Executive Summary / Key Takeaways

• Phathom Pharmaceuticals (NASDAQ:PHAT) is undergoing a significant transformation, strategically pivoting to a focused gastroenterology (GI) commercial model and disciplined cost management to achieve operating profitability in 2026.
• The company delivered strong Q3 2025 financial results, with net revenue growing 25% quarter-over-quarter to $49.5 million and cash operating expenses decreasing 43% quarter-over-quarter to $49.3 million. This led to a substantial 77% reduction in net cash usage to approximately $14 million.
• VOQUEZNA, a novel potassium-competitive acid blocker (P-CAB), offers superior acid suppression and clinical benefits over traditional proton pump inhibitors (PPIs), providing a strong competitive advantage in the vast GERD and H. pylori markets.
• Regulatory exclusivity for VOQUEZNA tablets is confirmed through May 3, 2032, effectively delaying generic entry until 2033, enhancing the product's long-term commercial runway.
• Pipeline expansion into Eosinophilic Esophagitis (EoE) with a Phase II trial, alongside development of an Orally Disintegrating Tablet (ODT) and exploration of an OTC switch, positions VOQUEZNA for sustained growth and value creation beyond its current indications.

A New Era for Phathom: Strategic Focus and Differentiated Science

Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT), established in 2018, is emerging as a compelling story in the biopharmaceutical sector, dedicated to developing and commercializing innovative treatments for gastrointestinal (GI) diseases. The company's core business revolves around VOQUEZNA (vonoprazan), a groundbreaking potassium-competitive acid blocker (P-CAB). This novel class of medication represents the first gastric anti-secretory agent of its kind approved in the U.S., Europe, or Canada in over three decades, marking a significant advancement in the treatment of acid-related disorders.

VOQUEZNA's technological differentiation stems from its unique mechanism of action. Unlike traditional proton pump inhibitors (PPIs), VOQUEZNA directly and competitively blocks potassium from binding to proton pumps in the stomach, thereby stopping acid production. This results in rapid, potent, and durable acid suppression, with clinical trials showing a reduction in acid within 2-3 hours and sustained suppression over 24 hours. This profile offers tangible benefits over PPIs, which often require specific timing relative to meals and can take several days to achieve full effect. For investors, this translates into a strong competitive moat for Phathom. VOQUEZNA addresses a critical unmet need, as 30% to 40% of GERD patients continue to experience symptoms despite PPI therapy. The drug's superior efficacy in healing Erosive GERD and treating H. pylori infections positions it as a preferred alternative, potentially commanding higher pricing power and driving robust market penetration.

The GI market is vast and ripe for disruption. Tens of millions of U.S. patients suffer from GERD, with many inadequately treated by existing options. The total over-the-counter (OTC) acid control market alone generates approximately $3 billion in annual sales. Phathom's strategic positioning leverages VOQUEZNA's differentiated profile to capture a significant share of this market. While larger pharmaceutical companies like Takeda (TAK), AstraZeneca (AZN), Pfizer (PFE), and AbbVie (ABBV) possess broader portfolios and greater scale, Phathom's focused expertise on vonoprazan provides an agile advantage in targeted GI innovation. The company's first-to-market status for a P-CAB in the U.S. is a crucial differentiator, allowing it to build physician and patient experience ahead of potential competitors.

Strategic Evolution: From Broad Reach to Focused Profitability

Phathom's journey has seen a significant strategic pivot, transitioning from an early-stage commercial entity to a growth-oriented, profitable GI company. Following the commercial launch of VOQUEZNA for Erosive GERD and H. pylori in Q4 2023, and the subsequent approval for Non-Erosive GERD in July 2024, the company initially pursued a broad market approach, including extensive direct-to-consumer (DTC) advertising.

Under new leadership in 2025, Phathom initiated a rigorous cost-cutting and organizational restructuring plan. This involved a workforce reduction of approximately 6% in May 2025 and, notably, the cessation of broadcast and streaming television DTC promotion by the end of Q2 2025. This decision was driven by internal analysis indicating a lower return on investment from broad DTC at the current stage of market penetration, with resources reallocated to higher ROI digital promotion and, critically, to its field sales organization.

The commercial strategy was simultaneously refined to emphasize "depth rather than breadth" of writing, with a sharp focus on gastroenterologists (GIs). Sales incentive compensation plans were adjusted in Q2 2025, and sales territories were realigned in July and October 2025 to increase call frequency and engagement with these high-potential prescribers. This strategic shift is grounded in data showing that GIs account for approximately 70% of all VOQUEZNA prescriptions to date and write more than twice the prescriptions per month compared to primary care physicians (PCPs). The GI market alone represents a substantial opportunity, with the potential to generate over $1 billion in annual revenue if Phathom converts 20% to 30% of the 20 million annual PPI prescriptions written by GI targets. While the PCP market offers a larger long-term opportunity, potentially driving revenue to $2 billion or more, Phathom plans to expand into this segment in 2027 or 2028, once GI-driven awareness makes PCP calls more efficient.

Operational Execution and Financial Momentum

Phathom's strategic adjustments are yielding tangible results, demonstrating strong operational execution and building commercial momentum. As of October 17, 2025, over 790,000 total VOQUEZNA prescriptions have been filled. In Q3 2025, the company reported approximately 221,000 filled prescriptions, a 28% increase quarter-over-quarter. Covered prescriptions, the primary revenue driver, grew 23% during the third quarter, while cash-pay prescriptions increased 38% quarter-over-quarter.

The prescriber base continues to expand, with over 34,100 unique prescribers as of October 17, 2025. The sales force, which was around 280 representatives, is expected to reach approximately 300 at full strength by Q1 2026, following the realignment of territories to optimize GI engagement. Payer coverage remains robust, with over 120 million commercial lives (more than 80% of the total U.S. commercial market) having access to VOQUEZNA, often requiring only a single step-edit. The company's BlinkRx program is crucial for patient access, offering a $25 co-pay for covered patients and a $50 cash price for those without insurance coverage. A new cash-pay consignment program for government patients, rolled out in April 2025, further expands access to approximately 50% of the GERD market. Early analysis indicates favorable duration of therapy, with patients receiving 6-7 prescriptions within a year of conversion, aligning with PPI usage.

Financially, Phathom is demonstrating a clear path to profitability. For the nine months ended September 30, 2025, product revenue reached $117.5 million, a substantial increase from $25.6 million in the same period of 2024. In Q3 2025, net revenue was $49.5 million, representing a 25% quarter-over-quarter growth and exceeding expectations. Gross profit for Q3 2025 stood at $43.3 million, maintaining a strong gross margin of 87%.

The company's disciplined approach to cost management is evident. Cash operating expenses in Q3 2025 were $49.3 million, a significant 43% reduction from Q2 2025 and a 50% reduction from Q1 2025. This led to a dramatic 77% reduction in net cash usage, bringing it down to approximately $14 million in Q3 2025. The loss from operations (excluding stock-based compensation) improved by 88% quarter-over-quarter, reaching only $6 million in Q3 2025.

Phathom has narrowed its full-year 2025 revenue guidance to $170 million to $175 million and refined its full-year 2025 non-GAAP operating expense guidance to $280 million to $290 million. Management anticipates Q4 2025 cash operating expenses to remain below $55 million, even with the initiation of the EoE Phase II trial. As of September 30, 2025, cash and cash equivalents totaled $135.2 million. Management is confident that these existing cash resources, combined with anticipated product revenues, are sufficient to fund operations through the achievement of operating profitability in 2026, without the need for additional equity financing.

Expanding the Franchise: Pipeline and Future Growth Drivers

Beyond its current indications, Phathom is actively investing in expanding the VOQUEZNA franchise, leveraging its differentiated technology to unlock new growth avenues.

• Eosinophilic Esophagitis (EoE): A Phase II clinical trial for vonoprazan in EoE was initiated in Q4 2025, with the first patient dosed on November 4, 2025. Top-line results are expected in 2027. This study aims to position VOQUEZNA as a potential first-line treatment for EoE, a chronic inflammatory condition where PPIs are currently used off-label. A successful Phase II could lead to a written request from the FDA for a pediatric study, potentially extending regulatory exclusivity by an additional six months.
• Orally Disintegrating Tablet (ODT): Development of an ODT formulation of VOQUEZNA is underway. This formulation would be particularly beneficial for patients with difficulty swallowing, a common symptom in EoE, as well as in pediatric and elderly populations. This initiative also offers the opportunity for new intellectual property, further protecting the brand.
• Over-the-Counter (OTC) Switch: Phathom is analyzing the OTC market opportunity for VOQUEZNA. The company believes VOQUEZNA's rapid, potent, and durable acid suppression profile makes it uniquely suited for an OTC switch, which could establish a long-term, durable revenue stream in the substantial OTC acid control market.
• GLP-1 Users: The company is exploring real-world data to understand the prevalence of GERD symptoms among the growing population of GLP-1 users and the potential for VOQUEZNA to provide relief in this segment.

A critical factor underpinning these expansion efforts and the overall investment thesis is regulatory exclusivity. The FDA officially updated the Orange Book on June 16, 2025, confirming 10 years of New Chemical Entity (NCE) exclusivity for VOQUEZNA tablets through May 3, 2032. This effectively delays generic entry until 2033, assuming typical ANDA review timelines, significantly enhancing VOQUEZNA's net present value and providing a secure commercial runway for these strategic initiatives.

Risks and Challenges

While Phathom's trajectory is promising, investors should consider several key risks. The sales force realignment, while strategically sound, could cause temporary disruption in Q4 2025. Changing deeply ingrained prescribing habits from PPIs, which have been standard for 30 years, is a gradual process requiring sustained effort and physician education. Although no near-term issues are anticipated, a potential supply disruption for the clarithromycin component of the VOQUEZNA TRIPLE PAK (representing approximately 1% of total revenue) remains a risk. While the FDA has confirmed NCE exclusivity, future intellectual property challenges or unexpected regulatory shifts could still impact the long-term outlook. Despite current liquidity and a clear path to profitability, failure to meet revenue targets or unforeseen increases in expenses could necessitate additional funding, potentially leading to shareholder dilution. The emergence of other P-CABs, such as Takeda's own product, could introduce new competitive dynamics, although Phathom's first-to-market advantage and established physician experience are significant buffers.

Conclusion

Phathom Pharmaceuticals stands at a pivotal juncture, successfully executing a strategic transformation to become a profitable, growth-oriented leader in GI diseases. The company's core investment thesis is firmly rooted in the differentiated efficacy of VOQUEZNA, a novel P-CAB that offers superior acid suppression compared to conventional PPIs, addressing a significant unmet medical need in GERD and H. pylori patients. This technological advantage, coupled with a disciplined commercial strategy focused on high-value gastroenterologist prescribers and rigorous cost management, has dramatically improved Phathom's financial profile.

The strong Q3 2025 results, marked by robust revenue growth and substantial reductions in operating expenses and cash burn, underscore management's effective execution and reinforce confidence in achieving operating profitability in 2026 with existing cash resources. With regulatory exclusivity secured through May 2032 (effectively 2033) and a promising pipeline including EoE, ODT, and OTC opportunities, Phathom is building a durable franchise. While challenges such as commercial execution, supply chain risks, and competitive pressures persist, the company's focused strategy and innovative product position it for sustained growth and significant long-term value creation for investors.