Seres Therapeutics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Seres is a clinical-stage microbiome therapeutics company with no product sales to date. Its lead candidate, SER-109, is in Phase 3 development for recurrent C. difficile infection (CDI); other programs target ulcerative colitis, CDI, immuno-oncology and transplant-related indications.
Financial results and liquidity
Amounts below are in millions, except per-share data.
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $3.97 | $3.02; up $0.96 (31.7%) |
| Research and development | $23.46 | $20.14; up $3.32 |
| General and administrative | $8.78 | $8.76; approximately flat |
| Operating expenses | $32.24 | $28.91; up $3.33 |
| Operating loss | $(28.27) | $(25.89) |
| Net loss / loss per share | $(27.92) / $(0.69) | $(25.47) / $(0.63) |
| Cash used in operations | $26.76 | $25.65 |
Q1 revenue comprised $3.77 million of related-party collaboration revenue and $0.21 million of grant revenue. There were no product-sale revenues. The increase in R&D was mainly driven by SER-109 clinical and manufacturing costs, which rose $3.4 million; G&A was essentially unchanged. The company reported no gross margin, as it had no product sales.
At March 31, cash and cash equivalents were $47.19 million and investments were $75.00 million, totaling $122.19 million; cash, cash equivalents and restricted cash totaled $48.71 million. Current assets were $126.45 million and current liabilities $35.15 million, implying working capital of approximately $91.30 million. Total assets were $159.43 million, total liabilities $149.40 million, and stockholders’ equity $10.03 million. The balance sheet reports no debt line item; the filing reports no off-balance-sheet arrangements. Management said available cash, cash equivalents and investments were expected to fund operating and capital requirements for at least 12 months from issuance; the risk-factor discussion specifies through Q1 2019. This estimate excludes future business-development cash flows and depends on assumptions.
Material changes and notable items
- Net loss increased $2.45 million year over year as operating expenses grew faster than revenue.
- Investing activities provided $38.03 million, primarily from investment maturities and sales; this portfolio activity, rather than operating cash generation, contributed to the $11.11 million increase in cash, cash equivalents and restricted cash.
- Seres adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption increased the opening accumulated deficit by $26.86 million and changed collaboration-revenue timing. For Q1, reported revenue was $0.71 million higher and net loss $0.71 million lower than under prior guidance; reported liabilities at March 31 were $26.15 million higher than under prior guidance. The 2017 comparative figures were not recast.
- At March 31, the company had approximately $151 million of transaction price allocated to remaining performance obligations under its Nestec/NHS collaboration. Recognition depends on satisfying the associated obligations; contingent milestones and royalties are not assured.
Outlook, development and risks
- Management expects continuing operating losses and negative cash flows and anticipates rising R&D spending as it advances SER-109 Phase 3 and other clinical and preclinical programs. Additional capital will be needed beyond the stated runway; financing may not be available on acceptable terms.
- SER-109 Phase 3 (ECOSPOR III) was initiated in June 2017 in approximately 320 patients with multiply recurrent CDI. The trial uses a higher total dose than the prior Phase 2 study and confirms CDI using a cytotoxin assay rather than PCR. The Phase 2 study did not meet its primary endpoint, making Phase 3 results a key risk.
- Management reported positive topline results from SER-287’s Phase 1b study in ulcerative colitis in October 2017. SER-262 interim data showed no relevant difference in recurrence risk versus placebo in the analyzed cohorts; the small Phase 1b study was not powered to detect a statistically significant difference. No drug-related serious adverse events were reported in those cohorts.
- Principal risks include clinical-trial failure or delay, regulatory uncertainty for the novel microbiome approach, patient enrollment, manufacturing and third-party supply, intellectual-property challenges, competition, and dependence on additional financing and the NHS collaboration. Seres also disclosed that its SER-109 manufacturer had not produced an FDA-approved therapy and that it lacked a second source for certain finished-product materials.
- The court dismissed the putative securities class action on March 30, 2018. A European patent opposition filed by Seres remains unresolved.
Key facts investors should verify
- Progress, enrollment, design and eventual results of the SER-109 Phase 3 trial, including regulatory expectations for approval.
- Cash burn, investment liquidity and whether the stated runway remains valid as development spending changes; assess the need, timing and potential dilution of future financing.
- Whether collaboration revenue recognition under ASC 606, including estimates of progress and remaining obligations, changes materially in later periods.
- Further clinical evidence for SER-287 and SER-262, and whether early safety, engraftment and efficacy observations translate into adequately powered trials.
- Manufacturing capacity, supply redundancy, NHS cost-sharing and collaboration performance, and the outcome of the European patent opposition.