PHAT - NASDAQ

Hello, and welcome to Phathom Pharmaceuticals Second Quarter 2024 Earnings Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. With that, I would like to turn the conference over to Eric Sciorilli, Phathom's Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom's second quarter 2024 results. This morning's presentation will include remarks from Terrie Curran, our President and CEO; Martin Gilligan, our Chief Commercial Officer; and Molly Henderson, our Chief Financial Officer. Azmi Nabulsi, our Chief Operating Officer, will also be joining the team during the Q&A portion of today's call. Just a couple of logistical items before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website. Further, the recording of today's webcast can be found under the Events and Presentations section of our corporate website. Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom's control. Actual results can materially differ from the forward-looking statements and any such risks can materially adversely affect the business, the results of operations and the trading prices for Phathom's common stock. A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date and Phathom disclaims any obligation to update these statements. With that, I will now turn the call over to Terrie Curran, Phathom's President and CEO, to kick us off. Terrie?

Thank you, Eric, and thank you to all those joining us on today's call. Phathom was founded on our vision and a set of goals that from the start, many considered lofty. But over the last 5 years, we have checked one box after another. We've demonstrated differentiation versus a 30-year-old standard of care for an approval for broad labels, launched multiple products spanning 3 indications and secured favorable commercial coverage in a genericized market. To date, we've accomplished exactly what we set out to do. So whether you're new to the story or have followed us since the start, I encourage you to reflect on our track record as it sets the stage for how we intend to continue delivering on our goals for VOQUE

Thanks, Terrie, and hello, everyone. I'm excited to share further details on the great progress we've made over the last 3 months. The VOQUE

Thank you, Martin, and hello to everyone on the call. I'm happy to share our second quarter 2024 financial results with you today. We have made great strides in achieving regulatory commercial milestones, which have translated into a strong quarter for Phathom. Before going into the numbers, I'd like to note 2 items. First, during this call and similar to previous calls, we will not be providing financial guidance regarding projected revenues or earnings as we are still in the early quarters of launch. Additionally, I will be commenting on both GAAP and non-GAAP financial measures. Supporting schedules with detailed reconciliations between non-GAAP measures and their most directly comparable GAAP measures will be discussed later in my section and can be found in this morning's press release. Now turning to the numbers. For the second quarter 2024, we reported net revenues of $7.3 million, which represents a 283% sequential quarterly increase, driven primarily by the increase in field VOQUE

Thank you, Molly, and thank you again to everyone joining us on today's call. In wrapping up today's call, I want to reiterate 3 numbers: 122,000 prescriptions written; 60,000 prescriptions filled; 8,200 cumulative riders, all of which we achieved in just under 8 months since launch and mostly without broad access on an expanded label. And now having secured 77% commercial coverage, consider what VOQUE

[Operator Instructions] And our first question coming from the line of Annabel Samimy with Stifel.

Congratulations on all the progress. Just wanted to talk a little bit about the NERD expansion opportunity. I guess one of the things I'm curious is to what extent you need to really start tapping the primary care market to gain access to patients? Just from conversations we've had with GIs, the GIs are very familiar with the product, but PCPs are less familiar and that's where the drug they claim would be pretty revolutionary. So just trying to understand what your efforts are going to be over there. And then the second question I have is in terms of the access that you have for the formularies -- the access you have right now, do you have a sense of the various different types of plans and what percent are more open access plans versus very restricted plans? Or is the access that you have much broader than -- is it just broader, like can you just help us sort of qualify or characterize the formularies within the plans?

It's Martin. I got your question in 2 parts. First, I'll take the NERD expansion. And if I summarize it correctly, you're asking about tapping into primary care physicians. So I would agree with you that GIs have a much higher awareness of VOQUE

And our next question coming from the line of Joseph Stringer with Needham & Company.

You mentioned that you can leverage the existing sales force for the NERD launch here. I guess, when do you anticipate we'll see an impact in the IQVIA TRx data, number one? And then number two, maybe as a follow-up to the previous question, so on the NERD approval and the impact on insurance coverage. You mentioned, of course, 77% of commercial lives covered. What percentage of that is for the bottle? And you mentioned that you anticipate this coverage would carry over to the NERD indication. But I guess, is there any scenario in which that wouldn't be the case, meaning the coverage is, say, for Erosive GERD, but it would not be for NERD?

Sure, Joey. So first, I'll talk about the sales force. Yes, even if we say we're leveraging, we're actually utilizing and that was part of our vision and our plan. We set up the sales force knowing that non-erosive was coming. So our footprint has been in place and we've been calling on these positions. I think you probably saw specifically in the past 2 weeks, but really last week, a jump in our prescriptions which we believe is tied to -- to both ends of your question, right? So first, it's clearly a non-erosive launch, which is what we anticipated. We were going to start seeing a jump there. So that will continue to grow over time. But we've got all engines running. So we've got the DTC running. And then as we just announced the details of increasing our commercial coverage. So they all do kind of go together and they're working in tandem. In terms of the coverage, what we're communicating is that is the coverage for the bottle. You're correct. So 77% commercial coverage. And it's our belief that that coverage is also for coverage for the all indications. So all of our contracts where we have one step through PPI indicate VOQUE

And our next question coming from the line of Yatin Suneja with Guggenheim.

Congrats on a very good quarter. Just one -- a couple of questions for me. Number one on gross to net. Could you maybe help us understand where you are in terms of the net yield? I think my math suggests that it is maybe close to 40% net yield for the quarter. If you can confirm or deny how close we are to that number? And how will that evolve? Should we expect an improvement in the yield or because of the NERD indication, there should be sort of a reduction in that yield. So that's just the first question.

Sure. So yes, GTN is playing out also as we had expected going into launch. I think the numbers that you're estimating are right within the range that we estimated and not inconsistent with what we see as well. As far as going forward, with the improved access that we've recently won, we continue to expect to see a building on that GTN. But like I said, going into launch, we continue to believe it will be in that 50% to 65% discount on a steady-state basis.

And that's just the retail part, right? Not the -- or it's on a blend basically that you're [indiscernible]?

That's right. That's retail.

And then with regard to the NERD sort of uptake, I mean, could you maybe talk about like what will be an average duration of treatment for NERD? And how would that compare to EE? And also, if you can articulate what you are seeing in terms of the refill rate, are patients getting refilled and at what frequency?

So Yatin, I had commented earlier that the patient journey is very similar between erosive and a non-erosive patient. And it goes beyond similarities. Things are almost spot-on. What we know from PPI utilization is that, on average, on an annual basis, it's about 150 to 160 days for both indications. So again, it's very similar. So I think we've been communicating that 160-day per year number. And then in terms of refills, we're tracking exactly as you would expect for a successful launch. Right now we're at about 50% new prescriptions, 50% refills, but we expect a lot of fluctuation in that as we now enter non-erosive and new patients are starting to come on board as DTC is running. So there's going to be a lot of fluctuation in that in the coming months. But right now we're right on track where we should be for a successful launch.

And our next question is coming from the line Umer Raffat with Evercore ISI.

This is [indiscernible] on for Umer. I guess, firstly, on NERD launch, how many of the scripts are from the 2Q number? And secondly, on the inventory level, I think last quarter, you commented there about 2 to 3 weeks of your inventory, has number changed in the second quarter?

Yes. I think we caught a little bit of that. I think the last part was on inventory. So I'll cover that first and maybe if you can repeat the first question after that. But as it relates to inventory stocking, we're still early in launch, but what we're seeing is around 2 weeks, which is consistent with where we were at the end of the first quarter. So we're not seeing a significant impact on the revenues per se relative to stocking. It's more driven by demand. And then if you could repeat the first question, that would be helpful.

The first one is on NERD launch. How many of the scripts are we seeing from the number reported for the second quarter?

So Umer, if you are -- we had a little bit of a hard time hearing you. But if your question is about the number of scripts for the non-erosive launch, it's just really early to tell that. We're just weeks into this. I think what you can clearly say is some of the -- much of the growth that we've seen over the past couple of weeks is probably tied to that. Again, we also have the addition of access and consumer running. But we would expect going forward that those 3 things will really be key drivers, which is the approval of non-erosive, the growth in commercial access and then the running of DTC. But right now it's -- we wouldn't have the data to answer that question specifically.

Our next question coming from the line of Paul Choi with Goldman Sachs.

Congrats on all the progress. My first question is for Martin. And can you maybe just clarify or elaborate on your prioritization of the nurse practitioners and nursing assistants in the primary care channel just as a driver of the NERD indication an opportunity versus the GI specialists and just kind of how much of your sales force effort is going to be directed there? And my second question is for Molly, which is regarding the access to the additional capital under the Hercules agreement. Can you just remind me what the criteria and the triggers are for accessing it at this point? And sort of what -- how you're thinking about the planning and timing relative to your current burn rate?

I'll go first, Paul. Yes, you hit on the magic category of nurse practitioner or physician assistants. They play a really big role. And they played a big role in Erosive GERD, but specifically in non-erosive, they are the folks who are first-line diagnose and making treatment decisions. And in primary care, they'll play a really important role. So our sales force definitely spends time with them. Gastroenterologists will always remain to be important. They're high-volume physicians. They're influential in the category. But definitely, as you said, we've seen a growth amongst those NPs and PAs and we expect to see that going forward.

And then as it relates to, Paul, your question on the debt triggers. We expect that, I think, as I mentioned in my prepared remarks, there's $25 million remaining available this year under the next tranche that is unencumbered, meaning that we have free access to pull that down at our discretion. There's another $100 million that we have available under the facility that has 2 triggers next year and those are based upon revenue milestones. But as we continue to reiterate that we feel we have very good cash position and that we have runway through the end of 2026 and that does assume a drawdown of those debt facilities. And I think one other point I'll make relative to our spend is another comment in my prepared remarks mentioned our DTC spend. We know that's something that often fluctuates through launches, but we feel good with our current amount of spend. And as Martin has indicated, the resources we have in place really helped drive the non-erosive launch. We don't expect a significant increase in OpEx spend relative to our commercial activities.

And our next question coming from the line of Chase Knickerbocker with Craig-Hallum.

Congrats on the continued progress. Just first for me and I'm sorry, I joined late here and I might make you repeat yourself. But on the Caremark contract, can you just update me on a little bit more of the details there? Does this also include an OTC attestation for the step-through?

Yes. So in terms of Caremark, it's like the others that I described, it's one step through a PPI and it does not include that OTC attestation, but I just -- I want to flag something here. When we came out of the gates with Express Scripts, Cigna, that was beyond even our strategy or what we thought the best case could be. So I just caution you, don't take that as an opportunity loss, that's not with CVS Caremark. It's really that that was just above and beyond for the other. So we're right on strategy with that one step through a prescription PPI.

No, makes sense. And kind of asking the question in the light of that being kind of an upside case to your previous expectations of that 77% of covered lives now from commercial patients in the United States that we have under contract, what portion of that does include that OTC attestation? And then second, just kind of previously, we've discussed kind of Street expectations to kind of orient people on how you're thinking about the year. As we talk to GIs, which are still the majority of your writers here, at least to my knowledge, they definitely speak to kind of a multiple of prescriptions that they would expect for NERD patients relative to erosive, kind of speak to your confidence in kind of back half numbers, which, again, as it sits today, is a 50% increase kind of from Q2 to Q3 with kind of that in mind?

Yes. So a couple of parts to your question. In terms of what percent of the access is -- would also have that OTC attestation, I'm just going to say roughly and I'm going off memory, Chase, that out of the 115 million lives, about maybe 22 million of them fall under Express Scripts. So I think that answers the first part. In terms of the second part, I think your question was really about the fill rate. Is that correct, moving forward?

Yes. More so just on kind of the increased demand that we'll drive from NERD. I mean, in some of our checks, we hear kind of multiples of prescriptions that they'll write per NERD relative to erosive with your current writers and then kind of informing how you guys are thinking about kind of Street expectations in the second half, where you've kind of oriented people on before. It calls for a 50% increase sequentially into Q3 and just speak to your confidence in that number?

Yes. So I'll take the first part of that and then pass it off to Molly. So one of the things that we've been talking to all of you about for a number of years now is that non-erosive was really the biggest indication. It's 3x larger than erosive. So we really just opened up the entire GERD market and I think our opportunity there is the fact that we have a real differentiated product. It works all day and all night, but also it works very quickly, right? In our label, it talks about full effect at day 2, which is something that a PPI would not have and then also continues that same effect for both the 4-week period as well as the 20-week extension. So it's really got the sustainability. So it's differentiated. And I can tell you, going back to Paul's earlier question, all physicians recognize that. You're seeing the experience, but as Paul brought up those nurse practitioners and physician assistants, they are just welcoming this product. So we think that non-erosive is exactly as we set out to do. It's just a really large opportunity.

Yes. And as it relates to guidance, as you know, we're not providing specific guidance on a quarterly basis. But going into launch, we always knew the back half of 2024 was going to be significant between further access, DTC campaign up and running and non-erosive label. So those 3 items are really what's going to drive us on for the rest of this year. And we continue to reiterate that we feel comfortable with the full year consensus of where it is now.

And our last question coming from the line of Matthew Caufield with H.C. Wainwright.

Just quickly here. So for the prescription mix currently favoring GIs, is that more a factor of those patients already having progressed to seeing a GI specialist at least at this stage? Or are primary care physicians at all less receptive to prior authorizations and then patients are essentially being passed forward to GI specialists? Is there any further distinctions there kind of for that mix?

Yes. So actually, let me -- I might miss your different topics here, just to clarify. First of all, I think the high utilization of GI is obviously one specialist adopt product -- new products sooner, new mechanisms sooner. But also -- and I think I referenced this earlier, out of the gates, we really focus on the highest decile physicians for Erosive GERD and they were naturally gastroenterologists. So I think you should look at it more of where we put both our reach and our frequency in the early months of launch. Do not interpret that as primary care, do not see the opportunity or this differentiated product for primary care. And the other thing I'll just say is, just to clarify the PA for -- I'll say for that one step through a PPI, the only thing the physician really needs to do is identify that that patient has been on a PPI. So there's different levels of prior authorizations and many of them are actually picked right up at the pharmacy, so the physician has no action. So I'm not sure the primary care actually has that much work to do to get VOQUE