Seres Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited financial statements; dollar amounts below are in millions unless noted. Seres is a development-stage microbiome therapeutics company and had no product-sales revenue.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.2 | $5.3 | $2.7 | $11.0 |
| Research and development | $43.9 | $36.0 | $83.6 | $65.3 |
| General and administrative | $20.3 | $17.5 | $38.9 | $29.2 |
| Operating loss | $(63.3) | $(48.1) | $(119.1) | $(83.5) |
| Net loss | $(64.7) | $(48.3) | $(121.4) | $(83.8) |
| Basic and diluted loss per share | $(0.70) | $(0.53) | $(1.32) | $(0.91) |
- Six-month operating cash outflow was $116.3, versus $69.2 in 2021. Investing activities provided $36.4 and financing activities provided $27.0; cash, cash equivalents and restricted cash declined $53.0 to $135.0.
- At June 30, cash and cash equivalents were $126.8 and investments were $69.0, totaling $195.8. Current assets were $209.6 and current liabilities $89.0.
- Total liabilities were $250.1 and stockholders’ equity was $23.1, compared with $223.4 and $131.5, respectively, at December 31, 2021. Accumulated deficit was $735.7.
- Debt carrying value was $50.6 at June 30; outstanding principal was $50.0. The Hercules facility bears interest at the greater of prime plus 6.40% or 9.65%; interest expense was $2.4 for the first half. Operating lease liabilities totaled $26.6.
- Product margins are not applicable because the company had no product sales. Collaboration revenue was primarily related-party revenue; no grant revenue was recorded in the first half of 2022, versus $1.1 in the prior-year period.
Changes versus prior periods
- Q2 revenue fell $4.0 and first-half revenue fell $8.3 year over year. Management attributed the decline mainly to lower revenue recognized under the 2016 Nestlé agreement, following an increase in estimated future costs to complete development services and lower clinical activity. First-half 2021 also included CARB-X grant revenue.
- First-half R&D rose $18.3, mainly from increased personnel costs and SER-109 spending, partly offset by reduced SER-287 spending. G&A rose $9.7, primarily due to personnel, professional fees and facility-related costs.
- First-half net loss increased $37.6 year over year. Higher operating expenses and interest expense, together with lower interest income and revenue, contributed to the increase.
- On July 5, 2022, after quarter-end, the company closed a registered direct offering of 31.7 million shares at $3.15 per share, generating approximately $96.8 net proceeds. The filing says June 30 liquidity plus these proceeds was expected to fund operations, capital expenditures and debt service for at least 12 months from issuance of the statements. The offering materially increased the share count; 124.1 million shares were outstanding on August 1.
Outlook, developments and risks
- SER-109: Management reported initiation of a rolling BLA submission and expected completion in the coming weeks. Breakthrough Therapy designation may permit priority review; management anticipated a potential U.S. launch in the first half of 2023, subject to FDA approval. ECOSPOR III showed an approximately 88% sustained clinical response at eight weeks; ECOSPOR IV reported an 8.7% recurrence rate at eight weeks. These are company-reported trial results, not an approval.
- SER-155: Phase 1b enrollment was underway; the data monitoring committee recommended continuing Cohort 1 based on available safety data.
- SER-301/UC: Seres decided in April 2022 not to proceed with the planned second Phase 1b cohort. In the first cohort, no subjects achieved FDA-defined clinical remission at 10 weeks; some individual symptom components improved. The company said it would analyze data to inform future development.
- Funding and commitments: Seres expects continuing losses and negative cash flows and says it will need additional capital beyond the stated runway. Its Bacthera manufacturing agreement commits it to at least CHF 240 million (approximately $262 million) over the initial term, including construction and operating fees. Additional Hercules borrowing is conditional, including a $25 million tranche linked to FDA approval of SER-109 by December 15, 2023; a conditional liquidity covenant begins June 15, 2023.
- Key risks: FDA review and approval, clinical and manufacturing execution, third-party supply and donor-material availability, ability to raise capital, and reliance on Nestlé collaborations. Management cited COVID-19, inflation and interest-rate uncertainty. A European patent opposition involving a University of Tokyo patent remained on appeal. No legal-contingency liability was accrued. Management concluded disclosure controls were effective as of June 30.
Investor facts to verify
- FDA progress, review timing and any additional requirements for the SER-109 BLA; assess the underlying trial data and safety package.
- Actual cash burn and runway against management’s forecast, including the effect of the post-quarter offering, share dilution, debt service and conditional debt availability.
- Changes in estimated costs and revenue recognition under the Nestlé agreements, as well as pre-launch cost sharing and milestone conditions.
- Execution, total economics and potential termination costs of the Bacthera manufacturing commitment.
- Next development decisions for SER-301 and progress and safety findings in the SER-155 Phase 1b study.