Phathom Pharmaceuticals, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 1, 2022. This is an annual report, not a standalone fourth-quarter earnings report. Phathom was a clinical-stage biopharmaceutical company developing vonoprazan, with no approved products and no product revenue.
Business context and development
Phathom holds U.S., European and Canadian rights to vonoprazan, an oral potassium-competitive acid blocker, licensed from Takeda. The company’s 2021 focus was completing pivotal Phase 3 trials and seeking U.S. approval for vonoprazan-based treatments for Helicobacter pylori (H. pylori) infection and erosive esophagitis (EE). In February 2022, after year-end, it began a Phase 3 trial for non-erosive reflux disease (NERD).
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $72.3 million | $98.1 million |
| General and administrative expense | $62.7 million | $27.5 million |
| Total operating expenses | $135.1 million | $125.7 million |
| Net loss | $143.9 million | $129.1 million |
| Net loss per share, basic and diluted | $3.89 | $3.88 |
| Cash used in operating activities | $148.6 million | $69.7 million |
| Cash and cash equivalents at year-end | $183.3 million | $287.5 million |
Margins are not meaningful because the company had no revenue. R&D expense fell $25.8 million, primarily reflecting lower clinical-trial costs; G&A increased $35.2 million as the company expanded personnel and commercial, medical-affairs and other pre-launch activities. Net loss widened $14.8 million. Operating cash use rose substantially, while cash declined by $104.2 million during the year.
At year-end, total assets were $189.4 million, total liabilities $117.3 million and stockholders’ equity $72.2 million. The company had $100 million principal outstanding under its Hercules loan; the balance-sheet carrying amount was $89.7 million net of discount. Interest includes a variable cash rate (at least 5.50%) plus 3.35% payment-in-kind interest. The loan is secured by substantially all assets, includes financial covenants, and has a $7.5 million final payment obligation recorded as a liability. The facility allows up to another $100 million in conditional advances.
Management estimated existing cash plus the remaining Hercules borrowing capacity would fund operations into mid-2023, assuming borrowing conditions are met. It also said working capital was sufficient for at least 12 months from issuance of the financial statements and that no substantial doubt about going concern existed. This runway estimate is subject to spending, clinical, regulatory and financing uncertainties.
Clinical and regulatory developments; comparison with prior period
- H. pylori: The Phase 3 PHALCON-HP trial met its non-inferiority primary endpoints in patients without clarithromycin or amoxicillin resistance. In the modified intent-to-treat population, eradication was 84.7% with vonoprazan triple therapy and 78.5% with dual therapy, versus 78.8% with lansoprazole triple therapy. Secondary analyses showed higher eradication rates for both vonoprazan regimens across all patients and in the clarithromycin-resistant subgroup. The dual-therapy arm was not double-blinded, a limitation noted in the filing.
- EE: In PHALCON-EE, week-eight healing was 93% with vonoprazan versus 85% with lansoprazole. At 24 weeks, maintenance of healing was 79% and 81% for vonoprazan 10 mg and 20 mg, respectively, versus 72% for lansoprazole. Vonoprazan did not achieve statistical significance on the test of earlier sustained heartburn resolution by day three.
- FDA filings: Phathom submitted NDAs for vonoprazan dual and triple therapy for H. pylori in September 2021. The FDA accepted both for Priority Review and set a May 3, 2022 action date. The company planned to submit an EE NDA in March 2022. H. pylori combinations received Fast Track and Qualified Infectious Disease Product designations; any associated exclusivity benefits depend on approval and applicable requirements.
- NERD: Phase 2 on-demand results announced in February 2022, after year-end, showed complete, sustained relief within three hours in 56.0%, 60.6% and 70.0% of evaluable episodes for vonoprazan 10 mg, 20 mg and 40 mg, respectively, versus 27.3% for placebo. The Phase 3 daily-dosing trial began in February 2022, with topline results expected in 2023. Earlier Takeda Phase 3 NERD trials in Japan did not meet their primary endpoint.
Outlook, risks and unusual items
Management expected, subject to FDA approval, to launch H. pylori treatment in the second half of 2022 and EE treatment in 2023. These are forward-looking expectations, not guaranteed outcomes. The company intended to commercialize independently in the U.S. and seek partners for Europe and Canada; it had not yet established a commercial product-sales track record.
- Phathom depends on a single product candidate, has a limited operating history, has accumulated losses of $529.4 million and expects further losses. Additional financing may be needed; equity financing could dilute shareholders.
- Manufacturing relies on third parties, including Takeda, Catalent and Sandoz. Takeda’s Hikari facility received an FDA warning letter in 2020; the FDA changed its inspection classification to Voluntary Action Indicated in October 2021. Phathom said it had not experienced supply constraints and did not expect an impact, but excluded that facility from the H. pylori NDAs.
- Vonoprazan’s post-marketing information in Japan included very rare reports of serious reactions, including hepatic impairment, severe skin reactions and blood-cell disorders; the filing says causality could not be ruled out. Continued safety monitoring and U.S. labeling remain important.
- Takeda receives low-double-digit to mid-teens royalties and may receive up to $250 million in sales milestone payments. Phathom also has minimum supply and packaging commitments, including approximately $3.8 million of minimum Sandoz purchases in the first 24 months after launch.
- Market adoption, generic competition, reimbursement and pricing pressure, regulatory review, patent scope and the company’s ability to build a U.S. sales organization are material uncertainties. The loan’s covenants and collateral could constrain operations if breached.
The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the independent auditor did not provide an internal-control attestation because Phathom was an emerging growth company. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- FDA decisions, final labels and any required additional studies for the H. pylori and EE applications, including the May 3, 2022 PDUFA date.
- Whether conditional Hercules advances are available, the applicable cash and revenue covenants, and the resulting actual cash runway.
- Commercial launch readiness, product supply capacity, payer coverage, pricing and early prescription uptake if approved.
- Final NERD Phase 3 design and results, plus the safety profile and any regulatory labeling restrictions.
- Potential dilution and capital structure, including the remaining Takeda warrant for 7.36 million shares and other equity awards and warrants.