PHAT - NASDAQ

Hello, and welcome to the Phathom Pharmaceuticals' Third Quarter 2025 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded. With that, I would 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 third quarter 2025 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Sanjeev Narula, our Chief Financial and Business Officer. Robert Breedlove, our Principal Accounting Officer, will be joining for the Q&A portion of today's call. A couple of notes 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 on our corporate website under the Events and Presentations section. 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 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. Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically, in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes noncash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release. 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 today. I'll start with an overview of our financial and commercial highlights this quarter and then provide commentary on our shift to a greater gastroenterology focus and our current operating priorities. First, I wish to welcome 2 new Phathom leadership team members. Joining me on the call today is Sanjeev Narula, our new Chief Financial and Business Officer. Sanjeev brings to Phathom a proven track record of building successful profitable pharmaceutical businesses of significant scale. His experience and insights will be important to driving our growth. I'm delighted to have Sanjeev as a partner in building Phathom. I'm also pleased to announce that Nancy Phelan has recently joined Phathom as our new SVP of Marketing and Analytics. Nancy brings a wealth of experience in technology-driven marketing, tactical implementations of marketing to integrate with sales activities and both HCP and consumer promotion in the pharmaceutical industry. Nancy has successfully led marketing for several successful drugs. We have a solid commercial and financial team in place. Starting today with our financial highlights for Q3. Really pleased to report at the end of Q3, we've delivered 25% growth this quarter while reducing operating expenses by 43% and therefore significantly reducing our cash usage. We beat expectations on the revenue and on the operating expenses, and we're executing effectively throughout the organization on the plan that we set out 6 months ago. Net revenue for Q3 was $49.5 million, which represents 25% growth quarter-over-quarter. This is ahead of expectations of approximately $47 million and is in line with our revenue guidance for the year. As a result of the strength this quarter, we are narrowing our full year guidance to the top half of the previously communicated range. While growing revenue significantly, our cash operating expenses were $49.3 million this quarter, which is meaningfully better than our previously stated target of getting below $60 million in cash OpEx for Q3. You may recall in May, we set a target for the year of bringing our operating expenses on a quarterly basis below $55 million by Q4 of 2025. I'm pleased to report that we've achieved that milestone early in Q3. We've cut our cash OpEx by nearly 50% since Q1 while growing revenues ahead of expectations. We're quite pleased with the performance that the entire team has delivered through the course of the past 6 months. Our cash usage was less than $15 million for Q3. That's down 77% versus the Q2 cash usage number. One note for Q4. Our operating expenses for Q4 will be somewhat higher than in Q3, primarily due to the start of the EoE Phase II trial. But we do still expect to operate at below $55 million cash OpEx as we've previously stated, even with the additional clinical trial expense. My sincere thanks go to the entire Phathom team for their dedicated efforts to deliver both our continued revenue growth and our operating expense discipline throughout this period. I'm most impressed every day by the extraordinary talent and dedication of our team. A few notes on commercial performance for the quarter that might be helpful for folks. Launch-to-date, we have 790,000 filled prescriptions as of October 17. That's approximately 36% growth since our Q2 call. In Q3, we had 221,000 filled prescriptions. Of these 221,000 prescriptions in Q3, 144,000 were covered scripts, which grew approximately 23% quarter-over-quarter. For everyone who looks at our financials, recall this is the growth category that drives our revenue. We also had 77,000 cash prescriptions that were filled, growing approximately 38% quarter-over-quarter. The growth here includes the impact of having turned on Medicare patient availability on a cash-pay -- for the cash-pay program as of April. As we've previously noted, 70% of our prescriptions launched to-date have come from gastroenterologists. During the recent quarter, we are seeing stable payer coverage and expect that moving forward for VOQUE

Thank you, Steve, and hello, everyone. I wanted to begin by saying how privileged and excited I am to be part of Phathom Pharmaceutical at this critical inflection point for the company. As I thought about my next chapter, I focused on 3 questions. Does the work matter for patients? Can I help build something durable? And is the dream truly aligned with the mission? At the heart of it, I wanted to join a company where work being done has the potential to directly improve patients' life. Phathom and VOQUE

Thank you, Sanjeev, for the helpful financial update. To wrap up, I'll just reiterate a couple of key points. And I realize we've already said some of this, but just in summary. We're really pleased with the way the third quarter went. Revenue was up 25%. Cash operating expenses were down 43% versus Q2 and cash usage was down by 77%. We are executing on the strategy that we laid out approximately 6 months ago on our May call. Our strategy to concentrate on our gastroenterology call points is being executed crisply. And with the momentum, both financially and operationally throughout the organization, we believe we are well positioned moving forward. My sincere thanks to our Phathom team members for their extraordinary dedication and diligence throughout this year and on an ongoing basis, and to the physicians and patients who trust in our products every day, and to our shareholders joining us on this call and all of our shareholders for your continued support. I'll now turn the call over to the operator for any questions.

[Operator Instructions] Our first question comes from the line of Umer Raffat of Evercore.

Congratulations on Sanjeev. I have 2 questions, if I may. First, if I look at your prescription growth over the last couple of quarters, it looks like you're tracking at about 48,000 in additional prescriptions in 2Q and 3Q. And per guidance, even if I take the high end of guidance, it looks like the guidance is baking in only 35,000 prescriptions in 4Q. And I guess that's my question, is that what you're baking in, that prescription -- that growth steps down in 4Q? Which leads me to the second question, which is the cost cuts and the discipline coming through is solid right now. The cost cut and discipline is very solid right now. But my question is, from those advertising cuts that Sanjeev spoke to, do you anticipate any impact as we head into 1Q and 2Q next year because they may not show right away?

Umer, thanks so much for dialing in. This is Steve. Appreciate the questions. First, on the growth, we are continuing to see really positive traction with all of our gastroenterology accounts in the context of the strategy to go deeper within gastroenterology. Our guidance for the full year was, in fact, narrowed to the upper end of the range. But we're trying to balance both the momentum that we're going to gain in the gastroenterology accounts with the fact that in Q4, we are going through the sales force transition. And so those 2 variables have somewhat offsetting effects, and we wanted to guide appropriately to something that we had significant confidence in.

And Umer, to your second point about the expenses, I think the management has been very disciplined. The expenses that have been kind of streamlined were not driving the top line per se. I think that's the key point to note here. And we've been obviously very mindful of watching the script trends, watching the return on the investment, and we feel comfortable with the level that we have is sustainable. Obviously, Umer, our job as a management team is to make sure we maximize the top line, and we'll continue to watch the expense level. But right now, we feel we're not going to have any impact from the DTC that we paused at the end of second quarter, but we'll continue to watch as we go forward.

Our next question comes from the line of Kristen Kluska of Cantor.

So with the strategy, I wanted to ask how much you are still focusing on those PCPs that you were having success with initially. I believe about 30% of the scripts you were seeing prior to this new alignment were on PCP. So was that mix from several PCPs? Or did you find that there were some that were higher responders?

So Kristen, that's -- thank you for the really important point that a large part of the PPI market has come from primary care. We are not ignoring that opportunity at all, and we are continuing to call on the customers that have already written scripts for VOQUE

Okay. Last question for me. You mentioned that there were new territories created where there was a higher concentration of GIs. I'm curious if these were doctors that the team was not visiting or perhaps they were outside of the main area, so they were still potential customers. They just weren't getting as much face time with them since that territory didn't exist before?

That's right. That's right. It's not that we have GI customers that we couldn't see at all. We couldn't see them with the frequency that we wanted to create the depth of adoption that we wanted. And so we had some territories that had 80 gastroenterologists in them. And if you think about the call pattern and the frequency that we want to achieve in order to really drive growth, that is a heavy call load that made sense to split some of those territories to be able to put 2 reps into that geography. We had other territories where they only had 10 gastroenterologists and they just can't spend that much time in 10 offices. And so that's where the realignment needed to take place.

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

Congrats on all the progress. With regard to the opening up of the Medicare access and the cash-pay component of it, could you maybe just comment on how you think the mix of cash-pay as a mix of covered prescriptions and so forth will be evolving over the next few quarters? Any color on that would be great. And then my second question is with regard to repeat prescribers, particularly in the GI channel. Are you seeing any evidence of an increase in the number of repeat prescriptions that your existing prescriber base is offering now? Any quantification there would be helpful.

Paul, thank you. I appreciate the questions on both of those points. Let me first take the sort of cash and Medicare versus covered prescription mix question because we don't actually try to actively manage the mix or the ratio. And you'll see in the way that we presented the slides and the way that we've revised how we're talking about this, it's not about talking about total script numbers and what percentage is where, but rather the growth specifically in the covered scripts and the growth specifically in the cash scripts. And what we're attempting to do is drive growth in prescribing behavior, recognizing that both of those categories are going to grow. And we're not actively trying to manage in any way what that ratio is, whether it's 30% or 35% in a given quarter. That's not a part of the conversation set that we have with any physician. The conversation that we have with physicians is about what patients are most appropriate for them to consider starting VOQUE

I think the other important point, Paul, to note is, as Steve mentioned in his prepared remarks, is our top line revenue is driven by the covered scripts, which is what grew 23% this quarter. And clearly that has got a direct relationship. And the other thing I keep in mind is you shouldn't think about that one is cannibalizing the other. Both are growing depending upon where the patient is right fit based on all the coverage that doctor and the patient decides.

Yes. I think that last point is a really important one. In no way does our cash script volume cannibalize our covered script volume that the incremental patient on Medicare who gets a cash script was never going to get coverage. So that's not lost revenue in any way. When that patient gets added, that's just a positive additional impact in terms of the patients being satisfied with the product, the physician being satisfied that their patient gets access to the product and the physician being more willing to adopt. So we actually think getting that extra Medicare patient started on VOQUE

Our next question comes from the line of Yatin Sunjea of Guggenheim.

Can you hear me?

Yes.

Congrats on pretty good execution. Maybe just 2 questions from me. As you are sort of trying to go more deeper into the GI community, can you just talk about the type of patients you are seeing right now? Can you also talk about the penetration you might be seeing in NERD versus GERD population? And how should we think about the duration of treatment that is playing out right now? And Sanjeev, congratulations on the new opportunity. Maybe if you can maybe help us understand how should we think about 2026 as the sales ramp up? How should we think about the OpEx there?

Okay. I'll let Sanjeev take the OpEx question at the end. Let me just jump into the types of patients that we're seeing and sort of NERD versus GERD within GI. The typical patient with either erosive esophagitis or non-erosive reflux, but the typical reflux patient that is landing in a gastroenterology practice has already been having conversations with their primary care physician for some time around their reflux. Almost always, they will be started on a PPI because they're complaining about heartburn to their primary care physician. Most typically, they'll be started on 20 milligrams of omeprazole. They might then be escalated within the primary care practice to twice a day omeprazole or to 40 milligrams of omeprazole every day or they might be adding Tums or other therapeutic modalities to their PPI whenever they have breakthrough heartburn. And it's when that patient is still experiencing significant pain and the physician has tried a couple of things and has not been able to resolve the heartburn, that's when they get the referral to gastroenterology. So the type of patient who lands in a gastroenterology practice is often a patient who has either tried BID dosing or has cycled through a couple of PPIs or has doubled their dose of PPI or is adding an H2 blocker or is adding antacids to their PPI and they're still having significant pain. So the patients who land in the gastroenterology practice and are being evaluated for their reflux are exactly the patients that should be switching to VOQUE

Yes. And Yatin, thank you for your question. And obviously, we can't give you like 2026 financial guidance right now. We'll do that at the beginning of the year. But let me tell you a little bit qualitatively how we're thinking about next year. So let me start with the first on the top line. So obviously you saw strong quarter 3 with 25% revenue growth. You saw in Q2 we had a 39% revenue growth with the pivoting strategy go deeper in GI. We'll continue to see more prescriptions coming, very effective calls. So that percentage of revenue growth will continue. Obviously, it will moderate as the base becomes bigger and bigger, but you should expect that the top line will continue to grow next year quarter-by-quarter. Number two, I don't expect significant change in gross to net because we got a good coverage. And on where things are, there are going to be pushes and pulls, but I don't expect fundamentally a significant different gross to net, which will kind of give us a steady path to gross margin next year. Now coming in terms of the operating expenses, I think the way to think about that is in 2 kind of ways. One is what is the operating expense to run the base company with the indication and the strategy that we've gotten so far, which means pivoting to GI and going after the top decile primary care. I think we've reached that point with the expense level that we reached in this quarter or quarter 4. I think you will kind of see that, and that will continue in next year as we go forward. As a management team, obviously we'll be looking at all other investment opportunities which are revenue enhancing and have a payback. And then obviously we'll consider those. But all of this put in together, you've got one thing in -- we said that in the beginning of the discussion was we expect ourselves to be operating profit -- in operating profit position next year. And that's kind of what we are of course striving to. With the cash usage that we have of $14 million this quarter, I mean that goal is near to us. But again, we will be providing all that beginning of the year when we give the guidance. But I feel very good about what the momentum is right now where we are entering into quarter 4 and then entering into next year with a solid set of financials.

Our next question comes from the line of Joseph Stringer of Needham & Company.

Just 2 from us, kind of a follow-up question, just given the backdrop of the 3Q print here where revenue came in higher than consensus and OpEx a bit lower. So in terms of hitting your goal of sustainable non-GAAP profitability in '26 without the need for additional capital, you've been pretty consistent in that messaging. So I guess what's your confidence in hitting that goal now to say, compared to your confidence level maybe last quarter or in the quarters past? And then secondly, with the -- curious to get your thoughts on the new marketing analytics hire. What have they seen? Or what are some of the initial insights or takes from looking at the analytics or what the analytics are telling you about the VOQUE

So Joe, thanks so much for both of the questions. First, in terms of sort of our confidence in getting to positive cash flow operations next year or positive EBIT as we've described it, we have remained consistent since May in the indication that we believe that that's achievable. And I think what we've done this quarter is just demonstrate that we are exactly on that path. So it's one more quarter of clear demonstration of exactly the path that we set out in May, which is we're going to continue to grow revenue. The thing that continues to drive revenue growth is sales force time in gastroenterology practices and driving growth and depth of adoption in GI practices. That remains unchanged. That's what we saw when we looked at the metrics back in May. That's what was working. That's what was driving our revenue. We've done more of that. We're continuing to drive revenue. My confidence that as we do more of that, we're going to continue to drive revenue is high. Similarly, as Sanjeev just mentioned a moment ago, we've brought down expenses we believe to a sustainable level in terms of our base operations and we might, on a discretionary basis, choose to make additional investments in certain areas if we want to do certain clinical trials or if we want to run a program. So we're not guiding on this call to what the expense level is going to be in 2026. We'll provide that guidance as we get towards 2026. But we are clearly vigilant about maintaining the expense level at a level where we can get to operating cash flow profitability next year and reaching operating profitability. And we wouldn't have said it if we didn't mean that we were going to try to work very diligently doing that and that we didn't believe we could do it. We absolutely do believe we can do it. From a marketing and analytics perspective, Nancy just started a couple of weeks ago. So I'm not going to speak for her as to what she's seen already, but our whole analytics team is spending a lot of time doing a deep dive on exactly how do we see detailed patterns, how can we direct the sales force time and marketing programs ever more efficiently and effectively. That's something that's not a 1- or 2-week exercise. That is something that is going to be months and, in fact, years of work on an ongoing basis. But I've just been delighted working with Nancy over the last couple of weeks, delighted working with Sanjeev over the last few weeks. And we've got a really solid team that is being very thoughtful as they work through the plan.

Our next question comes from the line of Dennis Ding of Jefferies.

This is Anthea on for Dennis. Congrats on the quarter. I wanted to ask on the sales territory realignment. When do you expect that to complete? And as you ramp up the additional 20 reps, when do you expect to see their productivity reflected in the top line? And then second, in terms of expansion back into PCPs, what is the gating factor there? Or what would you want to see to consider taking that on again?

So Anthea, thanks so much for the questions. Two quick things on sort of thinking about the territory realignment. We've already executed the territory realignment. So all of the territory maps have been changed. All of the reps have their new territories. They are in their new territories calling on their new customers. But in the course of that, it does create some vacancies. We are actively recruiting for all of those positions. But obviously hiring doesn't happen in a week or 2. Hiring takes months. So we will be bringing folks on through the course of this quarter and next to fill the open positions. As we indicated on the call, I expect that by Q1, as we fill all of the open territories, we will get to a sales force strength of 300. But I actually feel really good about where we are already today that as the significant sales force strength that we already have is in the right territories, calling on the right customers, we're going to start to see that traction. But we'll see incremental impact as we fill those territories through Q1. And that should play out through 2026. And as I communicated, I think you're going to see an acceleration in growth through 2026 as we get more and more of that traction. The other element of sort of what drives us back into the primary care market, there's an organic phenomenon that's going to happen, and it's going to turn into revenue, it's going to turn into metrics that then drive when we make the decision. So one of the key metrics that we look at is NBRx per sales call. And that is how many new patient conversions are we getting relative to the amount of time that we're spending in a physician's practice. NBRx per sales call is much higher today for us in gastroenterology versus primary care, which is why we're driving sales force time into gastroenterology practices. NBRx per sales call is going to go up over time in primary care because primary care physicians will become more familiar with VOQUE

Our next question comes from the line of Annabel Samimy of Stifel.

I think you guys have covered a lot already. But clearly you have a great opportunity within the GI community. Maybe you can, just on the flip side, talk about some of the reasons why physicians have not yet adopted. Is it a matter of awareness or one of reimbursement? And it seems like there is high-end awareness. So for the GI -- the new GI doc, what is the average number of calls that you need to convert these docs? I guess what I'm asking is, at some point, do you expect some inflection point in sales with this critical mass that you've now focused on GI docs? So that's my question.

Annabel, thanks so much for the question. And I agree, we do have a terrific opportunity within GI and that's an opportunity to get to really significant revenue. So there's not actually an impediment to first adoption within GI. In fact, the vast majority of gastroenterologists have already written prescriptions for VOQUE

Okay. That's great to know. So just one more question maybe for Sanjeev. So it's great that you turn on Medicare. And it's interesting that the average gross margins come down at the same time, while the cash-pay business seems to, I guess, come back up to about 35%. So is that -- I guess, if you are guiding gross to net to the bottom end of the range, is that suggesting that commercial will continue to grow faster than cash-pay? Are we understanding these impacts? Like I just want to understand what gives you confidence on the gross margin -- gross to net being at the lower end of the range with some of these dynamics going on?

Yes, Annabel, thank you for the question. So actually gross margin, if you look at last 3 quarters, have been very consistent within the range and lower end of the range. I think this quarter as well, when I looked at the results, it came at the lower end of the range. And when I find comfortable with the 3 quarters in hand that we could tighten the guidance for fourth quarter from that perspective. As regard to cash-pay, the way the gross margin is calculated and everything, that does not have a material impact on our gross to net percentages. So as those percentages continue to grow, they will all be reflective of that because our bigger part of the gross to net is impacted by the covered script. And I don't expect that to change significantly between this year and next year.

Our next question comes from the line of Chase Knickerbocker of Craig-Hallum.

A lot has been asked, but maybe just to stay on the topic of gross to net. Just as we think about it longer term, I mean should we think about that kind of tighter range as kind of the right way to think about medium- to long-term gross to net? Should we continue to see some improvement even potentially going closer to 50% from the bottom end of the range now? I mean, where do you think kind of gross to net ultimately mature to as your business matures over the medium to long term? And then, Sanjeev, just maybe any low-hanging fruit that you see on the gross to net to maybe continue to drive some improvement there from your past experiences?

Yes, Chase, thank you for the question. So we obviously are very kind of focused on gross to net as every other line item. So I'd say -- I think one thing I'd say, I've seen very consistency. I think management has done a good job in getting access and managing all the contracts. And the 3 quarters results have been very consistent and they give me the confidence we can tighten this for this quarter. Going forward, Chase, I don't expect a significant change in how we look at it. Obviously, we look at it at the right time what kind of guidance we want to give. Maybe it will be a little bit tighter than what we had before, but we'll come back to that when we give the guidance. I -- there would be obviously pushes and pulls as you think about it. There is a potential for price increase. There are obviously rebates in the government sector that we got to be mindful of and everything else. But also we have things like DSA. As the company gets matured, we have opportunities for renegotiation some of those things. So there are pushes and pulls that are going to happen. We'll manage it. But I don't expect on an overall basis to be a significant change in our gross to net trajectory as we've seen thus far for 3 quarters this year.

Our next question comes from the line of Matthew Caufield of H.C. Wainwright.

And welcome to Sanjeev. I wanted to ask, is there a sense of the proportion of patients that may be getting lost between having their script written by their GI, not being covered and then the patient not subsequently following up for BlinkRx, for example, and how that may be evolving or ideally improving?

So Matt, thanks so much for the question. I don't think we've ever disclosed specific numbers on the number of prescriptions that weren't filled. We obviously are tracking abandonment rates and looking at that pattern, actually overall are pleased that we're doing better than industry norms on some of the metrics. But one of the key advantages of offering the Blink service is that it improves that pattern. So if a patient goes to a retail pharmacy and their product isn't -- and their script isn't covered by their insurance, for example, and they get a higher-than-expected co-pay, they may walk away and not fill that script. If the patient goes to Blink and they are getting covered, they will get a $25 co-pay. And if they are not getting covered, they will be offered a $50 cash price. So that methodology enables us to significantly minimize that process. And as we're educating physicians about the fact that there's an advantage to sending their patients to Blink, it can just -- we can manage that cycle to reduce that walk away from a prescription to minimize the co-pay and minimize at all times the patient out-of-pocket payment so that you have the best likelihood of a patient getting access to the product. And one of the advantages of doing that is even if they end up with getting access to the product on a cash-pay basis, for example, if they've got a high deductible plan and their plan isn't going to covered or their payment is going to be too high early in the year, at some point several months later, they may actually get their script covered and we want to be resubmitting it and switch that patient to a covered category patient. And that advantage -- that whole process is streamlined and works better through Blink and through a retail pharmacy typically.