Phathom Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Filed August 6, 2020. Phathom is a late clinical-stage biopharmaceutical company developing vonoprazan for gastrointestinal diseases; it had no approved products and generated no revenue.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $14.9 million | $2.8 million | $30.7 million | $3.2 million |
| In-process research and development expense | None | $78.9 million | None | $78.9 million |
| General and administrative expense | $5.2 million | $1.3 million | $9.7 million | $2.1 million |
| Net loss | $21.1 million | $87.8 million | $41.2 million | $89.0 million |
| Net loss per share, basic and diluted | $0.64 | $13.11 | $1.26 | $13.40 |
| Net cash used in operating activities | Not presented quarterly | $20.8 million | $6.0 million |
At June 30, 2020, cash and cash equivalents were $247.3 million, total assets were $252.4 million, and stockholders’ equity was $188.4 million. Gross term-loan principal was $50.0 million; debt carrying value, net of discount, was $46.3 million, including a $1.4 million current portion. Operating lease liabilities totaled $2.2 million. The company reported no material margins because it had no revenue.
Material changes and notable items
- Six-month R&D expense rose $27.5 million year over year, primarily from $22.4 million of clinical-trial costs and $1.1 million of manufacturing-related costs for vonoprazan. G&A increased $7.5 million.
- Net loss narrowed versus 2019, largely because 2019 included the $78.9 million nonrecurring charge for acquired in-process R&D under the Takeda license. Excluding that charge, operating expenses increased as development and public-company costs grew.
- Operating cash use increased to $20.8 million from $6.0 million. Cash increased by $3.5 million during the first half, including $25.0 million of proceeds from the March 2020 Term Loan B draw.
- The Takeda license carries up to $250 million of sales milestones and low-double-digit royalties on licensed-product net sales, subject to adjustments. A May 2020 commercial supply agreement includes an approximately $2.5 million minimum purchase obligation.
Outlook, commentary and risks
- Management expected topline results from both Phase 3 trials in 2021 and anticipated potential regulatory submissions in 2021 for H. pylori infection and 2022 for erosive esophagitis, subject to trial outcomes and regulatory review.
- Randomization in both Phase 3 trials was paused in March 2020 amid COVID-19-related precautions and endoscopy limitations, then restarted site by site on June 15, 2020. The company said trial supply had not been interrupted but warned that further pandemic effects could delay enrollment, trials, filings, or supply.
- Management’s MD&A estimated that cash would fund anticipated requirements for approximately 24 months under its current operating plan, while noting uncertainty and possible COVID-19-related delays or cost increases. The financial-statement note separately says working capital was sufficient for at least the next 12 months from issuance. Both are forward-looking estimates, not guarantees.
- The term loans bear interest at the greater of prime plus 1.75% or 7.25%; maturity is May 1, 2024, with an 8.25% final payment fee. Interest-only extensions depend on qualifying positive Phase 3 data. The loans are secured by substantially all assets other than intellectual property and certain other assets, and include covenants; the company reported compliance at quarter-end.
- The company expects continuing losses and increased expenses as it advances development and prepares for possible commercialization. It may need additional capital; financing may dilute shareholders or impose restrictive terms. COVID-19 may also affect trials, manufacturing, recruitment, and access to capital.
Most important facts for investors to verify
- Whether COVID-19 or other factors change Phase 3 enrollment, topline-data timing, or regulatory-submission plans.
- Actual cash burn and runway relative to management’s approximately 24-month estimate, including the differing 12-month statement in the financial-statement note.
- Clinical-trial spending, accrued R&D costs, and future manufacturing and commercial-supply commitments.
- Debt service, interest-only extension conditions, final payment fee, covenant compliance, and any need for additional financing.
- Potential Takeda milestone and royalty obligations, and the commercial and regulatory assumptions underlying the development plan.