Seres Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company is a development-stage microbiome therapeutics business with no product sales to date; revenue is primarily from collaborations and grants.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $5.3 million | $6.0 million | $11.0 million | $14.2 million |
| Research and development expense | $36.0 million | $20.1 million | $65.3 million | $41.8 million |
| General and administrative expense | $17.5 million | $6.5 million | $29.2 million | $12.6 million |
| Net loss | $48.3 million | $20.7 million | $83.8 million | $40.6 million |
| Net loss per share, basic and diluted | $0.53 | $0.28 | $0.91 | $0.56 |
At June 30, cash and cash equivalents were $74.0 million; short- and long-term investments were $155.4 million, for total cash, cash equivalents and investments of $229.4 million. Six-month operating cash use was $69.2 million, versus $49.8 million a year earlier; cash and cash equivalents declined $42.1 million. The accumulated deficit was $632.6 million. No product gross margin or operating margin is meaningful because the company had no product sales and reported operating losses.
Outstanding loan principal was $25.0 million (carrying value $25.3 million). The loan bears interest at the greater of prime plus 4.40% or 9.65%; interest-only payments run through December 1, 2021, with possible extension to June 1, 2022 subject to milestones, followed by scheduled amortization through November 2023. Debt is secured by substantially all assets other than intellectual property. Management expected June 30 resources to fund operations, debt service and capital expenditures for at least 12 months from the August 3 financial-statement issuance date.
Changes versus the prior comparable period
- Six-month revenue declined $3.3 million, primarily because the AstraZeneca research agreement ended, with additional decreases in Nestlé collaboration and grant revenue. Q2 revenue was down $0.8 million, mainly reflecting the end of CARB-X funding.
- Six-month R&D expense rose $23.4 million, chiefly from platform and SER-109 spending; SER-287 program expense decreased.
- Six-month G&A expense increased $16.6 million, including higher professional fees, personnel costs and stock-based compensation.
- Six-month net loss more than doubled year over year, and operating cash use increased by $19.4 million.
Outlook, developments and risks
- SER-109: The Phase 3 ECOSPOR III results reported in the filing showed recurrence through eight weeks of 12.4% with SER-109 versus 39.8% with placebo; the 24-week rates were 21.3% and 47.3%, respectively. The company was enrolling an open-label study to reach the FDA-recommended safety database of at least 300 patients followed for 24 weeks, and expected target enrollment in Q3 2021. The stated priority was preparing a BLA, subject to completing the safety database and regulatory review.
- SER-287: Subsequent to quarter-end, on July 22, the company reported that its Phase 2b study did not meet the primary endpoint: clinical remission was 10.3% and 10.6% in the two active-dose groups versus 11.6% on placebo. Treatment was generally well tolerated. The company closed the study’s open-label and maintenance portions and planned to review additional biomarker data expected in the second half of 2021 before deciding next steps.
- Nestlé agreement: On July 1, the company entered a U.S. and Canada license agreement covering SER-109 and related products. Nestlé paid a nonrefundable $175 million upfront on July 21, 2021, after the reporting date; the filing reports it as a subsequent event, not June 30 cash. Potential additional payments include $125 million upon FDA approval, $10 million upon Canadian approval and up to $225 million in sales milestones. Seres remains responsible for specified development, regulatory and supply costs; after first commercial sale it is entitled to approximately 50% of commercial profits.
- The company expects expenses to increase as it advances SER-109, SER-301 and SER-155, develops manufacturing and research capabilities, and meets collaboration obligations. It expects continuing operating losses and will require additional capital over time; financing may be unavailable or dilutive.
- Key risks include clinical and regulatory uncertainty, unproven microbiome therapeutics, trial enrollment and COVID-19 disruptions, reliance on third-party manufacturing and clinical contractors, dependence on Nestlé, competition, intellectual-property challenges and the Hercules loan covenants.
- No legal-contingency liability was accrued. A European patent opposition involving the University of Tokyo remained under appeal. The IRS was examining the company’s 2018 R&D tax credits. Management reported disclosure controls effective at June 30, 2021.
Important facts for investors to verify
- Whether SER-109 completes the required safety database on schedule and whether the FDA accepts the eventual BLA and supporting evidence.
- How the July 2021 $175 million Nestlé payment affects subsequent-period liquidity and whether development, approval or sales milestones become payable.
- The implications of SER-287’s failed primary endpoint and forthcoming biomarker data for the program and broader pipeline.
- Future cash burn, capital needs and runway, including the timing of debt amortization and any use of the $150 million at-the-market equity program, which had no sales as of June 30.
- Execution and costs for SER-301 and SER-155, and any material effects from COVID-19, manufacturing constraints or collaboration terms.