Table of Contents

‘

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2020

For the transition period from to

Commission file number 001-38223

RHYTHM PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

222 Berkeley Street

12th Floor

Boston, MA02116

(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:

Title of each class Trading Symbol(s) Name of each exchange on which registered

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 (§ 232.405 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.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ◻ Smaller reporting company ☐

Emerging growth company ☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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 voting and non-voting common equity held by non-affiliates of the registrant was approximately $828.1 million, based on the closing price of the registrant’s Common Stock on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter.Solely for purposes of this disclosure, Common Stock held by executive officers, directors and certain stockholders of the registrant as of such date have been excluded because such holders may be deemed to be affiliates.

There were 50,181,164 shares of the registrant's Common Stock outstanding as of February 19, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement for the registrant's 2021 Annual Meeting of Stockholders within 120 days of the end of the fiscal year ended December 31, 2020. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.

Table of Contents

RHYTHM PHARMACEUTICALS, INC.

ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 2020

Table of Contents

Page No.

PART I

Item 1. Business 5

Item 1A. Risk Factors 50

Item 1B. Unresolved Staff Comments 104

Item 2. Properties 104

Item 3. Legal Proceedings 104

Item 4. Mine Safety Disclosures 104

PART II

Item 6. Selected Financial Data 106

Item 7A. Quantitative and Qualitative Disclosures about Market Risk 118

Item 8. Financial Statements and Supplementary Data 118

Item 9A. Controls and Procedures 118

Item 9B. Other Information 120

PART III

Item 10. Directors, Executive Officers and Corporate Governance 121

Item 11. Executive Compensation 121

Item 14. Principal Accountant Fees and Services 122

Item 15. Exhibits and Financial Statement Schedules 123

SIGNATURES 127

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, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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 proceeds from the Rare Pediatric Disease Priority Review Voucher, or PRV Transfer, the marketing and commercialization of IMCIVREE (setmelanotide), and the timing of commercialization, the success, cost and timing of our product development activities and clinical trials, our financial performance, including our expectations regarding our existing cash, operating losses, expenses, sources of future financing and sufficiency of cash, our ability to hire and retain necessary personnel, patient enrollments and the timing thereof, the timing of announcements regarding results of clinical trials and filing of regulatory applications, our ability to protect our intellectual property, our ability to negotiate our collaboration agreements, if needed, our marketing, commercial sales, and revenue generation, expectations surrounding our manufacturing arrangements, the impact of the COVID-19 pandemic on our business and operations and our future financial results, and the impact of accounting pronouncements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. 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. Important 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. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. 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.

TRADEMARKS, TRADENAMES AND SERVICE MARKS

This Annual Report may include trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Annual Report may appear without the ® and TM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

Table of Contents

PART I

Item 1. Business

Overview

We are a commercial-stage biopharmaceutical company focused on changing the paradigm for the treatment of rare genetic diseases of obesity, which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia. While obesity affects hundreds of millions of people worldwide, we are advancing a precision medicine strategy for a subset of individuals whose severe obesity is due to genetic variants that impair the melanocortin-4 receptor, or MC4R, pathway, a pathway in the brain that is responsible for regulating hunger, caloric intake and energy expenditure, which consequently affect body weight. Our targeted therapy, IMCIVREETM (setmelanotide), for which we hold worldwide rights, was approved in November 2020 by the U.S. Food and Drug Administration, or FDA, for chronic weight management in adult and pediatric patients six years of age and older with obesity due to proopiomelanocortin, or POMC, proprotein convertase subtilisin/kexin type 1, or PCSK1, or leptin receptor, or LEPR, deficiency confirmed by genetic testing. As we prepare to make IMCIVREE commercially available to patients with these initial, ultra-rare indications, we also are advancing a broad clinical development program for setmelanotide in an effort to expand the approved indication to bring this potential therapy to approximately 100,000 to 200,000 patients in the United States and a similarly-sized rare patient population in Europe.

Upon FDA approval in November 2020, IMCIVREE became the first FDA-approved therapy for use in patients with obesity due to POMC, PCSK1 or LEPR deficiencies. The approval was based on Phase 3 data demonstrating a statistically significant and clinically meaningful impact on weight loss and hunger in patients 12 years old or older with severe obesity due to POMC, PCSK1 or LEPR deficiency. A Marketing Authorization Application, or MAA, seeking approval for setmelanotide for the treatment of obesity and the control of hunger associated with confirmed biallelic pro-opiomelanocortin (POMC), including PCSK1, deficiency obesity or confirmed biallelic leptin receptor (LEPR) deficiency obesity in adults and children 6 years of age and above is currently under review by the European Medicines Agency, or EMA, and we expect to obtain regulatory approval from the EMA and make IMCIVREE commercially available in Europe in POMC, PCSK1 and LEPR deficiency obesities in the second half of 2021. Additionally, in December 2020, we announced positive topline results from a pivotal Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with Bardet-Biedl syndrome, or BBS, or Alström syndrome. The study met its primary and all key secondary endpoints, demonstrating statistically significant and clinically meaningful reductions in weight and hunger scores, with patients with BBS comprising all primary endpoint responders. No patients with Alström syndrome met the primary endpoint. We are continuing to analyze the full data from patients with BBS or Alström syndrome, which we plan to present at a medical meeting in the first half of 2021. We plan to complete regulatory submissions to both the FDA and the EMA for BBS in the second half of 2021, and we expect to determine next steps for Alström syndrome upon completing a full analysis of the final data from the Phase 3 trial.

We also are advancing a broad clinical development program evaluating setmelanotide in several ongoing and planned clinical trials, and leveraging the largest known DNA database focused on obesity - with approximately 37,500 sequencing samples as of September 30, 2020 - to improve the understanding, diagnosis and care of people living with severe obesity due to certain variants in genes associated with the MC4R pathway. In January 2021, we announced positive

Table of Contents

proof-of-concept data from our ongoing exploratory Phase 2 Basket Study evaluating setmelanotide in patients with MC4R pathway deficiencies due to a variant in one of the two alleles in the POMC, PCSK1, or LEPR genes, as well as the SRC1 and SH2B1 genes. Based on those interim data and results from our sequencing database, we announced plans to initiate a potentially registration-enabling Phase 3 trial in the second half of 2021 evaluating setmelanotide in patients with obesity due to a variant in one of the two alleles in the POMC, PCSK1, or LEPR genes, or HET obesity, as well as the SRC1 and SH2B1 genes, pending further discussions with the FDA and MAA. We anticipate announcing top-line data from an additional genetically defined cohort, MC4R-rescuable, from this same study in the first half of 2021. In addition, we announced plans for an expanded Phase 2 Basket Study to evaluate setmelanotide for the treatment of obesity due to a deficiency in one of 31 additional genes associated with the MC4R pathway in the second half of 2021. Our broad clinical program evaluating setmelanotide in rare diseases of obesity also includes plans to initiate a Phase 2 study evaluating setmelanotide in patients with hypothalamic obesity in the first half of 2021, a Phase 2 study in pediatric patients with MC4R pathway deficiencies between the ages of 2 and 6 years old in the second half of 2021, and a potential registration-enabling study with our once-weekly formulation of setmelanotide in the second half of 2021.

While obesity is a complex problem with a variety of contributing and causal factors such as genetics and a wide range of environmental influences, we are taking a simple, three-step approach in our clinical development programs that we expect will translate to the real-world practice of medicine. First, we will identify patients with early-onset severe obesity (BMI>40 kg/m2 in adults or BMI≥ 95th percentile for age and gender for patients 6 to 16 years of age) and hyperphagia. Second, with genetic testing, we will seek to confirm that these patients have a defect in one of 36 genes (or more) related to the MC4R pathway. If these individuals test positive for such a genetic defect, they would be eligible for enrollment in a clinical trial evaluating setmelanotide. In clinical trials across several different genetic deficiencies, we have seen patients respond with rapid weight loss of 5 percent or more in 12 to 16 weeks. Based on our experience treating up to more than 100 patients in our Phase 2 and Phase 3 clinical studies, patients who achieve 5 percent weight loss at approximately 12 to 16 weeks on setmelanotide therapy tend to achieve 10 percent weight loss within a year, hence we deem these patients to be responders. Weight loss of this magnitude, particularly in patients with severe, early-onset obesity, is considered clinically-meaningful.

Our sequencing-based epidemiology estimates show that each of these genetically-defined MC4R pathway deficiencies number in the rare or ultra-rare category, according to established definitions of rare disease patient populations. Our epidemiology estimates are approximately 5,000 for U.S. patients in initial indications, including obesity due to homozygous POMC, PCSK1 or LEPR deficiencies, and BBS and Alström syndrome. The epidemiology estimates for the indications studied in our ongoing exploratory Phase 2 Basket Study (HETs and SRC1 or SH2B1 deficiency) suggest that between 100,000 to 200,000 U.S. patients with one of these genetic deficiencies have the potential to respond to setmelanotide. Despite the potential addressable patient population likely being larger than ultra-rare populations, these patients face similar challenges as other patients with rare diseases, namely lack of awareness, resources, tests, tools and especially therapeutic options.

We are pushing to expand the potential global market for IMCIVREE beginning with obesities from POMC, PCSK1 and LEPR deficiencies and lay the groundwork for regulatory submissions in BBS and potentially Alström syndrome. As we significantly expand our clinical development programs, our disease awareness and patient finding efforts are aligned with a singular focus on building a community of caregivers and healthcare providers focused on transforming the treatment of these diseases. We have medical science liaisons and disease education liaisons in the field in the United States and Europe engaging with physicians who treat patients with severe obesity. We continue to bring health care providers together with our Genetic Obesity Learning Development (GOLD) Academy, a series of U.S. based non-CME programs we sponsor. And our sequencing efforts, now primarily focused on our Uncovering Rare ObesityTM sponsored genetic testing program, fuel MC4R pathway research, disease education and awareness and patient finding.

With approximately 90 employees in the United States and Europe, a rapidly expanding network of key opinion leaders, and an increasing number of treated patients, we are focused on the changing the paradigm for the treatment of rare genetic diseases of obesity. Key elements of our strategy include:

Table of Contents

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:

* Indicated for chronic weight management in adult and pediatric patients 6 years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency confirmed by genetic testing demonstrating variants in POMC, PCSK1, or LEPR genes that are interpreted as pathogenic, likely pathogenic, or of uncertain significance.

Market Overview

Early-onset, Severe Obesity and the MC4R Pathway

All obesity is not the same, and rare genetic diseases of obesity are distinct from general obesity. The hallmark characteristics of rare genetic diseases of obesity are early-onset, severe obesity and hyperphagia, an overwhelming, heightened, and relentless hunger that drives a severe preoccupation with food and potentially extreme food-seeking behaviors. Diet and lifestyle modifications fail to achieve meaningful weight loss in patients with rare genetic diseases of obesity.

Accordingly, the discovery that the MC4R pathway can regulate both hunger and energy expenditure separately—helping maintain the balance between food intake and energy burn—has defined an important target for therapeutics. In addition to obesity due to POMC, PCSK1 or LEPR deficiencies, 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, PCSK1, and LEPR HETs, SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity and deficiencies in upwards of 31 additional MC4R-related genes. 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, which has been the focus of extensive scientific investigation for many years, regulates hunger, caloric intake, and energy expenditure, which consequently affect body weight. The critical role of the MC4R

Table of Contents

pathway in weight regulation is supported by the observation that single gene defects at many points in this pathway result in early-onset, severe obesity.

The MC4R pathway is illustrated in the figure below. 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 processed by the PCSK1 enzyme, into melanocyte stimulating hormone, or MSH, the natural ligand, or activator of the MC4R. When upstream genetic mutations disrupt this pathway, it can lead to insufficient MC4R activation and the result is hyperphagia, or insatiable hunger, and severe obesity.

The figure below also illustrates some of the genes that are upstream of the MC4R and the potential effect deficiencies in those genes may have on the activation of the MC4R, which regulates hunger and energy expenditure.

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.

We are focused on developing setmelanotide for genetic disorders that arise due to defects in this pathway that are upstream of MC4R. With our expanding clinical development program, we plan to evaluate setmelanotide in Phase 2 and 3 trials for the treatment of obesity due to a deficiency in one of 36 genes associated with the MC4R pathway. 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 restorative therapy.

Epidemiology Estimates of Rare Genetic Diseases of the MC4R Pathway

While obesity is epidemic in the United States and elsewhere, we are focused on rare genetic diseases of obesity, most often characterized by early-onset, severe 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 million individuals whose severe obesity was early-onset, as the table below summarizes the indications currently approved or under active clinical investigation.

Table of Contents

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

Obesity due to POMC or PCSK1 deficiency ~100 – 500 U.S. patients

Obesity due to LEPR deficiency ~500 – 2,000 U.S. patients

Bardet-Biedl syndrome ~1,500 - 2,500 U.S. patients

Alström syndrome ~500 U.S. patients

MC4R deficiency obesity ~10,000* U.S. patients

Smith-Magenis syndrome ~ 2,400** U.S. patients

These calculations rely on internal and proprietary sequencing data and 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); * Estimated prevalence of U.S. patients with rescuable variants of the MC4R; ** Published prevalence estimates of one in 25,000 in the United States, and 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.

We believe that the patient populations in the European Union are at least as large as those in the United States. While our sequencing data include patients from the United States and Europe, 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.

For patients with genetic forms of MC4R pathway deficiencies, the rarity and the genetic pathophysiology 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. We recently updated our prevalence estimates in January 2021 based on sequencing data from approximately 37,500 obese individuals and rates of response to setmelanotide in our exploratory Phase 2 Basket study. Because 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 under- or overestimate the addressable population. While our projected estimates of the aggregate total addressable population continues to expand with the addition of new genes, the addressable population faces the challenges of a rare disease population. The disease must be suspected by the physician, confirmed by genetic testing and then setmelanotide responsiveness confirmed by a 12-16 week trial with the product candidate.

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. Many weight loss drugs interfere with normal physiologic function to induce weight loss. For example, drugs which delay gastric emptying may cause a patient to feel full and eat less, but are also often associated with nausea and vomiting as a consequence of the delayed emptying. In the case of individuals with MC4R pathway deficiencies, these therapies also do not specifically address the hunger which accompanies the MC4R deficiency. Similarly, bariatric surgery which has been shown to be quite effective in the general obese population, may be unsuccessful in the MC4R pathway deficient patient for the same reason. The stomach is smaller but the hunger drive persists and weight gain continues.

Table of Contents

IMCIVREETM (setmelanotide): First-ever Therapy for Chronic Weight Management in Adult and Pediatric Patients Six Years of Age and Older with Obesity Due to POMC, PCSK1 or LEPR DeficiencyConfirmed by Genetic Testing

On November 27, 2020, we announced that the FDA approved IMCIVREE for chronic weight management in adult and pediatric patients six years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency confirmed by genetic testing. With this approval, IMCIVREE became the first-ever FDA approved therapy for use in patients with these rare genetic diseases of obesity. As an MC4 receptor agonist, IMCIVREE is designed to restore impaired MC4 receptor pathway activity arising due to genetic deficits upstream of the MC4 receptor. We expect to make IMCIVREE commercially available to patients six years of age and older with obesity due to POMC, PCSK1 or LEPR deficiency in the U.S. in the first quarter of 2021.

IMCIVREE contains setmelanotide acetate, a melanocortin 4 (MC4) receptor agonist. Setmelanotide is an 8 amino acid cyclic peptide analog of endogenous melanocortin peptide α-MSH. The chemical name for setmelanotide acetate is acetyl-L-arginyl-L-cysteinyl-D-alanyl-L-histidinyl-D-phenylalanyl-L-arginyl-L-tryptophanyl-L-cysteinamide cyclic (2→8)-disulfide acetate. Its molecular formula is C49H68N18O9S2 (anhydrous, free-base), and molecular mass is 1117.3 Daltons (anhydrous, free-base).

The chemical structure of setmelanotide is:

IMCIVREE injection is a sterile, clear to slightly opalescent, colorless to slightly yellow solution. Each 1 mL of IMCIVREE contains 10 mg of setmelanotide provided as setmelanotide acetate, which is a salt with 2 to 4 molar equivalents of acetate, and the following inactive ingredients: 100 mg N-(carbonyl-methoxypolyethylene glycol 2000)-1,2-distearoyl- glycero-3- phosphoethanolamine sodium salt, 8 mg carboxymethylcellulose sodium (average MWt 90,500), 11 mg mannitol, 5 mg phenol, 10 mg benzyl alcohol, 1 mg edetate disodium dihydrate, and Water for Injection. The pH of IMCIVREE is 5 to 6.

Obesity due to POMC, PCSK1 or LEPR deficiency are ultra-rare diseases caused by variants in POMC, PCSK1 or LEPR genes that impair the MC4 receptor pathway. People living with obesity due to POMC, PCSK1 or LEPR deficiency struggle with extreme, insatiable hunger beginning at a young age, resulting in early-onset, severe obesity.

Obesity due to POMC or PCSK1 deficiency is caused by the loss of both genetic copies of either the gene for POMC or the gene for PCSK1. This results either in loss of POMC neuropeptide synthesis, in the case of biallelic (compound heterozygous and homozygous) deficiency in the POMC gene, or in disruption of the required processing of the POMC neuropeptide product to MSH by the PCSK1 enzyme, in the case of biallelic deficiency in the PCSK1 gene. The result of both of these two biallelic 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 or

Table of Contents

PSCK1 biallelic deficiency may also be associated with hormonal deficiencies, such as hypoadrenalism, as well as red hair and fair skin.

POMC/PCSK1 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.

Obesity due to LEPR deficiency is an ultra-rare genetic disease that causes hyperphagia and severe, early-onset obesity. Leptin’s role in obesity has been elucidated by characterization of severely obese people with biallelic 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.

Pivotal Phase 3 Clinical Trials Evaluating Setmelanotide in POMC and LEPR Deficiency Obesities

We assessed the safety and efficacy of IMCIVREE in two pivotal trials that were identically designed: one-year, open-label studies, each with an eight-week, double-blind withdrawal period. The studies enrolled patients with homozygous or presumed compound heterozygous pathogenic, likely pathogenic variants, or VUS, for either the POMC, PCSK1 or LEPR gene. In both studies, adult patients had a body mass index (BMI) of ≥30 kg/m2. Weight in pediatric patients was ≥95th percentile using growth chart assessments.

Efficacy analyses were conducted in 21 patients who had completed at least one year of treatment at the time of a pre-specified data cutoff. Of the 21 patients included in the efficacy analysis in both pivotal studies, 62 percent were adults and 38 percent were aged 16 years or younger. In Study 1, 50 percent of patients were female, 70 percent were White, and the median BMI was 40.0 kg/m2 (range: 26.6-53.3) at baseline. In Study 2, 73 percent of patients were female, 91 percent were White, and the median BMI was 46.6 kg/m2 (range: 35.8-64.6) at baseline.

In the POMC/PCSK1 study, 80 percent of patients with obesity due to POMC or PCSK1 deficiency met the primary endpoint, achieving a ≥10 percent weight loss after one year of treatment with IMCIVREE. In the LEPR study, 46 percent of patients with obesity due to LEPR deficiency achieved a ≥10 percent weight loss after 1 year of treatment with IMCIVREE.

Proportion of Patients Achieving at Least 10 percent Weight Loss from Baseline at 1 Year in Study 1 and Study 2

Parameter Statistic Study 1 (POMC)(N=10) Study 2 (LEPR)(N=11)

Patients Achieving at Least 10% Weight Loss at Year 1 n (%) 8 (80.0%) 5 (45.5%)

Percent Change from Baseline in Weight at 1 Year in Studies 1 and 2 (Full Analysis Set)

Parameter Statistic Study 1 (POMC)(N=10) Study 2 (LEPR)(N=11)

Table of Contents

Parameter Statistic Study 1 (POMC)(N=10) Study 2 (LEPR)(N=11)

Percent Change from Baseline to 1 Year (%) Mean (SD) -23.1 (12.1) -9.7 (8.8)

When treatment with IMCIVREE was withdrawn in the 16 patients who had lost at least 5 kg (or 5 percent of body weight if baseline body weight was <100 kg) during the 10-week open-label period, these patients gained an average of 5.5 kg in Study 1 and 5.0 kg in Study 2 over 4 weeks. Re-initiation of treatment with IMCIVREE resulted in subsequent weight loss.

Table of Contents

Mean Percent Change in Body Weight from Baseline by Visit (Study 1 [N=9] and Study 2 [N=7])

BL=Baseline (day of first dose)

V2 to V3 = variable dose titration period (2 to 12 weeks)

V3 to V6 = 10-week open-label treatment period

V6 to V8 = 8-week placebo withdrawal period (4 weeks active, 4 weeks placebo)

V8 to V12 = 32-week open-label treatment period

FV = Final visit; time point for primary efficacy analysis

Note: This figure includes patients who had lost at least 5 kg (or 5% of body weight if baseline body weight was <100 kg) during the 10-week open-label period.

Additionally, as of April 16, 2020, a total of 15 patients who participated in the pivotal studies were being treated in our long-term extension study, including nine with POMC deficiency obesity and six with LEPR deficiency obesity, all of whom previously completed one of our two pivotal Phase 3 trials evaluating setmelanotide for the treatment of severe obesity and insatiable hunger. As of that date, extension study data showed durable weight loss with long-term treatment with setmelanotide for a total of up to 155 weeks. Hunger scores have typically remained stable throughout the extension study. Treatment in the extension study remains ongoing, and as of November 16, 2020, 12 of 15 eligible POMC patients and 12 of 15 eligible LEPR patients had been enrolled in the long-term extension study.

Also as of April 16, 2020, we had enrolled a total of eight patients, including four pediatric patients between the ages 6 and 12 years old, in supplemental cohorts in these Phase 3 trials for POMC deficiency obesity and LEPR deficiency obesity, with four supplemental patients enrolled in each trial. All eight supplemental patients achieved the primary endpoint of 10 percent or greater weight loss at 52 weeks on setmelanotide therapy, as calculated under the same statistical analysis plan used in the pivotal trials. All of the supplemental patients were enrolled by European investigators, as were most of the patients in the pivotal cohorts. The mean reduction in baseline body weight for the supplemental POMC deficiency obesity patients was -26.3 percent, and the mean reduction in body weight for the supplemental LEPR deficiency obesity patients was -13.2 percent. The estimated mean percentage reduction in most hunger score for evaluable patients in the supplemental cohorts was -57.3 percent. Hunger scores collected from children younger than 12 were calculated differently and therefore not counted in this analysis. Combining data from the eight supplemental patients with data from the pivotal cohorts, 12 out of 14 patients with POMC deficiency obesity and 9 out of 15 patients with LEPR deficiency obesity achieved the primary endpoints of greater than 10 percent weight loss over approximately one year. Additionally, the data for all key secondary endpoints from the supplemental cohorts were consistent with the data from the pivotal cohorts.

Table of Contents

EU Regulatory Path

Our MAA seeking approval for setmelanotide the treatment of obesity and the control of hunger associated with confirmed biallelic pro-opiomelanocortin (POMC), including PCSK1, deficiency obesity or confirmed biallelic leptin receptor (LEPR) deficiency obesity in adults and children 6 years of age and above is currently under review by the EMA, having been submitted in June 2020. The EMA has previously granted PRIority MEdicines (PRIME) designation for setmelanotide for the treatment of obesity and the control of hunger associated with deficiency diseases of the MC4 receptor pathway.

Commercial Availability

We are focused on making IMCIVREE available globally as we build an infrastructure to bring this precision therapy to patients with obesity due to POMC, PCSK1 or LEPR deficiency. We aim to ensure a positive experience for patients, caregivers and prescribing physicians, and delivering on that promise with an efficient scalable model. We expect IMCIVREE to be commercially available in the United States in the first quarter of 2021. We will achieve this through efforts in partnership with our specialty pharmacy, which will serve as the primary point of contact for patients and health care providers, or HCPs. We are committed to providing comprehensive patient support offerings and will provide additional details on our patient support program when IMCIVREE becomes commercially available. We believe these activities will also lay the groundwork for future potential launches while ensuring ongoing seamless support to patients within our current approval.

We are working with the broader community of physicians, patients and families to improve the path to an accurate diagnosis. Patient identification is a core focus of our cross-functional teams. We support disease education through our medical and commercial team efforts. Our medical field team consists of 10 medical science liaisons and eight disease education liaisons who have reached out to hundreds of HCPs to educate them on the MC4R pathway and the underlying genetics that may lead to obesity. We have supplemented these one-on-one interactions with engagement of HCPs through our GOLD Academy program. The commercial team also supports disease education with non-personal promotion activities to reach a larger group of HCPs and patients, who may access additional educational information on our website addressing rare genetic diseases of obesity awareness (www.leadforrareobesity.com). Once an HCP suspects a patient may have a genetic cause for their obesity, we will make available our free Uncovering Rare Obesity (URO) testing program, which screens a panel of genes involved in the MC4R pathway. The URO testing program supports the identification of patients eligible within the indications on the IMCIVREE label, as well as other genes of interest to us, including BBS, Alström, and genes expected to be included in our expanded Phase 2 Basket Study.

In addition to having disease education and testing initiatives, we have patient support programs in place to provide support to patients, including genetic counseling, reimbursement support inclusive of co-pay and patient assistance programs, and IMCIVREE injection training.

Although the total number of patients potentially addressable by setmelanotide may not be so rare, individually populations with each of these MC4R pathway-related genetic defects are rare and affected patients face many of the same challenges as any classically rare patient population. There is little or no awareness about these rare genetic diseases obesity, and the patients suffering from them are lost in the health care system, with limited educational resources and no effective treatments for their condition. All of our efforts and services described above are designed to address the challenges of rare diseases and lay the groundwork for potential future launches, with a focus on scalability .

Development of Setmelanotide for Additional Indications

BBS and Alström Syndrome

Bardet-Biedl Syndrome

Bardet-Biedl syndrome is a life-threatening, ultra-rare orphan disease. 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. BBS is part of a class of disorders

Table of Contents

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. 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. Currently there are no approved or effective therapies for BBS.

In December 2020, we reported positive topline results from our pivotal Phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with BBS or Alström syndrome. The combined pivotal, Phase 3 trial is a multinational, open-label, single-arm study consisting of 52 weeks of treatment with setmelanotide. Participants were blinded and randomized for the first 14 weeks of the trial to receive either placebo or setmelanotide therapy. Those participants who began the trial on setmelanotide continued therapy for a total of 52 weeks, while those on placebo went on to receive 52 weeks of setmelanotide therapy after completion of the 14-week placebo period. All patients were obese, defined as BMI ≥30 kg/m2 for patients ≥16 years of age or weight >97th percentile for age and sex on growth chart assessment for patients 6 to 15 years of age. Based on the statistical analysis plan, the primary analysis was completed for 28 of the 31 patients who reached or exceeded 52 weeks on setmelanotide therapy, as well as three patients who were randomized to the placebo group during the 14-week double-blind period, who had not yet reached 52 weeks on therapy. The study met its primary and all key secondary endpoints, demonstrating statistically significant and clinically meaningful reductions in weight and hunger scores, with patients with BBS comprising all primary endpoint responders. No patients with Alström syndrome met the primary endpoint. The analysis of the primary endpoint showed that 11 of 31 (34.5 percent) of participants achieved the primary endpoint of at least 10 percent reduction in body weight from baseline at approximately 52 weeks of therapy (p=0.0024), 11 of 28 patients with BBS achieved 10 percent reduction in body weight, and 0 of 3 patients with Alström syndrome achieved 10 percent reduction in body weight. The analysis of the key secondary endpoints showed that mean reduction from baseline in body weight was -6.2 percent (p<0.0001), mean reduction from baseline in most hunger rating was -30.8 percent (p<0.0001) and 60.2 percent of participants achieved at least 25 percent reduction in most hunger scores from baseline at approximately 52 weeks of therapy (p<0.0001).

We believe the inclusion of adolescents in the primary analysis confounded the weight analysis as they represented approximately half of the patients and were still growing. Of the 28 BBS patients included in the primary analysis set, 15 of them were adults, age 18 or older, and 13 were adolescents. Looking at adults only, 11 out of 15 or 73 percent had greater than 5 percent weight loss. And 8 out of 15 or 53 percent had greater than 10 percent weight loss.

We believe this distinction between adults and adolescents is important because children and adolescents are growing in height and increasing bone mass and therefore would be expected to gain weight. On January 26, 2021, we shared data from a predefined exploratory endpoint showing the impact of setmelanotide on BMI-Z scores for patients younger than 18 years old with BBS. The BMI-Z score, or BMI standard deviation score, represents the number of standard deviations from median BMI by child age and sex. Setmelanotide was associated with statistically significant and clinically meaningful reductions in BMI-Z scores in patients with BBS. In 16 patients younger than 18 with BBS, the mean BMI-Z score was reduced from 3.74 at baseline to 2.98 for a reduction of -0.76, or -24.5 percent (p=0.0006).

Consistent with prior clinical experience, setmelanotide was generally well tolerated, there were no serious adverse events, or SAEs, related to treatment with setmelanotide and the safety results were consistent with previous setmelanotide clinical trials. Eight patients discontinued from study drug treatment during the trial, five due to adverse events, or AEs (one on placebo at the time), and three for other reasons (one on placebo at the time).

We are continuing to follow patients with BBS who are severely obese and enrolled in our Phase 2 trial. Results from this Phase 2 trial demonstrate that treatment with setmelanotide led to marked reductions in body weight and decreased appetite as shown by lower hunger scores. The results of this study were published in an article entitled, “Effect of Setmelanotide, an MC4R Agonist, on Obesity in Bardet-Biedl Syndrome,” in July 2020 in the peer-reviewed journal Diabetes, Obesity and Metabolism. Previously, we reported in September 2019 that six of the nine patients showed clinically important, marked weight loss. In the second quarter of 2018, the FDA agreed to include BBS under our existing Breakthrough Therapy designation for setmelanotide.

Table of Contents

We anticipate completion of regulatory submissions to both the FDA and the EMA seeking marketing authorization for setmelanotide for the treatment of obesity in patient with BBS in the second half of 2021.

Alström Syndrome

Alström syndrome is a life-threatening, ultra-rare orphan disease. It 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 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. As stated above, our Phase 3 study included three patients with Alström syndrome in the primary analysis and none of them met the primary endpoint. However, there were signals of potential efficacy in some patients, and we are exploring further these phase 3 data. One pediatric patient with Alström syndrome lost 8 percent of body weight in the pivotal trial. In our Phase 2 trial, we had enrolled four patients with Alström syndrome. One of those patients, a 12-year-old male, lost 25 percent of body weight, and another patient who achieved and maintained 6 percent weight loss also saw her HbA1c decrease by 3 percent from 11 percent to 8 percent.

We are evaluating next steps for setmelanotide for the potential treatment of patients with Alström syndrome.

Community-building efforts for BBS and Alström Syndrome

The ongoing efforts outlined to support the POMC, PCSK1 and LEPR launch lay the foundation for future commercialization efforts, including potential for BBS and Alström if setmelanotide is ultimately approved in these indications. All disease education efforts supporting awareness of rare genetic diseases of obesity and testing will also uncover BBS and Alström patients. In addition, compared to POMC, PCSK1 and LEPR, BBS and Alström are syndromic diseases where patients suffer from multiple symptoms beyond early-onset obesity and hyperphagia. This allows for a tailored approach to disease education efforts to differentiate individuals with BBS and Alström syndrome from the broader general obese population.

Initial primary and secondary market research has been conducted to understand the patient journey to diagnosis and treatment and the HCPs involved in the diagnosis and management of individuals with BBS and Alström syndrome. This research demonstrates there is still a need to decrease the time to diagnosis and increase awareness of these diseases, particularly education around how the underlying pathology causing obesity in BBS and Alström Syndrome differs from common obesity. Currently HCPs often treat the obesity and hyperphagia with traditional obesity management practices that frequently prove insufficient, leading to inadequate improvements and frustration for diagnosed individuals. We continue to advance our education and community building efforts as we make progress against these unmet needs in the community through engagements with existing HCP treaters, diagnosers, referrers, along with patient advocacy groups.

We continue to hone our understanding of the number of diagnosed individuals, while supporting additional patient identification. An ongoing assessment of the market will guide decisions around future headcount needs to support the launch in BBS/AS, whether from a field perspective or to supplement our existing patients and customer support services.

Table of Contents

Additional MC4R Pathway Genetic Deficiencies: HETs, SRC1 and SH2B1

We are actively working to broaden the indication for setmelanotide to treat individuals with additional genetic deficiencies related to the MC4R pathway through our clinical development program. We anticipate initiating a Phase 3, potentially registration-enabling study in the second half of 2021 to evaluate setmelanotide in patients with MC4R pathway deficiencies due to a variant in one of the two alleles in the POMC, PCSK1, or LEPR genes, or HET obesity, as well as the SRC1 and SH2B1 genes. In addition, we plan to initiate an expanded Phase 2 Basket Study to evaluate setmelanotide for the treatment of obesity due to a deficiency in one of 31 additional genes associated with the MC4R pathway.

POMC, PCSK1 or LEPR heterozygous deficiency obesity

POMC, PCSK1 and LEPR are core genes of the MC4R pathway. Heterozygous variants in POMC, PCSK1 and LEPR have been associated with clinical obesity that may be due to a MC4R pathway dysfunction. The epidemiology and clinical characterization POMC, PCSK1, or LEPR heterozygosity obesity, or HET obesity, is not well understood. We are studying patients who are severely obese and who carry a heterozygous variant of the POMC, LEPR, or PCSK1 gene. These patients have a genetic variant that may result in MC4R pathway dysfunction.

SRC1 deficiency obesity

SRC1 deficiency obesity is a rare genetic disorder that is characterized by early-onset severe obesity and hyperphagia. 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. 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 mutations in their SRC1 genes, there can be insufficient leptin receptor activation of the MC4 receptor pathway as a result of decreased POMC expression, which decreases the amount of available MSH to reactivate the MC4 receptor, consequentially resulting pathway dysfunction that drives the hyperphagia and obesity in these individuals.

SH2B1 deficiency obesity

SH2B1 deficiency obesity is a rare genetic disorder that is characterized by early-onset severe obesity, 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. 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 may have insufficient leptin receptor activity activation of their MC4R pathway. This gives rise to a well-documented form of severe early-onset obesity and hyperphagia.

Proof of concept achieved in HET obesity and obesity due to SRC1 or SH2B1 deficiencies

Our ongoing Phase 2 Basket Study is an open label study designed to evaluate setmelanotide in obese patients whose Body Mass Index (BMI) ≥ 30 kg/m2 for patients 16 years of age or older or BMI≥ 95th percentile for age and gender for patients between 6 and 16 years old. Patients were stratified by cohort according to their genetic defect (i.e., HETs, SRC1 or SH2B1, or others). On Jan. 26, 2021, we announced proof-of-concept interim data from this study in HET obesity, obesity due to SRC1 deficiency; and obesity due to SH2B1 deficiency. The primary endpoint of the study is the percent of patients in each subgroup showing at least a 5 percent loss of body weight over three months.

Table of Contents

HET Obesity (POMC, LEPR, PCSK1) highlights included, as of a cutoff of December 17, 2020:

In our analyses, we are applying variant classification guidelines from the American College of Medical Genetics, or ACMG (as described in Richards, et al., 2015), to patient cohort stratification. Specific variants of the POMC, LEPR, PCSK1, SRC1 or SH2B1 gene may be classified based published data as being pathogenic, likely pathogenic, likely benign or benign, or classified as a variant of unknown significance or VOUS. As genetics of obesity remains an emerging field, the vast majority of variants in genes associated with the MC4R pathway as classified as VOUS. Our hypothesis was that patients with genetic variants that indicate a higher degree of pathogenicity would be more likely to have impaired pathway signaling and therefore more likely to respond to setmelanotide. In addition, we decided to study a cohort of patients with an N221D variant of the PCSK1 gene. This is a common variant which has been associated with obesity in scientific and medical literature.

Data from the SRC1 and SH2B1 cohorts were based on an interim analysis of patients who completed 12 weeks of therapy. This analysis did not include 15 patients who withdrew early due to COVID-related issues, adverse events or were lost to follow-up. Also not included were data from 12 patients who remained on trial but had not yet reached 12 weeks of therapy as of December 17, 2020.

Obesity due to SRC1 deficiency highlights included, as of a cutoff date of December 17, 2020:

● Four of 13 patients (30.8 percent) achieved the primary endpoint;

Obesity due to SH2B1 deficiency highlights included, as of a cutoff date of December 17, 2020:

Table of Contents

Consistent with prior clinical experience, setmelanotide was generally well tolerated in each of these rare genetic diseases of obesity as of the cutoff date. The most common treatment-emergent adverse events, or TEAEs, included mild injection site reactions, hyperpigmentation, and nausea and vomiting, which occurred early in the treatment course. There were no SAEs related to treatment with setmelanotide.

We are in discussions with the FDA to define a potential path for setmelanotide towards registration for these indications. Pending the outcome of these discussions, we plan to initiate a pivotal Phase 3 trial evaluating setmelanotide in patients with HET obesity and SRC1 and SH2B1 deficiency obesities in the second half of 2021.

MC4 Receptor Deficiency Obesity

In the first half of 2021, we anticipate reporting interim data from ongoing Phase 2 basket trial from a cohort of patients with MC4R deficiency obesity arising due to heterozygote loss of function mutations in the MC4 receptor gene itself. This is one of the most well-known and prevalent forms of monogenic severe early-onset obesity. Based on a comprehensive ongoing biochemical screening study, we believe setmelanotide may have the potential to address MC4R loss of function in a defined subset of this broader population, specifically individuals who carry MC4R 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.

Smith-Magenis Syndrome

In addition, we are studying setmelanotide for the treatment of obesity in patients with Smith-Magenis syndrome, 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. 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. We are continuing to enroll patients in this cohort.

Additional Planned Phase 2 Studies

Expanded Phase 2 MC4R Pathway Basket Study

Leveraging our extensive scientific expertise and years of internal research, we have developed a process that allows us to identify new genes that we believe may be responsive to setmelanotide. Through this proprietary gene curation and selection strategy specifically designed to evaluate a gene’s relevance to the MC4R pathway, we have identified an additional 31 MC4R pathway genes with “strong” or “very strong” pathway relevance, which we plan to evaluate in an expanded Phase 2 Basket Study. Similar to our ongoing exploratory Phase 2 Basket Study, we will look to enroll patients with early-onset, severe obesity with a body mass index (BMI) ≥40 kg/m2 with a confirmed genetic variant of one of these 31 genes. We expect that patient identified for this study will be screened, stratified into cohorts by gene and receive setmelanotide therapy over 12 to 16 weeks. We expect to finalize this study design and initiate this trial in the second half of 2021.

Hypothalamic Obesity

Hypothalamic obesity, or HO, is a severe obesity that arises from mechanical hypothalamic insults. Lesions of the hypothalamus can derive from various types of tumors (e.g., craniopharyngiomas, gliomas, pituitary adenomas,

Table of Contents

hamartomas) or may be caused by surgeries and radiotherapies for the treatment of these same tumor types. These hypothalamic lesions, whether caused by the tumor itself and/or the treatment of the tumor, can disrupt the MC4R pathway. Moreover, patients with HO display high degree of hyperleptinemia and hyperinsulinemia. Alpha-melanocortin stimulating hormone (MSH) can be detectable in blood, and its levels can change depending on different energy states; however, in patients with craniopharyngioma or post-surgical treatment for it, α-MSH levels are significantly reduced. Reduced serum α-MSH levels may suggest melanocortin pathway deficiency, which might explain obesity in these patients.

We plan to conduct a Phase 2, multi-center, open-label, proof of concept study designed to assess the effect of setmelanotide on weight loss on a population affected by HO. Approximately 15 subjects aged 6 to 28 years, inclusive, are planned to be enrolled across approximately 3-5 clinical sites in the United States. We expect that patients will be treated with setmelanotide for 16 weeks, with the primary endpoint being the percentage of subjects aged >12 years with ≥5 percent body weight loss from baseline compared to a historic control of <5 percent in this subject population. All enrolled patients will be obese, defined as a BMI ≥35 kg/m2 for subjects ≥16 years of age or BMI ≥99th percentile for age and gender for subjects 6 to <16 years of age based on the U.S. Centers for Disease Control and Prevention criteria.

Weekly Formulation of Setmelanotide

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 believe that this formulation may be more convenient and less burdensome for patients and their families.

In November 2020, we presented interim results from a Phase 2 study evaluating a once-weekly formulation of setmelanotide in healthy obese volunteers. The data showed that, as of a cutoff date of April 17, 2020, healthy obese people treated with the weekly formulation of setmelanotide achieved comparable weight loss to those treated with the daily formulation and that both weekly and daily formulations of setmelanotide were observed to be generally well tolerated. A total of 85 individuals were included in the interim data analysis: 28 individuals were treated with weekly setmelanotide without titration for 12 weeks (10mg, 20mg or 30mg doses); 20 individuals were treated with weekly setmelanotide with titration (10mg for one week, followed by 20mg for 11 weeks or 20mg for one week, followed by 30mg for 11 weeks); 13 individuals were treated with daily setmelanotide (2mg daily for one week, followed by 3mg daily for 11 weeks); and 24 individuals were treated with placebo for 12 weeks.

We plan to discuss our development plans with the FDA and EMA in the first half of 2021 and anticipate dosing the first patient in our planned once-weekly clinical trial in late 2021.

These interim data showed that, as of the cutoff date of April 17, 2020, the weight and hunger score changes in individuals who received the weekly formulation were generally comparable to the score changes observed in individuals who received the daily formulation. Notably, the weight and hunger score changes in healthy obese individuals receiving both formulations were lower than those reported separately in patients with rare genetic obesities associated with an impaired MC4R pathway who received setmelanotide. We believe the interim results from this study reinforces the position that setmelanotide is a precision medicine targeted at patients with deficits in the MC4R pathway. Additionally, pharmacokinetic, or PK, analyses showed similar trough drug concentrations for the daily and weekly formulations over the duration of therapy. The weekly formulation of setmelanotide demonstrated a consistent 24-hour PK range and was detected steadily over one week, with a trough concentration consistent with the trough concentration of the daily formulation.

As of the data cutoff of April 17, 2020, weekly setmelanotide administration was generally well tolerated, with no serious TEAEs, and the safety results were similar to the daily administration and consistent with prior clinical experience. The most commonly reported TEAEs, rates of which were generally similar between individuals treated with the weekly and daily formulations, included injection site reaction, hyperpigmentation, nausea, headache and vomiting.

Table of Contents

Safety and Tolerability Results

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, we are not aware of any 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 to date. Overall, except as outlined below, the number and patterns of AEs were generally low, and the intensity of the AEs was generally mild, and infrequently led to clinical trial discontinuation.

To evaluate whether setmelanotide has the potential to avoid adverse cardiovascular issues, we studied 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 ambulatory blood pressure monitoring, or 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 showed 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.

In the majority of our trials, we observed a small increase in frequency of 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.

Life-Cycle Management and Preclinical Development

We continue to advance the development of our once-weekly formulation of setmelanotide for all indications in which setmelanotide is approved or in development. We plan to discuss our development plans with the FDA and EMA

Table of Contents

in the first half of 2021 and anticipate dosing the first patient in our planned once-weekly clinical trial in late 2021. In addition, we have initiated development of an auto-injector device designed to make administration of our once-weekly product candidate easier and more convenient for our patients.

IMCIVREE is approved in the US for patients 6 years of age and older. We are also seeking approval for pediatric patients 6 years of age and older in the EU. We have identified children with genetic obesity under 6 years of age who we believe may potentially benefit from treatment with setmelanotide. We plan to initiate a clinical study in POMC deficiency obesity, LEPR deficiency obesity, and BBS patients 2 – 5 years of age in the second half of 2021. In addition, we have initiated discussions with the EMA to modify our EMA-approved Pediatric Investigation Plan, or PIP, to be consistent with our plans for the treatment of these younger patients. We expect to meet all our PIP requirements by 2024.

We are no longer pursuing development of a pre-clinical asset, RM-853, a ghrelin O acyltransferase inhibitor that had been in preclinical development for Prader-Willi syndrome, a rare genetic disorder that results in hyperphagia and early-onset, life-threatening obesity.

We have initiated a program to identify next generation MC4R agonists based on the setmelanotide chemical space that both have the potential to avoid cardiovascular AEs and MC1R activation, the latter of which results in hyperpigmentation. This program is expected to result in a clinical development candidate that will be a potent MC4R agonist matching setmelanotide’s cardiovascular safety but without the potential to cause hyperpigmentation. We expect to identify a lead compound from this program for preclinical development in 2022.

Genetic Sequencing and Patient Finding

We continue to expand our sequencing efforts in individuals living with early-onset, severe obesity to support research, patient finding and community building efforts in order to better understand rare genetic diseases of obesity. Our obesity DNA database contains sequencing samples from approximately 37,500 individuals, and we are using these data to support research, patient finding and community building while forging a better understanding of rare genetic diseases of obesity. With our focus on the MC4R pathway, we believe this database is an important resource for identifying new indications for clinical development with new populations and prevalence estimates for who may benefit from setmelanotide. By bringing additional awareness to these rare genetic diseases of obesity, our sequencing efforts have the potential to help foster patient communities and drive medical action in these populations.

We analyze these samples utilizing a proprietary gene curation and selection strategy to assess each gene’s relevance to the MC4R pathway. For example, we used this approach in identifying the 31 additional MC4R pathway genes that we plan to evaluate in our expanded Phase 2 Basket Study.

Our sequencing data comes from three sources:

Uncovering Rare 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, 2020, 2,035 United States health care providers have requested 13,900 Uncovering Rare Obesity kits, and 6,163 sequencing tests have been ordered and patient samples collected. We launched the program in summer 2019, and we did experience a decrease in ordered and processed kits in 2020 due to the COVID-19 pandemic, as many people stayed away from health care facilities. Moving forward, we expect that Uncovering Rare Obesity, or URO, our free genetic testing program designed to help determine if individuals have an underlying genetic cause of their severe obesity, will become the primary driver of how we collect sequencing samples and identify patients.

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

Table of Contents

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 Prevention Genetics, a Clinical Laboratory Improvement Amendments-College of American Pathologists of CLIA/CAP-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.

Genotyping Study

We have completed our initial genotyping study—the Genetic Obesity ID | Genotyping Study, with approximately 10,000 patients having been enrolled in the study. We included approximately 100 genes which, in medical and scientific literature, have been associated with obesity, including other genes associated with the MC4R pathway. We genotyped patients who entered the study through one of three arms including: a history of early-onset, severe obesity, and hyperphagia, high BMI, and individuals within three months of bariatric surgery. 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.

Biobanks

The third source of our sequencing data come from global network of collaborations with obesity researchers we built over time with treaters and the biggest institutes that generate large quantities of DNA sequence data. Biobank based sequencing provides data principally for scientific and epidemiological research.

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.

Currently, IMCIVREE is the only approved treatment for regulating hunger and hyperphagia related behaviors of patients with obesity due to POMC, PCSK1 or LEPR deficiencies, and there are no approved treatments for regulating hunger and hyperphagia related behaviors of patients BBS, Alström syndrome, POMC heterozygous deficiency obesity, SRC1 deficiency obesity, SH2B1 deficiency obesity, MC4R deficiency obesity, or Smith-Magenis syndrome. Bariatric surgery is not a treatment option for these genetic diseases of obesity because the severe obesity and hyperphagia associated with these diseases are considered to be risk factors for bariatric surgery.

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

Table of Contents

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 is eligible to 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, and to date, we have paid $4.0 million in clinical and regulatory milestones. 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 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 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.

Table of Contents

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.

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 six 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 13 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, 2020, the portfolio for the MC4 program consists of 14 issued United States patents and 228 issued non-United States patents across 8 of the 13 families. There also 13 pending United States patent applications and 76 pending non-United States applications in 24 jurisdictions.

In the patent family directed to selected MC4R receptor agonists, including the composition of matter for setmelanotide, we have 3 issued United States patents and 108 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, and we have filed for patent term extension in the United States that, if granted, would extend the composition of matter patent protection to 2032.

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 also co-own one patent family with the University of Strasbourg and the French National Institute of Health and Medical Research, which has been filed in 4 jurisdictions. Both of these patent families relate to the melanocortin program.

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 1 issued United States patent, nine issued non-United States patents including China, Europe, and Japan, and one allowed 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

Table of Contents

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. For applications filed prior to the institution of the “first to file” system, 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. Setmelanotide has received FDA approval and we have filed for patent term extension on that product. In the future, if and when our other 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

Table of Contents

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 have received orphan drug designation in the United States for the use of setmelanotide for five indications and approval for two of those indications.

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 our CMOs, Corden Pharma Brussels S.A, or Corden (formerly Peptisyntha SA prior to its acquisition by Corden), PolyPeptide Group, Baine L’Alleud, or Polypeptide, Neuland Laboratories, and Recipharm Monts S.A.S for certain process development and manufacturing services for regulatory starting materials and/or drug substance, or API, and drug product in connection with the manufacture of setmelanotide. 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 may need to engage additional third-party suppliers to manufacture our clinical and commercial drug supplies. In connection with our commercialization of setmelanotide or any future product candidate, we have engaged and will need to engage other third parties to assist in, among other things, labeling, packaging and distribution. 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 CMOs with whom we currently work may need to increase scale of production or we expect that we may 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.

Table of Contents

Regulatory Matters

Government Regulation

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of drug products. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States. We, along with any third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval of our products and product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

U.S. Drug Development Process

In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (FDCA) and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following:

● satisfactory completion of an FDA advisory committee review, if applicable;

Prior to beginning the first clinical trial with a product candidate in the United States, a sponsor must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective

Table of Contents

before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30- day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the study until completed. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution 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. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

In some cases, the FDA may require, or sponsors may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies, may be conducted after initial marketing approval, and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and 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 product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be

Table of Contents

selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.

In addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug.

U.S. Review and Approval Process

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by independent investigators. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Under the Prescription Drug User Fee Act (PDUFA) guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete a standard review of an NDA for a drug that is a new molecular entity. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after it the application is submitted.

The FDA may refer an application for a novel drug to an advisory committee. 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.

Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within required specifications. Additionally, before approving a NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

Table of Contents

After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (CRL). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (REMS) to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. The FDA may also require one or more Phase 4 post- market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

In addition, the Pediatric Research Equity Act (PREA) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a fast track product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. A Fast Track product may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough Therapy designation to expedite its development and review. A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, 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 designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance

Table of Contents

beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers.

Any marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product candidate is eligible for priority review if it is designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition. For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date.

Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, 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. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing studies or if such studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Fast Track designation, Breakthrough Therapy designation, priority review, and accelerated approval do not change the standards for approval, but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug in the United States will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Table of Contents

Rare Pediatric Disease Priority Review Voucher Program

In 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications. This program is designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval.

For purposes of this program, a “rare pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents; and (b) rare diseases or conditions within the meaning of the Orphan Drug Act. Congress has only authorized the Rare Pediatric Disease Priority Review Voucher program until September 30, 2024. Consequently, sponsors of marketing applications approved after that date will not receive the voucher unless Congress reauthorizes the Rare Pediatric Disease Priority Review Voucher program before that time. However, even if the program is not reauthorized, if a drug candidate receives Rare Pediatric Disease Designation before October 1, 2024, the sponsor of the marketing application for such drug will be eligible to receive a voucher if the application for the designated drug is approved by the FDA before October 1, 2026.

Post-approval Requirements

Drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of 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 fees for any marketed products. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

The FDA may withdraw 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 adverse events 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 studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

● fines, warning letters, or untitled letters;

● clinical holds on clinical studies;

Table of Contents

● injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe, in their independent professional medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labelling.

Marketing Exclusivity

Market exclusivity provisions authorized under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an abbreviated new drug application (ANDA), or an NDA submitted under Section 505(b)(2) (505(b)(2) NDA), submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder.

The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to any preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Table of Contents

Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.

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.

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.

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. 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

Table of Contents

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 of Combination Products in the United States

Certain product are comprised of components, such as drug components and device components, that would normally be subject to different regulatory frameworks by the FDA and frequently regulated by different centers at the FDA. These products are known as combination products. Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. The determination of which center will be the lead center is based on the “primary mode of action” of the combination product. Thus, if the primary mode of action of a drug-device combination product is attributable to the drug product, the FDA center responsible for premarket review of the drug product would have primary jurisdiction for the combination product. The FDA has also established the Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute. A combination product with a primary mode of action attributable to the drug component generally would be reviewed and approved pursuant to the drug approval processes set forth in the FDCA. In reviewing the NDA for such a product, however, FDA reviewers would consult with their counterparts in the device center to ensure that the device component of the combination product met applicable requirements regarding safety, effectiveness, durability and performance. In addition, under FDA regulations, combination products are subject to cGMP requirements applicable to both drugs and devices, including the QSR applicable to medical devices.

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.

Table of Contents

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 is expected to enter into force by the end of 2021, but this could 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 EEA member states (i.e., the member states of the EU in addition to 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

Table of Contents

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 EMA’s Committee for Human Medicinal Products, or the CHMP, 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. The PRIME scheme focuses on medicines that may offer a major therapeutic advantage over existing treatments, or benefit patients without treatment options. These medicines are considered priority medicines by the EMA. To be accepted for PRIME, a medicine has to show its potential to benefit patients with unmet medical needs based on early clinical data. The benefits of a PRIME designation include the appointment of an EMA Committee for Medicinal Products for Human Use rapporteur before submission of the marketing authorization application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review earlier in the application process. PRIME designation do not however change the standards for product approval, and there is no assurance that any such designation or eligibility will result in expedited review or approval.

RYTM US Equity

RYTM · 10-K · period ended 2020-12-31

Item 1. Business

RYTM US Equity☆

RYTM · 10-K · period ended 2020-12-31

Item 1. Business

RYTM US Equity