Jian Fan/iStock via Getty Images
Jian Fan/iStock via Getty Images
Phathom Pharmaceuticals (NASDAQ:PHAT) is a good biotech to keep an eye on in the coming months because it is gearing up to potentially receive an expanded FDA approval of its drug Voquenza as a daily treatment for heartburn in patients with non-erosive gastroesophageal reflux disease [GERD]. The U.S. agency accepted the application filing of Voquenza for the treatment of this patient population. The reason why investors should be concerned about this is because the FDA has already set a Prescription Drug User Fee Act [PDUFA] target action date of July 19, 2024. Not only that, but this would be an expanded label to target a much larger portion of the GERD market. The reason why is that Phathom Pharmaceuticals had already received FDA approval for Voquenza for patients with erosive GERD back in 2023.
In addition, to have also been able to have this drug approved to treat H. Pylori as well. Speaking of non-erosive GERD, there is an opportunity to move this towards "As needed" treatment instead of daily dosing. Phase 3 testing for this particular patient population is expected in 2024. The bottom line is that this company only has a market cap of $481 million and if it delivers on all these opportunities, then it is expected to be able to generate greater than $3 billion in peak U.S. revenues. With continued traction of prescription sales of Voquenza in the United States, plus a major catalyst expected in the next several months, I believe that investors could benefit from any potential gains made.
As I stated above, Phathom Pharmaceuticals received FDA approval for Voquenza for the treatment of patients with erosive Gastroesophageal Reflux Disease [GERD]. Such U.S. marketing approval of this drug for the treatment of this patient population was achieved back on November 1, 2023. This was a huge win for this biotech, in that it was able to receive a step up past only having Voquenza approved to treat patients with H. Pylori. The approval happened with respect to a certain portion of these Erosive GERD patient populations, which are as follows:
Gastroesophageal Reflux Disease [GERD] is a type of disorder where acid flows back into the esophagus [tube connecting mouth to stomach]. This is a constant issue and can cause irritation of the lining of the esophagus. In even worse case scenarios, it can even lead to something known as Barrett's esophagus, which is chronic exposure to stomach acid. In turn, if not halted in any way, it can cause the patient to eventually have esophageal cancer. Barring all expansion opportunities for GERD being achieved, Phathom believes it can generate >3 billion in U.S. Peak revenues. The global market for GERD therapies is expected to be $3.4 billion by 2032. This approval of Voquenza for the Erosive GERD patient population was because of positive results from the phase 3 PHALCON-EE study, which showed that the primary endpoint of non-inferiority of complete healing at week 8 of drug was achieved over lansoprazole. Consider that those who took Voquenza had a complete 8-week healing rate of 93%, compared to 30 mg of lansoprazole treat patients who achieved 85% healing over the same 8-week time period. This approval was very good news for Phathom Pharmaceuticals because it means that it could target up to 20 million Erosive GERD patients in the United States. This brings me to the possible expansion opportunity, which would be the ability for it to be able to target an even larger category of GERD patients. How so? Well, the FDA is reviewing its regulatory filing of Voquenza for the treatment of patients of non-erosive GERD, with a PDUFA date of July 19, 2024. Should approval be achieved for this other portion of the GERD patient population, of course, it should be seen as a positive by investors. However, it accomplishes one other goal, which is the ability to go after a bigger portion of the population. Consider that there are an estimated 38 million adults in the United States with Non-Erosive GERD, which is bigger than the Erosive GERD population.
The ability for Phathom Pharmaceuticals to be able to expand its label of Voquenza to go after this other GERD patient population would be enough alone. However, there is another way it can expand its label even further. How is this possible? Well, that's because it can target Non-Erosive GERD "As Needed" dosing patients. In essence, the ongoing review from the FDA for Non-Erosive GERD patients is for daily dosing. The goal is to also bring in those with "As Needed" dosing for treating their heartburn associated with Non-Erosive GERD. It hopes to be able to do this by initiating a phase 3 study for these patients. Such a late-stage study is expected to be initiated in 2024. This phase 3 study using As Needed dosing of Voquenza for active heartburn episodes for these patients, along with already achieved positive prior data in the phase 2 "As Needed" study is intended to eventually allow this company to also receive regulatory approval of Voquenza for this section of Non-Erosive GERD patients.
The thing is that Voquenza acts as a pipeline in a pill because it can be applied to many other gastrointestinal disorders. One such other possibility is the exploration of this drug for the treatment of patients with Eosinophilic Esophagitis in adults and adolescents. At the moment, Phathom is in discussions with the FDA on designing a phase 2 study that will use Voquenza for the treatment of this patient population and is expected to begin during 2024. Eosinophilic Esophagitis [EoE] is a type of disorder where an allergic reaction causes the esophagus itself to become inflamed and not contract as it should. This leads to a host of symptoms that these patients experience, which are as follows:
This is a pretty big market opportunity, although not as big as the GERD market noted above. It is expected that the global Eosinophilic Esophagitis market is expected to reach $941.8 million by 2031. Still, I believe that there is a good chance here for Phathom due to the fact that there are no FDA-approved drugs for this. There are PPIs that are used off-label as first-line treatment for these patients, but nothing is specifically approved by the U.S. agency for it.
According to the 10-K SEC Filing, Phathom Pharmaceuticals had cash and cash equivalents of $381.4 million as of December 31, 2023. As I stated above, it has already received FDA approval for Voquenza for H. Pylori and GERD. Thus, it has been able to generate some revenues from Voquenza, Voquenza Triple Pak, and Voquenza Dual Pak. Net revenues in Q4 and full-year 2023 were $0.7 million. This company is in very good shape in terms of cash on hand, because of the projection it has laid out. It believes that it has enough cash on hand to fund its operations through the end of 2026. However, in the case that it does need to tap into capital immediately, it already has a financial instrument in place so that it may do so. This would be with respect to an amendment of a term loan and security agreement it had made with Hercules Capital, Inc. for up to $300 million. Not only was this term loan expanded with a maturity date going out to December 1, 2027, but an expanded amount in terms of advances. It has access to tap into $160 million, which remains under this expanded loan facility.
There are several risks that investors should be aware of before investing in Phathom Pharmaceuticals. The first risk to consider would be with respect to ongoing sales of Voquenza. Sales have been starting to grow and in the most recently reported Q4 2023 earnings, it was able to report a beat on revenue expectations. The risk here is that there is no assurance that it will be able to meet or beat sales expectations for Q1 of 2024.
The second risk to consider here would be with respect to the possible label expansion of Voquenza, which is being reviewed by the FDA. The hope is that Phathom Pharmaceuticals can receive label expansion approval for its drug to treat patients with Non-Erosive GERD in July of 2024. There is no guarantee that the FDA will give a green light for such approval and in that case, it would be a major setback for it going forward.
The third and final risk to consider would be with respect to the use of Voquenza for the treatment of patients with eosinophilic esophagitis [EoE]. Even though this drug has been shown to work well for H. Pylori and GERD thus far, there is no assurance that it will do well in treating this other gastrointestinal disorder patient population. In addition, another aspect to consider would be competition. PPIs are prescribed off-label for this disorder, thus, in order for the company to do well in this space it would have to be able to show superior safety/efficacy.
Phathom Pharmaceuticals is a good biotech to keep an eye on, because of the expected PDUFA date of July 19, 2024. That is the date by which the FDA will decide upon whether or not the label of Voquenza can be expanded to include Non-Erosive GERD patients. Should U.S. marketing approval be given, then I believe it is a catalyst that could cause the stock price to trade higher. Not only that, but it is already in the process of gearing up to be able to take this possible approval for a once-daily dosing of Voquenza for Non-Erosive GERD and then expand upon it even further to be used for "As Needed" treatment of heartburn for these patients. A phase 3 study to use this drug for this specific type of GERD patient population is expected to be initiated in 2024. Another small catalyst that investors can look forward to, is the initiation of a phase 2 study, using Voquenza for the treatment of patients with EoE, also expected to be initiated during this year.