Hi. Good morning, everybody. This is Kristen Kluska at Cantor. Thanks so much for being here at day one of our healthcare conference. Very happy to have the Phathom Pharmaceuticals team with me today. We have Steve Basta, the President and CEO, and Sanjeev Narula, the Chief Financial and Business Officer. Thank you both so much for being here today.
Thank you for the invitation. It's a pleasure.
Okay, great. Maybe just to kick things off, if you could please provide us with a high-level overview of the company, and we'll dig into some of the specifics.
Well, for many of our investors who know the company, but for anyone who's new to Phathom, we are the leaders in introducing a new class of therapy for gastroesophageal reflux. We've launched the first available PCAB, potassium-competitive acid blocker, which is a new mechanism of action for inhibiting acid production and raising pH in the stomach. That's important for patients who have gastroesophageal reflux, so they're experiencing reflux pain. Obviously, the prior generation of therapies, the PPIs, were significantly effective for a significant number of patients. But for something on the order of 30%-40% of patients with reflux who have been on traditional proton pump inhibitor therapies, they're still experiencing significant pain. They need better acid suppression, better pH elevation. That's what our drug, VOQUEZNA, provides.
Our drug can raise pH in the stomach more effectively, can manage symptoms, reduce pain, improve healing in erosive esophagitis, versus the traditional therapies that had previously been available. We are treating that 30%-40% of gastroesophageal reflux patients that are still experiencing significant pain. At a high level, what that turns into in terms of economics, we are going to be delivering or we've guided to revenue this year of $310 million-$325 million. That is up substantially from $175 million last year. We're growing very nicely year-over-year. We just reported our first quarterly operating profit, excluding stock comp. That's a significant milestone internally in terms of the company's financial operations. We have really turned the corner financially to now generating cash, to now generating profits.
Obviously, not committing to generate cash every quarter because there are going to be some working capital needs, et cetera. But by next year, we will be generating positive cash flow for the year and on a really nice growth trajectory as an organization. Lots of commercial success, lots of commercial growth, and a product that makes a fundamental improvement in the lives of many patients.
The balance sheet is very strong with the cash raise that we did beginning of the year, and the cash on hand that we have, and the cash that we're going to be generating next year. Not only allows us to meet our obligation, we have flexibility to start investing in our business, which is what we plan to do starting next year onwards.
Congratulations on that milestone this past quarter.
Thank you.
Moving on to VOQUEZNA, specifically for the approved indications today. Despite guiding for over a 70% revenue growth this year, sometimes investors still question what the trajectory of VOQUEZNA could look like and peak sales potential. What do you think the Street is just missing or undervaluing at this time? 70% is not something to
Well-
take lightly.
Yeah. It's really not my place to figure out what the right stock price is or what the right valuation is. That's actually your job, not mine in this process.
Yeah.
My job is to figure out how do we grow this business, and how do we grow it as effectively as possible. We are very pleased with the fact that we're growing 70% year-over-year this year. What we've guided, in terms of peak revenue as a framework for investors to consider, is that we believe that there's an opportunity that's north of $1 billion in peak revenue, specifically in prescribing by gastroenterologists and the associated providers, so the nurses and PAs that are in gastroenterology practices. Then there's another $1 billion of potential revenue available to us that would come from primary care physicians, and that comes from several different sources. Just to sort of talk through how you get to both of those numbers.
The first $1 billion that we believe is possible within the gastroenterology community, best way to think about it is that the patients who are in gastroenterology offices today with gastroesophageal reflux got there because they were still having symptoms when they were in primary care. If you're adequately treated with a PPI, then you never talk to your primary care physician about it again. You're on omeprazole, your symptoms are managed. Nobody has that second conversation. When you have the second conversation is when you're still experiencing heartburn, and often you'll try a couple of PPIs. You might have doubled your dose with your primary care physician. If you're still having pain, you're being sent to a gastroenterologist. The patients who are in the GI clinics are failing predominantly to be adequately treated to have their symptoms resolved with primary care physician PPI prescriptions.
Those patients need a better acid suppression therapy. There are 20 million prescriptions for PPIs written by gastroenterologists, or for acid suppression therapies. If we can capture just 20%-30% of those, and again, most of those prescriptions are being written for patients who are still having symptoms despite being on prior therapy. If we can capture 20%-30% of that opportunity, that reflects about $1 billion in revenue. We think that there's north of $1 billion of revenue potential in GI because of the severity of the patients that are in those clinics. Those patients don't all stay in GI. They go back to their primary care physician after they stabilize. A lot of those patients are going to go back and educate primary care physicians about this drug. That's going to create a significant awareness within the primary care community.
It's going to drive refill prescriptions out of primary care that will be incremental to that GI opportunity. With the recent announcement that we made, that we're going to be starting an as-needed use trial, so that not only can you use this drug once daily, but we're going to demonstrate, because we showed this in our phase II study, that this drug works really well if you take it whenever you have intermittent heartburn episodes. That expands the population of patients available to us within primary care. Because a significant number of patients don't want to take meds daily, they just want to take them when they need them. We're going to have a product that solved that need as well. This product works in both settings, both daily to suppress acid, and whenever you have heartburn flares, it can work to suppress acid.
It solves a problem that primary care physicians need to solve for their patients. That's going to expand our opportunities out in primary care. I think both thinking about severe GERD patients and also thinking about patients that want to take the product on an as-needed basis become two significant growth opportunities in primary care. We think that's north of a second billion and for revenue.
But Kristen, I want to punctuate the 70% comment you made, just to sort of put some numbers around it so that people get it. Quarter two, which we closed, year-on-year, we were 88% growth. Between quarter one and quarter two, 27% growth. We added $16 million of revenue. First half this year versus first half of last year, we grew 90%. Second half of the year, if you take it, the midpoint of our revised guidance, we'll grow upwards of 70%. On a full year basis, at the midpoint, we will be growing close to 90%, 85%, 90%. So that's the level of growth we're talking about in revenue, which is significant. Clearly, though, Steve's point is the stock is highly undervalued considering what we're able to do.
All numbers I like to hear and going back to what my job is, I agree. That's great.
Fair enough.
You've been very clear that the desire to start this product interest is very strong. Steve, you and I saw this firsthand at the DDW conference this year.
Right.
But more work is still being done on the reimbursement side of things to convert to more scripts. What specifically has this entailed?
When we survey physicians to understand current perceptions of VOQUEZNA, particularly when we spend more time surveying gastroenterologists, but also this extends to primary care physicians who've written scripts for our product as well. Among gastroenterologists, 97% of gastroenterologists believe in the efficacy of VOQUEZNA. In fact, they generally believe VOQUEZNA is more efficacious at suppressing acid and raising pH than would be their other therapeutic alternatives, PPIs primarily. They already believe this is a more effective drug, and if you ask them, "If this were as easy to prescribe as a PPI, would you use this product broadly?" Some of them look at you almost incredulous like, "All of my patients need this drug. I'm using it all the time." What we referred to in our second quarter call was that we are hearing increasing noise from physicians about what we refer to as access friction.
That's not that access for this drug is actually hard, it just takes more work than it does to prescribe a PPI. They aren't confident always about whether or not their patient is actually going to be able to get the drug or what their patient's going to have to pay for the drug, and so that causes a bit of hesitation around when you prescribe. The solution to that is twofold. One is to actually improve the process for getting the drug or your patients to make it easier for patients, and two is to improve their perception and confidence that their patient is actually going to be able to get the drug because, in fact, it is relatively straightforward to get this drug for their patients.
The core answer to both of those is education of the physicians, and particularly education around the support that we are able to provide to them through BlinkRx. We have a partnership with BlinkRx that enables a prescription that goes to BlinkRx, and they really are sort of a facilitator that drives the process of getting this drug to the patients. BlinkRx will be able to support the office staff in making sure that the prior authorization gets submitted. The prior authorization gets submitted accurately relative to what that particular plan requires, whether it's a one-step edit, if you have to have failed one prior PPI, or a two-step process where you have to have failed two prior PPIs. What's the requirement of that plan? How do you make sure that the prior authorization that goes through, goes through accurately?
All of the key elements of it are captured, and that improves the probability that the patient is going to get coverage. If they get coverage, BlinkRx will apply our co-pay support automatically, so the patient will typically get a $25 out-of-pocket cost if they have commercial insurance and they're getting covered. North of 80% of commercial lives are covered for this drug. We've got good coverage. We just need to make sure that that process is facilitated so that a significant number of the patients are going through that process smoothly and you don't run into hiccups. Like if you show up to CVS to get your drug, but the prior authorization hasn't gone through yet, then you don't know what your cost is going to be.
Right.
The pharmacist doesn't know what your cost is going to be. Now the patient is uncertain, the physician is uncertain. That uncertainty creates hesitation. We want to create certainty and confidence in that process. Part of it is just streamlining the flow and educating the physicians around sending the scripts to BlinkRx, educating their staff around how to work with BlinkRx to optimize the process. Part of it is feeding back information to the physicians that provides them confidence. Here's what actually happened to your patients that went through BlinkRx. That data provides greater confidence that we'll induce greater prescribing. Once a physician is confident that their patient can get the drug, and we know that we've got good coverage, their confidence level in prescribing the drug goes up substantially, and the frequency by which they prescribe, we expect, will go up.
Okay. How does the blend of BlinkRx sales impact your top line? Do you encourage or discourage a certain amount that you want that blend to be?
I would like every physician to send most of their scripts to BlinkRx.
Okay.
The goal. Now, there are some exceptions to that in certain states for certain-
Yeah
government patients,
The economics are different, right?
Yeah.
A script which is covered, whether it goes through BlinkRx or goes through retail, we are ambivalent to that factor. In fact, BlinkRx has got a far more efficient process.
Right
We like it this way. Economically, it doesn't impact us in any way.
Right.
Negatively or positively.
Right. We know if more scripts get sent to BlinkRx, we will get a higher dispense rate.
Right.
If a physician sends 10 scripts to BlinkRx or 10 scripts to CVS down the street, more of the 10 patients that go to BlinkRx are actually going to get the drug. Their staff is going to get more help to make sure that the PAs go through, so it is going to be less work for their staff. That is going to create more satisfaction on the part of the physician. It is going to create an easier workflow for their team, which is going to impart more confidence, and they are more likely to prescribe it to the next 10 patients. The simple goal is let us drive more scripts where the physician is going to get the most support and where their patients are going to get the best outcome.
Because the other advantage BlinkRx provides is not only are they going to make the prior authorization process easier for the staff and more patients are going to get covered, if a patient doesn't get covered, they get offered the cash pay backup price. They might get a $25 co-pay if they get covered. If they don't get covered, then they will have the ability to get the product at $55. Either way, the patient can affordably get the product. That, again, imparts confidence to the physician. You can prescribe this and you know you have got a high probability your patient is going to get the drug.
Okay. Steve, you mentioned that converting 20%-30% of patients that GIs see could lead to $1 billion. Again, these are patients that, for the most part, have failed standard of care already, so they are desperate for new therapy options. I understand some of the doctors have already met or exceeded that threshold. What has really resonated or stood out with them, and how can you apply the learnings to the other physicians that haven't met that threshold yet?
One of the things that we see is within gastroenterology practices, there is a steady rise in their prescribing depth. As physicians get more confidence with the product, as they get more feedback from their patients about how much better they feel, they want to prescribe this drug to more of their patients. So they need to get the personal experience, they need to get the feedback from their patients about how much better this is. This is not a little bit better than a PPI. This feels dramatically different. For patients who are experiencing significant pain while still on a PPI, this is an opportunity for them to meaningfully improve their quality of life and to meaningfully reduce pain. For patients who have erosions or who have erosive esophagitis, we get a 93% healing rate.
There's a very strong success rate that those erosions can heal when you put a patient on VOQUEZNA. What grows a physician's prescribing behavior is as they prescribe the product, as they get feedback from their patients, as they get confidence in this process to be able to get the product to their patients, that confluence of factors increases their likelihood of prescribing deeper into their patient base. What we've seen is our top prescribers, our top several hundred prescribers, north of 30% of their new prescriptions for acid suppression therapies are going to VOQUEZNA. We want to get the broader GI community to that level, and that really is over the course of months, over the course of many quarters of reinforcement and education of the physician and the physician's own experience. Part of it is we educate the physician.
They have to see it in their own practice. They have to prescribe it to a number of patients and get the feedback from those patients, and then we have to reinforce the access confidence. It's really confidence in the drug, confidence this is going to make a difference for your patients, and confidence that you can get it for your patients. As we grow those three dimensions, physicians prescribe more.
Could you remind us, please, about the IP estate and when is the earliest you could expect a generic could launch, and how does this factor into your potential to reach over $1 billion in sales ultimately?
Our exclusivity is driven by our NCE exclusivity timeline, which was extended by virtue of application of the GAIN Act. The earliest that a generic filing can be made is 2032. The earliest we would expect a generic approval would be 2033. There are several scenarios that would extend that to the 2034, possibly even 2035 kind of timeline. But earliest generic entry would be in 2033. We're working on specific paths to extend that around our EOE trial and the potential for a six-month pediatric exclusivity extension. But that gives us a meaningful runway with VOQUEZNA. There is value beyond the EOE date as well. One of the things that is a hallmark of all of the acid suppression therapies that were in the prior generation is that there was significant OTC value post the loss of exclusivity on the Rx side.
This is a huge OTC category. There are 65 million patients with gastroesophageal reflux. It's just an enormous multi-billion dollar opportunity, not for a specific single drug, but there are several drugs that were many hundreds of millions of dollars on the OTC basis. There is durable revenue potential beyond that. But through 2033 or 2034, we will be in the RX space with a significant runway. How that relates to the billion-dollar opportunity, we're already north of $300 million revenue run rate this year, so we're growing very nicely. I think we're on a trajectory to get to well north of a billion dollars and potentially to that $2 billion number before our LOE date.
Okay. When you came into this position at Phathom, you really looked very carefully at the sales force, and you made a lot of changes, again, focusing on this GI practice. What are some of the ways, real-time, you're measuring success beyond just looking at revenues and scripts?
We are looking at prescribing depth as a key parameter, and that is the frequency that each physician is writing prescriptions on a six-week basis or on a 13-week basis, and looking at growth over that period of time on a prescriber-by-prescriber basis and practice-by-practice basis. Our core focus today isn't breadth of new prescribers. We've got most gastroenterologists who've already written scripts. The core is, what you were describing, how do you get to 30% of their patients? How do you get physicians to think about this product for 30% or more of their gastroesophageal reflux patients? How do we get them to think much more broadly within their erosive esophagitis patient base that we've got really strong healing data in erosive esophagitis? If you've got a patient who's been on a PPI, when you scope them, they have erosions.
That PPI was not adequate to prevent those erosions. You need better acid suppression in order to heal those erosions. If we just win that population of patients, that's what represents significant growth over the next couple of years. There's an opportunity in multiple populations of severe GERD patients to think about using this product and have it be a fundamental improvement in treatment.
What are the key arguments investors should be both cognizant of and supportive of as it relates to upcoming competition in the PCAB space?
Obviously, the key competitive framework that investors are paying attention to in this space is there is a second PCAB that has been filed for approval. They have a PDUFA date in Q1 of next year, so it is reasonable to expect that a second product will launch in 2027. We looked at the data. They presented their data from the first of their two phase III studies, which was their erosive esophagitis trial. That data shows good healing rates, but somewhat lower numerically than our healing rates in erosive esophagitis. In our trial, in our phase III erosive esophagitis trial, 93% of erosive esophagitis patients healed within eight weeks. In the competitive PCAB trial, it was around 85% of patients that healed. We believe we have got the most potent product for healing patients with erosive esophagitis, which are the more severe GERD patients.
I think that is a really good indicator of how strong our drug is. We have already got an established three-year commercial lead in this space. I think we are going to have, for a long period of time, the lead product in this category on a durable basis. I also think that there is an advantage to a second product launching, in that a second product launching in a category changes physician perceptions from, "This is a product that I need to think about relative to other products" to, "This is now the new class of drugs. This is now the new category, and I need to think about when do I migrate my patients from the older class of drugs to the new class of drugs." If you do that, the lead product in the category captures the majority of the uplift in that process.
We think we are going to be the beneficiaries of that uplift as a second product enters this class. We think we have got data that suggests that we should remain the leading product for a durable future in this space because we have got the best healing rates in the industry.
Okay. Thank you. Maybe moving on to VOQUEZNA beyond its approved
Right
products. You've recently announced plans to look at the as-needed population. How large do you think this market is, and what makes their treatment paradigms different today with standard of care PPIs?
If you think about the two prior generation of drugs, you have PPIs which don't have fast onset of action. A PPI really only works if you're taking it daily. There are some patients who try to take it as needed. It doesn't work as well taking it as needed, because it just doesn't work as quickly. And it's food timing dependent in how it's dosed. It just doesn't work as an optimal therapy on an as-needed basis. Now, you can certainly use antacids, or you could use H2 blockers, which work faster on an as-needed basis, but they don't provide 24 hours of relief.
Patients who have significant heartburn, but it's intermittent, it's not every day, are asking their physicians regularly, and this is not a few patients, this is a significant volume of patients among the 65 million patients with GERD, who have frequent enough heartburn that they really do need to manage it, but it's not all the time. It's not daily. And those patients are regularly asking their physicians, we hear this reported by physicians anecdotally in conversations with physicians on a regular basis, but also in our market research. It tests with both physicians and with patients as a significant desired opportunity is: Is there a drug that I can just take when I have heartburn episodes so that I don't have to take it every day? That question is being asked by patients of their physicians every day.
We are going to provide the first product that can be taken as needed when you're having a heartburn episode and will provide 24 hours of benefit. It's the only product in the category that's going to be able to make both of those statements. That's not true of any of the short-term antacid relief kinds of things. If you take TUMS, works, but it's not going to work for 24 hours. It's going to work for 30 minutes.
Yeah.
If you take our product, we're going to provide both rapid relief and long-term, durable 24 hours of benefit so that you can be confident that your heartburn is going to be managed well. That's going to provide an opportunity for physicians to address a need that patients are asking for on a regular basis. That's a significant incremental opportunity to whom we're treating today. The patients we're treating today are the patients that have the most severe heartburn, who have tried multiple therapies and failed. This is a different population. This is a population that has more intermittent heartburn. It broadens our population opportunity, and it broadens our revenue base substantially to add the as-needed indication.
This becomes a base for an OTC product post the LOE.
That's right.
That's, again, a substantial opportunity that you've seen in the prior PPIs. Have they gone OTC? Those products are still
Yeah
multi-hundred million dollars of product.
Right. I think that's a really important point that Sanjeev Narula raises, which is in the OTC market, there is no product that meets both of these needs. There's no single product that you can take that's going to provide 24 hours of benefit, and you can take it whenever you have a heartburn episode. We will have, not only in the prescription space, a product that meets both of those needs, but when you think about long-term opportunity, we'll switch to the OTC space come 2033 or 2034. That opportunity is a significant differentiator.
Okay, so even theoretically with the generic entry, potentially in 2033 or beyond, the story doesn't end here.
That's right.
Okay.
That's right.
Okay. The story also doesn't end because you're looking at other indications, EoE, an indication that I think is just dramatically increasing. I think we're getting smarter about identifying these people, but it is still a pretty poorly understood condition, in my opinion. So why do you believe there's potential here, and what are the requirements of this study that could get additional extension of exclusivity?
Right. So that describes very nicely that there are two different dimensions of value that the EoE-
Yeah
opportunity provides for us. Let's first talk about incremental market opportunity, and then we'll talk about the extension of exclusivity. Incremental market opportunity, you're absolutely right. There are already half a million patients or more diagnosed with Eosinophilic Esophagitis, but the diagnosis rates are rising substantially given that there are now effective therapies. dupilumab was approved for Eosinophilic Esophagitis. There's an effective therapy, but it requires a diagnosis for Eosinophilic Esophagitis, so there is now a substantially broader screening activity among gastroenterologists. When they are doing an EGD, they will naturally be looking for any signs of Eosinophilic Esophagitis. The diagnosis rate is going to be rising. The population is going to be growing. First-line therapy today for Eosinophilic Esophagitis is PPIs. But the PPIs aren't actually indicated for Eosinophilic Esophagitis. We will have, if our trials are successful, our phase II trial's ongoing.
If that's successful and our phase III program is successful, we would have the first acid suppression therapy that is on label for Eosinophilic Esophagitis, but acid suppression therapies today are already first-line therapy for this category. There's an opportunity to either substitute VOQUEZNA for the PPIs as first-line therapy or to be the approved second-line therapy whenever a patient is not adequately managed on a PPI, and which positioning we're going to get is going to depend on payer conversations as we advance through our program. Either way, those are significant economic opportunities in a rapidly growing population, as diagnosis rates for Eosinophilic Esophagitis is rising. That becomes an incremental revenue opportunity and incremental market expansion opportunity. It also changes share of mind with gastroenterologists.
As deep as we're going in the GERD market, if there's a second use for this product, it's a new conversation for the sales rep to be having with every GI. It's going to broaden their confidence in their prescribing base. The other economic driver for us is the six-month extension. In our conversations with FDA, for us to get a six-month pediatric extension, if our Eosinophilic Esophagitis trial is positive, we'll have a conversation with FDA about receiving a written request. That would be a request to include adolescent patients or pediatric patients in our Eosinophilic Esophagitis phase III trials. If we do that and complete the other studies required in our pediatric development program with FDA, those two activities would qualify us for the six-month pediatric exclusivity extension.
For a $2 billion drug at peak, as we were talking earlier, that's another $1 billion of revenue and many hundreds of millions of free cash flow. It's a significant increase in valuation to extend the LOE date by another six months.
So maybe just to close, it's clear that the chapter doesn't end with VOQUEZNA LOE because of this opportunity to be OTC.
Right.
But maybe beyond this, how do you envision the next chapter of Phathom?
We're starting to look right now for other products that we can bring in, not necessarily commercial products today. They could be development stage products. They could be commercial products, near term or currently. But more of the things that we're looking at are phase II sort of stage. They've got proof of concept in man. It's clear that they've got efficacy, and they've got a development timeline that would enable us to launch them by 2031, 2032, 2033. So the key would be to bring in either one or two or multiple assets that we could develop using some of the cash flow that we're going to be generating from VOQUEZNA because obviously by next year we go cash flow positive.
That cash flow increases every year, so we've got the ability to fund additional clinical trials to launch other products, and we would want to launch additional products by 2031, 2032. That leverages our commercial organization. We can bring other products that gastroenterologists would be prescribing. We leverage all of the relationships we've built with gastroenterologists. Our entire sales organization has deep relationships in those offices. That allows us to very efficiently launch a portfolio of future products. We're right now looking for those products.
Thank you so much, Steve and Sanjeev. Really appreciate you being here.
Thank you, Kristen, thank you.
Thank you so much for the invitation.
Thank you very much. Thank you for all the work.