Phathom Pharmaceuticals, Inc. — Q1 2020 10-Q
Reporting period: Three months ended March 31, 2020. 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
- Revenue and margins: No product revenue; operating margins are not meaningful at this pre-commercial stage.
- Expenses and loss: R&D expense was $15.9 million, up $15.4 million year over year; G&A was $4.5 million, up $3.7 million. Operating loss was $20.4 million and net loss was $20.1 million, versus $1.2 million and $1.3 million, respectively, in Q1 2019. Basic and diluted loss per share was $0.62 versus $0.19.
- Cash flow: Operating cash use was $11.4 million, compared with $0.8 million in Q1 2019; investing cash use was $0.7 million. A $25.0 million debt draw produced $25.0 million of financing cash flow. Cash increased $12.9 million to $256.7 million.
- Balance sheet and liquidity: Cash and cash equivalents were $256.7 million; total assets were $263.9 million and total liabilities were $55.2 million. Gross term debt was $50.0 million, with a $45.9 million net carrying value after discount. Management’s MD&A says existing cash should fund anticipated needs for at least 24 months; the financial-statement note says management believes working capital covers at least the next 12 months from issuance.
- Equity: Accumulated deficit was $276.6 million. Stockholders’ equity was $208.7 million.
Changes versus Q1 2019
- Net loss increased $18.9 million, primarily reflecting the ramp-up of vonoprazan Phase 3 development and higher public-company and administrative costs. The 2019 comparison preceded the Takeda license and major clinical-trial activity, so it is not a like-for-like operating comparison.
- In March 2020, Phathom drew the second $25.0 million tranche under its loan agreement, bringing term loans to $50.0 million. The draw also caused lender warrants to be reclassified from liabilities to equity.
Outlook, risks and notable items
- Phathom paused enrollment of new patients in both Phase 3 trials in March because of COVID-19 and limits on endoscopies required by the trials. It continued supporting enrolled patients and planned to resume enrollment site by site.
- Despite the pause, management expected topline data from both trials in 2021 and anticipated potential regulatory submissions in 2021 for H. pylori infection and 2022 for erosive esophagitis. These are forward-looking expectations and could be delayed by the pandemic, trial execution, or supply disruptions.
- The Takeda license requires up to $250 million in sales milestones and low-double-digit royalties on licensed-product net sales, subject to adjustments. Takeda supplies vonoprazan; a commercial supply agreement signed May 5, 2020 was disclosed as a subsequent event.
- Term loans bear interest at the greater of prime plus 1.75% or 7.25%, mature May 1, 2024, and include an 8.25% final payment fee. Interest-only timing can extend to December 2021 or November 2022 if specified positive Phase 3 results support NDA filings. Debt is secured by substantially all assets other than intellectual property and certain other assets; Phathom reported covenant compliance at quarter-end.
- Phathom expects ongoing losses and may need additional capital. COVID-19 could delay trials, increase costs, disrupt supply, or impair access to financing. No material legal proceedings were reported. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether COVID-19-related enrollment interruptions affected trial timelines, data quality, costs, or vonoprazan supply after quarter-end.
- Progress toward the stated 2021 topline-data expectations and potential filing timelines for both indications.
- The assumptions behind the stated 24-month cash runway, particularly trial and manufacturing costs and the potential need for further financing.
- Debt repayment and interest obligations, the final payment fee, covenant terms, and conditions for extended interest-only periods.
- The future economics and supply terms of the Takeda license, including milestone triggers, royalties, and the May 2020 commercial supply agreement.
- Share-count reconciliation: the balance sheet reports 28,964,506 shares issued but 25,153,553 outstanding at March 31; the cover page reports 28,964,506 shares outstanding as of May 5, 2020.