Rhythm Pharmaceuticals secures $150M in convertible preferred stock financing

Rhythm Pharmaceuticals has signed an investment agreement with current shareholders, led by Perceptive Advisors LLC and its Discovery Fund and a life-sciences focused institutional investor, for the sale of its series A convertible preferred stock for gross proceeds of $150 million to the Company. The Company intends to use the proceeds from the offering to fund its clinical development programs and commercialization activities, for working capital, and for general corporate purposes. The transaction is expected to close on or about April 15, 2024, subject to the satisfaction of customary closing conditions. Based on its current operating plans, Rhythm expects the net proceeds from the sale of Preferred Stock, in addition to its cash, cash equivalents and short-term investments as of December 31, 2023, will be sufficient to fund its operating expenses and capital expenditure requirements into 2026. Following the expiration or termination of any applicable waiting period under the HSR Act, the Preferred Stock will be convertible into common stock at any time at an initial conversion rate of 20.8333 shares of common stock per $1,000 of liquidation preference, implying a conversion price of $48 per share, which is a 19% premium to the Company’s 10-day trailing volume weighted average price. The conversion rate is subject to customary adjustments, and adjustment in respect of certain dilutive issuances. The Company also can require conversion if the price of its common stock exceeds 250% of the implied conversion price for 20 trading days in a 30-trading day period, subject to certain requirements. The Company has the right to redeem all, but not less than all, of the Preferred Stock for the then applicable liquidation preference, which is initially par, on and after the five-year anniversary of its issuance. Holders of the Preferred Stock will be entitled to a 6% cumulative annual dividend, commencing on the second anniversary of closing. Dividends will be compounded quarterly, and payable in cash or in kind at the Company’s option. The Preferred Stock will vote with the common stock on an as-converted basis, subject to satisfaction of certain antitrust-related conditions. Holders of the Preferred Stock are entitled to 175% of the liquidation preference upon certain corporate events, including a change of control or liquidation of the Company. The Company has agreed to grant the investors certain registration rights with respect to the common stock underlying the Preferred Stock.