist of professional fees related to preparation for the commercialization of setmelanotide as well as salaries and related benefits for commercial employees, including stock-based compensation. As we further implement and execute our commercialization plans to market setmelanotide in new territories and as we explore new collaborations to develop and commercialize setmelanotide, we anticipate that these expenses will materially increase.

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, relating to our full-time employees not involved in R&D or commercial activities. Other significant costs include rent, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

The following table summarizes our current selling, general and administrative expenses.

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​	​	​	​	​	​	​
​	​	December 31,
Selling, general and administrative summary		2024			2023
Selling, general and administrative expense	​	$	144,304	​	$	117,532

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We anticipate that our selling, general and administrative expenses will increase in the future to support continued and expanding commercialization efforts for IMCIVREE in the United States and the European Union as well as increased costs of operating as a global commercial stage biopharmaceutical public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, compliance with local rules and regulations in the United States and foreign jurisdictions, exchange listing and SEC expenses, insurance and investor relations costs, among other expenses.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances on an ongoing basis, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

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Revenue Recognition

In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, we recognize revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration we expect to receive in exchange for the goods or services provided. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. For all contracts that fall into the scope of ASC 606, we have identified one performance obligation: the sale of IMCIVREE to our customers. We have not incurred or capitalized any incremental costs associated with obtaining contracts with customers.

In the United States, which accounts for the largest portion of our total revenues, the Company sells its product to one material specialty pharmacy. The product is distributed through third-party logistics, or 3PL, distribution agent that does not take title to the product. Once the product is delivered to the Company's specialty pharmacy provider, our customer in the United States, the customer (or "wholesaler") takes title to the product. The wholesaler then distributes the product to patients. In our distribution agreement with the 3PL company, the Company acts as principal because we retain control of the product. Internationally, we make sales primarily to specialty distributors and retail pharmacy chains, as well as hospitals, many of which are government-owned or supported. The Company offers returns of product sold to the customer on a limited basis, however, no material returns have been recognized to date.

Revenue is recorded at net selling price (transaction price), which includes estimates of variable consideration. Our variable consideration consists of government rebates, trade discounts, product returns and other incentives. The largest of our variable consideration components is government rebates for which reserves are established for estimated rebates for programs such as Medicaid, Medicare and Tricare in the United States as well as certain government rebates and pricing adjustments in certain international markets that we operate. We estimate these rebates based upon a range of possible outcomes that take into consideration the estimated payer mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses and other current liabilities on our consolidated balance sheets. On a quarterly basis, we update our estimates and record any necessary adjustments in the period identified. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the applicable contract. If actual results in the future vary from estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Provisions for trade discounts, chargebacks and allowances are recorded as reductions to accounts receivable, and returns, government rebates, and other incentives are recorded as a component of accrued expenses.

Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate the value associated with goods and services received in the period in connection with research and development activities. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost, or alternatively, the deferral of amounts paid for goods or services to be incurred in the future. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses or prepaid expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at the time those financial statements are prepared. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include fees paid to CROs, CMOs and consultants in connection with research and development activities.

We accrue our expenses related to CROs, CMOs and consultants based on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs, CMOs and consultants that conduct research and development and manufacturing on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. The allocation of CRO upfront expenses for both clinical trials and preclinical studies generally tracks actual work activity. However, there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees delivered over a period of time, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust accrued or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-based compensation

We maintain the Rhythm Pharmaceuticals, Inc. 2017 Equity Incentive Plan, (the "2017 Plan") which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, performance units, restricted stock awards, restricted stock units and stock grants to employees, consultants, advisors and directors, as determined by the board of directors. As of December 31, 2024, we had reserved 12,475,344 shares of common stock under the 2017 Plan. Shares of common stock issued pursuant to awards are generally issued from authorized but unissued shares. The 2017 Plan provides that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the common stock on the date of the award for participants who own less than 10% of the total combined voting power of stock, and not less than 110% for participants who own more than 10% of the voting power. Awards granted under the 2017 Plan will vest over periods as determined by our Compensation Committee and approved by our board of directors.

On February 9, 2022, our board of directors adopted the Rhythm Pharmaceuticals, Inc. 2022 Employment Inducement Plan (the "2022 Inducement Plan"), which became effective on such date without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Stock Market LLC listing rules ("Rule 5635(c)(4)"). The 2022 Inducement Plan provides for the grant of non-qualified stock options, stock appreciation rights, performance units, restricted stock awards, restricted stock units and stock grants. In accordance with Rule 5635(c)(4), awards under the 2022 Inducement Plan may only be made to a newly hired employee who has not previously been a member of our board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company or a subsidiary, as a material inducement to the employee's entering into employment with the Company or its subsidiary. An aggregate of 1,000,000 shares of our common stock have been reserved for issuance under the 2022 Inducement Plan.

The exercise price of stock options granted under the 2022 Inducement Plan will not be less than the fair market value of a share of our common stock on the grant date. Other terms of awards, including vesting requirements, are determined by our board of directors and are subject to the provisions of the 2022 Inducement Plan. Stock options granted to employees generally vest over a four-year period but may be granted with different vesting terms. Certain options may provide for accelerated vesting in the event of a change in control. Stock options granted under the 2022 Inducement Plan expire no more than 10 years from the date of grant. As of December 31, 2024, there were 495,978 stock option awards outstanding, 317,554 restricted stock unit awards outstanding and 14,586 shares of common stock available for future grant under the 2022 Inducement Plan.

We estimate the fair value of our stock option awards to employees and non-employees using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including (a) the expected volatility of our stock, (b) the expected term of the award, (c) the risk-free interest rate, and (d) expected dividends. Due to the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we previously based our estimate of expected volatility on the historical volatility of a group of companies in the pharmaceutical and biotechnology industries in a similar stage of development as us and that are publicly traded. For these analyses, we selected companies with comparable characteristics to ours including enterprise value, risk profiles and with historical share price information sufficient to meet the expected life of the stock-based awards. We computed the historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period of the

calculated expected term of our stock-based awards. We estimate volatility by using a blend of our stock price history for the length of time we have market data for our stock and the historical volatility of similar public companies for the expected term of each grant. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

We have estimated the expected life of our employee stock options using the "simplified" method, whereby, the expected life equals the average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have elected to account for forfeitures as they occur. Upon adopting Accounting Standards Update 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) on July 1, 2018, we elected that unsettled equity-classified awards to nonemployees for which a measurement date has not been established be measured using the adoption date fair value.

Income taxes

We account for uncertain tax positions in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 740, Accounting for Income Taxes, or ASC 740. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2024, we did not have any uncertain tax positions.

Income taxes are recorded in accordance with ASC 740, which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. We determine our deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, or Section 382, as well as similar state provisions and other provisions of the Code. Ownership changes may limit the amount of net operating losses and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, occurs when there is a greater than 50% change in the ownership of stock among certain 5% shareholders over a three-year period.

Results of Operations

Comparison of years ended December 31, 2024 and 2023

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023, together with the changes in those items in dollars and as a percentage:

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

​

​

​

​

​

​

December 31,

​

Change

​

2024

2023

$

​

%

​

​

(in thousands)

Statement of Operations Data:

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​

​

​

​

​

​

​

​

​

​

​

Product revenue, net

​

$

130,126

​

$

77,428

​

$

52,698

​

68

%

Total revenues

​

​

130,126

​

​

77,428

​

​

52,698

​

68

%

Costs and expenses:

​

​

​

​

​

Cost of sales

​

​

13,368

​

​

9,302

​

​

4,066

​

44

%

Research and development

​

​

237,957

​

​

134,951

​

​

103,006

​

76

%

Selling, general, and administrative

​

144,304

​

117,532

​

26,772

​

23

%

Total costs and expenses

​

395,629

​

261,785

​

133,844

​

51

%

Loss from operations

​

(265,503)

​

(184,357)

​

(81,146)

​

44

%

Other income (expense), net

​

5,247

​

243

​

5,004

​

2,059

%

Loss before income taxes

​

​

(260,256)

​

​

(184,114)

​

​

(76,142)

​

41

%

Provision for income taxes

​

​

346

​

​

564

​

​

(218)

​

(39)

%

Net loss

​

$

(260,602)

​

$

(184,678)

​

$

(75,924)

​

41

%

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Product revenue, net increased by $52.7 million to $130.1 million in 2024 from $77.4 million in 2023, an increase of 68%. We expect our sales of IMCIVREE to continue to increase following the FDA approval for the treatment of patients with BBS in the United States in June 2022. We have achieved market access for IMCIVREE for BBS or POMC and LEPR deficiencies, or both, in more than 15 countries outside the United States, and we continue to collaborate with authorities to achieve access in additional markets. For the years ended December 31, 2024 and 2023,a substantial amount of our product revenue, or74% and 77%, respectively, was generated from sales of our product to patients in the United States.

Cost of sales. Cost of sales increased by $4.1 million to $13.4 million in 2024 from $9.3 million in 2023, an increase of 44%, which was driven primarily by the increase in product revenue in 2024. Cost of sales is composed of royalty expense due to Ipsen on our net product sales, amortization of our capitalized sales-based milestone payment made to Ipsen, upon our first commercial sale in the United States and EU, the cost of product, as well as costs associated with our patient assistance programs. Specifically, the $4.1 million increase in cost of sales in 2024 was due to $2.6 million of additional royalties due to our growth in sales and $1.5 million due to higher product costs from higher net product revenue. We expect cost of sales as a percentage of product revenue, net to continue to be in a range of 10% to 12% in foreseeable future.

Research and development expense. Research and development expense increased by $103.0 million to $238.0 million in 2024 from $135.0 million in 2023, an increase of 76%. The increase was primarily due to the following:

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acquired in-process research and development costs associated with the acquisition of LGC's proprietary compound bivamelagon of $92.4 million;

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an increase of $8.1 million in salaries, benefits and stock-based compensation related to the hiring of additional full-time employees in order to support the growth of our research and development programs;

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an increase of $7.5 million in our Phase 3 acquired hypothalamic obesity trial, our Phase 1 clinical trial of RM-718 and the Phase 2 bivamelagon trial acquired from LGC. These costs were partially offset by reduced

activity due to the completion and wind down of our long term extension trial, Phase 2 Basket trial, Phase 3 pediatrics trial, and switch trial;and

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an increase of $4.3 million due to increased CMC development costs related to RM-718 and bivamelagon.

The above increases were partially offset by:

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the purchase of in-process research and development assets of $5.7 million from Xinvento in 2023, which did not recur in 2024; and

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a decrease in our clinical trial costs associated with decreased activity in our Phase 2 DAYBREAK trial and pediatrics trial for setmelanotide therapy of approximately $3.6 million.

Selling, general and administrative expense. Selling, general and administrative expense increased by $26.8 million to $144.3 million in 2024 from $117.5 million in 2023, an increase of 23%. The increase was primarily due to the following:

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an increase of $18.7 million due to increased compensation and benefits related costs associated with additional headcount to support our expanding business operations as well as to establish commercial operations in international regions;

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an increase of $6.7 million related to increased marketing and promotion costs to support continued revenue growth; and

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an increase of $3.1 million related to professional services costs, including legal, consulting and tax services.

The above increases were partially offset by:

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a decrease in inventoriable costs that were capitalized to inventory as labor and overhead, of $1.7 million.

Other income (expense), net. Other income (expense), net increased by $5.0 million to $5.2 million in 2024 from $0.2 million in 2023, which was due to the following:

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a gain of $8.9 million recognized for the change in fair value of a forward contract recorded with the issuance of Convertible Preferred Stock;and

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a change in fair value of the embedded derivative in our debt royalty obligation of $1.2 million, realized foreign currency gains of $0.4 million and other income of $0.4 million; and

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an increase in interest income of $0.8 million earned on our short-term investments, based on higher investment balances from the net proceeds of $147.8 million from the convertible preferred stock issuance.

These increases were slightly offset by:

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recognition of $4.0 million of non-cash interest expense in 2024 associated with accretion of the current liability payable to LGC in July 2025; and

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an increase in non-cash interest expense of $2.7 million related to amortization of debt discount and deferred financing fees associated with our higher deferred royalty obligation balance, based on the receipt of our final $25.0 million sales milestone in the three months ended September 30, 2023.

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Liquidity and Capital Resources

As of December 31, 2024, our cash and cash equivalents and short-term investments were approximately $320.6 million.

Cash flows

The following table provides information regarding our cash flows for the years ended December 31, 2024 and 2023:

​	​	​	​	​	​
​	​	​	​	​	​
​	Year Ended December 31,
​	2024			2023
​	(in thousands)
Net cash (used in) provided by:	​	​	​	​	​
Operating activities	$	(113,879)	​	$	(136,157)
Investing activities		(48,173)	​		(5,665)
Financing activities		191,242	​		74,368
Effect of exchange rates on cash	​	2	​	​	(142)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	29,192	​		(67,596)

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Net cash used in operating activities

The use of cash in all periods resulted primarily from our net losses, adjusted for non-cash charges and changes in components of operating assets and liabilities.

Net cash used in operating activities was $113.9 million for the year ended December 31, 2024, and consisted primarily of a net loss of $260.6 million adjusted for non-cash items of $43.8 million, which consisted of stock-based compensation, depreciation and amortization, non-cash interest expense, non-cash accretion and amortization of short-term investments, non-cash accretion of other current liability, non-cash rent expense, gain on settlement of forward contract, and the change in the fair value of our embedded derivative liability. Our net loss also included $92.4 million of acquired In-Process Research and Development (IPR&D) assets, which are classified as investing activities. The change in operating assets and liabilities provided net cash of approximately $10.6 million, primarily driven by increases to accounts payable and accrued expenses of $21.9 million, net decreases in long-term assets of $7.9 million, offset by net increases in accounts receivable and inventory of $13.8 million and net increases to prepaid expenses of $5.5 million.

Net cash used in operating activities was $136.2 million for the year ended December 31, 2023, and consisted primarily of a net loss of $184.7 million adjusted for non-cash items of $38.0 million, which consisted of stock-based compensation, depreciation and amortization, non-cash rent expense, accretion and amortization of our short-term investments and the change in the fair value of our embedded derivative liability. Our net loss also included $5.7 million of acquired IPR&D assets, which are classified as investing activities. The change in operating assets and liabilities reflected a total net source of cash of approximately $4.8 million primarily driven by a net increase in accounts payable and accrued expenses of $14.8 million, decreases in long term assets of $1.7 million and decreases in prepaid expenses and other current assets of $2.7 million. The net cash sources described above were partially offset by net cash uses from increases in accounts receivable and inventory totaling $14.4 million, based on the ongoing growth in the business.

Net cash used in investing activities

Net cash used in investing activities was $48.2 million for the year ended December 31, 2024 and related to purchases of short term investments for $268.3 million and cash used for the purchase of LGC's proprietary compound bivamelagon for $40.0 million in January 2024, offset by gross maturities of short-term investments of $260.6 million.

Net cash used in investing activities was $5.7 million for the year ended December 31, 2023 which related primarily to cash used to purchase Xinvento's IPR&D assets in February 2023. Our gross purchases of short-term

investments of $354.9 million were generally offset by gross proceeds from maturities of short-term investments of $355.0 million.

Net cash provided by financing activities

Net cash provided by financing activities was $191.2 million for the year ended December 31, 2024, and consisted of net proceeds of $147.8 million from the issuance of Convertible Perferred Stock as well as net proceeds from our ATM equity offering of $39.1 million. We also received proceeds of $17.2 million from the exercise of stock options and the issuance of common stock from our 2017 Employee Stock Purchase Plan, or the ESPP. These proceeds were offset by $12.9 million of repayments on our deferred royalty obligation.

Net cash provided by financing activities was $74.4 million for the year ended December 31, 2023, which consisted of net proceeds of $48.9 million from the issuance of common stock in August 2023, net proceeds of $24.4 million from the final investment tranche of our deferred royalty obligation and $8.5 million of cash proceeds from the exercise of stock options and the issuance of common stock from the ESPP. These proceeds were partially offset by $7.4 million of repayments of our deferred royalty obligation.

Revenue Interest Financing Agreement

On June 16, 2022, we entered into the RIFA with HealthCare Royalty, for a total investment amount of up to $100 million. In exchange for the total investment amount to be received by us, HealthCare Royalty will receive a tiered royalty based on global net product sales generated by IMCIVREE. For additional information, see Note 11, "Long-term Obligations" to the consolidated financial statements included elsewhere in this Annual Report.

Funding requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of and seek marketing approval for setmelanotide for future indications and build out our global organization. In addition, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. We also expect to incur additional costs associated with operating as a public company.

We expect that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operations into 2027. Our cash and cash equivalents are maintained at financial institutions in amounts that exceed federally-insured limits. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.

We may need to obtain substantial additional funding in connection with our research and development activities and any continuing operations thereafter. If we are unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Our future capital requirements will depend on many factors, including:

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the costs to commercialize setmelanotide, by building an internal sales force or entering into collaborations with third parties and providing support services for patients;

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the scope, progress, results and costs of clinical trials for our setmelanotide program, as well as for RM-718 and bivamelagon, and in connection with a therapeutic product candidate for CHI;

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the costs, timing and outcome of regulatory review of our setmelanotide program; as well as for RM-718 and bivamelagon, and in connection with a therapeutic product candidate for CHI;

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the costs related to the acquisition, integration, research and development and commercialization efforts related to the acquisition of Xinvento B.V. and any related therapeutic product candidates;

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the obligations owed to Ipsen, Camurus and LG Chem, pursuant to our license agreements;

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the extent to which we acquire or in-license other product candidates and technologies;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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our ability to establish and maintain additional collaborations on favorable terms, if at all; and

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the costs of operating as a public company and losing our emerging growth company status.

Although IMCIVREE has been approved by the FDA in certain indications, and became commercially available in the first quarter of 2021, IMCIVREE may not achieve commercial success. In addition, developing our setmelanotide program is a time-consuming, expensive and uncertain process that may take years to complete, and we may never generate the necessary data or results required to obtain future marketing approvals and achieve product sales. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

Further, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. All of these factors could impact our liquidity and future funding requirements, including but not limited to our ability to raise additional capital when needed on acceptable terms, if at all. The duration of this economic slowdown is uncertain and the impact on our business is difficult to predict. See "Risk Factors- Unfavorable global political or economic conditions could adversely affect our business, financial condition or results of operations."

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, involves agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our setmelanotide program on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our setmelanotide program that we would otherwise prefer to develop and market ourselves.

ATM

On November 2, 2021, we entered into a Sales Agreement with Cowen and Company, LLC ("Cowen"), pursuant to which we may issue and sell shares of its common stock, having an aggregate offering price of up to $100.0 million, from time to time through an "at the market" equity offering program under which Cowen acts as sales agent (the "ATM Program"). Between August 10, 2023 and August 21, 2023, we sold approximately two million shares of our common stock in the ATM Program for net proceeds of approximately $48.9 million.

On February 29, 2024, we and Cowen entered into Amendment No. 1 to Sales Agreement (the "Amendment") to increase the aggregate offering price of the shares of common stock that may be issued and sold pursuant to the Sales Agreement to $200.0 million (excluding the aggregate offering price of shares of common stock issued and sold pursuant to the Sales Agreement prior to February 29, 2024). In connection with the Amendment, on February 29, 2024, we filed with the SEC a prospectus supplement, dated February 29, 2024, which, combined with the Base Prospectus (together, the "New Prospectus"), amended the Prior Prospectus in its entirety. The issuances and sales under the Sales Agreement, as amended by the Amendment, will be made pursuant to the Registration Statement and the New Prospectus.

Beginning on December 10, 2024 the company sold 744,595 shares of common stock in the ATM program for net proceeds of $41.2 million as of December 31, 2024. The company sold an additional 587,510 shares of common stock in the ATM program through January 21, 2025 for net proceeds of approximately $32.1 million.

Other funding

On September 19, 2022, we completed a public offering of 4,800,000 shares of common stock at a price to the public of $26.00 per share. We received $116,887 in net proceeds after deducting underwriting discounts, commissions and offering expenses. In addition, we granted the underwriters a 30-day option to purchase up to an additional 720,000 shares of its common stock at the price to the public, less underwriting discounts and commissions. On October 18, 2022, we completed the sale of an additional 580,000 shares of common stock at a price to the public of $26.00 per share pursuant to the partial exercise of the underwriters' option to purchase additional shares, for aggregate net proceeds of approximately $14,175, after deducting underwriting discounts, commissions and offering expenses.

In April 2024, we received $147.8 million in net proceeds under the Investment Agreement, with certain affiliates of Perceptive Advisors LLC, or Perceptive, and certain other investors, relating to the issuance and sale of 150,000 shares of a new series of the Company's Convertible Preferred Stock for an aggregate purchase price of $150.0 million, or $1,000 per share.

Contractual obligations

We enter into agreements in the normal course of business with CROs and CMOs for clinical trials and clinical supply manufacturing and with vendors for clinical research studies and other services and products for operating purposes. We do not classify these as contractual obligations where the contracts are cancelable at any time by us, generally upon 30 days' prior written notice to the vendor.

Milestone and royalty payments associated with our license agreements with Ipsen, Camurus, and LG Chem, have not been included as contractual obligations as we cannot reasonably estimate if or when they will occur. Under the terms of the Ipsen license agreement, assuming that setmelanotide is successfully developed, receives regulatory approval and is commercialized, Ipsen may receive aggregate payments of up to $40.0 million upon the achievement of certain development and commercial milestones under the license agreement and royalties on future product sales and at December 31, 2024 there were $27.0 million of remaining milestones that may be achieved and due to Ipsen at a future date. During 2022, we paid Ipsen a $4.0 million milestone upon our first commercial sale of IMCIVREE in Europe. We did not make additional milestone payments to Ipsen during 2023 or 2024. In the event that we enter into a sublicense agreement, we will make payments to Ipsen, depending on the date of the sublicense agreement, ranging from 10% to 20% of all revenues actually received under the sublicense agreement.

Under the terms of the Camurus license agreement, assuming that the weekly formulation of setmelanotide is successfully developed, receives regulatory approval and is commercialized, Camurus may receive aggregate payments of up to $64.8 million upon the achievement of certain development and commercial milestones under the license agreement and royalties on future product sales. As of December 31, 2024, there were $62.5 million of remaining milestones that may be achieved and for which Camurus would receive payment at a future date. We paid Camurus a $1.0 million milestone in 2022 upon the achievement of a development milestone. We did not make any milestone payments to Camurus during 2023 or 2024. The majority of the aggregate payments under the Camurus license agreement are for milestones that may be achieved no earlier than first commercial sale of this weekly formulation of setmelanotide.

Under the terms of the LG Chem license agreement, we have paid LG Chem $40 million in cash, issued shares of our common stock with an aggregate value of $20 million andagreed to make a $40 million payment in cash 18 months after the effective date of the license agreement. We have also agreed to pay LG Chem up to $205 million in cash upon achieving various regulatory and sales milestones based on net sales of bivamelagon. In addition and subject to the completion of Phase 2 development of bivamelagon, the Company has agreed to pay LGC royalties of between low-to-mid single digit percent of net revenues from its MC4R portfolio, including bivamelagon, commencing in 2029 and dependent upon achievement of various regulatory and indication approvals, and subject to customary deductions and anti-stacking. Royalties may further increase to a low double digit percent royalty, though such royalty would only be applicable on net sales of bivamelagonin a region if bivamelagonis covered by a composition of matter or method of use patent controlled by LGC in such region and the Company's MC4R portfolio is not covered by any composition of matter or method of use patents controlled by the Company in such region. Such increased rate would only apply on net sales of bivamelagonfor the limited remainder of the royalty term in the relevant region. We entered into this agreement in 2024 and have not yet made any milestone payments.

Based on our current development plans as of December 31, 2024, we expect to make milestone payments to third parties, during the next 12 months from the filing of this Annual Report. These milestones include a $40.0 million payment to LG Chem in July of 2025 (which is the second and final license fee installment, payable to LGC within eighteen (18) months of the effective date of the LG Chem license agrreement) and a $2.0 million payment to the sellers of Xinvento upon the commencement of Good Laboratory Practice (GLP) toxicity trials (currently expected to begin in 2025. Milestones generally become due and payable upon achievement of such milestones or sales. When the achievement of these milestones or sales have not occurred, such contingencies are not recorded in our financial statements and are excluded from the table below.

On May 2, 2024, we entered into an agreement to amend the current operating lease agreement for our head office facility in Boston, Massachusetts. Under the amendment, the current lease was extended for five years through July 31, 2030. The lease includes approximately 13,600 square feet of office space.

Recent Accounting Pronouncements

For a discussion of pending and recently adopted accounting pronouncements, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report.

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