TKPHF - Following Up On Phathom Pharmaceuticals

2023-10-05 12:43:14 ET

Summary

• Phathom Pharmaceuticals is a small biopharma firm focused on developing treatments for gastrointestinal diseases.
• The company has recently filed some marketing applications around its primary drug candidate.
• The company ended the second quarter with just under $250 million in cash and marketable securities, and raised over $140 million via a secondary offering in front of launch activities.
• It has been over a year since we first profiled Phathom Pharmaceuticals. An updated analysis follows in the paragraphs below.

"The ghosts of things that never happened are worse than the ghosts of things that did ." - L.M. Montgomery

I posted my first article on Phathom Pharmaceuticals, Inc. ( PHAT ) back in June of last year. That piece concluded with a promise to follow up on this small developmental firm at some point in 2023. The company recently submitted some marketing applications around its main and only product candidate. An updated analysis follows below.

Company Overview:

Phathom Pharmaceuticals is a small biopharma firm headquartered just outside of New York City in Florham Park, NJ. The company is focused on developing and commercializing treatments for gastrointestinal diseases. The stock currently trades around ten bucks a share and sports an approximate market capitalization of $575 million.

Vonoprazan is the company's current primary asset, and this compound came to Phathom via a license for the development and exclusive rights in Europe, the U.S., and Canada with Japanese drugmaker Takeda ( TAK ) several years ago. While Phathom has no regulatory payments within this agreement, it is on the hook for sales milestone payouts as well as royalties on commercialization sales.

Vonoprazan is a first-in-class potassium-competitive acid blocker medication. It was first approved in Japan some eight years ago and does nearly $750 million worth of sales annually in the Land of the Rising Sun. In the second quarter of 2022, Phathom Phathom received FDA approval for its combination therapy VOQUEZNA TRIPLE PAK (vonoprazan, amoxicillin, clarithromycin) and VOQUEZNA DUAL PAK (vonoprazan, amoxicillin) for the treatment of Helicobacter pylori (H. pylori) infection in adults.

Last month, Phathom filed a market application for vonoprazan to be approved as a daily treatment for non-erosive gastroesophageal reflux disease or Non-Erosive GERD. A decision by the FDA is expected in mid-November. If approved, Phathom should start to market vonoprazan for this new indication by the end of this year. The company also refiled a market application for erosive GERD in May of this year. The original action date for the FDA was in January of this year. The FDA formally accepted the application for review in June.

It is important to note while VOQUEZNA TRIPLE PAK (vonoprazan, amoxicillin, clarithromycin) and VOQUEZNA DUAL PAK (vonoprazan, amoxicillin) for H. pylori was approved 18 months ago, the company has been waiting to roll out those products until vonoprazan was approved for additional indications. Management is planning to launch these products by the end of the year, pending additional FDA approvals.

Erosive GERD impacts some 20 million people in the United States (your author included) and it is an approximate $3 billion annual market. However, there are already some established competitors in the space, including Prevacid which has been approved for decades.

Now, vonoprazan does a better efficacy profile than these proton pump inhibitors or PPIs. The compound also has a longer half-life and needs less cycles of administration to achieve its full effect. Management estimates that 15% to 45% of GERD patients are not adequately treated with existing PPIs available. How this plays out in the marketplace is unknown at the moment, obviously. Vonoprazan is also Phathom's only asset of note at this time.

Analyst Commentary & Balance Sheet:

Since the second quarter results were posted on August 10th, Craig-Hallum, H.C. Wainwright ($28 price target), and Jones Trading ($27 price target) have reissued Buy ratings on PHAT while Goldman Sachs has maintained its Hold rating on the stock.

Just over seven percent of the outstanding float in this stock is currently held short. Several insiders have added nearly $300,000 in new shares in 2023 while others have sold approximately $150,000 worth of equity in total so far this year.

The company ended the second quarter of this year with just under $250 million worth of cash and marketable securities after having a net loss of $41 million for the quarter. Phathom raised just over $140 million via a secondary offering this May. Additionally, the company has $100 million available under a term loan with Hercules Capital, Inc. ( HTGC ) and $175 million will be paid to Phathom upon FDA approval of VOQUEZNA for Erosive GERD under the terms of a revenue interest financing agreement as well.

Verdict:

Phathom Pharmaceuticals, Inc. lost $5.05 a share in FY2022 on no revenues. The analyst firm consensus has losses dropping to $3.80 a share on sales of less than $5 million in FY2023. Revenue projections are all over the map for FY2024, ranging from just over $20 million to just north of $90 million. Loss estimates also range from $2.97 to $6.46 a share.

We concluded our first article on Phathom noting " The question is how fast can the company achieve significant sales traction and lessen quarterly cash burn ?" and stating the stock merited only a small " watch item" position for aggressive investors for now. The stock has moved a bit higher since that investment call.

The company has made some progress, advancing vonoprazan to be approved for new indications. However, until these products hit the market (pending FDA approval), it is hard to predict Phathom's sales ramp at this time. The company does have funding in place for the initial launches of its product portfolio.

However, until I see a couple of quarters of actual sales and its impact on the company's cash burn rates, the stock deserves only a very small holding for risk-tolerant investors pending further developments.

"Conscience is no more than the dead speaking to us ." - Jim Carroll

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