Phathom Pharmaceuticals, Inc.

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

Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Fathom's second quarter 2026 results. This morning's presentation will include remarks from Steve Basta, our president and CEO, and Sandeep Narula, our chief financial and business officer. A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we'll be discussing during the call. A copy of that press release can be found in the news releases section of our corporate website. Further, the recording of today's webcast and the slides that we will be reviewing can also be found on our corporate website under the events and presentations section. Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Fathom's control. Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business, and results of operations, and the trading prices for Fathom's common stock. A discussion of these statements and risk factors is available on the current Safe Harbor slide, as well as in the risk factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Fathom as of this date, and Fathom disclaims any obligation to update these statements. Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically, in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes non-cash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release. With that, I will now turn the call over to Steve Basta, Batham's President and CEO, to kick us off.

Steve? Thank you, Eric. and thank you everyone for joining our call this morning. Let me start by highlighting the significant transition Fathom has made over the last year and a half. I'm very proud to share that for the first time in Fathom's history and ahead of our guidance, we generated positive operating profit in Q2, excluding stock-based compensation. That's a dramatic improvement compared to Q2 last year when our operating loss was more than $50 million. Importantly, from Q2 2025, To Q2 2026, we increased revenue by about 88% and reduced cash operating expenses by about 34%. We have executed a successful pivot in our operations. We are on a solid trajectory and expect meaningful long-term growth generated by our core strategy to focus first on gastroenterologists. We continue to believe we can reach $1 billion in annual potential revenue with this focus on GI prescribers and have the potential for a second billion in annual revenue through expanded engagement with primary care prescribers in future years. For full year 2026, we are updating our revenue outlook to $310 million to $325 million. This new revenue guidance range still indicates meaningful expected growth over the next two quarters. We are hearing from our field team and in our market research that physicians are encountering friction in the process of obtaining Voquesna for their GERD patients. While many physicians have demonstrated willingness to navigate the process to get Voquesna for their most severe GERD patients, some may be more hesitant to work through the perceived hurdles to prescribe Voquesna more broadly for their less severe GERD patients. This influenced the fine-tuning of our 2026 guidance range. That being said, we believe we can meaningfully improve this dynamic and we are working on several initiatives which we believe have the potential to reduce friction for physicians and patients and to support accelerated growth. We remain confident in our GI-first strategy and our long-term outlook for Vekwesna. I'd like to turn briefly to a few key financial highlights for the quarter and then Sanjeev will provide further commentary during his portion of the call. For Q2, We reported net revenues of $74.3 million, cash operating expenses excluding stock-based compensation of $56.4 million, and for the first time as a business, we generated cash from operations of about $1.6 million. While we do not project generating cash each quarter this year, we do anticipate being consistently profitable at the operating profit level in upcoming quarters, excluding stock-based compensation charges, as we've previously discussed. We are proud of our company's results this quarter. They demonstrate solid execution of our GA-first pivot over the last year. A few quick notes on our commercial metrics for Q2. Since launch through July 17th, nearly 1.7 million Vuquesna prescriptions have been filled. Of the approximately 325,000 prescriptions that were filled in Q2, about 209,000 were covered prescriptions, representing approximately 64% of the total, while about 116,000 were filled as cash pay. Compared to last quarter, this represents 24% growth in covered volume and 16% growth in cash volume. On a year-over-year basis, covered prescriptions grew about 79%, and total prescriptions grew about 88%. Shifting to our development efforts, we've made solid progress in our EOE Phase II study, which is the first large placebo-controlled trial of an acid suppression treatment for this indication. We completed enrollment in June, which was ahead of schedule, and we were expecting top-line data later this year in Q4 for the 12-week blinded treatment portion of that trial. We believe Vaquesna has the potential to fill an important unmet need for EOE patients. The EOE program may also provide a potential path to extend Vaquesna exclusivity by six months if the Phase II trial results are favorable, we receive a written request from the FDA to include pediatric patients in a potential Phase III trial, and we conduct that trial as agreed with FDA. I'm also pleased to announce that we will be continuing our clinical work investigating Vaquesna as a potential as-needed or on-demand treatment for non-erosive GERD. We plan to initiate the phase three trial for as-needed use in Q4 of this year. In 2022, Fathom reported a successful phase two trial for as-needed use of Vaquesna. In this trial, Vaquesna demonstrated faster and sustained relief of episodic heartburn as compared to placebo. Volquesna demonstrated superiority on the primary endpoint of complete relief at three hours and sustained relief for 24 hours. Many patients in the phase two trial reported complete heartburn resolution as early as one hour following treatment with Volquesna. There is a significant population of patients with non-erosive GERD who are on chronic daily acid suppression therapies and would prefer to use a product as needed when they experience heartburn episodes. If the phase three trial is successful, We believe a potential expansion of the Vaquesna label could meaningfully increase the commercial opportunity for Vaquesna and could strengthen our planned future expansion of call efforts on primary care physicians. If approved, an as-needed use of a potent GERD treatment with 24-hour durable benefit could also provide a distinctive value proposition in future direct-to-consumer advertising. Overall, we remain confident in our outlook for Vaquesna and in our ability to execute efficiently. I'll now turn the call over to Sanjeev to take you through our financial updates.

Thank you, Steve, and hello, everyone. I'd like to start by saying how pleased we are with our results and momentum of our revenue trajectory. The business is growing nicely. We remain confident in our path forward. Q2 performance included an important inflection point for Fathom. For the first time, we generated operating profit excluding stock-based compensation. Driven by Top Line Growth and Discipline Expense Management. With that in mind, let's go into the results. Revenue for Q2 was $74.3 million, reflecting year-on-year growth of $34.8 million, or 88%. Sequentially, revenue grew $16 million, or 27% over Q1 2026, which reflects our largest ever quarter-over-quarter revenue growth on an absolute basis. As anticipated, prescription trends have rebounded following the normal early year seasonality we experienced in Q1. Our gross to net discount for Q2 was in line with our guidance, coming in towards the lower half of 55 to 59% reach. The channel mix for quarters prescription continues to be main reason for modest quarter to quarter variability. Our gross profit margin remains steady in line with our guidance at approximately 80% for quarter two. Second quarter cash operating expenses were about 56.4 million, largely consistent with spend last quarter. I'm proud of our team's continued expense discipline with year-on-year cash operating expenses down 29.7 million or 34% compared to Q2 2025. Our performance last A few quarters clearly demonstrate our ability to grow revenue while being disciplined on expenses. As a result of these strengths, we have delivered on our operating profitability plan we previously outlined. I commend our team for their commitments to reaching this important milestone, and I'm pleased that we did so a quarter ahead of our guidance. We also generated cash from operations for the first time, ending the quarter with $182.5 million in cash and cash equivalent. This is an exciting results and provide additional confidence in our outlook for future cash flow, which I will discuss in more details shortly. Now let me turn to our financial guidance for 2026. For revenues, we're updating our full year 2026 guidance to 310 to 325 million. This refinement reflects the friction Steve described in his remarks. We continue to be confident in the long-term opportunity for Voquezna. We are reiterating our guidance for both gross to net discount, which we believe will be within 55-59% range, and for gross margin, which we anticipate will be approximately 80%. As for spend, we're updating our cash operating expense guidance, excluding stock-based compensation, to be between $235 to $245 million, We continue to invest in projects designed to enhance revenue, such as omnichannel marketing, as well as clinical development programs for potential new indications. As we think about cadence, our updated revenue guidance still reflects meaningful expected growth over the next two quarters. We anticipate our gross to net discount will remain within our guided range, but will increase moderately throughout the rest of the year, similar to prior years. We expect expenses to modestly step up in the back half of the year as we make strategic commercial and clinical investments, most notably initiating our Phase III non-erosive GERD as needed trial. We believe our early achievement in operating profitability in Q2 will sustain in Q3 and beyond, including in total for full year 2026. As for cash flow, we remain on track with our guidance to reach durable cash flow positivity in 2027. While this quarter's cash generation was encouraging, we expect to continue to use cash for the rest of the year due to modest and anticipated changes in working capital. On the whole, we remain confident in our balance sheet and capital structure. Based on our current operating plan, we continue to believe our cash on hand along with anticipated future cash generated from operations will be sufficient to invest in our business and satisfy all outstanding debt obligations at all times without the need for another debt or equity risk. In summary, this was a very strong quarter and we are proud of our results. Internally, from the leadership team to our field team, everybody remains motivated and determined to accelerate future prescription growth. I believe we're very well positioned to do just that. I will now turn the call back to Steve for his closing remarks. Steve.

Thank you, Sanjeev, for the detailed financial review. Our efforts to reposition Fathom have been successful over the past year. The pivot to the GI First strategy has driven 88% revenue growth from Q2 last year to Q2 this year. We reduced expenses, continued to drive revenue growth, reached operating profitability excluding stock comp, and believe we are positioned for significant growth in the coming years. A year ago, on our Q2 2025 earnings call, we told you we could reach profitable operations in 2026. We have officially delivered on this milestone as of Q2 2026. and we believe we will continue to do so in the coming quarters. We're pleased with the continued revenue growth this quarter and are deeply focused on how to drive further growth of Voquezna for many years to come. We believe Voquezna has the potential to help millions of patients with GERD. Thank you to our team for their outstanding and diligent work, to the physicians and patients who trust in our products and to our investors for your continued support. Operator, please open the line for Q&A.

Yes, sir. Ladies and gentlemen, if you have a question or comment at this time, please press star 1-1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star 1-1 again. Again, if you have a question or comment, please press star 1-1 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Umar Rafat from Evercore ISI. Your line is open.

Morning, guys. Thanks for taking my question. I have a two-part question to go present today from a competitive dynamic perspective. First, just your overall thoughts on their data. There's some sort of clinician feedback around immediacy of onset, but then you also have to balance that versus a lot of these patients are on PPIs, et cetera, anyway, so does that immediacy into onset matter or not? But more importantly, what does it mean for Fathom into 27, both as it relates to the growth trajectory of the molecule, but also your profitability as competitive dynamics kick in from an SG&A perspective and revenue perspective? Thank you.

Thank you very much for both insights. We certainly are tracking the evolution of of the take Oprah Zahn story and sort of the positioning in the market and, you know, often get questions about this. One of the things that has historically been true is that when a second product launches into a category, it changes position perception from, Thank you for having me. and that will have a positive impact in general in the category. And as the leader in the category, we believe that's going to accrue to our benefit in that process. Regarding the specific comparative data, obviously we've not done a direct head-to-head trial. When we look at our data and compare that to what was presented regarding Tegoprazan at the recent DDW conference, The most important variable, and in fact the primary endpoint in each of the two clinical trials, in both our Boquesna clinical trial and in the Tegoprazan clinical trial, the primary endpoint was tied to overall healing rates in erosive esophagitis. The intent in treating an erosive esophagitis patient is to heal the erosions. With Boquesna, we get a 93% healing rate. With Tegoprazan, they reported an 84.6% healing rate. and so what you see is a very high rate of healing and therefore very good outcomes and high satisfaction when physicians put patients on voquesna. I think that's the core variable physicians are going to look to. One of the things we do see is that most of the patients who are on voquesna have been on chronic daily therapy for many years Whether the drug works in 45 minutes or one hour isn't the variable there. The question is, how much does the drug raise pH in the stomach? How does it work on a durable basis? Can it heal patients' erosions? And we see really good data with Boquesna on all of the parameters that matter most to physicians treating an erosive esophagitis patient. So I certainly see that the healing rates are probably the most important variable to be looking at in that process. And in terms of our trajectory, I mean, again, if this grows the entire awareness of the category, that's going to accrue to our benefit as the lead player in the category. And we are certainly confident with Buchresne's data and positioning.

And, Umar, to your point about what does it mean to 2027 guidance and OPEX and trajectory, as Steve pointed out, again, we believe this is going to be category expander. I don't expect any major impact. to our growth trajectory or the OPEC space. There might be something on the growth to net. There might be, but we are kind of anticipating all of that, and then we'll provide more guidance when we give our 2017 guidance. But we don't expect any major change to where we are thinking about our 2027. In fact, this could be overall a positive to the category.

Thank you.

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

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

Kristen, thanks for both of the questions. I think that those are going to add insights for investors that'll be helpful. You know, first on the friction that we're describing, it's not sort of a binary event in this process. It's really both sort of the actual friction is how much work does it take in an office to get LaQuesna covered? And what's the experience between The moment that a physician prescribes, when the patient is trying to fill the script, when the PA is submitted, and how does that cycle work most efficiently for physicians, for their office staff, and for patients. It's not a fundamental change in access. We actually have really good access and really good coverage by payers. But the streamlining of that whole process, what needs to be documented in the medical records regarding prior PPI use, what needs to be in the prior authorizations, how can that process run as smoothly as possible, the education of physicians, the education of their office staff, and encouraging as many physicians as we can to send the prescription to Blink because Blink can provide additional support services that streamline that process. All of those become important dimensions to improving both the actual workflow, how do we make this actually easier, and the perception that it's easy to get the product, because both are important in this process. We need to just actually streamline it, and we need to improve physician confidence and perception that when I prescribe this product, I know my patient's going to get it. And we've got a clear path to do that. We know that our top physician prescribers have got that process nailed. They're running that process efficiently. Their office staff is running that process efficiently. This is a coachable process. Outcome in terms of getting to streamlined activities, but we need to do that broadly across every gastroenterology office. And then the second question that you had was sort of as needed positioning question of cannibalization. Obviously, this is something that we spent a fair amount of time looking at. It's why we took some time to do some market research before undertaking this trial, that there's sort of an inherent risk. Are you going to switch patients from using your drug daily to using your drug as needed? What the answer that we've gotten to? is the patients who are now getting Boquesna are not the same patients, basically, who are going to be desiring an as-needed use. We are seeing physicians today prescribing Boquesna for their patients who need the most pH elevation in the stomach to achieve the best possible outcome. As we were talking about earlier, erosive esophagitis and healing erosive esophagitis, you don't want to use a product as needed. You want to maintain elevated pH in the stomach on a daily basis. You want those patients to be taking the drug daily. It's a different population of patients who are having breakthrough heartburn episodes, who are using PPIs daily, but they don't have heartburn every day. And they don't really want to use a PPI every day. That population of patients is actively seeking an alternative that they can use when they have heartburn episodes. That's not the patient we're getting today. So this is not about cannibalization of our current market. It's really about expanding to an incremental market opportunity. And what we have found Thank you. Thank you.

Our next question and comment comes from the line of Yatin Suneha from Guggenheim. Ms. Suneha, your line is open.

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

So let me take the first half and then I'll have Sanjeev discuss sort of OpEx and how we're thinking about OpEx trajectory in that process. So on the friction, I think that your framing is actually quite helpful in sort of thinking about this. The physicians that have already adopted Voquesna as a core part of their practice have worked through this process and have reduced the friction in that process by virtue of their experience in how they prescribe Voquesna. In some cases, they've adopted prescribing through Blink as a means of supporting their staff. In other cases, their staff has just worked through the process quickly as to What Needs to Happen in a PA, and they've got the cycle down, and they can get the drug efficiently for their patients. As we've been broadening to GI practices, and as we find that GI practices are going deeper into their patient base. So for their most severe GERD patients, patients who have tried three or four prior PPIs and have had multiple failures, they know that it's clearly worth the effort to get voquezinib for those patients, and they can work through that process. If they perceive that it's a lot of work or there are stumbles or hurdles in that process for their staff, they may be less likely to prescribe it for a much broader population of patients who need the drug. But there's sort of a trade off. How much does my patient need the drug and how much work is this going to be for my staff? And is there some risk that there's going to be some stumble in the process that delays it? All of that impacts a physician's thinking. And so for our highest-volume prescribers, they've already got the process pretty much nailed. For adopters that are growing their use of Vaquesna, we just need to streamline this. There's no binary change here. There's no on-off signal of all of a sudden we've solved it. It's incremental efficiency improvements. What does the physician need to document when they're prescribing Vaquesna? What does the staff need to capture in the prior authorization submission? When does the prior authorization get submitted? If possible, we want them to send the script to Blink because Blink will provide more PA support and it'll help them in that process and we'll be able to work through it. So it's just a matter of building habit and comfort and familiarity with the process that will improve and streamline that process. This is small sort of incremental changes, but it is a friction that we're seeing that caused us to say, hey, look, we need to work through this over the next few months. We need to educate every office on how to streamline this as much as possible. And it's a core focus in our internal conversations of how do we educate every office around how to do this as efficiently as possible.

And I think to your point about the operating expenses, as you clearly see that overall, the team has done an outstanding job in being expense disciplined. while we continue to grow revenue. You saw that results for this quarter was a clear evidence of that, that that strategy has actually worked. So in terms of where we see this going forward, I think what you would see based on the expenses, basically, that we've reached to a point where we have the infrastructure, the full field force, the marketing department, the program to sustain Vokwesna and continue to grow Vokwesna. So all the discipline that we have put in place That will sustain. What you would see going forward is us actually incrementally adding investments. As you would see in this back half of the year, as I talked about in my remarks, we'll be actually increasing the spend in the second half versus the first half. And that's coming on essentially in two areas. And that will continue as we go forward. We're going to continue to add programs that actually drive the top line, things like Omnichannel. We're going to be launching that. and then the As Needed Study, which is also that Steve talked about earlier. So you would see us maintaining the discipline that we've reached so far because that has worked for us and that has allowed us to grow revenue, but very selectively make those investments to continue to grow the top line and we'll have the resources to be able to do that.

Thank you.

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

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

So Paul, thank you for both of those. So on the sort of friction and insurance coverage process, it's not, you know, it's very hard as we're getting the feedback from physicians to quantify sort of how many prescriptions that they submitted didn't go through or would have gone through if, you know, the PA process was streamlined. But it's a more qualitative sense. When we do our market research with physicians, we're finding this is the big stumbling point. They love the drug. They absolutely love the drug. I mean, just across the board, physicians are convinced the drug works. They're convinced it's safe. They're convinced that it's the right product for patients that aren't getting adequate relief with other therapies. And their balance point is, how much work is it going to be? How much is it going to cost my patient? Are they actually going to be able to get access to it? And how do I streamline that? And is that worth the effort for each of my patients? And that's The equation that effectively every physician is going through every time they're prescribing this is, I know this drug is going to do really well for this patient, and how do I make that trade-off of, you know, is it worth the effort to make sure to get this? And so there's no absolute number to say it's 10%, 20%, or 40% of patients that would now be shifted. It is incremental, gradual growth as we improve both the actual streamlining of this, and no fundamental sea change here, it's just helping physicians gain greater confidence, helping them make sure that they're capturing the right documentation, helping their staff make sure that the prior authorization is going through with the right documentation. It's just incrementally getting better. And not only do the actual streamlining, you then improve physician perception and confidence that drives prescribing behavior because they know the drug works. They know that they want to get this for their patients. And so we will increase propensity to write in a meaningful way. But it's hard to put an exact number on it. It is more qualitative feedback as to the nature of the decision process that physicians are working through. On EOE potential dosing, for younger populations of patients, we actually are finding that there is not much change to the dosing. We've been looking at PK characteristics. I don't have all of that data immediately at hand, and we can probably go through that in more detail to provide you guidance based upon what we've presented. I also am not as familiar with what has been presented on the prior pediatric PK work. But as we've done work, we don't expect that there is going to be significant changes in dose, although it may be at younger ages that you start to see that. But we'll get you more information on that as we move forward. And certainly, this trial was adults only. As we think about planning for the pediatric inclusion, we'll work with FDA on what age groups would be in the EOE expanded trial, and that will impact the dosage determination for each of those age groups. So we'll get you more granularity on that probably sometime in 2027 as we're having conversations about what the design of that trial looks like for that broader population.

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

Hi, this is Josh from Marnia. Congratulations on your milestones. We just had a quick question around, like, more around the estimated phase three design.

I was wondering if you can, like, maybe cover, like, maybe, like, historical benchmarks or, like, you know, endpoints that you're going to be looking at as you run this trial. And as well, maybe if you can describe, like, how much incremental cost it's going to add to your expenses.

Thank you. So, Marty, the incremental cost first of the phase three trial for this year is already built into our guidance of the 235 to 245 guidance range in terms of OPEX. So the portion of that trial that we're going to be absorbing in terms of costs in Q4 of 2026 is built into that. It will raise our R&D expense in 2027 to some degree. I'll let Sanjeev comment to the extent that he wishes to do so on 2027. We'll give you much more guidance on 2027 as we get to our 2027 guidance, but it will increase the costs a bit next year. The design of the trial isn't yet posted, I think, on ClinTrials, but once it's posted, we'll be happy to walk through and all of the details that are public. But the basic premise, if you look at our Phase 2 study, which has been previously presented and published, that actually provides a really good framework. The concept is you enroll non-erosive reflux patients. They go through a treatment period where they're doing daily treatment for several weeks. Patients who are heartburn-free for a period of time at the end of that treatment phase are then randomized to either receive Vaquesna or placebo. and the instruction during the evaluation phase of the trial is when you have a heartburn episode, you take one of the tablets and we will be looking for a difference in both fast onset of resolution within the first one, two, three hours and we've got primary endpoint and secondary endpoints at different time points and then sustained onset of resolution So a successful patient both has early onset, early resolution of their heartburn episode and it's sustained for 24 hours. And that differentiates meaningfully versus a placebo. There are rescue meds available for any patient who's having heartburn who doesn't get resolution because placebo patients won't get resolution so they can use antacids after the evaluation time. But it's a really straightforward clinical trial design. We'll send you the information on the Phase 2 trial so you've got more detail on that. And the Phase 3 trial mimics that substantially.

Thank you.

I'm sorry. Go ahead, sir. Go ahead. Next question. Nope.

Go ahead to the next question.

Our next question or comment comes from the line of Annabel Samimi from Stiefel. Your line is now open.

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

So, Annabelle, your question gets at a really important strategic element of sort of where does the as-needed trial fit into the evolution of the strategy. So first, on sort of current experience, there are certainly some patients who are using Vaquesna as needed. We hear that from physicians. It's a small portion of our overall patient population. The vast majority of patients on Vaquesna are using Vaquesna daily because they tend to be patients who have significant GERD symptoms and need the most possible pH elevation. And you get the most possible pH elevation by using Vaquesna daily. So the patients who are by and large receiving Vaquesna therapy today are mostly daily use patients. but certainly there are some that we hear from physicians and some of their patients have evolved to as needed use to some degree. I don't think that it's a large number. The expectation is this as needed population, this as needed trial isn't linked in any way to the friction dynamic that we're describing. The friction dynamic is just how efficient is the office at getting the PAs submitted, making sure that the right documentation is in, make sure they've got the right documentation for the right payer, and that that process can work through. And it's just, this is just blocking and tackling of educating each office and working with the office staff and working through the dynamics based upon our current labeling, current access process and just streamlining. So it's that basic execution work that we need to do over the coming months to educate all of the offices. As you had suggested in part of your question, I think this is the right way to think about the as needed opportunity. It expands the market opportunity substantially. It potentially expands the market opportunity in a meaningful way that's helpful for primary care physicians and potentially expands the market opportunity in a way that sets us up for future unique DTC claims. So the opportunity set is the population of patients who are on daily therapy, whether it's with an H2 blocker or with a PPI, But many of those patients are on chronic daily PPI therapy, but they prefer not to be on daily therapy. They're either worried about adverse events or they're worried about other concerns that they've heard with daily PPI therapy. And they ask their physicians on a regular basis, Doc, you know, I've been taking this drug for years. Isn't there something that I can do to just solve my heartburn when it happens? That question comes into physicians on a regular basis. We believe our drug is going to fit really nicely in solving that need for patients and for physicians. And so this trial enables us to not only have the data that confirms that the drug can work for those patients, but then also have the label that allows us to talk to the physicians about that use state. And that use state exists both in GI and in primary care. So as we go into primary care physician offices in the future, that's a unique value proposition that no other drug brings. and becomes a unique conversation set with primary care physicians that expands the opportunity set meaningfully in that market. Now, obviously, it takes a couple of years from here to get through the trial and get through the NDA supplement, so it's not immediate, but we think that that positions us really nicely for that future expansion and, to your point, also opens up unique advertising proposition for future direct-to-consumer promotion. That's not to say that we won't do any direct-to-consumer promotion prior to that. We're already doing some work online digitally. But it becomes a unique value proposition that I think enhances and enables the expansion of future DTC activities when we have the unique value proposition of being able to use this drug daily or as needed.

Thank you.

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

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

Yes. So, Chase, thank you. And I think that's actually, that's going to be helpful here to get perspective. Yes, we have absolutely heard this from physicians all along. As we've gone broader in the GI community and as we've gone deeper into their patient base as the product is expanding, The noise level and the volume level of the comments rises, and that's why our attention has turned to this in recent months to say, okay, we've really got to get to better education on this point. But in fact, if you look back at some of our physician perception questionnaires a year ago, it was interesting that we saw in some of that data the same phenomenon that we see in our market research right now, which is physicians love this drug. They're convinced that it works. There's a super high perception that the efficacy of this product is compelling for their patients. They are comfortable with the safety. They think it's appropriate for a large number of their patients, and their concern is cost and access. Their concern is, what's it going to cost my patient? Is it going to get covered by their insurance? How much work is it going to be to get it covered? It's all of those kinds of things. Now, the early adopter physicians were clearly motivated to figure out, how do I get this to my patients, and got their office staff up to speed quickly so that they could embrace the product and run through that process. And so we know that the process can be streamlined in an office and can run very smoothly. So that perception has been there. It's just now that we've gone to a broader universe of GIs and we've gone deeper in their patient base. It's not just the most severe patients that they're prescribing for where it's clearly worth the work to make sure to get this. We need to get it for their broader population of patients. We need to streamline the workflows for them and that's just largely education of the physician and of the staff both on how do you make sure that the PA documents everything you need to to get the the PA through and how do you make sure that the medical records capture all the information to make sure that that goes through but also education and confidence building that yes you can get this product for your patients and so that creates a greater willingness to prescribe so there's both The uncertainty of can I get this for my patient holds a physician back, but then there's also just friction in the process that prevents some scripts from going through. We can work through that process. And again, I'd reference both. There's an education component of the physicians and the staff, but there's also extra support that we can provide through Blink. And I know in some prior investor conversations, people have talked about Blink as just the cash pay alternative. That's not how we think about Blink at all. We think about Blink as a facilitating partner that helps physicians' offices get through the PA process as smoothly and as easily as possible. We are working with Blink to constantly figure out how can we iterate and streamline those activities and how can we provide additional streamlining support for physicians and their staff. And we're working with our sales force to educate the staff on how do you use that resource most effectively. So yes, this has always existed. There are physicians who have gotten through this effectively, and we think that this is absolutely something that can be improved over the coming months through our ongoing work.

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

So in terms of when we saw this, it's not an on-off switch of like suddenly the conversation appeared. It was gradually growing noise level. And so I've been spending a bunch of time in the field. Several members of our management team have been spending a bunch of time in the field. And just to a person, the feedback that we've gotten as we've done all of those field rides is, hey, you know, docs love our product, but they're all a little bit frustrated by the process of getting it. And so that noise level in recent months as we've done more of those field rides has been growing. certainly the time that I've spent in physicians offices has reinforced that the time that we've spent with physicians at TVW and at other conferences that's the constant theme that comes up is I love your drug and I'm just not sure that I can get it for all my patients and so it's that noise level has been rising through all of those conversations and it's come in the context of market research that we've been doing over recent months that has raised our awareness that said hey wait this is sort of We need to shift our communication. We need to spend less time talking to physicians about how fabulous our drug is because they already believe it and more time talking about how easy it is to get and how do we streamline that process. We're trying to shift that conversation and ongoing our sales and marketing teams are working on how do we educate staff and how do we educate physicians even better and how do we create those materials. because it's just the noise level has risen and we need to solve this issue to accelerate our growth in the future. And it's solvable. This comes up in every product. Every branded product has this to some degree and it just takes on a slightly different flavor in each specific drug category. And then, I'm sorry, Chase, you had a question on as needed, but I don't recall the details of the question.

The as needed timeline in context with LOE and

Oh, so the as needed timeline. So we've only indicated when the study is going to start. We haven't given an exact timeline, but I think you should certainly think that it's reasonable that we've got data. You know, I don't know if it's in 2027 or if it's in 2028. but within that timeframe and then potentially just as a broad estimate not committing to a specific forward date, it's possible that we see an update to our label with as needed dosing by 2029 so that that timeframe sort of puts us in a reasonable place that gives us several years to take advantage of this momentum.

Understood. Thanks, guys.

Thank you. Our next question or comment comes from the line of Dennis Ding. from Jefferies. Mr. Ding, your line is now open.

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

I'll take the first half of that, and then I'll let Sanjeev take the RIFA payments and sort of BD capacity conversation. So thanks, Dennis. On your first point, I think you're 100% right that other companies have found success, and we are also seeing that We get a more efficient process for the whole fulfillment flow between the time that the prescription is submitted and the process of getting the PA submitted and the process of getting it cleared. And we just get better outcomes for patients in terms of the percentage of scripts that go through when a script is sent to Blink versus a script is sent to a retail pharmacy. They can provide more help to the office. They can provide more help to the patient and if there's a denial from a payer, they can work through the appeal process. So just overall, Blink can be meaningfully helpful to get covered scripts through. That is one of the education points that we are focused on with our field organization is how do we help physicians understand that benefit and over time, I'd like to see more of our script volume go through Blink to provide that additional support. I think that's an exactly on-point observation that that's one of the tools for helping to improve this dynamic. Sanjeev, you want to take it?

Yeah, yeah. So, Dennis, so with regard to refi, I think what you got to keep in mind overall, excuse me, not only refi, but also, so we have the term debt repayments that will start in a small way in 2028. So the simple way to think about it is the way the capital structure is with the capital raise that we did beginning of the year. And you saw we turned into operating profit this year, and then we're going to be generating future cash flow starting 27. All that, keep in mind, will allow us to meet our obligations. So we start paying our term debt in 2028, and then we have the true up of REFA starting in 29, but actually paid in 29. We will have sufficient cash between the cash cash and then the cash generated from operations to be able to meet those obligations. And on top of that, we'll have some flexibility to invest in our business through in licensing. Not a lot, but clearly there would be opportunities. And the way we're thinking about some of those kind of business development opportunities where there is not large upfront, but clearly we sign those deals, use our infrastructure, do those clinical trials, which we can fund through our income statement. and then have a bigger payout as those drugs get launched over a period of time. So we figured that out, but clearly the capital structure allows us to meet the obligations, allows us to invest back in the business, maximize on , but also start flexibility to start doing some of the licensing to grow the pipeline.

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

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

Great, thanks so much.

Thank you. Our next question or comment comes from the line of Joseph Stringer from Niedermann Company. Mr. Stringer, your line is now open.

Hi, good morning. Thanks for taking our question. For the Phase II EOE trial, is there a bar for success that you're looking for that would be sufficient to propose a Phase III? The Phase 2 data is essentially the key piece that you need to apply for the pediatric extension.

So, Joseph, thank you. Yeah, well, there's not a bright line that the drug has to do exactly this in order to have the conversation with FDA. What we clearly need to see is enough benefit in the Phase 2 trial that there's a clear path to designing a Phase 3 trial that could be successful to demonstrate efficacy. The primary endpoint in the Phase 2 trial is just around eosinophil count reduction. Obviously, in EOE, you want to see reduction of eosinophil counts. And we've got a number of clinical symptom measures that are built in as secondary endpoints. What the portfolio of symptom improvement measures are and what the magnitude of those are will drive what the design of the Phase 3 trial would be. And so there isn't a sort of simple bright line if you have to have X percent improvement on this particular parameter. will see the overall results. And the overall results will then instruct us in having an end of phase two conversation with FDA and designing a phase three trial. If there's a reasonable path to designing a reasonable probability phase three trial, that's the crux of that conversation. But we'll see that data when we see the phase two results. This is the first large, well-controlled trial of an acid suppression therapy. in EOE. So the magnitude of effect of an acid suppression therapy in EOE isn't well documented in any sort of randomized clinical trial setting. So largely, the EOE trial will then be instructive in what the future trial design would need to look like.

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

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

So we are currently calling on primary care physicians, but it's not our primary call point. So something on the order of 60 to 70 percent of our sales calls go into GI. But that means that there's an additional 30 to 40 percent of sales calls. Most of those are going into primary care physicians. Those are either high decile primary care physicians. that are prescribing large volumes of PPIs or their primary care physicians who have previously written scripts for Voquesna, where we think that there's a meaningful growth opportunity. So we're currently still in the primary care market, although the majority of our time and effort and resources are devoted to the GI first focus of the business. There's an expectation that in future years will expand the primary care activity. I don't have the specific timing of that. I mean, it could be in 27, it could be in 28, it could be in 29. It could be tied to when we have the as needed indication. It could be prior to that. We're going to be making an assessment of when to expand our efforts in primary care based upon a number of internal metrics that drive an evaluation process of when are we going to see an acceleration of uptake and when are we going to see a positive return on the incremental investment. At the time that we come to that determination, we'll let you guys know what we're going to be doing and how we got to that rationale.

Very helpful. And just to follow up on that, has the Blink education process been proportional between the GI and primary care then in terms of focus?

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

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

Thanks, Matt. Thank you.

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