All right. Great.
Welcome, everybody, to day two of the Jefferies Healthcare Conference in New York. My name is Dennis Ding, biotech analyst here at Jefferies, and I have the great pleasure of having Phathom Pharmaceuticals here with us. We have CEO Steve Basta. Welcome.
Thank you, Dennis. Appreciate the opportunity to be here.
Before we kind of get into the questions, I would love if you can give a broad overview just around where Phathom is today and just sort of the evolution of the business over the last couple of years and how you're thinking about the future.
Terrific. Thank you again for the opportunity to be here and to join you. Phathom has a really interesting opportunity. We are just on the cusp of sort of the early stages of our launch and the opportunity to grow substantially in the coming years with a drug that transformed the reflux market when it was introduced in Japan and became the number one prescribed product, replacing PPIs as the treatment of choice for patients with reflux in order to manage acid in the stomach. We are introducing, or we have introduced, into the U.S. market the first meaningfully improved therapy since PPIs were introduced some 20-30 years ago. The opportunity for us is to capture the 20% or 30% or 40%, by some estimates, of patients who have reflux, who have been on PPIs, and are still experiencing pain.
Now, for someone who's adequately treated with a PPI, it's hard to see them moving to a new brand of therapy. For a significant number of patients, they're either having heartburn at night, or their PPI works for part of the day, but they're having heartburn at dinner time, or they're getting intermittent breakthroughs, but they're still experiencing significant pain. Those patients need a better, stronger therapy. We provide that. That's an enormous opportunity of many millions of patients. We are in the early stages of that launch. We did $28 million in revenue last quarter. We're already at a $120 million run rate based upon our Q1 numbers and growing really nicely. We expect to continue that growth for many years to come and be a significant player with an opportunity to get a billion-dollar potential drug.
Sure. And maybe remind us the dynamics around Q1. There were some announcements on the earnings around operational cost cuts and things like that moving forward. So can you just help frame that situation and how that may or may not change the positioning of VOQUEZNA?
Yeah. I think that's helpful. One of the things, I joined just a couple of months ago, and we are taking a rigorous look at our business in several contexts. One is around areas of focus and where do we get early traction and where can we drive the most effective growth. Two is around cost management and how do we get to profitability as a key priority activity. The revenue ramp since launch has been moving nicely. We believe we can continue that ramp and, in fact, accelerate that ramp in coming quarters in the context of a renewed vigor and focus on the GI customer rather than on the primary care as the area of emphasis. We had gone pretty broad in the early launch.
One of the things that I've been looking at with the team is where do we get the most impact and the most leverage. We're really focusing more to shift more of our time to heavy, intensive focus on building relationships with gastroenterologists. Just candidly, when we convert a gastroenterologist, they prescribe more VOQUEZNA than a primary care physician. Better than 50% of our scripts are already coming out of the GI market. With that focus and intensity, we think we're going to be able to accelerate uptake of the product. It's pretty natural that the product will first be adopted in a specialty and then evolve into primary care in future years. That also allows us to reduce some of our expenses. We were driving a pretty expensive DTC program. We're winding that back to reduce expenses.
We've slowed some clinical development expenses that were not critical to near-term revenues. Our focus this year with the restructuring of our expenses that we did and we announced at the end of Q1 is to bring our cost structure down to $55 million per quarter. We've committed to do so by Q4 of this year. You'll see costs come down a bit in Q2 and then more in Q3 and Q4. We've committed to having our cost structure in line to be sub-$55 million OpEx in Q4, minus some non-cash charges. As our revenue ramps, and again, we're already at a $30 million a quarter run rate and growing quarter- over- quarter, as our revenue ramps, that enables us to get to profitability. We have forecasted that we will convert to profitability in 2026.
With our current cash, our intent is to continue the growth ramp. We've preserved the entire sales organization. We're driving that continued growth, bringing costs in line so we can achieve profitability. I think that that's going to change the investor outlook for the company as investors don't have uncertainty about how long we're going to be burning cash and are able to then look at our profitability and figure out the future value as we build, in the coming years, a major GI company on the back of what is a breakthrough product.
On profitability, you mentioned 2026. What do you mean by that specifically? When in 2026, or are you talking about exiting 2026 or full year 2026?
We have chosen intentionally not to be more precise about that, partly because it's hard to forecast a quarter-over-quarter revenue ramp. Is it in Q2 or is it in Q3? That's hard to do. The other element is just from a management perspective, I want to preserve a degree of flexibility. If we find that there's a significant investment opportunity and a significant initiative and that's going to push out profitability by a quarter, I want the flexibility to be able to do that. What we have signaled to the street so that it is predictable is our commitment is to reach profitability in 2026, whether that's in a particular quarter or for a full year. We're preserving a little bit of flexibility in that communication.
Okay. That's very fair. And like you said, given some of the cost cuts, there is a little bit of uncertainty or questions around continued ramp in VOQUEZNA through the year and growth and acceleration and things like that. So what underpins your confidence that that will happen? And you mentioned sort of the shift away from PCPs and towards GIs. But yeah, talk a little bit about that.
Dennis, I think that's very fair. We've gotten this question from a number of investors. What we announced a few weeks ago with our Q1 earnings call was that we were going to bring down operating expenses by 40%, but we were maintaining the revenue ramp that the analysts had been projecting. The natural reaction that many investors have had is, "You have to prove that to me." That seems hard to do. It seems hard to take 40% out of OpEx and disrupt that. What I know to be true is we've preserved the thing that is actually working to convert sales. The thing that is working to drive our revenue is our sales force calls. Our sales time with physicians is the key driver of new physician conversions, new writer conversions, and of growth in each office.
We've preserved the entire sales organizations. We've taken costs out elsewhere, but we've preserved the core driver of revenue. That's why I have confidence that we're going to be able to hit the revenue ramp. Over time, and I don't know exactly what the time course is for how quickly this is going to play out, as we shift more of our sales force time to GIs, I believe that that is actually going to be accelerating our ramp in future quarters. That might take one or two quarters to start to manifest because you have to make several calls on a physician in order to really drive a change in habit. As we do that, we're going to start to see meaningful growth within the GI category, which is the higher prescribing category.
As we go deeper in GIs, that's going to enable us to convert more of their patients. I believe ultimately that accelerates our ramp. The reason that I have confidence that we're going to be able to maintain our revenue ramp without disruption despite the cost reduction is because we haven't reduced the thing that is driving our revenue, and that's our sales force time and our sales force calls on physicians.
Remind us the size of your sales force pre and post the cost cut announcement.
We've had no change to the sales force. We've got close to 300 territories in the field.
Okay. Before the Q1 announcement, what proportion of doctors, whether it's PCPs versus GIs, are they really calling upon?
It's a small percentage of the overall primary care population, but a meaningful percentage of the GI population. That is unchanged currently. We are actually going to be slightly reducing the number of primary care physicians that we call on in order to focus more time on GI physicians. You will actually see the total call pattern coverage. We do not provide that transparency in terms of quarter- by- quarter because it will change quarter- by- quarter as we adjust territories and adjust targeting. You will actually see us operationally call on somewhat fewer physicians in future quarters, but call with greater intensity on the physicians that are going to be driving the majority of our scripts. That is the gastroenterologists. We are consciously shifting sales force time in the coming quarters to spend more time going deep in gastroenterology.
Were your sales force kind of like--do you have sales reps who dedicate their times to PCPs and sales reps that dedicate their times to GIs, or do they kind of do both?
Everybody has a geographic territory calling on both customer bases.
Okay. There has been a shift away from PCPs and towards GIs.
Yeah. What that shift is going to look like is just higher frequency calls on GIs, which means that they have less time to call on primary care physicians. We believe that higher frequency calls on GIs will go deeper over time and ultimately drive faster conversion of more of their patients. When we've got a GI who is writing one script every two weeks, great. We've got a converted customer, but they are seeing five patients a day who need our drug. The opportunity for growth in that practice is enormous. Right now they already believe the drug works, but they're still in the habit of writing PPIs for most of their patients that have reflux.
The growth opportunity in that practice is just tremendous because they are quite literally—and this is not exaggeration—they're going to see five patients a day who are inadequately served by their PPIs and need to have a better acid management strategy. That is where VOQUEZNA comes in.
I kind of view this as sales force expansion without sales force expansion.
It's really sales force effectiveness improvement. It's can we make each of our sales calls more impactful? Again, it'll take one or two quarters for that to play out before people start to see a ramp because you don't call on a physician and immediately change their behavior with the first call. Call on a physician, you're there every other week for two or three months, and you're building relationships, and you're building the awareness within the office staff. This is just the blocking and tackling of building relationships on an office-by-office basis, but that's what works in this industry. That's what we know is—that's what we're already seeing work in our sales launch.
Given that some of those operational changes happened in Q1 or at the end of Q1, and we are already in June and sort of the end of Q2, and you kind of touched upon this a little bit in that it could take a little bit of time for that sort of shift to be reflected in revenue. Can you talk a little bit about some of the early trends so far in Q2 as a result of some of those changes?
Those operational changes are just being made. They're not already made. Just for clarity, we announced this just a few weeks ago in the context of our Q1 earnings call, but we've just brought in a new Head of Sales. He's literally three or four weeks into the job at this point, and we are in the midst of looking at targeting and alignment and prioritization of calls. This takes some number of weeks to roll then before you start to see any effects.
Okay. Okay. That's fair. On repeat prescribers, how have that trended over time?
I'm not sure that I understand the question. What we are seeing is prescription growth on a quarter-by-quarter basis, week-by-week basis, but that's a combination of both repeat prescribers and new prescribers being added. So we're seeing growth in both.
Okay. Okay. Yeah. Because of the size of the market, you are trying to activate some of these new prescribers.
That's right.
I'm just wondering, for the people who are prescribing, are they happy with the drug, and are they using it more and some of the trends around that?
Oh, physicians who use physicians who prescribe this product, when they hear back from their patients what the patient experiences, that's what drives a physician to become a convert. Just the extraordinary reaction the patients have. I mean, I'll give you a personal anecdote. I actually just started using VOQUEZNA recently. I've been on a PPI for years. And I was reasonably well served on my PPI, but if I forgot to take it for a day, I would have significant heartburn the day that I forgot to take it. Just to test durability, our messaging is rapid, potent, durable. We have faster onset than a PPI. We have more potent onset. When you take VOQUEZNA, we raise pH more than a PPI raises pH in the stomach, and it's more durable. It's more long-lasting than a PPI.
Just to test that, I did not take it the second day. Felt fine. It is the first time that has never happened on a PPI. PPIs just do not have an effect that lasts for the second day. Second day, I felt just fine. What we hear over and over again from physicians is when they hear from their patients that they started VOQUEZNA, their patients feel better than they have in years. The consistency of that response is the key to driving depth in a practice. As a physician hears that the third time, the fourth time, the fifth time from a patient, they may need to prescribe the product to 10 patients in order to get feedback from five of them because they may not see their patient again for some number of weeks or months.
It's when the patient comes back in that they're hearing from them, and they consistently hear how much better the patient feels. That's what gets somebody to be a convert. That's when they start prescribing more often. What we're trying to do is drive toward that feedback, get a physician to prescribe it enough, and get feedback from their patients enough that they really see how much better their patients feel on this drug. This drug creates extraordinary enthusiasm among patients because these patients are in pain. They're waking up in the middle of the night with heartburn. They can't sleep. Patients report, "I haven't eaten Mexican food for years because it's too spicy and it causes my heartburn to get worse." All of a sudden, fine. Doesn't hurt anymore.
I haven't had a glass of wine in years because it irritates my stomach and my heartburn comes in." They are fine. This drug changes lifestyle for patients because it dramatically manages their heartburn.
Sure. Do you view this as kind of like a patient-driven market for demand, or is it more something around doctors being aware and recommending it to the patients? Are patients keenly aware that this is available? Maybe that also kind of plays into the DTC and things like that. Maybe talk a little bit about that.
Today I view this as 100% a physician-driven market. It is a physician-driven market informed by patient feedback. What I mean by that is the physicians become converts because their patients have a great experience. The patients do not know today that there is a new solution for their heartburn. What the patient is doing is they are seeing their primary care physician and then being referred to a gastroenterologist because they are having persistent pain. The motivator for the patient to seek a solution is pain. The physician is the one who is going to become knowledgeable about what the best solution is. When we create physician advocates through the feedback from their patients about how much better they feel, the physician advocate is the one that is switching the patient.
It could be a physician, it could be a nurse, it could be a PA in a practice. Often, for example, a gastroenterology practice, the physician might be doing scopes most of the day, but their nurse or their PA is seeing the patient for their follow-up, and that's the person who's making the switch.
Okay. Talk a little bit about DTC, right, and you're kind of rolling that back. In terms of the cost and what is going to be realized in 2025, just clarify how much of that is in 2025.
Our DTC, we are scaling back the broadcast and streaming portions of our DTC, which is the big spend categories. We're actually keeping some of the digital spend. Some of the social and search and digital spend that is focused on both patients and HCPs is, in fact, paying a positive ROI. The broadcast spend was not. I think what's happening there is really simple. We were talking about whether this is a patient-driven or a physician-driven market. If we activate a patient with an ad to tell them that there's a new treatment for heartburn, the first place they're going to go is to a primary care physician. Most primary care physicians do not yet know about our drug. A patient is going to land in a physician's office where they're not going to prescribe VOQUEZNA. That just was not paying off.
That's not to say that it won't ever work. It's just too early. It's a matter of where in the life cycle of the drug do you actually introduce DTC? At this early stage, the priority for us is to convert gastroenterologists to be product advocates, have them understand the value proposition of the product because they are seeing the patients in the highest need state. That's the low-hanging fruit. That's where we're going to be able to capture early traction. Activating a patient to go talk to their primary care physician isn't working in 2025. Now, will it work in 2026 or 2027 or 2028? At some point in the life cycle, enough gastroenterologists will be converting patients to VOQUEZNA. Enough of those patients will have gone back to their primary care physician.
The primary care physicians will all become familiar with the drug because they get a patient back from the GI. And now they're having a conversation about how much better that patient feels. When that cycle starts to happen and there's broad awareness within the primary care community, a DTC campaign can have a very different kind of an effect. But it wasn't paying dividends today. We were spending a fair amount of money on it. So that is one of the significant sources of savings. So again, your earlier question was, how can we be confident that we can reduce expenses and maintain the ramp? Well, the DTC was one of the big spends that we had that just wasn't paying dividends. So by turning it off, I don't think it's going to adversely impact our ramp.
No, I think that makes sense, right? I mean, you have to drive awareness with the doctors first before the patients. The life cycle of this drug is still a bit too early.
Yeah. I think it was just too early in the timeframe for the launch.
As you think about 2025 and the trajectory of revenue, how should we think about that? Is it generally linear? Is there any seasonality with the business that you typically see with VOQUEZNA? Just any kind of color.
There's a little bit of seasonality in Q1. It's not just with VOQUEZNA, but for any branded drug that has a reimbursement paradigm where new plan coverage, new deductible periods, all of that impacts the Q1 numbers. Q1 always is dampened a little bit. We think that that picks up in Q2, Q3, and Q4, as would typically happen. We're seeing a continued ramp in scripts. All of that information is public. I mean, you can just pull the IQVIA numbers, and you're seeing continued ramp in scripts. We're getting continued penetration and continued new traction in that process. We don't provide quarter-by-quarter guidance, so I'll stop shy of actually predicting exactly what the growth rate is in each quarter, but what we are seeing are solid trends. We have publicly said we are comfortable with the analyst guidance that's out.
We think that that's a reasonable approximation of what our ramp looks like. If we hit those numbers and we are able to bring down our operating expenses as we have committed to do so, we bring our cash burn for this year to a much lower level by Q3 and Q4 and positions us to reach profitability in 2026.
Okay. And consensus 2025 is around 160.
That's right.
Okay. Let's talk a little bit about access and coverage and just where VOQUEZNA is right now in terms of covered lives, etc.
Right. We have 82% of commercial lives covered. The most common coverage pattern requires a prior authorization for failure on a single prior PPI, which virtually everyone has had. Particularly, virtually everyone who is in a gastroenterology office, by the time they get to a gastroenterologist, they have seen a primary care physician who, if they had heartburn, gave them a PPI because that is the thing you do for everyone who has heartburn in a primary care office. By the time they get referred to their gastroenterologist, everyone has met that requirement. It is a relatively simple prior authorization. We actually get very high conversion rates of new scripts that go through that actually get the prior authorization completed and get covered. We have pretty good coverage. Not universal, but 82% coverage in commercial lives is pretty significant.
We don't yet have significant coverage in Medicare. We get a few Medicare scripts covered, but many Medicare patients now are eligible to get our cash pay program, but it doesn't generate much economics for us. It's an opportunity to serve that community and to serve physicians with a broader population of their patients, which also builds goodwill within the physician base.
Sure. When you think about the market, what proportion of that do you think is covered by commercial versus non-commercial?
I don't have the exact breakdown. There is a fair portion that is Medicare, but this market is so big that we are not market limited. This is not a total available market limited kind of environment. That market is many billions of dollars. Our key element is physician-by-physician conversions to advocacy. There is not a shortage of patients in the physician practice that we can convert.
Yeah. In terms of that being a tailwind and an acceleration to revenue, that would be a potential upside situation in terms of.
It would be. We have no near-term expectations of getting Medicare coverage for this drug. Our expectation is that our core revenue is going to be driven in the commercial insured market.
Okay. Got it. Very helpful. In the last five minutes, I guess we have to talk about the citizens' petition. Just remind us the history of that, like what went on, just give a little bit of background, and when can we expect something.
Yeah. Actually, I'll shortcut that because I don't know that we need to go through. I'm sure that there are some investors who are speculating on whether the citizens' petition is going to be positive or negative and making an investment decision on that basis. That's not how I would make an investment decision in the company. It's not how I made the decision to join the company. I looked at two scenarios. If we win on the citizens' petition, we get 2032. If we don't win on the citizens' petition, we have exclusivity to 2030. My mandate as a manager running the organization is, how do I create value for shareholders in either of those two scenarios? Obviously, if we get 2032 exclusivity, we get two extra years of positive cash flow, and it generates more value for shareholders.
I totally get that the company is more valuable with 2032 than with 2030. My mandate is, in either scenario, to create value for shareholders that's north of the current price. Whether it's north by X amount or north by Y amount because we get different durations, it's how do we create value. The path to create value is to get the company to profitability, generate positive cash flow, and on the leverageable base of relationships with every gastroenterologist with a breakthrough product that is transforming care for their patients, bring products two, three, and four into the portfolio so that we can build a major GI company in the next five years. It's obviously better for us to have exclusivity through 2032 versus having exclusivity through 2030, but on either timeframe, I believe we can create significant value.
Just for those who aren't familiar with it, the distinction in the citizens' petition is a question of whether the GAIN Act 10-year exclusivity period that is already applied to our VOQUEZNA treatment packs for H. pylori should also be applied to VOQUEZNA as a standalone product. We believe that the right interpretation of FDA past practice and policy, as well as the GAIN Act, is that it should apply. FDA hasn't made a final determination yet on whether or not it will apply. We actually expect that in the coming days. We're near the 180-day point. In the next few days, we would expect to hear from FDA, but we could get a yes, you get 2032 exclusivity.
We could get a no, we do not believe that the policy applies, or we could get some indeterminate response where they indicate they need more time or it is still under review. It is hard for us to know exactly which FDA communication we are going to get. The more important perspective I believe that investors should take to it is, I do not think that that is the basis for betting on whether you should own this stock. I believe that that is upside to a core value that we can create by 2030. If we have 2032, we can create more value. Either way, we can create significant value that is north of where the current stock price is. That is our mandate as a team.
Right. I think that's totally fair. I think that given where the stock is trading currently and the near-term situation that's coming up from the citizens' petition, it does seem like we just have to make it past that event. It's kind of like hearing.
Yeah. Of course. Everybody's waiting to find out in the next few days what that event is. Positive or negative, I think we can create significant value. Now, obviously, I believe that we've got the right meritorious argument, and we will likely get a positive response, but can't guarantee it. It's really hard to do some sort of estimate of probability.
Okay. Lastly, just talk a little bit about your cash. Also, you mentioned that you want to build a world-class GI company, right? What does that look like beyond VOQUEZNA as you think about 2026, 2027, 2028?
We will need to end license assets, and we are starting that process of talking to folks that have other GI assets. They could be products that are in market. They could be products that are in the clinic today. We have fundamental assets in place with a clinical development team that has deep history in GI that actually comes in. Some of the folks on our clinical and regulatory team come with 20, 30 years of experience that dates back to the early work in PPIs. They have real knowledge and depth in the GI space around how clinical development can be effectively done. We have a strong regulatory capability. We have a commercial capability where we are building with our sales organization relationships with every gastroenterologist in the country in the coming years.
We're already in well over half of the gastroenterology practices who are prescribing VOQUEZNA today, and we will get more. As we go deep in GI and build those relationships, we have the ability to end license products, complete clinical development, and launch them. The key thing that we're thinking about is on that 2030 or 2032 timeline, how do we launch one or two or three additional GI products before we lose exclusivity on VOQUEZNA so that we can leverage the existing organization and build greater depth and penetration with multiple GI products.
Do you have a preference for commercial assets versus ones that are still, I don't know, phase II or phase III?
We're considering each asset on an individual basis. I expect we're going to kick the tires on 10 or 20 opportunities before we find one or two or three that we want to bring in. It will vary. It's going to be around the strength of the product, the market size, the opportunity, its distinctiveness, the competitive advantage that it has in its own market. Whether a product is in phase III or in phase II or is already commercial, that changes the evaluation process to some degree. We'll look at anything in those stages.
Okay. And then specialty GI versus broader GI, do you have any kind of preference?
Again, we've not been that specific.
Okay. All right. Thank you so much for the catch-up. It's great to see you.
Likewise.
Yeah, we're excited about the outlook. Just got to get through the citizens' petition next week, but really excited about what's going on here.
Dennis, thanks again for the time today.
All right.
Appreciate the invitation.
Thank you.
Thank you.