Seres Therapeutics, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2015, compared with the same periods in 2014; balance-sheet figures compare June 30, 2015 with December 31, 2014. Seres is a development-stage microbiome therapeutics company with no product revenue. Its lead candidate, SER-109, is in Phase 2 development for recurrent Clostridium difficile infection (CDI); other candidates remain in earlier development.
Key financial metrics
Amounts below are in millions of dollars unless stated otherwise. No gross margin is presented because the company had no revenue.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $8.784 | $2.160 | $14.345 | $3.192 |
| General and administrative | $3.556 | $0.458 | $6.162 | $1.098 |
| Total operating expenses | $12.340 | $2.618 | $20.507 | $4.290 |
| Net loss | $12.555 | $2.677 | $20.526 | $4.366 |
| Net loss per share, basic and diluted | $1.45 | $0.45 | $2.64 | $0.73 |
| Operating cash used | Not reported by quarter | $17.996 | $3.499 |
- Liquidity at June 30: cash and cash equivalents of $36.338 million and investments of $55.438 million, totaling $91.776 million; total assets were $101.281 million.
- Debt: notes payable had a $1.927 million net carrying value ($1.2 million current and $0.727 million long-term); $2.0 million principal remained outstanding. The loan bears variable interest (6.25% at June 30), is secured by substantially all assets except intellectual property, and matures February 2017.
- Equity and deficit: accumulated deficit was $48.358 million; stockholders’ equity was $94.913 million. Preferred stock converted into common stock upon Nasdaq listing on June 26.
Material changes versus prior comparable periods
- Q2 operating expenses increased $9.722 million year over year; six-month expenses rose $16.217 million. Management attributed the increases principally to greater research and clinical-development activity, hiring and stock-based compensation, professional fees, and facility costs.
- R&D increased to $8.784 million in Q2, including $3.559 million for SER-109 and $4.867 million for platform research. Six-month SER-109 spending was $6.744 million.
- Six-month operating cash use increased to $17.996 million from $3.499 million. Investing cash use was $57.174 million, mainly reflecting purchases of short-term investments and property and equipment.
- Cash and cash equivalents fell from $114.185 million at year-end to $36.338 million, while the company held $55.438 million of investments at June 30. The six-month net loss rose to $20.526 million from $4.366 million.
Outlook, commentary, risks and unusual items
- On July 1, 2015, after quarter-end, Seres completed its IPO of 8,545,138 shares at $18 per share, receiving approximately $139.3 million in net proceeds. These proceeds were not included in June 30 cash and investments. Management said existing liquidity plus IPO proceeds was expected to fund operations and capital expenditures through at least the first half of 2017, subject to assumptions that could prove incorrect.
- Management expects losses and R&D and administrative expenses to rise as it advances SER-109, plans clinical development of SER-262 and SER-287, develops other candidates including SER-155, invests in manufacturing, and bears public-company costs. The filing provides no revenue or profitability guidance.
- Key risks include the unproven microbiome therapeutic approach; uncertain clinical efficacy and safety, including a new SER-109 formulation in the Phase 2 study; possible need for multiple Phase 3 trials; regulatory uncertainty; patient enrollment; reliance on third-party manufacturers and suppliers; intellectual-property challenges; competition; and the possibility of needing additional financing.
- Q2 included a $0.220 million loss from revaluation of the preferred-stock warrant liability. Upon Nasdaq listing, the warrant converted to a common-stock warrant and the liability was reclassified to equity. Six-month stock-based compensation was $4.4 million.
- The company reported no material legal proceedings or off-balance-sheet arrangements. Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2015.
Important facts for investors to verify
- Whether the stated runway through at least the first half of 2017 remains supportable after actual post-IPO spending and clinical-development plans.
- Progress, safety and results of the SER-109 Phase 2 study, and the FDA’s requirements for later-stage trials and approval.
- Timing, costs and clinical readiness of SER-262, SER-287 and SER-155, and the company’s reliance on external manufacturing and biological-material supply.
- Future cash burn, stock-based compensation, debt repayment obligations and any need for additional financing or dilution.
- That IPO proceeds of approximately $139.3 million were received after the June 30 balance-sheet date and should not be treated as quarter-end cash.