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

Good morning, everyone. My name is Yatin Suneja. I am one of the biotech analysts here at Guggenheim. It is my pleasure to welcome our next presenting company, Phathom, to our SMID Cap Biotech Conference. We have a few members here from the company. We have Martin Gilligan here from the company, and we also have Azmi Nabulsi here from the company as well. I'm going to hand it over to Azmi just to make some opening comments, just tell us a little bit about the company, what are some of the upcoming milestones. And then we'll have a discussion with Martin on the commercial side as well. Azmi, why don't you make some opening comments?

Thanks, Yatin. So my name is Azmi Nabulsi. I'm one of the co-founders of Phathom and Chief Operating Officer. So Phathom was established in May, actually 2019. We licensed vonoprazan from Takeda. I was at Takeda for 14 years prior to that as Head of Development as of my last role. And we -- although vonoprazan was approved and launched in Japan in 2015, Takeda did decide not to bring vonoprazan to the market in the U.S., but we licensed it and we brought it to the market. Actually, we launched in late '23. So we've been on the market for about a year. And the indications that we have approved now, which H. pylori in a combo pack with antibiotics, and we have GERD as well, gastrointestinal reflux disease in erosive and non-erosive varieties of that. Now the key thing with vonoprazan that it is a leap and a step forward from the mainstay for treatment in the field, which is PPIs as we've shown superiority in our clinical trials. And our launch since, and Martin can speak to that more, has been going really well. And the key snag that we're working through in parallel to continue our efforts in maintaining and growing the market is that we have an exclusivity issue with the FDA, which I'm sure we can discuss. But we're very optimistic that we'll solve the issue. But even more so, we're very pleased where our commercial trajectory and the future of Phathom, looking into life cycle management of vonoprazan, VOQUEZNA and beyond that as well. So that's where we are today.

Thank you, Azmi. I'm going to actually stick with you. I will come back to the exclusivity later. But just on the -- where else you are going with this asset, right? I think there are some plans to go in EoE. Can you just maybe briefly highlight for us why you think you have a role in EoE? What exactly are you trying to achieve there in EoE? What are the studies and then the plan there?

Yes. So there are a number of things we're considering and acting upon in relation to life cycle management for VOQUEZNA itself. So as mentioned, it's Eosinophilic Esophagitis. So now other than biologic, the first line of therapy for Eosinophilic Esophagitis are the PPIs. However, PPIs are not approved by the FDA. They have not shown in randomized, well-controlled FDA kind of sanctioned clinical trials that they work. However, they are the first line. So looking at VOQUEZNA and its advantages over PPIs, we believe based on the -- not only the acid suppression effects, but also potentially immune modulating effects that it will be able to show efficacy in Eosinophilic Esophagitis and replace PPIs as first line, but also in conjunction to biologics. So we have a -- we have a study that we agreed with the FDA on and a path that we have agreed with the FDA. So we start with a Phase II to test the concept and show that it does work both on symptoms, but also on the pathology, on the histology of the disease. And from that, we'll move very quickly into Phase III for that disease.

Okay. And what would be the endpoint? And what exactly are you looking at in that EoE study?

In the Phase II, we're looking at both symptom improvement as we're looking at also resolution of the fibrotic effects that are in the esophagus looking at histology endpoint.

Okay. Do we know when we will get that data? I think you're going to start it in the next few sort of weeks or months, right?

Correct. So we're starting the first half of this year, and we should be about 2 years before we get the results. And just to describe also, we're looking at a spectrum from the pediatric to the adults as well. So we wanted to cover the whole market since this disease actually is also very much childhood disease as well as adulthood disease.

Got it. Very good. Martin, why don't you also maybe just tell us how -- what is going on from a launch front? I think initially, there was skepticism, but I think you have really delivered on adding continuously a lot more patients. And obviously, NERD has expanded the market, and I think it's reflected in the sales. So just tell us how the launch is going? What have you seen so far and how 2025 is going to look like?

Yes. So Yatin, you're right. I think if I go back 2 years, there was a lot of skepticism about what we'd be able to deliver and it makes me feel -- all of us feel really good at Phathom and what we have delivered. I think -- so what was that skepticism? One was, well, physicians want to prescribe something, PPIs have been around forever. Could this really be better? And then we see now we have in our label superiority. We have great conversations with physicians. And more important than that, we have patients, and I've -- we've all met some of them or spoken to them who tell us great stories about how they're doing. So it's really playing out in the real world even better than the label. It's really making a difference. I think there was skepticism that we were going to get coverage. Why would payers want to pay for this when you're -- it's a genericized market. We have greater than 80% commercial coverage right now, and it's really strong coverage. It's quality coverage, which we can talk about. And then I think the last thing is, well, this is such a patient-activated market, how can a company like Phathom really move forward with something like DTC, and we've done that as well. And it's bringing patients in. So you're right, there's a lot of skepticism, but I think we passed each one of those hurdles, and we show month-over-month in the data that you see is that we continue to grow.

Got it. So right now, if I look at the prescription, I think IQVIA has been pretty accurate. I think you already reached about 6,000 script per week. How is that trajectory going to look like? I'm just trying to understand how much growth there could be this year? Or how are you looking at it and the impact that DTC is going to have on that?

Yes. So we see 2025 as a big growth year, obviously, because we're entering our second year of launch. But I do like to give a caveat, and I'm sure any company you're speaking to today tells the same thing about Q1. This is when there is a change in many people's plans, their deductibles. So Q1 tends to be soft for many branded products. And I think we would probably fall under that same category. That said, we expect growth in Q1, but then we also expect that, that will continue to build, to your point, throughout the year. And DTC will play a role in that. We're really active right now, and we've -- we're on broadcast TV and digital channels, and we can talk about that more.

Got it. So I think there are 2 -- not venues, 2 platform, how these scripts are getting filled, right? It's a Blink and -- BlinkRx and IQVIA. And I think there is a split about 70-30. Can you just talk about the evolution of that? It used to be on the other side of the equation. So how do you expect that trend to go forward? Can we reach a point where all of the scripts are directly going to IQVIA?

Yes. So what Yatin is referring to is we have a patient support program that goes through BlinkRx. And what it's intended to do is that if a patient script is sent there and they don't have coverage, they have the opportunity to get -- while they're waiting for coverage, the opportunity to get VOQUEZNA for $50 a month from BlinkRx. So first of all, I think that our patient support, we have no intention that will ever go away. Could it look differently in the future? Could, but that's way out in the future. BlinkRx has worked really well for us to get -- if a doctor intended to get a patient on drug, then they get -- they have the opportunity to get on drug. So as you referenced, that 70% IQVIA that goes through traditional retail channel. As you know, that used to be more 50%. We've moved to 70%, we anticipate that, that will grow over time. But again, it will never get to 100% because of the patient support. I do think maybe for Q1, and we'll see how this plays out, there might be a little bit of a plateau again, as I refer back to what happens in Q1 with patients reimbursed and deductibles. No, we've seen really good movement and moving more away from the patient support and with our really strong access, getting patients drug through the coverage they already have.

I'm a user of your product, so I think Blink was very good, to get me the...

It works, right?

It works in a day. So I use it not chronically though. Okay. So in terms of the seasonality that you're referring to, but you're still expecting growth in Q1, and I understand going forward, yes, but just like specifically in Q1 2025, because you're still in the growth mode, right? So the natural growth should be there. we're not expecting sort of a down quarter?

Yes. So I mean, we don't -- the industry doesn't even have January's data in yet. So I don't want to make any definitive statements about Q1. But I think what we've been saying over the past couple of months is what typically happens in the industry is January is a suppressed month. February gets a little bit better and then March starts to come back. And that's -- again, that has nothing to do with VOQUEZNA. That's just what happens in the marketplace given the deductibles and the change in plans that patients face.

Okay. Now can you maybe help us understand what you're seeing in terms of prescription for NERD versus EE, how you are able to monitor? It seems like the 10-milligram dose is how you can monitor it. So how much of an uptake there is in NERD eventually, which class, which sort of category do you think is going to be bigger?

So the -- we don't have a definitive way to say the indication of every single patient. But we look at, as you were just referring to, so what are the indicators of nonerosive? The first one is the 10 milligram. And upon approval of nonerosive, we saw an increase in 10-milligram utilization. Prior to that, 10 milligram was a much smaller part of our business and typically followed someone who had already been on 20, so they made a switch which was -- followed the label. Now what we see is increase in 10 milligram, patients going directly to 10 milligram, that would be an indicator. The other thing that we've seen is an increase in primary care prescribers. I think we communicated in our last earnings that we had passed our first point where we had the -- in a quarter, the first -- the number of primary care prescribers outpaced in a specific quarter, gastroenterologists. So we always knew that -- well, primary care doctors do see erosive patients, they really see the nonerosive patients, right? So you put all that together, the 10 milligram, the increase in primary care prescribers, and that tells us that we're seeing the uptake in nonerosive.

Got it. Could you also just now talk about the duration of therapy, the refill rate? I mean you have now almost more than a year worth of experience. Like where is the duration? How is the refill rate looking? Is it similar to the PPIs of the past?

Yes. So we feel that our refills are healthy and where we would expect them to be. And we believe we're tracking to what the PPIs are. So the PPIs are, in general, on an annual basis, 140 to 160 days of therapy per year. And then patients are on for multiple years. And for chronic medication, that actually is a very good number. So we believe we're tracking there. And the only way to get at this early in launch is we track cohorts of patients. Those who started in Q1, where are they? Q2. You just can't take a look at the past couple of months, but everything is tracking in that direction. So we still feel that that's the right number to be thinking about 140 to 160 days of therapy.

And then the refill rate? So that's...

The refill rate?

Yes.

Yes. So we haven't communicated a refill rate. The way we're looking at it is in the overall days of therapy because we're tracking that way. But we are seeing -- I think if you just take a look at our NRxs and TRxs that tells you there's a lot of refills there.

Yes. In terms of the number of prescriber and commercial coverage, right? I think there's still a few percentage left there, at least on the commercial coverage. What is the evolution on the commercial coverage side, at least in 2025, like how many more lives can come online? And then where are we in terms of prescriber? It seems like PCPs are already taking over GI, but how do you see that evolving?

Yes. So I would say we're at just over 80% commercial coverage. And what I always like to note it's quality coverage. So our strategy was to be one step through a PPI. Given the size of this market and the constant movement in the market and adding on OTCs, it's the appropriate place for us to be. The label allows for immediate use, but it makes sense for where the physician's mindset is and also from the payers. So I say we have greater than 80% quality coverage. I'd rather have that than have 98% of bad coverage. So I think you might anticipate picking up some lives here and there, but we've already worked through and have coverage with the major PBMs and the major health plans. So I think we really -- not only did we cross the goal, we crossed the goal very strong. And we also entered consistency with that coming into 2025 because I know a lot of brands when they enter a new year, they have a lot of change. We've carried that right forward from '24 into '25.

Got it. Got it. Where are you in terms of the commercial build? Like how many -- like what is the size of the commercial team? Are there any growth that we should anticipate in 2025?

Yes. So we have 320 territories or sales reps. They cover the nation. They're geography-based, meaning they call on both GI and PCP. And no, we have no plans to increase that size. We feel our coverage is really good. And what we did is we targeted physicians who are the highest prescribers in the PPI category. And that's roughly about 55,000 physicians that we call on. And what we know, if you're familiar with deciling of the pyramid, we start at the top at a decile 10, really high volume, and we work our way down to about decile 5. And each of those physicians on average is accountable for 1,200 TRxs on average in the PPI category. So that's why we feel we have the right footprint. And then we're obviously supplementing that with digital communication and omnichannel communication.

Got it. In terms of the DTC campaign, I think we're starting to see ad. Is there a lag? And how much of a lag there is from a demand perspective when you do DTC and start seeing that sort of increase in prescription?

There's absolutely a lag. And I think what we've talked about with many folks is it takes multiple quarters to really measure -- to truly measure DTC. But what we know is we have early measurements that we're able to look at different parameters and it's strong enough that it tells us we should continue to keep investing, which we are doing this year and specifically in Q1 and Q2 given the new year. Because what happens is the patient needs to see the ad multiple times. They need to make an appointment, right, in that whole process and get to the doctor. So it takes months for a patient to sees an ad to take some action and realize a script.

Okay. What about HP? Are you -- like how big is that opportunity? Are you seeing sort of uptake in HP? Or is it mostly driven by sort of GERD, bigger umbrella GERD?

Yes. So listen, H. pylori, we have fantastic data and a fantastic label, and we have superiority and a really differentiated product. It's about -- the market itself is under 1 million patients a year that are treated, and that's the key point. So a lot of people who have H. pylori, but they either don't have symptoms or haven't been tested. So yes, we definitely spend time there. We actually have a core group of prescribers who are using our HP packs right now.

I see. Okay. Azmi, I want to come back to you and understand this NCE or the exclusivity issue. What is the issue that we are dealing here with? And what is the path to resolution?

Yes. First, I want to highlight that we have patent protection into 2030. And with the pediatric exclusivity that we're working on, that takes us towards the latter part of 2030. So that's patent protection. However, we also pursued regulatory exclusivity. And the advantage of that, that it will tag on top of the IP 2 more years.

Two more years.

Yes. So that takes us into 2032. And now the approach we took for getting the regulatory exclusivity is through QIDP. So in developing the H. pylori indication, the product for the H. pylori indication first, that is VOQUEZNA plus the antibiotics. We did receive QIDP. And that upon the successful completion of that and the approval, that entitled us and we did get awarded, gained exclusivity, which is -- that whole incentive is to encourage companies to develop and invest in the antibiotic, anti-infective space. Now the product doesn't have to be antibiotic itself, but in that space to enhance the treatment against certain pathogens and the H. pylori is one of them. So we developed that successfully. We showed superiority, and we did receive or were awarded the gain exclusivity on the active moiety on vonoprazan itself, not on the combo, but on the vonoprazan itself. So that then the expectation and the -- based on our -- the law -- understanding the law and the legal advice we got, that should carry over to other indications where VOQUEZNA is the active entity, is the active moiety for those indications. And hence, we -- it should apply that extension should apply to the tablet only for -- that's used in the erosive indication or GERD indication. And the FDA did not reflect that exclusivity on the EE indication or GERD indication to be more precise, as it did on the H. pylori. And that's where the disconnect with the FDA. So we did contact them last March, and we said we need this exclusivity to be reflected in the Orange Book. The FDA did not say yes, did not say no. They said we will discuss it internally, and that took them a good number of months without an answer. They never came back and said we disagree with you. They never made a decision, but they said it is under discussion, under discussion. So we decided later in the year, last year, in December, to go through the citizen petition route which basically put the issue more in public and -- but also build a structure within the FDA to give us an answer. The FDA then needs or takes 180 days to come back to us with an answer on that point. And that's where that's the period we're in now. So we're waiting midyear, we should hear from the FDA an answer on that. But it is really straightforward. What we are doing from a legal perspective and not what we've done, we have the gain exclusivity that's been awarded and given to the active moiety and should -- and that's based on FDA long-standing practice, should that NCE exclusivity should extend and apply to other indications. and that's what we want them to make a filing.

Are there similar precedent that somebody we could study or look into where this type of situation has happened?

Not exactly the same. The NCE exclusivity regulatory extension applying to multiple indications, yes, they've done. They've done that multiple times for actually 40 years. A good example, the pediatric exclusivity applies across multiple indications. the route we took, which is the QIDP route to get to the gain exclusivity. That's novel. That's new. So the starting...

[indiscernible] Specific route.

Yes. But not -- the starting point, but not the whole thing.

Okay. So when is that 6-month window or a 180-day window going to end? And then by 180-day, they have to make a decision? Or just walk me through the time line.

That will be in the June time frame.

So it will end or you will get an answer.

We will get an answer. They have to answer. And that answer could be yes, no or we need more time. And if it's a yes, obviously, straightforward. All what they need to do is just update the Orange Book. If it's a no, then we have -- we believe, again, based on external large firms in D.C. that we believe we can go to court and [indiscernible] .

Okay. Okay. So there is that route. What are you -- so I think this product also has a potential to be over-the-counter at some point, right? Like how -- what is that process? What do you have to do? What type of studies you have to do? And once it is OTC, what sort of exclusivity you get there?

Yes. So we are pursuing, as mentioned, life cycle management, EoE is one of them. But also we're pursuing the OTC route and another formulation that actually will tag along both indications potentially, which is orally dissolving tablet to make it easier to swallow and more convenient. So specifically on the OTC, the key thing we need long-term safety data, which we have from Japan, we have significant years of safety experience on a very large population because, as you know, this product is actually very successful and highly utilized in Japan and Asia. Also, we need to run studies. We ran a Phase II on demand. On-demand is a key component of OTC because that's how patients will use it. Then we have to run additional studies. They're short term, but they are to reflect on the ability of a patient who has not gone to a physician to go and pick up the product as the right product for their symptoms. Those are small studies, about 2 to 4 weeks studies. And we probably do a little bit more on the on-demand to ensure that there is appreciation of patients how to use it. So it's not a huge program. The safety is a core factor here. And then the product will be OTC. Now we potentially will combine this with the ODT. So that will be a product. So the protection we expect, ODT, regardless where it's going to be used, will have protection because it's a novel formulation. And we already have prototypes, it's already in the research already. And the OTC will have 3 years protection.

3 years. Got it.

So we will be -- no other PCAP can come to the market, OTC during that period.

For 3 years. Okay. Final question for you, Martin. So I think we already have the script for Q4. I just wanted to understand from you how was Q4 relative to Q3 from a demand perspective? Anything you're willing to say on where the consensus is in Q4?

Yes. So we have no commentary on consensus, and I think we've been pretty specific about that. And I would say that we have earnings, we'll be communicating later on this quarter. But we saw that Q4 was a really strong quarter. And again, we saw the increase in primary care prescribers and the increase of scripts going through IQVIA.

Very good. Very good. Thank you, gentlemen. That's all I had for you guys.

All right. Thanks.