Seres Therapeutics, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 2, 2020. Seres is a clinical-stage biotechnology company developing microbiome-based therapeutics. It had no product sales; reported revenue came from collaborations and grants.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $34.5 million | $28.3 million |
| Research and development expense | $80.1 million | $96.0 million |
| General and administrative expense | $24.7 million | $32.6 million |
| Total operating expenses | $106.4 million | $128.6 million |
| Loss from operations | $71.9 million | $100.3 million |
| Net loss | $70.3 million | $98.9 million |
| Net loss per share, basic and diluted | $1.24 | $2.43 |
| Cash used in operating activities | $76.5 million | $62.9 million |
Revenue increased mainly because of the AstraZeneca research collaboration; $27.2 million was recognized under the related-party Nestec/Nestlé Health Science agreement and $6.2 million under the AstraZeneca agreement. Grant revenue was $1.1 million. The company reported no product revenue; product gross margin is not applicable.
At year-end, cash and cash equivalents were $65.1 million and investments were $29.7 million, totaling $94.8 million. Working capital was $54.2 million. Total assets were $132.4 million, total liabilities $180.8 million, and stockholders’ deficit $48.3 million. The balance sheet included $24.6 million of note payable, net of discount; the company had drawn $25 million of a facility of up to $50 million. The loan bears interest at the greater of prime plus 4.40% or 9.65%, is secured by substantially all assets other than intellectual property, and has repayment and covenant requirements. Contractual obligations included $24.3 million of operating lease payments and $33.5 million of debt payments, interest, and end-of-term charge.
Fourth-quarter 2019: Revenue was $7.6 million, operating expenses $26.8 million, operating loss $19.2 million, and net loss $18.8 million. Quarterly net loss per share was $0.27.
Material changes versus prior year
- Net loss narrowed by $28.7 million, as operating expenses fell $22.2 million and revenue rose $6.2 million. R&D spending declined $15.8 million, while SER-287 spending increased $5.8 million as its Phase 2b trial advanced.
- Operating cash use increased $13.7 million despite the lower net loss, reflecting working-capital movements, including a $17.5 million decrease in deferred revenue.
- In June 2019, Seres raised approximately $60.5 million net from a public stock offering. It also borrowed $25 million from Hercules and established a $25 million at-the-market equity program, of which approximately $0.5 million net had been raised by year-end.
- The company reduced its workforce by approximately 30% in February 2019 and reported 108 full-time employees at year-end. Restructuring charges were $1.5 million.
Pipeline, outlook, and risks
- SER-287 (ulcerative colitis): Phase 2b ECO-RESET was ongoing, with approximately 200 patients and clinical remission at 10 weeks as its primary endpoint. Top-line results were expected in the second half of 2020. A prior 58-patient Phase 1b study showed safety and microbiome engraftment; the vancomycin-pretreated, daily-dose arm reported remission in 6 of 15 patients versus 0 of 11 on placebo. These early findings do not establish Phase 2b success.
- SER-109 (recurrent C. difficile infection): Phase 3 ECOSPOR III was enrolling 188 patients, with top-line data expected in mid-2020. The protocol used toxin testing and a higher, three-day dose regimen following a prior Phase 2 study that did not meet its primary endpoint: recurrence was 44% with SER-109 versus 53% with placebo, a non-significant difference. The FDA could require additional efficacy or safety evidence.
- SER-401: A Phase 1b study with MD Anderson and the Parker Institute was evaluating SER-401 with checkpoint inhibitor treatment in metastatic melanoma; preliminary results were expected in the second half of 2020.
- SER-301: Composition was finalized and initial clinical development activities had begun. The company expected to start enrolling in Australia and New Zealand later in 2020, subject to local regulatory authorization; initiation would trigger a $10 million Nestec milestone.
- SER-155: Preclinical development was supported by CARB-X funding of up to $4.8 million, with a potential additional $7.0 million for Phase 1b development upon milestones.
- Management expected year-end cash, cash equivalents, and investments to fund operations, debt service, and capital needs into the second quarter of 2021. The auditor and management disclosed substantial doubt about the company’s ability to continue as a going concern. Additional financing, collaborations, or spending reductions may be needed; plans to mitigate the shortfall were not assured.
- Key risks include clinical-trial failure or delay, uncertain regulatory requirements for this emerging therapeutic class, manufacturing and donor-material constraints, reliance on collaborators and contract manufacturers, dilution or restrictive debt terms, and the lack of commercial products. Seres also noted that revenue depended substantially on collaboration accounting and that Nestec is a related party and significant stockholder.
Important facts for investors to verify
- Whether SER-109 and SER-287 trial results met their prespecified endpoints and what additional FDA evidence is required.
- Actual cash burn and financing runway versus the stated second-quarter 2021 estimate, including debt covenants and availability of the remaining Hercules tranches.
- Whether collaboration milestones, reimbursements, and the potential SER-301 payment are earned and when cash is received; reported revenue is not product sales.
- Whether the 2019 cost reductions and narrowed program focus can be sustained without impairing development or manufacturing capability.
- The potential dilution from equity offerings and outstanding equity awards; common shares outstanding at February 25, 2020 were 71.1 million.