DEFA14A: Seres Therapeutics Announces Q2 2024 Results and VOWST Asset Sale to Nestl, Extending Cash Runway into Q4 2025

Seres Therapeutics reports its second quarter 2024 financial results, highlights the sale of its VOWST business to Nestl, and anticipates extending its operational runway into the fourth quarter of 2025.

Summary

• Seres Therapeutics announced its second quarter 2024 financial results, reporting a net loss of $32.9 million compared to a net income of $46.6 million for the same period in 2023.
• The company signed an agreement to sell its VOWST business to Nestl for an upfront payment of $100 million (less approximately $20 million in net obligations), a $15 million equity investment, a $60 million prepaid sales-based milestone, $75 million in deferred payments due in 2025 (less ~$1.5M in employment-related payments), and up to $275 million in potential future sales-based milestone payments.
• The VOWST asset sale is expected to close within 90 days of the August 6, 2024, signing, pending stockholder approval and customary conditions.
• Seres expects the transaction proceeds to fully retire its debt and support the advancement of its wholly-owned cultivated live biotherapeutic pipeline.
• The company anticipates that the VOWST asset sale will extend its operational runway into the fourth quarter of 2025.
• Second quarter 2024 net sales for VOWST were approximately $14.4 million, a 43% increase compared to the first quarter net sales of $10.1 million.
• Seres' share of the VOWST net loss for the second quarter of 2024 was $6.6 million.
• Research and development expenses for the second quarter of 2024 were $17.9 million, compared to $46.8 million for the same period in 2023.
• General and administrative expenses for the second quarter of 2024 were $16.1 million, compared to $28.1 million for the same period in 2023.
• As of June 30, 2024, Seres had $71.2 million in cash and cash equivalents.
• The company expects a clinical data readout from the SER-155 Phase 1b study Cohort 2 in September 2024.
• Seres anticipates IND readiness for SER-147 in the second half of 2025.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The sale of VOWST to Nestl provides financial stability and allows Seres to focus on its pipeline. However, the company is still operating at a loss and faces risks associated with clinical development and regulatory approval.

Positives

• The sale of the VOWST business to Nestl provides a significant cash infusion and strengthens Seres' balance sheet.
• The transaction is expected to extend the company's operational runway into Q4 2025.
• Seres plans to use the proceeds to retire debt and advance its wholly-owned cultivated live biotherapeutic pipeline.
• VOWST commercial performance shows steady growth, with a 43% increase in net sales from Q1 to Q2 2024.
• The SER-155 program remains on track for a clinical data readout in September 2024.
• Seres is expanding its focus to additional medically vulnerable patient populations, including those with chronic liver disease, cancer neutropenia, and solid organ transplants.
• The company's cultivated biotherapeutics are manufactured from single strain bacteria isolates through efficient, scalable processes.
• SER-155 has received FDA Fast Track Designation.

Negatives

• Seres reported a net loss of $32.9 million for the second quarter of 2024.
• Seres shares equally with Nestl Health Science in the VOWST commercial profits or losses, and Seres' share of the VOWST net loss for the second quarter of 2024 was $6.6 million.
• The company is reliant on receiving future installment and milestone payments from Nestl to fully realize the potential benefits of the VOWST asset sale.
• The completion of the VOWST asset sale is subject to stockholder approval and other customary conditions.
• The company expects to incur significant costs, fees, and expenses related to the proposed transaction.

Risks

• The company has incurred significant losses, is not currently profitable, and may never become profitable.
• Seres needs additional funding to continue its operations.
• The company relies on third parties to conduct its clinical trials and manufacture its product candidates.
• Seres faces competition in the market.
• The company's ability to protect its intellectual property is crucial.
• The occurrence of any event that could terminate the Purchase Agreement with Nestl.
• Failure to obtain stockholder approval for the proposed transaction.
• The effect of the announcement of the proposed transaction on the company's ability to retain and hire key personnel.
• The risk that the proposed transaction will not be completed within the expected time period or at all.
• The company may not be able to realize the anticipated benefits of the proposed transaction.
• Uncertainty of impact of the 50/50 profit and loss sharing arrangement on our reported results and liquidity.

Future Outlook

Seres expects to fund operations into the fourth quarter of 2025 based on existing cash, deal economics, and operating plans. The company plans to advance its wholly-owned cultivated live biotherapeutic pipeline, including SER-155 and SER-147, and explore additional indications in medically vulnerable patient populations.

Management Comments

• Eric Shaff, President and Chief Executive Officer of Seres, stated that the VOWST asset sale will significantly strengthen Seres' balance sheet and advance the company's goal to improve patient outcomes through wholly-owned cultivated live biotherapeutics.
• Mr. Shaff continued, 'Our lead SER-155 program remains on track for a clinical data readout from the placebo-controlled study Cohort 2 in patients receiving allogeneic hematopoietic stem cell transplant (allo-HSCT) in September.'

Industry Context

Seres Therapeutics is operating in the emerging field of microbiome therapeutics, aiming to address unmet needs in medically vulnerable populations. The sale of VOWST to Nestl reflects the growing interest and investment in this area by larger pharmaceutical and consumer health companies. The company's focus on preventing infections and treating immune-related diseases aligns with broader trends in healthcare towards preventative medicine and personalized therapies.

Comparison to Industry Standards

• The 88% sustained clinical response rate of VOWST in preventing C. difficile infection recurrence compares favorably to other treatments for recurrent CDI, such as fecal microbiota transplantation (FMT) and antibiotics.
• Prevymis, a viral infection prophylaxis used in allo-HSCT and solid organ transplant populations, generated $605 million in 2023 WW sales, indicating the commercial potential for prophylactic treatments in medically vulnerable patients.
• The overall cost of allo-HSCT is high, at approximately $400,000 in the US for the first year, and transplant-related complications can increase the cost by ~$180,000, highlighting the economic rationale for preventing infections and other complications.
• Companies like Vedanta Biosciences and Finch Therapeutics are also developing microbiome-based therapies, indicating a competitive landscape in this emerging field.

Related Party Transactions

• Seres shares equally with Nestl Health Science in the VOWST commercial profits or losses.
• Seres' share of the VOWST net loss for the second quarter of 2024 was $6.6 million, which was included in the Company's operating results within Collaboration (profit) loss sharing-related party.
• Collaboration revenue related party was $0 for the three and six months ended June 30, 2024, compared to $126.473 million and $125.951 million for the same periods in 2023, respectively.

Stakeholder Impact

• Shareholders will benefit from the strengthened financial position of the company and the potential for future growth.
• Employees will be affected by the transfer of VOWST-related capabilities to Nestl Health Science, with more than a third of employees expected to transfer.
• Patients may benefit from the continued development of novel biotherapeutics for medically vulnerable populations.
• The sale of VOWST to Nestl ensures the continued commercialization and availability of this treatment for recurrent C. difficile infection.

Next Steps

• Seres expects the VOWST asset sale to close within 90 days of August 6, 2024, pending stockholder approval and customary conditions.
• The company anticipates a clinical data readout from the SER-155 Phase 1b study Cohort 2 in September 2024.
• Seres plans to evaluate SER-155 and other cultivated live biotherapeutic candidates in additional medically vulnerable patient populations.
• The company anticipates IND readiness for SER-147 in the second half of 2025.
• Seres intends to evaluate SER-155 and other cultivated live biotherapeutic candidates in additional medically vulnerable patient populations, including chronic liver disease, cancer neutropenia, and solid organ transplants.
• Future development plans will be informed by pending SER-155 Cohort 2 results, and the Company plans to share more information regarding its SER-155 development plans later in 2024.

Key Dates

Keywords

Seres Therapeutics, VOWST, Nestl, Microbiome, SER-155, SER-147, Clostridioides difficile, Live biotherapeutics, Asset sale, Clinical trials, Financial results