Rhythm Pharmaceuticals Annual Report 2018

FY2018 Annual Report · Rhythm Pharmaceuticals

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Cautionary Note Regarding Forward-looking Statements

This Annual Report, including the Message to Our Shareholders contained herein, contains forward-looking statements within the meaning of Section 27A

of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the “safe harbor” created

by those sections. Any statements about our expectations, beliefs, plans, objectives, assumptions, or future events or performance are not historical facts

and may be forward-looking. Such statements include statements regarding our expectations for timing of results from clinical trials, anticipated effects

of our product candidates, and similar statements. 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.

We cannot guarantee future results, levels of activity, performance, or achievements, and you should not place undue reliance on our forward-looking

statements. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference

include, but are not limited to, those set forth in “Item 1A. Risk Factors” in the Form 10-K included in this Annual Report. Except as may be required by law,

we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this Annual Report. We caution readers not

to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Contact Information

500 Boylston Street, 11th Floor, Boston, MA 02116

tel: 857-264 - 4280

info@rhythmtx.com

Rhythmtx.com

NASDAQ: RYTM

@RhythmPharma

LinkedIn.com/company/

fax: 857-264 - 4299

rhythm-pharmaceuticals-inc-/

2 018 A N N U A L R E P O R T

T R A N SF O R M I N G T H E C A R E O F O B ES I T Y

Rhythm is a biopharmaceutical
company aimed at developing
and commercializing therapies
for the treatment of rare genetic
disorders of obesity.

As we look to 2019, we are
eager to accelerate our growth
and maximize our impact on the
care of these disorders.

Keith Gottesdiener, MD
Chief Executive Officer of Rhythm

Corporate Profile

Rhythm is targeting defects in the melanocortin-4 receptor

(MC4R) pathway, a key biological pathway that regulates

weight and hunger. A central element of Rhythm’s mission

is to improve the understanding of these disorders and

develop management strategies for patients who have no

treatment options available to them.

O U R C L I N I C A L D E V E LO PM E N T FO CUS

Pro-opiomelanocortin (POMC) deficiency obesity

Leptin receptor (LEPR) deficiency obesity

Rhythm was founded in 2008 and is based in Boston, MA.

Bardet-Biedl Syndrome (BBS)

The company’s clinical development program is currently

focused on 6 rare genetic disorders of obesity, all driven by

Alström Syndrome

genetic variants in the MC4R pathway.

MC4R pathway heterozygous deficiency obesity

POMC epigenetic disorders

Understanding Rare Genetic Disorders of Obesity

Obesity is one of the most prevalent, chronic conditions

Rhythm has launched a non-interventional patient registry,

around the world. It is a challenging disease because it is not

called Tracing the Effect of the MC4R Pathway in Obesity

homogeneous. There are many environmental and biological

(TEMPO). The registry supports global efforts to measure the

factors that lead to obesity, including underlying genetic

prevalence of these disorders and collect data on the burden

components.

of disease. For more information, visit TempoRegistry.com.

Some people have a genetic variant that leads to insatiable

Rhythm is sponsoring the Genetic Obesity ID (GO-ID)

hunger, or hyperphagia, and severe, early-onset obesity. In

genotyping study to identify people with rare genetic

these rare genetic disorders of obesity, the variant impairs

disorders of obesity who may be eligible for enrollment

signaling within the hypothalamus that is critical for the

in Rhythm’s clinical trials. For more information, visit

maintenance of body weight, food intake, energy expenditure,

GeneticObesityStudy.com.

and glucose homeostasis.

Healthcare professionals can learn more about these disorders

patients with new genetic targets or syndromes tied to the

by visiting UNcommonObesity.com. Patients and caregivers

MC4R pathway identified in the TEMPO registry and GO-ID

can visit LEADforRareObesity.com for more information.

genotyping study.

Rhythm’s basket studies facilitate the rapid enrollment of

Targeting Upstream MC4R Pathway Defects

The MC4R pathway is a compelling target for treating rare genetic disorders of obesity because it plays a vital role in regulating

hunger and body weight. Genetic variants in the MC4R pathway can cause loss of function, leading to insatiable hunger and

early-onset severe obesity. If dysfunctional MC4R signaling can be repaired, satiety and weight control can be achieved in many

patients affected by these disorders.

Setmelanotide: potential first-in-class therapy

Rhythm’s lead product candidate, setmelanotide, is an MC4R

and Alström Syndrome, and Rhythm is currently evaluating

agonist designed to rescue impaired MC4R pathway function

setmelanotide in pivotal trials in these indications:

from genetic defects that occur upstream of the MC4R with

the potential to reduce hunger and increase resting energy

expenditure, leading to weight loss.

The U.S. Food and Drug Administration (FDA) has granted

Breakthrough Therapy designation to setmelanotide for the

treatment of obesity associated with genetic defects upstream

of the MC4R in the leptin-melanocortin pathway, which includes

POMC deficiency obesity, LEPR deficiency obesity, BBS, and

Alström Syndrome. The European Medicines Agency (EMA)

has also granted PRIority MEdicines (PRIME) designation for

setmelanotide for the treatment of obesity and the control of

hunger associated with deficiency disorders of the

MC4R pathway.

Proof-of-concept has been established with setmelanotide

in POMC deficiency obesity, LEPR deficiency obesity, BBS,

Rhythm expects topline data from separate pivotal Phase 3

clinical trials in POMC and LEPR deficiency obesity in the third

quarter of 2019.

Rhythm expects to complete enrollment in a combined pivotal

Phase 3 clinical trial in BBS and Alström Syndrome in the

second half of 2019.

Additionally, setmelanotide has demonstrated promising

preliminary data in MC4R pathway heterozygous deficiency

obesity and POMC epigenetic disorders. Rhythm is further

evaluating the efficacy and safety of setmelanotide in these

indications in ongoing basket studies, and updated interim data

is expected in the first quarter of 2019.

Setmelanotide

Eight-amino-acid cyclic peptide that is a potential
replacement therapy for MC4R pathway deficiencies

Retains the specificity and functionality of the
naturally occurring hormone that activates MC4R

Designed to reestablish weight and appetite control

Administered by daily subcutaneous injection

Expanding the Clinical Development Pipeline

In addition to ongoing efforts to further evaluate the efficacy and safety of setmelanotide in basket studies designed to

facilitate rapid progress to proof-of-concept in potential new indications, Rhythm has also acquired exclusive, worldwide rights

to develop and commercialize a preclinical treatment for Prader-Willi Syndrome (PWS), a rare genetic disorder that leads to

insatiable hunger and severe, early-onset obesity.

RM-853: Potent, oral ghrelin o-acyltransferase (GOAT) inhibitor

RM-853 is a potent GOAT inhibitor currently in preclinical development for PWS. In people living with PWS, levels of active

ghrelin are elevated, contributing to insatiable hunger and severe obesity. RM-853 is designed to block GOAT, the key

enzyme involved in the production of the active form of ghrelin, with the expected effect of lowering active ghrelin levels.

Clinical Development Pipeline

Proof
of Concept

PRE-CLINICAL

PHASE 1

PHASE 2

PHASE 3

Proposed Indication

SETMELANOTIDE

POMC Deficiency Obesity

LEPR Deficiency Obesity

Bardet-Biedl Syndrome

Alström Syndrome

POMC Heterozygous Deficiency Obesity

POMC Epigenetic Disorders

RM-853 (GHRELIN O-ACYLTRANSFERASE INHIBITOR)

Prader-Willi Syndrome (PWS)

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

A Message to Our Shareholders

We are entering a transformative period of development at

particularly encouraged to have completed enrollment ahead

Rhythm as we make significant strides toward our vision of

of schedule in LEPR deficiency obesity. We believe this speaks

becoming a fully integrated biopharmaceutical company.

to the need for a new disease-modifying therapy, and we

We are building a community to support people living with

anticipate this will allow us to submit concurrent New Drug

rare genetic disorders of obesity who have no approved

Application filings in POMC and LEPR deficiency obesity.

treatments for reducing body

weight and hunger. Further

compelling evidence of

setmelanotide’s potential as

a replacement therapy for

MC4R pathway disorders has

brought us closer to providing

a first-in-class

therapeutic option.

In recent months, we

announced major clinical and

regulatory advancements

across our development

program. Longer-term data

from our Phase 2 studies

evaluating setmelanotide

show that patients who

have been on treatment for

We have also enrolled

patients in our combined

pivotal Phase 3 trial in BBS

and Alström Syndrome, our

third pivotal-stage trial. This

combined trial will enable

us to evaluate setmelanotide

simultaneously in 2 rare

genetic disorders of obesity

that we believe share a

similar pathophysiology and

While we continue to make

clinical progress, we are also

working hard to build an

integrated patient community

and remain committed to

expanding awareness and

understanding of rare genetic

clinical presentation, which

disorders of obesity.

could potentially enable

more rapid progress toward

regulatory filing. Beyond

our Phase 3 programs, we

are enrolling additional

patients with MC4R pathway

many months continue to experience sustained reductions in

heterozygous deficiency and POMC epigenetic disorders

body weight and appetite. We were pleased to recognize

in our ongoing Phase 2 basket studies in order to better

the publication of Phase 2 study results in LEPR deficiency

understand the magnitude of setmelanotide’s effect and to

obesity in the peer-reviewed journal Nature Medicine. We

inform our next steps.

also announced initial proof-of-concept in Alström Syndrome

and presented Phase 2 data in BBS and Alström Syndrome at

ObesityWeek 2018 and the 57th Annual European Society

for Paediatric Endocrinology meeting. This data builds upon

prior clinical experience and reinforces our confidence

in setmelanotide.

With these results in hand, we are advancing our broad

clinical development program for setmelanotide with

optimism. We have completed enrollment in our pivotal Phase

3 clinical trials in POMC and LEPR deficiency obesity and are

While we continue to make clinical progress, we are also

working hard to build an integrated patient community

and remain committed to expanding awareness and

understanding of rare genetic disorders of obesity.

Genetic epidemiology analyses presented at the Endocrine

Society’s Annual Meeting and Expo suggest there may be

more people living with rare genetic disorders of obesity

than previously projected, though this rare patient population

remains largely undiagnosed.

We are establishing a specialized group of

care of these disorders. Our GO-ID genotyping study and

endocrinologists and other physicians to help improve

TEMPO registry will facilitate clinical study enrollment,

the diagnosis of people living with rare genetic disorders

patient identification, and the exploration of new genetic

of obesity and successfully launched our TEMPO registry

variants tied to MC4R loss of function, and through our

in 2018. The registry is a landmark effort to collect

basket studies we will continue to evaluate setmelanotide’s

longitudinal data in hopes of providing key stakeholders

potential in patients with new genetic targets or

with the information and resources to better identify and

syndromes. We look forward to advancing our mission

treat people living with these conditions.

to improve the understanding of rare genetic disorders of

On the business front, we expanded our pipeline with the

obesity and develop a potentially transformative therapy

for people whose early-onset obesity and excess hunger

in-licensing of RM-853, a preclinical GOAT inhibitor for

the treatment of PWS that may have benefit both as a

impair their lives.

single agent or in combination with setmelanotide. While

PWS is one of the most prevalent rare genetic disorders

of obesity, there are no approved treatments available.

With RM-853, we have the opportunity to develop a first-

in-class therapy with a likely dual mechanism of action,

which may more effectively mediate the insatiable hunger

and weight gain associated with PWS.

Following our successful follow-on offering in June 2018,

we are well capitalized and believe we have sufficient

resources to advance our ongoing clinical and market

development efforts into the second half of 2020. Also in

2018, we welcomed Dr. Murray Stewart to the executive

team as Chief Medical Officer. He is uniquely qualified

for this role given his deep industry experience – at both

large biopharma and smaller biotech companies – as well

as his specific expertise working in metabolic diseases,

including roles in research, clinical developments, and

regulatory strategy.

Our accomplishments in 2018 support our belief in

setmelanotide as a new therapeutic option that has the

potential to effectively address the insatiable hunger and

weight associated with rare genetic disorders of obesity

and provide us with a clear and efficient path for further

development. As we look to 2019, we are eager to

accelerate our growth and maximize our impact on the

Our accomplishments in

2018 support our belief

in setmelanotide as a new

therapeutic option that has the

potential to effectively address

the excess hunger and weight

associated with rare genetic

disorders of obesity...

Keith Gottesdiener, MD
Chief Executive Officer of Rhythm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

‘

Washington, D.C. 20549

FORM 10-K



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

For the fiscal year ended December 31, 2018
OR



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

For the transition period from to
Commission file number 001-38223

RHYTHM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

46-2159271
(I.R.S. Employer
Identification No.)

500 Boylston Street
11th Floor
Boston, MA 02116
(Address of principal executive offices)
(Zip Code)

(857) 264-4280
(Registrant’s telephone number, including area code)

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

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 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 

Non-accelerated filer 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ☒.

The aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $640.8 million, based on the closing price of the registrant’s
Common Stock on June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter.

There were 34,425,830 shares of Common Stock outstanding as of March 1, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2018. Portions of such
definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.

RHYTHM PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2018

Table of Contents

Page No.

PART I

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosures

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Item 13. Certain Relationships and Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

Item 16. 10-K Summary

SIGNATURES

132

133

135

136

149

150

151

152

155

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Unless the content requires otherwise, references to “Rhythm Pharmaceuticals,” “Rhythm,” “the Company,”

“we,” “our,” and “us,” in this Annual Report refer to Rhythm Pharmaceuticals, Inc. and its subsidiaries.

PART I

Item 1. Business

Overview

We are a biopharmaceutical company focused on the development and commercialization of therapeutics for the
treatment of rare genetic disorders that result in severe, life-threatening metabolic disorders. Our lead product candidate is
setmelanotide, a potent, first-in-class melanocortin-4 receptor, or MC4R, agonist peptide for the treatment of rare genetic
disorders of obesity. We believe setmelanotide, for which we have exclusive worldwide rights, has the potential to serve
as replacement therapy for the treatment of melanocortin-4, or MC4, pathway deficiencies. MC4 pathway deficiencies
result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense feelings of
hunger and to obesity. Our development efforts are initially focused on obesity related to six single gene-related, or
monogenic, MC4 pathway deficiencies—pro-opiomelanocortin, or POMC, leptin receptor, or LEPR, Bardet-Biedl
syndrome, Alström syndrome, POMC heterozygous, and POMC epigenetic disorders—for which there are currently no
effective or approved treatments. We believe that the MC4 pathway is a compelling target for treating these genetic
disorders because of its critical role in regulating appetite and weight by promoting satiety and weight control, and that
peptide therapeutics are uniquely suited for activating this target.

trial and our LEPR deficiency obesity Phase 3 clinical trial. We expect to report initial Phase 3 data from these trials in
the third quarter of 2019, and subsequently plan to file a new drug application, or NDA, for FDA approval for these two
indications concurrently. We believe that we have demonstrated proof of concept in our Phase 2 clinical trial in
Bardet-Biedl syndrome and in Alström syndrome, and met with the FDA in May 2018 to discuss a combined pivotal
Phase 3 clinical trial in these indications. Based on these discussions with the FDA, we have initiated and started to enroll
patients in December 2018. We have an ongoing Phase 2 clinical trial in POMC heterozygous deficiency obesity and
POMC epigenetic disorders. We reported initial, preliminary results in these additional Phase 2 indications in June 2018,
and plan to provide a further update for these indications early in 2019. In total, more than 330 obese subjects and patients
have been treated with setmelanotide in previous and ongoing clinical trials in which setmelanotide demonstrated
statistically significant weight loss with good tolerability.

Obesity is epidemic in the United States and current treatment approaches have demonstrated limited long-term
success for most obese patients. We are taking a different approach to obesity drug development by leveraging new
understanding of the genetic causes of severe obesity to develop innovative therapies that we believe have the potential
for compelling efficacy. Setmelanotide’s unique mechanism of action at MC4R enables a targeted approach to treating
very severe obesity in patients with specific, monogenic defects in the MC4 signaling pathway. By restoring impaired
function in this pathway, setmelanotide can serve as replacement therapy for genetic deficiencies, with the potential for
dramatic improvements in weight and appetite. We believe we are at the forefront of developing a therapeutic option to
improve treatment outcomes in subtypes of severe obesity caused by genetically-defined defects in the MC4 pathway.

Setmelanotide activates MC4R, which is part of the key pathway that can independently regulate energy
homeostasis, which refers to the body’s energy balance, and appetite. The critical role of the MC4 pathway in weight
regulation was validated with the discovery that single genetic defects along this pathway result in early onset and severe
obesity. An expanding set of severe obesity genetic defects are now identified that involve genes in the pathway which are
either upstream of MC4R—for example POMC deficiency obesity and LEPR deficiency obesity—or genes that are
downstream of MC4R or affect MC4R itself. We are focusing setmelanotide clinical development on patients with
monogenic upstream genetic defects in which obesity is life-threatening but the downstream MC4 pathway is fully
functional. We believe setmelanotide has the potential to restore lost activity in the MC4 pathway by bypassing the defects
upstream of MC4R, and activating the MC4 pathway below such defects. In this way, setmelanotide may serve as
replacement therapy to reestablish weight and appetite control in patients with these genetic disorders.

The first generation of MC4R agonists were predominantly small molecules that failed in clinical trials due to
safety issues, particularly increases in blood pressure, in addition to having limited efficacy. In contrast, setmelanotide, a
novel eight amino acid peptide, retains the specificity and functionality of the naturally occurring hormone that activates
MC4R, and has exhibited preliminary evidence of efficacy without adversely affecting blood pressure in our Phase 1 and
ongoing Phase 2 clinical trials. We are currently evaluating setmelanotide, which is administered by subcutaneous, or SC,
injection, for the treatment of six genetic disorders of obesity: POMC deficiency obesity, LEPR deficiency obesity,
Bardet-Biedl syndrome, Alström syndrome, POMC heterozygous deficiency obesity, and POMC epigenetic disorders. We
have positive Phase 2, proof of concept results for four of these indications thus far—POMC deficiency obesity, LEPR
deficiency obesity, Bardet-Biedl syndrome and Alström syndrome, for which we are in Phase 3 development.

POMC deficiency obesity is a life-threatening, ultra-rare orphan disease, with approximately 50 patients reported
to date. Ultra-rare orphan diseases are generally categorized as those that affect fewer than 20 patients per million. We
estimate that our addressable patient population for this disorder is approximately 100 to 500 patients in the United States.
Patients with POMC deficiency have unrelenting hunger, or hyperphagia, that begins in infancy and they develop severe,
early onset obesity. POMC deficiency obesity results from two different homozygous genetic defects, both upstream of
MC4R, that result in loss of function in the MC4 pathway. Currently, there is no approved treatment for the obesity and
hyperphagia associated with this genetic disorder. We have completed enrollment of the pivotal cohort in our Phase 3 open
label, single arm, multinational trial to evaluate the safety and efficacy of setmelanotide for POMC deficiency obesity,
with setmelanotide administered once daily by SC, injection for 12 months and we plan to report initial Phase 3 data in
the third quarter of 2019. Previously, we completed a positive Phase 2 clinical trial in which two patients were enrolled
and received treatment. These results were published in the New England Journal of Medicine in July 2016. The first
patient in this trial lost 146.6 lbs. over 118 weeks, from a baseline weight of 341.7 lbs. and the second patient lost 89.3 lbs.
over 64 weeks, from a baseline weight of 336.9 lbs. Both patients experienced substantial reductions in hunger, with

hunger scores falling to one to two from baseline scores of nine to 10. Hunger scores were measured using a Likert score
of zero to 10, where zero represents no hunger and 10 represents extreme hunger. Setmelanotide was generally well
tolerated in this Phase 2 trial.

LEPR deficiency obesity is an ultra-rare orphan disease that results in hyperphagia and severe early-onset obesity,
with an estimated prevalence of 1% of subjects with severe, early-onset obesity. We estimate that our addressable patient
population for this disorder is approximately 500 to 2,000 patients in the United States. Like other deficiencies upstream
in the MC4 pathway, LEPR deficiency results in loss of function in the MC4 pathway. Therefore, patients with this
indication also manifest hyperphagia and severe obesity from early childhood. Currently, there is no approved treatment
for the obesity and hyperphagia associated with LEPR deficiency obesity. We have completed enrollment of the pivotal
cohort in our Phase 3 open label, single arm, multinational trial to evaluate the safety and efficacy of setmelanotide for
LEPR deficiency obesity, with setmelanotide administered once daily by SC injection for 12 months, and we plan to report
initial Phase 3 data in the third quarter of 2019. Previously, we completed a positive Phase 2 clinical trial in which three
patients were enrolled and received treatment in this trial each experiencing significant weight loss and substantial
reductions in hunger. These results were published in Nature Medicine in May 2018. Setmelanotide was generally well
tolerated in this Phase 2 trial.

Based on our POMC deficiency obesity and LEPR deficiency obesity Phase 2 results, the FDA granted
setmelanotide Breakthrough Therapy designation for the treatment of obesity associated with genetic defects upstream of
the MC4 receptor in the leptin-melanocortin pathway, which includes both POMC deficiency obesity and LEPR deficiency
obesity, enabling an expedited path to approval of setmelanotide for these two indications. The FDA has granted orphan
drug designation for setmelanotide for the treatment of POMC deficiency obesity and LEPR deficiency obesity.

Bardet-Biedl syndrome is a life-threatening, ultra-rare orphan disease with a prevalence of approximately one in
100,000 in North America. We estimate that our addressable patient population for Bardet-Biedl syndrome obesity is
approximately 1,500 to 2,500 patients in the United States. Bardet-Biedl syndrome is a monogenic disorder that causes
severe obesity and hyperphagia as well as vision loss, polydactyly, kidney abnormalities, and other signs and symptoms.
Currently there are no approved or effective therapies for Bardet-Biedl syndrome. We have demonstrated proof of concept
based on data from nine patients in our Phase 2 clinical trial in Bardet-Biedl syndrome, indicating that this is also a
setmelanotide-responsive, upstream MC4 pathway disorder. Six of these nine patients showed significant weight loss and
seven patients showed clear improvements in every hunger assessment. We reported preliminary Phase 2 results in the
fourth quarter of 2017, and provided an update on these patients in the second quarter of 2018. Based on these results, the
FDA recently included Bardet-Biedl syndrome under our existing Breakthrough Therapy designation for setmelanotide.
We provided an additional update on these patients in January 2019. Setmelanotide has been generally well tolerated in
this trial.

Alström syndrome is a life-threatening, ultra-rare orphan disease with a prevalence of approximately one in one
million in North America. We estimate that our addressable patient population for Alström syndrome is approximately
500 to 1,000 patients worldwide. Alström syndrome is a monogenic disorder, closely related to Bardet-Biedl syndrome,
that causes childhood obesity and hyperphagia as well as progressive vision loss, deafness, cardiomegaly, insulin resistance
and other signs and symptoms. Currently there are no approved or effective therapies for Alström syndrome. We believe
we have recently demonstrated proof of concept in our Phase 2 clinical trial in Alström syndrome, indicating that this is
also a setmelanotide responsive, upstream MC4 pathway disorder. Based on these results, the FDA recently included
Alström syndrome in our existing Breakthrough Therapy designation for setmelanotide. Setmelanotide has so far been
generally well tolerated in this trial.

We met with the FDA in May 2018 to discuss a combined pivotal Phase 3 clinical trial in both Bardet-Biedl
syndrome and Alström syndrome. Based on these discussions with the FDA, we initiated this trial and started enrolling
patients in December 2018.

We are also focusing on additional monogenic, upstream MC4 pathway deficiencies for which setmelanotide can
function as replacement therapy and provide activation of the pathway downstream of the defect, promoting satiety and
weight control. We have enrolled patients in Phase 2 proof of concept trials for POMC epigenetic disorders, and for POMC
heterozygous deficiency obesity, for which we estimate our addressable population is approximately 4,000 patients in the

United States. For all of these patients, hyperphagia and obesity can have significant health consequences for which there
is currently no approved treatment. We reported initial, preliminary results from these trials in June 2018, and plan to
provide a further update for these indications early in 2019.

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

Our company was founded in November 2008 by former biopharmaceutical executives who have successfully
developed, commercialized and in-licensed innovative pharmaceutical products, and we have subsequently expanded our
senior management team to further broaden our team’s experience in developing, registering and commercializing new
drugs. In addition, our scientific advisory board, or SAB, members have extensive clinical expertise in obesity,
endocrinology and metabolic diseases. We intend to leverage the experience of our senior management team and SAB to
develop and commercialize setmelanotide. Through our senior management team’s network of industry contacts, we will
continue to evaluate additional product candidate licensing and acquisition opportunities.

Our setmelanotide patent portfolio includes composition of matter patents for setmelanotide that expire in the
United States in 2027, with possible patent term extension to 2032 under the Hatch-Waxman Act. Additional patent
coverage may be provided due to pending formulation patent applications, if such pending formulation applications were
issued.

Our Strategy

Our goal is to be a leader in developing and commercializing targeted therapies for genetic deficiencies that result

in life-threatening metabolic disorders. The key components of our strategy are:

• Rapidly develop setmelanotide for rare genetic disorders of obesity caused by MC4 pathway
deficiencies. We are aiming to dramatically improve patient outcomes in severe obesity by targeting
setmelanotide’s mechanism of action to the treatment of patients with genetically-defined defects in the MC4
pathway. We are focusing setmelanotide clinical development on monogenic upstream genetic defects in
which obesity is life-threatening but where the downstream MC4 pathway is fully functional. We believe
that focusing on these rare, life-threatening conditions enables us to rapidly develop and commercialize
setmelanotide using relatively small clinical trials.

• Advance setmelanotide for POMC deficiency obesity and LEPR deficiency obesity as our first
indications in upstream MC4 pathway deficiencies. We are currently evaluating setmelanotide for the
treatment of six genetic disorders of obesity: POMC deficiency obesity, LEPR deficiency obesity,
Bardet-Biedl syndrome, Alström syndrome, POMC heterozygous deficiency obesity, and POMC epigenetic
disorders. We have completed enrollment of the pivotal cohorts in our Phase 3 trials in POMC deficiency
obesity and LEPR deficiency obesity, and plan to report initial data from these trials in the third quarter of
2019. We are working with the FDA, based on our Breakthrough Therapy designation, to prepare concurrent
NDA filings for these two indications as part of an expedited path to approval for POMC deficiency obesity
and LEPR deficiency obesity.

• Advance setmelanotide for Bardet-Biedl syndrome and Alström syndrome as our second set of
indications in upstream MC4 pathway deficiencies. We have demonstrated proof of concept in
Bardet-Biedl syndrome and Alström syndrome, indicating that these are also setmelanotide responsive,
upstream MC4 pathway disorders. Based on these results, the FDA recently included these disorders under
our existing Breakthrough Therapy designation for setmelanotide. In May 2018, we met with the FDA to
discuss a combined pivotal Phase 3 clinical trial in both Bardet-Biedl syndrome and Alström syndrome.

Based on these discussions with the FDA, we initiated this trial and started enrolling patients in December
2018.

• Expand setmelanotide development to additional upstream MC4 pathway deficiencies, including
POMC heterozygous deficiency obesity and POMC epigenetic disorders. We believe we can leverage
our experience with and mechanistic understanding of the MC4 pathway to advance development of
setmelanotide for other upstream MC4 pathway deficiencies. We have an ongoing Phase 2 clinical trial that
includes patients with these rare genetic disorders, and reported initial, preliminary results in these indications
in June 2018. We continue to investigate other potential indications that may result from MC4 pathway
deficiencies, in which we may study treatment with setmelanotide in the future. Our Phase 2 studies are
developed under “basket” protocols, which study a variety of different indications or patient populations
administratively in one protocol, though each population is enrolled and analyzed separately. This enables
us to study more indications for the same compound with a reduced administrative and regulatory burden.

• Commercialize setmelanotide for rare disease indications in core strategic markets. We are building
upon our clinical development and research expertise in these diseases to further the understanding and
identification of patients with rare genetic disorders of obesity in the broader health care community. Our
efforts, in combination with our Rhythm-sponsored genotyping initiatives, will help to drive: awareness of
these disorders; suspicion among patients, providers and caregivers that individuals may be suffering from
these disorders; and ultimately, genetic sequencing designed to support improved diagnosis. Through
partnership with key thought leaders, advocacy organizations, patients, and care givers, we will provide
critical stakeholder education to build an integrated community dedicated to improving the ultimate treatment
of these patients.

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

• Leverage the broad experience of our team in clinical and commercial drug development, and product
acquisitions. We will apply our team’s extensive experience in developing and commercializing innovative
medicines to the development and launch of setmelanotide. We will apply similar expertise to advance our
second product candidate, RM-853, from pre-clinical to clinical development. In addition, we intend to
identify and acquire new pipeline product candidates in related diseases. Our team is complemented by highly
experienced external consultants and collaborators in the areas of drug discovery, development,
manufacturing and regulatory approval.

Our Product Pipeline

The following chart depicts key information regarding the development of setmelanotide, including the
indications we are pursuing within MC4 pathway deficiencies, the current state of development and our expected upcoming
milestones:

Market Overview

Recent Advances in the Understanding of Obesity

Diet and lifestyle modifications remain the cornerstones of weight loss therapy, but they are limited by a lack of
long-term success for most obese patients. The long-term efficacy of these interventions and for existing drug therapies is
often limited by the counter-regulatory mechanisms of the human body. For example, with diet induced weight loss,
typically there is a large decrease in energy expenditure that offsets that weight loss. Accordingly, the discovery that the
MC4 pathway can regulate both appetite and energy homeostasis separately—helping maintain the balance between food
intake and energy burn—has defined an important target for therapeutics. In addition to POMC deficiency obesity and
LEPR deficiency obesity, recent advances in genetic studies have identified several diseases that are the result of genetic
defects affecting the MC4 pathway, including Bardet-Biedl syndrome, Alström syndrome, POMC heterozygous deficiency
obesity, and POMC epigenetic disorders. 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 MC4 pathway. We
believe that this approach has the potential to provide dramatic improvements in weight and appetite by restoring lost
function in the MC4 pathway.

Obesity Caused by Rare Genetic Deficiencies Affecting the MC4 Pathway

The MC4 pathway serves a critical role in the control of food intake and energy balance. Its activity decreases
appetite and caloric intake, and increases energy expenditure, with MC4R acting as the final step in the signaling pathway.
This important hypothalamic, or lower brainstem, pathway has been the focus of extensive investigation for many years,
and we have a deep understanding of this mechanism, which is unlike the targets of most other anti-obesity therapies. As
a result, we believe we can better predict the efficacy and safety profile expected from modulating this target. The critical
role of the MC4 pathway in weight regulation was also validated with the discovery that single genetic defects at many
points in this pathway result in early onset, severe obesity.

The MC4 pathway is illustrated in the figure below, from the activation of the pathway to the resulting decrease
in appetite and weight. Under normal conditions, POMC neurons are activated by brain satiety signals, including those
resulting from the hormone leptin acting through LEPR. POMC neurons produce a protein, which is specifically processed
by the proprotein convertase subtilisin/kexin 1, or PCSK, enzyme, into melanocyte stimulating hormone, or MSH, the
natural ligand, or activator, for MC4R. When genetic mutations disrupt this pathway, the result is hyperphagia and severe
obesity.

We are focused on developing setmelanotide for genetic disorders that result in defects in this pathway that are
upstream of MC4R. Setmelanotide has the potential to restore lost function in this pathway by activating the intact MC4
pathway below the genetic defect. In this way, we believe setmelanotide acts as replacement therapy.

The figure below also illustrates some of the upstream MC4 pathway deficiencies that are the targets of our

development activities.

Setmelanotide Development Targets: Upstream Deficiencies Affecting the MC4 Pathway

Epidemiology of Rare Genetic Disorders of the MC4 Pathway

Clinical Epidemiology

The figure below summarizes the indications on which we are focusing for the development of setmelanotide,

including our clinical epidemiology estimates for the addressable patient populations within these indications.

Up to 5,000 U.S. patients in
indications where
setmelanotide has POC data

POMC Deficiency

LepR Deficiency

100-500
patients U.S.*

500-2,000
patients U.S.*

Alström Syndrome

500-1,000
patients worldwide*

Bardet-Biedl Syndrome (BBS)

1,500-2,500
patients U.S.*

POMC Heterozygous
(Rhythm target: most debilitated patients):

4,000 patients U.S.*

European patient populations believed to be at least as large as those in the U.S.
Potentially a total of 10,000 U.S. and E.U. patients in POMC, LepR and BBS indications

†

The patient numbers above are based on Company estimates from clinical publications.

Epidemiological estimates are not yet available for POMC epigenetic disorders.

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

Genetic Epidemiology Studies

We have estimated the patient populations for our rare genetic disorders of obesity primarily by identifying
patients or by estimating from clinical epidemiology information. Another method to estimate the size of these ultra-rare
populations is by genetic epidemiology using newly available large genomic databases of either full genome or exome
sequences. We have begun some substantial efforts, both directly and with collaborators, with a series of such databases.
Much of our preliminary work has utilized a database of approximately 140,000 genomes, representative of the U.S.
population. The results of this analysis were published in May 2018 in the Journal of Clinical Endocrinology and
Metabolism, a leading journal in this field, which we believe validates the scientific and epidemiological importance of
our findings.

The results from this effort have been supportive of our clinical epidemiological estimates, even when using
conservative genetic epidemiology assumptions. The results support estimates of the number of patients in the United

States who are homozygous deficient in the POMC gene, which is one of the two genetic defects causing POMC deficiency
obesity, and who are homozygous deficient in the LEPR gene, are at least as large, or larger than, our clinical epidemiology
assumptions, as provided above. In addition, the estimates of patients who are homozygous deficient in the PCSK1 gene,
which is the other genetic defect causing POMC deficiency obesity, may be substantially larger than our clinical
epidemiology assumptions. Overall, our clinical epidemiology based estimates for POMC deficiency obesity (up to 500
U.S. patients including both POMC and PCSK1 gene disorders) and LEPR deficiency obesity (up to 2,000 U.S. patients)
support up to 2,500 U.S. patients combined. Our preliminary genetic epidemiology estimates suggest a total of
approximately 13,000 U.S. patients with these disorders, representing a 5-fold increase in our clinical epidemiology based
estimates.

We have already begun to expand our genetic epidemiology analysis into other genomic databases that contain
patients with different demographics, and are actively working with a series of academic and industry collaborators. Our
published data support that while individual mutations may cluster in specific demographic groups, these rare genetic
disorders are seen widely across the demographic spectrum. The ongoing expansion of genomic data available in other
forums also has the effect of supporting this effort. An important improvement in this effort will be working with data
linked to phenotypic information to better characterize the genetic information we are analyzing.

We believe the separate analyses that we have completed using clinical epidemiology and genetic epidemiology
provide a robust range of patient population estimates for these rare disorders. However, to be conservative, we reference
the clinical epidemiology figures in our descriptions of our target indications.

Obesity Caused by Upstream Genetic Deficiencies Affecting the MC4 Pathway

We have completed four positive Phase 2 trials of setmelanotide that provide proof of concept for four upstream
MC4 pathway genetic defects in which obesity is life-threatening but the downstream MC4 pathway is fully functional:
For POMC deficiency obesity, LEPR deficiency obesity, and Bardet-Biedl syndrome, we estimate an aggregate
addressable population of up to 5,000 people in the United States. In addition, we estimate that Alström syndrome has an
addressable patient population of up to 1,000 people worldwide.

POMC Deficiency Obesity

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

POMC deficiency obesity is caused by the loss of both genetic copies of either the gene for POMC or the gene
for PCSK. This results either in loss of POMC neuropeptide synthesis, in the case of homozygous deficiency in the POMC
gene, or in disruption of the required processing of the POMC neuropeptide product to MSH by the PCSK enzyme, in the
case of homozygous deficiency in the PCSK gene. The end result of both of these two homozygous genetic defects is lack
of MSH to bind and activate MC4R, ultimately leading to the lack of stimulation of downstream MC4 neurons and causing
severe, early onset obesity and hyperphagia. POMC homozygous deficiency may also be associated with hormonal
deficiencies, such as hypoadrenalism, as well as red hair and fair skin.

POMC deficiency is characterized by voracious infant feeding, rapid weight gain and severe obesity, often in
early infancy, with patients demonstrating remarkable weight increases many standard deviations from the normal weight
growth curves. These patients and their caregivers have attempted to stabilize body weight with the help of psychologists,
nutritionists and pediatric endocrinologists, all without significant success. We have completed enrollment in the pivotal

cohorts for our POMC deficiency obesity Phase 3 clinical trial, and expect to report initial Phase 3 data in the third quarter
of 2019. Currently there are no approved or effective therapies for POMC deficiency obesity.

Leptin Receptor Deficiency Obesity

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

Leptin’s role in obesity has been elucidated by characterization of severely obese people with homozygous
mutations that impair the activity of leptin, including disruption of signaling at the LEPR, known as LEPR deficiency
obesity. Under normal conditions, leptin can activate POMC neurons and the downstream MC4, but like other deficiencies
upstream in the MC4 pathway, lack of signaling at LEPR results in loss of function in the MC4 pathway.

Like POMC deficiency obesity, patients with LEPR deficiency obesity exhibit hyperphagia and severe obesity
from early childhood. LEPR deficiency is also associated with hypogonadism and reduced immune function. We have
completed enrollment of the pivotal cohort for our LEPR deficiency obesity Phase 3 clinical trial, and expect to report
initial Phase 3 data in the third quarter of 2019. It is our intention to file our NDA for LEPR deficiency obesity concurrently
with our NDA for POMC deficiency obesity, as enrollment of our pivotal cohort completed almost simultaneously.
Currently there are no approved or effective therapies for LEPR deficiency obesity.

Bardet-Biedl Syndrome

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

Recent scientific studies identify deficiencies affecting the MC4 pathway as a potential cause of the obesity and
hyperphagia associated with Bardet-Biedl syndrome and demonstrate that an MC4R agonist can directly impact these
symptoms. Studies in mouse models of Bardet-Biedl syndrome show that deficiencies in the MC4 pathway contribute to
the obesity and hyperphagia in Bardet-Biedl syndrome, with animals developing hyperphagic tendencies as early as
10 weeks of age. Notably, these mice have decreased leptin receptor signaling, with the essential hallmarks of failure to
activate POMC neurons. The potential utility of MC4 agonists is also supported by studies in Bardet-Biedl syndrome
rodent models, where mice have responded to an MC4 agonist resulting in reduced food intake and body weight. We have
demonstrated proof of concept in Bardet-Biedl syndrome indicating that this is also a setmelanotide-responsive, upstream
MC4 pathway disorder. We reported preliminary Phase 2 results for Bardet-Biedl syndrome in the fourth quarter of 2017,
and updated the clinical status of these patients in the second quarter of 2018. We have had discussions with the FDA on
a Phase 3 design and submitted a draft Phase 3 protocol for FDA review. The FDA has indicated that this Phase 3 trial
will include both Bardet-Biedl syndrome and Alström syndrome patients. We started to enroll patients in this Phase 3 trial
in December 2018. Currently there are no approved or effective therapies for Bardet-Biedl syndrome.

Alström Syndrome

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

Alström syndrome is a ciliopathy caused by mutations in the ALMS1 gene, which has been shown to be important
for cilia function. Like Bardet-Biedl syndrome, recent scientific studies identify genetic deficiencies affecting the MC4
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 MC4 pathway signaling. While Alström syndrome is less well studied than Bardet-Biedl syndrome, the
similar pathophysiology of cilial dysfunction and clinical presentation support that deficiencies in the MC4 pathway are
implicated in the obesity and hyperphagia observed in Alström syndrome. We believe we have demonstrated proof of
concept in our Phase 2 clinical trial in Alström syndrome and met with the FDA in May 2018 to discuss a combined pivotal
Phase 3 clinical trial in both Bardet-Biedl syndrome and Alström syndrome. Based on these discussions with the FDA, we
initiated this trial and started enrolling patients in December 2018. Currently there are no approved or effective therapies
for Alström syndrome.

Other Upstream Genetic Defects in the MC4 Pathway

In addition to POMC deficiency obesity, LEPR deficiency obesity, Bardet-Biedl syndrome and Alström
syndrome, there are other upstream, MC4 pathway deficiencies for which we believe setmelanotide may function as
replacement therapy, including defects that partially modulate POMC activity, such as POMC heterozygous deficiency
obesity and POMC epigenetic disorders.

POMC Heterozygous Deficiency Obesity

POMC heterozygous deficiency results in a strong predisposition to obesity, though the epidemiology and clinical
characterization of these patients is less well known. POMC heterozygous deficiency obesity is caused by the loss of one
of the two genetic copies of either the gene for POMC or the gene for PCSK. An estimated 2% of severe, early onset
obesity patients have POMC heterozygous deficiency obesity, which is much more common than the ultra-rare POMC
deficiency obesity in which both copies of either the POMC or PCSK genes are impaired. We believe that the most severe
POMC heterozygous deficiency obesity patients may be suitable for treatment with setmelanotide. We estimate that our
addressable patient population within severe POMC heterozygous deficiency obesity is approximately 4,000 patients in
the United States, based on epidemiology studies in small cohorts of patients with severe early onset obesity and adult
obesity. Animal models support that such heterozygous deficiency in the critical MC4 pathway can result in a strong
predisposition to severe obesity. The effect of heterozygous deficiency was first demonstrated in MC4R heterozygous
deficiency obesity.

We are also studying patients with other MC4 pathway gene heterozygous mutations, including patients with
heterozygous mutations in genes such as LEPR and Bardet-Biedl, as well as patients with heterozygous mutations in more
than one gene in the MC4 pathway. For simplicity, in this prospectus we refer to the group of such heterozygous patients
as patients with POMC heterozygous deficiency, but we will be transitioning to more general language, such as patients
with Heterozygous Mutations in the MC4 Pathway, as more of these patients enter our Phase 2 trials.

It is thought that the obesity of patients with POMC heterozygous deficiency may have a broader spectrum of
severity than POMC deficiency obesity. Therefore, our focus will be on the most severe of the POMC heterozygous
deficiency obesity patients, with our estimate that only a small percentage of these patients will benefit from targeted
therapy with substantial efficacy. As a result, we have initiated a Phase 2 proof of concept trial to confirm our hypothesis
that the subset of patients with very severe POMC heterozygous deficiency obesity may be highly responsive to

setmelanotide therapy. We have an ongoing Phase 2 clinical trial in POMC heterozygous deficiency obesity and reported
initial, preliminary results in June 2018. There are currently no approved or effective therapies for POMC heterozygous
deficiency obesity.

POMC Epigenetic Disorders

Recent scientific studies have identified patients with obesity due to a partial lack of MSH that is caused by
epigenetic POMC variant. Given the recent discovery of these epigenetic disorders, there is currently no epidemiology
data that defines the prevalence of POMC epigenetic disorders. However, we believe that these are rare disorders.
Epigenetics implies DNA modifications, which can change gene expression without altering the DNA sequence itself. The
most stable epigenetic modification is called DNA methylation. Recently, our academic collaborators in Berlin have
described a POMC hypermethylation variant, which correlates with increased body weight in children and adults.
Therefore, the presence of the POMC epigenetic variant leads to an increased risk of obesity based on reduced POMC
gene activity. We expect that these patients under-express the POMC gene product and as a result have a partial MSH
deficiency. We have initiated a Phase 2 proof of concept trial to confirm our hypothesis that the subset of patients with
very severe POMC epigenetic disorders may be highly responsive to setmelanotide therapy. We have an ongoing Phase 2
clinical trial in POMC epigenetic disorders and reported initial, preliminary results in June 2018. There are currently no
approved or effective therapies for these disorders.

Other MC4 Disorders

Based on setmelanotide’s biochemical structure and mechanism of action, we believe setmelanotide has the
potential to serve as replacement therapy for other rare genetic disorders of obesity which have pathophysiology upstream
of the MC4 receptor. We are conducting research activities to study which potential disorders tied to the pathway may
benefit from setmelanotide therapy. Our basket study protocols, which enable enrollment of new populations with
disorders tied to the pathway, allow us to study new potential indications without the administrative and regulatory burden
of initiating a separate clinical study de novo for each new indication.

Obesity Caused by Downstream Genetic Deficiencies Affecting the MC4 Pathway

MC4 Receptor Heterozygous Deficiency Obesity

MC4 Receptor, or MC4R, heterozygous deficiency is caused by the absence or loss of function of one genetic
copy of the gene for MC4R. Consistent with POMC heterozygous deficiency, MC4R heterozygous deficiency results in a
strong predisposition to early onset and severe obesity. MC4R heterozygous deficiency is the most common genetic cause
of obesity. An epidemiological study performed in Europe in 2006 reported a prevalence of 2.6% of genetic defects in the
MC4R gene in the obese population with a BMI of greater than 30 kg/m2, and studies performed in both Europe and the
United States in 2000 and 2003, respectively, reported a prevalence of up to 4% of these genetic defects in more severely
obese populations with a BMI of greater than 35 kg/m2. These prevalence rates suggest that there are approximately one
million people in the United States with obesity caused by a mutation of the MC4R gene.

These patients have a higher risk than the general population for early onset obesity and complications such as
diabetes. Furthermore, MC4R deficiency may offset the beneficial effects of diet and exercise for sustained weight loss,
limiting treatment options for these individuals. There are currently no approved or effective therapies for MC4
heterozygous deficiency obesity.

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

Expanding Attention to the Diagnosis of Genetic Obesity

The Endocrine Society issued new Pediatric Obesity Guidelines in January 2017 that, for the first time,
recommend genotyping patients with severe pediatric obesity and hyperphagia. These guidelines estimate that up to 7%
of patients with extreme pediatric obesity have a genetic mutation, including genetic MC4 pathway deficiencies, that drives
their obesity. The guidelines also suggest that this percentage of severe pediatric obesity patients will increase, with newer
methods and wider awareness of the need for genetic testing.

We are supporting several initiatives to expand the diagnosis of genetic obesity, including a genotyping study,
called GO-ID, and a patient registry, called TEMPO. The objective of GO-ID is to develop a screening algorithm for
selecting patients to be genotyped and identified with POMC deficiency obesity and LEPR deficiency obesity, and to guide
further genotyping efforts. We have expanded our panel of obesity-related genes used in our GO-ID study in the second
half of 2018. TEMPO is a commitment to understanding the ongoing impact and burden of disease on patients and their
caregivers. This registry facilitates enhanced understanding of these conditions in the medical community and builds upon
ongoing collaborations with existing patient registries in syndromic conditions such as Bardet-Biedl syndrome.

We are also conducting genetic obesity epidemiology analysis of MC4 pathway genetic defects in a large
representative sample of the U.S. population, and we expect to expand the genetic databases in our research efforts on an
ongoing basis. The first results of this research were published in May 2018 in the Journal of Clinical Endocrinology and
Metabolism, a leading journal in this field. An important improvement in this effort will be working with data linked to
phenotypic information to better characterize the genetic information we are analyzing. In addition, we tested associations
between BMI and loss of function mutation burden in various populations to further define the MC4 pathway and its
potential impact on obesity, showing that the cumulative allele burden, or number of mutations along the MC4 pathway
in a single individual, predisposes to more obesity.

Limitations of Current Therapies

Although drugs approved for general obesity can potentially be used in obese patients with MC4 pathway
deficiencies, all have limited efficacy and aim to treat symptoms rather than addressing the underlying biology. There are
currently no treatments approved specifically for obesity and hyperphagia in POMC deficiency obesity, LEPR deficiency
obesity, Bardet-Biedl syndrome, Alström syndrome, POMC heterozygous deficiency obesity, or POMC epigenetic
disorders. Bariatric surgery is not an option in patients with upstream defects in the MC4 pathway who have severe obesity
and hyperphagia.

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

Setmelanotide is a potent, first-in-class, MC4R agonist peptide administered by daily SC injection. Setmelanotide
is in Phase 3 for the treatment of two rare genetic disorders of obesity caused by MC4 pathway deficiencies, and we have
initiated a combined Phase 3 clinical trial in two additional rare genetic disorders. We also have an ongoing Phase 2 clinical
trial in several other MC4 pathway disorders. MC4R modulates a key pathway in humans that regulates energy
homeostasis and food intake.

The critical role of the MC4 pathway in weight regulation was validated with the discovery that single genetic
defects in this pathway result in severe, early onset obesity. The first generation MC4R agonists were small molecules that
failed in clinical trials primarily due to safety issues, particularly increases in blood pressure, as well as limited efficacy.
Setmelanotide is a peptide that retains the specificity and functionality of the naturally occurring hormone that activates
MC4R, with demonstrated efficacy and little, if any, signal of increases in blood pressure. In total, more than 330 obese
subjects and patients have been treated with setmelanotide in previous and ongoing clinical trials in which setmelanotide
demonstrated significant weight loss with good tolerability.

Clinical Development in Rare Genetic Disorders of Obesity Caused by MC4 Pathway Deficiencies

Setmelanotide is currently in Phase 3 development for POMC deficiency obesity and LEPR deficiency obesity,
and we are initiating a combined Phase 3 trial for Bardet-Biedl syndrome and Alström syndrome. We have completed

enrollment in the pivotal cohorts for both our POMC deficiency obesity Phase 3 clinical trial and our LEPR deficiency
obesity Phase 3 clinical trial. We expect to report initial Phase 3 data from these trials in the third quarter of 2019, and
subsequently plan to file for regulatory approval for these two indications concurrently. We believe that we have
demonstrated proof of concept in our Phase 2 clinical trial in Bardet-Biedl syndrome and in Alström syndrome, and met
with the FDA in May 2018 to discuss a combined pivotal Phase 3 clinical trial in both Bardet-Biedl syndrome and Alström
syndrome. Based on these discussions with the FDA, we initiated this trial and started enrolling patients in December
2018. We continue to study setmelanotide in these indications in Phase 2 development in long-term extensions. We are
also enrolling patients for the treatment of other rare monogenic disorders of obesity, including POMC and other
heterozygous deficiency obesity, and POMC epigenetic disorders. We hypothesize that all of these disorders are
genetically defined deficiencies upstream in the MC4 pathway.

We are enrolling patients in two very similar Phase 2 clinical trials, each of which is designed to capture a broad
range of indications under one investigational protocol, or a basket study. We believe that we have demonstrated proof of
concept both in Bardet-Biedl syndrome and in Alström syndrome, indicating that these closely related syndromes are also
setmelanotide-responsive, upstream MC4 pathway disorders. We reported initial, preliminary results for POMC
heterozygous deficiency obesity and POMC epigenetic patients in June 2018. We plan to provide a further update for these
indications early in 2019. We have also completed a Phase 2 trial in PWS.

Based on FDA consultations to date, and the FDA granting Breakthrough Therapy designation for POMC
deficiency obesity and LEPR deficiency obesity, and including Bardet-Biedl syndrome and Alström syndrome under the
existing Breakthrough Therapy designation for setmelanotide, we believe we can seek indications for obesity caused by
upstream defects in the MC4 pathway with rapid paths to approval, as compared to typical obesity drug candidates, because
of the high unmet need and rare prevalence of these disorders. We expect to use the results of our Phase 3 clinical trials of
setmelanotide in POMC deficiency obesity and LEPR deficiency obesity, which will run concurrently, as the foundation
for proceeding directly to approval for these indications.

We believe our data in POMC deficiency obesity, LEPR deficiency obesity, Bardet-Biedl syndrome and Alström
syndrome provide strong proof of concept that setmelanotide, when targeted for deficiencies affecting the upstream portion
of the MC4 pathway, can provide compelling efficacy for weight loss and decrease in hunger. There are still several genes
to explore that are involved in signaling upstream in the MC4 pathway, which although not a current focus, may provide
opportunities for further research in the future. Proof of concept for substantial weight loss in patients with downstream,
heterozygous mutations of the MC4R gene itself has also been achieved in a small, four-week, Phase 1b clinical trial.
While these downstream defects are not our current area of focus, based on new scientific research, we believe there is
evidence supporting the potential for substantial weight loss efficacy in a setting of a partially defective, downstream
defect in the MC4 pathway, which impacts a significantly larger population.

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

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

Setmelanotide: Key Clinical Programs in Monogenic MC4 Pathway Disorders of Defined Obesity

Clinical trial phase . . . . . . . . . . .
Status . . . . . . . . . . . . . . . . . . . . . . Enrollment completed

POMC Deficiency
Pivotal
Phase 3

LEPR Deficiency
Pivotal
Phase 3

Enrollment completed

2Q2018

Treatment groups(1) . . . . . . . . . . .
Number of patients . . . . . . . . . . .
Patient demographics . . . . . . . . . Adult/pediatric POMC

Setmelanotide(2)
10(3)

Adult/pediatric LEPR

deficient(4)

POMC/LEPR
Deficiency
Proof of Concept
Phase 2
Initiated 2014,
Completed 4Q2016 for
these indications(5)
Setmelanotide
2 POMC, 3 LEPR
Adults/Adolescents

Duration of treatment . . . . . . . . . 52 weeks + Extensions
Location . . . . . . . . . . . . . . . . . . . . United States, Germany,

Canada,
United Kingdom, France,
Belgium

52 weeks + Extensions
United States, Germany,
United Kingdom,
France(10)

12 weeks + Extensions

Germany

Other Populations
Proof
of Concept Basket
Protocols(6)
Phase 2
Initiated 2016(7)(8)

Setmelanotide
20-100(9)
Adult/pediatric(4)
Multiple indications:
Bardet-Biedl syndrome;
Alström syndrome;
POMC heterozygous
deficiency obesity;
POMC epigenetic
disorders, and others
12 weeks + Extensions
United States, Germany,
United Kingdom, France

Clinical trial phase . . . . . . . . . . .

Extension to ongoing
Protocols
Extension

Status . . . . . . . . . . . . . . . . . . . . . .

Initiating 2H2018

TEMPO Registry Study
Prospective Registry
cohort
Initiating 2H2018

Treatment groups(1) . . . . . . . . . . .
Number of patients . . . . . . . . . . . Up to 100 patients(12)

Setmelanotide(11)

No treatment(14)
Up to 1000 patients

Patient demographics . . . . . . . . . Any patient completing
another setmelanotide
clinical protocol(13)

Duration of treatment . . . . . . . . . Multi-year Extensions
Initiating in multiple
Location . . . . . . . . . . . . . . . . . . . .
countries

Various(15)

Open ended
Initiating in multiple
countries

52 weeks + Extensions

To be determined

BBS/Alström Syndrome
Pivotal(16)
Phase 3

First patients enrolled in
December 2018
Setmelanotide
At least 20 BBS
At least 6 Alström
Adult/Pediatric

Natural History Study

Natural History
observational cohort
Initiated 4Q2017

No treatment(14)
10-20

Adult/pediatric(17)
Patients with POMC or
LEPR deficiency obesity
Up to 5 years
To be determined

(1)

(2)

(3)

(4)

(5)

(6)

Setmelanotide, administered as once daily SC injection study.

These trials include a placebo controlled, double-blind withdrawal period.

Approximately 10 POMC deficiency obesity and 10 LEPR deficiency obesity patients will be included in the
pivotal cohort for each trial, but in agreement with the FDA, additional patients can be recruited who will not
have reached one year of treatment at the time of NDA.

POMC deficiency includes homozygous deficiency in either the POMC or PCSK genes; pediatric patients ≥ six
years are currently being studied, though it is likely that the lower age pediatric patients will have less than one
year of treatment at the time of NDA filing. We expect to enroll pediatric patients in our LEPR deficiency obesity
pivotal trial starting in 2019, and similarly for basket protocols.

This trial will continue as a basket protocol and study additional indications.

Basket protocols study a variety of different indications or patient populations administratively in one protocol,
though each population is enrolled and analyzed separately.

(7)

(8)

(9)

One of our proof of concept basket protocols was originally the Phase 2 trial for POMC deficiency obesity and
LEPR deficiency obesity initiated in Germany in 2016 and provided proof of concept in these indications. This
trial was later amended in 2016 to include other MC4 pathway disorders. Our second basket protocol is open, or
is being opened in other geographical locations (United States 2016; United Kingdom, France in 2017).

We have enrolled patients into the basket study who are diagnosed with POMC epigenetic disorders, as well as
patients with POMC and other MC4 pathway gene heterozygous mutations, and anticipate additional indications
for study possibly in 2019.

We plan to study a larger number of patients with other MC4 pathway indications, such as heterozygous and
epigenetic patients, indications with potentially more complexity.

(10) We have ongoing trials approved in the United States, Germany, United Kingdom, France and the Netherlands,

and other countries may be included.

(11)

All patients will receive open label setmelanotide in the extension protocol.

(12)

It is anticipated that all patients in any setmelanotide treatment protocol will be transferred over to the extension
protocol for long-term follow-up after completing a minimum one year of treatment in another setmelanotide
treatment protocol.

(13)

Only patients who have been in another setmelanotide treatment protocol can enter an extension.

(14)

Patients in the TEMPO registry and Natural History study will not receive treatment.

(15)

(16)

Individual subjects enrolled in this registry will need to meet both (1) phenotypic, or BMI, and (2) genotypic
entry criteria that fit a working definition of extreme obesity associated with confirmed or putative MC4R
pathway genetic variants.

Phase 3 protocol details for the combined Bardet-Biedl syndrome/Alström syndrome have been agreed with the
FDA. The study includes a short randomized, placebo-controlled period for study validation. The Primary
endpoint will be percent of subjects achieving 10% weight loss from baseline, the same as the endpoint for POMC
deficiency obesity and LEPR deficiency obesity pivotal trials.

(17)

Patients six years of age may be enrolled in our studies.

Setmelanotide: Clinical Development Program in Genetically Defined Obesity

Phase 2 Clinical Development in POMC Deficiency Obesity

We have completed a Phase 2 proof of concept, open label clinical trial, Study RM-493-011, in two patients with
POMC deficiency obesity in which these patients have been treated with setmelanotide for more than two years, resulting
in profound reductions of hyperphagia and body weight, with good tolerability. The patients in this trial have provided
proof of concept for the compelling effect of setmelanotide in this disorder. We are close to completing enrollment in the
pivotal cohort of patients in our Phase 3 trial for this indication. The results of the Phase 2 trial were published in July
2016 in the New England Journal of Medicine, which we believe validates the scientific and clinical importance of our
Phase 2 findings, and the accompanying editorial described the trial as demonstrating impressive hunger reduction and
weight loss as well as improved insulin sensitivity. A brief update on these patients was also included in a publication in
Nature Medicine in May 2018.

The first setmelanotide-treated patient was a 20-year-old woman, who at three months of age experienced the
onset of obesity and hyperphagia. In spite of enormous efforts, the patient was never able to stabilize her body weight,
except for brief periods, and she has remained hyperphagic. Ahead of our trial, the patient’s self-reported trial hunger score
was eight to nine out of 10 points, representing extreme hunger. She was entered into the trial at adulthood because of her

severe obesity, with a baseline weight of 155 kg, or 341.7 lbs., and a BMI of 49.8 kg/m2, and significant risk of
comorbidities and a reduced life expectancy.

The trial, initially a 13-week, open label, ascending dose Phase 2 trial, was approved by the German Federal
Institute for Drugs and Medical Devices, with open-label one-year extensions, and was planned to include approximately
four to six patients with genetically confirmed POMC deficiency obesity. After efficacy-gated dose escalation, aiming for
weekly weight loss of approximately two kg, or 4.4 lbs., the primary endpoint was weight loss, with other key endpoints
including hunger score, body composition, insulin and glucose parameters, metabolic and cardiovascular risk factors,
energy expenditure and general safety and tolerability.

After 13 weeks of therapy, with approximately the first four weeks at sub-therapeutic doses, our initial patient
demonstrated weight loss of 25.8 kg, or 56.9 lbs., representing 16.7% of her initial body weight, with approximately two
to three kilograms per week of weight loss demonstrated at the highest 1.5 mg/day dose. Hunger scores, measured using a
Likert score of zero to 10, where zero represents no hunger and 10 represents extreme hunger, mirrored the rate of weight
loss, moving from scores of eight to nine prior to our trial to zero to one, as the patient was treated with increasing doses
of setmelanotide. After termination of the 13-week main trial, the patient underwent a three-week withdrawal period off
drug and regained 4.8 kg, or 10.6 lbs., with a return to moderate to severe hunger. Following approval to restart
setmelanotide treatment, there was an immediate reduction of hunger and subsequently a continuation of body weight loss.
This patient was on continuous treatment for 106 weeks, with a total weight loss of 65.6 kg, or 144.6 lbs., representing
42.3% of her initial body weight. There was no apparent difference in the rate of weight loss during the initial extension
phase versus the main trial, however over time, the rate of weight loss has slowed, though this patient has continued to
lose weight. The patient’s need for continued therapy was supported by a short period of withdrawal after the patient had
been treated for over one year. Reducing her daily dose from 1.5 mg/day to 1.0 mg/day resulted in an increase in her
hunger scores from one to two points to four to five points, resulting in the patient requesting to be returned to her 1.5
mg/day dose, after which her hunger scores returned to one to two points. This data supports the physiological prediction
that pharmacological treatment for this condition to suppress hunger will be required chronically. After approximately
106 weeks of treatment, her dose was reduced to 1 mg/day, and while her weight remained stable from week 106 to
approximately week 130, her hunger scores increased to three to four points on the lower dose before returning to two
points.

The results for this patient are shown in the figure below.

The Clinical Course of the Initial Patient in the Setmelanotide POMC Deficiency Obesity Phase 2 Trial through
Week 118(1)

0.25 mg
Week 0:
Weeks 1-2:0.5 mg
1.0 mg
Week 3:

OFF
DRUG

Weeks 16 & 17:
1.0 mg

WEIGHT
(kg)

1.5
mg

ATTEMPTED DOSE
REDUCTION

Week 62:
1.0 mg

1.5
mg

20 yr old female
Starting Weight = 155.0 kg
Starting BMI = 49.8 kg/m2
Starting Hunger Score = 9 pts

1.0
mg

HUNGER

-10

-20

-30

-40

-50

-60

-70

-80

-21.0
kg

+4.8 kg
SINCE
STOPPING
TREATMENT

-25.8
kg

1-2

0-1

4.5

-53.5
kg

+1.3 kg
SINCE
REDUCING
DOSE

3.5

-66.5 kg*
-42.9%

10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100 102 104 106 108 110 112 114 116 118 120 122

Retreatment Week

10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 69 70

Weeks

Weight Change (kg)
Hunger Score

* Figures represent cumulative weight lost in kgs through approximately 118 weeks of treatment. See text for additional details.

(1) Daily setmelanotide dose adjustments over time are indicated at the top of the panel.

In general, diet induced weight loss in patients with general obesity is accompanied by significant
counter-regulatory effects, including reductions in energy expenditure and increases in hunger. These lead to weight regain
in the majority of patients. In contrast, the initial patient in our trial did not manifest these counter-regulatory responses,
even after six months of therapy and a tremendous reduction of body weight. This data supports an effect of setmelanotide
on energy expenditure independent from the profound effects on hyperphagia, corroborating results from previous trials
of setmelanotide in patients with general obesity. Also of note, the reduction in body weight was mainly due to a loss of
body fat mass, and lean body mass was not greatly altered. In this initial patient, setmelanotide was also associated with
excellent tolerability, additional favorable changes in cardiovascular risk parameters, or lipids, and improvements in blood
pressure and heart rate.

MC4R activation also causes improvements in glucose and insulin parameters in animal models, independent of
weight loss. As shown in the figure below, for the initial patient in our POMC deficiency proof of concept trial,
setmelanotide demonstrated a marked improvement in insulin resistance during treatment. While weight loss likely played
an important role in this improvement, we believe the independent effect of MC4R agonism may also have contributed.

Setmelanotide Treatment Effects on Insulin Resistance (Insulin Response in Oral Glucose Tolerance
Test) at Baseline, After 13 Weeks of Treatment (Phase 1), and at Approximately 26 Weeks During the Long-term
Extension for our POMC Initial Patient

Baseline

After 13 weeks

After ~26 weeks

300

200

)
I
/

U
m

(
n

i
l

u
s
n

100

Glucose
Challenge

120

Minutes

Results are also available for treatment with setmelanotide of a second patient with POMC deficiency obesity.
The second patient is a 26-year old woman who also experienced early onset of obesity and hyperphagia. Like the first
patient, in spite of significant efforts, she was never able to stabilize her body weight, and she has remained hyperphagic.
Ahead of our trial, the patient’s self-reported trial hunger score was nine out of 10 points, representing extreme hunger,
and her weight and BMI at trial entry were 152.8 kg, or 336.9 lbs., and 54.1 kg/m2, respectively.

After 42 weeks of therapy at the 1.5 mg/day dose, our second patient demonstrated weight loss of 40.6 kg, or
89.5 lbs., representing 26.6% of her initial body weight, with approximately two to three kilograms per week of weight
loss demonstrated initially. Hunger scores, measured using a Likert score of zero to 10, where zero represents no hunger
and 10 represents extreme hunger, mirrored the rate of weight loss, with scores moving from nine prior to the trial to one
on most weeks during the trial, as the patient was treated with increasing doses of setmelanotide. Similar to the initial
patient, setmelanotide demonstrated an improvement in insulin resistance during treatment in our second POMC deficiency
obesity patient. This patient continued on active treatment for 64 weeks on therapy and her weight stabilized at a weight
loss of 40.5 kg, or 89.3 lbs. However, a non-serious febrile infection made an increase of the hydrocortisone treatment
necessary. Due to a misunderstanding, this planned temporary elevated dosage of hydrocortisone was not returned to her
basal dose of hydrocortisone after a few days as planned; as a result, her hunger feelings started to increase, with an
associated increase in hunger score to 7 points, followed by weight gain. After adaptation of the hydrocortisone dosage
during her next visit, the hunger feeling and weight decreased again and she has continued on treatment for 100 weeks in
total.

The Clinical Course of our Second Patient in the Setmelanotide POMC Deficiency Obesity Phase 2 Trial through
Week 64(1)

1.5
mg

26 yr old female
Starting Weight = 152.8 kg
Starting BMI = 54.1 kg/m2
Starting Hunger Score = 9 pts

1.2
mg

HUNGER

0.5
mg

1
mg

WEIGHT
(kg)

-5

-10

-15

-20

-25

-30

-35

-40

-45

-50

-55

(1)

-40.5 kg*
-26.5%

1.5

Weeks

66
Weight Change (kg)
Hunger Score

Figures represent cumulative weight lost in kgs through approximately 64 weeks of treatment. See text for additional details.

Daily setmelanotide dose adjustments over time are indicated at the top of the panel.

Setmelanotide was generally well tolerated in the POMC deficiency obesity Phase 2 trial, with few adverse
events, all mild and infrequent, and all previously reported in other clinical trials. These included reduced appetite and
tanning of skin and nevi, or moles, intermittent and mild injection site reactions, and in rare instances tiredness, dry mouth,
and gastrointestinal symptoms. The single serious adverse event was an influenza immunization reaction, which resulted
in an overnight hospitalization and was considered unrelated to trial drug. A similar immunization reaction had occurred
in this patient in a previous influenza immunization prior to treatment, and the patient has continued on setmelanotide
since that event.

The results from the initial patients in our POMC deficiency obesity proof of concept trial are compelling, but
these data have limitations due to open label treatment. However, the strong treatment effect is supported by these patients’
long histories of weight gain and hyperphagia prior to treatment, and a strong dose response in the dose escalation phase.
More importantly, the biology of this disorder has been well studied, and the clinical responses in these patients were
strongly predicted by the deep understanding of the role of the MC4 pathway in appetite and weight regulation. The
interruption of treatment effectively allowed the first patient to serve as her own control, demonstrating an immediate and
rapid increase in hunger and weight after a short-term treatment withdrawal, and a rapid response to re-treatment, thereby
further demonstrating the strong effect of setmelanotide. The greater than two years of treatment of our first patient, and
the greater than one year of treatment for our second patient also support the ability of setmelanotide to be effective for
longer treatment periods. Finally, our data supports that this indication will require chronic treatment.

Most importantly, this initial proof of concept data provides support for the belief that setmelanotide will restore
activity in patients with upstream defects in the MC4 pathway, by helping patients lose weight and reduce hyperphagia.
This was further supported by our other proof of concept results in MC4 pathway rare genetic obesities, such as LEPR
deficiency obesity, Bardet-Biedl syndrome and Alström syndrome. Similarly, we would expect efficacy in other upstream
MC4 pathway genetic disorders, others of which are under study in Phase 2 proof of concept trials.

Phase 3 Clinical Development in POMC Deficiency Obesity

After discussions with the FDA as part of our Breakthrough Therapy designation, we initiated our Phase 3 trial
in POMC deficiency obesity in January 2017, Study RM-493-012. This is an open label, one-year trial, including a
double-blind placebo-controlled withdrawal period, of setmelanotide in POMC deficiency obesity. This pivotal trial is
assessing long-term efficacy of setmelanotide given once daily by SC injection. The trial begins with an initial period of
dose titration lasting between two and 12 weeks where the individual patient’s therapeutic dose will be established by
upwards dose titration in two week intervals. Thereafter, patients will continue on active treatment at their individually
titrated optimal therapeutic dose for an additional 10 weeks, for a total combined dosing duration of 12 weeks at the
individual patient’s therapeutic dose. Patients who demonstrate at least five kilograms weight loss at the end of the open
label treatment period will continue onto the double-blind, variably-timed, placebo-controlled, withdrawal period lasting
eight weeks inclusive of a four-week period of placebo treatment. Following the withdrawal period, all patients will
complete an additional period of setmelanotide treatment to bring the total therapeutic dosing period to approximately one
year.

Based on discussions with the FDA, we plan to file an NDA with the FDA based on approximately one-year data
from a pivotal cohort of 10 patients in this trial. We also are enrolling supplemental patients who may not complete one
year of treatment at the time of NDA filing, including patients between six and eleven years of age under the
implementation of a pediatric amendment, to provide additional important data regarding the use of setmelanotide in
people living with POMC deficiency obesity. The primary endpoint of the trial will be a categorical analysis of responders
for weight, defined as patients achieving a 10% change from baseline, with mean percentage change in weight from
baseline as the key secondary endpoint. Hunger-related endpoints are also key secondary endpoints in the study. Other
secondary endpoints are safety and tolerability, change in body fat mass and glucose parameters, and the effect of
withdrawal of setmelanotide in the double-blind, placebo controlled period. We have also obtained Scientific Advice from
the European Medicines Agency, or EMA, in relation to the protocol for this trial, which is currently enrolling in the
United States, United Kingdom, Germany, France and Belgium.

We have completed enrollment of the pivotal cohort in June 2018 and we expect to report initial Phase 3 data

from this pivotal trial in the third quarter of 2019.

Phase 2 Clinical Development in LEPR Deficiency Obesity

Leptin’s role in obesity has been elucidated by characterization of severely obese people with homozygous
mutations that impair the activity of leptin, including disruption of signaling at the LEPR, known as LEPR deficiency
obesity. To study setmelanotide in this indication we initially amended our Phase 2 clinical trial in POMC deficiency
obesity, Study RM-493-011, to also include this new and related genetically defined population of severely obese patients.
We then completed this part of the Phase 2 proof of concept, open label clinical trial in patients with LEPR deficiency
obesity by treating three patients in this trial, who demonstrated weight loss and hunger reduction as outlined below. The
results of this trial were published in May 2018 in Nature Medicine, which we believe validates the scientific and clinical
importance of our Phase 2 findings.

Results from treatment with setmelanotide in these three LEPR deficiency obesity patients are available. The first
LEPR deficiency obesity patient was a 23-year old male, who experienced early onset of obesity and hyperphagia. After
little success in controlling his weight, he underwent, and failed, a gastric banding procedure, and had regained over 20 kg
in the last year since his procedure. Ahead of our trial, the patient’s self-reported trial hunger score was nine out of 10
points, representing extreme hunger, and his weight and BMI at trial entry were 130.6 kg, or 287.9 lbs., and 39.9 kg/m2,
respectively. After initiation and upwards dose titration over 13 weeks of setmelanotide treatment, the patient demonstrated
prompt and striking reductions in appetite and body weight with a total loss of 17.5 kg body weight, representing 13.4%

of his initial body weight. Hunger scores decreased from nine points at baseline to one to two points at 13 weeks. With
continued treatment for 26 weeks, the patient lost 28.2 kg, or 62.2 lbs., representing 21.6% of his initial body weight, and
during that interval, he had a hunger score of one to two. Subsequently, on this dose, his weight has remained stable over
an additional 35 weeks, with total weight loss of 25.1 kg or 55.3 lbs., representing 19.2% of his initial body weight over
the 61 weeks of treatment. The weight loss was predominantly caused by a reduction in body fat and resting energy
expenditure stayed stable during this period. This patient also had pre-trial insulin levels that were elevated as examined
by an oral glucose tolerance test, as were glucose values, demonstrating insulin resistance. These values improved with
setmelanotide treatment. Notably, there was also an improvement in the patient’s lipid profile over 13 weeks of
setmelanotide treatment. Setmelanotide was generally well tolerated in this LEPR deficiency obesity trial.

The Clinical Course of our Initial Patient in the Setmelanotide LEPR Deficiency Obesity Phase 2 Trial through
Week 49(1)

WEIGHT
(kg)

0.5
mg

1.0
mg

23 yr old male – LepR Mutation
Starting Weight = 130.6 kg
Starting BMI = 39.9 kg/m2
Starting Hunger Score = 9.0 pts

1.5
mg

HUNGER

10.0

-5

-10

-15

-20

-25

-30

5.0

-29.0 kg
-22.2%

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Weeks

Weight Change (kg)

Hunger Score

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

* Figures represent cumulative weight loss in kgs through approximately 49 weeks of treatment. See text for additional details.

(1) Daily setmelanotide dose adjustments over time are indicated at the top of the panel.

The second LEPR deficiency obesity patient is a 22-year old male who also experienced early onset of obesity
and hyperphagia. His growth curve since infancy demonstrated early onset, severe obesity that had continued through his
whole life, with little ability to control his weight gain. Ahead of our trial, the patient’s self-reported trial hunger score was
nine to ten out of ten points, and his weight and BMI at trial entry were 122.1 kg, or 269.2 lbs., and 40.7 kg/m2, respectively.
He was treated with setmelanotide and his dose was escalated up to 1.5 mg once daily with only modest effects on weight
and hunger scores. However, when he was advanced to 2 mg once daily, he demonstrated prompt and striking reductions
in appetite and body weight. After 17 weeks, including 11 weeks on his therapeutic dose of 2 mg/day, he had lost 9.6 kg,
or 21.2 lbs., representing 7.9% of his body weight, and his hunger score dropped to two to three points. By 36 weeks of
total treatment, he had lost 13.9 kg, or 30.6 lbs., representing 11.4% of his body weight. Despite good tolerance of treatment
and this marked weight loss, the patient still felt dissatisfaction at the rate of weight loss and independently discontinued
his setmelanotide administration for approximately 2 weeks. During this time he regained 5.2 kg or 11.5 lbs., and his
hunger score increased to nine out of ten points, or severe hunger. The patient reported that he felt hungry every hour, and

was struggling to control his appetite. As a result, treatment was re-initiated at the 2 mg dose, and was then increased to
2.5 mg per day with the goal of accelerating his weight loss. As a result, he demonstrated a significant reduction in hunger,
with his hunger score decreasing from nine to two out of ten points, and a reduction in body weight. The patient remains
on treatment with good tolerability. This patient had few metabolic abnormalities at baseline, but he was hyperinsulinemic
as examined by an oral glucose tolerance test. After 13 weeks of treatment, the hyperinsulinemia started to improve and
the blood glucose levels during the oral glucose tolerance test normalized.

Our Second and Third Patients in the Setmelanotide LEPR Deficiency Obesity Phase 2 Trial(1)

LepR Patient #2

22 yr old male – LepR Mutation
Starting Weight = 122.1 kg
Starting BMI = 40.7 kg/m2
Starting Hunger Score = 9.5 pts

LepR Patient #3

14 yr old female – LepR Mutation
Starting Weight = 120.4 kg
Starting BMI = 44.2 kg/m2
Starting Hunger Score = 9.0 pts

WEIGHT*
(kg)

0.5
mg

1.5
mg

2.0
mg

HUNGER

10.0

WEIGHT*
(kg)

0.5
mg

1.0
mg

1.5
mg

-5

-10

-15

6.0

-13.9 kg
-11.4%

8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Weeks

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

-5

-10

-15

4.0

-10.0 kg
-8.3

8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Weeks

HUNGER

10.0

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Weight Change (kg)

Hunger Score

* Figures represent cumulative weight loss in kgs; further details are in the text.

* Figures show patient data only during weeks in which patients were in compliance with the trial protocol.

(1) Daily setmelanotide dose adjustments over time are indicated at the top of the panel.

The third LEPR deficiency obesity patient is a 14-year-old female adolescent, and the first adolescent patient
treated with setmelanotide. Her growth curve since infancy demonstrated early onset, severe obesity her whole life, with
little ability to control her weight gain. Ahead of our trial, the patient’s self-reported trial hunger score was nine out of
10 points, and her weight and BMI at trial entry were 120.4 kg, or 265.4 lbs., and 44.2 kg/m2, respectively. The patient
lost 10 kg, or 22 lbs., representing 8.3% of her body weight, and her hunger score reduced to five out of 10 points in the
first 13 weeks on a dose of 1.5 mg per day. Before and during treatment, the patient exhibited behavior that compromised
compliance with the treatment regimen. This manifested as a misunderstanding that led her to perform the injections late
in the afternoon and at an incorrect, lower dosage of 1.0 mg setmelanotide. Considering that we have noted a dose threshold
for therapeutic benefit and SC setmelanotide injections have a 10- to 12-hour half-life, we concluded that the combination
of a lower dose and the occurrence of the highest drug concentration at night most likely precipitated an interval of weight
regain. In support of this explanation, her feeling of hunger was reduced during the night but started to increase during the
day. Eventually, these errors were reported and corrected. Following such correction, careful monitoring was instituted to
ensure that the patient performed the injections in the morning as instructed, leading again to reduced hunger.

This trial provides the second proof of concept for the effectiveness of setmelanotide in patients with upstream
defects in the MC4 pathway, showing marked weight reduction and decreases in hunger in patients with LEPR deficiency
obesity. In addition, the efficacy of the drug correlates well with periods of setmelanotide treatment and withdrawal, as in
POMC deficiency obesity. Based on this proof of concept for the compelling efficacy of setmelanotide in this disorder,
and the FDA granting of Breakthrough Therapy designation, we transitioned the LEPR development program to Phase 3.

Phase 3 Clinical Development in LEPR Deficiency Obesity

Our LEPR deficiency obesity development program is now in Phase 3. We have completed enrollment of the 10
patients in the pivotal cohort in the second quarter of 2018 and we expect to report initial Phase 3 data from this pivotal
trial in the third quarter of 2019. This is an open label, one-year trial, including a double-blind placebo-controlled
withdrawal period, of setmelanotide in LEPR deficiency obesity. This pivotal trial will assess long-term efficacy of
setmelanotide given once daily by SC injection in LEPR deficiency obesity, and is planned to be of very similar design to
the Phase 3 ongoing trial in POMC deficiency obesity. The trial begins with an initial period of dose titration lasting
between two and 12 weeks where the individual patient’s therapeutic dose will be established by upwards dose titration in
two-week intervals. Thereafter, patients continue on active treatment at their individually titrated optimal therapeutic dose
for an additional 10 weeks, for a total combined dosing duration of 12 weeks at the individual patient’s therapeutic dose.
Patients who demonstrate at least five kilograms weight loss at the end of the open label treatment period will continue
onto the double-blind, variably-timed, placebo-controlled, withdrawal period. Following the withdrawal period, all
patients will complete an additional period of setmelanotide treatment to bring the total therapeutic dosing period to
approximately one year.

We have completed enrollment of the pivotal cohort of 10 patients in this trial, aged 12 years and older. We also
are enrolling supplemental patients, who may not complete one year of treatment at the time of NDA filing, including
patients between six and eleven years of age under the implementation of a pediatric amendment, to provide additional
important data regarding the use of setmelanotide in people living with LEPR deficiency obesity.

Completion of enrollment for the pivotal cohort in this Phase 3 trial was contemporaneous with completion of
enrollment for our POMC deficiency obesity pivotal trial, and so we are planning to file an NDA for each of these
indications concurrently.

The primary and key secondary endpoints will be identical to those for our POMC deficiency obesity pivotal trial.
This trial is currently being conducted in the United States, the United Kingdom, France, Netherlands, and Germany.
Based on the FDA granting Breakthrough Therapy designation for the treatment of obesity associated with genetic defects
upstream of the MC4 receptor in the leptin-melanocortin pathway, which includes the LEPR deficiency obesity indication,
we believe we can seek indications for this type of obesity with a faster path to approval, as compared to typical obesity
drug candidates, because of the high unmet need and rare prevalence of this disorder.

Phase 2 Clinical Development in Bardet-Biedl Syndrome

Bardet-Biedl syndrome is a life-threatening, orphan disease with prevalence of approximately one in 100,000 in
North America. We estimate that the addressable patient population for Bardet-Biedl syndrome is approximately 1,500 to
2,500 patients in the United States. It is a rare monogenic disorder that causes severe obesity and hyperphagia as well as
vision loss, polydactyly, kidney abnormalities, and other signs and symptoms. Bardet-Biedl syndrome is part of a class of
disorders called ciliopathies, or disorders associated with the impairment of cilia function in cells. Cilia are hair-like
cellular projections that play a fundamental role in the regulation of several biological processes, including satiety
signaling. Cilia dysfunction is thought to contribute to hyperphagia and obesity in Bardet-Biedl syndrome. Bardet-Biedl
syndrome is a genetically heterogeneous disease that is caused by as many as 21 separate Bardet-Biedl loci defects resulting
in a similar syndrome, though each Bardet-Biedl syndrome patient only has one of these defects.

The role of abnormal cilia development and function in obesity has been elucidated in animal models, most
strongly for Bardet-Biedl syndrome. Studies in mouse models of Bardet-Biedl syndrome show that deficiencies in the
MC4 pathway contribute to the obesity and hyperphagia in Bardet-Biedl syndrome, with animals developing hyperphagic
tendencies early in life. Notably, these mice have decreased leptin receptor signaling, with the essential hallmarks of failure

to activate POMC neurons. This is supported in Bardet-Biedl syndrome rodent models, where the mice respond to an MC4
agonist resulting in reduced food intake and body weight. The relation of Bardet-Biedl syndrome gene mutations to the
MC4 pathway is supported by clinical data. Patients with Bardet-Biedl syndrome have higher leptin than expected for their
degree of adiposity, or leptin resistance, which is consistent with the notion that ciliopathy-induced leptin signaling
dysfunction is associated with leptin resistance.

Overall, these data support that the phenotypes of these ciliopathies, while complex with additional clinically
important features along with obesity and hyperphagia, may be responsive to setmelanotide treatment, and will be
investigated in our proof of concept Phase 2 trial.

We are studying Bardet-Biedl syndrome patients who are severely obese, and have provided proof of concept
that Bardet-Biedl syndrome patients will also demonstrate decreased hunger and significant weight loss, similar to that
seen in patients with POMC deficiency obesity, or LEPR deficiency obesity. We have enrolled the first five patients in
this trial, have reported preliminary results for these patients in a presentation at the Obesity Week 2017 meeting, and
updated the clinical status of these patients in June 2018. In the second quarter of 2018, the FDA agreed to include
Bardet-Biedl syndrome under our existing Breakthrough Therapy designation for setmelanotide. We have had ongoing
discussions with the FDA regarding a Phase 3 trial and initiated this trial and began to enroll patients in December 2018.
The FDA has indicated that this Phase 3 trial will include both Bardet-Biedl syndrome and Alström syndrome patients.

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

• Daily Hunger Scores. In addition to our morning assessment of hunger, as performed in the Phase 2 trials in
POMC deficiency obesity and LEPR deficiency obesity, we are also obtaining a daily hunger score rating in
response to the question: “In the last 24 hours, how hungry did you feel when you were the most hungry?”
Patients are asked to give a response that is measured on a scale of 0-10, whereby 0 points signifies “not
hungry at all” and 10 points indicates the patient feels his or her “hungriest possible.”

• Questionnaires. For patients 16 years of age and younger, we are using two observer related questionnaires
as exploratory endpoints. These questionnaires are completed by the patient’s parent or other caregiver.

•

The Food Problem Diary, or FPD, is based on food-related behaviors. This questionnaire was
adapted from a similar questionnaire that was used with patients with Prader-Willi syndrome. The
questionnaire is rated on a 30-point scale where 30 points is strong evidence of hyperphagia and 0
points is evidence of no hyperphagia. The best possible response therefore is 0 points.

The Significant Event Questionnaire, or SEQ, counts events not typically seen in this population,
such as a patient leaving food on his or her plate at a meal. This questionnaire consists of eight “yes”
or “no” questions. The best possible response is 8 points, since this questionnaire tracks events and
behavior not typically seen in patients with MC4 pathway disorders. In contrast with other score
scales, a higher score in this hunger assessment category represents improvement, and thus, the
results are plotted in reverse scale and downward trends indicate improvement.

We believe that proof of concept in Bardet-Biedl syndrome has been demonstrated by improvements in hunger
and weight reduction, supporting that this is a setmelanotide-responsive, MC4 pathway disorder. The age of the patients
ranged from 12 to 61 years. The starting weights of the patients ranged from 51.3 to 162.7 kg and BMI ranged from 37 to
51. The starting hunger scores for the adult patients ranged from 6 to 9 points on the 10-point scale, with higher scores
indicating more hunger and the SEQ scores for the two adolescent patients were 1, and 2 for a third adolescent patient.

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

Patient Number
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Age
(yrs)

Bardet-Biedl
Type

Starting

Weight (kg)

25
61
16
17
12
16
14
13
31

1
2
10
12
1
5
4
*
1

147.5
99.4
121.6
98.3
119.3
122.3
88.6
51.3
162.7

Starting
BMI

Starting Hunger Score
44 Most hungry score = 9
44 Most hungry score = 7
44 FPD = 6/ SEQ = 1
42 Most hungry score = 6
49 FDP = 15/SEQ = 1
43 Most hungry score = 9
37 Most hungry score = 7
51 FPD = 9 / SEQ = 2
48 Most hungry score = 6

Three patients with Bardet-Biedl syndrome type 1 mutations and one each with Bardet-Biedl syndrome types 2,
4, 5, 10, 12 mutations and one patient with a BBS mutation that was not established were enrolled. Total treatment
durations lasted between 41 and 65 weeks. Six of the nine patients showed clinically important, marked weight loss of
27.0 kg, 14.1 kg, 24.2 kg, 13.7 kg, 13.7 kg and 21.2 kg, or 59.5 lbs., 31.1 lbs., 53.4 lbs., 30.2 lbs., 30.2 lbs. and 46.7 lbs.
respectively, and a decrease of 18.3%, 14.2%, 19.9%, 11.2%, 15.5% and 21.6%, respectively. Hunger scores were reduced
by 44.4%, 85.7%, 100.0%, 66.0%, 21.0% and 66.7%, respectively, in these six patients. Summary of the data is shown
below and with six out of nine patients showing efficacy of > 10% weight loss supported moving into phase 3.

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

Bardet-Biedl Patient Number
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weight loss
(kg)

Weight loss
(lbs.)

Weight loss
(%)

27.0
14.1
24.2
21.2
13.7
13.7
19.0 kg

59.5
31.1
53.4
46.7
30.2
30.2
41.9 lbs.

18.3%
14.2%
19.9%
21.6%
11.2%
15.5%
16.8%

Decrease in
hunger score
(%)

44.4%
85.7%
100.0%
66.7%
66.0%
21.0%
64.0%

For six of the nine Bardet-Biedl syndrome patients who responded to treatment with setmelanotide, mean weight
loss reached 16.8% of body weight, and mean hunger decreased by 64.0%. The time course of individual patient weight
loss and hunger scores for these four patients who were treated for longer-term duration (50-65 weeks) are shown below.

Patients in the Setmelanotide Bardet-Biedl syndrome Phase 2 Trial who showed improvements in both

H
u
n
g
e
r

weight and hunger(1)(2)(3)

BBS participant #1
Age 25 y, male, BBS1 mutation
Starting weight = 147.5 kg
Starting BMI = 44.0 kg/m2
Starting hunger score = 9.0 pts

2.5
mg

1.0
mg

1.5
mg

2.0
mg

Dose
0

g
k

,
t
s
o

t
h
g
i
e
w
e
v
i
t
a
l
u
m
u
C

−5

−10

−15

−20

−25

−30

−35

−40

5.0

−37.7 kg
−26%

0.0

36
34
38
Weeks

H
u
n
g
e
r

BBS participant #2
Age 61 y, female, BBS2 mutation
Starting weight = 99.4 kg
Starting BMI = 44.2 kg/m2
Starting hunger score = 7.0 pts

1.0
mg

Dose
0

1.5
mg

2.0
mg

2.5
mg

g
k

,
t
s
o

t
h
g
i
e
w
e
v
i
t
a
l
u
m
u
C

−5

−10

−15

−14.5 kg
−15%

1.0

34
30
32
Weeks

Weight change, kg

Morning hunger score

Worst hunger score

BBS participant #3
Age 16 y, female, BBS10 mutation
Starting weight/BMI = 121.6 kg/44.0 kg/m2
Starting FPD score = 6.0 pts
Starting SEQ score = 1.0 pt

0.5
mg

1.0
mg

1.5
mg

Dose
0

2.0
mg

2.5
mg

g
k

,
t
s
o

t
h
g
e
w
e
v

i
t
a
u
m
u
C

−5

−10

−15

−20

−25

−30

10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70

Weeks

0.0

8.0

BBS participant #4
Age 17 y, female, BBS12 mutation
Starting weight = 96.3 kg
Starting BMI = 42.0 kg/m2
Starting hunger score = 6.0 pts

2.5
mg

0.5
mg

1.0
mg

1.5
mg

2.0
mg

Dose
0

g
k

,
t
s
o

t
h
g
e
w
e
v

i
t
a
u
m
u
C

−5

−10

−15

−20

−25

−23.1 kg
−24%

34
30
32
Weeks

1.0

1.0
58

FPD SEQ

−29.1 kg
−24%

SEQ

FPD

Weight change, kg

Morning hunger score

Worst hunger score

Figures represent cumulative weight lost in kgs

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

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

(1)

(2)

(3)

Daily setmelanotide dose adjustments over time are indicated at the top of the panel.

In some cases, dates for entry of weight and hunger assessment data may differ within a single patient.

Data as of August 2018.

The fifth patient, a patient with a Bardet-Biedl syndrome type 1 mutation, showed marked improvement in hunger
scores with a 53.3% decrease, but did not demonstrate any body weight change after 33 weeks on treatment, including a
final 12-week test period on 3.0 mg daily. However, the weight curve for this patient indicated a slowing of prior childhood
weight gain upon treatment with setmelanotide, as indicated with an arrow in her pediatric growth chart, below. This
patient was a 12-year-old with Type 1 diabetes who entered the trial with extremely poor glucose control, with an average
blood sugar level, or HbA1c, of 10.1%. We have been investigating the reason for the inconsistency between her
improvement in hunger and lack of weight loss. During her treatment, her HbA1c showed an improvement to 7.6%.
Following treatment discontinuation, the patient gained 5.9 kg, appetite and hunger returned to baseline levels and HbA1c
increased to 11.7%.

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

Phase 2 Proof of Concept Study of Patients with Alström Syndrome

We are conducting a Phase 2, proof of concept trial in Alström syndrome, which is a life-threatening, ultra-rare
orphan disease with a prevalence of approximately one in 1,000,000 in North America and we estimate that the addressable
patient population for Alström syndrome obesity is approximately 500 to 1,000 patients worldwide. Alström syndrome
shares many clinical features with Bardet-Biedl syndrome, 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 Bardet-Biedl syndrome, recent scientific studies identify genetic deficiencies affecting the MC4
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 MC4 pathway signaling. While Alström syndrome is less well studied than Bardet-Biedl syndrome, the
similar pathophysiology of cilial dysfunction and clinical presentation support that deficiencies in the MC4 pathway are
implicated in the obesity and hyperphagia observed in Alström syndrome. Therefore, we hypothesize that setmelanotide
treatment can be applied to treat Alström syndrome.

We are studying Alström syndrome patients who are severely obese. We believe, our initial proof of concept data,
shown below, demonstrates that Alström syndrome patients may also experience decreased hunger and significant weight
loss similar to that seen in patients with POMC deficiency obesity, LEPR deficiency obesity, or Bardet-Biedl syndrome.
We have enrolled patients in this trial and have updated the clinical status of these patients in June 2018. The FDA has
also recently included Alström syndrome under our existing Breakthrough Therapy designation. As mentioned for
Bardet-Biedl syndrome, we have had ongoing discussions with the FDA regarding a Phase 3 trial and initiated this trial
and started to enroll patients in December 2018. The FDA has indicated that this Phase 3 trial will include both
Bardet-Biedl syndrome and Alström syndrome patients.

As of October 2018, four Alström syndrome patients have been treated with setmelanotide in the Phase 2 study.
The age of the patients range from 12 to 21 years. The starting weights of the patients range from 70.7 to 108.1 kg and
BMI ranged from 28 to 47. The starting hunger scores for the adult patients ranged from 2 to 7 points on the 10-point
scale.

The initial Alström syndrome patient in our Phase 2 clinical trial was a 12-year-old male, starting weight of 78.6
kg, or 173.2 lbs., with a BMI of 28.2 kg/m2 (above the 98th percentile for his age). At baseline, his initial “worst hunger”
score was 5.5 points, and his morning hunger score was 5 points. As of October 2018, this patient has been treated for
56 weeks including titration, most of that time on a dose of 2 mg/day. During the course of 56 weeks of treatment, he
experienced weight loss of 16.4 kg, or 36.2 lbs., which represented a 20.9% weight loss and a 45.5% decrease in hunger.
Clinical assessment by the Dykens hyperphagia questionnaire, another instrument also collected in this patient only,
demonstrated a baseline of 31 out of 55 possible points, which improved to 11 points, or a 64.5% improvement in

hyperphagia. Because his body weight was approaching ideal body weight, and he is a growing child, his dose was reduced
to 1.5 mg/day, at 32 weeks and 0.5 mg six days/week at 50 weeks, with stabilization of his weight.

Alström Patient #1

Age 12 y, male
Starting weight = 78.6 kg
Starting BMI = 28.2 kg/m2 (98th percentile)
Starting hunger score = 5.5 pts

0.5 1.0 1.5

2.0

1.5

0.5a

Dose, mg

HUNGER
▼
10.0

3.0
45%

kg
−16.4 kg
21%
−21%

10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56

Week

Weight change, kg

Worst hunger score

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

WEIGHT
CHANGE,
kg ▼
0.0

-5.0

-10.0

-15.0

-20.0

Three additional Alström patients (2 adolescents, 1 adult) have been enrolled in this Phase 2 study and the data
is summarized below. One of these patients is showing promising responses in weight loss and hunger, one is too early to
determine, but one patient, the adult, did not show improvements in either weight or hunger and was discontinued.

Alström Syndrome Patient Number
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weight loss
(kg)

Weight loss
(lbs.)

Weight loss
(%)

16.4
3.8
1.1
5.0

36.2
8.4
4.6
11.2

21.0%
5.4%
1.1%
5.5%

Change in
hunger score
(Start/End)

6/3
7/2
NA
2/5

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

Phase 3 Clinical Development in Bardet-Biedl and Alström Syndrome

Since the FDA agreed to include Bardet-Biedl syndrome and Alström syndrome under our Breakthrough Therapy
designation, we began in May 2018 an ongoing discussion about Phase 3 trial design with the FDA, and have received
preliminary guidance on many aspects of the Phase 3 development programs in Bardet-Biedl syndrome and Alström
syndrome. Based on these discussions, we are started a combined Phase 3 study to include both Bardet-Biedl and Alström
patients in a single Phase 3 trial, including at least 20 Bardet-Biedl syndrome patients and at least six Alström syndrome

patients, aged six years and older. The combined trial is likely to lead to a more rapid path for approval of these two
indications than two separate trials. Like previous setmelanotide Phase 3 trials in POMC and LEPR deficiency obesities,
we are planning an open label, approximately one-year trial, assessing long term efficacy of setmelanotide given once
daily by SC injection. We may also plan to enroll supplemental patients who may not complete one year of treatment at
the time of NDA filing. We expect to discuss with the FDA the primary endpoint of the trial. Potential endpoints will
likely include a categorical analysis of responders for weight, with mean percentage change in weight from baseline as a
key secondary endpoint. Hunger-related endpoints are also likely to be key secondary endpoints in the study.

We are planning the trial to begin with an initial period of dose titration, using a simplified titration scheme over
two weeks for adults, and possibly slightly longer for pediatric patients. This trial may include a short, 12-week,
randomized, placebo-controlled period. Following the 12-week, double-blind, placebo controlled period, all patients will
complete an additional period of active setmelanotide treatment to complete the approximately one-year trial. We are also
discussing with the FDA a potential alternative primary endpoint for growing pediatric patients that will capture the
therapeutic benefits of setmelanotide in the pediatric population.

We have continued ongoing discussion with the FDA, completed the Phase 3 protocol, initiated the Phase 3 study

and enrolled our first patients in December of 2018. This study will be conducted in both the United States and Europe.

Phase 2 Proof of Concept Studies Focused on Patients with Monogenic Disorders of the MC4 Pathway:
Heterozygous Mutations in the MC4 Pathway and Epigenetic Disorders of the MC4 Pathway

We are conducting Phase 2, proof of concept trials in a variety of monogenic, upstream disorders of the MC4
pathway, including POMC and other MC4 pathway gene heterozygous mutations, and epigenetic disorders of the MC4
pathway. These trials are Phase 2 open label, single arm, proof of concept trials assessing the effect of setmelanotide on
the rare genetic disorders of obesity described below. We hypothesize that these disorders may be genetically-defined
deficiencies upstream in the MC4 pathway. Each trial includes a three-month proof of concept phase at which weight loss,
hunger and other metabolic parameters will be evaluated. If patients demonstrate significant weight loss and acceptable
safety and tolerability, they will continue treatment for evaluation of setmelanotide’s effects for a total of one year. Similar
to our previous trials, this trial begins with an initial period of dose titration where the individual patient’s therapeutic dose
is established by upwards dose titration in two week intervals. We plan to enroll from 20 up to 100 patients between these
two rare genetic populations. We are conducting these trials, as we did for the ongoing Bardet-Biedl syndrome and Alström
syndrome Phase 2 trial described above, under basket protocols, which are designed to capture a broad range of patient
populations to be treated under one investigational protocol. We believe this approach is efficient for studying many
potential indications, and we intend to add additional populations to these basket protocols over the next one to two years.

The genetic disorders we are studying in our additional Phase 2 proof of concept trials are outlined below, and

initial, preliminary Phase 2 data for each indication is summarized.

Clinical Development in MC4 Pathway Heterozygous Deficiency Obesity

MC4 pathway heterozygous deficiency obesity is caused by the loss of one of the two genetic copies of
either the genes for POMC, PCSK, LEPR, or other genes in the MC4 pathway. Animal models support that such
heterozygous deficiency in the critical leptin-melanocortin pathway can result in a strong predisposition to severe
obesity. The effect of genetic heterozygous deficiency obesity was first demonstrated for another gene in the
MC4 pathway: MC4R heterozygous deficiency obesity. Later data also supported that POMC heterozygous
deficiency obesity also results in a strong predisposition to obesity, though the epidemiology and clinical
characterization of these patients is less well known. An estimated 2% of severe, early onset obesity patients have
POMC heterozygous deficiency obesity, which is much more common than the ultra-rare POMC deficiency
obesity in which both copies of either the POMC or PCSK genes are impaired. Our initial clinical focus is on the
most severely obese MC4 pathway heterozygous patients to test the hypothesis that severely obese heterozygous
POMC patients might also respond substantially to setmelanotide treatment.

We are studying patients who are severely obese, or whose BMI is equal to or greater than 40kg/m2, and
who are heterozygous deficient for POMC, LEPR, or other genes in the MC4 pathway. These patients have a

heterozygous genetic mutation resulting in full or partial loss of MC4 pathway signaling to the downstream
MC4R. The purpose of studying these patients in this trial is to provide proof of concept that severely impaired
MC4 pathway heterozygous deficiency obesity patients will also demonstrate significant weight loss, similar to
though possibly of less magnitude, as that seen in patients with POMC deficiency obesity or LEPR deficiency
obesity. We are enrolling this trial at sites in the United States and Europe, and reported initial, preliminary results
in June 2018.

Five heterozygous patients have been enrolled, mostly for short durations, in this Phase 2 trial. The
longest treated patient, on treatment for 34 weeks including titration, is showing promising responses in weight
loss of 23.1 kg, or 50.9 lbs. which represented a 15.4% decrease in body weight, and also showed an 80% decrease
in hunger score. A second patient has shown 9.5 kg, or 21.0 lbs. of weight loss, which represented a 6.5% decrease
in body weight, and also showed a moderate 20% decrease in hunger score. One patient did not show
improvements in either weight or hunger and was discontinued due to lack of efficacy, and two patients
discontinued early due to tolerability issues related to muscle cramps or tanning, respectively. Four of the five
patients treated to date were enrolled at a single site. We are currently opening a number of additional sites with
relevant pre-identified heterozygous patients in their databases.

POMC heterozygous deficiency obesity is complex in many ways, in that there appears to be variable
penetrance, or manifestation of heterozygous mutations. As a result, we intend to study a larger number of
heterozygous patients in Phase 2, to more carefully delineate those patients most debilitated and those who will
have the best response to setmelanotide, before we discuss the design for a Phase 3 study with the FDA. We
intend to provide an update on a larger number of heterozygous patients in the first quarter of 2019.

Mutations that are of particular interest include mutations to the section of the POMC gene that are
translated into the protein, beta-melanocyte stimulating hormone, or β-MSH. These mutations have been
implicated in human and canine obesity. In 2002, researchers identified one specific heterozygote mutation of
β-MSH, called the R236G mutation, in two children with extreme childhood obesity. This R236G mutation results
in an abnormal β-MSH protein with a markedly reduced ability to activate the MC4R itself, and may also prevent
other natural MC4R ligands from activating the MC4R. These combined effects may result in more significant
obesity than other heterozygous mutations. The overall prevalence of this mutation is rare, 0.7% of the obese
population is estimated to carry this mutation, but our genotyping study of 560 patients with early onset, childhood
obesity has identified five heterozygote patients with the R236G mutation, all with severe obesity. This mutation
may be a focus when enrolling our Phase 2 trial in POMC heterozygous obesity. We are studying patients who
are heterozygous deficient for other genes in the MC4 pathway, though less is known about the epidemiology
and clinical impact of these other heterozygous deficiency obesities. We have also hypothesized that patients who
carry high allelic burden in this pathway, or who have genetic disorders in two or more of the genes of the MC4
pathway, and who therefore might have some impairment at more than one location in the MC4 pathway, might
also be responsive to setmelanotide.

Clinical Development in Patients with Epigenetic Changes at the POMC receptor

In our proof of concept Phase 2 trials, we are studying patients suffering from obesity due to a partial
lack of MSH due to an epigenetic POMC variant. Epigenetics changes are DNA modifications that can change
gene expression without altering the DNA sequence itself. The most stable epigenetic modification is called DNA
methylation. Recently, our academic collaborators in Berlin have described a POMC hypermethylation variant,
which correlates with increased body weight in children and adults. Therefore, the presence of the POMC
genetic/epigenetic variant leads to an increased risk for obesity based on reduced POMC gene activity. We expect
that these patients under express the POMC gene product and as a result have a partial MSH deficiency.

There is convincing evidence that such epigenetic variants are potentially major factors for an increased
individual risk to develop obesity later in life, and we hypothesize that the most obese patients in their populations
may benefit from treatment with setmelanotide. However, epigenetic variation is likely not the only reason for
the development of obesity in this patient group, because these variants are also observed in normal weight

individuals, although to a lesser extent. At this point, no epidemiology data is available to estimate the size of the
POMC epigenetic deficiency obese population.

We are studying patients who are severely obese, or whose BMI is equal to or greater than 40kg/m2, and
who have hypermethylation at the POMC gene. The purpose of studying these patients in this trial is to provide
proof of concept that severely impaired, epigenetic POMC variant obesity patients will also demonstrate
significant weight loss similar to, though possibly of less magnitude, as that seen in patients with POMC
deficiency obesity or LEPR deficiency obesity. We are enrolling this trial at sites in the United States and Europe,
and reported initial, preliminary results in June 2018.

Two epigenetic patients have been enrolled, one of whom is just starting titration. The longer treated
patient, on treatment for 27 weeks including titration, is a 20-year-old female, with a starting weight of 182.2 kg,
or 401.7 lbs., and a BMI of 55.0 kg/m2. Her starting hunger score was 7.5 points. As she was titrated, her hunger
score decreased 60% to three points and she began to lose weight. Due to a vacation, she withdrew from treatment
for approximately four weeks and her hunger score returned to baseline but she did not regain weight over that
period. With resumption of treatment, her hunger score decreased to 3.5 points, and at week 27, she had lost 16.8
kg, or 37.0 lbs., which represented a loss of 9.2% of body weight.

Phase 1b Clinical Development in Patients with Heterozygous MC4R Gene Mutations

Early studies in downstream MC4 pathway defects demonstrated good efficacy and tolerability, and served as a
foundation for potentially greater efficacy in upstream MC4 pathway deficiencies. We established proof of concept for
efficacy of setmelanotide in patients with an MC4R heterozygous genetic mutation in one cohort of patients in our Phase 1b
clinical trial. This clinical trial was a double-blind, placebo-controlled, randomized Phase 1b clinical trial designed to
evaluate the effect of setmelanotide on weight loss and safety in obese patients with a heterozygous mutation of the MC4R
gene. The initial cohort of eight patients was treated for four weeks with setmelanotide or placebo. The setmelanotide
group showed weight loss of 3.48 kg, or 7.67 lbs., approximately 2.62 kg, or 5.78 lbs., more weight loss than the placebo
group, which showed weight loss of 0.85 kg, or 1.87 lbs. Other parameters supporting weight loss were also positively
impacted by setmelanotide. We believe that these results support the hypothesis that setmelanotide can be effective in
weight loss in MC4R deficient patients, and provide evidence of the minimum expected treatment effect of setmelanotide,
approximately 0.9 kg/week, or 1.98 lbs./week, of weight loss over four weeks, even in a situation where setmelanotide’s
action is on a downstream MC4 pathway that is no longer fully functional due to heterozygous MC4R mutations. However,
our focus is on upstream disorders of the MC4 pathway where we hypothesize that setmelanotide can serve as replacement
therapy and provide more compelling efficacy.

The following figure depicts preliminary data relating to our setmelanotide Phase 1b clinical trial in MC4

heterozygous deficiency obesity patients:

Setmelanotide Phase 1b Trial MC4 Heterozygous Patients: Placebo Subtracted Differences(1)(2)

Weight
Δ = -2.62 kg

Waist Circum
Δ = -5.1 cm

Daily Intake
Δ = -351 kcal

0.00

-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

-3.50

-4.00

p=0.088

0.00

-1.00

-2.00

-3.00

-4.00

-5.00

-6.00

-7.00

-25.00

-75.00

-125.00

-175.00

-225.00

-275.00

-325.00

p=0.188

-375.00

p=ns

4 weeks

(1)

(2)

Over four weeks of treatment with setmelanotide 0.01 mg/kg/day by continuous SC infusion.

Preliminary data.

In general, we consider a p-value of 0.05 to be significant. P-values are an indication of statistical significance
reflecting the probability of an observation occurring due to chance alone. However, it is not possible to determine a
p-value for very small sample sizes, such as one- or two-patient trials.

Other Clinical and Scientific Initiatives in Genetic Obesity

Genotyping Study

Leveraging new understanding of severe obesity caused by specific genetic defects has the potential to improve
both diagnosis and treatment for specific types of life-threatening obesity. We have expanded our genotyping study—the
Genetic Obesity ID | Genotyping Study—in which eligible patients are genotyped for rare genetic disorders of obesity.
The goal is to develop a screening algorithm for selecting patients to be genotyped and identified with POMC deficiency
obesity and LEPR deficiency obesity, and to guide further genotyping efforts; in addition, it is our expectation that patients
who can participate in our clinical trials will be genetically identified. We are currently including approximately 100 genes
which, in medical and scientific literature, have been associated with obesity, including other genes associated with the
MC4 pathway. Individuals may enter the study through one of three arms including: a history of severe, early onset obesity,
along with hyperphagia, high BMI, and individuals within three months of bariatric surgery. The study is currently

enrolling in the United States and Europe and is expected to expand to a total of 140 sites worldwide. We plan to work
with these investigators to publish the results of this study and guidance on the use of the algorithm for screening, to enable
more systematic diagnoses of these rare genetic disorders of obesity.

Unique Mechanism of Action of Setmelanotide at the MC4R

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

Setmelanotide: Clinical Development Program in Prader-Willi Syndrome

PWS is a life threatening, orphan multigenic disease with prevalence estimates ranging from approximately one
in 8,000 to one in 52,000, with at least 8,000 diagnosed patients in the United States. A hallmark of PWS is hyperphagia,
leading to severe obesity and other complications. For PWS patients, hyperphagia and obesity are the greatest threats to
their health, and these patients are likely to die prematurely as a result of choking, stomach rupture, or from complications
caused by morbid obesity.

The genetics of PWS are complex, involving many genes on chromosome 15 that are not properly expressed.
Recent discoveries highlight that a defect in one of these, the melanoma antigen family L2, or MAGEL2, gene, in rodent
models impairs the function of POMC neurons, which are key components of the MC4 pathway. Studies have suggested
a link between defects in MAGEL2 in some humans with obesity, hyperphagia, autism spectrum disorders, reduced
intellectual ability and most other aspects of behavior and metabolism associated with PWS. However, the connection of
PWS with the MC4 pathway is complex.

We have completed a Phase 2 proof of concept, double-blind, placebo-controlled, randomized clinical trial in
PWS, Study RM-493-010, which enrolled 40 patients for four weeks of active setmelanotide treatment, administered once
daily by SC injection. This trial was intended to assess the effects of setmelanotide on weight reduction, and PWS-specific
hyperphagia-related behaviors, as PWS patients do not respond to hunger questionnaires, as well as determine its safety
profile. Based on the data from this Phase 2 clinical trial, we do not believe we will be positioned to proceed directly into
a Phase 3 clinical trial.

The trial included a two-week run-in period, a four-week double blind, randomized, placebo-controlled parallel
group main trial, a two-week double-blind, randomized, placebo-controlled withdrawal period during which half of the
trial patients were randomized to either continue to receive their therapy or be switched to the alternative therapy, from
active to placebo, or vice versa, and a two-week active-treatment extension. There were four treatment arms in the trial:
placebo (N=14); 0.5 mg of setmelanotide SC injection daily (N=4), 1.5 mg of setmelanotide SC injection daily (N=12),
and 2.5 mg of setmelanotide SC injection daily (N=10). Patients were 17 to 54 years of age, with a mean BMI of
39.4 kg/m2, and with a genetically confirmed diagnosis of PWS. Primary endpoints for the trial included safety and
tolerability, weight loss and hyperphagia, with hyperphagia to be measured by a PWS hyperphagia observer reported
outcome, or ORO, questionnaire. Secondary endpoints included dual-energy x-ray absorptiometry measurements,
pharmacokinetics, effects during the randomized withdrawal stage, and effects on quality of life and food-related and other
behaviors. Primary evaluations were assessed at the end of the four-week double blind parallel group stage, as well as after
the withdrawal stage and open label extension.

The results of the trial showed modest effects on hyperphagia, which did not approach statistical significance,
and no effect on weight, though there may have been some small evidence of clinically-important weight loss in the very
small group of patients who were randomized to the highest dose of setmelanotide over the longest interval of treatment
(N=4 patients, post-hoc evaluation, non-significant). There was good safety and tolerability, providing support for the 2.5
mg daily dose, with only injection site reactions common in both active and placebo groups. There were no serious adverse

events, no significant safety issues or changes in labs or other safety parameters, and the one discontinuation was due to
injection site reactions.

PWS is a complex multigenic disease, and the hypothesis that PWS is an upstream MC4 pathway disorder is
supported primarily on the role of only one of those genes, MAGEL2, in animal models of obesity. Our results may support
that PWS is not an upstream MC4 pathway disorder. Alternatively, other design factors may have influenced the outcome
of this trial, and we have started initial planning for future Phase 2 trials in PWS that address these potential factors: longer
duration of treatment, younger patient population, improved setmelanotide pharmacokinetics, consideration of higher
doses, and operational limitations of the completed Phase 2 trial.

In addition to our plans to further evaluate setmelanotide in PWS, we also plan to pursue the development of
RM-853, our preclinical candidate GOAT inhibitor for PWS. Additionally, given setmelanotide and RM-853’s distinct
mechanisms of action, we plan to explore opportunities to evaluate the two compounds in combination, as we believe there
may be complementary effects.

Setmelanotide Clinical Development in General Obesity Patients

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

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

Completed and Ongoing Setmelanotide Clinical Trials in the General Obese Population

Short Study Title
RM-493-001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obesity

Population

Single Ascending Dose Trial in
Healthy Obese Subjects

RM-493-002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obesity

Multiple Ascending Dose Trial in
Healthy Obese Subjects

RM-493-003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obesity

A Phase 2a Weight Loss Trial in
Obese Patients using Continuous
Infusion

Route of
Administration
Formulation

Continuous
infusion

Continuous
infusion SC
injection
Continuous
infusion

Number of
Subjects/
Patients
36 healthy
obese subjects

Status
Completed

54 healthy
obese subjects

Completed

74 healthy
obese subjects

Completed

RM-493-005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A Genetic

N/A

Completed

Pre-screening Genetic Testing of
Healthy Obese Subjects

Screening Study

RM-493-006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Energy

A Phase 1b 2-Period Crossover Trial
on Energy Expenditure in Obese
Subjects

Expenditure In
Obesity

Continuous
infusion

RM-493-008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PK/Obesity

SC injection

A Phase 1 Pharmacokinetic Trial of
New Once-daily Injectable
Formulations

RM-493-009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obesity

SC injection

A Staged, Phase 1b/Phase 2a
Pharmacokinetic/Weight Loss Trial
in Obese Patients using
Sub-Cutaneous Injection

12 healthy
obese subjects

Completed

12 healthy
obese subjects

Completed

97 healthy
obese subjects

Completed

RM 493 018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obesity

SC injection of 30 healthy

Parts A

A Long-Acting Formulation PK
Study of RM-493

SC=subcutaneous.

long-acting
formulation

obese subjects and B

completed

Phase 2 Clinical Development in the General Obese Population

Phase 2 Clinical Trial Results with Continuous Infusion

We conducted our first Phase 2 clinical trial of setmelanotide using continuous SC infusion. This was a
12-week, Phase 2 proof of concept clinical trial in general obese patients using the SC continuous infusion
formulation of setmelanotide delivered by an insulin pump. We treated approximately 74 obese patients with
either placebo or setmelanotide at a dose of 1.0 mg over 24 hours, with no serious adverse events or other safety
indications from laboratory tests, electrocardiograms or vital signs noted in the setmelanotide treatment group.
Evaluation of the pharmacokinetics, or blood levels, of setmelanotide from this clinical trial demonstrated that
the SC continuous infusion method of drug administration was not optimal. A large number of patients did not
meet the target pharmacokinetic exposures of setmelanotide that our Phase 1 clinical trials suggested would have
to be achieved in order for setmelanotide to show efficacy. This clinical trial did not demonstrate statistically
significant weight loss compared to the placebo. We believe patients in this clinical trial lacked adequate exposure
to setmelanotide, and concluded that all future efficacy clinical trials in obese patients should be conducted using

the SC injection method. This belief is based on a prior Phase 1 pharmacokinetic trial, which used the SC injection
formulation and demonstrated higher pharmacokinetic exposures in obese patients.

Phase 2 Clinical Trial with Once Daily SC Injection

We conducted a three-stage, randomized, placebo-controlled, Phase 2 12-week general obesity trial,
with approximately 100 obese patients, using our SC injection formulation, primarily with once daily dosing. We
designed this Phase 2 clinical trial to bridge between the earlier clinical trials that used continuous infusion and
all future clinical trials that use the formulation for once daily SC injection. Therefore, the primary purpose of the
staged approach in this trial was to assess if appropriate pharmacokinetic targets could be reached with the new
SC injection, first in an in-patient setting similar to the setting where robust weight loss was demonstrated in the
Phase 1 general obesity trial, and then in an outpatient setting.

Overall, setmelanotide demonstrated significant weight loss over 12-weeks in all stages, with placebo
subtracted weight loss, or the difference in the amount of weight gained or lost in the active treatment group as
compared to the placebo treatment group, from baseline of −2.78% to −4.69% and p-values ranging from 0.005
to <0.001. However, weight loss was more pronounced and consistent in the cohort treated with an initial
four-week, observed dosing, inpatient period, for which overall placebo subtracted weight loss from baseline at
week 12 ranged from −3.87% to −4.69%, all with p-values of less than 0.005, with the most pronounced weight
loss during the in-patient period. The once daily SC injection formulation also showed consistent and predictable
pharmacokinetic measurements during the four-week inpatient interval in the first stage, validating the
characteristics of the SC injection formulation. However, this trial demonstrated challenges in drug administration
and compliance when administered in an outpatient setting in the general obese population.

Setmelanotide Phase 2 SC Injection Trial 4-week In-Patient Dosing Period: Percent Weight Loss for
Setmelanotide 1.5 mg/day SC injection vs Placebo over 26 days of Observed Dosing

)

E
S

-
/
+
n
a
e
M

(

e
n

i
l

e
s
a
B
m
o
r
f

e
g
n
a
h
C

-0.5

-1

-1.5

-2

-2.5

-3

-3.5

-4

-4.5

-5

***

Time in Days

Placebo

RM-493 1.5 mg Once Daily

*p<0.05; ***p<0.001 vs Pbo;

Phase 1 Clinical Development in the General Obese Population

We have completed a Phase 1 single-ascending dose, or SAD, clinical trial of setmelanotide, as well as five
cohorts in a Phase 1 multiple-ascending dose, or MAD, clinical trial of setmelanotide. Both clinical trials were in healthy
obese subjects, and included a double-blind, placebo-controlled randomized escalating dose design. Subjects received

treatment in these Phase 1 clinical trials for one day at doses up to 0.1 mg/kg/day, which is a total daily dose of
approximately 10 mg/day, and for up to 28 days at doses up to 0.015 mg/kg/day, which is a total daily dose of
approximately 1.5 mg/day.

In the SAD clinical trial, our extensive monitoring of heart rate and blood pressure did not demonstrate any
clinically meaningful changes with setmelanotide treatment compared with placebo. Similarly, in the MAD clinical trial,
there was no evidence of any notable changes in cardiovascular parameters compared to placebo when assessed by 24-hour
ambulatory blood pressure monitoring, or ABPM. We determined that the terminal half-life of setmelanotide is
approximately nine to ten hours, making it suitable for once daily dosing.

Four cohorts of the Phase 1 MAD clinical trial that included doses of greater than 0.01 mg/kg/day, which is
approximately 1 mg/day, for two to four weeks, demonstrated placebo subtracted weight loss differences. Most panels
showed statistically significant, placebo subtracted weight reduction that ranged from 0.6 to 1.4 kg/week, with a mean of
approximately 0.9 kg/week over the two to four weeks of treatment in Phase 1.

Setmelanotide: Phase 1b General Obesity Patients: Placebo Subtracted Differences(1)(2)

MC4
Heterozygous

Placebo-Subtracted Difference in Weight

Wild-Type Obese

WEIGHT
LOSS

Δ = -2.62 kg

Δ = -3.97 kg

Δ = -2.37 kg

Δ = -1.58 kg

ΔΔ = -2.82 kg

0.00

-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

-3.50

-4.00

p = 0.08

0.00

-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

-3.50

-4.00

0.00

-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

-3.50

-4.00

p=0.02

p=0.14

0.00

-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

-3.50

-4.00

0.00

-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

-3.50

-4.00

p<0.001

0.01 mg/ kg

p<0.001

0.01 mg/kg

4-week
4-week

0.015 mg/kg

0.01 mg/kg

0.0075 mg/kg
BID SC injection

2-week

(1)

Over two to four weeks of treatment with setmelanotide by continuous SC infusion. Placebo subtracted differences are the FDA’s primary
weight loss analysis approach, assessing the weight difference between active and placebo treatment groups for changes from baseline for
weight.

(2)

Preliminary data.

Δ = Placebo subtracted weight loss from baseline.

BID = Two times per day.

Phase 1 Energy Expenditure Clinical Trial

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

Long-Acting Setmelanotide Pharmacokinetic Trial

In addition to developing the once daily SC injectable formulation of setmelanotide that we are using in our
ongoing clinical trials, in collaboration with Camurus AB, or Camurus, we have developed a once weekly, long-acting
formulation using FluidCrystal® technology. When injected subcutaneously, aqueous body fluid is absorbed by the
excipient lipid phase which forms a gel-like depot consisting of liquid crystals formed in situ leading to slow diffusion of
setmelanotide from the depot.

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

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

The results from Part A demonstrate that a 10 mg single subcutaneous dose showed a profile that was consistent
with once weekly dosing with a mean pharmacokinetic half-life of 123 hours. Following the completion of the single-dose
part, we completed Part B, with multiple dosing in order to evaluate the extended-release, once-weekly formulation of
setmelanotide. Multiple dosing of the formulation demonstrated tolerability and pharmacokinetics that support further
clinical development. While this data is preliminary, and this formulation is anticipated to be only ready for submission in
2021, or later, this simpler dosing regimen may provide improvements in patient convenience, and may provide additional
advantages in the pediatric population.

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

Setmelanotide 10 mg Week 4
Setmelanotide 10 mg Week 1

a
m
s
a
P
n

)
L
m
/
g
n
(

n
o
i
t
a
r
t
n
e
c
n
o
C
e
d
i
t
o
n
a
e
m
t
e
S
n
a
e
M

108 120 132 144 156 168

Nominal Time (hr) After Dosing

Safety and Tolerability

Historically, clinical data with other MC4R therapies suggested that MC4R-mediated side effects may include
changes in blood pressure and heart rate, increased erections in males, changes in libido and sexual function in females
and nausea and vomiting. As a result, primarily due to concerns about blood pressure and heart rate changes, none of these
therapies have proceeded to commercialization and no other MC4R agonists are currently in the clinic for the treatment of
obesity and/or hyperphagia. It is noteworthy that the pattern of effects differed among each of the other MC4R therapies,
underscoring the complex physiology of MC4R. With setmelanotide, there has been little, if any, evidence of blood
pressure or heart rate changes, preliminarily supporting an important differentiation of setmelanotide from previous MC4R
therapies. Careful monitoring for blood pressure and heart rate changes, as well as other potential adverse events, is
included in all setmelanotide clinical trials.

Because of these first generation MC4 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 and Phase 2 clinical trials, and in very preliminary data
from our ongoing Phase 3 trials. Overall, except as outlined below, the number and patterns of adverse events was generally
low, and the intensity of the adverse events was generally mild, and infrequently led to clinical trial discontinuation.

There has been only a single serious adverse event possibly attributed to setmelanotide in our clinical trials. In
our Phase 2 clinical trial with once daily SC injection, one patient was hospitalized for unusual chest pain, but no evidence
of any serious respiratory or cardiac cause was found after careful evaluation, and the event was attributed to
musculoskeletal pain. There were no treatment-related changes in physical examination, except as noted below, and few,
if any, clinically relevant changes in electrocardiograms, laboratory data and/or anti-drug antibodies. Overall, there have
been ten other serious adverse events in the full development program, in addition to the serious adverse event described
above: seven others on setmelanotide, mostly from open label trials, including left arm numbness, influenza immunization
reaction, pancreatitis secondary to pre-existing gallstones, pneumonia, hypoglycemia due to acute adrenal insufficiency,
due to non-compliance with hydrocortisone regimen, a depressive episode with elective admission to a psychiatry ward in
a patient with history of depression and who continued on treatment, and rotavirus-related gastroenteritis. There were also
three serious adverse events during treatment with placebo, consisting of biliary dyskinesia, severe groin strain, and pelvic
inflammatory disease. None of these serious adverse events was considered related to setmelanotide treatment.

To demonstrate that setmelanotide has the potential to provide a safe cardiovascular profile, we extensively
validated setmelanotide in obese primate preclinical studies, with special attention to cardiovascular effects. The results of
these studies supported testing in clinical trials. In the clinical trials, we monitored blood pressure and heart rate
extensively, primarily by 24-hour ABPM. In most clinical trials, there were multiple 24-hour ABPM periods, both on a
pre-treatment and post-treatment basis. Trial-by-trial review of the 24-hour ABPM data shows little, if any, evidence of
changes in heart rate and/or blood pressure even at the highest doses tested in Phase 1 and Phase 2 clinical trials. We have
also conducted an analysis of 24-hour ABPMs that were obtained pre-dose and post-dose across completed studies, which
was presented at the Obesity Society in 2015. This included 128 patients, of which 79 were active and 49 were on a
placebo. Overall, there was little, if any, evidence of blood pressure or heart rate changes evident from baseline versus
placebo in any trial, preliminarily supporting an important differentiation of setmelanotide from previous MC4 therapies.
While the preliminary data are encouraging, there will be continued focus on potential cardiovascular risk until addressed
in larger and longer clinical trials.

Setmelanotide Phase 2 SC Injection Trial: 24-hr ABPM (All Studied Patients),
Showing No Adverse Effect of Setmelanotide on Blood Pressure or Heart Rate

Mean Change from Baseline

Difference from Placebo

Systolic BP

Diastolic BP Heart Rate

Systolic BP

Diastolic BP Heart Rate

e
t
a
R

t
r
a
e
H
r
o
g
H
m
m

-5

-10

-15

e
t
a
R

t
r
a
e
H
r
o
g
H
m
m

-5

-10

-15

C1(-3.93,1.78)

C1(-2.29,1.14)

C1(-3.09,3.46)

RM-493 (n=34)

Placebo (n=21)

Difference from Placebo

24-hr Ambulatory Blood Pressure Monitoring (ABPM) performed predose and between Days 8 and 9 of dosing;
Measurements obtained every 15-20 min throughout the 24-hrs.

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

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

Additional adverse events noted at somewhat greater rates numerically for setmelanotide compared to placebo
across the clinical program include fatigue and related symptoms, diarrhea, arthralgia, back pain and headache, but most
investigators reported these effects to be unrelated to setmelanotide.

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

Preclinical Development

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

In particular, we demonstrated activity in obese non-human primates, where approximately 13% weight loss was
demonstrated with eight weeks of treatment, without evidence of cardiovascular toxicity. We also studied obese primates
in crossover studies to confirm the lack of cardiovascular toxicity by setmelanotide in obese primates. These preclinical
studies also confirmed the cardiovascular effects of previous MC4 therapies that had produced cardiovascular toxicity in
humans. In contrast, setmelanotide was without cardiovascular effects in head-to-head studies.

respectively,

Lastly, the toxicology program to support the NDA filing of setmelanotide for POMC deficiency obesity is
completed. We completed three-month toxicology studies in rats and monkeys, with doses and exposures that are more
than 300-fold greater than those at the anticipated clinical doses without evidence of clinically relevant toxicological
findings. Similarly, we have also completed chronic toxicity studies (6-month rat, 9-month monkey), which in rats
provided 219- (maximum concentration) and 106-times (area under the curve), respectively, and in monkeys 282- and
82-times,
the
No-Observed-Adverse-Effect-Level(s) in animals. We have evaluated the potential reproductive and development effects
of setmelanotide in rats and rabbits with administration by SC injection, to support the administration of setmelanotide in
women of child-bearing potential. In addition, a juvenile toxicology study has been completed that will support dosing in
pediatric patients less than 12 years of age. In addition, we are planning carcinogenicity studies, the longest of which is
expected to be two years. The FDA has allowed us to defer carcinogenicity studies until after approval of an NDA for
setmelanotide. We believe this also to be true for the EMA, however, the EMA has not yet provided firm guidance on the
need for submission of results of one or more carcinogenicity studies at the time of filing of an application for marketing
authorization in the EU.

anticipated

exposures

compared

clinical

doses

the

RM-853, a Preclinical Ghrelin O-Acyltransferase Inhibitor

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

Ghrelin is an orexigenic peptide, secreted by the stomach and proximal small intestine in response to a negative
energy balance. Ghrelin can play a key physiological role in stimulating appetite and promoting food intake, thereby
maintaining overall energy balance. In people living with PWS, levels of active ghrelin are elevated, contributing to
hyperphagia, which leads to severe obesity. RM-853 is designed to block GOAT, the key enzyme involved in the
production of the active form of ghrelin, with the expected effect of lowering active ghrelin levels. This blockage also
increases the levels of des-acyl-ghrelin, or DAG, a ghrelin precursor; high levels of DAG are believed to have independent
beneficial effects on the control of appetite and tissue homeostasis, which might add to the potential efficacy of RM-853
in PWS. In preclinical research, RM-853 prevented body weight gain and reduced fat mass in high fat-fed mice, with a
favorable pharmacokinetic, pharmacodynamic, and safety profile. We plan to complete preclinical studies of RM-853 and
file an IND with the FDA in approximately the first quarter of 2020. Under the terms of the agreement, we will assume
sole responsibility for the global product development and commercialization of RM-853.

Competition

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

There are no current pharmacological treatments for regulating hunger and hyperphagia-related behaviors of
patients with PWS. In contrast with the absence of companies who have disclosed efforts to study upstream disorders of
the MC4 pathway, we are aware of several companies investigating or developing therapies intended to treat hunger and
hyperphagia associated with PWS. The different companies and compounds in development, of which we are aware,
involve multiple mechanisms of action. The companies and their compounds include; Millendo Therapeutics Inc.
(AZP-531), Soleno Therapeutics (Diazoxide Choline Controlled Release), Zafgen (ZGN-1258), GLWL Research Inc.
(GLWL-01), Insys Therapeutics Inc. (Oral Cannabidiol Solution) and Calm Therapeutics.

Licensing Agreements

Ipsen Pharma S.A.S.

In February 2010, the Predecessor Company entered into a license agreement with Ipsen S.A.S., or Ipsen,
pursuant to which Ipsen granted to it 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 MC4 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, Ipsen also granted to the
Predecessor Company a non-exclusive, sublicensable, worldwide license to certain patents and other intellectual property
rights that were licensed by Ipsen from a third party or that Ipsen may develop in the future to research, develop, and
commercialize any of the compounds exclusively licensed by Ipsen pursuant to the license. See “Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations—Corporate Background and Distribution.”

On March 21, 2013, the LLC entity completed the Corporate Reorganization pursuant to which, among other
things, the existing license with Ipsen with respect to the MC4 program is now held separately by us. As a result we hold
the rights to the MC4 program, including the rights to develop and commercialize setmelanotide. See “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Corporate Background and
Distribution.”

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

Camurus

In January 2016, we entered into a license agreement for the use of Camurus’ drug delivery technology,
FluidCrystal, to formulate setmelanotide with Camurus. Under the terms of the agreement, Camurus granted us a
worldwide license to the FluidCrystal technology to formulate setmelanotide and to develop, manufacture, and
commercialize this new formulation for once-weekly dosing, administered as a SC injection. The license granted to us is
specific to the FluidCrystal technology incorporating setmelanotide. Under the terms of the license agreement, we are
responsible for manufacturing, development, and commercialization of the setmelanotide FluidCrystal formulation

worldwide. Camurus received a non-refundable and non-creditable upfront payment of $0.5 million in January 2016, and
is eligible to receive progressive payments of approximately $65.0 million, of which the majority are sales milestones. In
addition, Camurus is eligible to receive tiered, mid to mid-high, single digit royalties on future sales of the product.

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

Takeda

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

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

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

Commercial Operations

Our commercial strategies center around creating a well-informed, supportive genetic obesity community of
institutions, healthcare providers, patients, caregivers, and payers to support our ongoing research and development efforts
to transform the care of patients with MC4 pathway deficiencies.

Our commercial priorities for the launch of setmelanotide include:

•

Improving methods of evaluation and diagnosis of rare genetic obesity patients through enhanced diagnostic
capabilities and partnership with key opinion leaders and pediatric endocrinologists in order to more clearly
articulate the clinical presentation of these patients to referring physicians;

•

Facilitating an integrated genetic obesity community through services that support patient awareness,
education, advocacy, and treatment;

Communicating the burden of rare genetic obesity syndromes to promote advocacy for patient sequencing
and support for pricing and reimbursement of setmelanotide; and

Building a global commercial organization to drive patient identification and enable a successful launch of
setmelanotide.

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

Patents and Proprietary Rights

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

Our MC4 portfolio of licensed and exclusively owned patent families, which includes setmelanotide, consists of
12 patent families currently being prosecuted or maintained, which include applications and patents directed to
compositions of matter, formulations and methods of treatment using setmelanotide. As of June 8, 2018, the portfolio for
the MC-4 program consists of 14 issued United States patents and 54 issued non-United States patents across eight of the
12 families. We are actively pursuing eight United States patent applications and 43 non-United States applications in 12
jurisdictions.

In the patent family directed to selected MC4 receptor agonists, including the composition of matter for
setmelanotide, we have three issued United States patents and 26 issued non-United States patents, including Australia,
Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, New Zealand, Russia and Singapore. The standard 20-year
term for patents in this family would expire in 2026, but two of the United States patents are expected to expire in 2027
due to patent term adjustments. Patent term extensions for delays in marketing approval may also extend the terms of
patents in this family.

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

We have also in-licensed a patent family from Takeda directed to the composition of matter and methods of use
of ghrelin O-acetyltransferase inhibitors, including RM-853. This patent family includes one issued United States patent,
nine issued non-United States patents including China, Europe, and Japan, and one pending application in Canada. The
standard 20-year term for the patents in this family will expire in 2033, though patent term extensions for delays in
marketing approval may also extend the terms of patents in this family.

Intellectual Property Protection Strategy

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

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

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

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

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

To protect our rights to any of our issued patents and proprietary information, we may need to litigate against
infringing third parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of
those patents or other proprietary rights. These types of proceedings are often costly and could be very time-consuming to
us, and we cannot be certain that the deciding authorities will rule in our favor. An unfavorable decision could result in

the invalidation or a limitation in the scope of our patents or forfeiture of the rights associated with our patents or pending
patent applications. Any such decision could result in our key technologies not being protectable, allowing third parties to
use our technology without being required to pay us licensing fees or may compel us to license needed technologies from
third parties to avoid infringing third-party patent and proprietary rights. Such a decision could even result in the
invalidation or a limitation in the scope of our patents or could cause us to lose our rights under existing issued patents or
not to have rights granted under our pending patent applications.

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

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

Manufacturing

The Peptisyntha agreement will continue, unless earlier terminated pursuant to its terms, until the later of six
years from the July 17, 2013 effective date or the completion of all services under all work plans executed in accordance
with the terms of the agreement prior to the sixth anniversary of its effective date. The agreement may be extended by us
continuously for additional two-year periods upon written notice to Peptisyntha. We also may terminate the agreement or
any work order thereunder upon at least 30 days’ prior written notice to Peptisyntha.

We have also entered into a process development and manufacturing services agreement with Recipharm Monts
S.A.S., or Recipharm, under which Recipharm will provide certain process development and manufacturing services in
connection with the manufacture of setmelanotide. Under the agreement, we pay Recipharm for services in accordance
with the terms of mutually agreed upon work orders, which we and Recipharm may enter into from time to time. Under
the agreement, each party is subject to customary indemnification provisions. The Recipharm agreement will continue,
unless earlier terminated pursuant to its terms, until the later of three years from the December 21, 2016 effective date or

the completion of all services under all work plans executed in accordance with the terms of the agreement prior to the
third anniversary of its effective date. The agreement may be extended by us continuously for additional two-year periods
upon written notice to Recipharm. We also may terminate the agreement or any work order thereunder upon at least
60 days’ prior written notice to Recipharm.

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

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

Regulatory Matters

Government Regulation and Product Approvals

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

Review and Approval of Drugs in the United States

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

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

undertake the following:

•

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the
FDA’s good laboratory practice, or GLP, regulations;

submission to the FDA of an IND, which must take effect before human clinical trials may begin;

approval by an independent institutional review board, or IRB, representing each clinical site before each
clinical trial may be initiated;

•

performance of adequate and well-controlled human clinical trials in accordance with current Good Clinical
Practices, or cGCPs, to establish the safety and efficacy of the proposed drug product for each proposed
indication;

preparation and submission to the FDA of an NDA requesting marketing for one or more proposed
indications;

review by an FDA advisory committee, where appropriate or if applicable, as may be requested by the FDA
to assist with its review;

satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which
the product, or components thereof, are produced to assess compliance with current Good Manufacturing
Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to
preserve the product’s identity, strength, quality and purity;

satisfactory completion of FDA audits of clinical trial sites to assure compliance with cGCPs and the integrity
of the clinical data;

payment of user fees, per published Prescription Drug User Fee Act, or PDUFA, guidelines for the relevant
year, and securing FDA approval of the NDA; and

compliance with any post-approval requirements, including the potential requirement to implement a Risk
Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval
studies.

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

Preclinical Studies

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

The IND and IRB Processes

An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in interstate commerce
for use in an investigational clinical trial and a request for FDA authorization to administer an investigational drug to
humans. Such authorization must be secured prior to interstate shipment and administration of any new drug that is not
the subject of an approved NDA. In support of a request for an IND, applicants must submit a protocol for each clinical
trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results
of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature
and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30-day

waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the
FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At
any time during this 30-day period, the FDA may raise concerns or questions about the conduct of the trials as outlined in
the IND and impose a clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns
before clinical trials can begin.

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

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

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

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

Information about certain clinical trials must be submitted within specific timeframes to the National Institutes

of Health, or NIH, for public dissemination on its ClinicalTrials.gov website.

Human Clinical Studies in Support of an NDA

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

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

combined:

•

Phase 1: The drug is initially introduced into healthy human subjects or, in certain indications such as cancer,
patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism,
distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal
dosage.

Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.

Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed
clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy
and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to
provide adequate information for the labeling of the product.

Phase 4: Post-approval studies, when applicable, are conducted following initial approval, typically to gain
additional experience and data from treatment of patients in the intended therapeutic indication.

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

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

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

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

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

Submission and Review of an NDA by the FDA

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

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

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

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

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

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

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

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

Fast Track

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

Breakthrough Therapy

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

Priority Review

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

Accelerated Approval Pathway

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

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

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

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

The FDA’s Decision on an NDA

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

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

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

Post-Approval Requirements

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

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

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including 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 trials to assess new safety risks; or imposition of
distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

•

restrictions on the marketing or manufacturing of the product, suspension of the approval, or complete
withdrawal of the product from the market or product recalls;

fines, warning letters or holds on post-approval clinical trials;

refusal of the FDA to approve pending NDAs or supplements to approved NDAs;

product seizure or detention, or refusal to permit the import or export of products; or

injunctions or the imposition of civil or criminal penalties.

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

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

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

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress established an abbreviated
regulatory scheme allowing the FDA to approve generic drugs that are shown to contain the same active ingredients as,
and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic
drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. An ANDA is a
comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical
ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical
methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because they
generally do not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such
applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug
product previously approved under an NDA, known as the reference-listed drug, or RLD.

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

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

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

The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more
new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant
and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously
approved drug product, such as a new dosage form, route of administration, combination or indication. Three-year
exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory
requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year
exclusivity does not block the FDA from accepting ANDAs seeking approval for generic versions of the drug as of the

date of approval of the original drug product. The FDA typically makes decisions about granting data exclusivity shortly
before a product is approved.

505(b)(2) NDAs

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

Hatch-Waxman Patent Certification and the 30-Month Stay

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

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

•

the required patent information has not been filed;

the listed patent has expired;

the listed patent has not expired, but will expire on a particular date and approval is sought after patent
expiration; or

the listed patent is invalid, unenforceable or will not be infringed by the new product.

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

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

Pediatric Studies and Exclusivity

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

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

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

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

Orphan Drug Designation and Exclusivity

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

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

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

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

Patent Term Restoration and Extension

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

FDA Approval and Regulation of Companion Diagnostics

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

If the FDA determines that an in vitro companion diagnostic device is essential to the safe and effective use of a
novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic
product indication if the in vitro companion diagnostic device is not approved or cleared for that indication. Approval or
clearance of the in vitro companion diagnostic device will ensure that the device has been adequately evaluated and has
adequate performance characteristics in the intended population. The FDA recently reiterated its position that a Laboratory
Developed Test, or LDT, is sufficient for identifying patients in our clinical trials, but the agency also recently indicated
that approval of an in vitro companion diagnostic device, or companion diagnostic, may eventually be necessary. The FDA
stated that absence of complete development of a companion diagnostic would not preclude us from submitting an NDA
or preclude the FDA from reviewing it. The FDA also stated that completing development of a companion diagnostic as a
post-marketing commitment or a post-marketing requirement is a possibility, assuming that upon review, no issues related
to efficacy or safety arise that would necessitate a companion diagnostic at the time of approval. In the event that a
companion diagnostic is needed at any time, the FDA committed to working with us to identify the least burdensome
analytical validation approach to a companion diagnostic for setmelanotide. The FDA also agreed to further consider the
issues raised by us, which included our reasons why a companion diagnostic should not be required, and to provide follow-
up advice.

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 generally required 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. PMA applications are
subject to an application fee, which exceeds $250,000 for most PMAs. In addition, PMAs for certain devices must
generally include the results from extensive preclinical and adequate and well-controlled clinical trials to establish the
safety and effectiveness of the device for each indication for which FDA approval is sought. In particular, for a diagnostic,
a PMA application typically requires data regarding analytical and clinical validation studies. As part of the PMA review,
the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System Regulation, or QSR,
which imposes elaborate testing, control, documentation and other quality assurance requirements.

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

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

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

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

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

Clinical Trial Approval

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

supporting

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

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

Marketing Authorization

To obtain a marketing authorization for a product under European Union regulatory systems, an applicant must
submit an MAA either under a centralized procedure administered by the European Medicines Agency, or EMA, or one
of the procedures administered by competent authorities in the EU member states (decentralized procedure, national
procedure or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in
the European Union. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the
European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric
Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted (1) a
product-specific waiver, (2) a class waiver or (3) a deferral for one or more of the measures included in the PIP. By a
decision of 15 June 2018, the EMA formally accepted the PIPs for setmelanotide in the treatment of appetite and general
nutritional disorders. This included the deferral and waiver requested by us.

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

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

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

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

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

Regulatory Data Protection in the European Union

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

Periods of Authorization and Renewals

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

Orphan Drug Designation and Exclusivity

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

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

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

Regulatory Requirements after a Marketing Authorization has been Obtained

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

• Compliance with the European Union’s stringent pharmacovigilance or safety reporting rules must be

ensured. These rules can impose post-authorization studies and additional monitoring obligations.

• The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is
mandatory, must also be conducted in strict compliance with the applicable European Union laws, regulations
and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and
the European Commission Guidelines for Good Manufacturing Practice. These requirements include
compliance with European Union cGMP standards when manufacturing medicinal products and active
pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the
European Union with the intention to import the active pharmaceutical ingredients into the European Union.

• The advertising and promotion of medicinal products are subject to EU laws governing promotion of
medicinal products, interactions with physicians, misleading and comparative advertising and unfair
commercial practices. In addition, other legislation adopted by individual EU member states may apply to
the advertising and promotion of medicinal products. These laws require that promotional materials and
advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics,
or SmPC, as approved by the competent authorities. The SmPC is the document that provides information to
physicians concerning the safe and effective use of the medicinal product. It forms an intrinsic and integral
part of the marketing authorization granted for the medicinal product. Promotion of a medicinal product that
does not comply with the SmPC is considered to constitute off label promotion. The off label promotion of
medicinal products is prohibited in the EU. The applicable laws at EU level and in the individual EU member
states also prohibit the direct to consumer advertising of prescription only medicinal products. Violations of
the rules governing the promotion of medicinal products in the EU could be penalized by administrative
measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of
our products to the general public and may also impose limitations on our promotional activities with health
care professionals.

Regulatory Procedure Governing CE marking Companion Diagnostics in the European Union

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

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

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

Brexit and the Regulatory Framework in the United Kingdom

On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly
referred to as Brexit. Thereafter, on March 29, 2017, the country formally notified the European Union of its intention to
withdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of the United Kingdom from the European Union
will take effect either on the effective date of the withdrawal agreement or, in the absence of agreement, two years after
the United Kingdom provides a notice of withdrawal pursuant to the EU Treaty. Since the regulatory framework for
pharmaceutical products in the United Kingdom. covering quality, safety and efficacy of pharmaceutical products, clinical
trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from European
Union directives and regulations, Brexit could materially impact the future regulatory regime which applies to products
and the marketing authorization of product candidates in the United Kingdom. It remains to be seen how, if at all, Brexit
will impact regulatory requirements for product candidates and products in the United Kingdom.

Pharmaceutical Coverage and Reimbursement

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

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may
need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness
of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless,
setmelanotide may not be considered medically necessary or cost effective. A decision by a third-party payor not to cover
setmelanotide could reduce physician utilization of our products once approved and have a material adverse effect on our
sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does
not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage
for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level
of coverage and reimbursement can differ significantly from payor to payor. Third-party reimbursement and coverage may
not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product
development.

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

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

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

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

As a further step in this direction, on January 31, 2018, the European Commission adopted a proposal for a
regulation on HTA. This legislative proposal is intended to boost cooperation among EU member states in assessing health
technologies, including new medicinal products, and providing the basis for cooperation at the EU level for joint clinical
assessments in these areas. The proposal would permit EU member states to use common HTA tools, methodologies, and
procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health
technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice
from HTA authorities, identification of emerging health technologies to identify promising technologies early, and
continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing
non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and

reimbursement. The European Commission has stated that the role of the draft HTA regulation is not to influence pricing
and reimbursement decisions in the individual EU member states. However, this consequence cannot be excluded.

Healthcare Law and Regulation

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

•

the United States federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons and
entities from knowingly and willfully soliciting, offering, paying, or receiving remuneration (anything of
value), directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or
the purchase, lease, order or arranging for or recommending the purchase, lease, or order of any good or
service, for which payment may be made, in whole or in part, by federal healthcare programs such as
Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical
companies on one hand and prescribers, purchasers and formulary managers on the other. Liability under the
Anti-Kickback Statute may be established without proving actual knowledge of the statute or specific intent
to violate it. In addition, the government may assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
federal civil False Claims Act. Although there are a number of statutory exceptions and regulatory safe
harbors to the federal Anti-Kickback Statute protecting certain common business arrangements and activities
from prosecution or regulatory sanctions, the exceptions and safe harbors are drawn narrowly. Practices that
involve remuneration to those who prescribe, purchase, or recommend pharmaceutical and biological
products, including certain discounts, or engaging such individuals as consultants, advisors and speakers,
may be subject to scrutiny if they do not fit squarely within an exception or safe harbor. Our practices may
not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there
are no safe harbors for many common practices, such as educational and research grants, charitable
donations, product support and patient assistance programs;

the federal civil False Claims Act prohibits individuals or entities from, among other things, knowingly
presenting, or causing to be presented, a false or fraudulent claim for payment of government funds, or
knowingly making, using or causing to made or used a false record or statement material to an obligation to
pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing,
or concealing an obligation to pay money to the federal government. Actions under the False Claims Act
may be brought by the Attorney General or as a qui tam action by a private individual in the name of the
government. Such private individuals may share in amounts paid by the entity to the government in recovery
or settlement. Many pharmaceutical manufacturers have been investigated and have reached substantial
financial settlements with the federal government under the civil False Claims Act for a variety of alleged
improper activities including causing false claims to be submitted as a result of the marketing of their
products for unapproved and thus non-reimbursable uses, inflating prices reported to private price publication
services which are used to set drug payment rates under government healthcare programs, and other
interactions with prescribers and other customers including those that may have affected their billing or
coding practices and submission to the federal government. The government may assert that a claim including
items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal civil False Claims Act. False Claims Act liability is potentially
significant in the healthcare industry because the statute provides for treble damages and significant
mandatory penalties per false or fraudulent claim or statement for violations. Because of the potential for
large monetary exposure, healthcare and pharmaceutical companies often resolve allegations without
admissions of liability for significant and material amounts to avoid the uncertainty of treble damages and
per claim penalties that may be awarded in litigation proceedings. Settlements may require companies to

enter into corporate integrity agreements with the government, which may impose substantial costs on
companies to ensure compliance. Pharmaceutical and other healthcare companies also are subject to other
federal false claims laws, including, among others, federal criminal healthcare fraud and false statement
statutes that extend to non-government health benefit programs;

•

the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health
Information Technology for Economic and Clinical Health Act, or HIPAA, which imposes criminal and civil
liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to
defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement or representation, or making or using any false writing or document knowing the same to contain
any materially false, fictitious or fraudulent statement or entry, in connection with the delivery of or payment
for healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person
or entity does not need to have actual knowledge of the statute or specific intent to violate it to have
committed a violation;

• HIPAA and its implementing regulations, which impose obligations with respect to safeguarding the privacy,
security and transmission of individually identifiable health information. We may obtain health information
from third parties (including research institutions from which we obtain clinical trial data) that are subject to
privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA – other
than with respect to providing certain employee benefits – we could potentially be subject to criminal
penalties if we, our affiliates, or our agents knowingly obtain, use, or disclose individually identifiable health
information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by
HIPAA;

•

the federal Physician Payments Sunshine Act, implemented as the Open Payments Program requires certain
manufacturers of drugs, devices, biologics and medical supplies for which payment is available under
Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually
to the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services,
information related to payments and other transfers of value to physicians (defined to include doctors,
dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members.Beginning in 2022, applicable
manufacturers also will be required to report information regarding payments and transfers of value provided
to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified
nurse-midwives. Manufacturers must submit reports on or before the 90th day of each calendar year
disclosing reportable payments made in the previous calendar year; and

analogous state laws and regulations, such as state anti-kickback and false claims laws, which may apply to
items or services that are reimbursed under Medicaid and other state programs or, in several states, by
non-governmental third-party payors, including private insurers.

In addition to the foregoing requirements, we expect to participate in and have certain price reporting obligations
to the Medicaid Drug Rebate Program. Under the Medicaid Drug Rebate Program, if we successfully commercialize
setmelanotide, we would be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that
are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds
being made available to the states for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing
data we would have to report on a monthly and quarterly basis to the Centers for Medicare and Medicaid Services, or
CMS, the federal agency that administers the Medicaid Drug Rebate Program. These data include the average manufacturer
price and, in the case of innovator products, the best price for each drug which, in general, represents the lowest price
available from the manufacturer to any entity in the U.S. in any pricing structure, calculated to include all sales and
associated rebates, discounts and other price concessions. Our failure to comply with these price reporting and rebate
payment obligations if we participate in the program could negatively impact our financial results.

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

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

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

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

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

Additionally, several states now require prescription drug companies to report expenses relating to the marketing
and promotion of drug products and to report gifts and payments to individual physicians in these states. Other states
prohibit various other marketing-related activities, including the ability of manufacturers to offer co-pay support to patients

for certain prescription drugs. Still other states require the posting of information relating to clinical studies and their
outcomes and other states and cities require identification or licensing of sales representatives. In addition, several states
require pharmaceutical companies to implement compliance programs and/or marketing codes. Numerous federal, state
and foreign laws and regulations also govern the privacy and security of health information and the collection, use,
disclosure, and protection of health-related and other personal information, including state data breach notification laws,
state health information privacy laws, and federal and state consumer protection laws, such as Section 5 of the FTC Act,
many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts. Compliance with these laws is difficult and time consuming, and companies that do not comply with
these state laws may face civil penalties.

Compliance with these federal and state laws and regulations will require substantial resources. Various state and
federal regulatory and enforcement agencies continue actively to investigate violations of health care laws and regulations,
and the United States Congress continues to strengthen the arsenal of enforcement tools. Enforcement agencies also
continue to pursue novel theories of liability under these laws. In particular, government agencies recently have increased
regulatory scrutiny and enforcement activity with respect to manufacturer reimbursement support activities and patient
support programs, including bringing criminal charges or civil enforcement actions under the federal health care Anti-
Kickback statute, civil False Claims Act and violations of health care fraud and HIPAA privacy provisions. The Bipartisan
Budget Act of 2018 increased the criminal and civil penalties that can be imposed for violating certain federal health care
laws, including the Anti Kickback Statute. Most recently, the Office of Inspector General for the U.S. Department of
Health and Human Services proposed revisions to the Anti-Kickback Statute regulatory safe harbors that if finalized may
have significant affect on pharmaceutical manufacturer interactions with pharmacy benefit managers and insurers. If our
operations are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us, we may be subject to significant civil, criminal and administrative penalties, imprisonment, damages, fines,
imprisonment, exclusion from government-funded healthcare programs like Medicare and Medicaid, and the curtailment
or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial
results.

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

Payments made to physicians in certain EU member states must be publically disclosed. Moreover, agreements
with physicians must often be the subject of prior notification and approval by the physician’s employer, their competent
professional organization, and/or the competent authorities of the individual EU member states. These requirements are
provided in the national laws, industry codes, or professional codes of conduct, applicable in the individual EU member
states. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative
penalties, fines or imprisonment.

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

provisions of the General Data Protection Regulation, or GDPR. The GDPR became effective on May 25, 2018, repealing
the Data Protection Directive and increasing our responsibility and liability in relation to the processing of personal data
of EU subjects.

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

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

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

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

However, in October 2016, the French digital rights advocacy group, La Quadrature du Net, French Data Network
and the Fédération FDN, brought an action for annulment of the European Commission decision on the adequacy of the
Privacy Shield before the Court of Justice of the EU (Case T-738/16). The case is currently pending before the European
Court of Justice. If the Court of Justice of the EU invalidates the Privacy Shield, it will no longer be possible to rely on
the Privacy Shield certification to transfer personal data from the EU to entities in the United States. Adherence to the
Privacy Shield is not, however, mandatory. Entities based in the United States are permitted to rely either on their
adherence to the Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the
GDPR.

Healthcare Reform

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

By way of example, the United States and state governments continue to propose and pass legislation designed
to reduce the cost of healthcare. In March 2010, President Obama signed into law the ACA, which, among other things,

includes changes to the coverage and payment for products under government health care programs. Among the provisions
of the ACA of importance to our potential drug candidates are:

•

an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs
and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs, although this fee does not apply to sales of certain products approved exclusively for
orphan indications;

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer
Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturer’s Medicaid rebate liability;

expansion of manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the
minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer
price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices
and extending rebate liability to prescriptions for individuals enrolled in Medicaid managed care plans;

introduction of a price reporting requirement for drugs that are inhaled, instilled, implanted, injected, or
infused and not generally dispensed through retail community pharmacies;

addition of more entity types eligible for participation in the Public Health Service 340B drug pricing
program, or the 340B program;

established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50%
point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their
coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare
Part D;

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research; and

established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and
service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug
spending.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For
example, beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were
reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011,
as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average,
to 2027.

Some of the provisions of the ACA have yet to be fully implemented, and certain provisions have been subject
to judicial and Congressional challenges. In addition, there have been efforts by the Trump administration to repeal or
replace certain aspects of the ACA and to alter the implementation of the ACA and related laws. For example, the Tax
Cuts and Jobs Act enacted on December 22, 2017, eliminated the shared responsibility payment for individuals who fail
to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred
to as the “individual mandate,” effective January 1, 2019. Further, the Bipartisan Budget Act of 2018 among other things,
amended the Medicare statute, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans,
commonly known as the “donut hole,” by raising the manufacturer discount under the Medicare Part D coverage gap
discount program to 70%. Additional legislative changes, regulatory changes, and judicial challenges related to the ACA
remain possible, but the nature and extent of such potential additional changes are uncertain at this time. It is unclear how
the ACA and its implementation, as well as efforts to repeal or replace, or invalidate, the ACA, or portions thereof, will
affect our business.It is possible that the ACA, as currently enacted or as it may be amended in the future, and other

healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry
generally and on our ability to successfully commercialize our product candidates, if approved.

Item 1A. Risk Factors

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

Risks Related to Our Financial Position and Need for Capital

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

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

Since our inception, we have focused substantially all of our efforts and financial resources on the research and
development of setmelanotide, which is currently in Phase 3 clinical development for four indications, POMC deficiency
obesity, LEPR deficiency obesity, Bardet-Biedl syndrome and Alström syndrome and in various phases of development
for other indications. We have funded our operations to date primarily through the proceeds from the sales of common
stock and preferred stock as well as capital contributions from the Predecessor Company, the Relamorelin Company and
the LLC entity and have incurred losses in each year since our inception. See “Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations—Corporate Background and Distribution.”

Our net loss and comprehensive losses were $74.1 million, $33.7 million and $25.9 million for the years ended
December 31, 2018 2017 and 2016 respectively. As of December 31, 2018, we had an accumulated deficit of $184.6
million. Substantially all of our operating losses have resulted from costs incurred in connection with our development
program and from general and administrative costs associated with our operations. Our prior losses, combined with
expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working
capital. We expect our research and development expenses to significantly increase in connection with our additional
clinical trials of setmelanotide and development of any other product candidates we may choose to pursue. In addition, if
we obtain marketing approval for setmelanotide, we will incur significant sales, marketing and outsourced manufacturing
expenses. We also will incur additional costs associated with operating as a public company. As a result, we expect to
continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and
uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses
or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.

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

•

initiate and successfully complete later-stage clinical trials that meet their clinical endpoints;

•

initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval
for setmelanotide as a treatment for obesity caused by genetic deficiencies affecting the MC4 pathway;

successfully manufacture or contract with others to manufacture setmelanotide;

commercialize setmelanotide, if approved, by building an internal sales force or entering into collaborations
with third parties; and

achieve market acceptance of setmelanotide in the medical community and with third-party payors.

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

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

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

Through August 2015, we received capital contributions from the Predecessor Company, the Relamorelin
Company and the LLC entity. In August 2015, December 2015, January 2017 and August 2017, we raised aggregate gross
proceeds of $25.0 million, $15.0 million, $20.5 million and $20.5 million, respectively, through our issuance of series A
preferred stock. In October 2017 we completed our initial public offering, or IPO, of 8,107,500 shares of common stock
at an offering price of $17.00 per share, which included the exercise in full by the underwriters of their option to purchase
up to 1,057,500 additional shares of common stock. We received gross proceeds of approximately $137.8 million, before
deducting underwriting discounts, commissions and offering related transaction costs. On June 25, 2018, we completed a
public offering of 6,591,800 shares of common stock at an offering price of $26.42 per share, which included the exercise
in full by the underwriters of their option to purchase up to 859,800 additional shares of common stock. We received gross
proceeds of approximately $174.2 million, before deducting underwriting discounts, commissions and offering related
transaction costs. As of December 31, 2018, our cash and cash equivalents and short-term investments were approximately
$252.1 million. We expect our existing cash and cash equivalents will enable us to fund our operating expenses into the
second half of 2020. However, our operating plan may change as a result of many factors currently unknown to us, and
we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government
or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and
licensing arrangements, or a combination of these approaches. We will also require additional capital to obtain regulatory
approval for, and to commercialize, setmelanotide. Raising funds in the current economic environment may present
additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek
additional capital if market conditions are favorable or if we have specific strategic considerations.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may
adversely affect our ability to develop and commercialize setmelanotide. In addition, we cannot guarantee that future
financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing
may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity

or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional
equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in
increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations
on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights, and
other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to
seek funds through arrangements with collaborative partners or other third parties at an earlier stage than otherwise would
be desirable and we may be required to relinquish rights to setmelanotide or technologies or otherwise agree to terms
unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

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

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

We are an early-stage company. The Predecessor Company commenced active operations in February 2010, and
we were incorporated as a separate company in February 2013. Our operations to date have been limited primarily to
acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential
product candidates, undertaking preclinical studies and, beginning in November 2010, conducting clinical trials. We have
not yet demonstrated our ability to successfully complete a pivotal Phase 3 clinical trial, obtain marketing approvals,
manufacture at commercial scale, or arrange for a third party to do so on our behalf or conduct sales, marketing and
distribution activities necessary for successful product commercialization. Consequently, any predictions made about our
future success or viability may not be as accurate as they could be if we had a longer operating history.

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

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

Our historical financial information is not necessarily representative of the results we would have achieved as an
independent company, and may not be a reliable indicator of our future results.

The historical financial information we have included in this Annual Report on Form 10-K may not reflect what
our results of operations, financial position and cash flows would have been had we been an independent company during
the periods presented. This is primarily because:

•

our historical financial information reflects allocations for services historically provided to us by the
Predecessor Company and the Relamorelin Company, which allocations may not reflect the costs we now
and in the future will incur for similar services as an independent company; and

our historical financial information does not reflect changes that we have incurred and expect to continue to
incur as a result of operating as an independent company and from reduced economies of scale, including
changes in cost structure, personnel needs, financing and operations of our business.

Risks Related to the Development of Setmelanotide

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

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

Positive results for one indication are not necessarily predictive of positive results for other indications. We have
demonstrated proof of concept in Phase 2 clinical trials in POMC deficiency obesity, LEPR deficiency obesity,
Bardet-Biedl syndrome and Alström syndrome, four genetic disorders of extreme and unrelenting appetite and obesity, in
which setmelanotide dramatically reduced both weight and hunger. We hypothesize that patients with other upstream
genetic defects in the MC4 pathway may also respond with reductions in weight and hunger after treatment with
setmelanotide, however, patients with other upstream genetic defects may not have a similar response to setmelanotide,
and until we obtain more clinical data in other genetic defects, we will not be sure that we can achieve proof of concept in
such indications.

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

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

In June 2018, setmelanotide was designated as PRIority Medicine, or PRIME, by the EMA's Committee for
Medicinal Products for Human Use, or CHMP. Acknowledging that setmelanotide targets an unmet medical need, EMA
offers enhanced support in the development of the medicinal product through enhanced interaction and early dialogue to
optimize our development plans and speed up regulatory evaluation in the European Union, or EU. As part of this
designation, the EMA has provided guidance to us concerning the development of setmelanotide. The EMA advised us
that we should include the mouse carcinogenicity study in our initial filing, but will not require the rat carcinogenicity
study until post approval. However, the EMA does not provide as firm guidance as the FDA, and accordingly, there can
be no guarantee that we will be able to achieve this deferral of the rat carcinogenicity study, which could impact the timing
of grant of any potential marketing authorization in the EU.

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

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

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

The number of patients suffering from each of the MC4 pathway deficiencies we are targeting is small and has not
been established with precision. If the actual number of patients is smaller than we estimate, our revenue and ability to
achieve profitability may be materially adversely affected.

Due to the rarity of our target indications, there is no comprehensive patient registry or other method of
establishing with precision the actual number of patients with MC4 pathway deficiencies. As a result, we have had to rely
on other available sources to derive clinical prevalence estimates for our target indications. Since the published
epidemiology studies for these genetic deficiencies are based on relatively small population samples, and are not amenable
to robust statistical analyses, it is possible that these projections may significantly exceed the addressable population,
particularly given the need to genotype patients to definitively confirm a diagnosis.

Based on clinical epidemiology, we have estimated the potential addressable patient populations with these MC4

pathway deficiencies based on the following sources and assumptions:

•

POMC Deficiency Obesity. There are approximately 50 patients with POMC deficiency obesity noted in a
series of published case reports, each mostly reporting a single or small number of patients. However, we
believe our addressable patient population for this deficiency may be approximately 100 to 500 patients in
the United States, and a comparable addressable patient population in Europe, as most of the reported cases
are from a small number of academic research centers, and because genetic testing for POMC deficiency is
often unavailable and currently is rarely performed. Based on discussions with experts in rare diseases, we
also believe the number of diagnosed cases could increase several-fold with increased awareness of this
deficiency and the availability of new treatments.

LEPR Deficiency Obesity and POMC Heterozygous Deficiency Obesity. Our addressable patient population
estimate for LEPR deficiency obesity is approximately 500 to 2,000 patients in the United States, and for

POMC heterozygous deficiency obesity is approximately 4,000 patients in the United States, with a
comparable addressable patient population for both indications in Europe. Our estimates are based on:

•

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

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

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

Using these sources and assumptions, we calculated our estimates for addressable populations by multiplying
(x) our estimate of the number of patients comprised of children with severe obesity and our estimate of a
projected number of adults with severe obesity who have a history of early onset obesity, (y) the estimated
prevalence from epidemiology studies of approximately 1% for LEPR deficiency and 2% for POMC
heterozygous, and (z) our estimated diagnosis rate of up to 40%.

• Bardet-Biedl Syndrome. Our addressable patient population estimate for Bardet-Biedl syndrome is

approximately 1,500 to 2,500 patients in the United States based on:

•

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

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

• Alström Syndrome. Our addressable patient population estimate for Alström syndrome is approximately 500

to 1,000 patients worldwide. This estimate is based on:

•

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

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

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

epigenetic disorders.

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

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

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

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

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

Defining the exact genetic variants that result in MC4 pathway disorders is complex, so if any approval that we
obtain is based on a narrower definition of these patient populations than we had anticipated, then the potential market for
setmelanotide for these indications will be smaller than we originally believed. In either case, a smaller patient population
in our target indications would have a materially adverse effect on our ability to achieve commercialization and generate
revenues.

If the actual number of patients suffering from each of the MC4 pathway deficiencies we are targeting is smaller than
we estimate or if any approval that we obtain is based on a narrower definition of these patient populations, including
pediatric populations, our ability to recruit patients to our trials may be materially adversely affected.

If the actual number of patients with any of the MC4 pathway deficiencies we are targeting is lower than we
believe, it may be difficult to recruit patients, and this may affect the timelines for the completion of clinical trials. If we
experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals
could also be delayed or prevented.

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

We have started treating patients six years and older in our trials. Our aim is to gain regulatory approval and
labeling for patients six years of age and older. We have only recently received permission from the FDA and other
equivalent competent authorities in the EU member states to enroll these younger patients, aged six to eleven, in our pivotal
trials. However, there may be issues that preclude the ultimate approval and labeling including, but not limited to, potential
disagreement on dose titration, or delivery methods for small doses, or the suitability of patient reported outcomes in
younger patients, the clinical endpoints in rapidly growing patients, as well as avoiding over-suppression of normal
appetite in adolescents. In addition, the competent authorities in the EU member states may consider the PEG vehicle in
the product to carry additional risks in pediatric patients, and we may look to new formulations, such as our once-weekly
formulation, as being more suitable to younger pediatric patients. We also may not have one-year clinical data in six to

eleven year old patients at the time of the POMC NDA filing, if we begin recruiting six to eleven year old patients into
our pivotal trials, though we can provide one-year clinical data when it becomes available. We cannot predict if the FDA
or the European Commission in the EU will approve and issue a marketing authorization for setmelanotide for use in
younger pediatric patients, nor provide an estimate for the timing for approval, if any, for the use of setmelanotide for such
patients. Furthermore, if the FDA or the European Commission in the EU do not approve or grant marketing authorization
for the use of setmelanotide in this population, we will not be permitted to promote the use of setmelanotide for these
patients, even if setmelanotide is approved in the United States by the FDA and authorized to be placed on the market in
the EU by the European Commission for use in patients twelve and older. Promoting setmelanotide for uses that are not
authorized in the EU constitutes off-label promotion. The off label promotion of medicinal products is prohibited in the
EU. Breach of the rules governing the promotion of medicinal products in the EU could be penalized by administrative
measures, fines and imprisonment.

While we currently have no knowledge of competitors developing product candidates intended to treat upstream
MC4 pathway deficiencies, other than Prader-Willi-Syndrome, competitors may emerge. If that were to occur and
competitors initiated clinical trials for product candidates that treat the same indications as setmelanotide, patients who
would otherwise be eligible for our clinical trials may instead enroll in the clinical trials of our competitors’ product
candidates, and could impact our commercial success.

Patient enrollment is also affected by other factors including:

•

the severity of the disease under investigation;

the eligibility criteria for the clinical trial in question;

the perceived risks and benefits of the product candidate under study;

the success of efforts to facilitate timely enrollment in clinical trials;

the patient referral practices of physicians;

the ability to monitor patients adequately during and after treatment; and

the proximity and availability of clinical trial sites for prospective patients.

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

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

We completed Phase 2 clinical trials for setmelanotide in 2016 for POMC deficiency obesity and are currently
advancing an ongoing pivotal Phase 3 clinical trial for setmelanotide for POMC deficiency obesity. We completed Phase 2
clinical trials for setmelanotide for LEPR deficiency obesity, and are currently advancing an ongoing pivotal Phase 3
clinical trial for setmelanotide in LEPR deficiency obesity. These trials are overlapping in timing and duration and we
have discussed with regulatory agencies, our plan to file concurrent NDAs for these two indications, which would have an
impact on NDA timing and complexity.

We believe we have demonstrated proof of concept in Bardet-Biedl syndrome and Alström syndrome based on
prior clinical data, and we began enrollment of a combined pivotal Phase 3 clinical trial in Bardet-Biedl syndrome and
Alström syndrome in December 2018. We believe that the combined Bardet-Biedl syndrome and Alström syndrome Phase
3 pivotal clinical trial design will be similar to those for POMC and LEPR deficiency obesity, respectively, but may also

include differences most likely due to the larger available patient population for inclusion in a clinical study. There may
be other changes as well, including simpler titration schemes, a short placebo-controlled randomized period, and modest
differences in our statistical approach due to the different patient populations, the size and combined nature of the study.

We have also initiated Phase 2 clinical trials, referred to as our Basket Study, for POMC and other MC4 pathway
heterozygous deficiency obesities, and POMC epigenetic disorders. We anticipate that the Phase 2 clinical trials in these
indications may be more complex than those for which we have achieved proof of concept, and will include larger numbers
of subjects in Phase 2. In addition, we anticipate that we will have to define a subset of heterozygous patients for whom
setmelanotide will have a clinically meaningful impact, and this may take more patients and more time than our previous
indications. In addition, the outcome for these indications is less certain. We will also be adding additional new MC4
pathway indications to our Basket Study in the future, and many uncertainties will exist for these new populations as well.
Therefore, we believe that a transition from proof of concept to pivotal trials will be longer and more complex for POMC
heterozygous deficiency obesity and POMC epigenetic disorders, and possibly for any additional new indications, due to
the greater variety of clinical presentation in those conditions.

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

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

•

the FDA or other equivalent competent authorities in foreign jurisdictions may deny permission to proceed
with our planned Phase 3 clinical trials or any other clinical trials we may initiate, or may place a clinical
trial on hold;

delays in filing or receiving approvals or an additional IND that may be required;

negative results from our ongoing and planned preclinical studies, or the FDA or other equivalent competent
authorities in foreign jurisdictions requiring additional preclinical studies;

delays in commencing additional necessary preclinical studies, including carcinogenicity and juvenile
toxicology studies;

delays in reaching or failing to reach agreement on acceptable terms with prospective contract research
organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs and trial sites;

since many already diagnosed patients are at academic sites, delays in conducting clinical trials at academic
sites due to the particular challenges and delays typically associated with those sites, as well as the lack of
alternatives to these sites which have already-diagnosed patients;

inadequate quantity or quality of setmelanotide or other materials necessary to conduct clinical trials,
including delays in the manufacturing of sufficient supply of finished drug product;

difficulties in obtaining Institutional Review Board, or IRB, and/or ethics committee approval to conduct a
clinical trial at a prospective site or sites;

challenges in recruiting and enrolling patients to participate in clinical trials, including the size and nature of
the patient population, the proximity of patients to clinical trial sites, eligibility criteria for the clinical trial,

the nature of the clinical trial protocol, the availability of approved effective treatments for the relevant
disease and competition from other clinical trial programs for similar indications;

severe or unexpected drug-related side effects experienced by patients in a clinical trial, including side effects
previously identified in our completed clinical trials;

delays in identifying and recruiting patients with any of the genetic causes of obesity in indications that we
are targeting;

disagreement by the FDA, other regulatory agencies or the equivalent competent authorities in foreign
jurisdictions with our clinical trial designs, which may in turn cause delays in initiating our clinical trials, or
may lead to rejection of our interpretation of data from clinical trials or to changes in the requirements for
approval even after it has reviewed and commented on the design for our clinical trials;

the requirement to have a placebo controlled study even though the FDA and EMA did not impose one for
POMC deficiency obesity, as we cannot be certain that this will be true for other indications or that the FDA
or EMA, an advisory committee or the equivalent competent authorities in foreign jurisdictions will not
change its guidance, as it has done so in the past for other open control trials;

uncertainty related to the length of placebo-controlled intervals in clinical trials;

the need to perform non-inferiority trials, which can be larger, longer and more costly, if treatment is
approved for similar indications;

potential delays in the enrollment for our clinical trials of Bardet-Biedl syndrome and Alström syndrome due
to the fact that we have not yet completed our discussions with the FDA regarding clinical trials for these
indications, and do not know if the FDA will disagree with our proposed Phase 3 clinical trial design;

potential difficulties in defining the indication for Bardet-Biedl syndrome, (or any new syndromic indications
we may study), as there may be discrepancies between the syndromic, or clinical definition of the syndrome,
and the genetic confirmation of the indication. For example, one of our syndrome patients without genetic
Bardet-Biedl syndrome confirmation showed little response to setmelanotide;

potential difficulties in defining the indications for MC4 pathway heterozygous or epigenetic disorders, as
well as for potential new MC4 pathway indications;

lack of ability to predict which patients will have the most consistent responses to setmelanotide in the
patients with rare genetic disorders of obesity that we are studying, as not all patients may show robust, or
even any response to treatment, or may not persist in their response to treatment;

•

• MC4 pathway heterozygous deficiency may have additional challenges, including that the FDA, the EMA,
or the equivalent competent authorities in foreign jurisdictions may require that we show that setmelanotide
works better in these patients than in the genetically normal population; other challenges associated with
these patients may include the need to study larger numbers of patients than for our first two indications,
additional delays in initiating clinical trials for this indication due to uncertainty about the subset of these
patients who will respond effectively to setmelanotide, and the lack of discussion for this indication with the
FDA;

•

reports from preclinical or clinical testing of other weight loss therapies may raise safety or efficacy concerns;

patient compliance with or adherence to medication and retaining patients who have enrolled in a clinical
trial but may be prone to withdraw due to rigors of the clinical trial, lack of efficacy, side-effects, personal

issues or loss of interest, which might have an important impact on our primary pivotal trial endpoints for
responders;

dose responses may be different in the populations studied and may relate to a lack of a complete
understanding of the absorption, distribution, metabolism and excretion of setmelanotide, or an incomplete
set of clinical pharmacology studies to support labeling; and

development of antibodies to the drug or adjuvants may result in loss of efficacy or safety events.

•

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition,
a clinical trial may be suspended or terminated by us, the FDA or other equivalent competent authorities in foreign
jurisdictions, the IRBs or ethics committees at the sites where the IRBs or the ethics committees are overseeing a clinical
trial, a data and safety monitoring board, or DSMB, or Safety Monitoring Committee, or SMC, overseeing the clinical trial
at issue or other equivalent competent authorities due to a number of factors, including, among others:

•

failure to conduct the clinical trial in accordance with regulatory requirements or our clinical trial protocols;

inspection of the clinical trial operations or trial sites by the FDA or other equivalent competent authorities
that reveals deficiencies or violations that require us to undertake corrective action, including the imposition
of a clinical hold;

unforeseen safety issues, adverse side effects or lack of effectiveness;

changes in government regulations or administrative actions;

problems with clinical trial supply materials; and

lack of adequate funding to continue the clinical trial.

Changes in regulatory requirements, FDA or EMA guidance or unanticipated events during our clinical trials of
setmelanotide may occur, which may result in changes to clinical trial protocols, changes to instruments for measuring
subjective systems or additional clinical trial requirements, which could result in increased costs to us and could delay
our development timeline.

Changes in regulatory requirements, FDA guidance, guidance published by the EMA or the other competent
authorities in foreign jurisdictions, or unanticipated events during our clinical trials may force us to amend clinical trial
protocols or the FDA, or the other competent authorities in foreign jurisdictions may impose additional clinical trial
requirements. For instance, the FDA issued draft guidance on developing products for weight management in February
2007. In March 2012, the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee met to discuss possible
changes to how the FDA evaluates the cardiovascular safety of weight-management drugs, and the FDA may require
additional studies to support registration. In addition, the FDA is considering broader applicability of requirements for
cardiovascular outcomes trials, or CVOTs, presenting the possibility of cardiovascular risk pre-approval, including for
obesity products. While our Phase 3 discussions with the FDA have not resulted in a requirement for any of these activities,
any future requirement for these activities could result in additional clinical requirements for setmelanotide, increase our
costs and delay approval of setmelanotide.

Amendments to our clinical trial protocols would require resubmission to the FDA and IRBs or other competent
authorities and ethics committees in foreign jurisdictions for review and approval, which may adversely impact the cost,
timing or successful completion of a clinical trial. If we experience delays completing, or if we terminate, any of our
clinical trials, or if we are required to conduct additional clinical trials, the commercial prospects for setmelanotide may
be harmed and our ability to generate product revenue will be delayed.

In addition, as part of commencing our Phase 3 clinical trial for setmelanotide in POMC deficiency obesity, we
sought FDA concurrence with, and received substantial input on, the use of Patient Reported Outcome, or PRO, and
Observer Reported Outcome, or ORO, questionnaires for measuring subjective endpoints for changes in hunger and/or
food-seeking behavior and compulsions. We believe we can apply the same guidance to our future pivotal trials in other
indications. A PRO is a measurement based on a report that comes from the patient about the status of a patient’s health
condition, without amendment or interpretation of the patient’s response by a clinician or anyone else. An ORO is a
measurement based on an observation by someone other than the patient or a health professional, such as a parent, spouse
or other non-clinical caregiver who is in a position to regularly observe and report on a specific aspect of the patient’s
health. In our Phase 3 clinical trials for setmelanotide, based on the FDA feedback, we plan to measure the ability of
setmelanotide to mitigate hunger and/or hyperphagia, the overriding physiological drive to eat, through PRO and ORO
questionnaires. The questionnaires are designed to elicit feedback from patients on how well setmelanotide decreases their
hunger, and from their family members or caregivers on the effect of setmelanotide on the patients’ food seeking behavior.

To our knowledge, no sponsor of an approved drug has yet used PRO or ORO questionnaires to generate data on
hyperphagia or hunger mitigating endpoints. Because we may be relying on clinical endpoints that have not previously
been the subject of prior FDA approvals, there is a risk that the FDA or other equivalent competent authorities in foreign
jurisdictions may not consider the endpoints to provide evidence of clinically meaningful results or that results may be
difficult for the FDA or other equivalent competent authorities in foreign jurisdictions to interpret, in particular for the
pediatric age group. If we experience delays in our ongoing validation of our PRO or ORO questionnaires, or do not
receive agreement with those proposed questionnaires based on the conceptual framework, content reliability, other
measures of validity, or their ability to detect changes in hyperphagia or hunger, or we experience difficulties in the
methods of statistical analysis for hunger and hyperphagia, we may experience delays in our trials or in product approval
as well as be unable to reference data on hyperphagia or hunger in our product labeling. Finally, our Phase 3 clinical trials
will be assessing hunger using multiple methods, some of which were previously used in Phase 2, but some of which were
initiated in Phase 3 trials and for which little data is available. Hence it is possible that the effects on hunger seen in Phase 2
trials may differ with some of the new methodologies for assessing hunger being used in Phase 3 trials, or may not support
language in the proposed product labeling.

Setmelanotide may cause undesirable side effects that could delay or prevent regulatory approval, limit the commercial
profile of an approved labeling, or result in significant negative consequences following marketing approval, if any.

First generation MC4R agonists were predominantly small molecules that failed in clinical trials due to significant
safety issues, particularly increases in blood pressure, and had limited efficacy. Undesirable side effects caused by
setmelanotide could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more
restrictive labeling or the delay or denial of regulatory approval by the FDA or other equivalent competent authorities in
foreign jurisdictions.

Setmelanotide is an MC4R agonist. Potential side effects of MC4R agonism, which have been noted either with

setmelanotide or with other MC4R agonists in clinical trials and preclinical studies, may include:

•

adverse effects on cardiovascular parameters, such as increases in heart rate and blood pressure;

erections in males and similar effects in women, such as sexual arousal, clitoral swelling and hypersensitivity;

nausea and vomiting;

reduced appetite;

effects on mood, depression, anxiety and other psychiatric manifestations; and

other effects, for which most investigators reported as unrelated to setmelanotide and for which no increased
incidence or pattern is currently evident.

Injection site reactions have been seen in subcutaneous, or SC, injections with setmelanotide. In addition,
setmelanotide has likely off-target effects on the closely-related MC1 receptor, which mediates tanning in response to sun
exposure. Other MC1 receptor mediated effects include darkening of skin blemishes, such as freckles and moles, and hair
color change. The cosmetic effects are not tolerated by all patients, as a small number of patients have withdrawn from
treatment due to tanning. These effects have generally been reversible in clinical trials, but it is still unknown if they will
be reversible with long-term exposure. The MC1 receptor mediated effects may also carry risks. The long-term impact of
MC1 receptor activation has not been tested in clinical trials, and could potentially include increases in skin cancer, excess
biopsy procedures and cosmetic blemishes. These skin changes may also result in unblinding, which could make
interpretation of clinical trial results more complex and possibly subject to bias.

The safety data we have disclosed to date represents our interpretation of the data at the time of disclosure and
they are subject to our further review and analysis. There has been only a single serious adverse event possibly attributed
to setmelanotide in our clinical trials. In our Phase 2 clinical trial with once daily SC injection, one patient was hospitalized
for unusual chest pain, but no evidence of any serious respiratory or cardiac cause was found after careful evaluation and
the event was attributed to musculoskeletal pain. There were no treatment related changes in physical examination, except
as noted below, and few, if any, clinically relevant changes in electrocardiograms, laboratory data and/or anti-drug
antibodies. Overall, there have been thirteen additional incidents which have led to serious adverse events in the full
development program, in addition to the serious adverse event described above. There have also been nine adverse events
with respect to study participants on setmelanotide, mostly from open label trials, including influenza immunization
reaction, pancreatitis secondary to pre-existing gallstones, pneumonia, hypoglycemia due to acute adrenal insufficiency,
due to non compliance with hydrocortisone regimen, a depressive episode with elective admission to a psychiatry ward in
a patient with history of depression and who continued on treatment, rotavirus related gastroenteritis, hidradenitis and
pleurisy. There has also been a serious adverse event with respect to a study participant on setmelanotide in our Phase 3
pivotal study for LEPR deficiency obesity who died in a fatal motor vehicle accident, in which the driver lost control, and
our study participant was a passenger. This was determined not to be related to setmelanotide treatment. In addition, there
have been four incidents leading to a serious adverse event while patients were not taking setmelanotide, including biliary
dyskinesia, severe groin strain, pelvic inflammatory disease and left arm numbness.

We have also initiated trials of setmelanotide in potential new indications that include patients who might have
more serious underlying conditions, (such as Alström syndrome, lipodystrophy and other indications). It is possible that
the underlying conditions in these patients, such as congestive heart failure, pancreatitis, and potentially other conditions
may confound the understanding of the safety profile of setmelanotide.

In addition, our interpretation of the safety data from our clinical trials is contingent upon the review and ultimate
approval of the FDA, other regulatory authorities or other equivalent competent authorities in foreign jurisdictions. The
FDA or other equivalent competent authorities in foreign jurisdictions may not agree with our methods of analysis or our
interpretation of the results. In addition, the long-term effects of setmelanotide have only been tested in a limited number
of patients.

Further, if setmelanotide receives marketing approval and we or others identify undesirable side effects caused
by the product, or any other similar product, before or after the approval, a number of potentially significant negative
consequences could result, including:

•

regulatory authorities may request that we withdraw the product from the market or may limit or vary their
approval of the product through labeling or other means;

regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a
contraindication;

the FDA, the European Commission and other equivalent competent authorities in foreign jurisdictions may
require the addition of a Risk Evaluation and Mitigation Strategy, or REMS, or other specific obligations as
a condition for marketing authorization due to the need to limit treatment to rare patient populations, or to
safety concerns;

• we may be required to change the way the product is distributed or administered, conduct additional clinical

trials or change the labeling of the product;

• we may be required to conduct long term safety follow-up evaluations, including setting up disease and drug

based registries;

• we may decide to remove the product from the marketplace;

• we could be sued and held liable for injury caused to individuals exposed to or taking the product; and

•

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of setmelanotide and
could substantially increase the costs of commercializing setmelanotide and significantly impact our ability to successfully
commercialize setmelanotide and generate revenues.

Although we have been granted orphan drug designation for setmelanotide in treating POMC deficiency obesity and
LEPR deficiency obesity, we may be unable to obtain orphan drug designation for other uses or to obtain exclusivity
in any use. Even with exclusivity, competitors may obtain approval for different drugs that treat the same indications
as setmelanotide.

The FDA may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug
Act of 1983, or the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is intended to
treat a rare disease or condition, which is defined under the Federal Food, Drug and Cosmetic Act, or FDCA, as having a
patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in
the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from
sales in the United States.

Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the
indication for which it has such designation, the product is entitled to a period of seven years of marketing exclusivity,
which precludes the FDA from approving another marketing application for a product that constitutes the same drug
treating the same indication for that marketing exclusivity period, except in limited circumstances.

The exclusivity period in the United States can be extended by six months if the NDA sponsor submits pediatric
data that fairly respond to a written request from the FDA for such data. Even under these circumstances, we may not be
granted pediatric approval from the FDA for these indications. Orphan drug exclusivity may be revoked if the FDA
determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantity of the product to meet the needs of patients with the rare disease or condition. Other potential benefits of orphan
drug designation and/or approval of a designated drug include eligibility for: exemption from certain prescription drug
user fees, tax credits for certain qualified clinical testing expenses, and waivers from the pediatric assessment requirements
of the Pediatric Research Equity Act, or PREA.

In the EU, orphan drug designation is granted by the European Commission based on a scientific opinion by the
EMA’s Committee for Orphan Medicinal Products in relation to medicinal products that are intended for the diagnosis,
prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000
persons in the EU and in relation to which no satisfactory method of diagnosis, prevention, or treatment has been authorized
(or the product would be a significant benefit to those affected). Additionally, designation is granted for products intended
for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and
when, without incentives, it is unlikely that sales of the medicinal product in the EU would be sufficient to justify the
necessary investment in developing the medicinal product.

In addition to a range of other benefits during the development and regulatory review, orphan medicinal products
are, upon grant of marketing authorization, entitled to ten years of exclusivity in all EU member states. Marketing
authorization may, however, be granted to a similar medicinal product with the same orphan indication during the ten-year

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

Grant of orphan designation by the European Commission also entitles the holder of this designation to financial
incentives such as reduction of fees or fee waivers. Orphan drug designation must be requested before submitting an
application for marketing authorization. Orphan drug designation does not, in itself, convey any advantage in, or shorten
the duration of, the regulatory review and authorization process.

Although we have been granted orphan drug designation for setmelanotide in treating POMC deficiency obesity

and LEPR deficiency obesity in both the United States and the EU, if we request orphan drug designation for
setmelanotide for other uses, there can be no assurance that the FDA or the European Commission will grant such
designation. For example, if the FDA were to refuse to recognize all MC4 pathway deficiencies as separate diseases or
conditions, the population of patients in the United States with a particular disease or condition, as defined by the FDA,
who would be appropriate candidates for setmelanotide could be more than 200,000 or more individuals. In that event,
the drug may not qualify for orphan drug designation by the FDA, even if the population of patients with a specific MC4
pathway deficiency for which we seek approval is lower than 200,000. Additionally, the designation of setmelanotide as
an orphan drug does not guarantee that the FDA will accelerate regulatory review of, or ultimately approve,
setmelanotide.

Even if we obtain orphan drug exclusivity for setmelanotide, that exclusivity may not effectively protect
setmelanotide from competition because different drugs can be approved for the same condition. In the United States, even
after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA
concludes that the latter drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or
makes a major contribution to patient care. As discussed above, similar rules apply in the EU.

On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or the FDARA. FDARA, among
other things, codified the FDA’s pre-existing regulatory interpretation, to require that a drug sponsor demonstrate the
clinical superiority of an orphan drug that is otherwise the same as a previously approved drug for the same rare disease
in order to receive orphan drug exclusivity. The new legislation reverses prior precedent holding that the Orphan Drug Act
unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinical
superiority. The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if,
when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any
changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and
policies, our business could be adversely impacted.

Although we have obtained PRIME designation in the EU and Breakthrough Therapy designation for setmelanotide
for the treatment of obesity associated with genetic defects upstream of the MC4 receptor in the leptin-melanocortin
pathway, which includes POMC deficiency obesity, LEPR deficiency obesity, Bardet-Biedl syndrome and Alström
syndrome in the United States, the FDA may rescind the Breakthrough Therapy Designation and we may be unable to
obtain Breakthrough Therapy designation for other uses. In addition, Breakthrough Therapy designation by the FDA
may not lead to a faster development, regulatory review or approval process, and it does not increase the likelihood that
setmelanotide will receive marketing approval in the United States or a marketing authorization in the EU.

Under the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA is authorized to give
certain products “Breakthrough Therapy designation.” A Breakthrough Therapy product candidate is defined as a product
candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening
disease or condition and preliminary clinical evidence indicates that such product candidate may demonstrate substantial
improvement on one or more clinically significant endpoints over existing therapies. The FDA will seek to ensure the
sponsor of Breakthrough Therapy product candidate receives intensive guidance on an efficient drug development
program, intensive involvement of senior managers and experienced staff on a proactive, collaborative and

cross-disciplinary review and a rolling review process whereby the FDA may consider reviewing portions of an NDA
before the sponsor submits the complete application. Product candidates designated as breakthrough therapies by the FDA
may be eligible for other expedited programs, such as priority review, if supported by clinical data.

Designation as Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe
setmelanotide meets the criteria for designation as Breakthrough Therapy for other uses, the FDA may disagree. In any
event, the receipt of Breakthrough Therapy designation for a product candidate, or acceptance for one or more of the
FDA’s other expedited programs, may not result in a faster development process, review or approval compared to products
considered for approval under conventional FDA procedures and does not guarantee ultimate approval by the FDA.
Additionally, the FDA may later decide that the product candidate no longer meets the conditions for designation and may
withdraw designation at any time or decide that the time period for FDA review or approval will not be shortened.

The PRIME program was launched by the EMA in 2016. PRIME is intended to enhance support for the
development of medicines that target an unmet medical need. This voluntary scheme is based on enhanced interaction and
early dialogue with developers of promising medicines, to optimize development plans and speed up evaluation so these
medicines can reach patients earlier. In late June 2018, setmelanotide was designated as PRIME by the CHMP.
Acknowledging that setmelanotide targets an unmet medical need, the EMA offers enhanced support in the development
of the medicinal product through enhanced interaction and early dialogue to optimize our development plans and speed up
regulatory evaluation in the EU. As part of this designation, the EMA has provided guidance to us concerning the
development of setmelanotide. The PRIME designation does not, however, guarantee that the regulatory review process
in the EU will be shorter or less demanding. Neither does the PRIME designation guarantee that the European Commission
will grant a marketing authorization for setmelanotide.

We may not be able to translate the current formulations of setmelanotide for methods of delivery that would be
acceptable to the FDA or other equivalent competent authorities in foreign jurisdictions or commercially successful.

Setmelanotide is currently administered by SC injection using small insulin-type needles. SC injection is
generally less well-received by patients than other methods of administration, such as oral administration. Considerable
additional resources and efforts, including potential studies, may be necessary in order to translate the current formulations
of setmelanotide into forms that will be well-received by patients.

We have entered into a license agreement with Camurus AB, or Camurus, for the use of Camurus’ drug delivery
technology, FluidCrystal, to formulate setmelanotide. This formulation, if successfully developed for setmelanotide, will
be delivered subcutaneously, similar to our current formulation, except that we anticipate it will be injected once weekly.
The initial Phase 1 pharmacokinetic data from healthy obese volunteers supports once-weekly dosing, but has only been
administered for short durations. It is possible that the tolerability profile and/or pharmacokinetics in patients will not be
similar to that of healthy obese volunteers, making development of this product more complex. In addition, while we have
started consultations with regulatory authorities about the path for approval of the once-weekly formulation, we cannot
yet estimate the requirements, for non-clinical and clinical data, manufacturing program, time, cost, and probability of
success for approval. The medicinal product Buvidal (buprenorphine), which contains the Camurus formulation, has been
authorized to be marketed in the EU by the European Commission to treat dependence on opioids. Camurus formulations
have not, however, been approved for any product by the FDA at this time, which further complicates our understanding
for the path to approval.

While we plan to utilize the current formulation, or to develop new and useful formulations and delivery
technology for setmelanotide, we cannot estimate the probability of success, nor the resources and time needed to succeed.
If we are unable to utilize this formulation, or to develop new formulations, setmelanotide may not achieve significant
market acceptance and our business, financial condition and results of operations may be materially harmed.

Our approach to treating patients with MC4 pathway deficiencies requires the identification of patients with unique
genetic subtypes, for example, POMC genetic deficiency. The FDA or other equivalent competent authorities in foreign
jurisdictions could require the approval or CE mark of an in vitro companion diagnostic device to ensure appropriate
selection of patients as a condition of approving setmelanotide. The development and approval or CE mark of an in
vitro companion diagnostic device would require substantial financial resources and could delay regulatory approval
of setmelanotide.

We intend to focus our development of setmelanotide as a treatment for obesity caused by certain genetic
deficiencies affecting the MC4 pathway. In order to assist in identifying this subset of patients, we employ a genetic
diagnostic test, which is a test or measurement that evaluates the presence of genetic variants in a patient. The FDA
previously advised that for our clinical trial of setmelanotide to treat POMC deficiency obesity, it will be sufficient to use
genetic diagnostic testing known as Sanger bi-directional nucleotide sequencing, as long as that testing is performed by
laboratories meeting the standards of the Clinical Laboratory Improvement Amendments, or CLIA, for Laboratory
Developed Tests, or LDTs. Currently CMS regulates LDTs and the laboratories that develop them, and enforces CLIA.
CMS evaluates whether there is clinical utility for each specific test, and also performs post market oversight of laboratory
operational processes. CMS coverage determinations of clinical utility measure the ability of the test to impact clinically
meaningful health outcomes, such as mortality or morbidity, through the adoption of efficacious treatments. CMS’s
oversight through the CLIA program is designed to confirm that a lab assesses analytical validity, but does not confirm
whether it had results from an analytical validity assessment that were sufficient to support the claimed intended use of
the test. The FDA has issued guidance and has provided comments to members of Congress indicating, however, that in
the future it intends to assert jurisdiction over LDTs and to increase regulatory requirements for LDTs. If the FDA does
so, the burdens and costs of using LDTs to select patients for setmelanotide could increase, the availability of those LDTs
could be negatively affected, and our development program for setmelanotide could be delayed, which in turn could delay
or impair our ability to proceed to commercialization.

The FDA recently reiterated its position that an LDT is sufficient for identifying patients in our clinical trials, but
the agency also recently indicated that approval of an in vitro companion diagnostic device may eventually be necessary.
In vitro companion diagnostic devices, or companion diagnostics, provide information that is essential for the safe and
effective use of a corresponding therapeutic product. These companion diagnostics may be co-developed with a device
manufacturer or with a laboratory, and generally require FDA approval as well. The FDA stated that absence of complete
development of a companion diagnostic would not preclude us from submitting an NDA or preclude the FDA from
reviewing it. The FDA also stated that completing development of a companion diagnostic as a post-marketing
commitment or a post-marketing requirement is a possibility, assuming that upon review, no issues related to efficacy or
safety arise that would necessitate a companion diagnostic at the time of approval. In the event that a companion diagnostic
is needed at any time, the FDA committed to working with us to identify the least burdensome analytical validation
approach to a companion diagnostic for setmelanotide. The FDA also agreed to further consider the issues raised by us,
which included our reasons why a companion diagnostic should not be required, and to provide follow-up advice.

Should the FDA or other equivalent competent authorities in foreign jurisdictions require the use of a companion
diagnostic, we may face significant delays or obstacles in obtaining approval of an NDA, or of comparable foreign
marketing authorization for setmelanotide as the FDA or other equivalent competent authorities in foreign jurisdictions
may take the position that a companion diagnostic device is required prior to granting approval of setmelanotide. In
addition, we may be dependent on the sustained cooperation and effort of third-party collaborators with whom we may
partner in the future to develop companion diagnostics. We and our potential future collaborators may encounter
difficulties in developing such tests, including issues relating to the selectivity and/or specificity of the diagnostic,
analytical validation, reproducibility or clinical validation. Any delay or failure by us or our potential future collaborators
to develop or obtain regulatory clearance or approval of, or to CE mark, such tests, if necessary, could delay or prevent
approval of setmelanotide.

If the FDA deems setmelanotide to require a companion diagnostic to accurately identify the patients who belong
to the target subset, the FDA will require product labeling that limits use to only those patients who express the genetic
variants identified by the device. Moreover, even if setmelanotide and a companion diagnostic are approved together, the
device itself may be subject to reimbursement limitations that could limit access to treatment and therefore adversely affect
our business and financial results.

We also are discussing with the FDA the specific mutations, or variants, that will define each indication for which
we intend to seek approval. Our efforts have focused on loss-of-function variants that effectively inactivate the genes in
the MC4 pathway, and we and the FDA have agreed on a path to define these variants for approval, which can also be
used to categorize new variants as they are identified, and that has been used for other diagnostics. These approaches are
complex, and the impact on the size of indicated patients is not yet certain.

In addition, we intend to apply genetic tests to address goals beyond seeking FDA approval of setmelanotide,
including supporting efforts to explore and expand the diagnosis of patients with genetic causes of obesity, and to assist in
building awareness of these illnesses. As such, we may develop or work with partners to develop additional genetic tests
in the area of genetic obesity, including panels that may study a larger number of genes. There are many factors that might
influence the success of these efforts, which could be impactful on our commercial efforts, including the cost, analytical
methods, and the ability to provide clinical and diagnostic information to patients and doctors. In addition, the process of
conversion of patients with a genetic diagnosis of MC4 pathway disorders to patients receiving treatment is still uncertain
and may be complex.

We have only one product candidate in clinical development and we may not be successful in any future efforts to
identify and develop additional product candidates.

We have only one product candidate in clinical development and may seek to identify and develop additional
product candidates for clinical development, both within and outside of our current area of expertise. If so, the success of
our business may depend primarily on our ability to identify, develop and commercialize these products. Research
programs to identify new product candidates require substantial technical, financial and human resources. We may fail to
identify other potential product candidates for clinical development for a number of reasons. Our research methodology
may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have
harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive
marketing approval. We may focus our efforts and resources on potential programs or product candidates that ultimately
prove to be unsuccessful. In addition, any such efforts could adversely impact our continued development and
commercialization of setmelanotide.

If any of these events occur, we may be forced to abandon some or all of our development efforts for a program
or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.

Prader-Willi syndrome, or PWS, is a complex disease, and companies have had difficulties in developing new therapies
for PWS.

Although we have been granted orphan drug designation in the United States and the EU for setmelanotide in
treating PWS, we are not moving directly towards a Phase 3 trial in PWS at this time, but instead will be continuing to
evaluate setmelanotide in another Phase 2 trial. We do not know the probability that we will be able to succeed in this
additional Phase 2 trial and/or to proceed to Phase 3 and/or approval, even when these efforts are completed. In addition,
the experience by others suggests that PWS patients are at risk for adverse experiences and for this, and many other reasons,
clinical trials in that population are challenging. It may be both difficult to determine if adverse effects in this population
are due to the disease, setmelanotide or some combination of both. PWS is a complex multigenic disease, and the
hypothesis that PWS is an upstream MC4 pathway disorder is supported primarily on the role of genes, such as MAGEL2
and PCSK1 (also known as PC1), in animal models of obesity. Our results may support that PWS is not an upstream MC4
pathway disorder. Alternatively, other design factors may have influenced the outcome of this trial, and we will be
reassessing the possibility of future Phase 2 trials in PWS that address the following potential factors: duration of treatment,
younger age of population, improved setmelanotide pharmacokinetics, consideration of higher doses, and operational
limitations of the completed Phase 2 trial. There can be no assurances that some of the factors that affected the results of
the PWS trials will not also adversely impact the results of our trials for other indications.

In addition, we have begun a program for a new mechanism that may have therapeutic effects in PWS, but this
program is in preclinical development, and our candidate, RM-853, may not succeed in completing the pre-IND studies
needed to proceed to clinical trials, or may fail in early Phase 1 studies due to unfavorable safety, pharmacokinetics or for
other reasons. The hypothesis supporting the therapeutic effects of this mechanism is also based on limited clinical and

preclinical information, and even if RM-853 were to progress to a Phase 2 proof of concept study, it is unclear if there will
be safety and efficacy to support proceeding further in development.

Risks Related to the Commercialization of Setmelanotide

The successful commercialization of setmelanotide and our other product candidates will depend in part on the extent
to which governmental authorities, private health insurers, and other third-party payors provide coverage and adequate
reimbursement levels. Failure to obtain or maintain coverage and adequate reimbursement for setmelanotide or our
other product candidates, if approved, could limit our ability to market those products and decrease our ability to
generate revenue.

Our ability to commercialize setmelanotide or any product candidates successfully will depend in part on the
extent to which coverage and reimbursement for these product candidates and related treatments will be available from
government authorities, private health insurers and other organizations. Government authorities and third-party payors,
such as private health insurers and health maintenance organizations, decide which medications they will pay for and
establish reimbursement levels.

Third-party payors increasingly are challenging prices charged for pharmaceutical products and services. Even
if we show improved efficacy or improved convenience of administration with our product candidates, third-party payors
may deny or revoke the reimbursement status of our product candidates, if approved, or establish prices for our product
candidates at levels that are too low to enable us to realize an appropriate return on our investment. If reimbursement is
not available or is available only at limited levels, we may not be able to successfully commercialize setmelanotide or
other product candidates, and may not be able to obtain a satisfactory financial return.

No uniform policy for coverage and reimbursement for products exist among third-party payors in the United
States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the
coverage determination process is often a time-consuming and costly process that may require us to provide scientific and
clinical support for the use of setmelanotide to each payor separately, with no assurance that coverage and adequate
reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding
reimbursement change frequently, in some cases on short notice, and we believe that changes in these rules and regulations
are likely.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or
reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly
approved products and, as a result, they may not cover or provide adequate payment. We may experience pricing pressures
in connection with the sale of setmelanotide or our product candidates due to the trend toward managed health care, the
increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on
healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has
become intense. As a result, increasingly high barriers are being erected to the entry of new products.

In some foreign countries, particularly in Canada and in the EU member states, the pricing of prescription
pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental
authorities can take six to twelve months or longer after the receipt of regulatory approval and product launch. To obtain
favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct
a clinical trial that compares the cost-effectiveness of setmelanotide with other available therapies. If reimbursement for
setmelanotide is unavailable in any country in which we seek reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials or if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.

In the EU, in particular, each EU member state can restrict the range of medicinal products for which its national
health insurance system provides reimbursement and can control the prices of medicinal products for human use marketed
in its territory. As a result, following receipt of marketing authorization in an EU member state, through any application
route, an applicant is required to engage in pricing discussions and negotiations with the competent pricing authority in
the individual EU member states. Some EU member states operate positive and negative list systems under which products

may only be marketed once a reimbursement price has been agreed upon. Other EU member states approve a specific price
for the medicinal product or may instead adopt a system of direct or indirect controls on the profitability of the company
placing the medicinal product on the market. The downward pressure on healthcare costs in general, particularly
prescription drugs, has become more intense. As a result, increasingly high barriers are being erected to the entry of new
products. In addition, we may face competition for setmelanotide from lower priced products in foreign countries that have
placed price controls on pharmaceutical products.

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

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and
sell setmelanotide, if approved, we may not be able to generate any revenue.

We do not currently have infrastructure in place for the sale, marketing or distribution of pharmaceutical products.
In order to market setmelanotide, if approved by the FDA or other equivalent competent authorities in foreign jurisdictions,
we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third
parties to perform these services. If we are unable to establish adequate sales, marketing and distribution capabilities,
whether independently or with third parties, or if we are unable to do so on commercially reasonable terms, our business,
results of operations, financial condition and prospects would be materially adversely affected.

Even if we receive marketing approval for setmelanotide in the United States, we may never receive regulatory approval
to market setmelanotide outside of the United States.

We intend to seek marketing authorization for setmelanotide in the EU and in other countries worldwide. In order
to market any product outside of the United States, we must establish and comply with the numerous and varying safety,
efficacy and other regulatory requirements of other countries. Marketing authorization procedures vary among countries
and can involve additional setmelanotide testing and additional administrative review periods. The time required to obtain
marketing authorization in other countries might differ from that required to obtain FDA approval. The marketing
authorization processes in other countries may implicate all of the risks detailed above regarding FDA approval in the

United States as well as other risks. In particular, in many countries outside of the United States, products must receive
pricing and reimbursement approval before the product can be commercialized. Obtaining this approval can result in
substantial delays in bringing products to market in such countries. Grant of marketing authorization in one country does
not ensure grant of marketing authorization in another country, but a failure or delay in obtaining marketing authorization
in one country may have a negative effect on the regulatory process or commercial activities in others. Failure to obtain
marketing authorization in other countries or any delay or other setback in obtaining such authorizations would impair our
ability to market setmelanotide in such foreign markets. Any such impairment would reduce the size of our potential
market share and could have a material adverse impact on our business, results of operations and prospects.

Even if we receive marketing approval for setmelanotide, we may not achieve market acceptance, which would limit
the revenue that we generate from the sale of setmelanotide.

The commercial success of setmelanotide, if approved by the FDA or other equivalent competent authorities in
foreign jurisdictions, will also depend upon the awareness and acceptance of setmelanotide within the medical community,
including physicians, patients and third-party payors. If setmelanotide is approved but does not achieve an adequate level
of acceptance by patients, physicians and third-party payors, we may not generate sufficient revenue to become or remain
profitable. Before granting reimbursement approval, third-party payors may require us to demonstrate that, in addition to
treating obesity caused by certain genetic deficiencies affecting the MC4 pathway, setmelanotide also provides incremental
health benefits to patients. Our efforts to educate the medical community and third-party payors about the benefits of
setmelanotide may require significant resources and may never be successful. All of these challenges may impact our
ability to ever successfully market and sell setmelanotide.

Market acceptance of setmelanotide, if approved, will depend on a number of factors, including, among others:

•

the ability of setmelanotide to treat obesity caused by certain genetic deficiencies affecting the MC4 pathway
and, if required by any competent authority in connection with the approval for these indications, to provide
patients with incremental health benefits, as compared with other available treatments, therapies, devices or
surgeries;

the complexities of genetic testing, including obtaining genetic results that support patient treatment with
setmelanotide;

the relative convenience and ease of SC injections as the necessary method of administration of
setmelanotide, including as compared with other treatments for obese patients;

the prevalence and severity of any adverse side effects associated with setmelanotide;

limitations or warnings contained in the labeling approved, as well as the existence of a REMS, for
setmelanotide by the FDA or the specific obligations imposed as a condition for marketing authorization
imposed by other equivalent competent authorities in foreign jurisdictions, particularly by the European
Commission;

availability of alternative treatments, including a number of obesity therapies already approved or expected
to be commercially launched in the near future;

our ability to increase awareness of these diseases among our target populations through marketing efforts;

the size of the target patient population, and the willingness of the target patient population to try new
therapies and of physicians to prescribe these therapies;

the ability of setmelanotide to treat the maximum range of pediatric patients, and any limitations on its
indications for use, such as if the labeling limits the approved population to patients ages 12 and above;

•

the strength of marketing and distribution support and timing of market introduction of competitive products;

publicity concerning setmelanotide or competing products and treatments;

pricing and cost effectiveness;

the effectiveness of our sales and marketing strategies;

our ability to increase awareness of setmelanotide through marketing efforts;

our ability to obtain sufficient third-party coverage or reimbursement;

the willingness of patients to pay out-of-pocket in the absence of third-party coverage; and

the likelihood that the FDA or other equivalent competent authorities in foreign jurisdictions may require
development of a REMS as a condition of approval or post-approval, may not agree with our proposed REMS
or may impose additional requirements that limit the promotion, advertising, distribution or sales of
setmelanotide.

Our industry is intensely competitive. If we are not able to compete effectively against current and future competitors,
we may not be able to generate revenue from the sale of setmelanotide, our business will not grow and our financial
condition and operations will suffer.

Currently, there are no approved or effective treatments for regulating hunger and hyperphagia related behaviors
of patients with POMC deficiency obesity, LEPR deficiency obesity, Bardet-Biedl syndrome, Alström syndrome, POMC
heterozygous deficiency obesity, or POMC epigenetic disorders. Bariatric surgery is not a treatment option for these
genetic disorders of obesity because the severe obesity and hyperphagia associated with these disorders are considered to
be risk factors for bariatric surgery. While we are unaware of any competitive products in clinical development for the
obesity and hyperphagia caused by upstream MC4 pathway deficiencies specifically, new competitors may emerge which
could limit our business opportunity in the future.

We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.

The use of setmelanotide in clinical trials and the sale of setmelanotide, if approved, exposes us to the risk of
product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others
selling or otherwise coming into contact with setmelanotide. For example, we may be sued if any product we develop
allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale.
Any such product liability claims may include allegations of defects in manufacturing, defects in design or a failure to
warn of dangers inherent in the product, including as a result of interactions with alcohol or other drugs, negligence, strict
liability and a breach of warranties. Claims could also be asserted under state consumer protection laws and any equivalent
laws in foreign countries. If we become subject to product liability claims and cannot successfully defend ourselves against

them, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims
may result in, among other things:

• withdrawal of patients from our clinical trials;

•

substantial monetary awards to patients or other claimants;

decreased demand for setmelanotide or any future product candidates following marketing approval, if
obtained;

damage to our reputation and exposure to adverse publicity;

litigation costs;

distraction of management’s attention from our primary business;

loss of revenue; and

the inability to successfully commercialize setmelanotide or any future product candidates, if approved.

We maintain product liability insurance coverage for our clinical trials with a $10.0 million annual aggregate
coverage limit. Our insurance coverage may be insufficient to reimburse us for any expenses or losses we may suffer.
Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts
to protect us against losses, including if insurance coverage becomes increasingly expensive. If and when we obtain
marketing approval for setmelanotide, we intend to expand our insurance coverage to include the sale of commercial
products. However, we may not be able to obtain this product liability insurance on commercially reasonable terms. Large
judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any
product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in light of
the size of our business and financial resources. A product liability claim or series of claims brought against us could cause
our stock price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments
exceed our insurance coverage, our financial condition, business and prospects could be materially adversely affected.

Risks Related to Our Dependence on Third Parties

We rely, and expect that we will continue to rely, on third parties to conduct clinical trials for setmelanotide. If these
third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to
obtain regulatory approval for or commercialize setmelanotide and our business could be substantially harmed.

We enter into agreements with third-party CROs to provide monitors for and to manage data for our ongoing
clinical trials. We rely heavily on these parties for the execution of clinical trials for setmelanotide and control only certain
aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these clinical
trials and the management of data developed through the clinical trials than would be the case if we were relying entirely
upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well
as difficulties in coordinating activities. However, we remain responsible for the conduct of these trials and are subject to
enforcement which may include civil and criminal liabilities for any violations of FDA rules and regulations and the
comparable foreign regulatory provisions during the conduct of our clinical trials. Outside parties may:

•

have staffing difficulties;

fail to comply with contractual obligations;

devote inadequate resources to our clinical trials;

•

experience regulatory compliance issues;

undergo changes in priorities or become financially distressed; or

form more favorable relationships with other entities, some of which may be our competitors.

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical
trials and may subject us to unexpected cost increases that are beyond our control. Nevertheless, we are responsible for
ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific
standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required
to comply with current Good Clinical Practices, or cGCPs, which are guidelines enforced by the FDA, the Competent
Authorities of the EU member states and equivalent competent authorities in foreign jurisdictions for any products in
clinical development. The FDA enforces these regulations and cGCP guidelines through periodic inspections of clinical
trial sponsors, principal investigators, and trial sites, and IRBs. If we or our CROs fail to comply with applicable cGCPs,
the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other equivalent competent
authorities in foreign jurisdictions may require us to perform additional clinical trials before approving our marketing
applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply
with cGCPs. In addition, our clinical trials must be conducted with products produced under current Good Manufacturing
Practices, or cGMPs. Our failure or the failure of our CROs to comply with these regulations may require us to repeat
clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to
and including civil and criminal penalties.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements
with alternative CROs. If CROs do not successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain are compromised due to
the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be
extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize,
setmelanotide. As a result, our financial results and the commercial prospects for setmelanotide in the subject indication
would be harmed, our costs could increase and our ability to generate revenue could be delayed.

We rely completely on third-party suppliers to manufacture our clinical drug supplies of setmelanotide, and we intend
to rely on third parties to produce commercial supplies of setmelanotide and preclinical, clinical and commercial
supplies of any future product candidate.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our
clinical drug supply of setmelanotide, or any future product candidates, for use in the conduct of our preclinical studies
and clinical trials, and we lack the internal resources and the capability to manufacture any product candidate on a clinical
or commercial scale. The facilities used by our contract manufacturing organizations, or CMOs, to manufacture the active
pharmaceutical ingredient, or API, and final drug product must pass inspection by the FDA and other equivalent competent
authorities in foreign jurisdictions pursuant to inspections that would be conducted after we submit our NDAs or relevant
foreign regulatory submission to the other equivalent competent authorities in foreign jurisdictions. In addition, our clinical
trials must be conducted with products produced under cGMP regulations. Our failure or the failure of our CROs or CMOs
to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process
and could also subject us to enforcement action, including civil and criminal penalties. If we import any drugs or drug
substances, we would be subject to FDA and U.S. Bureau of Customs and Border Patrol, or CBP, import regulation
requirements. Such enforcement for our failure or our CROs or CMOs’ failure to comply with these regulations could
result in import delays, detention of products, and, depending on criteria such as the history of violative activities, the FDA
could place a foreign firm or certain drug substances or products on Import Alert and require that all such drug substances
or products be subject to detention without physical examination, or DWPE, which could significantly impact the global
supply chain for setmelanotide. FDARA provides that prescription drug products, with the exception of those on the FDA’s
drug shortage list or properly imported by individuals, may not be imported for commercial use if they were manufactured
in a foreign country, unless they have been approved or are otherwise authorized to be marketed in the United States and
are labeled accordingly.

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We currently contract with a third party for the manufacture of setmelanotide and intend to continue to do so in
the future. We have entered into a process development and manufacturing services agreement with Corden Pharma
Brussels S.A, or Corden, formerly Peptisyntha SA prior to its acquisition by Corden, under which Corden will provide
certain process development and manufacturing services in connection with the manufacture of setmelanotide. We have
also entered into a process development and manufacturing services agreement with Recipharm Monts S.A.S, or
Recipharm, under which Recipharm will provide certain process development and manufacturing services in connection
with the manufacture of setmelanotide. Under our agreements, we pay both Corden and Recipharm for services in
accordance with the terms of mutually agreed upon work orders, which we, Corden and Recipharm may enter into from
time to time. The agreement with Corden also provides that, subject to certain conditions, for a period following each
product launch date, we will source from Corden a portion of our requirements for that product being sourced from
non-affiliate third parties. We may need to engage additional third-party suppliers to manufacture our clinical drug
supplies. In the future, if we approach commercialization of setmelanotide or any future product candidate, we will need
to engage other third parties to assist in, among other things, labeling, packaging, distribution, post-approval safety
reporting, and pharmacovigilance activities. We cannot be certain that we can engage third-party suppliers on terms as
favorable as those that are currently in place.

We do not perform the manufacturing of any drug products, and are completely dependent on our CMOs to
comply with cGMPs for manufacture of both API and finished drug product. We recognize that we are ultimately
responsible for ensuring that our drug substances and finished product are manufactured in accordance with cGMPs, and,
therefore, the company’s management practices and oversight, including routine auditing, are critical. If our CMOs cannot
successfully manufacture material that conform to our specifications and the strict regulatory requirements of the FDA or
other equivalent competent authorities in foreign jurisdictions, they may be subject to administrative and judicial
enforcement for non-compliance and the drug products would be deemed misbranded or adulterated and prohibited from
distribution into interstate commerce. Furthermore, all of our CMOs are engaged with other companies to supply and/or
manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the
production of such materials and products. As a result, failure to satisfy the regulatory requirements for the production of
those materials and products may affect the regulatory clearance of our CMOs’ facilities generally. If the FDA or another
equivalent competent foreign regulatory agency does not approve these facilities for the manufacture of setmelanotide or
if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would adversely
impact our ability to develop, obtain regulatory approval for or market setmelanotide.

We are currently in the process of manufacturing finished drug product for use in our upcoming clinical trials.
We believe we currently have a sufficient amount of finished setmelanotide, diluent and placebo to complete our planned
clinical trials. However, these projections could change based on delays encountered with manufacturing activities,
equipment scheduling and material lead times. Any such delays in the manufacturing of finished drug product could delay
our planned clinical trials of setmelanotide, which could delay, prevent or limit our ability to generate revenue and continue
our business.

We do not have long-term supply agreements in place with our contractors, and each batch of setmelanotide is
individually contracted under a quality and supply agreement. If we engage new contractors, such contractors must be
approved by the FDA and other equivalent competent authorities in foreign jurisdictions. We will need to submit
information to the FDA and other equivalent competent authorities in foreign jurisdictions describing the manufacturing
changes. If manufacturing changes occur post-approval, the FDA may have to approve these changes. We plan to continue
to rely upon CMOs and, potentially, collaboration partners to manufacture commercial quantities of setmelanotide, if
approved. Our current scale of manufacturing appears adequate to support all of our current needs for clinical trial supplies
for setmelanotide. If setmelanotide is approved, we will need to identify CMOs or partners to produce setmelanotide on a
larger scale.

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Risks Related to Our Intellectual Property Rights

If we are unable to adequately protect our proprietary technology or maintain issued patents that are sufficient to
protect setmelanotide, others could compete against us more directly, which would have a material adverse impact on
our business, results of operations, financial condition and prospects.

Our commercial success will depend in part on our success in obtaining and maintaining issued patents and other
intellectual property rights in the United States and elsewhere and protecting our proprietary technology. If we do not
adequately protect our intellectual property and proprietary technology, competitors may be able to use our technologies
and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve
profitability.

We cannot provide any assurances that any of our patents have, or that any of our pending patent applications
that mature into issued patents will include, claims with a scope sufficient to protect setmelanotide. Other parties have
developed technologies that may be related or competitive to our approach, and may have filed or may file patent
applications and may have received or may receive patents that may overlap with our patent applications, either by
claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. The
patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and
factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain
cannot be predicted with certainty.

Although an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its
enforceability and such patent may not provide us with adequate proprietary protection or competitive advantages against
competitors with similar products. Patents, if issued, may be challenged, deemed unenforceable, invalidated or
circumvented. U.S. patents and patent applications or the patents and patent application obtained or submitted pursuant to
comparable foreign laws, may also be subject to interference proceedings, ex parte reexamination, inter partes review
proceedings, post-grant review proceedings, supplemental examination and challenges in district court. Patents may be
subjected to opposition or comparable proceedings lodged in various foreign, both national and regional, patent offices.
These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the
scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus,
any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an
adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in
turn could affect our ability to develop, market or otherwise commercialize setmelanotide.

Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection
for more effective technologies, designs or methods. The laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our
proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our
sales.

In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held
unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us,
including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our
patents covering setmelanotide are invalidated or found unenforceable, our financial position and results of operations
would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third
parties covered setmelanotide, our financial position and results of operations would also be materially and adversely
impacted.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

•

any of our patents, or any of our pending patent applications, if issued, will include claims having a scope
sufficient to protect setmelanotide;

any of our pending patent applications will issue as patents;

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• we will be able to successfully commercialize setmelanotide, if approved, before our relevant patents expire;

• we were the first to make the inventions covered by each of our patents and pending patent applications;

• we were the first to file patent applications for these inventions;

•

others will not develop similar or alternative technologies that do not infringe our patents;

any of our patents will be found to ultimately be valid and enforceable;

any patents issued to us will provide a basis for an exclusive market for our commercially viable products,
will provide us with any competitive advantages or will not be challenged by third parties;

• we will develop additional proprietary technologies or product candidates that are separately patentable; or

•

our commercial activities or products will not infringe upon the patents of others.

We rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop
and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with employees,
consultants, collaborators and vendors. We also have agreements with employees and selected consultants that obligate
them to assign their inventions to us. It is possible that technology relevant to our business will be independently developed
by a person who is not a party to such an agreement. We may not be able to prevent the unauthorized disclosure or use of
our technical knowledge or trade secrets by consultants, collaborators, vendors, former employees and current employees.
Furthermore, if the parties to our confidentiality agreements breach or violate the terms of these agreements, we may not
have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or
violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be
expensive, time-consuming and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized
use, we may be required to file infringement claims, which can be expensive and time-consuming and divert the attention
of our management and key personnel from our business operations. Even if we prevail in any lawsuits that we initiate,
the damages or other remedies awarded may not be commercially meaningful. In addition, in an infringement proceeding,
a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse
to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in
question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being
invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority
of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could
require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business
could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of
litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our
management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our
intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United
States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of
litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or
developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse
effect on the price of our common stock.

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We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts
and stop us from commercializing or increase the costs of commercializing setmelanotide, if approved.

Our success will depend in part on our ability to operate without infringing the intellectual property and
proprietary rights of third parties. We cannot assure you that our business, products and methods do not or will not infringe
the patents or other intellectual property rights of third parties. For example, numerous third-party U.S. and non-U.S.
patents and pending applications exist that cover melanocortin receptor analogs and methods of using these analogs.

The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual
property rights. Other parties may allege that setmelanotide or the use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing their proprietary technology without authorization. For
example, we received a letter in January 2013 from a third party bringing to our attention several patents and patent
applications, both U.S. and non-U.S. We responded in April 2013 and have not received any further correspondence since
then. All but a few of the patents and patent applications mentioned in the letter were abandoned or not in force at the time
the letter was sent to us. Although subsequent to our response, the third party has allowed all the remaining patents to
lapse for non-payment of patent maintenance fees, we cannot assure you that the holder of these third-party patents will
not attempt to assert these patents against us.

Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their
outcome is uncertain. Any claim relating to intellectual property infringement that is successfully asserted against us may
require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully
infringing another party’s patents, for past use of the asserted intellectual property and royalties and other consideration
going forward if we are forced or choose to take a license. In addition, if any such claim were successfully asserted against
us and we could not obtain such a license, we may be forced to stop or delay developing, manufacturing, selling or
otherwise commercializing setmelanotide.

If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in court, or redesign our products. Patent litigation is costly
and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion.

In addition, in order to avoid infringing the intellectual property rights of third parties and any resulting
intellectual property litigation or claims, we could be forced to do one or more of the following, which may not be possible
and, even if possible, could be costly and time-consuming:

•

cease development and commercialization of setmelanotide;

pay substantial damages for past use of the asserted intellectual property;

obtain a license from the holder of the asserted intellectual property, which license may not be available on
reasonable terms, if at all; and

in the case of trademark claims, rename setmelanotide.

Any of these risks coming to fruition could have a material adverse effect on our business, results of operations,

financial condition and prospects.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may also be subject to claims that former employees, collaborators or other third parties have an ownership
interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims
challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, such intellectual property.

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Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection
could be reduced or eliminated for non-compliance with these requirements.

The U.S. Patent and Trademark Office, or U.S. PTO, and various foreign governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There
are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in
partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the case.

Issued patents covering setmelanotide could be found invalid or unenforceable if challenged in court.

If we or one of our licensing partners threatened or initiated legal proceedings against a third party to enforce a
patent covering setmelanotide, the defendant could claim that the patent covering setmelanotide is invalid and/or
unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability
are commonplace. Grounds for a validity challenge include alleged failures to meet any one of several statutory
requirements, including novelty, non-obviousness and enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent withheld material information from the U.S. PTO, or
made a misleading statement, during patent prosecution. Third parties may also raise similar claims before administrative
bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination,
inter partes review, post grant review and equivalent proceedings in foreign jurisdictions, for example, opposition
proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer
cover setmelanotide or competitive products. The outcome following legal assertions of invalidity and/or unenforceability
is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which
we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of
invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on setmelanotide.
Such a loss of patent protection would have a material adverse impact on our business.

We do not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be
able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

Filing, prosecuting and defending patents on setmelanotide in all countries and jurisdictions throughout the world
would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to
prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing
products made using our inventions in and into the United States or other jurisdictions. Competitors may use our
technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may
export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as
that in the United States. These products may compete with our product and our patents or other intellectual property rights
may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights
in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the
enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of
our proprietary rights generally. For example, an April 2017 report from the Office of the United States Trade
Representative identified a number of countries, including India and China, where challenges to the procurement and
enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the
report every year since 1989. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial
costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being

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invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties
to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded,
if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around
the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop
or license.

We are dependent on licensed intellectual property. If we were to lose our rights to licensed intellectual property, we
may not be able to continue developing or commercializing setmelanotide, if approved.

We have licensed our rights to setmelanotide from Ipsen Pharma SAS, or Ipsen. Our license with Ipsen imposes
various obligations on us, and provides Ipsen the right to terminate the license in the event of our material breach of the
license agreement, our failure to initiate or complete development of a licensed product, or our commencement of an action
seeking to have an Ipsen licensed patent right declared invalid. Termination of our license from Ipsen would result in our
loss of the right to use the licensed intellectual property, which would materially adversely affect our ability to develop
and commercialize setmelanotide, as well as harm our competitive business position and our business prospects.

We also have licensed from Camurus its drug delivery technology, FluidCrystal, to formulate setmelanotide. Our
license with Camurus imposes various obligations on us, and provides Camurus the right to terminate the license in the
event of our material breach of the license agreement. Termination of our license from Camurus would result in our
inability to use the licensed intellectual property.

We have licensed our rights to RM-853 from Takeda Pharmaceutical Company Limited, or Takeda. Our license
with Takeda imposes various obligations on us, and provides Takeda the right to terminate the license in the event of our
material breach of the license 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. Termination of our license from Takeda would result in our
inability to use the licensed intellectual property.

We may enter into additional licenses to third-party intellectual property that are necessary or useful to our
business. Future licensors may also allege that we have breached our license agreement and may accordingly seek to
terminate our license with them. In addition, future licensors may have the right to terminate our license at will. Any
termination could result in our loss of the right to use the licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize setmelanotide, if approved, as well as harm our competitive business
position and our business prospects.

We have not yet registered trademarks for a commercial trade name for setmelanotide and failure to secure such
registrations could adversely affect our business.

We have not yet registered trademarks for a commercial trade name for setmelanotide. Any future trademark
applications may be rejected during trademark registration proceedings. Although we would be given an opportunity to
respond to those rejections, we may be unable to overcome them. In addition, in the U.S. PTO and in comparable agencies
in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek
to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our
trademarks may not survive those proceedings. Moreover, any name we propose to use for setmelanotide in the United
States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark.
The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with
other product names. If the FDA objects to any of our proposed product names, we may be required to expend significant
additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws,
not infringe the existing rights of third parties and be acceptable to the FDA.

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Similar rules apply in the EU. Any brand name we propose for setmelanotide in the EU must be approved by the
EMA. The objective of the assessment conducted by the EMA is to ensure that there is no risk that the proposed brand
name could create a public-health concern or potential safety risk. In particular the proposed brand name should not convey
misleading therapeutic or pharmaceutical connotations; be misleading with respect to the composition of the product; or
be liable to cause confusion with the brand name of an existing medicinal product in print, handwriting or speech. If the
EMA objects to any of our proposed product names, we may be required to expend significant additional resources in an
effort to identify a suitable substitute name that would be acceptable to the EMA, qualify under applicable trademark laws
and not infringe the existing rights of third parties.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by
extending the patent terms and obtaining product exclusivity for setmelanotide, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval for setmelanotide, one or more of
the U.S. patents we license may be eligible for limited patent term restoration under the Drug Price Competition and Patent
Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit
a patent term restoration of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. However, we may not be granted an extension because of, for example, failure to apply within
applicable deadlines, failure to apply prior to expiration of relevant patents or otherwise failure to satisfy applicable
requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request.
If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request,
our competitors may obtain approval of competing products following our patent expiration, and our ability to generate
revenues could be materially adversely affected.

While we believe that setmelanotide contains active ingredients that would be treated by the FDA as a new
chemical entity, or a new drug product, and, therefore, if approved, should be afforded five years of marketing exclusivity,
the FDA may disagree with that conclusion and may approve generic products within a period that is less than five years.
Manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity
period, even if we still have patent protection for setmelanotide. Competition that setmelanotide may face from generic
versions could materially and adversely impact our future revenue, profitability and cash flows and substantially limit our
ability to obtain a return on the investments we have made in setmelanotide.

In the EU, the grant of orphan designation for setmelanotide means that this medicinal product would be entitled,
upon grant of marketing authorization by the European Commission, to ten years of exclusivity in all EU member states.
Marketing authorization may, however, be granted to a similar medicinal product with the same orphan indication during
the ten year period if we are unable to supply sufficient quantities of setmelanotide. Marketing authorization may also be
granted to a similar medicinal product with the same orphan indication if the similar product is deemed safer, more
effective or otherwise clinically superior to setmelanotide. The period of market exclusivity may, in addition, be reduced
to six years if it can be demonstrated on the basis of available evidence that setmelanotide is sufficiently profitable not to
justify maintenance of market exclusivity.

If we fail to obtain an extension of patent protection under similar foreign legislation, where applicable, our
competitors may obtain approval of competing products following our patent expiration, and our ability to generate
revenues could be materially adversely affected in the foreign countries concerned.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our
product.

The United States has enacted and is currently implementing the America Invents Act of 2011, wide-ranging
patent reform legislation. Further, the U.S. Supreme Court has ruled on several patent cases in recent years, either
narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in
certain situations. In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination
of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S.
Congress, the federal courts and the U.S. PTO, the laws and regulations governing patents could change in unpredictable
ways that would weaken our ability to obtain new patents or to enforce our existing patents or future patents.

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We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged
trade secrets of their former employers.

Our employees have been previously employed at other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. We may be subject to claims that these employees or we have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of the former employers of our employees.
Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims,
litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in
addition to paying money damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to commercialize setmelanotide, which would materially
adversely affect our commercial development efforts.

Risks Related to Regulatory Approval and Marketing of Setmelanotide and Other Legal Compliance Matters

Even if we complete the necessary clinical trials, the regulatory and marketing approval process is expensive, time
consuming and uncertain and may prevent us from obtaining approvals for the commercialization of setmelanotide.
We depend entirely on the success of setmelanotide, which is in Phase 3 clinical development for treatment of POMC
deficiency obesity, LEPR deficiency obesity, Bardet-Biedl syndrome and Alström syndrome. We cannot be certain that
we will be able to obtain regulatory approval for, or successfully commercialize, setmelanotide. If we are not able to
obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize
setmelanotide, and our ability to generate revenue will be materially impaired.

We currently have only one product candidate, setmelanotide, in clinical development, and our business depends
entirely on its successful clinical development, regulatory approval and commercialization. We currently have no drug
products for sale and may never be able to develop marketable drug products. Setmelanotide, which is currently in Phase 3
clinical development as a treatment for genetic deficiencies affecting the MC4 pathway, including POMC deficiency
obesity, LEPR deficiency obesity, Bardet-Biedl syndrome and Alström syndrome, will require substantial additional
clinical development, testing and regulatory approval before we are permitted to commence commercialization. The
clinical trials of setmelanotide are, and the manufacturing and marketing of setmelanotide will be, subject to extensive and
rigorous review and regulation by numerous government authorities in the United States and in other countries where we
intend to test and, if approved, market setmelanotide. Before obtaining regulatory approvals for the commercial sale of
any product candidate, we must demonstrate through non-clinical testing and clinical trials that the product candidate is
safe and effective for use in each target indication. This process can take many years and approval, if any, may be
conditional on post-marketing studies and surveillance, and will require the expenditure of substantial resources beyond
our existing cash resources. When a sponsor relies exclusively or predominantly on foreign clinical data, the FDA may
require a showing that those data are applicable to the U.S. population and U.S. medical practice, which in some cases
may require bridging studies or other evidence. Of the large number of drugs in development in the United States and in
other countries, only a small percentage will successfully complete the FDA regulatory approval process or the equivalent
process in foreign jurisdictions and will be commercialized. In addition, we have not discussed all of our proposed
development programs with the FDA of the competent authorities of foreign jurisdictions. Accordingly, even if we are
able to obtain the requisite financing to continue to fund our development and clinical trials, we cannot assure you that
setmelanotide will be successfully developed or commercialized.

We are not permitted to market setmelanotide in the United States until we receive approval of an NDA from the
FDA, or in any foreign jurisdictions until we receive the requisite approval from the competent authorities in such
countries. We have three Phase 3 clinical trials underway, one each for the treatment of POMC deficiency obesity and
LEPR deficiency obesity and a third combined Phase 3 trial for Bardet-Biedl syndrome and Alström syndrome. Under our
current development program, we plan to conduct a single Phase 3 clinical trial for POMC deficiency obesity. To date, in
our ongoing discussions with the FDA, the agency has not asked for additional Phase 3 trials in POMC deficiency obesity,
but the agency could still require us to conduct additional Phase 3 clinical trials for this indication. Moreover, for POMC
deficiency obesity, the FDA has provided clear advice in the past, but could at any time alter its previous advice on many
aspects of the trial—the small size, the primary and key secondary endpoints, the open label design, the amount of past
medical history available on individual patients, the statistical analysis plan, the definition of clinically-relevant success
for the protocol, entry of patients ages six or over—all of which may impact the timing and ability to obtain FDA approval.

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For example, the FDA asked us in December 2017 to switch the order of our primary and key secondary endpoints for
weight in our POMC deficiency Phase 3 protocol. While this might be favorable as the new primary endpoint has increased
statistical power—the ability to produce a positive study result—this change occurred after the Phase 3 trial had started
and may result in additional complexities such as more attention to compliance and retention. There are other aspects of
the trial for which we have not received advice from the FDA, such as the number of U.S. versus non-U.S. patients and
the number of patients with POMC gene defects versus the number of patients with PCSK1 defects, which could also
impact the timing of and our ability to obtain FDA approval. We have received FDA comments that indicate the Phase 3
program for LEPR deficiency can be similar to POMC deficiency, but we have not yet discussed with the FDA the protocol
for a Phase 3 program for LEPR deficiency obesity in detail. Therefore, the timeline for enrollment, availability of data,
and cost of conducting such trials are less certain, and could be less favorable than those applicable to the POMC deficiency
obesity program. Similarly, the preliminary FDA advice on the design of the Bardet-Biedl syndrome and Alström
syndrome combined clinical Phase 3 study could, at any time, be altered by the FDA, including for example, the size of
the trial, the type and importance of endpoints, the length of the trial, the ability to combine the two indications, the
inclusion of pediatric patients and pediatric efficacy endpoints, and the design for any placebo-controlled aspect of the
trial.

In addition, the FDA and other equivalent competent authorities in foreign jurisdictions will expect for there to
be little, or no introduction of bias in the open-label Phase 3 trials. Accordingly, we have agreed with the FDA, and
implemented in our pivotal studies, that little, if any, efficacy data will be available to us in any form until the Phase 3
trials are complete.

The FDA or other regulatory authorities and other equivalent competent authorities in foreign jurisdictions will
also require that we conduct one or more pivotal trials for each other indication sought. In addition, we are not sure if one
or more Phase 3 trials would be required for approval in each other indications. The need and length of placebo-controlled
data in these pivotal trials and the number of patients required for these approvals is also unclear.

We will determine in our own judgment if a non-pivotal trial meets “proof of concept” in each of these indications.
There is no certainty that the FDA, other competent authorities, or outside investors will agree with our determination,
which might have an impact on the ability to transition to Phase 3 studies.

In the EU we are currently conducting the Phase 3 clinical trial RM-493-012 in Germany, France, Belgium, Spain
and the United Kingdom for POMC deficiency obesity. We are also conducting this trial in the United States and Canada.
On March 23, 2017, we received EMA scientific advice on the appropriateness and sufficiency of the non-clinical and
clinical development programs to support an initial marketing authorization application in POMC deficiency obesity. The
EMA scientific advice included preliminary advice on the clinical trial RM-493-012. The EMA expressed general support
for the ongoing Phase 3 program in POMC deficiency obesity. The EMA advised that the regulatory strategy for a rare
disorder is supported and that the EMA may have to rely on scarce data. The EMA also advised, however, that we need to
consider whether full approval or approval under conditional or exceptional circumstances would be the most appropriate
pathway for application for POMC deficiency obesity.

In June 2018, setmelanotide was designated as PRIME by the CHMP. Acknowledging that setmelanotide targets
an unmet medical need, the EMA offers enhanced support in the development of the medicinal product through interaction
and early dialogue to optimize our development plans and speed up regulatory evaluation in the EU. As part of this
designation, the EMA has provided us with guidance concerning the development of setmelanotide. The PRIME
designation does not, however, guarantee that the regulatory review process in the EU will be shorter or less demanding.
Neither does the PRIME designation guarantee that the European Commission will grant a marketing authorization for
setmelanotide.

In the EU we are currently conducting the Phase 3 clinical trial RM-493-015 in Germany, France, Netherlands,
and the United Kingdom, for LEPR deficiency obesity. We are also conducting this study in the United States. We have
not obtained EMA scientific advice for the LEPR deficiency indication, nor have we obtained EMA scientific advice for
the Bardet-Biedl syndrome or Alström syndrome indications.

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Given the orphan status of setmelanotide for the treatment of POMC deficiency in the EU the application for
marketing authorization for a POMC deficiency obesity indication must be submitted via the centralized procedure. In
November 2018, we obtained orphan designation in the EU for setmelanotide for the treatment of LEPR deficiency obesity.
In addition, we have submitted a pediatric investigation plan, or PIP, for setmelanotide to the EMA Pediatric Committee,
or PDCO, in 2017. By a decision in June 2018, the EMA formally accepted the PIPs for setmelanotide in the treatment of
appetite and general nutritional disorders, including the deferral and the waiver requested by us.

We cannot assure you that the clinical trials we are conducting in the EU will be completed within this timeline.
Similar to the United States, we are subject to comprehensive regulatory oversight by the competent authorities of the
individual EU member states where we are conducting our clinical trials. Failure by us or by any of our third party partners
to comply with EU laws and the related national laws of individual EU member states governing the conduct of clinical
trials may result in the suspension of clinical trials or in other administrative, civil or criminal penalties.

Our plan is to expand our internal clinical development operations and capabilities so that we can continue to
enroll and manage our Phase 2 and Phase 3 clinical trials such that if the clinical trials are successful, we can file NDAs
for POMC deficiency obesity and LEPR deficiency obesity in the United States by 2019 or early 2020. We believe we
have finalized the design, timing and size of our Phase 3 trial for POMC deficiency obesity with the FDA but we cannot
assure you that the trial will not be subject to further modification or that it will be completed on time. In addition, obtaining
approval of an NDA and the approval of a marketing authorization application from the European Commission is a
complex, lengthy, expensive and uncertain process, and the FDA, EMA or equivalent competent authorities in foreign
jurisdictions may delay, limit or deny approval of setmelanotide for many reasons, including, among others:

•

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may disagree with our
interpretation of data from clinical trials, or may change the requirements for approval even after it has
reviewed and commented on the design for our clinical trials;

• we may not be able to demonstrate to the satisfaction of the FDA, the EMA, or other equivalent competent
authorities in foreign jurisdictions that setmelanotide is safe and effective in treating obesity caused by certain
genetic deficiencies affecting the MC4 pathway;

•

the results of our clinical trials may not be interpretable or meet the level of statistical or clinical significance
required by the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions for
marketing approval. For example, the potential unblinding of setmelanotide studies due to easily identifiable
adverse events may raise the concern that potential bias has affected the clinical trial results;

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may disagree with the
number, size, conduct or implementation of our clinical trials;

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may require that we
conduct additional clinical trials or pre-clinical studies;

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions or the applicable foreign
regulatory agency may identify deficiencies in our chemistry, manufacturing or controls of setmelanotide;

the CROs that we retain to conduct our clinical trials may take actions outside of our control that materially
adversely impact our clinical trials;

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may find the data from
preclinical studies and clinical trials insufficient to demonstrate that clinical and other benefits of
setmelanotide outweigh its safety risks;

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may disagree with our
interpretation of data from our preclinical studies and clinical trials;

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•

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may not approve the
formulation, labeling or specifications of setmelanotide;

the FDA, the EMA, or other equivalent competent authorities in foreign jurisdictions may not accept data
generated at our clinical trial sites;

if and when our NDA or our marketing authorization application is submitted and reviewed by an advisory
committee, the FDA, the EMA, or the equivalent competent authorities in foreign jurisdictions may have
difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may
recommend against approval of our application or may recommend that the FDA, the EMA, or the equivalent
competent authorities in foreign jurisdictions may require, as a condition of approval, additional preclinical
studies or clinical trials, limitations on approved labeling or distribution and use restrictions;

the FDA may require development of a REMS as a condition of approval or post-approval, or may not agree
with our proposed REMS or may impose additional requirements that limit the promotion, advertising,
distribution, or sales of setmelanotide. In addition, the European Commission may grant only conditional
approval marketing authorization or impose specific obligations as a condition for marketing authorization,
or may require us to conduct post authorization safety studies as a condition of grant of marketing
authorization;

the FDA or other equivalent competent foreign regulatory agency may deem our manufacturing processes or
our facilities or the facilities of our CMOs inadequate to preserve the identity, strength, quality, purity, or
potency of our product; or

the FDA, the European Commission, or the equivalent competent authorities in foreign jurisdictions may
change its approval policies or adopt new regulations and guidance.

Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory
approval for and successfully market setmelanotide. Moreover, because our business is entirely dependent upon
setmelanotide, any such setback in our pursuit of regulatory approval would have a material adverse effect on our business
and prospects.

Our failure to obtain marketing approval in foreign jurisdictions would prevent setmelanotide from being marketed
abroad, and any approval we are granted for setmelanotide in the United States would not assure approval of
setmelanotide in foreign jurisdictions.

In order to market and sell setmelanotide and any other product candidate that we may develop in the EU and
many other jurisdictions, we or our third-party collaborators must obtain separate marketing authorizations and comply
with numerous and varying regulatory requirements. The marketing authorization procedure varies among countries and
can involve additional testing. The time required to obtain marketing authorization may differ substantially from that
required to obtain FDA approval. The marketing authorization process outside the United States generally includes all of
the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required
that the product be approved for reimbursement before the product can be sold in that country. We or these third parties
may not obtain marketing authorization from competent authorities outside the United States on a timely basis, if at all.
Approval by the FDA does not ensure grant of marketing authorization by competent authorities in other countries or
jurisdictions, and grant of marketing authorization by one competent authority outside the United States does not ensure
grant of marketing authorization by competent authorities in other countries or jurisdictions or by the FDA. We may not
be able to file for marketing authorizations and may not receive necessary marketing authorization to commercialize
setmelanotide in any market. Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of
leaving the EU, commonly referred to as Brexit. On March 29, 2017, the country formally notified the EU of its intention
to withdraw pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework in the
United Kingdom is derived from EU directives and regulations, the withdrawal of the United Kingdom from the EU could
materially impact the regulatory regime with respect to the marketing authorization of setmelanotide in the United
Kingdom or the EU. Any delay in obtaining, or an inability to obtain, any marketing authorization, as a result of Brexit or

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otherwise, would prevent us from commercializing setmelanotide in the United Kingdom and/or the EU and restrict our
ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to
restrict or delay efforts to seek marketing authorization in the United Kingdom and/or EU for setmelanotide, which could
significantly and materially harm our business.

Even if we obtain marketing approval for setmelanotide, the terms of approval and ongoing regulation may limit how
we manufacture and market setmelanotide and compliance with such requirements may involve substantial resources,
which could materially impair our ability to generate revenue.

Even if we receive marketing approval for setmelanotide, regulatory authorities may impose significant
restrictions on setmelanotide’s indicated uses or marketing or impose ongoing requirements for potentially costly post
approval studies. Setmelanotide will also be subject to ongoing requirements by the FDA, the EMA, and the competent
authorities in the EU member states, governing labeling, packaging, storage, advertising, promotion, marketing,
distribution, importation, exportation, post-approval changes, manufacturing, recordkeeping, and submission of safety and
other post market information. The FDA and the other competent foreign authorities have significant post market authority,
including, for example, the authority to require labeling changes based on new safety information and to require post
market studies or clinical trials to evaluate serious safety risks related to the use of a drug. The FDA also has the authority
to require, as part of an NDA or post approval, the submission of a REMS, which may include Elements to Assure Safe
Use, or ETASU. Any REMS required by the FDA may lead to increased costs to assure compliance with new post approval
regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could
lead to lower sales volume and revenue.

Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the
FDA and other equivalent competent authorities for compliance with cGMPs and other regulations. If we or a regulatory
agency discover problems with setmelanotide, such as adverse events of unanticipated severity or frequency, or problems
with the facility where setmelanotide is manufactured, a regulatory agency may impose restrictions on setmelanotide, the
manufacturer or us, including requiring withdrawal of setmelanotide from the market or suspension of manufacturing. If
we or the manufacturing facilities for setmelanotide fail to comply with applicable regulatory requirements, a regulatory
agency may, among other things:

•

issue warning letters or untitled letters;

seek an injunction or impose civil or criminal penalties or monetary fines;

vary, suspend or withdraw marketing approval;

suspend any ongoing clinical trials;

refuse to approve pending applications or supplements to applications submitted by us;

suspend or impose restrictions on operations, including costly new manufacturing requirements; or

seize or detain setmelanotide, refuse to permit the import or export of setmelanotide, or request that we
initiate a product recall.

Accordingly, assuming we receive marketing approval for setmelanotide, we and our CMOs will continue to
expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product
surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have
the marketing approvals for setmelanotide withdrawn by regulatory authorities and our ability to market any future
products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of
compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

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Similar to the United States, both marketing authorization holders and manufacturers of medicinal products are
subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual EU member
states, both before and after grant of the manufacturing and marketing authorizations. This oversight includes control of
compliance with cGMP rules, which govern quality control of the manufacturing process and require documentation
policies and procedures. We and our third party manufacturers would be required to ensure that all of our processes,
methods, and equipment are compliant with cGMP. Failure by us or by any of our third party partners, including suppliers,
manufacturers, and distributors to comply with EU laws and the related national laws of individual EU member states
governing the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products, both
before and after grant of marketing authorization, and marketing of such products following grant of authorization may
result in administrative, civil, or criminal penalties. These penalties could include delays in or refusal to authorize the
conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension,
or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing, or clinical
trials, operating restrictions, injunctions, suspension of licenses, fines, and criminal penalties.

In addition, EU legislation related to pharmacovigilance, or the assessment and monitoring of the safety of
medicinal products, provides that the EMA and the competent authorities of the EU member states have the authority to
require companies to conduct additional post-approval clinical efficacy and safety studies. The legislation also governs the
obligations of marketing authorization holders with respect to additional monitoring, adverse event management and
reporting. Under the pharmacovigilance legislation and its related regulations and guidelines, we may be required to
conduct a labor intensive collection of data regarding the risks and benefits of marketed products and may be required to
engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical
studies, which may be time-consuming and expensive and could impact our profitability. Non-compliance with such
obligations can lead to the variation, suspension or withdrawal of marketing authorization or imposition of financial
penalties or other enforcement measures.

Current and future healthcare reform legislation or regulation may increase the difficulty and cost for us and any
future collaborators to obtain marketing approval of and commercialize setmelanotide and may adversely affect the
prices we, or they, may obtain and may have a negative impact on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, a number of legislative
and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or
delay marketing approval of setmelanotide, restrict or regulate post-approval activities and affect our ability, or the ability
of any future collaborators, to profitably sell any products for which we, or they, obtain marketing approval. Among policy
makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare
systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United
States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major
legislative initiatives. We expect that current laws, as well as other healthcare reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any
future collaborators, may receive for any approved products.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010, or collectively the ACA. The ACA substantially changed the
way healthcare is financed by both governmental and private insurers, and significantly affects the U.S. pharmaceutical
industry. Among the provisions of the ACA of importance to our business, including, without limitation, our ability to
commercialize and the prices we may obtain for any product candidates and that are approved for sale, are the following:

•

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•

expansion of manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the
minimum rebate for both branded and generic drugs, revising the “average manufacturer price” definition,
and extending rebate liability from fee-for-service Medicaid utilization to include the utilization of Medicaid
managed care organizations as well as Medicaid managed care;

expansion of the list of entity types eligible for participation in the Public Health Service 340B drug pricing
program, or the 340B program, to include certain free-standing cancer hospitals, critical access hospitals,
rural referral centers, and sole community hospitals, but exempting “orphan drugs” from the 340B ceiling
price requirements for these covered entities;

establishment of the Medicare Part D coverage gap discount program requiring manufacturers to provide a
then 50% point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries
during their coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under
Medicare Part D;

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research; and

establishment of the Center for Medicare and Medicaid Innovation within CMS to test innovative payment
and service delivery models to lower Medicare and Medicaid spending, potentially including prescription
drug spending.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For
example, beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were
reduced by 2% under the sequestration required by the Budget Control Act of 2011, as amended by the American Taxpayer
Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2027. Sequestration may result in
additional reductions in Medicare and other healthcare funding and, if we obtain regulatory approvals, may otherwise
affect the prices we may obtain for setmelanotide or the frequency with which setmelanotide is prescribed or used if
approved.

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

Additional changes that may affect our business include the expansion of new programs such as Medicare
payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or
MACRA, which will be fully implemented in 2019. At this time, it is unclear how the introduction of this Medicare quality
payment program will impact overall physician reimbursement. The cost of prescription pharmaceuticals in the United
States has also been the subject of considerable discussion in the United States, and members of Congress and the
Administration have stated that they will address such costs through new legislative and administrative measures. This
focus has resulted in several Congressional inquiries and proposed bills and regulatory initiatives designed to, among other
things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drug products.

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We expect that these and other healthcare reform measures that may be adopted in the future may result in
more rigorous coverage and payment criteria and in additional downward pressure on the price that we receive for any
approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar
reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms
may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs. We expect that
additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, which could result in reduced demand for
our drug candidates or additional pricing pressures.

The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States.
In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of
marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost effectiveness of setmelanotide to other available therapies. If reimbursement
of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to
generate revenues and become profitable could be impaired. For more details concerning the risks related to pricing and
reimbursement in the EU, please refer to the discussion in the risk factor “The successful commercialization of
setmelanotide and our other product candidates will depend in part on the extent to which governmental authorities,
private health insurers, and other third-party payors provide coverage and adequate reimbursement levels. Failure to
obtain or maintain coverage and adequate reimbursement for setmelanotide or our other product candidates, if approved,
could limit our ability to market those products and decrease our ability to generate revenue” in this Annual Report on
Form 10-K.

If we participate in the Medicaid Drug Rebate Program and fail to comply with our reporting and payment obligations
under that program or other governmental pricing programs that we participate in, we could be subject to additional
reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our
business, financial condition, results of operations and growth prospects.

We expect to participate in and have certain price reporting obligations to the Medicaid Drug Rebate Program.
Under the Medicaid Drug Rebate Program, if we successfully commercialize setmelanotide, we would be required to pay
a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and
paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs
under Medicaid and Medicare Part B. Those rebates are based on pricing data we would have to report on a monthly and
quarterly basis to the CMS, the federal agency that administers the Medicaid Drug Rebate Program. These data include
the average manufacturer price and, in the case of innovator products, the best price for each drug which, in general,
represents the lowest price available from the manufacturer to any entity in the U.S. in any pricing structure, calculated to
include all sales and associated rebates, discounts and other price concessions. Our failure to comply with these price
reporting and rebate payment obligations if we participate in the program could negatively impact our financial results.

The ACA made significant changes to the Medicaid Drug Rebate program, as described under the risk factor
“Current and future healthcare reform legislation or regulation may increase the difficulty and cost for us and any future
collaborators to obtain marketing approval of and commercialize setmelanotide and may adversely affect the prices we,
or they, may obtain and may have a negative impact on our business and results of operations,” above. Congress could
enact additional legislation that further increases Medicaid drug rebates or other costs and charges associated with
participating in the Medicaid Drug Rebate program. Additional legislation or the issuance of regulations relating to the
Medicaid Drug Rebate program could have a material adverse effect on our results of operations.

Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in
the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare
Part B. The 340B program, which is administered by HRSA, requires participating manufacturers to agree to charge
statutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs.
These 340B covered entities include a variety of community health clinics and other entities that receive health services
grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The
ACA expanded the list of covered entities to include certain free-standing cancer hospitals, critical access hospitals, rural
referral centers and sole community hospitals, but exempts “orphan drugs” from the ceiling price requirements for these

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covered entities. The 340B ceiling price is calculated using a statutory formula based on the average manufacturer price
and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate Program, and in general,
products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and
discount requirement. Any additional future changes to the definition of average manufacturer price and the Medicaid
rebate amount under the ACA or other legislation or regulation could affect our 340B ceiling price calculations and
negatively impact our results of operations if we successfully commercialize setmelanotide.

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

Pricing and rebate calculations vary among products and programs. The calculations are complex and are often
subject to interpretation by us, governmental or regulatory agencies, and the courts. If we participate in the Medicaid Drug
Rebate Program and consequently the 340B program, we could be held liable for errors associated with our submission of
pricing data. In addition to retroactive Medicaid rebates and the potential for 340B program refunds, if we are found to
have knowingly submitted false average manufacturer price or best price information to the government, we may be liable
for significant civil monetary penalties per item of false information. Civil monetary penalties can also be applied if we
are found to have charged 340B covered entities more than the statutorily mandated ceiling price. Our failure to submit
monthly/quarterly average manufacturer price and best price data on a timely basis could result in a significant civil
monetary penalty per day for each day the information is late beyond the due date. Such failure also could be grounds for
CMS to terminate our Medicaid drug rebate agreement, pursuant to which we would be participating in the Medicaid
program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid
or Medicare Part B for our covered outpatient drugs.

CMS and the Department of Health & Human Services Office of Inspector General have pursued manufacturers
that were alleged to have failed to report these data to the government in a timely manner. Governmental agencies may
also make changes in program interpretations, requirements or conditions of participation, some of which may have
implications for amounts previously estimated or paid. If we participate in the Medicaid Drug Rebate Program and
consequently the 340B program, we cannot assure you that our submissions will not be found to be incomplete or incorrect.

If we successfully commercialize our products, we also would participate in the Tricare Retail Pharmacy program,
under which we would be required to pay quarterly rebates on utilization of innovator products that are dispensed through
the Tricare Retail Pharmacy network to Tricare beneficiaries. The rebates are calculated as the difference between the
annual Non-FAMP and FCP. We would be required to list our innovator products on a Tricare Agreement in order for
them to be eligible for DOD formulary inclusion. If we overcharge the government in connection with our FSS contract
or Tricare Agreement, whether due to a misstated FCP or otherwise, we would be required to refund the difference to the

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government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations
against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and
responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have
a material adverse effect on our business, financial condition, results of operations and growth prospects.

If we obtain marketing approval for setmelanotide, we will be subject to strict enforcement of post-marketing
requirements and we could be subject to substantial penalties, including withdrawal of our product from the market, if
we fail to comply with all regulatory requirements.

If we obtain marketing approval for setmelanotide, we will be subject to continual requirements of and review by
the FDA and equivalent competent authorities in foreign jurisdictions. These requirements may include, but are not limited
to, post-approval studies to be conducted which may include carcinogenicity studies, a QT interval prolongation study in
one form or another, other Phase 1 trials, and ongoing natural history studies with patient registries. Other requirements
may also include, among other things, restrictions governing promotion of an approved product, submissions of safety and
other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to
manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and
requirements regarding the distribution of samples to physicians and recordkeeping. The FDA and other federal and state
agencies, including the Department of Justice and other equivalent competent authorities in foreign jurisdictions, closely
regulate compliance with all requirements governing prescription drug products, including requirements pertaining to
marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of
products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging
violations of the FDCA, and other statutes, including the False Claims Act and other federal and state health care fraud
and abuse laws as well as state consumer protection laws.

For example, the FDA and other equivalent competent authorities in foreign jurisdictions strictly regulate the
promotional claims that may be made about prescription products, such as setmelanotide, if approved. In particular, a
product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in
the product’s approved labeling. If we receive marketing approval for setmelanotide as a treatment for obesity caused by
certain genetic deficiencies affecting the MC4 pathway, physicians may nevertheless prescribe setmelanotide to their
patients in a manner that is inconsistent with the approved labeling. If we are found to have promoted such off-label uses,
we may become subject to significant liability. The federal government has levied large civil and criminal fines against
companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The
FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. Oversight and management of promotional practices may require operational
changes and additions, if setmelanotide is approved and commercialized. If we cannot successfully manage the promotion
of setmelanotide, if approved, we could become subject to significant liability, which would materially adversely affect
our business and financial condition.

In the EU, the advertising and promotion of our products are subject to EU laws governing promotion of medicinal
products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In
addition, other legislation adopted by individual EU member states may apply to the advertising and promotion of
medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply
with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. The SmPC
is the document that provides information to physicians concerning the safe and effective use of the medicinal product. It
forms an intrinsic and integral part of the marketing authorization granted for the medicinal product. Promotion of a
medicinal product that does not comply with the SmPC is considered to constitute off-label promotion. The off-label
promotion of medicinal products is prohibited in the EU. The applicable laws at EU level and in the individual EU member
states also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules
governing the promotion of medicinal products in the EU could be penalized by administrative measures, fines and
imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public
and may also impose limitations on our promotional activities with health care professionals.

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We may be subject to federal and state healthcare laws and regulations. If we are unable to comply or have not fully
complied with such laws and regulations, we could face criminal sanctions, damages, substantial civil penalties,
reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of
setmelanotide, if approved. Our arrangements and interactions with healthcare professionals, third-party payors, patients
and others will expose us to broadly applicable fraud and abuse, anti-kickback, false claims and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which we market, sell and
distribute setmelanotide, if we obtain marketing approval. The U.S. federal and state healthcare laws and regulations that
may affect our ability to operate include, but are not limited to:

• The United States federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons
and entities from knowingly and willfully soliciting, offering, paying, or receiving remuneration, (anything
of value), directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for,
or the purchase, lease order or arranging for or recommending the purchase, lease or order of any good or
service for which payment may be made, in whole or in part, by federal healthcare programs such as Medicare
and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical companies
on one hand and prescribers, purchasers and formulary managers on the other. Liability under the
Anti-Kickback Statute may be established without proving actual knowledge of the statute or specific intent
to violate it. In addition, the government may assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
federal civil False Claims Act. Although there are a number of statutory exceptions and regulatory safe
harbors to the federal Anti-Kickback Statute protecting certain common business arrangements and activities
from prosecution or regulatory sanctions, the exceptions and safe harbors are drawn narrowly. Practices that
involve remuneration to those who prescribe, purchase, or recommend pharmaceutical and biological
products, including certain discounts, or engaging such individuals as consultants, advisors, or speakers, may
be subject to scrutiny if they do not fit squarely within an exception or safe harbor. Our practices may not in
all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are
no safe harbors for many common practices, such as educational and research grants, charitable donations,
product support and patient assistance programs.

• The federal civil False Claims Act prohibits individuals or entities from, among other things, knowingly
presenting, or causing to be presented a false or fraudulent claim for payment of government funds, or
knowingly making, using or causing to made or used a false record or statement material to an obligation to
pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing
or concealing an obligation to pay money to the federal government. Actions under the False Claims Act
may be brought by the Attorney General or as a qui tam action by a private individual in the name of the
government. Such private individuals may share in amounts paid by the entity to the government in recovery
or settlement. Many pharmaceutical manufacturers have been investigated and have reached substantial
financial settlements with the federal government under the civil False Claims Act for a variety of alleged
improper activities including causing false claims to be submitted as a result of the marketing of their
products for unapproved and thus non-reimbursable uses, inflating prices reported to private price publication
services which are used to set drug payment rates under government healthcare programs, and other
interactions with prescribers and other customers including those that may have affected their billing or
coding practices and submission to the federal government. The government may assert that a claim including
items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal civil False Claims Act. False Claims Act liability is potentially
significant in the healthcare industry because the statute provides for treble damages and significant
mandatory penalties per false or fraudulent claim or statement for violations. Because of the potential for
large monetary exposure, healthcare and pharmaceutical companies often resolve allegations without
admissions of liability for significant and material amounts to avoid the uncertainty of treble damages and
per claim penalties that may be awarded in litigation proceedings. Settlements may require companies to
enter into corporate integrity agreements with the government, which may impose substantial costs on
companies to ensure compliance. Pharmaceutical and other healthcare companies also are subject to other

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federal false claims laws, including, among others, federal criminal healthcare fraud and false statement
statutes that extend to non-government health benefit programs.

•

The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health
Information Technology for Economic and Clinical Health Act, or HIPAA, imposes criminal and civil
liability for executing a scheme to defraud any healthcare benefit program, including private third-party
payors, and also imposes obligations, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information. HIPAA also prohibits knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement
or representation, or making or using any false writing or document knowing the same to contain any
materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for
healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or
entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed
a violation.

The federal Physician Payments Sunshine Act, implemented as the Open Payments Program, requires certain
manufacturers of drugs, devices, biologics and medical supplies to report payments and other transfers of
value to physicians for which payment is available under Medicare, Medicaid or the Children’s Health
Insurance Program (with certain exceptions) to report annually to the United States Department of Health
and Human Services, Centers for Medicare and Medicaid Services, information related to physicians (defined
to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as
ownership and investment interests held by physicians and their immediate family members. Beginning in
2022, applicable manufacturers also will be required to report information regarding payments and transfers
of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse
anesthetists, and certified nurse-midwives. Manufacturers must submit reports on or before the 90th day of
each calendar year disclosing reportable payments made in the previous calendar year.

• Analogous state laws and regulations, such as state anti-kickback and false claims laws, which may apply to
items or services reimbursed under Medicaid and other state programs or, in several states, regardless of the
payer, including private insurers. Some state laws require pharmaceutical companies to report expenses
relating to the marketing and promotion of pharmaceutical products and to report gifts and payments to
individual health care providers in those states. Some of these states also prohibit certain marketing-related
activities including the provision of gifts, meals, or other items to certain health care providers. Some states
restrict the ability of manufacturers to offer co-pay support to patients for certain prescription drugs. Some
states require the posting of information relating to clinical studies and their outcomes. Other states and cities
require identification or licensing of sales representatives. In addition, several states require pharmaceutical
companies to implement compliance programs or marketing codes of conduct.

•

Similar restrictions are imposed on the promotion and marketing of medicinal products in the EU member
states and other countries, including restrictions on interactions with healthcare professionals and
requirements for public disclosure of payments made to physicians. Laws (including those governing
promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct
often are strictly enforced. Even in those countries where we may decide not to directly promote or market
our products, inappropriate activity by our international distribution partners could have implications for us.

Ensuring that our business arrangements and interactions with healthcare professionals, third-party payors,
patients and others comply with applicable healthcare laws and regulations will require substantial resources. Various state
and federal regulatory and enforcement agencies continue actively to investigate violations of health care laws and
regulations, and the United States Congress continues to strengthen the arsenal of enforcement tools. The Bipartisan
Budget Act of 2018 increased the criminal and civil penalties that can be imposed for violating certain federal health care
laws, including the Anti-Kickback Statute. Most recently, the Office of Inspector General for the U.S. Department of
Health and Human Services proposed revisions to the Anti-Kickback Statute regulatory safe harbors that if finalized may
have significant effect on pharmaceutical manufacturer interactions with pharmacy benefit managers and insurers.

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It is possible that governmental authorities will conclude that our business practices do not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and
regulations. If our operations, including our engagements with healthcare professionals and patients, or anticipated
activities to be conducted by our sales and marketing team, were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative monetary
penalties, imprisonment, damages, fines, disgorgement, exclusion from government funded healthcare programs, such as
Medicare and Medicaid, contractual damages, diminished profits and future earnings, and the curtailment or restructuring
of our operations, any of which could substantially disrupt our operations or financial results. Although compliance
programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely
eliminated. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could
cause us to incur significant legal expenses and generate negative publicity, which could harm our financial condition and
divert our management’s attention from the operation of our business.

Our employees may engage in misconduct or other improper activities, including violating applicable regulatory
standards and requirements or engaging in insider trading, which could significantly harm our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include
intentional failures to comply with the regulations of the FDA and applicable non-U.S. regulators, provide accurate
information to the FDA and applicable non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations
in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In
particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and
regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and
regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer
incentive programs and other business arrangements. Employee misconduct could also involve the improper use of,
including trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and any precautions
we take to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these
laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions. Some of these laws and related risks are described under the risk factor “We may be subject to
federal and state healthcare laws and regulations. If we are unable to comply or have not fully complied with such laws
and regulations, we could face criminal sanctions, damages, substantial civil penalties, reputational harm and diminished
profits and future earnings” of this Annual Report on Form 10-K.

Our failure to comply with data protection laws and regulations could lead to government enforcement actions and
significant penalties against us, and adversely impact our operating results.

We are subject to U.S. data protection laws and regulations, for example, laws and regulations that address
privacy and data security, at both the federal and state levels. The legislative and regulatory landscape for data protection
continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. Numerous
federal and state laws, including state data breach notification laws, state health information privacy laws, and federal and
state consumer protection laws, including, for example, Section 5 of the FTC Act, govern the collection, use, and
disclosure and protection of health-related and other personal information. Failure to comply with data protection laws
and regulations could result in government enforcement actions and create liability for us, which could include civil and/or
criminal penalties, private litigation and/or adverse publicity that could negatively affect our operating results and business.
In addition, we may obtain health information from third parties, such as research institutions with which we collaborate,
that are subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA, other
than potentially with respect to providing certain employee benefits, we could be subject to criminal penalties if we
knowingly obtain or disclose individually identifiable health information maintained by a HIPAA covered entity in a
manner that is not authorized or permitted by HIPAA. In addition, state laws govern the privacy and security of health
information in specified circumstances, many of which differ from each other in significant ways and may not have the
same effect, thus complicating compliance efforts.

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

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

However, in October 2016, three French digital rights advocacy group, La Quadrature du Net, French Data
Network and the Fédération FDN, brought an action for annulment of the European Commission decision on the adequacy
of the Privacy Shield before the Court of Justice of the EU (Case T-738/16). The case is currently pending before the
European Court of Justice. If the Court of Justice of the European Union invalidates the Privacy Shield, it will no longer
be possible to rely on the Privacy Shield certification to transfer personal data from the EU to entities in the United States.
Adherence to the Privacy Shield is not, however, mandatory. Entities based in the United States are permitted to rely either
on their adherence to the Privacy Shield or on the other authorized means and procedures to transfer personal data provided
by the GDPR.

Our failure to comply with these laws, or changes in the way in which these laws are implemented, could lead to
government enforcement actions and significant penalties against us, and adversely impact our operating results. In
particular, our failure to comply with our obligations under the GDPR, including any failure to adopt measures to ensure
that we can continue to conduct the data processing activities that we have initiated in the EU before the GDPR entered
into application could adversely impact the validity of data generated in our studies.

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Our future growth depends, in part, on our ability to penetrate foreign markets, where we will be subject to additional
regulatory burdens and other risks and uncertainties.

Our future profitability will depend, in part, on our ability to commercialize setmelanotide in foreign markets for
which we intend to rely on collaborations with third parties. If we commercialize setmelanotide in foreign markets, we
will be subject to additional risks and uncertainties, including:

•

our customers’ ability to obtain reimbursement for setmelanotide in foreign markets;

our inability to directly control commercial activities because we are relying on third parties;

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal
requirements;

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

import or export licensing requirements;

longer accounts receivable collection times;

longer lead times for shipping;

language barriers for technical training;

reduced protection of intellectual property rights in some foreign countries;

foreign currency exchange rate fluctuations; and

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of setmelanotide could also be adversely affected by the imposition of governmental controls,

political and economic instability, trade restrictions and changes in tariffs.

Laws and regulations governing any international operations we may have in the future may preclude us from
developing, manufacturing and selling setmelanotide outside of the United States and require us to develop and
implement costly compliance programs.

If we expand our operations outside of the United States, we must dedicate additional resources to comply with
numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act of
1977, or the FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering
anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing
any act or decision of such third party in order to assist the individual or business in obtaining or retaining business. The
FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting
provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the
company, including international subsidiaries, and to devise and maintain an adequate system of internal accounting
controls for international operations.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized
problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries,
hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials.
Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments
to government officials and have led to FCPA enforcement actions.

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Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States,
or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain
products and technical data relating to those products. If we expand our presence outside of the United States, it will
require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing,
manufacturing or selling certain product candidates and products outside of the United States, which could limit our growth
potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial civil and
criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission,
or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting
provisions.

The results of the United Kingdom’s referendum on withdrawal from the EU may have a negative effect on global
economic conditions, financial markets and our business.

On March 29, 2017, the Government of the United Kingdom initiated the formal procedure of withdrawal from
the EU. The procedure involves a two-year negotiation period in which the United Kingdom and the EU must conclude
an agreement setting out the terms of the United Kingdom’s withdrawal and the arrangements for the United Kingdom’s
future relationship with the EU. This negotiation period could be extended by a unanimous decision of the European
Council, in agreement with the United Kingdom.

The referendum has created significant uncertainty concerning the future relationship between the United
Kingdom and the EU. This includes the laws and regulations that will apply as the United Kingdom determines which EU
laws to replace or replicate in the event of a withdrawal. From a regulatory perspective, the United Kingdom’s withdrawal
could result in significant complexity and risks. A basic requirement related to the grant of a marketing authorization for
a medicinal product in the EU is the requirement that the applicant is established in the EU. Following withdrawal of the
United Kingdom from the EU, marketing authorizations previously granted to applicants established in the United
Kingdom may no longer be valid. Moreover, depending upon the exact terms of the United Kingdom’s withdrawal, there
is an arguable risk that the scope of a marketing authorization for a medicinal product granted by the European Commission
pursuant to the centralized procedure would not, in the future, include the United Kingdom. In these circumstances, an
authorization granted by the United Kingdom’s competent authorities would always be required to place medicinal
products on the United Kingdom market.

In addition, the laws and regulations that will apply after the United Kingdom withdraws from the EU may have
implications for manufacturing sites that hold certification issued by the United Kingdom competent authorities. Our
capability to rely on these manufacturing sites for products intended for the EU market would also depend upon the exact
terms of the United Kingdom’s withdrawal.

The United Kingdom referendum has also given rise to calls for the governments of other EU member states to
consider withdrawal from the EU. These developments, or the perception that they could occur, have had and may continue
to have a material adverse effect on global economic conditions and the stability of global financial markets. They may
significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial
markets.

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Risks Related to Preclinical Development and Clinical Development of RM-853

We have assumed sole responsibility for the global product development and commercialization of RM-853, which may
distract our management team from pursuing regulatory approval of setmelanotide, and we may never complete
preclinical development of RM-853 or file an IND with the FDA. Many of the risks we have faced in preclinical
development and in clinical development of setmelanotide will also exist in preclinical development of RM-853 and
clinical development, should we ever enter into clinical development of RM-853

In March 2018 we entered into a license agreement with Takeda Pharmaceutical Company Limited, which we
refer to as Takeda, to develop and commercialize T-3525770, now known as RM-853. RM-853 is a potent, orally available
ghrelin o-acyltransferase, or GOAT, inhibitor currently in preclinical development for PWS. Under the terms of the license
agreement, we assumed sole responsibility for the global product development and commercialization of RM-853. This
relationship may distract our management team from clinical development of setmelanotide and may require us to expend
financial and other resources. PWS is a complex disease and companies have had difficulties in developing new therapies
for PWS. In addition, many of the risks we have faced in preclinical development and in clinical development of
setmelanotide will also exist in preclinical development of RM-853 and clinical development, should we ever enter into
clinical development of RM-853, including, but not limited to:

• RM-853 may not succeed in preclinical toxicology studies or may not be accepted by the FDA under an IND;

•

results from preclinical studies may not be predictive of later clinical trials of RM-853;

• Phase 1 studies may show that RM-853 has a significant toxicities or pharmacokinetics not supportive of

proceeding in development;

•

failures or delays in the commencement or completion of preclinical studies or clinical trials could result in
increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our
business;

• RM-853 could cause undesirable side effects that could result in significant negative consequences, including

the inability to enter clinical development or receive regulatory approval;

•

experience by others suggest that PWS patients are high risk for adverse experiences and for this, and many
other reasons, clinical trials in that population are extremely challenging;

other risks related to regulatory approval, and if ever received, marketing and commercialization of RM-853;

potential product liability exposure;

an inability to protect our intellectual property related to RM-853;

risks related to our dependence on third parties, including in manufacturing RM-853 and conducting
preclinical studies and clinical trials of RM-853;

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal
requirements; and

competition from other therapies in development for the treatment of PWS may result in reduced availability
of patients for our clinical studies, the possible requirement to achieve clinical meaningful efficacy above
any treatment that is approved prior to RM-853, and the potential for increased scrutiny from payers related
to the relative benefit of RM-853 versus other therapies should they be approved prior to RM-853.

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Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our key employees and consultants, and to attract, retain and
motivate qualified personnel.

We are highly dependent on Keith M. Gottesdiener, M.D., our Chief Executive Officer and President, Hunter
Smith, our Chief Financial Officer and Treasurer, Nithya Desikan, our Chief Commercial Officer, Simon Kelner, our Chief
Human Resources Officer, Murray Stewart, M.D., our Chief Medical Officer and Lex H.T. Van der Ploeg, Ph.D., our
Chief Scientific Officer. We have employment agreements with these individuals but any individual may terminate his or
her employment with us at any time. The loss of their services might impede the achievement of our research, development
and commercialization objectives. We also do not have any key-person life insurance on any of these key employees. We
rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and
commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have
commitments under consulting or advisory contracts with other entities that may limit their availability to us and may not
be subject to non-compete agreements. Recruiting and retaining qualified scientific personnel and sales and marketing
personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms
given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also
experience competition for the hiring of scientific personnel from universities and research institutions. Failure to succeed
in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.

We will need to develop and expand our company, and we may encounter difficulties in managing this development
and expansion, which could disrupt our operations.

We expect to increase our number of employees and the scope of our operations. In particular, we will need to
transition from a research and development company to a commercial company. To manage our anticipated development
and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand
our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a
disproportionate amount of its attention away from their day-to-day activities and devote a substantial amount of time to
managing these development activities. Due to our limited resources, we may not be able to effectively manage the
expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our
infrastructure, and give rise to operational mistakes, loss of business and commercial opportunities, loss of employees and
reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs
and may divert financial resources from other projects, such as the development of setmelanotide. If our management is
unable to effectively manage our expected development and expansion, our expenses may increase more than expected,
our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy.
Our future financial performance and our ability to commercialize setmelanotide, if approved, and compete effectively
will depend, in part, on our ability to effectively manage the future development and expansion of our company.

In order to satisfy our obligations as a public company, we will need to hire additional qualified accounting and
financial personnel with appropriate public company experience.

As a newly public company, we must establish and maintain effective disclosure and financial controls. We will
need to continue to hire additional accounting and financial personnel with appropriate public company experience and
technical accounting knowledge, and it may be difficult to recruit and retain such personnel. Even if we are able to hire
appropriate personnel, our existing operating expenses and operations will be impacted by the direct costs of their
employment and the indirect consequences related to the diversion of management resources from product development
efforts.

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Our internal computer systems, or those of our third-party CROs, CMOs or other contractors or consultants, may fail
or suffer security breaches, which could result in a material disruption of setmelanotide development programs.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our
proprietary business information and that of our suppliers, as well as personally identifiable information of employees.
Similarly, our third-party CROs, CMOs and other contractors and consultants possess certain of our sensitive data. The
secure maintenance of this information is material to our operations and business strategy. Despite the implementation of
security measures, our internal computer systems and those of our third-party CROs, CMOs and other contractors and
consultants are vulnerable to attacks by hackers, damage from computer viruses, unauthorized access, breach due to
employee error, malfeasance or other disruptions, natural disasters, terrorism and telecommunication and electrical
failures. Any such attack or breach could compromise our networks and the information stored there could be accessed,
publicly disclosed, lost or stolen. The legislative and regulatory landscape for privacy and data protection continues to
evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect
our business, including recently enacted laws in a majority of states requiring security breach notification. Thus, any
access, disclosure or other loss of information, including our data being breached at our partners or third-party providers,
could result in legal claims or proceedings and liability under laws that protect the privacy of personal information,
disruption of our operations, and damage to our reputation, which could adversely affect our business.

If such an event were to occur and cause interruptions in our operations, it could result in a material disruption
of our programs. For example, the loss of clinical trial data for setmelanotide or other product candidates could result in
delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent
that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications
relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we
could incur liabilities and the further development of setmelanotide and our product candidates could be delayed.

We may acquire businesses or products, form strategic alliances or create joint ventures in the future, and we may not
realize their benefits.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third
parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets
or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully
integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing,
manufacturing and marketing any new products resulting from a strategic alliance, joint venture or acquisition that delay
or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any
such acquisition, we will achieve the expected synergies to justify the transaction.

Risks Related to Our Common Stock

Our principal stockholders and management own a significant percentage of our stock and will be able to exert
significant influence over matters subject to stockholder approval.

Based on the number of shares outstanding as of December 31, 2018, our executive officers, directors, holders
of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 57% of our voting
stock. These stockholders will have significant influence over matters requiring stockholder approval. For example, these
stockholders will significantly influence elections of directors, amendments of our organizational documents, or approval
of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition
proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, even one
that may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or
remove our current management.

We are a Delaware corporation. Provisions in our amended and restated certificate of incorporation and amended
and restated bylaws may delay or prevent an acquisition of us or a change in our management. In addition, because we are

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incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine
with us. Although we believe these provisions collectively will provide for an opportunity to obtain greater value for
stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer
rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which is responsible for appointing the members of our
management. Any provision in our amended and restated certificate of incorporation and amended and restated bylaws or
Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders
to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing
to pay for our common stock.

An active market for our common stock may not be maintained.

Our stock only began trading on the Nasdaq Global Market in October 2017 and we can provide no assurance
that we will be able to maintain an active trading market on the Nasdaq Global Market or any other exchange in the future.
If an active market for our common stock is not maintained, it may be difficult for our stockholders to sell shares without
depressing the market price for the shares or at all. An inactive market may also impair our ability to raise capital by selling
shares and may impair our ability to acquire other businesses, applications or technologies using our shares as
consideration.

Market volatility may affect our stock price and the value of your investment.

The market price for our common stock has been volatile and may continue to fluctuate significantly in response

to a number of factors, most of which we cannot control, including, among others:

•

plans for, progress of, or results from preclinical studies and clinical trials of setmelanotide;

the failure of the FDA to approve setmelanotide;

announcements of new products, technologies, commercial relationships, acquisitions or other events by us
or our competitors;

the success or failure of other weight loss therapies and companies targeting rare diseases and orphan drug
treatment;

regulatory or legal developments in the United States and other countries;

failure of setmelanotide, if approved, to achieve commercial success;

fluctuations in stock market prices and trading volumes of similar companies;

general market conditions and overall fluctuations in U.S. equity markets;

variations in our quarterly operating results;

changes in our financial guidance or securities analysts’ estimates of our financial performance;

changes in accounting principles;

our ability to raise additional capital and the terms on which we can raise it;

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•

sales of large blocks of our common stock, including sales by our executive officers, directors and significant
stockholders;

additions or departures of key personnel;

discussion of us or our stock price by the press and by online investor communities; and

other risks and uncertainties described in these risk factors.

Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results

will be affected by numerous factors, including:

•

variations in the level of expenses related to our development programs;

addition or termination of clinical trials;

any intellectual property infringement lawsuit in which we may become involved;

regulatory developments affecting setmelanotide;

our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may
make or receive under these arrangements;

the achievement and timing of milestone payments under our existing collaboration and license agreements;
and

if setmelanotide receives regulatory approval, the level of underlying demand for that product and customers’
buying patterns.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our
common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn,
cause the price of our stock to fluctuate substantially.

We have broad discretion in how we use the proceeds from our IPO and June 2018 public offering. We may not use
these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

We have considerable discretion in the application of the net proceeds from our IPO and June 2018 public
offering. We intend to continue to use the net proceeds to fund development and manufacturing of setmelanotide through
completion of our Phase 3 clinical trials and subsequent NDA submissions with the FDA for the treatment of POMC
deficiency obesity and LEPR deficiency obesity, the development of setmelanotide through the completion of our
combined Phase 3 clinical trial for Bardet-Biedl syndrome and Alström syndrome, the development of setmelanotide
through our Phase 2 proof of concept clinical trials for POMC heterozygous deficiency obesity and POMC epigenetic
disorders, the preparation for commercialization of setmelanotide, initiatives to expand the diagnosis of genetic obesity,
including research and scientific exchange related to our ongoing genotyping and genetic epidemiology studies and for
working capital and administrative expenses, additional research and development expenses, and other general corporate
purposes. As a result, investors will be relying upon management’s judgment with only limited information about our
specific intentions for the use of the net proceeds. We may use the net proceeds for purposes that do not yield a significant
return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds in a manner
that does not produce income or that loses value.

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Our ability to use certain net operating loss carryovers and other tax attributes may be limited.

We have incurred substantial losses during our history and we do not expect to become profitable in the near
future and may never achieve profitability. Under the Code, a corporation is generally allowed a deduction for net operating
losses, or NOLs, carried over from a prior taxable year. Under the Code, we can carry forward certain NOLs of our
subsidiaries to offset future taxable income, if any, until such losses are used or, for NOLs arising in taxable years ending
on or before December 31, 2018, until such NOLs expire. NOLs arising in taxable years ending after December 31, 2018
are not subject to expiration. NOLs arising in taxable years beginning after December 31, 2018 may only be used to offset
up to 80% of the corporation’s taxable income computed without taking into account NOL deductions. Other unused tax
attributes, such as research tax credits may also be carried forward to offset future taxable income, if any, until such credits
are used or expire. As of December 31, 2018, we had approximately $136.2 million and $113.4 million of unused federal
and state carryforwards of NOLs, respectively, and approximately $2.9 million and $0.8 million of unused federal and
state carryforwards of tax credits, respectively. Of the federal NOL carryforwards at December 31, 2018, $63.1 million
can be carried forward indefinitely. Additionally, as of December 31, 2018, we had federal orphan drug credits related to
qualifying research of $4.3 million.

If a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in
its equity ownership over a three-year period, Sections 382 and 383 of the Code limit the corporation’s ability to use
carryovers of its pre-change NOLs, credits and certain other tax attributes to reduce its tax liability for periods after the
ownership change. Our issuance of common stock pursuant to our IPO may result in a limitation under Code Sections 382
and 383, either separately or in combination with certain prior or subsequent shifts in the ownership of our common stock.
As a result, our ability to use carryovers of pre-change NOLs and credits to reduce our future U.S. federal income tax
liability may be subject to limitations. This could result in increased U.S. federal income tax liability for us if we generate
taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase our state tax
liability. Any such limitation could have a material adverse effect on our results of operations in future years. We have not
completed a study to assess whether an ownership change for purposes of Section 382 or 383 has occurred, or whether
there have been multiple ownership changes since our inception, due to the significant costs and complexities associated
with such study.

The use of our tax attributes will also be limited to the extent that we do not generate positive taxable income in
future tax periods. We do not expect to generate positive taxable income in the near future and we may never achieve tax
profitability.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to
relinquish rights.

We may seek additional capital through a combination of private and public equity offerings, debt financings,
collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of
common stock or securities convertible or exchangeable into common stock, a stockholder’s ownership interest in our
company will be diluted. In addition, the terms of any such securities may include liquidation or other preferences that
materially adversely affect the rights of our stockholders. Debt financing, if available, would increase our fixed payment
obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through
collaboration, strategic partnerships and licensing arrangements with third parties, we may have to relinquish valuable
rights to setmelanotide, our intellectual property or future revenue streams, or grant licenses on terms that are not favorable
to us.

Substantial future sales or perceived potential sales of our common stock in the public market could cause the price of
our common stock to decline significantly.

Sales of our common stock in the public market, or the perception that these sales could occur, could cause the
market price of our common stock to decline significantly. As of December 31, 2018, we have 34,410,725 shares of
common stock outstanding.

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The holders of approximately 11.6 million shares of our common stock, or approximately 34% of our total
outstanding common stock as of December 31, 2018, are entitled to rights with respect to the registration of their shares
under the Securities Act, subject to vesting schedules. Registration of these shares under the Securities Act would result
in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates.
Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common
stock.

We are an “emerging growth company,” and as a result of the reduced disclosure and governance requirements
applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Section 404, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not
previously approved. If we choose not to comply with the auditor attestation requirements of Section 404, our auditors
will not be required to attest to the effectiveness of our internal control over financial reporting. As a result, investors may
become less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other
deficiencies in our internal controls go undetected or may increase. If we choose to provide reduced disclosures in our
periodic reports and proxy statements while we are an emerging growth company, investors would have access to less
information and analysis about our executive compensation, which may make it difficult for investors to evaluate our
executive compensation practices. We cannot predict if investors will find our common stock less attractive because we
will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting
exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until
the earlier of (1) December 31, 2022, (2) the last day of the fiscal year (a) in which we have total annual gross revenue of
at least $1.07 billion, or (b) in which we are deemed to be a large accelerated filer, which means the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (3) the date on which we
have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

For as long as we remain an emerging growth company, we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not applicable to emerging growth
companies as described in the preceding risk factor.

Pursuant to Section 404 of Sarbanes-Oxley, we will be required to furnish a report by our management on our
internal control over financial reporting. However, while we remain an emerging growth company, we will not be required
to include an attestation report on internal control over financial reporting issued by our independent registered public
accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process
to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard,
we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work
plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control
processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous
reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we
will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is
effective as required by Section 404. If we identify one or more material weaknesses in our internal control over financial
reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our
financial statements.

We may be at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the
market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies

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have experienced significant stock price volatility in recent years. If we were to be sued, it could result in substantial costs
and a diversion of management’s attention and resources, which could harm our business.

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your
investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so in
the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and
expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore,
the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There
is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which you purchased
them.

If securities or industry analysts do not continue to publish research or reports or publish unfavorable research or
reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or

industry analysts publish about us, our business, our market or our competitors. We do not control these analysts. If we
lose securities or industry analysts coverage of our company, the trading price for our stock would be negatively
impacted. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If
one or more of these analysts issues unfavorable commentary or ceases to cover us or fails to regularly publish reports
on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of
operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the
global financial markets. The global financial crisis caused extreme volatility and disruptions in the capital and credit
markets. A severe or prolonged economic downturn, such as the global financial crisis, could result in a variety of risks to
our business, including weakened demand for setmelanotide and our ability to raise additional capital when needed on
acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply
disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our
business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions
could adversely impact our business.

We will continue to incur substantial costs as a result of operating as a public company, and our management will
continue to devote substantial time to new compliance initiatives and corporation governance policies.

As a public company, and particularly after we are no longer an emerging growth company, we will continue to
incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Global Market and
other applicable securities rules and regulations impose various requirements on public companies, including
establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our
management and other personnel will continue to devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations will continue to increase our legal and financial compliance costs and make some
activities more time-consuming and costly.

We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These
rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a
result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices.

131

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located in Boston, Massachusetts, where we lease approximately 6,800 square
feet of office space pursuant to lease agreements expiring in May 2021. This facility houses our research, clinical,
regulatory, commercial and administrative personnel. In August 2018, we amended our existing lease agreement and the
new lease term will commence in May 2019 and has a term of six years with a five-year renewal option to extend the lease.
We will lease approximately 13,600 square feet of office space. See Note 8 to our audited consolidated financial statements
included in this report for additional information about this lease.

We believe that our existing facilities are adequate for our near-term needs, but if we need additional space as

we grow and expand our operations. We believe that suitable additional or alternative office space would be available as
required in the future on commercially reasonable terms.

Item 3. Legal Proceedings

We are not currently a party to any material legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.

132

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Our common stock has been listed on The Nasdaq Global Select Market under the symbol “RYTM” since

October 5, 2017. Prior to that date, there was no public trading market for our common stock.

Holders of Common Stock

As of March 1, 2019, there were 22 holders of record of our common stock. This number does not reflect

beneficial owners whose shares are held in street name.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, 2018, regarding our common stock that may be

issued under (1) the 2017 Equity Incentive Plan, or the 2017 Plan; (2) the 2017 Employee Stock Purchase Plan, or the
2017 ESPP.

Plan Category:
Equity compensation plans approved by
stockholders
2017 Plan
2017 ESPP
Equity compensation plans not approved
by stockholders
Total

Dividend Policy

Number of Securities
to be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price
of Outstanding Options,
Warrants and Rights

Number of Securities
Available for Future
Issuance Under Equity
Compensation Plans

2,616,530 $
—

—

2,616,530 $

16.67
—

—
16.67

2,176,638
272,841

—
2,449,479

We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate
that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not
anticipate paying cash dividends in the foreseeable future. In addition, future debt instruments may materially restrict our
ability to pay dividends on our common stock. Payment of future cash dividends, if any, will be at the discretion of the
board of directors after taking into account various factors, including our financial condition, operating results, current and
anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors
deems relevant.

Performance Graph

This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by
reference into any filing of Rhythm Pharmaceuticals, Inc. under the Securities Act of 1933, as amended (the “Securities
Act”), or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation
language in any such filing.

The following graph shows the total stockholder return of an investment of $100 in cash at market close on
October 5, 2017 (the first day of trading of our common stock) through December 31, 2018 for (1) our common stock,
(2) the Nasdaq Composite Index (U.S.) and (3) the Nasdaq Biotechnology Index. Pursuant to applicable Securities and
Exchange Commission rules, all values assume reinvestment of the full amount of all dividends, however no dividends

133

have been declared on our common stock to date. The stockholder return shown on the graph below is not necessarily
indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.

Comparison of 15 Month Cumulative Total Return
Assumes Initial Investment of $100
December 2018

200.00

180.00

160.00

140.00

120.00

100.00

80.00

60.00

40.00

20.00

0.00

Rhythm Pharmaceuticals, Inc.

NASDAQ Composite Index

NASDAQ Biotechnology Index

Recent Sales of Unregistered Securities

None.

Use of Proceeds from Registered Securities

Shares of our common stock began trading on the Nasdaq Global Market on October 5, 2017. The offer and sale
of all the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File
No. 333-220337), which was declared effective by the SEC on October 4, 2017.

There has been no material change in the planned use of proceeds from our IPO as described in the Prospectus

filed with the SEC pursuant to Rule 424(b) under the Securities Act on October 5, 2017.

We issued shares of our common stock on the Nasdaq Global Market on June 25, 2018. The offer and sale of all
the shares in the public offering were registered under the Securities Act pursuant to a registration statement on Form S-1
(File No. 333-225700), which was declared effective by the SEC on June 20, 2018.

There has been no material change in the planned use of proceeds from our public offering as described in the

Prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on June 20, 2018.

Issuer Purchases of Equity Securities

Not applicable.

134

Item 6. Selected Financial Data

You should read the following selected consolidated financial data in conjunction with our consolidated financial
statements and the related notes which are included elsewhere in this Annual Report on Form 10-K and the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” section of this Annual Report on Form 10-K.
We have derived the consolidated statement of operations data for the years ended December 31, 2018, 2017 and 2016,
and the consolidated balance sheet data as of December 31, 2018 and 2017, from our audited consolidated financial
statements, which are included elsewhere in this Annual Report.

Our financial statements for the year ended December 31, 2016, include allocations of costs from certain shared
functions provided to us by the Relamorelin Company, as defined below. These allocations were made based on either a
specific identification basis or, when specific identification is not practicable, a proportional cost allocation method which
allocates expenses based on the percentage of employee time and research and development effort expended on our
business as compared to total employee time and research and development effort, and have been included in our financial
statements for the periods presented. The financial statements included in this annual report may not necessarily reflect
our financial position, results of operations and cash flows as if we had operated as an independent company during all of
the periods presented. See “Note 1. Nature of Business: Corporate Reorganization” to our audited consolidated financial
statements included in this report for additional information about this reorganization.

Our historical results for any prior period are not necessarily indicative of results to be expected for any future

period. Amounts in thousands, except share and per share data.

Operating expenses:

Research and development
Selling, general, and administrative
Total operating expenses

Loss from operations
Other income (expense):

Year Ended

Year Ended
December 31, December 31,

2018

2017

Year Ended
December 31,
2016

Year Ended
December 31,
2015

50,337 $
28,080
78,417
(78,417)

22,894 $
9,518
32,412
(32,412)

19,594 $
6,311
25,905
(25,905)

7,148
3,425
10,573
(10,573)

Revaluation of Series A Investor Instrument and Series
A Investor Right/Obligation
Interest income, net
Total other income (expense):
Net loss and comprehensive loss

Net loss attributable to common stockholders
Net loss attributable to common stockholders per
common share, basic and diluted
Weighted average common shares outstanding, basic and
diluted

$
$

Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital
Total assets
Series A Convertible Preferred Stock
Accumulated deficit
Total stockholders’ equity

—
4,353
4,353
(74,064) $
(74,064) $

(1,863)
566
(1,297)
(33,709) $
(37,582) $

—
33
33
(25,872) $
(29,074) $

(500)
—
(500)
(11,073)
(12,000)

(2.39) $

(2.83) $

(2.85) $

(1.18)

31,004,047

13,267,960

10,196,292

2018

2017

2016

2015

December 31,

34,236 $

49,542 $

202,519
245,107
260,210
—
(184,602)

113,846
143,951
151,736
—
(110,252)
$ 246,256 $ 144,788 $ (32,703) $

6,540 $
3,997
6,444
12,339
40,000
(76,543)

34,869
—
30,218
37,275
40,000
(50,671)
(7,999)

135

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations
together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, or this
Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to
these differences below and elsewhere in this report, including those set forth under Item 1A. “Risk Factors” and under
“Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.

Overview

We are a biopharmaceutical company focused on the development and commercialization of therapeutics for the
treatment of rare genetic disorders that result in severe, life-threatening metabolic disorders. Our lead peptide product
candidate is setmelanotide, a potent, first-in-class melanocortin-4 receptor, or MC4R, agonist for the treatment of rare
genetic disorders of obesity. We believe setmelanotide, for which we have exclusive worldwide rights, has the potential
to serve as replacement therapy for the treatment of melanocortin-4, or MC4, pathway deficiencies. MC4 pathway
deficiencies result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense
feelings of hunger and to obesity. Our development efforts are initially focused on obesity related to six single gene-
related, or monogenic, MC4 pathway deficiencies, pro-opiomelanocortin, or POMC, leptin receptor, or LEPR,
Bardet-Biedl syndrome, Alström syndrome, POMC heterozygous and POMC epigenetic disorders for which there are
currently no effective or approved treatments. We believe that the MC4 pathway is a compelling target for treating these
genetic disorders because of its critical role in regulating appetite and weight by promoting satiety and weight control, and
that peptide therapeutics are uniquely suited for activating this target.

We have demonstrated proof of concept in Phase 2 clinical trials in POMC deficiency obesity, LEPR deficiency
obesity, Bardet-Biedl syndrome and Alström syndrome, four genetic disorders of extreme and unrelenting appetite and
obesity, in which setmelanotide dramatically reduced both weight and hunger. The U.S. Food and Drug Administration,
or the FDA, has acknowledged the importance of these results by giving setmelanotide Breakthrough Therapy designation
for the treatment of obesity associated with genetic defects upstream of the MC4 receptor in the leptin melanocortin
pathways. The Breakthrough Therapy designation currently covers indications for: POMC deficiency obesity, LEPR
deficiency obesity, Bardet-Biedl syndrome and Alström Syndrome. Setmelanotide is currently in Phase 3 development
for POMC deficiency obesity, LEPR deficiency obesity, Bardet-Biedl and Alström syndrome. We have completed
enrollment in the pivotal cohorts for both our POMC deficiency obesity Phase 3 clinical trial and our LEPR deficiency
obesity Phase 3 clinical trial. We expect to report initial Phase 3 data from these trials in the third quarter of 2019, and
subsequently plan to file for regulatory approval for these two indications concurrently. We believe that we have
demonstrated proof of concept in our Phase 2 clinical trial in Bardet-Biedl syndrome and Alström syndrome, and met with
the FDA in May 2018 to discuss a combined pivotal Phase 3 clinical trial in these indications. Based on these discussions
with the FDA, we initiated this trial and began to enroll patients in December 2018. We have an ongoing Phase 2 clinical
trial in POMC heterozygous deficiency obesity and POMC epigenetic disorders. We reported initial, preliminary results
in these additional Phase 2 indications in June 2018, and plan to provide a further update for these indications early in
2019. In total, approximately 330 obese subjects and patients have been treated with setmelanotide in previous and
ongoing clinical trials in which setmelanotide demonstrated statistically significant weight loss with good tolerability.

We have leveraged skilled experts, consultants, contract research organizations, or CROs, and contractors to
manage our clinical operations under the leadership and direction of our management. We expect to expand our
infrastructure to manage our clinical, finance and commercial operations with a higher proportion of full-time employees.
We have fifty-four employees. Of these employees, thirty-five are engaged in research and development activities, eight
are engaged in pre-commercialization activities and eleven are engaged in support administration, including business
development and finance. In the near-term, we expect to significantly expand our clinical, commercial and finance
personnel, in particular, and will incur increased expenses as a result.

In March 2018 we acquired exclusive, worldwide rights from Takeda Pharmaceutical Company Limited, or
Takeda, to develop and commercialize T-3525770 (now “RM-853”). RM-853 is a potent, orally available ghrelin o-

136

acyltransferase, or GOAT, inhibitor currently in preclinical development for Prader-Willi Syndrome, or PWS. PWS is a
rare genetic disorder that results in hyperphagia and early-onset, life-threatening obesity, for which there are no approved
therapeutic options. We 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 will receive back-end development milestones, and single-digit royalties on future RM-853 sales.

Our operations to date have been limited primarily to conducting research and development activities for
setmelanotide. To date, we have not generated any product revenue and have financed our operations primarily through
the proceeds received from the sales of common and preferred stock as well as capital contributions from the Predecessor
Company, the Relamorelin Company and the LLC entity, each as defined below. On October 10, 2017 we completed our
initial public offering, or IPO, of 8,107,500 shares of common stock at an offering price of $17.00 per share, which
included the exercise in full by the underwriters of their option to purchase up to 1,057,500 additional shares of common
stock. We received gross proceeds of approximately $137.8 million, before deducting underwriting discounts,
commissions and offering related transaction costs. In connection with the IPO, our outstanding shares of convertible
preferred stock were automatically converted into 17,406,338 shares of common stock. On June 25, 2018 we completed
our public offering of 6,591,800 shares of common stock at an offering price of $26.42 per share, which included the
exercise in full by the underwriters of their option to purchase up to 859,800 additional shares of common stock. We
received gross proceeds of approximately $174.2 million before deducting underwriting discounts, commissions and
offering expenses. We will not generate revenue from product sales until we successfully complete development and
obtain regulatory approval for setmelanotide, which we expect will take a number of years and is subject to significant
uncertainty. We expect to continue to fund our operations through the sale of equity, debt financings or other sources. We
intend to build our own marketing and commercial sales infrastructure and we may enter into collaborations with other
parties for certain markets outside the United States. However, we may be unable to raise additional funds or enter into
such other arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such other
arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue the development or
commercialization of setmelanotide.

As of December 31, 2018 we had an accumulated deficit of $184.6 million. Our net losses were $74.1 million,
$33.7 million and $25.9 million, for the years ended December 31, 2018 2017 and 2016, respectively. We expect to
continue to incur significant expenses and increasing operating losses over the foreseeable future. We expect our expenses
will increase substantially in connection with our ongoing activities, as we:

•

continue to conduct clinical trials for setmelanotide;

engage contract manufacturing organizations, or CMOs, for the manufacture of setmelanotide for clinical
trials and the manufacture of RM-853 for preclinical development;

seek regulatory approval for setmelanotide;

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

operate as a public company.

As of December 31, 2018, our existing cash and cash equivalents and short-term investments were approximately
$252.1 million. We expect that our existing cash and cash equivalents and short-term investments will enable us to fund
our operating expenses into the second half of 2020.

Corporate Background and Distribution

We are a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of
October 2015, under the name Rhythm Pharmaceuticals, Inc. Prior to our organization and the Corporate Reorganization
referred to below, we were part of Rhythm Pharmaceuticals, Inc., a Delaware corporation which was organized in
November 2008 and which commenced active operations in 2010. We refer to this corporation as the Predecessor
Company.

137

In March 2013, the Predecessor Company underwent a corporate reorganization, which we refer to as the
Corporate Reorganization, pursuant to which all of the outstanding equity securities of the Predecessor Company were
exchanged for units of Rhythm Holding Company, LLC, a newly-organized limited liability company, which we refer to
as the LLC entity. After the consummation of this exchange and as part of the Corporate Reorganization, the Predecessor
Company contributed setmelanotide and the MC4R agonist program to us and distributed to the LLC entity all of the then
issued and outstanding shares of our stock. The result of the Corporate Reorganization was that we and the Predecessor
Company became wholly-owned subsidiaries of the LLC entity and the two product candidates and related programs that
were originally held by the Predecessor Company were separated, with relamorelin and the ghrelin agonist program being
retained by the Predecessor Company and setmelanotide and the MC4R agonist program being held by us. We refer to the
Predecessor Company after consummation of the Corporate Reorganization as the Relamorelin Company. The Predecessor
Company filed the Investigational New Drug Application, or IND, for setmelanotide in October 2011 and conducted the
setmelanotide clinical trials up until the Corporate Reorganization, after which all clinical trials have been conducted by
us.

In October 2014, the LLC entity granted to Actavis plc, now owned by Allergan, Inc., or Allergan, an exclusive
option to acquire the Relamorelin Company. The transaction was limited to the acquisition of the Relamorelin Company
and did not include our company. In October 2016, the option to acquire the Relamorelin Company was exercised and the
sale to Allergan closed on December 15, 2016.

In January 2017 and August 2017, we sold 20,475,001 shares and 20,474,998 shares, respectively, of our series A
convertible preferred stock to certain investors. Following the closing of our series A convertible preferred stock
financings, the LLC entity remained our largest stockholder, with the balance of our stock being owned by our series A
investors. In August 2017, the LLC entity exchanged 8,578,646 of its shares of our common stock for 78,666,209
newly-issued shares of our series A-1 junior preferred stock and the LLC entity distributed all of its shares of our series A-1
junior preferred stock to the holders of its preferred units and the remaining 1,617,646 shares of our common stock to the
holders of its common units. We refer to the exchange and distribution as the Distribution. The series A-1 junior preferred
stock converted into shares of our common stock on a 9.17-for-1 basis upon the closing of our IPO. Following the
Distribution, the LLC entity did not own any of our common stock.

In connection with our IPO, we effected a 1-for-9.17 reverse stock split of our outstanding common stock on
September 29, 2017. All share and per share amounts in the financial statements have been retrospectively adjusted for
all periods presented to give effect of the reverse stock split.

We shared certain costs with the Relamorelin Company and effective December 2016 in connection with the sale

of the Relamorelin Company, we no longer share these costs.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from
the sale of setmelanotide for at least several years. We cannot predict if, when, or to what extent we will generate revenues
from the commercialization and sale of setmelanotide. Setmelanotide is currently our only product candidate in clinical
development, and we may never succeed in achieving regulatory approval for setmelanotide or any other product candidate
that we decide to pursue in the future.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our

drug discovery efforts, and the development of setmelanotide, which include:

•

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

138

•

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

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

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

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

The following table summarizes our current research and development expenses:

Research and development summary

Research and development expense

December 31,
2017
$ 50,337 $ 22,894 $ 19,594

2016

2018

We are unable to predict the duration and costs of the current or future clinical trials of our product candidates.
The duration, costs, and timing of clinical trials and development of setmelanotide will depend on a variety of factors,
including:

•

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

the rate of enrollment in clinical trials;

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

changes in regulatory requirements;

changes in clinical trial design; and

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of our product candidates

would significantly change the costs and timing associated with its development and potential commercialization.

Research and development activities are central to our business model. Product candidates in later stages of
clinical development generally have higher development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to
increase significantly for the foreseeable future as our setmelanotide and RM-853 development programs progress.
However, we do not believe that it is possible at this time to accurately project total program-specific expenses to
commercialization and there can be no guarantee that we can meet the funding needs associated with these expenses.

Selling, general and administrative expenses

Selling expenses consist of professional fees related to preparation for the eventual commercialization of
setmelanotide, if approved, as well as salaries and related benefits for commercial employees, including stock-based
compensation. As we accelerate our preparation for commercialization and, if it is approved, start to market setmelanotide
and as we explore new collaborations to develop and commercialize setmelanotide, we anticipate that these expenses will
materially increase.

139

General and administrative expenses consist primarily of salaries and other related costs, including stock-based
compensation, relating to our full-time employees and until December 2016, for personnel which have been allocated from
the Relamorelin Company. Other significant costs include rent which previously had been allocated from the Relamorelin
Company, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

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

Selling, general and administrative summary
Selling, general and administrative expense

December 31,
2017
$ 28,080 $ 9,518 $ 6,311

2016

2018

We anticipate that our selling, general and administrative expenses will increase in the future to support continued
and expanding development efforts, potential commercialization of setmelanotide and increased costs of operating as a
public company. These increases will likely include increased costs related to the hiring of additional personnel and fees
to outside consultants, lawyers and accountants, compliance with exchange listing and SEC expenses, insurance and
investor relations costs, among other expenses.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial
statements, which we have prepared in accordance with United States generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our
estimates and judgments, including those described in greater detail below. We base our estimates on historical experience
and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements
included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most
critical to aid in fully understanding and evaluating our financial condition and results of operations.

Basis of Presentation

Presentation

We have historically existed and functioned as part of the consolidated businesses of the Predecessor Company.
Our MC4 business was contributed to us from the Predecessor Company on March 21, 2013 as part of the Corporate
Reorganization. At that time, we also entered into the Payroll Services Agreement. In December 2016, the shared
employees terminated their existing employment agreements and entered into new agreements with us. Until
December 2016, we shared costs with the Relamorelin Company, including finance, accounting, research and development
and operations. These shared costs were allocated to us from the Relamorelin Company for the purposes of preparing the
financial statements based on a specific identification basis or, when specific identification is not practicable, a
proportional cost allocation method which allocates expenses based upon the percentage of employee time and research
and development effort expended on our business as compared to total employee time and research and development
effort. The proportional use basis adopted to allocate shared costs is in accordance with the guidance of Staff Accounting
Bulletin Topic 1B. Our management has determined that the proportional use method of allocating costs to us from the
Relamorelin Company is reasonable.

140

Accrued research and development expenses

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

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

2017 Series A Investor Instrument

Pursuant to the 2017 series A preferred stock purchase agreement, by and among us and certain purchasers, and
as part of an initial tranche closing, we issued 20,475,001 shares of series A preferred stock at a purchase price of $1.00
per share in January 2017. The series A preferred stock purchase agreement provided for the delayed issuance by us of up
to an additional 20,474,998 shares of series A preferred stock as part of a second tranche closing at a purchase price of
$1.00 per share. The series A investors had the obligation, upon notification by us, or the 2017 Series A Investor
Right/Obligation, to purchase 20,474,998 additional shares of series A preferred stock as part of a second tranche of
financing at such time as: (1) our cash, cash equivalents and short-term investments balance, net of accounts payable and
accrued liabilities, falling below $5.0 million and (2) our satisfaction of contractual and customary representations and
warranties, or the 2017 Second Tranche Milestone. On August 18, 2017, the series A investors waived the $5.0 million
cash balance requirement of the 2017 second tranche milestone and such second tranche financing was consummated. As
a result of these two tranches, we issued 40.95 million shares of our series A preferred stock, resulting in aggregate gross
proceeds of $40.95 million.

We have classified our 2017 Series A Investor Instrument (see note 4 to our financial statements included
elsewhere in this Annual Report on Form 10-K) a liability as it is a free-standing financial instrument. The 2017 Series A
Investor Instrument was recorded at fair value upon the issuance of our series A preferred stock in January 2017 and
subsequently remeasured to fair value at each reporting period. Changes in fair value of this financial instrument is
recognized as a component of other income (expense), net in the statement of operations and comprehensive loss. We
estimated the fair value of the 2017 Series A Investor Right/Obligations as the probability-weighted present value of the
expected benefit of the investment.

We used the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the
2017 Series A Investor Call Option and assessed these assumptions and estimates on a quarterly basis as additional
information impacting the assumptions was obtained. Estimates and assumptions impacting the fair value measurement

141

include the fair value per share of the underlying series A preferred stock, the expected term of the 2017 Series A Investor
Call Option, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred
stock. We determined the fair value per share of the underlying preferred stock by taking into consideration the most recent
sale of our convertible preferred stock and the investors' right to invest in a subsequent tranche. As we were a private
company and lacked company-specific historical and implied volatility information of our stock, we estimated our
expected stock volatility based on the historical volatility of publicly traded peer companies for a term comparable to the
estimated term of the 2017 Series A Investor Call Option. The risk-free interest rate was determined by reference to the
U.S. Treasury yield curve for time periods approximately equal to the estimated term of the 2017 Series A Investor Call
Options. A dividend yield of zero was assumed. The fair value of the 2017 Series A Investor Instrument is determined to
be the sum of the fair values of the 2017 Series A Investor Right/Obligation and the 2017 Investor Call Option.

Stock-based compensation

In August 2015, our Board of Directors and our stockholders approved and we adopted the 2015 equity incentive
plan, as amended and in effect prior to the closing of our IPO, or the 2015 Plan, which we terminated upon consummation
of our IPO and replaced with the 2017 equity incentive plan, or the 2017 Plan. The 2017 Plan provides for the grant of
incentive and non-qualified stock options and restricted stock and stock grants to employees, consultants, advisors and
directors, as determined by the Board of Directors. As of December 31, 2018, we have reserved 4,793,168 shares of
common stock under the 2017 Plan. Shares of common stock issued upon exercise of stock options are generally issued
from authorized but unissued shares. The 2017 Plan provides that the exercise price of incentive stock options cannot be
less than 100% of the fair market value of the common stock on the date of the award for participants who own less than
10% of the total combined voting power of stock, and not less than 110% for participants who own more than 10% of the
voting power. Options and restricted stock granted under the 2017 Plan will vest over periods as determined by our
Compensation Committee and approved by our Board of Directors.

We estimate the fair value of our stock-based awards to employees and non-employees using the Black-Scholes
option-pricing model, which requires the input of highly subjective assumptions, including (a) the expected volatility of
our stock, (b) the expected term of the award, (c) the risk-free interest rate, and (d) expected dividends. Previously, due to
the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied
volatility data, we have based our estimate of expected volatility on the historical volatility of a group of companies in the
pharmaceutical and biotechnology industries in a similar stage of development as us and that are publicly traded. For these
analyses, we have selected companies with comparable characteristics to ours including enterprise value, risk profiles and
with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the
historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period of
the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount
of historical information regarding the volatility of our own stock price becomes available. We have estimated the expected
life of our employee stock options using the "simplified" method, whereby, the expected life equals the average of the
vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life
of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. Upon adopting
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718) on January 1, 2017, we have
elected to account for forfeitures as they occur. Upon adopting ASU 2018-07, Improvements to Nonemployee Share-Based
Payment Accounting (Topic 718) on July 1, 2018, we elected that unsettled equity-classified awards to nonemployees for
which a measurement date has not been established to be measured using the adoption date fair value.

Income taxes

Income taxes have been calculated on a separate tax return basis. Certain of our activities and costs have been
included in the tax returns filed by the Relamorelin Company and the LLC entity. Prior to the Corporate Reorganization,
our operations were included in the tax returns filed by the Predecessor Company. We have filed tax returns on our own
behalf since the Corporate Reorganization.

We account for uncertain tax positions in accordance with the provisions of Accounting Standards Codification,
or ASC, Topic 740, Accounting for Income Taxes, or ASC 740. When uncertain tax positions exist, we recognize the tax
benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether

142

the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances. As of December 31, 2018, we do not have any uncertain tax
positions.

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

As of December 31, 2018, we had net operating loss carryforwards to reduce federal and state incomes taxes of
approximately $136.2 million and $113.4 million, respectively. If not utilized, these carryforwards begin to expire in 2033.
Of the federal net operating loss carryforwards at December 31, 2018, $63.1 million can be carried forward indefinitely.
At December 31, 2018, we also had available research and development tax credits for federal and state income tax
purposes of approximately $2.9 million and $0.8 million, respectively. Additionally, as of December 31, 2018, we had a
federal orphan drug credits related to qualifying research of $4.3 million. These tax credit carryforwards begin to expire
in 2033 for federal purposes and 2028 for state purposes.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation
due to ownership change limitations that have occurred previously or that could occur in the future, as provided by
Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, or Section 382, as well as similar state
provisions and other provisions of the Code. Ownership changes may limit the amount of net operating losses and tax
credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an
ownership change, as defined by Section 382, results from transactions that increase the ownership of 5.0% stockholders
in the stock of a corporation by more than 50% in the aggregate over a three-year period.

Results of Operations

Comparison of years ended December 31, 2018 and 2017.

The following table summarizes our results of operations for the years ended December 31, 2018 and 2017,

together with the changes in those items in dollars and as a percentage:

Year Ended
December 31,

2018

2017
(in thousands)

Change

Statement of Operations Data:
Operating Expenses:

Research and development
Selling, general, and administrative

Total operating expenses
Loss from operations
Other income (loss)
Net loss and comprehensive loss

$ 50,337 $ 22,894 $ 27,443
18,562
46,005
(46,005)

9,518
32,412
(32,412)
(1,297)
$ (74,064) $ (33,709) $ (40,355)

120 %
195 %
142 %
142 %
5,650 NM %
120 %

28,080
78,417
(78,417)
4,353

Research and development expense. Research and development expense increased by $27.4 million to
$50.3 million in 2018 from $22.9 million in 2017, an increase of 120%. The increase was primarily due to the following:

•

an increase of $6.5 million in employee related costs due to the hiring of additional full-time employees to
support the growth of our research and development programs. We began a significant increase in headcount
during the second half of 2017 as well as throughout 2018;

143

•

an increase of $5.0 million related to our clinical trials associated with setmelanotide. Our POMC deficiency
obesity and LEPR deficiency obesity Phase 3 trials were fully enrolled in first half of 2018. We expanded
our Phase 2 basket study and began two new programs, our extension study for existing protocols and a new
Phase 3 study for a combined Bardet-Biedl syndrome and Alström syndrome;

an increase of $4.4 million due to the non-cash expense related to the license acquired from Takeda for RM-
853;

an increase of $3.4 million related to genetic sequencing efforts designed to improve identification of patients
with MC4 pathway deficiencies and expanding our development programs and discovery efforts focused on
identifying new clinical candidates and additional indications of interest;

an increase of $4.2 million in consulting and professional services associated with the creation of our U.S.
and EU Medical Science Liaison field force, our medical communication programs and our chemistry,
manufacturing and controls quality control programs; and

an increase of $1.0 million related to the continued manufacturing of setmelanotide for clinical trials and the
manufacturing of RM-853 for preclinical development.

Selling, General and administrative expense. Selling, general and administrative expense increased by $18.6
million to $28.1 million in 2018 from $9.5 million in 2017, an increase of 195%. The increase was primarily due to the
following:

•

an increase of $4.4 million in employee related costs in connection with the hiring of additional full-time
employees to support planned commercial activities, operations and the continued build of finance and
human resource functions;

an increase of $8.7 million which relate to expenses incurred to increase disease awareness about rare genetic
causes of obesity among healthcare providers and patients and our preparations for a potential commercial
launch, if we are successful in our efforts to obtain regulatory approval of setmelanotide in the United
States. We began the initiation of our pre-commercial activities in the second half of 2017. Approximately
$1.8 million of this increase related to costs associated with the rollout of our disease education campaigns
including our media outreach program with two new websites and various social media programs; and

an increase of $1.9 million related to professional fees associated with expanding operations, including
costs related to IT and legal services, including legal expenses to pursue patent protection of our
intellectual property for both setmelanotide and RM-853, as well as fees associated with being a public
company.

144

Comparison of years ended December 31, 2017 and December 31, 2016.

The following table summarizes our results of operations for the years ended December 31, 2017 and 2016,

together with the changes in those items in dollars and as a percentage:

Statement of Operations Data:
Operating Expenses:

Research and development
General, and administrative

Total operating expenses
Loss from operations
Other income (loss)
Net loss and comprehensive loss

Year Ended
December 31,

2017

2016

Change

22,894 $

19,594 $

9,518
32,412
(32,412)
(1,297)

6,311
25,905
(25,905)
33

$ (33,709) $ (25,872) $

3,300
3,207
6,507
(6,507)
(1,330)
(7,837)

17 %
51 %
25 %
(25)%
NM %
(30)%

Research and development expense. Research and development expense increased by $3.3 million to
$22.9 million in 2017 from $19.6 million in 2016, an increase of 17%. The increase was primarily due to the increased
enrollment for our Phase 3 POMC deficiency obesity trial and preparing for our Phase 3 LEPR deficiency obesity trial, as
well as the initiation of additional new clinical trials in 2017 and other development activities associated with
setmelanotide. We hired additional personnel in the clinical operations department at the end of 2016 and throughout 2017.

Selling, General and administrative expense. Selling, general and administrative expense increased by $3.2
million to $9.5 million in 2017 from $6.3 million in 2016, an increase of 51%. The increase was primarily due to an
increase in headcount in both the commercial department and general and administrative departments as well as
increased professional and consulting fees associated with being a public company. In 2017, we began the initiation of
pre-commercial activities related to setmelanotide.

Liquidity and Capital Resources

As of December 31, 2018, our existing cash and cash equivalents and short-term investments were approximately

$252.1 million.

Cash flows

The following table provides information regarding our cash flows for the years ended December 31, 2018, 2017

and 2016:

2018

Year Ended December 31,
2017
(in thousands)

2016

Net cash provided by (used in):

Operating activities
Investing activities
Financing activities

Net increase in cash, cash equivalents and restricted cash

Net cash used in operating activities

$ (62,056) $
(87,148)
164,686
15,482

(29,460) $ (23,219)
(5,110)
—
(28,329)

(110,044)
167,200
27,696

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes

in components of working capital.

145

Net cash used in operating activities was $62.1 million for the year ended December 31, 2018, and consisted
primarily of a net loss of $62.7 million adjusted for non-cash items, which consisted of the non-cash research and
development license expense for RM-853, stock-based compensation and depreciation and amortization.

Net cash used in operating activities was $29.5 million for the year ended December 31, 2017, and consisted
primarily of a net loss of $29.4 million adjusted for non-cash items, which were comprised of stock-based compensation,
depreciation and amortization and the mark to market revaluation of the 2017 Series A Investor Instrument. The significant
items in the change in operating assets and liabilities include an increase in accounts payable, accrued expenses and other
current liabilities of $1.9 million offset by an increase of approximately $1.9 million in prepaid expenses and other current
assets.

Net cash used in operating activities was $23.2 million for the year ended December 31, 2016, and consisted
primarily of a net loss of $24.5 million adjusted for non-cash items, which consisted of stock-based compensation,
depreciation and amortization and deferred rent expense. The significant items in the change in operating assets and
liabilities include a decrease of $1.5 million in deferred issuance costs offset by a decrease in deferred grant income of
approximately $0.3 million.

Net cash used in investing activities

Net cash used in investing activities for the year ended December 31, 2018 relates to the net purchases of
short-term investments of $86.4 million and fixed asset additions of $0.7 million related to the implementation of our new
enterprise resource planning system and costs related to the expansion of our office facilities following the amendment of
our long-term lease.

Net cash used in investing activities for the year ended December 31, 2017 relates to the net purchases of

short-term investments of $110.0 million.

Net cash used in investing activities for the year ended December 31, 2016 relates to the net purchases of

short-term investments of $4.1 million and the buildout of our offices and furniture and equipment of $1.1 million.

Net cash provided by financing activities

Net cash provided by financing activities was $164.7 million for the year ended December 31, 2018, which
represents the net proceeds of $162.9 million from our common stock offering in June 2018 and $1.8 million of cash
proceeds from the exercise of stock options.

Net cash provided by financing activities was $167.2 million for the year ended December 31, 2017, which
represents the net proceeds of $40.8 million from the 2017 issuance of series A preferred stock and the net proceeds of
$125.7 million from our IPO in October 2017.

Funding requirements

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

We expect that our existing cash and cash equivalents, will enable us to fund our operating expenses into the
second half of 2020. We may need to obtain substantial additional funding in connection with our research and
development activities and any continuing operations thereafter. If we are unable to raise capital when needed or on
favorable terms, we would be forced to delay, reduce or eliminate our research and development programs or future
commercialization efforts.

146

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

•

the scope, progress, results and costs of clinical trials for our setmelanotide program;

the costs, timing and outcome of regulatory review of our setmelanotide program;

the cost to commercialize setmelanotide, if approved, by building an internal sales force or entering into
collaborations with third parties;

the obligations owed to Ipsen Pharma S.A.S., or Ipsen, Camurus AB, or Camurus and Takeda pursuant to
our license agreements;

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

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

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

Developing our setmelanotide program is a time-consuming, expensive and uncertain process that may take years
to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve
product sales. In addition, setmelanotide, if approved, may not achieve commercial success. Our commercial revenues, if
any, will be derived from sales of setmelanotide that we do not expect to be commercially available for several years, if at
all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate
additional financing may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.
In August 2015, December 2015, January 2017 and August 2017, respectively, we issued 25,000,000, 15,000,000,
20,475,001 and 20,474,998, shares of series A preferred stock, respectively, at a price of $1.00 per share, resulting in gross
proceeds of $81.0 million. In October 2017 we completed our IPO in which we received net proceeds of $125.7 million.
In June 2018 we completed another public offering of our common shares in which we received net proceeds of $163.0
million.

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

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

Contractual obligations

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

147

Milestone and royalty payments associated with our license agreements with Ipsen, Camurus and Takeda, have
not been included as contractual obligations as we cannot reasonably estimate if or when they will occur. Under the terms
of the Ipsen license agreement, assuming that setmelanotide is successfully developed, receives regulatory approval and
is commercialized, Ipsen may receive aggregate payments of up to $40.0 million upon the achievement of certain
development and commercial milestones under the license agreement and royalties on future product sales. The majority
of the aggregate payments under the Ipsen license agreement are for milestones that may be achieved no earlier than first
commercial sale of setmelanotide. In the event that we enter into a sublicense agreement, we will make payments to Ipsen,
depending on the date of the sublicense agreement, ranging from 10% to 20% of all revenues actually received under the
sublicense agreement. Under the terms of the Camurus license agreement, assuming that setmelanotide is successfully
developed, receives regulatory approval and is commercialized, Camurus may receive aggregate payments of up to
$64.75 million upon the achievement of certain development and commercial milestones under the license agreement and
royalties on future product sales. The majority of the aggregate payments under the Camurus license agreement are for
milestones that may be achieved no earlier than first commercial sale of this formulation of setmelanotide. Under the
terms of the Takeda license agreement, assuming that RM-853, is successfully developed, receives regulatory approval
and is commercialized, Takeda may receive aggregate payments of up to $140.0 million upon the achievement of certain
development and commercial milestones under the license agreement and royalties on future product sales. The majority
of the aggregate payments under the Takeda license agreement are for milestones that may be achieved no earlier than first
commercial sale of the RM-853.

In August 2018, we amended our existing Lease Agreement for our head office facility in Boston, Massachusetts.
The new lease term will commence in May 2019 and has a term of six years with a five-year renewal option to extend the
lease. We currently lease 6,800 square feet of office space which will then be increased to approximately 13,600 square
feet of office space upon commencement of this new agreement.

Future minimum payments under the Lease Agreement, as amended, are as follows:

2019
2020
2021
2022
2023
Thereafter
Total

Off-balance Sheet Arrangements

Operating Lease
425
786
802
818
834
1,353
5,018

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements,

as defined under applicable SEC rules.

JOBS Act

In April 2012, the Jumpstart our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the
JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new
or revised accounting standards. Thus, an EGC can delay the adoption of certain newly implemented accounting standards
until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of
this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on
which adoption of such standards is required for other public companies.

Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including without
limitation, (i) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public

148

Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.
We will remain an EGC until the earlier of (1) December 31, 2022, (2) the last day of the fiscal year (a) in which we have
total annual gross revenue of at least $1.07 billion, or (b) in which we are deemed to be a large accelerated filer, which
means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th,
and (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior
three-year period.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest
rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments,
including cash equivalents, are in the form, or may be in the form of, money market funds or marketable securities and are
or may be invested in U.S. Treasury and U.S. government agency obligations. Due to the short-term maturities and low
risk profiles of our investments, an immediate 100 basis point change in interest rates would not have a material effect on
the fair market value of our investments.

We are not materially exposed to market risk related to changes in foreign currency exchange rates.

Item 8. Financial Statements and Supplementary Data

See the consolidated financial statements filed as part of this Annual Report on Form 10-K as listed under

Item 15 below.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Not Applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, are controls and other procedures designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified by the rules and forms promulgated by the SEC. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated
and communicated to management, including the chief executive officer and the chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure.

In connection with the preparation of this Annual Report on Form 10-K, we completed an evaluation, as of
December 31, 2018, under the supervision of and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, as to the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

It should be noted that any system of controls, however well designed and operated, can provide only reasonable,
and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is
based in part upon certain assumptions about the likelihood of future events. Based upon the evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018, our disclosure controls and
procedures were effective at a reasonable assurance level.

149

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

Our management assessed the effectiveness of Rhythm’s internal control over financial reporting as of
December 31, 2018. In making this assessment, it used the criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such
assessment, our management has concluded that Rhythm’s internal control over financial reporting was effective, as of
December 31, 2018.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2018, the Company implemented a new Enterprise Resource Planning (ERP) system.
As a result of this implementation, the Company modified certain existing internal controls as well as implemented new
controls and procedures related to the new ERP system. Except with respect to the continued implementation of the ERP
system, there were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the fourth quarter of 2018 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information

None.

150

Item 10. Directors, Executive Officers and Corporate Governance

PART III

The information required under this item is incorporated herein by reference to our definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later
than 120 days after the close of our fiscal year ended December 31, 2018.

We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and
Ethics that are required to be disclosed pursuant to the rules of the SEC. Our website is not considered part of this report
or any other filing that we make with the SEC.

Item 11. Executive Compensation

The information required under this item is incorporated herein by reference to our definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange commission not later
than 120 days after the close of our fiscal year ended December 31, 2018.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required under this item is incorporated herein by reference to our definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange commission not later
than 120 days after the close of our fiscal year ended December 31, 2018.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required under this item is incorporated herein by reference to our definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange commission not later
than 120 days after the close of our fiscal year ended December 31, 2018.

Item 14. Principal Accountant Fees and Services

The information required under this item is incorporated herein by reference to our definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange commission not later
than 120 days after the close of our fiscal year ended December 31, 2018.

151

Item 15. Exhibits and Financial Statement Schedules

(a)

1. Consolidated Financial Statements.

PART IV

For a list of the consolidated financial statements included herein, see Index on page F-1 of this report.

2. Financial Statement Schedules.

All required information is included in the financial statements or notes thereto.

3. List of Exhibits.

See the Exhibit Index in Item 15(b) below.

Item 16. 10-K Summary

None

152

Exhibit Index

Incorporated by Reference

Exhibit
Number
3.1
3.2
4.1
4.2

4.3

4.4

10.1†
10.2†

10.3‡

Exhibit Description

Amended and Restated Certificate of Incorporation.
Amended and Restated Bylaws.
Form of Common Stock Certificate.
Amended and Restated Investors' Rights Agreement,

dated August 21, 2017.

Form
S-1/A
S-1/A
S-1/A
S-1

Date

Number

9/25/2017
9/25/2017
9/25/2017
9/5/2017

3.3
3.5
4.1
4.2

Form of Subordinated Indenture to be entered into

S-3

11/9/2018

4.3

between the registrant and a trustee acceptable to the
registrant.

Form of Senior Indenture to be entered into between

S-3

11/9/2018

4.4

the registrant and a trustee acceptable to the
registrant.

Form of Indemnification Agreement.
2017 Equity Incentive Plan and Form of Option

S-1/A
10-Q

9/25/2017
11/14/2017

10.1
10.2

Agreement and Notice of Exercise.

License Agreement, dated March 21, 2013, by and
between the Registrant (f/k/a Rhythm Metabolic,
Inc.) and Ipsen Pharma S.A.S.

S-1

9/5/2017

10.6

10.4‡

Development and Manufacturing Services

S-1

9/5/2017

10.7

Agreement, dated July 17, 2013, by and between the
Registrant (f/k/a Rhythm Metabolic, Inc.) and
Peptisyntha Inc. (n/k/a Corden Pharma
International).

10.5‡

License Agreement dated January 4, 2016, by and

S-1

9/5/2017

10.8

between the Registrant and Camurus AB.

10.6

Amended and Restated Payroll Services Agreement,

S-1

9/5/2017

10.9

dated March 21, 2013, by and between the
Registrant (f/k/a Rhythm Metabolic, Inc.) and
Rhythm Pharmaceuticals, Inc.

10.7†

Rhythm Pharmaceuticals, Inc. 2017 Employee Stock

10-Q

11/14/2017

10.10

Purchase Plan.

10.8

Lease, dated November 25, 2015, by and between

S-1

9/5/2017

10.11

10.9*
10.10
10.11†

500 Boylston & 222 Berkeley Owner (DE) LLC and
the Registrant.

First Amendment to Lease, dated April 15, 2016.
Second Amendment to Lease, dated August 6, 2018.
Offer Letter, dated September 13, 2017, by and

between the Registrant and Keith M. Gottesdiener.

8-K
10-Q

8/9/2018
8/8/2018

10.1
10.2

10.12

Development and Manufacturing Services

S-1

9/5/2017

10.15

10.13†

10.14†

10.15*

10.16†

Agreement, dated as of December 21, 2016, by and
between Registrant and Recipharm Monts S.A.S.
Offer Letter, dated September 13, 2017, by and

between the Registrant and Hunter Smith.

Offer Letter, dated September 13, 2017, by and
between the Registrant and Nithya Desikan.
Offer Letter, dated September 13, 2017, by and

between the Registrant and Lex H.T. Van der Ploeg.
Summary of Non-Employee Director Compensation

Policy.

10-Q

8/8/2018

10.3

10-Q

8/8/2018

10.4

10-Q

5/14/2018

10.2

153

S-1/A

9/25/2017

10.21

10-Q

5/14/2018

10.1

S-1

6/18/2018

10.17

10.17†

10.18‡

10.19†

23.1*

31.1*

31.2*

32.1**

32.2**

2015 Equity Incentive Plan and Form of Option
Agreement and Notice of Exercise.
License Agreement, dated March 30, 2018, by and
between Registrant and Takeda Pharmaceutical
Company Limited.
First Amendment to the 2017 Employee Stock
Purchase Plan.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm.
Certification of the Chief Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350).
Certification of the Chief Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350).
Certification of the Chief Executive Officer, as
required by Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350).
Certification of the Chief Financial Officer, as
required by Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350).

101.INS*
101.SCH*

XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.

101.CAL*

101.DEF*

101.LAB*

101.PRE*

XBRL Taxonomy Extension Calculation Linkbase
Document.

XBRL Taxonomy Extension Definition Linkbase
Document.

XBRL Taxonomy Extension Label Linkbase
Document.

XBRL Taxonomy Extension Presentation Linkbase
Document.

*
**
†
‡

Filed herewith
Furnished and not filed herewith
Indicates management contract or compensatory plan.
Indicates confidential treatment has been requested with respect to specific portions of this exhibit. Omitted
portions have been filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act.

154

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

RHYTHM PHARMACEUTICALS, INC.

By: /s/ Keith M. Gottesdiener
Keith M. Gottesdiener
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons

on behalf of the registrant and in the capacities and on the dates indicated.

Name

Title

Date

/s/ Keith M. Gottesdiener
Keith M. Gottesdiener

Chief Executive Officer and Director

(Principal Executive Officer)

Chief Financial Officer

(Principal Financial and Accounting Officer)

Director

/s/ Hunter Smith
Hunter Smith

/s/ Neil Exter
Neil Exter

/s/ Todd Foley
Todd Foley

/s/ Christophe R. Jean
Christophe R. Jean

/s/ Ed Mathers
Ed Mathers

/s/ David W. J. McGirr
David W. J. McGirr

/s/ David P. Meeker
David P. Meeker

March 8, 2019

Director, Chairman of the Board

March 8, 2019

155

RHYTHM PHARMACEUTICALS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Audited Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Page No.
F-2

F-3
F-4
F-5
F-6
F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Rhythm Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Rhythm Pharmaceuticals, Inc. (the Company) as of
December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, convertible
preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended
December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2015.
Boston, Massachusetts
March 8, 2019

F-2

RHYTHM PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

Assets
Current assets:

Cash and cash equivalents
Short-term investments
Prepaid expenses and other current assets
Total current assets

Property, plant and equipment, net
Restricted cash
Total assets

Liabilities, convertible preferred stock and stockholders’ equity
Current liabilities:
Accounts payable
Deferred rent
Accrued expenses and other current liabilities
Total current liabilities

Long-term liabilities:

Deferred rent
Total liabilities

Commitments and contingencies
Preferred stock:

December 31,
2018

December 31,
2017

49,542 $
202,519
6,628
258,689
1,120
401
260,210 $

34,236
113,846
2,589
150,671
840
225
151,736

7,640 $
—
5,942
13,582

372
13,954

2,427
83
4,210
6,720

228
6,948

Convertible Preferred Stock, $0.001 par value: 10,000,000 shares authorized; no shares
issued and outstanding at December 31, 2018 and December 31, 2017, respectively

—

Stockholders’ equity:

Common stock, $0.001 par value: 120,000,000 shares authorized; 34,410,725 and
27,284,140 shares issued and outstanding December 31, 2018 and December 31, 2017,
respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities, convertible preferred stock and stockholders’ equity

34
430,824
(184,602)
246,256
260,210 $

27
255,013
(110,252)
144,788
151,736

The accompanying notes are an integral part of these financial statements

F-3

RHYTHM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

Operating expenses:

Research and development
Selling, general, and administrative
Total operating expenses

Loss from operations
Other income (expense):

Revaluation of Series A Investor Instrument and Series A Investor
Right/Obligation
Interest income, net
Total other income (expense):
Net loss and comprehensive loss

Net loss attributable to common stockholders
Net loss attributable to common stockholders per common share, basic
and diluted
Weighted average common shares outstanding, basic and diluted

Year Ended

Year Ended
December 31, December 31,

2018

2017

Year Ended
December 31,
2016

50,337 $
28,080
78,417
(78,417)

22,894 $
9,518
32,412
(32,412)

19,594
6,311
25,905
(25,905)

—
4,353
4,353
(74,064) $
(74,064) $

(1,863)
566
(1,297)
(33,709) $
(37,582) $

—
33
33
(25,872)
(29,074)

$
$

(2.39) $

(2.83) $

31,004,047

13,267,960

(2.85)
10,196,292

The accompanying notes are an integral part of these financial statements

F-4

RHYTHM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except share and per share data)

Common Stock

Series A-1 Junior
Preferred Stock

Amount

Additional
Paid-In
Capital

Total

Stockholders’

Accumulated
Deficit

Equity
(Deficit)

Balance at December 31, 2015
Stock compensation expense
Net loss

Balance at December 31, 2016
Stock compensation expense
Issuance of common stock in connection with
exercise of stock options
Change in unrealized loss on marketable
securities
Issuance of Series A Convertible Preferred Stock
Settlement of Series A investor instrument
Exchange of common stock held by LLC entity
for Series A-1 Junior Preferred Stock
Issuance of common stock upon completion of
initial public offering, net of offering costs
Conversion of Series A Convertible Preferred
Stock and Series A-1 Junior Preferred Stock into
common stock on a 9.17 to 1 basis
Net loss

Balance at December 31, 2017

Adoption of new accounting standard
Stock compensation expense
Shares issued for license agreement
Issuance of common stock upon completion of
public offering, net of offering costs
Issuance of common stock in connection with
exercise of stock options
Change in unrealized loss on marketable
securities
Net loss

Balance at December 31, 2018

Series A Convertible
Preferred Stock

Shares
40,000,000
—
—
40,000,000
—

Amount
40,000
—
—
40,000
—

10,196,292 $

—
—

10,196,292 $

—

152,671

—
40,949,999
—

—
40,622
328

—
—
—

10
—
—
10
—

—

—
—
—

— $
—
—
— $
—

—

—
—
—

—

(8,578,661)

(8)

78,666,209

—

8,107,500

—

(80,949,999)
—
—
—
—
—

(80,950)

—
—
—
—
—

—

—
—
— $

—

—
—
—

17,406,338
—
27,284,140
—
—
223,544

6,591,800

311,241

—
—

34,410,725 $

17
—
27
—
—
—

—

—
—
34

(78,666,209)
—
—
—
—
—

—

—
—
— $

— $
—
—
— $
—

42,662 $
1,168
—
43,830 $
2,278

(50,671) $
—

(25,872)
(76,543) $
—

(7,999)
1,168
(25,872)
(32,703)
2,278

—

—
—
—

—

(79)
—
—
—
—
—

—

700

(141)
(108)
1,863

(71)

125,650

81,012
—
255,013
286
6,390
4,448

162,871

1,808

—

—
—
—

—

(33,709)
(110,252)
(286)
—
—

—

—
—
— $

8
—
430,824 $

—
(74,064)
(184,602) $

700

(141)
(108)
1,863

—

125,658

80,950
(33,709)
144,788
—
6,390
4,448

162,878

1,808

8
(74,064)
246,256

The accompanying notes are an integral part of these financial statements

F-5

RHYTHM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share data)

Year ended December 31,
2017

2018

2016

Operating activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:

Non-cash research and development license expense
Stock-based compensation expense
Depreciation and amortization
Non-cash rent expense
Mark to market revaluation of series A investor instrument

Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Deferred issuance costs
Tenant improvement allowance
Accounts payable, accrued expenses and other current liabilities
Deferred grant income
Due to related parties

Net cash used in operating activities

Investing activities
Purchases of short-term investments
Maturities of short-term investments
Purchases of property, plant and equipment
Net cash used in investing activities

Financing activities
Net proceeds from issuance of common stock
Proceeds from the exercise of stock options
Net proceeds from issuance of Series A Convertible Preferred Stock

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period

$ (74,064) $ (33,709) $ (25,872)

4,448
6,390
442
61
—

(6,286)
—
—
6,953
—
—
(62,056)

—
2,278
223
(76)
1,863

—
1,168
144
11
—

(1,889)
9
—
1,946
—
(105)
(29,460)

41
1,472
376
160
(249)
(470)
(23,219)

(248,592)
162,166
(722)
(87,148)

(126,917)
17,006
(133)
(110,044)

(15,222)
11,169
(1,057)
(5,110)

162,878
1,808
—
164,686
15,482
34,461
49,943 $

125,658
700
40,842
167,200
27,696
6,765
34,461 $

—
—
—
—
(28,329)
35,094
6,765

The accompanying notes are an integral part of these financial statements

F-6

Rhythm Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(In thousands, except share and per share information)

1. Nature of Business

Rhythm Pharmaceuticals, Inc. (the “Company”), is a biopharmaceutical company focused on the development
and commercialization of therapeutics for the treatment of rare genetic disorders that result in severe, life-threatening
metabolic disorders. The Company's lead product candidate is setmelanotide (“RM-493”), which is a potent, first-in-class,
melanocortin-4, or MC4, receptor, agonist peptide for the treatment of rare genetic disorders of obesity caused by MC4
pathway deficiencies. MC4 pathway deficiencies result in the disruption of satiety signals and energy homeostasis in the
body, which, in turn, leads to intense feelings of hunger and to obesity. The Company is currently evaluating setmelanotide
for the treatment of six single gene related, or monogenic, MC4 pathway deficiencies: pro-opiomelanocortin, or POMC,
leptin receptor, or LEPR, Bardet-Biedl syndrome, Alström syndrome, POMC heterozygous, and POMC epigenetic
disorders for which there are currently no effective or approved treatments. The Company believes that the MC4 pathway
is a compelling target for treating these genetic disorders because of its critical role in regulating appetite and weight by
promoting satiety and weight control, and that peptide therapeutics are uniquely suited for activating this target.

In March 2018 the Company acquired exclusive, worldwide rights from Takeda Pharmaceutical Company
Limited (“Takeda”) to develop and commercialize T-3525770 (now “RM-853”). RM-853 is a potent, orally available
ghrelin o-acyltransferase (“GOAT”) inhibitor currently in preclinical development for Prader-Willi Syndrome (“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.

Corporate Reorganization

The Company is a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc.
Prior to the Company's organization and the Corporate Reorganization referred to below, the Company was part of Rhythm
Pharmaceuticals, Inc. (the “Predecessor Company”), a Delaware corporation which was organized in November 2008 and
which commenced active operations in 2010.

In March 2013,

the Predecessor Company underwent a corporate reorganization, (the “Corporate
Reorganization”), pursuant to which all of the outstanding equity securities of the Predecessor Company were exchanged
for units of Rhythm Holding Company, LLC, a newly-organized limited liability company (the “LLC entity”). After the
consummation of this exchange and as part of the Corporate Reorganization, the Predecessor Company contributed
setmelanotide and the MC4 receptor agonist program to the Company and distributed to the LLC entity all of the then
issued and outstanding shares of the Company's stock. The result of the Corporate Reorganization was that the Company
and the Predecessor Company became wholly-owned subsidiaries of the LLC entity and the two product candidates and
related programs that were originally held by the Predecessor Company were separated, with relamorelin and the ghrelin
agonist program being retained by the Predecessor Company and setmelanotide and the MC4 receptor agonist program
being held by the Company. The Predecessor Company, after consummation of the Corporate Reorganization, is referred
to within these Notes to Financial Statements as the Relamorelin Company and/or Motus.

On October 13, 2015, the Relamorelin Company changed its name to Motus Therapeutics, Inc. (“Motus”) and
the Company changed its name to Rhythm Pharmaceuticals, Inc. On December 15, 2016, Motus was sold to a large
pharmaceutical company. On August 21, 2017, the LLC entity distributed to its members all of its shares of the Company
(see Note 5 for further discussion).

Liquidity

The Company has incurred operating losses and negative cash flows from operations since inception, incurred a
net loss of $74,064 $33,709 and $25,872 during the years ended December 31, 2018, 2017 and 2016, respectively, and

F-7

had an accumulated deficit of $184,602 as of December 31, 2018. The Company has primarily funded these losses through
the proceeds from the sales of common and preferred stock as well as capital contributions received from the Predecessor
Company, the Relamorelin Company and the LLC entity. To date, the Company has no product revenue and management
expects operating losses to continue for the foreseeable future. The Company has devoted substantially all of its resources
to its drug development efforts, comprising research and development, manufacturing, conducting clinical trials for its
product candidates, protecting its intellectual property, pre-commercialization activities and general and administrative
functions relating to these operations. The future success of the Company is dependent on its ability to develop its product
candidates and ultimately upon its ability to attain profitable operations. At December 31, 2018, the Company had
$252,061 of cash and cash equivalents and short-term investments on hand. In the future, the Company will be dependent
on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity and funded research and
development programs, to maintain the Company's operations and meet the Company's obligations. There is no guarantee
that additional equity or other financings will be available to the Company on acceptable terms, or at all. If the Company
fails to obtain additional funding when needed, the Company would be forced to scale back, terminate its operations or
seek to merge with or be acquired by another company. Management believes that the Company's existing cash resources
will be sufficient to fund the Company's operating plan into the second half of 2020.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company's consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States (“GAAP”). Any reference in these notes to applicable guidance is meant to refer
to the authoritative United States generally accepted accounting principles as found in the Accounting Standards
Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board
(“FASB”).

The Company has historically existed and functioned as part of the consolidated businesses of the Predecessor
Company. As noted above, the Predecessor Company's setmelanotide and the MC4 receptor agonist program were
transferred to the Company as part of the Corporate Reorganization on March 21, 2013. These financial statements include
the results of operations of setmelanotide and the MC4 receptor agonist program from its inception. As part of the
Corporate Reorganization, the Company also entered into a formal payroll services intercompany agreement with the
Relamorelin Company. On November 16, 2016, the employees of the Relamorelin Company that were providing services
to the Company, terminated their employment contracts with the Relamorelin Company and entered into new employment
agreements with the Company. On December 15, 2016, the Relamorelin Company closed on its sale to a large
pharmaceutical company. During 2016, costs have been allocated to the Company for the purposes of preparing the
financial statements based on a specific identification basis or, when specific identification is not practicable, a
proportional cost allocation method which allocates expenses based upon the percentage of employee time and research
and development effort expended on the Company's business as compared to total employee time and research and
development effort of the combined Motus and Rhythm. The proportional use basis adopted to allocate shared costs is in
accordance with the guidance of SEC Staff Accounting Bulletin (“SAB”) Topic 1B, Allocation Of Expenses And Related
Disclosure In Financial Statements Of Subsidiaries, Divisions Or Lesser Business Components Of Another Entity.
Management has determined that the method of allocating costs to the Company is reasonable. Cost allocation was no
longer required subsequent to the 2016 sale of the Relamorelin Company.

Management believes that the statements of operations include a reasonable allocation of costs and expenses
incurred by the Relamorelin Company, which benefited the Company. However, such amounts may not be indicative of
the actual level of costs and expenses that would have been incurred by the Company if it had operated as an independent
company or of the costs and expenses expected to be incurred in the future. Management has not presented an estimate of
what the expenses of the Company would have been on a standalone basis as it was not practicable to make a reasonable
estimate. As such, the financial information herein may not necessarily reflect the financial position, results of operations
and cash flows of the Company expected in the future or what it would have been had it been an independent company
during the periods presented.

F-8

As described above, Relamorelin Company employee costs are allocated to the Company based on a proportional
use method. For those employees who became employees of the Company on November 16, 2016, their full employment
cost was $2,727 for the year ended December 31, 2016.

On September 22, 2017, the Company's board of directors approved a 1-for-9.17 reverse stock split of the
Company's issued and outstanding shares of common stock. All share and per share amounts in the financial statements
have been retrospectively adjusted for all periods presented to give effect of the reverse stock split.

On October 5, 2017, the Company filed an amended and restated certificate of incorporation with the Secretary
of State of the State of Delaware to increase its authorized number of shares of common stock to 120,000,000 shares of
common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share.

On October 10, 2017 the Company completed its initial public offering (“IPO”) of 8,107,500 shares of common
stock at an offering price of $17.00 per share, which included the exercise in full by the underwriters of their option to
purchase up to 1,057,500 additional shares of common stock. The Company received gross proceeds of approximately
$137,828 or net proceeds of $125,658 after deducting underwriting discounts, commissions and estimated offering
expenses. In connection with the IPO, the Company’s outstanding shares of convertible preferred stock were automatically
converted into 17,406,338 shares of common stock.

On June 25, 2018 the Company completed its public offering of 6,591,800 shares of common stock at an offering
price of $26.42 per share, which included the exercise in full by the underwriters of their option to purchase up to 859,800
additional shares of common stock. The Company received gross proceeds of approximately $174,155 or net proceeds of
$162,878 after deducting underwriting discounts, commissions and offering expenses.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date
of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company
bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be
reasonable under the circumstances. This process may result in actual results differing materially from those estimated
amounts used in the preparation of the financial statements if these results differ from historical experience, or other
assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Significant
estimates relied upon in preparing these financial statements include the allocation of costs from the Relamorelin Company
in accordance with SAB Topic 1B, accrued expenses, stock-based compensation expense, the valuation allowance on the
Company's deferred tax assets, and the fair value of the Series A Investor Instrument (see Note 4).

Principles of Consolidation

The consolidated financial statements include the accounts of Rhythm Pharmaceuticals, Inc. and its subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation.

Off-Balance Sheet Risk and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist
primarily of cash and cash equivalents and short-term investments, which are maintained at two federally insured financial
institutions. The deposits held at these two institutions are in excess of federally insured limits. The Company has not
experienced any losses in such accounts and management believes that the Company is not exposed to significant credit
risk due to the financial position of the depository institutions in which those deposits are held. The Company has no
off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

F-9

Segment Information

Operating segments are defined as components of an entity about which separate discrete information is available
for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and
in assessing performance. The Company views its operations and manages its business in one operating segment operating
exclusively in the United States.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original or remaining maturity from the date of
purchase of three months or less to be cash equivalents. Cash and cash equivalents includes bank demand deposits, U.S.
treasury bills and money market funds that invest primarily in U.S. government treasuries.

Short-term Investments

Short-term investments consist of investments with original maturities greater than 90 days, as of the date of
purchase. The Company has classified its investments with maturities beyond one year as short term, based on their highly
liquid nature and because such marketable securities represent the investment of cash that is available for current
operations. The Company considers its investment portfolio available-for-sale. Accordingly, these investments are
recorded at fair value, which is based on quoted market prices. Unrealized gains and losses are reported as a component
of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and declines
in value judged to be other than temporary are included as a component of other income (expense), net based on the
specific identification method. When determining whether a decline in value is other than temporary, the Company
considers various factors, including whether the Company has the intent to sell the security, and whether it is more likely
than not that the Company will be required to sell the security prior to recovery of its amortized cost basis. Fair value is
determined based on quoted market prices.

Restricted Cash

Restricted cash consists of security deposits in the form of letter of credits placed in a separate restricted bank
accounts as required under the terms of the Company’s new lease arrangement for its corporate office in Boston,
Massachusetts and the Company’s corporate travel credit cards .

Deferred Issuance Costs

Deferred issuance costs, which consist of direct incremental legal and accounting fees relating to the IPO, were
capitalized and included in non-current assets. The deferred issuance costs were to be offset against IPO proceeds upon
the consummation of the offering. In the event the offering was terminated, deferred issuance costs would be expensed.

The Company had capitalized $1,825 of deferred issuance costs related to a prior registration statement
confidentially submitted to the Securities and Exchange Commission in 2016. In the fourth quarter of 2016, the Company
wrote off these deferred issuance costs to general and administrative expenses because the offering was postponed
significantly in excess of 90 days. As a result, the costs were not deemed realizable as the Company incurred similar costs
in connection with its IPO in October 2017.

F-10

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of costs incurred in advance of services being

received, including services related to clinical trial programs.

Prepaid research and development costs
Other current assets

Prepaid expenses and other current assets

Property, Plant and Equipment

Property, Plant and Equipment consists of the following:

Leasehold improvements
Office equipment
Computers and software
Furniture and fixtures

Less accumulated depreciation and amortization
Property, Plant and Equipment, net

Shorter of asset life or lease term.

Fair Value Measurements

December 31,

2018

2017

5,288
1,340
6,628

1,533
1,056
2,589

Useful
Life
*
5 years
3 years
5 years

December 31,

2018

2017

1,103
70
411
345
1,929
(809)
1,120

891
70
19
227
1,207
(367)
840

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are
classified and disclosed in one of the following three categories:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the

fair value of the assets or liabilities.

The Company’s cash equivalents and marketable securities at December 31, 2018 and 2017 were carried at fair

value, determined according to the fair value hierarchy; see Note 4.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses

approximate their fair values due to their short-term maturities at December 31, 2018 and 2017, respectively.

2017 Series A Investor Instrument

The Company has classified its 2017 Series A Investor Instrument (See Note 4) as a liability as it is a free-standing
financial instrument. The 2017 Series A Investor Instrument was recorded at fair value upon the issuance of the Company’s
series A preferred stock in January 2017, and subsequently remeasured to fair value at each reporting period. Changes in
fair value of the financial instrument is recognized as a component of other income (expense), net in the statement of

F-11

operations and comprehensive loss. The Company estimated the fair value of the 2017 Series A Investor Right/Obligation
as the probability-weighted present value of the expected benefit of the investment.

The Company used the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to
value the 2017 Series A Investor Call Option and assessed these assumptions and estimates on a quarterly basis as
additional information impacting the assumptions was obtained. Estimates and assumptions impacting the fair value
measurement include the fair value per share of the underlying series A preferred stock, the expected term of the Series A
Investor Call Option, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying
preferred stock. The Company determined the fair value per share of the underlying preferred stock by taking into
consideration the most recent sale of our convertible preferred stock and the investors' right to invest in a subsequent
tranche. As the Company was a private company and lacked company-specific historical and implied volatility information
of its stock, it estimated its expected stock volatility based on the historical volatility of publicly traded peer companies
for a term comparable to the estimated term of the Series A Investor Call Option. The risk-free interest rate was determined
by reference to the U.S. Treasury yield curve for time periods approximately equal to the estimated term of the Series A
Investor Call Option. A dividend yield of zero was assumed. The fair value of the Series A Investor Instrument is
determined to be the sum of the fair values of the 2017 Series A Investor Right/Obligation and the 2017 Investor Call
Option.

Government Grants

The Company obtained an Orphan Products Development grant entitled “Phase 2 study of the melanocortin 4
receptor agonist RM-493 for the treatment of Prader-Willi syndrome” in 36 patients. The grant was awarded by the Public
Health Service (“PHS”) Food and Drug Administration. The PHS grant is for a total of $999 and is effective July 2015
through June 2018 for reimbursement of expenses relating to the Phase 2 Prader-Willi Study.

The Company recognizes government grants upon the determination that it will comply with the conditions
attached to the grant arrangement and the grant will be received. Government grants are recognized in the statements of
operations on a systematic basis over the periods in which the Company recognizes the related costs for which the
government grant is intended to compensate. Government grants for research and development efforts are deducted in
reporting the related expense in the statement of operations. Government grant income received during the year ended
December 31, 2018, 2017 and 2016 of $210, zero and $642, respectively, and is included as a deduction to research and
development expense in the consolidated statements of operations.

Research and Development Expenses

Costs incurred in the research and development of the Company’s products are expensed to operations as incurred.
Research and development expenses consist of costs incurred in performing research and development activities, including
salaries and benefits, facilities costs, overhead costs, contract services and other outside costs, both directly incurred and
allocated from the Relamorelin Company. The value of goods and services received from contract research organizations
or contract manufacturing organizations in the reporting period are estimated based on the level of services performed and
progress in the period for which the Company has not yet received an invoice from the supplier.

Nonrefundable advance payments for goods or services to be received in the future for use in research and
development activities are recorded as prepaid expenses, and expensed as the related goods are delivered or the services
are performed.

Income Taxes

The Company is taxed as a C corporation for federal income tax purposes. Income taxes for the Company are
recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using
an asset and liability approach. Income taxes have been calculated on a separate tax return basis. Certain of the Company’s
activities and costs have been included in the tax returns filed by the Relamorelin Company and the LLC entity. Prior to
the Corporate Reorganization, the Company’s operations were included in the tax returns filed by the Predecessor
Company. The Company has filed tax returns on its own behalf since the Corporate Reorganization.

F-12

The Company accounts for income taxes under the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, the Company determined deferred tax assets and liabilities on the basis of the differences
between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date. The Company recognized deferred tax assets to the
extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company
considers all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that
it would be able to realize our deferred tax assets in the future in excess of their net recorded amount, it would make an
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in
which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical
merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company
recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with
the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense
line in the accompanying consolidated statement of operations. As of December 31, 2018, no accrued interest or penalties
are included on the related tax liability line in the consolidated balance sheet.

Net Loss Per Share Attributable to Common Shareholders

Basic net loss per share attributable to common stockholders is calculated by dividing net loss attributable to
common stockholders by the weighted average shares outstanding during the period, without consideration for Common
Stock equivalents. Net loss attributable to common stockholders is calculated by adjusting the net loss of the Company for
cumulative preferred stock dividends. During periods of income, the Company allocates participating securities a
proportional share of income determined by dividing total weighted average participating securities by the sum of the total
weighted average common shares and participating securities (the “two class method”). The Company's convertible
preferred stock participates in any dividends declared by the Company and are therefore considered to be participating
securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of
income. During periods of loss, the Company allocates no loss to participating securities because they have no contractual
obligation to share in the losses of the Company. Diluted net loss per share attributable to common stockholders is
calculated by adjusting weighted average shares outstanding for the dilutive effect of Common Stock equivalents
outstanding for the period, determined using the treasury-stock and if-converted methods. For purposes of the diluted net
loss per share attributable to common stockholders calculation, convertible preferred stock and stock options are
considered to be Common Stock equivalents but have been excluded from the calculation of diluted net loss per share
attributable to common stockholders, as their effect would be anti-dilutive for all periods presented. Therefore, basic and
diluted net loss per share were the same for all periods presented.

The following table includes the potential common shares, presented based on amounts outstanding at each

period end, that were excluded from the computation of diluted net loss per share attributable to common stockholders
for the periods indicated:

Stock options
Series A convertible preferred shares

Total

2018
2,616,530
—
2,616,530

Year Ended
December 31,
2017
1,832,639
—
1,832,639

2016
1,064,394
4,362,050
5,426,444

F-13

Basic and diluted earnings per share is calculated as follows:

Numerator:
Net loss

Cumulative dividends on convertible preferred shares
Loss attributable to common shares—basic and diluted
Denominator:
Weighted-average number of common shares—basic and diluted
Loss per common share—basic and diluted

Patent Costs

Year Ended
December 31,
2017

2016

2018

(74,064) $
—
(74,064) $

(33,709) $
(3,873)
(37,582) $

(25,872)
(3,202)
(29,074)

31,004,047

13,267,960

(2.39) $

(2.83) $

10,196,292
(2.85)

Costs to secure and defend patents are expensed as incurred and are classified as general and administrative

expenses. Patent costs were $637, $180 and $231 for the years ended December 31, 2018, 2017 and 2016, respectively.

Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of

the financial statements to provide additional evidence for certain estimates or to identify matters that require additional
disclosure. Subsequent events have been evaluated as required.

Application of New or Revised Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of
the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards
that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In April 2012, the Jump-Start Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act
contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.”
As an emerging growth company, the Company elected to not take advantage of the extended transition period afforded
by the JOBS Act for the implementation of new or revised accounting standards, and as a result, will comply with new or
revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging
growth companies.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 which requires lessees to
recognize a right-of-use asset and lease liability for most lease arrangements. The new standard is effective for annual
reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required to be
applied to leases existing as of, or entered into after, the beginning of the earliest comparative period presented in the
financial statements, with certain practical expedients available. Currently, the Company is gathering information,
reviewing its portfolio of existing leases, and continuing to evaluate the potential changes to the Company’s future
financial reporting and disclosures that may result from adopting this ASU. The Company plans to elect the practical
expedient which will allow it to not apply the amended lease accounting guidance to comparative periods that will be
presented. The Company expects that all of its lease commitments will be subject to the new standard with the cumulative
effect of adoption recognized to retained earnings on January 1, 2019.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”) that changes the presentation of restricted cash and cash equivalents on the statement of cash flows.
Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective
for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is

F-14

permitted, including adoption in an interim period. The Company adopted this ASU January 1, 2018 and has applied its
content to statements of cash flows for the year ended December 31, 2018, 2017 and 2016 presented herein.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of
Modification Accounting, (“ASU 2017-09”). ASU 2017-09 provides clarity and reduces both (1) diversity in practice and
(2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or conditions of a share-based
payment award. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the
adoption date. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15,
2017. The adoption of this ASU did not have a material impact on the Company's financial position or results of operations.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting, (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to
include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply
the requirements of Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. This
ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early
adoption is permitted. The Company has early adopted ASU 2018-07 in July 2018. The guidance has been adopted using
the modified-retrospective approach, which requires that unsettled equity-classified awards for which a measurement date
has not been established to be measured using the adoption date fair value. The adoption of this ASU did not have a
material impact on the Company's financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value
Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds to the disclosure requirements on fair value
measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average
of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon
their effective date. This guidance will become effective in fiscal years beginning after December 15, 2019, including
interim periods within that reporting period. Early adoption is permitted upon issuance of this updated guidance. An entity
is permitted to early adopt any removed or modified disclosures upon issuance of this updated guidance and delay adoption
of the additional disclosures until their effective date. The Company does not plan to early adopt this ASU, and we are
currently evaluating the impact of this guidance on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs in a Cloud
Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 helps entities evaluate the
accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance
for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal
use software license). The accounting for the service element of a hosting arrangement that is a service contract is not
affected by the amendments. This guidance will become effective in fiscal years beginning after December 15, 2019.
Early adoption is permitted, including adoption in any interim period. The Company has early adopted ASU 2018-15 in
the fourth quarter of 2018 and the adoption of this ASU did not have a material impact on the Company's financial position
or results of operations.

F-15

3. Accrued Expenses

Accrued expenses consisted of the following:

Research and development costs
Professional fees
Payroll related
Other

Accrued expenses

4. Fair Value of Financial Assets and Liability

December 31,
2018

December 31,
2017

2,614
858
2,410
60
5,942

2,771
327
1,094
18
4,210

As of December 31, 2018 and 2017, the carrying amount of cash and cash equivalents and short-term investments
was $252,061 and $148,082, respectively, which approximates fair value. Cash and cash equivalents and short-term
investments includes investments in money market funds that invest in U.S. government securities that are valued using
quoted market prices. Accordingly, money market funds and government funds are categorized as Level 1 and had a total
balance of $37,019 and $34,698 as of December 31, 2018 and 2017, respectively. The financial assets valued based on
level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated
investment-grade corporations.

A financial liability was recognized by the Company during the year ending December 31, 2017 related to the
2017 Series A Investor Instrument. The liability was valued based on significant inputs not observable in the market, which
represents a Level 3 measurement within the fair value hierarchy. Upon the closing of the second tranche of the 2017
Series A preferred financing in August 2017, this liability was settled.

The following tables present information about the Company's financial assets measured at fair value on a

recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

Fair value Measurements as of
December 31, 2018 using:
Level 3
Level 2

Total

Level 1

Assets:
Cash Equivalents:

Corporate Debt Securities and Commercial Paper
Money Market Funds
Marketable Securities:

Corporate Debt Securities and Commercial Paper

Total

— $

37,019

5,976 $
—

— $
—

5,976
37,019

—

202,519

37,019 $ 208,495 $

—
202,519
— $ 245,514

Assets:
Cash Equivalents:

Corporate Debt Securities
Money Market Funds
Marketable Securities:

Corporate Debt Securities
U.S. Treasury Securities

Total

Fair value Measurements as of
December 31, 2017 using:
Level 3
Level 2

Total

Level 1

— $

17,753

15,104 $
—

— $
—

15,104
17,753

—
16,945
34,698 $ 112,005 $

96,901
—

96,901
—
—
16,945
— $ 146,703

F-16

Marketable Securities

The following tables summarize the Company's marketable securities:

Assets

Corporate Debt Securities and Commercial Paper (due
within 1 year)
U.S. Treasury Securities (due within 1 year)

December 31, 2018

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair
Value

$ 202,653 $

—

$ 202,653 $

23 $
—
23 $

(157) $ 202,519
—
(157) $ 202,519

—

December 31, 2017

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair
Value

Assets

Corporate Debt Securities (due within 1 year)
U.S. Treasury Securities (due within 1 year)

97,029 $
16,958

$ 113,987 $

— $
—
— $

(128) $

96,901
16,945
(141) $ 113,846

(13)

Below is a roll forward of the fair value of the financial liability, the 2017 Series A Investor Instrument for the

year ended December 31, 2017:

Fair value at December 31, 2016

Fair value upon the January 2017 Initial Closing, net
Change in fair value
Reclassification of liability upon August 2017 Second Tranche Closing

Fair value at December 31, 2017

2017 Series A Investor
Instrument

—
328
1,863
(2,191)
—

The fair value of the Series A Investor Instrument is the sum of the probability-weighted fair value of the 2017

Investor Right/Obligation and the 2017 Series A Call Option.

The following assumptions and inputs were used in determining the fair value of the 2017 Series A Investor Call

Option valued using the Black- Scholes option pricing model:

Series A Convertible Preferred Stock Exercise Price
Series A Convertible Preferred Stock Fair Value
Expected term
Expected volatility
Expected interest rate
Expected dividend yield

August 2017 Second Tranche Closing
1.00
$
1.33
$
1.5 months

64.0 %
0.95 %
—

In August 2017, upon the closing of the second tranche of the series A preferred stock financing, the 2017 Series

A Investor Call Option expired unexercised.

The Company estimated the fair value of the 2017 Series A Investor Right/Obligation as the probability-weighted
present value of the expected benefit of the investment. The expected benefit is the difference between the expected future
value of shares issued upon the second tranche closing and the investment price for the second tranche closing. The

F-17

expected future value is estimated as a weighted average of IPO and remain private scenarios, and the future value is
converted to a present value assuming a closing date of August 15, 2017 and a nominal, risk-free discount rate.

5. Preferred Stock and Common Stock

Preferred Stock

Upon the closing of the IPO in October 2017, the Series A convertible preferred stock automatically converted

into shares of common stock on a 9.17-for-1 basis.

Common Stock

In March 2013, the Company issued 10,196,292 shares of common stock at a purchase price of $0.001 per share.

Prior to August, 2017, the LLC entity owned all of these shares.

On August 21, 2017, the LLC entity exchanged 8,578,646 of its shares of the Company's common stock for
78,666,209 shares of the Company's series A-1 junior preferred stock and the LLC entity distributed all of its shares of the
Company's series A-1 junior preferred stock to the holders of its preferred units and the remaining 1,617,646 shares of its
common stock to the holders of its common units. Following this distribution, the LLC entity no longer owns any of the
Company's shares. The series A-1 junior preferred stock is not redeemable and does not have a stated dividend or
liquidation preference. These shares converted to common stock on a 9.17-to-1 basis upon the closing of the IPO in
October 2017.

In September 2017, the Company's board of directors approved a 1-for-9.17 reverse stock split of the Company's
issued and outstanding shares of common stock. All shares and per share amounts in the financial statements have been
retrospectively adjusted for all periods presented to give effect of the reverse stock split.

On October 10, 2017 the Company completed its IPO of 8,107,500 shares of common stock at an offering price
of $17.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 1,057,500
additional shares of common stock. The Company received gross proceeds of approximately $137,828 or net proceeds of
$125,658 after deducting underwriting discounts, commissions and estimated offering expenses. In connection with the
IPO, the Company’s outstanding shares of convertible preferred stock were automatically converted into 17,406,338 shares
of common stock.

On April 3, 2018, in association with the Takeda license agreement, the Company issued 223,544 shares of

common stock. See Note 7 for further discussion.

6. Stock-based Compensation

2017 Equity Incentive Plan

2017 Plan Overview

Prior to August 2015, we did not have our own equity compensation plan. In August 2015, our Board of Directors
and our stockholders approved and we adopted the 2015 equity incentive plan, as amended and in effect prior to the closing
of our IPO, or the 2015 Plan, which we terminated upon consummation of our IPO and replaced with the 2017 equity
incentive plan, or the 2017 Plan. The 2017 Plan provides for the grant of incentive and non-qualified stock options and
restricted stock awards to employees, consultants, advisors and directors, as determined by the board of directors. As of
December 31, 2018 the Company has reserved 4,793,168 shares of common stock to be issued under the Plan. The number

F-18

of shares authorized under the 2017 Plan will be increased each January 1, commencing on January 1, 2017 and ending
on (and including) January 1, 2027, by an amount equal to 4% of the outstanding shares of stock outstanding as of the end
of the immediately preceding fiscal year. On January 1, 2018 and 2019, 1,091,366 and 1,376,429 shares, respectively,
were added to the 2017 Plan. Notwithstanding the foregoing, our board of directors may act prior to January 1 for a given
year to provide that there will be no such January 1 increase in the number of shares authorized under the 2017 Plan for
such year, or that the increase in the number of shares authorized under the 2017 Plan for such year will be a lesser number
than would otherwise occur pursuant to the preceding sentence. Shares of common stock issued upon exercise of stock
options are generally issued from new shares of the Company. The Plan provides that the exercise price of incentive stock
options cannot be less than 100% of the fair market value of the common stock on the date of the award for participants
who own less than 10% of the total combined voting power of stock of the Company, and not less than 110% for
participants who own more than 10% of the Company's voting power. Options and restricted stock granted under the Plan
will vest over periods as determined by the Company's board of directors. For options granted to date, the exercise price
equaled the fair value of the common stock as determined by the board of directors on the date of grant.

The Company estimates the fair value of stock-based awards to employees and non-employees using the
Black-Scholes option-pricing model, which requires the input of highly subjective assumptions, including (a) the expected
volatility of the underlying common stock, (b) the expected term of the award, (c) the risk-free interest rate, and
(d) expected dividends. Due to the lack of a public market for the trading of its common stock and a lack of
company-specific historical and implied volatility data, the Company based its estimate of expected volatility on the
historical volatility of a group of companies in the pharmaceutical and biotechnology industries in a similar stage of
development as the Company that are publicly traded. For these analyses, the Company selected companies with
comparable characteristics to its own including enterprise value, risk profiles and with historical share price information
sufficient to meet the expected life of the stock-based awards. The Company computes the historical volatility data using
the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of
its stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information
regarding the volatility of its own stock price becomes available. The Company estimated the expected life of its employee
stock options using the “simplified” method, whereby, the expected life equals the average of the vesting term and the
original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are
based on the U.S. Treasury yield curve in effect during the period the options were granted.

The Company was historically required to estimate forfeitures at the time of grant, and revise those estimates in
subsequent periods if actual forfeitures differ from estimates. The Company used historical data to estimate pre-vesting
option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the
extent that actual forfeitures differ from its estimates, the difference was recorded as a cumulative adjustment in the period
the estimates were revised. Stock-based compensation expense recognized in the financial statements is based on awards
that are ultimately expected to vest. Upon adopting ASU 2016-09 on January 1, 2017, the Company elected to account for
forfeitures as they occur. The adoption did not have a material impact on the Company’s financial position, results of
operations or cash flows.

The grant date fair value of awards subject to service-based vesting, net of estimated forfeitures, is recognized
ratably over the requisite service period, which is generally the vesting period of the respective awards. The Company's
stock option awards typically vest over a service period that ranges from three to four years and includes awards with
one year cliff vesting followed by ratable monthly and quarterly vesting thereafter and ratable monthly and quarterly
vesting beginning on the grant date.

During the years ended December 31, 2018, 2017 and 2016, the Company granted 1,218,790, 1,112,717 and

164,229 common stock option awards to certain directors, employees and non-employees, respectively.

F-19

Using the Black-Scholes option pricing model, the weighted average grant date fair value relating to outstanding

stock options granted under the Company’s stock option plan during the year ended December 31, 2018 was $17.27.

The fair value of share options granted to employees and directors was estimated at the date of grant using the

Black-Scholes option pricing model with the following weighted-average assumptions:

Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield

Year ended
December 31,
2017

1.97 %
5.95
66.18 %
—

2018

2.73 %
5.89
62.21 %
—

2016

1.39 %
6.25
74.20 %
—

The Company has early adopted ASU 2018-07 in July 2018. The guidance has been adopted using the modified-
retrospective approach, which requires that unsettled equity-classified awards for which a measurement date has not been
established to be measured using the adoption date fair value. The adoption of this ASU did not have a material impact
on the Company's financial position or results of operations.

Prior to the adoption of ASU 2018-07, options granted to non-employees used an expected term of 10 years,
which is the contractual term of each option. All other assumptions used to calculate the grant date fair value are generally
consistent with the assumptions used for options granted to employees.

A summary of the Company's common stock option activity for the year ended December 31, 2018 is as follows:

Outstanding as of December 31, 2017

Granted
Exercised
Cancelled

Outstanding as of December 31, 2018
Options vested and expected to vest as of December 31, 2018
Options exercisable at December 31, 2018

Weighted
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

7.04
28.45
5.71
18.21
16.67
16.67
8.83

8.48
—
—
—
8.58
8.58
7.86

$
$
$

—
—
7,980
—
29,424
29,424
15,432

Number of
Options
1,832,639 $
1,218,790
(316,736)
(118,163)
2,616,530 $
2,616,530 $
853,530 $

The following summarizes information about stock options at December 31, 2018 by range of exercise prices:

Range of
Exercise Prices
$ 4.59 $ 6.88
$ 7.52 $ 26.88
$ 28.00 $ 35.85

Weighted
Average
Remaining
Contractual
Term

Weighted
Average
Exercise Number
Price

Weighted
Average
Exercise

Exercisable Price

7.97 $
8.98
9.50
8.58 $

6.00
23.36
32.70
16.67

644,446 $
202,847
6,237
853,530 $

5.70
18.11
30.60
8.83

Number
Outstanding
1,258,425
895,215
462,890
2,616,530

F-20

The following table summarizes the classification of the Company's stock-based compensation expenses related
to stock options, restricted stock units and the employee stock purchase plan recognized in the Company's statements of
operations and comprehensive loss.

Research and development
Selling, general, and administrative

Total

Year Ended
December 31,
2017

2018
$ 2,793 $
3,597

507
661
$ 6,390 $ 2,278 $ 1,168

927 $

1,351

2016

Stock-based compensation expense by award type recognized during the years ended December 31, 2018, 2017

and 2016 was as follows:

Year Ended
December 31,
2017

2016

2018

Stock options
Employees stock purchase plan
Restricted stock units

Total

$ 6,241 $ 2,084 $

993
—
175
$ 6,390 $ 2,278 $ 1,168

—
194

65
84

During 2017, there were three awards subject to modification accounting under ASC 718-20-35-3 through 35-4.
Per terms of separation with a former employee, three months of accelerated vesting was granted for the former employee’s
three stock option awards. As a result, the Company recognized incremental expense for the stock option awards of $254.

As of December 31, 2018, the Company has unrecognized compensation cost of $19,897 related to non-vested
employee, non-employee and director awards that is expected to be recognized over a weighted-average period of 2.67
years.

LLC Incentive Plan

The Company was allocated stock compensation expense from the LLC entity's plan using the same proportional
use basis for other shared costs, see Note 2. The remainder of this Note discloses the stock-based compensation activity
of the Predecessor Company and the LLC entity.

Original Plan

The Predecessor Company had one stock based compensation plan—the 2010 equity incentive plan, as amended
(the “Original Plan”). The Original Plan previously provided for the grant of incentive and non-qualified stock options and
restricted stock grants to employees, consultants, advisors and directors, as determined by the board of directors of the
Predecessor Company.

As a result of the Corporate Reorganization, all outstanding option grants under the Original Plan were cancelled.
Each holder of a stock option that was cancelled was issued a restricted common unit of the LLC entity in its place on a
one-for-one basis. Restricted common unit vesting agreements were contracted between the LLC entity and the restricted
common unit holder granting the holder the same vesting terms as originally granted in the respective option agreement.
Any unvested portion of the stock option at the Corporate Reorganization would continue to vest under those original time
frames and conditions. Exercise prices were eliminated as they are not applicable to common unit instruments, and all
equity incentive grants after the Corporate Reorganization were of restricted common units.

F-21

The holder of a restricted common unit is entitled to one vote per unit. After the payment of all preferential
amounts to the holders of the convertible preferred units, the holder of a restricted common unit is entitled to their pro rata
share of the remaining consideration, if any, based on the number of restricted common units held by the holder.

Restricted Common Units

Upon the Corporate Reorganization, all 615,685 common stock options of the Predecessor Company under the
Original Plan outstanding as of March 21, 2013 were exchanged on a one-for-one basis for 615,685 restricted common
units of the LLC entity. Vesting continued on the same schedule as originally granted per the respective option agreement.

All restricted common units granted subsequent to the Corporate Reorganization were valued at the fair value of
the LLC entity's common unit on the date of grant and will be expensed over their respective service period. Forfeitures
are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. The term “forfeitures” is distinct from “cancellations” and represents only the unvested portion of
the surrendered unit. Ultimately, the actual expense recognized over the vesting period will only be for those options that
vest.

A summary of the LLC entity's restricted common unit activity for the year ended December 31, 2018 is as

follows:

Number of

Units
23,569 $
—
(16,555)
(7,014)

Weighted-
Average
Grant Date
Fair Value
Per Unit

5.06
—
5.06
5.06
—

Outstanding unvested as of December 31, 2017

Granted
Vested
Cancelled

Outstanding unvested as of December 31, 2018

— $

2017 Employee Stock Purchase Plan

The Company’s board of directors has adopted and the Company’s stockholders have approved the 2017
Employee Stock Purchase Plan (the “2017 ESPP”), which became effective in connection with the completion of the
Company’s IPO in October 2017. As of December 31, 2018 a total of 272,841 shares of common stock were reserved for
issuance under this plan. In addition, The number of shares authorized under the 2017 ESPP will be increased each
January 1, commencing on January 1, 2019 and ending on (and including) January 1, 2027, by an amount equal to the
lesser of 1% of outstanding shares as of the end of the immediately preceding fiscal year and 682,102. On January 1, 2019,
344,107 shares were added to the 2017 ESPP. Notwithstanding the foregoing, our board of directors may act prior to
January 1 of a given year to provide that there will be no such January 1 increase in the number of shares authorized under
the ESPP for such year, or that the increase in the number of shares authorized under the ESPP for such year will be a
lesser number than would otherwise occur pursuant to the preceding sentence. No shares were issued under this plan
during the year ended December 31, 2018.

7. Significant Agreements

License Agreements

The Predecessor Company entered into a license agreement on February 26, 2010 with Ipsen Pharma, S.A.S.
(“Ipsen”) that granted full worldwide right for two programs that include the clinical candidates setmelanotide, which is
in Phase 3 clinical trials, and relamorelin. As a result of the Corporate Reorganization described in Note 1, the Ipsen license
was converted to separate license agreements for the setmelanotide program held by the Company and the relamorelin
program held by the Relamorelin Company, respectively. Under the terms of the setmelanotide Ipsen license agreement,
assuming that setmelanotide is successfully developed, receives regulatory approval and is commercialized, Ipsen may

F-22

receive aggregate payments of up to $40,000 upon the achievement of certain development and commercial milestones
and royalties on future product sales in the mid-single digits. Substantially all of such aggregate payments of up to $40,000
are for milestones that may be achieved no earlier than first commercial sale of setmelanotide. In the event that the
Company executes a sublicense agreement, it shall make payments to Ipsen, depending on the date of such sublicense
agreement, ranging from 10% to 20% of all revenues actually received under such sublicense agreement.

In July 2017, the Company made a prepayment on the first milestone event associated with this license agreement.
The first milestone relates to the initiation of a Phase 3 study for setmelanotide in a pivotal multi-center human clinical
trial in a large number of patients. The prepayment associated with this milestone was $1,000 and was recorded as research
and development expenses during the three months ended March 31, 2018 when the milestone criteria was met in full.

In January 2016, the Company entered into a license agreement with Camurus AB, or Camurus, for the use of
Camurus' drug delivery technology. The contract includes a non-refundable and non-creditable signing fee of $500, which
was paid during January 2016. The Camurus agreement also includes up to $7,750 in one-time, non-refundable
development milestones achievable upon certain regulatory successes. The Company is also required to pay to Camurus,
mid to mid-high single digit royalties, on a product-by-product and country-by-country basis of annual net sales, until the
later of (i) 10 years after the date of first commercial sale of such product in such country; or (ii) the expiration of the last
to expire valid claim of all licensed patent rights in such country covering such product. The Company is also required to
pay one-time, non-refundable, non-creditable sales milestones upon the achievement of certain sales levels for such
product that cannot be in excess of $57,000.

In March 2017, the Company achieved the first milestone event associated with this license agreement. The
Company completed the first manufactured batch using the Camurus drug delivery technology and filed an investigational
new drug application with the FDA. The fee associated with this milestone was $250.

In December 2017, the Company achieved the second milestone event associated with this license agreement.
The Company completed the Phase I proof of concept study using the Camurus drug delivery technology. The fee
associated with this second milestone was $1,000 and was recorded as research and development expense.

In March 2018, the Company entered into a license agreement with Takeda, for the rights of a program that
includes the clinical candidate RM-853, which is a GOAT inhibitor, which is currently in preclinical development for
PWS. Pursuant to the license agreement the Company was required to pay a non-refundable and non-creditable signing
fee, which the Company settled by issuing on April 3, 2018, 223,544 shares of common stock valued at $4,448. Under
the terms of the license agreement, assuming that RM-853 is successfully developed, receives regulatory approval and is
commercialized, the Company is also required to pay up to $70,000 in one-time, non-refundable development milestone
payments upon the achievement of certain clinical and regulatory milestones. The Company is also required to pay up to
$70,000 in one-time, non-refundable, non-creditable sales milestone payments upon the achievement of certain sales
levels. The Company is also required to pay to Takeda, mid to mid-high single digit royalties (subject to certain potential
reductions over time), on a product-by-product and country-by-country basis of annual net sales, of each product in such
country, beginning on the first commercial sale of a product in such country, and continuing until the latest of (i) 10 years
after the date of first commercial sale of such product in such country; or (ii) the expiration of the last to expire valid claim
of a Takeda patents covering the composition or use of such product in such country; or (iii) the expiration of all regulatory
exclusivity for such product in such country. The Company recorded the fair value of the common stock to be issued to
the licensors as research and development expense, as the license does not have a future alternative use, in accordance
with ASC Topic 730, Research and Development.

8. Commitments and Contingencies

The Company’s corporate headquarters are located in Boston, Massachusetts, where it leases approximately 6,800
square feet of office space pursuant to lease agreements expiring in May 2021. This facility houses the Company’s
research, clinical, regulatory, commercial and administrative personnel. In August 2018, the Company amended its
existing lease agreement and the new lease term will commence in May 2019 and has a term of six years with a five-year
renewal option to extend the lease. The Company will lease approximately 13,600 square feet of office space. Rent
expense for the years ended December 31, 2018, 2017 and 2016 was $359, $215 and $179, respectively.

F-23

Future minimum payments under the Lease Agreement as of December 31, 2018, are as follows:

2019
2020
2021
2022
2023
Thereafter
Total

425
786
802
818
834
1,353
5,018

9. Related-Party Transactions

Expenses paid directly to consultants and vendors considered to be related parties amounted to $2,005, $2,400
and $619 for the years ended December 31, 2018, 2017 and 2016, respectively. Outstanding payments due to these related
parties as of December 31, 2018 and 2017 were $260 and $90, respectively and were included within accounts payable on
the balance sheet.

The Company shared costs with the Relamorelin Company, its affiliate, including payroll, facilities, information
technology and other research and development and general and administrative overhead costs. Additionally, the
Relamorelin Company had paid certain Company expenses directly on behalf of the Company. Shared costs incurred by
the Relamorelin Company and Company expenses paid by the Relamorelin Company on behalf of the Company are
allocated from the Relamorelin Company to the Company as described in Note 1 and Note 2. These net costs totaled
$1,570 for the year ended December 31, 2016. The Relamorelin Company was sold to a large pharmaceutical company
on December 15, 2016.

10. Income Tax

In the Company's financial statements, income taxes, including deferred tax balances, have been calculated on a
separate tax return basis. Certain of the Company's activities and costs have been included in the tax returns filed by the
Relamorelin Company and the LLC entity. Prior to the Corporate Reorganization, the Company's operations were included
in the tax returns filed by the Predecessor Company. The Company has filed tax returns on its own behalf since the
Corporate Reorganization.

For the years ended December 31, 2018, 2017 and 2016 the Company did not have a current or deferred income
tax expense or benefit as the entity has incurred losses since inception and has provided a full valuation allowance against
its deferred tax assets.

F-24

A reconciliation of the income tax benefit at the federal statutory tax rate to the Company's effective income tax

rate follows:

Statutory tax rate
State tax, net of federal benefit
Research and development credit
Orphan drug credit
Non deductible deferred issuance costs
Tax law change
Stock compensation
Investor instrument revaluation
Other
Change in valuation allowance
Effective tax rate

As of
December 31,
2017

2018
21.00 % 34.00 %
4.08 %
6.90 %
1.87 %
1.52 %
2.29 %
1.95 %
— %
— %
— % (27.98)%
0.46 % (1.84)%
— % (1.88)%
0.05 % (0.07)%

2016
34.00 %
2.63 %
1.34 %
2.15 %
(2.40)%
— %
— %
— %
(1.32)%
(31.88)% (10.47)% (36.40)%
— %

— %

The principal components of the Company's deferred tax assets are as follows:

As of
December 31,

2018

2017

Deferred tax assets:

Net operating loss carryforwards
Research and development credits
Orphan drug credit
Capitalized license fee
Other

Total gross deferred tax assets

Valuation allowance
Net deferred tax assets

$ 35,776 $ 18,325
2,317
2,333
500
599
24,074
(24,074)
—

3,456
4,286
1,760
2,401
47,679
(47,679)

— $

On December 22, 2017, H.R.1, known as the Tax Cuts and Jobs Act ("The Act"), was enacted. This new law did
not have a significant impact on the Company’s consolidated financial statements for the year ended December 31, 2017
because it maintains a valuation allowance on all of its net operating losses and other deferred tax assets. However, the
reduction of the United States federal corporate tax rate from 35% to 21% resulted in increases to the amounts reflected in
“Tax law change” in the Company’s tax reconciliation table above for the year ended December 31, 2017.

As permitted by SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act, the Company recorded provisional estimates during the year ended December 31, 2017, and have
subsequently finalized the accounting analysis based on the guidance, interpretations and data available as of December 31,
2018. No further adjustments were made upon finalization of our accounting analysis.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of
available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against
its deferred tax assets at December 31, 2018 and 2017, because the Company's management has determined that is it more
likely than not that these assets will not be realized. The increase in the valuation allowance of $23,605 in 2018 and $3,586
in 2017 primarily relates to the net loss incurred by the Company during each period, partially offset by the federal rate
reduction from 34% to 21% as a result of The Act in 2017.

As of December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately
$136,239 and $113,383, respectively, which are available to reduce future taxable income. The net operating loss

F-25

carryforwards expire at various times beginning in 2033 for federal and state purposes. Of the federal net operating loss
carryforwards at December 31, 2018, $63,073 can be carried forward indefinitely.

As of December 31, 2018, the Company had federal and state research tax credits of approximately $2,857 and
$758, respectively, which may be used to offset future tax liabilities. Additionally, as of 2018, the Company had a federal
orphan drug credit related to qualifying research of $4,286. These tax credit carryforwards will begin to expire at various
times beginning in 2033 for federal purposes and 2028 for state purposes.

The net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal
Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual
limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year
period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as
similar state provisions and other provisions within the Internal Revenue Code. This could limit the amount of tax attributes
that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is
determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes
may further affect the limitation in future years.

The Company has not recorded any reserves for uncertain tax positions as of December 31, 2018 and 2017. The
Company has not, as yet, conducted a study of research and development credit carryforwards. This study may result in
an adjustment to the Company's research and development credit carryforwards; however, until a study is completed and
any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been
provided against the Company's research and development credits and, if an adjustment is required, this adjustment would
be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheets or statements
of operations and comprehensive loss if an adjustment were required.

Interest and penalty charges, if any, related to unrecognized tax benefits will be classified as income tax expense
in the accompanying statements of operations and comprehensive loss. As of December 31, 2018 and 2017, the Company
had no accrued interest or penalties related to uncertain tax positions.

The Company is subject to examination by the U.S. federal, state and local income tax authorities for tax years
2013 forward. The Company is not currently under examination by the Internal Revenue Service or any other jurisdictions
for any tax years.

F-26

11. Selected Quarterly Financial Data (unaudited)

The following table contains selected quarterly financial information from 2018 and 2017. The Company believes
that the following information reflects all normal recurring adjustments necessary for a fair statement of the information
for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future
period.

Three months ended

March 31,
2018

June 30,
2018

September 30, December 31,

2018

Total revenue
Total operating expenses
Other income (expense), net:
Net loss and comprehensive loss
Net loss attributable to common stockholders
Net loss attributable to common stockholders per common
share, basic and diluted

— $

—
27,151
1,644
(25,507)
$ (16,459) $ (14,412) $ (17,686) $ (25,507)

15,021
609
(14,412)

19,244
1,558
(17,686)

17,001
542
(16,459)

— $

(0.60) $

(0.52) $

(0.74)

Three months ended

March 31,
2017

June 30,
2017

September 30, December 31,

2017

— $

6,389
29
(6,360)
(7,526) $

— $

—
10,983
8,286
6,754
452
(1,730)
(48)
(6,802)
(10,531)
(10,016)
(8,008) $ (11,429) $ (10,619)

(0.74) $

(0.78) $

(1.78) $

(0.41)

F-27

Board of Directors and Executive Team

M A N AG E M E N T

Keith M. Gottesdiener, MD
Chief Executive Officer

Hunter Smith
Chief Financial Officer

Nithya Desikan
Chief Commercial Officer

Murray Stewart, MD
Chief Medical Officer

Simon D. Kelner
Chief Human Resources Officer

Lex H.T. Van der Ploeg, PhD
Chief Scientific Officer

BOA R D O F D I R EC TO RS

S C I E N T I FI C A DV IS O RY BOA R D

David Meeker, MD | Chairman

Lee M. Kaplan, MD, PhD | Chair

Neil Exter

Todd Foley

Keith M. Gottesdiener, MD

Christopher R. Jean

Ed Mathers

David McGirr

John M. Amatruda, MD

Michael C. Camilleri, MD

William W. Chin, MD

Elizabeth Stoner, MD