PHAT - NASDAQ

Hello, and welcome to the Phathom Pharmaceuticals Second Quarter 2025 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded. With that, I'd like to turn the call 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 2025 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Robert Breedlove, our VP of Finance and Principal Accounting Officer. 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 and the slides we'll be reviewing 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 may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices of 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 Steve Basta, Phathom’s President and CEO, to kick us off. Steve?

Thank you, Eric, and thank you to everyone joining us on the call today. I'm pleased to share our second quarter results, which reflect the first step in our mission to build a growth-oriented and profitable GI company. We believe this quarter marks a meaningful inflection point for Phathom. Let's begin with the key performance metrics. Launch through July 25, over 580,000 VOQUE

Thanks, Steve, and hello, everyone. I appreciate you joining us today. We are pleased with our results for the quarter and the progress we have made both in terms of our revenue growth and cost savings. This morning, I'll be walking through our financial results for the second quarter of 2025, and I'll be commenting on both GAAP and non-GAAP financial measures. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release and will also be discussed later in my remarks. As Steve mentioned, we reported net revenues of $39.5 million for Q2 2025, which represents a 39% increase compared to the prior quarter. This revenue growth was driven entirely by the increased adoption of VOQUE

Thank you, Robert, and thank you again to everyone for joining us today. As you've heard throughout the call, we are executing with discipline and momentum. VOQUE

[Operator Instructions] Our first question comes from Kristen Kluska with Cantor Fitzgerald.

Congrats on a great quarter and for your victory in the citizen petition. Good to put this behind you now. So, in terms of the ways that you're going to drive more depth and frequency of writing prescriptions, can you give us a little bit more color about how the sales force will target that? And how much of real-world practice right now is some of these physicians trying it in a few of their patients first, hearing how well it is and then recommending it to more patients under care?

Kristen, thanks so much for joining us, and thanks for starting us off with what I think is actually the core topic for the transition that we're making, which is the focus on gastroenterology and the focus on depth and frequency of writing. It's actually really sort of quite simple and straightforward how we are targeting the sales reps. We've realigned all of the sales territories as of early July. So Q3, all of our sales reps now have a new target list that is different from the target list on which they've been operating over the past several quarters. That drops out north of 20,000 primary care physicians that we were calling on that just hadn't converted and hadn't written. Now we've obviously got a significant number of primary care physicians who have converted, but we were spending a lot of time trying to drive first adoption from physicians that would then write slowly. What we're seeing instead as we look at our metrics is that there is a very strong correlation between call frequency and frequency of prescribing within the gastroenterology community. We had previously only been calling on sort of the top half of the gastroenterology community decile based upon prescribing. We've now added all gastroenterologists into the call pattern and into the target list for the sales reps. And we are driving multiple sales calls per month into the key gastroenterology accounts. That allows our sales team to spend enough time in the offices to get to know every prescriber in that office to build comfort, build awareness, build experience with the product through sampling and through education of physicians that allows for an evolution of writing habits to much higher frequency writing. Our internal metrics, when we look at what happens as we spend more time in physicians' offices clearly indicate that's a strategy that works. that the tactics of spending time, building those relationships, providing that education grows utilization. Even in our top gastroenterology accounts, we are still a moderate percentage of their overall GERD patient volume. There is still growth even among the top accounts. And then in the broader gastroenterology community where there's been some adoption, there isn't yet daily or weekly writing practice among all of those physicians, we're going to be able to achieve that by spending more time in those offices. So, it's time and relationships that drives depth and frequency. And the real-world impact on that is as physicians get more comfortable with the product, they prescribe it more often. As they prescribe it more often, it's a self-reinforcing positive psychology that emerges because they hear from their patients how much better they feel, and that creates an acceleration. We also think that there's going to be a bit of a broad community-based effect within gastroenterology that as we get more gastroenterologists to write, they talk to more of their colleagues who also have positive experiences, and that creates an uplift within that entire community.

Our next question comes from Joseph Stringer with Needham & Company.

Congrats on the quarter. Just given your 2025 revenue guide of $165 million to $175 million and your comments on anticipated acceleration of revenue over the next few quarters, given your focus and traction with GI specialists, is that acceleration already baked into the current revenue guide? Or do you think this could be a driver to the upside?

I think absolutely, long term, it's a driver to the upside. What is hard to predict is how quickly it comes into our revenue numbers. And what I'm describing there is just as we add a significant number of new gastroenterology targets to the sales force, they start making sales calls, but we know that it can, in some cases, take 7, 10, 12 sales calls before a physician starts writing. And then it takes another several calls for them to start changing habits and to grow their habits. Now that timeline is different for every physician. And for some of these physicians, they've already had a fair number of sales calls. So, what I expect that we're going to see is that it may take 1 or 2 or 3 quarters before the new targeting strategy really starts to show a consistent acceleration in growth in revenue. But I think, again, our own metrics would suggest that that is going to happen, but it doesn't happen with the first sales call. It happens with multiple repeated visits to the office that happen gradually over a period of months. So, in terms of our revenue guidance, I mean, the reason that we've provided guidance in a range that is above where analysts currently are, that's my expectation is that we're going to be in that $165 million to $175 million range. And I do believe that longer term, we're going to get acceleration, whether the acceleration comes within this time frame of the next 2 quarters or it's early in 2026, it's very hard for us to predict the date at which this new strategy really drives traction.

Our next question comes from Annabel Sammy with Stifel.

Thank you for the details on how you're targeting the GI docs. I guess my question is, and it makes total sense that you're focusing on the prescribers and at some point, that transitions into primary care writers. But I am curious, the gas -- the acid control market became blockbuster category, I believe, through the primary care market. So, do you have any sense at what is the tipping point between the frequency of writing of the gastros and when that starts tipping into the primary care, what does that transition to get prescribing started in the primary care setting? So, I guess that's the first question. At what point that sort of -- is there an inflection point that switches over to the primary care being the primary writers there. And maybe secondly, I did notice that you started this program to tap into the Medicare, Medicaid population. Is that going to, over time, impact your gross to nets more? How much is going to start having to go through Blink? I guess I'm trying to understand the longer-term dynamics of tapping into that market.

So in thinking about sort of the evolution from GI to primary care, in your question, there's almost a presumption that we have to be in primary care for this to be a blockbuster product. I don't actually think that's true. I think that there is well north of $1 billion revenue potential in GI alone. And that's also built on the precedent of the PPI experience that -- there are multiple PPIs who reached north of $1 billion of revenue in GI before they made a broadening push into primary care. So, there is sort of past history in the reflux market that adoption first in GI has been a well-worn strategy that multiple products have used, and that's driven the broader adoption. And the GI market is a meaningful market in and of itself. It's also where there is the greatest concentration of need for our product. So, if you think about the broad population of patients in a primary care office, the portion of patients who are experiencing the most discomfort from their heartburn, who are experiencing the most pain, get referred to GI. So, the distribution of patients in GI needing a more potent reflux treatment is higher and is going to drive faster acceleration. So, my expectation is this becomes a blockbuster product in GI alone. And then the PCP market is meaningfully additive. We have significant revenue potential and significant runway in GI. So, I don't perceive GI as a starting point and then it transitions to a primary focus on PCP. I view GI as a constant growth driver and then PCP to be meaningfully additive and expanding the market to add significant revenue on top of the GI opportunity. The second question regarding Medicare, we're really viewing Medicare as not the future revenue driver population because we still get a low percentage of Medicare patients that achieve coverage. The majority of Medicare scripts that go through end up being cash pay scripts that run through the Blink program. The intent of creating the cash pay alternative for those Medicare patients that don't have coverage is really around both supporting patients that there are patients who need our drug and this provides them access to it and supporting physicians to make it easier for a physician to prescribe the product and to be agnostic as to whether their patient is on commercial insurance or Medicare. We don't want the physician to have to think twice about, is my patient going to get this product covered? Do I want to prescribe it? We want them to just adopt the habit of prescribing. And for every patient that they perceive needs it, go ahead and prescribe it, go ahead and send it through to Blink. If it's a commercial patient and they get covered, then that's a covered script. And if it's a Medicare patient and they need the cash pay option, Blink can provide the cash pay option. So, it just makes it easier for an HCP to adopt the product and to do so broadly in their practice.

Our next question comes from Yatin Suneja with Guggenheim.

Congratulations, very nice quarter. And I must add impressive above consensus guide because it's really helpful for us in light of all the cost cutting that you're doing. So, the question from me is twofold. Number one, where exactly are you cutting costs? And how might that impact growth trajectory, if any? And then when you talk about the $55 million cash OpEx in 4Q, should that be considered a steady state as we go into 2026? Or maybe just help us understand how should we think about that? Because if that's the number, we think you could become profitable when the sales reach somewhere in the $70 million to $75 million range. So, I just wanted to check if we are in the right ballpark there.

Terrific. Yatin, thanks for the questions. I think those are going to be helpful in clarifying to a number of folks as they're thinking about modeling this for the future. So first, where we're cutting costs to get to the $60 million in Q3 and the $55 million in Q4 comes from several categories. The first and the biggest cost savings is actually eliminating our direct-to-consumer promotional program. That becomes a big line-item savings. And for context there on sort of how we're doing that and not impacting revenue is my own assessment of that program and our internal metrics would suggest that program was just run prematurely that we ran that program at a time when there is not yet broad adoption in the primary care community. And if a DTC program is to work, -- it is intended to activate patients to drive them to primary care, but we don't have enough primary care physicians who are yet writing scripts. And so, we were driving patients to physicians who don't know the drug and weren't writing and we just weren't getting a return on it. So, by reducing that spend, we're not expecting an adverse impact on revenue. We actually think that instead, we're going to see more uplift in revenue because of the retargeting strategy on GIs, which improves sales force productivity. So that's the first sort of most significant area. We did do a small restructuring, a modest sort of percentage of total headcount restructuring that will provide some savings as well. There are a significant number of savings that come from third-party vendor contracts that we are adjusting. And just across the board, we're creating fiscal discipline in how we are driving third-party spend. So, whether it's a marketing-related vendor that is developing marketing materials where we can do things more cost effectively using AI or using internal resources rather than using outside vendor, there's significant savings in that process. So just across the board in a number of areas, we've identified primarily third-party vendor costs that could be reduced and not adversely impact revenue. So we are seeing that already take effect. As Robert described, we effectively reduced costs by $18 million from Q1 to Q2 in terms of OpEx. Now that was offset by restructuring charges of $6 million that we took in, but you see already from Q1 to Q2, a significant operating reduction recognized. Those operating savings were implemented mid-quarter. So, we're already at that substantially toward that reduced run rate because we realized those cost savings for the second half of the quarter. We've got clear line of sight visibility to get to the $60 million in Q3 and to get to the $55 million target in Q4 with rigorous investment still in our core sales tactics strategy. The second element of your question on sort of how to think about the $55 million in Q4 and the go forward. We haven't yet forecasted or published a 2026 OpEx run rate. You should expect that our 2026 OpEx run rate will reflect the significant cost savings that we've had, but there may be some incremental investments that we choose to make in 2026. So we're not committing that we're going to hold exactly to the $55 million number. There could be some things that we choose to do that either are revenue-enhancing activities or the clinical trial activities. Obviously, we're starting our EoE study in Q4. That's built into the $55 million number. But that obviously will also have expenses into next year. So there may be some things that we add. The 2026 number might be a slightly higher run rate than that $55 million. We haven't communicated exactly what that magnitude is because we haven't built out our operating plan in that level of detail yet for 2026. But it will be substantially below where the company had been over past quarters.

Our next question comes from Paul Choi with Goldman Sachs.

Congratulations on all the progress. It's good to see you guys going back into the clinic as well for EoE. Can you maybe comment just a little bit on what physician feedback is in that sort of space between generic PPIs and other conventional therapies and the transition into biologics and just sort of what physicians would look for, for an intermediate therapy potentially such as vonoprazan there? And my second question is, can you maybe just sort of comment on how you're thinking about the timing for the pediatric study? It's been sort of something that's been in there in the background. I'm just wondering if that's something you would consider starting in 2026.

I'm sorry, which study was that you're asking about, Paul, the second one?

Pediatric to get the additional exclusivity period,

Yes. Got it. Okay. So, the -- so in thinking about the EoE opportunity, I think you've hit upon both elements of thinking strategically about the EoE opportunity. There's one element of it, which is the EoE market in and of itself represents an incremental revenue opportunity for us. There's a second element of it, which is that the EoE strategy potentially provides us a path to a written request and the pediatric exclusivity strategy. So, the first part of it in terms of the market opportunity, today, PPI therapy is first-line therapy in EoE patients. Even though there isn't a large clinical trial that has demonstrated efficacy, there are enough case reports or are enough published experience studies. There is enough experience on the part of physicians and mechanistic data that shows that modifying acid in the stomach has a beneficial impact on EoE, both the histology and the symptoms in that condition that standard PPI therapy has become standard of care first-line treatment. There is a meaningful opportunity to disrupt that and have vonoprazan potentially become the first-line treatment rather than PPIs with meaningful clinical data that represents a significant large data set that shows efficacy shows the magnitude of improvement. There are case reports from Japan that show significant improvement in histology with vonoprazan. That underlying data set supports the thesis that we are going to be able to have a fundamental positive impact on these patients through vonoprazan therapy. And there's a possibility that this is, as you described, an intermediate step that first-line therapy is PPIs and then patients graduate to vonoprazan. There's also a possibility that this becomes the first-line therapy and changes the nature of the treatment paradigm over time as we get clinical data that it actually gets adopted more broadly. But that's to be determined down the road as we get the clinical data from those studies. But that represents a meaningful upside revenue opportunity. The second half of the value proposition of EoE is, as you described, the pediatric exclusivity extension. This first trial is going to be in adults-only. So this is not going to provide the pediatric exclusivity extension, but it is intended to lead to an end of Phase II meeting and a conversation with FDA about a written request in our past conversations with FDA, they've indicated this could be a potential pediatric indication that would warrant that discussion. And so there -- we're making no commitments about it because we don't have a commitment from the FDA in this regard, but we have had conversations where there's a possibility of getting a request associated with the Phase III program for EoE that would provide that 6-month exclusivity extension. So that path will be determined at the end of this Phase II trial.

Our next question comes from Umer Raffat with Evercore ISI.

This is Jyhhaw on for Umer. Two questions, if I may. The first question is on ex U.S. strategy. I think the drug pricing letter was sent to a selected 17 companies, not the broad industry. And the scope looks like it's going to be limited within just Medicaid. So we don't know if this will change later, but at least for now, the impact on your business is likely very small. So how are you thinking about your strategy in the ex U.S. market? And secondly, when I was looking at some of the historic data presented at the medical conferences, there were about 22% patients cycle through 2 lines of PPI and another 14 to 17 cycle through more than 3 lines of PPI. I guess my question is, is this a result of the requirement on the step edits? Or is this just a pattern of how the doctors are prescribing VOQRE

So let's take each part of that separately. So the first part on the ex U.S. strategy, at the current time, we're just focused on the U.S. market. We are not spending a significant amount of time thinking through what our launch strategy would be in Europe or in Canada. We have rights to vonoprazan for 3 territories for the U.S., for Europe and Canada. All of our commercial activities are focused on the U.S., all of the sort of focus of how do we drive our business focused on U.S. The European and Canadian opportunities represent potential upside opportunities, but they also come with the complications of the current market that you described, which is all of the issues around most favorite nations, pricing, et cetera. And so we're just not, at this point, anticipating any near-term activities in terms of our own launch in the European market. We have, in the past, had conversations with potential European partners around a potential launch. We might elect to do that at some point in time, but that's not the current strategy, but always a possibility that we might explore. The sort of second half of your question around sort of whether patients fail 1 PPI, 2 PPIs or 3 PPIs prior to getting vonoprazan, that evolves over time as physicians get more and more comfortable with this therapy. So what you're seeing in terms of patients who have been on 2 PPIs or 3 PPIs, it's actually just a reflection of the fact that 30% to 40% of patients on PPI therapy are still experiencing pain. So it's interesting when we do market research and we look at what physicians report about who the patients are that are appropriate for vonoprazan, some of them indicate a patient who's failed 1 round of PPI therapy. Some indicate patients who failed 2 rounds of PPI therapy. Some indicate a patient who's on PPI therapy and also adjunct acids. Some indicate a patient who's on PPI therapy and now is double dosing. All of those are manifestations of exactly the same phenomenon, which is a patient who's been on PPI therapy and is still experiencing heartburn. That's our core patient. All of those strategies are different things that physicians have tried or have recommended to patients that they try to manage their ongoing heartburn, but the phenomenon is exactly the same, which is you've got a patient who's on a PPI who's not adequately resolving their heartburn and they need something more, they need something better. That's the patient we're going to try to switch. And it will just vary by physician practice as to whether they have been through 2 or 3 PPI therapies over the time. Over time, where I think that goes is it gravitates toward when you fail 1 PPI, why am I switching you from omeprazole to esomeprazole . That's not going to really do anything. If you're failing on omeprazole, you should be switching to our drug. That evolution and thinking is going to come over the course of the coming years of physician experience with this drug.

Our next question comes from Matthew Caufield with H.C. Wainwright.

Congrats on the progress. So it was helpful to see the 68% retail pharmacy filled prescriptions with the remainder coming through the BlinkRx cash pay. So I was wondering, at this point, what is your sense of the steady-state balance between those 2? And can you also comment on the current average BlinkRx cash pay amount?

So it's hard for us to predict what the future steady-state average will be. Obviously, we are seeing both channels growing -- and so retail -- and by the way, some of the retail filled scripts actually have gone through Blink and then went to retail pharmacy. So we're seeing both the covered retail scripts growing and the Blink cash pay scripts growing. We don't try to manage the business to manage what that ratio is. We try to grow all scripts and both channels will continue growing. And so our conversations with physicians are around driving prescription growth. And the guidance to a physician is if you just send it to Blink, it will be easy. If it's a commercial script and it gets covered, they'll help you with the PA, they'll run the process to try to make sure that this can run through smoothly. And so it streamlines the process for getting a patient the script if it gets covered, and it also streamlines the process for getting the patient the option to pay cash if it's not covered. And so that's a win-win for the physician and for the patient. So we're just trying to drive overall script volume, and we don't try to manage to a ratio. We just try to grow both. And we don't consciously say we're growing cash pay or we're growing prescription or growing covered, we are growing scripts and then allowing the best outcome for the patient and for insurance coverage in that process. So there's not an active attempt to try to adjust those. Was there a second half to your question that I missed in that process?

No, that was very helpful. Yes, the second part was just if there's a sense of the average BlinkRx cash pay amount that patients could be paying in that category.

So Blink, the standard cash pay amount that they pay is $50.

Got you. Okay.

So a patient will be offered a $25 co-pay if they get insurance coverage so that they have a lower co-pay if they're covered. But if their insurance plan is not covering the product, then they're offered the $50 cash pay option.