Check.
I wrote you a note, by the way.
Oh.
This is my note.
Yes.
I'm like, "Shit, you can ask your questions here, really.
No, no, no, no, no. I didn't want to sit here.
Oh, perfect. I can sit here. Whatever would work best for you guys.
Yeah. We're going to surround you. Okay, excellent. Well, thank you guys for joining. Super excited to have the Phathom management team. There's been a lot of changes at the company over the last year. Transformation in your OpEx profile, profitability path, all of that. So let's just start right there and maybe we'll pick it up from there.
Terrific. Well, thank you. It's a pleasure to be here, and as you said, we've had a significant number of changes. I joined, I guess it's almost nine months ago at this point.
Full term.
What was that?
Full term.
Full term, exactly. Somewhere along, exactly. So in the context of the strategy that we've laid out over the past eight or nine months, what we're doing is we have pivoted to a strategy that really focuses on sales calls and gastroenterologists as the core driver of our revenue. That has enabled us to bring down spending in areas that weren't significantly impacting revenue and has allowed us fundamentally to reduce our cash operating expenses by nearly 50%, but to maintain, in fact, increase the activity that I think is the core driver of revenue, which is sales call time in gastroenterology practices. And we can get into more granularity on what that looks like, but that's what's enabling our continued revenue growth, is that we are making even more calls on gastroenterologists than we were before, which is our most productive investment.
So the SG&A spend for the company was $360 million a year as of Q1, and now it's down to $180. So of that cut, was it entirely just G&A stuff? Nothing on the sales spend was cut?
Right. So the sales force size is unchanged.
Salesforce compensation is unchanged too?
Salesforce compensation is unchanged. The overall compensation level is unchanged. The way we do incentive comp is changed.
Okay. Are people making less money or no?
No, people are not making less money.
Okay.
No, in fact, our reps have an opportunity to make meaningfully more money than they had before. So we have increased the cap on incentive comp.
What about marketing spend, like advertising spend?
So marketing spend is one of the areas where we've had significant savings that the company had been making a very significant push into direct-to-consumer promotion, and that was tied to the overall strategy. The prior overall strategy before I joined was very much primary care physician-focused. There is a belief, if you look at the overall 100 million prescription market for acid management for PPIs, 80% of that is in primary care. So the natural answer is we need to be in primary care. But in fact, the 20% that is in gastroenterology, that's the low-hanging fruit opportunity because almost all of those patients are patients who have failed PPI therapy and are still in pain. So that is the immediately available opportunity for us.
So the prior strategy, which had been very much focused on how do we go after this broad PPI primary care opportunity, included direct-to-consumer promotion where we were running ads that basically had a call to action, "Ask your doctor for Voquezna." That wasn't working. And the reason it wasn't working is most primary care physicians are not yet writing scripts. So if we are running advertising that is sending a patient to a physician who's never written a script for our product, it doesn't work. If you contrast that with what is working, what is working really well for us is sales calls on gastroenterologists where they have a significant population of patients who are coming to them from primary care physicians already having been on a PPI, already having been on double-dose PPI, having failed that therapy and they're still in pain.
Those are exactly the patients that need to be switched. That's our target opportunity for Voquezna. That's sitting primarily in a GI practice. So it's fewer target points. With the same sales force size of 300, we can penetrate GIs with a frequency that enables more rapid adoption. We can do so very efficiently, very effectively, and they've got a high-need population. And we don't need to do the DTC advertising because we're not trying to convince a patient, an average GERD patient, to go and ask their physician for this product. We want the self-selected patient who's still in pain after having failed a PPI. That's the patient in a GI practice.
You don't think it will catch up at any point, the lack of DTC spend?
No. No.
Okay.
No. When you look at the numbers, and I spent a fair amount of time looking at this before making the decision, if you look at our ramp prior to DTC and then look at what happened when we turned on DTC, the line doesn't change.
The line doesn't change, but.
The line doesn't change at all.
You could argue it's going because there's all this. It's hard to correlate those two, but.
No, no, no. Well, so I don't want to argue this point ad nauseam, but here's the simple premise. We were devoting 70% of our sales force time to primary care physicians and driving an enormous direct-to-consumer campaign, and only 30% of our scripts were coming out of primary care.
Correct.
70% of our scripts were coming out of gastroenterology with only 30% of our sales force time being allocated to it, so there's a natural, more productive sector, and there's a natural, less productive sector today. Now, the world will change two or three years from now, and I think primary care will become more receptive to this product in the future, but today there is a natural category of physicians that is more receptive to our product. We see that in our own sales metrics. We could create much greater efficiency and a much faster path to profitability by focusing our resources, and our most valuable resource is, in fact, our sales force time. Focus our most valuable resource, more of it, on the most productive sector, and that's what's driving our continued growth.
Got it.
So we've had very significant growth because we're actually spending more time, not less time. We're spending more dollars and more time in the most productive segment that drives the majority of our growth.
Got it. So maybe let me just start to express the revenue numbers. You did about $50 million in Q3, $49.5 million. IQVIA TRX are up about 17%. So to me, that would imply you could get to high 50s versus consensus in the mid-50s. So that sounds like a nice setup heading into the actual readout. Anything on gross to net or something we should be aware of?
There should be no difference in gross to net on a quarter-over-quarter basis for 3Q.
So it sounds like you feel reasonably comfortable with where things are tracking.
So we don't provide updated guidance mid-quarter, and so I'll let you do the numbers on where the script trends are headed. The guidance we put out is the guidance we put out for this quarter, and then we'll see where we deliver the quarter. But certainly, I'm pleased with where the momentum is continuing on the IQVIA script trends, and I think that reflects the ongoing excellent work from the entire commercial organization. And it's really just solid execution, solid blocking and tackling of sales time with physicians to educate them on this product. That's what pays dividends. So if we spend more time with the physicians that have the greatest propensity to write, I'm pleased that we're seeing that in the IQVIA numbers.
Got it. So can I push this argument a step further? Let's say this quote I'm right on that it's tracking high 50s, and so you end the year at about $230 million run rate. And I'm looking at the consensus for next year, which is around $320 million or so. That sounds like an acceleration of year- over- year, you still need about 40% plus growth for the full year, and the quarter over quarter right now is 17% or so. So it sounds like you're tracking perhaps ahead of where the full year consensus is modeled in.
For, you mean for next year?
For next year.
We're currently.
The current Q over Q tracks.
I very much appreciate the math that you're driving towards in that process, and the logic makes a lot of sense, and we haven't put out guidance yet for next year. So I'll stop shy of actually indicating whether or not I think we're going to beat the consensus number for next year. That's next year. We'll get to that with the new guidance.
Got it. But could you maybe confirm perhaps that there are seasonality aspects, perhaps the one Q, the gross to net, and things like that?
Of course. Yeah, no.
So you can't just take the three Q and annualize it.
That's exactly right. You can't take three Q or four Q and annualize it for all four quarters because you do get seasonality. You don't get much growth in Q1. This year, Q1 was flat to Q4 of last year, and so you would expect that seasonality again to happen. And most of our growth comes in Qs two, three, and four. And that, I think, is going to be an expected trend year- over- year that Q1 is relatively flat, not predicting exactly what the number is, but then most of our growth comes in two, three, and four quarters.
Got it. JP, you want to follow up on?
Yeah. As coming into next year, do you expect any changes in the proportion of BlinkRx use? And sometimes you guys being very good at telling us how much of BlinkRx goes within Rx and how much goes on the cash pay. So what's your expectation there?
So when we refer to BlinkRx use, there are two different ways of interpreting the term BlinkRx in the context of our numbers. We actually want to have as many scripts as possible be sent to BlinkRx, but then the BlinkRx scripts get split into cash and covered. So when a script gets sent to BlinkRx and is covered, it shows up in the IQVIA numbers. So anyone who is tracking the IQVIA numbers, that's actually a pretty good proxy for our core revenue-generating metrics because the covered scripts that get reported through IQVIA are at a much higher price point than our cash scripts. So the gross to net that we report applies to the IQVIA covered script volume, and then the BlinkRx cash is all at $50. So it's at a much lower price point. So that's a small contributor to our revenue.
We're not actively trying to manage what that ratio is. What we're actively trying to do is grow all scripts. And we actually want to grow all scripts and have as many scripts as possible sent to Blink as an intermediary to drive coverage where we can get coverage. And again, that'll show up in the IQVIA numbers and where we can't get coverage to offer the patient cash. That does two things that I think are really beneficial for our business long term. And then third, which is just the right thing to do from a healthcare perspective. So let's start with the healthcare perspective. We're in the healthcare business of helping patients with gastroesophageal reflux. So if someone doesn't have insurance coverage, we want them to have access to the product.
So the cash pay offering enables us to do the right thing for patients and to give them access to the product. But then additionally, the two ways that it really helps our business long term is if we can make it as easy as possible for a physician to write a script, send it to Blink, and not have to worry about whether their patient's going to get coverage or not. Either way, their patient's going to get access to it. It reduces noise for the physicians that would come from, for example, sending a script to a retail pharmacy and having the patient show up, find out they don't have coverage, and they're hit with a $700 whack, and somebody says, "Well, like doc, I can't afford this." By sending it to Blink, you eliminate that.
So as a physician, you get the peace of mind that your patient's going to get access to the product. So that makes it easier for physicians to prescribe more often, that they don't have to worry about whether or not their patient's going to complain that they didn't get access. That's easier for that physician in that moment to make a decision to write a script. The other broader benefit that comes is every patient on Voquezna is an ambassador for Voquezna. Unlike if this were a cholesterol-lowering agent, you don't really get patient advocates for cholesterol-lowering agents. Like you don't feel anything. Nobody talks about, "Wow, my numbers dropped a little bit." Like nobody talks about it. Heartburn patients are in pain all the time.
When you switch to Voquezna and you are not in pain, you become an advocate for this product, particularly with your primary care physician. So that gets back to the whole conversation we were having about return on gastroenterology calls versus return on primary care physician calls. Right now, we're getting really good uptake in gastroenterology. All of those patients that we convert are going to go back to their primary care physician and tell their primary care physician about how good they feel.
Two years from now, we're going to see a lot of that same uptake and momentum coming in primary care because we'll be in an environment where every primary care physician has had five, 10, 15 patients come back saying, "Doc, oh my God, this was life transforming." And we literally have patients say on a routine basis, "This was life transforming." It's that big an impact for them. That's what's going to improve receptivity in the future. So that patient that we're not making much money on today, we're sort of break even on a cash pay basis. If they're advocating for their primary care physician to adopt, it's revenue in the future from their future referrals.
Excellent. So where we are now sort of in terms of the overall company and in terms of the launch, focusing even on GI specifically, how do you see the mix evolving on the erosive versus non-erosive? And do we even have an early sense on what the duration of therapy is tracking?
So one of the things that we see is we actually the majority of our scripts that go out are actually the 20 milligram higher dose script rather than the 10 milligram higher dose script. We don't see significant drop-off. Once a patient is on the 20 milligram dose, they stay on the 20 milligram dose. So that may suggest that we're treating more erosive than non-erosive patients in the early days, but it also may not suggest that. And here's why it's really difficult to track exactly what that mix is, because once a physician is comfortable prescribing 20 milligrams for their erosive esophagitis patients, if they have patients with severe heartburn, it's at the physician's discretion whether they choose to prescribe 20 milligrams or 10 milligrams.
So, for the self-selected population of patients in a GI practice, a patient who has been on double dose PPI BID, so they're taking 40 milligrams of Omeprazole twice a day, they're having severe enough heartburn, the physician might just choose to put them on 20 milligrams. Even if they have non-erosive reflux, just because they have such severe heartburn that they really want to get their acidity under control as much as possible. It's hard to say exactly what the mix of erosive versus non-erosive is in that regard. But I think it really reflects the severity of heartburn in the patients as well as the fact that a significant number of them have Erosive Esophagitis. The other dynamic on persistence, I mean, we're only in year two of the launch. We don't yet have two-, three-, four-year data on persistence.
What we saw in an early evaluation was, and we'd looked at this within the first year of launch, that in the first six months after a script, patients filled on average 3.3 refills. So that might extrapolate out to six or seven or six to eight script fills per year. We don't yet have the longevity of multiple years of data, although we're starting to look at year two data. And my personal expectation is we're actually going to get really good persistence. I mean, A, you see good persistence with the PPIs. We have a self-selected population that is a population of patients that were experiencing significant pain. That's why a patient lands in a GI practice if they have GERD, is because they're experiencing significant pain.
There's a very high motivation state if you find a drug that actually helps manage your pain and you've been in pain from heartburn for a significant period of time to stay on that drug. I expect we're going to see meaningful multi-year persistence, but we don't have the multi-year data yet because we're just in year two of launch.
Got it. So maybe in the last few seconds, if I may, you were approaching breakeven but not quite in 3Q with the revenue ramp modeled in for 2026. Clearly, there's an expectation now for profitability next year. Do you have certain EBITDA numbers or EPS numbers in mind as you're thinking about going forward now?
So we do have internal metrics on when we're going to get to operating profitability and by 2027 or so starting to look at more meaningful metrics that get even beyond all of our interest expense, et cetera, but we haven't provided that long-term visibility yet. But for 2026, what we've guided to is that we expect to convert over to showing positive operating profit at some point during 2026. We haven't gotten there yet, but we will get there at this trajectory. So the way to do that is we're going to be holding the line on expenses. So we've committed to dropping expenses to below $55 million for Q4. We're actually well below $55 million in Q3, but we're adding a clinical trial that'll add a little bit of expense in Q4.
Then I think that run rate goes into 2026 pretty stable with a little bit of increase. There's some modest additional investments that we've identified that we want to make in 2026, but it's not going to be a significant increase in OpEx. So that as revenue grows, you can see the revenue trajectory that would get us to operating at a positive operating profit, and that's going to come in 2026.
Got it. So as we map this out, so 2026 starts to be EBITDA positive for the first time. 2027 starts to be earnings positive, as you pointed out. I'm just trying to think.
Potentially.
Potentially.
We haven't forecasted 2027 yet.
Right. No, no. I see.
We actually haven't forecasted either, but there are good analysts. I mean, you've got estimates to go out for the next two years that get you there when you take a look at those numbers.
As I think through if there's like an incremental $100 million-$150 million in sales coming in over the next couple of years, is it unreasonable to think that there's at least somewhere between $3-$5 in earnings power at this company?
At some point in the future, that's not unrealistic at all.
Yeah. Makes sense. So $3-$5 in earnings power. Okay, great. Last point. At some point, obviously, IP runs out, the exclusivity, et cetera, but on the flip side, there was always this possibility of OTC conversion. Is that still something that's?
It is. I mean, this is a category where several of the PPIs have been very successful OTC drugs post-conversion. You could see that with Prilosec, with Nexium, with a number of products in the category. I expect that there's a robust OTC opportunity for us. We have not fully mapped that out yet. We're just starting the evaluation of what does life cycle management look like? What are opportunities to extend exclusivity? What happens post-loss of exclusivity? How do we pursue the OTC opportunity? We're starting that work, but it's still a few years away, so we've got a little bit of time to plan for that.
Excellent. Thank you so much for joining us. That was super helpful.
Real pleasure.