Seres Therapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Dollar amounts below are in millions unless noted. Seres is a clinical-stage microbiome therapeutics company and has not generated revenue from product sales.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $8.2 | $7.3 |
| Research and development expense | $21.7 | $22.9 |
| General and administrative expense | $6.1 | $7.5 |
| Operating loss | $(19.7) | $(24.6) |
| Net loss | $(19.9) | $(24.3) |
| Net loss per share, basic and diluted | $(0.28) | $(0.59) |
| Cash used in operating activities | $(24.3) | $(32.4) |
| Cash, cash equivalents and investments | $75.1 at March 31 | $94.8 at December 31, 2019 |
| Note payable, carrying value | $24.8 at March 31 | $24.6 at December 31, 2019 |
Revenue consisted primarily of $5.5 million under the related-party Nestec/Nestlé Health Science collaboration, $2.0 million under the AstraZeneca research collaboration, and $0.7 million of grant revenue. Gross profit and gross margin are not reported. The company reported an accumulated deficit of $479.5 million and stockholders’ deficit of $61.6 million at quarter-end. Current assets were $80.6 million versus current liabilities of $44.1 million.
Changes versus the prior comparable period
- Revenue increased $0.9 million, mainly because Q1 2020 included a full quarter of AstraZeneca collaboration revenue; related-party collaboration revenue declined $1.2 million.
- Operating expenses fell $4.0 million. Lower platform R&D and G&A costs, and no repeat of the $1.5 million Q1 2019 restructuring charge, contributed to the reduction. R&D spending on SER-287 increased.
- Net loss narrowed by $4.5 million. Cash used in operations declined by $8.1 million.
- Cash and investments decreased $19.7 million from year-end. The company raised approximately $4.2 million net through at-the-market stock sales in Q1, issuing about 1.23 million shares at an average price of approximately $3.50.
Liquidity, debt and outlook
- Management expects quarter-end cash, cash equivalents and investments, together with proceeds received under the ATM after March 31, to fund operating expenses, debt service and capital expenditures into the second quarter of 2021. The filing does not specify the amount of the post-quarter ATM proceeds.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern. It plans to seek additional capital through equity or debt, pursue potential collaborations and reduce expenditures if needed. Failure to obtain funding could force delays, reductions or cancellations of clinical and research programs.
- The Hercules facility has $25.0 million of funded principal, secured by substantially all assets other than intellectual property. Interest accrues at the greater of prime plus 4.40% or 9.65%; interest-only payments run through December 2021, subject to possible extension. Additional tranches are conditional, not assured.
- Operating cash flow was $(24.3) million; investing activities provided $9.4 million, largely from investment maturities and sales; financing activities provided $4.5 million. No off-balance-sheet arrangements were reported.
Programs, management commentary and material risks
- SER-109: ECOSPOR III enrollment was halted because of COVID-19 with 182 of 188 planned patients enrolled. Top-line results were expected in mid-2020. The reduced study size may affect evidentiary strength; the FDA could require additional efficacy or safety data, including another Phase 3 study.
- SER-287: Phase 2b enrollment was approximately 60% of the 201-patient target as of May 1. COVID-related site disruptions, including paused endoscopies, affected development; Seres was evaluating mitigation strategies and possible design changes and planned FDA discussions.
- SER-401: COVID-19’s impact made the timing of the Phase 1b readout uncertain.
- SER-301 and SER-155: The company was advancing these candidates toward clinical development. It expected to begin SER-301 enrollment later in 2020 if authorized; a $10 million Nestec milestone would be payable upon initiation of its Phase 1 study. CARB-X funding supports SER-155 development, subject to milestones.
- In April 2020, preclinical work under the AstraZeneca research plan was curtailed, and discussions continued about future translational and clinical activities. Seres expected revenue under that agreement to decrease while the scope was being discussed.
- COVID-19 could further disrupt trials, enrollment, clinical-site procedures, supply chains, regulatory timelines and access to capital. The company also faces clinical, regulatory, manufacturing, intellectual-property and commercialization risks typical of an early-stage biotechnology company.
Most important facts for investors to verify
- Actual post-quarter ATM proceeds and the updated cash runway, including compliance with Hercules covenants and the timing or availability of additional financing.
- Final SER-109 ECOSPOR III results, their statistical strength, and whether regulators require confirmatory or additional safety data.
- SER-287 enrollment, any FDA-agreed trial modifications, and the effect of COVID-related site disruptions on timelines and data quality.
- The scope and expected revenue impact of the AstraZeneca collaboration after preclinical activities were curtailed.
- Whether the company can sustain its clinical development plans without materially reducing spending or diluting shareholders.