Phathom Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Phathom is a pre-commercial biopharmaceutical company developing vonoprazan for gastrointestinal diseases. It had not generated product revenue.
Financial performance and position
- Revenue: None. The company reported no product sales.
- Net loss: $40.7 million, versus $34.8 million in Q1 2021. Basic and diluted loss per share was $1.07, versus $0.96.
- Expenses: Operating expenses were $37.9 million, up $4.3 million. R&D was $17.7 million, down $2.9 million; lower clinical trial costs were partly offset by higher manufacturing, personnel and consulting costs. G&A was $20.2 million, up $7.2 million, primarily reflecting higher commercial, medical-affairs and personnel costs.
- Cash flow: Operating cash use was $45.1 million, compared with $49.8 million in Q1 2021. Investing cash use was $0.1 million; there was no financing cash flow in Q1 2022. Cash and cash equivalents fell $45.2 million to $138.1 million.
- Liquidity and equity: Current assets were $145.7 million and current liabilities $11.4 million. Stockholders’ equity was $38.0 million, down from $72.2 million at year-end 2021.
- Debt: Hercules term-loan principal was $101.8 million, with a net carrying amount of $91.0 million after debt discount. The loan bears cash interest at the greater of 5.50% or prime plus 2.25%, plus 3.35% payment-in-kind interest. The first $100 million advance was funded; up to $100 million more is contingent on milestones and other conditions. The loan matures in October 2026. The company reported covenant compliance at March 31.
- Margins: Not applicable because the company had no revenue.
Changes versus Q1 2021
- Net loss increased $5.8 million, as higher G&A and interest expense more than offset lower R&D expense.
- Interest expense rose to $2.8 million from $1.3 million, reflecting the Hercules loan and associated financing costs.
- Cash used in operations declined by $4.7 million, while ending cash was $100 million lower than at March 31, 2021.
- During Q1 2022, Takeda’s warrant was exercised cashlessly, resulting in approximately 7.36 million common shares issued. Outstanding common shares were 38.15 million at March 31, 2022.
Outlook, risks and notable items
- As of the filing, management expected cash on hand, potential remaining Hercules advances, the revenue-interest financing and anticipated product sales to fund operations through 2024. Management cautioned that projections may prove inaccurate and funding needs could arise sooner. The financial statements state management believed working capital sufficient for at least 12 months from issuance.
- After quarter-end, the FDA approved VOQUEZNA TRIPLE PAK and VOQUEZNA DUAL PAK for adult H. pylori infection on May 3, 2022; the company expected a Q3 2022 launch. The company had submitted its erosive esophagitis (EE) NDA in March 2022.
- On May 4, 2022, the company announced a revenue-interest financing of up to $260 million: $100 million upfront and $160 million upon FDA approval of vonoprazan for EE. It may seek up to $40 million more, subject to conditions. The arrangement includes a 10% royalty on net sales of vonoprazan products, with a potential step-down tied to NERD approval and sales thresholds. The initial funding was expected by May 17.
- Management expects continued losses and increased R&D, commercial-readiness and administrative spending. Key uncertainties include regulatory outcomes, launch execution, product uptake and reimbursement, clinical-development costs, manufacturing, access to additional financing and COVID-19-related delays or cost increases.
- Takeda license obligations include up to $250 million in sales milestones and low-double-digit royalties on licensed-product sales. A Sandoz supply agreement includes an approximately $3.8 million minimum purchase obligation after launch. No material legal proceedings or material changes to previously disclosed risk factors were reported.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether the initial revenue-interest funding was received as expected and what conditions govern the remaining financing.
- Timing and economics of the H. pylori product launch, including actual sales, reimbursement and commercial costs.
- EE regulatory progress and whether approval unlocks the $160 million financing payment and additional Hercules borrowing.
- Cash burn, available liquidity and compliance with Hercules cash and future revenue covenants as commercialization begins.
- Takeda royalties and milestones, and the revenue-interest royalty’s duration, thresholds and potential step-down terms.