Seres Therapeutics, Inc. Q2 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Seres Therapeutics's Second Quarter Earnings Conference Call. I would now like to turn the conference over to Dr. Carlo Tanzi, Head of Investor Relations. Please go ahead.

Thank you, and good morning. Our press release for the Company's second quarter 2023 financial results, and the business update became available at 7:00 AM Eastern Time this morning, and can be found on the investors' news section of the company's website. I'd like to remind you that we will be making forward-looking statements, including the commercial success of the house, the timing and results of clinical studies, the ability for microbiome therapeutics to modulate the microbiome and treat or prevent infection, our ability to achieve sales targets and the receipt of future milestones and debt tranches, and other statements which are not historical fact. Actual results may differ materially. Additionally, these statements are subject to certain risks and uncertainties which are discussed under the risk factor section of our recent SEC filings. Any forward-looking statements made on today's call represent our views as of today only. We may update these statements in the future, but we disclaim any obligations to do so. On today's call, with prepared remarks, I'm joined by Eric Shaff, Seres' President and CEO; Dr. Lisa von Moltke, Chief Medical Officer; and Dr. Terri Young, Chief Commercial Officer; and David Arkowitz, Chief Financial Officer. In addition, Dr. Matthew Henn, Chief Scientific Officer, will also be available to answer your questions. With that, I'll turn the call over to Eric.

Thank you, Carlo, and good morning, everyone. This has been a monumental period for Seres. Indeed, based on the progress we have made developing microbiome therapeutics as a new medical category, Seres was recently nominated as a member of the Time100 Most Influential Companies for 2023 within the Pioneer's category. We are proud of the recognition, but more importantly, we are glad to now be making a positive difference in patients' lives with the recent approval of our first microbiome therapeutic. On April 26, we were thrilled to announce that the FDA approved VOWST, indicated for the prevention of recurrent C. difficile infections in adults following antibiotic treatment for recurrent CDI. We believe VOWST has the opportunity to transform how patients with recurrent C. diff infections are managed, providing a new meaningful therapeutic option for patients facing this disease. In addition, we were very happy with the label that we received, which includes all adult patients with recurrent CDI, including those with the first recurrence. We are now working to commercialize VOWST alongside our collaborator, Nestle Health Science. VOWST has been available since early June, and we are pleased to report that preliminary updates have been highly encouraging, with healthy product demand coming from a broad set of healthcare practitioners and across the recurrence CDI patient pool, including patients with their first recurrence. Terri will provide more detail on launch progress shortly. The successful commercialization of VOWST is our top corporate priority and the clear focus of our organization. Over time, we expect that VOWST will provide tremendous benefit to patients, and in turn, we anticipate this therapeutic will represent an important financial driver for Seres. As we commercialize VOWST, we continue to expand our drug supply and collaborate with our manufacturing partner, Recipharm, to enhance future supply capacity. Furthermore, our collaboration with Bacthera also continues to move forward, and we anticipate that Bacthera will begin to produce commercial drug product next year for release in 2025, as the VOWST market continues to expand. While executing the VOWST launch, we also made meaningful progress with our earlier stage pipeline. In May, we reported highly promising Phase 1B Cohort 1 clinical data from our SER-155 program. This cultivated microbiome therapeutic candidate is designed to prevent infections and/or GvHD in patients undergoing HSCT. Initial data may support our therapeutic objectives of reducing serious enteric infections that can result in bloodstream infections and GvHD in this medically vulnerable patient population. The SER-155 study continues to enroll, and we anticipate top-line clinical results from the placebo-controlled portion of the study encompassing Phase 2 Cohort 2 in May 2024. I would now like to pass the call over to Lisa.

Thanks, Eric. I'll begin with VOWST, a product consisting of a consortium of Firmicutes bacteria in their spore form. This therapy is designed to facilitate restoration of the GI microbiome and thereby reduce the risk of future recurrences of C. difficile infections. Importantly, the indication we received with the FDA approval is for the broad population of adult recurrent patients. VOWST has a straightforward dosing regimen of four capsules once a day for three days following antibiotic treatment and use of a laxative to remove residual antibiotics from the GI tract. VOWST is stored in the original packaging and has no refrigeration requirements. The full label is available on VOWST website at vowst.com. To briefly recap, VOWST's approval was supported by remarkable clinical data from two Phase 3 studies. Our placebo-controlled EQUALS 4/3 study demonstrated that approximately 88% of patients did not experience a recurrence at the primary eight-week endpoint compared to 60% in the group with antibiotics alone. We also observed durability of response out to 24 weeks. VOWST was well-tolerated, and patients administered the drug had no serious adverse events or deaths that were attributed to the study drug. Recurrent CDI is a serious disease that often results in hospitalization and can even lead to death. There are an estimated 156,000 recurrences in the United States per year and at least 20,000 deaths due to C. diff infections. Patients suffer debilitating symptoms such as frequent diarrhea, which prevents them from conducting their normal daily activities, and these symptoms significantly lower their quality of life. We, along with our Nestle Health Science colleagues, continue to present and publish VOWST's clinical results to educate the medical community about recurrent CDI and VOWST. We provided support for a continuing medical education event at the American College of Physicians Annual Congress in April, and we participated in the digestive disease week annual meeting in May. Interest in VOWST at the conference was extremely high and during KOL engagement we continue to observe significant levels of enthusiasm about the potential to use VOWST to stop the cycle of recurrence of CDI in eligible patients. Moving now to our new SER-155 results, which we previously discussed in detail. The medical literature supports a strong connection between pathogen domination and lack of diversity in the GI tract with the endpoints of infection, graft versus host disease, and mortality in patients undergoing allo-HSCT. SER-155 is an oral, investigational, cultivated microbiome therapeutic designed to prevent enteric-derived infections and resulting bloodstream infections, as well as to induce immune tolerance responses to reduce the incidence of GvHD, particularly severe acute GvHD in patients undergoing allo-HSCT. The development of SER-155 is supported by strong exploratory proof-of-concept data from the SER-109 ECOSPOR III study, which showed that SER-109 administration resulted in the decolonization of gut pathogens beyond C. difficile, including bacteria carrying antibiotic resistance genes. These data have been previously reported at various conferences. Allo-HSCT patients are at high risk of enteric-derived infection and acute GvHD. These adverse events are frequently seen in the first 100 days following the procedure, a period when the patients' microbiomes are highly disrupted due to numerous factors, including antibiotic treatments and chemotherapy regimens, and their immune systems are severely compromised. In May, we announced initial safety and pharmacology data from Study Cohort 1. Based on these data, a favorable tolerability profile was observed with no serious adverse events attributed to SER-155 administration. Pharmacology data showed that bacteria in the SER-155 consortia engrafted, populating the GI microbiome, with a magnitude and kinetic profile consistent with expectations based on prior clinical results from other Seres microbiome therapeutics. Importantly, we observed that the cumulative incidence of domination with bacterial escape pathogens was rare and observed substantially lower incidence rates than in a reference population of allo-HSCT patients. These are specific pathogens known to be associated with the risk of enteric-driven bloodstream infections and other downstream consequences such as GvHD in patients receiving allo-HSCT. Enrollment is ongoing in Cohort 2, which incorporates a randomized double-blind placebo-controlled design to further evaluate safety and engraftment, as well as clinical outcomes. This portion of the study will enroll approximately 60 subjects administered either SER-155 or placebo at a 1:1 ratio, and we anticipate obtaining Cohort 2 study data in mid-2024. And with that, I'll now turn the call to Terri.

Thank you, Lisa. I'm pleased to report that along with our collaborators at Nestle Health Science, we are making great progress in the early days of the VOWST launch. As Eric mentioned, we are highly encouraged by the magnitude and breadth of HCP demand that we have seen. This demand is consistent with our understanding of the enormous need for better options to prevent recurrent CDI and the enthusiastic reception that the profile of VOWST has received since the release of our first Phase 3 data nearly three years ago. The performance we've observed also confirms that our commercial strategy, knowledge-based, and launch execution are setting us up for success. We've been very focused on four areas during the early launch period: scaling our HCP education efforts, creating a positive customer experience, establishing payer coverage, and optimizing hospital outflow. First, I'll describe our HCP education efforts. Immediately after the FDA approval of VOWST, the Nestle customer-facing field teams were quickly trained and deployed. The field sales teams have been promoting VOWST and generating HCP demand since May 2nd, several weeks before the product became commercially available in early June. As a reminder, the two Nestle field sales teams are comprised of 150 gastroenterology representatives and a 20-person hospital and infectious disease-focused team. We were also fortunate to have the DDW conference, which was referenced earlier in mid-May right on the heels of approval. We had a significant presence at that key gastroenterology conference, including a highly attended product theater and a large, well-manned booth. The reaction to the profile of VOWST continues to be enthusiastic and positive. HCPs consistently mention the impressive efficacy and report being encouraged to finally have a scalable, highly effective option that meets their number one need in recurrent CDI, preventing recurrence. As a result of our education efforts, we observed the following magnitude and breadth of HCP demand as reported to us by Nestle Health Science. Early demand is broad across HCPs and patients, which is something we are very pleased to see. Importantly, we are seeing use across the recurrent patient pool, including demand in patients experiencing their first recurrence. The fact that HCPs are choosing these patients as their first candidates for VOWST is highly encouraging, and as you may recall, this is the largest patient pool within recurrent CDI. We are seeing utilization across a broad HCP audience and received prescription enrollment forms from over 480 unique prescribers as of July 27, with approximately 70% from gastroenterology and the remainder from other specialties. There is also a group of VOWST prescribers who are not on the field team's call list, indicating a high unmet need and strong awareness in the provider and patient communities. Finally, of the more than 400 HCPs that have prescribed VOWST, 78 have prescribed VOWST to multiple patients in their practice. This early depth of prescribing is a very positive sign given the moderate CDI patient volume, which typically exists at the individual HCP level. The second focus is providing a positive experience for patients and providers. Our VOWST Voyage hub is a critical component of our commercial effort and provides a robust, high-class experience, including treatment and financial support. The VOWST Voyage team has been diligently working to convert patient enrollment into new patient starts. As with any new branded product during the early launch period, where payer policies are not in place, the prescriber must navigate the medical exception process. Our team is highly skilled at supporting providers and patients as they seek approvals for VOWST, but in the event that it takes longer than the treatment window for VOWST allows, we offer a free drug option for eligible patients. This is one of several financial assistance programs we are providing in this early launch phase, and we are seeing expected utilization of our patient assistance programs. For example, approximately 43% of the 282 new patient starts were dispensed via our free drug programs. Our third focus area is engaging payers to build coverage so that each patient who can benefit from VOWST has access as quickly and efficiently as possible. The Nestle Payer Field Team continues payer engagement, building on the extensive pre-approval information exchange efforts executed during the year prior to approval. The team is making progress and is prioritizing the most important stakeholders, including the three largest PBMs, to reinforce the compelling value proposition for VOWST. We expect to see coverage policies issued as we move through the second half of this year. During the early launch period, we are seeing approximately 57% of our 282 new patient starts reimbursed through the patient's drug benefit. Finally, the hospital selling team continues its efforts to enhance hospital outflow, and we believe these efforts will begin to bear fruit later this year into 2024. On a related note, last week, CMS issued their final rules for inpatient reimbursement for 2024. Included in this was the approval of a new technology add-on payment for VOWST when used for patients treated in the inpatient setting. The result of this is that hospitals will receive extra payment for any Medicare patients treated with VOWST in the inpatient setting next year. We are pleased that VOWST has received this additional payment from CMS. CMS notes in its final rule that the agency considers VOWST to be a substantial clinical improvement over existing technologies and recognizes the importance of the technology in restoring the gut microbiome. We know that the proportion of patients who have received VOWST in the inpatient setting is smaller than our outpatient opportunity, and we do not expect that the add-on payment will result in a significant number of additional VOWST patients in the near term. However, for these patients who are undoubtedly among the sickest, we are pleased that CMS has addressed the financial barrier for hospitals that choose to use the therapy that Medicare has recognized as a substantial clinical improvement. We believe that over time, the add-on payment approval could result in additional inpatient utilization. In summary, we are highly encouraged by these early results. We, along with our collaborators at Nestle Health Science, will continue our focus on HCP education, customer experience, payer coverage, and hospital outflow, and we expect to see continued acceleration of demand, progress on the payer front, and optimization of the provider and patient experience as we move through the coming quarters. Now, I'll turn the call over to David to cover our financials for the quarter.

Thank you, Terri. The details of our second quarter financials are included in the press release issued this morning, so I won't reiterate all the figures here. Seres reported net income of $46.6 million for the second quarter of 2023 compared with a net loss of $64.7 million for the same period in 2022. The net income in the second quarter of 2023 is primarily due to the $125 million milestone received from Nestle upon FDA approval of VOWST. VOWST net sales for the partial commercialization period during the second quarter was $1.6 million, based on 105 units of VOWST sold during the period. The net sales reflect estimated gross to net reductions of 15%, primarily due to returns reserves, prompt payment discounts, and patient copay assistance. This gross to net reduction is an estimate based on certain assumptions and limited information that will be refined over time, as additional information becomes available. As Terri mentioned, we are actively engaged with the three largest PBMs, and as a result, the second quarter gross to net reductions do not reflect any discretionary payer contracting. Once VOWST became commercially available in early June, we started sharing equally with Nestle in the commercial profits and losses. VOWST profits and losses are determined based on VOWST net sales, cost of goods sold, and sales and marketing expenses. The total VOWST loss in the second quarter, in other words, from when VOWST became available in early June until June 30, was $4.3 million, and our share of that was $2.1 million. This amount, our share of the VOWST loss for the second quarter, is included in our P&L in the operating expense section as collaboration profit and loss sharing related party. We are responsible for supplying VOWST inventory to Nestle. We built up sufficient levels of supply in anticipation of launch, and we are continuing to produce VOWST in support of the launch. In the near term, we expect to receive payments from Nestle related to their VOWST supply purchases, and in the future we expect a steady pattern of purchases by Nestle to meet market demand. For example, during the second quarter, Nestle purchased $7.6 million of VOWST supply from us, and we received the payment related to this purchase in the third quarter. As of the end of the second quarter, we estimate that there was less than two weeks of VOWST inventory in the channel at the specialty pharmacies based on forward demand, which is typical for this stage of the launch. Following the approval of VOWST, commercial manufacturing costs will no longer be recognized as R&D expenses in our P&L, but instead will be capitalized and recognized on our balance sheet as inventory. Because the commercial manufacturing costs are now being capitalized, we expect that our total R&D expenses will decline going forward. For additional context, our second quarter 2023 financial results reflected total R&D expenses of $47 million, of which approximately $11 million was VOWST commercial manufacturing costs incurred prior to FDA approval. Seres ended the second quarter of 2023 with $229.5 million in cash, cash equivalents, and investments compared with $181.3 million at the end of 2022. In June, we received $125 million in milestone payments from Nestle associated with the FDA approval of VOWST. In April, we announced that we had entered into a new $250 million senior secured debt facility provided by Oaktree. We drew the first tranche of $110 million at closing, and after retiring our previously outstanding debt and deducting fees and expenses, the net proceeds to us were approximately $50 million. This debt facility has three additional tranches available, which are comprised of two tranches of $45 million each based upon the achievement of certain applicable VOWST sales targets and an additional $50 million will be available to us at Oaktree's discretion to support potential future business development activities. We remain highly disciplined with our cash deployment, prioritizing the successful commercial launch of VOWST and the development of SER-155. Examples of actions taken in areas that we are pursuing to reduce costs and drive efficiencies include closing one of our three donor collection facilities supporting VOWST manufacturing, thereby reducing costs without impacting our ability to meet anticipated market demand. This closure was enabled by VOWST's three-year shelf life, as well as operational efficiencies related to the production process. Also, our centralized donor screening lab opened in the second quarter, allowing us to enforce donor medical testing, which is expected to result in future cost savings. We are also actively consolidating office space and seeking to reduce our footprint, which enables us to be more efficient and save costs. As we allocate our resources to generate the greatest returns, we have reduced our headcount from the beginning of the year, partly driven by the closure of our donor collection facility that I just mentioned. These are just some of the actions we are taking in areas we are exploring. We are committed to further reducing costs and will share additional updates with you. Now I'll turn the call back to Eric.

Thank you, David. This is an exciting period for Seres, as we are now commercializing VOWST, the first ever FDA-approved orally administered microbiome therapeutic. The launch is in its early days, and we are very pleased with the initial commercial results. Since attaining the Phase 3 ECOSPOR III data in 2020, we have believed that we have the opportunity to help transform how individuals with recurrent CDI are managed, and we are pleased to see the early signs of this transformation occurring in the medical community. Over time, we are optimistic that VOWST uptake will continue to accelerate, and we expect that over time, this product will become an important financial driver for Seres. We are also very excited about the progress we are making with SER-155 and the data we have shared during the quarter. We are hopeful that the initial data that we have seen will translate into meaningful clinical results, and we are looking forward to providing a robust clinical data set from Cohort 2 next year. Before I close, I'd like to touch upon the momentum that we continue to observe within the scientific and medical communities regarding the microbiome and its relationship to Seres infectious diseases. Last year, the NIH hosted a workshop on the topic to advance research into the medical significance of GI pathogen abundance. At the upcoming IDEA conference, a symposium is being held on the establishment of pathogen decolonization as a surrogate for infection risk. The validation of this link would be highly valuable to Seres and supportive of our microbiome development efforts. We have previously discussed our own clinical results, linking GI microbiome health with a risk of CDI recurrence, and we are confident that over time, the state of the microbiome will be more clearly linked with the risk of other serious infections. Importantly, this would have positive development, regulatory, and commercial implications that could be highly advantageous to our platform and our ability to develop and market new therapies. This is a topic of great interest to our company, and we look forward to discussing these concepts in depth in the future. With that, I will conclude our remarks and open the line for questions.

Thank you. The floor is now open for your questions. Your first question comes from the line of Joseph Thome with TD Cowen. Your line is open.

Hi there. Good morning. Congratulations on the launch and thank you for taking my questions. Maybe the first one, can you talk a little bit more on maybe the current timing between the prescription enrollment form and a new patient start. Maybe ask another way, you know, kind of what proportion of those prescription enrollment forms are in the press release. Do you expect will turn into new patient starts, I think over the next kind of quarter here, especially as it relates to the treatment window that VOWST allows? And then, it's great that you're seeing interest across the refractory recurrent CDI environment. Are you seeing kind of equal ease in getting the therapy to patients regardless of where they are in their REC journey? Thank you.

Joseph, good morning and thanks for the questions. I'm going to ask Terri to comment on the timing and evolution of the script. And then the second is just access across different recurrences.

Sure. So I would start by saying that the vast majority of patients that are seeking access to VOWST today and going through the medical exception process are being successful in the vast majority of those cases. It's important to note that when you look at the enrollment forms versus the new patient starts, that we see new demand for new patients building over time, as you would expect with any launch. So a lot of the enrollment forms that we're getting are more recent versus from May, for example. So the hub has been very, very busy, as I mentioned in my prepared remarks, turning those enrollment forms into new patient starts. The demand has been building over time, as you would expect. So I would expect that as we move forward, we'll be accelerating the transition or the conversion of enrollment forms to new patient starts, as you would expect. We feel like we're being very successful early on, and this speaks to the investment that we made in selecting the right partners in terms of hub provider, but also specialty pharmacies, and making sure that we provided a high-touch robust patient experience. So we're seeing this take off for us now early on in the launch, and we would expect that to continue over time. With respect to where the patient is in their recurrence journey, whether they're first or second or third, the determinant for us in terms of how we are fulfilling the physician demand is where they are in the antibiotic prescription cycle. We are deploying our selling teams and making sure that we educate providers that they need to write VOWST at the same time as the antibiotic to provide the maximum treatment window to fill the prescription. So we do feel like those education efforts are paying off, but it will continue to take time. That's the reason why we put forward the voucher program as one of our patient assistance programs. At such a point in time where the patient is reaching the antibiotic regimen, and we haven't been able to get VOWST through the medical exception process, it will trigger the offering of free drug. So we feel like we have the right tools and support in place to ensure that we are continuing to translate our physician demand into new patient starts. Anything you want to add, Eric?

No. I think I guess, Joe, for me, to Terri's points, we're seeing the demand, which I think is first and foremost. We would hope to see, and we are seeing the pull-through, including first occurrence patients. So overall, very encouraging.

Perfect. And then, maybe just one quick follow-up on more of the financial component. I guess as it relates to closing one of those three donor facilities and then opening that central screening facility, I guess, what sort of scale should we expect on cost savings from that? Is that more of a Q4 kind of savings in 2024? How should we think about that? Thank you.

Yes. Maybe David can comment.

Joe, I mean, as far as the donor facility, there's both a component of the facility itself, and we will seek to sublet the space. There's approximately, I think it's 18 FTEs. The savings will be more of a 2024 item. We may see some pieces of it at the end of 2023, but keep in mind, there'll be a period of cost savings as well as efficiency that will eventually roll through into COGS. Maybe David can comment further and include in on the ClearLab. Yes, that's exactly right. I'd look for savings to be realized in 2024 going forward. I also think that as it relates to donor testing, there's a ramp-up there as our volumes increase. So one would start seeing that in 2024 and beyond.

Perfect. Thank you very much.

Thanks for the question, Joe.

Great. Thank you very much, and congrats on a strong start with VOWST, really exciting and obviously important product. So a couple of questions if I may. Firstly, just kind of housekeeping question and maybe a little bit early. But with the cash on hand, are you able or did you provide guidance in terms of what kind of runway that is? What's milestone in the new at that? And then as it comes to gross to net, do you anticipate that 15% to go up or down? Or what do you think we should be expecting in terms of price? Again, my congrats on the launch.

Yes. Thank you. Good morning and thanks for the questions. I'll ask David to comment on the runway and Terri to comment on gross to net. Or maybe David and Terri, I think the answer to the second one is yes, we do expect to go up. But they can provide a better perspective. So David, on the cash.

Yes, thanks Ed. So as we discussed, we ended the quarter with approximately $230 million in cash, cash equivalents, and investments. We have not provided runway guidance. I would just say we are focused on, as we talked about, opportunities to reduce our spend going forward, as well as we think there are tremendous opportunities to generate value as it relates to the VOWST launch and progress there. On the gross to net, as we talked about, the second quarter gross to net was 15%. We're not providing projections at this juncture. As we indicated, the gross to net in the second quarter does not include any discretionary payer contracts at this point in time. Let me turn it over to Terri for additional color.

Sure. Some points to understand what's in the 15% and what's not. This is comprised of what it takes for us to get the product to patients, right, and through the channels. So specialty pharmacy distributors, so on and so forth. It also contains estimates for a copay assistance program, as well as mandatory rebates, Medicaid, and government programs, and so on. It does not, as David shared, include discretionary rebates. Discretionary rebating is one tool that we have to ensure that we have broad patient access. I would also counterbalance that by saying that this has a robust value proposition supported by its clinical profile, but also by the fact that these patients are incredibly expensive. If you use those early on in the treatment paradigm, we are seeing that you can achieve significant cost offsets. We're going to be very judicious and thoughtful regarding how we leverage discretionary rebating moving forward, and as we do move forward through the following quarters and have more color to share, we will do that.

Thanks.

Thanks Ed.

Great. Thanks so much for taking our question. Hi, Eric and team. For the three largest PBMs, are you able to give us a sense of cadence of the expected decisions here based on the cycles? On the call, you noted that 43% of your 282 new patient starts were dispensed by a free drug program. Just trying to get a sense of how you expect this to trend in the next couple of quarters here. And then second question from me is, can you give us a sense of what the new patient starts are looking like month-to-month qualitatively? Any trend you'd point out between June and July? Thanks so much.

Tessa, good morning, and thank you for the questions. I'm going to ask Terri to comment on both the PBMs cadence over time and then, kind of anecdotally, what are we seeing, and maybe I'll add some comments at the end.

Sure. Good morning, Tessa. With respect to the PBM cadence, those conversations are actively in progress, I would say. They really began even pre-launch, right, with the pre-approval information exchange. We made sure the payers were aware of these very important customers and understood the data and where we thought VOWST was best utilized and its value proposition. So they are really going in now to reinforce those historical conversations that they had and spend time with the clinical teams. Then, you typically enter this phase of additional discussions, less negotiations, and that's really still to come. We see these conversations playing out over the rest of the year and I look forward to sharing more as we have more to share. As far as free drug utilization, it's in line with the estimates that we had pre-approval. We're pretty pleased about that. This is an important tool for us to provide a positive patient and provider experience very early on, and we feel like that will pay dividends to us later with respect to demand. What I'll also tell you, though, they're really two important components to the free drug program. One is about your program, which is triggered when a patient exceeds the treatment window while we're trying to navigate the medical exception process with them. This is something we anticipate will work itself out of the job, if you will, to a large extent, as payer policies are issued and prior authorization processes become more automatic and quicker, so patients shouldn't need to leverage that program as much as they might today. The second element of free drug is a more traditional income qualification pack, and we are seeing utilization of that program largely by Medicare patients today, and we always knew that Medicare patients would have affordability challenges until the IRA takes effect. But in 2025, when the cost-sharing provisions and benefit design changes for Part D are mandated by the Inflation Reduction Act, we would anticipate this being another program that we see decline. Hopefully, that color helps.

And maybe I'll just add. On top in general, it's early, but we saw strong demand. We saw it across HCP, HCP specialties. We saw it across recurrent CDI patient profiles, including first occurrence. While it's early, we're really encouraged about what we've seen, and we're excited to continue executing on the launch.

We did see growth month-on-month as you would expect, so we are seeing growth as we move through the months and the period.

Okay. Thanks so much for taking all the questions.

Thanks for the question, Tessa.

Thank you very much, and congratulations on a great quarter. With respect to VOWST sales, can you comment on how much about $1.6 million in 2Q was attributable to inventory build or channel stocking versus new patient starts? And the second question, can you provide any additional color to understand the profit share reported versus revenue and how you see that trending moving forward? Thank you.

Yes, Jeff, good morning, and thank you for the questions. Maybe David and I can handle those two. On the first, there's an initial purchase of inventory from Nestle. But in terms of the inventory build, I think David, in his prepared remarks, had a comment on how much was in the channel, which was not much. But beyond that, maybe I can just comment that we didn't expect to see— we don't think we have seen warehousing of patients, right. This is not a chronic disease; this isn't an acute disease. The breadth of prescribers that we have seen suggests to us that whereas we did hear a couple of anecdotes of some of the physicians that we know well who had a number of patients on tapper and have been waiting for the moment that VOWST would be available and switch some of those patients, that was really the minority of what we saw in this first period of VOWST. So I don't think that there's an inventory that's really pushing this number. Maybe David can comment further.

Yes, thanks, Eric. As we reported, the second quarter sales of $1.6 million were comprised of 105 VOWST units. Our estimation is that at that point in time, that represented less than two weeks of inventory in the channel, like specialty pharmacies. There is not a whole lot of channel inventory, and that would be our expectation going forward as well. I think your second question was about VOWST sales versus the profit and loss sharing. The $1.6 million reported are the net sales of VOWST for the second quarter. That generated a net loss of $4.3 million, which is shared 50-50 between Nestle and Seres. So our books reflect that $2.1 million, the 50% of that $4.3 million. How that's going to change over time as VOWST sales increase, we are driving with our collaborator, Nestle, towards generating profitability related to VOWST’s P&L. We believe that is very much achievable, and if you think about the sales and marketing expenses, we are fortunate to leverage Nestle's infrastructure and capabilities and believe that we can commercialize VOWST in a very cost-efficient manner.

Great. Thank you guys for taking the questions.

Thanks for the question, Jeff.

There are no further questions at this time. I would like to turn the call back over to the management team.

Thank you, operator, and thank you all for joining us this morning. We look forward to updating you on our progress soon. Have a great week. Thanks very much.

Ladies and gentlemen, this concludes today's conference. You may now disconnect.