PHAT, Phathom Pharmaceuticals Inc.

Will it survive?

• Can it pay its interest? -2.3×
  Does not cover its interest
  Operating income ($160M) ÷ interest expense $68M
  What this means

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt, net of cash? $79M
  Net debt against an operating loss
  Cash $130M − debt $209M
  What this means

  Netting $130M of cash and short-term investments against $209M of debt leaves $79M owed, with no operating profit this year to measure it against — understand that combination before anything else about the company. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 171d
  Long (60+ days)
  DSO 163 + DIO 89 − DPO 80 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital —
  Not meaningful here
  Invested capital ($359M) = debt $209M + equity ($438M) − cash
  Industry peers: median -64%
  What this means

  Invested capital is near zero or negative, usually years of buybacks pulling equity down. ROIC explodes or flips sign and stops meaning anything. Judge this one on Owner Earnings instead.

• Owner-earnings margin -483%
  Consumes cash through the cycle
  3-yr median margin, range -20257%–-95%; latest ($167M) = operating cash ($167M) − maintenance capex $229K
  Industry peers: median -176%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's -95% of revenue this year, a -483% median across 3 years. Treating stock comp as the real expense it is (less $29M of SBC) leaves ($196M).

• Are earnings backed by cash? ($167M)
  Loss, and burning cash
  Net income ($221M) · cash from operations ($167M)
  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did not.

How is the cash used?

• Where do the earnings go? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

• Investing or harvesting? 0.36×
  Harvesting
  Capex $229K ÷ depreciation $633K
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Graham’s defensive tests · 0 of 3 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Miss
  Revenue ≥ $2B · $175M
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Near
  Current ratio ≥ 2× · 1.73×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Miss
  Debt ≤ working capital · $209M vs $97M WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-3.16/share (latest year $-2.77), the averaged base the calculator's gate runs on, and book value is $-5.49/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2022–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 0 of 4
  What this means

  Lost money in 4 year(s), look at what happened there before trusting the average.

• Operating margin −502% (median, 3 yrs)
  What this means

  Over the 3 years on record the operating margin has run around −502% — too short a record to call a through-cycle trend, but that is the level the business earns at.

• Worst year 2023 · −24532.6% op. margin
  What this means

  Operations went underwater in 2023, understand why before trusting the good years.