Seres Therapeutics Inc

NASDAQ:MCRB

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2024 Seres Therapeutics earnings conference call. [Operator Instructions]

I would now like to turn the call over to Dr. Carlo Tanzi, Investor Relations. Please go ahead.

[Carlo Tanzi, executive]

Thank you, and good morning. Our press release with the company's third quarter 2024 financial results and business updates became available at 7:00 a.m. Eastern Time this morning and can be found on the Investors & News section of the company's website. The company has also posted an updated corporate presentation to the website.

I'd like to remind you that we'll be making forward-looking statements including statements about the financial terms and future payments related to the VOWST sale, the timing and results of our clinical studies and data readouts, future product candidates, development plans and commercial opportunities, interactions with regulatory agencies, operating plans and our cash runway, our ability to generate additional capital, our planned strategic focus and anticipated timing of any of the foregoing and other statements, which are not historical facts. Actual results may differ materially.

On today's call with prepared remarks, I'm joined by Eric Shaff, Seres' President and CEO; and Marella Thorell, CFO; Dr. Lisa von Moltke, Chief Medical Officer; and Dr. Terri Young, Chief Commercial and Strategy Officer. Additional members of the team will also be available during the Q&A portion of the call.

With that, I'll pass the call to Eric.

[Eric Shaff, executive]

Thank you, Carlo, and good morning, everyone. The last period has been a particularly eventful time for Seres highlighted by 2 major milestones. The first being our positive SER-155 Phase Ib cohort 2 clinical results and the second being the sale of VOWST, which has strengthened our balance sheet and provided resources to support advancement of SER-155, our lead clinical candidates.

I'll begin my remarks today with a highly encouraging SER-155 clinical results from the placebo-controlled cohort 2 from our Phase Ib study, evaluating SER-155 in patients undergoing allo-HSCT. The SER-155 data we reported in September demonstrates the potential of this program to reduce the risk of bacterial bloodstream infections, a leading cause of mortality in patients that are going allo-HSCT. Lisa will review the specific study results in greater detail shortly.

Importantly, we believe that SER-155 could transform how infection risk in patients undergoing allo-HSCT is managed meaningfully improving outcomes. We have applied for breakthrough therapy designation and qualified infectious disease product designation or QIDP, and anticipate having feedback from the FDA by the end of this year on both. Our SER-155 Phase Ib study data further validates the promise of our live biotherapeutics approach and bolsters our corporate strategy to bring new treatments to medically vulnerable patient groups. Importantly, we believe that the results we observed in allo-HSCT represent only a piece of a much larger opportunity. Bacterial bloodstream infections are a major medical problem experienced by multiple patient groups beyond allo-HSCT, including autologous HSCT patients, cancer patients with neutropenia, CAR-T recipients, individuals with chronic liver disease, solid organ transplant recipients as well as patients in the intensive care unit and long-term acute care facilities.

Addressing the issue of BSIs represents a substantial commercial opportunity for Seres in each of these patient populations. Terri will discuss the commercial potential supported by feedback we've received through market research later on the call.

As a reminder, Seres wholly owned global worldwide rights for commercializing SER-155 and our pipeline candidates, including SER-147. We believe our pipeline candidates have the potential to not only protect individuals against bloodstream infections, but also deliver value more broadly in the public health site against the growing concern of antimicrobial resistant pathogens.

To most effectively advance SER-155 and allo-HSCT in additional patient populations, we are actively seeking a partner who shares our vision and who would provide financial support and other capabilities to enable us to maximize SER-155's broad potential. We have engaged MTS Health Partners to facilitate the process.

Moving on now to the sale of VOWST. In September, we announced completion of the sale of VOWST to Nestle Health Science in exchange for substantial immediate and future financial consideration. The agreement supports our longer-term corporate strategy to advance our live biotherapeutic drug candidates by bringing meaningful capital into the company, enabling Seres to retire our debt, streamline our operations and focus on advancing the next generation of programs to patients in need. VOWST was the first successful medicine to emerge from our core technology platform the result of over a decade of product development. This effort required our team to overcome many challenges as we created an entirely new therapeutic modality.

Our organization developed numerous capabilities during this period, including proprietary manufacturing and analytical methods related to live biotherapeutics. We also work closely with the FDA to secure approval of this important medication, the first in this new therapeutic class and we gained important insights into the unique regulatory considerations related to live biotherapeutics. These capabilities will continue to serve the company well as we advance new product candidates.

Through the VOWST transaction, Seres has received a meaningful immediate capital infusion, and we expect to receive payments of approximately $73.5 million in 2025 and we are eligible to receive future milestone payments upon certain net sales targets. The capital allowed us to retire our debt and we'll continue to provide Seres with resources to support the advancement of SER-155.

I'll now pass the call over to Lisa to expand on SER-155 and how we plan to move the program forward.

[Lisa von Moltke, executive]

Thank you, Eric. SER-155 is a live biotherapeutic product designed to decolonize specific GI pathogens and improve epithelial barrier integrity to prevent bacterial bloodstream infections, including those involving pathogens with antimicrobial resistance in patients undergoing allo-HSCT. Notably, infection rates appear to be increasing in this patient population as a result of the growing use of post-transplantation cyclophosphamide, often term PTCy to prevent GvHD.

In September, we reported results from our Phase Ib study of SER-155 in allo-HSCT. Study Cohort 2 utilized a randomized, double-blinded one-to-one placebo-controlled design to evaluate further safety, drug strain engraftment and the incidence of infections, particularly bacterial bloodstream infections as well as medical consequences such as incidence of febrile neutropenia and cumulative antibiotic exposure. We were very pleased with the efficacy results.

Patients administered SER-155 experienced a significantly lower rate of bacterial bloodstream infection than the placebo group, as measured through HSCT day 100. In the SER-155 arm, 2 out of 20 patients experienced a BSI versus 6 out of 14 in the placebo arm, resulting in a highly meaningful relative risk reduction of approximately 77%. This corresponds to an odds ratio of 0.15 with a p-value of 0.0423. And we believe this result is very clinically meaningful.

During the 100-day observation period, febrile neutropenia occurred at a lower incidence in SER-155 treated patients versus placebo patients, with 13 out of 20 or 65% experiencing febrile neutropenia compared to 11 to 14 or 78.6, respectively. In clinical practice, HSCT patients who experienced a BSI or febrile neutropenia are aggressively treated often with broad-spectrum antibiotics. As infections are a leading cause of death in allo-HSCT patients in the first 100 days post-transplant.

In our study, we observed a meaningfully lower mean cumulative exposure to systemic antibacterial and antimycotic therapies with SER-155 treated patients being administered these drugs for a mean duration of 9.2 days versus 21.2 days for placebo patients.

When we adjusted for the time on study, the results remained highly meaningful and a lower antibiotic exposure rate in the SER-155 group versus the placebo group. Additionally, SER-155 was generally well tolerated. This was especially reassuring given that the patients in the study were highly immunocompromised. No serious adverse events were attributed to SER-155 and no SER-155 species were identified in any cultures from any subjects. The study confirmed that SER-155 and grafted into the GI tract as designed.

In summary, these data show important potential clinical benefits associated with SER-155 across 3 different measures, along with a favorable safety profile, all of which we believe supports future development. We are working to advance SER-155 to the next stage of development for allo-HSCT, while exploring opportunities in additional patient populations such as auto-HSCT, patients with cancer neutropenia and CAR-T recipients.

Based on the results observed and significant unmet need, as Eric noted, we have requested Breakthrough Therapy designation and QIDP designation with the FDA, and we anticipate hearing responses from the agency by the end of the year. The receipt of these designations could provide important benefits with the potential to expedite development and review through mechanisms such as frequent engagement with the agency and priority review.

Additionally, we intend to engage with the agency in the first quarter of next year regarding our clinical development plans for SER-155 studies. We believe the next study could potentially be a single registration study based on the high degree of unmet need in allo-HSCT and our prior experience with the VOWST approval process. We also believe that BSI incidents as compared to placebo could be the basis for the potential primary endpoint. Additionally, the study size could be tractable and we will be informed as to the next steps and study design following our interactions with FDA.

With that, I will now pass the call to Terry.

[Teresa Young, executive]

Good morning, everyone. As you've heard from Eric and Lisa, bacteria bloodstream infections, or BSIs, are major medical problem experienced by multiple patient groups, including allogeneic and autologous stem cell transplant recipients. CAR-T recipients, other cancer patients with neutropenia, individuals with chronic liver disease, solid organ transplant recipients, as well as patients in the intensive care unit and long-term acute care facilities.

Our first opportunity is to address BSIs and allo-HSCT patients and this could be highly significant for Seres. In recent market research, HCP is treating these patients rated their concern about infections, a 6 on a 7-point scale, reflecting a high level of concern. While prophylaxis of BSI with antibiotics is common, antibiotics do not address the root cause like SER-155 is designed to do. Therefore, infection rates remain quite high and are reportedly increasing, as Lisa shared earlier, due to adoption of PTCy.

The course for allo-HSCT patients with BSI is quite complex, problematic and costly due to hospital and ICU readmission. In fact, incremental costs were estimated at $180,000 per patient using cost data from 2016. This would clearly be much higher in today's dollars. Therefore, it should be no surprise that HCPs tell us that a product like SER-155, which can potentially cut infection rates in half would be transformative and quickly incorporated into standard treatment protocols. Furthermore, since the 40,000 allo-HSCT patients are treated in a subset of large oncology centers across the globe, it is possible to reach and educate HCPs about a transformative new option in a rapid and efficient manner.

In summary, while the opportunity to prevent infections in medically vulnerable populations begins with SER-155 and allo-HSCT, it extends to nearby adjacencies within hematologic malignancies for SER-155 as well as to areas outside of oncology or our other biotherapeutic candidate.

Considering all the target patient populations for which we see potential, our strategy could deliver multiple highly significant blockbuster opportunity.

With that, I'll now pass the call to Marella.

[Marella Thorell, executive]

Thanks, Terri, and good morning, everyone. I will review the VOWST transaction terms and impact to the financial statement presentation as well as our quarterly financials. Beginning with the VOWST transaction at the close on September 30, Seres received a payment of $155 million, which was consideration of $175 million less approximately $20 million related to the settlement of net payables to Nestle from Seres. Included in the upfront consideration was $60 million related to a prepaid milestone and $15 million related to an equity investment in Seres common stock by Nestlé.

Seres is also due to receive installment payments of $50 million in January 2025 and $25 million less approximately $1.5 million in employment-related payments in July 2025, provided we are in material compliance with the terms of the transition services agreement. We fully retired our debt to Oaktree using proceeds from the transaction. Additionally, following the transaction, the company's head count decreased by 100 team members to a team of approximately 100 principally due to manufacturing and quality team members transitioning from Seres to Nestlé Health Science. The company is well positioned to progress our strategy more efficiently with a lower cash burn rate. We continue to identify and implement further cash preservation actions.

Now turning to our quarterly financials. In the September 30, 2024 financial statements, the company has classified the VOWST business as discontinued operations in the condensed consolidated balance sheet for the comparative period of December 31, 2023 and historical operating results for the VOWST business are reflected within discontinued operations in the condensed consolidated statement of operations for all periods presented in the 10-Q.

Seres reported a net loss from continuing operations of $51 million for the third quarter as compared to $41 million for the same period in 2023. The higher loss is primarily the result of a loss of $23.4 million associated with the extinguishment of the Oaktree debt, which was retired at the completion of the VOWST sale in September and a reduction in interest income of $2 million, offset by lower operating expenses in the quarter of $15.4 million.

In the continuing operations, research and development expenses for the third quarter were $16.5 million compared with $25.2 million for the same period in 2023. The year-over-year decrease was primarily driven by lower personnel costs as a result of the restructuring plan announced in the fourth quarter of last year and cost reduction efforts resulting in overall lower operating costs, such as contractors and consultants.

General and administrative expenses in the continuing operations were $12.7 million for the third quarter compared with $19.4 million for the same period in 2023. The decrease was primarily driven by lower personnel costs, again, as a result of the aforementioned restructuring plan and lower headcount-related operating costs such as IT, along with lower professional fees.

Net income from discontinued operations, net of tax, was $139.8 million for the third quarter of 2024 as compared with a net loss of $6.8 million for the same period in 2023. The difference is primarily the result of the gain on the sale of the VOWST business, net of tax, of approximately $146.7 million, which was recognized upon the completion in September.

Moving now to our cash position. As of September 30, 2024, we had $66.8 million in cash and cash equivalents. Based on existing cash, projected installment payments to be received in 2025, ongoing transaction-related obligations and current operating plans, we expect to fund operations into the fourth quarter of 2025. We continue to evaluate opportunities to maximize value creation as we seek to develop our live biotherapeutic programs in various patient groups.

We believe there is potential to pursue both internal clinical development and externally supported efforts, including through partnerships as highlighted by Eric, to evaluate our programs in target populations that could benefit patients and create significant commercial value. A partnership could deliver both financial and other capabilities and accommodate sharing of development costs, while enabling us to realize the commercial value of our products across multiple patient populations.

I'll now pass the call back to Eric.

[Eric Shaff, executive]

Thank you, Marella. We are excited about the progress we have made to our pipeline as well as the actions that we have taken with the sale of VOWST in support of our future strategy. With regard to the SER-155 program, we are especially encouraged by the consistency of related clinical measures we have observed, including the observed significant impact on the rate of bloodstream infections, the reduction in systemic antibiotic exposure and the observed lower rate of febrile neutropenia.

The results support the continued development of SER-155 in allo-HSCT a patient group at exceptionally high risk of serious infection and with a substantial need for a new treatment approach. We also believe that our SER-155 data validates our broader corporate strategy to bring live biotherapeutics to medically vulnerable groups at risk of bacterial bloodstream infections, a major unmet need in multiple patient groups.

Based on our analysis of these markets, we believe a substantial commercial opportunity exists for Seres to address serious bacterial infections and infection-related negative clinical outcomes in various patient groups, including allo and auto-HSCT, cancer patients with neutropenia, CAR-T recipients, amongst the others previously mentioned. These represent large patient populations with substantial needs for new approaches to address the high risk of bacterial infections many of which have severe consequences.

Furthermore, we believe that SER-155 and our additional pipeline candidates have the potential to not only protect individuals against bacterial infections but also deliver value by reducing the proliferation of antimicrobial resistant pathogens, a serious emerging global health concern.

We look forward to continuing to keep you updated on our progress including our interactions with the FDA and our breakthrough and QIDP applications. Beyond SER-155, we are also developing another proprietary live biotherapeutic composition SER-147 designed to prevent bacterial bloodstream antimicrobial resistant and spontaneous bacterial peritonitis infections in patients with metabolic disease, including chronic liver disease, and we are advancing IND-enabling activities.

As noted, in the longer term, we are focused on broadening the patient populations for SER-155 as well as expanding our pipeline. We look forward to updating you as we advance our priorities across SER-155 in allo-HSCT and the strategic goals we've outlined this morning.

With that, operator, please open the call up to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Joseph Thome of TD Cowen.

[Joseph Thome, analyst]

Maybe the first one on some of those additional patient populations that you mentioned, the auto-HSCT and cancer neutropenia. I guess, would these each be separate Phase I studies? Or could you do sort of a basket trial? And is this something that you would do independently from a partner? Or is this something that you would like help from a partner with as well?

And then second, just on the difference between SER-147 and 155, maybe is there a different in strains or kind of what's sort of the composition difference between those 2 molecules?

[Eric Shaff, executive]

Yes, Joe, and thanks for the questions. I think one of the really interesting aspects of 155 is the adjacencies, right? It's the idea that the mechanism that we're looking to impact is similar for patients with allo-HSCT as well as auto-HSCT as one example.

But as it relates to the design of a clinical study, maybe I'll ask Lisa to comment. I would comment that we always refrain from getting ahead of the FDA. We have applied for breakthrough QIDP, as we've said. We await the responses of those applications. But let me ask Lisa to comment and then we can hit your second question.

[Lisa von Moltke, executive]

Yes. We would definitely be looking to have synergies within the clinical trial structure and whether that's a basket study or just more formally have a specific arm that might get triggered on the results of an interim analysis in the allo patient, that will remain to be seen in terms of details. But absolutely, and we would not anticipate needing to start over in a Phase I given that the safety that we've established in this population, which is probably the most vulnerable population was nicely established in our current program.

[Eric Shaff, executive]

Yes. Maybe I can just add to that. As we've interacted with KOLs following the second cohort data release, we've heard the interest of thinking about adjacencies from allo-HSCT. So we know that, that's on physicians' minds. Joe, on your second question as it relates to 147 or 155 in the compositional differences, I'll ask Matt to comment about 147, but we have not disclosed what those specific streams are between 147 and 155, maybe I can ask Matt to comment on 147, the design of 147 and perhaps what we're hoping to achieve with it.

[Matthew Henn, executive]

Sure. So 155 and 147 are different consortia of bacteria in the context of 155, you know that, that was designed to target a particular set of bacterial pathogens that are commonly found in hematic stem cell transplant patients as well as have an impact on epi barrier.

In the context of 147 chronic liver disease, we're talking about an overlapping but distinct set as well of pathogens that exist and are commonly causing problems in liver disease patients. So 147 is optimized to address that set of pathogens. It does also have that capacity around epithelial barriers. So those are kind of the 2 of the main differences.

And then in addition, the 147 chronic liver disease patient population has environmental conditions in the gastrointestinal track. They are quite unique. And so the consortium is actually designed to take that into consideration. So there's formulation and strain selection decisions on that asset to address those challenges.

[Operator]

Your next question comes from the line of Tessa Romero of JPMorgan.

[Caroline Kimberly Pocher, analyst]

This is Caroline Pocher on for Tessa Romero with JPMorgan. Just a few from us. We were just curious if you could provide a little bit more color on the profile of an ideal potential partner for SER-155? And what the potential terms you are targeting for a potential partnership? Is there an internal time frame by when you would seek to finalize a partnership for SER-155? And what would be the steps you could take in the event a partnership does not materialize?

[Eric Shaff, executive]

Caroline, thanks for the question. So as it relates to partnership, we look for several things. One is of course, capital in support of the program itself. But beyond that, we think about capabilities that could allow us to accelerate bringing SER-155 to patients. So as an example, we know that the next study is likely to be a global study.

So expertise, relationships in global sites that could see these patients as part of the next study. That's one example of a way in which we think we could work with someone else to move more quickly than we can move ourselves. Beyond that, we really look for an alignment of values of interest of objectives and someone who really sees the potential of what SER-155 could do for patients.

So as we think about that basket of attributes, those are some of the parameters that we think about that guides this partnership process. As it relates to time line, it's hard to guide. We've been through several partnership processes in the pas, we obviously want to move quickly, and we think that there's certain judgments as it relates to the design of the next study and interactions with the FDA that we'd like to do with a partner, but these processes don't always move in a straight line from point A to point B, and they're not always predictable as it relates to timing. So we're doing the things that we need to do to move forward with the study, including manufacturing clinical material for the next study, including selecting the CRO, thinking about the process of identifying and activating new sites. All of that is not being held, but we do look forward to working with someone else and bring this program forward.

Last question was steps that we might take if we don't get a partnership. I think the short answer is we're focused on getting a partnership. That's where our attention is and our focus is, and we're excited about the prospect of moving forward with a partner on 155 and being able to move forward with other areas within our portfolio.

[Operator]

Your next question comes from the line of Ted Tenthoff of Piper Sandler.

[Edward Tenthoff, analyst]

I really get the transition and the focus on infections. It makes a lot of sense, I think the data is supporting this. I'm trying to get a sense for sort of how you see Seres maybe 3 to 5 years down the road now with multiple of these targeted programs in development? Is the goal here to maybe partner 155 and then focus on 147 and those beyond? Just trying to get a sense for sort of where you see Seres down the road. Is there the likelihood you would ever take one of these 4 yourselves? Or do you envision yourself really being the front-end research and discovery arm of these products for larger companies?

[Eric Shaff, executive]

Yes, Ted, thanks for the question, and it's an interesting one. I think that as we think about where we have created the most value, at least to date in -- in the company's history, it's been in the collaboration, the innovation, the calculated risk taking and kind of the pioneering in a new field, right? And that, by definition, I think, tends to be on the front end of drug development, the discovery and the development.

And we've kind of forged the path on a totally new treatment modality with the FDA with some pretty important learnings, including things like release specs in a totally new area, right? So we think that there is a framework for us to move forward and really become an engine of creating multiple shots on goal for patients.

SER-155 is definitely the first one, but we're excited about 147. We're excited about other opportunities to prevent infections in medically vulnerable patient groups. I will say in my personal opinion, if you think about the history of the biotech space, the really important legacy companies that have created sustainable significant value, many of those were vertically integrated and they included discovery, development, manufacturing and ultimately commercialization. And I think of the Genentechs and the Amgens, the Genzyme, the Biogens, et cetera. We absolutely have an aspiration to do that.

I think that there are certain indications that we're working on and thinking about, which have targeted call points and actually could be -- really could lend themselves to the idea of ending up in that state where we have a small, focused commercial footprint that really knows the science, really knows the physicians that are the prescribers for these different infections and these different patient populations. So that's our goal.

But in the short term, obviously, we're focused on driving shareholder value in the best way that we can. And for now that as a function of the Nestlé transaction and kind of remaking the company in a more streamlined fashion, it's really focused on the R&D side.

[Edward Tenthoff, analyst]

Yes. And certainly, all the expertise on the manufacturing makes a lot of sense in the ability to manufacture medicine for our future partners. Great. I appreciate that color.

[Operator]

I will now turn the call back over to the management for closing remarks.

[Eric Shaff, executive]

Thank you, operator, and thanks to all of you for joining us this morning. We look forward to connecting with you soon. Have a great week. We'll connect soon. Thanks very much. .

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.