Good afternoon, everyone, and welcome to the Phathom Pharmaceuticals session. It's our pleasure to have CEO Steve Basta and CFO, oh my goodness, Sanjeev. Sorry, I almost forgot your name. Sanjeev Narula. And he's going to take us through the new commercial strategy that you have at Phathom under new leadership for VOQUEZNA in GERD, which is a new mechanism. I will hand it over to you, Steve, to give us a quick overview.
Terrific.
Sure.
Thanks so much for the opportunity to participate today and for everyone dialing in. I'll just do a sort of quick synopsis of the strategy pivot that we've taken over the past six months and how that's playing out. I think that'll provide a helpful context. For anyone new to the story, Phathom is providing to patients the next generation gastroesophageal reflux treatment, which is VOQUEZNA, which is the first-in-class P-CAB to be approved in the U.S. Fundamentally, what the drug does is it elevates pH in the stomach better than the prior generation of GERD therapies.
We can increase pH in the stomach meaningfully further than prior therapies for patients who are on PPIs, whether it's Prilosec or Nexium or any number of PPI therapies that have been used successfully for many years, and who are still experiencing pain, which is some 30%-40% of patients who are on PPIs. Those patients need better acid suppression, better pH elevation. We can provide that. That's our target market. In light of the fact that our target market really isn't all PPI scripts, it's really the PPI scripts that are going to patients who are still experiencing significant symptoms. That thought process around where are those patients who are refractory to PPI therapy has led to the pivot that we've undertaken in the past six months.
Originally, at launch, Phathom had been approaching this market thinking about the broader PPI market, which is heavily skewed toward primary care when you think about all PPI scripts. If you think about PPI scripts for those patients that are in pain, that's heavily skewed toward GIs. What happens when a patient is in pain, they talk to their physician about the fact that they're still in pain even though they're on omeprazole. They might double their dose. They might do BID dosing. If they're still in pain, they're going to get referred to a gastroenterologist to get scoped, make sure there's not some other problem. When you think about the population of patients who are in the GI practice, those patients are the refractory patients who are still in pain. That's how they landed there.
Our pivot over the past six months has been to direct the salesforce time, focus, attention much more intensely to the gastroenterology community. That is paying dividends. We can see that in the continued growth quarter over quarter. We posted $10 million in revenue growth from Q1 to Q2. We posted another $10 million in revenue growth from Q2 to Q3. We are continuing on a growth path by focusing salesforce time and attention in the GI space where we can identify patients who are in need. At the same time, one of the things that we've done in the past few months is we've implemented much more financial discipline in our spend patterns. We've preserved our key salesforce activity to drive. That's the key revenue driver for us, is time with a rep or an MSL in front of a physician.
Educating physicians about this product is how they start thinking about it. What we have been able to reduce is spending on things like DTC and other initiatives that reflected much more of the earlier primary care strategy. Now that we can have a much more disciplined expense structure, what we achieved in the last quarter is we continued growth. We got to $49.5 million in revenue in Q3. We brought expenses down from $98 million in Q1 to $49 million in Q3. We literally cut our cash OpEx number by 50%. We are on a trajectory where we expect next year to cross over into being operating on an operating profit basis. When we think about operating profits, again, we are thinking about it really on a cash basis, excluding stock comp and before interest expense.
When we just think about our operating expenses, we're going to be generating positive operating profit at some point during 2026 and then moving forward. We are on that trajectory to transform the business to that much more positive dynamic.
Okay, great. How penetrated are you in the GI market now? Where do you want to be? What are you generating? What do you want to accomplish with the GIs that you're targeting right now? Who's an adopter? Who's a prescriber versus an adopter? How much deeper do you need to go?
Yeah. I think that's a really helpful way of thinking about this market opportunity. There are 100 million prescriptions per year for PPIs. There are 20 million of those prescriptions that are being written within GI practices. I say within GI practices because it's not just the gastroenterologist. It's also the PA or the nurse that's in the practice that may be writing a script for patients in that practice. When we think about GI providers, that 20 million prescriptions for PPI coming out of GI practices, that's our core market opportunity as the initial focus. That does not preclude the fact that there's a significant opportunity for us in primary care beyond that. Just looking at GI metrics first, we had about 220,000 total scripts in Q3. 70% of them are coming out of GI.
Approximately 150,000 prescriptions coming out of GI in Q3 for VOQUEZNA. Four times that, annualized that, is 600,000 scripts on an annual basis for current Q3 run rate. 600,000 against a 20 million prescription opportunity represents about 3% of that opportunity. We think we're 3% penetrated today. This is only the second year of launch in GI practices in terms of converting their PPIs. We believe we can get to 20%-30%. There is meaningful growth available to us within the GI practices. Getting to that level gets us to a billion dollars of revenue just out of GI. On top of that, there's a significant opportunity. Already, 30% of our scripts come from primary care. There's a significant opportunity in primary care on top of that GI number.
There is a potential billion dollars in revenue if we can hit that kind of penetration within the GI community. Part of why we have a sense of encouragement that we actually can achieve that level of penetration is we're already doing that in some accounts. There are physicians today that are already at 15%, 20%, or north of 20% of their PPI volume has been converted to VOQUEZNA scripts. The early adopters who have seen this product work in their patients, who've gotten religion around this product because they've had patients tell them how much better they feel, they've already converted that degree of their practice. We think that that could be done broadly within the GI community. Now, it's going to take years to do that because it takes lots of education for each physician.
Will it take years? I mean, this is a symptomatic disease. And you know that when it works, it works. And you know that pretty quickly. So how long? Let's talk about that patient journey and how many calls it requires to get a typical GI to say, you know what? I'm over. I'm done with PPIs. Forget about adding another one. Let's just go straight to the P-CAB.
Right. So the reason that we think it's going to take some time, and it's really hard to predict exactly how much time.
I'm going to be pressing you on this because.
The timeframe is different for each physician. Some physicians will get there next year. Some physicians will take three or four years to get there. It is a different path for each physician, in part based upon how quickly they get feedback from patients. If we can sample a physician and encourage them to ask their patient to let them know how they feel after they have taken the samples, that is one of the best feedback loops. Exactly as you described, patients feel so much better on this drug that a patient who has been having persistent heartburn has doubled their dose of PPI, still having heartburn, still cannot sleep. They get on VOQUEZNA. Within the first one or two or three days, they are going to be sleeping better. Their heartburn is going to be under control. They are going to feel so much better.
They're going to tell their doc, "Oh my God, I haven't felt this good in years, doc." That story gets played out over and over. Now, that's not every patient, but that story gets played out over and over and over again and reinforces for the physician how much better the patient feels. What we do find is that adoption patterns happen in stages. Physicians don't go from zero to full penetration of, "I'm switching all my PPI scripts." They tend to adopt for patients that have failed multiple PPIs. Okay, they really do need something stronger. They find that it works well enough that their patients who have maxed out their dose of PPI, instead of switching to another PPI, they just switch them to VOQUEZNA.
They start thinking about all of their erosive esophagitis patients, or at least the grade C and D erosive esophagitis patients, where we've demonstrated clear improvement in healing versus the PPI alternative therapy. Grade C and D erosive esophagitis patients are going to heal better if they're on this drug. You start with those patients. The rep is having a conversation with them about, "Doc, if it works really well in your grade C and D patients, why aren't you using it in all your erosive esophagitis patients?
If it's working really well in all your erosive esophagitis patients, why aren't you thinking about your non-erosive patients that are still experiencing lots of nighttime heartburn? The process of increasing a physician's utilization is a staged process of adoption associated with their comfort with the product, their familiarity with how well it works, their adoption for the most severe patients, then their adoption for all erosive patients, and then their adoption in non-erosive. There are typical adoption patterns that just take stages. Each physician will run through that in a different time course.
The salesforce realignment that you did, you're moving salespeople off of the primary care. You're reorganizing the territories for the GI focus. How did you realign that? And could you possibly speed up that process where they go through stages?
Let me take the salesforce realignment first.
I'm pushing you here.
If not, we can accelerate that process where they go through stage. Actually, I'll take the second half first. Can we accelerate that process? Trust me, that is the conversation that our sales and marketing team is having every day. So if there are.
Bringing Mexican food.
Right, exactly. If there are tactics, I'd love that, by the way. That is just the reference that Anne Mills is making. We had this conversation once before. It's a sales tactic one of our reps came up with that I just sincerely love, where they're just bringing Mexican food in for their lunch and learns. Because invariably, you bring in spicy Mexican food, and somebody in the office says, "Oh, I can't eat that." Now you know who needs the samples. You absolutely know in the office, you have the conversation with the doc, which is, "Jane just indicated that she can't eat spicy Mexican food.
You might want to talk to her about whether or not she wants to try this. If you can get somebody in the office to sample the product and they tell the doc the next day how much better they feel, you close the loop on that feedback mechanism. That is one of the paths to accelerating it. Those kinds of techniques can fundamentally accelerate the movement. Back to your other question, though, about the realignment of territories. What we have done over the past six months has been a staged transition of the way that we are deploying our salesforce to optimize call frequency on gastroenterologists.
In May, we announced that we were pivoting our strategy to move away from primary care calls, not completely, but to shift from a 70/30 call allocation where we were 70% in primary care, 30% in GI, to a 70/30 call allocation or north of 70% if we can achieve it, where we're calling on gastroenterologists with 70% of the salesforce time. That's the overall shift. How you get there happens in stages. We first communicated to the reps that that was our intent and started to modify our incentive comp plan, which had been weighted heavily toward primary care. In July, we rolled out for all of the sales. That was in May that we announced the intention to go this direction. We spent a little bit of time working through target lists. In July, we rolled out to the sales territories new target lists.
Where they previously had a list of physicians that was heavily skewed toward primary care, they got a new list of physicians that included all of the gastroenterologists within their region and removed a significant number of the primary care physicians who had never written scripts. We kept in everybody who'd written scripts because if we've converted a customer, we want to continue to grow them. We want to focus more of the rep time in GI. That is limited, though, by the fact that the original territory maps had been done based upon total PPI volume. That's heavily skewed toward primary care. We had some territories with very few gastroenterologists. We had some territories with too many gastroenterologists that they couldn't call on them with the right frequency.
What we did in October, and it takes a couple of months to go through the work to organize this, what we did in October was we remapped all the territories. Some territories we cut so that we could put two reps in that same territory and get more time with the GIs if they had a lot of GIs in those territories. Some territories we consolidated because we had three territories that each had six or ten gastroenterologists. That's just not enough for somebody to really focus 70% of their time. We consolidated those territories so that we could spend enough time in that market within the core customer base. That realignment was done third week of October. Now we have every rep in their new territory.
It takes a little bit of time for the reps to meet all of the customers that are now in their territory that they may not have been calling on to get to know the staff, to set up lunches, etc. We are now in that execution mode of working through that. We have a few open territories that we are in the process of filling.
Where do you think the level of awareness is among the GIs that you've not been calling on yet?
I think every GI knows about our product. Not every GI has adopted the product, but every gastroenterologist knows about our product.
Isn't that half the battle?
It's a significant part of the battle. Building awareness. It's interesting. Every gastroenterologist knows about this product. I think every gastroenterologist actually appreciates that this product is a meaningful improvement in gastroesophageal reflux therapy. What they don't all know is how much of an improvement is it? How much of a difference is it going to make for my patients? Because there's been a 30-year belief that PPIs are pretty good. How much better is this really? To answer that question, you have to get feedback from patients. The patients will provide you the feedback on how much better they feel. If you haven't prescribed it significantly, you just need a few patients' experience to start getting that feedback. I mean, I'll tell you as a patient on this drug, it's a night and day difference.
It is a dramatically different experience being on VOQUEZNA versus being on omeprazole. It just doesn't hurt. It just doesn't hurt anymore. Where omeprazole used to make it hurt less than when I didn't take it, now GERD just doesn't hurt. That is a transformative difference.
Wouldn't that be visible in the refill numbers? I mean.
Absolutely. Yeah. We're getting really nice persistence of our scripts.
What metrics are you actually measuring to see how well this strategy is working? Obviously, the refills are important. What other metrics should we be thinking about as you start this new strategy?
Right. I think there are several dimensions. There are metrics that you look at on the patient level, and there are metrics that you look at on the physician level. At the patient level, absolutely, persistence is a really important metric. We had seen that in the first year of therapy, patients would get six or seven refills, which means that they're getting really good persistence. We're now starting to track year two numbers. We don't have all of—I mean, we're only in year two of launch. We don't have year two numbers on a significant number of patients yet. As we get more of that experience, we're going to start getting visibility on how persistent is the drug in future periods. My expectation is patients are going to be on this drug for a really long time.
Because as a patient on this drug, it feels so much better. I'm never going back to a PPI. This is much better.
On this point, the refills, it's a rapid-acting drug, and it could be potentially used on demand. To what extent in the six to seven refills do you think it's being used on demand versus just consistent utilization every day?
We don't have that data specifically because nobody writes on-demand scripts. The product's not on label on demand. It's on label for everyday use. I have heard from some physicians that there are some patients who, once their GERD is under control, just don't want to take drugs every day. There are some patients who, if they're feeling fine, just don't take the pill. If two or three days later their heartburn comes back, they start taking it again.
It works rapidly.
It works really rapidly. There are clearly some patients that are doing that. That's not a thing we recommend. It's not an on-label indication for us. I've heard from some physicians that some of their patients are doing that. I think the vast majority of patients are taking the drug daily. Again, we've got a self-selected population of patients who are taking this drug. The self-selected population or a selected population of patients, these are the patients who had the most pain when they were talking to their primary care physician, who've been on PPIs for a long time and have been refractory to PPIs. They've got pretty severe GERD. By the time you get referred to a gastroenterologist, that patient is likely to be experiencing a fair degree of pain. They're highly motivated to get rid of that.
I think the significant majority of our patients are on daily therapy, but there are some clearly that are sort of altering that dosing schedule. A patient has the ability to do that, of course.
Metrics.
The metrics, though, for growth of physicians. I was talking about patient metrics earlier. The other half of it is physician growth metrics. When we think about physician growth metrics, we're really thinking about frequency of prescribing. This is where our new strategy is really going to get traction in terms of driving growth. We had been spending a lot of time trying to convert first scripts from new writers. That's a very inefficient process. It would take 10-20 calls at times to convert a first script from a new writer. It's a lot of sales calls for a relatively small script volume because you're trying to grow the prescriber base. Since we've got really high awareness and a really high writing percentage already within GI, we don't have to try to convert first script. We're just growing utilization.
That's reinforcement of a habit that's already starting. We think about tracking physicians based upon frequency of prescribing. How many weeks of the last quarter did that physician prescribe? Did they prescribe once or twice? Did they prescribe five or six times? Did they prescribe 10 times or more? Once we've got them writing 10 times or more, now how can we maximize script volume every quarter? How do we get to 20% or 30% of their PPI volume and potentially even more? That's reinforcing the conversation that we were having earlier about start with more severe patients, but then think about all of your erosive patients, and then think about your non-erosive patients, and then think about everybody who's in pain at night, everybody who's failed on BID omeprazole. How do we get all of those patients converted?
Okay. You can see granularly how many prescriptions physicians are writing on a physician's basis.
We track that on a per-physician basis. Every rep tracks that for their customers. Every regional manager tracks that for every one of their customers, for every one of the sales reps' customers. That is the coaching conversation that the regional managers are having with the reps is, "This guy is only writing two or three times in the last quarter. How do we start growing them? What are your strategies for that customer? This customer is writing at this level, but look, it is only 10% of their total volume. How do we grow them?" It is that conversation that is happening at a very granular level within each of the regions.
Okay. Sanjeev, I want to pull you into this conversation. How has Medicare access or your expansion of access to Medicare sort of impacted prescription volumes, but especially, let's just say, the net pricing of the product and how are you incorporating Blink into all of this? Blink is the patient assistance platform or patient fulfillment platform. Maybe you can talk about that.
Yeah, sure. Let me just kind of first clarify. The way we look at our business is one is the covered prescriptions. All the prescriptions that go through the reimbursement, that's the covered prescription that drives the revenue, right? The other prescription that you're talking about, Blink, that's the cash prescription. We turned on Medicare earlier in the year. What happens is if patients come to us and they get referred to Blink Pharmacy, and if they have the prescription, they're a covered patient, they go into the covered prescription. If they don't, then they get offered a $50 cash pay price, which gets reimbursed through $50. There are two different kinds of opportunities, and that's how we track them differently. The net price that you talk about, including gross to net, that's all dependent on the covered prescription.
That's only the covered prescription.
Covered prescription. The cash pay, which is covered under Blink as well, that's $50. That's got recorded at $50. That does not impact our gross to net in any meaningful way. It does not impact our revenue in any meaningful way.
Okay. What percentage of Medicare patients tend to be covered? Do most of them end up going to the cash pay market because they're not covered?
We haven't disclosed that. I would say there is a fair amount of patients that get covered in Medicare Part D that gets covered under covered. The others are not covered that gets covered under the cash prescription.
Okay. There are a portion that are covered and a portion that are not covered, just like in the retail market.
That's right.
Okay. All right. Okay. So that was just turned on recently. And so how has that increased the volumes? I mean, have you seen an impact there?
I mean, you see our both, we're kind of not managing the business by prescription covered and non-prescription. Clearly, the cash prescriptions have grown because we turned on Medicare. Last quarter, we saw the growth. We'll continue to see the growth, which is actually a good thing. Patients get to experience the drug. Doctors get to experience the drug. In any case, if we did not have that, those patients probably would not experience the drug at all. It's growing. It'll continue to grow.
It's a continual positive feedback loop for your business.
That's exactly it. It is not something that is driving our top line. It is not something that is driving our gross to net. It is something, an option that is available to patients and the doctors.
Okay. Can you talk about one more thing, which is what is the progression from being at a GI practice and then going organically into primary care? Do patients tend to go back to their GIs for the refills, or do they eventually just go to primary care over time?
Right.
I don't want to take either one. Sorry.
I think that's actually a really important point from two dimensions. One is if you think about total revenue relative to the 20 million scripts within GI practice, the patient doesn't stay in the GI practice on a chronic basis. The patient is being cared for primarily by their primary care physician. They're referred to a gastroenterologist for an assessment during that process. They're getting scoped. They're determining whether they have erosions. Do they have some other condition? Their treatment is being adjusted in the GI practice because they're trying to get their GERD under control. Once they're under control, they're going to stop seeing their gastroenterologist unless they've got some chronic condition that requires that otherwise. If it's just for chronicity of GERD, they're going to go back to their primary care physician.
One of the things that is naturally going to happen, or two things that are naturally going to happen, one is if we get to, say, 25% of the 20 million scripts in GI, so we're doing 5 million scripts coming out of the GI, a whole bunch of those patients are going back into primary care. There's just natural growth in the primary care script volume because you've got patients who are migrating back into that environment. While we're converting GI scripts, they're continuing to get scripts there. The other thing that happens associated with those patients going back is they're having a conversation with their primary care physician.
If a primary care physician is referring a patient to a GI, they come back, the next year in their annual visit, they're going to have notes saying, "Your heartburn was really severe last year, and I sent you over. I see that your scope was fine. How are you feeling these days?" I guarantee you every one of those conversations is going to be, "Oh my God, doc, I feel so much better on this new drug." That conversation is then going to trigger awareness within the primary care community that's going to flow into more primary care scripts.
They're going to say, "Oh my God, I'm not going to get a call back. I'm giving them a prescribing med.
Exactly. It's just so much easier to prescribe it. When you've heard from five or ten of your patients that this really is a meaningful life-transforming effect, that's not something you hear about most drugs. This drug has such a dramatic pain relief effect for patients that patients can't help but talk about it.
Yep. One more component to your label is going to be the erosive esophagitis. You want to be everywhere where the PPIs are. This is one of the areas where PPIs are pretty much first line. What's your strategy there? I think it might be two-part. That includes pediatric as well. Give us some information about that and what that might do to your, possibly to your exclusivity. Does that help at all?
Right. As we think about indications, we currently have two GERD indications, erosive esophagitis and non-erosive reflux. We are initiating a clinical trial in eosinophilic esophagitis. That.
I said erosive esophagitis. Sorry. Eosinophilic esophagitis.
That patient population, exactly as you said, right now, first-line therapy, even though they're off-label, first-line therapy is PPIs because you want to manage the damage that any acidity is doing to the esophagus. It appears to have some effect on suppressing the immunologic phenomenon that's happening in the esophagus as well. There are case reports from Japan that vonoprazan, which is the generic or the API for VOQUEZNA, has been used significantly in EOE patients in Japan as well with positive results. Based upon those case reports, we've initiated our phase two trial. The opportunity there is twofold. One, because PPIs are first-line therapy, if the study is successful, it could lead to a phase three program that would then lead to adoption in EOE patients, and that would be an incremental market opportunity.
The more significant potential economic opportunity may be for the six-month extension of exclusivity. We currently have exclusivity to May of 2032 under the GAIN Act extension of our NCE exclusivity. The way that that works is a generic can file in May of 2032. We do not expect introduction of any generic competition until 2033. If our phase two study in EOE is successful, we would expect to have a conversation with FDA about potentially getting a written request, which would then be a request that we do a trial that includes adolescent patients in phase three. That request for a pediatric study would be associated with an opportunity to get a six-month extension on our exclusivity period. That could extend exclusivity to late 2033 or even into 2034.
Okay. Perfect. And cash profitability in the 11 seconds that we're over.
Yes. Yes. It's all good. The cash usage, if you look at it, because the company's done a great job in disciplined expense management, actually came down. If you look at the numbers, $14 million in Q3 versus $63 million. If you look at the other metrics, we have top line of a little over $49 million. Cash operating expense was a little over $49 million. We are on our way. Our cash usage has come down significantly. As we continue to grow the top line and be disciplined in our expense management, we'll turn into operating profitability next year. Very confident about that.
Perfect. We're over time. So thank you very much.
Thank you for the invitation.
All right. Take care.
Thank you.