Q1 2025 Phathom Pharmaceuticals Inc Earnings Call
Hello, and welcome to the Fathom Pharmaceuticals first quarter 2025 earnings results call.
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Eric Shirley: With that I would like to turn the conference over to Eric Shirley.
Speaker Change: <unk> head of Investor Relations. Please go ahead.
Speaker Change: Thank you operator, Hello, everyone and thank you for joining us this morning to discuss <unk> first quarter 2025 results.
Speaker Change: This morning's presentation will include remarks from Steve Basta, our president and CEO and Molly Henderson, our chief financial and business Officer, Robert Breedlove, Our VP of Finance and principal accounting officer will also be joining the team during the Q&A portion of today's call.
Speaker Change: Just a couple of logistical items before we get started.
Speaker Change: 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.
Speaker Change: Further the recording of today's webcast can be found under the events and presentations section of our corporate website.
Speaker Change: Before we begin let me remind you that we will be making a number of forward looking statements throughout today's presentation.
Speaker Change: <unk> looking statements involve risks and uncertainties many of which are beyond balanced control.
Speaker Change: Actual results could materially differ from the forward looking statements and any such risks can materially adversely affect the business the results of operations and trading prices for <unk> common stock.
Speaker Change: 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 with that I'll now turn the call over to Steve Basta.
Steve Basta: <unk>, President and CEO to kick us off Steve.
Steve Basta: Thank you Eric and thank you to everyone joining the call today.
Speaker Change: Pleased to be here speaking with you all today as I considered my choice to join Fathom piece. It was abundantly clear to me and all of my conversations with the tremendous impact of business, having on patients' lives.
Speaker Change: My focus throughout my career has been helping patients by delivering products that improve patient care and outcomes. This journey with fathom builds on that focus.
Speaker Change: There are tens of millions of patients in the U S that suffer from GERD.
Speaker Change: And many of those patients who are inadequately treated by current ppi's.
Speaker Change: Based on our clinical data in many many patient testimonials and.
Speaker Change: And testimonials from prescribers.
Speaker Change: We know that the question that delivers a meaningful improvement to the management of acid reflux.
Speaker Change: My first priority.
Speaker Change: <unk> is to accelerate the launch of this great drug.
Speaker Change: And build a profitable successful company for our employees and our shareholders.
Speaker Change: Before I address the operational topics that were discussed in today.
Speaker Change: <unk> press release and that we're going to go into more detail just a quick background might help for those who don't know me.
Speaker Change: In the CEO seat for over 20 years, leading biopharma and medical device and digital health companies.
Speaker Change: Each of those experiences had unique challenges a common theme across all of them has been my commitment to commercial creativity.
Speaker Change: Built businesses and created value, where others doubted the initial market opportunity as I look at this new journey with Adam I can promise you that I will bring fresh perspective, a hands on approach in the sense of urgency to growing this company.
Speaker Change: Fathom successfully developed a great drug.
Speaker Change: And launched <unk> two already within the first 18 months of an annualized run rate of $120 million and net revenues.
Speaker Change: That's a great start our.
Speaker Change: Our future success centers around growing sales to achieve a significant potential.
Speaker Change: And managing costs to reach profitable operations in 2026.
Speaker Change: Thus mitigating financing risk an overhang and ultimately building a durable business with request and that is the foundation of that business.
Speaker Change: Our operating priorities represent.
Speaker Change: Shift somewhat compared to the company's previous targets, we recognize that when the stock was trading near $20 per share our access to capital is much more flexible than it is today.
Speaker Change: The cost of capital if we were to raise at $4 a share as more dilutive and thus we're taking steps that reflect that reality by responsibly managing expenses.
Speaker Change: I'm working with our team to established a disciplined approach to spending based on efficiency with rigorous consideration.
Speaker Change: Leveraging the high leverage growth drivers.
We have four priorities for the remainder of 2025.
Speaker Change: First an absolutely our focus is on growing the question of sales to maintain our revenue ramp.
Speaker Change: Second is clarifying our exclusivity timeline hopefully through our pending citizen's petition and getting a clear answer from FDA or if we don't get a clear answer from FDA by taking the appropriate next steps if necessary.
Speaker Change: Third is implementing the cost savings that we are starting today and we'll be executing over the course of the coming months with vigilance on a number of our areas of spending to achieve profitable operations in 2026.
Speaker Change: And fourth.
Speaker Change: Is then charting a value creating future for fathom that leverages the extraordinary potential of requests and build on that foundation to create a durable sustaining company.
Speaker Change: Today, we are announcing that we will be implementing cost savings initiatives to reach operating expenses, excluding interest and stock comp and certain accruals of less than $55 million per quarter in.
Speaker Change: In Q4 of this year.
Speaker Change: The spending reductions in combination with the continued focus on revenue growth are intended to enable us to achieve profit from operations in 2026.
Speaker Change: Importantly.
Speaker Change: Our target is to be able to achieve this with our current cash on the balance sheet.
Speaker Change: Without the need to draw down additional debt or raise additional equity.
Speaker Change: This reframing of our strategy does not imply a departure from our belief in Brooklyn, This commercial opportunity.
Speaker Change: Rather just reflects the reality of the current capital markets and brings a much needed sense of urgency and cost control to our operations.
Speaker Change: We remain focused on driving topline growth.
Speaker Change: And we believe our sales organization represents the core means by which we can achieve that goal.
Speaker Change: Our prioritization on profitability will require notable changes across the business many of which you likely already saw in this morning's press release.
Speaker Change: Let me start by addressing some of the personnel related changes.
Speaker Change: In the context of our cost reduction initiatives.
Speaker Change: Martin in Mali, we will transition out of fathom in the coming weeks.
Speaker Change: We will continue to advise the company to support our citizens petition process some of our regulatory activities and future potential product pipeline strategies.
Speaker Change: Robert Breedlove, who is currently our VP of finance enjoys us on today's call to address questions.
Speaker Change: <unk> has also been appointed principal accounting officer.
Speaker Change: These transitions are aligned with our goal of streamlining operations.
Speaker Change: Oral key functional leaders will now report directly to me, providing for greater operational efficiencies and a commercially focused leadership team.
Speaker Change: With the reduction of some marketing and development activities. We're also implementing a reduction in force that will reduce total staffing by approximately 6%.
Speaker Change: We have carefully assessed our commercial and development initiatives to consider the return on investment of our core strategies and investments.
Speaker Change: And we've decided to de prioritize certain initiatives and prioritize others most notably.
Speaker Change: At the end of Q2.
Speaker Change: We are halting our broadcast stable cable and streaming TV promotion, which are the largest DTC spend categories.
Speaker Change: We will be maintaining certain digital promotion activities, which are providing higher rois. So we're choosing to invest in the areas with higher ROI and reducing spend in areas that may have lower returns.
Speaker Change: As I mentioned earlier.
Speaker Change: Core driver of our revenue growth is in our field sales organization, we're maintaining the strength of that organization and brought in new leadership, which we announced today I'm delighted to welcome to Fathom, our new SVP of sales Jonathan Bentley.
Speaker Change: Who joins us from intracellular therapy, it's following their successful acquisition by J&J.
Speaker Change: Jonathan brings a wealth of knowledge and experience and a fresh perspective to our sales team.
Speaker Change: Including prior Gi experience when he was with Salix.
Speaker Change: Jonathan will be a key member of our leadership team.
Speaker Change: And leads the largest component of our organization, which is our commitment to our field sales organization.
Speaker Change: In R&D, we pause plans for our pending phase two <unk> study.
Speaker Change: That study had not yet begun to enroll patients.
Speaker Change: We will evaluate over the coming months whether to initiate this study in the future based on the outcome of the citizens petition decision and strategic and financial considerations.
Speaker Change: Shifting for a moment to our citizens petition, which I know our shareholders are focused on.
Speaker Change: The Fda's decision on this matter is of critical importance to our exclusivity runway since I've joined the company I have worked closely with the team to understand the situation and identify if there are any ways in which we can positively influence fda's consideration.
Speaker Change: The FDA is due to respond to our citizens petition in early June.
Speaker Change: Positive response would confirm our regulatory exclusivity to 2032.
Speaker Change: If we receive a negative or isn't determined that response, we're going to consider the appropriate next steps and expect to take action to pursue the objective of maintaining exclusivity into 2032.
Speaker Change: We continue to have confidence in our legal position.
Speaker Change: The FDA granted <unk> status.
Speaker Change: And a five year exclusivity extension to our HPV treatment packs.
Speaker Change: Under established FDA practice that same exclusivity period should appropriately apply to all forms of the new chemical entity for represent.
Speaker Change: Unfortunately, FDA decisions and timelines are not within our control I'm certainly aware of the uncertainty and concern that this pending decision has caused and the importance with which this topic is viewed by our investors I'm confident that we have a correct interpretation of the FDA policy and solid arguments that should prevail and.
Speaker Change: And I'm also confident that no matter, which exclusivity period ultimately results, we have a meaningful path to creating significant shareholder value.
Speaker Change: Our initiatives today to continue ramping sales and.
Speaker Change: And managing expenses to reach profitability next year, our first step on that path to creating significant value.
Speaker Change: As for our first quarter of 2025 results, we reported net revenues of $28 5 million and ended with $212 million in cash our target is for this balance to be able to support our restructured operations without the need for additional financing through the point of reaching profitability next year.
Speaker Change: <unk> will share further details on these results in our commercial Kpis shortly.
Speaker Change: Lastly, one note on the manufacturing front, but does not affect our core or a pleasant tablet product, but it does impact one of our H pylori combination patents.
Speaker Change: We've been informed of a possible future disruption in the supply of plasma triple packs, we're monitoring that situation closely and have not experienced any commercial disruption to date, but given the possibility that we could experience such we wanted to inform our investors to avoid any possible future surprise.
Speaker Change: Given the limited sales contribution of the Triple pack and the fact that the dual pack availability will not be affected we do not anticipate any material impact on our revenues or operations.
Speaker Change: Supply disruption to the Triple pack occurs.
Speaker Change: We could also switch our HP marketing emphasis quicker.
Speaker Change: Quickly to the available dual pack if this develops.
Speaker Change: We are at an inflection point for <unk>.
Speaker Change: Transitioning from an early stage company to a stable profitable organization.
Speaker Change: We have only just begun to see the <unk> market potential.
Speaker Change: The launch has been going well and there is so much growth ahead for this extraordinary product and all of our meetings. So far are consistent theme is that patients and doctors loved this drug it really has a profound impact.
Speaker Change: So question is benefit.
Speaker Change: Rapid.
Speaker Change: Potent and durable acid suppression profile.
Speaker Change: We are starting to make internal decisions with both the topline and Bottomline focus.
Speaker Change: This will make us leaner company.
Speaker Change: Will help us drive a pleasant to reach its blockbuster potential.
I'll now turn the call over to Molly to provide further details on our recent commercial progress and financial results Molly.
Speaker Change: Molly.
Speaker Change: Thanks, Steve and Hello, everyone today I'll be sharing updates on our key performance metrics since our last earnings report eight weeks ago and outlining our financial results for the first quarter of 2025.
Speaker Change: Starting with the latest quasi prescriptions, we have now surpassed 390000 scripts filled by patients from launch through April 18th.
Speaker Change: Over the eight weeks since our last earnings report this figure has grown approximately 30%.
Speaker Change: In the first quarter, specifically, we recorded approximately 127000, <unk> prescriptions equating to growth of about 8% over the fourth quarter.
Speaker Change: Among the scripts filled this quarter, we observed roughly 75% being filled by repeat patients ask a question.
Speaker Change: Results include the typical seasonal Q1 softness and also accounting for an anticipated downward adjustment by our data provider <unk>.
Speaker Change: <unk> has informed us that a retroactive projection adjustment will be made in June impacting data for the weeks ending January 10, sorry April 4th of this year.
Speaker Change: This is due to an overstatement in their mail channel volumes.
Speaker Change: As a result, we have incorporated an estimated 5% impacted by this adjustment <unk> guidance and the Q1 filled prescription metric we reported today.
Speaker Change: As of April 11%. This has been adjusted in the weekly script data.
Speaker Change: Despite all of this we have still demonstrated prescription growth and we are pleased to see continued momentum with these kpis.
Speaker Change: During the first quarter access to <unk> through our primary patient support program partner blank Rx helped to offset some of the seasonality by offering patients a cash pay option, which can be a beneficial alternative for those affected by health plan changes and high deductible resets.
Speaker Change: As a result, the Porsche.
Speaker Change: <unk> of scripts in the first quarter, which furniture retail pharmacies and recaptured by caveat.
Speaker Change: <unk> to approximately 70% from 75% in the fourth quarter, thereby representing a 70% to 30% split between retail and cashback.
Speaker Change: In parallel the number of prescribers, who have written a film script has increased to over 23600 as of April 11th compared to over 20, other Alaska part demonstrating steady adoption of these last eight weeks.
Speaker Change: Additionally, through the end of Q1 about 22800 cumulative prescribers have written a failed a quasi prescription up nearly 30% compared to the fourth quarter.
Speaker Change: Among this group primary care prescribers continue to represent the majority of writers.
Speaker Change: On the access front, our commercial coverage remains consistent with over 120 million lives covered representing about 80% of the total commercially insured market.
Speaker Change: And beginning in April we rolled out a new cash pay consignment program.
Speaker Change: That allows government patients, whose insurance does not cover about plasma to access the product outside of their insurance benefit.
Speaker Change: This program functions in a similar way to our existing commercial cash pay consignment program, while requiring additional enrollment criteria.
Speaker Change: We're pleased to be able to make the question more accessible to this group of patients who make up approximately 50% of the current market.
Speaker Change: Before I begin discussing our financials I'd like to share that today marks my final earnings call with that.
Speaker Change: With the company entering a new phase under Steve's leadership. We felt this is the right time to also transition the financial leadership.
Speaker Change: Over the next couple of weeks I'll be working closely with Robert <unk>, who has been involved with fathom and since its inception and will assume the role of principal accounting officer.
Speaker Change: I remain proud of what we've accomplished during my time at Fathom and believe the company is well positioned for continued success.
Speaker Change: Now turning to the financials.
Speaker Change: Similar to prior quarters, I will be commenting on both GAAP and non-GAAP financial measures supporting schedules with detailed reconciliations between non-GAAP measures and their most directly comparable GAAP measures will be discussed later in my section. It can be found in this morning's press release.
Speaker Change: For the first quarter 2025, we reported net revenues of $28 5 million down slightly on a sequential quarterly basis.
Speaker Change: The increase in prescriptions filled revenues were impacted by a shift in volume toward cash pay and elevated stocking at the end of 2024.
Speaker Change: Specifically recall that we noted wholesalers increased inventory on hand by approximately one extra week at the end of last year and those extra shipments where that earned through in the first quarter.
Speaker Change: We estimate this resulted in approximately $2 million in additional stocking revenue in the fourth quarter of 2024.
Speaker Change: As of the end of March wholesaler inventory levels have now returned to previous averages approximating two weeks.
Speaker Change: Our gross to net discount rate this quarter was 53% a slight improvement compared to the guidance, we provided last quarter.
Speaker Change: We continue to expect our gross to net discount rate to range between 55 and 65% on average for the remainder of 2025.
Speaker Change: Moving down the P&L to our operating expenses, we reported non-GAAP R&D expenses of $7 9 million and non-GAAP SG&A expenses of $90 3 million for the first quarter of 2025, which represents a 4% decrease in 57% increase respectively compared to this period in 2024.
Speaker Change: As part of our SG&A expenses, we incurred advertising costs of $28 3 million in connection with their new celebrity endorsed direct to consumer initiatives, representing a 40% increase compared to the fourth quarter of 'twenty 'twenty four.
Speaker Change: This change in spending levels was primarily driven by the timing and nature of our clinical operating activities on the R&D side and the expansion of commercial investment in support of our plasma launch on the SG&A side.
Speaker Change: With regard to cost saving efforts described by Steve Q2 expenses are expected to be relatively consistent with Q1, and we expect a more material reduction operating spend beginning in the third quarter of this year.
Speaker Change: As a result, we are reducing our previous non-GAAP full year 2025, operating expense range by $60 million to $70 million to $290 million to $320 million.
Speaker Change: For the quarter ended March 31, 2025, we reported gross profit of $24 8 million, which equates to a gross margin of 87% similar to last quarter.
Speaker Change: After accounting for quarterly cash expenses, we reported a loss from operations of $73 3 million, excluding stock based compensation.
Speaker Change: non-GAAP adjusted net loss for the first quarter of 2025 was $77 1 million or $1 seven loss per share compared to $64 8 million or $1 11 loss per share for the same period in 2024.
Speaker Change: Consistent with past earnings reports, the most significant reconciling items between GAAP and non-GAAP operating expenses was noncash stock based compensation.
Speaker Change: Other non-GAAP reconciling items noncash interest on a revenue interest financing liability and noncash interest expense related to amortization of debt discount.
Speaker Change: Lastly, as of March 31, 2025, cash and cash equivalents were $212 million based on recent script trends, we have initiated discussions with our debt lender to lower the revenue triggers for the remaining debt tranches that being said based on our current revenue forecast and our revised spend goals are targeted for our current cash balances to be able.
Speaker Change: To support operations through the point of reaching profitability in 2026, excluding stock based compensation and without the need for further debt for equity financing.
Steve Basta: With that I'll turn the call back over to Steve for closing remarks, Steve.
Steve Basta: Thank you Molly.
Steve Basta: And thank you again to everyone joining us on today's call.
Speaker Change: It's my pleasure to be joining fathom at such a crucial point in our company's journey, we are fortunate to be able to build a business around the game changing product that has the potential to improve the lives of millions of people.
My goal is to deliver on that opportunity.
Speaker Change: Throughout the call today.
Speaker Change: You've heard how we're fundamentally shifting the way, we do business going forward, our strategic decisions will be driven by dual objectives.
Speaker Change: First driving revenue growth.
Speaker Change: And being able to reach profitable operations in 2026 without requiring additional financing.
Speaker Change: Staying true to these pillars will put us on a path to success and will enable us to grow the business even further in the years to come.
Speaker Change: My promise to you is that in all our actions my priorities will always be to serve our patients our team and our investors.
Speaker Change: And to our investors specifically, we are dedicated to being good stewards of your funds and we're committed to rewarding your confidence in our mission.
Thank you again for joining us today. We appreciate your continued interest and support I will now turn it over to the operator to facilitate the Q&A session operator.
Speaker Change: As a reminder to ask questions. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: Draw. Your question. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Joseph Stringer with Needham <unk> Company. Your line is now open.
Joseph Stringer: Hi, good morning, Thanks for taking our questions.
Joseph Stringer: Just curious if you could provide some more color on the timing of the <unk> changes here why now just ahead of the.
Joseph Stringer: CPE decision and what impact if any do you think these changes will have on the entire process and.
Joseph Stringer: And I guess as a follow up to that regarding the CPE decision.
Joseph Stringer: And the scenarios, where FDA says either yes, or now it seems pretty clear what next steps are but.
Joseph Stringer: I suppose in this area, where FDA says they need more time.
Joseph Stringer: Can you walk us through what that scenario looks like in terms of timelines and potential next steps.
Joseph Stringer: <unk>.
Joseph Stringer: Certainly just thanks, so much for the for jumping in with the.
Joseph Stringer: Question.
Joseph Stringer: In terms of the management changes, there's going to be no interruption on our CP activities.
Joseph Stringer: We've got a.
Joseph Stringer: A team that is working with FDA that we will continue those conversations ask me on the management team has been the key point person, leading that along with a couple of colleagues other colleagues internally and with external advisors. He's going to continued work on that effort as we communicated in the release he has got a routine and advisory role.
Joseph Stringer: <unk>.
Joseph Stringer: So it can be actively engaged in that was going to be no interruption in our <unk>.
Joseph Stringer: Execution activities related to the conversations with FDA.
Joseph Stringer: And the.
Joseph Stringer: The second half of your question is sort of what happens.
Joseph Stringer: If we get a positive negative or need more time kind of response Youre right. If you will get a positive response really simple.
Speaker Change: Got the extra.
Speaker Change: Exclusivity runway a negative response, we clearly will need to take action likely in the need more time scenario. We will also need to take action because we can't just sit in limbo and be on hold for a protracted period of time, but I say that with the qualification that it depends upon the nature of conversations that we have with FDA to pump on what their responses.
Speaker Change: All of our conversations that we have with them to determine exactly what the next steps and actions are so I don't want to presume that certain.
Speaker Change: Action sequence in that process, we are in the midst of evaluating that but we'll likely we would need to take the initiative to actually define our exclusivity period more formally.
Speaker Change: Great. Thank you for taking our questions.
Speaker Change: Thank you. Our next question comes from Annabel <unk> with Stifel. Your line is now open.
Annabel: Hi, Thanks for taking my questions.
Speaker Change: Just drilling down on a couple of things just while we're talking about the CP.
Speaker Change: Are you speaking to the same individuals at the FDA that you were stable to previously.
Speaker Change: That's the first question and then on the strategic reductions just drilling down here, specifically on the decision to cut DTC.
Speaker Change: We all know, it's a pretty promotion sensitive market.
Speaker Change: So I understand youre, playing digitally but I guess it was also an effort to.
Speaker Change: Potentially expand from a 50000 target audience of 100000 target audience. So should we take this as a signal of that.
Speaker Change: Nothing trajectory with sufficient awareness that it's kind of on a flywheel and it sort of builds itself.
Speaker Change: How are you.
Speaker Change: I guess target. These this next batch of physicians or are you pulling back on that target audience.
Speaker Change: Hum.
Speaker Change: So if we think about.
Speaker Change: The promotional sensitivity of this market to jump into.
Speaker Change: That context, and how we grow our physician audience.
Speaker Change: <unk> had an opportunity over the past weeks to take a look at what aspects of our operations are actually driving the growth in prescribers and driving the ongoing growth in our business.
Speaker Change: And so the key thing that is working as our sales activities. So the key thing that drives new adoption as field sales calls.
Speaker Change: And working through the individual physician.
Speaker Change: Conversions to starting to write scripts in an individual physician conversations that drive growth the broader DTC initiatives, we're not converting customers in terms of the broadcast spend.
Speaker Change: Werent converting new writers at the same rate and so that spend is simply providing a lower ROI. As we described so we're focusing on the thing that works now that doesn't limit the total potential universe of physicians at all that would ultimately be prescribing, but the path to get there is really through the field sales activities to continue expanding the prescriber base.
Speaker Change: I don't forget limited limits in any way the overall potential and there is also sort of a question of timing of DTC and maturity of the product of time to implement PTC. So we would not in any way indicate that DTC is ultimately not going to be effective. It may just be the we're a bit early in this process and we need a more.
Speaker Change: <unk> base of awareness.
Speaker Change: Guarding the product.
Speaker Change: The other element of your questions are the first part was related to conversations with FDA and there is both some consistency and started the FDA and some changes obviously the senior folks that FDA have all changed so the senior people at FDA that are going to be driving the policy decision thats, new with the new administration.
Speaker Change: Working through that process, but a lot of the folks within.
Speaker Change: The legal office, we understand that there is some meaningful continuity in that process of folks that had previously been looking at this so you will get internal advice to the senior team that comes from folks who are already well familiar with our program and our issues, but the senior policy decisions. Obviously those that staffing comes in with the New administration.
Speaker Change: Got it thank you.
Speaker Change: Thank you. Our next question comes from Chase Knickerbocker with Craig Hallum. Your line is now open.
Chase Knickerbocker: Good morning, Thanks for taking the questions.
Speaker Change: Maybe for Steve just on.
Speaker Change: How should we how should investors be thinking about the potential impact on overall script script growth.
Speaker Change: From the discontinuation of a lot of it a lot of the.
Speaker Change: DTC television spend here I mean do you have a good survey data to determine kind of what portion of scripts are coming being driven from there or are you kind of just mentioned it.
Speaker Change: I know that can be difficult to determine but just I guess, how should we be thinking about that and along those same lines management had previously noted comfortably around $165 million net revenue consensus at the time in 2025 can you just give us a sense overall for kind of what your model says.
Speaker Change: For 2025.
Speaker Change: As it relates to how we should be kind of.
Speaker Change: Maybe moderating or changing your expectations.
Speaker Change: Jay Thanks for the the impact of that we're not actually indicating that you should be changing our expectations on revenue I think that the range of revenues that the handle that the various analysts have in their protections are a reasonable range for the year. There is not an indication here that we think that you ought to be adjusting that.
Speaker Change: In any way.
Speaker Change: I don't think that the changes that we're making are going to adversely impact our revenue ramp in any way.
Speaker Change: We simply Werent seeing a big uptick associated with abroad. DCC program. So we are continuing the thing that is actually working to drive for revenue, which is our field sales activity, but the core thing and we're going to be focusing salesforce time on the activities that drive greatest volume.
Speaker Change: In some cases that may be bringing.
Speaker Change: Bringing on new prescribers and in some cases that may be going deeper with existing prescribers, where I think potentially we had been broadening the push to try to get lots of new prescribers around the DTC initiative, but there may be more leverage associated with depth I'm not trying to signal a change in ramp of new prescribers. This is all work that Jonathan.
Speaker Change: And this can be doing but today literally his first day, starting on conversations with our health team. So I'm going to give them time to get his feet under him and sort of think about how do we optimize the sales force activity. The sales force targeting the time and effort within Gi and primary care to optimize revenue, but the.
Speaker Change: Thing that is working to grow our revenue is that field sales call on a physician. The most important thing that happens with fathom is when a sales rep walks into a physician's office and having that conversation to convert a new prescriber to grow someone's business for someone's activity pattern from their first one or two scripts to now starting.
Speaker Change: To adopt this for their patients that are inadequately served with <unk>.
Speaker Change: That process works and that's what's driving our revenue and that process is unchanged we just.
Speaker Change: Werent seeing a big effect from the broad DTC spend we were spending a lot of money that was not <unk>.
Speaker Change: Inverting people.
Speaker Change: And I think part of it is that we might be activating patients to go into physicians, who are not yet familiar with the product and so we're getting a lower return and not as many scripts being converted from that spend so I don't think by shutting off that spend.
Speaker Change: On the broadcast DTC, we're going to adversely impact our ramp.
And then fully.
Speaker Change: Fully noting that Jonathan first day.
Speaker Change: But no plans on any sort of sales force reduction sales force size will remain the same and then second point on that any change in focus from a standpoint of primary care versus specialist Gi.
Speaker Change: So we've not made any change to the sales force. So these.
Speaker Change: The cost reduction actions have not impacted the sales force in any way and theyre going to be continuing.
Speaker Change: Strength in that process.
Speaker Change: As to the focus of Gi versus primary care, that's something that we're going to be carefully evaluating what's the allocation salesforce time, that's not it's not going to be exclusively one or the other but there may be shifted emphasis of the amount of time within our specialty call point versus primary care call point or if it's.
Speaker Change: Frequency of calls on GI is how do we grow them now in fact, the majority of Gis are already writing scripts for BOE equivalent. So we've actually converted more than 50% of them to writing, but there is an opportunity also to go deeper. So we may shift timing, a little bit, but I don't want to get ahead of the assessment that he is going to do with the sale.
Speaker Change: Leadership team to figure out how do we optimize our time to get the optimal revenue ramp that's work that we're going to be doing on an ongoing basis in the coming months and I'm sure in the next one or two quarters, we're going to be giving you more of an update on how that devaluation is evolving but again, it's still early days since I joined.
Speaker Change: So we're working through that exercise.
Speaker Change: Got it and then just last confirmation question.
Speaker Change: Just to confirm.
Speaker Change: You plan to be cash flow from operations breakeven on a full year basis in 2026 or in a quarter within 2026.
Speaker Change: So we understand that our comment on that guidance with a little bit vague in that regard and partly thats just preserving a little bit of flexibility I mean 23, six is still a year away.
Speaker Change: We could be operating profit could be showing on operating profit for the full year, we could.
Speaker Change: Operating profit for part of the year it will depend upon the timing of various investments and I don't want to.
Speaker Change: Get too far ahead of our commitment.
Speaker Change: Broader commitment you should absolutely take from this conversation as a commitment to bring our spend breakdown.
Speaker Change: Why we've given the very precise number of what we're going to be below $55 million in terms of operating expenses on a quarterly basis by Q4, we're going to be vigilant about.
Speaker Change: Maintaining discipline in our spend rate.
Speaker Change: And partly when we go profitable depends upon what the revenue ramp into 2026, and we're not forecasting exactly which quarter that we might crossover in that process.
Steve Basta: Thanks, Steve.
Speaker Change: Thank you. Our next question comes from Jonathan <unk> with Guggenheim. Your line is now open.
Speaker Change: Hey, guys. Good morning, Thank you for taking my question.
Speaker Change: Just a question in particular beyond what you have seen in the market dynamic.
Speaker Change: If we look at the script for the last second quarter.
Speaker Change: This seemed to be relatively flat.
Speaker Change: Anything particular that accompany you might seen.
<unk>.
Speaker Change: Growth in Q2, what generally happens in procedural products.
Speaker Change: And so thats one if you could also comment on where you are on gross to net and how all the chain was the gross to net.
Speaker Change: To support them.
Speaker Change: Well thank you.
Speaker Change: Yes, I'll do the first half of that regarding sort of the last few weeks and then ill, let Molly take the gross to net question and work through that.
Speaker Change: First half of it.
Speaker Change: It's simply not going to get into the pattern of trying to sort of speculate on week to week Ikea via reported data sort of week to week changes as you see in the numbers. When you go through it through it will be up weeks and flat weeks.
Speaker Change: And that's just the natural variability that happens in those kinds of numbers nothing that we're seeing Q2, who ortho rescission of the last couple of weeks is impacting any of these decisions. This is basically looking at our long term spend pattern.
Speaker Change: And the expense discipline comes from the fact that.
Speaker Change: The revenue is tracking along the lines that I think all of the analyst estimates have been indicating and so we've communicated that we are comfortable with those would continue to be comfortable with the range of analyst estimates on revenue. There is nothing that we're seeing that the parts from that on.
Speaker Change: On the revenue side, but our spend rate was simply too high.
Speaker Change: And to finance that spend rate at a $4 per share stock price would have been two highly dilutive and so we're taking the prudent step of reducing expenses, but it doesn't in any way indicate that we have concerns about anything we're seeing or any but.
Speaker Change: One or two weeks.
Speaker Change: Do you get one or two weeks of variability in that process.
Speaker Change: Overall on gross to net I'm going to let Molly jump in on that.
Speaker Change: So yes as it relates to gross to net we did a bit of an improvement in the first quarter.
Speaker Change: It came in at 53% as you remember we signaled on average between 55 and 65% for the full year, we still remain.
Speaker Change: Our guidance on the 55% to 65% of the year. So just as you know the economics between Payors are different so depending on which claims are coming through to Terry which payer. It can have an impact on that gross to net but on average we still feel comfortable with that 55% to 65% to use as a guide for the year.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Paul Choi with Goldman Sachs. Your line is now open.
Speaker Change: Hi, Thank you and good morning, everyone and thanks for taking our questions.
Speaker Change: A few first for Steve can you maybe just comment on how many of these.
Speaker Change: Changes like for instance, the pullback in DTC had been considered prior to you taking the CEOC just maybe some color on that would be helpful.
Speaker Change: Second.
Speaker Change: Just can you maybe comment on your level of conviction that the CP response will be on time in the June timeframe that you mentioned here just given that we are starting to see FDA missed deadlines and other delayed regulatory actions that should statutorily beyond time.
Third can you comment given the expense pull back are there still plans continue the pediatric studies.
Speaker Change: Given how important they are for the sort of IP.
Speaker Change: Exclusivity management for quasi here, thank you very much.
Speaker Change: Paul Thank you for that so let me just jump in on each of the three points.
Speaker Change: First in terms of the changes that we're implementing today how many of these were considered prior to my taking the seat I don't think any of the changes that we're implementing today were on the table prior to taking the seat.
Speaker Change: This is an evaluation that we have done over the last 30 days.
Speaker Change: One of the first things that I did when I joined as spend first two weeks literally meeting with every group in the company to ask the what's working what's not working question.
Speaker Change: And try to understand what parts of our organization are getting leverage what parts of our organization and what things are having a significant impact and in the context of those reviews.
Speaker Change: In reviewing the DTC programs in some detail we saw that.
Speaker Change: We're getting a positive return on our digital DTC. So I don't want to indicate the BDC doesn't work at all but the high dollar spend on some of our broadcast wasn't providing near term return now it might actually be building brand value that might accrue to us in future years.
Speaker Change: So I don't want to eliminate the possibility that we ever do DTC in that process, but it wasn't having the near term impact that we needed to have so that was an insight that came through.
Speaker Change: Some of those conversations but the other thing that happens is we routinely re forecast on a quarterly basis.
As Mollie and I were meeting in the first few days after I joined to review because literally joined on April one. So we're just getting through March 31 date, we're reviewing the three plus nine forecast internally around what we experienced in the first quarter and what are.
Speaker Change: Expected spend would be for the remaining quarter in my assessment and looking at that and.
Speaker Change: I think others have.
Speaker Change: Sort of internally come to the same conclusion is that with our current <unk>.
Speaker Change: Market capitalization, it would be too highly dilutive for us to raise money to continue spending at that rate.
Speaker Change: And we needed to pare back expenses pretty significantly.
Speaker Change: So we've taken significant steps in the past few weeks to evaluate how do we bring our spend rate down.
Speaker Change: And again when the stock price was a much higher level last year. It would've been a reasonable decision to say, we can finance a very aggressive spend rate with the stock price of $4 a share. It just doesn't make sense to finance, a very aggressive spend rate and so we've taken the steps to pare back pretty significantly to spending in a number of areas.
Speaker Change: Second question that you've got as much harder for me to answer on what our level of conviction on CPE timing. There has been lots of turnover at FDA, we've not seen or heard anything that indicates that the CPE timing of the decision is not on the timeframe. They could come they should come back to us by early June but <unk>.
Speaker Change: Given the turnover at FDA. It is possible that they don't respond on that target date, and they take some time longer or it's possible that they respond indicating that they need more time.
Speaker Change: Because obviously, there's been a significant amount of turnover in the organization and Thats really out of our control that process.
Speaker Change: So.
Speaker Change: We've not heard anything from them that indicates that the timing is going to be different I don't want to send any signals in that regard we fully expect that it's still coming in in June.
But it's hard for us to confirm that our regulatory body is actually going to respond on the date. They are supposed to have given that they've had some turnover within the organization.
Speaker Change: And then lastly on plans to continue the pediatric studies.
Speaker Change: Yes.
The one of the pediatric.
Speaker Change: Extension strategies.
Speaker Change: Woods related to the <unk> study, we are deferring the OA study to reevaluate its after the CPE decision. So we have paused that study that is one of the paths to getting that pediatric extension there may be other paths to getting the pediatric extension.
Speaker Change: And we are going to be evaluating all of the alternatives that may be available to us to get to the extended six months of exclusivity.
Speaker Change: Right now the priority is on how do we get our financials in line to be able to get to breakeven and mitigate financing risk just because of the current market dynamics.
Speaker Change: That's a short term need to bring down our spending that doesn't eliminate the possibility of doing additional studies in 2026 of 2027 to be able to get to that extension and we're going to be doing that evaluation on what the alternatives are what studies are possible and what's the best path for doing that we still want to get that extension.
Speaker Change: But we may ramp down spend for the remainder of this year.
Speaker Change: Got it thank you very much.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Kristen <unk> with Cantor Fitzgerald. Your line is now open.
Ian: Good morning, this is Ian.
Speaker Change: And on the <unk>.
Speaker Change: Line for question here. Thank you for taking our questions first of the prescriptions filled to date do you have a sense of the contribution from the non erosive and then second.
Speaker Change: You speak to the split of the 30 to 60 day Ashwin.
Speaker Change: Alright change in this pattern.
Speaker Change: It could be attributed to physicians conflict with that.
Speaker Change: Thank you very much.
Speaker Change: Im not certain that I heard the second half of your question clearly regarding 30 to 60 days and I'd ask you to repeat that just because it wasn't entirely clear, but on the last comment that you made around physician confidence in this product we've heard absolutely nothing.
Speaker Change: <unk>.
Speaker Change: That implies the physicians don't have enormous confidence in this product.
Speaker Change: Couldn't possibly be more clear.
Speaker Change: The understanding for every conversation I've had with every one of our team members about discussions that <unk> had with physicians in the conversations with physicians who are using the product.
Speaker Change: That they love this product.
Speaker Change: This product provides immediate benefit for patients the magnitude of the pain reduction.
Speaker Change: For patients is really quite significant.
Speaker Change: The rapid onset of heartburn relief and an acid production in the stomach is really quite significant this is a better treatment of the ppas for patients, particularly for patients who aren't adequately treated by ppas. So patients who may be adequately covered by Ppas may not need to switch a patient who is still having heartburn or has breakthrough.
Speaker Change: <unk> ore has and Rosso condition, we're has nighttime GERD for any number of reasons a patient may not be adequately treated with pks, they ought to be switching to our product and physicians really like the effects that it has on their patients.
Speaker Change: As to the percentage of patients that are non erosive versus erosive Molly I'm going to let you comment on breakdowns and what we know in that process and she's been looking more closely at a number of these numbers historically, yeah and I think as we mentioned in the past it's difficult.
Speaker Change: Necessarily discern between the nonresident relative based on claims data because it can be somewhat muddied, but what we have seen as somewhat of an indirect proxy is the number of scripts between 10 and 20 milligram.
Speaker Change: But keep in mind that the <unk> can also be used as maintenance. After the 20 are used for a relative but that being said, we're seeing continued strong momentum in the script that and you see that in the QB every week of the 10 milligrams. So we do believe that a lot of the new scripts are coming from the non arrested.
Speaker Change: Indications.
Speaker Change: Got it. Thank you that's very helpful.
Speaker Change: Thank you. Our next question comes from Omar <unk> with.
Speaker Change: With Evercore your line is now open.
Speaker Change: Hey, Good morning. This is John John Albert warmer and thanks for taking my questions. I guess my first question is regarding manufacturing I think your comment there there'll be a link from very limited impact the former question on tablets.
Speaker Change: Can you come from both API and finished products are manufactured in the U S. And second question I think sabella, just announced their topline data.
Speaker Change: Probably still some time before their potential launch of the product just from your perspective.
Speaker Change: The what with what the competitive landscape will look like and what might be the factors that could differentiate the questioner from abella.
Speaker Change: Thank you.
Speaker Change: So just on.
Speaker Change: On manufacturing if I understood. Your question clearly is around the tariff impact on manufacturing of our product.
Speaker Change: And so there should be no near term impact we've got a significant inventory of the API.
Speaker Change: Already in place and the final tablet manufacturing occurs in the U S and so theres no.
Speaker Change: Tariff impact associated with importing our final product. Our API is made internationally. So beyond the current inventory of API. If we have to make future purchases. If tariffs are continuing next year or the year. After its possible that there is some impact but our API cost is a very small percentage so even a significant tariff.
Speaker Change: On top of it would not have a material impact on our business.
Speaker Change: And if there's any part of that that I Miss Molly I'd ask you to jump in.
Speaker Change: So the.
Speaker Change: Element of your question is sort of the competitive landscape with surveillance data and certainly we've not seen full data. We've only seen the same thing everybody else has seen which is their press release with P values and so on.
Speaker Change: It looks like their product also works and works well and we would fully expect that this class works well and so having another peak have launch.
Speaker Change: Pink has the.
Speaker Change: Advantage from a physician perception that.
Speaker Change: There were suddenly not a product in the broader GERD treatment landscape, but rather there is a new category of products.
Speaker Change: Cabs and so yes, there is always the competitive dynamic of having a second entrant, but often there is a market growth dynamic associated with having a second entrant that the category grows physician awareness of the category grows there may be a second sales organization that is educating physicians about this category and that grows the <unk>.
Speaker Change: Tire category in shifts.
Speaker Change: Patients to using the new class of therapy, so there could be an updraft as well as the competitive dynamic with a second entrant. Obviously, we have the first to market status and that becomes a very important consideration. So by the time. They launched physicians will have had a significant amount.
Speaker Change: Of experience with significant confidence in the product.
Speaker Change: And we're carefully looking at a number of variables regarding the two products and but we do expect that they are both going to work there may be some differences in the molecule there may be differences in half life or other variables that could be important.
Speaker Change: But that analysis will be ongoing over the coming months as to exactly how to reposition for the competitive entry of that product.
Speaker Change: Okay. Thank you so much.
Speaker Change: Thank you I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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