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TABLE OF CONTENTS
RHYTHM HOLDING COMPANY, LLC INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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As filed with the Securities and Exchange Commission on August 27, 2014

Registration No. 333-            


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



RHYTHM HOLDING COMPANY, LLC
(to be converted into Rhythm Pharmaceuticals, Inc.)
(Exact name of Registrant as specified in its charter)



Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  46-2170017
(I.R.S. Employer
Identification Number)



855 Boylston Street
11 th Floor
Boston, MA 02116
(857) 264-4280

(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Keith M. Gottesdiener, M.D.
Chief Executive Officer
Rhythm Holding Company, LLC
855 Boylston Street
11 th Floor
Boston, MA 02116
(857) 264-4280

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Please send copies of all communications to:

Julio E. Vega
Laurie A. Cerveny
Bingham McCutchen LLP
One Federal Street
Boston, MA 02110
(617) 951-8000

 

Steven D. Singer
Lisa Firenze
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
(617) 526-6000

Approximate date of commencement of the proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.     o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý
(Do not check if a
smaller reporting company)
  Smaller reporting company  o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee(3)

 

Common Stock, $0.01 par value per share

  $86,250,000   $11,109.00

 

(1)
Includes additional shares of common stock that the underwriters have the option to purchase.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(3)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


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EXPLANATORY NOTE

        Rhythm Holding Company, LLC, or the LLC entity, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Prior to the effectiveness of this registration statement, the LLC entity will convert into a Delaware corporation and change its name from Rhythm Holding Company, LLC to Rhythm Pharmaceuticals, Inc. We refer to this conversion throughout the prospectus included in this registration statement as the "Conversion." Shares of the common stock of Rhythm Pharmaceuticals, Inc. are being offered by the prospectus included in this registration statement.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 27, 2014

PRELIMINARY  PROSPECTUS

LOGO

             Shares

Rhythm Pharmaceuticals, Inc.

Common Stock
$        per share



        This is the initial public offering of our common stock. We are selling                        shares of our common stock. We currently expect the initial public offering price to be between $            and $            per share of common stock.

        We have granted the underwriters an option to purchase up to                        additional shares of common stock to cover over-allotments.

        We intend to apply to have the common stock listed on The NASDAQ Global Market under the symbol "RYTM."

         We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, and therefore have elected to comply with certain reduced public company reporting requirements.



         Investing in our common stock involves risks. See "Risk Factors" beginning on page 11.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 
  Per Share   Total
Public Offering Price   $               $            
Underwriting Discount(1)   $               $            
Proceeds to Rhythm Pharmaceuticals, Inc. (before expenses)   $               $            

(1)
We refer you to "Underwriting" beginning on page 158 for additional information regarding underwriting compensation.

        The underwriters expect to deliver the shares to purchasers on or about                                    , 2014 through the book-entry facilities of The Depository Trust Company.



Citigroup

 

Cowen and Company



Canaccord Genuity

  Oppenheimer & Co.  

Cantor Fitzgerald & Co.

   

                     , 2014


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         We are responsible for the information contained in this prospectus. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.


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  Page  

Prospectus Summary

    1  

Risk Factors

    11  

Special Note Regarding Forward-Looking Statements

    49  

Market, Industry and Other Data

    50  

Use of Proceeds

    51  

Dividend Policy

    52  

Prior Restructuring

    53  

Organizational Structure

    54  

Conversion

    54  

Capitalization

    56  

Dilution

    59  

Selected Consolidated Financial Data

    61  

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

    63  

Business

    79  

Management

    116  

Executive and Director Compensation

    122  

Certain Relationships and Related Party Transactions

    137  

Principal Stockholders

    141  

Description of Capital Stock

    144  

Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders of our Common Stock

    151  

Shares Eligible For Future Sale

    156  

Underwriting

    158  

Legal Matters

    165  

Experts

    165  

Where You Can Find More Information

    165  

Index to Consolidated Financial Statements

    F-1  

         Through and including                        , 2014 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

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PROSPECTUS SUMMARY

         This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read the entire prospectus carefully, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes.

         Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will convert into a Delaware corporation, change our name to Rhythm Pharmaceuticals, Inc. and engage in other related transactions. See "Conversion." Except where the context otherwise requires or where otherwise indicated, the terms "Rhythm," "we," "us," "our," "our company," "the company," and "our business" refer, prior to the Conversion discussed below, to Rhythm Holding Company, LLC (or, as applicable, its predecessor company) and its consolidated subsidiaries and, after the Conversion, to Rhythm Pharmaceuticals, Inc. and its consolidated subsidiaries.


Business Overview

        We are a biopharmaceutical company focused on the development and commercialization of peptide therapeutics for the treatment of gastrointestinal, or GI, diseases, and genetic deficiencies that result in metabolic disorders. Our lead product candidate, relamorelin, is a potent, best-in-class, Phase 2 ghrelin agonist for the treatment of diabetic gastroparesis, a GI complication of diabetes, and other GI functional disorders. We are also developing a second product candidate, RM-493, which is a potent, first-in-class, Phase 2 ready melanocortin-4, or MC4, receptor agonist for the treatment of obesity caused by genetic deficiencies in the MC4 pathway. We believe our product candidates, which are both administered by subcutaneous injection, and for which we have exclusive worldwide rights, have the potential to treat these diseases for which there are currently limited therapeutic options. We believe that ghrelin and MC4 are compelling targets because of their critical role in regulating GI function and metabolism, and that peptide therapeutics are well-suited for activating these targets.

        Relamorelin targets the receptor for ghrelin, which is a naturally occurring hormone that plays a critical role in GI motility, or the movement of food through the GI tract, digestion and the absorption of nutrients. Prior drugs targeted the same GI motility disorders, primarily through either the serotonin or dopamine receptors, but had significant safety issues. First generation ghrelin agonists were small molecules with limited potency and efficacy. In contrast, the relamorelin peptide retains the specificity and functionality of the naturally occurring ghrelin peptide, and is designed to increase GI motility, with markedly greater potency than both naturally occurring ghrelin and the first generation small molecule agonists of ghrelin.

        RM-493 targets the receptor for MC4, which is a key pathway that regulates energy, homeostasis, and food intake. The first generation of MC4 agonists were predominantly small molecules that failed in clinical trials due to safety issues, particularly increases in blood pressure, and had limited efficacy. In contrast, the RM-493 peptide retains the specificity and functionality of the naturally occurring hormone that activates MC4, and our initial Phase 1 and Phase 2 clinical trials have shown promising evidence of weight loss without adversely increasing blood pressure.

 

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Our Product Pipeline

        The following chart depicts key information regarding our product candidates, their indications, current states of development, and anticipated upcoming milestones:

GRAPHIC


Relamorelin: A Best-In-Class Phase 2 Ghrelin Agonist

        Relamorelin is a potent, best-in-class, Phase 2 ghrelin agonist which stimulates GI motility, and aids digestion and the absorption of nutrients. We have completed a Phase 2 clinical trial of relamorelin for the treatment of diabetic gastroparesis. Based on consultation with regulatory authorities, we expect to initiate a Phase 2b clinical trial for the treatment of diabetic gastroparesis by the end of 2014. The U.S. Food and Drug Administration, or FDA, has granted Fast Track designation to relamorelin for the treatment of diabetic gastroparesis. Fast Track designation is designed to facilitate and expedite the review of drugs for serious conditions with high unmet need, in order to get new drugs to patients earlier. We intend to manage our relamorelin clinical development program such that, if our clinical trials are successful, we can file a new drug application, or NDA, by 2018. We are also conducting a Phase 2a clinical trial for chronic refractory constipation in Parkinson's disease patients and a Phase 2a benchmark clinical trial in patients with chronic constipation.

        Diabetic gastroparesis is a disorder in which there is a substantial delay in stomach emptying along with characteristic symptoms of vomiting, nausea, abdominal pain, early satiety and bloating. Moderate to severe diabetic gastroparesis results in significant debility and hospitalizations, and can interfere with nutrition and the absorption of medications. An estimated 2.3 million type 1 and type 2 diabetic patients in the United States have moderate or severe gastroparesis symptoms. Available therapies to treat this disorder are limited and exhibit significant side effects. No new therapies have been approved in the United States for the treatment of gastroparesis in more than 30 years.

        To date, as part of our clinical program, we have treated approximately 260 subjects and patients with relamorelin. In our Phase 2 clinical trial, relamorelin had statistically significant effects on the most important diabetic gastroparesis symptoms, such as vomiting, as well as accelerated stomach emptying, and was well-tolerated. The results of these clinical trials support our belief that relamorelin has the potential to be a safe and effective treatment for diabetic gastroparesis.

 

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RM-493: A First-In-Class Phase 2 Ready MC4 Agonist

        RM-493 is a potent, first-in-class, Phase 2 ready MC4 agonist, which modulates a key pathway in humans that regulates energy homeostasis and food intake. MC4's critical role in weight regulation was validated with the discovery that a heterozygous mutation of the MC4 receptor gene, a mutation in just one of the two copies of the MC4 receptor gene, results in early onset obesity and severe obesity. We expect to initiate two Phase 2a clinical trials in patients with genetic deficiencies in the MC4 pathway by the end of 2014, one for the treatment of obesity in patients with a single mutation of the MC4 receptor gene, and one in patients with Prader Willi Syndrome, or PWS.

        Genetic defects in the MC4 gene are the most common genetic cause of obesity. A 2005 epidemiological study performed in Europe reported a prevalence of 1-2% of genetic defects in the MC4 gene in the obese population with a body mass index, or BMI, of greater than 30 kg/m 2 , 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/m 2 . These prevalence rates suggest that there are approximately one million people in the United States with obesity caused by a mutation of the MC4 gene. These patients have a higher risk than the general population for early onset obesity and severe obesity and their complications such as diabetes. There are currently no approved drugs in the United States that have been studied in obesity due to MC4 deficiency.

        PWS, another form of genetic MC4 deficiency, is an orphan disease with a prevalence ranging from approximately one in 8,000 to one in 25,000 patients in the United States. A hallmark of PWS is severe hyperphagia, an overriding physiological drive to eat, leading to severe obesity and other complications. For PWS patients, obesity is the greatest threat 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. Currently, there is no approved treatment for the obesity and hyperphagia associated with PWS. Based on recent scientific studies, we believe that deficiencies in the MC4 pathway are a cause of the obesity and associated symptoms of PWS, such as hyperphagia, and that an MC4 agonist can directly impact these symptoms.

        To date, as part of our clinical program, we have treated approximately 190 subjects and patients with RM-493. We have completed a Phase 1b proof-of-concept clinical trial with RM-493 in obese patients, including one cohort of patients with mutations in one of the MC4 receptor genes. This clinical trial demonstrated promising weight loss in these patients with a four-week treatment.


Our Strategy

        Based on the promising clinical results to date of relamorelin in diabetic gastroparesis, and the initial, favorable clinical profile of RM-493 for the treatment of obesity, including obesity caused by certain genetic deficiencies in the MC4 pathway, we believe these product candidates are well positioned to significantly improve the treatment of these indications. The key components of our strategy include:

    Pursue development and regulatory approval for our lead product, relamorelin, for the treatment of diabetic gastroparesis. We have completed a successful Phase 2 clinical trial of relamorelin for diabetic gastroparesis and plan to initiate a Phase 2b clinical trial for this indication by the end of 2014. We plan to enroll and manage our Phase 2b and Phase 3 clinical trials such that, if the clinical trials are successful, we can file an NDA by 2018.

    Develop and seek regulatory approval for relamorelin in expansion indications in GI functional disorders. We intend to target expansion indications for both upper and lower GI functional disorders where the unmet need is high, including idiopathic gastroparesis, or gastroparesis without a specific cause, and refractory chronic constipation in Parkinson's disease patients.

 

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      Assuming we receive regulatory approval for diabetic gastroparesis, we believe that regulatory approval for these indications will follow thereafter.

    Establish commercial and marketing capabilities in the United States for relamorelin.   We intend to establish our own commercial and marketing organization in the United States and to selectively establish partnerships in markets outside the United States. We intend to target physicians who treat a high concentration of diabetic gastroparesis patients with a specialist sales force that focuses on gastroenterologists and primary care physicians who are high prescribers of treatments for diabetic gastroparesis.

    Develop RM-493 for obesity caused by genetic deficiencies in the MC4 pathway.   We expect to initiate two Phase 2a clinical trials in patients with genetic deficiencies in the MC4 pathway by the end of 2014, one for the treatment of obesity in patients with a single mutation of the MC4 receptor gene, and one in patients with PWS. Based on FDA consultations to date, we believe we can seek an indication for obesity caused by genetic deficiencies in the MC4 pathway. If we are successful, we believe the time to receive regulatory approval for this product candidate may be reduced. We are taking a personalized medicine approach to developing RM-493 for use in restoring MC4 function in patients who have genetic deficiencies in the MC4 pathway.

    Maximize the therapeutic potential of RM-493 in additional obesity indications.   We will consider entering into relationships with strategic partners that enable the expansion of the ongoing clinical development of RM-493, while retaining significant value for us.


Risks Associated with Our Business

        Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the "Risk Factors" section beginning on page 11 of this prospectus. These risks include the following:

    We are a development 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. As of June 30, 2014, we had an accumulated deficit of $65.4 million.

    Even if this offering is successful, 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.

    Positive results from early clinical trials of relamorelin and RM-493 may not be predictive of the results of later clinical trials of relamorelin and RM-493. If we cannot generate positive results in our later clinical trials of relamorelin and RM-493, we may be unable to successfully develop, obtain regulatory approval for, and commercialize relamorelin and RM-493.

    Failures or delays in the commencement or completion of our planned clinical trials of relamorelin and RM-493 could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.

    Changes in regulatory requirements, FDA guidance or unanticipated events during our clinical trials of relamorelin and RM-493 may occur, which may result in changes to clinical trial protocols or additional clinical trial requirements, which could result in increased costs to us and could delay our development timeline. Additionally, it may be necessary to validate different or additional instruments for measuring subjective symptoms, and to show that relamorelin and RM-493 have a clinically meaningful impact on those endpoints in order to obtain regulatory approval.

 

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    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 some or all of our product candidates. We depend almost entirely on the success of two product candidates, relamorelin and RM-493, which are still in Phase 2 clinical development. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, relamorelin and RM-493. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

    If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

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

    Even if approved, reimbursement policies could limit our ability to sell relamorelin and RM-493.

    Competing products and technologies could emerge adversely affecting our opportunity to generate revenue from the sale of relamorelin and RM-493.

    If we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.


Corporate Information

        Rhythm Holding Company, LLC, or the LLC entity, was formed on March 21, 2013 as a holding company in connection with a corporate restructuring, or the Prior Restructuring, by Rhythm Pharmaceuticals, Inc., a Delaware corporation that was organized in November 2008. Rhythm Pharmaceuticals, Inc. changed its name to Rhythm Health, Inc., or Rhythm Health, on July 7, 2014. Rhythm Health and Rhythm Metabolic, Inc., or Rhythm Metabolic, a Delaware corporation organized on March 21, 2013, became the wholly owned subsidiaries of the LLC entity as a result of certain exchange of equity transactions in connection with the Prior Restructuring. As part of the Prior Restructuring, Rhythm Health contributed all of its patent rights and other intellectual property rights with respect to RM-493 and Rhythm Health's related MC4 program to Rhythm Metabolic. As a result of the Prior Restructuring, our two product candidates and their related programs have been separated and each is held by a different legal entity, and the LLC entity became the holding company of both of these legal entities. Our wholly owned subsidiary, Rhythm Health, holds all of our patent rights and other intellectual property rights with respect to relamorelin and our related ghrelin agonist program, and our wholly owned subsidiary, Rhythm Metabolic, holds all of our patent rights and other intellectual property rights with respect to RM-493 and our related MC4 agonist program. See "Prior Restructuring" for additional information.

        Prior to the effectiveness of the registration statement of which this prospectus forms a part, the LLC entity will convert from a Delaware limited liability company into a Delaware corporation to be named Rhythm Pharmaceuticals, Inc. See "Conversion" and "Description of Capital Stock" for additional information, including a description of the terms of our capital stock following the Conversion and the terms of our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon the closing of this offering.

        Our principal executive offices are located at 855 Boylston Street, 11 th Floor, Boston, MA 02116, and our telephone number is (857) 264-4280. Our corporate website address is www.rhythmtx.com.

 

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Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

        This prospectus contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.


Implications of Being an Emerging Growth Company

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) 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 (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the "JOBS Act," and references in this prospectus to "emerging growth company" shall have the meaning ascribed to it in the JOBS Act.

        An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

    the ability to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

    an exemption from the requirements to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended;

    reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

    exemptions from the requirement to hold a nonbinding advisory vote on executive compensation and to obtain stockholder approval of any golden parachute payments not previously approved.

        We may use these provisions until such time as we cease to be an emerging growth company.

        We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus forms a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different from the information that you might receive from other public reporting companies in which you hold equity interests.

        The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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THE OFFERING

Common stock we are offering

              shares

Common stock outstanding after giving effect to this offering

 

            shares

Underwriters' option to purchase additional shares

 

            shares

Use of proceeds

 

We estimate that our net proceeds from this offering will be approximately $      million at an assumed initial public offering price of $      per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash resources, as follows:

 

approximately $             million to fund the manufacturing and development of relamorelin in connection with our Phase 2 clinical trials and planned Phase 3 clinical trials for the treatment of diabetic gastroparesis through at least the initiation of Phase 3 clinical trials;

 

approximately $             million to fund the manufacturing and development of RM-493 through completion of our Phase 2a clinical trials for the treatment of MC4 heterozygous obesity and Prader Willi Syndrome; and

 

the remainder for working capital purposes, including general operating expenses.

Risk factors

 

See "Risk Factors" beginning on page 11 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

NASDAQ Global Market Symbol

 

"RYTM"

        The number of shares of our common stock to be outstanding after this offering assumes the Conversion takes place prior to the effectiveness of the registration statement of which this prospectus forms a part (see "Conversion"), and is based on            shares of our common stock outstanding as of            , 2014, including            shares of unvested restricted common stock, and also assumes:

    the conversion of all of our outstanding series A preferred stock and series B preferred stock into             shares of our common stock upon the completion of this offering;

    no exercise by the underwriters of their option to purchase up to an additional            shares of our common stock to cover over-allotments; and

    the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws upon the closing of this offering.

 

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        In this prospectus, unless otherwise indicated, the number of shares of common stock outstanding and the other information based thereon does not reflect:

    9,790,000 shares of common stock issuable upon the exercise of outstanding warrants as of            , 2014, at an exercise price of $0.001 per share, which will automatically expire upon the closing of this offering if not previously exercised; and

                shares of common stock reserved for future issuance under our 2014 equity incentive plan.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

        The following summary consolidated financial data for the years ended December 31, 2012 and 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of June 30, 2014 and for the six months ended June 30, 2013 and 2014 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. These unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and, in our opinion, contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. You should read this data together with our audited consolidated financial statements and related notes included elsewhere in this prospectus and the information under the captions "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our historical results are not necessarily indicative of our future results, and our operating results for the six-month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014 or any other interim periods or any future year or period.

 

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  Years Ended December 31,   Six Months Ended
June 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except per share data)
 

Statement of Operations and Comprehensive Loss Data:

                         

Operating Expenses:

                         

Research and development

  $ 15,678   $ 18,015   $ 9,079   $ 5,470  

General and administrative

    2,460     3,433     1,753     1,503  
                   

Total operating expenses

    18,138     21,448     10,832     6,973  
                   

Loss from operations

    (18,138 )   (21,448 )   (10,832 )   (6,973 )

Other (expense) income, net

    8     17     11     5  
                   

Net loss

  $ (18,130 ) $ (21,431 ) $ (10,821 ) $ (6,968 )
                   
                   

Other comprehensive income (loss)

    7     (1 )   3     (1 )
                   

Comprehensive loss

  $ (18,123 ) $ (21,432 ) $ (10,818 ) $ (6,969 )
                   
                   

Net loss applicable to common holders

  $ (21,498 ) $ (27,229 ) $ (13,454 ) $ (10,128 )
                   
                   

Net loss per common unit, basic and diluted(1)

  $ (7.46 ) $ (3.65 ) $ (2.25 ) $ (0.99 )
                   
                   

Weighted average common units outstanding, basic and diluted

    2,883,087     7,467,781     5,979,829     10,198,713  
                   
                   

Pro forma net loss per common share applicable to common stockholders, basic and diluted(1)

        $ (0.15 )       $ (0.04 )
                       
                       

Pro forma weighted average common shares outstanding, basic and diluted(2)

          139,901,617           156,198,713  
                       
                       

 
  As of
June 30,
2014
   
   
 
 
   
  Pro Forma
As Adjusted(3)
 
 
  Actual   Pro Forma(2)  
 
  (unaudited in thousands)
 

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 8,864   $ 8,864   $    

Working capital

    8,210     8,210        

Total assets

    10,687     10,687        

Convertible preferred units

    72,586            

Accumulated deficit

    (65,406 )   (65,406 )      

Total stockholders' and members' equity (deficit)

  $ (64,338 ) $ 8,248   $    

(1)
See Notes 2 and 10 within the notes to our financial statements appearing elsewhere in this prospectus for a description of the methods used to calculate basic and diluted net loss per share and pro forma basic and diluted net loss per share.

(2)
Pro forma to reflect the Conversion to a corporation and the conversion of all outstanding shares of series A preferred stock and series B preferred stock into shares of common stock.

(3)
Pro forma as adjusted to further reflect the sale of shares of our common stock in this offering, assuming an initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

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RISK FACTORS

         Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all other information in this prospectus, including our consolidated financial statements and related notes, before investing in our common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our common stock could decline if one or more of these risks or uncertainties actually occur, causing you to lose all or part of the money you paid to buy our common stock. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business. Certain statements below are forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements" in this prospectus.

Risks Related to Our Financial Position and Need for Capital

We are a development 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 development stage 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 November 2008. Our operations to date have been limited primarily to organizing and staffing our company and conducting research and development activities for our lead product candidate, relamorelin, and our second product candidate, RM-493. We have never generated any revenue from product sales. We have not obtained regulatory approvals for any of our product candidates.

        Since our inception, we have focused substantially all of our efforts and financial resources on research and development of relamorelin and RM-493, which are currently in Phase 2 clinical development. We have funded our operations to date primarily through proceeds from sales of preferred stock and have incurred losses in each year since our inception. Our comprehensive losses were $12.3 million for the year ended December 31, 2011, $18.1 million for the year ended December 31, 2012 and $21.4 million for the year ended December 31, 2013. As of June 30, 2014, we had an accumulated deficit of $65.4 million. Substantially all of our operating losses resulted from costs incurred in connection with our development program and from general and administrative costs associated with our operations. We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future. 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 relamorelin and RM-493 and development of any other product candidates we may choose to pursue. In addition, if we obtain marketing approval for relamorelin and/or RM-493, we will incur significant sales, marketing and outsourced manufacturing expenses. Once we are a public company, we 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 our product candidates, 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

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marketing approval for, and begin to sell, relamorelin and/or RM-493. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

        Absent our entering into a collaboration or partnership agreement, we expect to incur significant sales and marketing costs as we prepare to commercialize relamorelin. Even if relamorelin is approved for commercial sale, and we incur these costs, relamorelin 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 may be unable to continue operations without continued funding. In addition, any income we earn from sales of relamorelin may be used in our continued development of RM-493. Although the expected time frame for commercialization of RM-493 is longer than that for relamorelin, the commercialization of RM-493 is subject to the same risks as relamorelin.

Even if this offering is successful, 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 our relamorelin and RM-493 product candidates 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 our product candidates in clinical trials. We intend to use the proceeds of this offering primarily for the clinical development and regulatory approval of relamorelin. Depending on the status of regulatory approval and, if approved, commercialization of relamorelin, as well as the progress we make in selling relamorelin, we will likely require additional capital to fund the continued development of RM-493 and our operating needs thereafter. We may also need to raise additional funds if we choose to pursue additional indications and/or geographies for relamorelin and RM-493 or otherwise expand more rapidly than we presently anticipate.

        As of June 30, 2014, our cash, cash equivalents and marketable securities were $9.3 million. We estimate that the net proceeds from this offering will be approximately $         million, assuming an initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us. We expect that the net proceeds from this offering, together with our existing cash and cash equivalents will be sufficient to fund our operating expenses through at least the first half of 2016. 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

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commercialize, our product candidates. 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 our product candidates. 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, and 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 some of our product candidates 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 any product candidate 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 short 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. We were incorporated in November 2008 and commenced active operations in February 2010. Our operations to date have been limited to organizing and staffing our company, 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.

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Risks Related to the Development of Our Product Candidates

Positive results from early clinical trials of relamorelin and RM-493 may not be predictive of the results of later clinical trials of relamorelin and RM-493. If we cannot generate positive results in our later clinical trials of relamorelin and RM-493, we may be unable to successfully develop, obtain regulatory approval for, and commercialize relamorelin and RM-493.

        Positive results from any of our Phase 1 and Phase 2 clinical trials of relamorelin and RM-493 may not be predictive of the results of later clinical trials. This may be partly due to the possibility that the design of our Phase 2b and Phase 3 clinical trials of relamorelin as a treatment for diabetic gastroparesis may differ in several respects from our recently completed Phase 2 clinical trial for diabetic gastroparesis. For example, in later-stage clinical trials, we will likely be subject to more rigorous statistical analyses, such as intent to treat analyses. In addition, the effect of relamorelin on the four subjective symptoms of gastroparesis, nausea, abdominal pain, bloating, and early satiety, was only significant in a large subset of patients with vomiting at baseline. That subgroup was not pre-specified, and post-hoc analyses of subgroups may not be predictive of later trials. Placebo effects are also very common in clinical trials of GI disorders and may also be observed in obesity trials. Large placebo effects can make it harder, or even impossible, to demonstrate significant improvement on trial endpoints when the product candidate is compared to placebo. For both programs, the duration of effect of our products has only been studied for durations less than the expected duration of pivotal Phase 3 clinical trials. It is possible that the effects seen in shorter term clinical trials will not be replicated at later time points or in larger clinical trials. There may be other reasons why our early clinical trials are not predictive of later clinical trials. For RM-493, we may also need to develop a "companion diagnostic" genetic test to help identify patients with genetic deficiencies in the MC4 pathway, a process that can also be lengthy and cause additional delays in completing our clinical trials.

        Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we cannot be certain that we will not face similar setbacks. 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 U.S. Food and Drug Administration, or FDA, approval. If we fail to produce positive results in our planned Phase 2 or Phase 3 clinical trials of relamorelin and RM-493, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be materially adversely affected.

Failures or delays in the commencement or completion of our planned clinical trials of relamorelin and RM-493 could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.

        We plan to commence our Phase 2b clinical trial in relamorelin and our Phase 2a clinical trials in RM-493 by the end of 2014. Successful initiation and completion of such clinical trials is a prerequisite to submitting a new drug application, or NDA, to the FDA and, consequently, the ultimate approval and commercial marketing of relamorelin and RM-493. We do not know whether any of these Phase 2 or Phase 3 clinical trials will begin or be completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:

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        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, the IRBs at the sites where the IRBs are overseeing a clinical trial, a data and safety monitoring board overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors, including, among others:

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Changes in regulatory requirements, FDA guidance or unanticipated events during our clinical trials of relamorelin and RM-493 may occur, which may result in changes to clinical trial protocols or additional clinical trial requirements, which could result in increased costs to us and could delay our development timeline. Additionally, it may be necessary to validate different or additional instruments for measuring subjective symptoms, and to show that relamorelin and RM-493 have a clinically meaningful impact on those endpoints in order to obtain regulatory approval.

        Changes in regulatory requirements, FDA guidance or unanticipated events during our clinical trials may force us to amend clinical trial protocols or the FDA may impose additional clinical trial requirements. For instance, the FDA issued draft guidance on developing products for weight management in February 2007, but this guidance may be revised in the near future. 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, that exclude some degree of risk of cardiovascular risk pre-approval, including for obesity products. The FDA has also stated it is developing a guidance document for the development of products to treat gastroparesis. Any of these activities could result in additional clinical requirements for relamorelin or RM-493, increases in our costs, or delay of approval of relamorelin or RM-493.

        Amendments to our clinical trial protocols would require resubmission to the FDA and IRBs 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 relamorelin and RM-493 may be harmed and our ability to generate product revenue will be delayed.

        In addition, prior to commencing our Phase 3 clinical trials for relamorelin as a treatment for diabetic gastroparesis and other GI functional disorders, we will need to validate and seek FDA concurrence with the PRO questionnaire for measuring subjective endpoints such as nausea, abdominal pain, bloating, and early satiety. If we experience delays in validation or do not receive approval based on the content validity, reliability, other validity, and ability to detect a change in study groups then we may not be able to proceed with the Phase 3 clinical trials of relamorelin.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

        We may not be able to initiate or continue clinical trials for relamorelin, RM-493 or other product candidates that we may develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as relamorelin and RM-493, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors' product candidates.

        Patient enrollment is affected by other factors including:

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        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 our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

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

        Undesirable side effects caused by our product candidates 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 regulatory authorities.

        Ghrelin agonists may potentially cause impaired glucose tolerance due to secretion of growth hormone, and may potentially increase hunger and possibly to lead to increased weight. In addition, short-lived changes to other hormones, such as cortisol levels, have also been noted, though the clinical significance is unclear. Some changes in liver function tests were also noted in one Phase 1 clinical trial. While these increases were not replicated in the Phase 2 clinical trial in diabetic gastroparesis in larger numbers of diabetic patients, a risk for liver abnormalities may be seen in larger clinical trials. Injection site reactions may also occur with any subcutaneous injected product. Ghrelin may also have other potential mechanism-based and non-mechanism-based side effects.

        Setbacks in late-stage clinical trials may be caused by, among other things, preclinical findings and safety observations in clinical trials, including previously unreported adverse events. In particular, long-term animal toxicity studies have not been completed for either of our product candidates, and while shorter studies have shown potentially large margins of safety, it is unclear if the margins will be smaller with longer studies or if new findings will appear that might have a significant impact on the clinical trials or approval by the FDA.

        RM-493 is an MC4 agonist. Potential side effects of MC4 agonism, which have been noted either with RM-493 or with other MC4 agonists in clinical trials and preclinical studies, include:

        Injection site reactions have been seen in subcutaneous injections with RM-493. In addition, RM-493 has likely off-target effects on the closely related MC-1 receptor, the receptor that mediates tanning in response to sun exposure. Other MC-1 mediated effects include darkening of skin blemishes, such as freckles and moles. These effects have generally been reversible in clinical trials, but it is still unknown if they will be reversible with long-term exposure. The MC-1 mediated effects may also carry risks. The long-term impact of MC-1 activation has not been tested in clinical trials, and could potentially include increases in skin cancer, excess biopsy procedures, and cosmetic blemishes.

        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 have been no serious adverse events, or SAEs, attributed to relamorelin in our clinical trials. The only SAE possibly attributed to RM-493 in our clinical trials was one report of atypical chest pain, with no evidence of any serious

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respiratory or cardiac cause on careful examination. In addition, our interpretation of the safety data from our clinical trials is contingent upon the review and ultimate approval of the FDA. The FDA may not agree with our methods of analysis or our interpretation of the results.

        Further, if relamorelin or RM-493 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:

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

Prior drugs and product candidates focused on the same indications as those targeted by relamorelin and RM-493 have achieved only limited efficacy and have posed serious safety concerns.

        Relamorelin is a peptide that targets the receptor for ghrelin, a naturally occurring hormone that facilitates GI motility, or the movement of food through the GI tract, for the treatment of diabetic gastroparesis. Prior drugs targeted the same GI motility disorders, primarily through either the serotonin or dopamine receptors but had significant safety issues. Additionally, the first generation ghrelin agonists were small molecules that had limited potency and efficacy. There is no guarantee that relamorelin will achieve sufficient levels of efficacy and safety to qualify for regulatory approval. Similarly, first generation MC4 agonists were predominantly small molecules that failed in clinical trials due to safety issues, particularly increases in blood pressure, and had limited efficacy. There is no guarantee that RM-493 will achieve greater success than prior treatments in gaining regulatory approval.

We may not be able to translate the current formulations of our product candidates for methods of delivery that would be acceptable to the FDA or commercially successful.

        Both relamorelin and RM-493 are currently administered by subcutaneous injection using small insulin-type needles, which is generally less well-received by patients than other methods of administration, such as oral administration. Considerable additional resources and efforts may be necessary in order to translate the current formulations of relamorelin and RM-493 into forms that will be acceptable to the FDA and/or to patients. While we plan to develop new and useful formulations of both relamorelin and RM-493, we cannot estimate the probability of success, nor the resources and time needed to succeed. If we are unable to develop new formulations, our products may not achieve significant market acceptance and our business, financial condition and results of operations may be materially harmed.

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Our approach to treating one type of genetic form of obesity, heterozygous MC4 deficiency, requires identification and recruitment of patients with specific MC4 receptor genetic deficiencies. Development of such genetic testing will require substantial financial resources and regulatory approval, and may raise ethical, legal and social issues related to the use of genetic information, and genetic testing may cause less demand for our products. It is also possible that the FDA will require that we show that RM-493 is particularly useful for these patients, to demonstrate the need and usefulness of genetic pre-selection.

        We intend to focus our development of RM-493 as a treatment for obesity caused by certain genetic deficiencies in the MC4 pathway. For some genetic deficiencies in this pathway, for example PWS, no specific genetic testing is expected to be required prior to initiation of therapy with RM-493. For others, for example, in the heterozygous MC4 patient population, this approach requires genetic testing, identification, and recruitment of patients, which may require substantial financial resources as well as regulatory approvals for these genetic tests. The development of these tests to accompany a clinical program has been difficult, and may delay our current timelines. In addition, our estimates of the prevalence and incidence of these genetic deficiencies are based primarily on rates reported in scientific publications and it is uncertain if these rates will be confirmed as subjects are screened for clinical trials. If these rates are lower than reported, recruitment and screening would be more costly and require additional time.

        In order to assist in identifying this subset of patients, a companion diagnostic, which is a test or measurement that evaluates the presence of biomarkers in a patient, could be used. We anticipate that the development of a companion diagnostic concurrently with our product candidates will help us more accurately identify the patients who belong to the target subset. Use of a companion diagnostic in this way during clinical trials will result in product labeling, if the product candidate is approved, that limits use to only those patients who express the biomarker measured by the companion diagnostic. As a result, the companion diagnostic must be approved by the FDA on or before the date of approval of our product candidate. We may need to rely on third party collaborators to successfully develop and commercialize a companion diagnostic.

        Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and require separate regulatory clearance or approval prior to their commercialization. We may be dependent on the sustained cooperation and effort of any third-party collaborators with whom we may partner in the future to develop and obtain approval for these companion diagnostics. We and our potential future collaborators may encounter difficulties in developing and obtaining approval for these companion diagnostics, 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 approval of any companion diagnostics could delay or prevent approval of our related product candidates.

        Additionally, we may be required to show that RM-493 has special benefits in genetic populations. In some of the patients with deficiencies in the MC4 pathway, such as those with PWS, we believe that any meaningful benefit from RM-493 treatment will be enough to support registration and approval. For others, such as the heterozygous MC4 patient population, we may need to show that this genetic subset will derive selective and meaningful benefit from RM-493 as a treatment for obesity. This may mean that we need to provide more than just the usual demonstration of safety and efficacy with RM-493 to support the value of identifying the MC4 heterozygous population for the treatment with RM-493. For example, we may need to show that RM-493 works better in the heterozygote than the wild-type, or genetically normal, patient population. Alternatively, we may need to demonstrate that RM-493 provides effective treatment for patients who fail to achieve weight loss on an already approved anti-obesity medication in the heterozygous population but not in the general population, thereby showing an advantage to the administration of RM-493 as well as identifying a population of MC4 heterozygotes.

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The development of our product candidates may require substantial financial resources and may ultimately be unsuccessful.

        In addition to the development of relamorelin, we are pursuing the development of RM-493 and may pursue the development of our other early-stage development programs. Other than relamorelin and RM-493, no other potential product candidates have commenced any clinical trials, and there are a number of FDA requirements that we must satisfy before we can commence clinical trials. Satisfaction of these requirements will entail substantial time, effort and financial resources. We may never satisfy these requirements. Any time, effort and financial resources we expend on RM-493 and our other early-stage development programs may adversely affect our ability to continue development and commercialization of relamorelin, and we may never complete our clinical trials of RM-493 or commence clinical trials of our other development programs despite expending significant resources in pursuit of their development. If we do commence clinical trials for our other potential product candidates, such product candidates may never be approved by the FDA.

We may not be successful in our efforts to identify or discover additional product candidates.

        While we are not currently intending to identify or discover additional product candidates, it is possible that this plan will change over time. If so, the success of our business may depend primarily on our ability to identify, develop and commercialize these products. Although relamorelin and RM-493 are currently in clinical development, our research programs 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.

        If any of these events occur, we may be forced to abandon 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. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

Risks Related to the Commercialization of Our Product Candidates

Even if approved, reimbursement policies could limit our ability to sell relamorelin and RM-493.

        Market acceptance and sales of relamorelin and RM-493 will depend on reimbursement policies and may be affected by healthcare reform measures. 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 for those medications. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for relamorelin or RM-493 and, if reimbursement is available, the level of such reimbursement. Reimbursement may impact the demand for, or the price of, relamorelin or RM-493. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize relamorelin or RM-493.

        In some foreign countries, particularly in Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 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 relamorelin and RM-493 with other available therapies. If reimbursement for

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relamorelin or RM-493 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.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell relamorelin and RM-493, 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 relamorelin and RM-493, if approved by the FDA or any other regulatory body, 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 relamorelin and RM-493 in the United States, we may never receive regulatory approval to market relamorelin and RM-493 outside of the United States.

        We intend to pursue marketing approval for relamorelin and RM-493 in the European Union 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. Approval procedures vary among countries and can involve additional product candidate testing and additional administrative review periods. The time required to obtain approvals in other countries might differ from that required to obtain FDA approval. The marketing approval 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. Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or other setback in obtaining our potential market share could have a material adverse impact on our business, results of operations and prospects.

Even if we receive marketing approval for relamorelin and RM-493, our product candidates may not achieve broad market acceptance, which would limit the revenue that we generate from their sale.

        The commercial success of relamorelin and RM-493, if approved by the FDA or other applicable regulatory authorities, will depend upon the awareness and acceptance of relamorelin and RM-493 within the medical community, including physicians, patients and healthcare payors. Market acceptance of relamorelin and RM-493, if approved, will depend on a number of factors, including, among others:

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        If relamorelin or RM-493 is approved but does not achieve an adequate level of acceptance by patients, physicians and third-party payors, we may not generate sufficient revenue from our product candidates to become or remain profitable. Before granting reimbursement approval, healthcare payors may require us to demonstrate that, in addition to treating gastroparesis and other GI functional disorders and obesity caused by certain genetic deficiencies in the MC4 pathway, relamorelin and RM-493 also provide incremental health benefits to patients. Our efforts to educate the medical community and third-party payors about the benefits of relamorelin and RM-493 may require significant resources and may never be successful.

Competing products and technologies could emerge, adversely affecting our opportunity to generate revenue from the sale of relamorelin and RM-493.

        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 relamorelin and RM-493 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 relamorelin and RM-493. 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.

        Although there is a significant unmet medical need for drugs that improve motility, in GI functional disorders the development pipeline for prokinetic, or pro-motility, drugs is limited and overall there are few treatments approved or in late-stage clinical development for diabetic gastroparesis:

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        Although drugs approved for general obesity can be used in obese patients with MC4 deficiencies, there are currently no approved treatments in the United States specifically for these indications—either for obesity caused by heterozygous mutations of the MC4 gene or for PWS. The available treatments for general obesity have significant shortcomings, and have not been evaluated for safety or efficacy in the treatment of obesity caused by MC4 deficiencies. Bariatric surgery is the most successful treatment for obesity, and the only treatment resulting in an average of more than 15% documented weight loss over 10 years. This treatment has dramatic positive effects on most, but not on all, cardiovascular disease risk factors over a 10-year period. It has favorable effects on established diabetes and prevents the development of new cases of diabetes. The diabetes-preventive effect of bariatric surgery is particularly strong among patients with impaired fasting glucose at baseline. The incidence rates of cardiovascular disease events and cancer, as well as overall mortality, are reduced by bariatric surgery. Quality of life is also markedly improved. However, the number of bariatric surgery procedures in the U.S. has not increased for several years, despite greatly expanded guideline recommendations and new supportive clinical data. The implications are that there are substantial patient concerns about the morbidity and mortality associated with this surgery.

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

        The use of relamorelin or RM-493 in clinical trials and the sale of relamorelin or RM-493, 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 relamorelin or RM-493. 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, 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

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state consumer protection laws. 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:

        We maintain product liability insurance coverage for our clinical trials with a $5.0 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 relamorelin or RM-493, 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 any future clinical trials for relamorelin and RM-493. 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 relamorelin and RM-493 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 relamorelin and RM-493 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. Outside parties may:

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        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 Member States of the European Economic Area and comparable foreign regulatory authorities 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. 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 comparable foreign regulatory authorities 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 product produced under current Good Manufacturing Practices, or cGMPs, regulations and will require a large number of test subjects. 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 relamorelin and RM-493. As a result, our financial results and the commercial prospects for relamorelin and RM-493 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 for relamorelin or RM-493, and we intend to rely on third parties to produce commercial supplies of relamorelin or RM-493 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 relamorelin or RM-493, 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 candidates on a clinical or commercial scale. The facilities used by our contract manufacturers to manufacture the active pharmaceutical ingredient and final drug product must pass inspection by the FDA and other comparable foreign regulatory agencies pursuant to inspections that would be conducted after we submit our NDAs or relevant foreign regulatory submission to the applicable regulatory agency. In addition, our clinical trials must be conducted with products produced under current cGMP regulations. 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, including civil and criminal penalties.

        We currently contract with a third party for the manufacture of our product candidates and intend to continue to do so in the future. Both of our subsidiaries have entered into a process development and manufacturing services agreement with Peptisyntha SA under which Peptisyntha will provide certain process development and manufacturing services in connection with the manufacture of both relamorelin and RM-493. Under both agreements, we pay Peptisyntha for services in accordance with the terms of mutually agreed upon work orders, which we and Peptisyntha may enter into from time to

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time. The agreements also provide that, subject to certain conditions, for a period following each product launch date, we will source from Peptisyntha 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. 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 control the manufacturing process of, and are completely dependent on, our contract manufacturers to comply with cGMPs for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or applicable foreign regulatory agencies, they will not be able maintain a satisfactory manufacturing history. In addition, although we have no direct control over our contract manufacturers' ability to maintain adequate quality control, quality assurance and qualified personnel, we are ultimately responsible for ensuring that our drug substances and finished product are manufactured in accordance with cGMPs. Furthermore, all of our contract manufacturers 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 contract manufacturers' facilities generally. If the FDA or an applicable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates 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 our product candidates.

        We are currently in the process of manufacturing finished drug product for use in our upcoming clinical trials. We believe we currently have sufficient drug substance to complete our planned clinical trials. Finished drug product, diluent and placebo are expected to be available by the end of 2014. Aside from our planned Phase 2b clinical trial in patients with diabetic gastroparesis, we will not be able to commence any additional clinical trials without the production of additional finished drug product. The manufacturing process is under active development and 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 relamorelin and RM-493, 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 relamorelin and RM-493 is individually contracted under a quality and supply agreement. If we engage new contractors, such contractors must be approved by the FDA and other applicable foreign regulatory agencies. We will need to submit information to the FDA and other regulatory authorities describing the manufacturing changes. If manufacturing changes occur post-approval, the FDA will have to approve these changes. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of relamorelin and RM-493, if approved. Our current scale of manufacturing appears adequate to support all of our needs for clinical trial supplies for relamorelin, though further optimization may be required for RM-493. If relamorelin and RM-493 are approved, we will need to identify contract manufacturers or partners to produce relamorelin and RM-493 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 relamorelin and RM-493, 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 relamorelin and RM-493 or our other product candidates. 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 or conflict 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 may also be subject to interference proceedings, ex parte reexamination, or 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 relamorelin and RM-493.

        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 relamorelin or RM-493 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 relamorelin or RM-493, our financial position and results of operations would also be materially and adversely impacted.

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

        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 our employees, consultants, collaborators and vendors. We also have agreements with our 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

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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.

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 relamorelin or RM-493, 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 ghrelin analogs, melanocortin receptor analogs and methods of using these analogs. We are aware of one U.S. patent that broadly claims the method of use we are developing for relamorelin. While we believe that these broad claims are invalid, we cannot assure you that the patent holder will not attempt to assert these claims against us. If these claims were asserted against us and were found to be valid and enforceable, we may be forced to stop or delay developing, manufacturing, selling or otherwise commercializing relamorelin, or to obtain a license which may not be available on commercially reasonable terms or at all.

        The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that relamorelin or RM-493 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 early 2013 from a third party bringing to our attention several patents and patent applications, both U.S. and non-U.S. We believe that these third-party patents do not impact our ability to operate without infringing same, but 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 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 relamorelin or RM-493.

        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.

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        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:

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. 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 our product candidates 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 our product candidate, the defendant could claim that the patent covering our product candidate 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 our product candidates 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

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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 our product candidates. 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 product candidates 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 products 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. 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 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 relamorelin, RM-493 or our other product candidates, if approved.

        We have licensed our rights to relamorelin and RM-493 from Ipsen Pharma SAS, or Ipsen. Our licenses with Ipsen impose various obligations on us, and each provides Ipsen the right to terminate the license thereunder 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 licenses 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 relamorelin or RM-493, as applicable, as well as harm our competitive business position and our business prospects.

        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

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commercialize a product candidate or product, 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 relamorelin or RM-493 and failure to secure such registrations could adversely affect our business.

        We have not yet registered trademarks for a commercial trade name for relamorelin or RM-493. 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 such rejections. 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 such proceedings. Moreover, any name we propose to use with our product candidates 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 proprietary 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.

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 relamorelin or RM-493, our business may be materially harmed.

        Depending upon the timing, duration and specifics of FDA marketing approval for relamorelin or RM-493, 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, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing 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 our product candidates contain active ingredients that would be treated by the FDA as new chemical entities, or new drug products, 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 our product. Competition that our products may face from generic versions of our products 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 those product candidates.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

        The United States has recently 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

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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.

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. Although we are not aware of any claims currently pending against us, 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 claims, 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 relamorelin and RM-493, which would materially adversely affect our commercial development efforts.

Risks Related to Regulatory Approval and Marketing of Our Product Candidates 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 some or all of our product candidates. We depend almost entirely on the success of two product candidates, relamorelin and RM-493, which are still in Phase 2 clinical development. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, relamorelin and RM-493. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

        We currently have only two product candidates, relamorelin and RM-493, in clinical development, and our business depends almost entirely on their 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. Relamorelin, which is currently in Phase 2 clinical development as a treatment for diabetic gastroparesis and other GI functional disorders, and RM-493, which is currently in Phase 2a clinical development as a treatment for genetic deficiencies in the MC4 pathway, will each require substantial additional clinical development, testing and regulatory approval before we are permitted to commence their commercialization. The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates 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 any product candidate. 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 the proceeds we raise in this offering. Of the large number of drugs in development in the United States, only a small percentage will successfully complete the FDA regulatory approval process and will be commercialized. In addition, we have not discussed all of our proposed development programs with the FDA and the FDA may determine that a specific indication, such as constipation in patients with Parkinson's disease, is inappropriate for drug approval and require us to seek approval in a broader population to obtain a constipation claim. Accordingly, even if we are able to obtain the

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requisite financing to continue to fund our development and clinical trials, we cannot assure you that relamorelin, RM-493 or any of our other product candidates will be successfully developed or commercialized.

        We are not permitted to market relamorelin or RM-493 in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. Relamorelin has already completed a Phase 2 clinical trial for the treatment of diabetic gastroparesis in which the drug had significant effects on both stomach emptying and vomiting symptoms. We expect that the FDA will require us to conduct at least two Phase 3 clinical trials in order to submit an NDA for relamorelin as a treatment for diabetic gastroparesis, and other Phase 3 trials to submit an NDA for other GI functional disorders. The FDA or other regulatory authorities may also require that we conduct additional pivotal trials. Pursuant to the FDA's February 2007 draft guidance on the development of weight management drugs, in order to reasonably estimate the safety of a weight-management drug, Phase 3 clinical trials must randomize approximately 3,000 subjects to active doses of the product and 1,500 subjects to placebo for one year of treatment. Our focus is not to develop RM-493 for the general category of weight management drugs, but we expect to seek an indication for obesity caused by genetic deficiencies in the MC4 pathway. If RM-493 produces significant treatment effects in these patients, coupled with an acceptable safety profile, our overall clinical program may be less time consuming and require fewer patients than a program for a broader obesity indication. The FDA has advised us, however, that such a program would require development of a systematic and clearly defined approach to classifying patients' various mutations and selecting patients with mutations of unquestionable clinical relevance. In addition we would be required to demonstrate the predictive utility of MC4 genotype related to RM-493-induced weight loss. For example, we may need to show that RM-493 works better in the heterozygote than the wild-type, or genetically normal, population. Alternatively, we may need to demonstrate that RM-493 provides effective treatment for patients who fail to achieve weight loss on an already approved anti-obesity medication in the heterozygous population but not in the general population, thereby showing an advantage to the administration of RM-493 as well as identifying a population of MC4 heterozygotes. Either of these scenarios would require that we study both our intended patient population as well as the general obesity population and could prove costly and time consuming. In addition, the FDA may not agree with our plans, may not support the size and length of our proposed clinical development program, and may not allow us to gain an indication for these genetic causes of obesity. In addition, the FDA may impose additional requirements beyond the February 2007 draft guidance in order to support approval. For example, the FDA has required other sponsors to conduct large CVOTs to rule out excess cardiovascular risk. Overall, it is not yet possible to determine the size, duration, endpoints, and definition of success for our approach. We have not yet commenced any of these clinical trials.

        Our plan is to expand our internal clinical development operations and capabilities so that we can enroll and manage our Phase 2b and Phase 3 clinical trials, if any, of relamorelin for the treatment of diabetic gastroparesis such that, if the clinical trials are successful, we can file an NDA in the United States by 2018. Based on initial discussions with the FDA, we anticipate that the pivotal Phase 3 clinical trials required for regulatory approval in the United States of relamorelin for the treatment of diabetic gastroparesis will assess efficacy based on 12 weeks of treatment. However, we have not finalized the design, timing and size of our Phase 3 trials with the FDA and therefore cannot assure you that they will start on time. In addition, obtaining approval of an NDA is a complex, lengthy, expensive and uncertain process, and the FDA may delay, limit or deny approval of relamorelin and RM-493 for many reasons, including, among others:

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Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market relamorelin and RM-493. Moreover, because our business is almost entirely dependent upon these product candidates, any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

Our Fast Track designation may not lead to a faster development or regulatory review or approval process and, moreover, does not assure FDA approval of our product.

        The FDA has granted Fast Track designation to relamorelin for the treatment of diabetic gastroparesis. However, even with this designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures and there is no assurance that relamorelin will be approved by the FDA. The FDA may withdraw Fast Track designation if the FDA believes that the designation is no longer supported by data from our clinical development program. Fast Track designation does not guarantee that a sponsor will qualify for or be able to take advantage of any FDA expedited review procedures.

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Our failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are granted for our product candidates in the United States would not assure approval of such product candidates in foreign jurisdictions.

        In order to market and sell relamorelin, RM-493 and any other product candidate that we may develop in the European Union and many other jurisdictions, we or our third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval 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 approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.

Even if we obtain marketing approval for relamorelin and RM-493, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our products 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 relamorelin and RM-493, regulatory authorities may impose significant restrictions on relamorelin and RM-493's indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. Relamorelin and RM-493 will also be subject to ongoing FDA requirements governing the labeling, packaging, storage and promotion of these products and recordkeeping and submission of safety and other post-market information. The FDA has 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. 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 regulatory authorities for compliance with cGMPs and other regulations. If we or a regulatory agency discover problems with relamorelin or RM-493, such as adverse events of unanticipated severity or frequency, or problems with the facility where relamorelin or RM-493 is manufactured, a regulatory agency may impose restrictions on relamorelin or RM-493, the manufacturer or us, including requiring withdrawal of relamorelin or RM-493 from the market or suspension of manufacturing. If we, relamorelin or RM-493 or the manufacturing facilities for relamorelin or RM-493 fail to comply with applicable regulatory requirements, a regulatory agency may, among other things:

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        Accordingly, assuming we receive marketing approval for one or more of our product candidates, we and our contract manufacturers 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 our products 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.

We are subject to healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

        Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of relamorelin and RM-493, if approved. Our future arrangements with third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute relamorelin and RM-493, if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

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        Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. 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 anticipated activities to be conducted by our sales 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 penalties, damages, fines and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of which could substantially disrupt our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Any product candidate for which we obtain marketing approval 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.

        Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include, but are not limited to, 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, 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 Federal Food, Drug, and Cosmetic Act 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 regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as relamorelin and RM-493, 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 relamorelin as a treatment for diabetic gastroparesis and other GI functional disorders and RM-493 as a treatment for obesity caused by certain genetic deficiencies in the MC4 pathway, physicians may nevertheless prescribe relamorelin and RM-493 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. If we cannot successfully manage the promotion of relamorelin and RM-493, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

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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. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the 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.

Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

        Our future profitability will depend, in part, on our ability to commercialize relamorelin and RM-493 in foreign markets for which we intend to rely on collaboration with third parties. If we commercialize relamorelin and RM-493 in foreign markets, we would be subject to additional risks and uncertainties, including:

        Foreign sales of relamorelin and RM-493 could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

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Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain product candidates and products 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.

        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 also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.

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, Bart Henderson, our President, Lex H.T. Van der Ploeg, Ph.D., our Chief Scientific Officer, and Elizabeth Stoner, M.D., our Chief Medical Officer. We have entered into employment agreements with Dr. Gottesdiener, Mr. Henderson, and Dr. Van der Ploeg, but they may terminate their employment with us at any time. Dr. Stoner is currently a consultant and, while we have entered into a consulting arrangement with her, she may terminate her relationship with us at any time. Although we do not have any reason to believe that we will lose the services of any of our key employees or consultants in the foreseeable future, the loss of their services might impede the achievement of our research, development and commercialization objectives. We also do not have any key-man life insurance on any of our 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 our standard non-compete agreements. Recruiting and retaining qualified scientific personnel and sales and

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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.

        As of June 30, 2014, we had three full-time employees and one part-time employee, and in connection with becoming a public company, we expect to increase our number of employees and the scope of our operations. 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 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 relamorelin and RM-493. 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 relamorelin and RM-493, 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 will need to establish and maintain effective disclosure and financial controls and make changes in our corporate governance practices. We will need to hire additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and maintain 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.

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 recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including weakened demand for our product candidates 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.

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Our internal computer systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our relamorelin and RM-493 development programs.

        Despite the implementation of security measures, our internal computer systems and those of our third-party CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, 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 relamorelin and RM-493 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 relamorelin and RM-493 could be delayed.

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

        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 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 and This Offering

Our executive officers, directors, principal stockholders and their affiliates will continue to exercise significant control over our company after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.

        Upon the completion of this offering, the existing holdings of our executive officers, directors, principal stockholders and their affiliates, including Pfizer Inc., investment funds affiliated with MPM Capital, investment funds affiliated with Third Rock Ventures, and investment funds affiliated with New Enterprise Associates will represent beneficial ownership, in the aggregate, of approximately        % of our outstanding common stock, assuming no exercise of the underwriters' option to acquire additional common stock in this offering and assuming we issue the number of shares of common stock as set forth on the cover page of this prospectus. As a result, these stockholders, if they act together, will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These stockholders acquired their shares of common stock for substantially less than the price of the shares of common stock being acquired in this offering, and these stockholders may have interests, with respect to their common stock, that are different from those of investors in this offering and the concentration of voting power among these stockholders may have an adverse effect on the price of our common stock. In addition, this concentration of ownership might adversely affect the market price of our common stock by:

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        See "Principal Stockholders" in this prospectus for more information regarding the ownership of our outstanding common stock by our executive officers, directors, principal stockholders and their affiliates.

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.

        Upon completion of the Conversion, we will be 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 will be incorporated in Delaware, we will be 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.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

        You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. Assuming an initial public offering price of $          per share, the midpoint of the price range set forth on the cover page of this prospectus, purchasers of common stock in this offering will experience immediate dilution of $            per share in net tangible book value of the common stock. In addition, investors purchasing common stock in this offering will contribute         % of the total amount invested by stockholders since inception but will only own        % of the shares of common stock outstanding. See "Dilution" for a more detailed description of the dilution to new investors in the offering.

An active trading market for our common stock may not develop, and you may not be able to resell your shares at or above the initial public offering price.

        Prior to this offering, there has been no public market for shares of our common stock. Although we anticipate our common stock will be approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell.

If securities or industry analysts do not 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 currently have and may never obtain research coverage by securities and industry analysts. If no

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securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, 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 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.

Market volatility may affect our stock price and the value of your investment.

        Following this offering, the market price for our common stock is likely to be volatile, in part because our common stock has not been previously traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:

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:

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        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 will have broad discretion in how we use the proceeds of this offering. We may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

        We will have considerable discretion in the application of the net proceeds of this offering. We intend to use the net proceeds from this offering to advance the clinical development of relamorelin as a treatment for diabetic gastroparesis and other GI functional disorders and RM-493 as a treatment for obesity caused by certain genetic deficiencies in the MC4 pathway and to fund working capital and other general corporate purposes, which may include funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company. As a result, investors will be relying upon management's judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. 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 from this offering in a manner that does not produce income or that loses value.

Our ability to use certain net operating loss carryovers and other tax attributes may be limited.

        Our corporate subsidiaries 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 Internal Revenue Code of 1986, as amended, or the Code, a corporation is generally allowed a deduction for net operating losses carried over from a prior taxable year. Under that provision, we can carry forward certain taxable losses of our subsidiaries to offset future taxable income, if any, until such losses are used or expire. The same is true of other unused tax attributes, such as research tax credits. As of December 31, 2013, we had approximately $47.0 million of unused carryforwards of net operating losses, or NOLs, and approximately $2.1 million of unused carryforwards of tax credits.

        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 this offering may result in a limitation under 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.

        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.

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Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

        If those stockholders who hold shares of common stock immediately following the Conversion sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the market price of our common stock could decline and our ability to raise adequate capital through the sale of additional equity securities could be impaired. Upon completion of this offering, there will be              shares of our common stock outstanding, assuming no exercise of the underwriters' over-allotment option. Of these shares, as of the date of this prospectus, approximately              shares of our common stock, plus any shares sold upon exercise of the underwriters' over-allotment option, will be freely tradable, without restriction, in the public market immediately following this offering (except for shares purchased by affiliates), and the remaining shares may be sold upon expiration of the lock-up agreements pertaining to this offering 180 days after the date of this offering (subject in some cases to volume limitations). The representatives of the underwriters, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

        After the lock-up agreements expire, based upon the number of shares of common stock, on an as-converted basis, outstanding as of                        , 2014, up to an additional               shares of common stock will be eligible for sale in the public market,              of which shares are held by directors, executive officers and other affiliates and will be subject to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.

        In addition, as of                        , 2014,               shares of common stock that are reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

        After this offering, the holders of approximately 147,710,000 shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above, including requiring us to file registration statements covering the shares of our common stock they hold or to include their shares in registration statements that we may file for ourselves or other stockholders. See "Description of Capital Stock—Registration Rights" in this prospectus for more information regarding these registration rights. 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 market price of our common stock.

        We also intend to register all the shares of common stock that we may issue under our equity incentive plans. Effective upon the effectiveness of the registration statement of which this prospectus is a part, an aggregate of              shares of our common stock will be reserved for future issuance under these plans. Once we register these shares, which we plan to do shortly after the completion of this offering, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future.

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

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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) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) 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 30 th , and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We will incur increased costs as a result of operating as a public company, and our management will be required 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 incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, 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 need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

        We are evaluating these rules and regulations, and 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.

        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, 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

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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 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 dividend 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.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Risk Factors" and include, among other things:

        These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

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MARKET, INDUSTRY AND OTHER DATA

        This prospectus includes market, industry and other data and forecasts that we have derived from independent consultant reports, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.

        Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from the sale of the shares of our common stock offered by us will be approximately $           million, based on an assumed initial public offering price of $          per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions. If the underwriters' option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $           million, after deducting underwriting discounts and commissions.

        A $1.00 increase (decrease) in the assumed initial public offering price of $          per share would increase (decrease) the net proceeds to us from this offering by approximately $           million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $           million, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions.

        As of June 30, 2014, we had cash, cash equivalents and marketable securities of $9.3 million. We intend to use the net proceeds from this offering, together with our existing cash resources, as follows:

        Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the progress of our clinical trials and other development efforts for relamorelin and other factors described in "Risk Factors" beginning on page 10, as well as the amount of cash we use in our operations. As a result, our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue clinical trials or preclinical activities if the net proceeds from this offering and the other sources of cash are less than expected.

        Pending application of the net proceeds, we intend to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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DIVIDEND POLICY

        We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

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PRIOR RESTRUCTURING

        Rhythm Holding Company, LLC, or the LLC entity, was formed on March 21, 2013 as a holding company in connection with a corporate restructuring, or the Prior Restructuring, by Rhythm Pharmaceuticals, Inc., a Delaware corporation that was organized in November 2008. Rhythm Pharmaceuticals, Inc. changed its name to Rhythm Health, Inc., or Rhythm Health, on July 7, 2014. Rhythm Health and Rhythm Metabolic, Inc., or Rhythm Metabolic, a Delaware corporation organized on March 21, 2013, became the wholly owned subsidiaries of the LLC entity as a result of the exchange of equity transactions described further below in connection with the Prior Restructuring. As part of the Prior Restructuring, Rhythm Health contributed all of its patent rights and other intellectual property rights with respect to RM-493 and Rhythm Health's related MC4 program to Rhythm Metabolic. As a result of the Prior Restructuring, our two product candidates and their related programs were separated and each is held by a different legal entity, and the LLC entity became the holding company for both of these legal entities. Our wholly owned subsidiary, Rhythm Health, holds all of our patent rights and other intellectual property rights with respect to relamorelin and our related ghrelin agonist program, and our wholly owned subsidiary, Rhythm Metabolic, holds all of our patent rights and other intellectual property rights with respect to RM-493 and our related MC4 agonist program.

        The Prior Restructuring involved the following transactions:

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ORGANIZATIONAL STRUCTURE

        The charts below show our organizational structure upon the consummation of the Prior Restructuring and immediately prior to and immediately following the conversion of the LLC entity to a corporation, as described below under "Conversion."

Pre-Conversion   Post-Conversion


GRAPHIC

 


GRAPHIC


CONVERSION

        Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will engage in the following transactions, which we refer to collectively as the Conversion:

        As part of the Conversion:

        After converting to a corporation and changing our name to Rhythm Pharmaceuticals, Inc., we will initially be governed by a certificate of incorporation to be filed with the Delaware Secretary of State and amended and restated bylaws. On the effective date of the Conversion, the members of the board of managers of Rhythm Holding Company, LLC will become the members of the board of directors of Rhythm Pharmaceuticals, Inc. and the officers of Rhythm Holding Company, LLC will become the officers of Rhythm Pharmaceuticals, Inc.

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        Upon the closing of this offering, all outstanding shares of our series A preferred stock and series B preferred stock will be automatically converted into shares of our common stock pursuant to the terms of our certificate of incorporation and we will file an amended and restated certificate of incorporation to reflect the conversion of our series A preferred stock and our series B preferred stock. The material portions of our amended and restated certificate of incorporation and amended and restated bylaws are described in "Description of Capital Stock."

        For the convenience of the reader, except as the context otherwise requires, all information included in this prospectus is presented giving effect to the Conversion.

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CAPITALIZATION

        The following table sets forth our cash, cash equivalents and marketable securities and capitalization as of June 30, 2014, as follows:

        Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at pricing. You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other financial information contained in this prospectus. You should also read this table together with the information contained in this prospectus, including "Conversion," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes included elsewhere in this prospectus.

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  As of June 30, 2014  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (unaudited)
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 8,864   $ 8,864                 
               
               

Convertible preferred units:

                   

Series A convertible preferred units; 61,000,000 units authorized, issued and outstanding actual; no units authorized, issued or outstanding pro forma or pro forma as adjusted (aggregate liquidation preferences of $40,254 at June 30, 2014)

  $ 30,307            

Series B convertible preferred units; 85,000,000 units authorized, issued and outstanding actual; no units authorized, issued or outstanding pro forma or pro forma as adjusted (aggregate liquidation preferences of $48,365 at June 30, 2014)

   
42,279
   
       

Stockholders' and members' equity (deficit):

                   

Common units, 179,539,000 units authorized, 15,369,832 units issued and 10,938,609 units outstanding at June 30, 2014; no units authorized, issued or outstanding pro forma or pro forma as adjusted

    53            

Common stock, $0.001 par value; no shares authorized, issued or outstanding actual;            shares authorized and 156,938,609 shares issued pro forma;            shares authorized and            shares issued pro forma as adjusted

        157        

Additional paid-in capital

    1,006     73,488        

Accumulated other comprehensive income

    9     9        

Accumulated deficit

    (65,406 )   (65,406 )      
               

Total stockholders' and members' equity (deficit)

    (64,338 )   8,248        

Total capitalization

  $ (64,338 ) $ 8,248        
               
               

        The information above is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the estimated price range shown on the cover page of this prospectus, would increase (decrease) the amount of cash and cash equivalents, additional paid-in capital, total stockholders' equity (deficit) and total capitalization on a pro forma as adjusted basis by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares offered by us would increase (decrease) cash and cash equivalents, total stockholders' equity (deficit) and total capitalization on a pro forma as adjusted basis by approximately $             million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A                share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase each of cash and cash equivalents and total stockholders' (deficit) equity by approximately $             million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a                share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering

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price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, would decrease each of cash and cash equivalents and total stockholders' (deficit) equity by approximately $             million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

        The actual, pro forma and pro forma as adjusted information set forth in the table excludes:

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DILUTION

        If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

        Our historical net tangible book value as of June 30, 2014 was approximately $(64.3) million, or $(5.88) per common unit. Our historical net tangible book value is the amount of our total tangible assets less our total liabilities, including the liquidation preference of our convertible preferred units. Net historical tangible book value per common unit is our historical net tangible book value divided by the number of common units outstanding as of June 30, 2014.

        Our pro forma net tangible book value as of June 30, 2014 after giving effect to the Conversion was $8.3 million, or $0.05 per share of common stock.

        The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share

        $    

Historical net tangible book value per share as of June 30, 2014

  $          

Pro forma net tangible book value per share as of June 30, 2014

  $          

Increase per share attributable to new investors

  $          
             

Pro forma as adjusted net tangible book value per share at June 30, 2014 after giving effect to the offering

        $    
             

Dilution per share to new investors

        $    

        A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $      per share and the dilution per share to investors participating in this offering by approximately $      per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        The following table summarizes, on a pro forma basis as of June 30, 2014, the total number of shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by new investors in this offering at an assumed initial public offering price of $      per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table below shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 
  Shares Purchased   Total Consideration    
 
 
  Average
Price Per
Share
 
 
  Number   Percentage   Amount   Percentage  
 
   
   
  (in thousands)
   
   
 

Existing stockholders

            % $         % $    

New investors

            %           %      
                       

Total

            % $         % $    

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        Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters' option to purchase additional shares of our common stock in this offering. If the underwriters' option to purchase additional shares is exercised in full:

        Effective immediately upon closing of this offering, an aggregate of      shares of our common stock will be reserved for issuance under our 2014 equity incentive plan. Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any new options are issued under our equity incentive plans or we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected consolidated statements of operations data for the years ended December 31, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2012 and 2013 are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The selected consolidated statements of operations data for the six months ended June 30, 2013 and 2014 and the balance sheet data as of June 30, 2014 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. In our opinion, these unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. You should read this data together with our audited consolidated financial statements and related notes appearing elsewhere in this prospectus and the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our historical results are not necessarily indicative of our future results, and our operating results for the six-month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014 or any other interim periods or any future year or period.

 
  Years Ended December 31,   Six Months Ended
June 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except share and per share data)
 

Statement of Operations and Comprehensive Loss Data:

                         

Operating Expenses:

                         

Research and development

  $ 15,678   $ 18,015   $ 9,079   $ 5,470  

General and administrative

    2,460     3,433     1,753     1,503  
                   

Total operating expenses

    18,138     21,448     10,832     6,973  
                   

Loss from operations

    (18,138 )   (21,448 )   (10,832 )   (6,973 )

Other (expense) income, net

    8     17     11     5  
                   

Net loss

  $ (18,130 ) $ (21,431 ) $ (10,821 ) $ (6,968 )
                   
                   

Other comprehensive income (loss)

    7     (1 )   3     (1 )
                   

Comprehensive loss

  $ (18,123 ) $ (21,432 ) $ (10,818 ) $ (6,969 )
                   
                   

Net loss applicable to common holders

  $ (21,498 ) $ (27,229 ) $ (13,454 ) $ (10,128 )
                   
                   

Net loss per common unit, basic and diluted(1)

  $ (7.46 ) $ (3.65 ) $ (2.25 ) $ (0.99 )
                   
                   

Weighted average common units outstanding, basic and diluted

    2,883,087     7,467,781     5,979,829     10,198,713  
                   
                   

Pro forma net loss per common share applicable to common stockholders, basic and diluted(1)

        $ (0.15 )       $ (0.04 )
                       
                       

Pro forma weighted average common shares outstanding, basic and diluted(2)

          139,901,617           156,198,713  
                       
                       

(1)
See Notes 2 and 10 within the notes to our financial statements appearing elsewhere in this prospectus for a description of the methods used to calculate basic and diluted net loss per share and pro forma basic and diluted net loss per share.

(2)
Pro forma to reflect the Conversion to a corporation and the conversion of all outstanding shares of series A preferred stock and series B preferred stock into shares of common stock.

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  December 31,   June 30,  
 
  2012   2013   2014  
 
   
   
  (unaudited)
 

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 11,766   $ 7,364   $ 8,864  

Working capital

    16,353     15,079     8,210  

Total assets

    18,922     18,186     10,687  

Convertible preferred stock/units

    52,704     72,586     72,586  

Accumulated deficit

    (37,007 )   (58,438 )   (65,406 )

Total stockholders' and members' deficit

  $ (36,284 ) $ (57,460 ) $ (64,338 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless otherwise indicated, the numbers in the text below are expressed in thousands.

Overview

        We are a biopharmaceutical company focused on the development and commercialization of peptide therapeutics for the treatment of gastrointestinal, or GI, diseases and genetic deficiencies that result in metabolic disorders. Our lead product candidate, relamorelin, is a potent, best-in-class, Phase 2 ghrelin agonist for the treatment of diabetic gastroparesis, a GI complication of diabetes, and other GI functional disorders. We are also developing a second product candidate, RM-493, which is a potent, first-in-class, Phase 2 ready melanocortin-4, or MC4, receptor agonist for the treatment of obesity caused by genetic deficiencies in the MC4 pathway. We believe our product candidates, for which we have exclusive worldwide rights, have the potential to treat these diseases for which there currently are limited therapeutic options.

        We have completed a Phase 2 clinical trial of relamorelin for the treatment of diabetic gastroparesis. Based on consultation with regulatory authorities, we expect to initiate a Phase 2b clinical trial for the treatment of diabetic gastroparesis by the end of 2014. The U.S. Food and Drug Administration, or the FDA, has granted Fast Track designation to relamorelin for the treatment of diabetic gastroparesis. Fast Track designation is designed to facilitate and expedite the review of drugs for serious conditions with high unmet need, in order to get drugs to patients earlier. We intend to manage our relamorelin clinical development program such that, if our clinical trials are successful, we can file a new drug application, or NDA, by 2018. We are also conducting a Phase 2a clinical trial of relamorelin for the treatment of refractory chronic constipation in Parkinson's disease patients and a Phase 2a benchmark clinical trial of relamorelin in patients with chronic constipation. RM-493 is in clinical development for the treatment of obesity caused by genetic deficiencies in the MC4 pathway. We expect to initiate two Phase 2a clinical trials in patients with genetic deficiencies in the MC4 pathway by the end of 2014, one for the treatment of obesity in patients with a single mutation of the MC4 receptor gene, and one in patients with Prader Willi Syndrome, or PWS.

        We have operated as a virtual company that leverages 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.

        Our operations to date have been limited primarily to organizing and staffing our company and conducting research and development activities for our lead product candidate, relamorelin, and our second product candidate, RM-493. To date, we have not generated any product revenue and have financed our operations primarily through the private placement of our equity securities to venture capital investors in exchange for proceeds of approximately $73.0 million. We will not generate revenue from product sales unless and until we or a partner successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. We expect to fund our operations through the sale of equity, debt financings or other sources, including potential collaborations with pharmaceutical

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companies. 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 one or more of our product candidates. See "Risk Factors" for additional information.

        As of June 30, 2014, we had an accumulated deficit of $65.4 million. Our net losses were $18.1 million and $21.4 million for the years ended December 31, 2012 and 2013, respectively, and $10.8 million and $7.0 million, for the six months ended June 30, 2013 and 2014, 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:

        As of June 30, 2014, our existing cash, cash equivalents and marketable securities were $9.3 million. We expect that the net proceeds of this offering, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses through at least the first half of 2016.

The Prior Restructuring

        Rhythm Holding Company, LLC, or the LLC entity, was formed on March 21, 2013 as a holding company in connection with a corporate restructuring, or the Prior Restructuring, by Rhythm Pharmaceuticals, Inc., a Delaware corporation that was organized in November 2008. Rhythm Pharmaceuticals, Inc. changed its name to Rhythm Health, Inc., or Rhythm Health, on July 7, 2014. Rhythm Health and Rhythm Metabolic, Inc., or Rhythm Metabolic, a Delaware corporation organized on March 21, 2013, became the wholly owned subsidiaries of the LLC entity as a result of certain exchange of equity transactions in connection with the Prior Restructuring. Pursuant to the Prior Restructuring, each outstanding share of series A preferred stock, series B preferred stock and common stock of Rhythm Health was exchanged for one series A preferred unit, series B preferred unit and common unit, respectively of the LLC entity. Each outstanding warrant to purchase common stock of Rhythm Health was converted into a warrant to purchase an equivalent number of common units of the LLC entity. In addition, each outstanding stock option to purchase a share of common stock of Rhythm Health was cancelled and the LLC entity issued to the holder of such cancelled stock option one common unit of the LLC entity. If such outstanding stock option was subject to vesting at the effective time of its cancellation, then such common unit was issued by the LLC entity subject to continued vesting to the same extent as such outstanding stock option was still subject to vesting at the effective time of its cancellation. See "The Prior Restructuring" for additional information.

The Conversion

        Prior to the effectiveness of the registration statement of which this prospectus forms a part, the LLC entity will convert from a Delaware limited liability company to a Delaware corporation named Rhythm Pharmaceuticals, Inc. by filing a certificate of conversion with the Secretary of State of the State of Delaware. As part of the Conversion:

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        Upon the closing of this offering, all outstanding shares of our series A preferred stock and series B preferred stock will be automatically converted into shares of our common stock pursuant to the terms of our certificate of incorporation and we will file an amended and restated certificate of incorporation to reflect the conversion of our series A preferred stock and our series B preferred stock. The material portions of our amended and restated certificate of incorporation and amended and restated bylaws are described in "Description of Capital Stock."

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 any of our product candidates for at least several years. We cannot predict if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates.

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 our product candidates, which include:

        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 and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

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        The following table summarizes our current research and development programs for relamorelin and RM-493.

 
  Years Ended
December 31,
  Six Months
Ended
June 30,
  Period from
Inception through
 
Research and Development Summary
  2012   2013   2013   2014   June 30, 2014  
 
  (in thousands)
   
 

Relamorelin Program

  $ 7,558   $ 7,459   $ 3,820   $ 1,390   $ 22,403  

RM-493 Program

    8,120     10,556     5,259     4,080     32,963  
                       

Total Research and Development

  $ 15,678   $ 18,015   $ 9,079   $ 5,470   $ 55,366  
                       
                       

        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 our product candidates will depend on a variety of factors, including:

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

        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 product candidate 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.

General and administrative expenses

        General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel. Other significant costs include rent, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

        We anticipate that our general and administrative expenses will increase in the future to support continued and expanding development efforts, potential commercialization of our product candidates 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, among other expenses. Additionally, we anticipate increased costs associated with being a public company including expenses related to maintaining compliance with exchange listing and Securities and Exchange Commission requirements, insurance, and investor relations costs.

        We have operated as a virtual company that leverages skilled experts, consultants, CROs, and contractors to manage our clinical operations, under the leadership and direction of our management. As of June 30, 2014, we had four employees, two of whom hold Ph.D. or M.D. degrees. Of these employees, two were engaged in development activities and two were engaged in support

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administration, including business development and finance. We will expand our infrastructure to manage our clinical, finance and commercial operations with additional full-time employees.

Critical accounting policies and estimates

        Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with United States generally accepted accounting principles. The preparation of these consolidated 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 consolidated financial statements included elsewhere in this prospectus, 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.

Accrued research and development expenses

        As part of the process of preparing our consolidated 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 expense as of each balance sheet date in our consolidated 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 and CMOs in connection with research and development activities.

        We accrue our expenses related to CROs and CMOs based on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs and CMOs 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.

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Income taxes

        We account for uncertain tax positions in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 740, Accounting for Income Taxes. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of June 30, 2014, we do not have any uncertain tax positions.

        Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes , 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.

        Interest and penalties on uncertain tax positions are recorded in the provision (benefit) for income taxes in the statements of operations. During the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014, we had no amounts accrued for interest and penalties related to uncertain tax positions.

        The LLC entity has elected to be taxed as a partnership for U.S. federal income tax purposes. Accordingly, all income and deductions of the LLC entity are reported on the members' individual income tax returns and no income taxes are recorded by the LLC entity. The LLC entity does not have any operations.

        As of December 31, 2013, we had net operating loss, or NOL, carryforwards to reduce federal and state incomes taxes of approximately $36.0 million and $11.0 million, respectively. If not utilized, these carryforwards begin to expire in 2030. At December 31, 2013, we also had available research and development tax credits for federal and state income tax purposes of approximately $1.9 million and $0.2 million respectively. The federal and state credits begin to expire in 2030 and 2026, respectively.

        Utilization of the NOL 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 Section 382, as well as similar state provisions and other provisions of the Internal Revenue Code. Ownership changes may limit the amount of NOLs 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% shareholders in the stock of a corporation by more than 50% in the aggregate over a three-year period.

Stock-based compensation

        Pursuant to the Prior Restructuring, which became effective on March 21, 2013, all stock options that were exercisable for shares of common stock of Rhythm Health were cancelled and the LLC entity issued to each holder of such cancelled stock options a number of our common units equal to the number of shares of common stock underlying such holder's cancelled stock option. If any stock option that was cancelled pursuant to the Prior Restructuring was subject to vesting at the time of its cancellation, the LLC entity entered into a written agreement with the holder of such stock option at the effective time of its cancellation pursuant to which any common units issued by the LLC entity with respect to such cancelled stock option would continue to be subject to vesting to the same extent as such cancelled stock option was subject to vesting at the effective time of its cancellation. Under such written agreement, if the holder of any common units subject to vesting, which we refer to as restricted common units, ceases to be an employee or consultant of ours and our subsidiaries, the holder will forfeit all of

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such restricted common units. As part of the Conversion, each outstanding vested restricted common unit of the LLC entity will be converted into one share of common stock of Rhythm Pharmaceuticals, Inc., and each outstanding unvested restricted common unit of the LLC entity will be converted into one share of restricted common stock of Rhythm Pharmaceuticals, Inc., subject to vesting on the same terms as prior to the Conversion.

        As a general rule, we apply the fair value recognition provisions of Financial Accounting Standards Board, or FASB, ASC Topic 718, Compensation—Stock Compensation , or ASC 718, to account for stock-based compensation. We recognize stock-based compensation expense related to stock options granted by Rhythm Health before the Prior Restructuring and to any restricted common units granted by the LLC entity from and after the Prior Restructuring to employees and consultants for compensatory purposes, based on the estimated fair value of each stock option or restricted common unit on the date of grant, net of estimated forfeitures. The grant date fair value of awards subject to service-based vesting, net of estimated forfeitures, is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. In accordance with the ASC 718, stock-based compensation expense related to stock options and restricted common units that are subject to both performance- and service-based vesting conditions is recognized using an accelerated recognition model. Unless the context otherwise requires, any reference to our stock options, common stock or preferred stock in this description of our stock-based compensation is a reference to stock options granted by Rhythm Health before the Prior Restructuring, the common stock of Rhythm Health and the preferred stock of Rhythm Health, respectively, in each case as Rhythm Health was constituted before the Prior Restructuring, and any reference to common units, restricted common units or preferred units in this description of our stock-based compensation is a reference to common units, restricted common units or preferred units of the LLC entity, respectively, as we are constituted after the Prior Restructuring and prior to the Conversion. Following the Conversion, we expect to issue stock options and other stock-based compensation pursuant to our 2014 equity incentive plan as described in "Executive and Director Compensation—Employee Benefit and Stock Plans—2014 Equity Incentive Plan."

        We use the Black-Scholes option pricing model to estimate the fair value of stock option using various assumptions that require management to apply judgment and make estimates, including:

        If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

        The fair value of a restricted common unit is estimated based on its fair value on the measurement date as if the restricted common unit was fully vested at that date, which is equivalent to the fair value of a common unit. Refer to our later discussion on the determination of the fair value of a common unit.

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        The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option pricing model were as follows:

 
  Years Ended December 31,
 
  2012   2013

Expected volatility

  80.0%   80% - 65%

Risk-free interest rate

  0.82% - 1.11%   1.14%

Expected option term (in years)

  6.08   6.08

Expected dividend yield

  0.0%   0.0%

        The weighted-average assumptions used to estimate the fair value of common units for the three months ended March 31, 2014 using the Probability Weighted Expected Return Method, or the PWERM, were as follows: volatility of 59.0%, risk-free interest rate of 0.45% and 2.0 years to liquidity event.

        In addition to the assumptions used in our Black-Scholes option-pricing model, the amount of compensation expense we recognize in our consolidated statements of operations includes an estimate of stock option or restricted common unit forfeitures. Under ASC 718, we are required to estimate the level of forfeitures expected to occur and record compensation expense only for those awards that we ultimately expect will vest. Due to the lack of historical forfeiture activity, we estimate our forfeiture rate based on data from our representative group of companies. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. For example, if a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated financial statements. To date our actual forfeitures have not been material.

        At June 30, 2014, the total unrecognized compensation expense related to unvested restricted common unit awards, including estimated forfeitures, was $0.27 million, which we expect to recognize over a weighted-average period of approximately one year. We also have unrecognized stock-based compensation expense of $0.05 million related to restricted common units with milestone-based vesting criteria that is not considered probable of achievement as of June 30, 2014; therefore we have not recognized any portion of this expense on these awards.

        We have operated as a private company with no active public market for our common stock or our common units. Therefore, our board of directors estimated the fair value of our common stock or common units at various dates, with input from management, considering our most recently available third-party valuations of common stock or common units and its assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the applicable grant or award. Once our shares begin trading in an open market there will no longer be a need for such estimates as the market will determine the fair value.

        We determined the estimated per share fair value of our common stock or common units at various dates using contemporaneous valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , or the Practice Aid, for financial reporting purposes.

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        In conducting the contemporaneous valuations, we considered all objective and subjective factors that we believed to be relevant for each valuation conducted, including our best estimate of our business condition, prospects and operating performance at each valuation date. Within the contemporaneous valuations performed, a range of factors, assumptions and methodologies were used. The significant factors included:

        Our valuations of common stock and common units were prepared utilizing the option-pricing method, or OPM, the PWERM, and a hybrid of the PWERM and OPM, which we refer to as the hybrid method:

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        In April 2014, our board of directors, based on market conditions and the clinical advancement of our relamorelin and RM-493 clinical programs, authorized the management team to assess the feasibility of an IPO in the second half of 2014. In early May 2014, we selected underwriters and held an organizational meeting. In connection with the preparation of the consolidated financial statements for the year ended December 31, 2013 and in preparing for this offering, we re-valued, solely for financial reporting purposes, our common units as of March 21, 2013. We also performed additional retrospective valuations of our common stock or common units, as applicable, as of January 30, 2013, June 5, 2013 and September 12, 2013 to coincide with the issuance of certain of the equity grants. Finally, we performed a retrospective valuation of our common units as of December 31, 2013 and a contemporaneous valuation as of March 21, 2014. We believe that the preparation of the retrospective valuations was necessary due to the fact that the timeframe and probability for a potential IPO had accelerated significantly since the time of our initial contemporaneous valuations, and that such acceleration would have a significant impact on the fair value of our common stock. We concluded that retrospective valuations for grant dates prior to January 30, 2013 were not required due to the lack of clarity and risk related to our early stage research programs and determined it would not be reasonable to assign a probability to a future IPO.

        Retrospective valuations of common stock or common units, as applicable, as of January 30, 2013 and March 21, 2013.     We performed the retrospective valuations as of January 30, 2013 and March 21, 2013 to coincide with certain equity grants on January 30, 2013, and the Prior Restructuring on March 21, 2013. In conducting the valuations as of January 30, 2013 and March 21, 2013, we estimated the value of our common stock or common units, as applicable, based on the price at which we sold shares of our series B convertible preferred stock. We concluded that the price paid for the series B convertible preferred stock was representative of fair value since our November 2012 series B preferred stock financing included a significant investment from a new unaffiliated lead investor. We utilized the OPM to estimate the enterprise value as of January 30, 2013 and March 21, 2013 that was implied by the arm's length series B convertible preferred stock financing.

        Retrospective valuations of common units as of June 5, 2013, September 12, 2013 and December 31, 2013.     We performed the retrospective valuations as of June 5, 2013 and September 12, 2013 to coincide with the issuance of certain of the equity grants. Although no equity grants were made on December 31, 2013, given the possibility of an IPO in the second half of 2014, we also conducted a retrospective valuation as of December 31, 2013. Given the prospect for an IPO in 2014, we used the hybrid method.

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        We performed a contemporaneous valuation of our common units on March 31, 2014 to coincide with our preparation for this offering. Pursuant to the Practice Aid, the PWERM is appropriate when the time to a liquidity event is short, making the range of possible future outcomes relatively easy to predict. Given the proximity to a potential IPO transaction, we chose to use the PWERM. We have not performed any subsequent contemporaneous valuations since March 31, 2014.

Results of Operations

Comparison of years ended December 31, 2012 and 2013

        The following table summarizes our results of operations for the years ended December 31, 2012 and 2013, together with the changes in those items in dollars and as a percentage:

 
  Years Ended December 31,   Change  
 
  2012   2013   $   %  
 
  (in thousands)
 

Statement of Operations Data:

                         

Operating Expenses:

                         

Research and development

  $ 15,678   $ 18,015   $ 2,337     15 %

General and administrative

    2,460     3,433     973     40 %
                   

Total operating expenses

    18,138     21,448     3,310     18 %
                   

Loss from operations

    (18,138 )   (21,448 )   (3,310 )   (18 )%

Other (expense) income, net

    8     17     9     113 %
                   

Net loss

  $ (18,130 ) $ (21,431 ) $ (3,301 )   (18 )%
                   
                   

Other comprehensive (loss) income

    7     (1 )   (8 )   (114 )%
                   

Comprehensive loss

  $ (18,123 ) $ (21,432 ) $ (3,309 )   (18 )%
                   
                   

        Research and development expense.     Research and development expense increased by $2,337 to $18,015 in 2013 from $15,678 in 2012, an increase of 15%. The increase was primarily due to an increase in external services in 2013 related to the initiation of new Phase 2 clinical trials for both relamorelin and RM-493.

        General and administrative expense.     General and administrative expense increased by $973 to $3,433 in 2013 from $2,460 in 2012, an increase of 40%. The increase in general and administrative expenses was primarily attributable to external legal patent expenses.

        Interest income.     The increase in interest income was nominal and primarily related to an increase in investment balances during the twelve-month period ended December 31, 2013 versus the investments on hand during the twelve-month period ended December 31, 2012.

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Comparison of six months ended June 30, 2013 and 2014

        The following table summarizes our results of operations for the six months ended June 30, 2013 and 2014, together with the changes in those items in dollars and as a percentage:

 
  Six Months Ended
June 30,
  Change  
 
  2013   2014   $   %  
 
  (in thousands)
 

Statement of Operations Data:

                         

Operating Expenses:

                         

Research and development

  $ 9,079   $ 5,470   $ (3,609 )   (40 )%

General and administrative

    1,753     1,503     (250 )   (14 )%
                   

Total operating expenses

    10,832     6,973     (3,859 )   (36 )%
                   

Loss from operations

    (10,832 )   (6,973 )   3,859     36 %

Other (expense) income, net

    11     5     (6 )   (55 )%
                   

Net loss

  $ (10,821 ) $ (6,968 ) $ 3,853     36 %
                   
                   

Other comprehensive (loss) income

    3     (1 )   (4 )   (133 )%
                   

Comprehensive loss

  $ (10,818 ) $ (6,969 ) $ 3,849     36 %
                   
                   

        Research and development expense.     Research and development expense decreased by $3,609 to $5,470 for the six months ended June 30, 2014 from $9,079 for the six months ended June 30, 2013, a decrease of 40%. The decrease in research and development expenses was primarily attributable to a decrease in contract research costs as a result of the completion in 2013 of our relamorelin Phase 2 clinical trial. For the remainder of 2014, we expect our research and development expenses to remain relatively steady as we complete certain Phase 2 trials, initiate new trials for relamorelin and RM-493, and hire additional personnel in the clinical operations department.

        General and administrative expense.     General and administrative expense decreased by $250 to $1,503 for the six months ended June 30, 2014 from $1,753 for the six months ended June 30, 2013, a decrease of 14%. The decrease in general and administrative expenses was primarily attributable to reduction in patent expenses due to fewer patent filings in 2014 in comparison to the same period in 2013. For the remainder of 2014 we expect a slight increase in general and administrative expenses associated with hiring in the finance department.

        Interest income.     The decrease in interest income was nominal and is primarily attributable to a decrease in our investments outstanding for the six months ended June 30, 2014 compared to the six-month period ended June 30, 2013.

Liquidity and Capital Resources

        Since our inception and through June 30, 2014, we have raised an aggregate of approximately $73,000 from the issuance of preferred stock. We also have been awarded a $1,350 grant from the Michael J. Fox Foundation to help fund our relamorelin Phase 2a clinical trial. As of June 30, 2014, we had $9,333 in cash, cash equivalents and marketable securities.

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Cash flows

        The following table provides information regarding our cash flows for the years ended December 31, 2012 and 2013, and the six months ended June 30, 2013 and 2014:

 
  Years Ended
December 31,
   
  Six Months Ended
June 30,
   
 
 
  2012   2013   Change   2013   2014   Change  
 
   
   
   
  (unaudited)
  (unaudited)
   
 
 
  (in thousands)
   
 

Net cash provided by (used in):

                                     

Operating activities

  $ (17,830 ) $ (19,156 ) $ (1,326 ) $ (9,496 ) $ (8,189 ) $ 1,307  

Investing activities

    (5,270 )   (5,128 )   142     (5,839 )   9,929   $ 15,768  

Financing activities

    22,440     19,882     (2,558 )   8,939     (240 ) $ (9,179 )
                           

Net decrease in cash and cash equivalents

  $ (660 ) $ (4,402 ) $ (3,742 ) $ (6,396 ) $ 1,500   $ 7,896  
                           
                           

Net cash used in operating activities

        The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital.

        Net cash used in operating activities was $17,830 for the year ended December 31, 2012, and consisted primarily of a net loss of $18,130 adjusted for non-cash items, including depreciation and stock-based compensation. The significant items in the change in operating assets and liabilities includes an increase in accounts payable, accrued expenses and other current liabilities of $1,459 and an increase of approximately $1,258 in prepaid expenses and other current assets.

        Net cash used in operating activities was $19,156 for the year ended December 31, 2013, and consisted primarily of a net loss of $21,431 adjusted for non-cash items, including depreciation and stock-based compensation. The significant items in the change in operating assets and liabilities includes an increase in accounts payable, accrued expenses and other current liabilities of $558 offset by a decrease of approximately $1,442 in prepaid expenses and other current assets.

        Net cash used in operating activities was $9,496 for the six-month period ended June 30, 2013, and consisted primarily of a net loss of $10,821 adjusted for non-cash items including depreciation and stock-based compensation. The significant items in the change in operating assets and liabilities includes a decrease in accounts payable, accrued and other current liabilities expenses of $471 and a decrease of approximately $677 in prepaid expenses and other current assets.

        Net cash used in operating activities was $8,189 for the six-month period ended June 30, 2014, and consisted primarily of a net loss of $6,968 adjusted for non-cash items including depreciation and stock-based compensation. The significant items in the change in operating assets and liabilities includes a decrease in accounts payable, accrued expenses and other current liabilities of $619 and an increase of approximately $700 in prepaid expenses and other current assets.

Net cash (used in) provided by investing activities

        Net cash used in investing activities was $5,270 for the year ended December 31, 2012, and consisted primarily of purchases of marketable securities of $8,799 offset by maturities of marketable securities of approximately $3,529.

        Net cash used in investing activities was $5,128 for the year ended December 31, 2013, and consisted primarily of purchases of marketable securities of $28,741 offset by maturities of marketable securities of approximately $23,613.

        Net cash used in investing activities was $5,839 for the six months ended June 30, 2013, and consisted primarily of purchases of marketable securities of $15,447 offset by maturities of marketable securities of approximately $9,608.

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        Net cash provided by investing activities was $9,929 for the six months ended June 30, 2014, and consisted primarily of purchases of marketable securities of $3,404 offset by maturities of marketable securities of approximately $13,333.

Net cash provided by financing activities

        Net cash provided by financing activities was $22,440 for the year ended December 31, 2012 and consisted primarily of the proceeds from the issuance of 45 million shares of our series B preferred stock.

        Net cash provided by financing activities was $19,882 for the year ended December 31, 2013 and consisted of the proceeds from the issuance of 40 million shares of our series B preferred stock.

        Net cash provided by financing activities was $8,939 for the six months ended June 30, 2013 and consisted of the proceeds from the issuance of 18 million shares of our series B preferred stock.

        Net cash used in financing activities was $240 for the six months ended June 30, 2014, and consisted of issuance costs related to our planned initial public offering.

Funding requirements

        We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of relamorelin and RM-493 and seek marketing approval for either of our product candidates. In addition, if we obtain marketing approval for either or both of our product candidates, 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 upon the closing of this offering.

        We expect that the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses at least through the first half of 2016. We may need to obtain substantial additional funding in connection with our research and development activities and any continuing operations thereafter. If we are unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

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

    the scope, progress, results and costs of clinical trials for our relamorelin and RM-493 programs;

    the costs, timing and outcome of regulatory review of our relamorelin and RM-493 programs;

    the obligations owed to Ipsen Pharma SAS, or Ipsen, pursuant to our license agreement;

    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 relamorelin and RM-493 programs 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, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of our product candidates 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.

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        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. We do not have any committed external source of funds. 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, 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 funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our relamorelin and RM-493 programs 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 relamorelin and RM-493 programs that we would otherwise prefer to develop and market ourselves.

Contractual obligations

        The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2013:

 
  Total   1 year   2 to 3 years   3 to 5 years   More than
5 years
 
 
  (in thousands)
   
 

Operating lease obligations

  $ 223   $ 138   $ 85   $   $  
                       

Total

  $ 223   $ 138   $ 85   $   $  
                       

        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. Excluded from the payments in the table are contractual obligations where the contracts are cancelable at any time by us, generally upon 30 days' prior written notice to the vendor.

        Other than the specific payments noted in the table of contractual obligations and as described in footnote 1 above, milestone and royalty payments associated with our license agreements with Ipsen have not been included in the above table of contractual obligations as we cannot reasonably estimate if or when they will occur. Under the terms of each Ipsen license agreement, assuming that relamorelin or RM-493, as applicable, 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 such license agreement and royalties on future product sales. Substantially all of such aggregate payments under each Ipsen license agreement are for milestones that may be achieved no earlier than first commercial sale of relamorelin or RM-493, as applicable.

Off-balance sheet arrangements

        We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable Securities and Exchange Commission rules.

Quantitative and qualitative disclosures about market risk

        We are exposed to market risk related to changes in interest rates. As of December 31, 2013 and June 30, 2014, we had cash, cash equivalents and marketable securities of $17,762 and $9,333, respectively, consisting primarily of investments in U.S. government sponsored enterprise securities. Our

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marketable securities are accounted for as available-for-sale securities and consisted of investments in U.S. government sponsored enterprise securities. As these securities were available to fund current operations, they are classified as current assets. Marketable securities are stated at fair value, with unrealized gains and losses included, until realized, as a component of other comprehensive income, which is a separate component of stockholders' equity. Realized gains and losses are determined on the specific-identification method and are included in investment income. There were nominal realized gains for the years ended December 31, 2012 and 2013, respectively. Other-than-temporary impairments of investments are recognized in the statements of operations if we have the intent to sell the security, or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. Even if we do not expect to sell a security, we evaluate expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, only the amount associated with the credit loss is recognized in the statements of operations. The amount of loss relating to other factors is recorded in other comprehensive income (loss). There have been no impairment losses recognized in any period presented. 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 are in short-term marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. A hypothetical change of 1% in U.S. interest rates would not be material to the carrying value of our investments.

        We are not exposed to market risk related to change in foreign currency exchange rates.

JOBS Act

        In April 2012, the Jumpstart Our Business Startups Act of 2012, or the 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.

        We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. 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 PCAOB 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) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) 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 (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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BUSINESS

Overview

        We are a biopharmaceutical company focused on the development and commercialization of peptide therapeutics for the treatment of gastrointestinal, or GI, diseases, and genetic deficiencies that result in metabolic disorders. Our lead product candidate, relamorelin, is a potent, best-in-class, Phase 2 ghrelin agonist for the treatment of diabetic gastroparesis, a GI complication of diabetes, and other GI functional disorders. We are also developing a second product candidate, RM-493, which is a potent, first-in-class, Phase 2 ready melanocortin-4, or MC4, receptor agonist for the treatment of obesity caused by genetic deficiencies in the MC4 pathway. We believe our product candidates, which are both administered by subcutaneous injection, and for which we have exclusive worldwide rights, have the potential to treat these diseases for which there are currently limited therapeutic options. We believe that ghrelin and MC4 are compelling targets because of their critical role in regulating GI function and metabolism, and that peptide therapeutics are well-suited for activating these targets.

        Relamorelin targets the receptor for ghrelin, which is a naturally occurring hormone that plays a critical role in GI motility, or the movement of food through the GI tract, digestion and the absorption of nutrients. Prior drugs targeted the same GI motility disorders, primarily through either the serotonin or dopamine receptors, but had significant safety issues. First generation ghrelin agonists were small molecules with limited potency and efficacy. In contrast, the relamorelin peptide retains the specificity and functionality of the naturally occurring ghrelin peptide, and is designed to increase GI motility, with markedly greater potency than both naturally occurring ghrelin and the first generation small molecule agonists of ghrelin.

        RM-493 targets the receptor for MC4, which is a key pathway that regulates energy, homeostasis, and food intake. The first generation of MC4 agonists were predominantly small molecules that failed in clinical trials due to safety issues, particularly increases in blood pressure, and had limited efficacy. In contrast, the RM-493 peptide retains the specificity and functionality of the naturally occurring hormone that activates MC4, and our initial Phase 1 and Phase 2 clinical trials have shown promising evidence of weight loss without adversely increasing blood pressure.

Relamorelin: A Best-In-Class Phase 2 Ghrelin Agonist

        Relamorelin is a potent, best-in-class, Phase 2 ghrelin agonist which stimulates GI motility, and aids digestion and the absorption of nutrients. We have completed a Phase 2 clinical trial of relamorelin for the treatment of diabetic gastroparesis. Based on consultation with regulatory authorities, we expect to initiate a Phase 2b clinical trial for the treatment of diabetic gastroparesis by the end of 2014. The U.S. Food and Drug Administration, or FDA, has granted Fast Track designation to relamorelin for the treatment of diabetic gastroparesis. Fast Track designation is designed to facilitate and expedite the review of drugs for serious conditions with high unmet need, in order to get drugs to patients earlier. We intend to manage our relamorelin clinical development program such that, if our clinical trials are successful, we can file a new drug application, or NDA, by 2018. We are also conducting a Phase 2a clinical trial for refractory chronic constipation in Parkinson's disease patients and a Phase 2a benchmark clinical trial in patients with chronic constipation. In September 2013, we were awarded a $1.35 million grant from the Michael J. Fox Foundation to help fund a Phase 2 clinical trial of relamorelin.

        Diabetic gastroparesis is a disorder in which there is a substantial delay in stomach emptying along with characteristic symptoms of vomiting, nausea, abdominal pain, early satiety and bloating. Moderate to severe diabetic gastroparesis results in significant debility and hospitalizations, and can interfere with nutrition and the absorption of medications. An estimated 2.3 million type 1 and type 2 diabetic patients in the United States have moderate or severe gastroparesis symptoms. Available therapies to

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treat this disorder are limited and exhibit significant side effects. No new therapies have been approved in the United States for the treatment of gastroparesis in more than 30 years.

        To date, as part of our clinical program, we have treated approximately 260 subjects and patients with relamorelin. In our Phase 2 clinical trial, relamorelin had statistically significant effects on the most important diabetic gastroparesis symptoms, such as vomiting, as well as accelerated stomach emptying, and was well-tolerated. The results of these clinical trials support our belief that relamorelin has the potential to be a safe and effective treatment for diabetic gastroparesis.

        We submitted an Investigational New Drug application, or IND, with the FDA for the indication of diabetic gastroparesis on October 20, 2010. In addition, we submitted a second IND to support an ongoing pilot study in anorexia nervosa on June 26, 2012. These INDs remain open and have not been subject to any clinical hold.

RM-493: A First-In-Class Phase 2 Ready MC4 Agonist

        RM-493 is a potent, first-in-class, Phase 2 ready MC4 agonist, which modulates a key pathway in humans that regulates energy homeostasis and food intake. MC4's critical role in weight regulation was validated with the discovery that a heterozygous mutation of the MC4 receptor gene, a mutation in just one of the two copies of the MC4 receptor gene, results in early onset obesity and severe obesity. We expect to initiate two Phase 2a clinical trials in patients with genetic deficiencies in the MC4 pathway by the end of 2014, one for the treatment of obesity in patients with a single mutation of the MC4 receptor gene, and one in patients with Prader Willi Syndrome, or PWS.

        Genetic defects in the MC4 gene are the most common genetic cause of obesity. A 2005 epidemiological study performed in Europe reported a prevalence of 1-2% of genetic defects in the MC4 gene in the obese population with a body mass index, or BMI, of greater than 30 kg/m 2 , 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/m 2 . These prevalence rates suggest that there are approximately one million people in the United States with obesity caused by a mutation of the MC4 gene. These patients have a higher risk than the general population for early onset obesity and severe obesity and their complications such as diabetes. There are currently no approved drugs in the United States that have been studied in obesity due to MC4 deficiency.

        PWS, another form of genetic MC4 deficiency, is an orphan disease with a prevalence ranging from approximately one in 8,000 to one of 25,000 patients in the United States. A hallmark of PWS is severe hyperphagia, an overriding physiological drive to eat, leading to severe obesity and other complications. For PWS patients, obesity is the greatest threat 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. Currently, there is no approved treatment for the obesity and hyperphagia associated with PWS. Based on recent scientific studies, we believe that deficiencies in the MC4 pathway are a cause of the obesity and associated symptoms of PWS, such as hyperphagia, and that an MC4 agonist can directly impact these symptoms.

        To date, as part of our clinical program, we have treated approximately 190 subjects and patients with RM-493. We have completed a Phase 1b proof-of-concept clinical trial with RM-493 in obese patients, including one cohort of patients with mutations in one of the MC4 receptor genes. This clinical trial demonstrated promising weight loss in these patients with a four-week treatment.

        We submitted an IND with the FDA for the indication of obesity on October 12, 2011. This IND remains open and has not been subject to any clinical hold.

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Our Strategy

        Based on the promising clinical results to date of relamorelin in diabetic gastroparesis, and the initial, favorable clinical profile of RM-493 for the treatment of obesity, including obesity caused by certain genetic deficiencies in the MC4 pathway, we believe these product candidates are well positioned to significantly improve the treatment of these indications. The key components of our strategy include:

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Our Product Pipeline

        The following chart depicts key information regarding our product candidates, their indications, current states of development, and anticipated upcoming milestones:

GRAPHIC

Relamorelin: A Best-in-Class Phase 2 Ghrelin Agonist

Overview of the GI Functional Disorder Market

        The health of the GI system has a major effect on an individual's daily activities and quality of life. A retrospective review published by the National Institute of Diabetes and Digestive and Kidney Diseases estimated that in 2004 there were more than 97 million ambulatory care visits by patients with a diagnosis of a GI disorder in the United States alone. The annual cost of these GI disorders in 2004, not including digestive cancers and viral diseases, was estimated to be greater than $114.0 billion in direct and indirect expenditures, including hospital, physician and nursing services as well as over-the-counter and prescription drugs. In 2008, Research and Markets in Business Insights estimated worldwide sales of GI drugs to be worth $49.9 billion, with approximately 38% of this market represented by sales in the United States totaling $18.8 billion. Four major GI market segments can be distinguished:

        Historically, GI product development efforts have focused on indications with the largest patient populations, such as GERD, constipation, peptic ulcers and IBS. As a result, limited innovation has occurred in other segments of the GI market, in particular upper GI functional disorders, even though these disorders affect several million patients worldwide. Consequently, due to the limited safe and effective treatments available for upper GI functional disorders resulting from impaired motility, we believe there is a substantial market opportunity for us to address these significant unmet medical

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needs. Therefore, we are focused on the subset of GI disorders associated with underlying defects in GI motility that affect both the upper and the lower GI tract.

        Our initial focus is on diabetic gastroparesis because there is a substantial unmet medical need, prevalence is high, and few therapeutic options exist. The only approved drug for gastroparesis has significant limitations and was approved more than 30 years ago. In addition, we believe successful clinical trials in diabetic gastroparesis will be the foundation for expansion into other upper GI functional indications resulting from impaired GI motility.

        Diabetic gastroparesis is a debilitating GI disorder in which there is substantial delay in stomach emptying along with associated symptoms of vomiting, nausea, abdominal pain, early satiety and bloating. Patients often limit their food and liquid intake leading to poor nutrition and dehydration, which can ultimately require hospitalization. If untreated, diabetic gastroparesis causes significant acute and chronic medical problems, including additional diabetic complications resulting from poor glucose control.

        Diabetes is the most commonly identified cause of gastroparesis. The underlying mechanism of diabetic gastroparesis is unknown although it is thought to be related in part to neuropathic changes in the major nerves that supply the GI tract. These nerves control the movement of food through the digestive tract and, when damaged, forward movement of food through the GI tract is delayed and/or vomiting may occur. The prevalence of diabetes in the United States is rapidly rising with the Centers for Disease Control estimating that one in 10 adults currently suffer from the disease. Sedentary lifestyles, poor dietary habits and a consequent rising prevalence of obesity are expected to cause this number to grow substantially. At present, an estimated 2.3 million type 1 and type 2 diabetic patients in the United States have moderate or severe gastroparesis symptoms and are seeking treatment for these symptoms.

        Idiopathic gastroparesis afflicts a comparable number of non-diabetics who have the same symptoms of vomiting, nausea, abdominal pain, early satiety and bloating, along with delayed stomach emptying. Idiopathic gastroparesis, or gastroparesis without a specific cause such as diabetes, can be a manifestation of many systemic illnesses, neuromuscular dysfunction, a complication of select surgical procedures, or due to unknown causes. In a 1998 study, 29% of gastroparesis cases were associated with diabetes, 13% developed as a complication of surgery and 36% were due to unknown causes. According to the American Motility Society Task Force on Gastroparesis, 4% of the United States population experiences symptomatic manifestations of gastroparesis.

        Both diabetic and idiopathic gastroparesis have a significant impact on patients' lives, as well as significant economic impact. The number of gastroparesis-related hospitalizations has been increasing in the United States, suggesting an increasing prevalence of gastroparesis. Based on the most recent available data, which is from 2004, the economic impact of gastroparesis-related hospitalizations is significant and increasing. Vomiting is the symptom requiring the most medical intervention and is the leading cause of both emergency room visits and hospitalization for gastroparesis patients, followed by abdominal pain.

        While there is a high prevalence of gastroparesis, there is a lack of safe and effective therapies approved for the treatment of this disorder. Reglan ( metoclopramide ), a mixed dopamine and serotonin receptor modulator, is the only drug indicated for the treatment of diabetic gastroparesis in the United States. Metoclopramide is only somewhat effective for short-term use. However, some patients

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discontinue therapy due to intolerance and acute side effects, predominantly an involuntary movement disorder, known as tardive dyskinesia, the symptoms of which mimic Parkinson's disease. Even with this limitation, we believe metoclopramide continues to be prescribed for a substantial number of patients. In 2009, the FDA required that a black box warning be added to the metoclopramide label because of the risk of tardive dyskinesia with long-term use, and recommended that its use be limited to 12 weeks. The European Medicines Agency is even more stringent, and recommends metoclopramide for use no more than five days, and not for chronic conditions such as gastroparesis.

        Other drugs that are used for diabetic gastroparesis but not approved for this indication in the United States are domperidone, a dopamine receptor modulator, and erythromycin, both of which stimulate stomach emptying. In addition, anti-emetics are used to attempt to manage vomiting and nausea. The efficacy of domperidone as a pro-motility agent is not fully established, and studies have demonstrated that domperidone may cause heart rhythm abnormalities. Erythromycin is a macrolide antibiotic that also is a motilin receptor agonist and is used primarily for short-term treatment of gastroparesis. Erythromycin has significant potential to interact with other medications and has also been associated with cardiac arrhythmias and death.

        Propulsid ( cisapride ) was a widely prescribed prokinetic drug approved for GERD and used broadly for upper GI indications. It was frequently prescribed for gastroparesis symptoms though not approved for that indication. Sales of Propulsid exceeded $1 billion before being withdrawn due to cardiovascular safety issues.

        Functional dyspepsia is characterized by symptoms that are similar to gastroparesis, such as stomach pain or discomfort, early satiety, bloating, fullness, nausea, and vomiting. Functional dyspepsia occurs in approximately 10% of the general population, and approximately 25-35% of patients with functional dyspepsia have impaired stomach emptying. Up to one third of adult patients with GERD also have delayed stomach emptying and are refractory to drugs that treat acid reflux. Relamorelin is a potential therapy for both functional dyspepsia and refractory GERD, since these patients also suffer from impaired GI motility. However, we have not yet initiated clinical trials of relamorelin in patients with functional dyspepsia and refractory GERD.

        There are currently no safe and effective GI motility, or prokinetic, drugs approved in the United States that address impaired motility in GI functional disorders. The need is particularly acute in refractory functional dyspepsia and refractory GERD, where few treatment options exist for chronic therapy.

        Twelve to 19% of the U.S. population seeks medical care annually for chronic constipation and IBS, and approximately 38% of this group is dissatisfied with traditional treatment options due to lack of efficacy. These conditions are two of the most common GI functional disorders, with significant health consequences and symptoms including constipation, abdominal pain, nausea, bloating, and decreased appetite.

        Our initial relamorelin lower GI clinical trials focus on refractory constipation, including refractory constipation in patients with Parkinson's disease. Approximately one million people in the United States are living with Parkinson's disease. Constipation is common among patients with Parkinson's disease, with studies reporting that more than 50% of patients suffer from moderate to severe constipation, many of whom are refractory to existing therapies. In addition, GI functional disorders in Parkinson's disease patients can affect the upper GI tract, resulting in gastroparesis symptoms. GI functional disorders in Parkinson's disease patients also may undermine the GI absorption of L-DOPA, interfering with this drug's efficacy in managing the symptoms of Parkinson's disease.

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        Current treatments for lower GI functional disorders are predominantly over-the-counter medications such as laxatives, stool softeners or fiber supplementation, as well as changes to diet. The newest prescription therapies for chronic constipation and IBS are Amitiza ( lubiprostone ) and Linzess ( linaclotide) . There remains a large number of patients who are refractory to these treatments, resulting in a significant unmet medical need for effective therapies. Zelnorm ( tegaserod ) was a GI motility drug approved for IBS in the United States, where sales exceeded $500 million, but it was eventually withdrawn due to cardiovascular safety issues.

Relamorelin: Clinical Development

        We have completed a Phase 2 clinical trial of relamorelin, which is also known as RM-131, in diabetic gastroparesis. We currently plan to initiate a Phase 2b clinical trial in diabetic gastroparesis by the end of 2014. The data from the completed Phase 2 clinical trial in diabetic gastroparesis showed statistically significant improvements in vomiting symptoms, and in a focused subgroup, relamorelin also showed statistically significant improvements in the other symptoms of gastroparesis. Our clinical trials showed relamorelin to be generally well-tolerated.

        Relamorelin has demonstrated an ability to accelerate both stomach emptying, which is important for the diabetic gastroparesis indication, and small bowel and colonic motility, which is important for lower GI indications, supporting the theory that relamorelin has effects on GI motility across the whole GI tract. The FDA has granted Fast Track designation to relamorelin for the treatment of diabetic gastroparesis.

        In addition, we are currently conducting a Phase 2a clinical trial of relamorelin for refractory chronic constipation in patients with Parkinson's disease.

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        The following chart depicts the completed and ongoing relamorelin Phase 2 clinical trials:

Relamorelin: Completed and Ongoing Phase 2 Clinical Trials

Population
  Diabetic
Gastroparesis
  Chronic
Constipation
  Refractory Constipation in
Parkinson's Disease

Clinical trial phase

  Phase 2   Phase 2a   Phase 2a

Status

 

Phase
2 clinical trial complete(1)

 

Initial biomarker data complete

 

Ongoing

Treatment groups

 

Placebo, relamorelin

 

Placebo, relamorelin

 

Placebo, relamorelin

Dose

 

10 mcg once daily
10 mcg twice daily(2)

 

100 mcg once daily

 

100 mcg once daily

Number of patients(3)

 

204(2)

 

48

 

56

Duration of relamorelin treatment

 

4 weeks

 

2 weeks

 

2 weeks

Endpoints

 

Stomach emptying;
diabetic
gastroparesis
symptoms(4)

 

Lower GI motility;
constipation
signs/symptoms

 

Constipation
signs/symptoms
L-DOPA pharmacokinetics


(1)
One Phase 2 clinical trial (RM-131-004) is complete. We currently plan to initiate a Phase 2b clinical trial in diabetic gastroparesis by the end of 2014.

(2)
A very small cohort of additional patients and dosing regimens was used adaptively to provide initial variability estimates to design the main part of the clinical trial.

(3)
Approximate number of patients.

(4)
Using a Rhythm-developed Patient Reported Outcome, or PRO, instrument, that has not yet been validated by the FDA.

mcg=microgram

    Relamorelin: Clinical Development in Diabetic Gastroparesis

         Primary and Secondary Clinical Trial Endpoints

        We measured stomach emptying in Phase 1 and Phase 2 clinical trials as an important biomarker for effects on upper GI motility, and we plan to continue evaluating stomach emptying in our Phase 2b and Phase 3 clinical trials. However, we anticipate that diabetic gastroparesis symptoms are likely to be the primary and key secondary endpoints for our Phase 2b and Phase 3 clinical trials, and that stomach emptying data will only be a supportive endpoint.

        We measured stomach emptying primarily using the Gastric Emptying Breath Test, or GEBT, a simple, non-invasive, non-radioactive breath test designed to simply measure stomach emptying of solids in humans. While we have primarily used the GEBT as a clinical endpoint to measure rates of stomach emptying, the GEBT is being developed by AB Diagnostics to identify patients with delayed stomach emptying (gastroparesis), though it is currently not approved by the FDA. If the GEBT is not approved, it is possible that the FDA may not allow clinical data measured by the GEBT (stomach emptying) to be reflected in the product labeling. However, if approved, we believe the increased use

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of the GEBT in the healthcare industry will simplify the ability of physicians to diagnose diabetic gastroparesis.

        We measured diabetic gastroparesis symptoms, which include vomiting, nausea, abdominal pain, early satiety and bloating, using a PRO. A composite measure combining four of the subjective symptoms, including nausea, abdominal pain, early satiety, and bloating (excluding vomiting), may also be analyzed. This PRO has been developed, and is in the process of being validated, by us in collaboration with the FDA and in a manner consistent with FDA guidance. However, since the PRO is likely to be a key endpoint in relamorelin clinical trials in diabetic gastroparesis, validating the PRO questionnaire for measuring gastroparesis symptoms is a critical step in relying on symptom endpoint data to support regulatory approval.

         Phase 2b and Phase 3 Clinical Development Programs

        We expect to initiate our Phase 2b clinical trial of relamorelin by the end of 2014, and we expect it will include approximately 200-400 moderate to severe diabetic gastroparesis patients receiving 12 weeks of treatment. Based on initial discussions with the FDA, we anticipate that the pivotal Phase 3 clinical trials required for regulatory approval in the United States of relamorelin for the treatment of diabetic gastroparesis will assess three months of treatment. We expect that for both our Phase 2b clinical trial and our Phase 3 clinical trial, key endpoints will be improvement in diabetic gastroparesis symptoms as assessed with a PRO. We intend to also measure stomach emptying as a supportive endpoint. Our plan is to manage our relamorelin clinical development program such that, if our clinical trials and chronic toxicology and carcogenicity studies are successful, we anticipate filing an NDA by 2018.

         Phase 2 Clinical Trial

        We designed our Phase 2 clinical trial to evaluate the effect of relamorelin in patients with moderate to severe diabetic gastroparesis on (i) the primary endpoint of GI motility by measuring stomach emptying using the GEBT, (ii) the secondary endpoints of the symptoms of diabetic gastroparesis, assessed with a PRO, and (iii) safety. The clinical trial assigned patients to treatment with either placebo or relamorelin administered either 10 mcg once daily or twice daily for a four-week period. The clinical trial's primary endpoint was the effect of relamorelin on stomach emptying.

        Analysis of the data indicates that relamorelin administered twice daily for four weeks in patients with moderate to severe diabetic gastroparesis:

    resulted in statistically significant acceleration of stomach emptying;

    resulted in statistically significant improvements in vomiting symptoms;

    in a subgroup of approximately 60% of patients who had vomiting symptoms at the time the clinical trial started, had statistically significant improvements in a composite of the other symptoms of diabetic gastroparesis—nausea, abdominal pain, bloating, and early satiety, in addition to improving stomach emptying and vomiting; and

    was generally well-tolerated, with little evidence of safety concerns. Overall, the most frequent adverse experiences included constipation, urinary tract infection, changes in diabetic status, headache and dizziness, though incidence was low and generally similar between placebo and treatment groups.

         Phase 2 Diabetic Gastroparesis Clinical Trial Design

        This clinical trial was randomized and double-blind, and each patient was evaluated over a one-week baseline period, then assigned to one of three subcutaneous treatments for four weeks:

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(i) placebo, or a sugar solution, (ii) 10 mcg of relamorelin once daily, or (iii) 10 mcg of relamorelin twice daily (with all patients receiving two injections per day). Patients had a mean age of approximately 55 years, were 10-15% type 1 diabetics and 86-90% type 2 diabetics, and the duration of their diabetes ranged from nine to 28 years. Patients also displayed signs and symptoms of moderate to severe diabetic gastroparesis. Stomach emptying was measured at baseline and day 28, and daily PRO-recorded patient symptoms included vomiting frequency and severity. Safety was carefully evaluated, including adverse events. Sixty-seven to 69 patients were randomized to each treatment group.

         Phase 2 Diabetic Gastroparesis Clinical Trial Results

        Relamorelin, administered twice daily for four weeks in patients with moderate to severe diabetic gastroparesis, showed statistically significant improvement in stomach emptying and symptoms of diabetic gastroparesis:

    Met the primary endpoint: relamorelin showed statistically significant acceleration in stomach emptying in patients with diabetic gastroparesis by 15.4 minutes versus placebo (p=0.03).

    Met the following key secondary endpoints: relamorelin resulted in clinically important, statistically significant improvements in vomiting. Weekly vomiting episodes were reduced by 63% versus placebo (p=0.033) and ratings of vomiting severity were reduced by 58% versus placebo (p=0.005).

    For the subjective diabetic gastroparesis symptoms (nausea, abdominal pain, bloating, and early satiety), there was a strong placebo effect in the overall clinical trial group; relamorelin improved symptoms versus placebo but did not reach statistical significance.

    A retrospective analysis was conducted in the large subgroup of patients who had vomiting symptoms at the time the clinical trial started, which was approximately 60% of patients. We focused on this subgroup because vomiting is usually considered the most serious and bothersome symptom in diabetic gastroparesis, and is often the symptom that brings patients into treatment and/or for hospitalization. In this subgroup of patients, relamorelin showed statistically significant improvements on the signs and symptoms of diabetic gastroparesis:

    Met the primary clinical trial endpoint in this subgroup: relamorelin showed statistically significant acceleration in stomach emptying by 25.0 minutes versus placebo (p=0.02).

    Met key secondary endpoints in this subgroup: relamorelin resulted in clinically important, statistically significant improvements in vomiting. Weekly vomiting episodes were reduced by 63% versus placebo (p=0.041) and ratings of vomiting severity were reduced by 59% versus placebo (p=0.006).

    Met other key secondary endpoints in this subgroup: relamorelin showed improvements in the other subjective symptoms of diabetic gastroparesis—nausea, abdominal pain, bloating, and early satiety. A composite score of these four subjective symptoms showed statistically significant differences from placebo (p=0.043).

For almost all endpoints, relamorelin administered once daily showed less efficacy than twice daily treatment, and did not show statistical significance versus placebo.

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Relamorelin: Effects on Individual Diabetic Gastroparesis Symptoms in Patients with
Vomiting Symptoms at the Start of the Clinical Trial(1)

GRAPHIC


(1)
BID = twice daily

*
p-value <0.05 active versus placebo. A p-value is a statistical calculation that relates to the probability that a difference between groups happened by chance. Generally, the FDA considers a p-value less than 0.05 a statistically significant result sufficient to demonstrate efficacy in pivotal Phase 3 clinical trials. A p-value 0.05-1.0 may, in earlier stage trials, suggest clinical activity supportive of efficacy and worthy of further exploration in Phase 3 clinical trials.

#
0.05< p-value <0.10

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Relamorelin: Effects on a Composite Analysis of Diabetic Gastroparesis Symptoms in Patients with
Vomiting Symptoms at the Start of the Clinical Trial(1)(2)

GRAPHIC


(1)
BID = twice daily

(2)
Composite analysis of four subjective symptoms (nausea, abdominal pain, early satiety, bloating).

*
p-value <0.05 active versus placebo

         Phase 2 Diabetic Gastroparesis Clinical Trial Safety Data

        There was little evidence of safety concerns for relamorelin in this clinical trial, and it was well-tolerated. Of the 204 patients in the three treatment groups, 179, or 87.7%, completed the clinical trial. Discontinuations due to adverse events after initiation of treatment in the clinical trial, or TEAEs, were rare, and occurred in two, five, and one patients in the placebo, 10 mcg once daily and 10 mcg twice daily treatment groups, respectively. Treatment emergent serious adverse experiences were also rare, and occurred in two, one and four patients in the placebo, 10mcg once daily and 10mcg twice daily treatment groups, respectively, and none were considered drug-related. Overall, TEAEs were evenly distributed between the placebo and treatment groups. There were 30 (43.5%), 32 (47.8%,) and 25 (36.8%) TEAEs in the placebo, 10 mcg once daily and 10 mcg twice daily treatment groups, respectively. The most frequent adverse events included constipation, urinary tract infection, changes in diabetic status, headache and dizziness, which were of low incidence and generally similar between placebo and treatment groups. Laboratory test data (including fasting glucose), vital signs (including weight), electrocardiograms, physical exam and injection site evaluations showed little, if any evidence of adverse changes with treatment.

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         Phase 1 Clinical Development in Diabetic Gastroparesis

        We completed three Phase 1 clinical trials in both healthy volunteers and in patients with type 1 and type 2 diabetes suffering from diabetic gastroparesis. Our Phase 1 clinical trials in 71 healthy volunteers demonstrated the positive effects of relamorelin on stomach emptying, with good safety and tolerability.

        In the single ascending dose clinical trial conducted in healthy volunteers, single doses from 3 to 2400 mcg were studied. In the multiple ascending dose clinical trial conducted in 40 healthy volunteers, 32 of whom received relamorelin, multiple doses from 10 to 300 mcg per day were studied. In that study, relamorelin reduced the time of stomach emptying by 35-50%. To confirm the positive effects of relamorelin on stomach emptying, we conducted a two-part, Phase 1b, single dose crossover clinical trial in 20 type 1 and type 2 diabetic patients suffering from diabetic gastroparesis. In that clinical trial, a single dose 100 mcg of relamorelin substantially improved stomach emptying, accelerating stomach emptying by 54% in type 1 diabetics and 66% in type 2 diabetics versus placebo (p=ns and p=0.011, respectively). In addition, the type 1 diabetic patients had statistically significant improvement in diabetic gastroparesis symptoms (p<0.041).

         Preclinical Development in Diabetic Gastroparesis

        We have extensively profiled relamorelin in preclinical studies, which demonstrated strong potency for accelerating stomach emptying when compared to naturally occurring ghrelin and first generation ghrelin agonists. For example, relamorelin was more than 1000-fold more potent in restoring gastric emptying in a rodent model of delayed gastric emptying when compared directly to TZP-102, a small molecule ghrelin agonist developed by Tranzyme for the treatment of diabetic gastroparesis. In addition, we have shown in preclinical models that relamorelin has strong anti-inflammatory effects. We completed one and three month toxicology studies, with doses and exposures between 100-760 fold greater than the Phase 2 clinical trial doses and exposures, without evidence of clinically relevant toxicological findings. We plan to initiate carcogenicity studies, one of which is expected to be two years in length.

         Relamorelin Formulation Development

        Our previously conducted and ongoing clinical trials, and our planned Phase 2b clinical trial, use a subcutaneous injection with an insulin gauge needle. We are developing two new formulations of relamorelin. We are developing a 28-day pen injector for administering relamorelin as a subcutaneous injection that is convenient for patients. We anticipate that the initial NDA filing of relamorelin for diabetic gastroparesis will use this formulation. We also are in preclinical development of a patch formulation of relamorelin that uses a third-party proprietary microneedle technology. We believe the patch formulation could lead to market expansion opportunities by providing a more convenient treatment alternative to injection and may extend patent protection. We will supply both the pen injector and patch formulations prefilled with relamorelin. We expect that both the pen injector and patch formulations will be classified as drug-device combination products. Both formulations will require FDA approval before marketing and we expect the device constituents will be reviewed as part of each NDA. Some safety and/or efficacy testing of the device alone may be necessary.

    Relamorelin: Clinical Development in Lower GI Disorders

         Phase 2 Clinical Trials in Lower GI Disorders

        Relamorelin is in Phase 2 development for lower GI functional disorders. Our first Phase 2a clinical trial is designed to evaluate the effects of relamorelin on constipation symptoms and on biomarkers of lower GI motility in patients with chronic constipation. Our second Phase 2a clinical trial, which is called the MOVE-PD Study, is designed to evaluate the effects of relamorelin on constipation symptoms in Parkinson's disease patients with refractory constipation.

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         Phase 2a Clinical Trial in Chronic Constipation

        In our first lower GI Phase 2a clinical trial of relamorelin, administered by subcutaneous injection at a dose of 100 mcg once daily for two weeks, we assessed the effect of relamorelin compared to placebo on GI and colonic motility (primary objective) as well as on symptoms of chronic constipation. We enrolled 48 patients in the clinical trial, with a pre-specified interim analysis of the GI motility biomarkers on the first 24 patients who completed the clinical trial. This allows us to benchmark relamorelin against other constipation therapies that have been studied previously in similar clinical trials. All 48 patients are included in the clinical symptom analysis using an intention-to-treat approach.

        This Phase 2a clinical trial also demonstrated an improvement in both GI motility and clinical symptoms. The initial biomarker results on GI motility were presented in May 2014 at Digestive Diseases Week 2014, the leading GI scientific meeting. The biomarker data indicates that relamorelin administered once daily for two weeks in patients with chronic constipation resulted in statistically significant acceleration of lower GI motility, supporting utility in the treatment of chronic constipation. This clinical trial also demonstrated improvement in other biomarkers of GI motility, stomach emptying and small bowel motility, confirming relamorelin's pro-motility effect on both upper and lower GI function. In addition, relamorelin improved clinical symptoms of constipation. Specific highlights of the clinical trial include:

    Relamorelin showed statistically significant acceleration in colonic motility at 32 and 48 hours after ingestion of a meal (p=0.029 and p=0.012, respectively), but not at 24 hours.

    Relamorelin also showed statistically significant acceleration in stomach emptying (p=0.032) and a strong trend toward significance in small bowel motility (p=0.051).

    Relamorelin also showed statistically significant improvements in the clinical symptoms of spontaneous bowel movements (p=0.002), ease of stool passage (straining; p=0.042), and time to first bowel movement (p=0.004), but not in stool consistency (Bristol Stool Scale; p=0.184). We are awaiting results on additional clinical symptoms.

         Phase 2 Clinical Trial in Parkinson's Disease Patients with Refractory Constipation

        In our second lower GI Phase 2a clinical trial, the MOVE-PD Study, we are evaluating the effects of relamorelin on symptoms of refractory constipation in Parkinson's disease patients. The majority of Parkinson's disease patients suffer from moderate to severe chronic constipation, which can be the initial hallmark of the disease, and may appear before motor symptoms become apparent. We are studying patients who suffer moderate to severe constipation and are refractory to previous therapies.

        In our MOVE-PD Study, we are assessing the effect of relamorelin, administered by subcutaneous injection at a dose of 100 mcg once daily for two weeks, on the symptoms of constipation. We are conducting the MOVE-PD Study in partnership with the Parkinson's Study Group, one of the largest academic Parkinson's disease clinical consortia. This clinical trial is supported with a $1.35 million grant from the Michael J. Fox Foundation, which we believe underscores the priority within the Parkinson's disease community concerning better treatments for these GI complications. In consideration for the grant, we must endeavor to complete the study according to a mutually agreed timeline as well as submit certain required communications and deliverables. Failure to perform these obligations may result in the suspension or termination of payments under the grant. In the event that relamorelin generates commercial sales in the indication of chronic constipation in Parkinson's disease above a certain threshold, we are obligated to pay a limited royalty to the Michael J. Fox Foundation up to the amount of the grant. We anticipate that enrollment will be complete, and data will be available for the MOVE-PD study, in the second half of 2015.

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         Phase 1 Clinical Trial Results Supporting Lower GI Indications

        Early biomarker data from our Phase 1 multiple ascending dose clinical trial of relamorelin in healthy volunteers also support the effects of relamorelin on lower GI motility. In this clinical trial, patients swallowed an ingestible wireless medical sensor, which allowed us to measure the time for the sensor to pass through the digestive tract. In this Phase 1 clinical trial, our exploratory analysis showed a strong trend that relamorelin reduced colonic motility time by up to 54%—from approximately 42 hours in placebo subjects to approximately 18 hours in those receiving relamorelin. This was achieved with little, if any, evidence of associated symptoms, such as diarrhea, abdominal pain or abdominal cramping. We presented these results at the American College of Gastroenterology 2012 Annual Scientific Meeting.

RM-493: A First-in-Class Phase 2 Ready MC4 Agonist

        Our second product candidate, RM-493, is entering into Phase 2 clinical development for the treatment of obesity caused by genetic deficiencies in the MC4 pathway. RM-493 is a potent, first-in-class, Phase 2 ready MC4 agonist peptide administered by subcutaneous injection. MC4 modulates a key pathway in humans that regulates energy, homeostasis and food intake. The critical role of MC4 in weight regulation was validated with the discovery that a mutation of the MC4 receptor gene resulted in early onset obesity and severe obesity. The first generation of MC4 agonists were small molecules that failed primarily due to safety issues, particularly increases in blood pressure. In contrast, RM-493 is a peptide that retains the specificity and functionality of the naturally occurring hormone that activates MC4, and has not been shown to adversely affect blood pressure in our Phase 1 and Phase 2 clinical trials.

Market Overview

        We are preparing to initiate two Phase 2a clinical trials by the end of 2014, each for the treatment of obesity caused by a specific genetic deficiency in the MC4 pathway. The first clinical trial is a personalized medicine approach for treating obesity in people with a mutation of the MC4 receptor gene to assess weight loss and safety. We have completed a Phase 1b proof-of-concept clinical trial of RM-493 in this patient population that demonstrated weight loss with four-week treatment. Our second RM-493 Phase 2a clinical trial is in PWS patients; recent scientific evidence supports a role for genetic defects in the MC4 pathway in PWS.

    Obesity Caused by Genetic Deficiencies in the MC4 Pathway

         Mutation of the MC4 Receptor Gene

        MC4 deficiency due to heterozygous mutations in the MC4 gene is the most common genetic cause of obesity. RM-493 may restore MC4 function by increasing activity in the one normal copy of the MC4 gene (see figure below). A 2005 epidemiological study performed in Europe reported a prevalence of 1-2% of genetic defects in the MC4 gene in the obese population with a body mass index, or BMI, of greater than 30 kg/m 2 , 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/m 2 . These prevalence rates suggest that there are approximately one million people in the United States with obesity caused by a mutation of the MC4 gene. These patients have a higher risk than the general population for early onset obesity and severe obesity and their complications such as diabetes. Furthermore, MC4 deficiency may offset the beneficial effects of diet and exercise for sustained weight loss, limiting treatment options for these individuals.

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GRAPHIC

         Prader Willi Syndrome, or PWS

        PWS, another form of genetic MC4 deficiency, is an orphan disease with a prevalence ranging from approximately one in 8,000 to one in 25,000 patients in the United States. PWS patients exhibit intellectual disability and delayed growth. A hallmark of the disease is severe hyperphagia, which leads to severe obesity and other complications.

        For PWS patients, obesity is the greatest threat to their health and these patients often die at a young age from obesity-related complications. Hyperphagia has a significant negative impact on the patients' quality of life as well as causes obesity and a range of associated co-morbidities. Normal satiety, or the feeling of fullness after eating, does not exist in a person with PWS. The physiological drive to eat is so powerful and overwhelming that most PWS patients will go to great lengths to eat large quantities of food, even if it is spoiled, indigestible, or unpalatable to others.

        Hyperphagia impairs the PWS patients' ability to live independently, requiring costly and constant supervision to prevent overeating. Without supervision, PWS patients are likely to die prematurely as a result of choking, stomach rupture or tissue necrosis, or from complications caused by morbid obesity, such as right heart failure and respiratory failure. While a small number of PWS patients are cared for in costly group homes, the majority of PWS patients are cared for in their homes and their families undertake substantial effort to create physical barriers to eating. These efforts result in extremely stressful environments as caregivers often place locks and alarms on cabinets and refrigerators that contain food to impede PWS patients' efforts to obtain food at all times. The typical annual cost of treating a PWS patient is approximately $100,000, excluding the often significant costs of drug therapies related to other medical and psychological conditions, and the costs of any lost time from work experienced by their families due to responsibilities related to the care of a PWS patient.

        Currently, there is no approved treatment for PWS, and most research to date has targeted the treatment of specific symptoms. For many individuals affected by the disorder, the elimination of some of the most difficult aspects of the syndrome, such as hyperphagia and obesity, would represent a significant improvement in quality of life and provide the potential opportunity for patients to live independently.

        The genetics of PWS are complex, involving several genes on chromosome 15 that are not properly expressed. Recent discoveries highlight a defect in one of these, the MAGEL2 gene, as one of the dominant contributors to PWS pathology. Defects in MAGEL2 in humans result in autism spectrum disorders, reduced intellectual ability and most aspects of behavior and metabolism associated with PWS. Unraveling the function of the MAGEL2 gene in MAGEL2 deficient mice revealed functionally defective pro-opiomelanocortin, or POMC, neurons. These neurons normally promote satiety by activating MC4. This inherent defect in POMC neurons can be bypassed and MAGEL2 deficient mice are responsive to therapeutic activation of the MC4 receptor, resulting in control of appetite (see figure below). These findings provide the rationale for the treatment of PWS patients with an MC4 agonist.

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GRAPHIC

         Limitations of Current Therapies

        First generation MC4 agonists were predominantly small molecules that were neither effective nor safe, and no therapies that target MC4 have been approved for any indication. Although drugs approved for general obesity can be used in obese patients with MC4 deficiencies, there are currently no approved treatments in the United States specifically for these indications—either for obesity caused by heterozygous mutations of the MC4 gene or for PWS. In addition, the available treatments for general obesity have significant shortcomings.

        In general obesity, there is a clear need for effective anti-obesity drugs that are a viable alternative to surgery. Drugs that can deliver sustained, clinically-relevant weight loss with good safety have the potential to improve healthcare outcomes dramatically. However, treatment options are limited with few approved drugs available.

        Orlistat ( tetrahydrolipstatin ), Adipex-P ( phentermine ), Qsymia ( phentermine/topiramate ), and Belviq ( lorcaserin ) are pharmaceutical products that have been approved for the treatment of obesity in the United States. Orlistat is marketed in the United States by Roche Holdings AG under the brand name Xenical and is generally prescribed for short-term use. Orlistat is associated with GI side effects, the nature of which can be socially constraining. These include flatulence and fecal incontinence and urgency. Orlistat was also launched in 2007 by GlaxoSmithKline plc in over-the-counter form at half the prescribed dose under the brand name allí. Phentermine is also generally prescribed for short-term use. Phentermine is a Schedule IV controlled substance and, according to the FDA-approved product information, has an amphetamine-like profile, an increased risk for abuse potential, and may be associated with adverse cardiovascular or central nervous system effects. Vivus, Inc. commercially launched its combination phentermine/topiramate product in the United States under the name Qsymia in September 2012. Qsymia treatment has resulted in approximately 7% placebo-subtracted weight loss over a period of one year. In June 2012, Arena Pharmaceuticals, Inc., or Arena, obtained FDA approval for its product, lorcaserin, which was launched in the United States in June 2013 under the name Belviq. Belviq treatment has demonstrated only modest weight loss. Both Qsymia and Belviq have an increased risk for abuse potential and, therefore, both are designated as Schedule IV controlled substances. The FDA also required a Risk Evaluation and Mitigation Strategy, or REMS, for Qsymia to inform prescribers and women of reproductive potential about the increased risk of congenital malformation in infants exposed to Qsymia in early pregnancy.

RM-493: Phase 2 Clinical Development

        We are initiating Phase 2a clinical trials of RM-493 for the treatment of obesity caused by genetic deficiencies in the MC4 pathway. Our RM-493 clinical program targets segments of the obese population that are genetically defined by defects in the MC4 pathway, as a personalized medicine and focused approach to restore function and improve weight regulation in these patients. Based on FDA consultations to date, we believe we can seek an indication for obesity caused by genetic deficiencies in the MC4. If we are successful, we believe the time to receive regulatory approval for this product candidate may be reduced.

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        We plan to initiate two Phase 2a clinical trials, one in each of two genetically targeted populations: (1) those with MC4 deficiency caused by heterozygous mutations of the MC4 gene; and (2) those with PWS. Proof-of-concept for patients with heterozygous mutations of the MC4 gene has been achieved in one cohort in a four-week, Phase 1b clinical trial. We plan to initiate these clinical trials by the end of 2014.

        We intend to use the results of our Phase 2a clinical trials of RM-493 in these indications potentially as the foundation for planning pivotal registration clinical trials. It is our intention to work with the FDA on a focused clinical program for each indication.

        To date, most of our RM-493 clinical trials have been in the general obese population. We are currently conducting a Phase 2a clinical trial in general obese patients, with interim 12-week weight data now available. In preceding Phase 1 clinical trials of two to four weeks, patients treated with RM-493 achieved weight loss without adversely increasing blood pressure.

RM-493: Phase 2 Clinical Program in MC4 Deficiency Obesity and General Obesity

 
  MC4 Gene
Heterozygous
Mutation Obesity
  Prader Willi
Syndrome (PWS)
  General Obesity

Clinical trial phase

  Phase 2a   Phase 2a   Phase 2a

Status

 

Initiates 4Q2014

 

Initiates 4Q2014

 

Ongoing

Patient population

 

MC4 gene heterozygous mutation

 

PWS

 

General obesity

Treatment groups

 

RM-493 (SQ Injection QD),
Placebo

 

RM-493 (SQ Injection QD),
Placebo

 

RM-493 (SQ Injection QD),
Placebo

Number of patients(1)

 

30 - 50

 

36

 

100

Patient demographics

 

BMI 30 - 60 kg/m 2 in MC4 deficient

 

PWS Adults/Adolescents

 

BMI 30 - 40 kg/m 2

Duration of treatment

 

12 weeks

 

8 - 10 weeks

 

12 weeks

Location

 

United States, Canada, Europe

 

United States

 

United States


(1)
Approximate number of patients.

SQ = subcutaneous

QD = once daily

    RM-493: Clinical Development Program in Genetically Defined Segments of Obesity

         Phase 1 and Phase 2a Clinical Development in Patients with Heterozygous MC4 Gene Mutations

        We plan to initiate a Phase 2a clinical trial in patients who are obese and have a heterozygous genetic mutation of the MC4 gene resulting in full or partial loss of MC4 function. We anticipate that approximately 30-50 patients, identified by genetic screening, will be chosen at random to receive either placebo or RM-493 by once daily subcutaneous injection for approximately 12 weeks of treatment. The primary endpoint for this clinical trial is expected to be percent weight loss, with additional endpoints including metabolic parameters that are likely to be improved by substantial weight loss. We plan to

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initiate this clinical trial by the end of 2014, and to conduct this clinical trial in the United States, Canada, and Europe.

        We established proof-of-concept for efficacy of RM-493 in patients with an MC4 heterozygous genetic mutation in one cohort of patients in our Phase 1 clinical trial. This clinical trial was a double-blind, placebo-controlled, randomized Phase 1b clinical trial designed to evaluate the effect of RM-493 on weight loss and safety in obese patients, including the one cohort of patients with a heterozygous mutation of the MC4 gene. The initial cohort of eight patients treated for four weeks with RM-493 or placebo showed approximately 2.6kg more weight loss in the RM-493 treatment group than in the placebo group. Other parameters supporting weight loss were also positively affected by RM-493. We believe that these results support the hypothesis that RM-493 can be effective in weight loss in MC4 deficient patients, and support the initiation of our Phase 2a clinical trial.

        The following chart depicts preliminary data relating to our RM-493 Phase 1b clinical trial in heterozygous patients:

RM-493 Phase 1b MC4 Heterozygous Patients: Placebo Subtracted Differences(1)(2)

GRAPHIC


(1)
Over four weeks of treatment with RM-493 0.01 mpk/day by continuous subcutaneous infusion.

(2)
Preliminary data.

         Phase 2 Clinical Development in PWS Patients

        We plan to initiate a Phase 2a, proof-of-concept, double-blind, placebo-controlled, randomized clinical trial in approximately 36 PWS patients for up to eight weeks of active treatment administered once daily by subcutaneous injection, to assess the effects of RM-493 on weight reduction, and PWS-specific hyperphagia-related behaviors, as well as determine its safety profile. Based on the data from this Phase 2a clinical trial, we believe we may proceed into a Phase 3 clinical trial that could lead to an indication for the treatment of PWS patients. We plan to initiate our Phase 2a clinical trial by the end of 2014.

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         Clinical Development in General Obesity Patients

        Our initial RM-493 clinical trials have focused on the general obese population, though we do not have plans to develop and commercialize RM-493 for this population while we focus on genetic segments of obesity where the medical need is greater. The general obese population is defined as having a BMI of greater than or equal to 30 kg/m 2 . In our initial clinical trials, we delivered RM-493 with continuous subcutaneous infusion using an insulin pump. More recently, our administration has been converted to a once daily injectable formulation.

    Phase 2a Clinical Trial Results with Continuous Infusion.   We conducted our first Phase 2a clinical trial of RM-493 using continuous subcutaneous infusion. This was a 12-week, Phase 2a proof-of-concept clinical trial in general obese patients using the subcutaneous continuous infusion formulation delivered by an insulin pump. We treated approximately 74 obese patients with either placebo or RM-493 at a dose of 1 mg over 24 hours with no serious adverse events or other safety indications from laboratory tests, electrocardiograms, or vital signs noted in the RM-493 treatment group. Evaluation of the pharmacokinetics, or blood levels, of RM-493 from this clinical trial demonstrated that the subcutaneous continuous infusion method of drug administration was not optimal. A large number of patients did not meet the target pharmacokinetic exposures of RM-493 that our Phase 1b clinical trials suggested would have to be achieved in order for RM-493 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 RM-493, and concluded that all future efficacy clinical trials in obese patients should be conducted using the subcutaneous injection method. This belief is based on a prior Phase 1 pharmacokinetic study, which used the subcutaneous injection formulation and demonstrated higher pharmacokinetic exposures in obese patients.

    Ongoing Phase 2a Clinical Trial.   We are currently conducting a Phase 2a clinical trial in general obese patients, with 12-week weight data now available from an interim analysis. This clinical trial is a Phase 2a, 12-week treatment clinical trial, in which we are administering in approximately 100 obese patients either (i) RM-493 at a daily dose of 1.5-2 mg by subcutaneous injection or (ii) a matching placebo by subcutaneous injection. We designed this Phase 2a clinical trial to bridge between the earlier clinical trials that used a continuous infusion by insulin pump and all future clinical trials that use the new formulation for once daily subcutaneous injection. Patients in this clinical trial entered in staggered cohorts, with decreasing training and supervision of patient dosing. In the interim data, there was significant placebo-subtracted percent weight loss for these cohorts that ranged from -2.47 to -4.67% (p-values ranging from 0.005 to <0.001) between active and placebo group at 12-weeks. Despite the new formulation, pharmacokinetic exposures continued to be suboptimal in this population. Rhythm remains blinded to most other results until the database is finalized.

         Phase 1 Clinical Development in the General Obese Population

        We have completed a Phase 1 single-ascending dose, or SAD, clinical trial of RM-493, as well as five cohorts in the Phase 1 multiple-ascending dose, or MAD, clinical trial of RM-493. Both clinical trials were in healthy obese volunteers, 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 notable change with RM-493 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. We determined

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that the terminal half-life of RM-493 is approximately nine hours, making it suitable for once daily dosing.

        Four cohorts of the Phase 1b 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 differences, or the difference in the amount of weight gained or lost in the active treatment group as compared to the placebo treatment group. 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 1b.

RM-493: Phase 1b General Obesity Patients: Placebo Subtracted Differences(1)

GRAPHIC


(1)
Over two to four weeks of treatment with RM-493 by continuous subcutaneous 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. In one of these panels, both the placebo group and the active treatment group gained weight, which we believe was due to the ad lib access to food allowed in this study. The placebo-subtracted weight difference in this panel was primarily due to the placebo group experiencing significantly more weight gain than the small amount of weight gained by the active treatment group.

(2)
Preliminary data.

pbo = Placebo
D  = change from placebo

         Phase 1 Energy Expenditure Clinical Trial

        In collaboration with the National Institute of Diabetes, Digestive and Kidney Diseases, we investigated RM-493 in a Phase 1 clinical trial to determine the effects on energy expenditure, a mechanism for weight loss, in addition to the well-known effects of MC4 agonists on appetite and food intake. Twelve obese adults were randomized to receive RM-493 or placebo by continuous subcutaneous infusion over 72 hours, followed immediately by crossover to the other treatment.

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RM-493 showed statistically significant increases in resting energy expenditure by 6.4%, supporting a role for RM-493 in weight regulation.

         Phase 2a POMC Homozygous Patients Proof of Concept Clinical Trial

        In collaboration with Charite Medical University (Berlin, Germany), we are conducting a Phase 2a proof of concept clinical trial in patients who have homozygous pro-opiomelanocortin, or POMC, deficiency. The very rare phenotype of POMC deficient patients consists of severe early-onset obesity and other hormonal pathology. The obesity develops due to the lack of the Melanocyte-Stimulating-Hormone, or MSH, the hormone that normally activates the MC-4 receptor in the MC4 pathway. This lack of MSH leads to an improper regulation of energy expenditure and satiety. In this open label Phase 2a proof of concept clinical trial, up to ten POMC deficient patients will receive open label doses of RM-493 by subcutaneous injection once daily for up to 12 weeks. This clinical trial is expected to initiate in the fall of 2014, with preliminary results available in the first half of 2015. This clinical trial may provide proof of concept for PWS, where a defect in the POMC neurons is also hypothesized.

         Safety and Tolerability

        Clinical data with other MC4 therapies suggests that MC4-mediated effects may include changes in blood pressure and heart rate, increased erections in males and other changes in libido and sexual function in females, nausea and vomiting, and increases in yawning and stretching. It is noteworthy that the pattern of effects appears different among other MC4 therapies, underscoring the complex receptor physiology of the MC4 receptor. Careful monitoring for these potential adverse events is included in all RM-493 clinical trials.

        RM-493 generally was well-tolerated in our Phase 1 and Phase 2a clinical trials. Overall, except as outlined below, the number and patterns of adverse events was generally low, the intensity was generally mild, and infrequently related to clinical trial discontinuation. There has been only a single serious adverse experience possibly attributed to RM-493 in our clinical trials: one patient was hospitalized for unusual chest pain, but no evidence of any serious respiratory or cardiac cause was found after careful evaluation. There were no treatment-related changes in physical examination, except as noted below, and few, if any, clinically relevant changes in electrocardiograms, laboratory data, injection site reactions and/or anti-drug antibodies.

        To demonstrate that RM-493 had the potential to provide a safer cardiovascular profile, we extensively validated RM-493 in obese primate preclinical studies, with special attention to cardiovascular effect. The results of these studies supported testing in clinical trials. In the clinical trials, we monitored blood pressure and heart rate extensively, primarily by 24-hour ambulatory blood pressure monitoring, or ABPM. In most clinical trials, there were multiple 24-hour monitoring periods, both on a pre-treatment and post-treatment basis. Careful 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 2a clinical trials, preliminarily supporting an important differentiation of RM-493 from previous MC4 therapies. While the preliminary data is encouraging, there will be continued concerns about cardiovascular risk until addressed in larger and longer clinical trials, and there is no guarantee that RM-493 will achieve greater success than prior treatments in gaining regulatory approval.

        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 were short-lived. Most often these symptoms were reported in the first week of treatment. There was a small indication for nausea and vomiting, which usually was 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.

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        We also noted darkening of skin and skin lesions, like moles and freckles, in many patients who received RM-493. 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 noted generally after one to two weeks of treatment, most often plateaued by two to four weeks of treatment, and like for sun-related tanning, generally returned to baseline after cessation of exposure.

         Preclinical Development

        We demonstrated activity of RM-493 in reducing body weight and restoring insulin sensitivity in nonclinical models of obesity in rodents. 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 RM-493 in obese primates. These preclinical studies confirmed the cardiovascular effects of previous MC4 therapies that had produced cardiovascular toxicity in humans. In contrast, RM-493 was without cardiovascular effects.

        We completed one and three month toxicology studies, with doses and exposures that are more than 500-fold greater than those at the anticipated clinical doses without evidence of clinically relevant toxicological findings. We also plan to conduct chronic toxicity studies, including carcogenicity studies, one of which is expected to be two years in length.

        In addition to developing the once-daily injectable formulation of RM-493 that we plan to use in all future clinical trials, we have developed compelling preclinical data with a once weekly slow release formulation, and we plan to develop this latter formulation as a product line extension.

Competition

        Our industry is highly competitive and subject to rapid and significant technological change. While we believe that our development experience and scientific knowledge provide us with competitive advantages, we may face competition from large pharmaceutical and biotechnology companies, smaller pharmaceutical and biotechnology companies, including specialty pharmaceutical companies and generic drug companies, academic institutions, government agencies, research institutions, and others.

        Many of our competitors may have significantly greater financial, technical and human resources than we have. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other technologies that are more effective, safer or less costly, or obtain regulatory approval more rapidly, than any that we expect to commercialize.

Relamorelin: Competition

        While there is a high prevalence of diabetic gastroparesis, there is a lack of safe and effective therapies approved for the treatment of this disorder. Reglan ( metoclopramide ) is the only drug indicated for the treatment of diabetic gastroparesis in the United States and is only approved for short-term use due to intolerance and acute side effects, predominantly an involuntary movement disorder, known as tardive dyskinesia, the symptoms of which mimic Parkinson's disease. Other drugs that are used for diabetic gastroparesis, but not approved for this indication in the United States, are domperidone (a dopamine receptor modulator, not FDA-approved for any indication in the United States) and erythromycin, both of which stimulate stomach emptying. Anti-emetics are also used for vomiting and nausea.

        Two prokinetic drugs were used widely in the United States for both upper and lower GI functional disorders before being withdrawn from the market. Propulsid ( cisapride ) was approved for GERD and was used broadly for upper GI indications, with sales that exceeded $1 billion before being

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withdrawn for cardiovascular safety issues. Zelnorm ( tegaserod ) was marketed for IBS in the United States, where sales rapidly exceeded $500 million before its withdrawal for cardiovascular safety issues.

        Although there is significant unmet medical need for drugs that improve motility in GI functional disorders, the development pipeline for prokinetic drugs is limited and overall there are few treatments approved or in late-stage clinical development for diabetic gastroparesis:

    Reglan ( metoclopramide ), a mixed dopamine and serotonin receptor modulator, is the only drug indicated for the treatment of diabetic gastroparesis in the United States and is approved for short-term use only due to intolerance and acute side effects, predominantly an involuntary movement disorder, known as tardive dyskinesia, the symptoms of which mimic Parkinson's disease. In 2009, the FDA required that a black box warning be added to the metoclopramide label because of the risk of tardive dyskinesia with long-term use, and recommended that its use be limited to 12 weeks. The European Medicines Agency is even more stringent, and recommends metoclopramide for use no more than five days, and not for chronic conditions such as gastroparesis.

    EVK-001 is an intranasal formulation of metoclopramide under development by Evoke Pharma, Inc. Evoke has initiated a Phase 3 clinical trial for the treatment of female patients with symptoms of diabetic gastroparesis. A recently completed Phase 2b clinical trial did not achieve statistical significance in improving symptoms of diabetic gastroparesis for the total study popluation, while a post hoc analysis demonstrated efficacy in females.

    GlaxoSmithKline plc is evaluating a motilin agonist, currently in Phase 2 clinical trials, for the treatment of ICU gastric stasis and diabetic gastroparesis. Earlier programs with motilin agonists developed by Abbott Laboratories and Chugai Pharmaceutical Co. were discontinued because of lack of efficacy.

    Velusetrag, currently in late-stage clinical development by Theravance, Inc. and Alfa Wasserman S.p.A., is a serotonin 5-HT4 receptor agonist like Zelnorm. Velusetrag has completed Phase 2 clinical trials for chronic constipation and is currently undergoing limited Phase 2 clinical evaluation for diabetic gastroparesis.

    TC-6499, a small molecule that activates the alpha3beta4 and other neuronal nicotinic receptors, is in a Phase 1/2 exploratory clinical trial by Targacept, Inc. for gastroparesis. TC-6499 has completed a Phase 1 clinical trial suggesting that it may increase gastric motility.

RM-493: MC4 Competition

        Although drugs approved for general obesity can be used in obese patients with MC4 deficiencies, there are currently no approved treatments in the United States specifically for these indications—either for obesity caused by heterozygous mutations of the MC4 gene or for PWS. The available treatments for general obesity have not been evaluated for safety or efficacy for the treatment of obesity caused by MC4 deficiencies, and have significant shortcomings.

        Bariatric surgery is the most successful treatment for general obesity, and the only treatment resulting in an average of more than 15% documented weight loss sustained over a 10 year period. However, the number of bariatric surgery procedures in the United States has not increased substantially in recent years, despite new supportive clinical data and new guideline recommendations that expanded the range of patients eligible for these procedures. The implications of this trend likely indicate that there are substantial patient concerns about the morbidity and mortality associated with this surgery. In addition, bariatric surgery is contraindicated in the treatment of PWS due to poor outcomes and complications.

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        In general obesity, there is a clear need for effective anti-obesity drugs that are a viable alternative to surgery. Drugs that can deliver sustained, clinically-relevant weight loss with good safety have the potential to improve healthcare outcomes dramatically.

        Orlistat ( tetrahydrolipstatin ), Qsymia ( phentermine/topiramate ) and Belviq ( lorcaserin ) are three recently approved and currently marketed pharmaceutical products in the United States for the treatment of obesity, along with several older agents, indicated for short-term administration, Adipex-P ( phentermine ), Obezine ( phendimetrazine ), Didrex ( benzphetamine ) and Tenuate ( diethylpropion ). Orlistat is marketed in the United States by Roche Holdings AG under the brand name Xenical and over-the-counter in the United States at half the prescribed dose by GlaxoSmithKline plc under the brand name Alli. In June 2013, Arena launched its lorcaserin product, which is marketed in the United States under the name Belviq and in September 2012, Vivus, Inc. commercially launched its combination product, phentermine/topiramate, under the trade name Qsymia.

        Despite the large market opportunity for anti-obesity agents, there are relatively few competitive products in late-stage clinical development. Other companies pursuing pharmaceutical treatments for obesity include Neurosearch A/S, Novo Nordisk A/S, Takeda Pharmaceutical Company Limited, and Orexigen Therapeutics, Inc. resubmitted its NDA for Contrave in December 2013. In addition, Essentials, Inc. is developing DCCR for PWS, and Zafgen, Inc. is developing beloranib for obesity including for PWS.

        For more information on the market for relamorelin and RM-493, our competitors and the products that may compete with our product candidates, see "Overview of the GI Functional Disorder Market" and "Market Overview," respectively.

Licensing Agreements

        In February 2010, we entered into a license agreement with Ipsen pursuant to which Ipsen granted to us an exclusive, sublicenseable, 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 ghrelin program or MC4 program or that otherwise were covered by the licensed patents. Our rights under the license included the right to research, develop and commercialize relamorelin and RM-493. Pursuant to the license, Ipsen also granted to us a non-exclusive, sublicenseable, 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 to us pursuant to the license.

        On March 21, 2013, we completed the Prior Restructuring pursuant to which, among other things, we amended the existing license with Ipsen so that the rights licensed by us from Ipsen with respect to each of our ghrelin program and our MC4 program would be held separately by each of our two wholly owned subsidiaries. Rhythm Health holds the rights related to the ghrelin program, including the rights to develop and commercialize relamorelin, and Rhythm Metabolic holds the rights to the MC4 program, including the rights to develop and commercialize RM-493.

        Under the terms of each 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 such aggregate payments under each 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 each 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 such Ipsen license agreement and the 10th anniversary of the date of the first commercial sale of the

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applicable licensed product in the applicable country. In connection with the original license agreement between Ipsen and Rhythm Health, in March 2010, and after giving pro forma effect to the Prior Restructuring and the Conversion, an affiliate of Ipsen acquired 410,000 shares of our common stock and two warrants exercisable for a total of 9,790,000 shares of our common stock, which warrants expire upon consummation of this offering. The term of each 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 each agreement, the licensed rights granted to us under that 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 each license agreement at any time during the term for any reason on 180 days' written notice to Ipsen. Ipsen has a right to terminate each agreement prior to expiration of their respective terms 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 each license agreement not due to Ipsen's material breach, all licensed rights granted under the terminated license agreement will terminate.

Commercial Operations

        For relamorelin, we intend to establish our own commercial and marketing organization in the United States and to selectively establish partnerships in markets outside the United States. We intend to target physicians who treat a high concentration of diabetic gastroparesis patients with a specialist sales force that targets gastroenterologists and primary care physicians who are high prescribers of treatments for diabetic gastroparesis. We expect that the sales force will be supported by sales management, internal sales support, an internal marketing group and distribution support. Additionally, we expect that the sales and marketing teams will manage relationships with key accounts such as managed care organizations, group-purchasing organizations, hospital systems, physician group networks, and government accounts. To develop the appropriate commercial infrastructure, we expect to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that relamorelin will be approved. We could invest resources and then later learn that a particular product candidate will not be approved.

        For RM-493, we will consider entering into relationships with strategic partners that enable the expansion of the ongoing clinical development of RM-493, while retaining significant value for us. For PWS and other MC4 genetic deficiencies, we may either commercialize RM-493 on our own or by establishing alliances with pharmaceutical companies, depending on development costs and our available resources. These pharmaceutical company partnerships could focus on specific patient populations and their caregivers, on regional development, or on distribution and sales.

Patents and Proprietary Rights

        We have in-licensed two patent portfolios from Ipsen, one each for our ghrelin and melanocortin programs. Each 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 two families which are exclusively owned and maintained by Rhythm that relate to the ghrelin and melanocortin programs.

        Our ghrelin portfolio, which includes patents and applications directed to relamorelin, consists of 12 patent families currently being prosecuted or maintained, which include applications and patents directed to compositions of matter, formulations, methods of treatment and methods of preparing relamorelin. As of June 23, 2014, the portfolio licensed for the ghrelin program consists of 10 issued U.S. patents and 56 issued non-U.S. patents across nine of the 12 families. Furthermore, we are actively pursuing seven U.S. patent applications, two of which are provisional applications, one Patent Cooperation Treaty, or PCT, application, and 40 non-U.S. patents in 14 jurisdictions.

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        In the patent family directed to the composition of matter for relamorelin, we have two issued U.S. patents and 18 issued non-U.S. patents, including Australia, Canada, Europe, Hong Kong, India, Japan, Mexico, Russia, Singapore and Taiwan. The standard 20-year term for patents in this family would expire in 2023, but the U.S. patents will expire in 2024 and 2025 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, in the patent family directed to the use of relamorelin for stimulating gastrointestinal motility, we have issued one patent in each of the United States, Japan, and Russia. The standard 20-year term for patents in this family would expire in 2026, but the U.S. patent will expire in 2027 due to a patent term adjustment. Patent term extensions for delays in marketing approval may also extend the terms of patents in this family.

        Our MC-4 portfolio, which includes RM-493, 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 RM-493. As of June 23, 2014, the portfolio licensed for the MC-4 program consists of two issued U.S. patents and 26 issued non-U.S. patents across four of the 12 families. We are actively pursuing eight U.S. patent applications, three of which are provisional applications, three PCT applications and 42 non-U.S. applications in 14 jurisdictions.

        In the patent family directed to the composition of matter for RM-493, we have one issued U.S. patent and 16 issued non-U.S. patents, including Australia, Canada, Europe, Hong Kong, Israel, Japan, Korea, New Zealand, Russia and Singapore. The standard 20-year term for patents in this family would expire in 2026, but the U.S. patent will expire in 2027 due to a patent term adjustment. 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 our existing products or product candidates 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 licenses from Ipsen for each of the ghrelin and melanocortin programs, respectively, 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 any of the product candidates 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

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proceedings declared by the U.S. PTO or a foreign patent office to determine priority of invention. Moreover, we may have to participate in other proceedings declared by the U.S. 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 U.S. 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 status in jurisdictions in which it is available. An orphan drug designation may be granted 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 designation does not prevent competitors from developing or marketing different drugs for an indication.

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

Manufacturing

        We currently contract with a third party for the manufacture of our product candidates and intend to continue to do so in the future. Each of our subsidiaries has entered into a process development and manufacturing services agreement with Peptisyntha SA under which Peptisyntha will provide certain process development and manufacturing services in connection with the manufacture of both relamorelin and RM-493. Under both agreements, we pay Peptisyntha for services in accordance with the terms of mutually agreed upon work orders, which we and Peptisyntha may enter into from time to time. The agreements also provide that, subject to certain conditions, for a period following each product launch date, we will source from Peptisyntha a portion of our requirements for that product being sourced from non-affiliate third parties. Under both agreements, each party is subject to customary indemnification provisions.

        The agreement related to relamorelin will continue, unless earlier terminated pursuant to its terms, until the later of (i) six years from the July 2, 2010 effective date, or (ii) 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 related to RM-493 will continue, unless earlier terminated pursuant to its terms, until the later of (i) six years from the July 17, 2013 effective date, or (ii) 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. Each agreement may be extended by us continuously for additional two-year periods upon written notice to Peptisyntha. We also may terminate each of the agreements or any work order thereunder upon at least 30 days' prior written notice to Peptisyntha.

        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, o