PHAT - NASDAQ

Hello, and welcome to the Phathom Pharmaceuticals Third Quarter 2024 Earnings Results Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's call 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 third 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 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. Terri?

Thank you, Eric, and thank you to all those joining us on today's call. I'm excited to provide an update on Phathom's recent progress. Successful commercial launch of VOQUE

Thanks, Terrie, and hello, everyone. I'd like to start by echoing Terrie's comments that we're pleased with our third quarter results. Following VOQUE

Thank you, Martin, and hello to everyone on the call. I'm pleased to share our third quarter 2024 financial results with you today. Before going into the numbers, I'd like to note two 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 early into 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. Turning to our results. During the third quarter ended September 30, 2024, we reported net revenues of $16.4 million which represents over 120% sequential quarter-over-quarter increase. In connection with the momentum from our non-Erosive GERD launch, we believe the label expansion also contributed to the revenue growth in the third quarter. While we are still assessing inventory stocking patterns, early data following the launch of non-Erosive GERD have remained largely consistent with previous quarters, signaling that wholesalers are holding about two weeks' worth of retail product on hand. Regarding gross to net, discount rates are once again in line with the expectations we set forth pre-launch. We will continue to monitor the evolution of our GTN discount, especially in the fourth quarter, which will be our first full quarter to include the impacts of non-Erosive GERD and commercial coverage above 80% for the entire quarter. For the quarter ended September 30, 2024, we reported gross profit of $14 million which equates to a gross margin of 86%, an increase of about 440 basis points over last quarter. Looking down the P&L to our operating expenses, we reported non-GAAP R&D spend of $7.4 million for the third quarter, which represents a 32% decrease compared to third quarter, 2023. This also reflects a 22% increase sequentially compared to last quarter. The decrease compared to Q3 2023 reflects the wind down of spend related to our completed Phase 3 non-Erosive daily dosing trial, while the sequential quarterly increase reflects standard business operations related to our ongoing regulatory and clinical activities. As for SG&A, we reported non-GAAP expenses of $71.8 million for the third quarter 2024. This represents an increase of $53.1 million relative to the same period in 2023, primarily driven by the build out of our commercial infrastructure in support of the VOQUE

Thank you, Molly, and thank you again to everyone joining us on today's call. We're very happy with our third quarter accomplishments. Over the last few months, we launched VOQUE

[Operator Instructions]. Our first question or comment comes from the line of Annabel Samimy from Stifel. Ms. Samimy, your line is open.

Hi, everyone. Thanks for taking my questions and congratulations on this great uptick. So just want to try to clarify a little bit. Your coverage uptake was really impressively rapid. And so to what extent is the increased prescriptions from the actual access, because clearly you had Blink versus the uptick that you might have expected from the non-Erosive GERD indications? In other words, is this the inflection that we should start seeing from this NERD indication that we have? And what percent of prescriptions is now 60 days?

Okay. Thanks, Annabel. It's Martin. First of all, thanks for recognizing the rapid coverage that we have. I think you heard us say before, it's a highlight for us, so we couldn't be happier about it. In terms of the growth we're seeing, I got to say it's a mixture of both. More scripts are getting through, which is exactly what we intended, but we also know that we're seeing increased demand tied to the launch of non-Erosive. And so why do we know that we're seeing that demand? Well, 10 milligrams, you just saw an immediate rise that continues to grow. Now 10 milligram can also be used for Erosive GERD, but clearly that's tied to non-Erosive. So it really is a mixture of the two. And then the last piece, I just want to make sure I have clarity. Did you say what percent are 60 days?

Yes. I thought, so I think one of the things that we noted is that some of the prescriptions are 60 day prescriptions. So do you see a change in that pattern?

Yes. No, we're not seeing a change. So yes, so scripts -- in general, most of the scripts are written for 30 days, but there are some that are either for 60 or maybe 90. A lot of that's dictated by different health plans and what they require and/or allow, but really it's driven mostly by the 30 days. But there is some -- that's a little bit more than that. Thanks.

Okay. So it's more driven by health plans as opposed to physicians feeling confident that, okay, you need to use this. We can prescribe this for two months as opposed to one.

Yes. It's a combination. I mean, if you were to go to your doctor today, it depends upon how they write refills. So that's step number one. And then step number two is what the plan allows.

Okay. Got it. And then one last question. Is there, I noticed that I thought you're going to initiate the as needed trial in the third quarter, and it looks like you're trying to do a little bit more analysis on the patterns of usage. Are you thinking that maybe you don't need that additional trial on an as needed basis or to get it on the label, because it's already being used that way?

Yes. Annabel, it's Terrie. I'll take that question. Yes, so since we had the non-Erosive indication approved, we've been evaluating real world utilization. And we really want to spend a couple of months just evaluating that data to ensure that we get good ROI on that trial. So over the next couple of months, we'll evaluate that. And then what we have seen is that, even at ACG, the Phase 2 on demand results were presented and the number of physician papers have been published that incorporates on demand into the recommendation. So we're hearing from physicians that they profile the rapid response. They really see it clinically. And so we just want to really evaluate that data before we proceed with that. So yes.

Okay. Great. Thank you so much. Congratulations again.

Thank you. Our next question or comment comes from the line of Paul Choi from Goldman Sachs. Mr. Choi, your line is now open.

Hi. Thank you and good morning. Thanks for taking our questions and congrats on the progress. My first question is for Molly. If you'd maybe just sort of comment on your latest thinking on gross to net given the expansion in insurance coverage and number of lives covered. Just I guess any uptick that you're thinking of going into 2025? Any color there would be helpful. And my second question maybe for Terrie is, can you update us on the status of your GAIN application for vonoprazan monotherapy? What are sort of the gating factors there or sort of ongoing discussion points? And I guess what gives you conviction that the moiety will be covered under a non-infectious disease application such as a NERD or Erosive GERD? Thank you very much.

Thanks, Paul. So sure as it relates to GTN, the range is coming -- the results are coming right in the range of what we expected pre-launch, which was 50% to 65% discount. So if you do the math, you can calculate that we're right within that range. Because we're going into holiday period with Q4, and then changing health plans going into next year, and as you pointed out with the inclusion of non-Erosive, we expect to still stay within that range, but we might see variability over the next couple of quarters. But, all that being said, we continue to expect to tighten that range and be right within where we expected.

And Paul, it's Terrie. I'll take your question regarding the Orange Book. So yes, we are engaged in discussions with FDA regarding the exclusivity that's reflected in the Orange Book. And ultimately, we continue to firmly believe the Orange Book listing for VOQUE

Great. Thank you very much.

Thank you. Our next question or comment comes from the line of Mr. Joseph Stringer from Needham & Company. Mr. Stringer, your line is open.

Hi, thanks for taking our questions. Can you comment on what you're seeing in terms of overall refill rates? And how does this compare to say what is typically seen for prescription PPIs?

Yes. So Joey, the refill rate -- so I don't have a specific rate to share with you. But what I will say and it kind of echoes my comments is we're seeing more physicians, right? And we've seen a really large increase in new writers, which just tells us that the business is really healthy and going in the right direction. So as you have new writers, they haven't had the opportunity to do the refills yet. That's all coming on board. But we do know for those that have started to write that they're writing more. And what we do track and we're looking at is the persistency. And when you take a look at that and looking at patients that started earlier on in the launch and they're going back month-after-month, we're seeing refill rates that are healthy and reflect, as you just said, what you would expect to see in the PPI prescription market. So we feel really good about where we are.

Great. Thank you very much.

Thank you. Our next question or comment comes from the line of Yatin Suneja from Guggenheim. Mr. Suneja, your line is open.

Hey, guys. Good morning. Can you hear me?

Yes. Very good. Congratulations on very solid quarter. Just a couple from me. Could you maybe talk about how we should think about duration of therapy? Are you able to monitor sort of compliance and any comments there? So that's one. Second is with regard to gross to net, I think if we assume 70:30 split between retail or IQVIA versus Blink, I think we get to about a gross to net discount at least on the retail of about 55%, 56%. Is that sort of -- is that math correct? Could you maybe talk about that and how it should evolve, specifically in Q1 of next year, which I think generally we're a little bit -- we do have that one-time issues there. And then finally, any thoughts on establishing or thinking about establishing guidance? Thank you.

So thanks, Yatin. I caught a couple of those and then I'll cover maybe not in the order that you had them and then turn it over to Molly. So first on the duration, I think this is a little bit of what I was speaking to, to Joey's question. So what we're tracking right now is persistency. And when patients get drug, how long are they on? And we're seeing that to be very consistent with what is happening with the PPI. So we've always said that the days of therapy are somewhere between that 140 and 160 on an annual basis, and we have no reason to believe right now that it's going to be less than that, but we continue to study it, as Terrie was mentioning earlier. And on the BLINK conversion, I think, was another part of your question, or I call it that as the percent of scripts that are going through BLINK. As was commented earlier, we moved from early on about 50% of the prescriptions, only being captured by IQVIA and the balance going through BlinkRx or cash. So for here, let's just call it cash. We've really progressed that over time exactly like we said we would is that, that was going to evolve. And as access came on board, we would see, yes, less utilization of the patient support of cash. And that's what's really had us move through sequential quarters of actually getting down to 30% cash and 70% going through traditional retail. So we're making that progress. It will continue to flow through as we move on. You do raise a good point though regarding Q1 next year. I think Molly was alluding to this a little bit earlier. Things change in Q1 for every company and every brand. You typically see a dip in prescriptions just early on, and then in the quarter that rebounds. So what I will say is, we expect that it would probably be something that follows trends in the industry. We obviously have the BlinkRx cash option for patients as they need it. And the reason the dip happens is because patients are either changing plans or their deductibles are resetting. So there's a little bit of burden for patients early on. But what I can tell you and I'll just leave it at this before I turn it over to Molly is that's common for every company, but what I do feel certain about is 2025 overall is going to be a big growth year for us.

Great. And as it relates to guidance, so yes, we continue to feel comfortable as it relates to full-year '24 consensus. We want to make sure that we're very confident in whatever guidance we put out as it relates to revenue. So we'll continue to monitor trends and make sure it's something when we do put out guidance that is something we can feel very comfortable with. So at this point for the rest of this year, we'll continue to reiterate that we feel comfortable with the current full-year 2024 consensus.

Got it. And any comment on the gross to net math that we did? Is that sort of in line?

Gross to net. Yes.

We are getting about 55%, 56% for retail.

Yes, gross to net, sure, yes. As the other question asked, we expect to continue to stay within the range that we provided pre-launch, which was at that 50% to 65% discount. And as you point out, we're right within that range. We expect some volatility going into the beginning of next year as we indicated, but I continue to believe we'll stay within that range.

Thank you.

Thank you. Our next question or comment comes from the line of Chase Knickerbocker from Craig-Hallum. Knickerbocker, your line is now open.

Good morning and congrats on the really impressive continued progress here. So I guess just first for me, maybe just starting on kind of primary care with obviously the NERD launch in the quarter. Do you feel like it's still very early days from a standpoint just kind of your awareness level within primary care? What are you seeing from a demand level there? And again, do you think it's very early days and you really haven't seen that boost from primary care yet? Would love your thoughts there, Martin.

Yes, Chase. So I'll tell you, we had always said that primary care was going to be a big player for non-Erosive and it's certainly coming true. You hit on three pieces. One is awareness. We have seen awareness grow amongst primary care. And if you think about it, as I mentioned earlier in my comments, when we launched, gastroenterologists knew about PCABs and they knew something was coming and that was less for primary care. So we've seen that general awareness of VOQUE

Great. And then maybe just a little bit, Martin, about how you're tracking success there with your sales reps, any kind of specific metrics that you're kind of comping them to as far as that awareness level with PCPs or just kind of like ordering primary care physicians within their territories? And then the last one for me to Molly, would just be kind of, I guess, thoughts on potential guidance for 2025. When that time comes kind of early next year, do you think that you guys will be in a position from a visibility perspective into your business that you'll be able to give kind of 2025 full-year guidance? Thank you.

So I'll go first, Chase. So what we're doing with the sales force is we're working with them, obviously, in providing direction and then taking their on the ground feedback as to what's happening. But what we focus on is who are they seeing, the frequency with which they're seeing them, and then following up with those physicians and are they getting the messages we intended for them to receive. And I can tell you across all of those metrics, we feel really good. And then we also just do general awareness tracking as most brands do. Our physicians or intended prescribers or targets aware of our brand. And as I mentioned earlier, that continues to increase including primary care. Molly?

Yes. So as it relates to guidance for '25, Chase, as you pointed out, we're seeing some really nice trends in the script data. We'll want to make sure that we've got really good visibility and confidence in whatever range and guidance we provide. But because we're still so early in the non-Erosive, it's only been on the market four months now. I would expect that we continue to want to see several more months of the trends and the impact of non-Erosive before we put out the guidance. But certainly it's something we're focused on and something we want to make sure that we provide a range that we can achieve once we do.

Great. Thanks everyone.

Thank you. [Operator Instructions]. Our next question or comment comes from the line of Umer Raffat from Evercore ISI. Your line is open.

Hi, good morning. This is Chen

Yes. So, Umer, I'll go first. In terms of the fill rate, yes, and you said it you called it out, right? So at this point, we've dropped tracking that as a key metric that we're reporting out on. But what I can tell you is that we had always intended that to be a very temporary, as we shared with you all, metric that we would be reporting because at the time, it was the right thing to do because we only had 38% commercial access. And now there were in excess of 80%. We feel the key metrics to look at are both the access, the growth in TRxs and the growth in prescribers. What I can tell you is that the physician prescribing continues to grow to levels that we feel really good about and are consistent with successful launches. So hopefully that answers that. And then the 10 milligram inflection, I'm not sure I got the entire question, but we definitely have seen upon approval of non-Erosive, an immediate uptake of the 10 milligram. I will remind you that 10 milligram can also be used for non-Erosive, but we also know that it's tied specifically to non-Erosive. And it's really, we believe making up the majority. We don't have a tieback specifically yet by ICD-10 codes, but we feel it's tied directly to non-Erosive. Terrie?

Yes. And then regarding the regulatory exclusivity, so the five year [indiscernible] was for the VOQUE

Okay. Thank you.

Thank you. Our last question comes from the line of Matthew Caufield from H.C. Wainwright. Mr. Caufield, your line is now open.

Hey, good morning guys. Can you hear me okay?

Yes.

Great. Thank you. And congrats on the commercial progress. Just one follow-up from us. So thinking more broadly, are there any observations from the H. pylori side of the label? Clearly, that's a smaller part of your focus understandably, but has there been any change in prescriber engagement versus standard of care? And even as a potential gateway to getting those same patients ultimately on to Erosive or non-Erosive prescriptions? Thanks a lot.

Yes. So, yes, so to answer your question on H. pylori, it's important part of our business, but clearly, we the GERD market is so large that we tend to focus on that. So, I would say that what really works for H. pylori kind of ties into your last part of your question is the benefits for GERD. It's that it really demonstrates that it's a potent acid suppressant and that when we speak to physicians, we tend to tie that message in. So, it has an ultimate payoff of the overall mechanism of action. So, that's how it's tied into non-Erosive. And there are some patients afterwards, when they are healed or their infection is eradicated, that might turn flip over to be a non-Erosive patient, if in fact they continue to have GERD. But in terms of physicians, we do see that there are physicians who are starting to adopt H. pylori as their preferred treatment, that they are using both the dual and the triple pack. So, I think it's made a welcome addition and I think it's the differentiation that VOQUE

Great. Very helpful, guys. Thank you and congrats again.