0000950170-23-019222.txt : 20230509 0000950170-23-019222.hdr.sgml : 20230509 20230509100048 ACCESSION NUMBER: 0000950170-23-019222 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 82 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230509 DATE AS OF CHANGE: 20230509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Seres Therapeutics, Inc. CENTRAL INDEX KEY: 0001609809 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 274326290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37465 FILM NUMBER: 23900503 BUSINESS ADDRESS: STREET 1: 200 SIDNEY STREET CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 617 945 9626 MAIL ADDRESS: STREET 1: 200 SIDNEY STREET CITY: CAMBRIDGE STATE: MA ZIP: 02139 FORMER COMPANY: FORMER CONFORMED NAME: Seres Health, Inc. DATE OF NAME CHANGE: 20140603 10-Q 1 mcrb-20230331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37465

 

 

Seres Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-4326290

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Sidney Street - 4th Floor

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

 

(617) 945-9626

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001

MCRB

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of May 5, 2023, the registrant had 127,901,391 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Seres Therapeutics, Inc.

INDEX

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

5

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

 

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022

 

6

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the three months ended March 31, 2023 and 2022

 

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4. Controls and Procedures

 

39

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

40

Item 1A. Risk Factors

 

40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

78

Item 3. Defaults Upon Senior Securities

 

78

Item 4. Mine Safety Disclosures

 

78

Item 5. Other Information

 

78

Item 6. Exhibits

 

79

 

 

SIGNATURES

 

80

 

 

2


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or the Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including without limitation statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, manufacturing activities and related timing, commercialization efforts and related timing, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this report titled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

TRADEMARKS, SERVICE MARKS AND TRADENAMES

We have proprietary rights to trademarks used in this Quarterly Report, which are important to our business and many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Quarterly Report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This Quarterly Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We are a commercial-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We will need additional funding in order to complete development of our product candidates and commercialize VOWST and our product candidates, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We depend heavily on the commercial success of VOWST, which was only recently approved for marketing by the FDA. There is no assurance that our commercialization efforts or those of our collaborators will be successful or that we will be able to generate collaboration profit at the levels or within the timing we expect.

3


 

Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
Other than VOWST, we are early in our development efforts of our product candidates and may not be successful in our efforts to use our microbiome therapeutics platform to build a pipeline of product candidates and develop additional marketable drugs.
Our product candidates are based on microbiome therapeutics, which is a novel approach to therapeutic intervention.
Clinical drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Delays or difficulties in the enrollment of patients in clinical trials, could result in our receipt of necessary regulatory approvals being delayed or prevented.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we or our collaborators will not be able to commercialize our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired. Additionally, failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
The collaboration and license agreements with Société des Produits Nestlé S.A., successor in interest to Nestec Ltd., and NHSc Rx License GmbH, successor in interest to NHSc Pharma Partners (collectively, and together with their affiliates and subsidiaries, Nestlé) are important to our business. If we or Nestlé fail to adequately perform under these agreements, or if we or Nestlé terminate the agreements, the development and commercialization of our CDI and IBD product candidates, including VOWST, SER-287 and SER-301, could be delayed or terminated and our business would be adversely affected.
We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We rely on third parties for certain aspects of the manufacture of our product and product candidates and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product and product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
Even though VOWST has received FDA approval and even if any of our product candidates receive marketing approval, VOWST and such product candidates may fail to achieve the degree of market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community necessary for commercial success.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents that are sufficient to protect our product or product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We may expand our operational capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

 

4


 

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share data)

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,841

 

 

$

163,030

 

Short term investments

 

 

11,703

 

 

 

18,311

 

Prepaid expenses and other current assets

 

 

9,537

 

 

 

13,423

 

Total current assets

 

 

116,081

 

 

 

194,764

 

Property and equipment, net

 

 

24,306

 

 

 

22,985

 

Operating lease assets

 

 

108,914

 

 

 

110,984

 

Restricted cash

 

 

8,185

 

 

 

8,185

 

Restricted investments

 

 

1,401

 

 

 

1,401

 

Other non-current assets

 

 

11,307

 

 

 

10,465

 

Total assets

 

$

270,194

 

 

$

348,784

 

Liabilities and Stockholders’ (Deficit) Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,297

 

 

$

17,440

 

Accrued expenses and other current liabilities (1)

 

 

44,361

 

 

 

59,840

 

Operating lease liabilities

 

 

4,784

 

 

 

3,601

 

Short term portion of note payable, net of discount

 

 

 

 

 

456

 

Deferred revenue - related party

 

 

2,376

 

 

 

4,259

 

Total current liabilities

 

 

63,818

 

 

 

85,596

 

Long term portion of note payable, net of discount

 

 

51,234

 

 

 

50,591

 

Operating lease liabilities, net of current portion

 

 

106,692

 

 

 

107,942

 

Deferred revenue, net of current portion - related party

 

 

94,835

 

 

 

92,430

 

Other long-term liabilities

 

 

1,486

 

 

 

1,442

 

Total liabilities

 

 

318,065

 

 

 

338,001

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2023 and December 31, 2022; 126,592,604 and 125,222,273 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

127

 

 

 

125

 

Additional paid-in capital

 

 

887,685

 

 

 

875,181

 

Accumulated other comprehensive loss

 

 

2

 

 

 

(12

)

Accumulated deficit

 

 

(935,685

)

 

 

(864,511

)

Total stockholders’ (deficit) equity

 

 

(47,871

)

 

 

10,783

 

Total liabilities and stockholders’ (deficit) equity

 

$

270,194

 

 

$

348,784

 

[1] Includes related party amounts of $24,958 and $34,770 at March 31, 2023 and December 31, 2022, respectively (see Note 11)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except share and per share data)

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

 

Revenue:

 

 

 

 

 

 

Collaboration revenue - related party

$

(522

)

 

$

1,493

 

 

Total revenue

 

(522

)

 

 

1,493

 

 

Operating expenses:

 

 

 

 

 

 

Research and development expenses

 

43,969

 

 

 

39,649

 

 

General and administrative expenses

 

22,470

 

 

 

18,571

 

 

Collaboration (profit) loss sharing - related party

 

3,607

 

 

 

(976

)

 

Total operating expenses

 

70,046

 

 

 

57,244

 

 

Loss from operations

 

(70,568

)

 

 

(55,751

)

 

Other (expense) income:

 

 

 

 

 

 

Interest income

 

1,032

 

 

 

384

 

 

Interest expense

 

(1,948

)

 

 

(912

)

 

Other income (expense)

 

310

 

 

 

(345

)

 

Total other expense, net

 

(606

)

 

 

(873

)

 

Net loss

$

(71,174

)

 

$

(56,624

)

 

Net loss per share attributable to common stockholders, basic and diluted

$

(0.57

)

 

$

(0.61

)

 

Weighted average common shares outstanding, basic and diluted

 

125,862,975

 

 

 

92,164,419

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

12

 

 

 

(155

)

 

Currency translation adjustment

 

2

 

 

 

 

 

Total other comprehensive income (loss)

 

14

 

 

 

(155

)

 

Comprehensive loss

$

(71,160

)

 

$

(56,779

)

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(unaudited, in thousands, except share data)

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Shares

 

 

Par
Value

 

 

Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Comprehensive
Loss

 

 

Stockholders’
Equity

 

Balance at December 31, 2021

 

 

91,889,418

 

 

$

92

 

 

$

745,829

 

 

$

(614,354

)

 

$

(60

)

 

$

131,507

 

Issuance of common stock upon exercise of stock options

 

 

92,478

 

 

 

 

 

 

257

 

 

 

 

 

 

 

 

 

257

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

69,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

159,214

 

 

 

 

 

 

892

 

 

 

 

 

 

 

 

 

892

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,079

 

 

 

 

 

 

 

 

 

5,079

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(155

)

 

 

(155

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(56,624

)

 

 

 

 

 

(56,624

)

Balance at March 31, 2022

 

 

92,210,305

 

 

$

92

 

 

$

752,057

 

 

$

(670,978

)

 

$

(215

)

 

$

80,956

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Shares

 

 

Par
Value

 

 

Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Comprehensive
(Loss) Income

 

 

Stockholders’
Deficit

 

Balance at December 31, 2022

 

 

125,222,273

 

 

$

125

 

 

$

875,181

 

 

$

(864,511

)

 

$

(12

)

 

$

10,783

 

Issuance of common stock upon exercise of stock options

 

 

56,523

 

 

 

 

 

 

188

 

 

 

 

 

 

 

 

 

188

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

259,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

267,615

 

 

 

1

 

 

 

1,228

 

 

 

 

 

 

 

 

 

1,229

 

Issuance of common stock from at the market equity offering, net of issuance costs of $225

 

 

787,170

 

 

 

1

 

 

 

4,238

 

 

 

 

 

 

 

 

 

4,239

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,850

 

 

 

 

 

 

 

 

 

6,850

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

14

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(71,174

)

 

 

 

 

 

(71,174

)

Balance at March 31, 2023

 

 

126,592,604

 

 

$

127

 

 

$

887,685

 

 

$

(935,685

)

 

$

2

 

 

$

(47,871

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(71,174

)

 

$

(56,624

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

6,850

 

 

 

5,079

 

Depreciation and amortization expense

 

 

1,400

 

 

 

1,570

 

Non-cash operating lease cost

 

 

2,070

 

 

 

1,058

 

Net (accretion) amortization of (discounts) premiums on investments

 

 

(187

)

 

 

313

 

Amortization of debt issuance costs

 

 

187

 

 

 

133

 

Collaboration (profit) loss sharing - related party

 

 

3,607

 

 

 

(976

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current and other non-current assets

 

 

3,044

 

 

 

(3,841

)

Deferred revenue - related party

 

 

522

 

 

 

(1,493

)

Accounts payable

 

 

(3,806

)

 

 

(6,464

)

Operating lease liabilities

 

 

(67

)

 

 

(1,507

)

Accrued expenses and other current and long-term liabilities (3)

 

 

(19,030

)

 

 

(3,693

)

Net cash used in operating activities

 

 

(76,584

)

 

 

(66,445

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,068

)

 

 

(2,950

)

Purchases of investments

 

 

(4,426

)

 

 

(28,156

)

Sales and maturities of investments

 

 

11,233

 

 

 

44,078

 

Net cash provided by investing activities

 

 

2,739

 

 

 

12,972

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

188

 

 

 

257

 

Proceeds from issuance of common stock from at the market equity offering

 

 

4,239

 

 

 

 

Issuance of common stock under ESPP

 

 

1,229

 

 

 

892

 

Proceeds from issuance of debt, net of issuance costs

 

 

 

 

 

27,606

 

Repayment of notes payable

 

 

 

 

 

(1,907

)

Net cash provided by financing activities

 

 

5,656

 

 

 

26,848

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(68,189

)

 

 

(26,625

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

171,215

 

 

 

188,002

 

Cash, cash equivalents and restricted cash at end of period

 

$

103,026

 

 

$

161,377

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

1,737

 

 

$

558

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

928

 

 

$

622

 

Prepaid rent reclassified to right-of-use assets

 

$

 

 

$

4,962

 

Lease liability arising from obtaining right-of-use assets

 

$

 

 

$

4,370

 

[3]Includes related party amounts of $(9,812) and $(1,107) at March 31, 2023 and March 31, 2022, respectively (see Note 11)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


 

SERES THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

1. Nature of the Business and Basis of Presentation

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc. The Company is a commercial-stage microbiome therapeutics company focused on the development and commercialization of a novel class of biological drugs, which are designed to treat disease by modulating the microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state.

The Company’s product, VOWST (fecal microbiota spores, live brpk), formerly called SER-109, was approved by the U.S. Food and Drug Administration (“FDA”) on April 26, 2023 and is the first and only orally administered microbiota-based therapeutic. VOWST is indicated to prevent the recurrence of Clostridioides difficile infection (“CDI”) in patients 18 or older following antibacterial treatment for recurrent CDI. The Company plans to launch VOWST in the United States with its collaborator, Nestlé Health Science (“Nestlé”), in June 2023.

Building upon VOWST, the Company is developing therapeutic candidates, such as SER-155, to specifically target infections and antimicrobial resistance. SER-155, a microbiome therapeutic candidate consisting of a 16-strain consortium of cultivated bacteria, is designed to prevent enteric-derived infections and resulting blood stream infections, as well as induce immune tolerance responses to reduce the incidence of Graft versus Host Disease ("GvHD") in patients undergoing allogeneic hematopoietic stem cell transplantation (“allo-HSCT”). Gastrointestinal microbiome data from the first 100 days of SER-155 Phase 1b open-label study cohort 1 showed the successful engraftment of SER-155 bacterial strains, and a substantial reduction in the cumulative incidence of pathogen domination, a biomarker associated with the risk of serious enteric infections and resulting bloodstream infections, as well as GvHD. The tolerability profile observed was favorable, with no serious adverse events attributed to SER-155 administration. Enrollment in the placebo-controlled cohort 2 portion of the study is ongoing and 100-day topline results are anticipated in mid-2024.

The Company is progressing additional preclinical stage programs to evaluate how microbiome therapeutics may reduce incidence of infection, which the Company refers to as Infection Protection, in indications such as cancer neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant infections more broadly in settings of high-risk such as intensive care units. The Company is also continuing its research activities in ulcerative colitis ("UC"), including evaluating the potential to utilize biomarker-based patient selection and stratification for future studies. In addition, the Company continues to leverage microbiome pharmacokinetic and pharmacodynamic data from across its clinical and preclinical portfolios, using its reverse translational microbiome therapeutic development platform to conduct research on various indications, including inflammatory and immune diseases, cancer, and metabolic diseases. The Company has built and deploys a reverse translational platform for the discovery and development of microbiome therapeutics. This platform incorporates high-resolution analysis of human clinical data to identify microbiome biomarkers associated with disease and non-disease states; preclinical screening using human cell-based assays and in vitro/ex vivo and in vivo disease models customized for microbiome therapeutics; and microbiological capabilities and a strain library that spans broad biological and functional breadth to both identify specific microbes and microbial metabolites that are associated with disease and to design consortia of bacteria with specific pharmacological properties.

On April 27, 2023, the Company entered into the Credit Agreement and Guaranty (the “Oaktree Credit Agreement”) among the Company, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto (the “Lenders”), and Oaktree Fund Administration, LLC, in its capacity as administrative agent for the Lenders (in such capacity, the “Agent”). The Oaktree Credit Agreement establishes a term loan facility of $250,000 (the “Term Loan”) consisting of (i) $80,000 (“Tranche A-1”) and (ii) $30,000 (“Tranche A-2” and collectively, “Tranche A Loan”), funded on the Closing Date. Upon execution of the Oaktree Credit Agreement and funding of Tranche A Loan, the Hercules Loan and Security Agreement was repaid in full, including the prepayment and end of term charges, which totaled $53,380 (See Note 14, Subsequent Events). The Term Loan provides additional liquidity to the Company for its operations, including our share of costs related to commercialization of VOWST.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

The Company's primary focus in recent months has been and will continue to be supporting commercialization, including the manufacture of VOWST, which requires capital and resources. Other than VOWST, the Company’s product candidates are in development, and will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to potential commercialization. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or

9


 

maintained, that any product candidate developed will obtain necessary government regulatory approval, or that any approved product will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. For the three months ended March 31, 2023, the Company incurred a net loss of $71,174, and had net operating cash outflows of $76,584. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future.

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, the Company disclosed that there was substantial doubt about its ability to continue as a going concern as a result of conditions that existed as of the date of issuance of the consolidated financial statements included therein. At that time, primarily as a result of the increased and costly efforts to prepare for potential commercialization of VOWST, in conjunction with the Company's research and development efforts for other preclinical and product candidates, the Company determined that it would need additional funding in early 2024. Because certain elements of management's plans to mitigate the conditions that raised substantial doubt about the Company’s ability to continue as a going concern were contingent upon the approval by the FDA of the Biologics License Application ("BLA") for VOWST, and such approval was outside the Company's control, those elements could not be considered probable according to Accounting Standards Codification (“ASC”) 205-40, Going Concern ("ASC 205-40"), and therefore also could not be considered in the evaluation of mitigating factors.

On April 26, 2023, the BLA was approved by the FDA. Accordingly, the Company is entitled to receive a $125,000 milestone payment under its license agreement with Nestlé executed in July 2021 ("2021 License Agreement," see Note 11, Collaboration Revenue). Additionally, the Company will be eligible to receive payments from Nestlé for the supply of VOWST, and is entitled to share equally in its commercial profits and losses.

As of the date of issuance of these condensed consolidated financial statements, management’s plans to mitigate the conditions that raised substantial doubt about the Company’s ability to continue as a going concern include receipt of the $125,000 milestone payment associated with VOWST FDA approval, which is contractually due and payable to the Company from Nestlé, as well as the commercialization of VOWST and receipt of payments from Nestlé for the supply of VOWST, and sharing equally in commercial profits and losses with Nestlé pursuant to the 2021 License Agreement. Management concluded these plans are probable of being effectively implemented and of mitigating the conditions that raised substantial doubt about the Company’s ability to continue as a going concern. The Company expects that its cash, cash equivalents and investments as of March 31, 2023, together with the net proceeds received in April 2023 from the Term Loan and the $125,000 milestone payment currently due and payable from Nestlé, will be sufficient to fund its operating expenses, capital expenditure requirements, and debt service obligations for at least the next 12 months from issuance of these condensed consolidated financial statements. The Company may also seek to raise additional capital through financing or other transactions, including the Company’s at the market equity offering. The future viability of the Company beyond 12 months from issuance of these condensed consolidated financial statements is dependent on its ability to raise additional capital to finance its operations.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 7, 2023 (the “Annual Report”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2022 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

 

10


 

2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. In the unaudited condensed consolidated financial statements, the Company uses estimates and assumptions related to revenue recognition and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates.

Restricted Cash

The Company held restricted cash of $8,185 as of March 31, 2023 and December 31, 2022, which represents cash held for the benefit of the landlord for the Company's leases. The Company has classified the restricted cash as long-term on its condensed consolidated balance sheets as the underlying leases are greater than 1 year.

Cash, cash equivalents and restricted cash were comprised of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

94,841

 

 

$

163,030

 

Restricted cash, non-current

 

 

8,185

 

 

 

8,185

 

Total cash, cash equivalents and restricted cash

 

$

103,026

 

 

$

171,215

 

 

3. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements as of March 31, 2023 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

22,646

 

 

$

 

 

$

 

 

$

22,646

 

Commercial paper

 

 

 

 

 

1,248

 

 

 

 

 

 

1,248

 

Government securities

 

 

 

 

 

2,744

 

 

 

 

 

 

2,744

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

 

 

$

4,983

 

 

$

 

 

$

4,983

 

Corporate bonds

 

 

 

 

 

2,249

 

 

 

 

 

 

2,249

 

Government securities

 

 

 

 

 

4,471

 

 

 

 

 

 

4,471