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

Well, let's go ahead and get things going. Pleasure to have Phathom management join us. I feel like there's a tremendous amount of interest in your launch both from people that want to be [ long-ed and shorted ], but the TRx numbers have come in well. But before we get into -- in that, I'll let you kick things off.

Sure. Thanks, Umer. And thank you for the invitation. We're excited to be here and wrap up 2024. It's been a great year, as you mentioned, from a launch perspective. We see the TRxes go up every week, so that's been great. Access has been secured, so we really feel like we're going into 2025 on a very strong note.

Excellent. So I guess, maybe just to kick things off -- and I think my colleague -- [ Chengxiang ], if you wanted to join as well, you should probably join and get mic-ed up. But I guess, maybe just to kick things off, where are we, first of all, on the -- and we'll cut to the issue that everyone is so focused on right now.

Did FDA say something new to you guys over the last few months? Or was the disclosure in 10-Q, as part of a broader update, that the legal counsel will probably say, "Hey. We should just put something more in?"

Yes. So maybe let me take you back a little bit and walk you through to how we got to where we are now. So as you know -- and again, Umer, thank you for articulating our situation very well. So with the approval of H. pylori back in May of 2022, we received, prior to that, the QIDP designation for the product of H. pylori in support of approval of H. pylori product. With that, we had the GAIN authorization to exclude -- or to extend the exclusivity of NCE, which is the new chemical entity, which is the foundation of vonoprazan. So that NCE extended to 10 years based upon the approval of H. pylori. When we received the approval of erosive GERD in November of last year, we noticed the FDA had not updated their Orange Book to reflect the full 10-year exclusivity that we were awarded with the approval of H. pylori. And since then, we've been in discussions with them. And we included narrative in our 10-K at the start of the year to discuss that we're in -- mentioned that we were in discussions with the agency to update the Orange Book. Over that time, we continued to engage with them, but what we've come to conclude is that recently we weren't going to get any action from them. They had had no response based on our positions. They're very amicable. They're very open to hearing our position, but they hadn't provided any substantive feedback on our points that we raised relative to our legal position. And so the lawyers felt at this time that it was important to then take this to the next step to try to get toward a resolution. And that's what we included in the 10-Q filing was that, our intent to pursue this in a further direction in order to get to a resolution on the matter.

So it was a lack of feedback, not because they said no...

So it's essentially a lack of information on their part to provide their opinion as to their response to our points on the matter.

And I guess I realize you can't necessarily predict a legal strategy on this stuff, but is it -- how do you think about a citizens' petition route, which is like a soft poke, versus like a legal route, which is like a hard poke? Because theoretically they could take 6 to 9 months and take you through a citizens' petition process for a long time.

They could. And to your point, there are times where they don't always adhere to the 180 days that usually is governed under a citizen petition, but we feel in this case what we're -- if we go down that route, what we'd convey is nothing we haven't already conveyed from a legal standpoint. So there's no new information that they would learn if we were to go down that route, so we would hope that they would abide by that 180-day clock in order to get to a solution.

I see. Otherwise -- okay, got it, but it wouldn't be more prudent to start with a citizens' petition before going after the real push...

Yes. The challenge with doing a litigation route right now is that there's nothing to litigate against. They haven't come up with a formal position on this, so we don't have any basis to litigate, which will be challenging. We feel the courts would dismiss that case.

I see. So you need them to respond and use that as a basis to drive the case. I see. So it's CP comes first. I guess the other question that comes up then is, presumably if they just drag it further and they just give a sort of a non-answer in the citizens' petition, this means a court case doesn't start till fall next year, which means we don't even get visibility from the courts for another 2 years beyond that, so this then could go into 2027.

Again our hope would be that -- if we go down the CP route, that, that would provide a solution -- resolution faster, but you're right. Litigation can be a very long process...

So the thing that you guys can control then, Molly, would be maybe start to lay out the path for what a potential OTC could look like because then you don't have to wait for these 3-, 4-year time lines. And my understanding is there's a traditional path where you need to wait 5 years commercially, but then there might also be more expedited paths towards OTC as well. And by the way, even on the 5 years, you could count some of the Japanese commercial as part of the data, can you not? So you could do a relatively sooner OTC filing, no?

Do you want to...

Yes. I think there's a lot of strategic options that are available to us. And we're looking at our go-to-market options, but I think anything sooner than 5 years is something we can certainly discuss. I'm not sure that's something that's going to be needed...

But wouldn't Japanese data count in the 5 years?

I can't say whether that would be -- contribute to it or not. I can't tell you that right now, that if it would or would not be...

So you would say anything sooner than 5 years is not a base case.

I'm sorry...

It wouldn't be your base case.

No, it would not be our base case, no. I mean our assumption, as Molly has been saying, is we feel that we have a very strong point. So we think we have a good runway on our prescription business before we need to turn to OTC, but we'll explore every opportunity and be prepared for everything. But OTC does represent a really good opportunity. And it's always been in our strategy. At some point as we move towards the end of our life cycle from a prescription basis, a new part of the life cycle takes hold; and that's with OTC.

And what's the exact path? It's 5 years, but also does it need to be a certain amount of magnitude of volume to get an OTC?

No. I -- my -- I can't say that I'm clear on every single aspect of moving towards OTC, but I think what our base case assumption is, is that you've -- you're able to prove that it's a treatment, much like the PPI or other antacids or allergy products, that can be managed by the patient, self-diagnosed and self-managed, safe and clear from -- in terms of instructions. And so we feel that everything -- our belief right now is, everything we have on VOQUEZNA and the category of GERD, that we're set up very well to -- ultimately someday, when it makes sense -- to move to an OTC but when it makes sense.

Got it...

Right now it's very much focused on our prescription business.

So we have a bunch of commercial questions too. I'll transition to [ Chengxiang ], but just ahead of that: I think the TRx for PPIs is something like 10 million a month or in that ballpark, I think, broadly speaking, $10 million to $12 million a month. How much is OTC volume on PPIs? What's your guess?

So overall, the PPI prescription market, 85% of all of PPIs is prescription, versus 15% being OTC...

So about 10 million is...

Yes, [ if you're ] from a tablet perspective, yes. So the majority of the market is -- from a PPI perspective is in prescription, but the GI market overall for OTC, H2RAs, antacids is a very large market.

Yes.

So OTCs overall is a very large market. And we have a unique proposition. We believe the fact that we've got a rapid onset as well as the durability of long-acting effect fits very nicely because right now the H2RAs are very much focused OTC on that occasional relief of heartburn, as opposed to frequent relief with the PPIs. And given the profile of VOQUEZNA, it opens up a whole new OTC opportunity. And that's our belief.

But wouldn't price have to come way down for you guys to be in OTC channel?

What do -- pardon me...

Wouldn't you need a much lower price point...

Yes, absolutely. We'd be -- it's a whole different business model at that point. You'd be looking at years out. VOQUEZNA has probably started to move to or is in generic phase. And we would be entering OTCs, but we'd be entering a very large population, correct, at a lower price, just a completely different business model.

So for modeling purposes from our perspective, I guess we should continue to model the current launch. Presumably Rx is the mainstay of Phathom's franchise through the end of the decade, I'm assuming. And then let's see how the FDA side shakes out on the QIDP or not, but the existing patents are until 2030.

That's right.

Yes. So to that point, the drug substance patent, 2030, April 2030, that's [ the fully locked in ]. There's no confusion...

Because it says '28, but there's a -- you have to assume an extension..

That's right. We filed...

[indiscernible] [ 599 ] days adding to the original patent. That's [ fully locked in ].

That's right. So we filed the PTE and we expect to get that, and that would be into 2030.

And maybe just to add to his question then: nitrosamine-related formulation updates. Shouldn't that form the basis of new IP which could go into mid-2030s or maybe later actually? Because that's a 2023 formulation update, so that could go into 2043 presumably...

Right. So we are pursuing that. I would be cautious to assume that in a base case model. I think that would be upside because there are -- likely to have workarounds other than our approach.

Okay, there may be workaround.

That's right.

And is your approach fully disclosed at this point on the nitrosamine side? Like for -- if I was an ANDA player, I would know exactly what you guys did.

Yes, [ I think ], right.

Okay. I think maybe we should just turn to the launch dynamics, [ Chengxiang ].

Yes. I think, just based on the profile right now, we're looking at the TRx data. So assuming by like 5% week-over-week growth -- basically that happens in the last couple of months, so we are estimating in the 4Q probably 36 million. Is that -- and the consensus right now is like 28 million, so is that a reasonable number we can assume into fourth quarter?

Yes, we haven't discussed...

Right, yes, so we haven't provided specifics, but to your point, you do see the weekly scripts. And you can pretty easily do the math to determine, but the only piece that you don't have would be the stocking. And I have indicated that it's around 2 weeks previously...

So that's consistent...

So that would be the only piece that you wouldn't necessarily have visibility to.

Okay. So what about gross-to-net? So we know [ the steady-state ] 50% to 65%, but is there more visibility right now? What's the level?

No. We're still providing that as guidance for gross-to-net. As you pointed out, in Q2 and Q3, we were mid-range, so I think that's still a fair assumption.

Okay, so I think right now -- how about the [ Blink's Rx ]? And it might not be as important as when you initiate the launch, but right now what's the ratio? What's the split between Blink and the commercial side, retail side?

Yes. Just as I answer the question, let me just summarize for everyone. BlinkRx cash is a patient support service for those patients who are commercially insured who don't yet have coverage. And so right now that ratio is 30% of our scripts that we launched to date are -- go through Blink cash, which is $50 a script for a patient. And then the other 70% is going through, I'll call it, traditional retail channels that are picked up by IQVIA. Now what's important to note is that 30% many, many months ago used to be -- well, not many months ago but half a year ago was at 50-50. So it's continued to come down every time we've shared that data, so we expect that will continue to evolve over time.

Okay. I think there is some metric you're no longer reporting, the total written scripts, because -- it's important at the initial stage of the launch but right now probably not as important. Maybe why that number is not relevant right now...

Yes. So when we did our initial reporting at Q1 and Q2, we shared the data set that said, "How many physicians have attempted to write a script? And then how many scripts have actually been filled?" And we thought that was important because we're doing something different here. So most of the launches today that are happening are not, I'll call, primary care, retail, small molecule. They're traditionally specialty, where you can see everything going through specialty pharmacies, so we [ want to be a way ] to track and communicate what the demand was. We were seeing really big demand. That was also at a time before we had pretty decent access coverage, so we wanted to be able to put the entire launch into perspective. So that was always intended to be a very short term -- and we had communicated that at the beginning. This is how we're going to look at the business in the short term. And then as we moved into Q3, at the same time, we saw access going up. And now we're at more than 80% of lives, commercial lives, that are covered. We saw Blink cash going down; and that we felt that the right metric going forward is focusing on our TRxes, taking a look at the number of prescribers and then also that access coverage, so we just felt it was the right time to retire that.

So just for the TRx. We know there are 10-milligram dose and 20-milligram dose. And if you look at data and want to split -- basically back out the NERD from GERD but not sure if you just look at the 10 milligram will be the right metric to estimate what -- the new launch [ and ] a new indication.

Yes. I would say it's a pretty good one. Right now the data doesn't pick up, if you're on VOQUEZNA, what your diagnosis code is. And that takes many, many months for that data to come together, so you're right. What we saw is -- upon the approval of non-erosive, we saw a notable increase and the 10 milligram go up, which just to be clear: The 10 milligram can be used for erosive. A matter of fact, it's part of the label. Start with 20 milligram. Move to 10 milligram. But once we got that approval, you saw the 10 milligram go up.

Yes. Right now it's like around 35%, but some of them is using for GERD, not NERD.

Yes. And I think the other thing is you're going to find, once physicians, as with all therapeutic areas and all drugs, get comfortable with the drug, they're going to start prescribing it as they want to. So I mean there could be a time where patients could be non-erosive being put on 20 milligram or moved to 20 milligram or from 20 milligram to 10 milligram. So there'll be a -- eventually there'll be a lot of movement. That's not where we're focused and that's not what we're promoting, but that's the course of every treatment that's out there for all diseases.

Okay. Maybe talk about the dynamics between primary care and GI specialists at current stage. Is it much different from when you initiate a launch?

Yes, yes, yes. So I think -- well, I'll tell you it'd be kind of like an end of the story. So in Q3, when we compare to Q2, it was the first time that new writers, in Q3, who are primary care outpaced GI. So I think it's early on in the launch. What we're saying is we expected GI writers -- GIs to be the first writers, and that's exactly what we saw. They tend to see the erosive patients. While primary care does see some erosive, they're -- tend to be more non-erosive focused. So once we got that approval, we definitely saw the acceleration of primary care physicians who are using VOQUEZNA. And that continues to grow over time. And not only the primary care physician, but also that NP, the nurse practitioner; physician assistant in the office plays a really important role.

Got it. I guess one dynamic I just want to be very clear about is, as we roll the cards into next year, I'm looking at consensus numbers right around 170 million, up from 50 million this year. To get to that, what has to happen is, every quarter, the drug needs to add about $8 million in new sales from the current $16 million that was reported. However, as we went from 1Q to 2Q, the drug grew about 5.5 million. 2Q to 3Q, it grew more like 8.5 million. Should we expect at least that much of incremental sales to be a steady pace through the end of next year to get to some of those numbers?

Yes, I think what you can expect is we'll see continued growth fueled by primary care really just releasing itself. I mean January just is a calendar change. We just got non-erosive approval at the very end of August, so we're just months into non-erosive. Much bigger marketplace will [ fuel ] that. Primary care coming onboard...

Is primary care onboard at all right now?

Yes, definitely, but they're accelerating, right? So we've seen a significant uptake in primary care utilization since the non-erosive approval. And then we've really invested more in direct to consumer in the fourth quarter, which we'll continue to front load in the first half of next year, so I think that's what's going to get us there, Umer. It's a combination of all those things put together.

Got it. So as I think about sort of the momentum right now, do you guys sort of continue to stay very comfortable with sort of where the expectations stand right now?

For '24, yes. We haven't provided any direction for '25, yes.

Yes. Because there's almost like -- yes. So remember I said $7 million went to $16 million, so about a -- almost a $9 million increase. And something similar is modeled in for 4Q as well, so that's sort of $9-ish million in quarter-over-quarter type of increase. Do you guys remain reasonably comfortable with the launch trends into 4Q as well?

In the fourth quarter...

Yes.

Yes. Okay, excellent. [ Chengxiang ], what did we not touch upon from...

I guess, when will you start to give guidance on revenues?

Yes, we'll look at that. We want to obviously be very comfortable with the range that we provide. As Martin said, we're still early with non-erosive under our belts, so we'll continue to take a look at that. I think at this point analysts do a good job of providing ranges for investors to model from. And we'll continue to work on that.

All right, okay. I guess maybe my last one is: When you guys were having these discussions with the FDA on getting QIDP, were you bringing up some of the points around how the umbrella rule was applied to NCE and it wasn't applied to QIDP? "Can you please do that too?" Was that brought up by you guys...

Yes, absolutely.

So they're familiar with that argument, and yet they decided not to proceed.

And again correct, that they haven't decided not to proceed...

But they just haven't done it yet.

Exactly, Exactly.

Got it, okay, all right. Any questions from the audience? Okay, we'll wrap it up right here, otherwise. Thank you, guys.

Thank you.

Great. Thank you.