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

All right. Good afternoon, everyone, and thanks for coming to the Phathom presentation. Happy to have Martin Gilligan here, COO; and Azmi Nabulsi, the Chief Operating Officer, COO. And maybe we can just start. Phathom, as you know, has -- not that long ago, we launched VOQUEZNA for GERD, now broadly for GERD, approved both in erosive esophagitis and non-erosive esophagitis. It's launched extremely well. So why don't you give us a quick overview, and we can go from there.

Sure. So, for -- thanks for recognizing that the launch is going well. We're very excited about it. As we just heard from Annabel, we had a -- we really entered the market in January of last year. So we're coming up on a year by the time our sales force was beginning promotion. Then we had the indication for erosive GERD, and it was in July 19th that we received approval for non-erosive, which makes the market that much bigger, makes it 22 million patients have GERD who are actually at the doctor's office, who are getting a prescription. And our profile is differentiated by being rapid, potent and durable. And we're seeing an increase in prescribers. We're seeing repeat prescribers, and we're seeing patients ask for VOQUEZNA. So that's kind of the high level.

Okay. Great. So let's get into some details about the launch into the GI market versus the primary care market, it's a different knowledge base, different population. I wanted to talk a little bit about how you're approaching each of the different segments of the market.

Yes. So we have one sales force. We have 320 representatives who call on the geography, which means they have both GI and primary care physicians, which is important because they have a connection to those two specialties, the physicians from a referral basis. But the gastroenterologists in general, knew about PCABs from the literature because they've been over in Japan, vonoprazan was, in Asia. So scientifically, they knew the PCAB was a different mechanism. They knew a little bit about vonoprazan. They knew about the MOA in general. So they were -- already will be, as you say, a little bit more primed for -- to hear about VOQUEZNA, where primary care relatively had little understanding. So to no surprise, we've seen gastroenterologists be the first group of prescribers, especially since we had the erosive indication, which tends to lean a little bit more towards GI. But in the meantime, we were calling on those primary care physicians since the beginning, and they become much more familiar and comfortable with the mechanism of action. They tend to see the larger group of patients, which is the non-erosive GERD. So I think once we hit that new approval that came, as I said, in July, the primary care physicians started to activate a lot more because they're seeing a lot more of the patients where this is relevant to.

And what is resonating with these physicians?

What's resonating?

Yes. What has been the driver of the adoption? Because usually, you see these products, you launched it into a very well-served market, a lot of generics, a lot of OTC. It's not a launch that you would expect would go very quickly.

Yes. So basically, we launched into a very boring, stagnant market. It been 30 years, BPIs have been in the market, nothing new came. Which that creates just a lot of complacency, and this is what I normally do, and it's just kind of working on autopilot. So we really started to disrupt that. So what's really resonating are two things, again, the profile is differentiated. It works rapidly or fast, and that's what we hear back from physicians. But more importantly, we hear with them is the potency of it allows for the durability. So what we hear is it's a very symptomatic-driven disease that not only did it start to work very quickly, but then it lasts for the full 24 hours. And that's where a lot of patients really -- things didn't go well for them with the PPIs is because by the time they got to nighttime, what would happen is their symptoms would start to come back on, that's when you're trying to sleep. So I think if the profile resonates and then the superiority we have in the erosive GERD patient, those two things, I think, are really key drivers of what's moving VOQUEZNA for the Physician.

And is it the same drivers in the erosive GERD versus the non-erosive GERD?

Yes. I think -- yes, I would say that overlap of the fast onset and the durability. So that heartburn relief -- I mean we hear it -- coming from physicians saying -- even some physicians who have taken it themselves, hey, listen, within the first 15 to 30 minutes, I could feel that this was taking effect and definitely within the first hour. So I think that's what really is -- makes us stand apart from a PPI and then again, the long-lasting effect.

And remind us how long a PPI takes, actually, to show effect?

Typically a couple of days.

3 to 5 days.

3 to 5 days. Yes. Okay. So just one more point on the -- moving from the GI focus to the primary care focus. It's a much heavier lift. So for those -- let's call it, NERD patients. I don't love that term, but I'll use it anyway. The NERD patients.

The GERD patients.

The GERD patients, are they easily identifiable in the primary care market? Or does it require several visits for physicians to sort of ask their patient about it, see how they're doing. Then they'll come back and maybe they'll propose it the next time. Like what is the turnover?

Yes. No, they're definitely there. I mean, so it isn't like they have to seek out the patient. But I think it's about the conversation. So if you're a patient who's been on a PPI and they're telling the doctor that, "hey, you know what, I keep tums next to my desk, and I keep my [ Lancin ] next to my bed or I can't sleep any longer at night." Or "doctor, maybe you can switch me to another PPI?" That's the VOQUEZNA patient. And it's very symptom driven. And that's the patient, as you say, a heavy lift. For the primary care physician, the lift is just the familiarity with VOQUEZNA and really identifying that patient. And quite frankly, for the largest volume of physicians, those patients are in there every week.

Every week?

Yes. I mean the average -- the 52,000 physicians we call on, on average, they're responsible for 1,200 PPI prescriptions per year on average. That means some of them are responsible for 3,000 a year. So they're in there frequently.

So why don't I ask you something that's come up in our KOL conversations as it regards to primary care that it really has -- it actually might have the potential to change their practice pattern as far as what they need to do with one of these patients who come back repeatedly and saying, "I'm not well served". They may have to get referred out to a GI. They may have to get an endoscopy. Like are you noticing now that there's a change in their practice habits and their entire protocol? Because they have another option to try and they can sort of weed out these patients just with VQUEZNA alone and then like, okay, then we'll move on to something else.

Yes. I think that's a very good, strong speculation. It's just we're so early. . . .

I'm just hearing from a KOL saying this is going to be...

. . . on that table.

Revolutionary.

Yes. No. But, I mean, it's probably going to be true. I mean we've only had this indication for 4 months now. And what we know is that we are getting patients who had been on a PPI. So clearly, they were not doing well. In the past, to your point, the doctor either had to say, well, let's switch to another PPI, which, by the way, is the same mechanism. So there's no rationale that it would work better, throw on OTCs or move them over to a gastroenterologist for the endoscopy. So I think that KOL perspective is probably right.

Okay. All right. Then I guess the other sensitive point with launching drugs into these very well-served markets, clearly the adoption by the payers. And that's been unusually rapid also. And again, I'm going to give you kudos because we haven't seen 80% coverage before 1 year for many of these products. And so what has been the selling point to the payers as to why they got on board so quickly?

Yes. So our strategy was to move quickly with payers as it was with physicians. And we knew to be really successful, we needed to get those things moving in parallel. So I think what differentiates us for the payer, it's a little bit counter than we would all think. You would think as we were just saying, high big generic market, things are fine. We're not used to brands coming in here. But what was attractive for the payers is a couple of things. Most importantly is that it's a large market with unmet need, and we had a product with superiority. So now you set it apart in an area where there's unmet need. And then also, we did put forth a pricing and contract strategy that was, quite frankly, appealing to them, but gave them the utilization management. Meaning there's still a lot of patients who are not even at the doctors. And so this allowed them to manage the category with one step through a PPI. Now in any category or product I've worked in before, as soon as you get a step as a marketer or a commercial person, you're trying to figure out how you get rid of that and move past that. Something we were completely comfortable with moving forward, really large market with a lot of patients moving. So we were comfortable with their utilization management position, and we're able to make them an offer that was a win for them because they obviously receive rebates from that, and they weren't getting any rebates in the category. A win for the physician and patient because they're getting a drug that's much in need in the marketplace.

Okay. I'm going to sidetrack us a little bit, based on what everyone has been worried about, which is the exclusivity period. And so maybe I'll let you speak to what gives you confidence that you can get the -- gain exclusivity. Maybe explain what the gain is and then talk about that a little bit.

Just before that, just quickly, we have intellectual property protection well into 2030. And that's on the molecule, and that's one path that we have. Now the other path was through regulatory exclusivity, which we entitled to 10-year protection would take us well into '32, 2032. And that's where the points that were made recently. So when we pursued H. pylori indication with the packs, that is the vonoprazan plus two antibiotics or plus the one antibiotic, the QIDP entitled us the incentive of full 10-year regulatory exclusivity, which is the gain incentive essentially. So if we develop in areas against the pathogen that's on a particular risk for QIDP and successfully get that product approved, then we get the 10-year exclusivity, which we did. So if you look at our orange book for the packs, it takes the exclusivity on the molecule on the active [ modi ] in vonoprazan for 10 years into 2032. So that's something that we gained and we have. Now then when we pursued the GERD indication, for the tablet only. It's the same tablet, by the way. It's in the H. pylori pack, same tablet that's in the GERD indication. Now the GERD indication label carries with it as well, H. pylori, by the way. So according to the umbrella policy that we've been using and we're entitled to, the 10-year exclusivity that we have received through that QIDP path is applicable to the tablet-only tablet as well, indications. So the Orange Book for the tablet and the GERD indication should have the 10-year exclusivity reflected, but it did not. So we contacted the FDA and said, we did follow the path that under the law we're entitled to, and we did receive the 10-year exclusivity for the active [ modi ], which is the same in the tablet-only indication. So we need that to be applied. They did not say yes. They did not say no. They did not argue against any of our arguments, the legal position and arguments. But they indicated that it's under discussion within the policy group. to before they check the box on it. And that's where we are now. We're still in discussion with them. They're having those meetings. We don't know exactly what they're discussing, but the legal firms we're working with, which are DC-based legal firms, assure us -- and based on everything we read and seen on those dialogues, we are very confident that we're on the right side of the law and that exclusivity should be reflected in the Orange Book. And it's a matter of time. So we're now looking into our options to give the FDA a nudge to move things faster.

Okay. So what are the options that you have to give them that nudge without thoroughly destroying the relationship with FDA?

Yes. So I mean, we could do nothing and just wait. And our dialogue and discussion with the FDA are very friendly. We -- they're very sympathetic, but they're taking their time in the process, right? The -- by the way, I draw a lot of barrels with the nitrosamine group for those who have been watching us through the nitrosamine resolution. We had the data on nitrosamine that we did control the nitrosamine levels below the acceptable levels, but the FDA took time to make a decision in our favor because it was being discussed in the policy side of things because we were first in that space and with that flavor. I think this is the same way. We are -- we have a flavor that they have not seen. We have the legal case very clear, but they're taking their time on the policy side of things. But coming back to your point, what the options are. So either do nothing or go through the citizen petition route. Now this is a friendly kind of gesture to nudge the FDA and give them, and give us, time frame for a decision. Or obviously, the more aggressive route will be the legal complaint route, which it's not warranted at this point. So we're looking seriously on the decision position route, and we'll make a decision this year.

Okay. You mentioned something earlier that was interesting. The H. pylori is included within the label of the actual bottle as well? In what capacity?

That it is -- that VEQUEZNA is indicated for [indiscernible] is indicated for non-erosive and indicated for H. pylori in combination with antibiotics.

Okay. So that gives them freedom to use it with any antibiotic, in which, case it's the same utility as it is within the pack.

It has the same utility, but the freedom to use the individual tablet and not by the pack.

Okay. And how much weight do you think that should carry the same weight across the pack?

From the legal case perspective or from a commercial perspective?

I would say probably the legal case perspective in order for...

I think the strength of the legal case is that we have already been awarded the 10-year exclusivity. And under the umbrella policy, that 10-year exclusivity on the active [ modi ] is applicable to all the additional indication. That's really even if H. pylori was not in the label for the tablet only, the legal case stand very strong.

Okay. All right. So I guess we'll have to see. Aside from the exclusivity, the IP you have is until 2030. So let's say -- let's pretend, worst-case scenario, the IP takes you to 2030. You have 5 years of exclusivity and [indiscernible] exclusivity, they can challenge you at 4 years. And then you assume -- like have you worked out the time lines where that would take you? If everything went according to how generics are typically approved in the marketplace?

Yes. I mean I cannot obviously know which product generic will come through. But regard, when you look at the timing in general, because if someone comes -- once they come in at this minus 1 kind of date, right, we have a 30-month stay that we can invoke to go through the challenge -- legal challenge process. If you look at those time lines and the 30 years, you'll find that -- the worst-case scenario in either case, it's going to be the 2030 time frame.

So it's around the same time.

Around the same time [indiscernible].

Are you doing any other work around IP to possibly get another patent maybe on a different indication, maybe in the pediatric, maybe in-- or esophagitis, anything there that you're working on?

Yes. We're -- the nitrosamine formulation that we -- or the nitrosamine resolution formulation, that's a formulation that we expect to give us additional protection. That's in the works. And then also, we are working on orally dissolving tablet that also will be -- we have prototypes and we're testing that. So that will come in with its own protection. And then the OE indicated, the [indiscernible] will carry protection for that indication potentially. Plus we have the 6 months pediatric exclusivity tied to any of those.

And are any of these patents filed right now? Or are they...

The nitrosamine friendly formulation, call it, it's filed, yes.

Okay. Any of them allowed yet?

No. I mean they're all recent. So they're still in [indiscernible].

All right. Okay. So worst-case scenario, 2030.

2030, and then you can tack -- to any of those dates, you can tack the 6 months pediatric once-week comp.

That's August [indiscernible].

That's right.

All right. Well, I guess we'll have to see where that plays out, but that's...

But the confidence is high. We're working more than one firm and across the board, the opinion consistent that we're operating and we're entitled -- as we have achieved the 10 years that we're entitled to that 10-year being applied.

And just to be clear, there's been no indication one way or another from FDA just that we're still working on it.

Absolutely not. If they would have said no, then we would have challenged that legally, they have not [indiscernible].

You're just seeking a way to -- maybe options to push the timeline or force a timeline on it.

Put a time line on it, but in a way that keep -- as we said earlier, keep our relationship with the FDA.

Okay. Back to the regularly scheduled programming. Coverage was obviously very good. The adoption is good. The step-throughs are good. What happens to BlinkRx now as this -- I think it's down to 25%. . .

30%, yes.

30% now that you said. Do you see it continuing to decrease? You keep it there for a certain part of the population that doesn't have the option to go through any of these channels, {indiscernible] business?

For right now, I mean, we see in the future keeping it. So BlinkRx is our patient support service. And if a script goes there and it's a commercial patient and they don't have coverage, they pay $50 for their VOQUEZNA bottle. And so the 30% is how much of it of our business on TRxs are flowing through BlinkRx cash support versus going through, let's just call it, a normal commercial channel. So we started early on at launch at about 50-50. And then I think we moved to 40% BlinkRx cash, 35% and now we're at 30%. So as coverage went up, then so the cash piece of that business went down. We think it will continue to evolve lower, but it actually works really well for us. Physicians like BlinkRx because you can send a patient who's in need or not need there, and it's directly sent to the patient. So the physician is happy with it. It's met its objective of helping get the best chance for a commercial patient to get on drug. So for the unforeseeable future, we plan on keeping BlinkRx as a partner because it's working so well. But definitely, it will go down.

Okay. Great. I do want to ask you about some of the development that you're doing -- additional development you're doing for VOQUEZNA. So you have the potential as-needed trial that's may be on hold right now. Can you just explain that? Obviously, VOQUEZNA works very rapidly. So instead of taking it chronically, people can potentially take it whenever they need it. So do you need a trial for that? Or are you just going to allow it to play out? What's the purpose of the trial?

Well, we -- following the very successful Phase II, which has very strong results showed the speed, but also durability of that on-demand application. We did work on finalizing a Phase III with the FDA. So we have that, that's a novel path because they have not really awarded that indication before. However, what we've seen, to our surprise, that the Phase II been quoted a lot by key opinion leaders in some of their notes and papers that there have been a quick adoption to that regimen. We're not promoting for it, of course, but there have been quick adoption being mentioned in multiple papers, but also in scientific exchange venues. And so that paper really carrying a lot of momentum, and we're seeing the use in the marketplace. So what we decided to do in the near term, which we're just embarking upon, is to collect the data to see how that use is and how that's working in the marketplace from a medical perspective. So are patients taking it that way, what percent of patients taking it that way, level of satisfaction, that kind of thing. So to then reassess whether we need the Phase III or not, knowing that, obviously, the Phase III will give us that claim on the label versus if the practice is already ahead of us. Do we need that Phase III? That's really what we need to assess in the next few months.

So to find out that it's being used that way, the way PPIs are used off label, what would you be looking at the number of days of patients staying on drug would have to pretty much equate what the PPIs are? Is that. . .

Yes. We'd have to track that. We'd have to track physician utilization and how they're actually prescribing and counseling patients. Right now, we see that the days of therapy are tracking to the range of a PPI. However, things change as you get more comfortable with the drug. So I think in the coming months, we'll learn a lot more about prescribing habits and utilization.

Okay. And as far as the patients that you're getting on drug, is it just patients who've been dissatisfied with their PPI? Or is it possibly patients who are using the PPI as needed and now feeling that this is probably a better profile for that as-needed patient?

Yes. We don't have that insight about. . .

Because technically, they would have had the step-through already.

Yes, they would have had to have been on a PPI. So I'm not sure -- I couldn't say that we're getting as-needed patients move over as needed. And I don't think that's what we would have anticipated. I think it's more of your first part. And what we know is that the vast majority of patients coming on to VOQUEZNA have already been on a PPI. And again, they remain symptomatic or something going on with the management of their disease. But there's nothing to indicate that you're getting someone who is taking it occasionally who's now moving over to VOQUEZNA.

Okay. And then the second study that you have planned, hasn't started yet, is erosive esophagitis. Right now, PPIs...

[Indiscernible]

Sorry. [indiscernible] I got it. Eosinophilic esophagitis, I apologize. So PPIs are used off-label for that already. And I imagine that it's going to be the same type of profile of patients since it's an underlying condition, they're going to be a recurrent PPI patient anyway. So why the need for an eosinophilic esophagitis trial? Is it just to establish it? Is it to differentiate it? Is it for IP? Is it worth the expense of a Phase II trial there? Just the rationale behind that maybe.

Well, I can answer from Medically, you can add there commercially. So we don't have a Phase II. I know the PPIs are used as first line essentially, but they're not -- have not shown really efficacy in that in a formal kind of way. So it's prudent about us to look at that in a full-fledged Phase II study. It will be important to pursue that indication give us all of the other advantages talked about on the label extension of the IP in that area. And also, we're looking at this as a program to look not only adults, but adolescent and pediatrics as well, younger children. So it's important to the brand and the growth of the brand in that direction. So we're now in the final stages with the FDA on that, on the program as a whole. We have the Phase II nailed, but we need to look at how it transition from Phase II into Phase III across these different populations. And we think this even bigger opportunity than to take over from PPIs into that space. with an approved or well-documented efficacy and be adjacent or adjunct to biologics in that space.

Okay. All right. I guess in the 5 seconds that we have left, 30 seconds. I know that there's a lot of questions about the royalty financing arrangement. So I know you're not the CFO, but maybe you can explain the rationale behind that arrangement and the terms of the payback and what your confidence level is in terms of getting that paid back by 2028?

Okay. I'll try to do as much as I can [indiscernible].

Go for it, try it.

So I mean, it's $275 million, right, that we -- the arrangement maxes out at 2x, and we have to cover this we have until 2037. So we have time -- the 2x, yes. So it is capped, and we have till 2037. Under the conditions of that agreement, we are in very good shape today, and we expect to be even better as we go forward to be able to stay within the parameters of that agreement.

And is it -- is it always going to be 2x? Or is if you pay back before a certain time frame, it would just be the principle?

It's always...

It's always going to be 2x and always out to 2037. And are there any other parameters around it or covenants or any kind of. . .

Well, there's some parameters. I probably won't be able to tell you accurately what they are.

I tried. I know it's a topic that people are interested in and can't quite wrap their heads around it.

The key thing for us, we -- it gave us obviously what we need, but also we kept it at a capped level that we think we can achieve and would be fair from a -- it's not going to erode into the future significantly.

Okay. Do you have any say into when you give guidance?

No. We're still not providing it.

Okay. Well, I'll have to hit Molly and Terry for the questions here. So. . .