Company: PHAT
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0000950170-25-034183
Chunk: 349

Company: Phathom Pharmaceuticals, Inc.
Filing Date: 2025-03-06
Form: 10-K
Item: Item 8
Chunk 349
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 require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

    Reserve for Product Returns

    Description of the Matter
    During the year ended December 31, 2024, the Company’s net product revenues were $55.3 million. As explained in Note 1 of the financial statements, net product revenue includes estimates of variable consideration for which reserves are established, including the reserve for product returns. The Company provides customers a return credit in the amount of the purchase price paid by customers for all products returned in accordance with the Company’s returned goods policy. The Company estimates its provision for sales returns based on available industry data, 

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    including visibility into the inventory remaining in the distribution channel, and adjusts the transaction price with such estimate at the time of sale to the customer. Auditing the Company’s measurement of the reserve for product returns was challenging due to (1) the significant judgment required in determining the estimated returns rate and inventory in the distribution channel that will not