DEFA14A: Seres Therapeutics to Sell VOWST Assets to Nestle for Up to $300 Million Plus Equity Investment

Seres Therapeutics announces the sale of its VOWST assets and commercial rights to Nestle for a combination of upfront payments, equity investment, and potential milestone payments, aiming to strengthen its balance sheet and advance its pipeline.

Summary

• Seres Therapeutics has signed an agreement to sell its VOWST assets and commercial rights to Nestle.
• The deal includes an upfront payment of $100 million (reduced by $20 million for net payables), a $60 million prepaid milestone payment, and a $15 million equity investment by Nestle at $1.05 per share.
• Seres will receive approximately $155 million in cash at closing.
• Additional installment payments of $50 million in January 2025 and $25 million (less $1.5 million for employment-related payments) in July 2025 are contingent on compliance with the transition services agreement.
• Future milestone payments could reach $125 million for $400 million in annual worldwide net sales and $150 million for $750 million in annual worldwide net sales.
• Seres will share 50-50 in the profit or loss of the VOWST business through the end of 2025.
• The transaction includes a termination agreement with Bacthera, with Nestle handling the termination payment.
• Seres will use the capital to retire its debt facility with Oaktree Capital Management and advance its pipeline, particularly SER-155.
• The company anticipates a cash runway into the fourth quarter of 2025 after the transaction.
• Seres will reduce its employee base by more than a third following the closing of the transaction.
• Shareholder approval is required, and the transaction is expected to close within 90 days.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While the sale of VOWST assets represents a strategic shift and a potential loss of revenue, it provides Seres with much-needed capital to advance its pipeline and extend its cash runway. The equity investment by Nestle also signals confidence in the company's future.

Positives

• The sale of VOWST assets to Nestle provides Seres with a significant capital infusion.
• The transaction allows Seres to retire its debt facility with Oaktree Capital Management.
• The deal extends Seres' cash runway into the fourth quarter of 2025.
• Seres can now focus on advancing its pipeline, particularly SER-155, and other cultivated programs.
• Nestle's equity investment in Seres demonstrates confidence in the company's future.
• The transition services agreement ensures a seamless supply of VOWST to patients.
• The structure of the prepaid milestone payment ensures that Seres will have no future cash outlay with respect to this prepayment.

Negatives

• Seres will reduce its employee base by more than a third following the closing of the transaction.
• The upfront payment is reduced by approximately $20 million related to the settlement of net payables to Nestle.
• Future milestone payments are contingent on achieving specific net sales targets for VOWST.
• Seres will share 50-50 in the profit or loss of the VOWST business through the end of 2025.

Risks

• The transaction is subject to shareholder approval and other customary closing conditions.
• Failure to comply with the transition services agreement could jeopardize the installment payments.
• The achievement of future milestone payments is uncertain and depends on VOWST's net sales performance.
• The success of SER-155 and other pipeline programs is not guaranteed.
• The company's reduced employee base could impact its ability to execute its strategy.
• There is uncertainty regarding the accounting treatment and estimates for the support under the transition services and the cost of manufacturing.

Future Outlook

Seres will focus on advancing its pipeline, particularly SER-155, and exploring other opportunities in medically vulnerable patient populations. The company anticipates a cash runway into the fourth quarter of 2025 and expects to provide further updates on its Q2 earnings call.

Management Comments

• Eric Shaff: 'We are pleased to announce today the signing of an agreement to sell Seres VOWST assets and commercial rights to Nestle in exchange for substantial immediate and future financial consideration.'
• Eric Shaff: 'We feel this is the best option to balance the need to continue to ensure VOWST is available to patients and that Seres has resources to support SER-155 and our pipeline ahead of the upcoming readout in a challenging economic environment.'
• Marella Thorell: 'Based on our current cash, future operating plans and the capital from the transaction and accounting for the ongoing deal-related obligations, we anticipate a cash runway into the fourth quarter of 2025.'

Industry Context

The sale of VOWST assets to Nestle reflects a strategic shift for Seres, allowing it to focus on its core technology platform and pipeline development. This move comes amid a challenging economic environment for biotech companies, where securing funding and advancing clinical programs is increasingly difficult. The transaction also highlights the growing interest in microbiome-based therapies and Nestle's commitment to this emerging field.

Comparison to Industry Standards

• The sale of VOWST assets to Nestle is comparable to other strategic transactions in the biotech industry, where companies divest assets to focus on core competencies and strengthen their financial position.
• For example, similar to how companies like Ironwood Pharmaceuticals divested their gastrointestinal drug assets to focus on other therapeutic areas, Seres is streamlining its operations to prioritize its pipeline.
• The milestone payments structure is also common in licensing and asset sale agreements, providing incentives for the acquiring company to maximize the value of the acquired assets.
• Nestle's acquisition of VOWST aligns with its strategy of expanding its presence in the health and nutrition space, similar to its previous acquisitions of companies like Atrium Innovations and Persona.

Stakeholder Impact

• Shareholders: The transaction requires shareholder approval and could impact the value of their shares.
• Employees: More than a third of Seres' employee base will be reduced following the closing of the transaction.
• Patients: The transition services agreement aims to ensure a seamless supply of VOWST to patients.
• Creditors: The debt facility with Oaktree Capital Management will be retired.

Next Steps

• File preliminary and final proxy statements.
• Conduct a shareholder meeting to approve the transaction.
• Close the transaction with Nestle within the next 90 days.
• Retire the senior secured debt facility with Oaktree Capital Management.
• Transition VOWST manufacturing and support services to Nestle.
• Advance the development of SER-155 and other pipeline programs.
• Share Q2 results and provide a business update on August 13.

Key Dates

Keywords

Seres Therapeutics, Nestle, VOWST, Asset Sale, Microbiome Therapy, SER-155, Clinical Trials, Debt Retirement, Cash Runway, Shareholder Approval