Seres Therapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Seres is a clinical-stage microbiome therapeutics company and has not generated revenue from product sales. Financial amounts below are in U.S. dollars; statement figures are converted from thousands to millions unless noted.
Financial results and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $7.3m | $4.0m |
| Operating expenses | $31.9m | $32.2m |
| Operating loss | $24.6m | $28.3m |
| Net loss | $24.3m; $0.59 per share | $27.9m; $0.69 per share |
| Research and development | $22.9m | $23.5m |
| General and administrative | $7.5m | $8.8m |
| Operating cash used | $32.4m | $26.8m |
Revenue comprised $6.6m of related-party collaboration revenue from Nestec/Nestlé Health Science, $0.4m of grant revenue and $0.3m from the AstraZeneca research agreement. No product-sales revenue or gross margin was reported. The improved net loss reflected higher revenue and lower total operating expenses, partly offset by $1.5m of restructuring expense.
At March 31, cash and cash equivalents were $53.6m, down from $85.8m at year-end; total assets were $107.0m and total liabilities $176.9m. Stockholders’ deficit was $69.8m, and accumulated deficit was $413.7m. Current assets were $67.8m and current liabilities $41.6m. The presented balance sheet has no debt line; the filing text does not provide a clear current debt balance. Q1 cash used in investing was $0.3m and cash provided by financing was $0.5m.
Material changes and business developments
- In February, Seres reprioritized its pipeline toward SER-287, SER-109, SER-401 and SER-301, changed its management team and reduced headcount by approximately 30%. It recorded $1.5m in severance and termination charges; approximately $0.9m remained payable during 2019.
- R&D spending shifted across programs: SER-287 expense rose to $4.3m from $1.4m, while SER-109 fell to $2.6m from $6.1m. Platform spending increased to $15.9m from $15.1m.
- In March, Seres entered a research collaboration and option agreement with AstraZeneca. The agreement includes $20m in fixed payments in three installments, research-cost reimbursement and options for AstraZeneca to negotiate certain licenses. The first installment was received in April 2019. The agreement includes an oncology-research exclusivity restriction.
- Seres adopted lease accounting on January 1, 2019, recognizing operating lease assets and liabilities. At March 31, operating lease liabilities totaled $23.5m; this accounting change did not affect reported operating results.
Outlook, risks and contingencies
- Liquidity and going concern: Management expected available cash to fund operations and capital spending only into Q4 2019. The filing concludes that substantial doubt exists about Seres’ ability to continue as a going concern within one year of issuance. The company may need equity or debt financing, additional collaborations and/or spending reductions; funding is not assured. Failure to raise capital could force delays, reductions or cancellation of trials.
- SER-109: In April, after quarter-end, the Phase 3 ECOSPOR III target enrollment was reduced from 320 to 188. Seres expected enrollment completion by year-end 2019 and top-line data in early 2020. The filing warns that the smaller trial could be insufficient for registration, require another Phase 3 study or additional safety exposure, and increase costs or delay approval.
- SER-287: The Phase 2b study in mild-to-moderate ulcerative colitis was underway, with approximately 201 planned participants. The company expected enrollment completion in mid-2020 and top-line results in Q3 2020. A positive study could be one of two pivotal trials supporting a BLA; approval and trial outcomes are uncertain.
- Other programs: SER-401 Phase 1b began dosing in March; preliminary results were expected in 2020. Seres planned to submit an IND and begin clinical development of SER-301 in early 2020.
- Seres expects continuing losses and no near-term product revenue. Key risks include clinical and regulatory uncertainty, trial enrollment and safety, unproven microbiome therapeutics, manufacturing and biological-material supply, dependence on collaborators, and intellectual-property challenges. No legal-contingency liabilities were accrued. In a European patent opposition, the University of Tokyo was required to narrow its patent claims; Seres expected an appeal.
- Management reported disclosure controls and procedures were effective as of March 31, 2019, and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether Seres secures financing or other funding in time to address the disclosed going-concern uncertainty and short cash runway.
- ECOSPOR III enrollment, final design and results, and whether regulators require another study or additional safety data.
- SER-287 Phase 2b enrollment and results, and whether the study supports the anticipated pivotal-trial path.
- Progress, cash receipts and reimbursement under the AstraZeneca agreement, including the license-option and exclusivity terms.
- Actual cash burn, restructuring savings, and the timing and amount of future collaboration or milestone receipts.