Phathom Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023. Phathom is a clinical-stage-to-commercial biopharmaceutical company developing and commercializing vonoprazan products for gastrointestinal diseases. Amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2023 | Nine months ended Sept. 30, 2023 | Comparable 2022 period |
|---|---|---|---|
| Product revenue | $0 | $0 | $0 |
| Research and development expense | $12.3 | $36.5 | $19.0 / $55.5 |
| General and administrative expense | $23.4 | $60.9 | $23.5 / $70.3 |
| Total operating expenses | $35.7 | $97.4 | $42.5 / $125.8 |
| Net loss | $43.2 | $122.0 | $51.1 / $142.7 |
| Basic and diluted net loss per share | $0.76 | $2.48 | $1.32 / $3.72 |
| Net cash used in operating activities | Not provided for quarter | $93.8 | $105.5 |
At September 30, cash and cash equivalents were $213.7; restricted cash was $2.9. Current assets were $226.7 and current liabilities $24.0. Total assets were $237.0, total liabilities $254.8, and stockholders’ deficit $17.8. No meaningful operating margin is reported because the company had no product sales.
Debt included Hercules term-loan principal of approximately $106.8, reported net of discount at $99.3, and a revenue-interest financing liability of $125.8, of which $2.4 was current. The Hercules loan carries variable cash interest plus 3.35% payment-in-kind interest. The revenue-interest financing generally entitles investors to 10% of vonoprazan product net sales, subject to contractual terms and caps.
Material changes versus 2022
- Nine-month operating expenses fell $28.4 and net loss improved $20.7. R&D expense declined $19.0, primarily due to lower clinical-trial costs following completion of PHALCON-NERD-301; G&A declined $9.4.
- Interest expense increased to $28.9 for the nine months from $17.7, reflecting the Hercules loan and revenue-interest financing. Interest income rose to $4.5 from $0.8.
- Operating cash use decreased to $93.8 from $105.5. Financing provided $155.6, principally from the May 2023 public offering; cash and restricted cash increased $60.6 during the nine months.
- The May 2023 public offering generated approximately $141.4 net proceeds from 12.8 million shares. The company also raised $14.1 net under its ATM facility during the period.
Outlook, management commentary, risks and unusual items
- Management stated that cash on hand and access to the remaining $100 million of Hercules loan tranches were expected to fund operations for at least 12 months. Management projected funding through the end of 2025 assuming the $175 million approval-related payment under the revenue-interest agreement and anticipated product revenue. These are forward-looking estimates and depend on financing availability, revenue and expense assumptions.
- After quarter-end, the FDA approved the H. pylori prior-approval supplements on October 30, 2023, and approved VOQUEZNA for specified erosive GERD uses on November 1, 2023. The company expected products to be available in December 2023. The erosive GERD approval triggered a $175 million payment under the revenue-interest financing agreement, expected in Q4 2023; it was not cash on hand at September 30.
- The November 1 erosive GERD approval also satisfied a Hercules milestone: the interest-only period was extended to October 1, 2026, and the performance-covenant start date was extended to May 15, 2024. The company reported compliance with applicable loan covenants at September 30.
- A Non-Erosive GERD daily-treatment NDA was submitted in September 2023. Management expected a 10-month review and, if approved, anticipated a U.S. launch in Q3 2024. The company planned to initiate a Phase 3 study of an as-needed regimen in 2024.
- Earlier FDA complete response letters had requested additional stability data concerning the nitrosamine impurity NVP and its acceptable daily intake level. The subsequent approvals indicate that the relevant supplements and erosive GERD NDA were approved; investors should review the approval labels and any remaining product-quality obligations.
- The company has accumulated losses and negative operating cash flows, expects continued losses and higher commercialization costs, and may need additional capital. Risks include execution of the launch, market acceptance, payer coverage and reimbursement, clinical and regulatory outcomes, and financing availability. The Hercules loan is secured by substantially all company assets, including intellectual property; the revenue-interest agreement includes minimum-payment and default provisions.
- There were no material legal proceedings reported and no material changes to the risk factors from the 2022 Form 10-K. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Investor verification priorities
- Confirm receipt and timing of the $175 million approval-related payment, its effect on cash runway, and the associated revenue-interest financing balance and future royalty obligations.
- Check actual launch timing, product availability, early prescription and sales trends, pricing, reimbursement and market access for VOQUEZNA and the H. pylori combination packs.
- Verify drawdown conditions, outstanding principal, interest costs, covenant requirements and collateral terms under the Hercules facility.
- Track the Non-Erosive GERD NDA review, expected launch timing if approved, and the planned as-needed Phase 3 study.
- Assess cash burn and commercialization spending against management’s runway assumptions, including potential dilution or additional financing needs.