Phathom Pharmaceuticals, Inc. ($PHAT)

Good afternoon, and thank you for joining us for this session. I'm Paul Choi, and I cover the mid-cap biotech sector here at the firm. It's our pleasure to have Phathom Pharmaceuticals here joining us for this session. I think what we'll do is what we've done in prior sessions. I'll turn it over to Steve to my immediate left, to kick it off with maybe some high-level comments talk about what our Phathom strategic priorities for the remainder of the year going into 2027. We'll bring -- even also for Q&A later. And maybe after that, we'll go into questions.

Perfect. Thank you. Paul, thanks so much for the invitation to be here. It's a pleasure. Just a really high-level overview of the company, what we've done over the past year and where we're headed this year. So Phathom has commercialized VOQUEZNA, which is the first-to-market PCAB to treat gastroesophageal reflux. We have approval for both erosive esophagitis and for non-erosive reflux disease. VOQUEZNA represents the next generation of treatment for gastroesophageal reflux, Obviously, there were initially H2 blockers and PPI. PPI has been the standard of care for the last 30 years. But one of the things that has emerged over the last couple of decades, is about 30% to 40% of patients who are on chronic PPI therapy are still having breakthrough heartburn. They're still having pain. They're having breakthrough symptoms, some on a quite frequent basis. So that 30% to 40% of the GERD population that's on a PPI still having pain, that's our target market opportunity. I joined the company just over a year ago in April of '25, the product was launched late 2023. So that was 1.5 years into the launch. And one of the things we did at that point in time as we assessed what's working and what not in our core strategy at launch, is we were getting really good adoption within gastroenterology offices as we went into GI practices, slower adoption primary care is actually to be expected in this sort of a product, you often will see the specialists adopt the product faster. Those are the higher need patients. So we reoriented our sales strategy during 2025 to focus heavily on gastroenterology. We are today delivering 60% to 70% of our sales calls going into the gastroenterology marketplace with a core focus of growing and penetrating the GI community and growing adoption in GI, we're still making calls on high decile primary care and primary care physicians that have already called. Our target for this year is to deepen that GI adoption pattern, we are making significant strides with our top 3,000 gastroenterologists already prescribing VOQUEZNA more than 1 in 3 -- approximately 1 in 3 times that they are switching a patient on their acid suppression therapy. So about 1 out of every 3 new-to-brand switches that's happening in the top 3,000 GI practices is going to VOQUEZNA. We are continuing to grow that every quarter. We are growing the base of prescribing. We today have 16,000 of the 24,000 GI prescribers already writing VOQUEZNA. We're continuing to expand that as well as going deeper in GI. That's the focus for 2026. And then in the future, we will be expanding better than primary care. But I'm sure we'll talk about that through the course of the Q&A. We did $175 million in revenue last year. So $55 million in the first year of launch, $175 million in revenue last year. We've guided to $320 million to $345 million this year. We're on a steady growth trajectory for the product at a really nice pace.

And Paul, if I can just add one other thing we did beginning of the year. We look at our cap structure and then realize that we needed to have some modification in the cap structure to have more sustainable availability of funds. So we did that. We did a capital raise successful. We adjusted our debt. We paid down some part of the debt. And then now we have lowered the interest cost and now we have matched the repayments of our debt with the cash flow of the company and then we make sure we have enough cash on the balance sheet to meet all our obligations for the cash hold and the future repayments of that. So that issue, which was there in minds of a lot of people is behind us.

Last point on sort of the financial evolution for any investors who are new to the story, in addition to that capital restructuring and our growth from $175 million to the $320 million or $345 million this year, we have indicated to our investors that Q3 will be our first positive operating profit quarter. So we're converting profitability and 2027 will be a positive cash flow year. So we are at a fundamental inflection in the company's evolution from being -- investing in the early stage launch to really starting to harvest the positive cash flows next year from this product.

Great. Steve and Sanjeev. Maybe as you talk a little bit about the commercial strategy, you talked about focusing on going deeper with your existing and growing the GI prescriber base. Can you maybe talk a little bit more about what specific things that you have directed the sales team to do to accomplish this? Does it think about new messaging any other additional data points that you're focusing on? And just how does that grow over time?

So we're doing several things. One is we have realigned all of our sales territories in Q4 of last year to rebalance the territories related to gastroenterology offices. That has allowed more efficiency in our sales calls to GI practices. We've also sized the organizations we added additional reps in Q1 of this year to get to a sales organization of 300. That is allowing us frequency of calls on GIs that allows us to not just work with the physicians, but we're also working with all of the nurse practitioners and PAs in the office. And with the medical assistants who are driving the prior authorization process, so that we are able to do a total office call and drive depth of awareness within the entire GI practice regarding VOQUEZNA where it fits, how it works. One of the outcomes of the time that we've invested in the GI practice, you can palpably feel in the context of the conversations that we're having with gastroenterologists. When I joined in 2025 and went to DDW, which is the big GI meeting each year. It's interesting. The conversations at DDW in 2025 had the flavor of, well, I get the VOQUEZNA works, but I'm not sure how much better than a PPI it is. And I'm not sure if I really need to adopt this to my practice. There was still a learning curve regarding the clinical efficacy of this product how much of an improvement it would make for patients. In 2026, every gastroenterologist that I spoke with the DDW had clear conviction around the fact that VOQUEZNA provides meaningfully better treatment alternative than PPIs for their patients who are absolutely treated with PPIs. This is the next step that they need to go to. They're 100% convinced on clinical efficacy and the power of this product and the fundamental improvement. What we now need to educate the entire office around is ease of access. The physicians are still not certain what does it take to get the prior authorization through? Will my patient be able to get access to the product. And so we've come up the clinical confidence curve, we are in the process this year of educating physicians on the market access confidence that we need to help them gain confidence when you write a script, the patient will get the product. They're either going to get a $25 co-pay because of our co-pay buydown if they're a script -- coverage they're going to be offered a cash pay prices that is accessible for the patient who prescribes VOQUEZNA to know with high confidence that their patient is going to get the product. And it's that confidence build that is the process of not just educating physician but the nurse practitioner in the medical assistant and everyone in the office that the patient can, in fact, get the product. So we've already successfully come up with clinical confidence curve. We are in the process of coming up the access confidence curve, and that's going to continue to grow utilization.

Great. Steve, you mentioned earlier that you've -- the sales now at about 300 people. Sanjeev earlier in the past quarters, you went through a bit of a rightsizing the organization. Do you feel like you're at the optimal point now for the revenue trajectory. You also talked about sort of matching cash flows to the debt schedule. And just sort of how are you thinking about the infrastructure right now versus sort of your longer-term aspiration.

Yes. So as Steve pointed out, once we did the territory realignment last year, we went through careful planning, but what would take to maximize throughput from each territory. And that's how we came to this number. And that's how territory got remarked. So the number that we have about roughly 300, that's the right size that gives us coverage at GIs, top decile primary cares and we have strategic coverage wherever we needed to do that. So that's what is reflected. That's what is reflected in our budget. What you saw in the first quarter, by the end of first quarter, we had all territories filled. So almost everybody there. First quarter, we were hiring some people. So you can see the second quarter spend that might be a little bit going up because some people came on board in the middle of the quarter. But we feel we have the right size, that's all reflected in our guidance for this year.

Great. On the point of guidance here, you mentioned it earlier. And so how should we think about, I guess, now that you've had a few quarters under your belt with this new -- the sales force alignment, any changes in terms of how the growth comes either sequentially, seasonally. And what should we be focusing on in terms of the launch for the remainder of the year.

So we don't give a quarterly guidance, Paul. So what we've said is our business is going to be back loaded like last year, right? There is no -- that's kind of how the trajectory of the business is -- and all that kind of business, but it's going to be a trajectory, how sales force is executing. We feel very comfortable about where we are in terms of the trajectory of the business and how each quarter is going to perform.

And one of the hallmarks of our business, our business is remarkably predictable is you've got patients who are on therapy on a long-term basis the refill volume is consistent. So a significant portion of our business each quarter is a carryover prior quarters. And then it's really incremental new patient starts that we're driving, which is why one of the -- on our earnings call recently, we started talking about NBRx numbers because looking at the NBRx penetration in GI offices is a predictor of what our future TRx volume is going to be. One of the interesting characteristics in that regard is we look at the PPI volume in gastroenterology as a proxy for our core target market. The patients who, in primary care are being referred to gastroenterology with gastroesophageal reflux are typically being referred because they're in pain. So patient goes with their primary care physician, if you get on a PPI in you're fine, there's no reason to have another conversation. If you're having another conversation, it's because you're still having heartburn you're being referred to the GI for the assessment, that GERD patient in the GI practice is generally refractory to PPIs. That's our opportunity. There are about 20 million prescriptions per year for PPIs out of gastroenterology practices. If we can convert 4 million to 6 million of those 20% to 30% of that 20 million prescription volume, that would represent about $1 billion in revenue per year coming out of GI practices. We are already at that 30% level not in terms of TRxs, but in terms of NBRx is within our top 3,000 accounts. Now obviously, we need to get to that level within the broader universe of 16,000 gastroenterologists plus the that are in their practices, but we're already there for the top 3,000. If we can get to that depth of penetration throughout the GI community, then over the next 3, 4 years, the TRx number trends toward the NBRx number. So if you're converting that number of new-to-brand prescriptions or new RAM patients, the TRx volume is going to grow in those practices.

You've thrown out some metrics here, but maybe one, I think investors focus on is the mix of cash pay versus covered scripts. Can you tell us how that's evolved in recent quarters? And another metric, I think you've also talked about this, but is the new to brand share that's been growing, and you said you're in the 30% vicinity in your sort of key targeted accounts. And how does that look in terms of your current prescriber mix versus repeat prescribers?

Do you want to take the TRx?

So Paul, I think this is the -- obviously, the question is important from an investor and modeling perspective. I think our job is to maximize the prescription, right? Into patients coming in, they need to get. And then the second part of that is we need to optimize to make sure the covered prescriptions covered patients who have the insurance get into the covered and the cash patient get into the cash. So our job is to maximize. So far, what we've seen, but 1/3 of our business comes into cash, right? 2/3 is the cover script. And that trend continued. It goes up a little bit in the first quarter because of the deductible reset and the insurance plan changes, but I expect that to be in the range. And the good news there is, as the entire business is growing, so will cash in absolute number and the covered percentage shouldn't change a lot. And that's kind of what our strategy is not to reduce one and to increase the other, optimize where what's the best way for patient and for us.

Great. Right. And then on the new to brand versus repeat prescriber mix, how has that changed over time, Steve?

So we've not seen the relative percentages change dramatically, but you will gradually see a growing base of patients who are getting refills. So the basic premise for our growth path is every quarter we're going to be adding new patients in terms of new-to-brand conversions, but building on an ever larger base of core patients who are receiving VOQUEZNA, who are pleased with the product. And I would expect that, that refill base just continues to grow over time. And as you get to $1 billion in revenue, you've got a bowl a significant population of patients who are just chronically on therapy. And so we're going to see that continue to grow. One of the things that is important in terms of the mix of cash versus covered patients is just as investors are looking at our IQVIA numbers, the IQVIA numbers really are a good proxy for those covered scripts. Cash scripts don't show up, the cash scripts through blink don't show up in the IQV numbers, those are on top of that. But we do see both grow. And that actually serves a really important function and actually there are several really important functions. I mean first, as a health care company, our goal is to treat as many patients as possible and be a service to as many patients as possible. And so if a patient has insurance coverage, whether it's on a commercial plan or on a Medicare Part D plan that covers VOQUEZNA that we want to get that script covered. And that is economically the driver of our business in terms of the revenue driver. The cash business doesn't drive our core economics, but we want to make the product accessible to patients who don't have coverage or his insurance plan doesn't cover it. So first thing is just from a health care perspective, we want to offer it to those cash pay patients. But there are 2 other advantages to offering that cash pay alternative. And one of the reasons that we want to continue growing the total number of patients, both covered and cash that are receiving the product. One is the offering of the cash pay program to physicians in parts confidence to the physicians that their patient is going to get access to the product. If they send the script to blank, if it gets covered, the patient is going to get typically a $25 co-pay if it doesn't get covered, they're going to be offered the cash pay price. But either way, a very high percentage of patients whose script gets sent to link will get the product. So a physician can prescribe VOQUEZNA with confidence that their patient is going to get the product. That becomes a core part of our conversation with every gastroenterologist that you can you can prescribe this product with confidence your patient is great to get it. The other advantage that comes all of those patients, whether they're covered or cash, who get converted within the GI practice. Those patients are going to go back to their primary care physician and request the refill. That is part of our long-term strategy. We think that there's an opportunity to generate $1 billion of revenue out of the GI practices that 20 million scripts we were talking about earlier. There's another $1 billion of potential revenue that we can get in primary care. And one of the keys to unlocking that potential is all of those patients are being converted in GI going back to primary care, requesting a refill, educating the primary deposition around VOQUEZNA, that's going to be happening over the next 1 or 2 or 3 years, we're building that awareness within primary care, and that's going to lay the groundwork for our sales organization to then go into those primary care offices after 3, 4, 5 patients have spoken with the primary care physician about VOQUEZNA, is just a much easier sales call at that point in time where the physician already knows the drug knows that they can prescribe the drug, knows what the patient response has been just how much better their patients feel and knows that the product gets covered. Once a physician has had that experience of prescribing it 4, 5, 6 times, the ability to then talk to them about prescribing it much more frequently is a much higher ROI sales call.

Steve earlier, you talked about increasing comfort with the clinical data and then more recently, making the experience frictionless for people in the practice to get a prescription approved or dispensed ultimately. But sort of curious now that these trends have been developing. Can you comment on any changes in prescriber behavior, how more likely is the prescriber to go reach his Penn for script or I guess, more investing and EMR for writing of VOQUEZNA script based on these actions you've been pursuing here.

So it's partly based upon our actions and partly based upon their own experience and their own feedback from patients. So one of the ways of sort of understanding the trends is to look at some of our earliest adopters. So if we look at them on the physicians who had adopted this product first and look at their prescribing pattern, the proxy for that is we look at our top 300 prescribers and sort of what's happened to their prescribing volume over time, every quarter, every quarter, we see their total prescriptions rising consistently. Obviously, there's a little bit of variability from quarter-to-quarter, but the long-term trends are very clear that their TRxs are growing and their NBRxs are growing. So even if we see a flat quarter in Q1 because of the seasonality, you still see NBRxs going up. And in fact, those early adopters, those 300 physicians are now at a point where nearly 1 out of every 2 new to brand switches, if they're switching acid suppression strategy. So they have a patient coming to them who's on a PPI or maybe on double dose or even double dose BID PPIs, and it's still not getting adequate relief or not healing their erosions, 1 of 2 times that they're switching their asset suppression strategy, they're switching to VOQUEZNA. That is a fundamental shift from where they were 2 years ago. Again, we just launched 2 years ago. So we're just less than 2.5 years into the launch. And what we're seeing is significant growth in that prescribing behavior. So that's a fundamental behavior change that's happened gradually over time that comes partly out of repetition of sales calls, being in there all frequently having conversations. First, about their most severe erosive esophagitis patients then broadening to all of their erosive esophagitis patients then talking about the patients maybe with non-roast reflux who are still having significant heartburn or having nighttime reflux broadening the population of patients where they can use the product. So there's multiple sales calls drive that penetration, confidence that they can get the product covered drives that penetration, feedback from their patients drives that penetration. As they hear from patients how much better they feel, and this is one of the hallmarks of this category, VOQUEZNA enables patients who are significantly in pain to feel relief very quickly. That feedback becomes reinforcing for the physician, why is it worth the effort to prescribe a branded drug rather than prescribing a simple generic because your patient feels better. All of those things are synergistic. The multiple sales calls, the confidence and access, the confidence that comes from seeing in a scope the erosion healing, the confidence that comes from your patients telling you how much read they feel that confluence of multiple reinforcing variables is how a physician grows their utilization over time. And that's one of the -- if you look at our top users, it's taken 2 years to get to this volume in the practice. Now there are any more physicians that we've converted over the past 6 months it's going to take 1 or 2 years for them to grow their utilization, but that utilization pattern and that penetration is going to grow over time through the multiple reinforcing factors that we're describing.

You talked about longer-term growth from your top 300 prescribers. Can you maybe update us on where you are in terms of penetrating your sort of top few deciles, where are you in sort of that pyramid of target prescribers ultimately? And where do you think you might be exiting in '26?

So we don't provide generally the granularity by decile. The way we've described it that might be helpful in this regard is our top 300 GI prescribers about -- in Q1, about 45% of their new to brand conversions for acid suppression strategies were to VOQUEZNA. So almost 1 out of 2. Our top 3,000 subscribers, that's a meaningful portion of the GI community, we are at about 30%. And of their new-to-brand conversions are to VOQUEZNA. Now that's not true for the entire population of gastroenterologists. We've got about 16,000 gastroenterology writers, that is either gastroenterologists or the APPs in their practice. So we are 2/3 penetrated in the entire GI community in terms of first writing, we are highly penetrated in the top 3,000 in terms of percentage of their practice. What we need to do is get all 16,000 up to that 30% of new prescriptions are going to VOQUEZNA and continue converting the remainder of the GI prescribers. If we're able to do that in terms of new-to-brand conversions, over time, their total prescription for their TRx volume will start to approach their NBRx conversion volume. It doesn't happen immediately. It takes 2, 3 years for that conversion to happen. But again, the target of getting to $1 billion in revenue or out of GI is converting 20% to 30% of that 20 million prescriber volume, we take significant encouragement as an early signal that we're already at the 30% level in terms of NBRx penetration in several thousand accounts.

Great. I want to touch a little bit on sort of patient behavior here. And what's sort of -- first, stickiness are you seeing in terms of patients staying on VOQUEZNA, particularly after they get symptomatic relief, are they sort of understanding that this can be a maintenance drug that may or may not be chronically dosed. And then I'm also curious, are you seeing patients asking for this or using it in frontline use, whether it's through cash pay or potentially through paid scripts? Just sort of curious sort of what sort of frontline utilization you've been seeing?

So we are -- so I'll take the second half of that first. We're not yet seeing this being a first-line therapy. Again, partly, that's because we are primarily focused on the gastroenterology call and partly it's because of our market access structure. So to get coverage, to get insurance coverage for this product, virtually every patient needs to go through a step edit of having had a prior PPI use. So physicians will normally start a patient on a PPI. And then only if they are failing on a PPI will they switch to VOQUEZNA. The other contributing factor to that is PPIs have been ubiquitous for the last 30 years. The drugs have been around forever. You can walk into a CVS and buy omeprazole and so there are very few patients who talk to gastroenterologists. It is the rare patient that they see this PPI naive. Everybody has tried it. So this is really a second-line therapy to patients who are refractory to PPIs. In terms of the broader adoption patterns, we're seeing very significant uptake. I apologize. What was the first part of the question. Stickiness persistence. Yes. So we looked at the cohort of patients carefully to look at the persistence curve. This was a cohort of patients converted in 2024. And looked at 12 months of utilization. We saw north of 6 refills during that 12-month period, which is a good starting point. Now there may be several reasons that a patient may stop therapy even if they want to stay on therapy. They might have a high deductible plan. They hit the January resets. Their co-pay goes up and they may take a gap for some period of time before they finish their deductible and restart therapy. So the way the persistence curves work if you have a gap of 60 days or longer than you're counted as having halted therapy. We did, in fact, see that an additional significant percentage of patients who officially halted for 60 days, restarted therapy. So any patient who stops VOQUEZNA, goes back to their PPI. If they were experiencing heartburn when they're on their PPI and they start to experience heartburn again, they're going to come back and start using VOQUEZNA again. But we're seeing very good persistent -- on VOQUEZNA.

Patient's interview anecdotal evidence suggests a very, very high degree of satisfaction from patients and docs about the drug -- to take an immediate effect and relief, and that's what we hear all across.

Yes. And in terms of physician satisfaction with the product, I was traveling with 1 of our sales reps last week. We walked into a physician's office, we spoke with the lead nurse practitioner in the practice because often, the gastroenterologists will do the scoping and then the patients will come back and see either the physician's assistant or the nurse practitioner to get their care plan for -- if you have a erosive esophagitis however unit erosions this is a therapy recommending. So the nurse practitioners and the PAs are prescribing high volumes of VOQUEZNA. And one of the questions that I asked here was what's your experience been with VOQUEZNA? What do you do if a patient fails on VOQUEZNA. She just looked at me unfounded I've never had a patient fail on VOQUEZNA. That the level of satisfaction that they get is this product raises pH in the stomach, to a degree that the satisfaction level of the patients who are on this therapy is enormously high. Patients feel better, their clinicians hear from them that they feel better on this drug and the satisfaction level of this therapy is extraordinary.

Great. I want to turn to life cycle management. And one of the areas Fans focused on is exploring vonoprazan and EOE and can you maybe update us on the status of your Phase II study? And my second question on this is can you walk us through the clinical rationale of sequencing a PCAB potentially post a PPI, but prior to a biologic in terms of utilizing a PCAB in this population.

So the standard of care today for EoE, as you were alluding to in the question, standard of care today is the first-line therapy is acid suppression. So first-line therapy for most DRE patients is that you put them on a PPI. PPI have never actually been tested for EoE. That's an off-label use of PPIs but has become commonplace in the GI community because there is a volume of data, mostly case studies that have shown that acid suppression therapy can reduce eosinophil counts. That's the underlying premise for our Phase II trial is the body of data regarding both PPIs and significant case reports that have come out of Japan. Obviously, VOQUEZNA was first introduced, vonoprazan first introduced in Japan. So there are several case reports that have come out of Japan that have shown reduction of eosinophil counts with the application of vonoprazan, the API VOQUEZNA to patient. That body of data drove the design of our Phase II trial. We're currently conducting that Phase II trial, which will be the first well-controlled study of an acid suppression strategy in. If the study is successful, we would expect to have a conversation with FDA about doing a Phase III trial. And ultimately, if approved, we believe that this may commonly be used as first-line therapy for EOE patients because, in fact, PPIs aren't on label for. So if you have an on-label acid expression therapy with demonstrated clinical benefit as a question, you would want to use the therapy that has demonstrated clinical benefit because you know the magnitude of effect that you can expect. And so I'm not actually sure that it would follow the pattern that you're describing where PPIs are used first it is very possible to prenatal would be used as first-line therapy. It's also a much more cost-effective therapy than the oral steroid therapies or DUPIXENT, which is obviously a significantly much more expensive treatment for the EOE patients. So it's much more cost effective to use VOQUEZNA first line therapy. That represents a meaningful market opportunity and grows our revenue potentially in EoE. The other significant value proposition for our shareholders in the context of doing the EOE program is the potential to extend our exclusivity so this is part of our LOE strategy. If we demonstrate benefit in the Phase II trial, we would expect to have a conversation with FDA in order to get a written request that we include adolescent patients in the Phase III program. With that written request, we conduct that Phase III trial, along with completing all of our other pediatric requirements, we would qualify for a 6-month extension of our exclusivity period. And obviously, if we think this product can get to a $2 billion revenue level, we think, again, we can do $1 billion in GI and potentially another $1 billion in primary care, if this product potentially is $2 billion in revenue, adding 6 months is adding $1 billion of revenue, adding significant value for our shareholders.

Great. And can you maybe remind us when this Phase II study might potentially read out or top line?

So we expect that we'll have that data by Q4 of this year or Q1 of next year.

Great. Maybe in our closing minute here, I'll talk a little bit about your rate of investment going forward. How much of your Phase II program and potential pivotal trial is sort of in the plan already and funded for as you think about both growing the top line and transitioning to operating profitability and positive cash flow over the coming years.

They are. They're fully funded. EOE trial and that we have this year and anything else we want to do. We've talked about that we are considering an on-demand study as well. We haven't made a decision, but that's all included in our thinking, and that's when we say we're going to be turning operating profit second half of the year and then cash flow that's all part of that equation.

Great. Well, we're coming up on time. So Steven, Sanjeev thanks for joining us, and thanks Phathom for participating.

Well, thanks so much.

Thank you.