Phathom Pharmaceuticals, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Phathom is a biopharmaceutical company developing and preparing to commercialize vonoprazan-based treatments for gastrointestinal diseases. The company had not generated product revenue and reported no revenue for the quarter.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Research and development expense | $11.5 million | $17.7 million; down $6.2 million |
| General and administrative expense | $18.6 million | $20.2 million; down $1.6 million |
| Total operating expenses | $30.1 million | $37.9 million; down $7.8 million |
| Operating loss | $30.1 million | $37.9 million |
| Interest expense | $9.2 million | $2.8 million |
| Net loss | $37.8 million | $40.7 million |
| Net loss per share, basic and diluted | $0.89 | $1.07 |
| Net cash used in operating activities | $39.7 million | $44.8 million |
R&D expense fell mainly due to lower clinical-trial and chemistry, manufacturing and controls costs. G&A expense decreased as lower professional-services costs more than offset increased personnel costs. Higher interest expense reflected the revenue-interest financing liability and Hercules loan; $1.5 million of interest income partly offset interest expense. Operating margins are not meaningful because the company reported no revenue.
At March 31, 2023, cash and cash equivalents were $129.6 million, down from $155.4 million at year-end 2022. Total assets were $144.0 million; current liabilities were $14.4 million. Long-term debt, net of discount, was $96.6 million, and the revenue-interest financing liability was $114.7 million. Total liabilities were $234.2 million, with a stockholders’ deficit of $90.2 million. The company raised $14.1 million net through its at-the-market offering during the quarter. Cash and restricted cash together declined by $25.8 million to $130.1 million.
Business developments, outlook and risks
- In February 2023, the FDA issued complete response letters for the Erosive GERD NDA and post-approval supplements for the approved H. pylori products. The letters requested additional stability data showing N-nitroso-vonoprazan (NVP) remains at or below the FDA’s 96 ng/day acceptable intake level throughout the proposed shelf life; the company said no other deficiencies were cited.
- Management anticipated resubmitting the Erosive GERD NDA in Q2 2023 and the H. pylori supplements in Q3 2023, with potential launches in Q4 2023, subject to FDA approval. Failure to demonstrate acceptable NVP levels could further delay launches and revenue.
- Following positive topline results from its Phase 3 daily-dosing Non-Erosive GERD study, the company planned to seek FDA approval in the second half of 2023. It was also discussing a Phase 3 study of as-needed dosing with the FDA.
- Management stated existing cash plus the remaining $100 million available under the Hercules loan would fund operations for at least 12 months. It said receipt of $175 million in additional revenue-interest financing milestone payments, together with those resources, would fund operations through year-end 2024. These are conditional estimates, not guaranteed funding.
- The revenue-interest financing provides investors a 10% royalty on net sales of vonoprazan products, generally capped at aggregate payments of 200% of the investment amount. Additional financing depends on regulatory or sales milestones. The company also owes Takeda royalties and up to $250 million in sales milestones.
- After quarter-end, a May 9, 2023 loan amendment extended availability of certain Hercules tranches and provided for a possible extension of the performance-covenant effective date, subject to conditions. It also amended the exercise-price terms for warrants on future loan draws. Fees of $250,000 were paid in connection with the amendment.
- The company reported compliance with applicable loan covenants at March 31, 2023. It warned that funding needs may exceed estimates and that future equity or debt financing may be unavailable or dilutive; commercial, regulatory, manufacturing and reimbursement outcomes remain uncertain.
Most important facts for investors to verify
- Whether additional stability data satisfy the FDA’s NVP limit and the actual timing and outcome of NDA and supplement reviews.
- Whether the company can access the remaining Hercules loan and the additional revenue-interest financing, and the conditions, fees and covenants attached.
- Cash burn and runway assumptions, particularly given no product revenue, recurring losses and the conditional nature of milestone funding.
- The effect of royalties, debt interest, repayment obligations and potential milestone payments on future cash flows.
- Potential dilution from further ATM share sales and equity awards; Q1 ATM issuance generated $14.1 million net.