Phathom Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The filing was signed November 8, 2021. Phathom is a late clinical-stage biopharmaceutical company developing vonoprazan for gastrointestinal diseases; it had no approved products and generated no revenue.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development | $16.6 million | $25.8 million | $58.8 million | $56.5 million |
| General and administrative | $16.5 million | $7.1 million | $43.3 million | $16.7 million |
| Total operating expenses | $33.1 million | $32.8 million | $102.0 million | $73.2 million |
| Net loss | $36.7 million | $34.1 million | $108.1 million | $75.3 million |
| Net loss per share, basic and diluted | $0.98 | $1.02 | $2.94 | $2.29 |
| Net cash used in operating activities | — | $107.2 million | $41.5 million |
At September 30, 2021, cash and cash equivalents were $224.6 million, down from $287.5 million at December 31, 2020. Total assets were $228.4 million; total liabilities were $124.9 million; and stockholders’ equity was $103.5 million. Debt was $100.1 million gross principal, reported net of discount at $88.3 million. No operating margin is meaningful because the company had no revenue.
Changes versus the prior comparable period
- Nine-month net loss increased $32.7 million year over year. Operating expenses rose $28.8 million, mainly from a $26.5 million increase in G&A, including personnel and commercial, medical-affairs and other professional services.
- Nine-month R&D increased $2.3 million, as higher manufacturing, personnel and regulatory costs were largely offset by lower clinical-trial costs. In Q3, R&D fell $9.2 million, primarily due to reduced clinical-trial spending, while G&A rose $9.5 million.
- Operating cash outflow increased $65.7 million year over year. The filing attributes much of the 2021 use to operating activity and a $19.1 million decrease in accounts payable and accrued expenses, including clinical-trial expenses.
- In September, Phathom borrowed $100 million under a new Hercules facility and used approximately $54 million to retire its SVB debt. Financing activities provided $44.5 million net during the first nine months.
Outlook, risks and notable items
- Management estimated that existing cash plus the remaining $100 million available under the Hercules facility would fund operations into mid-2023. The additional facility tranches are conditional on clinical, regulatory and other milestones; this runway estimate is subject to uncertainty.
- Hercules debt has a 5.50% minimum cash rate (or Prime plus 2.25%, if higher) and 3.35% payment-in-kind interest, with maturity in October 2026. Interest-only payments run through October 2024, with conditional extensions. The debt is secured by substantially all company assets, including intellectual property. Financial covenants include cash requirements and, beginning May 2023, a product-revenue covenant subject to specified waivers. The company reported compliance at September 30, 2021.
- Management reported positive Phase 3 results for H. pylori in April 2021. After quarter-end, it announced positive Phase 3 results for erosive esophagitis on October 18, 2021. The company planned to submit an EE NDA in Q1 2022, expected an FDA decision in 2023 and, if approved, anticipated a 2023 launch. These are forward-looking expectations, not assured outcomes.
- In September 2021, the company submitted NDAs for H. pylori combination convenience packs; the FDA accepted them for filing in November 2021. A Phase 2 trial for on-demand treatment of non-erosive reflux disease was underway, with top-line data expected in Q1 2022.
- Key risks include clinical and regulatory uncertainty, commercial execution, future financing needs, potential COVID-19-related delays or cost increases, and dependence on Takeda for licensed rights and supply. The Takeda license includes up to $250 million in sales milestones and low-double-digit royalties on net sales. The filing also identifies minimum purchase obligations of approximately $3.8 million under a Sandoz supply agreement and $1.8 million under a Takeda commercial supply agreement.
- Other unusual expense: $2.0 million of charges related to early extinguishment of debt was included in other expense for the first nine months and Q3 2021. Management stated there were no material changes to previously disclosed risk factors, no material legal proceedings, and no material changes in internal controls; disclosure controls were assessed as effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether the H. pylori NDAs and planned EE NDA are accepted, reviewed and approved on the anticipated timelines, and whether the clinical results support the proposed labels.
- Whether the conditional Hercules tranches become available and how cash burn, debt service, covenants and the stated mid-2023 runway evolve.
- Whether pre-commercial spending and commercial launch costs rise as expected, and whether reimbursement, market uptake and supply arrangements support the business plan.
- The size and timing of Takeda royalties and sales milestones, supplier purchase obligations, and any additional funding required before product revenue begins.
- The filing reports 30.0 million common shares outstanding at September 30, 2021, while the cover reports 31.4 million as of November 3, 2021; verify the applicable share count and potential dilution from warrants, options and other reserved shares.