Seres Therapeutics, Inc. (MCRB) Q1 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Seres Therapeutics First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the call over to your host, Carlo Tanzi. Please go ahead.

Thank you, and good morning. A press release with the company's first quarter 2016 financial results and our progress update became available this morning and can be found on the Investors and Media section of the company's website. We have also posted slides on our website that follow the discussions related to this call. Before we begin, I would like to point out that we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements about our future expectations, the sufficiency of our cash, cash equivalents and investments to fund our operations, the commercial and financial potential of our agreement with Nestle Health Science, the potential impact of our microbiome therapeutics platform on disease, the progress and development of our product candidates, our position in the marketplace, the potential for rapid adoption and the cost savings of our products, clinical development and regulatory approval, the potential of our manufacturing capabilities and the timing of clinical trials and related data. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the risk factors section of our Quarterly Report on Form 10-Q filed today with the Securities and Exchange Commission and our other reports filed with the SEC. Any forward-looking statements made on today's call represent our views as of today only. We may update those statements in the future, but we disclaim any obligation to do so. On today's call, I am joined by Dr. Roger Pomerantz, Seres' President, CEO and Chairman; and by Eric Shaff, our Chief Financial Officer. I will now pass the call over to Roger.

Thanks, Carlo and thank you all for joining us. Seres continues to make great progress in its efforts to develop a totally new field of medicine using Ecobiotic microbiome therapeutics. We are working to create a paradigm shifting therapeutic approach that uses bacteria to treat disease. Our vision for Seres is the pioneer and lead the microbiome field harnessing this novel therapeutic approach to address serious diseases in multiple therapeutic areas of medicine. On today’s call, we will discuss the excellent advances the company has been making in extending our microbiome leadership position, remaining focused on our three franchises in infectious diseases, inflammatory and immunological diseases and finally metabolic diseases. We have been making great progress advancing our pipeline forward, including our more advanced programs SER-109, SER-287 and SER-262. We have entered into multiple important agreements with leading academic microbiome researchers, including Memorial Sloan Kettering, University of Pennsylvania, St. Joseph’s Hospital in Ontario and the Medical University of Graz, Austria. And we expect that these collaborations will accelerate our R&D efforts in multiple indications within our three core franchises. I will further discuss how each of these collaborations advances our integrated overall company’s strategy in a few minutes. But let’s begin with SER-109, our lead program for the treatment of patients with multiply recurrent C diff infection, that is three or more infections with this pathogen. We've completed the SER-109 Phase 2 study enrollment and we now look forward to seeing the initial study results. SER-109 is a biologically-sourced highly purified microbiome therapeutic candidate that is taken orally with a single administration. This is not only the first placebo-controlled study for the multiply recurrent C diff indication, but also the first placebo-controlled microbiome therapeutics study ever; truly a landmark study. The FDA has granted SER-109, both breakthrough therapy status and orphan drug designation. CDI or C diff infection represents an enormous medical and cost burden and better treatment approaches are desperately needed. In the US alone, approximately 29,000 patients lose their lives to CDI each year. To remind you of our prior SER-109 clinical results, we successfully completed a Phase 1b/2 study in a multiply recurrent CDI patient population and these results have been published in The Journal of Infectious Diseases. The Phase 1b/2 study was a 30-patient open-label trial that demonstrated that an unprecedented 97% of patients achieved a clinical cure, this being defined as no CDI recurrence during the pre-specified 8-week primary endpoint time period. Importantly, there were no drug-related adverse events. These remarkable results stand in stark contrast with the 25% to 30% cure rate expected with the standard of care antibiotic therapy in this patient population. With these positive results, we have demonstrated the potential for SER-109 to break the backbone of the recurrent C diff infection cycle and dramatically alter how these patients are cared for. Completion of the SER-109 Phase 2 study enrollment is an extremely important milestone for the company and a reflection of the quality of our experienced clinical team in the execution of this trial, which is the first trial in multiply recurrent C diff patients. This 24-week study is a multicenter randomized placebo-controlled trial being conducted at approximately 40 centers across the United States. This study enrolled 89 patients with multiple recurrent CDI randomized 2-to-1 into treatment and placebo arms. We expect to report results from the study's primary efficacy endpoint, the relative risk of CDI recurrence up to eight weeks after treatment in the middle of this year. Our objective is for SER-109 treatment to lead to both a statistically significant and a clinically meaningful degree of improvement in patient outcomes compared to placebo and this is what we're expecting to see. Following the Phase 2 readout, we expect to initiate a Phase 3 study in the second half of this year. We’ve made excellent progress on the design of the SER-109 Phase 3 program taking into account feedback we have obtained from several regulatory agencies. The development of microbiome therapeutics remains a novel area for regulators and we have been having very productive conversations where we’ve helped to truly pioneer and define appropriate CMC parameters and development requirements for this new field of medicine. We also recently initiated a SER-109 Expanded Access Program at sites being utilized in the current Phase 2 study. This program serves two important purposes. First, for the patients, the Expanded Access Program will enable continued access to SER-109 prior to the expected Phase 3 initiation later this year. Also we believe the SER-109 Expanded Access Program will be a key component of the overall SER-109 development plan. Specifically, we expect that maintaining Phase 2 study sites open ahead of the Phase 3 start, should help expedite Phase 3 enrollment and therefore completion. Moving on to SER-287, our second clinical candidate. We are currently evaluating SER-287 as an induction therapy in a 55-patient Phase 1b study in patients with mild-to-moderate ulcerative colitis who are failing first line therapies. SER-287 is a biologically-sourced product that has been specially formulated for this indication and for chronic oral administration. Notably, this SER-287 Phase 1b study is the first human trial ever conducted of a microbiome drug candidate in a chronic disease and the first in a non-infectious disease. Ulcerative colitis is a very serious disease where new approaches remain much needed. The disease is characterized by inflammation of the colon and the rectum, and often results in debilitating symptoms, including abdominal pain, bowel urgency and bloody diarrhea. In serious cases, ulcerative colitis or UC can lead to surgical removal of the colon and even death. Approximately 700,000 patients are affected by ulcerative colitis in the US alone. Our decision to advance SER-287 into development rapidly, but safely was supported by our own internal pre-clinical data in animal models of colitis as well as multiple clinical studies indicating that modulation of the microbiome through repetitive fecal microbiota transplants leads to meaningful clinical responses and long-term remissions. Most recently, at the 2016 ECCO Conference, investigators from the University of New South Wales and Australia presented results from an 81-patient placebo-controlled study demonstrating the repetitive FMT performed five days per week for eight weeks led to clinical and endoscopic remission in a significant percentage of patients with resistant, active ulcerative colitis. While we don't believe that repetitive chronic fecal transplant is a viable long-term clinical solution for patients suffering from ulcerative colitis, these studies do provide compelling evidence that modification of the microbiome can lead to meaningfully improved clinical outcomes and we believe that Seres is well-positioned to develop the first orally available microbiome therapeutics for ulcerative colitis and then for other forms of inflammatory bowel disease, including Crohn's disease. Our objective with SER-287 is to develop an effective and safe therapy, which is a not immunosuppressive to benefit ulcerative colitis patients who have not yet transitioned to biologics in essence monoclonal antibodies or other immunosuppressive agents. Furthermore, a sizable fraction of ulcerative colitis patients are not adequately treated today and we believe that microbiome therapeutics can be effective in some of these refractory patients as well. The ongoing SER-287 1b trial is a placebo-controlled study with multiple arms that will evaluate both daily and weekly oral dosing of SER-287, as well as the impact of vancomycin pre-treatment. The primary objective of this study is to evaluate the change in the composition of the intestinal microbiome at 8 weeks, but we will also measure safety and tolerability as well as a number of important secondary endpoints, including clinical response, clinical remissions, endoscopic improvement, change in serum and fecal biomarkers and immunological and pathological changes in mucosal biopsies. Multiple SER-287 clinical sites are now open and actively recruiting patients, and we expect to obtain the complete and final study results in 2017. Beyond the ongoing SER-287 Phase 1b ulcerative colitis induction therapy study, we are planning further development efforts on an ulcerative colitis maintenance therapy and in other forms and stages of inflammatory bowel disease. We've also continued to make excellent progress with SER-301, our synthetically-derived pre-clinical stage therapeutic candidate for inflammatory bowel diseases. SER-301 is being rationally designed based on available biologic and clinical patient data. To further support the development of SER-301, we recently entered into key research collaborations with leading academic groups who had conducted ulcerative colitis FMT clinical trials at the research institute of St Joseph’s Hospital in Hamilton, Ontario and Medical University of Graz in Austria. Under these collaboration, Seres will obtain donor and patient samples from several completed and ongoing FMT clinical studies in ulcerative colitis patients. Metagenomic and other analyses will be performed on these samples to better characterize the microbiome signatures associated with clinical response. The resulting data are expected to provide important insights to support the final development of SER-301. Next let's move to SER-262, another synthetically-derived fermented microbiome therapeutic candidate. SER-262 is being developed to prevent recurrence in patients with primary C diff infection. Primary CDI represents a significant patient segment with an estimated annual incidence of between 640,000 and 820,000 patients in the US alone. Advancing SER-262 into development represents a landmark, technical achievement for Seres, and for the entire field of microbiome therapeutics. We expect SER-262 to be the first ever synthetically-derived microbiome therapeutic candidate to be studied in a clinical trial. This is expected to lead to more rapid and efficient development of a portfolio of synthetically-derived microbiome therapeutics at Seres for multiple diseases in different therapeutic areas. We believe we have the largest human microbiome library in the world with now over 17,000 well characterized human bacterial strains. This allows us to leverage this field-leading library in the rational design of multiple synthetic microbiome drug c candidates. We believe our library is a very significant competitive advantage for Seres in the design of our expanding drug pipeline and portfolio. We have made excellent progress advancing the SER-262 program. Leveraging our learnings from SER-109, we have been engaged in a highly productive dialog with the FDA related to SER-262. We have successfully manufactured SER-262 product batches and at scale that we believe are ready for clinical study use. We intend to conduct a Phase 1b study to assess SER-262 efficacy and safety in a patient population who have experienced the first episode of C. diff. Infection. The planned Phase 1b study will be a 24 weeks placebo-controlled dose escalation design with multiple patient cohorts. We expect the study's primary end point to be a comparison of CDI recurrence updated weeks after dosing in this SER-262 versus the placebo groups. And we expect to initiate the SER-262 Phase 1b study in the middle of this year. Beginning with SER-262, our strategy is to increasingly focus on the development of synthetically-derived fermented microbiome therapeutics. There are several advantages to using a synthetic microbiome therapeutic approach. Synthetically-derived product candidates can be scaled up to meet global demand for large patient populations in a reliable and reproducible manner with well-defined characteristics. Also by using our scientific and manufacturing expertise, we believe we can rationally design microbiome therapeutic candidates using the defined bacterial species for specific target indications based on the specific biology that we are seeking to modulate. As such, we can then match the bacterial consortium to each human disease state which is targeted. This approach will be increasingly helpful in disease state which requires complex microbiome drugs. Moving to our other R&D efforts, we have made significant progress advancing our pipeline in each of our three therapeutic franchises, infectious disease, inflammation and immunology, and metabolic disease. Within each of these areas, we believe that there are multiple indications with the available pre-clinical and human clinical evidence suggest that microbiome therapeutics could meaningfully improve disease outcomes. I'll now discuss some of our newer programs beginning with SER-155 for allogeneic hematopoietic stem cell transplantation or allo-HSCT and the related recent deep and broad collaboration with Memorial Sloan Kettering, one of the world's great medical institutions. SER-155 is a synthetically derived microbiome therapeutic candidate in a pre-clinical stage that is being developed to improve outcomes in patients who have undergone allo-HSCT. Our rational for developing SER-155 for allo-HSCT is supported by remarkable clinical data from Memorial Sloan Kettering which that demonstrated HSCT patients with low microbiome diversity were about twice as likely to die from complications such as systemic bacterial infections and Graft Versus Host Disease or GVHD as compared to those patients with more diverse microbiomes. We believe that SER-155 will improve microbiome diversity and therefore reduce the risk of bacteremia, GVHD and meaningfully reduce all-cause mortality in these patients. Our agreement with Memorial Sloan Kettering includes collaboration with several of the institutions' top researchers at the forefront in these areas. Inner-related transaction, we have also obtained the license agreement that provides Seres with exclusive access to valuable intellectual property in this area further bolstering our robust yield leading patient portfolio - patent portfolio, excuse me. We expect that scientific data and clinical insights obtained through our collaboration with Memorial Sloan Kettering will be tremendously valuable as we advance SER-155 forward towards the clinic. Another therapeutic area of high interest is the use of microbiome drugs to enhance the efficacy and the safety of immuno-oncology treatments. This is an exciting and rapidly growing area of research. Three major papers published in science and nature in just the last six months have further highlighted the important role of the microbiome in impacting the clinical response and immunological adverse events related to the use of therapeutic checkpoint inhibitors likely via the interactions of the microbiome with key regulatory cells on the gut-associated lymphoid tissue. Of note, the interrogation of t-regulatory cells or Tregs by the microbiome has also been shown in autoimmune diseases such as ulcerative colitis both pre-clinical and human clinical data demonstrate that an individual's microbiomes make up impacts the overall tone of the immune system. And this immunological context alters both the therapeutic response as well as the rate of immunologically induced adverse events. Seres research platform is based on applying our unique technology approach including our genomic, bioinformatic and microbiological capabilities to understand the functional bacterial ecologies or consortia in the human GI track and to rationally design therapeutics that optimize the microbiome state during cancer treatment with immuno-oncology drugs. Here again, researchers at Memorial Sloan Kettering Cancer Center have been pioneering the field and our broad agreement with the institution also includes a deep collaborate focused on the development of novel microbiome therapeutics for immuno-oncology. We are very pleased and proud to be working with Memorial Sloan Kettering teams which we expect will lead to clear synergies as we advance our programs in these new areas of biomedicine. The microbiome also has an increasingly well appreciated roll in human metabolism and certain metropolitic and liver diseases. Within this franchise, we prioritize specific liver diseases including NASH, an inflammatory disease characterized by a buildup of fat in liver, primary biliary cirrhosis and primary sclerosing cholangitis and orphan disease characterized by inflammation within the bile ducts of liver. There are no effective treatments for these serious diseases which are major cause of hepatic dysfunction leading to liver transplant. The underlying therapeutic hypothesis for the use of microbiome therapeutics for certain metabolic and liver diseases relates to the known role of the microbiome in producing virtually all of human secondary bile acids which can have a beneficially effect on inflammation, gut barrier function. Bile acid receptor including FXR are now clinically validated therapeutic targets and we believe that enhancing production of the appropriate bile acids through the use of ecobiotic drugs may lead to an important therapeutic benefits to patients with NASH and other related liver and metabolic diseases. Indeed our own SER-109 clinical results demonstrate that changes in the human microbiome can lead to remarkable changes in secondary bile acid metabolism. Specifically, our completed SER-109 Phase 1b/2 study data demonstrated that patients with recurrent c difficile and degrees of dysbiosis lack significant levels of secondary bile acids in the stool, the urine and the blood stream. In this study, we observed that secondary bile acid levels increased substantially following treatment with SER-109. We are using insights generated from these human clinical data set to inform the design of new microbiome therapeutics targeting bile acid metabolism. Secondary bile acids are known to have hormonal properties and are also implicated in metabolic processes such as glucose and lipid metabolism and multiple clinical studies have suggested that the microbiome may have a significant role in fatty liver disease. We believe that our therapeutic approach may be able to repair the functional dysbiosis and thus reduce inflammation, lipid accumulation and bile acid disregulation absorbed in such diseases as NASH, primary biliary cirrhosis and primary sclerosing cholangitis. To expedite our efforts in this important area, we have recently begun a very key collaboration with researchers at the Mayo Clinic who are at the forefront of this research. We also recently entered into a collaboration with leading microbiome researchers from the University of Pennsylvania to support the development of novel treatment approaches for certain inflammatory bowel diseases but also rare genetic metabolic diseases including urea cycle disorders. As part of our efforts to develop a novel therapeutic for patients with urea cycle disorders Seres and Penn plan to initiate a clinical study that will build upon published data suggesting that altering the glut microbiome may meaningfully reduce the toxic levels of ammonia observed in patients with inherited urea cycle disorders. The Penn agreement is yet one more example of our strategic approach of leveraging the foremost world experts in areas of interest to accelerate the development of novel microbiome therapeutics. In addition to driving forward our R&D efforts, through these external collaboration we have also utilized these external agreements to gain licenses to valuable intellectual property related to microbiome therapeutics and new indications of interest. In both the MXK and the Penn collaborations, we obtained additional IP rights related to the use of microbiome therapeutics. We believe that these new IP rights have bolstered Seres robust field leading patent portfolio and support our efforts to expand our microbiome leadership position. With that I'll pass the call to Eric to review our recent financial performance.

Thank you Roger and good morning everyone. Today I will review our first quarter financial results. I will also provide an overview of our operating expenses as well as provide an update on our balance sheet. We reported a net loss of $19.7 million for the first quarter of 2016 as compared to a net loss of $8 million for the same period in 2015. The increase in net loss was driven primarily by continued growth in clinical and development spend as well as increased headcount in ongoing development of our microbiome therapeutics platform. As a reminder, in January of this year, we entered into an agreement with Nestle Health Science for the development and commercialization outside of the US and Canada for product candidates for C diff infection and inflammatory bowel disease, I'd like to provide a brief overview of how we plan to account for this collaboration. The company recognized the $120 million upfront payment received in Q1 under an accounting method whereby the payment will be recognized over an estimated ten-year development period. In the first quarter, we recognized $2.7 million of the $120 million upfront payment as collaborative revenue and we project to record $3 million of collaborative revenue per quarter over that estimated period. Future quarterly revenue maybe adjusted to account for the reimbursement of certain development costs received under the terms of the agreement. Potential additional development, regulatory and commercial milestones are expected to be recognized as revenue in the period in which they are achieved. We expect to receive an additional $30 million in milestone payments later this year associated with the expected initiation of the SER-262 clinical study and SER-109 Phase 3 study. R&D expenses for the first quarter were $15.4 million as compared to $5.6 million for the same period in 2015. The increase in R&D expense was primarily due to expenses related to our microbiome therapeutics platform and the clinical development of SER-109, SER-262 and SER-287. G&A expenses for the first quarter was $7.2 million as compared to $2.6 million for the same period in the prior year. The increase in G&A expense was primarily due to increased headcount and facility expansion to support overall growth as well as other costs associated with operating as a public company. We ended the first quarter with approximately $303 million in cash, cash equivalents and investments, which includes the $120 million upfront payment received from Nestle Health Science. The change in cash balance during the quarter, excluding the upfront payment received from Nestle was $21.8 million compared to $9.9 million for the same period in 2015. As a reminder, during the first quarter, Seres continued to build out its new corporate headquarters including labs, office space and a pilot manufacturing facility and are pleased to have recently moved into this new location. In our fourth quarter earnings call I shared our projection that build-out of the facility including the pilot plant would require approximately $20 million during the first three quarters of 2016. We had $4.4 million of Seres related facilities expenditures in Q1 and we're pleased that the project is tracking to our expectations in terms of timing and cost. We continue to expect that the build-out and equipment investment related to the facility, particularly to finish and commission the pilot plant, will require additional expenditures through the third quarter of this year. I'll now turn the call back over to Roger.

Thanks, Eric. The beginning of 2016 has continued to be a remarkably productive period for Seres where the company has made great strides in strengthening its microbiome therapeutics leadership position. The company is exceptionally well-positioned to extent this lead by continuing to leverage our deep R&D and manufacturing capabilities, strong intellectual property and significant capital resources. We will drive our R&D efforts by continuing to aggressively pursue new opportunities within our three franchises in infectious diseases, inflammatory and immunological disease, including immune-oncology and metabolic disease. We have also continued to make progress in expanding our internal capabilities and our talent. We have recently appointed Thomas DesRosier as our Chief Legal Officer and Executive Vice President. In addition to its Chief Legal Officer role, Tom will also be a member of the Seres leadership team and report directly to me. Tom is a highly regarded professional with 30 years of deep bio-pharma industry experience in larger and small companies with significant L&A and M&A experience and we are very pleased to have an individual of his caliber join the leadership team at Seres. In addition, Tom's expertise as an intellectual property attorney will be of great value as we continue to further expand Seres’ robust microbiome patent portfolio. Looking ahead to the rest of 2016, we anticipate an exciting and eventful period of continued rapid progress. To recap several key upcoming events, we expect to report initial SER-109 Phase 2 results in the middle of this year. We also expect to initiate a Phase 1b clinical study with SER-262 and assuming positive SER-109 Phase 2 results we expect to initiate a SER-109 Phase 3 study in the second half of this year. In addition to these clinical stage programs, we plan to continue to aggressively advance our other R&D efforts in our three focused therapeutic area franchises and we look forward to providing meaningful updates on our progress throughout the year. Operator, now let's open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Bill Tanner with Guggenheim Securities. Your line is open.

Thanks for taking the questions and congratulations on all the progress. Just have a couple for you. One on the Phase 2 upcoming for 109, just curious your thoughts on the expectations for data given that there is a placebo arm in this study, I guess in contrast with what was done previously with 1b/2 and I guess specifically just obviously thinking about the treatment effect. And then I had a follow-up please.

Sure. Thanks, Bill. Good to talk to you this morning. So that's a very important question. I think it is important to remind people, many of you know that’s been in a placebo controlled trial which the Phase 2 is the critical analysis, the key functional metric is actually the difference in efficacy between the active arm, in this case SER-109 and the placebo arm which is just standard of care antibiotic. That is the data point which is looked at by physicians, will be looked at by regulatory agencies and will be the one looked at by payers and as an ID physician who used to treat these exact patients, this is a data point which I would have looked at as well. So the difference is very important here. We're looking, as I said in my remarks, to not only a very statistically significant effect but a clinically meaningful degree of improvement. They are not always the same. We expect these outcomes in the delta as you were between 109 and placebo and we expect this to lead to, with a great Phase 3, a first in field label in this condition. No one has the label and we expect it be broad and meaningful for patients.

And just on that delta, is there a ballpark range we should be thinking about them?

Well, I think you can look at this and know what the data is. We've seen that the placebo controlled effects when they have been done in others studies, not in microbiome studies, but in FMT studies have been quite low and we have seen in the Phase 1b/2 that the efficacy is quite high. But the delta between those, you will note when you see it and you can see that the range can be - we expect to be pretty broad.

Okay. And then I just had one follow-up. As you look at the other applications for the microbiome in some of the recent collaboration that you have struck with HSET [ph] immuno-oncology and as you think about metabolic disorders just curious, a lot of it obviously comes down to understanding the biology of the microbiome and the constituents as you say, but what kind of challenges might present as you're thinking about culturing maybe some of the species that might be needed for manufacturing?

That’s a great and multi-armed question. I will try to keep it brief, but it's a great question. So, one of the things that we have with this field-leading library is that we actually know how to grow the bugs, if you will. This is not a trivial issue. These organisms have not been studied since the 1940s because they don't cause disease. So many of the text books that you read are wrong, they will call them unculturable. Well, they're only unculturable until you put enough time, effort and talent into it. Some of them will be said to be non-spore-formers in the textbooks. Well, that's not going to be correct. We hold those as important trade secrets. So one of the things that we've gotten really good at is actually rewriting the text books and how to grow, how to sporulate these organisms. And where we would see it being very important is when I said in complex diseases, in certain metabolic diseases that will not be just spore-formers, but we have the ability now to use this library to take vegetative organizations, pure bacteria and put them in a pill as well as combine them with spores. So we have a number of levers to address various diseases. I am going to say the last thing and because it's such a multi-layered question, but it's very important to realize that we believe that the probability of success in many of these new indications, the PLS is actually high compared to other drugs that I've worked on. Why? Because we have human data, remember when you think about NASH and metabolic diseases, we now understand, in humans, that we can not only see changes in bile acid metabolism in a dysbiotic microbiome, but we have shown we can correct it. The same thing with 155 for human stem cell transplant patients for bacteremia graph versus spores, [ph] we've shown and published that we can not only detect dysbiosis, but we can correct the ability of dysbiotic microbiome to carry resistant organisms. Having human data is what separates this field from many others when it’s obtained this early.

Our next question comes from Terence Flynn with Goldman Sachs. Your line is open.

Hey, Terence.

Hi, how you are doing. Thanks for the question. I noticed in the press release you mentioned the SER-109 Phase 3 program in Europe. I was just wondering if you can tell us a little bit more there about details in terms of size and design and then is there any possibility that either the ongoing Phase 2b or US Phase 3 could service one of these two European registration trials. And then I had one follow-up.

Sure. So, yeah, as we had shown and Eric mentioned, we have the Nestle Health Science deal to bring outside of North America this drug to Europe in a number of the BRIC KTJM [ph] countries. When we've gone in front of EMEA we had a really nice discussion, it's our initial discussions and they're moving forward. They are very excited about it. They have many things that overlap exactly with the FDA. There may be the need for two Phase 3s in Europe, but we are continuing to talk to them as we did. It's a process as we did with the FDA. Certainly the Phase 3 that we're designing in the United States, as I've said before, will have sites in both the United States, Canada and Europe, both Eastern and Western Europe. So we do, to your point, consider this and the EU is looking at this as one of the potential registration trials. Certainly the Phase 2 will be important to not only give further efficacy data, but to further build the safety database. I would point out that in Europe and the United States we will have expanded access as well as the open label extensions to further build safety and efficacy data. So we think this is a compendium that will work both in the United States, EU and around the world.

Okay, thanks for that. And then on SER-262, you did give us some of the initial detail regarding this upcoming Phase 1b trial, but can you give us a little bit more? I was just wondering if initial antibiotic treatment is going to be standardized here or is it going to be left up to physicians’ choice? And then what type of recurrence rate would you expect in this specific patient population? Thanks.

Sure. Those are great questions. So what we know the recurrence rate is anywhere between 25% and 30%, for healthy individuals it's 25% to 30%, for some of the sicker elderly individuals, it may even be a tad higher than that, but the number still, remember, for primary C diff if you get it even if you are healthy, you have a 25% to 30% recurrence. We feel, based on animal model data and other data that we've accumulated that we want to knock that down to low single digits or eradicate it with 262. I can tell you this trial will be larger than a multi-recurrence C diff trial because primary C diff has the 25% to 30%, not the 60% to 80% recurrence rate. And the other thing I can tell you is that we will have, as I said, a dose range here, because the dysbiosis is less intense than you see in multiply recurrent C diff and we might be able to deal with even a lower does than was used for SER-109 in multiply-recurrent. You had another part of the question? Terrence? Terrence, are you still on?

Terrance, your line is open.

Thanks. I was just wondering if the initial antibiotic treatment is going to be standardized. Thanks.

That’s a really important point. So, anti-biotic treatment as put by guidelines from IDSA, Infectious Disease Society of America has changed a little bit in the last year or so. It's mainly in multiply recurrent. I'll get back to primary, but I wanted to make this point because it's important. In multiply recurrent C diff, only vancomycin and fidaxomicin are approved now. Flagyl metronidazole has shown to be not strong enough for the multiply-recurrent patient. But when you look at primary C diff, all three drugs are used. Flagyl, vancomycin and fidaxomicin, we will lead those three drugs up to the treating physician. Thank you.

Our next question comes from Joseph Schwartz with Leerink Partners. Your line is open.

Hey, Joe.

Hi, guys, thanks for taking my question. This is actually Dae Gon dialing in for Joe. He sends his regards and congratulations on all the progress. So just a couple on the SER-109.

Sure.

First, can you remind us and the Street on your power assumptions for the Phase 2b ECOSPOR trial? And then with regards to the anticipated data by midyear, with sort of what was disclosed in the press release about the EMA discussions, I was wondering if you could comment on perhaps what the ongoing discussions or maybe the overhanging concern that the FDA might have on live biotherapeutic usage would be and whether you have a post Phase 2 meeting with the FDA penciled in? And lastly if you could comment, if you do have this data, have you’ve been following up on those Phase 1b/2 trial patients for potential long-term effects whether positive or negative? Thank you.

Sure. Well, I’ll try to deal with those four questions in sequence. So first, the power -- we've told many people and have said this throughout, but I'll remind everyone it’s power to 92% -- power of 92 was obtained by being very conservative. Remember, if you’re based in, in Europe, pretest probability, we have a high pretest probability, so we assumed only 80 cure rates for 109 and 40, which is high for placebo. So even with those and that shows why it’s important in the trial, even with those very conservative numbers, we still had a 92% power. If we get anything like the delta we’re expecting and the -- it's something like we saw in 1b/2, we’re going to have a statistical significance with p with a lot of zeros in front of it and meaningful clinically. So, again, very conservative, still having great power. I think your second question was on EMEA, we’re -- again, just started our conversations with them. It's going very well. We assume we will not need a lot of things that we didn't need with the FDA. There are great interactions there. We don't, I might add comment in detail on ongoing discussions with regulatory agencies, but we've done this before with the FDA and the process is moving smoothly. When you think of the post Phase 2 data, again, we have an accelerated post Phase 2 meeting, remember, we’re breakthrough. One of the nice things about breakthrough therapy is that we not only have formal meetings, we have informal calls with the FDA and we have an accelerated Phase 2 meeting as soon as data is available, which is allowed in breakthrough. And then I think you were also asking about long-term in 109 patients and yes, we've actually published this out to 6 months. We still have 90% cure rates and the ones that -- a few that fell off, all got broad-spectrum antibiotics. This is a very important teaching point. Remember when you get SER-109, you don't get a super microbiome, you don't get super powers, so if you get broad-spectrum antibiotics like any normal human, you can get this biotic and have a CDEP episode, but the beauty of 109 is it’s not an antibiotic, there is no resistance, you can give it again. So the great news for us and for patients is this does seem to be a long-term cure of the dysbiosis and again, we follow people out past the half a year after getting the therapy. Hope that helps.

Our next question comes from Vernon Bernardino with FBR & Company. Your line is open.

This is actually Thomas Yip asking a couple of questions on behalf of Vernon. Last Friday, we saw that the White House announced an initiative called the National Microbiome initiative. Just wondering, can you tell us do you think there are any strategic or financial implications of this initiative on Seres?

Yeah. So it's a great question. So we have been at the White House, they had a meeting before this, which was organizational, so we were part of the organizational meeting. I was there with a couple of my senior executives. We believe this is a great thing and not only because of the money they are putting out, but for Seres, it means much more because the money is nice and we will look at ways of trying to leverage it like everything, but the real thing that I want to bring up about the White House is to build the microbiome as a field. When I was asked by Dr. Handelsman who I know from Yale, who is the head of the office of science and technology at the White House, what would we need at Seres, what could the White House to, the key thing I said is to build the ability at the FDA to have a microbiome division on its own. I remember when virology used to be part of infectious disease and the AIDS epidemic separated it, it's what changed virology in drug design. We need to have a microbiome area in the FDA, getting the White House involved and other governmental agencies is the way you’re going to build things. And we are devoted to working with them, again, not only in doing research and trying to leverage some of the cash, but more importantly on a global -- on a larger area, getting the White House, the FDA involved in building the microbiome as a set field in medicine that is regulated as such.

Okay, great. Yeah. That's not only a very great grand scheme of things, that's an important initiative and help keep microbiome as a whole. My next question is more specific, you mentioned that you’re expecting turbulence in total milestone from initiating 262 and 109 studies. Can you please remind us how -- what are the specific announced for each study?

Yes. Let me take that one. We haven't guided which is which yet, but it's basically 20 million and 10 million for those two events together, 30 million and the events are the initiation of the 262 Phase 1 study as well as the initiation of the Phase 3 for SER-109. So in total, 30 million of expected milestones in 2016.

Our next question comes from John Newman with Canaccord. Your line is open.

Hi, guys. Good morning. Thanks for taking the question. The question I had, I know this is looking ahead a little bit, but for 287, which you're looking at in ulcerative colitis, where are the different endpoints that you’ll be looking at there once we kind of get up to 2017 next year?

Sure. I think as I said, but I’ll try to go into a little more detail, the primary endpoint is, can we change the microbiome to a normal healthy microbiome, it's a 1b trial, but the secondary endpoints are very large. One is obviously safety and efficacy. We are not expecting to see a safety signal, but it's a first time in a chronic disease, non-infectious, so we’ll look carefully. Number two, clinical response, both in male clinic scores as well as complete remission as was seen in the FMT trials in North America and around the world. Then, we’re also going to be looking at, it’s very important to show that you have endothelial healing, mucosal healing, it's become sine qua non of a lot of drugs in this space of ulcerative colitis and Crohn's and we do this by having flexible sigmoidoscopy with mucosal biopsies, both at the beginning and at the end of the trial. This is important for us, not only for showing endothelial, mucosal healing, but also we are using this trial to develop key biomarkers. Biomarkers, both in the microbiome space immunologically in the -- obviously the human immune system as well as other biomarkers in metabolic changes within the mucosal and ulcerative colitis. We think this is critical as we look down the line for commercializing this drug. It's very important that pay for performance or value-based pricing is going to be key and being able to decide based on biomarkers who is going to respond very well to a microbiome solution is going to help us, as we go in front of payers and in front of the FDA. Just like in cancer, we think this is the way you change syndromes in to molecular disease states and that's what we want to do with this trial. It's going to be data very rich trial.

Great. And then just following up on the last comment that you made, do you think going forward, the therapy will be designed for a specific type of patient or do you think that if you look at each patient individually and figure out sort of what the microbiome needs?

Yeah. So, you're trying to say, can you do personalized microbiome medicine. At this point, we do not believe that that will be necessary, but as someone who has said that most of internal medicine outside of infectious disease and some cancers are 19th-century syndromes that were just now dissecting using molecular and microbiological approaches, I think you will see a lot of different diseases. When I trained at Mass General, everyone who wheezed had asthma. Now, we know it's at least six molecular diseases, probably more. How many times you can cut that cake is always a question, but we expect that to be part of all of -- I expect that to be all of medicine and certainly the microbiome will be a part of it. Whether it will need to be absolutely personalized like a personalized tumor approach, we have no data for that, we think not, but how many different types of ulcerative colitis is in this syndrome, I think that's the exciting part of what we’re going to be able to figure out and help figure out, and this will be important not only for patients obviously, but as you think about how you price drugs in the future.

Our final question comes from Ted Tenthoff with Piper Jaffray. Your line is open.

Thanks. Really exciting series of news flow here from Washington to your guys’ new collaboration. I guess following up on all the other questions, I have sort of a higher level question. Really, in terms of sort of how Seres thinks about advancing things going forward, obviously, the partnership with Nestlé in place, but when you start to look at larger disease areas like obesity, diabetes, again as you mentioned, the collaboration in immune-oncology, are these areas where Seres is going to take these on themselves? Are these going to be areas where you seek new partnerships like the Nestlé deal with leaders in the space in order to gain their expertise in those disease-specific areas? Kind of a higher level question about sort of --

No. I thank you for it. It's a great question. So I'm going to start with one point is that we try to build, I’ve said this before, we don't want to become a mile wide and an inch deep, but we do want to build deeply vertically in the three therapeutic areas and that's what we've done. Actually, with Seres with having all this talent and all these different, the library of organisms, our CMC, it’s very hard to decide what not to do. That's the important thing, you have to be as good as saying what not to do as what you say to do at the time because again, we don't want to be a mile wide and an inch deep. We nevertheless are very aggressive as the field world leader in this. That being said, we are aggressive, but we’re not crazy. Obesity trials, diabetes trials, cardiovascular outcomes trials is something that you would have to do with collaborators. Collaborators are key, both as you've seen early on as you develop a drug, I've been able to develop nine drugs with great themes. It's always worked that way, you collaborate early and then you find partners to help you lay it. Nestlé Health Sciences is a great example of that as we looked around the world with obesity and diabetes expecting us do collaboration, both in academia early on and you’ll hear more about that in the next quarter, as well as when we get clinically to get to these large, difficult to treat patient population. It is very important to also understand that we hold something very close to the chest and that is manufacturing. We think that one of the great things we have, including for large complex diseases that are really syndromes like obesity and diabetes is our CMC. Unlike and this is one of the things that we've seen, unlike other members of the microbiome field, we have this problem if not fully solved certainly very well solved for many diseases. This is what separates us. We are able to put a pill on the table and we intend to continue to do that and continue to hold manufacturing close to the chest. One of the things I can tell you is, even with the deals we've done so far, we make all the drugs because we're trying to continue to be the leader in not only the area of the microbiome, but actually how you make microbiome drugs for both simpler as well as complex medical conditions.

Okay. Good stuff. Thank you.

Thank you, ladies and gentlemen. That does conclude today's Q&A session and today's conference call. You may all disconnect and everyone have a great day.