GUGGENHEIM 3RD ANNUAL HEALTHCARE INNOVATION CONFERENCE - PHATHOM PHARMACEUTICALS INC

Hello, everyone. This is Yatin Suneja, one of the biotech analysts at Guggenheim. It is my pleasure to welcome Stephen Basta, who is the president and chief executive officer of Fathom. We will be chatting with him on all things happening at FathOM. Stephen, thank you so much. Always a pleasure to chat with you and have you here at our conference. So why don't you make some opening comments, maybe review for us the third quarter of the financial performance and what are some of the upcoming milestones? And then we'll maybe go into a little bit more deeper dive on some ofthe questions that I have prepared for you. Terrific. Happy to do that. Thanks so much for the invitation to join you. And I appreciate all of the opportunity that we could see and start to see investors on what we're doing. So, Fathom, just for those of you who are new to this story, is commercializing LaQuesna, which is a meaningful improvement in the treatment of gastroesophageal reflux versus prior generation therapies. LaQuestna offers a patient who has been on a PPI and is still experiencing heartburn symptoms the opportunity to get relief from those symptoms by increasing pH in the stomach much more consistently and over a full 24-hour period as compared to prior TGI therapies. We launched the drug three years ago. In our third year of commercialization, we're guiding this year to full-year revenues of $310 to $325 million with meaningful growth over the $175 million that we did last year. We're pleased to be on a significant growth path and on a clear path to having achieved positive cash flow for the first time over the last two quarters and reaching a milestone that we had guided investors to, reaching operating profitability, excluding stock comp, but very close to operating profitability even including stock comp in the recent quarter. That puts us on a path to continuing growth, but continuing growth profitably over the coming years, which is a meaningful advance in the company's overall financial trajectory. So fundamentally, we're launching a drug that's a meaningful improvement in treatment for patients in an enormous market opportunity in gastroesophageal reflux with a really nice revenue ramp with financial discipline in our operations that is positioning the company to be a leader in the GI space. Very good. Thank you for that. Then maybe perhaps double-clicking on the third quarter performance, pretty good performance. Just talk about what is driving the growth, what segments of the prescriber base you are able to penetrate now, where the penetration look like, and how should we think about that growth trajectory as we go into fourth quarter and 2027? I understand you're not going to provide guidance, but should have qualitatively. Right, so qualitatively. So one of the important things we did last year, as we reviewed the areas where we were getting the most traction, clearly the opportunity for us is first in GI and then eventually will evolve into primary care. So we really think about the market in those stages. What we did last year was we pivoted the commercial organization to focus on gastroenterology. We are now calling on virtually every gastro-enterologist whose office we can get into, there are few accounts obviously that you're not allowed to call on, but we're reaching the entire gastroentology universe, including gastro enterologists and the associated APPs, nurse practitioners, PAs that are in those offices. That collectively represents about 24,000 total prescribers. call on most of them. Most of them have prescribed Voquesna and 75% of our scripts are now coming out of that GI universe. So 70% of sales calls go into GI, 75% percent of our scripts come out of GI. That's the core growth engine for the company today but we're not exclusively in GI. We're still making a significant percentage of our sales calls in primary care. We are seeing growth in primary care prescribers. So our growth is coming from two things, depth and GI, because already most of them are writing Vukosna scripts, and expansion of the writer base to include more primary care prescrivers. That's going to hold true for the next one to two years, where our core growth is going to be depth andGI, but the additional expansion into primary care new writers. And then we expect over time, the primary care becomes an increasing portion of the business. as we go deep in GI, part of the expansion that's going to happen is going to be the flow of patients back to primary care to get continued script, the continued education of primary care physicians. And there's a fundamental inflection that I think is going happen in 2029 with the as-needed-use label. So that as we get labeling for PRN use of Vaquesna, we're in the phase three trial today, that is going to open a conversation for physicians, both GIs and primary care physicians, with their patients around not just treating the most severe patients, but also patients who've been on daily PPI and haven't been adequately treated or wish to not be on a daily therapy any longer. So today, we're treating patients who haven't Been adequately treated on a PPI. In the future, we expand not only that population, but also patients who just want to use a product as needed rather than being on chronic daily therapy. So there are really two different market segments we can pursue. Got it. I think you just mentioned these 24K GI writers, right? Can you put in perspective what level of scripts come out of these GIs? I think in the past you have sort of talked about a couple of millions and if you can penetrate a certain percentage, you can get to a billion dollars. Just maybe reframe that for us. What are those numbers and where are you today? So today, if you estimate, we did 380,000 prescriptions, TRX fills in Q3, again, 75% of those are in GI, so 250,000 to 300,000, prescriptions coming out of GI. That represents north of a 1 million prescription run rate out of a universe of PPI scripts that's 20 million PPI and H2 blocker scripts per year. So we're reaching about 5% of that opportunity set in terms of that prescription base. If we get to 20% to 25% or 30% penetration in that PPI prescribing volume, that's a billion dollars plus in revenue coming out of GI. Well, I mean, all of that totally makes sense if we're annualizing to north of a $300 million run rate today, you triple or 4X that revenue and you get to that billion dollar run rate. So that's a clear path to a billion-dollar opportunity in GI, and we're a quarter of the way there. We are continuing to grow nicely in that space. The second billion dollars, we believe, comes out of primary care, and that is both capturing severe heartburn patients in primary care that aren't adequately treated with a PPI and the additional opportunity that comes from patients who don't want to be on daily PPI therapy, who want to switch to using a therapy when they have heartburn episodes. So, I think there's a clear path to growing our penetration in GI that gets us to a billion dollars and a path through primary care that gets to the second billion dollar revenue opportunity. Have you disclosed, have you said what is your GI presentation today of those 24,000? How many have been penetrated? The vast majority of those have already written scripts. It's going to be more deeper prescribed, deeper usage is what's going drive it. That's right. today is we are converting the most severe patients in those practices, patients who failed multiple prior PPIs, for example, patients having very severe symptoms and they can't be controlled with a PPI therapy. So we're capturing the most sever patients as physicians get more comfortable with Vaquesna, as they get more patient feedback about how much better their patients feel on Vaquesma, as we improve their perceptions of how easy it is to get this product for their patients and they have increasing confidence that when they prescribe it, the prescription is going to be filled and it's going to be filled affordably for their patient. That is going to open up prescribing much deeper in their patient base. And the change in behavior is going to be you're going to go from the most severe patients to moderate severity patients. That's how we grow utilization and deepen utilization within GI practices. Part of why we're now focusing on access. Physicians are already convinced of the efficacy of Aquesna. 97% of Gastroenterologists believe this product is effective and generally believe this is more effective than a PPI for their patients. What they have uncertainty about is whether or not if they prescribe, the patient's going to get it and is going to get affordably. Hence our focus on access and education about access and perceptions of access as the key driver. Okay. I'll come back to access in a minute. So with regard to these PCPs, I think one of the points that you have made in the past is that, you know, if somebody starts on a GI, if you're feeling better, you come back to PCP, right? So there is sort of as a handoff, like you're bringing that patient from GI to PCp, and you are seeing that growth in PCP. How are you able to monitor all of that? Are you able to see that, this 25% of the PCPs are becoming bigger, bigger proportion of the mix? So we are seeing, because we're seeing rapid growth in GI prescribing, we're not seeing the PCP percentage growing. In fact, we'RE seeing the GI percentage growing because we've reallocated our Salesforce time to GI. What we ARE seeing is an expanding base of primary care first writers. So we ARE seen that new physicians are writing Vukosna. Sometimes that's patients coming back to them who are on Vukgosna. Sometimes it's new patients starts. But we're mapping out those referral patterns and looking for opportunities where we can educate primary care physicians, and I think that that's not our focus today. Our focus today is in the GI office, but over the next couple of years, you can see that as an expansion opportunity for us that becomes very meaningful in terms of how we grow the prescribing base. The other driver for that handoff that shouldn't be lost is this doesn't have to be physician-driven, this is patient-driven. Patients who switch to Boquesna feel the difference. There's no ambiguity for a patient about how much better you feel when you're on Boquesa. As a patient on Boquesna, I can tell you from firsthand experience, there's no way ambiguity about how better I feel on this drug than I felt on a PPI previously. I don't want to switch back. And that is true for so many of our patients, that they don't wanna switch back I'm a patient as well. So that's pretty good. There you go. Works very fast. So it seems like for the GI, this 24,000, you are vastly penetrated. Do you need more resources to go even more deeper? You're already there. So we're already here. We are there in GI. We don't need to call on GIs more frequently. We don' need to go deeper in terms of the call frequency. What we need to do is change the perception about how easy it is to get this product. That's why we've implemented what we refer to as our Access First initiative. So we are changing our sales calls. Instead of the sales calls in GI being about efficacy, GI has already believed in the efficacy of this product, The sales calls are about how easy it is to prescribe, confidence that the product is going to get dispensed, educating physicians about prescribing to Blink, who's our pharmacy partner, that can provide additional resources to enable more efficient PA submissions, more effective and successful PA submissions. Any appeals that are needed and can offer the patient the only location where they can get a $0 copay, also can offerthe patient a backup cash price if for any reason they don't get covered or if their coverage changes. So for example, if an insurance plan covers this drug and a patient is getting covered, they're getting $0 copay for September, October, November, December, they want to stay on the drug, but their insurance has a high deductible plan. They might get hit with a high out-of-pocket cost in January. Blink offers a cash pay option that can offer the patient the opportunity to stay in the drug. So it becomes a better experience for the physician and a better experienced for the patient and consistently can apply the lowest out-off-pocket cost. That's the core education program that we are providing to physicians today that inspires confidence that they can get this product for their patient and that it's going to be affordable for their patients. Got it. So the zero copay is available to BlinkRx only? That's correct. And then what about the cash pay? What proportion are cash pay? Do you think with this access first move is that mix is going to change? So about 35% of our scripts today are cash scripts rather than covered scripts. We want that number over time to likely trend down. We're doing a number of things to enable more effective coverage decisions and coverage applications for the prior authorizations to go through commercial insurance. It'll come down gradually if it comes down at all. We're not predicting a substantial change in that process. But over time, as physicians get more effective in the PA process, as the process reinforcement and support at Blink becomes more broadly applied. I think we, over time, will see improvements there. But the fundamental advantage of sending the script to Blink is the confidence that a physician can have that their patient is going to get access, that you get the lowest out-of-pocket cost if you're covered and the lowest Out-of Pocket cost if your patient is not. If you're not covered, it's still affordable. And that's why the $0 copay is only available through Blink. We want to change the conversation at two points, both the rep conversation with the physician, that there's a real reason for physicians to focus on sending the prescription to Blink rather than retail, and enable the physician to have a conversation with their patient about the reason why they need to send it to a mail-order pharmacy rather than sending it to CVS down the street, because this is the only place you can get the $1 copay. That enables all the support systems to then come into effect. Got it. Very, very good, helpful. Now with regard to the growth cadence, how should we think about 2027? As we enter 2027, the evolution of not only the growth, how should be think about growth to net, and at what point do you establish guidance for a new year? So we will expect to establish guidance for the new year as we did this year at the time of our Q4 earnings call. So we'll set guidance. So I don't wanna forecast growth in 2027 yet because we haven't announced guidance for 2027. We're certainly pleased with the growth path that we are on already. And we're experiencing something on the order of 70% growth this year over last year in our third year of commercialization. And we are continuing to see a solid rate of new patient starts. We're starting to see an increasing shift to blank that again starts a very positive cascade of more patients getting access to the product, better persistence on the product. All of those variables come into play in a positive way over time. But they are gradual impacts over many quarters. Got it. So then moving on to some of the pipeline stuff that you're doing, there is an EOE study up and running. When should we expect data? How would that look like? What does success look like, and what does it give you? Is it more about the market opportunity or there is something to do with IP exclusivity that you get with the indication? So the EOE trial that we're doing is the first randomized double-blind trial that's ever been done in EOEs of an acid suppression therapy as first-line therapy for these patients. So what we really are thinking about here is today, PPIs are used as first line therapy for EOE, even though they're not indicated for EoE, but they're used commonly and virtually in the vast majority of EOe patients. We would hope that Vukosna can, in many cases, displace PPI as first-line therapy or can become second-line theory. We would like to see Vukostana therapy ahead of some of the biologics, ahead of some of the steroid therapies, that Vkosna could be an effective broad-based treatment for Eoe, hence we're doing this phase two trial. The intent in the phase two trial, the primary endpoint, is reduction of eosin counts. So it's a histologic primary endpoint. We have multiple secondary endpoints associated with symptom scores. And what we're hoping to see in the study is a signal that is strong enough to enable us to define the phase three program. We want to go to the FDA, define a phase three program, and get a written request from FDA to include pediatric patients in that phase three program. That allows the EOE program to both serve EOEs patients by enabling a clear demonstration that acid suppression therapies work as first-line therapy. That becomes an expansion opportunity in terms of the market and serves those patients well and has the additional advantage that with a written request to include pediatric patients in the Phase III program, we could potentially get a six-month extension in our exclusivity. What would be the timeline for it to get the extension? So we would hope to know in 2027. So we'll have the data. We'll announce the data this quarter from the first 12 weeks of the trial. That's the blinded 12-week portion of the trial. There's an additional 12-weak portion that's open label that will complete by first quarter of next year. And then we'll have conversations with FDA around the design of the phase three studies. If in those conversations we're successful in getting written requests, that would enable us to then design and start the phase 3 studies. Got it. How big is the, with regard to the phase 2 program in as needed, how big is that opportunity? So the opportunity for as-needed is much more significant than I think most people appreciate. If you think about the broad population of patients who have gastroesophageal reflux and are on chronic PPI therapy, it's many tens of millions of patients. who are on PPI therapy daily, there's lots of noise online about potential long-term side effects, osteoporosis risks, B12 risks, et cetera, associated with chronic PPI therapy. Now, most physicians will tell you that those are exaggerated online and these are remarkably safe products, but patients are regularly asking their physician for whether or not there's an alternative to taking their PPI on a chronic basis. That's the opportunity and as needed is that physicians are literally hearing multiple times a day from patients. When you talk to primary care physicians or gastroenterologists, they hear multiple times a day patients saying, doc, isn't there an alternative that I don't have to be on this every day? And that's where Voquesna can fit in to serve exactly that need. Got it. Very interesting. What would be the timeline for you to get as needed approval? So we expect to have the data in the first half of 2028 and then we will file a supplement for approval. would be early 29. And then the other set of questions that I have been recently getting is around the OTC potential. Can you maybe talk about that? How is that potential? So I think the OPC potential for this product is enormous. If you looked at the multiple PPIs that switched OTC, I mean, Omeprazole is well north of $600 million. Nexium was well north of $400 or $500 million. But that was 20 years ago. So if you extrapolate that out just with inflation, you get to much bigger numbers in terms of the potential. And this drug has both the daily use opportunity that a PPI offers and has the as-needed use potential that an H2 blocker offers. So it offers really the best of both worlds with more potent acid suppression and more immediate relief. We think that this could be a more meaningful OTC drug than any of the prior gastroesophageal reflux launches. We're just in the midst now of doing the planning for the OTC trials and what the OPC launch looks like. And we haven't determined what the timeline is. I mean, the more typical timeline that one thinks about is that OTC launch would happen near the time of loss of exclusivity. And you would just switch over from RX to OTC. There's also the possibility of bringing that in somewhat. We are in the midst of doing that assessment to figure out what the right timing is for OTC, but it's an enormous opportunity. This could easily be a billion dollar plus opportunity OTC. And the tail is very long. And the tail's very long because you have brand equity. You're not then relying on a patent. You're relying upon patients having confidence in the brand. And in this case, when you have a brand that produces an immediate feedback for patients, that a patient takes it and feels better quickly, That reinforcement creates a real adherence to wanting to use this product. Got it, got it. So then I have a question on the litigation. I understand you might be limited in what you can say about the BDR, pharmaceutical litigation that is happening between them and FDA. What is your view on that? What are some of the next steps, what we should be focusing on? focusing on. Right. So the important thing to keep in mind regarding this litigation is that the fundamental question has already been interrogated by FDA and answered by FDA. So the core question for our exclusivity was the application of the GAIN Act to extend our NCE exclusivity for Vekwesna tablets. So we got qualified infectious disease product designation for the H. pylori packs. So our dual pack, triple pack, originally were qualified infectious disease products that automatically got the GAIN Act five-year extension. So they have exclusivity to May of 2032. With the citizen petition process that we ran last year, we asked FDA to evaluate the application of that same GAIN act exclusivity period to Voquesna. They opened it up for public comment, spent six months evaluating it, and in June of last year FDA issued a robust rationale for why they were applying the May 2032 exclusivity date to Proquesna tablets. We think that that rationale is absolutely accurate, was correctly decided, and is the right outcome for the application of both the GAIN Act and the umbrella policy that the same NCE exclusivity date should apply to all uses of a drug. That policy is enforced today. That's why the ANDAs, when they were submitted, were rejected, because FDA is applying that exclusivity timeline. We think that that's a correct decision, and that's ultimately going to be the decision that holds. Now, I also do recognize that the existence of litigation can create uncertainty in the minds of investors, and it's going to create some noise. It's unpredictable exactly what the sequence of events is going to be in the litigation. But ultimately, the core question that FDA dealt with, they have already responsibly evaluated, rigorously evaluated, and announced their decision on the fact that this is the right application of their policy. Got it. We don't know the timelines, right? It's very hard for us to predict the exact timelines. Well, very good, Stephen. That's all I had for you. Thanks so much. Appreciate the invitation. Appreciate it. Thank you. Thank you, thank you. Thank you.