Phathom Pharmaceuticals, Inc. (PHAT) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Paul Choi, the Mid-cap Biotechnology Analyst at Goldman Sachs, and we'll continue with our next session here, which is with Phathom Pharmaceuticals. From the Management side, we are very happy to have Terrie Curran, the CEO. Also on the line with us is Azmi Nabulsi, who is the COO. As with prior sessions, what we'll do is let Terrie kick it off with some opening remarks and an introduction to the company. After that, we'll go into the Q&A portion of the session. [Operator Instructions] And that -- with that, I'll turn it over to Terrie for an overview of Phathom. Terrie?

Thank you, Paul, and thank you for inviting us today, and hello, everybody. As Paul said, my name is Terrie Curran, I'm the CEO of Phathom. Phathom is a clinical stage company, our lead asset is vonoprazan, and vonoprazan is a potassium competitive acid blocker. The company was formed very recently, it formed back in 2019, and it went public in October of 2019. At Phathom, we have the rights of the vonoprazan in the U.S., in Europe and Canada. And vonoprazan is potentially first-in-class, best-in-class compound in these markets and is largely digressed by a clinical and a commercial perspective. Vonoprazan has been studied in more than 18 Phase III studies and is approved in 13 countries, including Japan where it's generating revenue of more than $650 million in 2019 and still growing at 20%. In fact, recently, it became market leader in Japan, and we see no reason why these kinds of results couldn't be replicated in the territories that we had vonoprazan in. Our clinical development program is focused on two indications. We have good, specifically, healing of the erosive esophagitis and maintenance of healing and relief of heart burn and, secondly, eradication of helicobacter pylori infection. We dose the first patient in each of those studies in Q4, 2019, and we have allowed for regulators that with the breadth of existing data and one large Phase III study, in each indication, will be sufficient for submission. So we did pause screening and randomization of both trials in March of this year in response to COVID. However, monitoring the situation closely and working closely with each of the sites to plan resuming enrollment. We're very excited with the engagement that we've had with the investigators, and they're very excited to kind of get back to work. So as at the moment, we're building out the team. We've managed to secure a very seasoned team from Takeda and Chicago, so Azmi leads that team that has deep experience with, not only vonoprazan but compounds in the category. And then we're building out the rest of the organization in New Jersey, which will be our head office. So very excited to join you today and share a little bit more about Phathom. Thanks, Paul.

Thank you, Terry, for that, and thank you for -- Azmi for joining us as well. Maybe we'll start with an overview of the market and maybe at a high level here, Terrie. Can you maybe explain to us for investors who are unfamiliar with the category and census, as you mentioned earlier, only commercialized in Japan and hasn't been a focus area for pharma or biopharma development here in the U.S. and Europe? Where do P-CABs fit in the treatment paradigm potentially? And what is differentiated from it versus some of the other existing treatment options that are available or commercially commercialized on the market here?

Sure. So I [ will be familiar ] with the anti-secretory category way back to the launch of PPIs in the late '80s that at that point in time, that category generated revenue of more than $12 billion. So it's a very large category, but there's been lack of innovation in this space since the launch of PPIs. And PPIs -- in the profile of PPIs, there are a number of the things that need to be addressed in terms of the profile of a PPI, in terms of the onset of action, the potency of PPIs and the duration of response. So PPIs were really developed to address some of the shortfalls of PPIs. And we hope we have breadth of clinical data from Japan that we're hoping to replicate in our Phase III studies that show that P-CABs have a more rapid onset of our action, are more potent and particularly more durable in the erosive esophagitis. So P-CABs -- P-CAB vonoprazan will be the first-in-class, best-in-class launch into the U.S. market, where we see there'll be a significant potential for this compound and the treatment paradigm. We expect to secure a very broad label. However, we will launch into a second line position initially in EE. Having said that, there is a large opportunity, second line with about 20% to 30% of patients not responding to PPIs, and there's a high [ array of switches ] within the PPI category. So really a very large commercial opportunity for us.

Great. Earlier in your opening comments, Terrie, you talked about what's been happening in the Japanese market, where you indicated last year's sales, LTM sales were approximately $650 million. And still growing at a very healthy, attractive 20%-type growth rate. So I think that sounds very commercially attractive from my perspective. Can you maybe talk a little bit about what the adoption curve in this kind of market in Japan has looked like since approval? What has been primarily driving the growth, in particular, you talked about 2 indications here, and how that might be a potential proxy for the U.S. and European markets here?

Sure. So I mean the characteristics of the Japanese market are very similar to the U.S. market in terms of the rate of the utilization of generics. In terms of the adoption in Japan, it was very rapid. In the first year, in Japan, there are -- prescribing is limited to only 2 weeks, so you will see, if you look at the curves in Japan, that first year wasn't as rapid, but once you get into the second year and beyond, very, very rapid acceleration. In terms of the competitive set, again, PPIs are the only alternative in terms of therapy. And so the positioning in Japan has been rapid and strong. So they've got the 2 indications, H. pylori, erosive esophagitis, and they've got -- now they are generating more than 90% share in the H. pylori market and have just overtaken NEXIUM in terms of their share and market leadership in terms of erosive esophagitis. So they've had very strong performance. And we've kind see the similar dynamic playing out within the U.S. market.

Sure. So one difference, Terrie, that I think probably investors are aware of is that there are more branded products available in Japan that are still protected there. And -- whereas, one of the subtleties of the U.S. market, obviously, is that it's converted largely to OTC and/or generics. Can you maybe comment, and before we get into some of the clinical stuff, just how you think about that as a factor for the market potential of vonoprazan here in the U.S., and especially, how have recent launches, in terms of competing products, performed in recent years?

Sure. So we've been really digging into the market access landscape within the U.S., particularly analyzing a case study of Dexilant. So Dexilant is the last branded PPI within the U.S., we expect that it looks -- the patent will expire later this year. And what is really encouraging is that what we've seen is that Dexilant was able to secure very broad Tier 2, Tier 3 access with marginally better pH control versus PPIs and no really meaningful clinical differentiation. So we believe that the value proposition from vonoprazan, having both a rapid onset of actions, superior 24-hour pH control, superior non-time control and superior efficacy, we'll be able to secure at least as good a position as Dexilant did with our superior profile.

Great. Thanks for that Terrie. Maybe in the next set of questions, we can talk a little bit about the clinicals. You mentioned earlier that, obviously, multiple Phase IIIs were run in Japan in Asian patients. But here, now you're running 2 Phase III trials, as you mentioned earlier here in the U.S. Could you maybe speak to perhaps how you and the team think about clinical risk here? It is an approved product, as we've been talking about here in Japan. But what are some of the subtleties we should look for in terms of differences both in clinical trial population and clinical trial design versus what was done in the Japanese market?

Sure. So I'll talk about the 2 trials separately. So for the erosive esophagitis trial, both the population, the design of the trial as well as the doses that we're utilizing in the EE trial, the same is the Japanese clinical trial. The only difference is that we really had 2 trials within 1. So we have the healing component of the trial, and then we have the maintenance component of the trial, both with separate independent endpoints. In terms of the H. pylori trial, the difference between the Japanese and the U.S. trial is that the U.S. European trial, we are treating length of therapies for 14 days versus 7 days, and we're using higher doses of antibiotics, and that's really to replicate the standard of care in the west.

Great. That's very helpful. You mentioned earlier that the 2 trials, both for the [ Falcon HP ] in the H. pylori population, the [ Falcon EE ] study earlier this year, you did comment on them being suspended, suspending new patient randomization due to the COVID situation. Can you maybe explain what was the rationale behind this, given this is a GI trial in the COVID situation versus COVID and what's the rationale behind that? And then can you provide any update on what's been happening with enrollment or clinical or regulatory time lines?

Sure. So as we mentioned, we did pause the trials or new randomization back in March. And that was in response to both the CDC as well as some of the society guidelines regarding endoscopies -- the elective endoscopies. So it was purely in response to the COVID situation. The existing patients that had been randomized continued on the trial, and we've been working really closely with the sites to ensure that there's limited interruption for those patients. We've also been working on the plans with each of the sites to resume the study, screwing randomization when safe to do so. There were recently some society guidelines that instructed endoscopy clinics on ways to reopen. So we're working closely with those centers at this time to resume randomization of new patients. And once we do that, we will update -- make a public update once we have resumed randomization. So at this time, we're still planning to meet our 2021 milestone and providing top line data for both HP and EE by the end of 2021. But like everybody, we're continuing to monitor that COVID situation closely. And we'll update this time line and either [ refer will ] modify guidance as our sites begin to recruit and randomize patients. We're very encouraged by the feedback from the sites. But the large majority of these are our businesses, and they've been greatly impacted by COVID. And they're really very eager to get back to work. So we're working closely with them to begin.

Great. That's very helpful. Just with regard to the sequence of development here, can you maybe remind the audience here what is -- why HP and EE are being sequenced in a particular way in terms of development? What it means for the franchise from an IP perspective? And just sort of what is the route that you plan to pursue in terms of setting up vonoprazan for the long-term here?

Sure. So our plan is to launch HP first, so we'll be launching HP in 2022, and then we'll follow with the EE trial. We're able to secure our QIDP status for the H. pylori indication. And this gives us an additional 5 years in terms of IP for the entire compound. So with regards to IP, we've got a composition of [ meta ] patent that expires in 2028, and a very strong formulation patent that expires in 2030. So we can apply a patent WACC [indiscernible] extensions to one of those, and that gets us to kind of early 2030s. But we think that the patent approach will likely be tried by the regulatory exclusivity. So the regulatory exclusivity is 5 years for NCA, an additional 5 years for, as I just mentioned, the QIDP status. And then an additional 6 months for pediatric indications. So we have submitted protocols for pediatric studies, which we intend to do. So that brings us to around 2.5 years. And if we're careful not to list any patent on the Orange Book, then the 2.5 year marker is the first time a generic manufacturer can submit an ANDA. So realistically, the first generic entry is around the 12-year mark post launch. So we're in good, very solid patent position. So in terms of the commercialization, as I mentioned, we will launch the HP indication first and then the EE indication first. So the first launch will be targeting GI physicians. We're really encouraged by the concentration of the prescriber base. It's about 6% of physicians, right, about 50% of the scripts in the U.S. So we'll concentrate when we launch on EE on those high-prescribing physicians. And then further down the track, we'll move to primary care with a broader number of acquisitions. We also think that with the share of voice that we'll be able to command, we're considering that there's no meaningful pharma competition that we'll be able to command a high percentage share of voice around 100% share of voice in a year, given the lack of competition and a dense concentration of the PPI prescriber base. So we are currently implementing some prelaunch work to lay the foundation of launch, so across both medical, access and commercial. So that work is underway.

Got it. That makes sense. Maybe just on the -- staying on the topic of the H. pylori opportunity. This is something that is probably a little bit under the radar in terms of an indication or a disease with many investors. So can you maybe remind us where are H. pylori patients primarily found in terms of the U.S. and in Europe? And how do you plan to commercialize for vonoprazan for these specific populations?

Yes. So sure. So it's kind of interesting. It's actually about 35% to 40% of the U.S. population have H. pylori. So it's a very prevalent disease, and it's not just in low-income or developing countries. So as I mentioned, we're really encouraged by the concentration of the prescriber base. And there really is limited health of detail in HP as well. And there's also some crossover between H. pylori and EE, especially in -- with GI physicians, who are the high prescribers of PPIs. So our initial launch with that group of concentrated prescribers will really correlate the groundwork for success in EE and other indications potentially. In terms of outside of the U.S., we're currently evaluating potential U.S. partnerships with companies that have extensive GI capability to kind of further optimize the asset. So we had to kind of determine our strategy outside of the U.S. and just evaluating our options.

Okay. Thank you for that. Maybe turning back to EE. You talked about a go-to-market strategy that involves targeting a relatively concentrated prescriber base. But you also talked earlier about the recent commercial success of the latest PPI to launch onto the market here. And so I guess my question here is, as you think about this market here, one of the things, as I mentioned earlier, is that a large part of the market is generic or OTC. But how do you think about bringing innovation to the market here and thinking about specifically the issue of pricing in a category where, as you mentioned, new entry, new assets that have launched onto the market have been Tier 2 or Tier 3. And maybe start at -- with the pricing, and then we'll follow-up with a question on sort of data to support that.

Yes. I think if you look at the market, there really has been limited or no innovation since the launch of KPIs back in the '80s. And I think that's why you see the success of Dexilant, despite having very limited clinical differentiation and ability to just secure a reasonable price. We've used that as an analog and a benchmark for the pricing of vonoprazan. So Dexilant's prices around $10 a day, a WACC. And we believe, with our differentiated profile in EE. We will be able to demonstrate, potentially, superiority in EE healing at week 2 and/or week 8 and/or reduced recurrence of 6 months. That value proposition will be further strengthened based on additional secondary endpoints designed to demonstrate improved symptom relief as well as efficacy in severe patients. So we believe that the profile will enable us to secure a very strong formulary access at launch, at least on par with Dexilant.

Okay. That helps. I guess as you think about the premium pricing and just sort of what are -- what is the population size here? And maybe you can remind us what does the PPI market look like right now? And what are sort of the strides that a new agent like Dexilant has made in the past couple of years that it's been commercialized?

Yes. If you look at the size of the market right now, it's a very large opportunity. If you just consider the number of prescriptions that are written for PPIs in the U.S., in terms of H. pylori, there's a 115 million patients with H. pylori in the U.S. and 145 million in the EU in the top 5 markets. So again, it's very prevalent. In terms of EE, it's also a very large market. There's about 9 billion doses of PPIs that are written in the U.S. every year. So that gives you a sense of the magnitude of the opportunity in terms of volume. And if you think that 20% to 30% of patients are satisfied on a PPI, and then you look at price point of around $10 WACC a day, it gives you an understanding of the magnitude of the commercial opportunity.

Great. Thanks for that. One of the things, and you can tell me if we're off base here from our research perspective, for H. pylori is the opportunity for vonoprazan to work with just 1 antibiotic versus 2 antibiotics in terms of a triplet therapy. How do you think about potential value-add there? The trial does allow for that. You talked earlier about using higher doses in line with standard of care here in the U.S. and Europe versus the Japanese trial. Do you see that as a -- how do you think about that as a potential source of differentiation for vonoprazan? And is that a real opportunity to bring cost savings to the system?

Right...

Yes, so I can...

Sorry, [indiscernible]

Yes, so I can maybe start with the first part. So our base case is triple therapy. Vonoprazan triple regimen showed superiority to PPI triple regimen and showed also eradication rate of over 90%, which have not seen before at that level or at least not in recent [indiscernible] to the regimens. So very, very significant profile. Now the dual therapy is an upside to that. So it's not like one or the other. It's really an upside. And we have very strong POC data, POC results from Japan to support that the dual therapy is -- can achieve over 90% as well. So we can hit 2 pieces of the puzzle here, which is over 90% eradication, [ let's do it ] with an antibiotic. However, even without the triple -- the dual therapy, the triple therapy is a very differentiated and superior therapy based on the data from Japan. And, as Terrie mentioned, Takeda achieved -- where they are now is they have over 90% of the market share in this segment just with the triple therapy that's on the market in Japan. They have not pursued the dual in Japan. So we have -- we can achieve that plus an upside potential that we have.

Okay. Terrie, I wasn't sure if you were going to chime in here as well. If not, we can move on to the next question, too.

Yes. I think, as Azmi said, I think that base case was triple therapy, and we look at the success in Japan. That's the base case. But I think the dual therapy is really an upside. And I think to your point, it has the potential to reduce in [ pill loads ] as well as antibiotic [ loads ] for patients. So I think would be a very compelling and differentiated profile if we're successful.

Great. As you think about the development of vonoprazan here for EE and -- I guess one of the questions we have and as investors think about this is the Japanese data, the prior Phase IIIs showed quite a bit of differentiation both on the healing portion of it. And then as you think about maintenance here, which is the second part of the trial that you're conducting here in the U.S. and Europe, that's also a potential source of differentiation, both with regard to the durability of the result. So I guess, as a follow-up here, given what looks like a very differentiated clinical profile, especially as duration of therapy increases, how do you think about the frontline opportunity for vonoprazan here? Is that something you'd want to push? Is that something in your clinical development plan? And just -- so what are your -- maybe some of your high-level thoughts here?

Yes. So we will have a very broad label that will allow utilization in first-line erosive esophagitis. So that existing Phase III clinical program will generate those data. The primary endpoint, obviously, people [indiscernible] and as well the secondaries looking at superiority, and the primaries looking at noninferiority versus a PPI. So that broad label, the data will provide us at the broad level. Having said that, we will launch second line, establish the clinical profile in the second-line setting and then move, over time, to a first-line promotion as the clinical profiles establish with prescribers. We also have the opportunity to pursue additional indications and formulations. When looking at -- we're evaluating life cycle opportunities in nonerosive disease. So in [ new ] as well as erosive esophagitis looking at kind of on-demand utilization of vonoprazan and then looking at other formulations like IV formulation [indiscernible] dissolve tablet foam. So these are all under evaluation, and we're looking to move forward with a life cycle plan later this year.

Great. Just with regard to the LCM that you talked about, Terrie, is that something you're pursuing actively now? Or do you think about funding that with post commercialization here as you think about the IP window that you described earlier, and just maybe helping investors understand as to when and how aggressively you would pursue these additional opportunities?

So I mean, right now, we're focusing on EE and HP and really doing the work to both prioritize as well as size the opportunities with a view to developing strategy. So right now, we're intending to focus on those 2 indications, but really doing the work and the strategy and to determine whether we pursue those, not now but at a later point in time. I mean right now, we're very well capitalized to get -- we don't need to raise additional capital to post the readout of both the Phase IIIs. So that's our current strategy to do that.

Got it. That's helpful. And then as you think about the shape of the company post the Phase IIIs, which are not that far off, assuming resumption of enrollment and randomization here in the not-too-distant future. You'll have data in 2021, as you mentioned previously. Can you maybe help us think about sizing up the sales force here and about what is the competitive intensity like on the commercial side versus some of the other players here in the PPI landscape in terms of the opportunities you'll be pursuing. You talked about pursuing HP initially, which presumably requires a smaller sales force. But as you expand into EE, what does Phathom look like at scale down the road here?

Yes. So it's a very unusual category and there really is no competitive promotion. Dexilant is the last brand of PPI that we expect to lose exclusivity later this year. So we assume that we'll be able to drive about 100% share of voice in the category. And in the research that we do with focus GIs as well as PCP. They find the profile of vonoprazan very compelling. When we ask them more percentage of patients which you prescribed, there's product for -- they're talking about 60%, 70% of their patients and not just those that have failed a PPI. So in terms of the sizing that we will need to reach that kind of concentrated prescriber base, we will launch HP with about 50 reps. Then when we launched the EE indication will add about another 150 reps. And then when we go more broadly into first line, we do potentially another 100 reps to that field force. We think both in terms of the field force as well as other channels like digital, we'll be able to reach those high prescribers.

Okay. That makes sense. I think that's very clear as to what you plan to do in the U.S. You mentioned earlier that you continue to look or think about a potential partner for the European opportunity. So can you maybe -- for those of us who are less familiar with how the 2 indications are treated in Europe? Sort of what is penetration in diagnosis or current therapies look like there compared to the U.S. here? And maybe you can comment on just how you think about pricing perhaps in the European market as well?

Yes. So we're currently doing that work with both payers in the core. It's EU5 markets in Europe. The characteristics of the marketplace are pretty similar to the U.S. and then it's a generic sized market. The same compounds are available in Europe as in the U.S. So it's a very similar dynamic to play in Europe. Yes, clearly, the price point is lower in Europe. So we're doing the research with payers right now just to size the opportunity. Clearly, there may be opportunities to secure different populations at a higher price point in Europe. And so we're doing that work to just further understand that and then, in parallel, are looking at potential partners. So we haven't determined whether we'll go with a partner in Europe or they we'll go alone. This kind of piece of work is the first thing to really kind of validate some of the assumptions in the European marketplace.

Okay. Thanks for that, Terrie. As you look at Phathom here, and I think investors are generally comfortable with vonoprazan here and you're set to have data next year, but can you maybe talk about -- now that you've taken over the company in the CEO roll, what you want to do, perhaps on the BD front, if Azmi also wants to chime in here on what looks or makes sense strategically from either a business development perspective. Is there a plan to sort of think about driving an internal discovery engine and additional clinical operations, or do you think you'd probably look more outward in terms of finding additional assets for the next leg of the story here at Phathom?

Sure. So our focus right now is really optimizing the compounds both with existing indications. And as I mentioned, looking at indications outside of HP and EE. So that's really our first priority. In terms of the BD strategy, we'll be opportunistic in building the pipeline through business development. We, really nicely, have set the bar, very high with vonoprazan, and as such, would really just pursue a very compelling asset, which would enable or leverage our clinical development and commercial structure. So it would be opportunistic, but it's not a key priority for us in the short term.

Just in terms of as you mentioned, Terrie, leveraging your expertise in infrastructure here, it sounds like you want to stay in the GI space. Does that -- in terms of assets, in terms of -- as you focus the company, are you thinking remaining here in the small molecule space? Or how do you think about other technologies or formats and bringing those into the fold?

Yes. We definitely want to focus on GI and building the business in GI. We would look at other potential platforms, and we're not narrowly focused on small molecules. But really looking at compounds, vonoprazan first-in-class, best-in-class, very innovative. Really looking at compounds or potential platforms that have that type of profile.

Okay. That makes sense. I think in our remaining time here because we're almost up on time here, Terrie, is as you think about value drivers and catalysts for the company, you, obviously, people are very focused on the phase through your readouts here. But that is next year. As you think about between now and then, Terrie, is there anything you'd point to that investors are aware of that you think aren't properly discussed in terms of what makes Phathom special here for potential value creation opportunities?

Yes, sure. I think as you mentioned, our key catalyst will be the Phase III results, which we expect next year. We then expect to have a relatively quick turnaround for our first approval of H. pylori because we should be proud of priority review on QIDP. In addition to that, we're closely monitoring the Takeda performance that had very strong performance, as I mentioned, the $670 million in 2019 and continuing to grow up 20%. They're also continuing to read out some of the clinical trials that are taking place in some of the Japan and then some of the other territories. They're kind of launching the products. So we're continuing to monitor those trials that really continue to reinforce our thesis about vonoprazan and some of the key clinical differentiators and then really kind of reinforcing the profile of the compound.

Great. Maybe in our last minute here, Terrie, I'll ask you, just as you look at the competitive landscape, is there anything that keeps you or the rest of the management team up at night that you feel like could be disruptive in this space, that investors don't look at, either competing drugs in the same P-CAB category and/or anything else that went maybe downstream or perhaps a little bit earlier in terms of development that you view could be as disruptive here?

Yes. No. I mean there is -- I don't think anything on the horizon in either indication that will be disruptive will be a significant threat to vonoprazan or Phathom. There is a P-CAB that's earlier in development by [indiscernible] and they read out some of their Phase III data at DDW. They only have the healing component of the data as the Korean study, but they don't have a U.S. Phase III program underway. So they've got quite a ways behind our development. But I think in terms of the profile, there the closest to vonoprazan. It looks as though they're taking forward their lower dose formulation in their Phase III program. So again, if we look at the profile of vonoprazan versus that P-CAB, vonoprazan is more potent.

Great. Thanks for that. We've come up here just about on time. So my thanks to Terrie and Azmi and Phathom Pharmaceuticals for participating here in the Goldman Sachs Healthcare conference. And with that, I'll thank you and we'll end the session.

Great. Thank you, Paul.

Thank you.

Thank you, Terrie. Thank you, Azmi. Take care. Bye.

Take care. Bye.

Bye.