Phathom Pharmaceuticals, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company is a biopharmaceutical business developing and preparing to commercialize vonoprazan for gastrointestinal diseases. It reported no product revenue and had not launched its products by the reporting date.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $12.8 million | $18.8 million | $24.2 million | $36.5 million |
| General and administrative | $18.9 million | $26.5 million | $37.5 million | $46.8 million |
| Net loss | $41.0 million | $50.9 million | $78.8 million | $91.6 million |
| Net loss per share | $0.84 | $1.33 | $1.73 | $2.40 |
| Cash used in operating activities | Not separately provided | Not separately provided | $61.9 million | $70.5 million |
- Gross margin and operating margin are not meaningful because the company reported no revenue.
- At June 30, cash and cash equivalents were $248.8 million, versus $155.4 million at December 31, 2022. Total current assets were $257.7 million and current liabilities were $21.5 million.
- Debt included a $97.8 million net carrying value for the Hercules term loan (about $106.2 million before unamortized discount) and a $120.1 million revenue-interest financing liability. Cash interest on the term loan is variable, with an additional 3.35% payment-in-kind rate.
- Stockholders’ equity was $17.6 million, compared with a $74.8 million deficit at year-end 2022. The May 2023 public offering generated approximately $141.4 million in net proceeds; ATM sales generated a further $14.1 million in the first half.
Changes versus the prior comparable period
- First-half operating expenses fell $21.5 million year over year, primarily reflecting lower clinical trial costs following the conclusion of the PHALCON-NERD-301 trial and reduced commercial, medical-affairs and other professional-services costs.
- First-half net loss narrowed by $12.8 million, despite other expense increasing $8.7 million. Interest expense rose to $18.8 million from $8.4 million, mainly due to financing costs; interest income increased to $1.8 million from $0.1 million.
- Operating cash use decreased by $8.6 million year over year. Financing activities provided $155.6 million in the first half of 2023, compared with $95.4 million in the first half of 2022.
- Shares outstanding increased substantially, including 12.8 million shares sold in the May offering. Weighted-average shares for Q2 rose to 48.5 million from 38.3 million a year earlier.
Outlook, risks and notable items
- Management estimated existing cash plus the remaining $100 million potentially available under the Hercules facility would fund operations for at least 12 months. Its estimate of funding through the end of 2025 additionally assumes $175 million of milestone-related funding under the revenue-interest arrangement and anticipated product revenue. These sources are conditional, and management cautioned that its projections may prove inaccurate.
- The FDA issued February 2023 complete response letters relating to the erosive GERD application and post-approval supplements for the H. pylori products. The identified issue concerned additional stability data for N-nitroso-vonoprazan (NVP), to demonstrate levels remain at or below the FDA’s acceptable daily intake throughout the proposed shelf life; the company said no other deficiencies were cited.
- The company resubmitted its erosive GERD NDA in May and submitted H. pylori supplements in June. It reported PDUFA target dates of November 17, 2023, for erosive GERD and, if filed, October 30, 2023, for the H. pylori supplements. It anticipated a possible Q4 2023 launch, subject to approval and resolution of the NVP stability issue.
- Management reported positive topline results from the daily-dose Phase 3 non-erosive GERD study and planned to seek FDA approval in the second half of 2023. In August 2023, after quarter-end, the company also announced completion of the study’s 20-week extension.
- The revenue-interest investors are entitled to a 10% royalty on net sales of vonoprazan products, subject to contractual terms, and aggregate payments may reach 200% of the investment amount. Additional funding tied to regulatory or sales milestones is not equivalent to unrestricted cash already on hand.
- The Hercules facility is secured by substantially all company assets, including intellectual property. Its future tranches, covenant requirements, interest-only period extensions and repayment terms depend on specified milestones and other conditions. The company said it was in compliance with applicable covenants at June 30, 2023.
- After quarter-end, a July 14 option exchange replaced 2.4 million eligible options with approximately 1.2 million restricted stock units; the company was still evaluating the accounting impact.
Most important facts for investors to verify
- Whether FDA accepts and approves the NVP stability evidence, and the resulting timing of H. pylori supplement and erosive GERD decisions and launches.
- Whether the company can access remaining Hercules tranches and milestone-linked revenue-interest funding, and whether financing covenants or cash requirements constrain that access.
- Actual cash burn, commercialization costs, product uptake and payer coverage relative to management’s end-of-2025 funding forecast.
- The economic effect of debt interest, revenue-linked royalties and potential minimum-payment or default provisions on future cash flows.
- The dilution impact of the May offering, ATM sales, outstanding equity awards and the post-quarter option exchange.