Seres Therapeutics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company develops microbiome therapeutics and has no product sales; revenue to date comes from collaborations and grants.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $5.7 million | $8.2 million |
| Research and development expense | $29.3 million | $21.7 million |
| General and administrative expense | $11.7 million | $6.1 million |
| Operating loss | $35.3 million | $19.7 million |
| Net loss | $35.5 million | $19.9 million |
| Net loss per share, basic and diluted | $0.39 | $0.28 |
| Net cash used in operating activities | $29.5 million | $24.3 million |
- Revenue fell $2.5 million, primarily because the AstraZeneca research collaboration no longer contributed revenue, partly offset by higher grant revenue. Nestlé related-party collaboration revenue was $4.6 million, down from $5.5 million; grant revenue was $1.1 million.
- R&D expense rose $7.6 million, led by platform and SER-109 spending; SER-287 expense declined $2.5 million. G&A rose $5.6 million, principally from professional fees and personnel costs.
- Cash and cash equivalents were $66.6 million at March 31, versus $116.0 million at year-end. Short- and long-term investments totaled $206.0 million; together with cash, cash equivalents and restricted investments, liquidity was reported as $272.5 million. Operating cash use was higher year over year. No product gross margin is reported.
- Total assets were $305.7 million, total liabilities $162.0 million, and stockholders’ equity $143.7 million. Accumulated deficit was $584.2 million.
- Debt under the Hercules facility had $25.0 million principal outstanding and $25.2 million carrying value. The loan is secured by substantially all assets other than intellectual property; interest accrues at the greater of prime plus 4.40% or 9.65%. The second $12.5 million tranche is unavailable; a third $12.5 million tranche requires Hercules’ approval by June 30, 2021.
Material changes and business developments
- SER-109 Phase 3 ECOSPOR III results showed recurrence through eight weeks in 12.4% of treated subjects versus 39.8% on placebo; the filing reports relative risk reduction of 68% and p<0.001. The company was enrolling an open-label study to build the safety database to the FDA’s stated threshold of at least 300 patients, targeting enrollment in Q3 2021.
- SER-287 Phase 2b enrolled 203 patients; top-line results were expected in mid-2021, with additional microbiome biomarker data expected in the second half of 2021.
- SER-301 Phase 1b had begun enrolling, with the first patient enrolled in November 2020. The company expected to initiate SER-155 clinical development in the first half of 2021.
- The company voluntarily stopped further enrollment in the SER-401 melanoma study, citing COVID-related enrollment challenges, time to completion and pipeline priorities; enrolled subjects were to complete the protocol. Further SER-401 development was deprioritized.
- AstraZeneca’s termination of its research agreement became effective April 2, 2021. The agreement had contributed $2.0 million of revenue in Q1 2020 and none in Q1 2021.
Outlook, risks and contingencies
- Management said cash, cash equivalents and investments at March 31, 2021 were expected to fund operating expenses, capital expenditures and debt service for at least 12 months from issuance of the financial statements. The company expects continued operating losses and negative cash flows and anticipates needing additional capital beyond that period; the estimate depends on assumptions that may prove incorrect.
- Planned investment includes SER-109 development and BLA preparation, SER-287 and SER-301 clinical work, SER-155 development, manufacturing and platform capabilities, and potential commercialization infrastructure. No product approval or commercialization is assured.
- COVID-19 had affected clinical operations and could further delay enrollment, site work, trials, manufacturing, regulatory activity and access to capital. SER-287 activity and the SER-109 safety-database effort were among the programs exposed to disruption.
- Key risks include clinical and regulatory uncertainty, the unproven microbiome-therapy approach, third-party manufacturing and trial dependence, financing needs, competition, intellectual-property challenges, and reliance on the Nestlé collaboration. Nestlé deferred revenue was $103.5 million at quarter-end; the remaining transaction price allocated to its performance obligation was approximately $200 million.
- The company disclosed an ongoing IRS examination of 2018 R&D tax credits and an appeal in a European patent opposition involving a University of Tokyo patent. No legal-contingency liability was accrued. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether SER-109 reaches the stated safety-database enrollment target and meets FDA requirements for a BLA submission.
- SER-287 Phase 2b results and how they affect development plans, milestone economics and cost sharing with Nestlé.
- Actual cash burn and runway relative to management’s 12-month estimate, including the status of any additional financing.
- Whether Hercules approves the third loan tranche and how debt service, covenants and collateral affect liquidity and flexibility.
- The operational and financial implications of the AstraZeneca agreement termination and COVID-related clinical or manufacturing delays.