Phathom Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Phathom is a biopharmaceutical company developing and commercializing vonoprazan for gastrointestinal diseases. It had no product revenue and reported operating losses.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $19.0m | $16.6m | $55.5m | $58.8m |
| General and administrative | $23.5m | $16.5m | $70.3m | $43.3m |
| Total operating expenses | $42.5m | $33.1m | $125.8m | $102.0m |
| Net loss | $51.1m | $36.7m | $142.7m | $108.1m |
| Net loss per share | $1.32 | $0.98 | $3.72 | $2.94 |
As of September 30, cash and cash equivalents were $196.8m, versus $183.3m at December 31, 2021. Current assets were $197.8m and current liabilities $22.9m. Total liabilities were $228.4m, compared with $117.3m at year-end 2021; stockholders’ deficit was $26.4m.
For the first nine months, operating cash outflow was $105.8m, investing outflow $0.6m, and financing inflow $120.0m, resulting in a $13.6m net cash increase. The company reported $93.9m of long-term debt net of discount and a $103.8m revenue-interest financing liability. The Hercules loan’s $100m principal bears variable cash interest and 3.35% payment-in-kind interest. The revenue-interest agreement generally provides investors a 10% royalty on vonoprazan product sales, capped at payments totaling 200% of the investment amount. Profit margins are not meaningful because the company had no revenue.
Changes versus prior period
- Nine-month net loss increased $34.6m year over year. Operating expenses rose $23.8m, mainly from a $27.0m increase in general and administrative costs, partly offset by lower R&D expense.
- Interest expense rose $13.7m for the nine-month period, reflecting the Hercules debt and new revenue-interest financing. The 2021 comparison included a $2.0m charge for early debt extinguishment.
- In September, Phathom raised $24.6m net through its at-the-market offering, issuing 2.4m shares. It also received $95.4m net from the initial $100m revenue-interest financing transaction.
Outlook, commentary and risks
- The FDA approved VOQUEZNA TRIPLE PAK and DUAL PAK for H. pylori infection in May 2022. Trace levels of a nitrosamine impurity were detected in post-approval testing; discussions with FDA on testing, specifications and controls delayed planned launches. Management expected commercial launches in Q1 2023.
- The erosive esophagitis (EE) NDA had an FDA action date of January 11, 2023. Management expected primary-endpoint data from the daily-dosing NERD Phase 3 trial in Q1 2023 and full-trial results later in 2023.
- Management stated that cash, remaining Hercules loan availability, potential revenue-interest financing and anticipated product sales were expected to fund operations through 2024. It also said existing working capital was sufficient for at least 12 months from issuance of the financial statements. These are estimates subject to execution, regulatory, commercialization and funding risks.
- On November 1, 2022, after quarter-end, Phathom announced placement of the remaining $40m of non-dilutive commitments under the revenue-interest financing arrangement: $15m tied to FDA approval for EE and $25m tied to a sales milestone.
- The company depends entirely on vonoprazan; launch timing and revenue prospects depend on resolving the impurity issue, regulatory outcomes, manufacturing and commercial execution. Further financing may be required, with possible dilution or restrictive terms. The filing reported no material legal proceedings and no material change to previously disclosed risk factors beyond the vonoprazan-dependence and impurity risks.
Important facts for investors to verify
- FDA status and resolution of the nitrosamine impurity, including whether product release and Q1 2023 launch expectations were achieved.
- EE NDA decision timing and results from the NERD Phase 3 program.
- Actual cash burn and runway relative to management’s through-2024 estimate, including availability and conditions attached to remaining debt and revenue-interest funding.
- Commercial uptake, net sales and the resulting royalty obligations under the revenue-interest financing agreement.
- Impact of ATM issuance and other potential equity awards on share count and dilution.