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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to         

Commission file number 001-38223

RHYTHM PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

222 Berkeley Street

12th Floor

Boston, MA 02116

(Address of principal executive offices)

(Zip Code)

(857) 264‑4280

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No   ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T  ( of this chapter)during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒.

The aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $569.4 million, based on the closing price of the registrant’s Common Stock on June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter.

There were 44,058,909 shares of Common Stock outstanding as of February 28, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2019. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.

RHYTHM PHARMACEUTICALS, INC.

ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 2019

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, or this Annual Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the “safe harbor” created by those sections. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “likely,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms include forward‑looking statements that involve risks and uncertainties.  Forward-looking statements include, but are not limited to, statements regarding our expectations regarding timing and enrollment of clinical trials, timing for the announcement of data and filing of regulatory applications, expectations regarding our indications for our product candidates, expectations regarding our strategy and commercial sales, expectations regarding prevalence, expectations regarding our patient identification efforts, anticipated expenses, the sufficiency of cash, and the impact of accounting pronouncements.  We cannot guarantee future results, levels of activity, performance or achievements, and you should not place undue reliance on our forward-looking statements. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those set forth in “Item 1A. Risk Factors” and elsewhere in this Annual Report. Except as may be required by law, we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this Annual Report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Unless the content requires otherwise, references to “Rhythm Pharmaceuticals,” “Rhythm,” “the Company,” “we,” “our,” and “us,” in this Annual Report refer to Rhythm Pharmaceuticals, Inc. and its subsidiaries.

PART I

Item 1. Business

Overview

We are a late-stage biopharmaceutical company focused on the development and commercialization of therapeutics for the treatment of rare genetic disorders which are characterized by severe, early-onset obesity and an unrelenting hunger or hyperphagia. Our lead product candidate is setmelanotide, a potent melanocortin‑4 receptor, or MC4R, agonist for the treatment of rare genetic disorders of obesity. We believe setmelanotide, for which we have exclusive worldwide rights, has the potential to serve as replacement therapy for the treatment of MC4R pathway deficiencies. MC4R pathway deficiencies result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense feelings of hunger and to obesity.

Obesity is epidemic in the United States and current treatment approaches have demonstrated limited long‑term success for most obese patients. We are taking a different approach to obesity drug development by leveraging new understanding of the genetic causes of severe obesity to develop innovative therapies that we believe have the potential for compelling efficacy. Setmelanotide’s unique mechanism of action at MC4R enables a targeted approach to treating very severe obesity in patients with specific, monogenic defects in the MC4R signaling pathway. By restoring impaired function in this pathway, setmelanotide can serve as replacement therapy for genetic deficiencies, with the potential for dramatic improvements in weight and appetite. We believe we are at the forefront of developing a therapeutic option to improve treatment outcomes in subtypes of severe obesity caused by genetically‑defined defects in the MC4R pathway.

We plan to complete and submit new drug applications, or NDAs, for pro-opiomelanocortin, or POMC, deficiency obesity and leptin receptor, or LEPR, deficiency obesity in the first quarter of 2020. We recently reported positive topline Phase 3 data demonstrating a statistically significant and clinically meaningful impact on weight loss and hunger  in patients with POMC deficiency obesity and LEPR deficiency obesity. Additionally, we completed enrollment in the pivotal cohort in December 2019 in a Phase 3 trial evaluating setmelanotide for the treatment of both severe hunger and obesity in individuals living with Bardet‑Biedl syndrome, or BBS, or Alström syndrome. We plan to report topline data from this pivotal trial in the fourth quarter of 2020 or early in the first quarter of 2021.

In clinical trials of setmelanotide in these four genetic disorders of extreme and unrelenting appetite and obesity, subjects experienced dramatic reductions in both weight and hunger. The U.S. Food and Drug Administration, or the FDA, has acknowledged the importance of these results by giving setmelanotide Breakthrough Therapy designation for the treatment of obesity associated with genetic defects upstream of the MC4R in the leptin melanocortin pathways. The Breakthrough Therapy designation currently covers POMC deficiency obesity, LEPR deficiency obesity, BBS and Alström syndrome.

We are working to expand the potential market for setmelanotide beyond these first four indications through a robust series of genetic sequencing efforts and our exploratory Phase 2 Basket Study. We have been collaborating with partners to advance its own initiatives to sequence individuals living with early-onset, severe obesity to uncover additional rare genetic disorders of obesity, and develop a better understanding of those disorders. In September 2019, we reported on sequencing samples from 13,567 individuals (collected as of June 2019) with severe obesity, and those samples have yielded 11.7%, or 1,584 genetically-identified individuals, who have a rare genetic variant of the MC4R pathway and who may be eligible for inclusion in our Phase 2 Basket Study or our pivotal Phase 3 trials.  Inclusive of these results, our sequencing programs have now sequenced over 25,000 severely obese individuals.  We plan to update results from our sequencing activity in 2020.

Additionally, we are assessing setmelanotide in POMC epigenetic disorders, leptin deficiency obesity, or LEP, and Carboxypeptidase E deficiency obesity, or CPE, as part of investigator-initiated protocols within the Phase 2 Basket Study. For patients who may have any of these disorders, hyperphagia and obesity can have significant health consequences for which there is currently no approved treatment. For POMC or LEPR heterozygous deficiency obesity, which we also refer to as HET obesity, we reported initial, preliminary results from these trials in June 2018, and provided a further update in March 2019.  We expect to report additional data in this indication and at least one other indication in 2020.

In addition to our development of setmelanotide, we also are developing a second investigational asset, RM-853. RM-853 is an orally available ghrelin o‑acyltransferase, or GOAT, inhibitor currently in preclinical development for Prader‑Willi Syndrome, or PWS. PWS is a rare genetic disorder that results in hyperphagia and early‑onset, life‑threatening obesity, for which there are no approved therapeutic options.  We acquired exclusive, worldwide rights from Takeda Pharmaceutical Company Limited, or Takeda, in April 2018 to develop and commercialize this asset, which Takeda called T‑3525770.  We anticipate filing an Investigational New Drug application, or IND, for RM‑853 with the FDA in 2020.

Our Strategy

Our goal is to be a leader in developing and commercializing targeted therapies for genetic deficiencies that result in severe obesity and hyperphagia. The key components of our strategy are:

Ultimately, we intend to establish our own commercial sales and marketing organization in the United States and other core strategic markets. We expect that this sales organization will target physicians treating these rare genetic disorders of obesity, including pediatric and adult endocrinologists. We believe that building our own commercial operations will deliver a greater return on our product investment than if we license the rights to commercialize these products to third parties. We may also selectively establish collaborations in markets outside the United States for sales, marketing and distribution.

Our Product Pipeline

The following chart depicts key information regarding the development of setmelanotide, including the indications we are pursuing within MC4R pathway deficiencies and the current state of development, as well as the development status of RM-853, our preclinical asset:

* We are currently assessing setmelanotide in additional disorders, including POMC epigenetic disorders and LEP and CPE deficiency obesity, as part of investigator-initiated protocols within the basket study. Given the recent discovery of these rare disorders of the MC4R pathway, there is currently limited or no genetic sequencing or epidemiology data that defines prevalence. However, we believe that these are rare disorders which may be setmelanotide-responsive.

** We are currently assessing opportunities to further evaluate setmelanotide in PWS and plans to pursue these in parallel with the development of RM-853.

Market Overview

Recent Advances in the Understanding of Obesity

Diet and lifestyle modifications remain the cornerstones of weight loss therapy, but they are limited by a lack of long‑term success for most obese patients. The long‑term efficacy of these interventions and for existing drug therapies is often limited by the counter‑regulatory mechanisms of the human body. For example, with diet induced weight loss, typically there is a large decrease in energy expenditure that offsets that weight loss. Accordingly, the discovery that the MC4R pathway can regulate both appetite and energy homeostasis separately—helping maintain the balance between food intake and energy burn—has defined an important target for therapeutics. In addition to POMC deficiency obesity and LEPR deficiency obesity, recent advances in genetic studies have identified several diseases characterized at least in part with early-onset, severe obesity and hyperphagia that are the result of genetic defects affecting the MC4R pathway, including BBS, Alström syndrome, POMC or LEPR heterozygous deficiency obesity, SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity and Smith Magenis syndrome as well as POMC epigenetic disorders and LEP and CPE deficiency obesities. With a deeper understanding of this critical signaling pathway, we are taking a different approach to drug development by focusing on specific genetic deficiencies affecting the MC4R pathway. We believe that this approach has the potential to provide dramatic improvements in weight and appetite by restoring lost function in the MC4R pathway.

Obesity Caused by Rare Genetic Deficiencies Affecting the MC4R Pathway

The MC4R pathway serves a critical role in the control of food intake and energy balance. Its activity decreases appetite and caloric intake, and increases energy expenditure, with MC4R acting as the final step in the signaling pathway.

This important hypothalamic, or lower brainstem, pathway has been the focus of extensive investigation for many years, and we have a deep understanding of this mechanism, which is unlike the targets of most other anti‑obesity therapies. As a result, we believe we can better predict the efficacy and safety profile expected from modulating this target. The critical role of the MC4R pathway in weight regulation was also validated with the discovery that single genetic defects at many points in this pathway result in early onset, severe obesity.

The MC4R pathway is illustrated in the figure below, from the activation of the pathway to the resulting decrease in appetite and weight. Under normal conditions, POMC neurons are activated by brain satiety signals, including those resulting from the hormone leptin acting through LEPR. POMC neurons produce a protein, which is specifically processed by the proprotein convertase subtilisin/kexin 1, or PCSK1, enzyme, into melanocyte stimulating hormone, or MSH, the natural ligand, or activator, for MC4R. When upstream genetic mutations disrupt this pathway, it can lead to insufficient MC4R activation and the result is hyperphagia and severe obesity.

We are focused on developing setmelanotide for genetic disorders that result in defects in this pathway that are upstream of MC4R. Setmelanotide has the potential to restore lost function in this pathway by activating the intact MC4R pathway below the genetic defect. In this way, we believe setmelanotide acts as replacement therapy.

The figure below also illustrates some of the genes that are upstream within the MC4R pathway and the potential effect on the activation of the MC4R, which regulates hunger and energy expenditure.  We are focused on deficiencies in the genes of this pathway.

Setmelanotide Development Targets: Upstream Deficiencies Affecting the MC4R Pathway

AgRP, agouti-related protein; ARC, arcuate nucleus; LEPR, leptin receptor; MC4R, melanocortin-4 receptor; MSH, melanocyte-stimulating hormone; NPY, neuropeptide Y; PCSK1, proprotein convertase subtilisin/kexin-type 1; POMC, proopiomelanocortin; PVN, paraventricular nucleus of hypothalamus. Reference: Yazdi FT et al. PeerJ. 2015;3:e856.

Epidemiology Estimates of Rare Genetic Disorders of the MC4R Pathway

While obesity is epidemic in the United States and elsewhere, we are focused on rare genetic disorders of obesity, most often characterized by severe, early-onset obesity and unrelenting hunger or hyperphagia. Of the tens of millions of obese individuals in the United States, we estimate that there are approximately 5.7 million individuals whose severe obesity was early-onset1. The table below summarizes the indications on which we are focusing for the development of

setmelanotide, including our clinical epidemiology estimates based on the literature and company sequencing data for the addressable patient populations within these indications.

* Estimated prevalence of U.S. patients with rescuable variants of the MC4R.

We believe that the patient populations in the European Union are at least as large as those in the United States. However, we do not have comparable epidemiological data from the European Union and these estimates are therefore based solely on applying relative population percentages to the Rhythm‑derived estimates described above. Estimates are not yet available for POMC epigenetic disorders and LEP and CPE deficiency obesities.

For patients with genetic forms of MC4R pathway deficiencies, the rarity of our target indications means that there is no comprehensive patient registry or other method of establishing with precision the actual number of patients. As a result, we have had to rely on other available sources to derive clinical prevalence estimates for our target indications. In addition, we have internal genetic sequencing results from 13,567 patients with severe obesity that provide another approach to estimating prevalence. Since the published epidemiology studies for these genetic deficiencies are based on relatively small population samples, and are not amenable to robust statistical analyses, it is possible that these projections may significantly exceed the addressable population, particularly given the need to genotype patients to definitively confirm a diagnosis.

Based on clinical epidemiology, we have estimated the potential addressable patient populations with these MC4R pathway deficiencies based on the following sources and assumptions:

•POMC Deficiency Obesity.  Our addressable patient population estimate for POMC deficiency obesity is approximately 100 to 500 patients in the United States, with a comparable addressable patient population in Europe. Our estimates are based on:

•approximately 50 patients with POMC deficiency obesity noted in a series of published case reports, each mostly reporting a single or small number of patients. However, we believe our addressable patient population for this deficiency may be approximately 100 to 500 patients in the United States, and a comparable addressable patient population in Europe, as most of the reported cases are from a small number of academic research centers, and because genetic testing for POMC deficiency obesity is often unavailable and currently is rarely performed;

1These calculations assume a U.S. population of 327 million, of which 1.7% have early-onset, severe obesity (Hales et al in JAMA – April 2018: Trends in Obesity and Severe Obesity Prevalence in US Youth and Adults by Sex and Age, 2007-2008 to 2015-2016);

•our belief, based on discussions with experts in rare diseases, that the number of diagnosed cases could increase several‑fold with increased awareness of this deficiency and the availability of new treatments;

•U.S. Census Bureau figures for adults and children, and Centers for Disease Control and Prevention, or CDC, prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for POMC deficiency obesity patients (including both POMC and proprotein convertase subtilisin/kexin 1, or PCSK1, gene disorders) of approximately 0.06%.

•LEPR Deficiency Obesity.  Our addressable patient population estimate for LEPR deficiency obesity is approximately 500 to 2,000 patients in the United States, with a comparable addressable patient population in Europe. Our estimates are based on:

•epidemiology studies on LEPR deficiency obesity in small cohorts of patients comprised of children with severe obesity and adults with severe obesity who have a history of early onset obesity;

•U.S. Census Bureau figures for adults and children, and Centers for Disease Control and Prevention, or CDC, prevalence numbers for severe adult obese patients (BMI greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old);

•with wider availability of genetic testing expected for LEPR deficiency obesity and increased awareness of new treatments, our belief that up to 40% of patients with these disorders may eventually be diagnosed; and

•our internal sequencing yield for LEPR deficiency obesity patients of approximately 0.15%.

Using these sources and assumptions, we calculated our estimates for addressable populations by multiplying (x) our estimate of the number of patients comprised of children with severe obesity and our estimate of a projected number of adults with severe obesity who have a history of early onset obesity, (y) the estimated prevalence from epidemiology studies of approximately 1% for LEPR deficiency obesity, and (z) our estimated diagnosis rate of up to 40%. In addition, we considered the results of our internal sequencing yields, which support our clinical epidemiology estimates.

•Bardet‑Biedl Syndrome.  Our addressable patient population estimate for BBS is approximately 1,500 to 2,500 patients in the United States based on:

•published prevalence estimates of one in 100,000 in North America, which projects to approximately 3,250 people in the United States. We believe the majority of these patients are addressable patients; and

•our belief that with wider availability of genetic testing expected for BBS and increased awareness of new treatments, the number of patients diagnosed with this disorder will increase.

•Alström Syndrome.  Our addressable patient population estimate for Alström syndrome is approximately 500 patients in the United States. This estimate is based on:

•published prevalence estimates of one in 1,000,000 in North America, which projects to approximately 325 people in the United States. We believe the majority of these patients are addressable patients; and

•our belief that with wider availability of genetic testing expected for Alström syndrome and increased awareness of new treatments, the number of patients diagnosed with this disorder will increase.

•POMC or LEPR Heterozygous Deficiency Obesities, or HET obesity.   Our addressable patient population estimate for patients with high-impact variants (the subset of POMC or LEPR heterozygous patients with loss of function variants such as truncations, frame-shift, and splice variants as well as well-characterized, published missense variants likely to cause loss of function of the MC4R pathway, expected to be most responsive to setmelanotide) is approximately greater than 20,000 patients in the United States, with a comparable addressable patient population in Europe. Our estimates are based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (BMI greater than 40 kg/m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for patients with high‑impact variants of approximately 0.7%.

•POMC Epigenetic Disorders.  There is currently no epidemiology data that defines the prevalence of POMC epigenetic disorders.

•SRC1 Deficiency Obesity.  Our addressable patient population estimate for SRC1 deficiency obesity is approximately greater than 23,000 patients in the United States. This estimate is based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (BMI greater than 40 kg/m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for SRC1 deficiency obesity patients of approximately 2.5% prior to application of functional and computational filters.

•SH2B1 Deficiency Obesity.  Our addressable patient population estimate for SH2B1 deficiency obesity is approximately greater than 24,000 patients in the United States. This estimate is based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (BMI greater than 40 kg/m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for SH2B1 deficiency obesity patients of approximately 1.8% prior to application of functional and computational filters.

•MC4R Deficiency Obesity.  Our addressable patient population estimate for MC4R deficiency obesity is approximately greater than 10,000 patients in the United States. This estimate is based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (BMI greater than 40 kg/m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for MC4R deficiency obesity patients of approximately 2.0% prior to application of functional filters.

•Smith‑Magenis Syndrome.  Our addressable patient population estimate for Smith‑Magenis syndrome is approximately greater than 2,400 patients in the United States. This estimate is based on:

•published prevalence estimates of one in 25,000 in the United States, which projects to approximately 13,000 people in the United States;

•published prevalence estimates that approximately 10% of patients with Smith‑Magenis syndrome have RAI1 variants that may affect the MC4R pathway and 90% of patients with Smith‑Magenis syndrome have 17p11.2 chromosomal deletions which also may affect the MC4R pathway, of which approximately 67% and 13%, respectively, live with obesity; and

•U.S. Census Bureau figures for total population of adults and children.

We believe that the patient populations in the EU are at least as large as those in the United States. However, we do not have comparable epidemiological data from the EU and these estimates are therefore based solely on applying relative population percentages to the Rhythm‑derived estimates described above.

We have developed a patient registry for diagnosed patients with POMC deficiency and LEPR deficiency (and other genetic disorders of obesity) which might further inform prevalence projections for these rare genetic orders.

Another method to estimate the size of these ultra‑rare populations by genetic epidemiology is using newly available large genomic databases, containing full genome sequencing or exome sequencing. Ultra‑rare orphan diseases are generally categorized as those that affect fewer than 20 patients per million. We have begun some substantial efforts with a series of such databases and/or collaborators. Our initial work has been with a database of approximately 140,000 genomes, which is representative of the U.S. population, and suggests that genetic epidemiology estimates of POMC deficiency obesity and LEPR deficiency obesity may be five times higher than clinical epidemiology estimates. These efforts generally are based on the prevalence of heterozygous mutations, as true null mutations are ultra‑rare, and then standard scientific methods such as the Hardy‑Weinberg equilibrium calculations, are applied to estimate the prevalence in the U.S. population. These methods make assumptions that may not be sufficiently robust for ultra‑rare genetic disorders and have the inherent variability of estimates for rare events.

Furthermore, as of September 2019, we collected samples from 13,567 individuals with severe obesity, which yielded 11.7%, or 1,584, genetically‑identified individuals with a rare genetic variant of the MC4R pathway and who may be eligible for inclusion in our Phase 2 Basket Study or pivotal Phase 3 clinical trials. Inclusive of these results, our sequencing programs have now sequenced over 25,000 severely obese individuals.  We plan to update results from our sequencing activity in 2020.  The yields for the indications are outlined above, and in order to establish a prevalence estimate, we applied a rarity filter and functional and/or computational filters to calculate the estimates in the United State population. A rarity filter means the specific variant appears in less than 1% of people, and the functional and computational filters help us focus our estimates based on the highest confidence loss-of-function variants.  These genetic sequencing results have identified samples from 29 patients with POMC deficiency obesity and LEPR deficiency obesity, which is consistent with our clinical epidemiology estimates.

In addition, the databases currently available only provide limited clinical data, such as age, weight and BMI, that would be needed to associate genetic defects with severe obesity. Our continued investigations support that the genetic epidemiological estimates are larger than the clinical epidemiological estimates, but we will likely need to reconcile the scientific definition of mutations with the regulatory definition.

We believe the separate analyses that we have completed using clinical epidemiology and genetic epidemiology provide a robust range of patient population estimates for POMC and LEPR deficiency obesities.  However, as the clinical epidemiology estimates tend to be lower, to be conservative, we generally reference the clinical epidemiology figures in our descriptions of our target indications.

Defining the exact genetic variants that result in MC4R pathway disorders is complex.  If any approval that we obtain is based on a narrower definition of these patient populations than we had anticipated, then the potential market for setmelanotide for these indications will be smaller than we originally believed. In either case, a smaller patient population in our target indications would have a materially adverse effect on our ability to achieve commercialization and generate revenues.

Obesity Caused by Upstream Genetic Deficiencies Affecting the MC4R Pathway

We have advanced setmelanotide for the treatment of four rare genetic disorders of obesity to Phase 3 clinical trials. We reported positive topline Phase 3 data demonstrating a statistically significant and clinically meaningful impact on weight loss and hunger in patients with POMC deficiency obesity and LEPR deficiency obesity, and we completed enrollment of the pivotal cohort in December 2019 in a Phase 3 trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals living with BBS or Alström syndrome. These achievements followed the completion of four positive Phase 2 trials of setmelanotide that provided proof of concept for four upstream MC4R pathway genetic defects in which obesity is life‑threatening but the downstream MC4R pathway is fully functional. 

POMC Deficiency Obesity

POMC deficiency obesity is an ultra‑rare genetic disorder, with severe, early onset obesity, defined here as a BMI of greater than 40 kg/m2, and hyperphagia as hallmark clinical features. Patients with POMC deficiency obesity are extremely rare. There are approximately 50 patients with POMC deficiency obesity noted in a series of published case reports, each mostly reporting a single or small number of patients. However, we estimate that our addressable patient population for this disorder is approximately 100 to 500 patients in the United States, as most of the reported cases are from a small number of academic research centers, and because genetic testing for POMC deficiency is often unavailable and rarely performed. However, our genetic epidemiological estimates are several times higher.  Most patients are not currently diagnosed and based on discussions with experts in rare diseases, we believe the number of diagnosed cases will increase several‑fold with increased awareness of this disorder and the availability of new treatments.

POMC deficiency obesity is caused by the loss of both genetic copies of either the gene for POMC or the gene for PCSK. This results either in loss of POMC neuropeptide synthesis, in the case of homozygous deficiency in the POMC gene, or in disruption of the required processing of the POMC neuropeptide product to MSH by the PCSK enzyme, in the case of homozygous deficiency in the PCSK gene. The result of both of these two homozygous genetic defects is lack of MSH to bind and activate MC4R, ultimately leading to the lack of stimulation of downstream MC4R neurons and causing severe, early onset obesity and hyperphagia. POMC homozygous deficiency may also be associated with hormonal deficiencies, such as hypoadrenalism, as well as red hair and fair skin.

POMC deficiency is characterized by voracious infant feeding, rapid weight gain and severe obesity, often in early infancy, with patients demonstrating remarkable weight increases many standard deviations from the normal weight growth curves. These patients and their caregivers have attempted to stabilize body weight with the help of psychologists, nutritionists and pediatric endocrinologists, all without significant success. Currently there are no approved or effective therapies for POMC deficiency obesity.

Leptin Receptor Deficiency Obesity

LEPR deficiency obesity is an ultra‑rare genetic disorder that causes hyperphagia and severe, early onset obesity. LEPR deficiency accounts for an estimated 1% of cases of severe, early onset obesity. Based on clinical epidemiology studies in small cohorts of patients with severe, early onset obesity, we estimate that our addressable patient population for this disorder is approximately 500 to 2,000 patients in the United States, through our genetic epidemiological estimates suggest the number may be moderately higher.

Leptin’s role in obesity has been elucidated by characterization of severely obese people with homozygous mutations that impair the activity of leptin, including disruption of signaling at the LEPR, known as LEPR deficiency obesity. Under normal conditions, leptin can activate POMC neurons and the downstream MC4R, but like other deficiencies upstream in the MC4R pathway, lack of signaling at LEPR results in loss of function in the MC4R pathway.

Like POMC deficiency obesity, patients with LEPR deficiency obesity exhibit hyperphagia and severe obesity from early childhood. LEPR deficiency is also associated with hypogonadism and reduced immune function. Currently there are no approved or effective therapies for LEPR deficiency obesity.

Bardet‑Biedl Syndrome

Bardet‑Biedl syndrome is a life‑threatening, ultra‑rare orphan disease with a prevalence of approximately one in 100,000 in North America. We estimate that our addressable patient population for BBS obesity is approximately 2,500 patients in the United States. BBS is a monogenic disorder that causes severe obesity and hyperphagia as well as vision loss, polydactyly, kidney abnormalities, and other signs and symptoms. For BBS patients, hyperphagia and obesity can have significant health consequences.

Bardet‑Biedl syndrome is part of a class of disorders called ciliopathies, or disorders associated with the impairment of cilia function in cells. Cilia are hair‑like cellular projections that play a fundamental role in the regulation of several biological processes, including satiety signaling. Cilia dysfunction in the hypothalamus is thought to contribute to hyperphagia and obesity in BBS. BBS is a genetically heterogeneous disease that is caused by as many as 21 separate Bardet‑Biedl loci defects that result in a similar syndrome, though each BBS patient only has one of these defects.

Recent scientific studies identify deficiencies affecting the MC4R pathway as a potential cause of the obesity and hyperphagia associated with BBS and demonstrate that an MC4R agonist can directly impact these symptoms. Studies in mouse models of BBS show that deficiencies in the MC4R pathway contribute to the obesity and hyperphagia in BBS, with animals developing hyperphagic tendencies as early as 10 weeks of age. Notably, these mice have decreased leptin receptor signaling, with the essential hallmarks of failure to activate POMC neurons. The potential utility of MC4R agonists is also supported by studies in BBS rodent models, where mice have responded to an MC4R agonist resulting in reduced food intake and body weight. Currently there are no approved or effective therapies for BBS.

Alström Syndrome

Alström syndrome is a life‑threatening, ultra‑rare orphan disease with a prevalence of approximately one in 1,000,000 in North America. We estimate that our addressable patient population for Alström syndrome is approximately 500 to 1,000 patients worldwide. Alström syndrome is a monogenic disorder that causes childhood obesity and hyperphagia as well as progressive vision loss, deafness, cardiomegaly, insulin resistance and other signs and symptoms. Variable features include short stature, cardiomyopathy, and progressive lung, liver, and kidney dysfunction. Symptoms of Alström syndrome first appear in infancy, and progressive development of multi‑organ pathology leads to a reduced life expectancy, with survival rare beyond the age of 50.

Alström syndrome is a ciliopathy caused by mutations in the ALMS1 gene, which has been shown to be important for cilia function. Like BBS, recent scientific studies identify genetic deficiencies affecting the MC4R signaling pathway as a potential cause of the obesity and hyperphagia associated with Alström syndrome. Studies in a mouse model of Alström syndrome show a reduction in the number of cilia in specific neurons in the hypothalamus that are critical for MC4R pathway signaling. While Alström syndrome is less well studied than BBS, the similar pathophysiology of cilia dysfunction and clinical presentation support that deficiencies in the MC4R pathway are implicated in the obesity and hyperphagia observed in Alström syndrome. Currently there are no approved or effective therapies for Alström syndrome.

Other Upstream Genetic Defects in the MC4R Pathway

In addition to the indications which we have advanced into Phase 3 development (POMC deficiency obesity, LEPR deficiency obesity, BBS and Alström syndrome), there are other upstream, MC4R pathway deficiencies for which we believe setmelanotide may function as replacement therapy, including defects that partially modulate POMC activity, such as POMC or LEPR heterozygous deficiency obesity, SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity and Smith-Magenis syndrome, as well as POMC epigenetic disorders and LEP and CPE deficiency obesities. Each one of the genes that underlies these indications have strong, well-established, published links to the MC4 receptor pathway, and loss of function in any one of these genes ultimately results in a dysregulation of the pathway that originates due to a decrease in activity of the POMC neuron, and as a consequence, a decrease in MC4 receptor activity, which engenders those kind of canonical clinical presentations of hyperphagia and obesity.

POMC or LEPR heterozygous deficiency obesity

POMC or LEPR heterozygous deficiency obesity results in a strong predisposition to obesity, though the epidemiology and clinical characterization of these patients is less well known. POMC heterozygous deficiency obesity is caused by the loss of one of the two genetic copies of either the gene for POMC or the gene for PCSK. An estimated 2% of severe, early onset obesity patients have POMC heterozygous deficiency obesity, which is much more common than the ultra‑rare POMC deficiency obesity in which both copies of either the POMC or PCSK genes are impaired. We believe that the most severe POMC heterozygous deficiency obesity patients may be suitable for treatment with setmelanotide. We estimate that our addressable patient population within severe POMC heterozygous deficiency obesity is approximately 20,000 patients in the United States, based on our own genetic sequencing analyses and epidemiology studies in small cohorts of patients with severe early onset obesity and adult obesity. Animal models support that such heterozygous deficiency in the critical MC4R pathway can result in a strong predisposition to severe obesity. The effect of heterozygous deficiency was first demonstrated in MC4R heterozygous deficiency obesity.

We are also studying patients with other MC4R pathway gene heterozygous mutations, including patients with heterozygous mutations in genes such as LEPR and BBS, as well as patients with heterozygous mutations in more than one gene in the MC4R pathway. For simplicity, we refer to the group of such heterozygous patients as patients with POMC heterozygous deficiency, but we will be transitioning to more general language, such as patients with Heterozygous Mutations in the MC4R Pathway, as more of these patients enter our Phase 2 trials.

It is thought that the obesity of patients with POMC heterozygous deficiency may have a broader spectrum of severity than POMC deficiency obesity. Therefore, our focus will be on the most severe of the POMC heterozygous deficiency obesity patients, with our estimate that only a small percentage of these patients will benefit from targeted therapy with substantial efficacy. There are currently no approved or effective therapies for POMC heterozygous deficiency obesity.

SRC1 deficiency obesity

SRC1 deficiency obesity is a rare genetic disorder that is characterized by early-onset severe obesity, defined here as a BMI of greater than 40 kg/m2, hyperphagia and hyperleptinemia. Patients with SRC1 deficiency obesity are rare. The first academic paper describing SRC1 deficiency obesity, titled, “Steroid receptor coactivator-1 modulates the function of POMC neurons and energy homeostasis” (Yang et al 2019, Nat Comm. 10, Article 1718) was published in 2019 in Nature Communications. In this paper, the authors described how SRC1 variants found in severely obese cases significantly impaired leptin-induced POMC expression. SRC1 deficiency obesity is an autosomal dominant disorder, meaning that heterozygote loss of the SRC1 gene (just one gene copy) can be sufficient to give rise to obesity and hyperphagia.

The SRC1 protein has been shown to have direct links to the MC4R pathway. Specifically, SRC1 is a transcriptional coactivator that has links to both the leptin receptor and to POMC. When the leptin receptor is activated, SRC1 through a cascade of events itself is activated and then goes on to drive the expression of POMC, such that in individuals who have heterozygote loss of function mutations in their SRC1 genes, there's insufficient leptin receptor activation of the MC4 receptor pathway, decreased POMC expression, which decreases the amount of available MSH to reactivate the MC4 receptor, consequentially resulting in that decreased activity that drives the hyperphagia and obesity in these individuals. Based on our sequencing efforts, we estimate that there are more than 23,300 people in the United States living with SRC1 deficiency obesity.

SH2B1 deficiency obesity

SH2B1 deficiency obesity is a rare genetic disorder that is characterized by early-onset severe obesity, defined here as a BMI of greater than 40 kg/m2, hyperphagia and hyperinsulinemia. In addition to early-onset severe obesity and hyperphagia, other clinical characteristics associated with SH2B1 deficiency obesity are insulin resistance and reduced final height  Patients with SH2B1 deficiency obesity are rare. Deficiency in SH2B1 can arise through either DNA variants in the SH2B1 gene or through chromosomal deletions (chromosome 16) that encompass the SH2B1 gene. In both cases, dysfunction/loss of only one copy of the SH2B1 gene is sufficient to give rise to obesity and hyperphagia.

The SH2B1 protein has been shown to have direct links to the MC4R-pathway. Specifically, SH2B1 is an adapter protein that amplifies the signal coming through the leptin receptor. In individuals who carry heterozygote loss of function mutations in SH2B1 or a chromosomal deletion that remove the SH2B1 from the chromosome, individuals have insufficient leptin receptor activity activation of their MC4 receptor pathway. This gives rise to a well-documented form of severe early-onset obesity and hyperphagia. Based on our sequencing efforts and data from published literature, we estimate that there are more than 24,000 people in the United States living with SH2B1 deficiency obesity.

MC4 receptor deficiency obesity

MC4R deficiency obesity may arise due to heterozygote loss of function mutations in the MC4 receptor gene itself, and this is one of the most well-known and most prevalent forms of monogenic severe early-onset obesity. An epidemiological study performed in Europe in 2006 reported a prevalence of 2.6% of genetic defects in the MC4R gene in the obese population with a BMI of greater than 30 kg/m2, and studies performed in both Europe and the United States in 2000 and 2003, respectively, reported a prevalence of up to 4% of these genetic defects in more severely obese populations with a BMI of greater than 35 kg/m2. These prevalence rates suggest that there are approximately one million people in the United States with obesity caused by a mutation of the MC4R gene. These patients have a higher risk than the general population for early onset obesity and complications such as diabetes. Furthermore, MC4R deficiency may offset the beneficial effects of diet and exercise for sustained weight loss, limiting treatment options for these individuals. There are currently no approved or effective therapies for MC4R heterozygous deficiency obesity.

Based on a comprehensive ongoing biochemical screening study, we believe there is an opportunity for setmelanotide in a very defined subset of this broader population, specifically those individuals who carry MC4 receptor loss of function variants that can be rescued by setmelanotide (e.g. are not responsive to the endogenous ligand MSH, but do respond normally to setmelanotide). Based on our sequencing efforts, we estimate that there are approximately 10,000 people in the United States living with MC4R deficiency obesity that may be addressable by setmelanotide.

Smith-Magenis syndrome

Smith-Magenis syndrome is a developmental disorder that affects many parts of the body. The major features of this condition include mild to moderate intellectual disability, delayed speech and language skills, distinctive facial features, sleep disturbances, behavioral problems, and in some cases, adolescent-onset obesity and hyperphagia. Now it arises due to loss of function mutations or chromosomal deletions that ablate the function of a gene called RAI1. RAI1 is a transcription factor that's been shown to affect the expression of several MC4 receptor pathway genes, including POMC itself. As a result, we believe that hyperphagia and obesity found with Smith-Magenis syndrome is likely caused by an overall decrease in the activity of the MC4 receptor pathway.

Smith-Magenis syndrome affects at least 1 in 25,000 individuals worldwide, although many researchers believe that many people with this condition are not diagnosed, and that prevalence could be closer to 1 in 15,000 individuals, according the National Institutes of Health. We estimate that approximately 2,400 individuals with Smith-Magenis syndrome have severe obesity and hyperphagia that may be addressable with setmelanotide.

POMC Epigenetic Disorders

Recent scientific studies have identified patients with obesity due to a partial lack of MSH that is caused by epigenetic POMC variant. Given the recent discovery of these epigenetic disorders, there is currently no epidemiology data that defines the prevalence of POMC epigenetic disorders. However, we believe that these are rare disorders. Epigenetics implies DNA modifications, which can change gene expression without altering the DNA sequence itself. The most stable epigenetic modification is called DNA methylation. Recently, our academic collaborators in Berlin have described a POMC hypermethylation variant, which correlates with increased body weight in children and adults. Therefore, the presence of the POMC epigenetic variant leads to an increased risk of obesity based on reduced POMC gene activity. We expect that these patients under‑express the POMC gene product and as a result have a partial MSH deficiency.  There are currently no approved or effective therapies for these disorders.

Other MC4R Disorders

Based on setmelanotide’s biochemical structure and mechanism of action, we believe setmelanotide has the potential to serve as replacement therapy for other rare genetic disorders of obesity which have pathophysiology upstream of the MC4R receptor.  We are conducting research activities to study which potential disorders tied to the pathway may benefit from setmelanotide therapy.  Our basket study protocols, which enable enrollment of new populations with disorders tied to the pathway, allow us to study new potential indications without the administrative and regulatory burden of initiating a separate clinical study de novo for each new indication.

Expanding Attention to the Diagnosis of Genetic Obesity

The Endocrine Society issued new Pediatric Obesity Guidelines in January 2017 that, for the first time, recommend genotyping patients with severe pediatric obesity and hyperphagia. These guidelines estimate that up to 7% of patients with extreme pediatric obesity have a genetic mutation, including genetic MC4R pathway deficiencies, that drives their obesity. The guidelines also suggest that this percentage of severe pediatric obesity patients will increase, with newer methods and wider awareness of the need for genetic testing.

We are focused on identifying people with early-onset obesity that may be caused by certain rare genetic variants. We support several initiatives to expand the diagnosis of genetic obesity, including a genotyping study called GO‑ID, a sponsored genetic testing program called Uncovering Rare Obesity, and a patient registry called TEMPO.  The objective of GO-ID is to develop a screening algorithm for selecting patients to be genotyped and identified with POMC deficiency obesity and LEPR deficiency obesity, and to guide further genotyping efforts. Uncovering Rare Obesity is designed to expand the reach of genetic testing for patients with early-onset, severe obesity beyond academic settings to community physicians and their patients. TEMPO is a commitment to understanding the ongoing impact and burden of disease on patients and their caregivers.  This registry is intended to facilitate enhanced understanding of these conditions in the medical community and builds upon ongoing collaborations with existing patient registries in syndromic conditions such as BBS.

In addition, we have an ongoing effort to broaden the understanding of the genetics of obesity through sequencing analyses. In September 2019, we presented data from 13,567 sequenced patient samples of obese individuals collected as of June 2019 through GO-ID, Uncovering Rare Obesity and from third-party genetic databases. We are also conducting genetic obesity epidemiology analysis of MC4R pathway genetic defects in a large representative sample of the U.S. population. The first results of this research were published in May 2018 in the Journal of Clinical Endocrinology and Metabolism, a leading journal in this field. An important improvement in this effort will be working with data linked to phenotypic information to better characterize the genetic information we are analyzing. In addition, we tested associations between BMI and loss of function mutation burden in various populations to further define the MC4R pathway and its potential impact on obesity, showing that the cumulative allele burden, or number of mutations along the MC4R pathway in a single individual, predisposes to more obesity.

Limitations of Current Therapies

Although drugs approved for general obesity can potentially be used in obese patients with MC4R pathway deficiencies, all have limited efficacy and aim to treat symptoms rather than addressing the underlying biology. There are currently no treatments approved specifically for obesity and hyperphagia in POMC deficiency obesity, LEPR deficiency obesity, BBS, Alström syndrome, POMC heterozygous deficiency obesity, or POMC epigenetic disorders. Bariatric surgery is not an option in patients with upstream defects in the MC4R pathway who have severe obesity and hyperphagia.

Setmelanotide: A First‑in‑Class MC4R Agonist in Three Phase 3 Programs

Setmelanotide is a potent MC4R agonist peptide administered by daily SC injection. Setmelanotide is in Phase 3 for the treatment of two rare genetic disorders of obesity caused by MC4R pathway deficiencies, and we have initiated a combined Phase 3 clinical trial in two additional rare genetic disorders. We also have an ongoing Phase 2 clinical trial in several other MC4R pathway disorders. MC4R modulates a key pathway in humans that regulates energy homeostasis and food intake.

The critical role of the MC4R pathway in weight regulation was validated with the discovery that single genetic defects in this pathway result in severe, early onset obesity. The first generation MC4R agonists were small molecules that failed in clinical trials primarily due to safety issues, particularly increases in blood pressure, as well as limited efficacy. Setmelanotide is a peptide that retains the specificity and functionality of the naturally occurring hormone that activates MC4R, with demonstrated efficacy and little, if any, signal of increases in blood pressure.  In total, approximately 450 obese subjects and patients have been treated with setmelanotide in previous and ongoing clinical trials in which setmelanotide demonstrated statistically significant weight loss with good tolerability. 

We recently published new molecular evidence of setmelanotide action on MC4R in Nature Medicine in May 2018, which demonstrates a unique mechanism of action compared to the endogenous activator, MSH, and first generation MC4R agonists. With agonism of the MC4R, setmelanotide appears to use different signaling pathways inside the MC4R cell, and to better compete away the natural antagonist at MC4R (AgRP). This may explain the efficacy of setmelanotide for appetite control in individuals with severe hyperphagia and may also suggest why setmelanotide does not clinically increase blood pressure or heart rate, compared to former MC4R agonists. Further research in this area is planned as well.

Clinical Development in Rare Genetic Disorders of Obesity Caused by MC4R Pathway Deficiencies

Setmelanotide is currently being evaluated in three Phase 3 trials: one trial evaluating efficacy and safety in POMC deficiency obesity, one in LEPR deficiency obesity and one trial that combines BBS and Alström syndrome. We recently reported positive topline Phase 3 data demonstrating a statistically significant and clinically meaningful effect on weight loss and hunger endpoints in patients with POMC deficiency obesity and LEPR deficiency obesity, and we completed enrollment of the pivotal cohort in December 2019 in a Phase 3 trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals living with BBS or Alström syndrome. We also are enrolling patients in multiple cohorts in our Phase 2 Basket Study of setmelanotide for the treatment of MC4R pathway deficiency obesities, including POMC or LEPR heterozygous deficiency obesity, SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity and Smith Magenis syndrome. Additionally, we are assessing setmelanotide in POMC epigenetic disorders and LEP and CPE deficiency obesities.

Pivotal Phase 3 clinical trials evaluating setmelanotide in POMC and LEPR deficiency obesities

In August 2019, we reported positive topline Phase 3 data demonstrating a statistically significant and clinically meaningful impact on weight loss and hunger in patients with POMC deficiency obesity and LEPR deficiency obesity. Both studies met their primary endpoints and all key secondary endpoints, demonstrating a statistically significant and clinically meaningful effect on weight loss and reductions in insatiable hunger, or hyperphagia, in patients with POMC and LEPR deficiency obesities.

Eight of 10 patients with POMC deficiency obesity achieved the primary endpoint of greater than 10% weight loss over approximately one year (p<0.0001). The mean reduction from baseline in body weight for POMC deficiency obesity patients was -25.4% (p<0.0001), and the mean reduction from baseline in most hunger rating for POMC deficiency obesity patients was -27.8% (p=0.0005). In addition, 50% of the POMC deficiency obesity patients in the trial met or exceeded a 25% improvement in self-reported hunger scores (p=0.0004). Mean weight loss for these patients was 31.9 kg, or 70.2 pounds, over one year on therapy.

Five of 11 patients with LEPR deficiency obesity achieved the primary endpoint of greater than 10% weight loss over one year (p=0.0001). The mean reduction from baseline in body weight for LEPR deficiency obesity patients was -12.5% (p<0.0001), and the mean reduction from baseline in most hunger rating for LEPR deficiency obesity patients was -41.9% (p<0.0001). In addition, 72.7% of the LEPR deficiency obesity patients in the trial met or exceeded a 25% improvement in self-reported hunger scores (p<0.0001). Mean weight loss for these patients was 16.7 kg, or 36.8 pounds, over one year on therapy.

In addition, the study design included a four-week placebo withdrawal period to further study the effect of treatment with setmelanotide. Upon entry into the placebo period, participants almost immediately gained weight and experienced an increase in hunger, reversing the downward trends in weight loss and hunger scores observed during the first 12 weeks of the treatment period. In both trials, the mean weight increase during the four-week placebo period was approximately 5 kg, or more than 11 pounds, and this weight gain was accompanied by a worsening in hunger scores. These trends reversed again when patients went back on drug.

We presented additional data from these trials showing the effect of setmelanotide on BMI scores and certain cardiovascular parameters in a special, late-breaking research forum during the 37th Annual Meeting of The Obesity Society at ObesityWeek® 2019, held November 3-7, 2019 in Las Vegas.

With this data, it was shown that setmelanotide was associated with reductions in BMI and BMI z-scores (BMI z-score, or BMI standard deviation scores, are measures of relative weight adjusted for child age and gender) for patients with POMC deficiency obesity who were treated with setmelanotide for over one year at therapeutic dose:

Setmelanotide was associated with reductions in BMI and BMI z-scores for patients with LEPR deficiency obesity who were treated with setmelanotide for over one year at therapeutic dose:

Setmelanotide was not associated with significant changes in blood pressure or heart rate:

1 N=10 for all POMC vital signs
2 mmHG, millimeter of mercury
3 N=7; one participant discontinued due to treatment-related adverse event.
4 N=9 for all LEPR vital signs

Consistent with prior clinical experience, setmelanotide was generally well-tolerated in both of these pivotal trials. There were no reported cardiovascular adverse events, or AEs, related to setmelanotide. Setmelanotide was not associated with significant changes to blood pressure or heart rate. Treatment-emergent related AEs included injection site reactions, nausea and vomiting, and increased hyperpigmentation (darkening of the skin); these were consistent with prior clinical trials of setmelanotide. One LEPR study patient withdrew before the end of titration due to AE of mild hyper eosinophilia. One LEPR study patient died from injuries unrelated to the study drug. This patient was a passenger in a vehicle in a car accident and died from injuries from the accident.

We plan to complete and submit NDAs for POMC deficiency obesity and LEPR deficiency obesity in the first quarter of 2020.

Phase 3 trial in Bardet-Biedl and Alström syndromes

In December 2019, we announced that we had completed enrollment of the pivotal cohort in its Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals living with BBS or Alström syndrome. We enrolled 32 individuals with BBS and six individuals with Alström syndrome in the pivotal cohort, and we are continuing to enroll patients in a supplemental cohort to meet demand and provide further data on the use of setmelanotide in people living with these conditions.

The combined pivotal Phase 3 trial is a multinational, open-label, single-arm study. Participants were randomized to placebo or setmelanotide for 14 weeks followed by an open-label period on setmelanotide for 52 weeks. The primary endpoint of the trial is the proportion of participants (≥12 years of age) who achieve at least 10% reduction in body weight from baseline at approximately 52 weeks of therapy. Key secondary endpoints include additional weight loss and hunger reduction analyses. Since the FDA agreed to include BBS and Alström syndrome under our Breakthrough Therapy designation, we received preliminary guidance on many aspects of the Phase 3 development programs in BBS and Alström syndrome. We believe that the combined trial, as opposed to two separate trials, is likely to lead to a more rapid path for approval of these two indications.

We expect to announce topline data from this pivotal cohort in the fourth quarter of 2020 or early in the first quarter of 2021.

Initial setmelanotide clinical trials were in patients with general obesity, which provided preliminary evidence of the safety and efficacy of the drug and were the foundation for the Phase 2 trials in rare genetic disorders of obesity. In these trials, setmelanotide has generally achieved weight loss without adversely increasing blood pressure. These trials in the general obese population are described in later sections below.

The following table outlines our ongoing and planned setmelanotide trials in rare monogenic disorders of obesity.

Setmelanotide: Key Clinical Programs in Monogenic MC4R Pathway Disorders of Defined Obesity

In addition, we have completed seven studies with setmelanotide in healthy obese subjects.  These studies have evaluated safety, efficacy and pharmacokinetics after either a single- or multiple-doses of treatment.  We have also completed a single study evaluating safety and pharmacokinetics with single- and multiple-doses of the long-acting, subcutaneous formulation of setmelanotide.  Additionally, we have a single ongoing clinical study evaluating both the daily and long-acting formulations of setmelanotide, which plans to enroll approximately 48 healthy obese subjects (RM-493-026).  Overall, approximately 450 subjects have been treated with setmelanotide. 

Setmelanotide: Clinical Development Program in Genetically Defined Obesity

Phase 2 Clinical Development in POMC Deficiency Obesity

We completed a Phase 2 proof of concept, open label clinical trial, Study RM‑493‑011, in two patients with POMC deficiency obesity in which these patients were treated with setmelanotide for more than two years, resulting in profound reductions of hyperphagia and body weight, with good tolerability.  The first patient was a 20‑year‑old woman who, at three months of age, experienced the onset of obesity and hyperphagia. Ahead of the trial, the patient’s self‑reported trial hunger score, which is measured using a Likert score of zero to 10, where zero represents no hunger and 10 represents extreme hunger, was eight to nine out of 10 points, representing extreme hunger. She entered the trial with a baseline weight of 155 kg, or 341.7 lbs., and a BMI of 49.8 kg/m2. The second patient was a 26‑year old woman who also experienced early onset of obesity and hyperphagia. Ahead of the trial, the patient’s self‑reported trial hunger score was nine out of 10 points, representing extreme hunger. She entered the trial with a baseline weight or 152.8 kg, or 336.9 lbs. and a BMI of 54.1 kg/m2.  

The trial was an open label, ascending dose Phase 2 trial with a primary endpoint of weight loss and other key endpoints including hunger score, body composition, insulin and glucose parameters, metabolic and cardiovascular risk factors, energy expenditure and general safety and tolerability.

After 13 weeks of treatment, the first patient demonstrated weight loss of 25.8 kg, or 56.9 lbs., representing 16.7% of her initial body weight. Hunger scores decreased from eight to nine prior to our trial to zero to one during the trial. During the subsequent three‑week withdrawal period off drug, the patient regained 4.8 kg, or 10.6 lbs. and experienced a return to moderate to severe hunger. When setmelanotide treatment restarted after the withdrawal period, there was an immediate reduction of hunger and a continuation of body weight loss. This patient was on continuous treatment for 106 weeks, with a total weight loss of 65.6 kg, or 144.6 lbs., representing 42.3% of her initial body weight. After 42 weeks of treatment, the second patient demonstrated weight loss of 40.6 kg, or 89.5 lbs., representing 26.6% of her initial body weight. Hunger scores decreased from nine prior to the trial to one on most weeks during the trial. This patient continued on active treatment for 64 weeks and her weight stabilized at a weight loss of 40.5 kg, or 89.3 lbs. However, as a result of a misunderstanding regarding the dose of this patient’s hydrocortisone treatment, her hunger score and weight briefly increased. After adaptation of the hydrocortisone dosage during her next visit, the hunger feeling and weight decreased again and she has continued on treatment for 100 weeks in total. Setmelanotide was generally well tolerated in the POMC deficiency obesity Phase 2 trial, with few AEs, all mild and infrequent, and all previously reported in other clinical trials. The single serious adverse event was an influenza immunization reaction, which resulted in an overnight hospitalization and was considered unrelated to trial drug.

Phase 2 Clinical Development in LEPR Deficiency Obesity

We completed a Phase 2 proof of concept, open label clinical trial in three patients with LEPR deficiency obesity, in which these patients were treated with setmelanotide, resulting in reductions of hyperphagia and body weight, with good tolerability. The first patient was a 23‑year old male who experienced early onset of obesity and hyperphagia. Ahead of the trial, this patient’s self‑reported trial hunger score was nine out of 10 points, representing extreme hunger, and his weight and BMI at trial entry were 130.6 kg, or 287.9 lbs., and 39.9 kg/m2, respectively. The second patient was a 22‑year old male who also experienced early onset of obesity and hyperphagia. Ahead of the trial, this patient’s self‑reported trial hunger score was nine to 10 out of 10 points, and his weight and BMI at trial entry were 122.1 kg, or 269.2 lbs., and 40.7 kg/m2, respectively. The third patient was a 14‑year‑old female adolescent, and the first adolescent patient treated with setmelanotide. Ahead of the trial, the patient’s self‑reported trial hunger score was nine out of 10 points, and her weight and BMI at trial entry were 120.4 kg, or 265.4 lbs., and 44.2 kg/m2, respectively.

After 61weeks of  treatment, the first patient demonstrated total weight loss of 25.1 kg, or 55.3 lbs., representing 19.2% of his initial body weight. Hunger scores decreased from nine prior to the trial to one to two during this period. After 36 weeks of treatment, the second patient demonstrated weight loss of 13.9 kg, or 30.6 lbs., representing 11.4% of his initial body weight. Hunger scores decreased from 10 prior to the trial to 6 during this period. During a two-week period in which this patient independently discontinued treatment, he regained 5.2 kg, or 11.5 lbs., and his hunger scores increased to nine. Once treatment was re‑initiated he experienced a significant reduction in hunger and a reduction in body weight. After 13 weeks of treatment, the third patient demonstrated weight loss of 10 kg, or 22 lbs., representing 8.3% of her initial body weight. Hunger scores decreased from nine prior to the trial to five during this period. However, this patient incorrectly performed the treatment injections, which we believe most likely precipitated an interval of weight regain during the trial period. 

Phase 2 Clinical Development in Bardet‑Biedl Syndrome

BBS is a life‑threatening, orphan disease with prevalence of approximately one in 100,000 in North America. We estimate that the addressable patient population for BBS is approximately 2,500 patients in the United States. It is a rare monogenic disorder that causes severe obesity and hyperphagia as well as vision loss, polydactyly, kidney abnormalities, and other signs and symptoms. BBS is part of a class of disorders called ciliopathies, or disorders associated with the impairment of cilia function in cells. Cilia are hair‑like cellular projections that play a fundamental role in the regulation of several biological processes, including satiety signaling. Cilia dysfunction is thought to contribute to hyperphagia and obesity in BBS. BBS is a genetically heterogeneous disease that is caused by as many as 21 separate Bardet‑Biedl loci defects resulting in a similar syndrome, though each BBS patient only has one of these defects.

The role of abnormal cilia development and function in obesity has been elucidated in animal models, most strongly for BBS. Studies in mouse models of BBS show that deficiencies in the MC4R pathway contribute to the obesity and hyperphagia in BBS, with animals developing hyperphagic tendencies early in life. Notably, these mice have decreased leptin receptor signaling, with the essential hallmarks of failure to activate POMC neurons. This is supported in BBS rodent models, where the mice respond to an MC4R agonist resulting in reduced food intake and body weight. The relation of BBS gene mutations to the MC4R pathway is supported by clinical data. Patients with BBS have higher leptin than expected for their degree of adiposity, or leptin resistance, which is consistent with the notion that ciliopathy‑induced leptin signaling dysfunction is associated with leptin resistance.

We are continuing to follow patients with BBS who are severely obese and enrolled in our phase 2 trial. We reported preliminary Phase 2 results for BBS in the fourth quarter of 2017 and updated the clinical status of these patients in 2018 and again in 2019.  Results from the studies demonstrate that treatment with setmelanotide led to marked reductions in body weight and decreased appetite as shown by lower hunger scores. Safety data were consistent with previous clinical studies. In the second quarter of 2018, the FDA agreed to include BBS under our existing Breakthrough Therapy designation for setmelanotide.

For the Phase 2 trial, additional assessments of hunger using daily hunger scores and questionnaires were also obtained. We are using these assessments in our ongoing Phase 2 and Phase 3 trials and plan to continue using them in future trials. These assessments are as follows:

We believe that proof of concept in BBS has been demonstrated by improvements in hunger and weight reduction, supporting that this is a setmelanotide‑responsive, MC4R pathway disorder. The age of the patients ranged from 12 to 61 years. The starting weights of the patients ranged from 88.6 to 162.7 kg and BMI ranged from 37 to 51. The starting hunger scores for the adult patients ranged from 6 to 9 points on the 10‑point scale, with higher scores indicating more hunger and the SEQ scores for the two adolescent patients were 1, and 2 for a third adolescent patient.

Description of the Nine Bardet‑Biedl patients in the Phase 2 Proof of Concept study

*Genetic variant is not confirmed

Three patients with BBS type 1 mutations and one each with BBS types 2, 4, 5, 10, 12 mutations and one patient with a BBS mutation that was not established were enrolled. Total treatment durations up to 123 weeks. Six of the nine patients showed clinically important, marked weight loss. Hunger scores also were reduced in these six patients. Summary of the data is shown below and with six out of nine patients showing efficacy of > 10% weight loss supported moving into phase 3.

Summary of the Phase 2 data for Our Six Patients in the Setmelanotide Bardet‑Biedl Syndrome Phase 2 Trial who showed improvements in both weight and hunger

For six of the nine BBS patients who responded to treatment with setmelanotide, mean weight loss reached 22.1% of body weight, and mean hunger decreased by 53.8%. The time course of individual patient weight loss and hunger scores for these four patients who were treated for longer-term duration (108-123 weeks) are shown below, as updated and presented by us in September 2019.

**Pt. has cognitive impairment, so Food Problem Diary (FPD) score maintained by caregiver; ***Pt. did not have baseline hunger measure. The first score was a 7, which was not recorded until after the patient had received treatment. Current score is a 6.

FPD: Food Problem Diary; Score Range 0 to 30, higher score means worse result

SEQ: Significant Event Questionnaire, which counts significant food behavior events rarely seen in this population (Y/N for 8 behaviors), so maximum score of 8 points means greatest improvement. Shown in reverse scale so downward movement equals improvement for clarity.

There were three patients who did not meet the responder definition by weight loss. Two of these patients withdrew from the study due to a lack of weight loss at 21 weeks and 36 weeks, respectively. One of these patients was clinically diagnosed with BBS, but this patient’s BBS was not genetically confirmed. The third patient, who has a Bardet‑Biedl syndrome type 1 mutation, showed marked improvement in hunger scores with a 53.3% decrease, but did not demonstrate any body weight change after 33 weeks on treatment, including a final 12‑week test period on 3.0 mg daily. However, the weight curve for this patient indicated a slowing of prior childhood weight gain upon treatment with setmelanotide, as indicated with an arrow in her pediatric growth chart, below. This patient was a 12‑year‑old with Type 1 diabetes who entered the trial with extremely poor glucose control, with an average blood sugar level, or HbA1c, of 10.1%. We have been investigating the reason for the inconsistency between her improvement in hunger and lack of weight loss. During her treatment, her HbA1c showed an improvement to 7.6%. Following treatment discontinuation, the patient gained 5.9 kg, appetite and hunger returned to baseline levels and HbA1c increased to 11.7%. 

Overall setmelanotide was generally well tolerated in all patients in this BBS Phase 2 proof of concept study.  Adverse events associated with setmelanotide treatment included increased pigmentation of the skin/nvi and mild injection site reactions.  No discontinuations were due to adverse events.  No serious adverse events were reported in BBS patients.  No clinically significant detrimental changes in blood pressure or heart rate have been reported. 

As stated above, we have completed enrollment of the pivotal cohort in December 2019 in a Phase 3 trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals living with BBS or Alström syndrome.

Phase 2 Proof of Concept Study of Patients with Alström Syndrome

Alström syndrome shares many clinical features with BBS, including obesity and hyperphagia, and is also characterized by progressive vision loss, deafness, congestive heart failure, hyperinsulinemia and type 2 diabetes mellitus. Similarly, Alström syndrome is a ciliopathy caused by mutations in the ALMS1 gene, which has also been shown to be

important for cilia function. Like BBS, recent scientific studies identify genetic deficiencies affecting the MC4R signaling pathway as a potential cause of the obesity and hyperphagia associated with Alström syndrome. Studies in a mouse model of Alström syndrome show a reduction in the number of cilia in specific neurons in the hypothalamus that are critical for MC4R pathway signaling. While Alström syndrome is less well studied than BBS, the similar pathophysiology of cilia dysfunction and clinical presentation support that deficiencies in the MC4R pathway are implicated in the obesity and hyperphagia observed in Alström syndrome. Therefore, we hypothesize that setmelanotide treatment can be applied to treat Alström syndrome.

We are studying Alström syndrome patients who are severely obese. We believe, our initial proof of concept data from a phase 2 trial, shown below, demonstrates that Alström syndrome patients may also experience decreased hunger and significant weight loss similar to that seen in patients with POMC deficiency obesity, LEPR deficiency obesity, or BBS. We the clinical status of these patients in September 2019. The FDA has also recently included Alström syndrome under our existing Breakthrough Therapy designation.

In December 2018, we initiated a phase 3 trial to evaluate the efficacy and safety of setmelanotide in patients with BBA and Alström syndrome, and we announced in December 2019 that we completed enrollment of the pivotal cohort.

As of September 2019, four Alström syndrome patients have been treated with setmelanotide in the Phase 2 study.  The age of the patients ranges from 12 to 21 years.  The starting weights of the patients range from 70.7 to 108.1 kg and BMI ranged from 28 to 47.  The starting hunger scores for the adult patients ranged from 4 to 8 points on the 10-point scale.

The initial Alström syndrome patient in our Phase 2 clinical trial was a 12‑year‑old male, starting weight of 78.6 kg, or 173.2 lbs., with a BMI of 27.9 kg/m2 (above the 98th percentile for his age). At baseline, his initial “worst hunger” score was 4 points, and his morning hunger score was 4 points. As of September 2019, this patient has been treated for 95 weeks including titration, most of the first 56 weeks’ time on a dose of 2 mg/day. During the course of 95 weeks of treatment, he experienced weight loss of 15.9 kg, or 35 lbs., which represented a 20.2% weight loss and a 25% decrease in hunger. Because his body weight was approaching ideal body weight, and he is a growing child, his dose was reduced to 1.5 mg/day, at 32 weeks and 0.5 mg six days/week at 50 weeks, with stabilization of his weight.

Three additional Alström patients (2 adolescents, 1 adult) have been enrolled in this Phase 2 study and the data is summarized below. One patient, the adult, did not show improvements in either weight or hunger and was discontinued. The third patient maintained weight and hunger score reduction while lowering HbA1c by 3% from 11% to 8%

Overall, setmelanotide was generally well tolerated in all patients in this Alström syndrome Phase 2 proof of concept study. Adverse events associated with setmelanotide treatment included increased pigmentation of the skin/nevi and injection site reactions. No SAEs or discontinuations due to AEs were reported. No clinically significant increases in blood pressure were observed that resulted in the development of hypertension.

Our Phase 2 Basket Study: Phase 2 Proof of Concept Studies Focused on Patients with Monogenic Disorders of the MC4R Pathway

We are conducting Phase 2, proof of concept trials in a variety of monogenic, upstream disorders of the MC4R pathway, including, including POMC or LEPR heterozygous deficiency obesity, SRC1 deficiency obesity, SH2B1

deficiency obesity, MC4R deficiency obesity and Smith Magenis syndrome. Additionally, we are assessing setmelanotide in POMC epigenetic disorders and LEP and CPE deficiency obesities. These trials are Phase 2 open label, single arm, proof of concept trials assessing the effect of setmelanotide on the rare genetic disorders of obesity described below. We hypothesize that these disorders may be genetically‑defined deficiencies upstream in the MC4R pathway. Each trial includes a three‑month proof of concept phase at which weight loss, hunger and other metabolic parameters will be evaluated. If patients demonstrate significant weight loss and acceptable safety and tolerability, they will continue treatment for evaluation of setmelanotide’s effects for a total of one year. Similar to our previous trials, this trial begins with an initial period of dose titration where the individual patient’s therapeutic dose is established by upwards dose titration in two-week intervals.

We are conducting these trials, as we did for the ongoing BBS and Alström syndrome Phase 2 trial described above, under basket protocols, which are designed to capture a broad range of patient populations to be treated under one investigational protocol. We believe this approach is efficient for studying many potential indications, and we intend to add additional populations to these basket protocols over the next one to two years.

We plan to enroll cohorts of approximately 10 patients each in these genetic populations.  For the purposes of informing patient enrollment for genetically-identified cohorts (a-c, e, and g-j) DNA sequencing results for Basket-eligible genes are filtered and variants categorized based on our interpretation of the current state of scientific knowledge, both internal proprietary knowledge and published literature. DNA sequence data is filtered for rarity, defined as a population frequency of ≤1% in the publicly available GnomAD database (https://gnomad.broadinstitute.org/) and for nonsynonymous variants, defined by DNA changes resulting in alterations in amino acid sequence. Rare, nonsynonymous variants are then categorized based on current-state internal interpretation of the level of detrimental impact on the MC4R-pathway. DNA variants resulting in protein early termination, frameshifts, spicing errors or amino acid substitutions with confirmed biochemical loss-of-function are classified into a ‘high-impact variant’ categories due to the significant deleterious impact on protein, and subsequently, pathway function. Missense DNA variants lacking biochemical loss-of-function are classified into an ‘other variant’ category due to current uncertainty of the impact on protein and pathway function. Obese individuals carrying DNA variants in these categories, in genes eligible for the Basket protocol, are considered for enrollment and stratified into cohorts, accordingly.  Depending upon the genotype and our computational or biological method for assessing loss-of-function, we may have several cohorts of “other variants.” 

The genetic disorders we are studying in our additional Phase 2 proof of concept trials are outlined below, and initial, preliminary Phase 2 data for each indication is summarized.

a.Clinical Development in POMC or LEPR Heterozygous Deficiency, or HET Obesity

POMC or LEPR heterozygous deficiency, or HET obesity is caused by the loss of one of the two genetic copies of POMC, PCSK1, or LEPR genes. Animal models support that such heterozygous deficiency in the MC4 receptor pathway can result in a predisposition to obesity. The effect of genetic heterozygous deficiency obesity was first demonstrated for another gene in the MC4R pathway: MC4R heterozygous deficiency obesity. Later data also supported that HET obesity results in a predisposition to obesity, though the epidemiology and clinical characterization of these patients is less well known. Our initial clinical focus is on patients with the most impactful variants, which we characterize as high-impact loss of function variants, to test the hypothesis that these patients might also respond substantially to setmelanotide treatment.

We are studying patients who are severely obese, or whose BMI is equal to or greater than 30kg/m2, and who are carry a heterozygous variant of the POMC, LEPR, or PCSK1 gene. These patients have a genetic variant that may result in full or partial loss of POMC, PCKS1 or LEPR function. The purpose of studying these patients in this trial is to provide proof of concept that these patients will also demonstrate significant weight loss. We are enrolling this trial at sites in the United States and Europe, and reported initial results in June 2018 and updated those results in March 2019. With the latter data update, we announced plans to continue evaluating setmelanotide in POMC or LEPR heterozygous deficiency obesity, with patients enrolled into cohorts based on their loss-of-function (LOF) variants. This decision was based primarily on clinical results, which showed a more consistent treatment benefit in patients with higher-impact LOF variants.

In March 2019, we announced preliminary data from 13 patients with HET obesity who were treated with setmelanotide, including four patients with high-impact LOF variants and nine patients with other LOF variants:

POMC or LEPR heterozygous deficiency obesity is complex in many ways, in that there appears to be variable penetrance of obesity, in individuals with heterozygous mutations. As a result, we intend to study a larger number of patients in Phase 2, to more carefully delineate those patients most debilitated and those who will have the best response to setmelanotide, before we discuss the design for a Phase 3 study with the FDA.

b. SRC1 deficiency obesity

SRC1 is a transcriptional coactivator that has links to both the leptin receptor and to POMC. When the leptin receptor is activated, SRC1 through a cascade of events itself is activated and then goes on to drive the expression of POMC, such that in individuals who have heterozygote loss of function mutations in their SRC1 genes, there's insufficient leptin receptor activation of the MC4 receptor pathway, decreased POMC expression, which decreases the amount of available MSH to reactivate the MC4 receptor, consequentially resulting in that decreased activity that drives the hyperphagia and obesity in these individuals. The first academic paper describing SRC1 deficiency obesity, titled, “Steroid receptor coactivator-1 modulates the function of POMC neurons and energy homeostasis,” (Yang et al 2019, Nat Comm. 10, Article 1718) was published in Nature Communications. Based on our sequencing efforts, we estimate that there are more than 23,300 people in the United States living with SRC1 deficiency obesity.

c. SH2B1 deficiency obesity

SH2B1 is an adapter protein that amplifies the signal coming through the leptin receptor. In individuals who carry heterozygote loss of function mutations in SH2B1 or a chromosomal deletion that remove the SH2B1 from the chromosome, individuals have insufficient leptin receptor activity activation of their MC4 receptor pathway. This gives rise to a well-documented form of severe early-onset obesity and hyperphagia. Based on our sequencing efforts, we estimate that there are more than 24,000 people in the United States living with SH2B1 deficiency obesity.

d. MC4 receptor deficiency obesity

MC4R deficiency obesity may arise due to heterozygote loss of function mutations in the MC4 receptor gene itself, and this is one of the most well-known and most prevalent forms of monogenic severe early-onset obesity. An epidemiological study performed in Europe in 2006 reported a prevalence of 2.6% of genetic defects in the MC4R gene in the obese population with a BMI of greater than 30 kg/m2, and studies performed in both Europe and the United States

in 2000 and 2003, respectively, reported a prevalence of up to 4% of these genetic defects in more severely obese populations with a BMI of greater than 35 kg/m2. These prevalence rates suggest that there are approximately one million people in the United States with obesity caused by a mutation of the MC4R gene. These patients have a higher risk than the general population for early onset obesity and complications such as diabetes. Furthermore, MC4R deficiency may offset the beneficial effects of diet and exercise for sustained weight loss, limiting treatment options for these individuals. There are currently no approved or effective therapies for MC4R heterozygous deficiency obesity.

An early Phase 1b study we conducted in downstream MC4R pathway defects demonstrated setmelanotide’s potential efficacy and tolerability in upstream MC4R pathway deficiencies. While setmelanotide appears to show strong efficacy in a Phase 1b trial for the treatment of MC4R heterozygous deficiency obesity patients, it is downstream of where setmelanotide interacts with the MC4R, and we are currently focusing instead on genetic defects that are upstream of the MC4R. This is because we believe that many of these upstream genetic disorders cause even more severe, often life‑threatening obesity, and because setmelanotide has the potential to restore lost function in these upstream disorders, delivering more compelling efficacy.  We have conducted additional research that was published in Nature Medicine in May 2018, which suggests that a sizable number of individuals with obesity who carry MC4R mutations, and were previously assessed functionally normal, may respond to setmelanotide treatment.

Now with a very comprehensive ongoing biochemical screening study, we believe there is an opportunity for setmelanotide in a very defined subset of this broader population, specifically those individuals who carry MC4 receptor loss of function variants that can be overridden by setmelanotide. Based on our sequencing efforts, our addressable patient population estimate for MC4R deficiency obesity is greater than 10,000 patients in the United States.

e. Smith-Magenis syndrome

Smith-Magenis syndrome is a developmental disorder that affects many parts of the body. The major features of this condition include mild to moderate intellectual disability, delayed speech and language skills, distinctive facial features, sleep disturbances, behavioral problems, and in some cases, adolescent-onset obesity and hyperphagia. Smith-Magenis syndrome arises due to loss of function mutations or chromosomal deletions that effectively ablate the function of a gene called RAI1. RAI1 is a transcription factor that's been shown to affect the expression of a number of MC4 receptor pathway genes, including POMC itself. And as a result, we believe that in SMS, the hyperphagia and obesity is likely caused by an overall decrease in the activity of the MC4 receptor pathway.

Smith-Magenis syndrome affects at least 1 in 25,000 individuals worldwide.  Many researchers believe that many people with this condition are not diagnosed, putting the prevalence closer to 1 in 15,000 individuals, according the National Institutes of Health. We estimate that approximately 2,400 individuals with Smith-Magenis syndrome have severe obesity and hyperphagia that may be addressable with setmelanotide.

POMC Epigenetic Disorders

Recent scientific studies have identified patients with obesity due to a partial lack of MSH that is caused by epigenetic POMC variant. Given the recent discovery of these epigenetic disorders, there is currently no epidemiology data that defines the prevalence of POMC epigenetic disorders. However, we believe that these are rare disorders. Epigenetics implies DNA modifications, which can change gene expression without altering the DNA sequence itself. The most stable epigenetic modification is called DNA methylation. Recently, our academic collaborators in Berlin have described a POMC hypermethylation variant, which correlates with increased body weight in children and adults. Therefore, the presence of the POMC epigenetic variant leads to an increased risk of obesity based on reduced POMC gene activity. We expect that these patients under‑express the POMC gene product and as a result have a partial MSH deficiency. Our academic collaborator in Berlin has an ongoing Phase 2 proof of concept trial to confirm the hypothesis that the subset of patients with very severe POMC epigenetic disorders may be highly responsive to setmelanotide therapy.  There are currently no approved or effective therapies for these disorders.

Other MC4R Disorders

Based on setmelanotide’s biochemical structure and mechanism of action, we believe setmelanotide has the potential to serve as replacement therapy for other rare genetic disorders of obesity which have pathophysiology upstream of the MC4R receptor.  We are conducting research activities to study which potential disorders tied to the pathway may benefit from setmelanotide therapy.  Our basket study protocols, which enable enrollment of new populations with disorders tied to the pathway, allow us to study new potential indications without the administrative and regulatory burden of initiating a separate clinical study de novo for each new indication.

Other Clinical and Scientific Initiatives in Genetic Obesity

Genotyping Study

Leveraging new understanding of severe obesity caused by specific genetic defects has the potential to improve both diagnosis and treatment for specific types of life‑threatening obesity. We have expanded our genotyping study—the Genetic Obesity ID | Genotyping Study—in which eligible patients are genotyped for rare genetic disorders of obesity.  As of the end of 2019, approximately 8,220 patients had been enrolled in our GO-ID study.  The goal is to develop a screening algorithm for selecting patients to be genotyped and identified  with POMC deficiency obesity and LEPR deficiency obesity, and to guide further genotyping efforts.  In addition, it is our expectation that patients who can participate in our clinical trials will be genetically identified. We are currently including approximately 100 genes which, in medical and scientific literature, have been associated with obesity, including other genes associated with the MC4R pathway. Individuals may enter the study through one of three arms including: a history of severe, early onset obesity, and hyperphagia, high BMI, and individuals within three months of bariatric surgery. The study is currently enrolling in the United States and Europe and is expected to expand to a total of 140 sites worldwide.  We plan to work with these investigators to publish the results of this study and guidance on the use of the algorithm for screening, to enable more systematic diagnoses of these rare genetic disorders of obesity.

Uncovering Rare Obesity

In July 2019, we announced the launch of Uncovering Rare Obesity, a free genetic testing program that may help determine if individuals have an underlying genetic cause of their severe obesity. As severe obesity is epidemic in the United States, we are focused on identifying people with early-onset obesity that may be caused by certain rare genetic variants. As part of these efforts, we have launched Uncovering Rare Obesity in order to increase access to genetic testing.  As of December 31, 2019, 1,120 United States health care providers have requested 5,738 Uncovering Rare Obesity kits, and 1,580 sequencing tests have been ordered and patient samples collected.

This program complements several initiatives designed to advance the understanding of genetic causes of severe obesity, and Uncovering Rare Obesity broadens these efforts and brings access to genetic testing into the community setting. Currently available physician-ordered genetic testing panels are often cost prohibitive, while many consumer genetic tests are incomplete when it comes to genetic disorders of obesity. This makes it difficult to confirm an underlying genetic cause of severe obesity. We believe the program marks an important step in the understanding of these disorders that might help patients and their families find new diagnosis and treatment strategies in the years ahead.

We are partnering with PreventionGenetics, a Clinical Laboratory Improvement Amendments (CLIA)-certified independent laboratory, to conduct the genetic testing for Uncovering Rare Obesity. This program covers the cost of the test and excludes office visit, copay, sample collection, and any other related costs to a participant. In addition, as part of the program, licensed genetic counselors from PWN Health, a leading provider of professional guidance for diagnostic and genetic testing, are available to advise participating individuals.

Long‑Acting Setmelanotide Pharmacokinetic Trial

In collaboration with Camurus AB, or Camurus, we have developed a once weekly, long‑acting formulation using FluidCrystal® technology. When injected subcutaneously, aqueous body fluid is absorbed by the excipient lipid phase

which forms a gel‑like depot consisting of liquid crystals formed in situ leading to slow diffusion of setmelanotide from the depot.

We have compelling preclinical data with the long‑acting formulation: in monkeys, the terminal half‑life of the long‑acting formulation is approximately 105 hours, and in rats, approximately 92 hours. Two‑week toxicology studies in rats have been completed, and the long‑acting formulation was well tolerated. During the two‑week dosing period, animals given setmelanotide had dose‑related, statistically significant lower body weights, from −9.8% to −11.7%, compared to those given placebo controls. Food consumption for animals given setmelanotide was also lower compared to controls, which decreased by approximately −20.5%.

Two parts of this clinical pharmacokinetic trial are complete, defining the single‑dose and multiple‑dose pharmacokinetics of this formulation. The first part, Part A, is an ascending‑dose, placebo‑controlled, up to three sequential panel PK trial, and PK and safety/tolerability will be collected for approximately 14 days. Dose for the three panels will range from 2.5 mg up to 30 mg given as a single SC injection. The second part, Part B, is a placebo‑controlled, single panel of 12 normal healthy obese patients who received four once‑weekly injections of 10 mg setmelanotide long‑acting formulation.

The results from Part A demonstrate that a 10 mg single subcutaneous dose showed a profile that was consistent with once weekly dosing with a mean pharmacokinetic half‑life of 123 hours. Following the completion of the single‑dose part, we completed Part B, with multiple dosing in order to evaluate the extended‑release, once‑weekly formulation of setmelanotide. Multiple dosing of the formulation demonstrated tolerability and pharmacokinetics that support further clinical development. While this data is preliminary, this simpler dosing regimen may provide improvements in patient convenience and may provide additional advantages in the pediatric population.

We also completed a single study evaluating safety and pharmacokinetics with single- and multiple-doses of the long-acting, subcutaneous formulation of setmelanotide, and we have a single ongoing clinical study evaluating both the daily and long-acting formulations of setmelanotide. We anticipate completing these studies in 2020, and upon analysis of the data, we will seek dialogue with the FDA to develop a regulatory strategy for this once-weekly formulation of setmelanotide.

Mean setmelanotide concentrations (ng/mL) in plasma during weeks 1 and 4 following 10 mg subcutaneous weekly injections of a Camurus formulation

Setmelanotide Clinical Development in General Obesity Patients

Initial studies in general obesity provided preliminary evidence of efficacy and of good tolerability and served as a foundation for the clinical development of setmelanotide. The general obese population is defined as having a BMI of equal to or greater than 30 kg/m2. In our initial clinical trials, we delivered setmelanotide with continuous SC infusion using an insulin pump. More recently, our administration has been converted to a once daily SC injectable formulation. In addition, we have an ongoing trial to assess the pharmacokinetics of a new, long‑acting formulation of setmelanotide.

The table below summarizes the setmelanotide studies that we conducted in general obese patients under IND # 112595 submitted to the Division of Metabolism and Endocrinology Products, Center for Drug Evaluation and Research, FDA.

Completed and Ongoing Setmelanotide Clinical Trials in the General Obese Population

SC=subcutaneous.

Phase 1 Energy Expenditure Clinical Trial

In collaboration with the National Institute of Diabetes, Digestive and Kidney Diseases, we investigated setmelanotide in a Phase 1 clinical trial to determine the effects of setmelanotide on energy expenditure, a mechanism for weight loss, in addition to the well‑known effects of MC4R agonists on appetite and food intake. Twelve obese adults were randomized to receive setmelanotide or placebo by continuous SC infusion over 72 hours, followed immediately by crossover to the other treatment. Setmelanotide showed statistically significant 6.85% increases in resting energy expenditure, supporting a role for setmelanotide in weight regulation. This trial provided the first clinical demonstration that MC4R activation with setmelanotide increases resting energy expenditure in obese humans.

Safety and Tolerability

Historically, clinical data with other MC4R therapies suggested that MC4R‑mediated side effects may include changes in blood pressure and heart rate, increased erections in males, changes in libido and sexual function in females and nausea and vomiting. As a result, primarily due to concerns about blood pressure and heart rate changes, no other MC4R agonists are currently in the clinic for the treatment of obesity and/or hyperphagia. It is noteworthy that the pattern of effects differed among each of the other MC4R therapies, underscoring the complex physiology of MC4R. With setmelanotide, there has been little, if any, evidence of blood pressure or heart rate changes, preliminarily supporting an

important differentiation of setmelanotide from previous MC4R therapies. Monitoring for blood pressure and heart rate changes, as well as other potential AEs, is included in all setmelanotide clinical trials.

Because of these first generation MC4R therapy failures, the setmelanotide program employed an intensive preclinical screening program to assess clinical candidates for blood pressure and heart rate effects, along with efficacy. The cornerstone of this preclinical screening program was a significant investment in obese primate studies which validated setmelanotide as a promising compound for clinical development.  More recently, new research supporting a unique mechanism of action of setmelanotide, compared to earlier MC4R agonists and the endogenous ligand MSH, was published in May 2018 in Nature Medicine. 

Setmelanotide was generally well tolerated in our Phase 1, Phase 2 and Phase 3 clinical trials. Overall, except as outlined below, the number and patterns of AEs was generally low, and the intensity of the AEs was generally mild, and infrequently led to clinical trial discontinuation.

There has been only a single SAE possibly attributed to setmelanotide in our clinical trials. In our Phase 2 clinical trial with once daily SC injection, one patient was hospitalized for unusual chest pain, but no evidence of any serious respiratory or cardiac cause was found after careful evaluation, and the event was attributed to musculoskeletal pain.

To demonstrate that setmelanotide has the potential to provide a safe cardiovascular profile, we extensively validated setmelanotide in obese primate preclinical studies, with special attention to cardiovascular effects. The results of these studies supported testing in clinical trials. In the clinical trials, we monitored blood pressure and heart rate extensively, primarily by 24‑hour ABPM. In most clinical trials, there were multiple 24‑hour ABPM periods, both on a pre‑treatment and post‑treatment basis. Trial‑by‑trial review of the 24‑hour ABPM data shows little, if any, evidence of changes in heart rate and/or blood pressure even at the highest doses tested in Phase 1 and Phase 2 clinical trials. We have also conducted an analysis of 24‑hour ABPMs that were obtained pre‑dose and post‑dose across completed studies, which was presented at the Obesity Society in 2015. This included 128 patients, of which 79 were active and 49 were on a placebo. Overall, there was little, if any, evidence of blood pressure or heart rate changes evident from baseline versus placebo in any trial, preliminarily supporting an important differentiation of setmelanotide from previous MC4R therapies. While the preliminary data are encouraging, there will be continued focus on potential cardiovascular risk until addressed in larger and longer clinical trials.

In the majority of our trials, there was a small increase in penile erections in male patients, as well as signs of sexual arousal in a small number of female patients. These symptoms were infrequent, generally mild, not painful, and short‑lived. Most often these symptoms were reported in the first week of treatment. There was a small incidence of nausea and vomiting, as well as injection site reactions, both of which usually were reported as mild, early in treatment, and short‑lived. A small number of patients had dose reductions and/or discontinued treatment due to nausea and vomiting.

We also noted darkening of skin and skin lesions, such as moles and freckles, in most patients who received setmelanotide. This was likely caused by activation of the closely related MC1 receptor, the receptor that mediates skin darkening in response to sun exposure. This was observed generally after one to two weeks of treatment, most often plateaued by two to four weeks of treatment, and like sun‑related tanning, generally returned to baseline after cessation of exposure. 

Overall, the most common AEs reported among setmelanotide treated patients have been skin hyperpigmentation, injection site reactions, nausea, headache, vomiting, decreased appetite, and diarrhea.

While general obese patients are not currently the focus of setmelanotide studies, the FDA and EMA consider the risk and benefit information observed to date with setmelanotide in general obese patients to be supportive of the continued development of this therapy. These data from general obese patients do not raise any new safety concerns and suggest that substantial benefit, as evidenced by weight loss, is possible.

Preclinical Development

Preclinical studies demonstrated the efficacy of setmelanotide in suppressing food intake and body weight gain in diet‑induced obese mice, rats, dogs, and rhesus macaques, as well as in genetic models of obesity, including leptin‑deficient ob/ob mice and obese Zucker, or fa/fa (leptin‑receptor deficient), rats. Furthermore, setmelanotide is associated with restoring insulin sensitivity in nonclinical models of obesity in rodents and lowering of plasma triglycerides, cholesterol, and free fatty acids.

In particular, we demonstrated activity in obese non‑human primates, where approximately 13% weight loss was demonstrated with eight weeks of treatment, without evidence of cardiovascular toxicity. We also studied obese primates in crossover studies to confirm the lack of cardiovascular toxicity by setmelanotide in obese primates. These preclinical studies also confirmed the cardiovascular effects of previous MC4R therapies that had produced cardiovascular toxicity in humans. In contrast, setmelanotide was without cardiovascular effects in head‑to‑head studies.

Lastly, the toxicology program to support the NDA filing of setmelanotide for POMC deficiency obesity is completed. We completed three‑month toxicology studies in rats and monkeys, with doses and exposures that are more than 300‑fold greater than those at the anticipated clinical doses without evidence of clinically relevant toxicological findings. Similarly, we have also completed chronic toxicity studies (6‑month rat, 9‑month monkey), which in rats provided 219- (maximum concentration) and 106‑times (area under the curve), respectively, and in monkeys 282‑ and 82‑times, respectively, the exposures at the anticipated clinical doses compared to the No‑Observed‑Adverse‑Effect‑Level(s) in animals. We have evaluated the potential reproductive and development effects of setmelanotide in rats and rabbits with administration by SC injection, to support the administration of setmelanotide in women of child‑bearing potential. In addition, a juvenile toxicology study has been completed that will support dosing in pediatric patients less than 12 years of age.  In addition, we are planning carcinogenicity studies, the first of which, in mice is ongoing, and with the longest of which is expected to be two years. The FDA has allowed us to defer carcinogenicity studies until after approval of an NDA for setmelanotide. The EMA has agreed that only the mouse study will be required around the time of any setmelanotide approval.

RM‑853, a Preclinical Ghrelin O‑Acyltransferase Inhibitor

In addition to our development of setmelanotide, in April 2018, we announced that we had acquired exclusive, worldwide rights from Takeda to develop and commercialize RM‑853. RM‑853 is a potent, orally available GOAT inhibitor currently in preclinical development for PWS. PWS is a rare genetic disorder that results in hyperphagia and early‑onset, life‑threatening obesity, for which there are no approved therapeutic options. RM‑853 is currently in pre‑clinical development. We anticipate filing an IND for RM‑853 with the FDA in 2020.

PWS is a life threatening, orphan multigenic disease with prevalence estimates ranging from approximately one in 8,000 to one in 52,000, with at least 8,000 diagnosed patients in the United States. A hallmark of PWS is hyperphagia, leading to severe obesity and other complications. For PWS patients, hyperphagia and obesity are the greatest threats to their health, and these patients are likely to die prematurely as a result of choking, stomach rupture, or from complications caused by morbid obesity. The genetics of PWS are complex, involving many genes on chromosome 15 that are not properly expressed. Recent discoveries highlight that a defect in one of these, the melanoma antigen family L2, or MAGEL2, gene, in rodent models impairs the function of POMC neurons, which are key components of the MC4R pathway. Studies have suggested a link between defects in MAGEL2 in some humans with obesity, hyperphagia, autism spectrum disorders, reduced intellectual ability and most other aspects of behavior and metabolism associated with PWS.

Ghrelin is an orexigenic peptide, secreted by the stomach and proximal small intestine in response to a negative energy balance. Ghrelin can play a key physiological role in stimulating appetite and promoting food intake, thereby maintaining overall energy balance. In people living with PWS, levels of active ghrelin are elevated, contributing to hyperphagia, which leads to severe obesity. RM‑853 is designed to block GOAT, the key enzyme involved in the production of the active form of ghrelin, with the expected effect of lowering active ghrelin levels. This blockage also increases the levels of des‑acyl‑ghrelin, or DAG, a ghrelin precursor; high levels of DAG are believed to have independent beneficial effects on the control of appetite and tissue homeostasis, which might add to the potential efficacy of RM‑853 in PWS. In preclinical research, RM‑853 prevented body weight gain and reduced fat mass in high fat‑fed mice, with a

favorable pharmacokinetic, pharmacodynamic, and safety profile. We plan to complete preclinical studies of RM‑853 and file an IND with the FDA in 2020. Under the terms of the agreement, we will assume sole responsibility for the global product development and commercialization of RM‑853.

Competition

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly discover and develop compounds that could make setmelanotide obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to setmelanotide. If we are not able to compete effectively against our current and future competitors, our business will not grow, and our financial condition and operations will suffer.

There are no current pharmacological treatments for regulating hunger and hyperphagia‑related behaviors of patients with PWS. In contrast with the absence of companies who have disclosed efforts to study upstream disorders of the MC4R pathway, we are aware of several companies investigating or developing therapies intended to treat hunger and hyperphagia associated with PWS. The different companies and compounds in development, of which we are aware, involve multiple mechanisms of action. The companies and their compounds include; Millendo Therapeutics Inc. (AZP‑531), Soleno Therapeutics (Diazoxide Choline Controlled Release), Saniona, Zafgen (ZGN‑1258), GLWL Research Inc. (GLWL‑01), Insys Therapeutics Inc. (Oral Cannabidiol Solution) and Calm Therapeutics.

Licensing Agreements

Ipsen Pharma S.A.S.

Pursuant to a license agreement with Ipsen Pharma S.A.S., or Ipsen, we have an exclusive, sublicensable, worldwide license to certain patents and other intellectual property rights to research, develop, and commercialize compounds that were discovered or researched by Ipsen in the course of conducting its MC4R program or that otherwise were covered by the licensed patents. Rights under the license included the right to research, develop and commercialize setmelanotide. Pursuant to the license, we have a non‑exclusive, sublicensable, worldwide license to certain patents and other intellectual property rights that were licensed by Ipsen from a third party or that Ipsen may develop in the future to research, develop, and commercialize any of the compounds exclusively licensed by Ipsen pursuant to the license. 

Under the terms of the Ipsen license agreement, Ipsen will receive payments of up to $40.0 million upon the achievement of certain development and commercial milestones in connection with the development, regulatory approval and commercialization of applicable licensed products, and royalties on future sales of the licensed products. Substantially all of the aggregate payments under the Ipsen license agreement are for milestones that may be achieved no earlier than first commercial sale of the applicable licensed product. Royalties in the mid‑single digits on future sales of the applicable licensed products will be due under the Ipsen license agreement on a licensed product‑by‑licensed product and country‑by‑country basis until the later of the date when sales of a licensed product in a particular country are no longer covered by patent rights licensed pursuant to the Ipsen license agreement and the tenth anniversary of the date of the first commercial sale of the applicable licensed product in the applicable country. The term of the Ipsen license agreement continues until the expiration of the applicable royalty term on a country‑by‑country and product‑by‑ product basis. Upon expiration of the term of the agreement, the licensed rights granted to us under the agreement, to the extent they remain in effect at the time of expiration, will thereafter become irrevocable, perpetual and fully paid‑up licenses that survive the expiration of the term. We have a right to terminate the license agreement at any time during the term for any reason on 180 days’ written notice to Ipsen. Ipsen has a right to terminate the agreement prior to expiration of its term for our material breach of the agreement, our failure to initiate or complete development of a licensed product or our bringing an action seeking to have an Ipsen license patent right declared invalid. Upon any early termination of the license agreement not due to Ipsen’s material breach, all licensed rights granted under the license agreement will terminate.

Camurus

In January 2016, we entered into a license agreement for the use of Camurus’ drug delivery technology, FluidCrystal, to formulate setmelanotide with Camurus. Under the terms of the agreement, Camurus granted us a worldwide license to the FluidCrystal technology to formulate setmelanotide and to develop, manufacture, and commercialize this new formulation for once‑weekly dosing, administered as a SC injection. The license granted to us is specific to the FluidCrystal technology incorporating setmelanotide. Under the terms of the license agreement, we are responsible for manufacturing, development, and commercialization of the setmelanotide FluidCrystal formulation worldwide. Camurus received a non‑refundable and non‑creditable upfront payment of $0.5 million in January 2016, and is eligible to receive progressive payments of approximately $65.0 million, of which the majority are sales milestones. In addition, Camurus is eligible to receive tiered, mid to mid‑high, single digit royalties on future sales of the product.

The term of the agreement continues until the expiration of the applicable royalty term on a country‑by‑country and product‑by‑product basis. Upon expiration of the term of the agreement, the licensed rights granted to us under the agreement, to the extent they remain in effect at the time of expiration, will thereafter become irrevocable, perpetual and fully paid‑up licenses that survive the expiration of the term. We have a right to terminate the license agreement at any time during the term for any reason upon 90 days’ written notice to Camurus. Camurus has a right to terminate the agreement prior to expiration of its term for our material breach of the agreement, if we voluntarily or involuntarily file for bankruptcy, or for our bringing an action seeking to have a Camurus license patent right declared invalid. Upon any early termination of the license agreement not due to Camurus’ material breach, all licensed rights granted under the license agreement will terminate.

Takeda

In March 2018, we acquired exclusive, worldwide rights from Takeda to develop and commercialize RM‑853. RM‑853 is a potent, orally available GOAT inhibitor currently in preclinical development for PWS. PWS is a rare genetic disorder that results in hyperphagia and early‑onset, life‑threatening obesity, for which there are no approved therapeutic options. We will assume sole responsibility for the global product development and commercialization of RM‑853. Takeda received an upfront fee of $4.4 million which we settled in April 2018 with shares of our common stock, and is eligible to receive milestone payments of approximately $140.0 million, most of which are payable upon regulatory approval or are sales milestones. In addition, Takeda is eligible to receive back‑end development milestones, and single‑digit royalties on future RM‑853 sales.

Among other obligations under our agreement with Takeda, Takeda has a right of first negotiation under certain circumstances to sublicense the assets we acquired from Takeda in the territory of Japan. This right of first negotiation remains in effect until the earlier of five years from the date of the agreement, consummation of a change in control, or sublicense to a third party. This may delay or limit our ability to enter into certain transactions with respect to this product candidate.

The term of the agreement continues until the expiration of the applicable royalty term on a country‑by‑country and product‑by‑product basis. Upon expiration of the term of the agreement, the licensed rights granted to us under the agreement, to the extent they remain in effect at the time of expiration, will thereafter become irrevocable, perpetual and fully paid‑up licenses that survive the expiration of the term. We have a right to terminate the license agreement at any time during the term for any reason upon 90 days’ written notice to Takeda. Takeda has a right to terminate the agreement prior to expiration of its term for our material breach of the agreement, if we voluntarily or involuntarily file for bankruptcy, or for our bringing an action seeking to have a Takeda license patent right declared invalid. Upon any early termination of the license agreement not due to Takeda’s material breach, all licensed rights granted under the license agreement will terminate.

Commercial Operations 

Our commercial strategies center around creating a well‑informed, supportive genetic obesity community of institutions, healthcare providers, patients, caregivers, and payers to support our ongoing research and development efforts to transform the care of patients with MC4R pathway deficiencies.

Our commercial priorities for the launch of setmelanotide include:

Our management team understands the complexity of rare diseases and we believe has the necessary expertise to be a true partner to patients, caregivers, advocacy, and healthcare teams leading to shared success. Our goal is for our field personnel to work directly with patients, caregivers and healthcare providers to facilitate therapy initiation and adherence. We intend to establish a specialty sales force and develop an organizational infrastructure that will support an extensive network of endocrinologists and other physicians treating severe childhood obesity and rare genetic disorders of obesity which in turn we believe will help establish genetic obesity centers of excellence. We also expect to partner with existing and new advocacy organizations to further educate our patient population on genetic obesity and support coverage for setmelanotide. In addition, we intend to establish our own commercial organization in the United States and core strategic markets and to selectively establish collaborations in markets outside the United States for sales, marketing and distribution.

Patents and Proprietary Rights

We have in‑licensed a large patent portfolio from Ipsen for our melanocortin programs. The portfolio includes multiple patent families, and all of these in‑licensed patent families are being prosecuted or maintained by Ipsen in consultation with us. We have also filed patent applications in five families which are exclusively owned and maintained by us that relate to the melanocortin program.

Our MC4R portfolio of licensed and exclusively owned patent families, which includes setmelanotide, consists of 12 patent families currently being prosecuted or maintained, which include applications and patents directed to compositions of matter, formulations and methods of treatment using setmelanotide. As of December 31, 2019, the portfolio for the MC‑4 program consists of 14 issued United States patents and 54 issued non‑United States patents across eight of the 12 families. We have filed eight United States patent applications and 43 non‑United States applications in 12 jurisdictions.

In the patent family directed to selected MC4R receptor agonists, including the composition of matter for setmelanotide, we have three issued United States patents and 26 issued non‑United States patents, including Australia, Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, New Zealand, Russia and Singapore. The standard 20‑year term for patents in this family would expire in 2026, but two of the United States patents are expected to expire in 2027 due to patent term adjustments. Patent term extensions for delays in marketing approval may also extend the terms of patents in this family.

In addition to the patents and patent applications discussed above, we co‑own one patent family with Charité‑Universitätsmedizin Berlin, which has been filed in 21 jurisdictions. We have also filed one application in the United States co‑owned with the University of Strasbourg and the French National Institute of Health and Medical Research. These applications relate to the melanocortin program and, have not yet entered active prosecution.

We have also in‑licensed a patent family from Takeda directed to the composition of matter and methods of use of ghrelin O‑acetyltransferase inhibitors, including RM‑853. This patent family includes one issued United States patent,

nine issued non‑United States patents including China, Europe, and Japan, and one pending application in Canada. The standard 20‑year term for the patents in this family will expire in 2033, though patent term extensions for delays in marketing approval may also extend the terms of patents in this family.

Intellectual Property Protection Strategy

We currently seek, and intend to continue seeking, patent protection whenever commercially reasonable for any patentable aspects of setmelanotide and related technology or any new products or product candidates we acquire in the future. Where our intellectual property is not protected by patents, we may seek to protect it through other means, including maintenance of trade secrets and careful protection of our proprietary information. Our license from Ipsen for the melanocortin program require Ipsen, subject to certain exceptions and upon consultation with us, to prosecute and maintain its patent rights as they relate to the licensed compounds and methods. If Ipsen decides to cease prosecution or maintenance of any of the licensed patent rights, we have the option to take over prosecution and maintenance of those patents and Ipsen will assign to us all of its rights in such patents. For those patent rights that we own exclusively, we control all prosecution and maintenance activities.

The patent positions of biopharmaceutical companies are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we do not know whether the product candidate we in‑license will be protectable or remain protected by enforceable patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction, and furthermore, we cannot determine whether the claims of any issued patents will provide sufficient proprietary protection to protect us from competitors, or will be challenged, circumvented or invalidated by third parties. Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. This potential issue is exacerbated by the fact that, prior to March 16, 2013, in the United States, the first to make the claimed invention may be entitled to the patent. On March 16, 2013, the United States transitioned to a “first to file” system in which the first inventor to file a patent application may be entitled to the patent. Therefore, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office, or PTO, or a foreign patent office to determine priority of invention. Moreover, we may have to participate in other proceedings declared by the United States PTO or a foreign patent office, such as post‑grant proceedings and oppositions, that challenge the validity of a granted patent. Such proceedings could result in substantial cost, even if the eventual outcome is favorable to us.

Although we currently have issued patents directed to a number of different attributes of our products, and pending applications on others, there can be no assurance that any issued patents would be held valid by a court of competent jurisdiction. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using specific compounds or technology. To the extent prudent, we intend to bring litigation against third parties that we believe are infringing our patents.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non‑provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States PTO in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent with an earlier expiration date.

As mentioned above, in the United States, the patent term of a patent that covers an FDA‑approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We intend to seek patent term adjustments and extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such adjustments or extensions.

To protect our rights to any of our issued patents and proprietary information, we may need to litigate against infringing third parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other proprietary rights. These types of proceedings are often costly and could be very time‑consuming to us, and we cannot be certain that the deciding authorities will rule in our favor. An unfavorable decision could result in the invalidation or a limitation in the scope of our patents or forfeiture of the rights associated with our patents or pending patent applications. Any such decision could result in our key technologies not being protectable, allowing third parties to use our technology without being required to pay us licensing fees or may compel us to license needed technologies from third parties to avoid infringing third‑party patent and proprietary rights. Such a decision could even result in the invalidation or a limitation in the scope of our patents or could cause us to lose our rights under existing issued patents or not to have rights granted under our pending patent applications.

In addition, we intend to seek orphan drug exclusivity in jurisdictions in which it is available. A prerequisite to orphan drug exclusivity in the United States and in the European Union is orphan drug designation. An orphan drug designation may be granted, subject to fulfillment of specific criteria, where a drug is developed specifically to treat a rare or uncommon medical treatment. If a product which has an orphan drug designation subsequently receives the first regulatory approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the applicable regulatory authority may not approve any other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of seven years in the United States and 10 years in the European Union. Orphan drug exclusivity does not prevent competitors from developing or marketing different drugs for an indication.

We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual will be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.

Manufacturing

We currently contract with various third parties for the manufacture of setmelanotide and intend to continue to do so in the future. We have entered into process development and manufacturing service agreements with three CMOs: Corden Pharma Brussels S.A, or Corden, formerly Peptisyntha SA prior to its acquisition by Corden, PolyPeptide Group, Baine L’Alleud, or PPL, and Neuland Laboratories, in connection with certain process development and manufacturing services for regulatory starting materials and/or drug substance, or API, in connection with the manufacture of setmelanotide.  We have also entered into a process development and manufacturing services agreement with Recipharm Monts S.A.S, or Recipharm, under which Recipharm has agreed to provide certain process development and manufacturing services in connection with the manufacture of setmelanotide drug product. Under our agreements, we pay these third parties for services in accordance with the terms of mutually agreed upon work orders, which we may enter into from time to time. We also may terminate the agreement or any work order thereunder upon at least 60 days’ prior written notice to Recipharm.  The agreement with Corden also provides that, subject to certain conditions, for a period following each product launch date, we will source from Corden a portion of our requirements for that product being sourced from non‑affiliate third parties. We may need to engage additional third‑party suppliers to manufacture our clinical drug supplies. In the future, if we approach commercialization of setmelanotide or any future product candidate, we will need to engage other third parties to assist in, among other things, labeling, packaging, distribution, post‑approval safety reporting and pharmacovigilance activities. Under the current agreements, each party is subject to customary indemnification provisions.

Our contract manufacturing agreements give us visibility into the expected future cost of producing setmelanotide at commercial scale. Based upon a range of prices of currently‑marketed therapies indicated for orphan diseases, we believe that our cost of goods for setmelanotide will be highly competitive.

We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for clinical supplies to support our activities through regulatory approval and commercial manufacturing, the contract manufacturing organizations, or CMOs, with whom we currently work will need to increase scale of production or we expect that we will need to secure alternate suppliers. We have not currently identified alternate suppliers in the event the current CMOs we utilize are unable to scale production. Because we rely on these CMOs, we have personnel with pharmaceutical development and manufacturing experience who are responsible for maintaining our CMO relationships.

Regulatory Matters

Government Regulation and Product Approvals

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post‑approval monitoring and reporting, including pharmacovigilance, and import and export of pharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other competent authorities, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

In the United States, the FDA approves drug products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and associated implementing regulations. Biological products, on the other hand, are licensed by the FDA under the Public Health Service Act, or PHSA. With passage of the Biologics Price Competition and Innovation Act of 2009, Congress amended the definition of “biological product” in the PHSA so as to exclude a chemically synthesized polypeptide from licensure under the PHSA. Rather, the Act provided that such products would be treated as drugs under the FDCA. Subsequently, through final guidance issued in April 2015, the FDA indicated that a “chemically synthesized polypeptide” is any alpha amino acid polymer that is made entirely by chemical synthesis and is less than 100 amino acids in size.  In December 2019, Congress eliminated the statutory “chemically synthesized polypeptide” exclusion.  Nevertheless, because of FDA’s statements with regard to the scope of the products that will be affected by this change, and the size of our products (fewer than 40 amino acids), we believe that our products will not be treated as biologics subject to approval of a biologics license application, or BLA, by the FDA, and rather will be treated as drug products subject to approval of a new drug application, or NDA, by the FDA pursuant to the FDCA.

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

The failure to comply with applicable requirements under the FDCA and other applicable laws at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.

Preclinical Studies

Before an applicant begins testing a compound with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as in vitro and animal studies to assess the potential safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long‑term preclinical testing, such as animal tests of reproductive AEs and carcinogenicity, may continue after the IND is submitted.

The IND and IRB Processes

An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational drug to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug that is not the subject of an approved NDA. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30‑day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30‑day period, the FDA may raise concerns or questions about the conduct of the trials as outlined in

the IND and impose a clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.

Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.

A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is conducted under an IND, all FDA IND requirements must be met unless waived. When the foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements in order to use the study as support for an IND or application for marketing approval. The FDA’s regulations governing the acceptance of foreign clinical studies not conducted under an IND or an NDA require that such studies be conducted in accordance with good clinical practice, or GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The GCP requirements encompass both ethical and data integrity standards for clinical studies. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non‑IND foreign clinical studies, as well as the quality and integrity of the resulting data. They further help ensure that non‑IND foreign studies are conducted in a manner comparable to that required for IND studies.

In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the study. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us based on evolving business objectives and/or competitive climate.

Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on its ClinicalTrials.gov website.

Human Clinical Studies in Support of an NDA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.

Human clinical trials are typically conducted in the following sequential phases, which may overlap or be combined:

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if SAEs occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

During the course of clinical development the sponsor often refines the indication and endpoints on which the NDA will be based. For endpoints based on PROs and OROs, the process is typically iterative. The FDA has issued guidance on the framework it uses to evaluate PRO instruments, and it may offer advice on optimizing PRO and ORO instruments during the clinical development process, but the FDA usually reserves final judgment until it reviews the NDA.

Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality, purity and potency of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

In a general guidance meeting with FDA review staff in 2013, following the opening of our independent new drug application for the development of setmelanotide, the FDA provided us with general principles to follow in designing clinical studies for drugs intended for use in an indication targeted to a specific obese population. In 2015, we received further guidance from FDA review staff in a meeting to discuss clinical endpoints and trial design strategies for the study of setmelanotide in patients with rare genetic forms of obesity. At that meeting, the FDA noted its experience in applying regulatory flexibility for drugs intended to treat rare diseases. It indicated that it would take into account factors related to particular patient populations, such as the prevalence and severity of the disease, but also noted that the requirements for a phase 3 program would depend on the effect observed and the robustness of the results. The FDA also indicated that it

would exercise flexibility regarding the timing and requirements for certain preclinical toxicology testing. Additional meetings occurred in 2017 and 2018.  We intend to continue to take advantage of our Breakthrough Therapy designation by continuing to meet regularly with FDA review staff to discuss methods to shorten the development timeline for indication in POMC deficiency obesity, LEPR deficiency obesity, BBS, and Alström syndrome, and to use the knowledge gained to do likewise for other closely‑related indications in rare genetic forms of obesity.

Submission and Review of an NDA by the FDA

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under the Prescription Drug User Fee Amendments of 2017 (PDUFA VI), the submission of most NDAs is additionally subject to a human drug application fee, which is collected at the time of submission. PDUFA VI eliminated user fees for supplements and establishments. In addition, the sponsor of an approved NDA is also subject to annual program fee rather than product fees under the previous iteration of PDUFA.

Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for drugs with orphan designation and a waiver for certain small businesses. Orphan designated drugs are also exempt from program fees if the drug meets certain public health and revenue criteria.

The FDA conducts a preliminary review of an NDA generally within 60 calendar days of its receipt and strives to inform the sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in‑depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which the FDA accepts the NDA for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. For applications seeking approval of drugs that are not NMEs, the ten‑month and six‑month review periods run from the date the FDA receives the application. The review process and the Prescription Drug User Fee Act goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre‑approval inspections may cover all facilities associated with an NDA submission, including drug component manufacturing, e.g., active pharmaceutical ingredients, finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with cGCP.

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential AEs, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post‑approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Expedited Programs for Serious Conditions: Fast Track, Breakthrough Therapy, Priority Review and Accelerated Approval

The FDA is authorized to designate certain products for beneficial treatment if they are intended to address an unmet medical need in the treatment of a serious or life‑threatening disease or condition. These expedited programs are referred to as Fast Track designation, Breakthrough Therapy designation, priority review designation, and accelerated approval.  The 21st Century Cures Act, or the Cures Act, signed into law in December 2016, authorized $500 million in new funding over nine years to help the FDA accelerate review and approval of products and bring new innovations and advances to patients faster and more efficiently. The Cures Act enhances the FDA’s ability to modernize clinical trial designs and clinical outcome assessments to speed the development and review of novel medical products.

Fast Track

The FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life‑threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the application is submitted. In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

Breakthrough Therapy

A product may be designated as Breakthrough Therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life‑threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross‑disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

Priority Review

The FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case‑by‑case basis, whether the proposed product represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment‑limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.

Accelerated Approval Pathway

The FDA may grant accelerated approval to a drug for a serious or life‑threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.

Accelerated approval is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. Thus, the benefit of accelerated approval derives from the potential to receive approval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval timeline, as is the case with priority review.

Accelerated approval is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post‑approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post‑marketing compliance requirements, including the completion of Phase 4 or post‑approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post‑approval studies, or confirm a clinical benefit during post‑marketing studies, would allow the FDA to initiate expedited proceedings to withdraw approval of the drug. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

The FDA’s Decision on an NDA

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post‑approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability

of the product. The FDA may prevent or limit further marketing of a product based on the results of post‑market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post‑Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for any marketed products.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third‑party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post‑market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed on the market. This regulation includes, among other things, standards and regulations for direct‑to‑consumer advertising, communications regarding unapproved uses, industry‑sponsored scientific and educational activities, and promotional activities involving the Internet and social media. Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is approved. After approval, a drug product generally may not be promoted for uses that are not approved by the FDA, as reflected in the product’s prescribing information. In the United States, healthcare professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as off‑label uses, because the FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off‑label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in non‑promotional, non‑misleading communication regarding off‑label information, such as distributing scientific or medical journal information. If a company is found to have promoted off‑label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in

which a company promotes or distributes drug products. The federal government has levied large civil and criminal fines against companies for alleged improper promotion, and has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementation regulations, as well as the Drug Supply Chain Security Act, or DSCSA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCSA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch‑Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme allowing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference‑listed drug, or RLD.  The Creating and Restoring Equal Access To Equivalent Samples Act (the CREATES Act), which was enacted by Congress in December 2019, created new causes of action against innovator companies that refuse to provide samples of drugs for purposes of developing generic products or that refuse to allow generic companies to participate in a shared REMS.

Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, the strength and the conditions of use of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.”

Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Under the Hatch‑Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non‑patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non‑patent data exclusivity for a new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity, or NCE, is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval.

The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three‑year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication. Three‑year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory

requirement for a new clinical investigation is satisfied. Unlike five‑year NCE exclusivity, an award of three‑year exclusivity does not block the FDA from accepting ANDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product. The FDA typically makes decisions about granting data exclusivity shortly before a product is approved.

505(b)(2) NDAs

As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA pursuant to an NDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch‑Waxman Amendments and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant. If the 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and effectiveness is scientifically and legally appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the previously approved reference drug. The FDA may then approve the new product candidate for all, or some, of the label indications for which the reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.

Hatch‑Waxman Patent Certification and the 30‑Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

Specifically, the applicant must certify with respect to each patent that:

If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all the listed patents claiming the referenced product have expired, other than method of use patents involving indications for which the applicant is not seeking approval.  A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification.

If the ANDA or 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders within 60 days of the date the ANDA or 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the application until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non‑patent exclusivity listed in the Orange Book for the branded reference drug has expired.

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the FDA Safety and Innovation Act of 2012 (FDASIA) , sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and any other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

In addition, the FDA Reauthorization Act of 2017 (FDARA) requires the FDA to meet early in the development process to discuss pediatric study plans with drug sponsors. The legislation requires the FDA to meet with drug sponsors by no later than the end‑of‑phase 1 meeting for serious or life‑threatening diseases and by no later than 90 days after the FDA’s receipt of the study plan.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless and until the FDA promulgates a regulation stating otherwise, the pediatric data requirements do not apply to products with orphan designation.

Pediatric exclusivity is another type of non‑patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non‑patent and orphan exclusivity. This six‑month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. With regard to patents, the six‑month pediatric exclusivity period will not attach to any patents for which a generic (ANDA or 505(b)(2) NDA) applicant submitted a paragraph IV patent certification, unless the NDA sponsor or patent owner first obtains a court determination that the patent is valid and infringed by a proposed generic product.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition, generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product. A company must request orphan drug designation before submitting an NDA for that drug for that rare disease or condition. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the PDUFA goal dates for the regulatory review and approval process, although it does convey certain advantages, such as tax benefits and exemptions from the PDUFA application and program fees.

If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same drug for the same indication for seven years, except in certain limited circumstances. Orphan drug exclusivity does not block the approval of a different drug for the same rare disease or condition, nor does it block the approval of the same drug for different indications. If a drug or drug product designated as

an orphan product ultimately receives marketing approval for an indication broader than what was designated on its orphan product application, it may not be entitled to exclusivity.

Under FDARA, orphan exclusivity will not bar approval of another orphan drug under certain circumstances, including if a subsequent product with the same drug for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. The new legislation reverses prior precedent holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing of clinical superiority.

Patent Term Restoration and Extension

A patent claiming a new drug product may be eligible for a limited patent term extension, also known as patent term restriction, under the Hatch‑Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. Patent term extension is generally available only for drug products whose active ingredient has not previously been approved by the FDA. The restoration period granted is typically one‑half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term extension cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The United States PTO reviews and approves the application for any patent term extension in consultation with the FDA.

FDA Approval and Regulation of Companion Diagnostics

If safe and effective use of a therapeutic product depends on an in vitro diagnostic medical device, then the FDA generally will require approval or clearance of that diagnostic, known as an in vitro companion diagnostic device, at the same time that the FDA approves the therapeutic product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostic devices. According to the guidance, for novel drugs, an in vitro companion diagnostic device and its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product’s labeling.

If the FDA determines that an in vitro companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the in vitro companion diagnostic device is not approved or cleared for that indication. Approval or clearance of the in vitro companion diagnostic device will ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population.  The FDA recently reiterated its position that a Laboratory Developed Test, or LDT, is sufficient for identifying patients in our clinical trials for setmelanotide, but the agency also recently indicated that an in vitro companion diagnostic device, or companion diagnostic,will be needed. The FDA stated that absence of complete development of a companion diagnostic would not preclude us from submitting an NDA or preclude the FDA from reviewing it.  The FDA also stated that completing development of a companion diagnostic as a post-marketing commitment or a post-marketing requirement is a possibility, assuming that upon review, no issues related to efficacy or safety arise that would necessitate a companion diagnostic at the time of approval.  The FDA committed to working with us to identify the least burdensome analytical validation approach to a companion diagnostic for setmelanotide. We are engaged in ongoing discussions with FDA regarding the development of a Class II companion diagnostic. 

Under the FDCA, in vitro diagnostics, including in vitro companion diagnostic devices, are generally regulated as medical devices. In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post‑market surveillance. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA

marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA approval. The FDA has stated that it generally requires in vitro companion diagnostic devices intended to select the patients who will respond to a drug to obtain a PMA for that diagnostic simultaneously with approval of the drug.  In recent correspondence, however, FDA has stated that a companion diagnostic for setmelanotide is a good candidate for a de novo application.

A de novo application is a mechanism that permits a low or moderate risk classification for new devices that otherwise would be classified into the highest risk category, Class III.  Specifically, devices of a new type that the FDA has not previously classified based on risk previously were automatically classified into Class III by operation of the FDC Act, regardless of the level of risk they posed. To avoid requiring PMA review of low- to moderate-risk devices classified in Class III by operation of law, Congress enacted a provision to allow FDA to classify a low- to moderate-risk device not previously classified into Class I or II. To grant a request for de novo classification, FDA must find that general controls or general and special controls provide a reasonable assurance of safety and effectiveness for the device.

The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. It involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications are subject to an application fee, which exceeds $250,000 for most PMAs. In addition, PMAs for certain devices must generally include the results from extensive preclinical and adequate and well‑controlled clinical trials to establish the safety and effectiveness of the device for each indication for which FDA approval is sought. In particular, for a diagnostic, a PMA application typically requires data regarding analytical and clinical validation studies. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System Regulation, or QSR, which imposes elaborate testing, control, documentation and other quality assurance requirements.

PMA approval is not guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination based on deficiencies in the application and require additional clinical trial or other data that may be expensive and time‑consuming to generate and that can substantially delay approval. If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional information, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA. If the FDA concludes that the applicable criteria have been met, the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the applicant. The PMA can include post‑approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution. Once granted, PMA approval may be withdrawn by the FDA if compliance with post approval requirements, conditions of approval or other regulatory standards are not maintained or problems are identified following initial marketing.

After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only for the uses and indications for which they are cleared or approved. Device manufacturers must also establish registration and device listings with the FDA. A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the QSR, which cover the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices. Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that export products to the United States.

Regulation and Procedures Governing Approval of Medicinal Products in the European Union

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of setmelanotide to the extent we choose to sell any setmelanotide

outside of the United States. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by equivalent competent authorities in foreign jurisdictions before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post‑approval regulatory requirements, such as those regarding product manufacture, marketing, pharmacovigilance, promotion, advertising or distribution would apply to any product that is approved outside the United States.

The process governing the marketing authorization of medicinal products in the European Union entails satisfactory completion of preclinical studies and adequate and well‑controlled clinical trials to establish the safety, quality and efficacy of the medicinal product for each proposed therapeutic indication. It also requires the submission to the relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold in the European Union.

Clinical Trial Approval

The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on Good Clinical Practice, or GCP, and the related national implementing provisions of the individual EU member states govern the system for the approval of conduct of clinical trials in the European Union. Under this system, an applicant must obtain prior approval from the competent national authority of the EU member states in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The clinical trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU member states and further detailed in applicable guidance documents.

In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted. The Regulation was anticipated to enter into force in 2019, but it is expected to be delayed. The Clinical Trials Regulation will be directly applicable in all the EU member states, repealing the current Clinical Trials Directive 2001/20/EC. Conduct of all clinical trials performed in the European Union will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation becomes applicable. The extent to which on‑going clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.

The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The Clinical Trials Regulation introduces a complete overhaul of the existing legislation governing clinical trials for medicinal products in the EU. This includes a new coordinated procedure for authorization of clinical trials that is reminiscent of the mutual recognition procedure for marketing authorization of medicinal products, and increased obligations on sponsors to publish clinical trial results. The main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU portal”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the competent authorities of all EU member states in which an application for authorization of a clinical trial has been submitted (member states concerned). Part II is assessed separately by each member state concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU member state. However, overall related timelines will be defined by the Clinical Trials Regulation.

Marketing Authorization

To obtain a marketing authorization for a product under European Union regulatory systems, an applicant must submit an MAA either under a centralized procedure administered by the European Medicines Agency, or EMA, or one of the procedures administered by competent authorities in the EU member states (decentralized procedure, national

procedure or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in the European Union. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA‑approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted (1) a product‑specific waiver, (2) a class waiver or (3) a deferral for one or more of the measures included in the PIP.  By a decision of 15 June 2018, the EMA formally accepted the PIPs for setmelanotide in the treatment of appetite and general nutritional disorders.  This included the deferral and waiver requested by us. 

The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all EU member states and three of the four European Free Trade Association, or EFTA, States, Iceland, Liechtenstein and Norway. Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases, including products for the treatment of cancer. Medicinal products that contain a new active substance that is not yet authorized in the EEA and medicinal products that constitute a significant therapeutic, scientific or technical innovation or for which a centralized process is in the interest of patients within the EU fall within the optional scope of the centralized marketing authorization procedure.

Under the centralized procedure, the CHMP established at the EMA is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post‑authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA by the CHMP is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts such request, the time limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. At the end of this period, the EMA’s CHMP provides a scientific opinion on whether or not a marketing authorization should be granted in relation to a medicinal product. Within 15 calendar days of receipt of a final opinion from the CHMP, the European Commission must prepare a draft decision concerning an application for marketing authorization. This draft decision must take the opinion and any relevant provisions of EU law into account. Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on Medicinal Products for Human Use. The Standing Committee is composed of representatives of the EU member states and chaired by a non‑voting European Commission representative. The European Parliament also has a related “droit de regard”. The European Parliament’s role is to ensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization.

The EMA offers the possibility to medicinal product developers to participate in a voluntary scheme of enhanced interaction and early dialogue with the EMA, to enhance support for the development of medicinal products that target an unmet medical need. This voluntary scheme is called PRIority MEdicine support scheme, or PRIME. PRIME is intended to enable accelerated assessment of applications for marketing authorizations of medicinal products.

Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a submission of a separate application to, and leads to grant of separate marketing authorizations by, the competent authorities of each EU member state in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The assessment of the application for marketing authorization is conducted by the reference EU member state.  This reference EU member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU member states who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU member state cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the Heads of Medicines Agencies, or CMDh for review.  This review, which may also be escalated to the CHMP in case of disagreement in CMDh would result in a decision by the European Commission, whose decision is binding on all EU member states.

The mutual recognition procedure permits companies that have a medicinal product already authorized in one EU member state to apply for this authorization to be recognized by the competent authorities in other EU member states. The national marketing authorization procedure is founded on the same basic EU regulatory process as the other marketing authorization procedures discussed in this Section. The national marketing authorization procedure, which is increasingly rare, permits a company to submit an application to the competent authority of a single EU member state and, if successful, to obtain a marketing authorization that is valid only in this EU member state.

Regulatory Data Protection in the European Union

In the European Union, innovative medicinal products authorized on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance the centralized authorization procedure. Data exclusivity prevents applicants for authorization of generics or biosimilars of these innovative products from referencing the innovator’s data to assess a generic (abbreviated) or biosimilar application for a period of eight years. During an additional two‑year period of market exclusivity, an application for the marketing authorization of a generic or biosimilar medicinal product can be submitted and a related marketing authorization may be granted, and the innovator’s data may be referenced, but no generic or biosimilar medicinal product can be placed on the European Union market until the expiration of the market exclusivity. The overall ten‑year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a medicinal product is granted data and market exclusivity, another company nevertheless could also market another version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.

Periods of Authorization and Renewals

A marketing authorization has an initial validity for five years in principle. The marketing authorization may be renewed after five years on the basis of a re‑evaluation of the risk‑benefit balance by the EMA or by the competent authority of the EU member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. The European Commission or the competent authorities of the EU member states may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five year period of marketing authorization. Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the European Union market (in case of centralized procedure) or on the market of the authorizing EU member state within three years after authorization ceases to be valid (the so‑called sunset clause).

Orphan Drug Designation and Exclusivity

Regulation (EC) No. 141/2000, as implemented by Regulation (EC) No. 847/2000 provides that a medicinal product can be designated as an orphan drug by the European Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life‑threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or (2) a life‑threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the medicinal product in the European Union would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Union or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition.

Once authorized, orphan medicinal products are entitled to 10 years of market exclusivity in all EU member states and in addition a range of other benefits during the development and regulatory review process including scientific assistance for study protocols, authorization through the centralized marketing authorization procedure covering all EU

member states and a reduction or elimination of registration and marketing authorization fees. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the 10 year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that the original orphan medicinal product is sufficiently profitable not to justify maintenance of market exclusivity

Regulatory Requirements after a Marketing Authorization has been Obtained

In case an authorization for a medicinal product in the European Union is obtained, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include:

Regulatory Procedure Governing CE marking Companion Diagnostics in the European Union

In the European Union, in vitro medical devices are required to conform with the essential requirements of the European Union Directive on in vitro diagnostic medical devices (Directive 98/79/EC, as amended). To demonstrate compliance with the essential requirements, the manufacturer must undergo a conformity assessment procedure. The conformity assessment varies according to the type of in vitro diagnostic medical device. The conformity assessment of in vitro diagnostic medical devices can require the intervention of a Notified Body, which is an organization designated by the competent authorities of an EU member state to conduct conformity assessments. The Notified Body will issue a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the in vitro diagnostic medical device and its manufacturer and their conformity with the requirements of the Directive. This Certificate entitles the manufacturer to affix the CE mark to its medical device after having prepared and signed a related EC Declaration of Conformity. For in vitro diagnostic medical devices which do not require the intervention of a

notified body, the manufacturer can issue an EC Declaration of Conformity based on a self‑assessment of the conformity of its products with the Essential Requirements laid down in the in vitro diagnostic medical device Directive.

In April 2017, the EU Regulation on In Vitro Diagnostic Medical Devices (Regulation (EU) 2017/746), or IVDR, was adopted. The IVDR repeals and replaces Directive 98/79/EC. Unlike directives, which must be implemented into the national laws of the individual EU member states, the IVDR will be directly applicable in the EU member states and on the basis of the EEA agreement in Iceland, Liechtenstein and Norway. The IVDR is, among other things, intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for in vitro diagnostic medical devices and ensure a high level of safety and health while supporting innovation. The IVDR will  apply beginning on 26 May 2022. Once applicable, the IVDR will introduce new classification rules for in vitro diagnostic medical devices and new regulatory requirements. The IVDR will also impose increased compliance obligations for manufacturers of in vitro diagnostic medical devices to access the EEA market.  Moreover, the scrutiny imposed by notified bodies for the technical documentation related these devices will increase considerably.

Brexit and the Regulatory Framework in the United Kingdom

Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the EU on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the EU relating to the future trading relationship between the parties.  Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called “no deal” separation will occur if negotiations are not completed by the end of the transition period.

Further, the United Kingdom’s withdrawal from the EU has resulted in the relocation of the EMA from the United Kingdom to the Netherlands. This relocation has caused, and may continue to cause, disruption in the administrative and medical scientific links between the EMA and the U.K. Medicines and Healthcare products Regulatory Agency, including delays in granting clinical trial authorization or marketing authorization, disruption of importation and exportation of active substance and other components of new drug formulations, and disruption of the supply chain for clinical trial product and final authorized formulations. The cumulative effects of the disruption to the regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of products in the EU and/or the United Kingdom.

Pharmaceutical Coverage and Reimbursement

In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third‑party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use setmelanotide unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Even if setmelanotide is approved, sales will depend, in part, on the extent to which third‑party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such products. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third‑party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost‑effectiveness of medical products and services and imposing controls to manage costs. Third‑party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost‑effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, setmelanotide may not be considered medically necessary or cost effective. A decision by a third‑party payor not to cover setmelanotide could reduce physician utilization of our products once approved and have a material adverse effect on our sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does

not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Third‑party reimbursement and coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of products have been a focus in this effort. Governments have shown significant interest in implementing cost‑containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost‑containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third‑party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Outside the United States, ensuring adequate coverage and payment for setmelanotide will face challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conduct a clinical trial that compares the cost effectiveness of setmelanotide or products to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in our commercialization efforts.

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost‑effectiveness of a particular medicinal product candidate to currently available therapies or so called Health Technology Assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU member states may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other EU member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions.  The downward pressure on healthcare costs in general, and particularly in relation to prescription only medicinal products, has become more intense. As a result, increasingly high barriers are being erected to the entry of new products.

Health Technology Assessment, or HTA, of medicinal products is, however, becoming an increasingly common part of the pricing and reimbursement procedures in some EU member states, including the United Kingdom, France, Germany, Ireland, Italy, Spain and Sweden. HTA is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost‑effectiveness of individual medicinal products as well as their potential implications for the healthcare system. Those elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual EU member states. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product varies between EU member states. In addition, pursuant to Directive 2011/24/EU on the application of patients’ rights in cross‑border healthcare, a voluntary network of national authorities or bodies responsible for HTA in the individual EU member states was established. The purpose of the network is to facilitate and support the exchange of scientific information concerning HTAs. This may lead to harmonization of the criteria taken into account in the conduct of HTAs between EU member states and in pricing and reimbursement decisions and may negatively affect price in at least some EU member states.

As a further step in this direction, on January 31, 2018, the European Commission adopted a proposal for a regulation on HTA. This legislative proposal is intended to boost cooperation among EU member states in assessing health technologies, including new medicinal products, and providing the basis for cooperation at the EU level for joint clinical assessments in these areas. The proposal would permit EU member states to use common HTA tools, methodologies, and

procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement. The European Commission has stated that the role of the draft HTA regulation is not to influence pricing and reimbursement decisions in the individual EU member states. However, this consequence cannot be excluded.

Healthcare Law and Regulation

Healthcare providers and third‑party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements and interactions with healthcare professionals, third‑party payors, and patients, among others, are subject to broadly applicable fraud and abuse, anti‑kickback, false claims laws, patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or financial arrangements, particularly once third‑party reimbursement, including under Medicare, Medicaid or other federally‑funded health care programs, becomes available for one or more of our products. The federal and state healthcare laws and regulations that may affect our ability to operate include, but are not limited to the following:

In addition to the foregoing requirements, we expect to participate in and have certain price reporting obligations to the Medicaid Drug Rebate Program. Under the Medicaid Drug Rebate Program, if we successfully commercialize setmelanotide, we would be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data we would have to report on a monthly and quarterly basis to the Centers for Medicare and Medicaid Services, or CMS, the federal agency that administers the Medicaid Drug Rebate Program. These data include the average manufacturer price and, in the case of innovator products, the best price for each drug which, in general, represents the lowest price

available from the manufacturer to any entity in the U.S. in any pricing structure, calculated to include all sales and associated rebates, discounts and other price concessions.  Our failure to comply with these price reporting and rebate payment obligations if we participate in the program could negatively impact our financial results.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or collectively the ACA, made significant changes to the Medicaid Drug Rebate Program.  The ACA is discussed in greater detail under the heading “Healthcare Reform” and under the risk factor “Current and future healthcare reform legislation or regulation may increase the difficulty and cost for us and any future collaborators to obtain marketing approval of and commercialize setmelanotide and may adversely affect the prices we, or they, may obtain and may have a negative impact on our business and results of operations” in this Annual Report on Form 10-K.

Federal law requires that any company that participates in the Medicaid Drug Rebate program also participate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B program, which is administered by the Health Resources and Services Administration, or HRSA, requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low‑income patients. The ACA expanded the list of covered entities to include certain free‑standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, but exempts “orphan drugs” from the ceiling price requirements for these covered entities. The 340B ceiling price is calculated using a statutory formula based on the average manufacturer price and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate program, and in general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement. Any additional future changes to the definition of average manufacturer price and the Medicaid rebate amount under the ACA or other legislation or regulation could affect our 340B ceiling price calculations and negatively impact our results of operations if we successfully commercialize setmelanotide.

HRSA issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, which became effective on January 1, 2019.  It is currently unclear how HRSA will apply its enforcement authority under the new regulation.  HRSA also has implemented a reporting requirement pursuant to which participating manufacturers are required to report the 340B ceiling prices for their drugs to HRSA every quarter. In addition, legislation may be introduced that, if passed, would further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in an inpatient setting.

In order to be eligible to have our products that we successfully commercialize paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we also would have to participate in the U.S. Department of Veterans Affairs, or VA, Federal Supply Schedule, or FSS, pricing program. As part of this program, we would be obligated to make our products available for procurement on an FSS contract under which we must comply with standard government terms and conditions and charge a price that is no higher than the statutory Federal Ceiling Price, or FCP, to four federal agencies (VA, U.S. Department of Defense, or DOD, Public Health Service, and U.S. Coast Guard).

The FCP is based on the Non-Federal Average Manufacturer Price, or Non-FAMP, which we would be required to calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to significant civil monetary penalties for each item of false information. The FSS pricing and contracting obligations also contain extensive disclosure and certification requirements.For additional information regarding obligations under federal health care programs, refer to the risk factor entitled “If we participate in the Medicaid Drug Rebate Program and fail to comply with our reporting and payment obligations under that program or other governmental pricing programs that we participate in, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects”  in this Annual Report on Form 10-K.

Additionally, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual physicians in these states. Other states prohibit various other marketing‑related activities, including the ability of manufacturers to offer co-pay support to patients for certain prescription drugs. Still other states require the posting of information relating to clinical studies and their outcomes and other states and cities require identification or licensing of sales representatives. In addition, several states require pharmaceutical companies to implement compliance programs and/or marketing codes. Numerous federal, state and foreign laws and regulations also govern the privacy and security of health information and the collection, use, disclosure, and protection of health‑related and other personal information, including state data breach notification laws, state health information and/or genetic privacy laws, and federal and state consumer protection laws, such as Section 5 of the FTC Act, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Compliance with these laws is difficult, constantly evolving, and time consuming, and companies that do not comply with these state laws may face civil penalties.

Compliance with these federal and state laws and regulations will require substantial resources. Various state and federal regulatory and enforcement agencies continue actively to investigate violations of health care laws and regulations, and the United States Congress and state legislatures continue to strengthen the arsenal of enforcement tools. Enforcement agencies also continue to pursue novel theories of liability under these laws. In particular, government agencies recently have increased regulatory scrutiny and enforcement activity with respect to manufacturer reimbursement support activities and patient support programs, including bringing criminal charges or civil enforcement actions under the federal health care Anti-Kickback statute, civil False Claims Act and violations of health care fraud and HIPAA privacy provisions. The Bipartisan Budget Act of 2018 increased the criminal and civil penalties that can be imposed for violating certain federal health care laws, including the Anti Kickback Statute. 

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal and administrative penalties, imprisonment, damages, fines, imprisonment, exclusion from government‑funded healthcare programs like Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.

In California, the California Consumer Privacy Act (“CCPA”) took effect on January 1, 2020. The CCPA establishes certain requirements for data use and sharing transparency and creates new data privacy rights for consumers.  These laws and regulations are evolving and subject to interpretation, and may impose limitations on our activities or otherwise adversely affect our business. Similarly, there are a number of legislative proposals in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services and research activities.  These laws and regulations, as well as any associated claims, inquiries or investigations or any other government actions may lead to unfavorable outcomes including increased compliance costs, delays or impediments in the development of new products, negative publicity, increased operating costs, diversion of management time and attention, and remedies that harm our business, including fines or demands or orders that we modify or cease existing business practices.

In the EU, interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self‑regulation codes of conduct and physicians’ codes of professional conduct in the individual EU member states. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited in the EU. The provision of benefits or advantages to physicians is also governed by the national anti‑bribery laws of the EU member states. One example is the UK Bribery Act 2010. This Act applies to any company incorporated in or “carrying on business” in the UK, irrespective of where in the world the alleged bribery activity occurs. This Act could have implications for our interactions with physicians in and outside the UK. Violation of these laws could result in substantial fines and imprisonment.

Payments made to physicians in certain EU member states must be publically disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, their competent

professional organization, and/or the competent authorities of the individual EU member states. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in the individual EU member states. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

Failure to comply with the EU member state laws implementing the Community Code on medicinal products, and EU rules governing the promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices, with the EU member state laws that apply to the promotion of medicinal products, statutory health insurance, bribery and anti‑corruption or with other applicable regulatory requirements can result in enforcement action by the EU member state authorities, which may include any of the following: fines, imprisonment, orders forfeiting products or prohibiting or suspending their supply to the market, or requiring the manufacturer to issue public warnings, or to conduct a product recall.

EU member states, Switzerland and other countries have also adopted data protection laws and regulations, which impose significant compliance obligations. In the EU, the collection and use of personal health data is governed by the provisions of the General Data Protection Regulation, or GDPR. The GDPR became effective on May 25, 2018, repealing the Data Protection Directive and increasing our responsibility and liability in relation to the processing of personal data of EU subjects.

The GDPR, together with the national legislation of the EU member states governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and AE reporting. In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, the transfer of personal data out of the EU, security breach notifications, security and confidentiality of the personal data, and imposition of substantial potential fines for breaches of the data protection obligations. Data protection authorities from the different EU member states may interpret the GDPR and national laws differently and impose additional requirements, which add to the complexity of processing personal data in the EU. Guidance on implementation and compliance practices are often updated or otherwise revised.

With respect to the transfer of personal data out of the EU, the GDPR provides that the transfer of personal data to countries that are not considered by the European Commission to provide an adequate level of data protection, including the United States, is permitted only on the basis of complying with specific legal steps.

The judgment by the Court of Justice of the European Union in Case C‑362/14 Maximillian Schrems v. Data Protection Commissioner, or the Schrems case, held that the Safe Harbor Framework, which was relied upon by many United States entities as a basis for transfer of personal data from the EU to the United States, was invalid. United States entities may, therefore, rely only on the alternate procedures for such data transfer provided in the EU Data Protection Directive.

On February 29, 2016, however, the European Commission announced an agreement with the United States Department of Commerce, or the DOC, to replace the invalidated Safe Harbor framework with a new “Privacy Shield.” On July 12, 2016, the European Commission adopted a decision on the adequacy of the protection provided by the Privacy Shield. The Privacy Shield is intended to address the requirements set out by the Court of Justice of the European Union in the Schrems case. The Privacy Shield imposes more stringent obligations on companies, provides stronger monitoring and enforcement by the DOC and the Federal Trade Commission, and makes commitments on the part of public authorities regarding access to information. United States entities have been able to certify to the DOC their compliance with the privacy principles of the Privacy Shield since August 1, 2016 and rely on the Privacy Shield certification to transfer of personal data from the EU to the United States.

However, in October 2016, the French digital rights advocacy group, La Quadrature du Net, French Data Network and the Fédération FDN, brought an action for annulment of the European Commission decision on the adequacy of the Privacy Shield before the Court of Justice of the EU (Case T‑738/16). The case is currently pending before the European Court of Justice. If the Court of Justice of the EU invalidates the Privacy Shield, it will no longer be possible to rely on the Privacy Shield certification to transfer personal data from the EU to entities in the United States. Adherence to the

Privacy Shield is not, however, mandatory. Entities based in the United States are permitted to rely either on their adherence to the Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the GDPR.

Healthcare Reform

A primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government control and other changes to the healthcare system in the United States.

By way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. In March 2010, President Obama signed into law the ACA, which, among other things, includes changes to the coverage and payment for products under government health care programs. Among the provisions of the ACA of importance to our potential drug candidates are:

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011,

as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2029.

Certain provisions of the ACA have been subject to judicial challenges as well as efforts to repeal or replace them or to alter their interpretation or implementation.  For example, the Tax Cuts and Jobs Act enacted on December 22, 2017, eliminated the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred to as the “individual mandate,” effective January 1, 2019. Further, the Bipartisan Budget Act of 2018 among other things, amended the Medicare statute, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly known as the “donut hole,” by raising the manufacturer discount under the Medicare Part D coverage gap discount program to 70%.  Additional legislative changes, regulatory changes, and judicial challenges related to the ACA remain possible, but the nature and extent of such potential additional changes are uncertain at this time. It is unclear how the ACA and its implementation, as well as efforts to repeal or replace, or invalidate, the ACA, or portions thereof, will affect our business.It is possible that the ACA, as currently enacted or as it may be amended in the future, and other healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and on our ability to successfully commercialize our product candidates, if approved.

Employees

As of December 31, 2019, we had 70 full-time employees.

Corporate Information

We are a Delaware corporation organized in February 2013.  Our principal executive offices are located at 222 Berkeley Street, 12th Floor, Boston, MA 02116, and our telephone number is (857) 264‑4280. Our website is www.rhythmtx.com. Information that is contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.

Available Information

We make available free of charge on the investor relations portion of our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements for our annual meetings of stockholders, and amendments to those reports, as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. These filings are available for download free of charge on the investor relations portion of our website located at https://ir.rhythmtx.com. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC.  The address of that website is https://www.sec.gov.

Item 1A. Risk Factors 

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. Additional risks and uncertainties that we currently do not know about or that we currently believe to be immaterial may also impair our business. You should carefully consider the risks described below and the other information in this Annual Report on Form 10-K, including our audited consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Related to Our Financial Position and Need for Capital

We are a late‑stage biopharmaceutical company with a limited operating history and have not generated any revenue from product sales. We have incurred significant operating losses since our inception, anticipate that we will incur continued losses for the foreseeable future and may never achieve profitability.

We are a late‑stage biopharmaceutical company with a limited operating history on which to base your investment decision. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We were incorporated in February 2013. Our operations to date have been limited primarily to acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and conducting research and development activities, including clinical trials, for setmelanotide. We have never generated any revenue from product sales. We have not obtained any regulatory approvals for setmelanotide.

Since our inception, we have focused substantially all of our efforts and financial resources on the research and development of setmelanotide, which is currently in Phase 3 clinical development for four indications, POMC deficiency obesity, LEPR deficiency obesity, Bardet‑Biedl syndrome, or BBS, and Alström syndrome and in Phase 2 clinical development for other indications. We have funded our operations to date primarily through the proceeds from the sales of common stock and preferred stock as well as capital contributions and have incurred losses in each year since our inception. 

Our net losses were $140.7 million, $74.1 million and $33.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, we had an accumulated deficit of $325.3 million.  Substantially all of our operating losses have resulted from costs incurred in connection with our development programs and from commercial and general and administrative costs associated with our operations. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital. We expect our research and development expenses to significantly increase in connection with our additional clinical trials of setmelanotide and development of any other product candidates we may choose to pursue. In addition, if we obtain marketing approval for setmelanotide, we will incur significant sales, marketing and outsourced manufacturing expenses. We also incur costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from setmelanotide, and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and begin to sell, setmelanotide. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

Absent our entering into collaboration or partnership agreements, we expect to incur significant sales and marketing costs as we prepare to commercialize setmelanotide. Even if we successfully complete our pivotal clinical trials and setmelanotide is approved for commercial sale, and we incur the costs associated with these activities, setmelanotide may not be a commercially successful drug. We may not achieve profitability soon after generating product sales, if ever. If we are unable to generate product revenue, we will not become profitable and will be unable to continue operations without continued funding.

We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

We are currently advancing setmelanotide through clinical development. Developing peptide therapeutic products is expensive and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance setmelanotide in clinical trials. We intend to use our available cash resources primarily for the clinical development and regulatory approval of setmelanotide. Depending on the status of regulatory approval and, if approved, commercialization of setmelanotide, as well as the progress we make in the sale of setmelanotide, we may still require significant additional capital to fund the continued development of setmelanotide and our operating needs thereafter. We may also need to raise additional funds if we choose to pursue additional indications and/or geographies for setmelanotide or otherwise expand more rapidly than we presently anticipate.

From August 2015 through August 2017, we raised aggregate gross proceeds of $81.0 million through our issuance of series A preferred stock. Since our initial public offering, or IPO, through our October 18, 2019 public offering, we have raised aggregate gross proceeds of our common stock of approximately $484.5 million before deducting underwriting discounts, commissions and estimated offering related transaction costs.  As of December 31, 2019, our cash and cash equivalents and short-term investments were approximately $292.5 million. We expect our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses through at least the end of 2021.  However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third‑party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. We will also require additional capital to obtain regulatory approval for, and to commercialize, setmelanotide. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

Any additional fundraising efforts may divert our management from their day‑to‑day activities, which may adversely affect our ability to develop and commercialize setmelanotide. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or other third parties at an earlier stage than otherwise would

be desirable and we may be required to relinquish rights to setmelanotide or technologies or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of setmelanotide or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially adversely affect our business, financial condition and results of operations.

Our very limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We were incorporated in February 2013 and our operations to date have been limited primarily to acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and conducting clinical trials. We have not yet demonstrated our ability to successfully complete a pivotal Phase 3 clinical trial, obtain marketing approvals, manufacture at commercial scale, or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a relatively new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to begin transitioning from a company with a research and development focus to a company capable of supporting commercial activities and we may not be successful in such a transition.

We expect our financial condition and operating results to continue to fluctuate significantly from quarter‑to‑quarter and year‑to‑year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

Our historical financial information may not be a reliable indicator of our future results.

The historical financial information we have included in this Annual Report on Form 10-K may not reflect our future results of operations, financial position and cash flows because our historical financial information does not reflect changes that we have incurred and expect to continue to incur as we transition to a commercial company including changes in cost structure, personnel needs, financing and operations of our business. In addition, our financial results may vary from quarter to quarter and from year to year in response to a variety of factors beyond our control. As a result, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.

Risks Related to the Development of Setmelanotide

The reported results of our Phase 3 clinical trials for POMC and LEPR deficiency obesities are based on topline data and may ultimately differ from actual results once additional data are received and fully evaluated.

The reported results of our Phase 3 clinical trials for POMC and LEPR deficiency obesities that we have publicly disclosed consist of topline data. Topline data are based on a preliminary analysis of currently available efficacy and safety data, and therefore the reported results, findings and conclusions related to such trial are subject to change following a comprehensive review of the more extensive data that we expect to receive related to such trial. Topline data are based on important assumptions, estimations, calculations and information currently available to us, and we have not received or had an opportunity to fully and carefully evaluate all of the data related to the trial. As a result, the topline results of our Phase 3 trials that we have reported may differ from future results, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. In addition, third parties, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations or analyses or may interpret or weigh the importance of data differently, which could impact the potential for approval of setmelanotide, or if approved, the labeling and commercial value of setmelanotide and our business in general. If the topline data that we have reported

related to our Phase 3 trials differ from actual results, our ability to obtain approval for, and commercialize, our products may be harmed, which could harm our business, financial condition, operating results or prospects.

The FDA and EMA may disagree with our interpretation of clinical results obtained from our Phase 3 clinical trial for POMC and LEPR deficiency obesities, our results do not guarantee that the NDA we submit will be accepted for review or will support regulatory approval, and, even if our Phase 3 data are deemed to be positive by the FDA or EMA, the FDA or EMA may disagree with other aspects of the NDA and, as a result, the FDA or the European Commission may decline to approve setmelanotide for the proposed indications.

We have reported positive topline data from our Phase 3 clinical trials for POMC and LEPR deficiency obesities. However, even if we believe that the data from the trial are positive, the FDA or EMA could determine that the data from such trial were negative or inconclusive, not sufficiently meaningful from a clinical perspective or could reach different conclusions than we have on the same data. Negative or inconclusive results of a clinical trial or a difference of opinion could cause the FDA or the European Commission to decline to approve our application or cause the FDA or EMA to require us to repeat the trial or conduct additional clinical trials prior to obtaining approval for commercialization, and there is no guarantee that additional trials would achieve positive results to the satisfaction of the FDA or EMA or that the FDA or EMA will agree with our interpretation of the results. Any such determination by the FDA or EMA would delay the timing of our commercialization plan for setmelanotide or prevent its further development, and adversely affect our business operations. Additionally, the FDA or EMA may not accept our NDA for review and may provide commentary at any time during the review process which could require us to submit additional information and delay the review timeline, adversely affect the review process, or even prevent the approval of setmelanotide, any of which would adversely affect our business. We may not be able to appropriately remedy issues that the FDA or EMA may raise in its review of our NDA submission or equivalent EU submission, and we may not have sufficient time or financial resources to conduct future activities to remediate issues raised by the FDA or EMA.

There is no guarantee that the data obtained from our Phase 3 clinical trials for POMC and LEPR deficiency obesities will be supportive of, or guarantee, a successful NDA submission, or result in our obtaining FDA or the European Commission’s approval of setmelanotide in a timely fashion and for a commercially viable indication, or at all. For example, the FDA or EMA could determine that the trial did not meet its objectives or the FDA or EMA could still have concerns regarding the conduct of the Phase 3 trials. At any future point in time, the FDA or EMA could require us to complete further clinical or preclinical trials, or take other actions which could delay or preclude any NDA submission or approval of the NDA or equivalent EU approval and could require us to obtain significant additional funding. There is no guarantee such funding would be available to us on favorable terms, if at all, nor is there any guarantee that FDA or EMA would consider any additional information complete or sufficient to support approval. If an NDA for setmelanotide is submitted, the FDA may hold an advisory committee meeting to obtain committee input on the safety and efficacy of setmelanotide. Typically, advisory committees will provide responses to specific questions asked by the FDA, including the committee’s view on the approvability of the product candidate under review. Advisory committee decisions are not binding but an adverse decision at the advisory committee may have a negative impact on the regulatory review of setmelanotide. Additionally, we may choose to engage in the dispute resolution process with the FDA if we do not receive approval, which could extend the timeline for any potential approval.

There is no assurance that our NDA or similar submission with the EMA will be submitted within the timeframes we expect. Further, if we are able to submit an NDA or equivalent EU submission for setmelanotide with the clinical data from our Phase 3 trials, there is no guarantee that such data will be deemed sufficient by the FDA or EMA. There is no guarantee that the FDA or EMA will deem our trial protocols or results from the study sufficient when they are formally reviewed as a part of an NDA or EU equivalent submission even though we discussed the design of the trials with FDA and EMA prior to commencing the trials. The FDA and EMA each have significant discretion in the review process, and we cannot predict whether the FDA or EMA will agree with our conclusions regarding the results of the Phase 3 trials, including whether our data are reliable and generalizable.

Moreover, even if we obtain approval of setmelanotide, any such approval might significantly limit the approved indications for use, including by limiting the approved label for use by more limited patient populations than we propose, require that precautions, contraindications or warnings be included on the product labeling, including black box warnings, require expensive and time‑consuming post‑approval clinical studies, risk evaluation and mitigation strategies, or REMS,

or surveillance as conditions of approval, or, through the product label, the approval may limit the claims that we may make, which may impede the successful commercialization of setmelanotide.

Positive results from early clinical trials of setmelanotide may not be predictive of the results of later clinical trials of setmelanotide. If we cannot generate positive results in our later clinical trials of setmelanotide, we may be unable to successfully develop, obtain regulatory approval for, and commercialize setmelanotide.

Positive results from any of our Phase 1 and Phase 2 clinical trials of setmelanotide, or initial results from our Phase 3 clinical trials of setmelanotide, may not be predictive of the results of later clinical trials. The duration of effect of setmelanotide tested in our Phase 1 and Phase 2 clinical trials was often for shorter periods than in our current pivotal Phase 3 clinical trials. The duration of effect of setmelanotide has only been studied in long‑term durations for a small number of patients in our Phase 2 and Phase 3 clinical trials and safety or efficacy issues may arise when more patients are studied in longer trials. It is possible that the effects seen in short‑term clinical trials will not be replicated in long‑term or larger clinical trials. In addition, not all of our trials demonstrated statistically significant weight loss and there can be no guarantee that future trials will do so.

Positive results for one indication are not necessarily predictive of positive results for other indications. We have demonstrated proof of concept in Phase 2 clinical trials in POMC deficiency obesity, LEPR deficiency obesity, BBS and Alström syndrome, four genetic disorders of extreme and unrelenting appetite and obesity, in which setmelanotide dramatically reduced both weight and hunger. We have also reported positive topline results from our pivotal Phase 3 clinical trials in POMC deficiency obesity and LEPR deficiency obesity, which demonstrated a clinically meaningful impact on reductions of weight and hunger.  We hypothesize that patients with other upstream genetic defects in the MC4R pathway may also respond with reductions in weight and hunger after treatment with setmelanotide. However patients with other upstream genetic defects may not have a similar response to setmelanotide, and until we obtain more clinical data in other genetic defects, we will not be sure that we can achieve proof of concept in such indications. 

We have and will continue to have multiple clinical trials of setmelanotide ongoing, which are designed to include multiple genetically and clinically defined populations under one investigational protocol, although each population is enrolled and analyzed separately. A “basket” trial design could potentially decrease the time to study new populations by decreasing administrative burden.  However, these trials may not provide opportunities for acceleration and do not overcome limitations to extrapolating data from the experience in one disease to other diseases, because safety and efficacy results in each indication are analyzed separately. Accordingly, clinical success in a basket trial, or any trial in one indication, may not predict success in another indication. In contrast, in the event of an adverse safety issue, clinical hold, or other adverse finding in one or more indications being tested, such event could adversely affect our trials in the other indications and may delay or prevent completion of the clinical trials.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials after achieving positive results in early stage development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, pre-clinical findings made while clinical trials were underway. However, we have completed the key toxicology studies that the FDA will require for our first approval, and which we believe outlines the studies the EMA will require for authorization, which include, among others, chronic toxicity studies, reproductive and developmental toxicity studies, and juvenile toxicology studies. Based on the totality of animal testing results to date, including the lack of any observed genotoxicity or tissue proliferative activity of setmelanotide in chronic toxicity studies, the FDA has agreed to permit us to defer carcinogenicity studies until after approval of an NDA for setmelanotide. While we may submit carcinogenicity study results in the NDA submission to support regulatory approval, we may decide to defer the submission of all carcinogenicity studies until after we receive regulatory approval to market setmelanotide in the United States.

In June 2018, setmelanotide was designated as PRIority MEdicine, or PRIME, by the EMA's Committee for Medicinal Products for Human Use, or CHMP. Acknowledging that setmelanotide targets an unmet medical need, the EMA offers enhanced support in the development of the medicinal product through enhanced interaction and early dialogue to optimize our development plans and speed up regulatory evaluation in the EU. As part of this designation, the EMA has provided guidance to us concerning the development of setmelanotide. The EMA advised us that we should include the mouse carcinogenicity study in our initial filing for marketing authorization in the EU.  We cannot be certain

how long it will take to complete the mouse carcinogenicity study required to be included in our application for marketing authorization, and this could delay the timing of submission of a potential marketing authorization in the EU.  The EMA also advised us that it will not require the rat carcinogenicity study until post approval.  However, the EMA does not provide as firm guidance as the FDA, and accordingly, there can be no guarantee that we will be able to achieve this deferral of the rat carcinogenicity study, which could impact the timing of grant of any potential marketing authorization in the EU.

In addition, the FDA has requested that in our chronic rat and monkey studies we re-assess certain cells in brain, renal and liver tissues for the presence of vacuoles, which are common membrane‑bound compartments. The recommendation was based on the FDA’s review of a summary of a monkey study that noted the presence of macrophage aggregates, which are groupings of specific white blood cells, in the choroid plexus, a network of blood vessels and epithelial tissue in the membrane lining outside the brain and spinal cord. The FDA noted that the existence of macrophage aggregates appears to be related to the polyethylene glycol, or PEG, vehicle in the product, rather than setmelanotide itself. A similar question was raised by the competent authorities in France, in connection with the use of PEG in products for younger pediatric indications, and in discussion of our Pediatric Investigational Plan, or PIP. Based on this, we performed this re-assessment, which confirmed that no additional findings were present in any monkey tissues, but which did find a very small number of rats with vacuolated epithelial cells, or brain surface lining cells, in the choroid plexus of minimal severity that also appeared to be related to the PEG vehicle. We do not believe these findings raise any important safety concerns, in part because of the minimal severity, the localization of these aggregates, the lack of any adverse histopathological changes, and the lack of findings in other tissues.

However, neither the FDA nor regulatory agencies in the EU have indicated whether they agree with our position. In addition, the EMA has requested additional preclinical mechanistic studies to better understand these findings.  It is also possible that regulatory agencies may require us to reflect these findings in the toxicological portion of the product labeling, and this may delay study in the youngest pediatric patients in some EU member states, such as France.  By a decision on June 15, 2018, the EMA agreed with the PIP for setmelanotide and granted a related deferral.  We are required to complete all of the studies included in the PIP by December 2024.

Additionally, setbacks may be caused by new safety or efficacy observations made in clinical trials, including previously unreported adverse events, or AEs. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA approval or a marketing authorization from the European Commission. If we fail to continue to obtain positive results in our Phase 3 clinical trials of setmelanotide, the development timeline and regulatory approval and commercialization prospects for setmelanotide and, correspondingly, our business and financial prospects, would be materially adversely affected.

The number of patients suffering from each of the MC4R pathway deficiencies we are targeting is small and has not been established with precision. If the actual number of patients is smaller than we estimate, our revenue and ability to achieve profitability may be materially adversely affected.

Due to the rarity of our target indications, there is no comprehensive patient registry or other method of establishing with precision the actual number of patients with MC4R pathway deficiencies. As a result, we have had to rely on other available sources to derive clinical prevalence estimates for our target indications. In addition, we have internal genetic sequencing results from 13,567 patients, as of September 2019, with severe obesity that provide another approach to estimating prevalence. Since the published epidemiology studies for these genetic deficiencies are based on relatively small population samples, and are not amenable to robust statistical analyses, it is possible that these projections may significantly exceed the addressable population, particularly given the need to genotype patients to definitively confirm a diagnosis.

Based on clinical epidemiology, we have estimated the potential addressable patient populations with these MC4R pathway deficiencies based on the following sources and assumptions:

•POMC Deficiency Obesity.  Our addressable patient population estimate for POMC deficiency obesity is approximately 100 to 500 patients in the United States, with a comparable addressable patient population in Europe. Our estimates are based on:

•approximately 50 patients with POMC deficiency obesity noted in a series of published case reports, each mostly reporting a single or small number of patients. However, we believe our addressable patient population for this deficiency may be approximately 100 to 500 patients in the United States, and a comparable addressable patient population in Europe, as most of the reported cases are from a small number of academic research centers, and because genetic testing for POMC deficiency obesity is often unavailable and currently is rarely performed;

•our belief, based on discussions with experts in rare diseases, that the number of diagnosed cases could increase several‑fold with increased awareness of this deficiency and the availability of new treatments;

•U.S. Census Bureau figures for adults and children, and Centers for Disease Control and Prevention, or CDC, prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for POMC deficiency obesity patients (including both POMC and proprotein convertase subtilisin/kexin 1, or PCSK1, gene disorders) of approximately 0.06%.

•LEPR Deficiency Obesity.  Our addressable patient population estimate for LEPR deficiency obesity is approximately 500 to 2,000 patients in the United States, with a comparable addressable patient population in Europe. Our estimates are based on:

•epidemiology studies on LEPR deficiency obesity in small cohorts of patients comprised of children with severe obesity and adults with severe obesity who have a history of early onset obesity;

•U.S. Census Bureau figures for adults and children, and Centers for Disease Control and Prevention, or CDC, prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old);

•with wider availability of genetic testing expected for LEPR deficiency obesity and increased awareness of new treatments, our belief that up to 40% of patients with these disorders may eventually be diagnosed; and

•our internal sequencing yield for LEPR deficiency obesity patients of approximately 0.15%.

Using these sources and assumptions, we calculated our estimates for addressable populations by multiplying (x) our estimate of the number of patients comprised of children with severe obesity and our estimate of a projected number of adults with severe obesity who have a history of early onset obesity, (y) the estimated prevalence from epidemiology studies of approximately 1% for LEPR deficiency obesity, and (z) our estimated diagnosis rate of up to 40%. In addition, we considered the results of our internal sequencing yields, which support our clinical epidemiology estimates.

•Bardet‑Biedl Syndrome.  Our addressable patient population estimate for BBS is approximately 1,500 to 2,500 patients in the United States based on:

•published prevalence estimates of one in 100,000 in North America, which projects to approximately 3,250 people in the United States. We believe the majority of these patients are addressable patients; and

•our belief that with wider availability of genetic testing expected for BBS and increased awareness of new treatments, the number of patients diagnosed with this disorder will increase.

•Alström Syndrome.  Our addressable patient population estimate for Alström syndrome is approximately 500 patients in the United States. This estimate is based on:

•published prevalence estimates of one in 1,000,000 in North America, which projects to approximately 325 people in the United States. We believe the majority of these patients are addressable patients; and

•our belief that with wider availability of genetic testing expected for Alström syndrome and increased awareness of new treatments, the number of patients diagnosed with this disorder will increase.

•POMC or LEPR Heterozygous Deficiency Obesities, or HET obesity.  Our addressable patient population estimate for patients with high-impact variants (the subset of POMC or LEPR heterozygous patients with loss of function variants such as truncations, frame-shift, and splice variants, as well as well‑characterized, published missense variants likely to cause loss‑of‑function variants of the MC4R pathway, expected to be most responsive to setmelanotide) is approximately greater than 20,000 patients in the United States, with a comparable addressable patient population in Europe. Our estimates are based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for patients with high‑impact heterozygous variants of approximately 0.7%.

•POMC Epigenetic Disorders.  There is currently no epidemiology data that defines the prevalence of POMC epigenetic disorders.

•SRC1 Deficiency Obesity.  Our addressable patient population estimate for SRC1 deficiency obesity is approximately greater than 23,000 patients in the United States. This estimate is based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for SRC1 deficiency obesity patients of approximately 2.5% prior to application of functional and computational filters.

•SH2B1 Deficiency Obesity.  Our addressable patient population estimate for SH2B1 deficiency obesity is approximately greater than 24,000 patients in the United States. This estimate is based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for SH2B1 deficiency obesity patients of approximately 1.8% prior to application of functional and computational filters.

•MC4R Deficiency Obesity.  Our addressable patient population estimate for MC4R deficiency obesity is approximately greater than 10,000 patients in the United States. This estimate is based on:

•U.S. Census Bureau figures for adults and children, and CDC prevalence numbers for severe adult obese patients (body mass index, or BMI, greater than 40 kg/ m2) and for severe early onset obese children (99th percentile at ages two to 17 years old); and

•our internal sequencing yield for MC4R deficiency obesity patients of approximately 2.0% prior to application of functional filters.

•Smith‑Magenis Syndrome.  Our addressable patient population estimate for Smith‑Magenis syndrome is approximately greater than 2,400 patients in the United States. This estimate is based on:

•published prevalence estimates of one in 25,000 in the United States, which projects to approximately 13,000 people in the United States;

•published prevalence estimates that approximately 10% of patients with Smith‑Magenis syndrome have RAI1 variants that may affect the MC4R pathway and 90% of patients with Smith‑Magenis syndrome have 17p11.2 chromosomal deletions which also may affect the MC4R pathway, of which approximately 67% and 13%, respectively, live with obesity; and

•U.S. Census Bureau figures for total population of adults and children.

We believe that the patient populations in the EU are at least as large as those in the United States. However, we do not have comparable epidemiological data from the EU and these estimates are therefore based solely on applying relative population percentages to the Company‑derived estimates described above.

We are conducting additional clinical epidemiology studies to strengthen these prevalence projections. In parallel, we have developed a patient registry for diagnosed patients with POMC deficiency and LEPR deficiency (and other genetic disorders of obesity) which might further inform prevalence projections for these rare genetic orders.

Another method to estimate the size of these ultra‑rare populations by genetic epidemiology is using newly available large genomic databases, containing full genome sequencing or exome sequencing. Ultra‑rare orphan diseases are generally categorized as those that affect fewer than 20 patients per million. We have begun some substantial efforts with a series of such databases and/or collaborators. Our initial work has been with a database of approximately 140,000 genomes, which is representative of the U.S. population, and suggests that genetic epidemiology estimates of POMC deficiency obesity and LEPR deficiency obesity may be five times higher than clinical epidemiology estimates. These efforts generally are based on the prevalence of heterozygous mutations, as true null mutations are ultra‑rare, and then standard scientific methods such as the Hardy‑Weinberg equilibrium calculations, are applied to estimate the prevalence in the U.S. population. These methods make assumptions that may not be sufficiently robust for ultra‑rare genetic disorders and have the inherent variability of estimates for rare events.

Furthermore, as of September 2019, we collected samples from 13,567 individuals with severe obesity, which yielded 11.7%, or 1,584, genetically‑identified individuals with a rare genetic variant of the MC4R pathway and who may be eligible for inclusion in our Phase 2 Basket Study or pivotal Phase 3 clinical trials. Inclusive of these results, our sequencing programs have now sequenced over 25,000 severely obese individuals.  We plan to update results from our sequencing activity in 2020.  The yields for the indications are outlined above, but then are subject to application of functional and/or computational filters to calculate the prevalence estimates in the United State population. A rarity filter means the specific variant appears in less than 1% of people, and the functional and computational filters help us focus our estimates based on the highest confidence loss-of-function variants.  These genetic sequencing results have identified samples from 29 patients with POMC deficiency obesity and LEPR deficiency obesity, which is consistent with our clinical epidemiology estimates.

In addition, the databases currently available only provide limited clinical data, such as age, weight and BMI, that would be needed to associate genetic defects with severe obesity. Our continued investigations support that the genetic epidemiological estimates are larger than the clinical epidemiological estimates, but we will likely need to reconcile the scientific definition of mutations with the regulatory definition.

We believe the separate analyses that we have completed using clinical epidemiology and genetic epidemiology provide a robust range of patient population estimates for POMC and LEPR deficiency obesities. However, as the clinical epidemiology estimates tend to be lower, to be conservative, we generally reference the clinical epidemiology figures in our descriptions of our target indications.

Defining the exact genetic variants that result in MC4R pathway disorders is complex, so if any approval that we obtain is based on a narrower definition of these patient populations than we had anticipated, then the potential market for setmelanotide for these indications will be smaller than we originally believed. In either case, a smaller patient population in our target indications would have a materially adverse effect on our ability to achieve commercialization and generate revenues.

If the actual number of patients suffering from each of the MC4R pathway deficiencies we are targeting is smaller than we estimate or if any approval that we obtain is based on a narrower definition of these patient populations, including pediatric populations, our ability to recruit patients to our trials may be materially adversely affected.  Patient enrollment may also be adversely affected by competition and other factors.

If the actual number of patients with any of the MC4R pathway deficiencies we are targeting is lower than we believe, it may be difficult to recruit patients, and this may affect the timelines for the completion of clinical trials. If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could also be delayed or prevented.

The pediatric population is an important patient population for setmelanotide and our addressable patient population estimates include pediatric populations. However, it may be more challenging to conduct studies in this population, and to locate and enroll pediatric patients. Additionally, it may be challenging to ensure that pediatric or adolescent patients adhere to clinical trial protocols.

We have started treating patients six years and older in our trials.  Our aim is to gain regulatory approval and labeling for patients six years of age and older. We have only recently received permission from the FDA and other equivalent competent authorities in the EU member states to enroll these younger patients, aged six to eleven, in our pivotal trials. However, there may be issues that preclude the ultimate approval and labeling including, but not limited to, potential disagreement on dose titration, or delivery methods for small doses, or the suitability of patient reported outcomes in younger patients, the clinical endpoints in rapidly growing patients, as well as avoiding over‑suppression of normal appetite in adolescents. In addition, the competent authorities in the EU member states may consider the PEG vehicle in the product to carry additional risks in pediatric patients, and we may look to new formulations, such as our once-weekly formulation, as being more suitable to younger pediatric patients. We also may not have one-year clinical data in six to eleven year old patients at the time of the NDA submission for POMC deficiency obesity and LEPR deficiency obesity, if we begin recruiting six to eleven year old patients into our pivotal trials, though we can provide one-year clinical data when it becomes available. We cannot predict if the FDA or the European Commission in the EU will approve and issue a marketing authorization for setmelanotide for use in younger pediatric patients, nor provide an estimate for the timing for approval, if any, for the use of setmelanotide for such patients. Furthermore, if the FDA or the European Commission in the EU do not approve or grant marketing authorization for the use of setmelanotide in this population, we will not be permitted to promote the use of setmelanotide for these patients, even if  setmelanotide is approved in the United States by the FDA and authorized to be placed on the market in the EU by the European Commission for use in patients twelve and older. Even if approved, the promotion of setmelanotide for uses that are not approved by the FDA or authorized in the EU constitutes off-label promotion. The off-label promotion of medicinal products is prohibited in the United States and EU. Breach of the rules governing the promotion of medicinal products in the United States and EU are subject to administrative enforcement and judicial action, including fines and imprisonment.

While we currently have no knowledge of competitors developing product candidates intended to treat upstream MC4R pathway deficiencies, other than Prader-Willi syndrome, competitors may emerge. If that were to occur and competitors initiated clinical trials for product candidates that treat the same indications as setmelanotide, patients who would otherwise be eligible for our clinical trials may instead enroll in the clinical trials of our competitors’ product candidates, and could impact our commercial success.

Patient enrollment is also affected by other factors including:

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals. Enrollment delays in our clinical trials may result in increased development costs for setmelanotide, which would cause the value of our company to decline and limit our ability to obtain additional financing.

Failures or delays in the commencement or completion of our planned clinical trials of setmelanotide could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.

We recently announced positive topline results from an ongoing pivotal Phase 3 clinical trial for setmelanotide for POMC deficiency obesity and LEPR deficiency obesity.  These trials are overlapping in timing and duration and we have discussed with regulatory agencies our plan to file one NDA for these two indications, which would have an impact on NDA timing and complexity.

We believe we have demonstrated proof of concept in BBS and Alström syndrome based on prior clinical data, and we completed enrollment of a combined pivotal Phase 3 clinical trial in BBS and Alström syndrome in December 2019, but enrollment of supplemental cohort continues. We believe that the combined BBS and Alström syndrome Phase 3 pivotal clinical trial design will be similar to those for POMC and LEPR deficiency obesity, respectively, but may also include differences most likely due to the larger available patient population for inclusion in a clinical study.  There may be other changes as well, including simpler titration schemes, a short placebo-controlled randomized period, and modest differences in our statistical approach due to the different patient populations, the size and combined nature of the study.

We have also initiated Phase 2 clinical trials, referred to as our Basket Study, for POMC and other MC4R pathway heterozygous deficiency obesities and POMC epigenetic disorders. Based on results from our genetic sequencing programs, we intend to expand our Basket Study to include SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity and Smith-Magenis syndrome. We anticipate that the Basket Study may be more complex than the Phase 2 clinical trials for which we have achieved proof of concept, and will include larger numbers of subjects to be enrolled.  In addition, we anticipate that we will have to define a subset of heterozygous patients for whom setmelanotide will have a clinically meaningful impact, and this may take more patients and more time to develop than other indications for setmelanotide.  In March 2019, we announced data for High Impact Het patients (the subset of MC4R pathway heterozygous patients with well-characterized, published, high-impact loss-of-function variants, that we expect to be most responsive to setmelanotide).  However, the data from these initial patients is limited and preliminary, and further clinical study is needed to determine if the results in this subset of patients is both robust and consistent. 

In addition, the outcome for these new indications is less certain. As our genetic sequencing efforts progress, we expect to add additional new MC4R pathway indications to our Basket Study in the future, and many uncertainties will exist for these new populations as well.  Therefore, we believe that a transition from proof of concept to pivotal trials will be longer and more complex for POMC heterozygous deficiency obesity, and POMC epigenetic disorders, and possibly for any additional new indications, due to the greater variety of clinical presentation in those conditions.

Successful completion of our Phase 3 clinical trials is a prerequisite to submitting an NDA to the FDA, a marketing authorization application to the EMA, and other applications for marketing authorization to equivalent competent authorities in foreign jurisdictions, and consequently, the ultimate approval and commercial marketing of setmelanotide.

We do not know whether our planned additional Phase 2 or Phase 3 clinical trials will begin or whether any of our clinical trials will be completed on schedule, if at all, as the commencement and successful completion of clinical trials can be delayed or prevented for a number of reasons, including but not limited to: