Phathom Pharmaceuticals, Inc.

After the presentation, there will be a question and answer session. To raise your hand to ask a question, press star 11. To lower your hand, you may press star 11 again. Please be advised that today's call is being recorded. With that, I would like to turn the call over to Eric Chiarelli, Fathom's Head of Investor Relations.

Please go ahead. Thank you, Operator.

Hello, everyone, and thank you for joining us this morning to discuss FASM'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 presentation 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 FADM'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 Basta, Fathom's President and CEO, to kick us off. Steve?

Thank you, Rick. 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 two new Fathom leadership team members. Joining me on the call today is Sanjeev Narula, our new Chief Financial and Business Officer. Sanjeev brings to Fathom a proven track record of building successful, profitable pharmaceutical businesses at significant scale. His experience and insights will be important to driving our growth. I'm delighted to have Sanjeev as a partner in building Fathom. I'm also pleased to announce that Nancy Phelan has recently joined Fathom 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 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 six 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 App X4Q3. 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 optics by nearly 50% since Q1, while growing revenues ahead of expectations. You know, quite pleased with the performance that the entire team has delivered through the course of the past six 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 two trial. But we do still expect to operate at below 55M cash objects as we've previously stated, even with the additional clinical trial expense. My sincere thanks go to the entire fathom team for the 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 dedication of our team. A few notes on commercial performance for the quarter that might be helpful for folks. Launched to date, we have 790,000 filled prescriptions as of October 17th. 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 Viqueza. We've pivoted in the last six 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 Coquesna 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 six 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 where previously it had been focused on the primary care call point. Step two, 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 three, 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 Salesforce 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 two 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 a rep's 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 Salesforce 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 Salesforce realignment can accelerate our growth during 2026. It may take some time to see the full impact of this Salesforce realignment activity. The gastroenterology opportunity for Voquesna includes a target universe of approximately 24,000 gastroenterology writers, and that includes 17,000 physicians and about 7,000 affiliated nurse practitioners and physician's 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 two billion dollars or more in revenue. A quick update on our clinical program. We have recently initiated our phase two 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've previously communicated. Just as a quick reminder, the rationale for this study is twofold. Now, 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 two 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 three study that includes pediatric patients And that creates the potential for us to extend our regulatory exclusivity by an additional six months. That'll be determined at the end of the phase two 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 Voquesna triple pack update that we've previously discussed. We've had good progress here working with our supplier of the triple packs. 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 pack from the supplier of that product. We have not to date experienced any disruption. And triple pack availability and based on 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 fathom with discipline and momentum to implement our focus strategy. The financial picture of the company is in order. with solid execution on our plan. We have a talented and engaged team throughout Fathom 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 Fathom Pharmaceutical at this critical inflection point for the company. Because I thought about my next chapter, I focused on three 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 potential to directly improve patients' life. Fathom and Vukvezna checked all three 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 depth among GI writers' commercial approach. I've seen the specialist-led playbook work in my prior experience, and I believe it's the right fit for WorkQuiz now. My first week here, I've 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 Fathom 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're pleased with our solid financial results for third quarter for 2025 and feel that clearly demonstrated 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 three. In connection with our strong quarter and year-to-date results, we're updating our full year revenue guidance to 170 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 the rest of the year, we're tightening our quarter four gross to net range to between 55 to 60 percent a gross profit profit for the quarter were approximately 87 percent 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 six million This is an 88 percent 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 non-cash stock-based compensation. For quarter three, 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 for QESNA adoption. We believe these results demonstrate our commitment to discipline cost management will continue to grow revenues. In fact, we also achieved a meaningful reduction in spending this quarter compared to quarter two and quarter one of 2025. Our quarter three operating expenses reflect a 36.8 million or 43% decrease from quarter two 2025 and 48.8 million or 50% decrease from quarter one 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 reduction of approximately $19 million in advertising spend, primarily DTC was turned off as of June 30th, $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 2 EOE trial. Even with EOE included, we need to rate 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 a full year 2025 non-GAAP operating expenses to $280 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 equivalent total 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 are existing that to provide greater flexibility. I'm excited to be at Fathom at such a 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 six months ago on our May calls. 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 Fathom 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. And I'll turn the call over to the operator for any questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Omar Rafat of Evercore. Please go ahead, Omar.

Thank you, guys, and congratulations on Sanjeev. I have two 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 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. Thank you.

Umar, 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 Salesforce transition. And so those two variables have somewhat offsetting effects. And we wanted to guide appropriately to something that we had significant confidence in.

And Omer, to your second point about the expenses, I think the management has been very disciplined. The expenses that have been kind of streamlined, we're 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, Umar, our job as a management team is to make sure we maximize the top line, and we continue to watch the expense level. But right now, if 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.

Thank you.

Thank you. Our next question comes from the line of Kristen Kluska of Cancer. Please go ahead, Kristen.

Good morning, everybody. Thanks for taking the questions. 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 PCPs. So was that mixed from several PCPs, or did you find that there were some that were higher responders?

So Kristen, thank you for the really important point that a large part of the PPI market does 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 Vaquesna. 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 a hundred percent. So ultimately where we want to get to is 70% or more of our Salesforce time is being spent in gastroenterology practices. Now that leaves 30% of our Salesforce 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 quarter, 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, thanks. Last question for me. You mentioned that there were new territories created where there's 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. Thank you.

That's right. That's right. It's not that we had 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 two 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.

Thank you.

Thank you. Our next question comes from the line of Paul Choi of Goldman Sachs. Your line is open, Paul.

Hi. Thank you. Good morning and 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 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 and the number of repeat prescriptions that your existing prescriber base is offering now, and any quantification there would be helpful. Thanks for taking the questions.

Paul, thank you. 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 number, then 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 Boquesna 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 that I keep in mind is you shouldn't think about that one is cannibalizing the other. The both are growing depending upon where the patient is right fit based on all the coverage that doctor and the patient decides.

Yeah, 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 patient 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 Boquesna 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 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's 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, you know, we had 140,000 prescriptions in gastroenterology in the gastroenterology segment in the on estimate 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.

Okay, great. Thanks for all the additional color.

Thanks, Paul.

Thank you. Our next question comes from the line of Yacine Seneha of Guggenheim. Please go ahead, Yaxin.

Hey, guys, can you hear me?

Yes. Hi, everyone. Thank you for all the details and congrats on pretty good execution. Maybe just two questions for 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, you know, 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, you know, 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? Thank you.

Okay, I'll let Sanjeev take the APEX question at the end. Let me just jump into the types of patients that we're seeing and sort of nervous or 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's either tried BID dosing or has cycled through a couple of PPIs or 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 voquesna because they need more significant acid suppression. And we're hearing that in every conversation is just at ACG for a few days, having a number of conversations with gastroenterologists over over this past few days in the 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 corrosive 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 switch to 10 milligrams. They just maintain their treatment on 20 milligrams because if the patient's 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 six or seven 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.

Yeah, and 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 first on the top line. So obviously, you saw strong quarter three 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 growth tonight. because we got a good coverage and where things are, there are going to be pushes and pulls, but I don't expect fundamentally what a significant different goes to net, which will kind of give us a steady path to a gross margin next year. Now, coming in terms of the operating expenses, I think the way to think about that in two ways, one is what is the operating expense to run the base company with the 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 four. 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, one thing 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 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 get the guidance. But I feel very good about what the momentum is right now where we're entering into quarter four and then entering into next year with a solid set of financials.

Thank you.

Our next question comes from the line of Joseph Stringer of Niedermann Company. Please go ahead, Joseph.

Thank you. Thanks for taking our questions. Just two 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-gap 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 and or a quarter's past. And then secondly, with the curious to get your thoughts on the new marketing analytics hire, you know, 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 Boquesna launch and the strategy there? Was there any area, you know, outside of some of your prepared marks that surprised you or that could be optimized or areas where you could really drive uptake or growth going forward? Thank you.

So, Jerry, thanks so much for both of the questions. You know, first, in terms of sort of our confidence in getting to, you know, positive cash flow operations next year or positive, you know, even as we've described it, you know, we have you know, 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 Salesforce 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 that 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 toward 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 gonna try to work 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 gonna 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 Salesforce time and marketing programs ever more efficiently and effectively. That's something that's not a one- or two-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 Angie over the last couple of weeks, delighted working with Angie over the last few weeks. And we've got a really solid team that is being very thoughtful as they work through the plan.

Great. Thank you so much for taking our questions.

Thank you. Our next question comes from the line of Dennis Ding of Jefferies. Your line is open, Dennis.

Hi, this is Anthea on for Dennis. Thank you for taking our questions and 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? Thank you.

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 realignments. 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. Um, but in the course of that, it does create some vacancies. We are actively recruiting for all of those positions, but you know, obviously hiring doesn't happen in a week or two hiring takes months. So we will be bringing folks on through the course of this quarter and next to fill the open positions. Um, as we indicated on the call, I expect that, you know, by Q1, as we fill all of the open territories, we will get to a Salesforce strength of 300, but I actually feel really good about where we are already today. that as the significant Salesforce strength that we already have is in the right territories calling in 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 Salesforce 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 Vapresna as more of their patients who've been converted onto Vaquesna 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 was naturally going to be in the next visit. Well, how are you doing? How did that referral go? When the conversation goes to Vaquesna and they feel a whole lot better and a physician has heard from five, eight, 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.

Great. Thank you so much.

Thank you. Our next question comes from the line of Annabelle Samimi of CFO. Please go ahead, Annabelle.

Hi, all. Thanks for taking my question. I think you guys have covered a lot already, but, you know, 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. It is 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.

Annabelle, 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 Roquesna. 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 Vaquesna, 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 three PPIs. They switched them to double dose BID PPIs. And now they finally switched them to request because there's nothing else to do. Soon as 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 three 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 not 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 Sanju. So it's great that you turned on Medicare. And it's interesting that the average gross margins come down at the same time while the cash paid business seems to pop, I guess, come back up to about 35%. So is that, I guess, if you are guiding gross 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? I just want to understand what gives you confidence on the growth to net being at the lower end of the range with some of these dynamics going on.

Yeah, Danable, thank you for the question. So actually, gross margin, if you look at the last three 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 three 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'll 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.

Okay. Got it. Thank you.

Thank you. Our next question comes from the line of Chase Knickerbocker of Craig Hallam. Please go ahead, Chase.

Good morning. Thanks for taking the questions. A lot's been asked, but maybe just to stay on the topic of growth 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 growth to net? Should we continue to see you know, some improvements, even potentially going closer to 50% from the bottom end of the range now. I mean, where do you think kind of growth 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 growth to net to maybe continue to drive some improvement there from your past experiences. Thanks.

Yeah, Chase, thank you for the question. So we obviously are very kind of focused on growth to net. every other line items I'd say I think one thing I'd say I've seen very consistency I think management done a good job in getting access and managing all the contracts and in the three quarters results have been very consistent and then give me the confidence we can tighten this for this quarter going forward chase I don't expect a significant a change in how we look at it obviously I we look at at the right time, what kind of guidance we want to give. Maybe it'll be a little bit tighter than what you had before, but we'll come back to that when we give the guidance. There would be obviously pushes and pulls as you think about it. You know, there is... there is a potential for price increase. There are obviously rebates in the government sector that we've 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 this far for three quarters this year.

Thank you. Thank you. Our next question comes from the line of Matthew Caulfield of the HC Wainwright. Please go ahead, Matthew.

Hi, Steve and team. Thank you, 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. Thanks.

So, Matt, thanks so much for the question. I don't think we've ever disclosed, you know, 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. Um, 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 there and their script isn't covered by their insurance, for example, and they get, um, you know, a higher than expected copay, they may, you know, walk away and not fill that script. If the patient goes to blink and they are getting covered they will get a $25 copay. 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, we can manage that cycle to reduce that walk away from a prescription to minimize the copay and minimize at all times. the patient out-of-pocket payments 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 high deductible plan and their plan isn't going to cover it 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 than through a retail pharmacy typically. Understood.

I appreciate that. Thanks, Steve.

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