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

Okay. Good morning, everyone. I'm Paul Choi. I cover the small and mid-cap biotechnology sector here at Goldman Sachs. Before we begin [indiscernible] disclosures regarding [indiscernible] disclosures are available that allow us [indiscernible]. However, they are available on our research portal for your information. Goldman Sachs only undertakes us under the assumption that any third-party speaker here today will not provide any confidential or material nonpublic information. Additionally, the views expressed by third parties do not necessarily reflect those of Goldman Sachs. And with that, we'll continue. It's my pleasure to welcome Phathom Pharmaceuticals here. We're joined by the senior management team. And starting on my left is Martin. Then, to my immediate right, at the far end, sorry, we have Azmi, Molly and Terrie. What we'll do is let Terrie kick it off with some opening remarks, and then we'll get into Q&A.

Good morning and thanks for inviting us to the conference call. So Phathom is a company that's focused on developing and potentially commercializing potassium-competitive acid blocker for acid-related disorders. We are very far progressed in the development of this compound, which represents the first pickup to enter marketplace here in the U.S., Europe and Canada. We have completed 3 Phase III clinical programs, 1 in the eradication of H. pylori, the second in erosive GERD and the third in non-erosive GERD. The first 2 clinical trials in HP and EE both show superiority versus the standard of care, and we anticipate launching both of those indications by Q4. We did receive 2 CRLs, related to trace levels of nitrosamine, which in consultation with the FDA, we worked through a number of mitigation efforts, one of those being a reformulation -- minor reformulation of the tablets. We began manufacturing in December and agreed with the FDA that we would resubmit the NDAs, which we did 2 weeks ago. So we're absolutely thrilled that we're back on track and very close to commercialization. If successful, this will represent the first new innovation into this category with a new mechanism in more than 20 years and really meets the needs of a very large market -- population is about 22 million patients that suffer from GERD that have really no other options in the standard of care which is PPIs. So very excited to be back on track and to be here to talk with you.

Great. And congratulations on the NDA.

So for investors who may not be familiar and may not have the context with the background prior to your resubmission here. Can you maybe briefly summarize the issue that originally led to Phathom receiving the CRL and -- back in February?

Yes. So when we were running confirmatory testing on stability of our product before the launch of HP, we found trace levels of nitroso-vonoprazan. None of the other nitrosamines were found. However, found trace levels of nitroso-vonoprazan that we entered the product, not being stable at the end of its shelf life. So since that time, that was around the August of '22. Since that time, we worked very closely with the FDA first to define methodology and validate the methodology of testing, but also to define the upper limit under which we need to stay during the shelf life. And also, in parallel, we ran experiments -- mitigation experiments to find a path to reduce and control the nitrosamine levels, which we have achieved all of that by December of '22. And based on this, we start manufacturing using a minor reformulation and we start generating stability data. We met with the FDA in March of this year. And during that meeting, we reached an agreement to resubmit the NDA with 3 months' data to be supplemented by the 6-month stability data to be supplemented by 6 months data during the review, which we have done. And now we're in the process of collecting the additional 3 months data to submit to the FDA shortly.

And just for context, there's existing guidance on the issue of nitrosamines from the FDA. But in this case, this was a novel nitrosamine that was discovered, correct?

Correct. The guidance covers 6 or 7 nitrosamines, which we don't have any. However, what we found is something unique to vonoprazan, which is nitroso-vonoprazan. Other products like [indiscernible] Januvia, for instance, have similar nitrosamine drug substance related impurities. So we have -- that's why we had to define the limit de novo and that's what we are doing.

So this is a type of problem that -- a phenotype, if you will, that is known to the FDA. But in this case, this was sort of a new "variant" of nitrosamine that was discovered here?

Correct.

Yes. Great. Maybe you could elaborate a little bit more on the changes you made. You mentioned the reformulation. And how does this compare to the Takeda version of Takecab that's currently commercially available on the Japanese market?

We're not disclosing the exact reformulation elements that we've done because of potential IP path here. The formulation is essentially similar to what Takeda formulation is. However, the supply chain is different. So we cannot comment and we don't have exposure to what Takeda is doing specifically on the product that's specific to them. However, in our case, we believe the impurity is driven by nitrites and the excipients or potential environment interacting with the secondary immune that is in the molecule. And our aim was from the mitigation is to limit the interaction between the nitrites and the secondary immune, but also limit -- for any interaction, limit the growth of that nitroso-vonoprazan, which based on our data to date, we have successfully done so.

Okay. Great. You've disclosed as part of the NDA submission process that you now already have 3-month stability data in hand and there's a plan to submit additional follow-up or 6-month stability data as part of your review process. Can you maybe remind us what in terms of like process and methods, the stability data testing it entails and under sort of what conditions you are gathering data?

Sure. So the data we collected is based on standard ICH stability guidelines, which is under long-term stability condition, which is the 25 degrees, 60% relative humidity. Also the accelerated stability conditions, which are 40 degrees centigrade and 75% relative humidity. For those, we had multiple configuration presentation of the products for both the 10 and 20-milligram in bottle packaging as well as in blisters. And we collect the data at 1 months, 2 months, 3 months. So when you add all of this together, we have many data points over the 3 months. And those data points all confirmed that we have very good control and ability to manage repeatedly so the levels of nitrosamines ell below the limit that we have set for us. In addition, we also collected stability data across the board to confirm that the minor reformulations not affect any of the stability parameters, which also was confirmed. Now we took all of that -- all of the data elements, and we modeled them as well using models that the FDA likes to see and that projected our shelf life to comfortably meet the 24 months that we are seeking.

Great. You mentioned your modeling supports a potential 24-month shelf life here. And from a commercial perspective, for instance, like HP is a relatively short duration treatment; EE could be made somewhat longer. But I guess how important is that for you from a commercial perspective?

Well, I'll speak from stability and then it's really -- from a manufacturing perspective, it's to be optimal in managing the supply chain and distribution. It's not as much of the clinical element, but that's optimization of the supply chain. And Martin, maybe you can comment from here.

Yes, I think it's very manageable in terms of managing the supply chain, as Azmi said, it's also a chronic medicine. So I think people are going to be getting -- not going to be sitting on the shelf waiting for the next acute therapy to happen.

Okay. Great. With regard to the NDA, maybe for Terrie, you said you anticipate this will be a Class II resubmission pending the FDA's decision on that with a 6-month review. Apart from the 6-month stability data that we've been discussing, what else do you anticipate in terms of potential data requests here? And what form could these data requests potentially take here?

Sure. So we were -- in this resubmission, we were addressing the issues that are identified in the CRL -- 2 CRLs, 1 for HP, 1 for the erosive GERD application and both addressing the nitrosamine issue only. So that's the sole issue relating to these reviews that remains. So the remainder of the files have been completed, including the label. So we don't anticipate any additional request. We will, as part of the standard resubmission provide a safety update but there is nothing within that valuation that is outside of the information that we've provided before, just a regular safety update. So we don't anticipate any additional requests during the process.

That's an interesting point you bring up, but just in terms of the safety update, Terrie, can you maybe just remind us where patients are in terms of a potential follow-up and duration of therapy from your various clinical trials?

Yes. So from the Japanese data, there's a study called Vision where they've been following patients for 5 years. So we'll incorporate an updated package to include that safety data within the submission.

Great. I know it's been a relatively short time. But since your resubmission, can you comment on any FDA feedback or interactions that you've had since then? And maybe just to update your thinking on sort of how are you thinking about claims and data that you will be seeking for the EE indication?

Yes, I can cover that. So the -- well, the key communication we received from the FDA that they acknowledge the receipt of the resubmission, and they signed a target PDUFA date of November 17. So that's good. That's what we expected [indiscernible] 6-month review. So that's all in line with our expectations. As for the remainder of the review, we were at a very good place when we received the CRL for this whole issue of nitroso-vonoprazan. So everything was really in a late stage of review. We don't anticipate any re-review, so to speak, of that material. The label we are seeking is a label that give us the basic indication, which is that vonoprazan is approved for the treatment of healing and maintenance of healing erosive esophagitis with symptom control, heartburn symptom relief. In addition, we -- our objective is to have superiority claims or the 2-week healing for the moderate to severe patients, but also for the maintenance of healing at the 6 months for all patients and moderate severe patients as well. Those are -- we're on a very good path to achieve those claims. If that is met, then vonoprazan will be the first acid suppressant such superiority claims in the market.

That's great. Maybe turning to Martin in terms of what Azmi just mentioned with regard to specific label claims and superiority on the 2-week treatment and the maintenance period as well. How does that figure into, I guess, your commercial positioning of vonoprazan here? And how important are those specific label claims in terms of fostering adoption for the EE indication?

Yes. So I guess in terms of -- I'll take 2 parts of positioning. First one is, I'll say place in therapy. And so while our label allows for first-line use, I think definitely and our position with payers, we anticipate to be one step through a PPI, which we're totally comfortable with. There's 22 million active patients in the market being diagnosed and treated. And the only place they've had to go for 30 years is through a PPI. So the majority of the market has met that criteria. So that would be the positioning in place. But I think what will make physicians move to it quickly and we get this feedback from them is the fact that we have superiority versus standard of care or the PPI. And that's the first time that's ever happened. So having the superiority in the label makes -- allows us to make very strong claims that we've sent claims down to OPDP, which is a division of the FDA that reviews your claims prior to approval. So when we got the HP approval, we sent down. And so we got back from the FDA clearance to make statements such as rapid, potent and durable, more than 2x effective, superiority versus lansoprazole PPI. So we have really strong messages from a positioning standpoint, and we believe we'll have really good placement in terms of positioning and therapy.

Okay. Great. In addition to that, could you maybe elaborate Martin, on where you are with regard to your commercial preparations? You talk -- you're looking a few quarters away from a 4Q launch here. And so, can you maybe just start on that and maybe just elaborate where you are with regard to infrastructure build-out, starting with that and then maybe get a little bit more into the payer discussions?

So we're actually -- we're in a good and I'll say comfortable place because our pause began when we got the news from the FDA, we were several weeks away from launch. So we continued many of our activities, medical science liaisons and the MSLs have been in place for a number of years actually. So they've been interacting with the academic community, answering questions, sharing information regarding Voquezna. And then we've had presence at meetings such as Digestive Disease Week and that continues through. So we haven't stopped our presence. I think what made it unique in a very positive way, we had identified our sales force hiring but we had not made offers yet. So we didn't have to carry those costs through the pause, but we can now go back to those pool of people. And those are many of those people or most of those people were those that we sought out. So they were in the market looking for a position. So we can go back to them. So we'll start recruiting the sales force over the summer. We'll have them begin upon launch. And then while they're coming on board and training, we'll start out of the gate with a digital launch, virtual launch to physicians to the targets. Our goal is to have 300 to 330 sales representatives, and they'll call on roughly 49,000 high-volume -- PPI high-volume primary care and gastroenterologists. And as you can imagine, gastroenterologists are kind of at the top of that pyramid. So that's where it stands with the sales force and then a virtual launch right away for a couple of weeks. And then from a payer perspective, we've continued dialogue with payers. We have account people who were on board. As a matter of fact, one of their successes to date is since we had approval for H. pylori, we currently have 60% commercial coverage for the H. pylori packs. And given the fact that we don't have a product in the market, it's quite unique and really positive, and it sends a signal of that opportunity I was speaking to earlier. So everything to go. We're working with the payers. We'll start recruiting the sales force. All the communication with physicians has continued and we'll be ready to go upon approval.

Great. Could you maybe elaborate a little bit more on the payer work, particularly with regard to -- you mentioned your base cases, assuming one step at it, but how do you like plan to anticipate helping doctors with in the case that there's pair challenges, anything maybe like a PA should come up or something like that. How do you think about facilitating the prescribing experience for physicians here?

Yes. So I think I'll take the first part. The situation or the strategy is, and we've seen it now proven with H. pylori, is we have superiority with erosive esophagitis as well. So that superiority gives us, I'll say, the right to have the conversation. And then when you look at our pricing, which is a branded premium price for H. pylori, we envision a price of $17 to $22 per tablet when we have approval for GERD. So that branded premium price with superiority to justify that and that ability to contract with rebates, we believe will get us to that position. So then it comes down to the physician writing the prescription. So if, in fact, our base case plays out, which we have every reason to believe that it will, one step through PPI, it's typically going to be identified through 2 ways at the pharmacy because they can pick that up in a nanosecond, and they'll come to you and say, here's your script. And then or they'll say, "Hey, listen, you haven't stepped through a PPI." So that would be one way. But we think the majority of the patients will have step-through PPI or when the doctor prescribes -- everything is electronic now, there could be a pop-up and say, has that patient been on a PPI. And so that PPI experience patient would automatically go through. So we'll make sure we're really transparent with physicians as to what to expect when they write a prescription because what we want to do is minimize any work for them. But we're not anticipating a prior authorization, paperwork, things going back and forth with the payer, that is not what we're anticipating.

Okay. Great. maybe both for you, Martin and for Azmi. It's been a little while. You spoke to this a little bit about your MSLs like going out in the field and speaking to physicians. But it's been a little while since the Falcon data were initially top lined and presented and so forth. And so what is sort of the muscle memory in the prescriber community or how would you characterize the awareness of the Falcon data at this point.

Yes. I'll start and then pass it to Martin. It's actually very high. We still -- we are very active in publications. We're very active through the MSLs in communication with physicians, opinion leaders. We are designing clinical trials as well for EoE as well as on demand. So we're in discussions with physicians and sites and clinical leaders on all these elements. DDW was very significant for us. Actually, the key question that we've been getting is when we're going to present going on the market. It's that sense of wanting to use the product is very high, our calling center actually gets calls about availability of the product for use by -- from physicians and patients as well. So there's a very strong anticipation that we're welcome, obviously, but Martin.

I think on the primary care side, if you asked physicians, they say, "Well, I'm aware of something is coming." When you raise it to a gastroenterologist, they know that Voquezna is coming. They're familiar at a high level with the data. They know that it's a different mechanism of action, which is attractive, and they know that it's been compared to a PPI. So that's without even sharing any information with them. So given the fact that we're -- we haven't launched yet, that's a really high awareness of gastroenterologists. When you then show them the data, their intent to prescribe is really high. As matter of fact, when we bring the profile to physicians, and it's just data, there's no headlines, there's no powerful messages, just the data. They allocate about 42% of their patients that they anticipate to put on Voquezna. And I go back to, again, the fact that there's been nothing for them -- no changes for them in the past 30 years. So I think the awareness is there for us to jump springboard for us to get started from.

Maybe just as a refresher in terms of market framework, how much of the current EE market is sort of GI specialists in terms of prescribing behavior on PPIs relative to primary care physicians?

You know what it's evenly distributed. So if you think of either as a pyramid or if you're familiar with [deciling] that the industry does, when you take a look at your decile 9 and 10, it's mostly gastroenterologists. But as soon as you get in -- primary care enters at 9 and then at 8, it tips. So that's for a couple of reasons. As the majority of erosive esophagitis patients, while they may get their final diagnosis with the gastroenterologist, they're sent back to primary care. And that primary care is adjusting therapy through the long-term physician. So they actually have patients who are coded for erosive esophagitis and making treatment decisions. So that's where that 49,000 physicians comes to be.

Great. One of the things you guys have been doing maybe for you, Terrie, is a patient access program post your clinical trials and things along those lines. Can you maybe comment on how that's going and just how that's sort of factored into thinking about your discussions of pivoting patients on to commercial?

So patient access in terms of the ....

Yes. You mean like when the patient gets there, like co-pay.

Supports them. Yes, exactly. Yes.

Do you want me to take that, Terrie? Yes. So -- and I'll repeat again, the feeling is the patient will need to step through and that, that will be identified before the patient gets to the counter. So there's 2 ways to help. One, we'll have a co-pay support, and we envision that, that co-pay will be in the range, equivalent if you were to get an OTC PPI and take it as prescribed. So we don't want a patient to walk away because of a co-pay and they'll be for commercial patients. The other thing we're doing is we plan on partnering with a cloud pharmacy and cloud pharmacies really came to be during the pandemic. And so this is not a specialty product. What they do is they do a light touch on reimbursement. And then any patient maybe who hasn't met their deductible -- commercial patient hasn't met their deductible for some reason, it isn't covered. We will not give away free goods. It will not be a bridge program, but we can through consignment sales, working with that pharmacy. We can provide product to the patient and at the same time, ensure that we receive revenue.

Sure. Maybe probably one of the most common questions you'll typically get from investors is, what does the shape of a launch curve look like? You and I have often talked about Dexilant as the most recent market analog for this particular category. Do you feel like that's still relevant. That was certainly a drug that was launched pre-pandemic. Does that analog in your mind still makes sense?

Yes. I think we've looked at many analogs as we've tried to evaluate the launch curve, particularly in that first 12 months. I think it is one of the good [indiscernible] is an appropriate analog as are many others like [indiscernible]. I think there's parts of other product launches that we've evaluated. None of them fit perfectly because this is a really unique opportunity, a very large market, no competition, first-in-class, best-in-class. We're launching, as Martin mentioned, out of the gate with already 60% commercial lives covered for the H. pylori indication. And in fact, we already have in one of the large contracts that we have contracted with one of the payers we already had the bottle, which is a 30-count bottle for erosive GERD recovered as well. So while you can look to some of those analogs, there are other dynamics at play that I think will help us accelerate that first year of launch versus some of the other launches.

Great. Maybe turning to other aspects of the business. You mentioned in your introductory remarks that you are working on life cycle management for vonoprazan here, including NERD. Maybe you can remind us of the prior data at a high level and how the NERD indication potentially figures into your longer-term strategy to maximize and extract value from the [indiscernible] here?

Sure. So maybe just before I touch on that, I'll just mention the unique mechanism of action, which really plays into how we've shaped both the clinical program and look at life cycle opportunities for vonoprazan. So vonoprazan is unique in that unlike PPIs, it binds to both the active and the inactive pumps, and that really translates to the differences we see in the clinic. So the rapid onset of action within the first day, very potent and very durable. And that was how we design all of the clinical programs to really highlight that differentiation versus PPIs. PCABs were developed to overcome some of the shortcomings of PPIs, and so when we looked at the profile, the first 2 indications are obviously H. pylori and then a erosive GERD. The third program, which we have read out positive Phase III is for non-erosive GERD, which is the largest segment. It's around 70% of the patient population for GERD. And there, we're also pursuing a very unique dosing regimen which is looking at on-demand or as needed therapy. So we're looking at extending the daily dosing study, which we'll read out shortly and plan to file that by year-end. So that's the NERD indication, which will have approval next year. And then based upon that data, we'll initiate an on-demand or as needed Phase III study. And that will be highly differentiated versus the standard of care PPI. In fact, the FDA is engaged with us in designing that clinical program because many patients don't want to take their PPI every day -- PPIs, they've tried and failed. Their admission is not appropriate to be utilized in an on-demand or as needed fashion. So this will really present a unique opportunity for the patients that are suffering from these 2 diseases. The other opportunities for us are looking at eosinophilic esophagitis. We are in discussions with the FDA regarding a protocol for pediatrics as well as EoE patients in pediatrics as well as adults. So we anticipate initiating a Phase II for that patient population and then potentially looking at additional presentations, IV as well as an hourly dissolving tablet. The unique profile for vonoprazan also presents an opportunity way down the track towards the end of the life cycle of vonoprazan for a switch. So that's something we would plan well down the track. So ultimately, the goal is to displace PPIs in Japan where this product has been on the market for several years. The vonoprazan is a market leader in Japan and has displaced -- it was a very similar market dynamics at play in Japan where they entered into a largely generic marketplace and really rapidly became a market leader. They've got more than 45% share in Japan. So the...

That translates to about $800 million in annual sales in U.S. dollars.

Correct. Yes, that USD 850 million, they're selling in Japan, and it's still continuing to grow pretty rapidly, driven by volume, about 20% year-on-year. So we anticipate that vonoprazan will really present an opportunity to radically change the therapeutic options in the U.S., Europe and Canada and change the paradigm within the marketplace.

Great. I want to maybe just touch on your comments with regard to the on-demand study that you referenced. And maybe since PPIs historically haven't worked in that particular application. Can you maybe just comment on what the FDA has guided Phathom on with regard to how to approach the on-demand study here?

Sure. So we designed the Phase II study in collaboration with the FDA. The way we designed the Phase II was patients come in and they're given daily vonoprazan. And those who respond, those patients who respond, move on to on-demand. And on demand in this case is where the patients -- when the patients have an episode of heartburn, they take vonoprazan. Then we'll monitor how fast that heartburn episodes resolves and also we'll monitor over the following 24 hours the absence of return of that episode. So we need to not only control it fast, but have the patient free of heartburn for 24 hours. This is that combined endpoint is what's unique about the study. So our Phase II study showed that vonoprazan actually in all dose levels, we tested, 10, 20 and 40 did achieve resolution of heartburn episodes upon -- after recurrence as early as 1 hour and for most patients that resolution remained over 24 hours, very separated from placebo. So we talked to the FDA. They were actually very pleased and encouraged by that because it's unique elements of the design, but also the unique elements and the rigorous of that endpoint as well because it's a tough endpoint. So our Phase III study that we're discussing with them is largely that Phase II design. And the discussion is going really well, and we anticipate finalization of that very soon.

Great. Just quickly on EoE, there are -- has been some developmental offers from biologics such as Dupixent and some other antibodies for that particular indication. I guess as you think about potential development in EoE, would this be as a step before biologics? Or do you think it would make most sense in the post biologics population?

Before biologics. Yes.

Okay. Great.

I mean, Phase II will tell us, but that's our intent.

Okay. And then maybe to bring Molly in here. You recently did a capital raise. And can you maybe comment on following this raise, where your cash position takes you to. You're obviously on the cusp of commercialization here. So I'm sure that figures in the calculus. And then I had a follow-up question for Terrie.

So yes, as you mentioned, we just announced $150 million growth rate. That was very well oversubscribed. A lot of interest in the market, but that essentially gave us the runway through 2025 now. That, coupled with the $100 million of debt availability we have and the $175 million under our royalty financing agreement plus the additional capital, we feel really it gives Martin the resources he needs to launch erosive GERD this year and as well as non-erosive GERD next year.

Okay. Great. with your capital position bolstered meaningfully now, Terrie, you've talked about life cycle management. In terms of prioritizing capital, how does life cycle management rank, I guess, relative to business development. And as you think about business development, where sort of the key opportunities or focus areas for you as you think about the longer-term strategy potentially outside of vonoprazan.

Sure. So our #1 priority in the short term, so I'd say define that as in the next 2 years is optimizing vonoprazan. We believe that as you look at the number of indications that we have in succession over the next 2 years, it's really a pipeline within a product. And so the resources that we have will be really focused on maximizing the launch in Q4 and then going into 2024, with launching the daily dosing and then following up with on-demand and then EoE. So we believe, based upon the success in Japan and all of the market research and dynamics that we've seen play out from an access perspective, that we have the potential to generate a peak more than $3 billion of this compound. So we really make sure that we don't spread our resources and focus beyond optimizing vonoprazan. Having said that, in the medium term, and we've done some work to look at the GI landscape more broadly and look at assets, particularly in late Phase II, Phase III, where we could leverage the structure that we put in place, both in Azmi's group in terms of the expertise we now have in development and then in Martin's group in commercialization to look at assets that are within the GI space that are adjacent to vonoprazan. So we've done that work and paying close attention to opportunities that may arise once we become cash flow positive. But in the very short term, all of our focus is in just maximizing the launch and maximizing the opportunity.

Great. We're up on time here, so we'll end it on that note. My thanks to the Phathom team for joining us today. Thank you very much.

Thank you, Paul.

Thanks, Paul.