Phathom Pharmaceuticals Inc Stock

Thank you. Good day, ladies and gentlemen. Hello and welcome to Fathom Pharmaceuticals' second quarter 2026 earnings results call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question at that time, you will need to press star 1 1 on your telephone keypad. Please be advised that today's call is being recorded. that, I would like to turn the call over to Eric Chiarelli, Fathom's Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Hello everyone and thank you for joining us this morning to discuss Fathom's second quarter 2026 results. This morning's presentation will include remarks from Steve Bosta, our President and CEO, and Sandeep Narula, our Chief Financial and Business Officer. A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found in the News Releases section of our corporate website. Further, the recording of today's webcast and the slides we will be reviewing can also be found on our corporate website under the events and presentations section. Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation.

These forward-looking statements involve risks and uncertainties, many of which are beyond Fathom's control. actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices for Fathom's common stock. A discussion of these statements and risk factors is available on the current Safe Harbor slide, as well as in the risk factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Fathom as of this date and Fathom disclaims any obligation to update these statements. Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically, in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes non-cash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release. With that, I will now turn the call over to Steve Bostom, Batham's President and CEO, to kick us off.

Steve?.

Thank you, Eric, and thank you everyone for joining our call this morning. Let me start by highlighting the significant transition Fathom has made over the last year and a half. I'm very proud to share that for the first time in Fathom's history and ahead of our guidance, we generated positive operating profit in Q2, excluding stock-based compensation. a dramatic improvement compared to Q2 last year when our operating loss was more than $50 million. Importantly, from Q2 2025 to Q2 2026, we increased revenue by about 88% and reduced cash operating expenses by about 34%. we have executed a successful pivot in our operations. We are on a solid trajectory and expect meaningful long-term growth generated by our core strategy to focus first on gastroenterologists. We continue to believe we can reach $1 billion in annual potential revenue with this focus on GI prescribers and have the potential for a second billion in annual revenue through expanded engagement with primary care prescribers in future years. Year 2026, we are updating our revenue outlook to 310M to 325M.

This new revenue guidance range still indicates meaningful expected growth over the next 2 quarters. We are hearing from our field team and in our market research that physicians are encountering friction in the process of obtaining Boquesna for their GERD patients. While many physicians have demonstrated willingness to navigate the process to get Boquesna for their most severe GERD patients, some may be more hesitant to work through the perceived hurdles to prescribe Boquesna more broadly for their less severe GERD patients. This influenced the fine-tuning of our 2026 guidance range. That being said, we believe we can meaningfully improve this dynamic, and we are working on several initiatives which we believe have the potential to reduce friction for physicians and patients and to support accelerated growth. remain confident in our GI-first strategy and our long-term outlook for Vekwesna. I'd like to turn briefly to a few key financial highlights for the quarter, and then Sanjeev will provide further commentary during his portion of the call. For Q2, we reported net revenues of $74.3 million cash operating expenses excluding stock-based compensation of 56.4 million and for the first time as a business we generated cash from operations to about 1.6 million.

While we We do not project generating cash each quarter this year. We do anticipate being consistently profitable at the operating profit level in upcoming quarters, excluding stock-based compensation charges, as we've previously discussed. We are proud of our company's results this quarter. They demonstrate solid execution of our GA first pivot over the last year. A few quick notes on our commercial metrics for Q2. Since launch through July 17th, nearly 1.7 million Vukosna prescriptions have been filled. Of the approximately 325,000 prescriptions that were filled in Q2, about 209,000 were covered prescriptions, representing approximately 64% of the total, while about 116,000 were filled as cash pay.

Compared to last quarter, this represents 24% growth in covered volume and 16% in cash pay. growth in cash volume. On a year-over-year basis, covered prescriptions grew about 79% and total prescriptions grew about 88%. Shifting to our development efforts, we've made solid progress in our EOE Phase II study, which is the first large placebo-controlled trial of an acid suppression treatment for this indication. We completed enrollment in June, which was ahead of schedule, and we were expecting top line data later this year in Q4 for the 12-week blinded treatment portion of that trial. We believe Viquesna has the potential to fill an important unmet need for EOE patients. The EOE program may also provide a potential path to extend Viquezna exclusivity by 6 months if the Phase 2 trial results are favorable. We receive a written request from the FDA to include pediatric patients in a potential Phase 3 trial, and we conduct that trial as agreed with FDA.

I'm also pleased to announce that we will be continuing our clinical work investigating Viquesna as a potential as-needed or on-demand treatment for non-erosive GERD. We plan to initiate the Phase III trial for as-needed use in Q4 of this year. In 2022, Fathom reported a successful phase two trial for as needed use of Vukesna. In this trial, Vukesna demonstrated faster and sustained relief of episodic heartburn as compared to placebo. Voquesna demonstrated superiority on the primary endpoint of complete relief at three hours and sustained relief for 24 hours. Many patients in the Phase II trial reported complete heartburn resolution as early as one hour following treatment with Voquesna. There's a significant population of patients with non erosive GERD or on chronic daily acid suppression therapies and would prefer to use a product as needed when they experience heartburn episodes.

If the phase three trial is successful, we believe a potential expansion of the Vukosna label could meaningfully increase the commercial opportunity for Vukosna and could strengthen our planned future expansion of call efforts on primary care physicians. If a approved and as needed use of a potent GERD treatment with 24-hour durable benefit could also provide a distinctive value proposition in future direct-to-consumer advertising. Overall, we remain confident in our outlook for Vukosna and in our ability to execute efficiently. I'll now turn the call over to Sanjeev to take you through our financial updates. Thank you, Steve, and hello, everyone.

I'd like to start by saying how pleased we are with the results and momentum of our revenue trajectory. The business is growing nicely. We remain confident in our path forward. Q2 performance included an important inflection point for Fathom. For the first time, we generated operating profit excluding stock-based compensation, driven by top-line growth and disciplined expense management. With that in mind, let's go into the results. Revenue for Q2 was $74.3 million, reflecting year-on-year growth of $34.8 million or 88%. Sequentially, revenue grew 16 million or 27% over Q1 2026, which reflects our largest ever quarter-over-quarter revenue growth on an absolute basis.

As anticipated, prescription trends have rebounded following the normal early year seasonality we experienced in Q1. Our gross to net discount for Q2 was in line with our guidance coming in towards the lower half of 55 to 59% reach. The channel mix for coder's prescription continues to be main reason for modest coder-to-coder variability. Our gross profit margin remains steady in line weather guidance at approximately 80% for quarter two. Second quarter cash operating expenses were about 56.4 million. largely consistent with spend last quarter. I'm proud of our team's continued expense discipline year-on-year cash operating expenses down 29.7 million or 34 percent compared to q2 2025. Our performance last few quarters clearly demonstrated our ability to grow revenue while being disciplined on expenses.

As a result of these strengths, we have delivered on our operating profitability plan we previously outlined. I commend our team for their commitments to reaching this important milestone, and I'm pleased that we did so a quarter ahead of our guidance. We also generated cash from operation for the first time, ending the quarter with $182.5 million in cash and cash equivalent. This is an exciting result and provide additional confidence in our outlook for future cash flow, which I will discuss in more details shortly. Now, let me turn to our financial guidance for 2026. For revenues, we're updating our full year 2026 guidance to $310 to $325 million. This refinement reflects the friction Steve described in his remarks.

We continue to be confident in the long-term opportunity for Vukovic. We are reiterating our guidance for both gross to net discount, which we believe will be within 55-59% range, and for gross margin, which we anticipate will be approximately 80%. As for spend, we're updating our cash operating expense guidance, excluding stock-based compensation, to be between $235 to $245 million based on first-off actuals in continued fiscal discipline. We continue to invest in projects designed to enhance revenue, such as omnichannel marketing, as well as clinical development programs for potential new indications. As we think about cadence, our updated revenue guidance still reflects meaningful expected growth over the next two quarters. We anticipate our gross to net discount will remain within our guided range but will increase moderately throughout the rest of the year, similar to prior years. We expect expenses to modestly step up in the back half of the year as we make strategic commercial and clinical investment, most notably initiating our phase three non-erosive GERD as needed trial.

We believe our early achievement in operating profitability in Q2 will sustain in Q3 and beyond. including in total for full year 2026. As for cash flow, we remain on track with our guidance to reach durable cash flow positivity in 2027. While this quarter's cash generation was encouraging, we expect to continue to use cash for the rest of the year due to modest and anticipated changes in working capital. On the whole, we remain confident in our balance sheet and capital structure. Based on our current operating plan, we continue to believe our cash on hand, along with anticipated future cash generated from operations, will be sufficient to invest in our business and satisfy all outstanding debt obligations at all times without the need for another debt or equity raise. In summary, this was a very strong quarter and we are proud of our results. Internally, from the leadership team to our field team, everybody remains motivated and determined to accelerate future prescription growth.

I believe we're very well positioned to do just that. I will now turn the call back to Steve for his closing remarks. Steve.

Thank you, Sanjeev, for the detailed financial review. Our efforts to reposition Fathom have been successful over the past year. The pivot to the GI First strategy has driven 88% revenue growth from Q2 last year to Q2 this year. reduced expenses, continued to drive revenue growth, reached operating profitability, excluding stock comp, and believe we are positioned for significant growth in the coming years. A year ago on our Q2 2025 earnings call, we told you we could reach profitable operations in 2026. We have officially delivered on this milestone as of Q2 2026. And we believe we will continue to do so in the coming quarters. We're pleased with the continued revenue growth this quarter and are deeply focused on how to drive further growth of Voquezna for many years to come.

We believe Voquezna has the potential to help millions of patients with GERD. Thank you to our team for their outstanding and diligent work, to the physicians and patients who trust in our products, and to our investors for your continued support. Operator, please open the line for Q&A. Yes, sir.

Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one one again. Again, if you have a question or comment, please press star 1-1 on your telephone keypad. Please stand by while we compile the Q&A roster.

Our first question or comment comes from the line of Umar Rafat from Evercore ISI. Your line is open. Umar Rafat, Evercore ISI, Your line is open. Morning, guys. Thanks for taking my question. I have a two-part question on Togo Prasad today from a competitive dynamic perspective. First, just your overall thoughts on their data. there's some sort of clinician feedback around immediacy of onset, but then you also have to balance that versus a lot of these patients are on PPIs, etc. anyway, so does that immediacy into onset matter or not? But more importantly, what does it mean for Fathom into 27, both as it relates to the growth trajectory of the molecule, but also your prognosis? profitability as competitive dynamics kick in from an SG&A perspective and revenue perspective. Thank you.

Umar, thank you very much for both insights. We certainly are tracking the evolution of the takeover ZAN story and the positioning in the market and often get questions about this. One of the things that has historically been true. is that when a second product launches into a category, it changes physician perception from thinking about the first drug in the category as just a single drug to now thinking about the need to shift to that category. I think that was certainly true when you saw in the GERD space, the evolution from H2 blockers to PPMs And as multiple PPIs entered, the PPI category grew substantially. We think that the similar expectation should likely play out that when a second PCAB enters, it will shift physician thinking about the need to switch more of their patients to the PCAB category, and that will have a positive impact in general in the category. And as the leader in the category, we believe that's going to accrue to our benefit in that process. Regarding the specific comparative data, obviously we've not done a direct head-to-head trial.

When we look at our data and compare that to what was entered regarding Tegoprazan at the recent DDW conference, the most important variable, and in fact, the primary endpoint in each of the two clinical trials, in both our Barquesma clinical trial and in the Tegoprazan clinical trial, the primary endpoint was tied to overall healing rates in erosive esophagitis. the intent in treating an erosive esophagitis patient is to heal the erosions. With Poquezna, we get a 93% healing rate. With Tegoprazan, they reported an 84.6% healing rate. And so what you see is a very high rate of healing and therefore very good outcomes and high success. satisfaction when physicians put patients on Vokwesna. I think that's the core variable physicians are going to look to. One of the things we do see is that most of the patients who are on Vokwesna have been on chronic daily therapy for many years, whether the drug works in 45 minutes or one hour, isn't the variable there? The question is how much does the drug raise pH in the stomach? How does it work on a durable basis? Can it heal patients erosions? And we see really good data with the Cresna on all of the parameters that matter most to physicians treating an erosive esophagitis patient. So I've, you know, certainly see that the healing rates are probably the most important variable to be looking at in that process.

And in terms of our trajectory, I mean, again, if this grows the entire awareness of the category, that's going to accrue to our benefit as the lead player in the category. And we are certainly confident with Book-Resn's data and positioning. And, Umar, to your point about what does it mean.

2027 guidance and OPEX and revenue trajectory, as Steve pointed out. Again, we believe this is going to be category expander. I don't expect any major impact to our growth trajectory or the OPEX space. There might be something on the growth to net. There might be. But we are kind of anticipating all of that, and then we'll provide more guidance when we give our 27 guidance. But we don't expect any major change to where we are thinking about our 2027. In fact, this could be all overall a positive to the category.

Thank you. Thank you. Our next question or comment comes from the line of Kristen Kluska from Cantor Fitzgerald. Your line is open. Hi,.

Good morning. Thanks for taking the questions. I have two. Just on the first, can you provide a little bit more color on some of the ways you're looking to improve the payer frictions? And then my second question is for the Voquezna as needed program and how you would think about billing for this and how much this is likely to cannibalize the patients that are on therapy chronically versus introduce a brand new market segment for you. Thank you.

Kristen, thanks for both of the questions. I think that those are going to add insights for investors that'll be helpful. First, on the friction that we're describing, it's not a binary. in this process it's really both sort of the actual friction is how much work does it take in an office to get the quesna covered and what's the experience between the moment that a physician prescribes when the patient is trying to fill the script when the PA is submitted and how does that cycle work most efficiently for physicians, for their office staff, and for patients. It's not a fundamental change in access. We actually have really good access and really good coverage by payers. But the streamlining of that whole process of what needs to be documented in the medical records regarding prior PPI use, what needs to be in the prior authorizations, how can that process run as smoothly as possible, the education of physicians, the education of their office staff, and encouraging as many physicians as we can to send the prescription to Blink because Blink can provide additional support services streamline that process, all of those become important dimensions to improving both the actual workflow, how do we make this actually easier, and the perception that it's easy to get the product, because both are important in this process. We need to just actually streamline it, and we need to improve physician confidence and perception that when I prescribe this product, I know my patient's going to get it.

And we've got a clear path to do that. We know that our top physician prescribers have got that process nailed. They're running that process efficiently. Their office staff is running that process efficiently. This is a coachable process. outcome in terms of getting to streamlined activities, but we need to do that broadly across every gastroenterology office. And then the second question that you had was sort of as needed positioning question of cannibalization. Obviously, this is something that we spent a fair amount of time looking at. It's why we took some time to do some market research before undertaking this trial that there's sort of an inherent risk.

Are you going to switch patients from using your drug daily to using. dragasnina are not the same patients, basically, who are going to be desiring an as-needed use. We are seeing physicians today prescribing Boquesna for their patients who need the most pH elevation in the stomach to achieve the best possible outcome, as we were talking about earlier, erosive esophagitis and healing erosive esophagitis. You don't want to use You want to use a product as needed. You want to maintain elevated pH in the stomach on a daily basis. You want those patients to be taking the drug daily. It's a different population of patients who are having breakthrough heartburn episodes, who are using PPIs daily, but they don't have heartburn every day, and they don't really want to use a PPI every day. That population of patients actively seeking an alternative that they can use when they have heartburn episodes.

That's not the patient we're getting today. So this is not about cannibalization of our current market. It's really about expanding to an incremental market opportunity and what we have found in our research with physicians and with patients is the concept of having a drug that works, It's really quite potent and will resolve their heartburn and will work for a 24-hour period, resonates really well. That's what physicians want for a population of patients that's different from the population that gets Roquesma today. So I just don't see a cannibalization risk. I think there's a market expansion opportunity.

Thank you. Thank you. Our next question or comment comes from the line of Yatin Seneha from Guggenheim. Ms. Seneha, your line is open.

Thank you. Good morning, everyone. Maybe just two for me. Steve, the friction that you are articulating, I mean, is this something you are seeing mostly with the new practice or new physicians that are coming on? Or is it mostly across the board, even with the older physicians or older practices? And two, I mean, you guys have been very good in terms of cutting the cost, being very disciplined. in terms of spend, how should we think about further investment now that you've streamlined all of the processes to further accelerate the growth of the product. Thank you.

So, let me take the first half and then I'll have Sanjeev discuss sort of OpEx and how we're thinking about OpEx trajectory in that process. So, on the friction, I think that your framing is actually quite helpful in sort of thinking about this. The physicians that have already adopted Voquesna as a core part of their practice have worked through this. this process and have reduced the friction in that process by virtue of their experience in how they prescribe Voquezna. In some cases they've adopted prescribing through Blink as a means of supporting their staff. In other cases, their staff has just worked through the process quickly as to what needs to happen in a pH and they've got the cycle down, and they can get the drug efficiently for their patients as we've been broadening to GI practices and as we find that GI practices are going deeper into their patient base. So for their most severe GERD patients, patients who have tried three or four prior PPIs and have had multiple GERDs, they're going to be more likely to get the drug. multiple failures, they know that it's clearly worth the effort to get the question for those patients and they can work through that process. If they perceive that it's a lot of work or there are stumbles or hurdles in that process for their staff, they may be less likely to prescribe it for a much broader population of patients who need the drug.

But there's sort of a trade off. How much does my patient need the drug and how much work is this going to be for my staff? And is there some risk that there's going to be some. stumble in the process that delays it. All of that impacts a physician's thinking. And so for our highest volume prescribers, they've already got the process pretty much nailed. For adopters that are growing their use of Viquezna, we just need to streamline this. There's no binary change here. There's no on-on-on. off signal of all of a sudden we solved it. It's incremental efficiency improvements. What does the physician need to document when they're prescribing Vipresna? What does the staff need to capture in the prior authorization submission? When does the prior authorization get submitted? If possible, we want them to send the script to Blink because Blink will provide more PA support and it'll help them in that process. and we'll be able to work through it.

So it's just a matter of building habit and comfort and familiarity with the process that will improve and streamline that process. This is small... sort of incremental changes, but it is a friction that we're seeing that caused us to say, look, we need to work through this over the next few months. We need to educate every office on how to streamline this as much as possible. And it's a core focus in our internal conversations is how do we educate every office around how to do this as efficiently as possible.

Any other into your point about? The operating expenses as you clearly see that overall the team has done an outstanding job in being expense discipline while the team we continue to grow revenue. You saw that results for this quarter was a clear evidence of that, that that strategy is actually worked. So in terms of where we see this going forward, I think what you would see based on the expenses, basically that we've reached to a point where we have the infrastructure, the full field force, the marketing department, the program to sustain Vokvezna and continue to grow Vokvezna. So all the discipline that we have put in place, that will sustain. What you would see going forward is us actually incrementally adding investments. As you would see in this back half of the year, as I talked about in my remarks, we'll be actually increasing the spend the second half versus the first half, and that's coming on essentially in two areas, and that will continue as we go forward. We're going to continue to add programs that actually drive the top line, things like Omnichannel.

You know, we're going to be launching that. And then the as-needed study, which is also that Steve talked about earlier. So you would see us minting the discipline that we've reached so far because that has worked for us and that has allowed us to grow revenue, but very selectively make those investments to continue to grow the top line. And we'll have the resources to be able to do that.

Thank you. Our next question or comment comes from the line of Paul Troy from Goldman Sachs. Mr. Troy, your line is now open.

Hi, thank you, good morning, and thanks for taking our questions. One question just to follow up on your comments on friction in terms of the insurance process. Can you maybe comment on how many, to what degree you've observed any push out of these cases to cash pay if that is incrementally driving changes in the percentage of your mix of covered versus cash pay prescriptions. And second, on the EOE study that's coming up, can you maybe comment on just sort of thinking about potential dosing as you consider a pediatric population down the road here? and a study there. Do you feel like the dosage being used in the current study will provide clarity on what dose might be needed for a pediatric population? Thank you.

Paul, thank you for both of those. the friction and insurance coverage process, it's not, you know, it's very hard as we're getting the feedback from physicians to quantify sort of how many prescriptions that they submitted didn't go through or would have gone through if the PA process was streamlined, but it's a more more qualitative sense. When we do our market research with physicians, we're finding this is the big stumbling point. They love the drug. They absolutely love the drug. I mean, just across the board, physicians are convinced the drug works. They're convinced it's safe. They're convinced that it's the right product for patients that aren't getting adequate relief with other therapies. And they're balance point is how much work is it going to be? How much is it going to cost my patient? Are they actually going to be able to get access to it? And how do I streamline that? And is that worth the effort for each of my patients? And that's the equation that effectively every physician is going through every time they're prescribing this is, I know this drug is going to do really well for this patient. And how do I make that trade off of, you know, is it worth the effort to make sure to get this? And so there's no absolute number to say it's 10%, 20% or 40% of patients that would now be shifted.

It is incremental, gradual growth as we improve both the actual streamlining of this and no fundamental see change here, it's just helping physicians gain greater confidence, helping them make sure that they're capturing the right documentation, helping their staff make sure that the prior authorization is going through with the right documentation. It's just incrementally getting better. And not only do the actual streamlining, you then improve physician perception and confidence that drives prescribing behavior because they know the drug works. They know that they want to get this for their patients. And so we will increase propensity to write in a meaningful way. But it's hard to put an exact number on it. It is more qualitative feedback as to the nature of the decision process that physicians are working through. On EOE potential dosing, for younger populations of patients, we actually are finding that there is not much change to the dosing.

We've been looking at PK characteristics. I don't have all of that data immediately at hand, and we can probably go through that in more detail to provide you guidance-based I'm also not as familiar with what has been presented on the prior pediatric PK work, but as we've done work, we don't expect that there is going to be significant changes in dose, although it may be at younger ages that you start to see that. But we'll get you more information on that as we move forward, and certainly this trial, as we move forward, trial was adults only. As we think about planning for the pediatric inclusion, we'll work with FDA on what age groups would be in the EOE expanded trial, and that will impact the dosage determination for each of those age groups. So we'll get you more granularity on that. probably sometime in 2027, as we're having conversations about what the design of that trial looks like for that broader population.

Got it. Thanks, Steve. Thank you. Our next question or comment comes from the line of Martin Oster from Raymond James.

Mr. Oster, your line is now open. Hi, this is Josh on for money. Congratulations on your milestones. We just had a quick question around like more around the as needed phase three design was wondering if you can like maybe cover like maybe like historical benchmarks or like, you know, endpoints that you're going to be looking at as you run this trial. And as well, maybe you can describe like how much incremental costs it's going to add to your expenses. Thank you.

So, Marty, the incremental cost first of the Phase III trial for this year is already built into our guidance of the 235 to 245 guidance range in terms of OPEX. So, the portion of that trial that we're going to be absorbing in in terms of costs in Q4 of 2026 is built into that. It will raise our R&D expense in 2027 to some degree. I'll let Sanjeev comment to the extent that he wishes to do so on 2027. We'll give you much more guidance on 2027 as we get to our 2027 guidance, but it will increase the costs a bit next year. The design of the trial isn't yet posted, I think, on ClinTrials, but once it's posted, we'll be happy to walk through all of the details that are public. But the basic premise, if you look at our Phase 2 study, which has been previously presented and published, that actually provides a really good framework. that you enroll non-erosive reflux patients.

They go through a treatment period where they're doing daily treatment for several weeks. Patients who are heartburn free for a period of time at the end of that treatment phase are then randomized to either receive a quesna or placebo. And the instruction during the evaluation phase of the trial is when you have a heartburn episode, you take one of the tablets and we will be looking for a difference in both fast onset of resolution within the first one, two, three hours. And we've got primary endpoint and secondary endpoints at different time points and then sustained onset of resolution. So a successful patient both has early onset, early resolution of their heartburn episode, and it's sustained for 24 hours. And that differentiates meaningfully versus a placebo. There are rescue meds available for any patient who's having heartburn who doesn't get resolution because the placebo patients won't get resolution so they can use antacids after the event evaluation time, but it's a really straightforward clinical trial design.

We'll send you the information on the phase two trial so you've got more detail on that, and the phase three trial mimics that substantially.

Thank you. Our next question comes from the line of Annabel Samimi from Stifel. Your line is now open.

I'll take my question. I have, I guess, a multi-part question related to that as-needed trial. Do you have any sense right now if a number of patients are using an as-needed basis as well? I know that PPIs are used off-label in that sense, in that way, so I'm just curious as to if you have a sense of how Viquezna is being used. And just separately as it relates to... Is this one of the ways that you could potentially reduce the friction in the marketplace? And do you think this is more important to capture the less severe patients that physicians are reluctant to use it with? Or is it more important to, I guess, expand into a broader population, maybe even in the I'm sorry, in the PCP market, you did suggest that you might use that for DPC. So does that mean you're...

considering it for next year. Thank you. So, Annabel, your question gets at a really important strategic element of sort of where does the as-needed trial fit into the evolution of the strategy. So, first on sort of current experience, there are certainly some patients who are using VUCAZ as-needed. We hear that from physicians. It's a small portion of our overall patient population. The vast majority of patients on Viquezna are using Viquezna daily because they tend to be patients who have significant GERD symptoms and need the most possible pH elevation and you get the most possible pH elevation by using Viquezna daily. So the patients who are by and large receiving bequesna therapy today are mostly daily use patients, but certainly there are some that we hear from physicians and some of their patients have evolved to as needed use to some degree. I don't think that it's a large number.

The expectation is this as needed population, this as needed trial isn't linked in any way to the friction dynamic that we were describing. The friction dynamic is just how efficient is the office at getting the PA submitted, making sure that the right documentation is in, make sure they've got the right documentation for the right payer, and that that process can work through. This is just blocking and tackling of educating each office and working with the office staff and working through the dynamics based upon our current labeling, current access process, and just streamlining. So it's that basic execution work that we need to do over the coming months to educate all of the offices. As you had suggested in part of your question, I think this is the right way to think about it the as-needed opportunity, it expands the market opportunity substantially. It potentially expands the market opportunity in a meaningful way that's helpful for primary care physicians and potentially expands the market opportunity in a way that sets us up for future unique DTC claims. So the opportunity set is the population of patients who are on daily therapy, whether it's with an H2 blocker or with a PPI, but many of those patients are on chronic daily PPI therapy, but they prefer not to be on daily therapy.

They're either worried about adverse events or they're worried about other concerns that they've heard with daily PPI therapy. and they ask their physicians on a regular basis, Doc, I've been taking this drug for years, isn't there something that I can do to just solve my heartburn when it happens? that question comes into physicians on a regular basis, we believe our drug is going to fit really nicely in solving that need for patients and for physicians, and so this trial enables us to not only have the data that confirms that the drug can work for those patients, but then also have the label that allows us to talk to the physicians about that use state. use state exists both in GI and in primary care. So as we go into primary care physician offices in the future, that's a unique value proposition that no other drug brings and becomes a unique conversation set with primary care physicians that expands the opportunity set meaningfully in that market. Now, obviously, it takes a couple of years from here to get through through the trial and get through the NDA supplement. So it's not immediate, but we think that that positions us really nicely for that future expansion. And to your point also opens up unique advertising proposition for future direct to consumer promotion. That's not to say that we won't do any direct to consumer prior to that, we're already doing some work online digitally. But it becomes a unique value proposition that I think enhances and enables the expansion of future DTC activities when we have unique value proposition of being able to use this drug daily or as needed.

Thank you. Thank you. Our next question or comment comes from the line of Chase Knickerbocker from Craig Hallam. Your line is now open.

Good morning. Thanks for taking the questions. Maybe Steve, just on this friction dynamic, did you see this dynamic with some of your high prescribers today as they were ramping up? And was there a point that they got a little bogged down as well on that ramp? How long did it take them to refine those processes if so? So, and then can you just, you know, give us an idea of what you could potentially do to help them, to help those that are getting a little bogged down to refine that process specifically?.

Yes. So, Trace, thank you. And I think that's actually going to be helpful here to get perspective. Yes, we have absolutely heard this from physicians all along. As we've gone broader in the GI community and as we've gone deeper into their patient bases, the product is expanding the noise level and the volume level of the comments. rises and that's why our attention has turned to this in recent months to say, okay, we've really got to get, we've got to get to better education on this point. But in fact, if you look back at some of our physician perception questionnaires a year ago, It was interesting that we saw in some of that data the same phenomenon that we see in our market research right now, which is physicians love this drug. They're convinced that it works. There's a super high perception that the efficacy of this product is compelling for their patients. They are comfortable with the safety. They think it's appropriate for a large number of their patients, and their concern is cost and access.

Their concern is what's going to happen to the product. What's it going to cost my patient? Is it going to get covered by their insurance? How much work is it going to be to get it covered? It's all of those kinds of things. Now, the early adopter physicians were, clearly motivated to figure out how do I get this to my patients and got their office staff up to speed quickly so that they could embrace the product and run through that process. And so we know that the process can be streamlined in an office and can run very smoothly. So that perception has been there. We've gone to a broader universe of GIs, and we've gone deeper in their patient base. It's not just the most severe patients that they're prescribing for where it's clearly worth the work to make sure to get this.

We need to get it for their broader population of patients. We need to streamline the workflows for them. And that's just largely education. of the physician and of the staff, both on how do you make sure that the PA documents everything you need to to get the PA through, and how do you make sure that the medical records capture all the information to make sure that that goes through, but also education and confidence building that, yes, you can get this product for your patients, and so that creates a greater willingness to prescribe. So there's both. The uncertainty of can I get this from my patient holds a physician back, but then there's also just friction in the process that prevents some scripts from going through. We can work through that process and again, I'd reference both. There's an education component of the physicians and the staff, but there's also extra support that we can provide through blink and I know in some prior investor conversations people have talked about. Blink is just the cash pay alternative.

That's not how we think about Blink at all. We think about Blink as a facilitating partner that helps physicians' offices get through the PA process as smoothly and as easily as possible. We are working with Blink to constantly figure out how can we iterate and streamline those activities and how can we We provide additional streamlining support for physicians and their staff, and we're working with our sales force to educate the staff on how do you use that resource most effectively. So, yes, this has always existed. There are physicians who have gotten through this effectively, and we think that this is absolutely necessary. absolutely something that can be improved over the coming months through our ongoing work. Got it.

guess just when you kind of saw this dynamic kind of rear its head kind of how recent recent was it and then just lastly just as we think about as needed timelines relative to LOE can you just give us a little bit of a sense more specifically as far as how you think about enrollment timelines and kind of your timelines to supplemental filing.

Yes, thanks. So in terms of when we saw this, it's interesting. It's not an on-off switch of like suddenly the conversation appeared. It was gradually growing noise level. And so I've been spending a bunch of time in the field. Several members of our management team have been spending a bunch of time in the field. And just to a person, the feedback that we've gotten as we've done all of those field rides is, hey, you know, talk to me. but they're all a little bit frustrated by the process of getting it. And so that, The noise level in recent months as we've done more of those field rides has been growing.

Certainly the time that I've spent in physicians' offices has reinforced that, the time that we've spent with physicians at TDW and at other conferences. That's the constant theme that comes up is I love your drug and I'm just not sure that I can get it for all my patients. So it's that noise level has been rising through all of those conversations, and it's come in the context of market research that we've been doing over recent months that has raised our awareness that said, hey, wait, this is sort of, we need to shift our communication. We need to spend less time talking to physicians about how fabulous our drug is because they already believe it, and more time talking to them about how easy it is to get and how do we streamline that process. We're trying to shift that conversation And ongoing, our sales and marketing teams are working on how do we educate staff and how do we educate physicians even better and how do we create those materials? Because it's just the noise level has risen and we need to solve this issue to accelerate our growth in the future. And it's solvable. This comes up in every product. Every branded product has this. to some degree, and it just takes on a slightly different flavor in each specific drug category.

And then, I'm sorry, Chase, you had a question on as needed, but I don't recall the details of the question. The as needed timeline in context with LOE. Oh, so the as needed timeline. So we've only indicated when the study is going to start. We haven't given an exact timeline. But I think you should certainly think that it's reasonable that we've got data I don't know if it's in 2027 or if it's in 2028, but within that timeframe and then potentially just as a broad estimate, not committing to a specific forward date, it's possible that we see an update to our label with as needed dosing by 2029 so that that timeframe sort of puts us in a reasonable place.

that gives us several years to take advantage of this momentum. Understood. Thanks, guys. Thank you. Our next question or comment comes from the line of Dennis Ding.

From Jefferies, Mr. Ding, your line is now open. Hey, good morning. Thanks for taking my questions. I have two. So number one, based on your comments, it seems like demand is still pretty strong, but it just might take a little bit more work or time to get it approved for the rest of your patients. So we've seen positive experiences from other companies that are actively driving more screen away from retail and towards the specialty pharmacy for better fulfillment and even better refill rates. Is that a strategy that you would consider? And then number two, for the RIFA payments, as you plan for the next few years, do you feel a need to close up to that 275 million threshold? by end of 2028? And also, how does that influence your approach to BD in terms of the amount and capacity that you could pay for an asset? Thanks so much.

I'll take the first half of that and then I'll let Sanjeev take the RIFA payments and sort of VD capacity conversation. So thanks, Dennis. On your first point, I think you're 100% right that other companies have found success and we are also seeing that we get a more efficient process for the whole fulfillment flow between the time that the prescription is submitted and the process of getting the PA submitted and the process of getting it cleared. And we just get better outcomes for patients in terms of the percentage of scripts that go through when a script. is sent to Blink versus a script is sent to a retail pharmacy. They can provide more help to the office. They can provide more help to the patient. And if there's a denial from a payer, they can work through the appeal process. So just overall, Blink can be meaningfully helpful to get covered scripts through.

That is one of the education points that we are focused on with our field organization is how do we help physicians understand that benefit? And over time, I'd like to see more of our script volume go through Blink to provide that additional support. I think that's an exactly on-point observation that that's one.

one of the tools for helping to improve this dynamic. Sanjeev, you want to take that? SANJEEV KUMAR- yes, yes. So Dennis,.

With regard to refar, I think what you got to keep in mind overall, not only refar, but also. we have the term debt repayments that will start in a small way in 2028. So the simple way to think about it is the way the capital structure is with the capital raise that we did beginning of the year. and you saw we turn into operating profit this year, and then we're going to be generating future cash flow starting 27. All that, keep in mind, will allow us to meet our obligations. So we start paying our term debt in 2028, and then we have the true up of REFA starting in 29, but actually paid in 29. We will have sufficient... between the cash cash and and the cash generated from operations to be able to meet those obligations. And on top of that will have some flexibility to invest in our business through in licensing. Not a lot, but clearly there would be.

There would be opportunities in the way we're thinking about some of those kind business development opportunities where there is not large upfront, but clearly we sign those deals, use our infrastructure, do those clinical trials, which we can fund through our income statement, and then have a bigger payout as those drugs get launched over a period of time. So we figured that out. But clearly, the capital structure allows us to meet the obligation. allows us to invest back into business, maximize on work was done, but also start flexibility to start doing some of the licensing to clear to grow the pipeline.

Perfect. And if I can have a follow-up to my first question, you know, around the specialty pharmacy, what are the logistics that need to occur for a script to actually flow through Blink relative to retail? And, you know, I know you guys are educating them, but, like, how easy can it be and how quickly can physician behavior change to?.

to drive more scripts through Blink? So the simple first step is the physician just needs to send the script to Blink. They need to pick that in their EMR at the time that they are submitting the script. And if they are sending the script to Blink rather than to the local retail pharmacy, that starts the flow of the process. And then there are lots of downstream activities where Blink is supported. the office to assist in that dynamic. But it's a really simple process. So we just need to educate physicians to make sure to capture in the medical records the prior PPI history for the patient because that's going to be needed for the prior authorization and just send the script to Blink and then the cascade that happens from there is really straightforward.

Great. Thanks so much. Thank you. Our next question or comment comes from the line of Joseph Stringer from Needham & Company. Mr. Stringer, your line is now open.

Hi, good morning. Thanks for taking our question for the phase 2 trial. Is there a bar for success that you're looking for that would be sufficient to propose a phase three? And is the phase two data essentially the key piece that you need to apply for the pediatric extension?.

So, Joseph, thank you. there's not a bright line that the drug has to do exactly this in order to have the conversation with FDA. What we clearly need to see is enough benefit in the phase two trial that there's a clear path to designing a phase three trial that could be successful to demonstrate efficacy. The primary endpoint in the phase two trial is just around eosinophil. count reduction. Obviously, in EOE you want to see reduction of eosinophil counts. And we've got a number of clinical symptom measures that are built in as secondary endpoints. What the portfolio of symptom improvement measures are and what the magnitude of those are will drive what the design of the phase three trial would be. So there isn't a sort of simple bright line if you have to have X percent improvement on this particular parameter.

We'll see the overall results and the overall results will then instruct us in having an end of phase two conversation with FDA and a Designing a phase three trial if there's a reasonable path to designing a reasonable probability phase three trial. That's the crux of that conversation But we'll see that data when we see the phase two results. This is the first large, well-controlled trial of an acid suppression therapy in EOE. So the magnitude of effect of an acid suppression therapy in EOE isn't well documented in any sort of randomized clinical trial setting. So largely the EOE trial will then be instructive in what for trial design would need to look like.

Thank you. Our next question, once again, ladies and gentlemen, if you have a question or comment at this time, please press star 1-1 on your telephone keypad. Our next question or comment comes from the line of Matthew Coffey from HC Wainwright. Mr. Coffey, your line is now open.

Great. Thank you. Hi. Good morning, guys. Really great to see you this quarter. I wanted to ask a question on for the additional billion-dollar opportunity from the primary care market, any near-term considerations for adapting beyond the current GI-first initiative, at least during second half 26 specifically or into 2027? Sure.

So, we are currently calling on primary care physicians, but it's not our primary call point. So, something on the order of 60 to 70% of our sales calls go into GI, but that means that there's an additional 30 to 40% of sales calls. Most of those are going into primary care. physicians. Those are either high decile primary care physicians that are prescribing large volumes of PPIs or they're primary care physicians who have previously written scripts for Voquezna where we think that there's a meaningful growth opportunity. So we're currently still in the primary care market, although the majority of our time resources are devoted to the GI first focus of the business. There's an expectation that in future years we'll expand the primary care activity. I don't have the specific timing of that.

I mean, it could be in 27, it could be in 28, it could be in 29. It could be tied to when we have the as needed indication. It could be prior to that. We're going to be making an assessment of when to expand our efforts in primary care based upon a number of internal metrics that drive an evaluation process of when are we going to see an acceleration of uptake and when are we going to see a positive return on the incremental investment. At the time that we come to that determination, we'll let you guys know what we're going to be doing.

and how we got to that rationale. Very helpful. And just to follow up on that, has the Blink education process been proportional between the GI and primary care then in terms of focus? No.

We try to educate every physician's office on Blink. Certainly, the uptake of Blink happens more readily in prescribers that write more prescriptions because they can get into the habit of prescribing to Blink. And we find that on balance, most of our GI writers actually write more prescriptions. and most of our primary care writers today. Now, that might evolve differently in future years, but today the dynamic is that most of our higher-volume writers are actually gastroenterologists, and so that's where we're having more of those conversations. But we have the conversation in every office.

Understood. Thanks a lot, guys, and really great to see all the progress. Thanks, Matt. Thank you.

Thank you. I'm sure no more questions in the queue at this time. Ladies and gentlemen, this concludes today's Q&A session. This concludes today's call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day. Speaker, stand by.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon, and thank you for joining us for this session. I'm Paul Choi, and I cover the mid-cap biotech sector here at the firm. It's our pleasure to have Phathom Pharmaceuticals here joining us for this session. I think what we'll do is what we've done in prior sessions. I'll turn it over to Steve to my immediate left, to kick it off with maybe some high-level comments talk about what are Phathom's strategic priorities for the remainder of the year going into 2027. We'll bring Sanjeev in also for Q&A later. And maybe after that, we'll go into questions.

Perfect. Thank you. Paul, thanks so much for the invitation to be here. It's a pleasure. Just a really high-level overview of the company, what we've done over the past year and where we're headed this year. So Phathom has commercialized VOQUEZNA, which is the first-to-market PCAB to treat gastroesophageal reflux. We have approval for both erosive esophagitis and for non-erosive reflux disease. VOQUEZNA represents the next generation of treatment for gastroesophageal reflux. Obviously, there were initially H2 blockers and PPIs. PPIs has been the standard of care for the last 30 years. But one of the things that has emerged over the last couple of decades, is about 30% to 40% of patients who are on chronic PPI therapy are still having breakthrough heartburn.

They're still having pain. They're having breakthrough symptoms, some on a quite frequent basis. So that 30% to 40% of the GERD population that's on a PPI still having pain, that's our target market opportunity. I joined the company just over a year ago in April of '25, the product was launched late 2023. So that will be 1.5 years into the launch. And one of the things we did at that point in time as we assessed what's working and what's not in our core strategy at launch, is we were getting really good adoption within gastroenterology offices as we went into GI practices, slower adoption in primary care. That's actually to be expected in this sort of a product, you often will see the specialists adopt the product faster.

Those are the higher need patients. So we reoriented our sales strategy during 2025 to focus heavily on gastroenterology. We are today delivering 60% to 70% of our sales calls going into the gastroenterology marketplace with a core focus of growing and penetrating the GI community and growing adoption in GI, we're still making calls on high decile primary care and primary care physicians that have already called. Our target for this year is to deepen that GI adoption pattern, we are making significant strides with our top 3,000 gastroenterologists already prescribing VOQUEZNA more than 1 in 3 -- approximately 1 in 3 times that they are switching a patient on their acid suppression therapy. So about 1 out of every 3 new-to-brand switches that's happening in the top 3,000 GI practices is going to VOQUEZNA. We are continuing to grow that every quarter. We are growing the base of prescribing.

We today have 16,000 of the 24,000 GI prescribers already writing VOQUEZNA and we're continuing to expand that as well as going deeper in GI. That's the focus for 2026. And then in the future, we will be expanding back into primary care. But I'm sure we'll talk about that through the course of the Q&A. We did $175 million in revenue last year. So $55 million in the first year of launch, $175 million in revenue last year. We've guided to $320 million to $345 million this year. We're on a steady growth trajectory for the product at a really nice pace.

And Paul, if I can just add one other thing we did beginning of the year. We look at our cap structure and then realized that we needed to have some modification in the cap structure to have more sustainable availability of funds. So we did that. We did a capital raise successful. We adjusted our debt. We paid down some part of the debt. And then now we have lowered the interest cost and now we have matched the repayments of our debt with the cash flow of the company and then we made sure we have enough cash on the balance sheet to meet all our obligations for the cash hold and the future repayments of debt. So that issue, which was there in the minds of a lot of people is behind us.

Yes. And a last point on sort of the financial evolution for any investors who are new to the story, in addition to that capital restructuring and our growth from $175 million to the $320 million to $345 million this year, we have indicated to our investors that Q3 will be our first positive operating profit quarter. So we're converting profitability and 2027 will be a positive cash flow year. So we are at a fundamental inflection in the company's evolution from being -- investing in the early stage launch to really starting to harvest the positive cash flows next year from this product.

Great. Thanks, Steve and Sanjeev. Maybe as you talk a little bit about the commercial strategy, you talked about focusing on going deeper with your existing and growing the GI prescriber base. Can you maybe talk a little bit more about what specific things that you have directed the sales team to do to accomplish this? Does that include thinking about new messaging, any other additional data points that you're focusing on? And just how does that grow over time?

So we're doing several things. One is, we have realigned all of our sales territories in Q4 of last year to rebalance the territories related to gastroenterology offices. That has allowed more efficiency in our sales calls to GI practices. We've also sized the organizations as we added additional reps in Q1 of this year to get to a sales organization of 300. That is allowing us frequency of calls on GIs that allows us to not just work with the physicians, but we're also working with all of the nurse practitioners and PAs in the office. And with the medical assistants who are driving the prior authorization process, so that we are able to do a total office call and drive depth of awareness within the entire GI practice regarding VOQUEZNA where it fits, how it works.

One of the outcomes of the time that we've invested in the GI practice, you can palpably feel in the context of the conversations that we're having with gastroenterologists. When I joined in 2025 and went to DDW, which is the big GI meeting each year. It's interesting. The conversations at DDW in 2025 had the flavor of, well, I get the VOQUEZNA works, but I'm not sure how much better than a PPI it is. And I'm not sure if I really need to adopt this to my practice. There was still a learning curve regarding the clinical efficacy of this product how much of an improvement it would make for patients. In 2026, every gastroenterologist that I spoke with the DDW had clear conviction around the fact that VOQUEZNA provides meaningfully better treatment alternative than PPIs for their patients who aren't adequately treated with PPIs, this is the next step that they need to go to.

They're 100% convinced on clinical efficacy and the power of this product and the fundamental improvement. What we now need to educate the entire office around is ease of access. The physicians are still not certain what does it take to get the prior authorization through? Will my patient be able to get access to the product. And so we've come up the clinical confidence curve, we are in the process this year of educating physicians on the market access confidence that we need to help them gain confidence that when you write a script, the patient will get the product. They're either going to get a $25 co-pay because of our co-pay buydown if their script, they're going to be offered a cash pay prices that is accessible for the patient who prescribes VOQUEZNA to know with high confidence that their patient is going to get the product.

And it's that confidence build that is the process of not just educating physician but the nurse practitioner and the medical assistant and everyone in the office that the patient can, in fact, get the product. So we've already successfully come up with clinical confidence curve. We are in the process of coming up the access confidence curve, and that's going to continue to grow utilization.

Great. Steve, you mentioned earlier that you've sized the sales force now at about 300 people. Sanjeev earlier in the past quarters, you went through a bit of a rightsizing the organization. Do you feel like you're at the optimal point now for the revenue trajectory. You also talked about sort of matching cash flows to the debt schedule. And just sort of how are you thinking about the infrastructure right now versus sort of your longer-term aspiration.

Yes. So as Steve pointed out, once we did the territory realignment last year, we went through careful planning, but what would it take to maximize throughput from each territory. And that's how we came to this number. And that's how territories got remapped. So the number that we have about roughly 300, that's the right size that gives us coverage at GIs, top decile primary cares and we have strategic coverage wherever we needed to do that. So that's what is reflected. That's what is reflected in our budget. What you saw in the first quarter, by the end of first quarter, we had all territories filled. So almost everybody there. First quarter, we were hiring some people. So you can see the second quarter spend that might be a little bit going up because some people came on board in the middle of the quarter. But we feel we have the right size, that's all reflected in our guidance for this year.

Great. On the point of guidance here, you mentioned it earlier. And so how should we think about, I guess, now that you've had a few quarters under your belt with this new -- the sales force alignment, any changes in terms of how the growth comes either sequentially, seasonally. And what should we be focusing on in terms of the launch for the remainder of the year.

So we don't give a quarterly guidance, Paul. So what we've said is our business is going to be back loaded like last year, right? There is no -- that's kind of how the trajectory of the business is -- and all that kind of business, but it's going to be a trajectory, how sales force is executing. We feel very comfortable about where we are in terms of the trajectory of the business and how each quarter is going to perform.

And one of the hallmarks of our business, our business is remarkably predictable is you've got patients who are on therapy on a long-term basis, the refill volume is consistent. So a significant portion of our business each quarter is a carryover from quarters. And then it's really incremental new patient starts that we're driving, which is why one of the -- on our earnings call recently, we started talking about NBRx numbers because looking at the NBRx penetration in GI offices is a predictor of what our future TRx volume is going to be. One of the interesting characteristics in that regard is we look at the PPI volume in gastroenterology as a proxy for our core target market. The patients who, in primary care are being referred to gastroenterology with gastroesophageal reflux are typically being referred because they're in pain.

So patient goes to their primary care physician, if you get on a PPI and you're fine, there's no reason to have another conversation. If you're having another conversation, it's because you're still having heartburn, you're being referred to the GI for the assessment, that GERD patient in the GI practice is generally refractory to PPIs. That's our opportunity. There are about 20 million prescriptions per year for PPIs out of gastroenterology practices. If we can convert 4 million to 6 million of those 20% to 30% of that 20 million prescription volume, that would represent about $1 billion in revenue per year coming out of GI practices. We are already at that 30% level not in terms of TRxs, but in terms of NBRxs within our top 3,000 accounts.

Now obviously, we need to get to that level within the broader universe of 16,000 gastroenterologists plus the APPs that are in their practices, but we're already there for the top 3,000. If we can get to that depth of penetration throughout the GI community, then over the next 3, 4 years, the TRx number trends toward the NBRx number. So if you're converting that number of new-to-brand prescriptions or new-to-brand patients, the TRx volume is going to grow in those practices.

You've thrown out some metrics here, but maybe one, I think investors focus on is the mix of cash pay versus covered scripts. Can you tell us how that's evolved in recent quarters? And another metric, I think you've also talked about is the new-to-brand share that's been growing, and you said you're in the 30% vicinity in your sort of key targeted accounts. And how does that look in terms of your current prescriber mix versus repeat prescribers?

Do you want to take the TRx?

Yes. So Paul, I think this is the -- obviously, the question is important from an investor and modeling perspective. I think our job is to maximize the prescription, right, into patients coming in, they need to get. And then the second part of that is we need to optimize to make sure the covered prescriptions covered patients who have the insurance get into the covered and the cash patient get into the cash. So our job is to maximize. So far, what we've seen, about a 1/3 of our business comes into cash, right? 2/3 is the covered script. And that trend continued. It goes up a little bit in the first quarter because of the deductible reset and the insurance plan changes, but I expect that to be in the range.

And the good news there is, as the entire business is growing so will cash in absolute number and the covered percentage shouldn't change a lot. And that's kind of what our strategy is not to reduce one and to increase the other, optimize where is -- what's the best way for patient and for us.

Great. Right. And then on the new-to-brand versus repeat prescriber mix, how has that changed over time, Steve?

So we've not seen the relative percentages change dramatically, but you will gradually see a growing base of patients who are getting refills. So the basic premise for our growth path is every quarter we're going to be adding new patients in terms of new-to-brand conversions, but building on an ever larger base of core patients who are receiving VOQUEZNA, who are pleased with the product. And I would expect that, that refill base just continues to grow over time. And then as you get to $1 billion in revenue, you've got a significant population of patients who are just chronically on therapy. And so we're going to see that continue to grow.

One of the things that is important in terms of the mix of cash versus covered patients is just as investors are looking at our IQVIA numbers, the IQVIA numbers really are a good proxy for those covered scripts. Cash scripts don't show up, the cash scripts through Blink don't show up in the IQV numbers, those are on top of that. But we do see both grow. And that actually serves a really important function and actually there are several really important functions. I mean first, as a health care company, our goal is to treat as many patients as possible and be a service to as many patients as possible. And so if a patient has insurance coverage, whether it's on a commercial plan or on a Medicare Part D plan that covers VOQUEZNA we want to get that script covered.

And that is economically the driver of our business in terms of the revenue driver. The cash business doesn't drive our core economics, but we want to make the product accessible to patients who don't have coverage or his insurance plan doesn't cover it. So first thing is just from a health care perspective, we want to offer it to those cash pay patients. But there are 2 other advantages to offering that cash pay alternative. And one of the reasons that we want to continue growing the total number of patients, both covered and cash that are receiving the product. One is the offering of the cash pay program to physicians imparts confidence to the physicians that their patient is going to get access to the product. If they send the script to Blink, if it gets covered, the patient is going to get typically a $25 co-pay. If it doesn't get covered, they're going to be offered the cash pay price. But either way, a very high percentage of patients whose script gets sent to Blink will get the product. So a physician can prescribe VOQUEZNA with confidence that their patient is going to get the product.

That becomes a core part of our conversation with every gastroenterologist that you can you can prescribe this product with confidence your patient is going to get it. The other advantage that comes all of those patients, whether they're covered or cash, who get converted within the GI practice. Those patients are going to go back to their primary care physician and request the refill. That is part of our long-term strategy. We think that there's an opportunity to generate $1 billion of revenue out of the GI practices that 20 million scripts we were talking about earlier. There's another $1 billion of potential revenue that we can get in primary care.

And one of the keys to unlocking that potential is all of those patients are being converted in GI going back to primary care, requesting a refill, educating the primary care physician around VOQUEZNA, that's going to be happening over the next 1 or 2 or 3 years, we're building that awareness within primary care, and that's going to lay the groundwork for our sales organization to then go into those primary care offices after 3, 4, 5 patients have spoken with the primary care physician about VOQUEZNA, is just a much easier sales call at that point in time where the physician already knows the drug, knows that they can prescribe the drug, knows what the patient response has been just how much better their patients feel and knows that the product gets covered.

Once a physician has had that experience of prescribing it 4, 5, 6 times, the ability to then talk to them about prescribing it much more frequently is a much higher ROI sales call.

Steve earlier, you talked about increasing comfort with the clinical data and then more recently, making the experience frictionless for people in the practice to get a prescription approved or dispensed ultimately. But sort of curious now that these trends have been developing. Can you comment on any changes in prescriber behavior, how more likely is the prescriber to go reach his pad for a script or I guess, more in this day and age an EMR for writing a VOQUEZNA script based on these actions you've been pursuing here.

So it's partly based upon our actions and partly based upon their own experience and their own feedback from patients. So one of the ways of sort of understanding the trends is to look at some of our earliest adopters. So if we look at some of the physicians who had adopted this product first and look at their prescribing pattern, the proxy for that is we look at our top 300 prescribers and sort of what's happened to their prescribing volume over time, every quarter, every quarter, we see their total prescriptions rising consistently. Obviously, there's a little bit of variability from quarter-to-quarter, but the long-term trends are very clear that their TRxs are growing and their NBRxs are growing. So even if we see a flat quarter in Q1 because of the seasonality, you still see NBRxs going up. And in fact, those early adopters, those 300 physicians are now at a point where nearly 1 out of every 2 new to brand switches, if they're switching acid suppression strategy.

So they have a patient coming to them who's on a PPI or maybe on double dose or even double dose BID PPIs, and it's still not getting adequate relief or not healing their erosions, 1 of 2 times that they're switching their acid suppression strategy, they're switching to VOQUEZNA. That is a fundamental shift from where they were 2 years ago. Again, we just launched 2 years ago. So we're just less than 2.5 years into the launch. And what we're seeing is significant growth in that prescribing behavior. So that's a fundamental behavior change that's happened gradually over time that comes partly out of repetition of sales calls, being in there often frequently having conversations.

First, about their most severe erosive esophagitis patients then broadening to all of their erosive esophagitis patients then talking about the patients maybe with non-erosive reflux who are still having significant heartburn or having nighttime reflux broadening the population of patients where they can use the product. So there's multiple sales calls drive that penetration, confidence that they can get the product covered drives that penetration, feedback from their patients drive that penetration.

As they hear from patients how much better they feel, and this is one of the hallmarks of this category, VOQUEZNA enables patients who are significantly in pain to feel relief very quickly. That feedback becomes reinforcing for the physician, why is it worth the effort to prescribe a branded drug rather than prescribing a simple generic because your patient feels better. All of those things are synergistic. The multiple sales calls, the confidence and access, the confidence that comes from seeing in a scope the erosion healing, the confidence that comes from your patients telling you how much better they feel that confluence of multiple reinforcing variables is how a physician grows their utilization over time.

And that's one of the -- if you look at our top users, it's taken 2 years to get to this volume in their practice. Now there are many more physicians that we've converted over the past 6 months it's going to take 1 or 2 years for them to grow their utilization, but that utilization pattern and that penetration is going to grow over time through the multiple reinforcing factors that we're describing.

You talked about longer-term growth from your top 300 prescribers. Can you maybe update us on where you are in terms of penetrating your sort of top few deciles, where are you in sort of that pyramid of target prescribers ultimately? And where do you think you might be exiting in '26?

So we don't provide generally the granularity by decile. The way we've described it that might be helpful in this regard if our top 300 GI prescribers about -- in Q1, about 45% of their new-to-brand conversions for acid suppression strategies were to VOQUEZNA. So almost 1 out of 2. Our top 3,000 prescribers, that's a meaningful portion of the GI community, we are at about 30% of their new-to-brand conversions are to VOQUEZNA. Now that's not true for the entire population of gastroenterologists. We've got about 16,000 gastroenterology writers, that is either gastroenterologists or the APPs in their practice. So we are 2/3 penetrated in the entire GI community in terms of first writing, we are highly penetrated in the top 3,000 in terms of percentage of their practice.

What we need to do is get all 16,000 up to that 30% of new prescriptions are going to VOQUEZNA and continue converting the remainder of the GI prescribers. If we're able to do that in terms of new-to-brand conversions, over time, their total prescription for their TRx volume will start to approach their NBRx conversion volume. It doesn't happen immediately. It takes 2, 3 years for that conversion to happen. But again, the target of getting to $1 billion in revenue or out of GI is converting 20% to 30% of that 20 million prescriber volume, we take significant encouragement as an early signal that we're already at the 30% level in terms of NBRx penetration in several thousand accounts.

Great. I want to touch a little bit on sort of patient behavior here. And what's sort of -- first, stickiness are you seeing in terms of patients staying on VOQUEZNA, particularly after they get symptomatic relief, are they sort of understanding that this can be a maintenance drug that may or may not be chronically dosed. And then I'm also curious, are you seeing patients asking for this or using it in frontline use, whether it's through cash pay or potentially through paid scripts? Just sort of curious sort of what sort of frontline utilization you've been seeing?

So we are -- so I'll take the second half of that first. We're not yet seeing this being a first-line therapy. Again, partly, that's because we are primarily focused on the gastroenterology call and partly it's because of our market access structure. So to get coverage, to get insurance coverage for this product, virtually every patient needs to go through a step edit of having had a prior PPI use. So physicians will normally start a patient on a PPI. And then only if they are failing on a PPI will they switch to VOQUEZNA. The other contributing factor to that is PPIs have been ubiquitous for the last 30 years. The drugs have been around forever. You can walk into a CVS and buy omeprazole and so there are very few patients who talk to gastroenterologists. It is the rare patient that they see this PPI naive. Everybody has tried. So this is really a second-line therapy to patients who are refractory to PPIs. In terms of the broader adoption patterns, we're seeing very significant uptake. I apologize. What was the first part of the question.

Patient stickiness -- persistence. Yes. So we looked at the cohort of patients carefully to look at the persistence curve. This was a cohort of patients converted in 2024, looked at 12 months of utilization. We saw north of 6 refills during that 12-month period, which is a good starting point. Now there may be several reasons that a patient may stop therapy even if they want to stay on therapy. They might have a high deductible plan. They hit the January resets. Their co-pay goes up and they may take a gap for some period of time before they finish their deductible and restart therapy. So the way the persistence curves work if you have a gap of 60 days or longer than you're counted as having halted therapy.

We did, in fact, see that an additional significant percentage of patients who officially halted for 60 days, restarted therapy. So any patient who stops VOQUEZNA, goes back to their PPI. If they were experiencing heartburn when they're on their PPI, they start to experience heartburn again, they're going to come back and start using VOQUEZNA again. But we're seeing very good persistent -- on VOQUEZNA.

Patient's interview anecdotal evidence suggests a very, very high degree of satisfaction from patients and doctors about the drug -- to take an immediate effect and relief, and that's what we hear all across.

Yes. And in terms of physician satisfaction with the product, I was traveling with one of our sales reps last week who walked into a physician's office, we spoke with the lead nurse practitioner in the practice because often, the gastroenterologists will do the scoping and then the patients will come back and see either the physician's assistant or the nurse practitioner to get their care plan for -- if they have erosive esophagitis, how [indiscernible] erosions, this is what therapy we're recommending. So the nurse practitioners and the PAs are prescribing high volumes of VOQUEZNA. And one of the questions that I asked her was, what's your experience been with VOQUEZNA? What do you do if a patient fails on VOQUEZNA. She just looked at me dumbfounded, said, I've never had a patient fail on VOQUEZNA. That's the level of satisfaction that they get is this product raises pH in the stomach, to a degree that the satisfaction level of the patients who are on this therapy is enormously high.

Patients feel better, their clinicians hear from them that they feel better on this drug and the satisfaction level of this therapy is extraordinary.

Great. I want to turn to life cycle management. And one of the areas Phathom is focused on is exploring vonoprazan and EOE and can you maybe update us on the status of your Phase II study? And my second question on this is can you walk us through the clinical rationale of sequencing a PCAB potentially post a PPI, but prior to a biologic in terms of utilizing a PCAB in this population.

So the standard of care today for EOE, as you were alluding to in the question, standard of care today is the first-line therapy is acid suppression. So first-line therapy for most DRE patients is that you put them on a PPI. PPIs have never actually been tested for EOE. That's an off-label use of PPIs but has become commonplace in the GI community because there is a volume of data, mostly case studies that have shown that acid suppression therapy can reduce eosinophil counts. That's the underlying premise for our Phase II trial is the body of data regarding both PPIs and significant case reports that have come out of Japan. Obviously, VOQUEZNA was first introduced, vonoprazan was first introduced in Japan.

So there are several case reports that have come out of Japan that have shown reduction of eosinophil counts with the application of vonoprazan, the API VOQUEZNA to EOE patient. That body of data drove the design of our Phase II trial. We're currently conducting that Phase II trial, which will be the first well-controlled study of an acid suppression strategy in the EOE. If the study is successful, we would expect to have a conversation with FDA about doing a Phase III trial. And ultimately, if approved, we believe that this may commonly be used as first-line therapy for EOE patients because, in fact, PPIs aren't on label for. So if you have an on-label acid suppression therapy would demonstrated clinical benefit as a clinician, you would want to use the therapy that has demonstrated clinical benefit because you know the magnitude of effect that you can expect.

And so I'm not actually sure that it would follow the pattern that you're describing where PPIs are used first, it is very possible that VOQUEZNA actually would be used as first-line therapy. It's also a much more cost-effective therapy than the oral steroid therapies or DUPIXENT, which is obviously a significantly much more expensive treatment for the EOE patients. So it's much more cost effective to use VOQUEZNA as a first-line therapy. That represents a meaningful market opportunity and grows our revenue potentially in EoE. The other significant value proposition for our shareholders in the context of doing the EOE program is the potential to extend our exclusivity so this is part of our LOE strategy. If we demonstrate benefit in the Phase II trial, we would expect to have a conversation with FDA in order to get a written request that we include adolescent patients in the Phase III program.

With that written request, if we can invest that Phase III trial, along with completing all of our other pediatric requirements, we would qualify for a 6-month extension of our exclusivity period. And obviously, if we think this product can get to a $2 billion revenue level, we think, again, we can do $1 billion in GI and potentially another $1 billion in primary care, if this product potentially is $2 billion in revenue, adding 6 months is adding $1 billion of revenue, adding significant value for our shareholders.

Great. And can you maybe remind us when this Phase II study might potentially read out or top line?

So we expect that we'll have that data by Q4 of this year or Q1 of next year.

Great. Maybe in our closing minute here, I'll talk a little bit about your rate of investment going forward. How much of your Phase II program and EOE, potential pivotal trial is sort of in the plan already and funded for as you think about both growing the top line and transitioning to operating profitability and positive cash flow over the coming years.

Yes. They are fully funded EOE trial and that we have this year and anything else we want to do. We've talked about that we are considering an on-demand study as well. We haven't made a decision, but that's all included in our thinking, and that's when we say we're going to be turning operating profit second half of the year and then cash flow that's all part of that equation.

Great. Well, we're coming up on time. So Steven, Sanjeev thanks for joining us, and thanks for Phathom for participating.

Paul, thanks so much.

Thank you.

Hello, and welcome to the Phathom Pharmaceuticals First Quarter 2026 Earnings Results Call. [Operator Instructions]

Please be advised that today's call is being recorded. With that, I would like to turn the call over to Eric Sciorilli, Phathom's Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom's first quarter 2026 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Sanjeev Narula, our Chief Financial and Business Officer.

A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website.

Further, the recording of today's webcast and the slides we'll be reviewing can also be found on our corporate website under the Events and Presentations section.

Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom's control.

Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices for Phathom's common stock.

A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date, and Phathom disclaims any obligation to update these statements.

Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes noncash stock-based compensation.

As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release.

With that, I will now turn the call over to Steve Basta, Phathom's President and CEO, to kick us off. Steve?

Thank you, Eric, and thank you, everyone, for joining our call this morning. Let me start with a few highlights and a bit of perspective on the quarter.

We more than doubled revenue from Q1 2025 to Q1 2026. We believe we're on track to potentially achieving $1 billion in annual revenue from gastroenterology prescriptions with the potential for a second $1 billion from primary care prescriptions as patients cycle back to share their VOQUEZNA experience with their PCP and we evolve our sales and marketing focus to include this segment in the future.

In 2025, we set our strategy to focus on building toward that first $1 billion target in GI. We're executing that strategy. In Q1 of this year, we expanded our sales team with nearly 50 new sales representatives trained and deployed into the field in recent months.

Our sales force alignment to enable high-frequency calls on gastroenterologists is complete. We have more than 290 reps in place to start Q2.

In parallel, we're rolling out enhanced HCP marketing programs with several initiatives in the works to support the sales team. Our primary sales and marketing focus is on increasing depth of writing among gastroenterologists and associated providers. We're encouraged by the impact we're already having.

There are approximately 20 million PPI prescriptions written annually from gastroenterology HCPs. And we believe that 20% to 30% market share among this group should get us to the first $1 billion in annual revenue. We previously discussed that as we look at our top 300 gastroenterology writers, they are already averaging about 20% TRx share compared to PPIs.

Importantly, when we look at new-to-brand or NBRx writing among these early adopters, our market share is even stronger.

In Q1, VOQUEZNA achieved approximately 45% NBRx market share compared to PPIs among this group of 300 writers. This means that our top 300 gastroenterology writers were selecting VOQUEZNA for their patients nearly 1 out of every 2 times as they switch their patient therapy to a new product.

In fact, even as you look as deep as our top 3,000 gastroenterology writers in Q1, cumulative NBRx or new-to-brand prescription market share remains north of 30% in that population of physician writers compared to PPIs.

We believe new-to-brand conversions drive future TRx growth as we expect that many of these patients who are converted to VOQUEZNA will elect to remain on VOQUEZNA.

While Q1 TRx numbers showed expected seasonality, the underlying trends in prescribing behaviors and particularly new-to-brand switching to VOQUEZNA reinforce our view that our strategy of going deeper in gastroenterology is starting to show early positive indicators. We've transitioned the strategy and profile of this business and we believe the effects of those changes are still getting underway.

I'd like to briefly discuss key financial highlights for the quarter and then Sanjeev will provide further commentary during his portion of the call with more detail.

Net revenues were $58.3 million for Q1 compared to $28.5 million for the same quarter last year. We believe we're seeing similar early year revenue patterns compared to last year with late March and early April prescription trends indicating the growth going into Q2. We are thus maintaining our revenue guidance for the year.

Cash operating expenses, excluding stock-based compensation, were $56.2 million for Q1. Our team continues to exercise fiscal discipline in our operations. And lastly, our net cash usage for Q1 operations was approximately $15 million.

A few quick notes on commercial metrics for Q1. Through April 17, about 1.35 million VOQUEZNA prescriptions have been filled. Covered prescriptions increased about 5% during the most recent 4-week period compared to the prior 4-week period, signaling that growth that I previously described in recent weeks going into Q2.

Of the approximately 268,000 prescriptions that were filled in Q1, about 168,000 were covered prescriptions, representing approximately 63% of the total, while about 100,000 were filled with cash pay.

The incremental IQVIA reporting gap mentioned on our previous call was resolved by mid-March and the TRx numbers we are reporting today include the prescriptions that IQVIA has not captured.

On a year-over-year basis, covered prescriptions grew about 91% and total prescriptions filled grew about 115%. The higher growth in total prescriptions reflects the impact of introducing the cash pay option for Medicare patients as of April 2025.

Weekly TRx in March approached the previous December highs. And now as we begin Q2, we've seen 2 of the first 3 weeks in April reach new all-time prescription highs for covered prescriptions.

I mentioned earlier that we view NBRx prescription growth as an early indicator of how our strategy is playing out. We believe NBRx writing is the leading signal for our growing patient base as it represents a patient being switched to VOQUEZNA prescriptions for the first time.

Ultimately, many of these new-to-brand prescriptions progress to consistent refill prescriptions in future quarters, thus driving growth. In Q1, we saw covered NBRx grow approximately 11% over Q4 of 2025, signaling that we are continuing to see a solid rate of new patient starts on VOQUEZNA.

The proportion of NBRx being written by gastroenterologists versus other specialties has increased over the last few quarters, indicating the early effect of our strategy focus on gastroenterology. Introducing more new patients with GERD VOQUEZNA is the first step to drive durable growth. Persistent refills for these patients then contribute to growth in future quarters.

Among the cohort of patients that started VOQUEZNA in 2024, we saw an average of approximately 6 bottles worth of VOQUEZNA dispensed over a subsequent 12-month period. One note on this analysis is that the analysis may actually understate persistence to some degree as an additional 18% of the patients who had stopped VOQUEZNA through that analysis actually restarted therapy within 12 months of their original prescription.

Lastly, we've recently been hearing questions from investors about a possible new P-CAB entrant into the U.S. market. Internally, we're preparing for a potential second P-CAB approval in the U.S. in 2027.

Last week, 2 Tegoprazan abstracts related to the erosive esophagitis Phase III trial for this product were released ahead of this year's DDW conference, where the data will be presented next week.

The abstracts provide a preliminary summary of the data. As anticipated, the Tegoprazan results support the effectiveness of P-CABS as a class. While cross-trial comparisons have inherent limitations and the studies were not a head-to-head evaluation, it may be helpful to our investors to note that in our VOQUEZNA Phase III erosive esophagitis trial, approximately 93% of patients in all categories of erosive esophagitis achieved healing of their erosions by 8 weeks.

In the separate recently reported Tegoprazan study, approximately 85% of patients in all categories of erosive esophagitis achieved healing of their erosions by 8 weeks. We continue to feel confident in VOQUEZNA's robust clinical data profile and are executing our commercial strategy in the current market.

Overall, we remain confident in our outlook for 2026. Our foundation is strong. The sales force is implementing our gastroenterology-focused strategy and new patients continue to start therapy. We are fully in execution mode as we continue to work to drive TRx and sales growth.

I'll now turn the call over to Sanjeev to take you through our financial updates.

Thank you, Steve, and hello, everyone. We have a lot to cover, so let's jump right into our Q1 results. Revenues for quarter 1 were $58.3 million, reflecting year-on-year growth of 104% and a sequential growth of 1% over Q4 2025.

Our Q1 2026 revenue was somewhat light compared to our internal expectation due to market access seasonality and other factors like winter storm and deployment timing of new sales force team members. However, with recent weekly prescriptions demonstrating growth relative to early Q1 and our expanded sales force in place, we remain confident in our outlook for VOQUEZNA in 2026.

Our gross to net discount for Q1 came in at the lower end of our 55% to 59% guidance range because of channel mix for [ Cordis ] prescription. Our gross margin was in line with our guidance at approximately 80% for quarter 1.

As described during last quarter's call, this now reflects certain third-party fulfillment costs being accounted for as cost of goods sold instead of gross to net adjustments.

Q1 cash operating expenses were about $56.2 million, reflecting continued disciplined expense management. The sequential step-up was anticipated and tied to 3 main drivers: expansion of our sales force, our annual national sales meeting in February and the ramp-up of our Phase II EoE trial.

In fact, I'm pleased to report that the EoE trial is enrolling ahead of schedule. And as a result, we are anticipating top line data by late Q4 2026 or early Q1 2027.

Importantly, we continue to demonstrate expense discipline across the organization with year-on-year cash operating expenses down about 43% compared to Q1 2025. We reported a loss from operations, excluding stock-based compensation of approximately $9.9 million.

We ended the quarter with about $181 million in cash and cash equivalent, which reflects roughly $15 million used in Q1 after netting out the flows from our equity raise and debt amendment. The increase in cash usage compared to Q4 2025 was driven by the timing of our annual corporate bonus payout and changes in the working capital due to timing of certain payments.

We anticipated these dynamics and remain confident in our path to operating profitability and cash flow positivity.

Overall, our balance sheet remains strong and as a result of our operations and the deliberate capital structure enhancement we did at the start of the year. Based on our current operating plan, we believe our cash on hand, along with the anticipated future cash generated from operations will be sufficient to invest in our business, satisfy all outstanding debt obligations at all time without the need for another debt or equity raise.

Now let me speak about our financial guidance for 2026. We're maintaining all guidance ranges and estimates provided during last quarterly call. We continue to anticipate 2026 net revenue between $320 million to $345 million.

We continue to believe our gross to net discount will be within the 55% to 59% range and gross margin will be approximately 80%. As for spend, we anticipate that cash operating expenses, excluding stock-based compensation, will be between $235 million to $255 million.

As we think about cadence, we continue to believe revenues will be more heavily weighted towards the back half of the year. We expect expenses to modestly step up in Q2, reflecting full quarter's worth of cost of the expanded sales force.

Lastly, we continue to anticipate achieving operating profitability, excluding stock-based compensation by Q3 and for full year 2026 with positive cash flow in 2027. We remain focused on executing with discipline and we feel confident in our ability to deliver on our GI focused strategy. We ended the quarter with a strong balance sheet and believe we will strengthen our financial position as revenues grow.

In summary, our priorities remain clear. First, drive efficient growth towards achieving $1 billion from GI prescriptions. Second, support strategic investments where needed while continuing to be disciplined on spend.

As we look ahead, I am encouraged by the efforts and dedication of our commercial and R&D teams. We're energized by the opportunity in front of us and we believe our internal metrics show the momentum is building.

With that, I will now turn the call back to Steve for his closing remarks. Steve?

Thank you, Sanjeev, for the detailed financial review. With an expanded and trained sales force executing our gastroenterology-focused strategy and continued expense discipline, we believe we have a clear path to strengthening the revenue trajectory and achieving operating profitability in the months ahead.

Thank you to our team and our investors for your continued dedication and support. We look forward to continuing to serve the patients in need of VOQUEZNA.

Operator, please open the line for Q&A.

[Operator Instructions] Our first question or comment comes from the line of Yatin Suneja from Guggenheim.

Congrats on good performance. So 2 questions for me. First one is on the competition. Steve, I think you just mentioned a little bit about how you see their product.

I'd love to understand from a market dynamic perspective, what do you expect? Like, so you are right now the only branded that is doing the heavy lifting. Should we -- do you expect the market to expand or them to take some share? Just love your articulation there.

And then maybe second for Sanjeev. I think you touched a little bit on the gross to net dynamic. So I understand, I think there was a better gross to net yield. But your guidance for 55% to 59% still stays. So is there some room there for an upside as we go into second quarter or third quarter because generally they tend to be a little bit better?

Yes. Thanks so much for both of the questions and the kind sentiments. The -- yes, as you sort of described, we are, in fact, tracking the evolution of Tegoprazan sort of as they start to build awareness.

It's awareness is at a pretty low level in the market right now because they don't have a current commercial organization. So they're in the NDA review process.

Certainly, we expect that as a second P-CAB entrant comes to market, there's a shift in sentiment from Vonoprazan or VOQUEZNA is a new product and I have to learn about a new product to now there's a new category and I have to learn about the new category and think about how to integrate this new category into my treatment.

That helps to build awareness within the gastroenterology community and generally what prior market experience for a number of products have shown is that the first mover in that space gets the lion's share of the market, but there's a growth in awareness of a category as a second entrant comes in and we're certainly optimistic in that regard.

The other thing is that as we look at the data, there's just no compelling reason for anyone to switch a patient from VOQUEZNA to -- from Vonoprazan to Tegoprazan. The data doesn't suggest that the patient is going to do better. And so we think that the market share that we've won and the presence in the market that we've won is really quite solid.

We are going to be continuing to grow our presence in the market. We've got very strong market share among several thousand gastroenterologists and that expands every month as the sales force spends more time. So we've got at least another year to be building that depth of awareness and building the habit among gastroenterologists around prescribing VOQUEZNA. I think that all positions us very nicely. And we think growing awareness of this category will just help build it.

Yes. And Yatin, on your question about gross to net. As we said in our prepared remarks, it came in at the lower end of our guidance and the guidance at 55% to 59%. I think what happens in our business or any business, there is a channel mix that go on quarter-to-quarter and that could change the gross to net percentage.

And in first quarter, we see a higher proportion of cash scripts. And what that does is that drives gross to net to be a little lower because cash scripts don't have any gross to net item.

So I don't expect us to deviate from our range, but it's going to be within the range. And every quarter could be different because of different dynamics that are going on. But for the full year, that's how we're maintaining our gross to net range at 55% to 59%.

Our next question or comment comes from the line of Umer Raffat from Evercore ISI.

I wanted to touch up just broadly on your observations commercially with the readjusted commercial focus and what the feedback is and how much of a follow-through you guys are continuing to expect with the turnaround we're seeing on IMS already?

And secondly, as we think about sort of the path for the company forward in terms of heading towards sort of better than breakeven, et cetera, would it -- what are the priorities from a potential M&A perspective? And I'm not talking large deals. I'm just saying to enable the OpEx to be levered across a larger sales base in the areas you're already operating in?

Thanks so much for both of the questions. So thinking about first, the commercial focus and what we're seeing, we are feeling and hearing from the field the same kinds of things that you can see in the IQVIA or the IMS numbers in recent weeks and that is there is growing activity, growing momentum in the adoption pattern.

We've got territories regularly seeing all-time highs in terms of the new prescription volume that is happening. And one of the reasons that we spent a little bit of time today talking about NBRx trends rather than just TRx trends because the easy thing to look at from IQVIA numbers is sort of look at the TRx trend.

But what we think about as a forward indicator of that commercial momentum is how effectively are we converting new patients because those new patient starts are really where we can have an impact. When a sales rep is in an office working with the gastroenterologists about thinking about what kinds of patients are appropriate for VOQUEZNA, they're not changing the established base of patients that are already getting PPIs under the office. The only patients they can switch are the patients that they're seeing in the office at that time.

So that's really the new-to-brand volume and that's where we move the needle first and then that foretells the future momentum. So we expect that the momentum on new-to-brand conversions predicts that we're going to have continued momentum on TRx growth and that should show up in the future quarters.

And we're quite enthusiastic about that feedback and that dynamic in all of our conversations with physicians and with our field personnel. And our field team is feeling pretty solid about that.

And then sort of path forward in terms of M&A priorities and the kinds of things. There's not urgency for us to bring a second thing in. We are starting outreach to identify other GI assets that would be complementary to bring into our sales force.

And those could be commercial products or they could be Phase II or Phase III products that we could launch before our LOE date, 2033 or 2034. So we've got a few years to identify those assets and bring them in.

There's not a great urgency to do so right now because, quite honestly, I don't want to distract the field. Our team is focused on conversations around VOQUEZNA with accounts and there is still a lot of education and market depth to build in terms of all of those conversations. So we're starting to evaluate those programs. There's nothing imminent, but we are looking at really interesting things and also looking at new applications for VOQUEZNA.

We're doing the EoE Phase II trial. We've been evaluating the potential to look at as-needed dosing of VOQUEZNA. There's lots of interesting talk around potential synergy of using VOQUEZNA when patients are on GLP-1s associated with the GERD that arises in the context of GLP-1 use.

There are a number of really interesting opportunities that could be expansion opportunities for us just within the VOQUEZNA opportunity set.

And Umer, just to look at the cash flow opportunity in the company, as you pointed out, with the strategy in place and the -- us generating the positive cash flow next year and the cap structure we enhanced at the beginning of the year, I think that gives us the flexibility to meet, obviously, our obligation, but we'll have the flexibility of additional cash to invest as we expand VOQUEZNA potentially in a couple of years, maybe to primary care and maybe combine that with the DTC.

So we'll have the resources and the cash flow to be able to do that. So we feel pretty good about what the trajectory is and we're going to take best use of the opportunity.

Our next question or comment comes from the line of Kristen Kluska from Cantor Fitzgerald.

Congrats, everybody, on all the great growth you've seen, especially when looking at the trends from last year. So as the breadth and depth of your GI interactions are increasing, how are physicians understanding in a real-world scenario, the additive benefits of VOQUEZNA?

And how do these measures and the patient feedback they get then translate to them potentially recommending the product to other patients they have?

So Kristen, thank you. And thanks for the context on both physician understanding and the importance of patient awareness and patient advocacy because both become really important components in how this product grows.

What we're seeing is as we have time in the market, I mean, we're now a couple of years into the launch and so the physicians who have adopted VOQUEZNA as a meaningful part of their practice are having the opportunity to get feedback from patients about the significant improvement that VOQUEZNA provides.

And it's interesting, we just did a round of market research where we were doing interviews with a significant number of physicians and a significant number of patients. And one of the interesting findings from that research was -- and often there are clinical trials and you see a clinical outcome and then the physician doesn't really know whether or not they can measure that clinical outcome.

That's not the case here. The case here is what we see in our clinical trials, which is better outcomes with VOQUEZNA, certainly in erosive esophagitis patients, but also significant alleviation of pain and sort of an increase in the heartburn-free experience for patients with non-erosive reflux, physicians are seeing that from their patients.

They are hearing from their patients how much better they feel. And every one of those feedback points, every time a physician talks to a patient who then comes back and says, "Doc, I've not felt this good in years," that conversation is a reinforcing conversation that cements in the mind of the physician, this really is a transformative experience for my patients.

And that's part of what drives growth. So part of what drives growth is our sales and marketing activities and the time spent in the office educating the physicians, but a large part of what drives growth is physician experience and feedback from their patients that then causes them to want to prescribe it in more patients.

The other thing that happens is not only do patients understand the benefit and have that conversation with their physician, but this becomes the passage to our future expansion back into primary care. Those same patients who are telling their gastroenterologists how much better they feel are going to go back to their primary care physician for their annual physical next year.

They're going to be having exactly that conversation with their primary care physician who referred them to the GI. And it's going to naturally ask how did that go? How are you feeling? Are you still having the pain that you're experiencing? That conversation leads to an education of the primary care community and positions us in future years to expand meaningfully in primary care and positions us for possible future initiatives to broaden the outreach.

Okay. And as the database for patients that have been treated with VOQUEZNA continues to increase, particularly maybe some more severe patients as you do more work with GIs, are you collecting any -- again, not -- understanding this is in a clinical trial setting, but are you collecting any anecdotes to give you any clues as to where this therapy could potentially be studied for in the future?

And then if you were to expand into other indications in the future, are there ways to also strengthen the IP around those opportunities as well?

So absolutely, we are learning from physicians about the breadth of use. And again, in the context of some of the recent market research, we're starting to evaluate this. So we're starting to look at a number of different indications.

How would physicians think about using a product on an as-needed basis on a long-term basis for patients who may not require daily therapy, but PPIs can't really be used that way. So that becomes an opportunity to switch a different population of patients and grow utilization.

I mentioned earlier to one of the questions that there is an increasing prevalence of gastroesophageal reflux symptom severity in patients who are on GLP-1s. That becomes an increasing prevalence conversation.

I've been having a series of dinner conversations with gastroenterologists in recent weeks and it's come up several times that they are now starting to see patients who they're having to have conversations with them about whether or not to titrate their GLP-1s because of the side effect profile of the reflux and the heartburn that they're experiencing and patients really don't want to reduce their GLP-1s if they're losing weight, but they're having significant GERD. So that becomes a significant opportunity.

Certainly, in patients who are having severe consequences and a lot of patients with erosive esophagitis, they may progress to Barrett's and progress to having the risk of esophageal cancer and there are a number of potential sort of broadening thoughts that physicians have around how do I consider what patients I'm using this product for those conversations are evolving as we are learning about the breadth of use that physicians want to have.

Oh, and then your other question was on potential IP. I apologize, I didn't touch that. I'm going to probably just pass on answering questions about what potential IP we might have around what future products or indications. We'll evaluate that as we get there.

Our next question or comment comes from the line of Paul Choi from Goldman Sachs.

Congrats on the good quarter. To the degree you guys have insight from either the prescription data or physician feedback, can you maybe help us understand or break down how much of the incremental prescription growth is driven by NERD versus GERD? That would be very helpful for clarification.

And my second question is, as you think about the potential entrance of a second P-CAB into the category, over the intermediate term, do you envision the category becoming more managed? And if that is the case, do you think PPIs would be an appropriate analog here given that the category eventually had multiple entrants?

So, Paul, thanks for the questions. And in terms of the relative use, so we don't always have visibility on the underlying diagnosis that drove the specific prescription for every one of our TRxs, whether it's a NERD patient or an EE patient or a half EE patient because you may have a patient that had erosive esophagitis and now is having symptoms again, may not have erosions, but the physician is concerned that they might get erosions. So there are patients that sort of cross over between the 2 categories.

What we see is generally, a gastroenterologist will start by putting their most severe patients on VOQUEZNA and then they will grow their utilization over time. So often, the starting point is the erosive esophagitis patient who has severe erosions who's failed multiple rounds of PPIs, has failed BID PPIs and there's just no other alternative, they don't have any other way to help this patient, they need to help them heal, that's the patient with which a gastroenterologist may start.

When they see success with that patient, they see that VOQUEZNA has actually enabled that patient's erosions to heal, then the conversation that our representative is having in the office is about how the physician can start using it more broadly, maybe it's to all of their Grade C and D erosive esophagitis patients.

And then as they see success in those patients, broaden it to all of your erosive esophagitis patients. And then as they're seeing success in those patients, why not broaden it to your patients that have non-erosive reflux but are still having significant pain and are still having nighttime heart burn, not able to sleep or not able to tolerate certain foods.

And so there is a natural evolution in a physician's adoption that starts from the more severe patients to the less severe patients, starts with erosive esophagitis and then moves to non-erosive reflux. That's just the natural cadence with which a gastroenterologist tends to adopt this product.

And so we see that evolution. There's some skew probably toward more erosive esophagitis patients in the early adoption years and we continue to see those patients being converted, but then expand into non-erosive reflux patients.

And then in terms of how the market evolves with a second P-CAB entrant, I mean, there are so many examples where there has been a category where multiple entrants came in over the course of time and the category continued to grow substantially, we would -- as I commented earlier, I think we just expect to see the category of P-CAB adoption grow as physicians become ever more familiar with this mechanism, ever more familiar with the efficacy of these products.

And we have a product with really terrific outcomes in which physicians have really significant confidence.

Our next question or comment comes from the line of Joseph Stringer from Needham & Company.

Just a follow-up on a previous answer you gave on the primary care setting. I know this is part of your future expansion plans. But just curious if you have any early quantitative metrics on the patients that cycle from primary care through a specialist back to primary care, for example, what's the recapture rate from the initial patient referral, those patients coming back to the PCP?

And how is that evolving over time? Presumably, that's already occurring to some extent, but just curious if you had any early color here or commentary, that would be helpful.

Joseph, thanks for the question. I think that's going to be a really important element for us to track and evolve in our understanding over the next couple of years.

It's not one where we have significant metrics yet because we're still in early days. We've made the GI pivot just about 12 months ago. And so with that GI pivot a year ago, we haven't had enough time for a significant number of those patients to make it back to their primary care physician to then start getting scripts in their primary care physician.

Anecdotally, I would tell you, it was interesting one of the observations from our analytics team is that we are starting to see primary care physicians writing scripts for VOQUEZNA whom we've never called on. That's an indication of exactly that pattern.

What we're seeing -- the only way that a physician we've never called on is writing a script for VOQUEZNA is a patient came back to them and asked for it. And that's exactly the pattern that we want to see. But as to the breadth of those metrics and exactly how we track that, it's still early days and we don't have all of those worked out.

Our next question or comment comes from the line of Annabel Samimy from Stifel.

So wondering if there's anything that you can share about the dynamics between the cash pay and the covered patients. Do you see any increasing usage of the cash pay market as you're moving into more Medicare populations?

And then separately, I guess it's great to see the EoE trial enrolling so quickly. Is that an indication that there could be bigger demand than off-label PPIs would suggest? Can you just give us a little color around what's driving that?

So on the dynamics for cash pay versus covered, I'll start and then, Sanjeev, if you have additional insights, feel free to jump in on this. But we saw a little bit of a bump up in the percentage of patients who received a script on a cash basis rather than a covered basis in Q1.

We fully expect that every Q1 because there will be patients who with their health plan resets are going to have a high deductible plan and where they had coverage with a low co-pay. Our co-pay buy-down programs don't bring them down to a low enough price, so they would end up opting for the cash pay price.

We think that's a Q1 phenomenon. And then going forward, I would expect it to normalize more consistently with historic levels in terms of the ratio of cash pay to covered. But we don't try to manage that number precisely.

What we try to do is really maximize prescriptions and then maximize how many of those prescriptions can get coverage and that number will evolve over time. But I think there's a little bit of a Q1 bump that we experienced.

And we already -- Annabel, we're already seeing that number starting to moderate in the script data after Q1 to Steve's point. So I think that's a natural phenomenon of what happens in quarter 1.

Yes. And then for EoE, what I can describe is what we've heard from the clinical sites, but I can't really extrapolate it out to the entire market yet, but we're certainly seeing the fast enrollment of this trial reflects significant interest in a first-line therapy that doesn't have the significant burden of some of the immunologic changes that more aggressive therapies would have.

I mean, if a patient progresses to Dupilumab, for example, that's a more advanced patient and first-line treatment standard of care for many EoE patients is, in fact, today, PPI therapy. But this is the first big study of acid suppression therapy as a treatment modality in a well-controlled clinical trial.

There was a high level of interest among the physicians in the clinical trial to enroll patients, lots of enthusiasm for it. And obviously, we're enrolling ahead of schedule.

So certainly pleased with that. We haven't done enough market research on it to predict exactly how broadly that's going to suggest the market opportunity is in EoE when we commercialize it. We'll do that after we see the data from this trial as we're planning on our Phase III trial.

Our next question or comment comes from the line of Denise Ding from Jefferies.

Congrats on a great quarter. Can you talk a little bit more about the shape of gross to net throughout the year? Should we expect it to worsen towards the top end of 55% to 59% like it did last year as the percentage of cash pay comes down?

And then secondly, Steve, you've talked on a broadening category on a new P-CAB entrant, but curious on your thoughts more specifically for VOQUEZNA. How do you see a new competitor impacting the sales trajectory in 2027 and beyond? Do you expect any sort of pressure from payers that would erode price?

So on the first one, the shape of gross to net, I would stay short of making a prediction about the quarter-to-quarter number. That's the reason we give a range because as you know very well, this is entirely based on the mix of business in each quarter.

Clearly, quarter 1 gets impacted by -- a little bit by the cash scripts. But in the subsequent quarter, there are so many other dynamics that go on. So it's kind of hard to say one quarter what percentage is going to be. That's why we want to stay within the range as we did last year.

Yes. And then your second question around sort of the shape of the market in the context of a new competitor entry, I don't think we've got enough specifics yet on how the second product may come to market, what their positioning is going to be. And so it's really hard for us to predict what their market strategy is going to be and therefore, what our response will be.

What we are very confident about is the momentum that we're building within the gastroenterology community, the conviction that physicians have around this product.

I mean, again, our top 3,000 writers -- now 1 out of every 3 new patients that they are switching acid suppression therapies, they're switching them to VOQUEZNA. That's an enormous share of mind that we have with a broad population of the gastroenterology community.

And in fact, that is broadening. And we've got another year at least before second entrant comes in to be building that market share and to be building that mind share that I think will position us really well in the context of the competitive dynamic in the future.

Our next question or comment comes from the line of Mr. Matthew Caufield from H.C. Wainwright.

Are there any further insights into the weighting for revenue growth expected between first half and second half? And then additionally, are there thoughts on how we can best expect OpEx trends to continue for the year? I believe there was mention of the OpEx being up in 2Q.

Yes. So Matt, thank you for your question. So I think it's safe to say the revenue trajectory will follow similar trends as last year. I don't want to get into the percentage because if I do that, then I'm actually giving you guidance for a quarter, next quarter, which I don't want to do that.

So I think it's fair to say -- I said in my prepared remarks, it's going to be second half-weighted business, which is what happened last year and I don't see that changing this year as well. So that's number one.

Number two, on the OpEx. I think a couple of things will happen. Quarter 2, we'll see a slight bump in the expenses from quarter 1 and that's precisely for 2 reasons. One is the EoE trial is ahead of schedule and that's a good news.

So there may be a little bit more expense timing-wise in quarter 2 than we had earlier thought about. And number two is the sales force is fully in place. In quarter 1, we were still hiring and that hiring is now complete and the sales force is fully on board. That impact will also reflect in quarter 2. But that's going to be marginal. And after that, I expect our operating expenses to be more or less stable.

Our next question or comment comes from the line of Martin Auster from Raymond James.

There was some pretty interesting data about new-to-brand prescription share amongst the top 300, top 3,000 GIs. Curious if you could give us a little bit more context around that snapshot in terms of sort of how much progress has been made since the new GI-focused strategy has come in? And then if you have a sense of sort of what's a realistic ceiling for higher prescribers in terms of new-to-brand Rx?

So Martin, I mean, the growth to -- thank you for the commentary. I share your enthusiasm that the new-to-brand data actually is a really strong clarifying indicator for where we expect the business is evolving.

And it's a metric that we use internally in our forecasting and in a lot of our planning activities is how those trends are going.

What we have seen in every category of physician that we call on, whether it's a gastroenterologist or a gastroenterology APP or primary care physician or primary care physician APP as well, as we look at the new-to-brand prescription trends and one of the metrics we use is new-to-brand prescriptions per sales call, those numbers continue to go up.

They've been going up for the last 2 years. They continue to go up. On a quarter-over-quarter basis, we are driving increasing effectiveness in those categories.

And obviously, now we're focusing on GI and GI APPs as the core call point. But those haven't capped out. Those are continuing to improve and we would expect to continue to improve those over time.

And so that I don't have a clear sense for where a cap is in that process. It is encouraging that we are already at the 45% level. I don't know if it caps out at 50%, 70%, 90% of their new-to-brand prescriptions get converted.

But one of the other things that happens is as we convert more new-to-brand prescriptions and those patients stay on, the underlying TRx percentage in those offices continues to grow because more -- higher and higher percentage of their patients are already on VOQUEZNA and we're continuing to convert to new patients.

So you'll see the TRx percentage grow toward the NBRx percentage. So where right now, we've got 20% penetration in TRx volume in the top 300 accounts, we've got 45% penetration in NBRx, which suggests that we're going to be growing that 20% number toward the 45%.

The 2 may never completely match up, but one drives the other. And that's part of why we're focusing on that as a core growth metric and one of our core effectiveness and efficiency metrics in our call strategies and the call allocations.

It was really helpful incremental context and hope it's a metric you'll periodically revisit in the future with us.

Yes. I don't know that we'll do it every quarter, but we will certainly provide periodic updates.

[Operator Instructions] Our next question or comment comes from the line of Chase Knickerbocker from Craig-Hallum.

Maybe just one quick one for me. And sorry for it to be on competition again here. But Steve, I just wanted your thoughts on one thing specifically.

So the way that the potential competitor, the next P-CAB potentially or the way that study was constructed, there's a chance that there might be a couple more superiority claims at launch. So to what extent do you think that matters?

And then kind of compare and contrast to how you think the first-mover advantage that you've built up with the 1 million-plus prescriptions since launch and the clinical experience here kind of pairs that?

So I don't have complete visibility on exactly how this competitor is going to launch or what kind of sales force they're going to build. And so it's hard to predict exactly what happens in that marketplace.

But as for the data, when we look at the core data from the abstract that's available from -- or the abstracts that are available from DDW and we think about what's important to a physician, again, we were talking earlier about the natural pattern of adoption, the natural pattern of adoption for a physician considering switching patients to a better acid suppression strategy if their prior PPI strategy wasn't working, is that they start their adoption curve with their most severe patients.

And then as they see a product work, they move into a broader population of patients. What we see with our data is when you put erosive esophagitis patients on VOQUEZNA, 93% of them heal their erosions within 8 weeks. That's exactly what a physician wants to see.

Every physician who is seeing that today and every physician who sees that over the next year as they put erosive esophagitis patients on VOQUEZNA is going to see that their erosions are healing and this product clearly works and it clearly produces really good outcomes.

And they're having clear conversations with their patients about how much better they feel because their pain is substantially relieved almost immediately, literally within hours and on the first day and I'll tell you the patient, the first day that I took VOQUEZNA, I felt a whole lot better. It's just really quick how this product works.

And so what the physician experience is with VOQUEZNA is enormously satisfying and enormously positive. They see their patients heal. They see -- they hear feedback from their patients that they feel better and they grow their utilization over time.

That doesn't get disrupted at all because someone has some statistics measure in some other clinical trial when you know you've got a product that's going to produce 93% healing rates and really good outcomes for your patients. So I just don't see that having any impact in the market in any meaningful context.

I'm showing no additional questions in the queue at this time. At this time, I would like to thank everyone for participating. Thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.

All right. I think we're ready to go. Welcome to the last presentation of the day at the Barclays Miami Healthcare Conference. My name is Jenna Davidner. I'm one of the analysts on the specialty pharmaceuticals team here. And on the stage with me, I have Phathom Pharmaceuticals and representing the company is the CEO, Steve Basta; and the CFO, Sanjeev Narula. Thank you both for joining us.

Jenna, thanks for the invitation.

So let's start. There's a lot of things that has happened at the company over the past couple of years. And specifically, both of you are very new to the company. Sanjeev is even more recent. So starting with you, Steve, just talk us through what attracted you to this opportunity? And maybe when you got on board, what were some of the biggest initiatives that you undertook from day 1?

So thank you again for the invitation to join you today. I joined about a year ago, almost a year ago now. And first context of what attracted me to Phathom is this is an extraordinary product. First principles, if we're delivering a really good therapy that improves quality of life for patients, that's why we're in the health care business is to make a really big difference for patients.

And when I first looked at this and started to do a little bit of research in the gastroesophageal reflux space, what you very quickly realize is even though there have been therapies available for 30 years or more for these patients, there is still an enormous population of patients that is experiencing significant pain, significant symptoms that are inadequately treated with current therapies and the opportunity to improve care for those patients is a fundamental improvement.

And so what interested me first and foremost, was it's a great therapy that is a best-in-class treatment opportunity for patients. We can improve the lives of millions of patients. And then fundamentally, looking at the core of the business, revenue is growing really nicely. There was clear enthusiasm on the part of physicians to adopt the product.

What we needed to do was bring a little bit more financial discipline to how we were launching the product so that we could reduce spend and get to profitability sooner and create really attractive returns for our investors. which enables the success that we're having in terms of growing the product.

Awesome. So in terms of some of these cost initiatives and your commercial strategy and just the trajectory of revenue through the year since you started, just talk about what those key efforts that you did, whether on the DTC or just maybe rightsizing the infrastructure and then layering on top of that, you've been able to maintain this growth rate. And it's worth commenting that if you think about Phathom spending in the first half of the year, the run rate versus the second half of the year is materially different.

And so I just wanted to emphasize a little bit all that has gone on and yet ending the year a little bit above what even your guidance was. And so just maybe walk us through that and before we focus on the exciting things in '24.

Thank you. That's very helpful. 2025 really was a transformational year for us. When I came into the company, first thing I did was spend time with every group in the organization to understand what's working, what's not working, where are there opportunities in our business, where there are opportunities in our market and where can we find greater focus and efficiency.

What became exceedingly clear even in the first few days, particularly with every conversation that I had with our sales team, and I met with each of the regional managers, met with each of the areas together, the consistency of commentary from the field was when we call on gastroenterologists, they really need our product. They want our product.

They need it for their patients. It makes a big difference. They immediately see the logic. When we call on primary care physicians, they're slower to adopt. They're not sure whether or not their patients need an improved therapy. And so there's a greater perception of immediacy of need in the GI community. And then when you actually looked at our numbers, that was reflected in our numbers. 30% of our sales calls at launch for the first year of launch were going into gastroenterology, but 70% of our prescriptions were coming out of gastroenterology.

So we were getting, in essence, a 4x return, meaning 4x the efficiency for every sales call that was going into GI practices versus every sales call that was going into primary care. That created the opportunity for a pivot and a focus to gain much greater efficiency. So what we were able to do was pivot the organization to focus on gastroenterology. It originally had been skewed much more toward a focus on primary care. We haven't eliminated primary care, but we're now -- we're getting close to 70% of our sales calls going into gastroenterology accounts, which is our more productive segment.

Those sales calls in gastroenterologists are what drive growth. That is what is driving our business. So we maintained the strength of our sales organization. We maintained the focus on how do we grow our gastroenterology practices and their writing habits and frequency of writing, but we significantly reduced spend on numerous things that weren't driving revenue. So we had started the DTC program. It was actually a pretty broad expensive broadcast television DTC program.

It was just too early. The call to action was ask your doctor about VOQUEZNA, but most primary care physicians hadn't yet adopted the product. So we were spending a significant amount of money trying to activate patients to go to primary care physicians who didn't yet know if they needed the product. Now there will come a day when that makes sense, where in the future, there's much more broad uptake in primary care, and there is an opportunity for us to drive growth in the business, but it was premature.

So it was not providing a significant return on investment. So we were able to turn off significant spend that wasn't providing a positive ROI, double down on the key activity that was driving growth, and that's how we were able to deliver growth that exceeded even our internal plan and do so while cutting operating expenses by quite literally 50%. From the first half of the year to the second half of the year, we reduced operating expenses by 50% on a quarterly basis.

And in terms of kind of improving different aspects of the company, I wanted to turn this one to Sanjeev. And Sanjeev joined even more recently from last -- I was working with you, you were at a very large pharmaceutical company. So you bring a lot of very good experience. And earlier this year, there was the $130 million equity raise and people have been focused a little bit on the balance sheet and some of your debt obligations. So I just wanted to give you a chance to talk about that -- those proceeds and how you plan to deploy them and how that maybe increases your overall financial flexibility.

Thank you. Thank you, Jenna, for having me. Again, before I answer that, what attracted me, you asked that to Steve. One of the reasons that -- all the reasons that Steve mentioned about attracted me. I think there was another point company was at an inflection point. It still is an inflection point, where we're obviously helping a lot of patients, but we believe where a company could go with near-term sight on the profitability.

And I could feel that I could make an impact on the company. That's one of the reasons that attracted me to come here. To talk about your question about the capital raise, that was a plan of a well-thought-out strategy that we worked on in terms of taking care of our cap structure and making a cap structure, which is sustainable and cost effective for the company for years to come. So what we did, we did a series of steps.

We did a capital raise, which was obviously oversubscribed. And then what we've used those proceeds in a couple of ways. We've obviously strengthened the balance sheet, and we modified our term debt. The term debt, which is now modified to $175 million, we were able to push back the maturity to '29 and being able to pay that from the cash flow of the company.

And the third thing we did is we have enough cash now on the balance sheet to take care of all our debt obligations and investing back in the business. So we have now a very sustainable cost-effective cap structure, which is going to help us to focus on the business, invest in the business and meet our obligations for all times to come.

Perfect. And as a culmination of all of these efforts and initiatives you guys have given at least for the first time at Phathom, a full year outlook at the beginning of the year. And so I just -- and I'll talk about it first, excluding the reclassification, just so we can look at it on an apples-to-apples basis. So in 2025, you were able to generate an incremental $120 million in revenue. And this year, excluding the reclassification, you're expected to add about $140 million at the midpoint. So what is giving you that confidence? And just walk us through like your philosophy on your company's first guidance.

So well, I'll answer the first pass of it, and then Sanjeev might add more in terms of sort of guidance philosophy. But what gives us the confidence that we can drive better growth on an absolute basis in 2026 versus 2025 is exactly what we were talking about earlier in terms of the refocus. We know that every sales call that we make on a gastroenterologist is more productive in terms of driving new-to-brand conversions, that is patients who are on a PPI converting them to VOQUEZNA.

We convert more patients per sales call in gastroenterology than we do per sales call in primary care. So if you just do the simple math, in the first half of last year, the majority of our sales calls were going into primary care, which means they were going to the less productive segment. We are now going to be allocating much more of our sales force time in gastroenterology into more productive calls, which should lead to more new-to-brand conversions and therefore, more total prescription growth over the course of the year.

So fundamentally, what drives our economics and our thinking about the absolute revenue growth is how many physicians are we able to grow in terms of their prescribing behavior and how many new-to-brand conversions do we drive? Because once we convert a patient, they tend to stay on the drug for a significant period of time. This drug has terrific persistence because it fundamentally reduces pain. That motivates a patient to want to stay on the therapy for a significant period of time. And that increased [indiscernible] that drives our confidence in the growth numbers.

And Jenna, the philosophy is very straightforward. How we measure internally ourselves is what we give guidance externally. So the guidance that is based on is achievable internal plan that you see that guidance is based on. It's not aggressive. It's not conservative. It is the plan that we believe and we're likely to achieve is how we look at it. And we provide transparency for that on the online items that we provided that.

Perfect. And a couple more on the guidance. So I got a few questions about the reclassification. And can you just talk about that decision and just how that benefits you or just what the rationale and what the change that's being made, like how we should think about that flowing through the model?

So it's no benefit to anybody. Economically, it's got absolutely 0 value. It is more a presentation change. When you were a small company, you look at these things, all of our cost was going into gross to net line. At the end of the year, we looked at that at the beginning of when we're making the budget, we realized certain costs, which are what I call it, fulfillment cost or a consignment fee they're more classified, they're better classified in cost of goods sold.

So it's a line change from gross to net to cost of goods sold, 0 impact on the gross margin from an absolute purposes. So what you see, our revenue will go up slightly. Our COGS will go up slightly with no impact on gross margin, and we provided that transparency. It does not benefit anybody. Economically, there's no change. There is no change in the fundamentals of the business.

It's just better classification and a more appropriate classification for a company of our size as we go forward. We felt appropriate to do this in the beginning of the year, so we can provide transparency in the guidance, which we already did.

Perfect. And then I just wanted to talk about the cadence a little bit because -- and you aren't alone, companies that are launching still in the earlier phases of launches, we get stuck in these weekly script numbers. And typically, the first quarter is a little bit light and then you also layer in some weather disruptions in -- at multiple points.

And so I just think there was some elevated volatility around that. And I think you guys did a great job addressing on the call, just talking about 1Q. And then maybe can you also help us with the rest of the year? Like are there any other seasonal quarters, pretty stable sequential increases or anything you'd be willing to share?

So we were -- actually, when we gave the guidance at the end of January, we didn't anticipate any storms or anything like that. What we told you is exactly the normal cadence of the business. The way the business operates for us is approximately 40% of our business top line revenues in the first half, 60% in the second half approximately and first half being the slowest because of all the reasons that large brands go through when there is an insurance reset, deductibles reset from that perspective. And that's what we're seeing is playing out.

What you're seeing in the scripts, we don't watch week-to-week, but they are in line with how our expectations are. And then clearly, as we go into March, April, May onwards, we'll expect the uptick to happen. This is what happened last year. This is what we expect to happen this year as well.

And then another important milestone that's happening this year is the transition to operating profitability. And so Steve, you kind of mentioned before just weighing, you scaled back DTC. It's not ruled off the table in the future. The expense run rate was cut in half in the second half of the year. So just thinking about the revenue outlook, and you've talked about $1 billion in peak sales for this product. Just how do you think about where you are in your expense journey and how that may -- how does that fit in with the long-term growth? And what will -- what would you expect like as you.

Let me take the first part.

Why don't...

Let me take the first part and then you can add in the future. But so if you think about last 2 quarters of last year, the company's expense base because of all the reasons that Steve mentioned about it earlier is, give or take, $50 million. It came in better than what we had preannounced results, $51 million to $53 million came in better. That's the going-in run rate to run this business with approximately 300 people field force.

That's kind of how it is, and we've established that. What's going to happen is in 2026, a couple of things. It's going to be slightly higher than $50 million for 3 reasons. One, we're hiring some field force. We hired at the end of quarter 4. There is going to be a full year impact of that. Second, you'll see EoE trial, Phase II trial that we started in Q4. You're going to see a full year impact of that.

Third is some marketing programs that we are doing. We're experimenting. There is going to be impact of that. But fundamentally, the expense level of the company is exactly going to be what we laid out in our guidance. The other thing we should keep in mind is we're not running to actually hold the expense level. We're running to make an optimum expense level. If we tomorrow feel there is a need to invest and that's going to drive the top line, we will be absolutely happy to do that from that perspective as long as it gives us the return.

Awesome. Yes. It just seems like with the opportunity, you have the core infrastructure that you need and maybe over time with different things like DTC, it might be more incremental depending on what you're seeing in the market as opposed to some big material change with your commercial.

Yes, I think that's right. I think the incremental discipline that we're bringing to how we think about spend is we will make additional marketing investments when we identify that they are positive ROI investments and positive ROI within the fine time frame. So if we determine that there's a $3 million investment in marketing that's going to generate $6 million of incremental revenue, we'll do that the next day.

But that's a really straightforward conversation and because not only do we generate that $6 billion of revenue that year, but the patients you've converted stay on therapy and so it compounds over the course of multiple years. So you get significant advantage from it. So one of the things that we've built into our projection for this year is that we can pilot test several different ideas that enable us then to have much more predictability in thinking about our 2027 numbers and our 2028 numbers to know what incremental investments are going to drive growth in future years. So all of that work informs how we think about the next 2, 3, 4 years guidance, and that's built into our operating model for this year.

And we have the financial flexibility to dose those things without impacting, and that's what the cap structure provides us to do that.

And sticking on this $1 billion number, I also wanted you to frame the PPI and what some of those brands were at their peak because in the very beginning of this conversation, you talked about the efficacy of VOQUEZNA, and this is a very differentiated asset. I think it's the first time in -- at the time of approval, it had been a decade since anything new really came into this market.

I think actually several decades a significant period of time, you're quite right. So if you think about the PPI market, at peak, the PPI market is about $12 billion a year. Now that's at a much lower price point than today's price points for -- so this is an enormous market opportunity in terms of the patient population. There were 3 different PPIs simultaneously that were north of $3 billion in revenue.

It's a significant market size. We're not going after the entire PPI market. Our target population is the 30% to 40% of patients who are on PPIs were still in pain. That's a multibillion-dollar opportunity. One way that we frame this for -- to make it easy for investors to get their head wrapped around how do we get to the first $1 billion in revenue. And I think there's potentially a second $1 billion in revenue beyond GI when we go back into primary care.

And I'll talk to you about a little bit about that evolution. But in GI alone, when I think about in GI, that is gastroenterologists and the EPPs, the nurse practitioners and the PAs that practice out of gastroenterology practices. That universe represents 24,000 HCPs. Collectively, they write 20 million PPI scripts per year. If we can convert 20% to 25% of those scripts, that's $1 billion of revenue. So our opportunity to reach $1 billion of revenue just in prescriptions coming out of gastroenterology is can we convert 20% to 25% of those prescriptions. And we're never going to convert 70% or 80%.

That's unrealistic. But is it realistic for us to convert 20% -- our top 300 writers today in GI, the early adopters who picked up this product 2 years ago and have been growing steadily quarter-over-quarter, they're already at that 20% level. So we know it's not 5 or 10 physicians, 300 physicians who are already converting 20% of their PPI scripts. They are still growing. They're going to get to 30% or 40% on their growth trajectory in future quarters.

Can we expand that to a much broader population of the gastroenterology prescriber base to get to something that looks like 20% or 25%. That's 4 million to 5 million prescriptions per year for VOQUEZNA. We are annualizing today in Q3 and Q4 at about 1 million prescriptions per year, annualizing at about a $250 million run rate. So 4x that, 4 million to 5 million scripts per year gets you to $1 billion in GI. Here's the second billion opportunity. Second billion comes from the fact that patients who are prescribed VOQUEZNA in the GI practice don't stay in the GI practice.

The patient who's having significant pain from GERD and is inadequately treated with a PPI in a primary care practice gets sent to a GI to get scoped just to assess, do they have Barrett's, do they have erosions? Do they have something that needs more aggressive treatment? Many of those patients are going to be converted to VOQUEZNA in order to manage their reflux. When they're adequately managed, when any erosions that they might have had a heal, they're going to be sent back to their primary care physician.

Their future refills are going to come from a primary care physician. So that 20 million PPI prescription volume in GI, it's not a static group of patients. It's the patients that are circling that are cycling through GI practices and then they cycle back to primary care and the refills are coming out of primary care. That's also a way to educate primary care physicians about VOQUEZNA, make it much easier for them to write and convert additional patients, and that's the second $1 billion in revenue.

And just between the 2 indications that we focus on the most, the erosive and non-erosive are -- like how do you differentiate between the 2 in this growth trajectory. And I'm just curious on the non-erosive side, are those patients like if you're moving to that second billion, are doctors in the primary care setting seeing more on the NERD side? Or just help us understand how these 2 indications are trending.

So a primary care physician doesn't actually know whether their patient has erosion or not.

That's true.

I think that they're seeing a patient, they just know that a patient has GERD. They will try omeprazole first. They'll try [indiscernible]. If they're not adequately treated with a PPI, they may double their dose. They may add an H2 blocker, they're adequately treated, great. That's probably where that ends. If they're not adequately treated, they're still in pain. That's when they're going to be sending a patient over to a gastroenterologist. We also would like to have the primary care physician think about that's when you're actually switching them to VOQUEZNA at that point in time.

That's not a conversation that's yet happening today. What's happening today is they get sent through a GI and it's at the GI that we're converting most of our patients. In the future, as primary care physicians become more comfortable with it, once you get out to 2027, '28, '29 and primary care physicians have a bolus of patients coming back, telling them how much better they feel when they're on VOQUEZNA, we're going to have an easier conversation converting primary care physicians to adopt much more broadly.

But the conversion today is happening specifically within GI. The early starting point tends to be for a GI to start this product on their patients with erosive esophagitis. They then grow into using it in non-erosive reflux patients because the easy compelling need is those patients with the greatest severity need the most aggressive treatment. But once you start hearing from a patient how much better they feel, it's an easier conversation for us to open the conversation to your other patients that are still experiencing pain on a PPI, why aren't you offering VOQLIZNA to them? How do we broaden that thought process? And as they get more comfortable with the product, they broaden the population of patients with which they use this product. That's the natural cycle.

And this is a good thing and -- that we haven't touched on this yet, but I wanted to just ask one question on the LOE. The way the LOE situation unfolded, everything kind of worked out in the best case scenario with the 2032. And so just my question with the NCE dates and the GAIN Act exclusivity to 2032 just so investors have on their radar because at a certain point, a window opens up for ANDA filers. When would you see that window opening for a potential ANDA filing?

So the 2032 date was a very important date. That's actually when a first ANDA filing is permitted. That actually means that we're going to have exclusivity into 2033 or '34. Typical ANDA review time lines are 10 months on a first round review, 8 months for subsequent rounds. So the earliest realistic date for a generic launch would be first half of 2033. It's very possible if the generic filings that go in, the ANDA filings that go in require 2 or 3 rounds of review, you could easily be into 2034 before a generic launches. So when we think about our LOE date, that 2032 date is first filing. We actually know that we've got exclusivity into 2033 and maybe 2034.

Awesome. And then I guess to close things out, I wanted to get your take on -- we mentioned the volatility early in the year. There's been some really positive changes in the past 12 months and starting 2026 off on a very strong foot with this guidance that did better than people were thinking, implying very strong growth with your more targeted commercial strategy. So just in your mind, what do you view as the most dislocated aspect of the story relative to the fundamentals you're seeing and how confident you are in the outlook versus maybe how the stock has been trading to start off this year?

So I'm always cautious as a CEO in commenting on stock trading. Investors are allowed to make the decision as to when they want to buy and when they want to sell stocks. That's an investor call. Our obligation is to drive the business and get to profitability. I do think that there's an opportunity for us to create significant shareholder value over the coming years. I think that the transition to profitability is going to be a significant inflection point.

The transition in 2027 to positive cash flow generation is going to be a significant value creation point and us demonstrating the continuity of our growth trajectory that not only -- there were questions last year was we were cutting expenses, would that harm our growth rate. I think we proved to folks that we could grow right through that. I think continuing that growth trajectory is going to give you more confidence in the story, and that should play out positively, but I will stop shy of predicting when.

We are focused on execution, but everything will sort itself out.

Awesome. And we'll leave it with that. Thank you very much.

Thank you.

Thank you very much.

Hello, and welcome to Phathom Pharmaceuticals Fourth Quarter and Full Year 2025 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded.

With that, I would like to turn the call over to Eric Sciorilli, Phathom's Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom's fourth quarter and full year 2025 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Sanjeev Narula, our Chief Financial and Business Officer.

A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we'll be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website. Further, the recording of today's webcast and the slides we'll be reviewing can also be found on our corporate website under the Events and Presentations section.

Before we begin, let me remind you that we'll be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom's control. Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices for Phathom's common stock.

A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date, and Phathom disclaims any obligation to update these statements.

Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes noncash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release.

With that, I will now turn the call over to Steve Basta, Phathom's President and CEO, to kick us off. Steve?

Thank you, Eric, and thank you to our investors and analysts for joining our call this morning. Thank you even more to the Phathom colleagues for your diligence and dedication throughout 2025. It was a transformational year for the company, and we're now set to execute our growth and profitability plan.

Let me start by summarizing the key points Sanjeev and I will be discussing today. We had a successful Q4. We delivered on expectations for both revenue and cash operating expense levels, coming in at the better end of our guided ranges. We've taken key steps in the recent 2 months to enhance our capital structure, reduce our interest expense and modify our outstanding term loan obligations.

As a result, we believe our cash on hand, along with anticipated future cash generated from operations will be sufficient to satisfy all obligations under both our term debt and our revenue interest financing agreements. We're on track in guiding to operating profitability beginning in Q3 of this year and for full year 2026.

Our $320 million to $345 million revenue guidance for 2026 reflects our operating expectation of continued solid growth from our GI-focused strategy and includes an accounting-related classification change, which Sanjeev will cover in more detail.

Our sales organization is positioned to deliver, and we're seeing clear signs that our GI strategy is working. I'm very proud of what our team accomplished in 2025. We believe we've set ourselves up for success, both financially and operationally.

Beginning the update today with our financial highlights for Q4 and full year 2025, our results are in line with our preannounced estimates from January and incrementally a bit better on expenses and on cash usage. We've delivered on the plan we set forth on our May earnings call and reiterated in our earnings calls in August and in October.

Net revenues were $175.1 million for the full year 2025, representing 217% year-over-year growth. Q4 sequential quarterly growth was solid during a period of sales force alignment as we had discussed in our October call. In August, we guided to $165 million to $175 million for 2025 revenue. We updated that in October to $170 million to $175 million, narrowing it to the top half of the range. And ultimately, we delivered at the high end of that range. Our Q4 revenue was $57.6 million, in line with our pre-released January estimate of $57 million to $58 million.

Cash operating expenses, excluding stock-based compensation, were $50.3 million for Q4, better than both the less than $55 million target we guided to and to our preannounced range of $51 million to $53 million. We delivered solid growth through the last 3 quarters of 2025 while cutting quarterly cash operating expenses by nearly 50%. Our net cash usage for Q4 of 2025 was approximately $5 million. That's 64% lower than Q3 and consistent with our expectations of reaching operating profitability beginning in Q3 2026 and cash flow positivity in 2027.

We've taken significant steps to enhance our capital structure. Our goals were: one, to reduce any financing overhang or potential risks stemming from repayment obligations or cash covenants; and two, to reduce our interest expenses. In 2025, we got the fundamentals of our business in order, growing revenue and reducing expenses. That improved financial profile, enabled us to complete a successful equity offering in January and to renegotiate our debt terms as we announced today.

We have modified our term loan agreement to extend the maturity date, which had previously been December of 2027, we've extended it to February 2029. And we've reduced our interest expense obligation and reduced the total outstanding principal amount. As a result of these capital structure enhancements, we believe our current cash plus the cash that we expect to generate from operations in the coming years will be sufficient to meet all obligations under both our term loan and our revenue interest financing agreements. Sanjeev will provide further details on these items and take you through our 2026 guidance.

I'm very proud of our operating and financial progress these last 12 months. The entire Phathom team is dedicated to our objectives of growing revenue while being disciplined on expenses. We're exhibiting strong momentum, which we expect to carry forward throughout 2026.

A few quick notes on our commercial progress. I said before how fortunate we are to be able to positively impact the lives of so many patients. Through February 13, over 1.1 million VOQUEZNA total prescriptions have been filled to more than 230,000 patients. We believe we're just starting to penetrate an enormous market. About 65 million patients have gastroesophageal reflux, of which 40% experienced inadequate symptom relief from PPIs.

About 273,000 prescriptions were filled in Q4 alone. 174,000 of these were covered prescriptions growing 21% quarter-over-quarter and representing approximately 64% of the total prescriptions filled in Q4, while 99,000 were filled as cash pay prescriptions.

Covered prescription volume drives our revenues while cash pay prescription volume improves physician perception of access and makes it easier for physicians to prescribe VOQUEZNA with confidence that their patients will be able to get the drug. Most importantly, both paths enable us to help patients in need of VOQUEZNA. Additionally, in November, we turned on a GoodRx offering, providing an alternative payment option for patients filling VOQUEZNA prescriptions sent to retail pharmacies.

Looking forward, we have confidence in 2026 growth. We just completed our national sales meeting and the sentiment from the field is terrific. We start March with more than 285 of our 300 sales positions currently filled, a nearly full-strength sales organization. Our strategy to drive depth and frequency of calls to gastroenterologists is solid, and we believe it will ramp utilization and writing frequency among GIs treating GERD. 2026 will be an important year for us as we drive sales growth and transition to profitability.

Overall, we continue to deliver as we guided on each of our previous earnings calls. Our 2025 results ended at the better end of our revenue and cash operating expense guidance ranges we communicated, and we believe we're on track to transition operating profitability beginning in Q3 of this year and to reach cash flow positivity in 2027.

We've taken important steps to enhance our capital structure and mitigate any covenant or repayment concerns. The sales force is nearly full strength and energized following our national sales meeting. We're well positioned to execute and deliver on our strategy in 2026.

I'll now turn the call over to Sanjeev to take you through our detailed financial updates.

Thank you, Steve, and hello, everyone. I'm pleased to report our Q4 and full year 2025 results today. I'm encouraged by the changes we've made throughout 2025 and excited about what's on the horizon for '26 and beyond.

We have a lot of important updates on the financial front, so let me get right into it. Steve provided some top-level highlights for the quarter, and I'll provide additional color commentary.

Our revenues for Q4 of $57.6 million were consistent with pre-release and demonstrated 16% sequential quarterly growth. Aligned with the full year, the quarter also came in at the very top end of our guidance. As always, covered script volume primarily drive our revenue, while contribution from cash scripts and inventory dynamics remain minimal and consistent.

Our gross to net for Q4 came in at the high end of 55% to 60% range we provided last quarter as a result of shifting rebating mix. Our full year gross to net was within our expectations. Our gross margin remained consistent in Q4 and full year at approximately 87%. After accounting for quarterly cash expenses, we reported a loss from operations, excluding stock-based compensation of approximately $320,000, a 95% improvement compared to Q3. As you can see, this is a meaningful change in the operating profile of our company. As always, please refer to this morning's press release for a reconciliation between non-GAAP measures and their most directly comparable GAAP measures.

Q4 cash operating expenses were about $50 million, notably favorable than the less than $55 million guidance we set forth earlier last year due to continued expense discipline. Similarly, our full year cash operating expenses of approximately $284 million came in at the low end of the range we provided on our Q3 call. We ended the year with about $130 million in cash and cash equivalents, which roughly reflects a $5 million cash usage in Q4 and signals a very clear path to operating profitability this year.

Now let me turn to the enhancement in our capital structure. In January, we improved our capital structure via an oversubscribed equity offering. And today, we're announcing a modification of our term debt. As a result of these deliberate steps, we believe we now have a cost-effective and sustainable capital structure to meet our business needs and all of our debt obligations. The offering raised $130 million in gross proceeds, which brought our cash balance just north of $250 million at the start of the year.

I'm pleased to announce today that we have successfully modified the terms of our outstanding term facility, which we believe will greatly benefit the company going forward. We reduced the remaining principal to $175 million outstanding and paid certain end of term fees and accrued paid-in-kind amounts from the original agreement. In total, we used approximately $56 million of our cash balance to streamline the facility. Additionally, we were successful in lowering the interest rate from 12% to 9.85%.

Lastly, we extended the loan maturity date from December 2027 to February 2029. Partial monthly repayments will begin in 2028, which are anticipated to reduce the outstanding principal as well as our interest expenses. We expect we will be generating positive operating cash flow beginning in 2027 in advance of these repayment obligations.

Overall, these modified terms reduce our interest expense, remove near-term payment hurdles and provide greater financial flexibility. Following our capital structure enhancement, we believe our cash on hand, along with anticipated future cash flow from operations will be sufficient to invest in our operations as needed and to satisfy all liquidity covenants and repayment obligations.

For complete clarity on our covenant, we expect our highest cash flow requirement between now and September 30, 2027, will be approximately $130 million. The cash flow requirement is derived from our covenant in our revenue interest financing agreement, which becomes effective for the first time on October 1, 2026.

All cash flow requirements relating to our term debt are substantially lower than those from our revenue interest financing agreement. Beginning October 1, 2027, we expect revenue interest financing agreement covenants will require that we temporarily hold a modestly higher cash balance, which will decline thereafter as revenues increase and we make additional royalty payments.

To be clear, the cash flow covenants between the term debt and revenue interest financing agreements are not additive. We manage our liquidity to whichever covenant is the highest at any given point in time. Rest assured, for all these periods, we believe our cash on hand of approximately $190 million following our term debt modification and our anticipated cash generated from operations beginning in 2027 will be sufficient to satisfy all covenants at all time.

We refer you to our 10-K filed earlier this morning for more information. While on the topic of our 10-K, I'd like to flag that in this year's document, we updated the business section and risk factors to reflect the company's transition to a primarily commercial entity. While the comparison against prior years will show significant tax changes, I want to be clear that we believe important updates are being covered during this earnings call and in this morning's press release.

Now I'd like to move to our 2026 guidance. With our GI-focused strategy taking hold and our financial position enhanced, we're ready to deliver in 2026. Today, we are issuing guidance on several financial metrics, which reflect that sentiment.

Before I get into the numbers, I'd like to provide clarity on the accounting-related explanatory note you saw in this morning's press release. Beginning January 1, certain third-party charges will be included in cost of goods sold instead of gross to net adjustments. All things equal, net revenue will be higher as a result of costs moving from gross to net adjustments to cost of goods sold, leading to a mostly net neutral effect on our gross profit line in our P&L. Importantly, this change is simply a different classification of these costs and does not impact the underlying operations of our business. We are estimating an approximately $17 million to $20 million shift in 2026 between 2 line items, which is reflected in following guidance.

We anticipate 2026 net revenue will be $320 million to $345 million, including the estimated effect of the classification change I just described. As for gross to net, we believe the discount will be between 55% to 59%. We anticipate gross margin will be approximately 80%. As for spend, we are anticipating cash operating expenses, excluding stock-based compensation of $235 million to $255 million, which at midpoint reflects a 14% decrease compared to 2025 results.

Now a few comments about the cadence of these items over the course of 2026. We believe revenue will exhibit a similar pattern to last year with approximately 40% being achieved in first half and approximately 60% being achieved in second half, with quarter 1 being the soft quarter due to typical seasonality. We expect expenses will be relatively stable on a quarterly basis, but will reflect a modest step-up from where we exited Q4 2025, accounting for nearly full strength sales team, new marketing initiative and full year cost of our EoE Phase II trial.

Based on anticipated revenue, gross profit and cash operating expenses, we anticipate achieving operational profitability, excluding stock-based compensation by Q3 and in total for full year 2026. And finally, we believe we will achieve cash flow positivity in 2027.

In summary, our financial profile has transitioned meaningfully, and I'm excited for this next phase. This quarter results were strong, coming in at the better end of our guidance we previously provided. Our operational momentum is solid, which gives me confidence in our 2026 revenue trajectory. I feel confident in our financial position and believe we have the resources we need to execute the plan and deliver on the guidance ranges we set forth today.

With that, I'll now turn the call back to Steve for his closing remarks. Steve?

Thank you, Sanjeev, for the detailed financial review. I would like to extend my thanks to everyone at Phathom for their extraordinary efforts throughout 2025. I was able to meet many of our sales team members during our recent national sales meeting, and I'm heartened by their dedication and exceptional talent. Our transition to focus on gastroenterologists and to reach operating profitability is well underway. Thank you also to our shareholders for your support and confidence. We're dedicated to delivering value to reward your investment.

Operator, please open the line for questions.

[Operator Instructions] Our first question or comment comes from the line of Kristen Kluska from Cantor Fitzgerald.

Congrats on a really strong end of the year and the work you were able to do around the interest, definitely very favorable here. So the question I have for you this morning is just recognizing it's still very much early days. What can you tell us about the early signals that you're seeing from this strengthened sales force and strategy, especially coming out of that meeting? Are you seeing that more of the GIs that were new to your strategy are converting? And are you also seeing some early signals of growth within those current GIs where you added more touch points?

Kristen, thanks so much for the kind thoughts and for bringing us to what I think is the most important topic actually, which is the core focus on our GI call point is the fundamental element of our growth strategy, and we are seeing consistent signs of momentum.

It's interesting as you characterize the 2 different paths of sort of converting new writers versus growing existing writers. Virtually all gastroenterologists, not quite all, but a very high percentage of gastroenterologists have already written a script for VOQUEZNA. So we've got broad penetration within the gastroenterology community, both among physicians and among APPs with high conversion success already.

What we focus on all of our sales force messaging in the context of our national sales meeting, in the context of the conversations that the regional managers are having with the territory sales representatives is all about how to grow writing frequency. We have what we refer to as an adoption ladder where physicians try the product and then we are trying to improve their consistency of writing and they become consistent writers and then we try to improve their consistency of writing and then they become adopters and so on. And as we grow in terms of the frequency of the physician writing an NRx for VOQUEZNA. And what we are seeing is very clear trends on those adoption letters associated with physicians moving up in category.

So a tried physician will only have written 2 NRxs in the last quarter, a consistent physician will have written 6 or more weeks in the last quarter, et cetera. And we are seeing physicians move from one category to the next consistently, where on one of the metrics, we'd only had 400 or 500 physicians last summer that were in the upper categories. Now we've got well north of 2,000 physicians in the upper categories. So we're seeing that adoption rate among not just the highest frequency writers, but very broadly within the GI community increasing. And that's the focus of all of our sales force conversations. That was the focus of our national sales meeting is how do we take physicians through that adoption ladder. It's the focus of each of our coaching conversations, and we're seeing clear evidence of it in our writing pattern.

One of the metrics that I find to be helpful as we think about the long-term opportunity for this product is what is the rate of adoption we've achieved among the top few hundred writers. And there, we're already seeing that we're now passing on average 20% penetration in terms of their PPI volume being converted to VOQUEZNA. And when we get to 20% conversion across the broader GI community, that's where we're approaching $1 billion of revenue potentially in GI. And that's clearly where we're headed over the next few years.

Our next question or comment comes from the line of Annabel Samimy from Stifel.

And just following on from that comment. In the territories that you already have been pretty well aligned as far as the focus on GIs, do you have any sense yet of the dynamic of patients transitioning back to primary care, if you're starting to see pull-through in some of those more mature accounts? Just curious to see if that dynamic or if you've seen any pickup in the primary care area organically from that effort. And when everything -- everyone is on board and humming, do you expect an inflection? Or is this just a steady growth throughout the year?

So Annabel, that's a really important component of the long-term growth path is building beyond just GI to capture the return of patients to primary care and the growth there. Just candidly, we've not looked at it, at least I've not looked at it. I know our sales team is doing much more granular work on a physician-by-physician basis at the specific referral patterns for specific gastroenterologists to see their referring physicians and how they've adopted.

I've looked at it much more broadly for the entire universe of primary care physicians, and we are seeing an uplift in primary care prescribing volume on a broad basis. The granularity that you're describing is very much an analysis that over time, we will do much more frequently.

The near-term focus is on that core gastroenterology conversion point. And the expectation exactly to your point, is over the next 6, 12, 18 months, we're going to see those patients returning to primary care and see those growing, and we'll be looking at that metric more precisely. But what we are seeing on a broad basis when we look at the total prescribing in GI and the total prescribing and primary care is an uplift in both. Even though the majority of our sales force time is going to GI, that uplift broadly in primary care prescribing volume would suggest that we are seeing exactly that effect.

So was there a second half of your question? Or did that capture it?

Expectation for any inflections once everyone is on board...

The inflection point question. Yes. So we don't map out -- we don't model out a specific inflection point. It's very hard to predict when does the slope change. What we are driving toward is consistent growth month-over-month, quarter-over-quarter because we're not trying to do a sea change kind of strategy at this point going forward.

2025 was very much a year of fundamentally shifting the strategy. We were changing call points. We realigned sales territories. We went through some pretty significant change. 2026 is just going to be a year of heads down execution. It is making sure that we are doing all of the right things. We're getting into the right offices. We're calling on gastroenterologists with the right frequency. We are delivering really good messages every time we call in gastroenterologists. We're helping them with all of their access needs. We are working through the process of enabling them to write VOQUEZNA scripts more frequently. And that drives our growth.

So we don't need to inflect at any one point to a specifically different strategy. What we need to do is just execute this playbook and execute it well quarter-over-quarter. It's hard for me to predict exactly what the slope looks like on a quarter-by-quarter basis. I do expect that we're going to get steady growth, might accelerate at some point in time. It's really hard to predict that. What we're seeing is all the right signs of incrementally significant adoption among physicians and incremental success that our sales reps are having in each of these offices.

Our next question or comment comes from the line of Dennis Ding from Jefferies.

This is Anthea on for Dennis. Congrats on the quarter. First on Q1, do you expect sequential quarterly growth given the deployment of the expanded sales force? Or are you seeing that seasonality plus the winter storms will still be headwinds here? And is there a plan to seek broader Medicare coverage for VUQUEZZA this year and if that's baked into guidance?

So Anthea, let me -- I'll briefly address the first part, and then I'll offer Sanjeev the opportunity if he wants to add more color on the seasonality in this process. We're clearly seeing the typical seasonality that occurs and the winter storms are clearly having some effect as well. We've seen slow weeks whenever the entire country is shut down because of an ice storm that has an impact.

The -- it's -- we don't guide to revenue on a quarter-by-quarter basis with that granularity. So while we clearly acknowledge that Q1 is the weakest of the 4 quarters during the year, whether it's flat or up or down, we just -- we don't provide that quarterly guidance. What we've provided is full year guidance, but the underlying metrics that we're seeing in terms of our sales call activity the prescribing behavior of physicians, the growth patterns that we've been describing, all give us confidence in terms of where we're going to be on a full year basis.

And so Sanjeev, if you want to chime in at all on seasonality?

Yes. I think you pointed out, Steve, that we don't provide quarterly guidance. But I think what I said this time, if you look at in our kind of prepared remarks that we said earlier, if you look at the cadence of our business on a full year basis, we'll be roughly kind of same trajectory as we experienced in 2025. 40% of our top line revenue will be in the first half of the year, approximately 60% in the second half. And I said Q1 is going to be the slowest quarter because of typical seasonality. So I think that's kind of what we see, what the exact number is going to be. Obviously, you will hear that in the first quarter call that we talk about it. But clearly, it is the slowest to softest months because the typical seasonality.

And then the second half of your question, Anthea, I think, was related to Medicare. So we're not anticipating a fundamental change in broad Medicare coverage where we get coverage for all Medicare patients. What we are seeing is incremental Medicare prescriptions being covered either through medical appeals processes or through specific Medicare Part D plans. So as different Medicare Part D plans become more familiar with seeing VOQUEZNA prescriptions being submitted, they are beginning to cover those more frequently.

And so we may see over time some increase in the number of Medicare scripts that are actually being processed and being covered, but it's not a broad coverage decision nor do we anticipate that there's going to be any broad fundamental change in a broad coverage decision on a system-wide basis for the entire population of Medicare patients.

Our next question or comment comes from the line of Joseph Stringer from Needham & Company.

Just wanted to follow up on the previous question. Looking at the IQVIA prescription data and the impact of seasonality, is the magnitude of the seasonality effect this cycle in line with your expectations, I guess, all things considered? And maybe another way of asking is, are there any nuances about the launch now with the refocused effort that would make it more or less sensitive to seasonality?

So thank you for the question. It's really hard to characterize magnitude of seasonality one year versus another. What we're seeing is very similar to the pattern that we saw last year in terms of January being particularly light and then February is also light. And then by March last year, it started to pick up. So we would hope that, that same pattern -- not just hope, we actually expect that, that same pattern is going to come to fruition because you get several uplifts in March.

We're coming off of the national sales meeting. Everybody is energized. We're going to have a full strength sales organization and physicians have had time to work through their plans. Patients who have switched plans now have time to figure out how they're going to get the drug covered. So all of those things that create noise in January as everybody is switching to a new health plan gets worked out in the first month or 2. So that effect just is there every year for a branded product, and we -- the specific magnitude of it varies by product. So we're starting to see what that pattern looks like for us. We're not seeing anything that's unusual in that regard.

One thing that we have observed is the IQVIA reported numbers seem to be somewhat greater underreporting versus our internal numbers than historic norms. We think we've identified the cause of that, and that that's going to work itself out. But there may be a little bit of extra softness or delta in the IQVIA reported numbers versus what we're actually seeing. But the softness is real in January and February, and we think it starts to improve meaningfully in March.

The other phenomenon that you cite is a real phenomenon as Anthea's question also had suggested that winter storms clearly not just had an effect on us, had an effect on a whole bunch of companies in the context of the slowdown for a week in January and slowdown for a week in February on the Northeast. So I don't want to overstate those -- that is I think the dominant effect is just the annual seasonality that we would expect to see every year.

Our next question or comment comes from the line of Paul Choi from Goldman Sachs.

This is Daniel on for Paul. So we're curious about like if you could provide color on the proportions of prescriptions that are now filled to BlinkRx versus the new GoodRx that came online? And how is the economy of the channels versus the more traditional dispensary?

So there are several different parts to that. So let me take GoodRx first. GoodRx, we just turned on in November. And what that is, is -- I mean, already GoodRx had coupons on it for our co-pay support program. So if someone is at a pharmacy with a retail script and they need to get co-pay support because their insurance co-pay is high, they can go to GoodRx, they can get our co-pay card and in many cases, bring down the co-pay amounts significantly and in some cases, down to $25, which is our target co-pay where possible.

The other thing that we turned on with GoodRx is the opportunity to do a cash pay purchase through GoodRx, which actually still would get reported into the IQVIA script numbers because it would be dispensed from a retail pharmacy, but there's a $199 option for a patient to purchase that. That's intended really for a patient who either can't access the co-pay card because they're on a government plan or for whom the co-pay would still be too high or would still be above $199 that it gives another alternative to a patient.

Those numbers are still relatively small. It's a very small percentage of the overall number. It just got turned on in November. We'll give you a sense in future quarters. If that grows to be a meaningful number, we'll give some color on that. But at this point, it's a really small number. It's not a driver of anything, but don't want anybody to be surprised that, that option now exists.

So we're trying to provide multiple ways for a patient in different reimbursement circumstances and different access environments to be able to know that they're going to be able to get access to the product as reasonably priced as possible.

The percentage of scripts that are going through Blink, and I want to be sort of clear to distinguish between 2 things in this process. More than half of our prescriptions now in total are going through the Blink network to then be routed either as covered scripts to a pharmacy or as cash pay scripts to be dispensed directly through the Blink network.

If -- when a physician sends a prescription -- designates a prescription to go to Blink, Blink will first adjudicate whether or not the script is going to get covered. If it gets covered, it shows up in the IQVIA numbers. It doesn't show up in our Blink cash numbers, even though Blink is an intermediary facilitated that process. So about half of our scripts in total go to Blink. They get routed. If they get covered, they show up in the IQVIA numbers. If they don't, they show up in our cash numbers. And as we described, something on the order of 36% of our prescriptions now are Blink dispensed cash scripts.

So that's where the 2 different numbers are. That delta is scripts that are getting covered after they originally got sent to Blink.

Matthew, does that address your question? Or was there a second part of that?

Our next question or comment comes from the line of Chase Knickerbocker from Craig-Hallum.

Just a quick one. Steve, what inning do you think we are in as far as kind of getting reps to full productivity or kind of where you expect them to be after kind of shifting the focus in the fall, but also kind of changing the lines of like some of the geographical lines of a lot of these territories in the fall as well? Where do you think we are as far as the inning there?

Just to clarify, Chase, what inning of sales force transition?

Full productivity, Steve, as far as full productivity kind of with that transition in the fall.

Yes. So I think full productivity for a sales rep comes several months after the sales rep is on board because there is a training process, there's a learning process. It takes a month or 2 to get to know the accounts in your territory and to have scheduled all of the launch events. So we had a number of sales training classes that came in January and then our national sales meeting in February.

By March, April, all of those folks are hitting the ground. I mean they're hitting the ground immediately after their training program. But within a month or 2, they've met most of the accounts in their territory, and they've got their launches scheduled and they've got momentum within each of those accounts and you start to see the real impact.

So I would think we are to use the baseball analogy at the seventh or eighth inning of that 9-inning process of sort of the sequence of events where the sales force gets to be fully effective.

And sort of since that shift to focus in GI, have you seen kind of the increase in productivity that having more kind of condensed patient base at these prescribers would indicate? Or do you think there's kind of additional efficiency that we'll continue to kind of harvest over the course of this year?

Well, it's interesting. Even if the sales force is fully effective, you don't see the effect that day or that week or even that month in terms of sales because the majority of our prescriptions come from prior patients who have been prescribed the product who are getting refills, physicians who have previously already adopted the product who are prescribing it to an incremental physician.

So what we are really doing is just moving the incremental adoption rate. So if you've sort of got a base 70%, 80% volume that's happening, you're really only impacting that 20%. Now if you become 30% more effective, that 20% goes to 26%, but it's 26% on top of a base 80% that already exists there.

So when you see it, you don't see -- when you see greater effectiveness in our sales activities, you don't see an immediate change in revenue in a month. What you see is incremental effectiveness, but that incremental effectiveness is cumulative over time because the increased conversions of patients in that month aren't just scripts that month. They are refill in the next month and refill the next month and refill the next month and the incremental scripts in the next month, refill every month thereafter. So you see a cumulative growing effect. You don't have a sales force's activity turn into a sea change in revenue in that next month of revenue. If that makes sense as to sort of how these consistent use products end up building over time.

Our next question or comment comes from the line of Min Lee from Guggenheim Partners.

Congrats on the data. One quick question for me. What is the company's long-term vision beyond VOQUEZNA? I mean given that you guys have established this GI network, do you guys plan to utilize this network to consider maybe future partnership with companies that have already commercially ready GI assets? Or do you guys plan to maybe pursue any other indications beyond EoE?

So Min, thank you for the question. So at this point, the only new indication that we're pursuing actively is EoE for VOQUEZNA. There are other indications and other populations that are of interest that we're evaluating. We've made no decisions. For example, we did a Phase II trial for as-needed use, haven't made a decision yet about whether or not we wish to pursue that in a Phase III program, but there are other populations that also could be of interest.

Our long-term growth plan, as we have indicated, is to build a GI company that will bring in additional assets. This year is very much a year of consolidating our execution plan building deep relationships at every gastroenterology office. The 300-person field force is going to have those deep relationships and is going to be fostering them and build a leverageable base that we could bring a second product into.

We are also starting BD activities to explore what other products would make sense either to bring in a commercial product potentially or very possibly a Phase II or Phase III clinical stage product that could launch in a 2030, '31, '32 time frame before we get to our LOE date so that we're launching not just probably a product, but 2 or 3 products over the course of the next 4 or 5 years that would build out a GI pipeline.

So we're starting those conversations. We have had people bring us several ideas that are interesting. I don't feel any urgency that we need to distract our sales force to the second product right now. We just need to grow VOQUEZNA. We need to just execute on our core activity set, but we are actively thinking about what products would make sense to bring in to launch over the next 2- to 5-year period of time, and that could mean products at various stages from commercial down to Phase II stage. But it has to be launchable within the next 2 to 5 years, so that's launched before our LOE date in 2033 or '34.

Our next question or comment comes from the line of Martin Auster from Raymond James.

Congratulations on the successful 2025 and in particular, the recent steps you guys have taken to strengthen the balance sheet. I'm going to maybe follow up on one of the earlier questions on -- I appreciate your comments you guys made on Q1 seasonality. I guess I was curious if the plan resets and other factors that kind of contribute to seasonality, does that drive an uptick in the rate of cash pay patients you'd expect to see in the quarter? And then also on the gross to net guidance that Sanjeev provided, curious if there's any trends that are assumed within that 55% to 59% range or if that metric is expected to be pretty steady overall throughout the year?

So thanks, Martin. Appreciate the kind thoughts on the questions. I'll take the first half, which is around cash pay and the second half, I'll give to Sanjeev in terms of GTN and sort of expectations.

We would expect that we'll see some uptick in the amount of cash pay patients. I don't have any guidance on how much that is. I don't think it's going to be too significant in that process. But you'll see some patients who have a high deductible plan where they will be able to get access to the product on a cash basis from Blink. And then as they work through their deductibles, they would then be able to get it covered at some later period. And so you may see some movement in cash pay percentage in the early months of each year. That's not just this year, that would just be in general as a pattern in this process. We don't provide guidance on what that mix is going to be on a quarter-to-quarter basis, but that would be a typical feature of the seasonality patterns that one might expect.

Separately, in terms of GTN and patterns and trends on GTN. Sanjeev, do you want to take that?

Yes. Yes, I'll take that, Steve. Thank you. So Martin, as you saw like in 2025, so we kind of narrowed the guidance, if you recall, in our Q3 call to 55%, 60%. And right through the last year, we were kind of operating within that range. Quarter-to-quarter, there are variations because your planned business may change from one quarter to the other. But overall, it was very consistent and stable. And that's kind of what I expect in the guidance that we gave early this morning, 55% to 59%. Overall, for the full year, we'll be within that guidance. Quarter-to-quarter, there could be changes depending on how the plan flows and the business flows from that perspective.

[Operator Instructions] Our next question or comment comes from the line of Matthew Caufield from H.C. Wainwright.

We had one question on the landscape that came up from investors. There's a separate private company with later-stage clinical development in non-erosive reflux disease and erosive esophagitis based on the P-CAB formulation. And just curious on your longer-term thoughts on any prospective entrants into the P-CAB space later into the future and maintaining VOQUEZNA's positioning.

Matthew, thanks so much for the question. I apologize I muted for a second to cough. I just had a little bit of cold. But -- the -- I think you're likely referring to Sebela, which is a company that has tegoprazan in development. There is actually an additional P-CAB that's in development that's many years out.

So we clearly track competitive developments, all of the P-CABs. And tegoprazan is a good product. We expect that it will go through the NDA process, and they filed their NDA in January, reasonable to expect they may be approved by early 2027, but it's not really for us to predict exactly what that time frame is or what questions might arise.

One of the things that we think about is how does this market evolve as a second entrant in the P-CAB space comes in. And it's interesting there's one framework where sort of a question can arise are 2 P-CABs going to compete against each other. There's a different question, which is we're competing in a space of 110 million PPI prescriptions per year. And we've only done 1.1 million prescriptions overall since launch. So we're tracking now at a run rate that's running about 1 million prescriptions a year. So we're at 1% of the PPI market.

If a second entrant comes in, they're not going to be trying to take prescriptions. We're both going to be growing the P-CAB awareness in the context of the market where patients are on PPIs and are significantly in pain on PPIs. The entry of a second product in a new category actually does have a tendency to change the mindset of physicians where it's no longer do I need to pay attention to this product if you're the first entrant, but it's -- do I need to pay attention to this category. And that increase in category awareness, I actually think will accrue to our benefit that the majority of prescriptions tend to go to the first entrant that has more history with which physicians are more comfortable that already has broad access.

So the second entry tends to grow the category broadly and tends to grow revenue for both parties in that process. So we're actually thinking that it has a net positive effect on the P-CAB adoption broadly to have a second sales force out talking about P-CABs and how much value they can bring to a patient who is still in pain on a PPI.

So we're looking forward to that broadening and that shift in mindset of physicians that you really do need to adopt PPIs. We think we've got great product. We think that physicians have been -- we know physicians have been really pleased with the effect that this has to their patients and patients who take this product love it. All of that is going to reinforce the fact that the lead product in the category gets the biggest uptick.

Congrats again on VOQUEZNA's trajectory. It's great to see.

I'm showing no additional questions in the queue at this time. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Hello, and welcome to the Phathom Pharmaceuticals' Third Quarter 2025 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded.

With that, I would like to turn the call over to Eric Sciorilli, Phathom's Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom's third quarter 2025 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Sanjeev Narula, our Chief Financial and Business Officer. Robert Breedlove, our Principal Accounting Officer, will be joining for the Q&A portion of today's call.

A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website. Further, the recording of today's webcast and the slides we'll be reviewing can be found on our corporate website under the Events and Presentations section.

Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom's control. Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices for Phathom's common stock.

A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date, and Phathom disclaims any obligation to update these statements.

Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically, in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes noncash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release.

With that, I will now turn the call over to Steve Basta, Phathom's President and CEO, to kick us off. Steve?

Thank you, Eric, and thank you to everyone joining us today. I'll start with an overview of our financial and commercial highlights this quarter and then provide commentary on our shift to a greater gastroenterology focus and our current operating priorities.

First, I wish to welcome 2 new Phathom leadership team members. Joining me on the call today is Sanjeev Narula, our new Chief Financial and Business Officer. Sanjeev brings to Phathom a proven track record of building successful profitable pharmaceutical businesses of significant scale. His experience and insights will be important to driving our growth. I'm delighted to have Sanjeev as a partner in building Phathom.

I'm also pleased to announce that Nancy Phelan has recently joined Phathom as our new SVP of Marketing and Analytics. Nancy brings a wealth of experience in technology-driven marketing, tactical implementations of marketing to integrate with sales activities and both HCP and consumer promotion in the pharmaceutical industry. Nancy has successfully led marketing for several successful drugs.

We have a solid commercial and financial team in place. Starting today with our financial highlights for Q3. Really pleased to report at the end of Q3, we've delivered 25% growth this quarter while reducing operating expenses by 43% and therefore significantly reducing our cash usage. We beat expectations on the revenue and on the operating expenses, and we're executing effectively throughout the organization on the plan that we set out 6 months ago.

Net revenue for Q3 was $49.5 million, which represents 25% growth quarter-over-quarter. This is ahead of expectations of approximately $47 million and is in line with our revenue guidance for the year. As a result of the strength this quarter, we are narrowing our full year guidance to the top half of the previously communicated range.

While growing revenue significantly, our cash operating expenses were $49.3 million this quarter, which is meaningfully better than our previously stated target of getting below $60 million in cash OpEx for Q3.

You may recall in May, we set a target for the year of bringing our operating expenses on a quarterly basis below $55 million by Q4 of 2025. I'm pleased to report that we've achieved that milestone early in Q3. We've cut our cash OpEx by nearly 50% since Q1 while growing revenues ahead of expectations. We're quite pleased with the performance that the entire team has delivered through the course of the past 6 months.

Our cash usage was less than $15 million for Q3. That's down 77% versus the Q2 cash usage number. One note for Q4. Our operating expenses for Q4 will be somewhat higher than in Q3, primarily due to the start of the EoE Phase II trial. But we do still expect to operate at below $55 million cash OpEx as we've previously stated, even with the additional clinical trial expense.

My sincere thanks go to the entire Phathom team for their dedicated efforts to deliver both our continued revenue growth and our operating expense discipline throughout this period. I'm most impressed every day by the extraordinary talent and dedication of our team.

A few notes on commercial performance for the quarter that might be helpful for folks. Launch-to-date, we have 790,000 filled prescriptions as of October 17. That's approximately 36% growth since our Q2 call. In Q3, we had 221,000 filled prescriptions. Of these 221,000 prescriptions in Q3, 144,000 were covered scripts, which grew approximately 23% quarter-over-quarter. For everyone who looks at our financials, recall this is the growth category that drives our revenue.

We also had 77,000 cash prescriptions that were filled, growing approximately 38% quarter-over-quarter. The growth here includes the impact of having turned on Medicare patient availability on a cash-pay -- for the cash-pay program as of April. As we've previously noted, 70% of our prescriptions launched to-date have come from gastroenterologists.

During the recent quarter, we are seeing stable payer coverage and expect that moving forward for VOQUEZNA. We've pivoted in the last 6 months to focus on gastroenterology target prescribers as our core growth strategy. The intent of this shift is to really target depth rather than breadth of writing. That is we want to get physicians who adopt VOQUEZNA to write prescriptions more and more frequently and grow their utilization of our product as the clear path to driving our growth.

In alignment with that strategy, we have communicated that and have taken several steps over the past 6 months to align our sales activities to enable that greater focus on the gastroenterology customer.

In May, we announced the strategic shift. Step one, which actually occurred in May as well in Q2, was to adjust our incentive compensation plan for our sales reps to more reasonably balance and focus on gastroenterologists who were previously had been focused on the primary care call point.

Step 2, which we implemented in July, was to reset the sales territory target list to include all of the gastroenterology customers and take out unproductive primary care physicians from those target lists. That allowed the sales force to start spending more time in gastroenterology practices.

We also implemented in July a modified incentive comp plan, which focused on growth of total prescriptions rather than focusing on growth of the new writer base. So it really is aligned with that strategy of driving depth rather than breadth of writing.

Step 3, which we just implemented in October, just in the last couple of weeks, is a realignment of our sales territory geographies to enable better balance and better focus on our gastroenterology target call point. Let me describe that evolution for you a little bit in terms of the sales force structure.

Prior to our October restructuring, we had approximately 280 sales representatives in place. But they were situated in territories that had been mapped at launch around total PPI volume, which is basically mapping them around primary care PPI volume because that was our prior strategy prior to the restructuring in May.

As of 2 weeks ago, what we've done is we have realigned the base territory maps so that we consolidated territories that did not have enough gastroenterologists to focus the reps' time appropriately on those customers, and we created new territories where there was a high concentration of gastroenterologists. The transition of territories does create a bit of disruption in the field during this quarter.

At full strength by Q1 when we filled the open territories, we expect to have approximately 300 sales representatives in place. The net effect at the end of this transition is to create territories that are better balanced to enable us to call on every target gastroenterologist with the desired frequency.

This realignment in the sales force territories could have some temporary impact in Q4, which we've considered in updating our revenue guidance for this quarter and setting our updated guidance for the year. We believe the sales force realignment can accelerate our growth during 2026. It may take some time to see the full impact of the sales force realignment activity.

The gastroenterology opportunity for VOQUEZNA includes a target universe of approximately 24,000 gastroenterology writers. And that includes 17,000 physicians and about 7,000 affiliated nurse practitioners and physicians' assistants. Collectively, those 24,000 GI targets write about 20 million PPI prescriptions every year. That's our opportunity set.

At our current prescription run rate in GI, we believe we've converted approximately 3% of the GI PPI prescribing market opportunity of 20 million prescriptions a year. If we are able over time to convert 20% to 30% of that 20 million prescription volume, we believe that that penetration could potentially reach or exceed $1 billion in revenue per year within the gastroenterology target universe alone.

Obviously, there's a much bigger opportunity than that, and that opportunity resides in primary care. And we do believe that in future years, our expansion back into more depth and time in primary care clinics could potentially drive revenue to an even higher number, possibly reaching $2 billion or more in revenue.

A quick update on our clinical program. We have recently initiated our Phase II clinical trial in Eosinophilic Esophagitis. Screening of patients is currently underway in that study. So we've initiated study sites. We've initiated screening patients with the first subject enrolled in the study expected in Q4, as we previously communicated.

Just as a quick reminder, the rationale for this study is twofold. First, in terms of market opportunity, PPI therapy is currently first-line therapy for EoE patients. There is an opportunity for VOQUEZNA, therefore, to play an important role in EoE treatment, potentially displacing some portion or a meaningful portion of that PPI usage in EoE patients if the trial is successful and if the program overall is successful.

Second, if this Phase II study is successful, we believe that we have an opportunity or may have an opportunity to receive a written request from the FDA to conduct a Phase III study that includes pediatric patients, and that creates the potential for us to extend our regulatory exclusivity by an additional 6 months. That will be determined at the end of the Phase II trial as we have conversations with FDA at that time. We expect to report top line results from this study in 2027.

As we're on the topic of regulatory exclusivity, just a quick reminder for everyone. We've updated the Orange Book or FDA rather, has updated the Orange Book to indicate that we have exclusivity through May of 2032. The mechanics of how that works actually provides us exclusivity into 2033 because an ANDA filing is not permitted until that May of 2032 date. So with a 10- to 18-month typical ANDA review timeline, we believe generic entry is unlikely until 2033.

A note on the VOQUEZNA TRIPLE PAK update that we've previously discussed. We've had good progress here working with our supplier of the TRIPLE PAKs. You may recall from our update in August that there has been some risk of disruption to the availability of the clarithromycin component in our TRIPLE PAK from the supplier of that product. We have not to-date experienced any disruption in TRIPLE PAK availability and based upon recent communications, do not anticipate any near-term interruption, although there is still some uncertainty in this area. We will continue to monitor this closely and provide any updates that are needed.

We are executing at Phathom with discipline and momentum to implement our GI-focused strategy. The financial picture of the company is in order with solid execution on our plan. We have a talented and engaged team throughout Phathom driving our revenue growth.

I'll turn it over at this point to Sanjeev to provide more detail on the financials and the outlook for the year.

Thank you, Steve, and hello, everyone. I wanted to begin by saying how privileged and excited I am to be part of Phathom Pharmaceutical at this critical inflection point for the company. As I thought about my next chapter, I focused on 3 questions. Does the work matter for patients? Can I help build something durable? And is the dream truly aligned with the mission? At the heart of it, I wanted to join a company where work being done has the potential to directly improve patients' life. Phathom and VOQUEZNA checked all 3 boxes for me. That's what drew me here.

Early conversation with Steve made the strategy clear: sharper on focus and execute with discipline. The company is on a solid footing and the plan, growing the top line while being disciplined with expense management resonates with me. I'm especially aligned with the best among GI writers' commercial approach. I've seen the specialist-led bill playbook work for -- worked in my prior experience, and I believe it's the right fit for VOQUEZNA.

My first weeks here have only strengthened that conviction. We are all in in our goal to become a profitable, durable GI company. The foundation is strong and I'm excited to help this team build on existing momentum.

Before I dive into the results, I would be remiss if I did not thank Robert Breedlove for his effort during the transitionary phase while Phathom was searching for a CFO. Robert will continue to serve as our Principal Accounting Officer and as an important leader in our organization.

With that, let me turn to results. We are pleased with our solid financial results for third quarter for 2025 and feel that clearly demonstrate the progress being made as a result of shift in our strategy. As Steve mentioned, we reported top line net revenue of $49.5 million in quarter 3. In connection with our strong quarter and year-to-date results, we're updating our full year revenue guidance to $170 million to $175 million.

Q3 revenue represents a 25% increase compared to prior quarter, driven almost entirely by covered prescription, which grew approximately 23% during the quarter. Cash-pay prescription and changes to wholesale inventory had minimal impact to our quarterly results.

For third quarter 2025, our gross to net came in towards the lower end of previously guided 55% to 65% range. Based on these results and our expectation for rest of the year, we're tightening our quarter 4 gross to net range to between 55% to 60%.

Our gross profit for the quarter were approximately 87%, in line with our expectation. This margin, which includes product cost as well as licensing royalties, continues to be consistent compared to previous quarter. After accounting for quarterly cash expenses, we reported a loss from operations, excluding stock-based compensation, of only $6 million. This is an 88% improvement compared to previous quarter. Overall, we believe our revenue results today reflect the progress of ongoing commercial efforts to focus on GIs.

Now let's turn to operating expenses. As a reminder, in the scope of this discussion, when we refer to operating expenses, we will be referring to non-GAAP form of this measure, which excludes noncash stock-based compensation. For quarter 3, we reported operating expenses of $49.3 million, which excludes $9.3 million of stock-based compensation.

Compared to the same period in 2024, this represents a decrease of 38%. The year-over-year decrease primarily reflects a reduction in personnel costs and a sharper focus on commercial activities that we expect to materially drive VOQUEZNA adoption. We believe these results demonstrate our commitment to disciplined cost management while it continue to grow revenues.

In fact, we also achieved a meaningful reduction in spending this quarter compared to quarter 2 and quarter 1 of 2025. Our quarter 3 operating expenses reflect a $36.8 million or 43% decrease from quarter 2 2025 and $48.8 million or 50% decrease from quarter 1 2025. Importantly, this quarter, cash operating expenses were well within our previous guidance of below $60 million.

For additional context, the main driver for decreasing spend between Q3 and Q2 were a reduction of approximately $19 million in advertising spend, primarily DTC was turned off as of June 30, $10 million in headcount and restructuring-related spend and $8 million in vendor costs.

Looking forward to Q4, we expect expenses to be somewhat higher than Q3, primarily related to the initiation of Phase II EoE trial. Even with EoE included, we reiterate our previous guidance for fourth quarter operating expenses being below $55 million, excluding stock-based compensation.

Based on our Q3 results and anticipated Q4 targets, we're refining our full year 2025 non-GAAP operating expenses to $280 million to $290 million. We believe our results clearly show a path towards operating profitability in 2026, excluding stock-based compensation.

Net revenue this quarter have already begun to outpace cash operating expenses, and we believe gross profit will follow suit. In this event, we expect the operating profit generated to organically strengthen our balance sheet and provide an opportunity to further investment in our business.

As of September 30, 2025, our cash and cash equivalents totaled approximately $135 million, reflecting only a $14 million reduction in net cash. This net cash usage reflect a significant 77% reduction compared to last quarter of approximately $63 million.

Based on our current revenue outlook and operating forecast, we reiterate our belief that current cash balance can support operations through the anticipated point of achieving operating profitability in 2026, excluding stock-based compensation, without the need for additional equity financing.

I feel very confident in our financial position and our path forward. We believe we have brought down expenses to a point that materially improves financial profile of the business in concert with anticipated revenue growth. With this improved financial profile, we expect to have the ability to modify or refinance our existing debt to provide greater flexibility.

I'm excited to be at Phathom at such pivotal point in the company's journey. Our strong results this quarter are encouraging, and we remain confident in our ability to execute on our strategy for the remainder of 2025 and into next year.

With that, I will now turn the call back to Steve for his closing comments. Steve?

Thank you, Sanjeev, for the helpful financial update. To wrap up, I'll just reiterate a couple of key points. And I realize we've already said some of this, but just in summary. We're really pleased with the way the third quarter went. Revenue was up 25%. Cash operating expenses were down 43% versus Q2 and cash usage was down by 77%. We are executing on the strategy that we laid out approximately 6 months ago on our May call.

Our strategy to concentrate on our gastroenterology call points is being executed crisply. And with the momentum, both financially and operationally throughout the organization, we believe we are well positioned moving forward.

My sincere thanks to our Phathom team members for their extraordinary dedication and diligence throughout this year and on an ongoing basis, and to the physicians and patients who trust in our products every day, and to our shareholders joining us on this call and all of our shareholders for your continued support.

I'll now turn the call over to the operator for any questions.

[Operator Instructions] Our first question comes from the line of Umer Raffat of Evercore.

Congratulations on Sanjeev. I have 2 questions, if I may. First, if I look at your prescription growth over the last couple of quarters, it looks like you're tracking at about 48,000 in additional prescriptions in 2Q and 3Q. And per guidance, even if I take the high end of guidance, it looks like the guidance is baking in only 35,000 prescriptions in 4Q. And I guess that's my question, is that what you're baking in, that prescription -- that growth steps down in 4Q?

Which leads me to the second question, which is the cost cuts and the discipline coming through is solid right now. The cost cut and discipline is very solid right now. But my question is, from those advertising cuts that Sanjeev spoke to, do you anticipate any impact as we head into 1Q and 2Q next year because they may not show right away?

Umer, thanks so much for dialing in. This is Steve. Appreciate the questions. First, on the growth, we are continuing to see really positive traction with all of our gastroenterology accounts in the context of the strategy to go deeper within gastroenterology.

Our guidance for the full year was, in fact, narrowed to the upper end of the range. But we're trying to balance both the momentum that we're going to gain in the gastroenterology accounts with the fact that in Q4, we are going through the sales force transition. And so those 2 variables have somewhat offsetting effects, and we wanted to guide appropriately to something that we had significant confidence in.

And Umer, to your second point about the expenses, I think the management has been very disciplined. The expenses that have been kind of streamlined were not driving the top line per se. I think that's the key point to note here. And we've been obviously very mindful of watching the script trends, watching the return on the investment, and we feel comfortable with the level that we have is sustainable.

Obviously, Umer, our job as a management team is to make sure we maximize the top line, and we'll continue to watch the expense level. But right now, we feel we're not going to have any impact from the DTC that we paused at the end of second quarter, but we'll continue to watch as we go forward.

Our next question comes from the line of Kristen Kluska of Cantor.

So with the strategy, I wanted to ask how much you are still focusing on those PCPs that you were having success with initially. I believe about 30% of the scripts you were seeing prior to this new alignment were on PCP. So was that mix from several PCPs? Or did you find that there were some that were higher responders?

So Kristen, that's -- thank you for the really important point that a large part of the PPI market has come from primary care. We are not ignoring that opportunity at all, and we are continuing to call on the customers that have already written scripts for VOQUEZNA. The PCPs that we took out of the call pattern during Q3 were primary care physicians who had not yet written a script. So anyone who had written a script stayed in the call targeting list.

And what we're trying to do is shift time toward GI, but it's not 100%. So ultimately, where we want to get to is that 70% or more of our sales force time is being spent in gastroenterology practices. Now that leaves 30% of our sales force time to continue calling on the top decile primary care physicians, that is the primary care physicians who write the most PPI scripts and included in that call pattern set is the primary care physicians who have already adopted the product because naturally, a physician who's already adopted is an opportunity for meaningful growth.

I do think in future years, you're going to see us, after we have deep penetration within GI, think about how do we grow our penetration in primary care. But for the coming quarters, certainly through 2026, our focus is going to be with an emphasis on GI, not excluding at all the PCPs that are adopting and growing.

Okay. Last question for me. You mentioned that there were new territories created where there was a higher concentration of GIs. I'm curious if these were doctors that the team was not visiting or perhaps they were outside of the main area, so they were still potential customers. They just weren't getting as much face time with them since that territory didn't exist before?

That's right. That's right. It's not that we have GI customers that we couldn't see at all. We couldn't see them with the frequency that we wanted to create the depth of adoption that we wanted. And so we had some territories that had 80 gastroenterologists in them. And if you think about the call pattern and the frequency that we want to achieve in order to really drive growth, that is a heavy call load that made sense to split some of those territories to be able to put 2 reps into that geography. We had other territories where they only had 10 gastroenterologists and they just can't spend that much time in 10 offices. And so that's where the realignment needed to take place.

Our next question comes from the line of Paul Choi of Goldman Sachs.

Congrats on all the progress. With regard to the opening up of the Medicare access and the cash-pay component of it, could you maybe just comment on how you think the mix of cash-pay as a mix of covered prescriptions and so forth will be evolving over the next few quarters? Any color on that would be great.

And then my second question is with regard to repeat prescribers, particularly in the GI channel. Are you seeing any evidence of an increase in the number of repeat prescriptions that your existing prescriber base is offering now? Any quantification there would be helpful.

Paul, thank you. I appreciate the questions on both of those points. Let me first take the sort of cash and Medicare versus covered prescription mix question because we don't actually try to actively manage the mix or the ratio. And you'll see in the way that we presented the slides and the way that we've revised how we're talking about this, it's not about talking about total script numbers and what percentage is where, but rather the growth specifically in the covered scripts and the growth specifically in the cash scripts.

And what we're attempting to do is drive growth in prescribing behavior, recognizing that both of those categories are going to grow. And we're not actively trying to manage in any way what that ratio is, whether it's 30% or 35% in a given quarter. That's not a part of the conversation set that we have with any physician. The conversation that we have with physicians is about what patients are most appropriate for them to consider starting VOQUEZNA and how they make that decision and how they evolve their prescribing patterns.

So I think what you're going to expect to see is growth in covered scripts and growth in cash scripts, and we're not attempting to actively forecast that ratio. We want to drive continued growth in both on an aggressive basis.

I think the other important point, Paul, to note is, as Steve mentioned in his prepared remarks, is our top line revenue is driven by the covered scripts, which is what grew 23% this quarter. And clearly that has got a direct relationship. And the other thing I keep in mind is you shouldn't think about that one is cannibalizing the other. Both are growing depending upon where the patient is right fit based on all the coverage that doctor and the patient decides.

Yes. I think that last point is a really important one. In no way does our cash script volume cannibalize our covered script volume that the incremental patient on Medicare who gets a cash script was never going to get coverage. So that's not lost revenue in any way. When that patient gets added, that's just a positive additional impact in terms of the patients being satisfied with the product, the physician being satisfied that their patient gets access to the product and the physician being more willing to adopt.

So we actually think getting that extra Medicare patient started on VOQUEZNA increases the propensity of that physician to prescribe our product for their covered patients as well. The growth in one actually drives growth in both. So that's a part of the reason for turning on that opportunity.

The second part of the question on sort of the repeat prescribing behavior and evidence for increase. We're not providing specific metrics, but you can imagine we are, in fact, tracking the metrics internally. What we've done is we have evolved our selling model and our coaching model for the sales territories around what we are referring to internally as the adoption ladder. And that is how do we grow physicians from trialing the product, using the product a few times every quarter to prescribing the product on average every other week to -- as an NRx to prescribing the product on a weekly basis to really making this a core part of their practice. And we are tracking physician growth up that adoption ladder. We're tracking it on a territory-by-territory basis. We're tracking it on a physician-by-physician basis.

This is the coaching conversation that our regional sales managers are having with their territory managers as they are working through each conversation about each of their customers, and we are seeing evidence that we're growing utilization, we're growing more and more physicians into that regular prescribing adopter category, and we're doing that on a monthly basis. We're just not giving the metrics because there are so many different metrics and so many different ways of looking at it that it gets complex.

One other sort of broad perspective is overall, as we described, the 20 million prescription opportunity in gastroenterology, we had 140,000 prescriptions in gastroenterology -- in the gastroenterology segment in -- as an estimated number during Q3. So annualize that and you get to something on the order of $600,000. You get to 3% of that $20 million run rate on an annualized basis. That's our growth opportunity.

If we want to get to 10x, the current revenue in gastroenterology, we need to get to 30% rather than 3% of those 20 million scripts. That's the focus in every conversation, and we are starting to see evidence of that growth pattern on an account-by-account basis.

Our next question comes from the line of Yatin Sunjea of Guggenheim.

Can you hear me?

Yes.

Congrats on pretty good execution. Maybe just 2 questions from me. As you are sort of trying to go more deeper into the GI community, can you just talk about the type of patients you are seeing right now? Can you also talk about the penetration you might be seeing in NERD versus GERD population? And how should we think about the duration of treatment that is playing out right now?

And Sanjeev, congratulations on the new opportunity. Maybe if you can maybe help us understand how should we think about 2026 as the sales ramp up? How should we think about the OpEx there?

Okay. I'll let Sanjeev take the OpEx question at the end. Let me just jump into the types of patients that we're seeing and sort of NERD versus GERD within GI. The typical patient with either erosive esophagitis or non-erosive reflux, but the typical reflux patient that is landing in a gastroenterology practice has already been having conversations with their primary care physician for some time around their reflux.

Almost always, they will be started on a PPI because they're complaining about heartburn to their primary care physician. Most typically, they'll be started on 20 milligrams of omeprazole. They might then be escalated within the primary care practice to twice a day omeprazole or to 40 milligrams of omeprazole every day or they might be adding Tums or other therapeutic modalities to their PPI whenever they have breakthrough heartburn. And it's when that patient is still experiencing significant pain and the physician has tried a couple of things and has not been able to resolve the heartburn, that's when they get the referral to gastroenterology.

So the type of patient who lands in a gastroenterology practice is often a patient who has either tried BID dosing or has cycled through a couple of PPIs or has doubled their dose of PPI or is adding an H2 blocker or is adding antacids to their PPI and they're still having significant pain.

So the patients who land in the gastroenterology practice and are being evaluated for their reflux are exactly the patients that should be switching to VOQUEZNA because they need more significant acid suppression. And we're hearing that in every conversation. I was just at ACG for a few days having a number of conversations with gastroenterologists over these past few days. And the commonality of the story that every patient who's landing in their office has already been on a PPI. Often they've been on it for years, often they've double dosed it. That's who they're seeing, and that's who they're switching. And that's why we think that we can capture a very meaningful percentage of that PPI volume in gastroenterology practices because that PPI volume is being prescribed to exactly the patients who need our drug.

We don't have as clear a distinction on the breakout between non-erosive reflux and erosive esophagitis patients because physicians for a patient who is experiencing significant heartburn might prescribe 20 milligrams for patients in both categories. Our indication is specifically that the 20 milligrams should be for erosive esophagitis and 10 milligrams is the approved dose for non-erosive reflux, but it's really at the physician's discretion how they use one or the other. And one of the things we also see is that many patients who start on 20 milligrams never switched to 10 milligrams. They just maintain their treatment on 20 milligrams because if the patient is doing well, they just continue on with the treatment that's working for them.

Which gets to the duration of therapy question, we are looking at that on an ongoing basis in an analysis that we did early on in the first 12 months of launch. We saw that we were getting 6 or 7 prescriptions from -- within a year for patients that converted. We are continuing to look at that on an ongoing basis to see whether or not that evolves in a meaningful way over time, and that analysis is ongoing. I would expect that we're going to get pretty good persistence over years with patients who are experiencing this level of heartburn because they get the positive reinforcement that when they take this drug, they feel better. That's going to cause someone to want to continue using it, but it's hard to predict exactly numerically how that evolves.

Yes. And Yatin, thank you for your question. And obviously, we can't give you like 2026 financial guidance right now. We'll do that at the beginning of the year. But let me tell you a little bit qualitatively how we're thinking about next year.

So let me start with the first on the top line. So obviously you saw strong quarter 3 with 25% revenue growth. You saw in Q2 we had a 39% revenue growth with the pivoting strategy go deeper in GI. We'll continue to see more prescriptions coming, very effective calls. So that percentage of revenue growth will continue. Obviously, it will moderate as the base becomes bigger and bigger, but you should expect that the top line will continue to grow next year quarter-by-quarter.

Number two, I don't expect significant change in gross to net because we got a good coverage. And on where things are, there are going to be pushes and pulls, but I don't expect fundamentally a significant different gross to net, which will kind of give us a steady path to gross margin next year.

Now coming in terms of the operating expenses, I think the way to think about that is in 2 kind of ways. One is what is the operating expense to run the base company with the indication and the strategy that we've gotten so far, which means pivoting to GI and going after the top decile primary care. I think we've reached that point with the expense level that we reached in this quarter or quarter 4. I think you will kind of see that, and that will continue in next year as we go forward.

As a management team, obviously we'll be looking at all other investment opportunities which are revenue enhancing and have a payback. And then obviously we'll consider those. But all of this put in together, you've got one thing in -- we said that in the beginning of the discussion was we expect ourselves to be operating profit -- in operating profit position next year. And that's kind of what we are of course striving to.

With the cash usage that we have of $14 million this quarter, I mean that goal is near to us. But again, we will be providing all that beginning of the year when we give the guidance. But I feel very good about what the momentum is right now where we are entering into quarter 4 and then entering into next year with a solid set of financials.

Our next question comes from the line of Joseph Stringer of Needham & Company.

Just 2 from us, kind of a follow-up question, just given the backdrop of the 3Q print here where revenue came in higher than consensus and OpEx a bit lower. So in terms of hitting your goal of sustainable non-GAAP profitability in '26 without the need for additional capital, you've been pretty consistent in that messaging. So I guess what's your confidence in hitting that goal now to say, compared to your confidence level maybe last quarter or in the quarters past?

And then secondly, with the -- curious to get your thoughts on the new marketing analytics hire. What have they seen? Or what are some of the initial insights or takes from looking at the analytics or what the analytics are telling you about the VOQUEZNA launch and the strategy there? Was there any area outside of some of your prepared remarks that surprised you or that could be optimized or areas where you could really drive uptake or growth going forward?

So Joe, thanks so much for both of the questions. First, in terms of sort of our confidence in getting to positive cash flow operations next year or positive EBIT as we've described it, we have remained consistent since May in the indication that we believe that that's achievable. And I think what we've done this quarter is just demonstrate that we are exactly on that path. So it's one more quarter of clear demonstration of exactly the path that we set out in May, which is we're going to continue to grow revenue.

The thing that continues to drive revenue growth is sales force time in gastroenterology practices and driving growth and depth of adoption in GI practices. That remains unchanged. That's what we saw when we looked at the metrics back in May. That's what was working. That's what was driving our revenue. We've done more of that. We're continuing to drive revenue. My confidence that as we do more of that, we're going to continue to drive revenue is high.

Similarly, as Sanjeev just mentioned a moment ago, we've brought down expenses we believe to a sustainable level in terms of our base operations and we might, on a discretionary basis, choose to make additional investments in certain areas if we want to do certain clinical trials or if we want to run a program. So we're not guiding on this call to what the expense level is going to be in 2026. We'll provide that guidance as we get towards 2026.

But we are clearly vigilant about maintaining the expense level at a level where we can get to operating cash flow profitability next year and reaching operating profitability. And we wouldn't have said it if we didn't mean that we were going to try to work very diligently doing that and that we didn't believe we could do it. We absolutely do believe we can do it.

From a marketing and analytics perspective, Nancy just started a couple of weeks ago. So I'm not going to speak for her as to what she's seen already, but our whole analytics team is spending a lot of time doing a deep dive on exactly how do we see detailed patterns, how can we direct the sales force time and marketing programs ever more efficiently and effectively. That's something that's not a 1- or 2-week exercise. That is something that is going to be months and, in fact, years of work on an ongoing basis.

But I've just been delighted working with Nancy over the last couple of weeks, delighted working with Sanjeev over the last few weeks. And we've got a really solid team that is being very thoughtful as they work through the plan.

Our next question comes from the line of Dennis Ding of Jefferies.

This is Anthea on for Dennis. Congrats on the quarter. I wanted to ask on the sales territory realignment. When do you expect that to complete? And as you ramp up the additional 20 reps, when do you expect to see their productivity reflected in the top line?

And then second, in terms of expansion back into PCPs, what is the gating factor there? Or what would you want to see to consider taking that on again?

So Anthea, thanks so much for the questions. Two quick things on sort of thinking about the territory realignment. We've already executed the territory realignment. So all of the territory maps have been changed. All of the reps have their new territories. They are in their new territories calling on their new customers. But in the course of that, it does create some vacancies. We are actively recruiting for all of those positions. But obviously hiring doesn't happen in a week or 2. Hiring takes months. So we will be bringing folks on through the course of this quarter and next to fill the open positions.

As we indicated on the call, I expect that by Q1, as we fill all of the open territories, we will get to a sales force strength of 300. But I actually feel really good about where we are already today that as the significant sales force strength that we already have is in the right territories, calling on the right customers, we're going to start to see that traction. But we'll see incremental impact as we fill those territories through Q1. And that should play out through 2026. And as I communicated, I think you're going to see an acceleration in growth through 2026 as we get more and more of that traction.

The other element of sort of what drives us back into the primary care market, there's an organic phenomenon that's going to happen, and it's going to turn into revenue, it's going to turn into metrics that then drive when we make the decision.

So one of the key metrics that we look at is NBRx per sales call. And that is how many new patient conversions are we getting relative to the amount of time that we're spending in a physician's practice. NBRx per sales call is much higher today for us in gastroenterology versus primary care, which is why we're driving sales force time into gastroenterology practices. NBRx per sales call is going to go up over time in primary care because primary care physicians will become more familiar with VOQUEZNA as more of their patients who've been converted on to VOQUEZNA and GI practices go back into the primary care office and talk to their physician about how much better they feel.

Primary care physician had a patient in pain, sent them to a GI, came back. Their first question is naturally going to be in the next visit, well, how are you doing? How did that referral go? When the conversation goes to VOQUEZNA and they feel a whole lot better and a physician has heard from 5, 8, 10 patients, that's when that becomes a much softer target call for us to be able to drive conversions, and we'll see that NBRx per sales call number go up. At some point, that becomes really profitable to make an investment in growing in that space.

Now I don't think that's a 2026 thing. I think that's '27 or '28. But at some point, when that metric works and we're getting positive ROI for that incremental investment, you'll see us expand into more time in primary care as well.

Our next question comes from the line of Annabel Samimy of Stifel.

I think you guys have covered a lot already. But clearly you have a great opportunity within the GI community. Maybe you can, just on the flip side, talk about some of the reasons why physicians have not yet adopted. Is it a matter of awareness or one of reimbursement? And it seems like there is high-end awareness. So for the GI -- the new GI doc, what is the average number of calls that you need to convert these docs? I guess what I'm asking is, at some point, do you expect some inflection point in sales with this critical mass that you've now focused on GI docs? So that's my question.

Annabel, thanks so much for the question. And I agree, we do have a terrific opportunity within GI and that's an opportunity to get to really significant revenue. So there's not actually an impediment to first adoption within GI. In fact, the vast majority of gastroenterologists have already written prescriptions for VOQUEZNA. What we need to do is change behaviors to frequency of writing. And that happens gradually.

The major impediment candidly is 30 years of habit. They've been prescribing PPIs for 30 years. They're comfortable with them. It's their sort of first inclination. It's the easy thing to do. And what we are trying to do is shift practice patterns away from ingrained 30-year habits that are easy and comfortable and familiar to a new product that provides a meaningfully better outcome for their patients.

Their patients when they're on VOQUEZNA feel a whole lot better. And what it takes to change that is repetition of conversation, repetition of experience, feedback from actual patient experience. So we might get a physician to start writing, but only for the patients that have failed everything else. They switched them to between 3 PPIs, they switched them to double dose BID PPIs. And now they finally switch them to VOQUEZNA because there's nothing else to do.

Soon if that patient tells the doc that they're feeling better, there's an opportunity for the sales rep to have a conversation about, doc, why are you waiting to switch through 3 PPIs before you use the product? Why don't we start using it on anybody who's coming into your practice who looks like this patient characteristic but doesn't need to go through all of that difficulty and challenge, you can get them started sooner.

Maybe they start with their erosive esophagitis grade C and D patients because we've got clear clinical evidence of superior healing in those patients. And then after they see the significant healing, we start talking to them about their grade B erosive esophagitis patients and patients where they think they might not heal well enough on a PPI and they ought to convert. And as they get more experience, they grow their utilization. And then eventually, we're talking to them about patients that are having nighttime heartburn even though they have non-erosive reflux and how do you think about those populations.

So it's really about growing the adoption pattern. It's not enough to get a first adoption. It's about changing patterns in broad categories of patients that happens incrementally with multiple sales calls. And we are seeing that happen. There's not an impediment to first writing. There's really just a habit change process that comes from reinforcement, multiple calls, multiple patient feedback experiences. And that's happening today, and it's happening organically.

Okay. That's great to know. So just one more question maybe for Sanjeev. So it's great that you turn on Medicare. And it's interesting that the average gross margins come down at the same time, while the cash-pay business seems to, I guess, come back up to about 35%. So is that -- I guess, if you are guiding gross to net to the bottom end of the range, is that suggesting that commercial will continue to grow faster than cash-pay? Are we understanding these impacts? Like I just want to understand what gives you confidence on the gross margin -- gross to net being at the lower end of the range with some of these dynamics going on?

Yes, Annabel, thank you for the question. So actually gross margin, if you look at last 3 quarters, have been very consistent within the range and lower end of the range. I think this quarter as well, when I looked at the results, it came at the lower end of the range. And when I find comfortable with the 3 quarters in hand that we could tighten the guidance for fourth quarter from that perspective.

As regard to cash-pay, the way the gross margin is calculated and everything, that does not have a material impact on our gross to net percentages. So as those percentages continue to grow, they will all be reflective of that because our bigger part of the gross to net is impacted by the covered script. And I don't expect that to change significantly between this year and next year.

Our next question comes from the line of Chase Knickerbocker of Craig-Hallum.

A lot has been asked, but maybe just to stay on the topic of gross to net. Just as we think about it longer term, I mean should we think about that kind of tighter range as kind of the right way to think about medium- to long-term gross to net? Should we continue to see some improvement even potentially going closer to 50% from the bottom end of the range now? I mean, where do you think kind of gross to net ultimately mature to as your business matures over the medium to long term?

And then, Sanjeev, just maybe any low-hanging fruit that you see on the gross to net to maybe continue to drive some improvement there from your past experiences?

Yes, Chase, thank you for the question. So we obviously are very kind of focused on gross to net as every other line item. So I'd say -- I think one thing I'd say, I've seen very consistency. I think management has done a good job in getting access and managing all the contracts. And the 3 quarters results have been very consistent and they give me the confidence we can tighten this for this quarter.

Going forward, Chase, I don't expect a significant change in how we look at it. Obviously, we look at it at the right time what kind of guidance we want to give. Maybe it will be a little bit tighter than what we had before, but we'll come back to that when we give the guidance. I -- there would be obviously pushes and pulls as you think about it. There is a potential for price increase. There are obviously rebates in the government sector that we got to be mindful of and everything else.

But also we have things like DSA. As the company gets matured, we have opportunities for renegotiation some of those things. So there are pushes and pulls that are going to happen. We'll manage it. But I don't expect on an overall basis to be a significant change in our gross to net trajectory as we've seen thus far for 3 quarters this year.

Our next question comes from the line of Matthew Caufield of H.C. Wainwright.

And welcome to Sanjeev. I wanted to ask, is there a sense of the proportion of patients that may be getting lost between having their script written by their GI, not being covered and then the patient not subsequently following up for BlinkRx, for example, and how that may be evolving or ideally improving?

So Matt, thanks so much for the question. I don't think we've ever disclosed specific numbers on the number of prescriptions that weren't filled. We obviously are tracking abandonment rates and looking at that pattern, actually overall are pleased that we're doing better than industry norms on some of the metrics. But one of the key advantages of offering the Blink service is that it improves that pattern.

So if a patient goes to a retail pharmacy and their product isn't -- and their script isn't covered by their insurance, for example, and they get a higher-than-expected co-pay, they may walk away and not fill that script. If the patient goes to Blink and they are getting covered, they will get a $25 co-pay. And if they are not getting covered, they will be offered a $50 cash price.

So that methodology enables us to significantly minimize that process. And as we're educating physicians about the fact that there's an advantage to sending their patients to Blink, it can just -- we can manage that cycle to reduce that walk away from a prescription to minimize the co-pay and minimize at all times the patient out-of-pocket payment so that you have the best likelihood of a patient getting access to the product.

And one of the advantages of doing that is even if they end up with getting access to the product on a cash-pay basis, for example, if they've got a high deductible plan and their plan isn't going to covered or their payment is going to be too high early in the year, at some point several months later, they may actually get their script covered and we want to be resubmitting it and switch that patient to a covered category patient. And that advantage -- that whole process is streamlined and works better through Blink and through a retail pharmacy typically.

Thank you. Ladies and gentlemen, that does end the Q&A session and conclude Phathom Pharmaceuticals' call for today. Thank you for participating. You may now disconnect.