Seres Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial amounts below are in millions of dollars unless stated otherwise. The filing is unaudited.
Business context
Seres is a commercial-stage microbiome therapeutics company. Its first approved product, VOWST, was approved by the FDA in April 2023 to prevent recurrent Clostridioides difficile infection (CDI) after antibacterial treatment and launched in the United States with Nestlé in June 2023. Nestlé leads commercialization; Seres supplies the product and shares commercial profits and losses equally. SER-155 is in a Phase 1b study; the company reported encouraging open-label cohort 1 findings, while placebo-controlled cohort 2 enrollment was ongoing. Topline 100-day cohort 2 results were anticipated in Q3 2024.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue, all collaboration revenue | $0.3 | $3.4 | $126.3 | $6.2 |
| Research and development | $28.3 | $43.1 | $119.0 | $126.7 |
| General and administrative | $20.0 | $18.4 | $70.5 | $57.3 |
| Loss from operations | $(47.4) | $(59.1) | $(68.5) | $(178.2) |
| Net loss | $(47.9) | $(60.0) | $(72.5) | $(181.4) |
| Net loss per share | $(0.37) | $(0.49) | $(0.57) | $(1.77) |
| Cash used in operating activities | — | — | $(69.9) | $(175.9) |
Nine-month 2023 revenue included a $125.0 million Nestlé milestone received after VOWST’s FDA approval. Q3 revenue primarily reflected the older Nestlé collaboration, not VOWST product sales. Seres recorded its share of VOWST’s Q3 net loss ($6.5 million), offset in part by $7.3 million profit on inventory transferred to Nestlé; total collaboration profit/loss sharing was $0.5 million of income. Conventional product gross margin is not separately reported.
At September 30, 2023, Seres had $169.9 million of cash and cash equivalents, $18.5 million of inventory, and $16.9 million due from Nestlé. Current assets were $214.4 million and current liabilities $79.2 million. Total assets were $367.7 million, total liabilities $382.8 million, and stockholders’ deficit $15.1 million. Cash, cash equivalents and restricted cash totaled $178.1 million, up from $171.2 million at December 31, 2022. Nine-month financing cash flow was $65.3 million, principally reflecting Oaktree borrowing net of repayment of the Hercules facility.
Oaktree debt had a $101.1 million carrying value at quarter-end ($110.0 million funded principal). It bears interest at three-month SOFR, subject to a 2.5% floor and 5.0% cap, plus a 7.875% margin; the effective interest rate was 15.9%. The loan matures in 2029, is secured by substantially all assets including intellectual property, and includes a controlled-cash covenant. Seres reported compliance with financial covenants. Future $45 million Tranche B and $45 million Tranche C draws depend on VOWST sales and growth tests; a further $50 million tranche is at Oaktree’s discretion.
Changes versus comparable periods
- Q3 net loss narrowed by $12.1 million year over year, mainly as R&D expense declined by $14.9 million; G&A expense increased by $1.6 million.
- Nine-month net loss narrowed by $108.9 million, largely because 2023 included the $125.0 million VOWST approval milestone. Operating expenses rose by $10.4 million overall, including higher G&A and collaboration loss-sharing expense.
- Nine-month operating cash use fell by $106.1 million year over year. The 2023 period included commercialization-related working-capital investment, including inventory and a collaboration receivable.
- Cash and cash equivalents increased from $163.0 million at year-end 2022 to $169.9 million. The company moved from a Hercules facility to Oaktree financing and issued shares through its at-the-market program.
Outlook, management commentary and risks
- Going concern and funding: The filing states that substantial doubt existed about Seres’ ability to continue as a going concern, citing continuing losses, $69.9 million of nine-month operating cash use, and expected funding needs. Management said cash at September 30, the restructuring, VOWST profit/loss sharing, and expected availability of Tranche B were expected to fund operations, capital needs and debt service for at least 12 months from issuance. Funding beyond that period depends on raising additional capital.
- Restructuring after quarter-end: On October 29, 2023, the board approved a roughly 41% workforce reduction (about 160 positions), a substantial reduction in non-partnered R&D other than completing SER-155 Phase 1b, and G&A reductions including office consolidation. Seres estimated $5.0–$5.5 million of primarily cash restructuring costs, mainly in Q4 2023, and projected $75–$85 million of annual cash savings in 2024. These are estimates and may not be achieved.
- VOWST launch: Nestlé reported 506 units sold and $7.6 million of Q3 net sales, after an estimated 14% gross-to-net reduction. Since launch, 934 prescription enrollments had resulted in new patient starts; approximately 52% of starts were reimbursed through the drug benefit. Seres emphasized that launch success, payer coverage, demand and collaboration profitability remain uncertain.
- Pipeline and manufacturing: SER-155 cohort 1 findings were early and included a small group; cohort 2 results remain pending. Seres relies on third parties for manufacturing and donor materials. Its Bacthera agreement carries a stated minimum commitment of CHF 256 million (about $277 million) over the initial term, with construction and manufacturing execution risks.
- Other risks and contingencies: The company cited commercialization, reimbursement, competition, clinical and regulatory uncertainty, financing needs, debt covenants, manufacturing dependence, and intellectual-property risks. It reported no legal proceedings and no accrued legal-contingency liabilities at September 30, 2023. No income tax benefit was recorded; deferred tax assets remained fully valuation-allowanced.
Most important facts for investors to verify
- VOWST prescription-to-start conversion, net sales, payer coverage, gross-to-net deductions, inventory transfers and Seres’ reported share of collaboration profit or loss.
- Whether the restructuring delivers projected savings, and its effects on remaining personnel, SER-155 execution and the ability to sustain VOWST commercialization.
- Cash runway and financing availability, including whether VOWST sales meet Oaktree’s Tranche B and C draw conditions and whether covenant requirements remain satisfied.
- Cash consumption, working-capital changes, debt interest burden and the significant Bacthera manufacturing commitment.
- Final, controlled-cohort SER-155 results and subsequent regulatory or clinical developments.