Seres Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. Seres is a microbiome therapeutics company whose lead product, VOWST, received FDA approval on April 26, 2023, after quarter-end, to prevent recurrent Clostridioides difficile infection (CDI). The company planned a U.S. launch with Nestlé Health Science in June 2023.
Key financial results and position
- Revenue: $(0.5) million, versus $1.5 million in Q1 2022. Seres has not generated product-sales revenue. The negative Q1 2023 amount reflects a revenue reversal under the 2016 Nestlé agreement after the estimate of remaining costs increased.
- Operating expenses: $70.0 million, up $12.8 million from $57.2 million. Research and development was $44.0 million, up $4.3 million; general and administrative expense was $22.5 million, up $3.9 million. Collaboration loss-sharing expense was $3.6 million, compared with $1.0 million of collaboration income in Q1 2022.
- Loss: Operating loss was $70.6 million versus $55.8 million; net loss was $71.2 million versus $56.6 million. Basic and diluted loss per share was $0.57, versus $0.61, with weighted-average shares increasing to 125.9 million from 92.2 million.
- Cash flow: Operating activities used $76.6 million, compared with $66.4 million. Investing activities provided $2.7 million and financing activities provided $5.7 million. Cash, cash equivalents and restricted cash declined $68.2 million during the quarter.
- Liquidity: At March 31, cash and cash equivalents were $94.8 million and short-term investments were $11.7 million, totaling $106.5 million excluding $8.2 million of restricted cash. Current assets were $116.1 million and current liabilities were $63.8 million.
- Debt and equity: The balance sheet reported $51.2 million of long-term Hercules debt. Total liabilities were $318.1 million, exceeding total assets of $270.2 million; stockholders’ deficit was $47.9 million. Seres raised $4.2 million net through its at-the-market equity program during the quarter.
- Margins: Product gross margin was not reported; Seres had no product-sales revenue during the period.
Material changes and developments
- Loss increased by $14.6 million year over year, while operating cash use increased by $10.1 million. Higher platform research, personnel, facilities and pre-launch costs contributed to increased expenses; VOWST clinical-trial spending declined.
- On April 26, 2023, the FDA approved VOWST. Under the 2021 Nestlé agreement, this triggered a $125.0 million milestone payment, described in the filing as currently due and payable. Seres is also entitled to payments for product supply and an equal share of commercial profits and losses after first commercial sale.
- On April 27, 2023, Seres entered into an Oaktree facility with up to $250.0 million of potential term loans. The $110.0 million initial tranche repaid Hercules debt of approximately $53.4 million; net proceeds after fees and expenses were approximately $50.4 million. Additional tranches are conditional on VOWST sales targets or, for one tranche, Oaktree’s discretion.
Outlook, commentary and risks
- Management expects operating losses and negative cash flows to continue. It stated that March 31 cash, cash equivalents and investments, together with Oaktree proceeds and the $125.0 million Nestlé milestone, are expected to fund operations, capital expenditures and debt service for at least 12 months from issuance of the financial statements. Longer-term viability depends on raising additional capital.
- Management’s near-term priorities include commercializing VOWST and advancing SER-155. Cohort 2 enrollment in the placebo-controlled SER-155 Phase 1b study was ongoing; 100-day topline results were anticipated in mid-2024. SER-287’s Phase 2b study did not meet its primary endpoint, and Seres had discontinued the planned second cohort of the SER-301 Phase 1b study.
- Major risks include uncertain VOWST uptake, reimbursement and profitability; dependence on Nestlé and third-party manufacturers; continued need for financing; clinical and regulatory uncertainty for pipeline candidates; and competition. The Oaktree facility carries substantial interest and fees, security over substantially all assets including intellectual property, cash-covenant requirements and warrant-related dilution potential.
- No legal proceedings or legal-contingency accruals were reported. Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2023.
Most important facts for investors to verify
- Whether and when Seres receives the $125.0 million FDA-approval milestone, and the resulting cash runway after receipt and debt service.
- VOWST launch timing, prescriptions, access and reimbursement, supply capacity, and the economics of the 50/50 commercial profit-and-loss sharing arrangement.
- Actual operating cash burn and the timing and conditions for access to Oaktree’s additional tranches; review interest, collateral, covenants, exit fees and warrants.
- Progress and final data from SER-155 cohort 2, expected in mid-2024, and the company’s subsequent pipeline priorities and spending.
- Changes in share count and potential dilution from equity issuance, employee awards and Oaktree warrants.