Phathom Pharmaceuticals, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. The company is a biopharmaceutical business commercializing vonoprazan products for gastrointestinal diseases.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior balance |
|---|---|---|
| Net product revenue | $1.9 | $0 |
| Gross profit / gross margin | $1.5 / 77.7% | $0 |
| Research and development expense | $9.4 | $11.5 |
| Selling, general and administrative expense | $62.0 | $18.6 |
| Operating loss | $(70.0) | $(30.1) |
| Net loss | $(82.9); $(1.42) per share | $(37.8); $(0.89) per share |
| Cash used in operating activities | $(69.0) | $(39.7) |
| Cash and cash equivalents, March 31 | $322.2 | $381.4 at December 31, 2023 |
| Current assets / current liabilities, March 31 | $340.3 / $43.5 | $397.4 / $38.8 at December 31, 2023 |
Cash, cash equivalents and restricted cash totaled $325.1 million at quarter-end. Cash declined by $59.2 million during the quarter; financing provided $9.9 million, from a Hercules loan draw, while investing used $0.04 million. Total liabilities were $505.0 million and stockholders’ deficit was $148.5 million.
Debt-related carrying amounts included $149.0 million of Hercules long-term debt, net of discount, and a $319.0 million revenue interest financing liability, of which $16.5 million was current. The Hercules loan balance before discount was $158.9 million. Interest expense was $17.2 million, versus $9.2 million a year earlier.
Material changes and operating developments
- VOQUEZNA products, launched in Q4 2023, generated $1.9 million of net revenue; Q1 2023 had no product revenue. Three customers accounted for 70% of Q1 product sales, and three customers represented 80% of quarter-end receivables.
- SG&A increased $43.4 million, primarily reflecting $22.3 million in commercial launch and promotional activity and $20.5 million in personnel-related costs. Advertising and marketing expense was $6.8 million.
- R&D declined $2.0 million, mainly as the PHALCON-NERD-301 study wound down and certain manufacturing and personnel costs fell.
- Net loss increased $45.0 million year over year. Gross margin is not necessarily indicative of future results because some manufacturing costs incurred before product approvals were expensed in earlier periods rather than in current cost of revenue.
- At March 31, 2024, 58.5 million common shares were outstanding. As of May 6, 2024, 58.5 million shares were reported outstanding.
Outlook, risks and unusual items
- Management expects existing cash, anticipated product revenue and potential drawdown of the remaining $150 million under the Hercules facility to fund operations through at least the next 12 months and, under its current plan, through the end of 2026. The remaining facility availability is subject to conditions and milestones; this outlook is not assured.
- The FDA’s target action date for the Non-Erosive GERD NDA is July 19, 2024. If approved, the company anticipates a Q3 2024 launch. It also plans a Phase 3 trial of an as-needed dosing regimen in 2024 and expects to initiate a Phase 2 EoE trial later in 2024.
- Management reported more than 43,000 prescriptions written and more than 17,500 filled since launch as of April 26, 2024. Approximately 72 million U.S. commercial lives, estimated at 48% of that market, had access to VOQUEZNA tablets.
- The Hercules facility carries a variable cash rate of at least 9.85% (capped at 10.35%) plus 2.15% payment-in-kind interest, with maturity in December 2027. Minimum-cash and performance covenants begin September 30, 2024; the company reported compliance as of March 31, 2024. Substantially all company assets, including intellectual property, secure the loan.
- The revenue interest financing provides investors a 10% royalty on vonoprazan net sales, subject to step-down provisions, with payments capped at 200% of the investment amount. Minimum payment requirements apply in 2028 and 2037; a further $25 million funding amount is tied to a sales milestone. A material change in sales projections could affect financing expense.
- The Takeda license includes low-double-digit royalties and up to $250 million in sales milestones. A separate Sandoz agreement had approximately $2.8 million remaining on its minimum purchase obligation at quarter-end.
- The company has a limited commercial history, ongoing losses and negative operating cash flow. Management says funding needs and timing depend on product uptake, reimbursement, clinical and regulatory outcomes, expenses, and access to additional financing; additional equity could dilute shareholders. No material legal proceedings or material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether prescription growth, payer coverage and revenue translate into durable net sales and adequate product margins.
- Whether the Non-Erosive GERD NDA meets its July 19, 2024 FDA target date and whether the anticipated launch and planned trials proceed as expected.
- Availability and conditions of the remaining Hercules financing, upcoming covenant tests, and the company’s ability to meet minimum-cash and revenue requirements.
- Cash burn relative to management’s end-of-2026 funding estimate, including the assumptions for product revenue and future borrowing.
- Future royalty and interest accretion under the revenue interest financing, including any sales-milestone funding or minimum-payment obligations.
- Customer concentration and the company’s estimates for rebates, discounts, chargebacks and returns as commercial sales history develops.