Seres Therapeutics, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing is an annual report, not a standalone Q4 report. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context
Seres is a clinical-stage microbiome therapeutics company with no product sales to date. Its lead candidate, SER-109, targets recurrent Clostridioides difficile infection (CDI). Other clinical programs address ulcerative colitis (SER-287 and SER-301), immunocompromised patients (SER-155), and melanoma in combination with checkpoint inhibitors (SER-401). Revenue to date has come from collaboration agreements and grants.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $33.2 million | $34.5 million |
| Research and development expense | $90.6 million | $80.1 million |
| General and administrative expense | $30.8 million | $24.7 million |
| Loss from operations | $88.1 million | $71.9 million |
| Net loss | $89.1 million | $70.3 million |
| Basic and diluted net loss per share | $1.12 | $1.24 |
| Cash used in operating activities | $93.6 million | $76.5 million |
Revenue declined about 4%, while operating expenses rose about 14% and net loss increased about 27%. FY2020 revenue included $17.2 million from the AstraZeneca research collaboration, including recognition of remaining deferred revenue after AstraZeneca elected to terminate the agreement, $11.9 million of Nestlé collaboration revenue, and $4.2 million of grant revenue. Revenue was not generated from product sales. Gross margins are not applicable to product sales and are not presented as a meaningful operating measure.
At year-end, cash and cash equivalents were $116.0 million, short-term investments $137.6 million, and long-term investments $49.8 million, totaling $303.4 million in cash, cash equivalents and investments. Current assets were $268.8 million and current liabilities $46.4 million. Management expected these resources to fund operating expenses, debt service and capital expenditures for at least 12 months from issuance of the financial statements; it also stated that additional financing would be needed to fund future operations beyond that period.
Operating cash use increased year over year. Financing provided $303.4 million, principally from a public offering ($243.7 million net), a Nestlé share placement ($19.9 million net), at-the-market equity sales ($24.8 million net), and option exercises ($14.4 million). Common shares outstanding increased from 70.1 million at year-end 2019 to 91.5 million at year-end 2020.
Debt included $25.0 million principal under the Hercules term loan, with a $25.1 million carrying value at year-end. The stated interest rate was the greater of prime plus 4.40% or 9.65%; principal repayments were scheduled to begin after the interest-only period and continue through November 2023. Contractual obligations also included $18.0 million of operating lease payments. The filing reports no cash dividends.
Material developments and outlook
- SER-109: The completed Phase 3 ECOSPOR III study showed recurrence at eight weeks in 12.4% of SER-109 patients versus 39.8% on placebo in the final stated analysis (p<.001); the 12-week rates were 18.0% and 46.2%. Safety was described as comparable to placebo. Seres was enrolling an open-label study to reach an FDA-requested safety database of at least 300 patients and prioritized preparation of a BLA. FDA approval was not assured.
- SER-287: The Phase 2b UC trial was ongoing, with top-line results anticipated in mid-2021. The program had previously shown encouraging Phase 1b findings, but the pivotal Phase 2b outcome remained uncertain; COVID-19 disrupted study activity.
- Other programs: Seres enrolled the first SER-301 Phase 1b patient in November 2020. It expected to initiate SER-155 clinical development in the first half of 2021, supported in part by CARB-X funding. SER-401’s Phase 1b readout timing was uncertain amid COVID-19 impacts.
- Collaborations: AstraZeneca gave notice of termination of its research agreement in December 2020, effective April 2, 2021. The final $6.7 million installment was received in January 2021. Nestlé retained licensed rights outside the United States and Canada for specified CDI and IBD candidates; Seres retained North American commercial rights.
- Funding and risk: Management expected continued losses and negative operating cash flows and stated that future viability depends on raising additional capital. COVID-19 could delay trials, enrollment, site procedures, manufacturing and regulatory review. Other key risks include clinical and regulatory failure, manufacturing and donor-material supply, competition, reimbursement, intellectual-property challenges, and reliance on collaborators and contractors.
Important facts for investors to verify
- Confirm the final SER-109 Phase 3 dataset, FDA feedback on the BLA and safety-database requirement, and any subsequent filing or review milestones.
- Check the timing and results of SER-287’s Phase 2b trial and the progress of SER-301, SER-155 and SER-401, including COVID-19-related changes.
- Assess cash use against the company’s stated 12-month runway, funding needs, Hercules loan terms and any additional financing or dilution.
- Distinguish collaboration-related revenue from recurring product revenue; review the assumptions behind Nestlé deferred-revenue recognition and the impact of AstraZeneca’s termination.
- Review the status of the University of Tokyo patent opposition appeal and the IRS examination of 2018 R&D tax credits. The filing reports no accrued legal-contingency liability.