DEFM14A: Seres Therapeutics to Sell VOWST Business to Nestl Health Science for Up to $300 Million Plus Royalties

Seres Therapeutics is selling its VOWST microbiome therapeutic business to Socit des Produits Nestl S.A. for an upfront payment and potential milestone payments, plus a profit share period.

Summary

• Seres Therapeutics has agreed to sell its VOWST business to Socit des Produits Nestl S.A. (SPN) for a combination of upfront cash, milestone payments, and a profit-sharing arrangement.
• The deal includes a $100 million cash payment at closing, less certain deductions, plus a $60 million prepaid milestone payment tied to VOWST sales.
• Seres will also receive $75 million in installment payments in 2025, contingent on compliance with a Transition Services Agreement.
• Future milestone payments could reach $275 million, based on achieving specific worldwide annual net sales targets for VOWST.
• Seres and Nestl Health Science will share profits and losses from VOWST sales in the US and Canada until December 31, 2025.
• As part of the deal, SPN will purchase $15 million in Seres common stock at $1.05 per share.
• Seres plans to use the proceeds to advance its SER-155 program and other pipeline candidates.
• The transaction is expected to extend Seres' cash runway into the fourth quarter of 2025.

Sentiment

Score: 7

Explanation: The sentiment is cautiously positive. While Seres is selling its only revenue-generating asset, the deal provides much-needed capital and potential future upside through milestone payments. The market's reaction will depend on how Seres executes its strategy with the remaining pipeline.

Positives

• The sale provides Seres with significant upfront capital to repay debt and advance its remaining pipeline.
• Milestone payments offer potential for additional revenue based on VOWST's future success under Nestl Health Science.
• The profit-sharing arrangement allows Seres to benefit from VOWST sales in the near term.
• Nestl Health Science's expertise and resources could drive increased VOWST sales.
• The deal extends Seres' cash runway into the fourth quarter of 2025.
• SPN assumes the obligation to pay an approximately $28 million milestone payment to Bacthera AG.

Negatives

• Seres is losing its only revenue-generating product.
• Milestone payments are contingent and may not be fully realized.
• The profit-sharing arrangement is temporary, ending in December 2025.
• Seres will incur costs related to the Transition Services Agreement.
• The company will be a smaller, less diversified entity following the transaction.

Risks

• The transaction is subject to stockholder approval and other closing conditions.
• Failure to comply with the Transition Services Agreement could jeopardize installment payments.
• Milestone payments depend on VOWST achieving specific sales targets.
• The profit-sharing arrangement could result in financial losses for Seres.
• Seres will have broad discretion in using the proceeds from the transaction.
• The announcement and pendency of the transaction may adversely affect Seres' business and operations.
• Lawsuits may be filed against Seres challenging the transaction.

Future Outlook

Following Closing, Seres expects to focus on advancing SER-155 and Seres other wholly-owned cultivated live biotherapeutic candidates for medically vulnerable patient populations with potential to address large commercial opportunities.

Management Comments

• The Seres Board determined that the Purchase Agreement and the transactions contemplated thereby were advisable and in the best interests of Seres and its stockholders.

Industry Context

This announcement reflects a trend in the pharmaceutical industry where larger companies acquire promising assets from smaller biotechs to leverage their commercial infrastructure and expertise.

Comparison to Industry Standards

• Comparable microbiome companies such as 4D pharma and Finch Therapeutics are also exploring strategic partnerships and collaborations to advance their pipelines.
• The acquisition multiple for the VOWST business is in line with recent transactions in the microbiome therapeutics space, although specific deal terms vary based on the stage of development and commercial potential of the asset.
• The milestone payments are structured to incentivize Nestl Health Science to maximize VOWST sales, aligning their interests with Seres' stockholders.

Legal Proceedings

• Vedanta Biosciences, Inc. and The University of Tokyo filed a complaint against Seres and Nestl alleging that the making, sale and use of VOWST infringes on U.S. Patent Nos. 9,433,652, 9,662,381, 9,808,519, 10,555,978, and 11,090,343.
• The complaint seeks unspecified damages, fees, expenses and injunctive relief.
• Seres believes the complaint is without merit and intends to defend itself vigorously against the claims.

Related Party Transactions

• The transaction involves Socit des Produits Nestl S.A., a related party due to the existing collaboration and license agreements.
• The settlement of intercompany accounts between Seres and SPN is part of the transaction.
• SPN will purchase $15 million of Seres common stock as part of the deal.

Stakeholder Impact

• Shareholders will vote on the proposed sale, impacting the future direction of the company.
• Employees related to the VOWST business may be offered employment with Nestl Health Science.
• Patients may see changes in the availability and marketing of VOWST under new ownership.
• Suppliers and partners may need to adjust to new relationships with Nestl Health Science.

Next Steps

• Seres stockholders will vote on the proposed sale at a special meeting on September 26, 2024.
• If approved, the transaction is expected to close within 90 days of signing the Purchase Agreement.
• Seres will focus on advancing SER-155 and other pipeline candidates.
• SPN will take over commercialization and manufacturing of VOWST.

Key Dates

Keywords

VOWST, microbiome, Nestl Health Science, Asset Purchase Agreement, milestone payments, profit sharing, SER-155, MCRB, Seres Therapeutics, acquisition