Seres Therapeutics, Inc. Q2 FY2024 Earnings Call

Good day, and thank you for being here. I would like to welcome everyone to Seres Therapeutics Second Quarter 2024 Earnings Conference Call. I would now like to turn the conference over to Dr. Carlo Tanzi, Investor Relations. Please proceed.

Thank you, and good morning. Our press release with the company's second quarter 2024 financial results and a business update 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 are making forward-looking statements, including related to the financial terms, timing and completion of the sale of VOWST assets to Nestle Health Science. The receipt of future payments and the use of proceeds of the transaction, the timing and results of clinical studies and data readouts, development plans and commercial opportunities, operating plans and our future cash runway, our planned strategic focus and other statements, which are not historical fact. 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; Dr. Matthew Henn, Chief Scientific Officer; and Dr. Terri Young, Chief Commercial and Strategy Officer. With that, I'll pass the call to Eric.

Thank you, Carlo, and good morning, everyone. Last week, we announced our agreement to sell Seres VOWST assets of commercial rights to Nestle Health Science in exchange for substantial immediate and future financial consideration. We held a call at that time to review the agreement and the deal terms and to provide a high-level view of our planned corporate strategy to advance our live biotherapeutics drug candidates, which are consortia bacterial strains cultivated from clonal master cell banks and rationally designed to optimize target disease-relevant pathways. Today's call will focus on our SER-155 program and the clinical data we look forward to obtaining next month and more broadly, our strategy moving forward. Later in the call, we will provide a review of our second quarter financial results. I'll begin with a recap of the VOWST asset sale and how this helps to support the advancement of our pipeline. We expect the transaction to close in the next 90 days. As we discussed last week, the VOWST asset sale provides Seres with a meaningful capital infusion. Upon deal close, pending stockholder approval, we will receive $155 million in cash, which includes an upfront payment, a prepaid milestone payment, and an equity investment, net of operational obligations we pay Nestle at close. The capital provided will strengthen our balance sheet, enable us to retire our existing debt facility and certain other operational liabilities and, most importantly, support the development of our pipeline of wholly owned live biotherapeutics that build upon our previous successes and represent the next generation of our drug technology. We are proud to have developed VOWST as the first-ever FDA-approved oral live microbiome therapy. VOWST has transformed the lives of thousands of patients with recurrent infections, preventing devastating recurrences of infections for individuals who have limited FDA-approved therapeutic options. In developing VOWST, we created numerous capabilities including entirely new manufacturing methods, and we collaborated with the FDA to secure regulatory approval for a product in an entirely new class of oral biotherapeutics. Looking ahead, we believe that the capabilities, know-how, and core intellectual property that we have developed over the last decade and our underlying technology platforms position Seres to continue to successfully advance new biotherapeutics and to address significant unmet medical needs and additional medically vulnerable patient populations. We believe that there are near-term opportunities to apply our drug technology to prevent serious bacterial infections and related conditions such as bloodstream infections and febrile neutropenia in high-risk patients, such as allo-HSCT patients. In the longer term, we plan to leverage our acquired capabilities in other diseases and conditions. More specifically, we believe we can develop our biotherapeutics to prevent infection in multiple medically vulnerable patient groups and we could also address GI immune-related diseases such as inflammatory bowel disease. In summary, we believe the VOWST asset sale will enable Seres to create meaningful new biotherapeutics for diseases that are not able to be effectively addressed with conventional approaches, thereby creating value for patients and other stakeholders. The transaction enables us to transform Seres into a number and more streamlined organization, deploying our financial and human capital to advance pipeline assets through discovery and clinical development, the core competencies of Seres. We will be well positioned to build upon our extensive technical capabilities and to advance the development of potentially transformative new treatments for many serious diseases. Our lead program, SER-155, is being evaluated in an ongoing Phase Ib study, and we are looking forward to obtaining important clinical data next month in the placebo-controlled cohort 2. We anticipate this readout will extend the positive results observed in Cohort 1 and further highlight the potential for our novel therapeutic approach, expanding our prior clinical successes. Seres is also developing another proprietary live biotherapeutic composition, SER-147, to improve clinical outcomes in patients with metabolic disease, including those with chronic liver disease and those at high risk of bacterial infections. Matt will discuss this program shortly. I'll now pass to Lisa to discuss SER-155 in more detail.

Thank you, Eric. SER-155 is a live biotherapeutic that was specifically designed to target the unmet medical needs of gastrointestinal derived infections, including bloodstream infections, as well as infection-associated negative clinical outcomes such as fever during periods of neutropenia. SER-155 is being evaluated in a Phase Ib study in patients undergoing allo HSCT following a diagnosis of AML or other hematologic malignancy. As a result of the extensive exposure to antibiotics and the effects of HSCT conditioning regimens, these patients often develop disruptive gastrointestinal microbiomes resulting in functional deficiencies that often lead to pathogen overgrowth and domination in the GI tract. These disruptions, coupled with diminished integrity of the GI epithelial barrier, are associated with significantly increased risks of bloodstream infections, graft versus host disease, and mortality. Last year, we reported promising Phase Ib cohort 1 clinical data with SER-155 being well tolerated in highly immunocompromised allo HSCT patients. In this open-label cohort, SER-155 was administered to 13 subjects with 11 continuing to transplant. Our data indicated that of the subjects administered SER-155, only a single patient had enteric pathogen domination within 30 days following stem cell transplant. This event was transient and the resulting incidence of domination in Cohort 1 was markedly lower than the incidents observed in a large reference cohort. These data provide strong mechanistic evidence supporting the clinical intent of SER-155 to prevent GI pathogen domination and related bloodstream infections. Next month, we will obtain data from the study Cohort 2, which incorporates a randomized, double-blinded, placebo-controlled design and enrolled 45 subjects. I'd like to review several of the specific study endpoints that we will be evaluating. From a safety perspective, we would like to see continued evidence indicating that SER-155 is well tolerated. It is important to note that our biotherapeutics candidates are derived from bacteria isolated from the GI tract of healthy humans and only include bacterial strains that have not been associated with infection. As a result, we have reason to believe that the safety profile associated with our biotherapeutics will continue to be favorable as we have observed in our prior clinical studies. From an efficacy perspective, we will be assessing the ability of SER-155 to decrease the incidence of GI-derived bloodstream infections within the first 30 and 100 days following HSCT, a period associated with a high rate of complications. We will also evaluate if SER-155 administration results in decreased rates of fever during neutropenia and subsequent rates of antibiotic initiation. In addition, we will examine if SER-155 is associated with the reduced incidence of acute graft versus host disease. However, given recent changes in standard treatment practices, we expect the overall rate of GvHD to be low during the study assessment period. The cohort 2 results and our subsequent discussions with the FDA will inform next steps, but we expect our next study to be global and that there could be an opportunity for it to be a single pivotal study. We believe positive data from the Cohort 2 readout would further validate the promise of our live biotherapeutics modality to address serious infection and infection-related negative clinical outcomes in medically vulnerable populations, including cancer patients with neutropenia, solid organ transplant recipients, and individuals with chronic liver disease. Assuming supportive Cohort 2 data, we have already begun to plan further development steps for SER-155, including a potential global registrational study in allo-HSCT and potentially also initiation of development in other medically vulnerable groups with high rates of bacterial infections. I'll now pass the call to Matt to discuss the pharmacology data that we will be collecting in the SER-155 study.

Thank you, Lisa. SER-155 is a consortium of 16 bacterial strains that was rationally designed and optimized based on the functional properties of the individual strains as well as clinical insights from across Seres' portfolio of clinical studies. This biotherapeutic is designed to prevent and reduce pathogen colonization, abundance, and overgrowth in the GI tract and to promote epithelial barrier function to reduce the likelihood of harmful bacteria translating from the GI to the bloodstream. Additionally, there are bacteria included in SER-155 to modulate immune pathways to induce immune tolerance with the potential to impact GvHD. In Cohort 2 of the SER-155 allo-HSCT trial, we will evaluate a number of pharmacology parameters, including the kinetics and magnitude of drug species engraftment, meaning the outgrowth of bacteria in SER-155 in the gastrointestinal tract and the abundance and overgrowth of harmful bacteria, including those that can harbor antimicrobial resistance in the GI. In addition, we will be evaluating changes in the GI microbiome and associated functions and a collection of host biomarkers to evaluate mechanisms of pathogen decolonization, epithelial barrier function, and additionally, modulation of both local and systemic immune pathways that can induce immune tolerance. Cohort 2 pharmacology data and endpoints will be examined in the context of the placebo control and the reference control cohort. The pending pharmacology data could provide additional support for clinical outcomes observed. In addition, these data will be important as we consider further development plans for SER-155 and targeting the prevention of infection in additional patient populations as well as GI-related immune diseases. In addition to SER-155, we are developing SER-147 for compromised patients living with metabolic diseases. SER-147 is an oral live biotherapeutic product candidate consisting of a consortium of cultivated bacteria designed to prevent gut-seated infections and associated downstream infections and spontaneous bacterial peritonitis, or SPP, in chronic liver disease. In the advanced stages of chronic liver disease, known as decompensated cirrhosis, patients can exhibit gastrointestinal microbiome disruption and associated functional deficiencies. This, combined with the frequent contact with the health care system, can drive increased susceptibility to bacterial infections and other negative clinical outcomes such as hospitalization. SER-147 was designed and optimized using our reverse translational MBTX platform, enabling the data-driven selection of a unique set of bacterial strains with the desired functional properties. These strains were selected based on clinical insights and extensive preclinical in vitro and disease model screening of individual strains and lead consortium. Our cultivated biotherapeutics are manufactured from single strain isolates through fermentation methods that allow for efficient, scalable processes. As with SER-155, we believe that SER-147 could represent another opportunity for Seres, and we anticipate IND readiness in the second half of 2025. I'll now pass the call to Terri to provide further context around our pipeline strategy.

Thank you, Matt. To summarize our general path forward, we believe our approach has demonstrated unique clinical success in preventing frequent serious and extensive infection and we plan to build upon this success in additional medically vulnerable patients. Our next step in this journey is to substantiate a highly attractive profile for SER-155 in terms of safety and efficacy with a short oral dosing regimen. With meaningful results next month from the Phase Ib study, we will begin to pursue additional therapeutic adjacencies for SER-155 as Lisa and Matt both outlined. Each adjacent patient population under consideration is significant in its own right, but together, they represent a substantial commercial opportunity. The allo-HSCT population is comprised of approximately 3,000 patients annually across the U.S. and Asia. Expansion across other hematologic malignancies would bring an additional 23,000 patients annually to the SER-155 patient pool from allo-HSCT and another 190,000 from hematologic cancer patients with high neutropenia rates. For example, AML, multiple myeloma, and non-Hodgkin lymphoma. These patients are mainly treated at large centers across the developed world, and therefore, we would benefit from an efficient commercial model designed to reach a concentrated set of healthcare providers. We are also considering expansion into other transplants with the potential to avoid infections in the 65,000 patients across the U.S. and EU each year who receive solid organ transplants, like kidney and liver. Our next program, SER-147, provides the opportunity to prevent infections in chronic liver disease patients, another large patient group. We also believe our approach can make a difference for patients beyond activity against infection by addressing immune modulation. This would enable us to pursue additional highly prevalent conditions such as inflammatory bowel disease. We remain excited about the breadth of opportunities in front of us. And it's worth reminding everyone that a key outcome of the VOWST asset sale to Nestle is that we will have full ownership of our entire next-generation pipeline candidates, providing strategic optionality as we move forward and positioning us to drive value for our key stakeholders. Our pipeline prioritization has been informed by our knowledge of where microbiome disruption has been implicated in disease, thereby leaving patients vulnerable to serious and extensive infections. We also strongly consider diseases with high unmet needs, where a product with an attractive profile would bring a strong value proposition affording us pricing flexibility. In addition, as we develop our future plans, we will carefully consider the required development path for all indications under evaluation to ensure that we can demonstrate clinical proof of concept at modest cost and in a timely manner. In summary, we will continue to utilize a rigorous and data-driven approach to develop our pipeline strategy, which considers the strength of scientific rationale and commercial potential along with clinical development capability, time, and cost. The SER-155 clinical results that we receive next month will be a key input to our path forward and will allow us to refine our plans. We look forward to communicating more about our strategic path forward once we obtain and fully consider this important data set. Now I'll turn the call over to Marella to share our financial results.

Thanks, Terri, and good morning, everyone. I'd like to discuss our financial results for the second quarter, starting with VOWST. As a reminder, Seres does not recognize VOWST net sales in its financial statements, but instead under the terms of our prior agreements with Nestle, we share equally the product's commercial profits and losses, and we record our share in the collaboration profit and loss sharing related party line. VOWST profits and losses are determined based upon VOWST net sales, cost of goods sold, and sales and marketing expenses. Net sales of VOWST for the second quarter were $14.4 million, reflecting an approximately 43% growth over the first quarter of this year. As discussed in our first quarter update, Nestle refined their call strategy and increased call points to broaden their prescriber reach. We remain confident in the potential of VOWST, and Nestle continues to refine their launch execution to respond to market dynamics as they work to expand the business. Research and development expenses for the second quarter were $17.9 million, down from $46.8 million for the same period in 2023. The year-over-year decrease in R&D expenses was primarily driven by VOWST commercial manufacturing costs no longer being recognized in the Seres P&L, but instead being capitalized and recognized on our balance sheet. In addition, reductions in headcount and other expenses from the restructuring announced at the end of 2023 contributed to lower expenses. General and administrative expenses for the second quarter were $16.1 million, reduced from $28.1 million for the same period in 2023. Again, reflecting lower headcount following the restructuring actions, as well as lower professional fees and other cost reduction efforts. We reported a net loss of $32.9 million for the second quarter of 2024, compared to net income of $46.6 million for the same period in 2023. The changing result of a $125 million milestone payment received from Nestle in the second quarter of 2023 upon the FDA approval of VOWST, along with other operating expense reductions noted between the periods. More than one-third of our employee base is expected to move to Nestle Health Science as part of the VOWST asset sale. Seres will be a more focused and streamlined organization upon the sale, and we will continue to manage expenses prudently. As a result, our cash burn will decline following the close of the transaction. Turning to our cash position, as of June 30, 2024, we had $71.2 million in cash and cash equivalents. This does not include the cash infusion expected as part of the VOWST asset sale, which we expect to close within 90 days of the August 5 signing. We expect that the capital from the VOWST asset sale, if completed, will allow us to extend our cash runway, enabling Seres to meaningfully advance its pipeline. Based on our current cash, future operating plans, and the capital expected to be received at transaction close, plus the installment payments expected in 2025, and accounting for the ongoing transaction-related obligations, we anticipate a cash runway into the fourth quarter of 2025. I'll now pass the call back to Eric.

Thank you, Marella. And before we move forward, I'll just note that we have been made aware that there may be a technical issue with folks being able to access the call or at least the first part of the call from our website. So following the completion of this call, we will ensure that the full transcript from our remarks is posted and available to everybody. Okay. Moving forward, Seres will pursue a focused corporate strategy where we will apply our experience with live biotherapeutics to improve patient outcomes in a variety of medically vulnerable patient populations. As discussed, our immediate strategy is focused on reducing the risk of bacterial infections in high-risk populations. In the future, we also believe that our biotherapeutics could be developed to address other large commercial opportunities, including the treatment of autoimmune diseases such as inflammatory bowel disease. As you've heard today, we are very excited to obtain the SER-155 clinical data and allo-HSCT in September. These data have the potential to highlight the tremendous opportunity we see in SER-155. If we are successful, the medical and commercial opportunities for SER-155 could be very meaningful. Beyond SER-155, we are developing SER-147 for medically compromised patients with metabolic diseases, opening additional substantial opportunity. We've already shown that our therapeutic approach can yield highly efficacious and well-tolerated medicine that can change lives. We have the capabilities, and with our recently announced transaction, we expect to have the capital to support the development of additional transformative new therapies for medically vulnerable patients. Operator, with that, let's now open the call up to questions.

Your first question comes from the line of Tessa Romero with JPMorgan. Your line is open.

Good morning team. Thanks for taking our questions. The first one from us is what signal or signals you are specifically looking for in cohort 2 for SER-155 around these key secondary endpoints that you've talked about today. And then zooming ahead a little bit, can you provide a framework for how we should think about what a potential pivotal study might look like if Cohort 2 is successful. Just trying to get at kind of how the risk that trial design might be on the backside of Cohort 2? And also, how fast do you think you could get that pivotal study up and running?

Let me start and maybe I'll pass it over to Lisa. I think we lost a little bit of audio at the end there, but I think I heard most of the question. So the first question was around how do we think about quantifying signal in an endpoint, I assume, on the efficacy side in the upcoming readout. Second question was how quickly do we get to a next study? And if it were pivotal, what does the kind of what that would smell and feel like in terms of time, cost and so forth? So if I didn't butcher your questions, Tessa, maybe I can start and then Lisa can go from there. And I would start by just saying and reminding folks that this is a Phase Ib study. So the primary endpoints are, of course, safety and the pharmacology that I think we mentioned, we do have the benefit of having a placebo arm, roughly 25 patients per cohort so we are looking to see signals. And as always, our studies tend to be pretty data-rich. So maybe I can pass it to Lisa to talk about the parameters of the study and perhaps your questions about where we go with positive data.

We have not been specific about the actual deltas that we're looking for, but I think we can go through the endpoints and starting with something like neutropenia and fever, where rates are very, very high. We have a chance to be able to see a very meaningful decrement just because it's so prevalent. Something like bloodstream infections, which are less frequent, we still think we would be able to see a meaningful difference, but obviously, the delta would not be the same. Same thing for GI infection; same thing for acute GvHD. With regard to the infectious endpoint, the other thing we're looking for is consistency, right? We're wanting to see that we see a change in neutropenia and fever, we're also seeing a change in antibiotic starts as well as BSIs. So the consistency of that picture as well as then looking at the pathogen abundance data which mechanistically we believe would underlie those findings will really be important. So it's the individual endpoints yes, but it's also the consistency of the picture that we see that paints the idea that we're doing what we want to do.

And the next question was around how do we think of the registration study.

And I think what we would want is a study that builds on our experience with VOWST in that when you have a meaningful clinical delta, you can run an efficiently sized trial, and that's what we'd be looking for. We have some idea of the kind of safety database that agency wants, so we would be using that experience to build a pivotal study. You could imagine on the same scale as the VOWST pivotal study as well as expecting a safety database requirement of about 300 total.

Great. Thank you for taking my question and looking forward to the data in September. Kind of looking forward a little bit as we were walking through the profile, I was thinking would it make sense for 155 in CAR T therapy? And could it help with some of the challenges in terms of CRS and GvHD that's seen, especially with some of the new allogeneic therapies that are coming down the pipe? Just a thought I had. I'm wondering what your view of that opportunity is.

Let me hand it to Lisa.

Yes, we absolutely think there could be applicability in CAR-T, both on the infectious complications as well as the immunologic issues that you've just outlined. And I think that's the beauty of this trial, which is ongoing, which is that we believe mechanistically it applies to CAR-T as well as auto transplants and other indications where there's chemotherapy.

Ted, one additional point too, which is you've known us for a long time, and we've been really focusing on that core mechanisms and biologies, both around the ability to prevent pathogens from colonizing and then decolonize as well as the epithelial barrier and inducing immune tolerance. I think something that's really important in the context of our technologies is we're bringing a novel approach forward that's not immunosuppressive. And I think that's particularly important in many of these different patient populations where we see challenges such as infections and other immune responses.

So and Ted, just one more thing. There was a recent meta-analysis that came out in Nature Medicine that actually looked at the kinds of problems that CAR-T patients have that actually caused mortality. The surprise in that paper was that infections are still an amazingly important issue and that more than 50% of the deaths are being attributed not to ICANs or to other things that are a bit more exotic, but to just infections. So there's still a lot of work to be done on just that kind of fundamental issue.

Good morning. Hi, This is Peyton on for Joe. I guess a real quick one on SER-155 pivotal pipeline. I know that you mentioned it's going to most likely be a global trial. Could you talk about whether or not there are data sets for kind of the package and domination. Because I know there's a reference data set that you guys tend to use is from MSK and whether or not you think that there will be any difference in the type and amount of pathogens globally? And then I have a follow-up.

Maybe I'll ask Matt to comment. But before you do, I want to ensure we're on the same page. One of the fascinating aspects of this study is the first cohort, where we examined pathogen domination in comparison to a reference cohort established through our partnership with MSK. We observed some intriguing initial signals indicating lower incidents of pathogen domination than we anticipated based on that reference cohort, including one out of what I believe was 11 subjects, which turned out to be a transitory event. This is one of the reasons we're excited about the upcoming second cohort, particularly with the placebo control. Perhaps Matt can provide further insight regarding your question.

So there is global data around pathogen abundance. And I'd point you to a New England Journal of Medicine article that was published. And obviously, we'd be happy to share that. But there was work conducted there across major transplant centers globally, including Asian and European centers and other centers in the U.S. Seres actually helps support that work, and the data are consistent across the globe. The reason we use the reference cohort data set that we've developed with MSK is because we've put a lot of energy and time into collection of that. And so it's a very, very high-quality data set that we feel highly reflects what those rates look like, but those trends are observed in the global data sets as well. And then you had a follow-up.

Could you provide additional details about what the next steps will be with the agency if the Phase Ib cohort data is positive? What else is needed to initiate these studies? Is the package prepared?

Yes, I understand the straightforward answer, and then I can pass it over to Lisa. The simple answer is that it depends on the data. We have always reviewed the data, and that has been our experience, including with what was previously 109, which we were very pleased with. However, we do follow the data, including our conversations with the agency. Perhaps Lisa can provide more specific insights into the process.

We would be going to them to actually discuss the data in the next study as well as for designations around orphan drug and breakthrough, and obviously, we can't do too much until we actually get the data and then start to construct the argument. But you can imagine we've given all of that a lot of thought. And clearly, on the breakthrough side and orphan drug, we've done that before. So we feel that that's a fairly straightforward kind of request coming from our experience.

There are no further questions at this time. I turn the call back over to the management for closing remarks.

Thank you, operator, and thanks to everyone for joining us this morning. We appreciate your time, and we look forward to keeping you updated as we go. Thanks very much, and have a great week.

This concludes today's conference call. You may now disconnect.