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

Good morning, everyone. This is Rahul Sood here from Morgan Stanley's Healthcare Investment Banking Group. Today, I'm joined by the management team from Phathom Pharmaceuticals. Before we get to introductions, I would like to read a quick disclosure. For important disclosures, please see the Morgan Stanley's research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, it is my pleasure to introduce the management team from Phathom Pharmaceuticals. We are privileged to be joined by Terrie Curran, President and Chief Executive Officer; Azmi Nabulsi, Chief Operating Officer; and Martin Gilligan, Chief Commercial Officer. With that, Terrie, why don't I turn it over to you?

Thanks, Rahul. We're really excited to be taking part at the conference today. For those that are not familiar with the Phathom story, we intend to walk through a very short corporate deck for the first 15 minutes, and then we'll open it up to Q&A for the last section of the program. So I'll be referring to a deck throughout the presentation that was distributed and referring to page numbers just so you can track along. So Phathom was formed in 2019, and we've licensed vonoprazan, which is a potassium competitive acid blocker or P-CAB for the US, Canada and for Europe. And we believe vonoprazan has the potential to be a blockbuster, a first-in-class, best-in-class acid suppression therapy in a category where there hasn't been any innovation in over 25 years. Vonoprazan has established a track record. It's already available in 14 countries. And so it's largely derisked from both a clinical as well as a commercial perspective. In Japan, it's delivering revenue of more than $800 million and continuing to grow double-digit pace, and recently achieved overall market leadership in the category as well as leadership in the H. pylori segment of the market. In April, we shared the top line data from our Phase 3 H. pylori trial, where we met all of the primary and the secondary superiority endpoints. And we couldn't be more excited with this outcome. It really represents our best case scenario of this indication. So based upon the positive HP data, we recently submitted 2 NDAs to the FDA, and we are gearing up for approval and launch in the second half of 2022. Next month, so in October of this year, we expect to share the results of our second Phase 3 program, which is the PHALCON erosive esophagitis trial for the treatment of erosive esophagitis, which is a sub category of GERD. I'll now refer to Slide 4 in the corporate deck, which just talks to the differences between P-CABs and PPIs. And the difference in the clinical profile really comes down to the different mechanism of action. And P-CABs are known to be rapid, durable and provide potent asset suppression. So let's talk a little bit about the differences in the mechanism. So both PPIs and P-CABs target the proton pump inhibitors, which is expressed in the parietal cell of the stomach and responsible for secreting acid into the gastric wound. Proton pumps are really a tricky target because they're constantly switching between an active and inactive response, [ stimuli in ] food, and they have a high turnover rate. So new pumps are constantly coming online each day. So PPIs covalently bind to only the active pumps. So they're only binding to those pumps that are in the active phase, whereas vonoprazan binds to both the inactive and the active pumps. PPIs require acid for activation, but they're actually unstable in the presence of acid and they also have a very short half-life of 1 to 2 hours, which means they're not present later in the day to inhibit new pumps as they come online. Vonoprazan, on the other hand, is stable in acid and has a long plasma half-life. So it can cover the full 24-hour dosing interval, regardless of whether the pumps are in active or inactive state. PPIs also have a slow onset of action, 3 days to 5 days, whereas vonoprazan has been shown to have a more rapid onset of action. So the combination of rapid, potent and durable acid control gives us the confidence in vonoprazan's potential to really disrupt the GI marketplace in the US. If you look at Slide 5, you can see here the number of pipeline programs that we have aimed at achieving indications in the US, Europe and Canada. The 2 general disease areas we are focusing on for vonoprazan are GERD and eradication of H. pylori. In GERD, the larger commercial opportunity, we have 3 target indications. The first 2 relate to the healing and maintenance of healing of erosive esophagitis as well as treatment of heartburn. And that represents about a third of the GERD population. The third indication is in nonerosive reflux disease. And you'll see there, we have a Phase 2 program and which we expect data from that program in the first quarter of 2022. Our Phase 3 program in EE is focused on healing, maintenance of healing, and the program will read out in October. The H. pylori indication, as I mentioned earlier, we've just filed for that indication with the FDA. And just to mention, the H. pylori eradication rates have been trending down in the west. An unresolved H. pylori can lead to a host of other issues, including gastric cancer. H. pylori results are not only important for reversing the decline in eradication rates, but they're also important for the company from a strategic perspective. This is the largest -- the PHALCON program is the largest H. pylori study in the US and EU. And what we see is a consistency with studies that have been studied in Japan. And through the pursuit of H. pylori, we've received what's called a qualified infectious disease status or QIDP status, which essentially means that it gives us at least 10 and a half years of regulatory exclusivity post H. pylori, and this gets us to 2023 before an ANDA could then be filed. H. pylori also gives us an opportunity for a targeted launch in advance of the much larger erosive esophagitis opportunity, which we expect to come about in 6 months to 9 months post H. pylori. If you look at Slide 7 within the corporate deck, this just provides an overview of the programs that we're targeting in GERD. In the US, it's estimated there are 65 million GERD patients, so a very large market opportunity and are separated into the 2 different subsets of GERD that we're studying. So erosive esophagitis, which makes up about 30% of GERD, so 20 million patients and non-erosive reflux disease or NERD, which makes up 70% or 45 million patients. And we believe that with a potent, rapid and durable profile of vonoprazan, [ fit ] these 2 categories very well and may address the unmet needs that still exists for these patients. I'll just highlight the study design for the EE program that we'll be reading out in October. Just to reconfirm that the FDA has confirmed that this trial design with one additional trial of this Phase 3 with existing Japanese data is sufficient for us to get approval. And they are designed closely near as the Japanese design, and we believe this approach minimizes our regulatory and clinical risk. In addition, there is both the primary endpoints, which are non-inferiority. There are secondary endpoints to superiority. Importantly, are looking at healing or maintenance of healing at 24 weeks. And this is really a key commercial opportunity for the molecule. The secondary endpoints of superiority also look at healing at 2 weeks and heartburn resolution at 3 days, which provides opportunities for further clinical differentiation. I'll now pause and turn the call over to Martin Gilligan, who's our Chief Commercial Officer, who will make a few comments regarding the size of the commercial opportunity for vonoprazan. Over to you, Martin.

I'm looking at Slide 9. And what I want to speak to you first is the big opportunity that's in front of us. And we plan to deliver that opportunity through data that will potentially pay off on fast action, superior efficacy and durability, as Terrie just mentioned. When you take a look at the size of this opportunity, there's a few unique things about this category overall. The first is our launches will grow in size with a smaller launch of H. pylori, moving on to the much bigger launch of erosive esophagitis and then someday further on to NERD. But what makes this market really unique is the really high level of dissatisfaction that's not spoken about. There's been no one playing in this category for over 10 years. There's no promotion going on. So at first glance, when you ask customers about satisfaction, they tell you all is good. But when you start to really ask key questions, the level of dissatisfaction comes across not only in the stories they tell, both physicians and patients, but also their behavior and the data. We know that 50% of the patients progress annual line of therapy once a year. And right now, that only change is to go from one PPI to another. So vonoprazan will be not only a novel mechanism of action, but a welcome alternative and an option, as I mentioned before, for superior efficacy. I also want to share with you that when we provide the mechanism of action to both physicians and patients, they light up. Again, something unique about the market, there's been nothing new introduced here in terms of mechanism or novel aspects for over 25 years, actually, since the last mechanism came into the market. And when you speak about the customer base, again, very unique. 10% of the physicians prescribe 65% of the volume. So it's a -- while a very common disease state GERD is, it's a highly concentrated group of prescribers. And because there's been no new entrants in 25 years in terms of mechanism, and the market has been very quiet for over 10 years, there's no promotional activity ongoing. So often, you hear about people, their share of voice are going to have, we're prepared to own the share of voice and be the share of voice, which should make us very efficient in terms of communicating with physicians. And then the last thing I just want to communicate on this slide is what we hear from customers when we share with them the HP data that was previously referenced for H. pylori is that this has not only changed how treatment would done, but it also tees up the opportunity for changing guidelines. And we also hear from payors that there is a pathway to reimbursement. So if I have you go ahead and turn to the next slide, I just want to put a few numbers behind this and put it all into context. Again, I'll just comment, we're looking from going from a smaller launch of H. pylori to a much larger launch of erosive esophagitis and ultimately, NERD. So the first thing I'll start with is that the PPI market overall is 6.8 billion tablets annually, which is an incredibly large market. And the HP market is, as I mentioned before, is a smaller 2.5 million patients that are treated annually. And the opportunity here is that when they see the data that we produce in our Phase 3 study, physicians give that a 48% market share. They envision 48% of their patients progressing on to vonoprazan. And we know from a payor perspective, we have the opportunity for that to be a first-line treatment. On the GERD side, erosive esophagitis is 20 million of the broader 65 million patients. And as I mentioned previously, 50% of those patients progressed their line of therapy annually. And right now, for 25 years, they've had nowhere to go but to another PPI. And then the last thing I'll call out for you here is that when given the opportunity to look at the profile, they envision up to 35% of their patients being put on vonoprazan for both erosive esophagitis and NERD. So these are market shares that are really very, very high, without any promotion and really one of the highest I've seen in my career in terms of getting ready for launch. So, this is my belief that we believe that the size of the market and the shares that we're seeing and hearing from customers present a blockbuster opportunity. Terrie?

Thanks, Martin. So before we open it up to questions, I'd just like to summarize and quickly talk about the execution that we've had to date and some of the upcoming catalysts that we have in the short-term. So on the last slide, you can see that our most recent accomplishments, some of which include initiating our Phase 2 NERD on-demand trial, completing and sharing the phase -- positive Phase 3 results from PHALCON-HP with all the primary and secondary superiority in voice. The submission of our 2 NDAS, the H. pylori to the FDA. Next month, in October, we look forward to sharing the highly anticipated top line results from PHALCON-EE in erosive esophagitis. And in the first quarter of 2022, reading out the Phase 2 NERD-on demand. For the second half of 2022, we will commence the potential commercial launch of HP, and we'll submit the NDA for erosive esophagitis for the anticipated launch in 2023. So it's going to be a busy and full 2022 for us, for sure, and we're really excited about the future of Phathom and Vonoprazan. Thanks, Rahul. I'll turn it back to you for questions.

Thank you, Terrie. This was very helpful. I would like to remind the audience that if you have questions for the management team, please type them in your Q&A portal, and I'll be sure to ask that of the team here. So Terrie, while we wait for audience to send the questions, I have a few that I would like to ask. You talked about the trial design for the EE trial. Could you talk a bit about the various endpoints that you're tracking and which one of those, if any, are higher on the differentiation scale versus the others?

So I'll ask Azmi, who is our Chief Operating Officer, to address that question.

Thanks, Terrie. So our studies are designed not only to achieve the endpoint that require -- that requires for approval, but also, we have superiority endpoints that are designed to highlight the key characteristics of the molecule, which is fast onset of action, potency and durability. The key secondary endpoints that are -- that we aim to achieve towards that objective are the superiority at 24-weeks, both in the C&D population of erosive esophagitis, which are the more severe population, but also the overall population. So these are key secondary endpoints for us. And they are redesigned into the study, and also FDA has agreement with the design and the statistical plan. Now beyond that, anything we achieved from superiority endpoints that we have into this study will be additional plus as well, like the 2-weeks superiority end points and other symptom-related endpoints.

Rahul?

Rahul, you are on mute?

Apologies. If you were to take back 2 years into this, I might have figured how to use this properly. So a question I was asking was, could you talk about your KOL strategy? Seems like you're having some good engagement with the physician prescriber base here and getting some good feedback from them. Could you talk a bit more about the KOL engagement and where we might expect to see you guys over the course of the year for industry conferences or scientific presentations?

Yes. So I guess I'll go first. So the first thing is we have a group of medical science liaisons who've been in place for quite some time. And so they've already begun those one-on-one interactions with the key opinion leaders. Where we see a real opportunity here is the standard. We've all seen the pharma standard in terms of the pyramid. But what we're really focused on right now is not only that pyramid, which we've had great receptivity from, matter of fact, I can share with you the first advisory board we did, within 24 hours, we had complete acceptance because no one's been really engaging these folks on this topic. So they're really energized about working with us. But we're also looking at those allied providers, the nurse physicians and nurse practitioners and physician assistants, They have a lot of influence as to what gets prescribed, and they have amongst themselves their own network. So a matter of fact, this past weekend, we had a live -- at a presence and a live meeting with up to 500 of those folks who are meeting at another medical conference. So we're approaching it in 2 ways. We're approaching it from kind of the standard approach, but also how we look at it from a different perspective, the allied professionals as well as maybe some of the younger -- those who will be key opinion leaders in the future. We think that this more complete view is going to be really important for us as we move forward towards launch. But also, I should just comment is we've had a presence at DDW because you asked about congresses. And the American College of Gastroenterology is coming up at the end of October, where we have a number of abstracts being presented, including our pivotal data on H. pylori.

Staying on this topic, can we just -- you shared some details around the commercial plans for the launch here. Can you just talk a bit more about the progress that you've made to date in building out the commercial infrastructure? And also, how are you thinking about the 2 launches, the 2 potential launches for HP and EE? Is there an overlap in the prescriber base between the 2? And how should we think about that?

So, I guess I'll take the last part first. Yes, there's an overlap. So we're thinking about H. pylori, as I mentioned previously, is the smaller launch and building to the much bigger launch of erosive esophagitis. As I said before, about 10% of the physicians prescribed 65% of the volume. So when we go out of H. pylori, we'll be speaking only about H. pylori, but those prescribers will also be prescribers for erosive esophagitis. We will not speak about erosive esophagitis, but we'll talk about the profile, the new mechanism. So those prescribers will start to get really comfortable with the complete vonoprazan profile and see first-hand its benefits in H. pylori. In terms of readiness, yes, we started to build out the team. I mentioned already the MSLs, scientific liaisons are in place. The key leadership reporting into me is here, our leader for marketing. We have our key strategic pillars all aligned. We've launched an unmet need campaign. Again, if you ask customers about satisfaction, they'll tell you they're satisfied. You don't need to convince them that they're not. You just need to ask the right questions. And at the end of the conversation, the dissatisfaction comes through. So we've got a campaign called RethinkGIAcid, which is out there, and we've begun our presence at meetings, as I mentioned before. On the payor side, we also have staff coming on board. We have a leader there. We are filling our account staff. We've heard from early initiation discussions that we have a pathway to reimbursement that looks positive for patient access for both H. pylori as well as erosive esophagitis. And we're engaging multiple groups through HEOR studies that, again, will set that need for unmet need and bring that to life through both publications and real-world data. And then the last thing I'll just say is, we're in the process of recruiting our sales leadership right now. So we are gearing up and we are moving fast.

And just I guess one follow-up question on the commercial plans. Assuming a positive FDA decision on the H. pylori indication, should we think about the launch as something, which happens very close to the approval? Or would there be some time over, which you would continue to build out the sales infrastructure and canvas the payor market before the eventual launch?

Yes. So our objective will be to launch shortly after as defined within a couple of months in the second half of next year. So we'll continue to build out the organization more fully and make sure that we have stock products. And most importantly, that we've begun those conversations with the payors. So when it comes to having those, the more in-depth conversation with the payors, you consider that launch on day one.

And could you talk a bit about -- this is a unique product, it's doing phenomenally well in Japan, there's already a well-established track record of this product there. Could you talk a bit about, are there any learnings from the Japanese market for vonoprazan that could be applied over here?

Yes. It's a great question, Rahul. And I think we're in a fortunate position that we have a wealth of data from Japan, not only just the revenue and how the products performed from that perspective, but also a great deal of data that we can mine from a health outcomes perspective and also a wealth of data for safety for our submission. And there's some similarities between the 2 markets and obviously, some big difference. I think the similarities are that the Japanese team also launched into a highly genericized market in Japan, and there was only -- well, there still is only one branded PPI in the market, which is Nexium. They launched successfully into that market, as you said, generating revenue of more than $800 million, and they're still growing at a double-digit pace. They took over leadership in the overall antisecretory market from Nexium, and they have more than 85% market share if you just look at the H. pylori subset. So they've done a tremendous job. And we've spent a lot of time with the Japanese team just understanding and learning from them. I think some of the learnings are that, as Martin called out, there still is a significant unmet need in this category that patients are still high level of switching within a year, up to 50% of switching. And so there is a unique opportunity to capture that high level of switches and level of dissatisfaction. I think the other thing we learned from them in terms of the profile and positioning, we talked a little bit about the key pillars of differentiation for vonoprazan, being rapid onset of action, more potent and then that durable maintenance of healing. When we looked at the Japanese positioning and messaging, they really focused on rapid or fast in translation for Japanese and strong. Fast and strong were their 2 kind of cornerstones of the pillars of their communication. So that really aligns well with how we see vonoprazan being differentiated in the marketplace and also what we're trying to show in our clinical program, in the Phase 3 program that we'll read out in October.

Okay. Switching gears a little bit to the NERD program. Can you talk a bit about the development strategy there and also, if you can quantify the market opportunity a bit more?

Sorry, I was on mute. Yes, I can speak to the development strategy. So if you look today at the way NERD is treated, it's primarily with PPIs and H2RAs. So PPIs are all approved for continuous therapy. However, patients use them on demand, but we know they do not work on demand. PPIs need 2 days, 3 days to start working. None of them is approved on demand as well. Now H2RA, on the other hand, work on demand, but they don't have the durability. So patients are left with this space where they need medicine that works on demand but also durable. When you look at the PK/PD profile of vonoprazan, it actually lends itself very well to achieving both, fast onset of acid control and durable control beyond that. So our development plan is aimed to do such that, which is look at the efficacy of vonoprazan and pursue continuous therapy, but also pursue on-demand therapy as well. And we approached the FDA with that. The FDA is very interested in us pursuing that path, which is really refreshing and new for us and for the FDA just because, again, the realization of that profile is very optimal in that sense. So, we designed a Phase 2 study in consultation with the FDA, on-demand study that we are conducting now and it's going very fast. And that study aims to show that patients who come into this study and get stabilized symptoms wise on vonoprazan, then get to be randomized and take vonoprazan on-demand, that is when they have a symptom, they take vonoprazan and then we monitor how fast the symptom relief and for how long. And based on that study and further consultation with the FDA, we plan to pursue that indication in addition to a continuous, more classical continuous treatment. So the opportunity here that we'll be able to bring a medicine that provide the optimal choice for patients and the optimal availability of medicine that work on-demand and continuous, hence, provide proper efficacy, but also manage that with appropriate safety as well. So that's from an R&D strategy. On the commercial side, I will pass this to my colleagues.

Yes. I guess I'll just recap a few things again, right? So the market size for NERDs specifically is 45 million patients. And what's also another unique thing in this market, there's a lot of OTCs. But in the PPI market, 85% of all OTC use is prescription based. It's not OTCs like many of us would think. So given the fact that it's a large prescription market, that there's a high level of progression of switching products adding on and the fact that we've heard from customers, potential for 35% share, it really sets us up to do well in NERD. And I think the approach we're taking of 2 options doing studies in daily dosing, which would be more for long-term symptom management as well as for on-demand patients who don't need product as much, but maybe need that speed of relief. I think we're set up for a very good opportunity.

Thank you, Martin and Azmi. Terrie, I believe this is -- these are all the questions that we have so far. So I would like to thank the management team for taking out the time and joining us here today for the fireside chat. Really appreciate your input in providing more color. Looks like lot of interesting and exciting catalysts coming up for Phathom over the next few months to a year. Any closing remarks, Terrie, you would like to make?

Yes. Thanks, Rahul, for inviting us. I think it's clear that the company has done a tremendous job at executing the program ahead of schedule despite the pandemic. And we look forward to reading out some very significant catalysts in October with EU data and then in the first quarter with the Phase 2 NERD program. So thank you, and thanks for joining us.

Thank you so much. With that, everyone, this concludes our fireside chat with Phathom Pharmaceuticals. Thank you for joining us.