Phathom Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company is a late clinical-stage biopharmaceutical developer focused on gastrointestinal diseases; its lead candidate is vonoprazan. It had no approved products and generated no revenue.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development | $21.6 million | $14.9 million | $42.2 million | $30.7 million |
| General and administrative | $13.7 million | $5.2 million | $26.7 million | $9.7 million |
| Total operating expenses | $35.3 million | $20.0 million | $68.9 million | $40.4 million |
| Net loss | $36.6 million | $21.1 million | $71.4 million | $41.2 million |
| Net loss per share, basic and diluted | $1.00 | $0.64 | $1.96 | $1.26 |
Margins are not meaningful because the company had no revenue. First-half operating cash use was $78.1 million, compared with $20.8 million a year earlier; investing cash use was $0.2 million, and financing provided $0.5 million. Cash and cash equivalents were $209.7 million at June 30, down from $287.5 million at year-end 2020. Current assets were $211.3 million and current liabilities $39.6 million (approximately 5.3x current ratio).
Total term-loan principal outstanding was $50.0 million; debt net of discount was $47.7 million, including $10.3 million current. The loans bear interest at the higher of prime plus 1.75% or 7.25%, mature May 1, 2024, and are secured by substantially all assets other than intellectual property and certain other assets. The company reported covenant compliance.
Material changes versus prior comparable periods
- First-half net loss increased $30.2 million year over year; operating expenses rose $28.5 million. R&D growth reflected higher vonoprazan manufacturing and clinical-trial costs and personnel expenses.
- First-half G&A increased $17.1 million, largely from personnel, commercial and medical-affairs professional services, and consulting as the company prepared for potential commercialization.
- Operating cash use increased $57.4 million year over year, including a substantial decrease in accounts payable and accrued expenses. No new debt was raised in the first half of 2021; the prior-year period included a $25.0 million term-loan draw.
- Stock-based compensation rose to $8.1 million for the first half from $1.4 million, contributing to reported expenses but not operating cash use.
Outlook, commentary, risks, and unusual items
- Management estimated that existing cash would fund operations into the fourth quarter of 2022 under its current operating plan. The financial-statement note separately said working capital was sufficient for at least the next 12 months from issuance. Management cautioned that forecasts may prove inaccurate and that further funding could be needed.
- PHALCON-HP Phase 3 results were reported positive: both vonoprazan-based regimens met primary and secondary endpoints, and were generally well tolerated. The company expected to submit U.S. applications for H. pylori treatment in September 2021, report PHALCON-EE top-line results in October 2021, and pursue an erosive-esophagitis submission in 2022. These were forward-looking plans, not completed regulatory outcomes.
- A Phase 2 trial for on-demand treatment of non-erosive reflux disease began in April 2021, with top-line results expected in Q1 2022. COVID-19, clinical and regulatory uncertainty, manufacturing or supply interruptions, and commercialization costs could delay plans or increase cash needs.
- Takeda is entitled to up to $250 million in sales milestones and low-double-digit royalties on licensed-product net sales. Disclosed minimum purchase obligations include approximately $2.0 million under the Takeda commercial supply agreement and approximately $3.8 million under the Sandoz agreement after product launch. A Catalent finished-tablet supply agreement was entered into July 2, 2021, after quarter-end.
- The company reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether PHALCON-EE results and the anticipated FDA filing milestones occurred on schedule, and the resulting efficacy and safety evidence.
- Actual cash burn, updated runway assumptions, and whether additional financing or use of the $125 million ATM facility becomes necessary.
- Commercial readiness, manufacturing capacity and supply terms, launch-related minimum purchases, and the timing and cost of regulatory review.
- Debt repayment requirements after the interest-only period, the 8.25% final payment fee, and compliance with loan covenants.
- Potential dilution from equity financing and equity awards; the filing reported 31.3 million common shares outstanding as of August 5, 2021.