SEC Filing | Phathom Pharmaceuticals, Inc.

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phat-10q_20210930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-39094

PHATHOM PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		82-4151574
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Campus Drive, Suite 102 Florham Park, New Jersey		07932
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (877) 742-8466

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

PHAT

Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
Emerging growth company	☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 3, 2021, the registrant had 31,414,827 shares of common stock ($0.0001 par value) outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)	F-1
	Balance Sheets	F-1
	Statements of Operations and Comprehensive Loss	F-2
	Statements of Stockholders’ Equity	F-3
	Statements of Cash Flows	F-5
	Notes to Unaudited Financial Statements	F-6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3	Defaults Upon Senior Securities	33
Item 4	Mine Safety Disclosures	33
Item 5	Other Information	33
Item 6	Exhibits	34
	Signatures	35

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements (unaudited)

PHATHOM PHARMACEUTICALS, INC.

Balance Sheets

(Unaudited)

(in thousands, except share and par value amounts)

	September 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	224,618		$	287,496
Prepaid expenses and other current assets (including related party amounts of $0 and $82, respectively)		695			3,872
Total current assets		225,313			291,368
Property, plant and equipment, net		692			986
Operating lease right-of-use assets		2,031			2,373
Other long-term assets		341			384
Total assets	$	228,377		$	295,111

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable (including related party amounts of $311 and $173, respectively)	$	5,582		$	16,782
Accrued clinical trial expenses		10,491			19,997
Accrued expenses (including related party amounts of $1,847 and $734, respectively)		11,040			10,606
Accrued interest		214			312
Current portion of long-term debt		—			7,353
Operating lease liabilities, current		484			474
Total current liabilities		27,811			55,524

Long-term debt, net of discount		88,305			39,634
Operating lease liabilities		1,280			1,557
Other long-term liabilities		7,500			4,125
Total liabilities		124,896			100,840

Commitments and contingencies (Note 4)

Stockholders’ equity:
Preferred stock, $0.0001 par value; authorized shares - 40,000,000 at September 30, 2021 and December 31, 2020 ; no shares issued and outstanding at September 30, 2021 and December 31, 2020		-			-
Common stock, $0.0001 par value; authorized shares — 400,000,000; issued shares — 31,414,827 and 31,262,769 at September 30, 2021 and December 31, 2020, respectively; outstanding shares — 30,047,428 and 28,516,010 at September 30, 2021 and December 31, 2020, respectively		3			3
Additional paid-in capital		597,022			579,755
Accumulated deficit		(493,544	)		(385,487	)
Total stockholders’ equity		103,481			194,271
Total liabilities and stockholders’ equity	$	228,377		$	295,111

See accompanying notes.

F-1

PHATHOM PHARMACEUTICALS, INC.

Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Operating expenses:
Research and development (includes related party amounts of $849, $1,023, $2,695, and $1,676, respectively)	$	16,608		$	25,770		$	58,786		$	56,494
General and administrative (includes related party amounts of $0, $62, $16, and $139, respectively)		16,529			7,060			43,254			16,732
Total operating expenses		33,137			32,830			102,040			73,226

Loss from operations		(33,137	)		(32,830	)		(102,040	)		(73,226	)

Other income (expense):
Interest income		8			15			35			1,075
Interest expense		(1,485	)		(1,286	)		(4,013	)		(3,286	)
Change in fair value of warrant liabilities		—			—			—			95
Other income (expense)		(2,048	)		(4	)		(2,039	)		(5	)
Total other income (expense)		(3,525	)		(1,275	)		(6,017	)		(2,121	)
Net loss and comprehensive loss	$	(36,662	)	$	(34,105	)	$	(108,057	)	$	(75,347	)
Net loss per share, basic and diluted	$	(0.98	)	$	(1.02	)	$	(2.94	)	$	(2.29	)
Weighted-average shares of common stock outstanding, basic and diluted		37,299,351			33,366,237			36,748,492			32,946,128

See accompanying notes

F-2

PHATHOM PHARMACEUTICALS, INC.

Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance at December 31, 2020		28,516,010	$	3	$	579,755	$	(385,487	)	$	194,271
Issuance of common stock from exercise of stock options		36,998		—		412		—			412
401(k) matching contribution		8,356		—		323		—			323
Vesting of restricted shares		301,656		—		—		—			—
Stock-based compensation		—		—		3,818		—			3,818
ESPP shares issued		13,490		—		358		—			358
Net loss		—		—		—		(34,843	)		(34,843	)
Balance at March 31, 2021		28,876,510	$	3	$	584,666	$	(420,330	)	$	164,339
Issuance of common stock from exercise of stock options		8,000		—		104		—			104
Vesting of restricted shares		301,659		—		—		—			—
Stock-based compensation		—		—		4,237		—			4,237
Net loss		—		—		—		(36,552	)		(36,552	)
Balance at June 30, 2021		29,186,169	$	3	$	589,007	$	(456,882	)	$	132,128
Issuance of common stock from exercise of stock options		50,073		—		1,265		—			1,265
401(k) matching contribution		18,394		—		580		—			580
Vesting of restricted shares		776,045		—		—		—			—
Stock-based compensation		—		—		4,419		—			4,419
ESPP shares issued		16,747		—		461		—			461
Issuance of warrants		—		—		1,290		—			1,290
Net loss		—		—		—		(36,662	)		(36,662	)
Balance at September 30, 2021		30,047,428		3		597,022		(493,544	)		103,481

F-3

PHATHOM PHARMACEUTICALS, INC.

Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance at December 31, 2019		24,728,258	$	2	$	484,372	$	(256,419	)	$	227,955
Conversion of Lender Warrants into equity		—		—		318		—			318
Vesting of restricted shares		425,295		—		—		—			—
Stock-based compensation		—		—		563		—			563
Net loss		—		—		—		(20,141	)		(20,141	)
Balance at March 31, 2020		25,153,553		2		485,253		(276,560	)		208,695
Vesting of restricted shares		460,859		1		—		—			1
Stock-based compensation		—		—		828		—			828
Net loss		—		—		—		(21,101	)		(21,101	)
Balance at June 30, 2020		25,614,412	$	3	$	486,081	$	(297,661	)	$	188,423
Vesting of restricted shares		301,681		—		—		—			—
Stock-based compensation		—		—		2,070		—			2,070
Net loss		—		—		—		(34,105	)		(34,105	)
Balance at September 30, 2020		25,916,093	$	3	$	488,151	$	(331,766	)	$	156,388

See accompanying notes.

F-4

PHATHOM PHARMACEUTICALS, INC.

Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(108,057	)	$	(75,347	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		386			217
Stock-based compensation		12,474			3,461
Issuance of PIK interest debt		130			—
Amortization of debt discount		3,088			904
Change in fair value of warrant liabilities		—			(95	)
Other		722			158
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (includes the change in related party amounts of $82, and $0, respectively)		3,177			11,034
Accounts payable and accrued expenses (includes the change in related party amounts of $1,251 and $238, respectively)		(9,629	)		7,661
Accrued clinical trial expenses		(9,506	)		10,845
Accrued interest		(98	)		146
Operating right-of-use asset and lease liabilities		75			(272	)
Other long-term assets		43			(200	)
Net cash used in operating activities		(107,195	)		(41,488	)

Cash flows from investing activities
Cash paid for property, plant and equipment		(228	)		(916	)
Net cash used in investing activities		(228	)		(916	)

Cash flows from financing activities
Proceeds from issuance of common stock from exercise of stock options		1,781			—
Repayment of long-term debt		(54,125	)		—
Net proceeds from issuance of long-term debt		96,889			25,000
Net cash provided by financing activities		44,545			25,000
Net (decrease) in cash and cash equivalents		(62,878	)		(17,404	)
Cash and cash equivalents – beginning of period		287,496			243,765
Cash and cash equivalents – end of period	$	224,618		$	226,361

Supplemental disclosure of cash flow information
Interest paid	$	2,920		$	2,235
Supplemental disclosure of noncash investing and financing activities
Issuance of common stock warrants in connection with long-term debt	$	1,290		$	—
Property and equipment purchases included in accounts payable and accrued liabilities	$	9		$	39
Final interest payment fee	$	7,500		$	2,063
Settlement of ESPP liability in common stock	$	819		$	—
Settlement of 401(k) liability in common stock	$	903		$	—
Operating lease liabilities arising from obtaining right-of-use assets	$	—		$	1,396
Conversion of Lender Warrants into equity	$	—		$	318

See accompanying notes.

F-5

PHATHOM PHARMACEUTICALS, INC.

Notes to Unaudited Financial Statements

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Phathom Pharmaceuticals, Inc. (the “Company” or “Phathom”) was incorporated in the state of Delaware in January 2018 under the name North Bridge IV, Inc. On March 13, 2019, the Company changed its name to Phathom Pharmaceuticals, Inc. and merged with YamadaCo IIA, Inc. (“YamadaCo”), a Delaware corporation formed in September 2017, with Phathom being the surviving entity (the “Merger”). All activities of YamadaCo prior to 2018 related to formation and were insignificant. The Company is a late clinical-stage biopharmaceutical company focused on developing and commercializing novel treatments for gastrointestinal diseases.

Basis of Presentation

The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company and YamadaCo were entities under the common control of Frazier Life Sciences IX, L.P. (“Frazier”) as a result of, among other things, Frazier’s; (i) ownership of a majority of the outstanding capital stock of both companies, (ii) financing of both companies, (iii) control of the board of directors of both companies, and (iv) management of both companies. Both the Company and YamadaCo were formed for the purpose of identifying potential assets around which to form an operating company. All intercompany accounts and transactions have been eliminated.

Interim results may not be indicative of the results that may be expected for the full year. In the opinion of management, these unaudited financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited financial statements.

Certain prior year amounts have been reclassified to conform to the current year's presentation.

Liquidity and Capital Resources

From inception to September 30, 2021, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing its initial product candidate, vonoprazan, meeting with regulatory authorities, preparing for and managing the Phase 3 clinical trials of vonoprazan, building a commercial organization in preparation for a potential product launch following successful development and approval, and providing other general and administrative support for these operations. The Company has a limited operating history, has never generated any revenue, and the sales and income potential of its business is unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception and expects to continue to incur net losses into the foreseeable future as it continues the development and preparation for commercialization of vonoprazan. From inception to September 30, 2021, the Company has funded its operations through the issuance of convertible promissory notes, commercial bank debt and the sale of 10,997,630 shares of common stock for net proceeds of approximately $191.5 million in its 2019 IPO and the sale of 250,000 shares of common stock for net proceeds of approximately $88.6 million in its December 2020 follow-on public offering.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty. Management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2).

Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these financial statements were available to be issued. There can be no assurance that the Company will be successful in acquiring additional funding (if needed), that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

F-6

Use of Estimates

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, and the valuation of convertible promissory notes, warrant liabilities and various other equity instruments. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, are classified within the Level 1 designation discussed above, while prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. Warrant liabilities and convertible promissory notes were recorded at fair value on a recurring basis.

The Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

The warrant liabilities consisted of warrants (the “Lender Warrants”) issued in connection with the loan and security agreement with Silicon Valley Bank (the “SVB Term Loan”) for commercial bank debt (see Note 6). The Lender Warrants were accounted for as liabilities as they contained a holder put right under which the lenders could have required the Company to pay cash in exchange for the Lender Warrants. The fair value of the Lender Warrants was estimated on the date of grant using the Black-Scholes option-pricing model with an expected term equal to the remaining contractual term of the warrants. The Company estimates its expected stock volatility based on the historical volatility of a set of peer companies, which are publicly traded, and expects to continue to do so until it has adequate historical data regarding the volatility of its own publicly-traded stock price. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. When the Company drew down the Term Loan B under the SVB Term Loan in March 2020 (see Note 6), the Lenders’ put right expired, and the Company recorded a final fair value adjustment and reclassified the Lender Warrants balance of $0.3 million to additional paid-in-capital.

The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs (in thousands):

	Warrant Liabilities
Balance at December 31, 2019		413
Change in fair value		(95	)
Reclassification of Lender Warrants into equity (Note 6)		(318	)
Balance at September 30, 2020	$	—

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market funds.

F-7

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Property, Plant, and Equipment, Net

Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. Computer equipment and related software are depreciated over two to three years. Furniture and fixtures are depreciated over three years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the related assets. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets