Executive Summary / Key Takeaways

• Precision Medicine Dominance: Rhythm Pharmaceuticals is solidifying its leadership in rare neuroendocrine diseases with IMCIVREE (setmelanotide), the first and only approved therapy for specific MC4R pathway deficiencies, now poised for significant expansion into the hypothalamic obesity (HO) market.
• Transformative HO Opportunity: Positive Phase 3 TRANSCEND trial results for setmelanotide in acquired HO, demonstrating a 19.8% placebo-adjusted BMI reduction, position it for a potentially transformative launch in a market estimated at 5,000-10,000 patients in the U.S. and Europe, with similar numbers in Japan.
• Next-Generation Pipeline & IP Extension: The company's pipeline of next-generation MC4R agonists, bivamelagon (oral daily) and RM-718 (weekly injectable), aims to extend patent protection beyond 2040 while offering improved profiles like MC1R sparing and enhanced convenience, with promising Phase 2 bivamelagon data in HO.
• Strengthened Financial Foundation: A recent $189.2 million net proceeds public offering, combined with existing cash, provides a robust cash runway of at least 24 months, enabling the company to fund multiple upcoming clinical readouts and commercial expansion efforts.
• Strategic Global Expansion: Consistent growth in the Bardet-Biedl syndrome (BBS) franchise globally, coupled with strategic international market access initiatives and early access programs for HO, underscores a deliberate, long-term global growth strategy.

The Dawn of a New Growth Cycle: Precision in Rare Obesity

Rhythm Pharmaceuticals, Inc. is a global, commercial-stage biopharmaceutical company dedicated to transforming the lives of patients living with rare neuroendocrine diseases. The company's core mission revolves around advancing melanocortin-4 receptor (MC4R) agonists as precision medicines to address hyperphagia and severe obesity stemming from impaired MC4R pathway signaling. This foundational strategy has positioned Rhythm as a pioneer in a niche but high-unmet-need market.

The company's journey began in 2008, culminating in the FDA approval of its lead asset, IMCIVREE (setmelanotide), in November 2020. This marked a pivotal moment, establishing IMCIVREE as the first-ever approved therapy for chronic weight management in adult and pediatric patients with obesity due to POMC, PCSK1, or LEPR deficiency. Subsequent approvals for Bardet-Biedl syndrome (BBS) in 2022 and a label expansion in 2024 to include children as young as two years old, both in the U.S. and Europe, underscore the company's commitment to addressing these ultra-rare conditions. These historical milestones have laid the groundwork for Rhythm's current strategic focus: expanding IMCIVREE's indications and geographic reach, while simultaneously developing next-generation MC4R agonists to ensure long-term market leadership and intellectual property protection.

Differentiated Technology: Restoring a Fundamental Biological Deficit

Rhythm's competitive edge is rooted in its deep understanding and targeted modulation of the MC4R pathway. Unlike broad-acting obesity drugs, such as GLP-1 receptor agonists, IMCIVREE (setmelanotide) functions as an MC4R agonist. This mechanism directly addresses the underlying cause of hyperphagia and severe obesity in its target populations: a deficit in the endogenous hormone alpha-melanocyte stimulating hormone (alpha-MSH) that impairs MC4R signaling. By replacing this deficit, setmelanotide aims to restore normal physiological regulation of hunger, caloric intake, and energy expenditure.

This precision medicine approach offers distinct advantages. While GLP-1s provide pharmacologic doses on top of intact physiology, setmelanotide intervenes where the pathway is fundamentally broken. This differentiation is critical in rare genetic obesities, where bariatric surgery is often considered inappropriate due to high risks and poor outcomes. The company's extensive DNA database, comprising approximately 100,000 sequencing samples, further enhances its ability to identify and diagnose patients with specific MC4R pathway variants, strengthening its competitive moat.

Rhythm is not resting on its laurels; its R&D pipeline is actively pursuing next-generation MC4R agonists designed to build upon setmelanotide's success. Bivamelagon, an investigational oral small molecule, and RM-718, a weekly subcutaneous injection, are key to this strategy. Both compounds are engineered to be MC1R sparing, eliminating the hyperpigmentation side effect associated with setmelanotide, and offer enhanced convenience (oral daily for bivamelagon, weekly for RM-718). Preclinical models have demonstrated robust activity for both, with no cardiovascular effects. The stated goal is not just to extend patent life beyond 2040 but to deliver "better drugs" with improved patient profiles. This technological roadmap is crucial for sustaining Rhythm's competitive advantage and driving future financial performance through potentially higher adoption rates and expanded market reach.

Commercial Momentum: BBS and the Hypothalamic Obesity Horizon

Rhythm's commercial performance reflects a steady, deliberate growth strategy in ultra-rare disease markets. For the second quarter of 2025, global net product revenue from IMCIVREE reached $48.5 million, marking a robust 29% sequential increase from Q1 2025. Year-to-date, product revenue for the six months ended June 30, 2025, stood at $86.22 million, a 56.6% increase from the comparable period in 2024.

The Bardet-Biedl syndrome (BBS) franchise continues to be a foundational growth driver. U.S. revenue for Q2 2025 was $32.0 million, representing 66% of total product revenue and a 31% sequential increase. This growth is fueled by consistent new prescriptions and patient starts, with cumulative BBS prescribers growing 38% year-over-year (Q2 2024 to Q2 2025). The recent FDA label expansion for IMCIVREE to include children as young as two years old has renewed engagement with pediatric specialists, with 40% of Q2 prescriptions for patients under 12 years of age. Furthermore, Medicaid access has significantly improved, with IMCIVREE-specific policies or positive coverage decisions now covering over 95% of Medicaid lives. This steady progress in a challenging ultra-rare disease community, where lack of awareness and diagnostic difficulties are common, validates Rhythm's patient identification and access strategies. Management anticipates BBS will remain an "important part of these quarterly earnings calls for the next 15 years," highlighting its long-term durability.

Internationally, IMCIVREE is available in over 20 countries, contributing $16.5 million in Q2 2025 revenue, a 24% sequential increase. Growth is primarily driven by established markets like Germany and France, alongside increasing named patient sales in emerging territories such as Poland and the Czech Republic. Notably, early access programs for hypothalamic obesity (HO) patients in France and Italy are driving a "higher percentage increase in sequential quarterly growth," with reimbursed HO patients now representing a "meaningful percentage" of total international reimbursed patients. This international expansion, though starting slow, is a deliberate strategy to build a global footprint.

The most significant near-term growth catalyst is the impending launch of setmelanotide for acquired hypothalamic obesity (HO). The pivotal Phase 3 TRANSCEND trial delivered compelling topline results, showing a statistically significant and clinically meaningful 19.8% placebo-adjusted BMI reduction at 52 weeks. This efficacy was remarkably consistent across adult and pediatric patients, and across various age and sex subgroups, with real-world data from French early-access programs further reinforcing these findings. These data demonstrated a mean BMI decrease of 21.3% at six months for adult HO patients, even those 12 years post-injury, suggesting efficacy regardless of time since insult. With an estimated 5,000-10,000 patients in the U.S. and Europe, and 5,000-8,000 in Japan, HO represents a substantial opportunity. Unlike BBS, a higher percentage of HO patients are already diagnosed and managed by endocrinologists, suggesting a potentially "steeper" launch trajectory. Regulatory submissions in the U.S. and EU are on track for Q3 2025, with Japanese data expected in Q1 2026.

Pipeline Advancement and Financial Strength

Rhythm's pipeline is designed to expand its therapeutic reach and extend its intellectual property. The Phase 2 bivamelagon trial in acquired HO met its primary endpoint, demonstrating statistically significant BMI reductions of 9.3% in the 600mg cohort and 7.7% in the 400mg cohort at 14 weeks. These results are considered "roughly comparable" to setmelanotide, which is highly encouraging for an oral daily therapy. The 600mg dose is expected to be the target for a pivotal Phase 3 trial, anticipated to begin in 2026. The RM-718 program, a weekly subcutaneous injection, has begun enrolling HO patients in its Phase 1 Part C trial, with data expected in 2026. These next-generation assets are critical for long-term growth, offering improved patient convenience and extending patent protection beyond 2040.

Beyond HO, Rhythm is exploring other genetically driven MC4R pathway diseases. The Phase 3 EMANATE trial, evaluating setmelanotide in various genetic indications, is expected to yield topline data in Q1 2026. The Phase 2 DAYBREAK trial has already identified patients with clear responses to setmelanotide in specific gene variants, paving the way for future development with next-generation compounds. A new 26-week open-label Phase 2 trial for setmelanotide in Prader-Willi syndrome (PWS) is underway, escalating doses to 5mg/day, a significantly higher dose than previous attempts. While exploratory, a positive outcome (e.g., >5% BMI reduction) would address a significant unmet need for weight loss in PWS patients, where existing therapies primarily target hyperphagia.

Financially, Rhythm is in its strongest position to date. The company reported $291 million in cash and cash equivalents and short-term investments as of June 30, 2025. This was further bolstered by an upsized public offering in July 2025, which raised approximately $189.2 million in net proceeds. This capital, combined with forecasted revenues, provides a cash runway of "at least 24 months," extending into 2027.

Operating expenses reflect this strategic investment. Non-GAAP operating expenses for 2025 are guided to be between $285 million and $315 million, with SG&A ranging from $135 million to $145 million (driven by HO launch preparation and international expansion) and R&D from $150 million to $170 million (funding bivamelagon, RM-718, and Prader-Willi trials).

Cost of sales is expected to remain stable at 10-12% of net product revenue. While the company continues to incur operating losses, these are viewed as necessary investments to drive long-term value.

Competitive Dynamics and Outlook

Rhythm operates in a highly competitive biotechnology and pharmaceutical landscape, but its precision medicine approach provides a distinct competitive advantage. IMCIVREE is the only approved therapy for its specific indications, directly addressing the underlying MC4R pathway dysfunction, unlike general obesity treatments. While larger pharmaceutical companies develop GLP-1s, these do not target the root cause of Rhythm's patient population's obesity and hyperphagia. Soleno (SLNO)'s drug for PWS, for instance, addresses hyperphagia but not weight loss, leaving a critical unmet need that Rhythm aims to fill.

The company's next-generation pipeline, particularly bivamelagon and RM-718, is designed to enhance its competitive moat by offering improved profiles and extending intellectual property. This internal innovation is key to maintaining leadership against potential new entrants or alternative MC4R agonists. However, the industry faces increasing pricing and reimbursement pressures, exemplified by the U.S. Inflation Reduction Act (IRA) and the One Big Beautiful Bill Act, which could impact Medicare Part D rebates and Medicaid funding. Rhythm's ability to demonstrate the unique clinical value of its precision therapies will be crucial in navigating these dynamics.

Key risks include the inherent uncertainties of clinical trials, potential delays in regulatory approvals, and the challenges of patient identification and reimbursement in ultra-rare diseases. The precision of epidemiology estimates for these rare conditions remains a factor, though management expresses increasing confidence in the upper bound of its HO estimates. The company's reliance on third-party manufacturers and CROs also introduces operational risks. However, Rhythm's strategic focus on a well-defined biological pathway, coupled with a robust pipeline and strong financial position, mitigates many of these challenges.

Conclusion

Rhythm Pharmaceuticals stands at an exciting inflection point, poised to significantly expand its market footprint and solidify its leadership in rare neuroendocrine diseases. The compelling Phase 3 data for setmelanotide in acquired hypothalamic obesity, combined with a clear regulatory path and a well-capitalized balance sheet, sets the stage for a potentially transformative launch. This, alongside the steady growth of its Bardet-Biedl syndrome franchise and the strategic development of next-generation MC4R agonists, underscores a coherent long-term investment thesis.

The company's commitment to precision medicine, leveraging its differentiated technology to address fundamental biological deficits, provides a strong competitive moat against broader obesity treatments. While challenges in reimbursement and market penetration for rare diseases persist, Rhythm's focused strategy, operational execution, and robust pipeline position it for sustained growth. Investors should closely monitor the upcoming regulatory approvals for HO, the progress of its next-generation compounds, and the continued expansion of its global commercial footprint as key indicators of its long-term value creation.