Phathom Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Phathom is a late clinical-stage biopharmaceutical company developing vonoprazan for gastrointestinal diseases. It had no approved products and generated no revenue.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $20.6 | $15.9 |
| General and administrative expense | $13.0 | $4.5 |
| Total operating expenses | $33.6 | $20.4 |
| Net loss | $34.8 | $20.1 |
| Basic and diluted net loss per share | $0.96 | $0.62 |
| Net cash used in operating activities | $49.8 | $11.4 |
| Cash and cash equivalents | $238.0 | $287.5 at Dec. 31, 2020 |
| Total debt, net of discount | $47.4 | $47.0 at Dec. 31, 2020 |
Margins are not meaningful because the company had no revenue. At March 31, current assets were $242.8 million and current liabilities were $40.8 million. Stockholders’ equity was $164.3 million; accumulated deficit was $420.3 million.
Changes versus the prior comparable period
- Net loss increased $14.7 million, primarily reflecting higher operating expenses and interest expense, and lower interest income.
- R&D expense rose $4.7 million, mainly from $2.8 million of vonoprazan manufacturing costs, $1.6 million of personnel costs, and $0.3 million of clinical-trial costs.
- G&A expense rose $8.5 million, including higher personnel-related and other costs as the company expanded administrative and pre-commercial capabilities.
- Operating cash use increased $38.3 million year over year. Q1 2021 cash use included a $19.6 million net outflow from changes in operating assets and liabilities, including declines in payables and accrued expenses.
- Cash fell $49.5 million during the quarter. Financing provided $0.4 million, versus $25.0 million of debt proceeds in Q1 2020.
Outlook, risks, and unusual items
- Management estimated existing cash would fund anticipated requirements into the fourth quarter of 2022, subject to assumptions and potential COVID-19-related delays or cost increases. The filing also says management believed working capital was sufficient for at least 12 months from issuance of the statements.
- Management expected R&D expense to decrease in 2021 as the two Phase 3 trials completed, while G&A expense was expected to increase with continued administrative and commercial buildout. No formal financial guidance was provided.
- On April 29, 2021, after quarter-end, Phathom announced that both vonoprazan regimens in the Phase 3 H. pylori trial met primary and secondary endpoints. The company expected Phase 3 erosive esophagitis top-line data in Q4 2021 and anticipated potential FDA submissions in Q4 2021 for H. pylori and in 2022 for erosive esophagitis. These are expectations, not assured outcomes.
- COVID-19 had temporarily paused new patient randomization in 2020; enrollment resumed, and the company reported completing enrollment in the erosive esophagitis and H. pylori trials in November 2020 and January 2021, respectively. Delays, clinical results, regulatory review, manufacturing, and financing needs remain significant risks.
- Debt comprised $50.0 million principal under a secured term loan, with a 7.25% minimum floating rate, an 8.25% final payment fee, and maturity in May 2024. Interest-only payments were extended through July 2021, with possible further extensions conditional on clinical data. The company reported covenant compliance.
- Takeda’s license carries up to $250 million in sales milestones and low-double-digit royalties on net sales. Additional minimum purchase obligations include approximately $2.2 million under a Takeda supply agreement and $3.8 million under a Sandoz agreement after launch.
- Phathom had an at-the-market facility of up to $125 million but reported no sales under it through March 31, 2021. Future equity or debt financing could dilute shareholders or impose restrictive terms.
- Stock-based compensation was $3.8 million in Q1 2021, versus $0.6 million a year earlier. The company reported no material legal proceedings and no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether the reported Phase 3 H. pylori results and anticipated erosive esophagitis results support the planned FDA filings and approval timelines.
- Whether cash runway assumptions remain valid as clinical, manufacturing, and pre-commercial spending evolve; quarterly operating cash use was $49.8 million.
- Debt repayment terms, potential interest-only extensions, covenant compliance, and the impact of the final payment fee.
- Potential dilution: the Takeda warrant covers 7.588 million shares at a nominal exercise price; confirm current share counts and fully diluted capitalization.
- Takeda royalty and milestone economics and the timing and scale of commercial supply commitments.