Phathom Pharmaceuticals, Inc. Q2 FY2025 Earnings Call

Hello, and welcome to the Phathom Pharmaceuticals Second Quarter 2025 Earnings Results Call. Please be advised that today's call is being recorded. With that, I'd like to turn the call over to Eric Sciorilli, Phathom’s Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom’s Second quarter 2025 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Robert Breedlove, our VP of Finance and Principal Accounting Officer. Just a couple of logistical items before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website. Further, the recording of today's webcast and the slides we'll be reviewing can be found under the Events and Presentations section of our corporate website. Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom’s control. Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices of Phathom’s common stock. A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date, and Phathom disclaims any obligation to update these statements. With that, I will now turn the call over to Steve Basta, Phathom’s President and CEO, to kick us off. Steve?

Thank you, Eric, and thank you to everyone joining us on the call today. I'm pleased to share our second quarter results, which reflect the first step in our mission to build a growth-oriented and profitable GI company. We believe this quarter marks a meaningful inflection point for Phathom. Let's begin with the key performance metrics. Launch through July 25, over 580,000 VOQUEZNA prescriptions have been filled, representing a 49% growth in 14 weeks since our last report. In Q2, approximately 173,000 prescriptions were filled, reflecting a 36% growth over Q1. Commercial access remains above 80% of lives covered with more than half of those requiring only a single step edit or less. BlinkRx continues to be a resource for both patients with coverage and for patients denied coverage who are then offered a cash pay option. Approximately 68% of Q2 VOQUEZNA prescriptions were filled through the retail channel. This slight decrease in retail proportionality this quarter is due to the rollout of a cash pay option for Medicare patients through BlinkRx. This has brought in incremental new patients and helps to instill confidence among HCPs as more patients have positive access experiences. Importantly, both covered and cash pay segments are growing at healthy rates. Through July 18, more than 29,300 unique healthcare professionals have written a filled VOQUEZNA script, approximately 24% more than at the time of our Q1 report. Although we expect the number of total writers to continue growing, our focus beginning in Q3 of this year has shifted to driving more depth and frequency of writing rather than driving new writer conversions. We recently refreshed our sales force target list to prioritize gastroenterologists. Of note, about 70% of all VOQUEZNA prescriptions written to date have come from gastroenterologists. Even though we've actually been spending more than 60% of our sales time in the last 12 months on primary care physician calls, we are clearly seeing a higher return from our sales calls on gastroenterologists. Likely, this is because a greater percentage of patients treated by gastroenterologists still experience GERD symptoms and need a new treatment option. In Q2, gastroenterology writers on average wrote more than twice the prescriptions per month compared to primary care physician writers, which illustrates that our GI sales calls are more productive. We believe that more time spent driving GI adoption will translate to accelerated revenue growth. Starting in July, our new sales target list now includes nearly all gastroenterologists. We've removed from the target list more than 20,000 primary care physicians who had not yet started writing. The net effect of including all gastroenterologists and removing unproductive primary care targets is to free up our reps’ time to focus on GIs and to increase call frequency with these high potential writers. This is a deliberate move to drive depth over breadth and to increase prescribers' adoption rates. In making these changes, we are not discounting the significant future opportunity that exists with primary care physicians. Rather, we anticipate phased growth. Step one involves gastroenterologists as the core writers with high awareness of VOQUEZNA today, delivering a greater return per sales call. Focusing on GI is a clear and efficient path to our goal of growth and profitability. In time, primary care physicians will hear from their GERD patients how much better they feel on VOQUEZNA as they return from GI referrals. We believe that our reps will then be able to more efficiently convert and grow PCP adoption. We expect transitioning sales targets will take time to show benefit in our sales ramp, as it typically requires several calls over months to move the needle with new physicians. I expect that we may start to see an acceleration of revenue within the next 2 to 3 quarters as we can engage gastroenterologists multiple times, leading to greater writing frequency in our core customer segment. Two notes on our reported metrics may be helpful. First, as we spend more time with existing customers to go deeper, our rate of converting new writers in future quarters will not be as high a priority. We may elect, therefore, to report different metrics in the future rather than writer counts due to this change in focus. Second, regarding the prescription numbers we've reported, IQVIA has implemented two recent restatements. All weekly Rx data from launch through July 4 have been revised. The launch to date and Q2 TRx numbers we are reporting today, therefore, incorporate IQVIA's weekly restatements and some internal estimates of monthly data. The restatements have no impact on our actual revenues, which are not derived from the IQVIA numbers. Turning for a moment to exclusivity, we were pleased that we achieved a positive resolution to our citizens petition in early June. The FDA has officially updated the Orange Book to reflect exclusivity for the VOQUEZNA 10-milligram and 20-milligram tablets through May of 2032. It's important to clarify the timeline; this date of May 2032 marks the earliest point at which a generic ANDA can be filed, assuming we do not have an Orange Book-listed patent one year prior to that date. Therefore, we believe that the actual entry point of a generic vonoprazan competitor should be no earlier than 2033, assuming a typical ANDA review cycle. Pediatric exclusivity, potential future IP, and multiple rounds of ANDA review for generic filers could potentially extend our exclusivity window even further. Confirming exclusivity into 2033 enhances the NPV of VOQUEZNA. Following the Citizens petition decision, we have also revisited our development plans and near-term priority clinical studies. We've recently decided to move forward with a Phase II trial in eosinophilic esophagitis, or EoE, which we expect to begin in Q4 of this year. We believe VOQUEZNA has the potential to be a first-line treatment in this indication for which PPIs are commonly used today despite not being indicated for EoE. Additionally, the EoE program may provide a path to extend exclusivity by 6 months with future pediatric evaluation in this indication. Robert will provide a more detailed financial update shortly. But first, I'll highlight some key recent financial progress. We reported $39.5 million in revenue for Q2, which represents a 39% growth over Q1 revenue. We started to implement our cost savings initiatives mid-quarter in Q2, showing a $12 million reduction in Q2 non-GAAP OpEx compared to Q1. We ended the quarter with approximately $150 million in cash. Based on our operating plan, with anticipated continued revenue growth and rigorous cost control efforts, we believe our current cash can be sufficient to reach profitability without requiring additional equity financing. Analyst consensus revenue for 2025 currently sits at approximately $160 million. We expect that we can achieve revenue above current analyst estimates and are providing revenue guidance of $165 million to $175 million for the full year 2025. We're also on track with our expense reduction activities and expect Q3 expenses to be below $60 million for the quarter, and our Q4 expenses to be below $55 million, including incremental costs associated with starting the EoE trial in Q4. Recall that this guidance reflects only cash operating expenses, excluding stock-based compensation and other noncash items. These expense reduction targets reflect our disciplined approach to spending while continuing to invest aggressively in key areas driving revenue growth. As a final note, we communicated last quarter that there could be a supply disruption in the VOQUEZNA triple pack. The triple pack represents approximately 1% of our total revenue. The supply issue pertains specifically to the clarithromycin tablets in the triple pack. We are in ongoing discussions with our supplier for these tablets and continue to actively monitor this situation. We have not experienced any commercial disruption to date. The VOQUEZNA bottles and the VOQUEZNA dual packs are not impacted as they do not include clarithromycin. We are prepared to quickly shift our H. pylori marketing emphasis fully to the dual pack if needed. Q2 was a strong quarter for Phathom. We're executing on our strategy, delivering results and laying the foundation for long-term growth. We believe we're on track to reach profitability in 2026. Importantly, 30% to 40% of GERD patients still have symptoms while on PPIs or other common treatments. VOQUEZNA's rapid, potent, and durable acid suppression profile provides a meaningful treatment option for these patients. We received numerous testimonials about the benefits of VOQUEZNA and how it is providing significant improvement in care for patients with GERD. It's a privilege to be part of a team that is making a significant difference for many thousands of patients today and potentially millions more patients in the years to come. I'll now turn the call over to Robert to walk through the financials in more detail.

Thanks, Steve, and hello, everyone. I appreciate you joining us today. We are pleased with our results for the quarter and the progress we have made both in terms of our revenue growth and cost savings. This morning, I'll be walking through our financial results for the second quarter of 2025, and I'll be commenting on both GAAP and non-GAAP financial measures. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release and will also be discussed later in my remarks. As Steve mentioned, we reported net revenues of $39.5 million for Q2 2025, which represents a 39% increase compared to the prior quarter. This revenue growth was driven entirely by the increased adoption of VOQUEZNA, reflecting the success of our ongoing commercial efforts. As of quarter-end, wholesaler inventory levels remain consistent with historical norms, averaging approximately 2 weeks of supply. Based on prescription trends and our revised sales strategy, we are providing full year 2025 revenue guidance of $165 million to $175 million. Our gross to net discount rate for the quarter was within our expected range of 55% to 65%, and we expect the discount rate to remain within this range for the remainder of 2025. Now turning to operating expenses, for Q2, we reported non-GAAP research and development expenses of $7.4 million and non-GAAP selling, general and administrative expenses of $78.7 million. Compared to the same period in 2024, these represent increases of 23% and 11%, respectively. This year-over-year increase in research and development was primarily due to one-time personnel-related restructuring charges, while the increase in selling, general and administrative reflects continued commercial investment in support of the VOQUEZNA launch. As part of our previously communicated cost-saving efforts, we achieved a meaningful reduction in spending this quarter compared to Q1 of 2025. Total non-GAAP operating expenses for Q2 2025 were $86.1 million, which is a $12 million decrease from Q1 2025. This decrease was driven by $18 million in savings, partially offset by approximately $6 million in one-time restructuring-related costs. We are encouraged by this early progress, and we anticipate more substantial reductions in the second half of the year. To give some context, our Q2 non-GAAP operating expenses included approximately $15 million in pre-committed direct-to-consumer advertising spend, $7 million in project costs that could not be discontinued before Q3, and the aforementioned $6 million in one-time restructuring charges. We expect the reduction or elimination of spend in these areas to drive our continued cost-saving efforts. Accounting for these items, we expect Q3 non-GAAP operating expenses to be below $60 million and Q4 non-GAAP operating expenses to be below $55 million. As a reminder, these projections reflect non-GAAP operating expenses, which exclude stock-based compensation and certain other noncash items. We encourage our analysts and investors to account for this nuance in their modeling. Based on our Q2 results and anticipated second half targets, we are lowering the upper range of our full year 2025 non-GAAP operating expense guidance by $15 million to $290 million to $305 million. For the quarter ended June 30, 2025, we reported gross profit of $34.5 million, which equates to a gross margin of 87%, consistent with the last quarter. After accounting for quarterly cash expenses, we reported a loss from operations, excluding stock-based compensation, of $51.7 million. That is a 30% improvement compared to the previous quarter. Our non-GAAP adjusted net loss for Q2 2025 was $56.5 million or $0.79 per share compared to a loss of $73.3 million or $1.25 per share for the same period in 2024 and a loss of $77.1 million or $1.07 per share for the first quarter of 2025. As with past quarters, reconciling items between GAAP and non-GAAP results included noncash stock-based compensation, noncash interest related to our revenue interest financing liability, and noncash interest expense related to the amortization of debt discount. Lastly, as of June 30, 2025, our cash and cash equivalents totaled approximately $150 million. Based on our current revenue outlook and operating forecast, we expect our current cash balances can support operations through the point of achieving profitability in 2026, excluding stock-based compensation and without the need for additional equity financing. We are encouraged by our results and remain confident in our ability to deliver strong revenue growth and maintain disciplined expense management through the second half of 2025. With that, I'll now turn the call back over to Steve for his closing remarks.

Thank you, Robert, and thank you again to everyone for joining us today. As you've heard throughout the call, we are executing with discipline and momentum. VOQUEZNA continues to demonstrate growth, and we believe our strategic pivot to focus on gastroenterologists will enable an acceleration of that growth. This targeted approach will deepen engagement with our highest value prescribers and create an opportunity for increased adoption. At the same time, we are delivering on our commitment to financial discipline. We believe we have a clear path to profitability in 2026. We are building a business that is not only growing but doing so responsibly. With exclusivity anticipated into 2033 and our EoE Phase II trial set to begin later this year, we believe we are laying the groundwork for long-term value creation. To our patients, our team, and our shareholders, thank you. Your trust fuels our mission. We remain focused on our goal of delivering meaningful value through disciplined execution and durable growth. I'll now turn it over to the operator to facilitate a Q&A session.

Our first question comes from Kristen Kluska with Cantor Fitzgerald.

Congrats on a great quarter and for your victory in the citizen petition. Good to put this behind you now. So, in terms of the ways that you're going to drive more depth and frequency of writing prescriptions, can you give us a little bit more color about how the sales force will target that? And how much of real-world practice right now is some of these physicians trying it in a few of their patients first, hearing how well it is, and then recommending it to more patients under care?

Kristen, thanks so much for joining us, and thanks for starting us off with what I think is actually the core topic for the transition that we're making, which is the focus on gastroenterology and the focus on depth and frequency of writing. It's actually quite simple and straightforward how we are targeting the sales reps. We've realigned all the sales territories as of early July. In Q3, all of our sales reps now have a new target list that is different from the target list on which they've been operating over the past several quarters. That drops out north of 20,000 primary care physicians that we were calling on who just hadn't converted and hadn't written. Now we've obviously got a significant number of primary care physicians who have converted, but we were spending a lot of time trying to drive first adoption from physicians that would then write slowly. What we're seeing instead, as we look at our metrics, is that there is a very strong correlation between call frequency and frequency of prescribing within the gastroenterology community. We had previously only been calling on sort of the top half of the gastroenterology community decile based on prescribing. We've now added all gastroenterologists into the call pattern and into the target list for the sales reps. We are driving multiple sales calls per month into the key gastroenterology accounts. That allows our sales team to spend enough time in the offices to get to know every prescriber in that office to build comfort, awareness, and experience with the product through sampling and education. This allows for an evolution of writing habits to much higher frequency writing. Our internal metrics indicate that spending more time in physicians' offices clearly indicates this strategy works. Even in our top gastroenterology accounts, we are still a moderate percentage of their overall GERD patient volume. There is still growth potential even among the top accounts. And in the broader gastroenterology community, where there has been some adoption, daily or weekly writing practice among all of those physicians hasn’t been established yet. We're going to achieve that by spending more time in those offices. So, it's time and relationships that drive depth and frequency. Real-world impact shows that as physicians gain comfort with the product, they prescribe it more often. As they prescribe more, it creates a self-reinforcing positive cycle as they hear from their patients about how much better they feel, which accelerates further adoption. We also think there’s going to be a broad community effect within gastroenterology as more gastroenterologists write, they talk to more of their colleagues who then also have positive experiences, which creates an uplift within that entire community.

Our next question comes from Joseph Stringer with Needham & Company.

Congrats on the quarter. Given your 2025 revenue guide of $165 million to $175 million and your comments on anticipated acceleration of revenue over the next few quarters, given your focus and traction with GI specialists, is that acceleration already baked into the current revenue guide, or do you think this could drive upside?

I think absolutely, long term, it's a driver to the upside. What is hard to predict is how quickly it comes into our revenue numbers. As we add a significant number of new gastroenterology targets to the sales force, they start making sales calls. But we know that it can take 7, 10, or 12 sales calls before a physician starts writing. Then it takes several more calls for them to change habits and grow their practices. That timeline is different for every physician. For some of these physicians, they've already had a fair number of sales calls. So, I expect that we will see it may take 1 or 2 or 3 quarters before the new targeting strategy starts to show consistent acceleration in growth. Our own metrics suggest this acceleration will occur, but it doesn’t happen with the first sales call. It occurs with multiple visits over a period of months. Thus, we provided guidance in a range that is above where analysts currently are, and that’s to reflect our expectation that we'll be in the $165 million to $175 million range. Longer term, I believe we will gain acceleration, though whether it arrives in the next 2 quarters or early in 2026 is difficult to pinpoint.

Our next question comes from Annabel Sammy with Stifel.

Thank you for the details on how you're targeting the GI docs. I guess my question is, and it makes total sense that you're focusing on the prescribers and at some point, that transitions into primary care writers. But I am curious, the acid control market became a blockbuster category, I believe, through the primary care market. So, do you have any sense of what the tipping point is for the frequency of writing from gastroenterologists before that starts tipping into primary care, and what that transition looks like?

In considering the evolution from GI to primary care, there’s a presumption that we must be in primary care for this to be a blockbuster product. I don’t actually think that’s true. I believe there is well over $1 billion revenue potential in GI alone. This is evidenced by the precedent of multiple PPIs that hit over $1 billion revenue in GI before moving toward a broader primary care push. So, adoption first within GI has been a well-practiced strategy that has driven broader adoption. The GI market is meaningful on its own and where the greatest concentration of need for our product exists. If I consider the broader population of patients in primary care, those experiencing the most discomfort from heartburn tend to be referred to GI. So, a higher percentage of patients treated by gastroenterologists have GERD and require a more potent treatment. I see GI as a consistent growth driver, while PCP is meaningfully additive to the revenue potential. I do not perceive GI as starting point transitioning to a primary focus on PCP. Rather, I see GI as a continuous growth driver with PCP significantly expanding the overall market. Regarding Medicare, we currently see it as not a future revenue driver since a low percentage of Medicare patients achieve coverage. Most Medicare scripts that go through often end up as cash pay scripts through Blink. The intent of offering a cash pay alternative to those Medicare patients without coverage is to facilitate their access and make prescribing easier for physicians, regardless of whether a patient has commercial insurance or Medicare. We want physicians to adopt prescribing without hesitation, regardless of insurance coverage.

Our next question comes from Yatin Suneja with Guggenheim.

Congratulations on a very nice quarter. The above consensus guide is really helpful for us in light of all the cost-cutting you're doing. My questions are twofold: Where exactly are you cutting costs, and how might that impact growth trajectory, if at all? Secondly, regarding the $55 million cash OpEx in Q4, should that be considered a steady state going into 2026?

Terrific, Yatin, thanks for the questions. First, where we are cutting costs to achieve the $60 million in Q3 and the $55 million in Q4 comes from several categories. The first and most significant cost savings come from eliminating our direct-to-consumer promotional program. That generates a big line-item savings. My assessment of that program and our internal metrics suggest it was run prematurely at a time when broad adoption in primary care had not yet occurred. A DTC program should activate patients to drive them to primary care, but we did not have enough primary care physicians writing scripts to generate a return on it. By reducing that spend, we do not expect an adverse impact on revenue; we actually anticipate more uplift in revenue due to the improved targeting strategy on GIs, enhancing sales force productivity. Additionally, there will be a small restructuring affecting a modest percentage of total headcount, providing savings.We're identifying significant savings on third-party vendor contracts and creating fiscal discipline across third-party expenditures. For example, we can use in-house resources instead of outside vendors for marketing materials. There are considerable savings across the board. We've already realized an operating reduction of $12 million from Q1 to Q2. The Q2 operating savings were implemented mid-quarter, setting us on track for Q3 and Q4. We have visibility to achieve $60 million in Q3 and $55 million target in Q4 with focused investments in core sales tactics. As for 2026, we have not yet published a detailed OpEx run rate, but you should expect our 2026 OpEx will reflect the significant cost savings we've achieved. There may be some incremental investments in 2026 that may raise the run rate slightly above $55 million, but our focus remains on operating discipline.

Our next question comes from Paul Choi with Goldman Sachs.

Congratulations on all the progress. It's good to see you guys moving back into the clinic for EoE. Can you comment a bit on what physician feedback is on the space between generic PPIs and other conventional therapies, and the transition into biologics? What would physicians look for in an intermediate therapy like vonoprazan?

In considering the EoE opportunity, there are two elements to think strategically. First, EoE represents an incremental revenue opportunity for us. Currently, PPI therapy is first-line therapy in EoE patients, despite a lack of large clinical trials demonstrating efficacy. There are enough case reports and physician experience that show modifying stomach acid positively impacts EoE patients, both histologically and symptomatically, making standard PPI therapy the first-line treatment. There exists meaningful opportunity to disrupt that with vonoprazan potentially becoming first-line therapy, backed by solid clinical data reflecting efficacy. There’s a chance that vonoprazan becomes an intermediate therapy, but it may also be adopted as first-line therapy as we gather more clinical data. The second part regarding pediatric exclusivity involves our first trial focusing on adults only; thus, it won't provide the exclusivity extension. Our goal is to lead to an end of Phase II meeting and a conversation with the FDA about a written request for pediatric studies. We’ve had informal discussions indicating this program may warrant a written request, a potential avenue to gain the additional exclusivity.

Our next question comes from Umer Raffat with Evercore ISI.

This is Jyhhaw on for Umer. Two questions, if I may. First, on ex-U.S. strategy: I think the drug pricing letter was sent to selected 17 companies, not the broad industry. The scope looks limited to Medicaid. At least for now, the impact on your business is likely very small. How are you thinking about your strategy in the ex-U.S. market? Secondly, regarding the historic data presented at medical conferences, approximately 22% of patients cycle through 2 lines of PPIs, and another 14% to 17% cycle through more than three lines. Is this due to step edits or how doctors are prescribing VOQUEZNA? Will this change as more patients switch to VOQUEZNA after one line?

On the ex-U.S. strategy, we're currently focused on the U.S. market. Our commercial activities center on the U.S., as we're not investing significant energy into a launch strategy in Europe or Canada. While we have rights to vonoprazan for these territories, complications arise regarding rigorous pricing policies. We haven’t anticipated near-term activities in Europe. The second part of your question regarding patient cycles: physicians have varying perspectives on appropriate therapy, leading to patients failing one, two, or more PPIs before switching to vonoprazan. The emphasis on experiencing pain is consistent among all scenarios. The patients who have tried multiple PPIs and still experience heartburn fall into our core target group. Over time, as physicians gain more comfort with vonoprazan being the appropriate therapy after failing a PPI, we expect a shift to less frequent failures before switching.

Our next question comes from Matthew Caufield with H.C. Wainwright.

Congrats on the progress. It was helpful to see the 68% retail pharmacy filled prescriptions with the remainder coming through the BlinkRx cash pay. At this point in time, what is your sense of the steady-state balance between those two? Can you also provide insights on the current average BlinkRx cash pay amount?

It’s hard for us to predict the future steady-state balance. We are seeing both channels growing. Some retail filled scripts actually go through Blink and then to retail pharmacy. We're not focused on managing the balance; we aim to grow all scripts in both channels. Our conversations with physicians center on prescription growth—if a patient gets a commercial script that’s covered, we help with the PA. If the patient is Medicare and has no coverage, we provide the cash pay option. This approach ensures optimal outcomes for both the physician and the patient. Regarding the average BlinkRx cash pay amount, it stands at $50.

And I’m not showing any further questions in the queue. And as such, this does conclude today's presentation. We thank you for your participation. You may all disconnect and have a wonderful day.