All right. I think we're ready to go. Welcome to the last presentation of the day at the Barclays Miami Healthcare Conference. My name is Jenna Davidoff. I'm one of the analysts on the specialty pharmaceuticals team here. On the stage with me, I have Phathom Pharmaceuticals. Representing the company is the CEO, Steven Basta, and the CFO, Sanjeev Narula. Thank you both for joining us.
Jenna, thanks for the invitation.
Let's start. There's a lot of things that has happened at the company over the past couple of years, and specifically, both of you are very new to the company. Sanjeev, even more recent. Starting with you, Steve, just talk us through what attracted you to this opportunity and maybe when you got on board, what were some of the biggest initiatives that you undertook from day one?
Thank you again for the invitation to join you today. I joined about a year ago, almost a year ago now. You know, first context of what attracted me to Phathom is this is an extraordinary product. You know, first principles, if we're delivering a really good therapy that improves quality of life for patients, that's why we're in the healthcare business, is to make a really big difference for patients. When I, you know, first looked at this and started to do a little bit of research in the gastroesophageal reflux space, what you very quickly realize is even though there have been therapies available for 30 years or more for these patients, there is still an enormous population of patients that is experiencing significant pain, significant symptoms that are inadequately treated with current therapies.
The opportunity to improve care for those patients is a fundamental improvement. What interested me first and foremost was it's a great therapy that is a best-in-class treatment opportunity for patients. We can improve the lives of millions of patients. Fundamentally, looking at the core of the business, revenue is growing really nicely. There was clear enthusiasm on the part of physicians to adopt the product. What we needed to do was bring a little bit more financial discipline to how we were launching the product so that we could reduce spend and get to profitability sooner and create really attractive returns for our investors, which enabled the success that we're having in terms of growing the product.
Awesome. In terms of some of these cost initiatives and your commercial strategy and just the trajectory of revenue through the year since you started, just talk about what those key efforts that you did, whether on the DTC or just maybe right-sizing the infrastructure and then layering on top of that, you've been able to maintain this growth rate, and it's worth commenting that if you think about Phathom's spending in the first half of the year, the run rate versus the second half of the year is materially different. I just wanted to emphasize a little bit all that has gone on and yet, you know, ending the year up a little bit above what even your guidance was. Just maybe walk us through that and before we focus on the exciting things in twenty-
Thank you. That's very helpful. 2025 really was a transformational year for us. When I came into the company, first thing I did was spend time with every group in the organization to understand what's working, what's not working, where are there opportunities in our business, where there are opportunities in our market, and where can we find greater focus and efficiency. What became exceedingly clear, even in the first few days, particularly with every conversation that I had with our sales team, and I met with each of the regional managers, met with each of the areas together. The consistency of commentary from the field was when we call on gastroenterologists, they really need our product. They want our product. They need it for their patients. It makes a big difference. They immediately see the logic.
When we call on primary care physicians, they're slower to adopt. They're not sure whether or not their patients need an improved therapy. There's a greater perception of immediacy of need in the GI community. When you actually looked at our numbers, that was reflected in our numbers. 30% of our sales calls at launch for the first year of launch were going into gastroenterology, but 70% of our prescriptions were coming out of gastroenterology.
Yeah.
We were getting, in essence, a 4x return, meaning 4x the efficiency for every sales call that was going into GI practices versus every sales call that was going into primary care. That created the opportunity for a pivot and a focus to gain much greater efficiency. What we were able to do was pivot the organization to focus on gastroenterology. It originally had been skewed much more toward a focus on primary care. We haven't eliminated primary care, but we're now getting close to 70% of our sales calls going into gastroenterology accounts, which is our more productive segment. Those sales calls and gastroenterologists are what drive growth. That is what is driving our business. We maintained strength of our sales organization.
We maintained the focus on how do we grow our gastroenterology practices and their writing habits and frequency of writing. We significantly reduced spend on numerous things that weren't driving revenue. We had started the DTC program. It was actually a pretty broad, expensive broadcast television DTC program. It was just too early. The call to action was, ask your doctor about VOQUEZNA.
Mm-hmm.
Most primary care physicians hadn't yet adopted the product.
Mm-hmm.
We were spending a significant amount of money trying to activate patients to go to primary care physicians who didn't yet know if they needed the product. Now, there will come a day when that makes sense.
Yeah.
We're in the future, there's much more broad uptake in primary care, and there's an opportunity for us to drive growth of the business. It was premature, so it was not providing significant return on investment. We were able to turn off significant spend that wasn't providing a positive ROI, double down on the key activity that was driving growth, and that's how we were able to deliver growth that exceeded even our internal plan.
Yeah.
Do so while cutting operating expenses by quite literally 50%.
Yeah.
From the first half of the year to the second half of the year, we reduced operating expenses by 50% on a quarterly basis.
In terms of kind of improving different aspects of the company, I wanted to turn this one to Sanjeev. Sanjeev joined even more recently from, you know, last I was working with you were at a very large pharmaceutical company, so you bring a lot of very good experience. You know, earlier this year there was the $130 million equity raise and, you know, people have been focused a little bit on the balance sheet and some of your debt obligations. I just wanted to give you a chance to talk about that, those proceeds and how you plan to deploy them and how that maybe increases your overall financial flexibility.
Thank you. Thank you, Jenna, for having me. Again, before I answer that, so what attracted me, you asked that to Steve. All the reasons that Steve mentioned about what attracted me. I think there was another point. The company was at an inflection point. It still is an inflection point where we're obviously helping a lot of patients, but we believe where the company could go with near-term line of sight to profitability, and I could feel that I could make an impact on the company. That's one of the reasons that attracted me to come here. To talk about your question about the capital raise.
That was a plan of a well-thought-out strategy that we worked on in terms of taking care of our capital structure and making a capital structure which is sustainable and cost-effective for the company for years to come. What we did, we did series of steps. We did a capital raise, which was obviously oversubscribed. What we've used those proceeds in a couple of ways. We've obviously strengthened the balance sheet, and we modified our term debt. The term debt which is now modified to $175 million, we were able to push back the maturity to 2029 and being able to pay that from the cash flow of the company. The third thing we did is we have enough cash now on the balance sheet to take care of all our debt obligations and investing back in the business.
We have now a very sustainable, cost-effective cap structure, which is gonna help us to focus on the business, invest in the business, and meet our obligations for all times to come.
Perfect. As a culmination of all of these efforts and initiatives, you guys have given, at least for the first time at Phathom, a full year outlook at the beginning of the year. I'll talk about it first, excluding the reclassification, just so we can look at it on an apples-to-apples basis. In 2025, you were able to generate an incremental $120 million in revenue. This year, excluding the reclassification, you're expected to add about $140 million at the midpoint. What is giving you that confidence? Just walk us through, like, your philosophy on your company's first guidance.
Well, I'll answer the first half of it, and then Sanjeev might add more in terms of sort of guidance philosophy. What gives us the confidence that we can drive better growth on an absolute basis in 2026 versus 2025 is exactly what we were talking about earlier in terms of the refocus. We know that every sales call that we make on a gastroenterologist is more productive in terms of driving new-to-brand conversions. That is, patients who are on a PPI, converting them to VOQUEZNA. We convert more patients per sales call in gastroenterology than we do per sales call in primary care.
Yeah.
If you just do the simple math, in the first half of last year, the majority of our sales calls were going into primary care, which means they were going into the less productive segment. We're now going to be allocating much more of our sales force time in gastroenterology into more productive calls, which should lead to more new-to-brand conversions and therefore more total prescription growth over the course of the year. Fundamentally, what drives our economics and our thinking about the absolute revenue growth is how many physicians are we able to grow in terms of their prescribing behavior and how many new-to-brand conversions do we drive? Because once we convert a patient, they tend to stay on the drug for a significant period of time. This drug has terrific persistence 'cause it fundamentally reduces pain.
Mm-hmm.
That motivates a patient to want to stay on the therapy for a significant period of time.
Absolutely.
It's that increased efficiency that drives our confidence in the growth numbers.
Jenna, the philosophy is very straightforward. How we measure internally ourself is what we give guidance externally. The guidance that is based on is achievable internal plan that you see that guidance is based on. It's not aggressive, it's not conservative. It is the plan that we believe and we're likely to achieve is how we look at it. We pride transparency for that on the online items that we provided that.
Perfect. A couple more on the guidance. I got a few questions about the reclassification. Can you just talk about that decision and just how that benefits you or just what the rationale and what the change that's being made, like how we should think about that flowing through the model.
It's no benefit to anybody.
Yeah.
Economically, it's got absolutely zero value. It is more a presentation change.
Yeah.
When you are a small company, you look at these things, all of our costs were going into gross to net line.
Yeah.
At the end of the year, we looked at that in the beginning of when we're making the budget, we realized certain costs, which are what I call it, fulfillment cost or a consignment fee. They're better classified in cost of goods sold.
Mm-hmm.
It's a line change from gross to net to cost of goods sold. Zero impact on the gross margin from an absolute perspective. What you see, our revenue will go up slightly.
Yeah.
Our COGS will go up slightly with no impact on gross margin, and we provided the transparency.
Yeah.
Does not benefit anybody. Economically, there's no change. There is no change in the fundamentals of the business. It's just better classification and a more appropriate classification for a company of our size as we go forward. We felt appropriate to do this in the beginning of the year, so we can provide transparency and the guidance which we already did.
Perfect. Then I just wanted to talk about the cadence a little bit because, you know, you aren't alone. Companies that are launching, still in the earlier phases of launches, you know, we get stuck in these weekly script numbers. You know, typically the first quarter is a little bit light, and then you also layer in some weather disruptions at multiple points. So I just think there was some elevated volatility around that. I think you guys did a great job addressing on the call, just talking about one Q. Then maybe can you also help us with the rest of the year? Like if are there any other seasonal quarters, pretty stable sequential increases or anything you'd be willing to share?
Actually, when we gave the guidance at the end of January, we didn't anticipate any storms or anything like that. What we told you is exactly the normal cadence of the business. The way the business operates for us is approximately 40% of our business top line revenue is in the first half, 60% in the second half, approximately. First half being the slowest because of all the reasons that large brands go through when there is an insurance reset, deductibles reset from that perspective. That's what we're seeing is playing out. What you're seeing in the scripts, we don't watch week to week, but they are in line with how our expectations are. Then clearly, as we go into March, April, May onward, we'll expect the uptick to happen. This is what happened last year.
This is what we expect to happen this year as well. Yeah.
You know, another important milestone that's happening this year is the transition to operating profitability. Steve, you kind of mentioned before just weighing, you know, you scaled back DTC. It's not ruled off the table in the future. The expense run rate was cut in half in the second half of the year. Just thinking about the revenue outlook, and you've talked about $1 billion in peak sales for this product, just how do you think about where you are in your expense journey and how does that fit in with the long-term growth and, you know, what would you expect, like, as you-
Let me take the first part.
Why don't you take the first part?
Let me take the first part, and then you can add into future part. If you think about last two quarters of last year, the company's expense base, because of all the reasons that Steve mentioned about it earlier, is give or take $50 million.
Yeah.
It came in better than what we had pre-announced, results 51-53 came in better. That's the going in run rate to run this business with approximately 300 people field force. That's kinda how it is. We've established that. What's gonna happen is in 2026, couple of things. It's gonna be slightly higher than $50 million for three reasons. One, we're hiring some field force. We hired at the end of quarter four. There is gonna be a full year impact of that. Second, you'll see EoE trial, phase 2 trial that we started in Q4. You're gonna see a full year impact of that. Third is some marketing programs that we are doing, we're experimenting, there is gonna be impact of that. But fundamentally, the expense level of the company is exactly gonna be what we laid out in our guidance.
The other thing we should keep in mind is we're not running to actually hold the expense level. We're running to make an optimum expense level. If we tomorrow feel there is need to invest, and that's gonna drive the top line, we will be absolutely happy to do that from that perspective, as long as it gives us the return.
Awesome. Yeah. It just seems like with the opportunity, you know, you have the core infrastructure that you need, and maybe over time, with different things like DTC, it might be more incremental depending on what you're seeing in the market, as opposed to some big material change with your commercial strategy.
Yeah, I think that's right. I think the incremental discipline that we're bringing to how we think about spend is we will make additional marketing investments when we identify that they are positive ROI investments.
Yeah.
Positive ROI within a defined timeframe. If we determine that there's a $3 million investment in marketing that's going to generate $6 million of incremental revenue, we'll do that the next day. That's a really straightforward conversation. Because not only do we generate that $6 million of revenue that year, but the patients that you've converted stay on therapy, and so it compounds over the course of multiple years. You get significant advantage from it. One of the things that we've built into our projection for this year is that we can pilot test several different ideas that enable us then to have much more predictability in thinking about our 2027 numbers and our 2028 numbers.
Yeah
To know what incremental investments are going to drive growth in future years. All of that work informs how we think about the next two, three, four years guidance, and that's built into our operating model for this year.
We have the financial flexibility to dose those things.
Yeah.
Without impacting, and that's what the cap structure provides us to do that.
Sticking on this $1 billion number, I also wanted you to frame, you know, the PPI and what some of those brands were at their peak because in the very beginning of this conversation you talked about the efficacy of.
Yep.
VOQUEZNA, and this is a very differentiated asset. At the time of approval, it had been a decade since anything new really came into this market.
I think actually several decades.
Yeah.
It's been a significant period of time.
Yeah.
You're quite right. If you think about the PPI market, at peak, the PPI market was about $12 billion a year. Now, that's at a much lower price point than today's price points in pharmaceuticals. This is an enormous market opportunity in terms of the patient population. There were 3 different PPIs simultaneously that were north of $3 billion in revenue. It's a significant market size. We're not going after the entire PPI market.
Yeah.
Our target population is the 30%-40% of patients who are on PPIs who are still in pain.
Mm-hmm.
That's a multi-billion dollar opportunity. One way that we frame this for, you know, to make it easy for investors to get their head wrapped around, how do we get to the first $1 billion in revenue? I think there's potentially a second $1 billion in revenue beyond GI when we go back into primary care. I'll talk to you about a little bit about that evolution. In GI alone, when I think about in GI, that is gastroenterologists and the APPs, the nurse practitioners and the PAs that practice out of gastroenterology practices. That universe represents 24,000 HCPs. Collectively, they write 20 million PPI scripts per year. If we can convert 20%-25% of those scripts, that's $1 billion of revenue.
Our opportunity to reach $1 billion of revenue just in prescriptions coming out of gastroenterology is can we convert 20%-25% of those prescriptions? We're never gonna convert 70% or 80%. That's unrealistic.
Mm-hmm.
Is it realistic for us to convert 20%? Our top 300 writers today in GI, the early adopters who picked up this product two years ago and have been growing steadily quarter-over-quarter, they're already at that 20% level. We know it's not five physicians or 10 physicians, it's 300 physicians who are already converting 20% of their PPI scripts. They are still growing. They're gonna get to 30% or 40% on their growth trajectory in future quarters. Can we expand that to a much broader population of the gastroenterology prescriber base to get to something that looks like 20% or 25%? That's 4-5 million prescriptions per year for VOQUEZNA. We are annualizing today in Q3 and Q4 at about 1 million prescriptions per year, annualizing at about a $250 million run rate.
4x that, 4-5 million scripts per year gets you to $1 billion in GI. Here's the second billion opportunity. Second billion comes from the fact that patients who are prescribed VOQUEZNA in the GI practice don't stay in the GI practice. A patient who's having significant pain from GERD and is inadequately treated with a PPI at a primary care practice gets sent to a GI to get scoped just to assess, do they have Barrett's? Do they have erosions?
Yeah.
Do they have something that needs more aggressive treatment? Many of those patients are gonna be converted to VOQUEZNA in order to manage their reflux. When they're adequately managed, when any erosions that they might have had have healed, they're going to be sent back to their primary care physician. Their future refills are gonna come from a primary care physician. That 20 million PPI prescription volume in GI, it's not a static group of patients. It's the patients that are cycling through GI practices, and then they cycle back to primary care, and the refills are coming out of primary care. That's also a way to educate primary care physicians about VOQUEZNA, make it much easier for them to write and convert additional patients, and that's the second $1 billion in revenue.
Just between the two indications that we focus on the most, the erosive and non-erosive. Like, how do you differentiate between the two in this growth trajectory? I'm just curious on the non-erosive side, are those patients, like if you know, moving to that $2 billion, are doctors in the primary care setting seeing more on the NERD side? Or just help us understand how these two indications are trending.
A primary care physician doesn't actually know whether their patient has erosions or not.
That's true. Yeah.
At the point that they're seeing a patient, they just know that a patient has GERD. They will try omeprazole first. They'll try esomeprazole. If they're not adequately treated with a PPI, they may double their dose. They may add an H2 blocker. If they're adequately treated, great. That's probably where that ends. If they're not adequately treated, they're still in pain, that's when they're gonna be sending the patient over to a gastroenterologist. We also would like to have the primary care physician think about that's when you ought to be switching them to VOQUEZNA at that point in time. That's not a conversation that's yet happening today.
Mm-hmm.
What's happening today is they get sent to a GI, and it's at the GI that we're converting most of our patients. In the future, as primary care physicians become more comfortable with it, you know, once you get out to 2027, 2028, 2029, and primary care physicians have a bolus of patients coming back telling them how much better they feel when they're on VOQUEZNA, we're gonna have an easier conversation converting primary care physicians to adopt much more broadly. The conversion today is happening specifically within GI. The early starting point tends to be for a GI to start this product on their patients with erosive esophagitis. They then grow into using it in non-erosive reflux patients. Because the easy compelling need is those patients with the greatest severity need the most aggressive treatment.
Once you start hearing from a patient how much better they feel.
Mm-hmm.
It's an easier conversation for us to open the conversation to docs. You know, your other patients that are still experiencing pain on a PPI, why aren't you offering VOQUEZNA to them? How do we broaden that thought process? As they get more comfortable with the product, they broaden the population of patients with which they use this product.
And-
That's the natural growth cycle.
This is a good thing, that we haven't touched on this yet, but I wanted to just ask one question on the LOE. You know, the way the LOE situation unfolded, everything kind of worked out in a best-case scenario with the 2032. Just my question with the NCE dates and the-
Yep.
GAIN Act exclusivity to 2032, just so investors have on their radar, 'cause at a certain point, a window opens up for ANDA filers.
Right.
When would you see that window opening for a potential ANDA filer?
The 2032 date is a very important date. That's actually when a first ANDA filing is permitted.
Mm-hmm.
That actually means that we're gonna have exclusivity into 2033 or 2034. Typical ANDA review timelines are 10 months on a first-round review, eight months for subsequent rounds. The earliest realistic date for a generic launch would be first half of 2033. It's very possible if the generic filings that go in, the ANDA filings that go in require two arounds or three rounds of review. You could easily be into 2034 before a generic launches.
Yeah.
When we think about our LOE date, that 2032 date is first filing.
Yeah.
We actually know that we've got exclusivity into 2033 and maybe 2034.
Awesome. Then I guess to close things out, I wanted to get your take on, you know, we mentioned the volatility early in the year. There's been some really positive changes in the past twelve months and starting 2026 off on a very strong foot with this guidance that did better than people were thinking, implying very strong growth with your more targeted commercial strategy. Just in your mind, what do you view as the most dislocated aspect of the story relative to the fundamentals you're seeing and how confident you are in the outlook versus maybe how the stock has been trading to start off this year?
I'm always cautious as a CEO.
Yeah.
In commenting on stock trading. Investors are allowed to make the decision as to when they wanna buy and when they wanna sell stocks. That's an investor call. Our obligation is to drive the business and get to profitability. I do think that there's an opportunity for us to create significant shareholder value over the coming years. I think that the transition to profitability is going to be a significant inflection point. The transition in 2027 to positive cash flow generation is going to be a significant value creation point. Us demonstrating the continuity of our growth trajectory that not only you know, there were questions last year was we were cutting expenses, would that harm our growth rate?
Mm-hmm.
I think we proved to folks that we could grow right through that. I think continuing that growth trajectory is going to imbue more confidence in the story and that should play out positively, but I will stop shy of predicting when stocks.
We are focused on execution.
Right.
Rest everything will sort itself out.
Awesome.
Right.
We'll leave it with that.
Terrific.
Thank you very much.
Thank you.
Thank you very much.