Seres Therapeutics - Q3 2024

Transcript

Operator (participant)

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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Dr. Carlo Tanzi, Investor Relations. Please go ahead.

Carlo Tanzi (Head of Investor Relations)

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 and 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, 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 (President and CEO)

Thank you, Carlo, and good morning, everyone. The last period has been a particularly eventful time for Seres, highlighted by two major milestones. The first being our positive SER-155, phase I-B, cohort two 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 two from our phase I-B 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 undergoing 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 I-B 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 owns 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 fight against the growing concern of antimicrobial-resistant pathogens.

To most effectively advance SER-155 and Allo-HSCT and 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 Nestlé 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 worked 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 will 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 (Chief Medical Officer)

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 termed PTCy, to prevent GVHD.

In September, we reported results from our phase I-B 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 infections than the placebo group, as measured through HSCT Day 100.

In the SER-155 arm, two out of 20 patients experienced a BSI versus six 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 of 14, or 78.6%, respectively. In clinical practice, HSCT patients who experience 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 engrafted into the GI tract as designed. In summary, these data show important potential clinical benefits associated with SER-155 across three different measures, along with a favorable safety profile, all of which we believe supports future development.

We are working to advance 0155 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 incidence, 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 in study design following our interactions with FDA. With that, I will now pass the call to Terri.

Terri Young (Chief Commercial and Strategy Officer)

Good morning, everyone. As you've heard from Eric and Lisa, bacterial bloodstream infections, or BSIs, are a 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 in Allo-HSCT patients, and this could be highly significant for Seres. In recent market research, HCPs treating these patients rated their concern about infections a six on a seven-point scale, reflecting a high level of concern. While prophylaxis of BSIs 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 BSIs is quite complex, problematic, and costly due to hospital and ICU readmissions. 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 0155, 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 in Allo-HSCT, it extends to nearby adjacencies within hematologic malignancies for SER-155, as well as to areas outside of oncology for other biotherapeutic candidates. Considering all the target patient populations for which we see potential, our strategy could deliver multiple, highly significant blockbuster opportunities. With that, I'll now pass the call to Marella.

Marella Thorell (CFO)

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 30th, 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 Nestlé 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 headcount 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 30th, 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 31st, 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 30th, 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 (President and CEO)

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, among 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 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 (participant)

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Joseph Thome of TD Cowen. Your line is now open. Please go ahead.

Joseph Thome (Managing Director)

Hey, Eric. Good morning, and thank you for taking my questions. Maybe in 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 help from a partner with as well? And then second, just on the difference between SER-147 and SER-155, maybe is there a difference in strains, or kind of what's sort of the composition difference between those two molecules? Thank you.

Eric Shaff (President and CEO)

Yeah, Joe, good morning, 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 said. We await the responses of those applications. But let me ask Lisa to comment, and we can hit your second question.

Lisa von Moltke (Chief Medical Officer)

Yeah, we would definitely be looking to have synergies within the clinical trial structure, and whether that's a basket study or just more formally having specific arms that might get triggered on the result 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 (President and CEO)

Yeah, and 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 and the compositional differences, I'll ask Matt to comment about 147, but we have not disclosed what those specific strains are between 147 and 155. But 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 (Chief Scientific Officer)

Sure. Good morning, Joe. 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 hematopoietic stem cell transplant patients, as well as have an impact on the epithelial 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 barrier. So those are kind of the two main differences. And then in addition, the 147, the chronic liver disease patient population, has environmental conditions in the gastrointestinal tract that are quite unique. And so the consortia is actually designed to take that into consideration. So there's formulation and strain selection decisions on that asset to address those challenges.

Joseph Thome (Managing Director)

Great. Thank you very much.

Eric Shaff (President and CEO)

Thanks for the questions, Joe.

Operator (participant)

Your next question comes from the line of Tessa Romero of J.P. Morgan. Please go ahead.

Caroline Porter (Analyst)

Good morning, team. This is Caroline Palomeque on for Tessa Romero with J.P. Morgan. Thanks for taking our questions. Just a few from us. We're 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 timeframe 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 (President and CEO)

Caroline, good morning, and thanks for the question. So as it relates to partnership, we look for several things. One is, of course, capital and 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 a 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 interests, 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 guide this partnership process. As it relates to timeline, it's hard to guide. We've been through several partnership processes in the past. 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 a 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 bringing 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.

Caroline Porter (Analyst)

Great. Thank you so much.

Eric Shaff (President and CEO)

Thanks for the question, Caroline.

Operator (participant)

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

Ted Tenthoff (Managing Director)

Good morning. Thank you for taking my question. So I really get the transition and the focus on infections. It makes a lot of sense. I think the data supporting this. I'm trying to get a sense for sort of how you see Seres, maybe three to five 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 for yourselves, or do you envision yourselves really being the front-end research and discovery arm of these products for larger companies? Thanks, guys.

Eric Shaff (President and CEO)

Yeah, 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 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's 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 SER-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 think of the Genentech and the Amgens, the Genzymes, the Biogens, etc. 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 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, 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.

Ted Tenthoff (Managing Director)

Yeah. And certainly, all the expertise on the manufacturing makes a lot of sense and the ability to manufacture medicine for a future partner. Great. I appreciate that, Carlo, Eric. Thanks so much.

Eric Shaff (President and CEO)

Thanks for the question, Ted.

Operator (participant)

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

Eric Shaff (President and CEO)

Thank you, operator, and thanks to all 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 (participant)

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