Conference Transcript - PHAT 2026-06-03

Dennis Deng, Analyst — Jefferies

Hello and welcome to the Jeffries Healthcare Conference. My name is Dennis Deng, biotech and spec pharma research analyst here at Jeffries. The wonderful pleasure of having Fathom Pharmaceuticals here. We have CEO Stephen Basta and CFO Sanjeev Narula.

Stephen Basta, CEO

Thank you, Dennis.

Dennis Deng, Analyst — Jefferies

Thanks for the invitation. Yeah, for sure. Before we go into Q&A, we'd love to hand it over to you, Steve, to just give a high-level overview you know around the company and you know the tremendous progress you guys have made over the last 12 months and maybe also remind us about the outlook uh this year terrific yeah thanks again

Stephen Basta, CEO

for the invitation and the opportunity to be here um yeah we'll keep this at a really high level in terms of um you know fathom for those who are new to the stock um we have launched the first PCAB into the gastroesophageal reflux market opportunity. PCABs represent the next generation of therapy for gastroesophageal reflux. Vaquesna is the product that we've launched. It is growing rapidly, capturing significant attention in the gastroenterology community as a meaningful improvement on prior therapy for gastroesophageal reflux. We have approval for both erosive esophagitis and non-erosive reflux. We posted $175 million in revenue last year, have guided this year to $320 to $345 million in revenue. One of the things that was important through the course of last year was we fundamentally pivoted the core strategy of the business to focus heavily on gastroenterologists as the core early adopters of this therapy. When we look at the overall gastroesophageal reflux market, they're north of 100 million prescriptions every year for proton pump inhibitors. 20 million of those are written by gastroenterologists or related care providers, and the majority of patients in the gastroenterology office are patients who have failed prior PPI therapy and got referred to a gastroenterologist because they're still in pain. That's our core market opportunity. if we're able to get to 20 to 30 percent of that market opportunity in terms of converting 20 to 30 percent of the prescription volume in gastroenterology for acid reflux therapy that represents a billion dollars in revenue we think that there's a path to a billion in revenue in GI and potentially another billion in revenue in primary care and I'm sure we'll have an opportunity to talk more about that through the course of this process but we're on a really nice growth path with the Vaquesna launch, transitioning to profitability second half of this year and positive cash flow next year.

Dennis Deng, Analyst — Jefferies

Perfect. Why don't I ask about your Salesforce strategy to go after GI and how that has changed over the last year? What are some kind of early indicators of progress and demand that that shift is bearing

Stephen Basta, CEO

So we're actually looking at several different indicators of the progress. So as you described, early on in our launch, actually, there was a very broad call point set which included gastroenterologists and a significant number of primary care physicians in the launch. One of the early metrics that we looked at, and I joined about, you know, a little bit over a year ago, and as I came in, I was looking at the metrics from our own launch. And what we found was it took fewer sales calls to convert a gastroenterologist to first writing for Boquesna. And then when they did write, they wrote twice as many scripts per physician as compared to primary care physicians. And that just intuitively makes sense also because the patient base that a gastroenterologist sees are patients who have been referred from a primary care physician because the patient was still in pain despite standard of care therapy. So a patient would typically be put on omeprazole or esomeprazole. They'd be put on a PPI. If that resolved their GERD symptoms, great. You don't need a referral. It's only the patients that were failing that needed the referral. So in fact, the patients who the gastroenterologist sees need our product more. That's why the early metrics suggested that's where we should go. What we did last year was we actually pivoted the Salesforce target lists, And then we realign Salesforce Geography to enable our sales reps to spend upwards of 70% of their time in gastroenterology practices. That's bearing fruit. It's bearing fruit in several ways. We are seeing trends toward prescribing volume on average from our gastroenterology writers growing every quarter, quarter over quarter. And that happened consistently through 2025. We also see growth in the percentage of new-to-brand conversions that are happening to Vilquezna among patients that a gastroenterologist is seeing, for whom they're switching therapies. Now in our top 300 writers, and in fact in our top 3,000 writers, our top 300 writers, we're seeing almost one out of every two patients where they're switching therapy because their prior therapy was inadequate, they're switching them to Voquesna. In the top 3,000 writers that we're spending a lot of time with, one out of every three patients where they switch therapy for reflux, they're switching those patients to Voquesna. That's a fundamental change in behavior in those gastroenterologists where their writing propensity for Voquesna is going up, And we see that happen repeatedly as we get time and frequency of calls on those physicians.

Dennis Deng, Analyst — Jefferies

No, that's great color. I think it's great that you do have what's essentially like a leading indicator, right, for, you know, those high prescribers. So you do have that visibility. For the, you know, for the doctors outside of that top 300, I guess what is the gating factor that would prevent them from writing it more? Is it perhaps experience with Voquesna? Is it just purely timing of patient visits, you know, coming to the office, or is there anything else?

Stephen Basta, CEO

I don't think that there's a gating limitation. I think there's rather an evolution and a change in behavior away from a 30-year ingrained So if you're a gastroenterologist treating patients with gastroesophageal reflux, you've been writing PPI scripts for the last 20 or 30 years. And you're just so comfortable doing that that it takes repetition in message, multiple visits, to prompt a physician to start thinking away from the habitual practice of I'm always writing a PPI script to I really need to be thinking about something that's going to work even better for this patient. And naturally what happens is they start with their most severe patients. They start with the patient who's failed four prior PPIs, and they just don't have a solution. They've doubled their dose. They've gone to BID dosing. The patient's still in pain. Their erosions aren't healing. They switch them to Vaquesna. As they see that the product works in that patient, our sales representative is having a conversation with the physician about all of their erosive esophagitis patients. And now they're not going to switch all of their erosive esophagitis patients, but maybe they'll switch all of their grade C and D patients. the most severe patients when they see that the product is working to heal erosions in those patients then you're having a conversation about how do you switch all of your erosive esophagitis patients and you're broadening in each of those conversations you're broadening the population of patients that the physician considers to be appropriate for what is clearly a best-in-class therapy and so that growth trend there's not a specific impediment other than an ingrained habit and familiarity and ease of writing PPI scripts, and we are educating physicians about the breadth of patients and gradually growing their perception of the breadth of patients in whom Vaquesna is going to provide a meaningful benefit above PPI.

Dennis Deng, Analyst — Jefferies

Yeah, exactly. It's not really an impediment with the product. It's more about getting familiar.

Stephen Basta, CEO

And we see it in our data. We see reach and frequency makes a really big difference. Frequency of call makes a really big difference in physician behaviors because, and it's not just, and when we say frequency of call on a physician, it's not actually just calling on the physician. We're calling on the physician, we're calling on the nurse practitioner, we're calling on the physician's assistant, we're calling on the medical assistants, we're calling on everyone who is touching the patient and touching the prescription and processing the prescription on how do you get this thing through to ultimately get the product to your patient, because it's a whole office call to build those relationships and build comfort and familiarity with prescribing for Quesna. And we're seeing it paying dividends. We are We're seeing growth in each of our accounts, we're seeing growth across the entire GI universe, and we're seeing growth both in the number of writers and in the frequency of writing in those practices. And that's exactly what the strategy is intended to pursue.

Dennis Deng, Analyst — Jefferies

Do you think having around 300 sales reps is enough to capitalize on that opportunity?

Stephen Basta, CEO

We are calling on every gastroenterologist whose office we can get into with frequency that is having an impact in growing those offices. And we're actually going beyond that. So 70% of our sales calls are targeted to gastroenterology practices. We are still calling on the top decile of primary care physicians and on primary care physicians who have previously adopted the product, where we already have traction, already have familiarity, and we can grow those practices. And in the future, there will naturally be an expansion of the call point to more primary care physicians, but that will come over time. the core initial focus our focus in 2026 likely in 2027 is going deep in GI and driving greater and greater new to brand conversion frequency in GI have you

Dennis Deng, Analyst — Jefferies

started to see that drift of awareness from GIS to PCPs it's still fairly early

Stephen Basta, CEO

in the process we have and we can see that in several ways one is we do see growth in writers in PCP writers on whom we're calling we see growth in writing frequency and we see that this is a promotion sensitive market as we call on physicians we grow their utilization in addition I apologize I've got a bit of a cough in addition to that growth on those primary care physicians we're calling on we're starting to see increasing frequency of new prescriptions coming from physicians we've never called on. That's actually a core part of our strategy. And what that looks like, and this is a core part of the GI-focused strategy, we recognize that the greater perceived need is in GI. That's where we get more traction for our sales call. The patient who is in the GI office got referred from a primary care physician. They're treated in a GI. If they have erosions, they're treated until those erosions have healed. If they have non-erosive reflux, they're treated until their pain is well managed. And then the patient is going back to their primary care physician for their next annual physical, and in many cases, it's going back to their primary care physician asking for refill of Vaquesna. That patient now is the product advocate in the primary care office. So the primary care physicians, we believe that many of the primary care physicians who are writing the product today are writing refills for patients that came back from GI and are product advocates. That sets the stage for a future expansion back into primary care. And I talked earlier about, you know, we think there's a billion dollar revenue opportunity in GI and potentially another billion dollar revenue opportunity in primary care. Well, the billion dollar revenue opportunity in GI is really simple. 20 million scripts, if we can convert 20 to 30 percent of those scripts in GI, and those are patients who are highly in need and highly symptomatic with their GERD symptoms, that's a path to a billion dollars of revenue in GI. But all of those patients, if we convert a million patients, we've got a million advocates going back into primary care physicians, educating primary care physicians about how good this drug is. That lays the groundwork for an expansion of our sales organization in the future into primary care and driving the second billion dollar opportunity in primary care as those physicians are educated about our product by their patients do you have any initial thoughts on like

Dennis Deng, Analyst — Jefferies

when that could happen that critical mass to actually invest it's definitely not happening

Stephen Basta, CEO

this year you know it's possible but probably not next year but certainly by 2028 or so we might be thinking about an expansion to some degree and we haven't modeled out exactly how big is it it's going to depend upon key metrics that we're tracking we look for example at nbrx per sales call and that drives efficiency so how many new to brand patients are we getting out of a prescriber based upon the number of sales calls that we're making in those offices we're seeing growth in our NBRX per sales call metric in every category in gastroenterology in gastroenterology APPs and primary care physicians and primary care physician APPs as those metrics improve I mean it's certainly a positive ROI investment today for us to put time and effort into gastroenterology practices, as the metrics improve in primary care, it's going to become clear at some point that there's a positive ROI opportunity to do an expansion in primary care and that drives the growth opportunity in primary care.

Dennis Deng, Analyst — Jefferies

And how would you approach that primary care segment in terms of Salesforce build We haven't defined that yet.

Stephen Basta, CEO

That will be an evaluation that we make over the coming years.

Dennis Deng, Analyst — Jefferies

Could that be a potential partnership sort of situation?

Stephen Basta, CEO

Could be a collaboration to reach primary care. Could be we build out our own sales organization. It could be a more moderate sales organization build along with very heavy non-personal promotion marketing activities. It could have a DTC component. There are a number of strategic elements that one could build into that. Now, this is two or three years out. But as we get to significant positive cash flow from the GI focus opportunity, there's an opportunity to reinvest some of that in driving even faster growth in primary care. And there are several different dimensions. we will be looking at the TRX impact of each of those different investment propositions and the ROI of each of those and figure out the right mix to drive that profitability.

Dennis Deng, Analyst — Jefferies

Can you talk a little bit about the persistency of a patient on Voquesna and on average how many refills they get? And if they do, for some reason, stop Voquesna, what was the major reason?

Stephen Basta, CEO

So we looked at a cohort of patients. We've talked about this in some of our earnings calls as well. We looked at a cohort of patients in 2025 to track persistence over a 12-month period. And that cohort of patients, the average number of scripts filled was north of six for that entire cohort on our persistency calculation, which is patients who are getting continuous script fills with no more than a 60-day gap. And interestingly, 18% of the patients that actually were counted as not having maintained their script persistence because they had a 60-day gap ultimately filled additional scripts later in the year. So you get additional script fills beyond that six target. You get additional script fills from those patients that restart. And one of the things that we know is impacting patients, and we see this in Q1 with the seasonality every year is even though we were seeing significant continued growth in new to brand conversions in Q1, our overall script number fell because our refills fall off somewhat in Q1 because of the standard plan resets. So one of the contributing factors clearly to that interruption in prescriptions is that some patients, if you're on a high deductible health plan, you may have a $25 copay on your of a Quesnus scripts through December and then in January because your plan reset our patient assistance program doesn't bring your copay price down to the same levels you might have a higher copay might not fill the script in January you might not fill the script in February you might wait a month or two and as soon as you're experiencing pain again you're gonna go back to your physician and say doc I want to figure out how to get on this product at the point where you've worked through your deductible you're now covered again at your and you're at the $25 copay level so you do see some of that plan reset phenomenon that creates some interruption in Q1 and, you know, possibly some lingering effect in Q2, but more of those patients come back on drug in the second half of the year.

Dennis Deng, Analyst — Jefferies

So it seems like patients typically stop therapy because of these resets right at the beginning of the year, or is there—

Stephen Basta, CEO

I think that's probably one of the major contributing factors. I mean, there could be other factors. Patients change physicians. They go back on their PPI for a variety of reasons because their erosions were resolved. There might be other contributing factors, but certainly we see very good persistence. And one of the very encouraging signs is not only do you see persistence of patients after their initial script, but you see recurrence of patients starting Bequesna therapy again. And I think that phenomenon, we haven't actually done enough research with those patients to understand exactly what's driving that, because we obviously don't have patient identifier information, so we can look at the numbers in aggregate. it, what my intuition tells me is driving that is patients go back to their PPIs because they've got some and, you know, they had a high copay. And when they're in pain again, they know Vaquezna resolves their pain, they go back on Vaquezna. And we would expect that restart is a very positive signal also to their physicians that that patient sees that this is a significant improved therapy for them.

Dennis Deng, Analyst — Jefferies

How do you think awareness has been tracking, you know, at this point among, you know, physicians perhaps, but then also patients?

Stephen Basta, CEO

So we are not focused today on driving patient awareness. We're not, that's not a metric that we track. That's not a significant investment we're making. There will come a time in the future when we do more of that. Our focus is on driving physician awareness and particularly gastroenterology community awareness. We have 100% awareness within the gastroenterology community. Everybody knows about this drug. I haven't talked to a gastroenterologist in the last six months who doesn't believe this is the best gastroesophageal reflux treatment available. Like, that's a universal view among every physician that I've spoken with. I mean, I can't speak for every gastroenterologist, but it's that broad-based. It was interesting. When I was at DDW in 2025, there were still physicians who were hemming and hawing about whether or not they really needed to use this drug. we're not sure how much better it is than a PPI in 2026 there's none of that a hundred percent of the docs that I spoke with were convinced this is the best available treatment for my patients the next part of the education process is and doc it's easy to get for your patients because they're still not sure it's a branded therapy in a generic market they're not sure what the copay is going to be they're not sure how much work it's going to be so that's our next education point but the education around clinical efficacy and utility be absolutely universal within the GI community that physician awareness is really high regarding the effectiveness of this drug.

Dennis Deng, Analyst — Jefferies

As you go into 2027, and I'm sure you're aware, but there's going to be another private competitor with another PCAP that's launching, they have some data at DDW, perhaps just help us understand how you're framing that data relative to Voquezna's data, especially once they launch in January of 2027. That could be something that needs to be worked out, you know, in terms of detailing, counter detailing, things like that.

Stephen Basta, CEO

Yeah, so to be clear, we're not framing that data in the context of our conversations with physicians. It rarely comes up in conversations with physicians. You know, when it does, there are a few physicians who have heard the data, but that's just not It's not a, there's no noise in the physician community about this drug. There's certainly some noise within the investor community that there are conversations. We've looked at their data, and I don't want to minimize this in any way. PCABS are much better than PPIs. The Tagobrezan data indicates that it works better than a PPI. Get that. It works almost as well as our drug. So it will be a second entrant into the market. And, you know, just for context, the primary endpoint in the erosive esophagitis trials is healing at eight weeks. In our erosive esophagitis trial, 93% of patients with erosions were completely healed at eight weeks. In the competitive product trial, 85% of erosions were healed at eight weeks. That's pretty good. It's not 93%. So when the drug launches, we're going to have a really simple conversation with every physician, which is, Doc, you've been using Renoprazine for three years. You've been using Vaquesna for three years. 93% of your erosive esophagitis patients heal within eight weeks. Is there any other product you've seen that produces better than 90% healing? There is no other data in the market that shows better than 90% healing. I think we've got the best healing rates in the market, and that is what physicians are trying to do for their patients. The objective, if you're a gastroenterologist, you've scoped a patient, they have erosions on their esophagus, you want to give them the product that gives them the best probability of healing our data suggests that that's for no present that's request now or drug do you believe

Dennis Deng, Analyst — Jefferies

that with the launch of a second p cab that it could actually be a tailwind for you as it as you know there's going to be shared voice out there talking with oh absolutely yeah i think

Stephen Basta, CEO

that's i think that's a really helpful framing that um that uh wish to all sort of keep in mind often what happens when a second drug launches in a category it changes the conversation around the first drug from today physicians are thinking about do I need to use Voquesna or are the PPIs that I've been using for 30 years okay so it's a really sort of single product conversation in the future when a second product launches it's now there's a new class of drugs and I need to think about how do I integrate PCABS into my practice So it moves away from being a product to being a category, and we have a three-year lead and we'll be the clear market leader in that new category. So I think that creates an uplift in category awareness and category perception, and candidly, we'll move some physicians along the continuum of thinking about, I've got to get on this train and start using this new category of products, and ours will be the product with which they are most familiar, around which there is the most awareness in the market.

Dennis Deng, Analyst — Jefferies

Okay. Maybe just contextualize how big that market is in terms of how many patients are on PPIs, how many of them or what proportion of them fail and are technically eligible for PCAPs?

Stephen Basta, CEO

So there are approximately 60, 65 million patients with GERD. Some 22 million are on prescription PPIs. There's another very broad population of tens of millions of patients who are on OTC PPIs. Various published reports have indicated that upwards of 40% of patients on a PPI are still experiencing meaningful heartburn symptoms. That's an enormous opportunity in the tens of millions of patients. For example, 7 million patients are estimated to have erosive esophagitis. Those patients are almost all on a PPI, but they're still having erosions in their esophagus. That is a very significant unmet need population that is the core target opportunity for us. When we think about the market, we don't think about the overall PPI prescription market. That's not what we're trying to convert. We're only going after patients who have failed to achieve adequate symptom control on a PPI. And that's about 40% of the total PPI dosing market.

Dennis Deng, Analyst — Jefferies

Okay. And how many patients have you treated so far?

Stephen Basta, CEO

We've treated on the order of about 250,000 to 300,000 patients so far. It's a very small portion of that market. It's a significant opportunity for us to increase the penetration. And, again, one way of thinking about this, and part of the way we think about it, is we don't really think about demographics of the overall population because we're not going out trying to convert 10% of the population. What we're trying to convert is a significant portion of the patients who are in a GI office. So the relevant market that we think about is 20 million PPI scripts per year. That's the portion of scripts being written by a GI, and virtually all of those patients got to the GI practice because they were still having symptoms when they were in their primary care office. That's why they're being referred. They're not being referred just because on a whim somebody wants a patient to get scoped. They're being referred because they complain to their physician that they're still having pain, and that's what's causing them to be referred to a GI. So that 20 million scripts is scripts that are being written for patients who are still symptomatic on a PPI. That's our available market. If we convert 4 to 6 million of those scripts out of the GI practice, that's a billion-dollar revenue run rate. So our path to a billion dollars in revenue is to convert 20% to 30% of that PPI script volume. Notably, in our top 3,000 accounts, we're already at 30% new-to-brand scripts. We're already hitting that 30% metric among the patients that they're switching. Now, over time, the total script volume approaches the percentage penetration of the new-to-brand conversions. So, you know, our early indicator of is it possible for us to get 20% to 30% of that 20 million script volume, we're already at 30% of new-to-brand patients and 3,000 docs. That's, I think, a significant signal that we can get there.

Dennis Deng, Analyst — Jefferies

Perfect. And last, maybe like a housekeeping question, just on growths to net and just the trajectory or just the shape of that through the year. Maybe give a little bit of color on what that looks like. Sanjeev, do you want to take that?

Sanjeev Narula, CFO

Yeah, I'll take that. So gross to net, Dennis, we gave a range at the beginning of the year of 55% to 59%. We came at the lower end of the range in the first quarter. It's a function of two things. One is the book of business, and certainly as the cash pay business is higher in the first quarter, the gross to net tends to be lower because there's no gross to net attached to that. So during the subsequent quarters, it's going to move around a little bit, but it's going to stay within the range. You know, it's going to depend on which quarter you've got to hire business for what kind of a book of business, but expect it to stay within the range, first quarter being unique because of the cash pay business.

Dennis Deng, Analyst — Jefferies

In terms of the shape, should we use last year as sort of like a good example?

Sanjeev Narula, CFO

I mean, I can't give you quarter-to-quarter gross-to-net guidance, but I think it's safe to assume and follow. But, again, recognize the range is given because the book of business changes in every quarter.

Dennis Deng, Analyst — Jefferies

In the last few minutes, we'd love to hear your thoughts on BD. I mean, you guys do have around 300 reps in GI. So, you know, at what point does that become a real consideration where you feel there would be an urgency to go out and diversify away from BoQuesta and to leverage that GI sales force?

Stephen Basta, CEO

Yeah, I think that's a really helpful direction to start thinking for our investors. How do we build beyond our exclusivity date? So we will have exclusivity for this product before generic entry until 2033 or 34. That creates an opportunity for us to generate significant positive cash flow in the billions of dollars of positive cash flow over the period of time over the next seven years. but one of the key leverage points exactly to your to your comment one of the key leverage points is we are building relationships with every gastroenterologist every gastroenterology app in the country as we build those relationships that provides an opportunity very efficiently to launch additional products through that sales organization we're starting conversations with companies, more typically with companies that are sort of at phase two and thinking about how do we fund our phase three program and how do we get to launch. Now, it's possible that we would do something later in the coming years on a commercial product, but more likely that in the next one to two to three years, we bring in one or two assets that are in clinical trials, have proof of concept in humans, have a defined clear phase three path to get to launch before our 2033 key target date and that allows us to launch one two three additional gi products within the window of time that we are building our presence in gi and build durable revenue that leverages our infrastructure we would expect to fund those programs entirely out of operating cash flow but we do not want to do something that involves dilution for our shareholders, and we're going to be generating significant positive cash flow starting next year.

Dennis Deng, Analyst — Jefferies

Got it. And last question real quick. Curious why the focus on, like, a phase two or something in the clinic rather than something that's already commercial where you could get immediate accretion? Is it mainly because those are relatively more expensive?

Stephen Basta, CEO

Well, I think it's, yeah, I think it's relatively more expensive, and there are big opportunities that one can get in phase two or ready to go into phase three that represent much bigger inflection points. If we were to acquire a modest revenue product, it's going to be only a modest revenue product unless there's some key leverageable advantage because of our sales organization, we can grow it substantially and certainly open to looking at that. So there are those opportunities as well. Products that have been launched but under-resourced commercially, and that would be a really interesting kind of opportunity as well I'm not eager to do that in 2026 or possibly 2027 because I don't want to distract our sales organization from growing the question makes sense but by 28 or 29 does it might make sense could certainly make sense to add something to our bag once we've got the deep leverage and penetration with the Quesna growth in GI I don't want to do anything today that interrupts the path from here to a billion dollars in GI revenue. This is all about frequency of conversation with every gastroenterologist, with every gastroenterology APP about the breadth of patients for whom they should be using VQESNA.

Sanjeev Narula, CFO

And our balance sheet would support that time frame. So to be able to meet those obligations.

Dennis Deng, Analyst — Jefferies

Perfect. Well, I think that's all the time that we have today. Thank you so much for joining us and hanging out with us and have a great conference.