Phathom Pharma: Approved Drugs, Upcoming PDUFA, Smallish Addressable Market (NASDAQ:PHAT)

Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) develops treatments for gastrointestinal diseases. The company was spun out of Takeda, in collaboration with Frazier Healthcare Partners, to develop and commercialize vonoprazan, a next-generation P-CAB (potassium-competitive acid blocker) drug that is superior to proton pump inhibitors, has a longer half-life than traditional PPIs, and requires less cycles of administration to achieve full effect.

In May 2022, vonoprazan was approved for the treatment of Helicobacter pylori (H. pylori) infection in adults, in a triple pack with clarithromycin and amoxicillin, and a dual pack with just amoxicillin. While there are other approved drugs, the company states that, “vonoprazan-based treatments offer two new therapeutic options that have demonstrated superior eradication rates as compared to standard of care lansoprazole-based triple therapy.” In a phase 3 trial called PHALCON-HP, vonoprazan triple therapy and vonoprazan dual therapy successfully met the study’s primary non-inferiority endpoints and all secondary endpoints, demonstrating superior eradication rates versus lansoprazole-based triple therapy among all patients including in patients with clarithromycin resistant strains of H. pylori.

In another phase 3 study called PHALCON-EE, vonoprazan demonstrated non-inferiority – in erosive esophagitis (‘EE’), a type of gastroesophageal reflux disease (GERD) – to current standard of care Prevacid, currently owned by Novartis (NVS). In certain secondary but critical measures, it showed superiority, in fact.

Data came from the phase 3 PHALCON-EE trial with 1000 EE patients enrolled across the US and EU. These patients were randomized to 20 mg vonoprazan in a healing phase and either 10 or 20 mg in a maintenance phase. The study compared these drug arms directly with Prevacid or lansoprazole. Data showed that in the healing phase, vonoprazan had a healing rate of 93% compared to 85% in Prevacid at 8 weeks (p<0.0001). In an exploratory superiority test, the p-value was also <0.0001. Although vonoprazan did not do as well in heartburn at Day 3, it met the primary and all secondary endpoints in the maintenance phase, demonstrating superiority in maintenance of healing (79% for vonoprazan 10 mg, 81% for vonoprazan 20 mg, and 72% for Prevacid).

Safety-wise, as well, vonoprazan held its own against Prevacid, with comparable safety profiles except in one specific arm, which also included 5 covid patients.

This was the data the company took to the FDA, and vonoprazan has a PDUFA for this indication on Jan 11, 2023.

Addressable markets

H. pylori is estimated to affect nearly 115 million people in the U.S. and, with growing antibiotic resistance, now has a declining eradication rate. The global market is estimated at $600mn in 2021. The EE market, on the other hand, is slated to be $1.5bn by 2030. According to a GlobalData report:

‘Eosinophilic Esophagitis – Opportunity Assessment and Forecast to 2030‘, reveals that the growth in this market will be driven by sales of high-priced biologics such as Sanofi (Euronext: SAN) and Regeneron’s (Nasdaq: REGN) Dupixent (dupilumab), Bristol Myers Squibb’s cendakimab (RPC-4046), and AstraZeneca’s Fasenra (benralizumab). Dupixent is expected to become the market leader with $915.6 million in sales in 2030.

Thus, despite the new and upcoming approvals, the total addressable market for vonoprazan in these two indications is small, given that the market is heavily differentiated, small in size to begin with, and dominated by large players. Jefferies analyst Caleb Ezell projected $200 million in peak sales in H. pylori infection.

Rest of pipeline

Phathom has just this one drug in clinical trials but in two other indications – daily dosing and as-needed treatment of heartburn associated with Nonerosive Reflux Disease (NERD). In a phase 2 trial called PHALCON-NERD, vonoprazan met the primary endpoint in all doses against placebo. A phase 3 trial is ongoing, with data expected in 1Q 2023.

Financials

PHAT has a market cap of $382mn and a cash reserve of $197mn. They also have an additional $100 million available under the Company’s term loan with Hercules Capital. Research and development expenses for the third quarter were $19.0 million, while general and administrative expenses were $23.5 million. At that rate of expenses, they have a cash runway of just around 5-7 quarters, starting from the previous quarter. So that runway will see them through barely to 2024, and then, or before then, they will need cash.

The company states that they have a cash runway to 2024.

Risks

PHAT has a low trading volume, so that lack of liquidity could be a problem for short-term investors. More than 90% of the company is held by funds, insiders, and other non-retailers. That explains the low trading volume.

There’s some competitive risk. While vonoprazan’s data is better than lansoprazole’s, a number of biologics, like I mentioned, are established players in the market.

PHAT is a microcap company, so there’s always that risk of programs looking promising and then fizzling out. That could happen even with larger companies, but they can absorb more punishment, given their bulk. Microcap companies like PHAT can’t; they may either make you a lot of money, or they may take your entire investment and go…phut…no pun intended.

Bottom line

If you take the cash position and add it to vonoprazan’s peak sales analyst estimate in just the approved indication, you sort of go beyond its current market cap, indicating that the market is giving zero value to the rest of the pipeline, including EE where it has strong data and a near-term PDUFA and NERD where it has strong phase 2 data and a near-term phase 3 topline data. The drug already sells nearly $850mn annually, mostly in GERD, in Japan, under Takeda. I think, if you consider all of that and the current low price, PHAT looks quite attractive, although, I must say, a little unexciting, given the less than blockbuster status of the total addressable markets here.