Seres Therapeutics, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited financial statements; amounts below are in U.S. dollars and millions unless stated otherwise. Seres is a clinical-stage microbiome therapeutics company and had no product sales revenue.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $12.5 | $4.6 | $19.9 | $8.6 |
| Research and development | $17.9 | $24.1 | $40.8 | $47.5 |
| General and administrative | $5.6 | $8.7 | $13.1 | $17.5 |
| Restructuring expense | — | — | $1.5 | — |
| Operating loss | $(10.9) | $(28.1) | $(35.5) | $(56.4) |
| Net loss | $(10.8) | $(27.8) | $(35.1) | $(55.7) |
| Basic and diluted loss per share | $(0.24) | $(0.68) | $(0.81) | $(1.37) |
Revenue was primarily collaboration revenue, including $10.5 million in Q2 and $17.1 million in the first half from related-party collaborator Nestec/Nestlé Health Science. A SER-109 trial-plan modification produced a $6.8 million cumulative revenue adjustment in the first half. AstraZeneca collaboration revenue contributed $1.8 million in Q2 and $2.1 million in the first half. No gross margin is reported.
At June 30, cash and cash equivalents were $102.2 million, versus $85.8 million at December 31, 2018. Current assets were $109.0 million and current liabilities $43.1 million. Total assets were $146.1 million; total liabilities were $164.1 million; stockholders’ deficit was $18.0 million. The filing reports no conventional debt balance; operating lease liabilities totaled $22.4 million. Accumulated deficit was $424.5 million.
For the six months, operating cash use was $44.2 million, investing cash use $0.6 million, and financing cash inflow $61.2 million, chiefly from the June public offering. Cash, cash equivalents and restricted cash increased by $16.4 million to $102.3 million, including restricted cash.
Changes versus the prior comparable period
- First-half revenue rose $11.3 million, chiefly from the Nestec revenue adjustment and the new AstraZeneca collaboration; revenue growth does not represent product sales.
- First-half R&D expense declined $6.7 million and G&A declined $4.4 million. Management attributed reductions partly to lower employee, consulting, clinical-trial and manufacturing costs, alongside increased SER-287 spending.
- First-half net loss narrowed by $20.6 million. The company nevertheless continued to consume cash in operations.
- June’s equity offering raised approximately $60.5 million net as described in the narrative and added approximately 28.8 million shares. Common shares outstanding rose from 40.9 million at year-end to 69.9 million at June 30.
Outlook, management commentary and key risks
- Cash runway: The financial-statement note says June 30 cash is expected to cover operating expenses and capital expenditures for at least 12 months from issuance. MD&A instead estimates funding into the first quarter of 2021. Both estimates depend on assumptions and future trial activity.
- Programs and anticipated data: SER-287 Phase 2b top-line data were expected in Q3 2020; SER-109 Phase 3 data in early 2020; SER-401 Phase 1b preliminary results in the second half of 2020; and SER-301 IND submission and clinical-development initiation in early 2020. These are expectations, not guarantees.
- SER-109 trial change: ECOSPOR III enrollment was reduced from 320 to 188 patients. The FDA had indicated that an insufficiently significant result could require additional confirmatory evidence, potentially another Phase 3 study; the smaller study may also require more safety exposure.
- Restructuring: In February 2019, Seres refocused on priority clinical-stage candidates and reduced headcount by approximately 30%. It recorded $1.5 million of first-half severance and termination costs, with about $0.6 million remaining to pay during 2019.
- Funding and collaboration: Seres expects continuing losses and may need additional capital. AstraZeneca agreed to pay $20 million in three installments, with the first received in April 2019 and later installments due in 2020 and 2021, subject to contract terms. Seres also has contingent Nestec milestones that are uncertain.
- Principal risks: Clinical and regulatory failure or delay, uncertainty of the microbiome therapeutic approach, patient enrollment, manufacturing and biological-material supply, intellectual-property challenges, dependence on collaborators, and inability to raise capital on acceptable terms. Seres states existing cash will not necessarily fund operations beyond the estimated runway.
- The company adopted the new lease-accounting standard in 2019, recognizing operating lease assets and liabilities; management said adoption did not affect the income statement. A Cambridge sublease began in July 2019, with annual rent of about $1.2 million in year one and $1.3 million in year two.
- Management reported disclosure controls and procedures were effective as of June 30, 2019, with no material quarterly change in internal control over financial reporting. A European patent opposition involving The University of Tokyo remained under appeal; no legal-contingency liability was accrued.
Important facts for investors to verify
- How the 188-patient SER-109 study’s efficacy, statistical power and safety database align with FDA requirements, and whether another pivotal study will be needed.
- Whether the clinical milestones and data-reporting timelines for SER-287, SER-109, SER-401 and SER-301 remain achievable.
- The assumptions behind the differing cash-runway disclosures—at least 12 months from issuance versus into Q1 2021—and the company’s cash burn as trials progress.
- How much of reported revenue reflects collaboration performance and accounting adjustments rather than new cash receipts, and the status of future AstraZeneca payments and Nestec milestones.
- The effect of the public offering’s substantial share issuance, future financing needs and potential dilution on existing shareholders.