Seres Therapeutics, Inc. (MCRB) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Seres Therapeutics Earnings Conference Call. [Operator Instructions]. As a reminder this call is being recorded. I would now like to introduce your host for today's conference Carlo Tanzi, Vice President, Investor Relations and Corporate Communications. Sir, you may begin.

Thank you, and good morning. A press release with the company's first quarter 2018 financial results and a business update became available at 7 A.M. Eastern Time this morning and can be found on the Investors & Media section of the company's website. I'd like to remind you that we'll be making forward-looking statements relating to our development plans, the ability of ECOSPOR III to support SER-109 approval, the promise and potential impact of any of our microbiome therapeutics or clinical trial data, our plans to initiate clinical studies of SER-287 and SER-401, the timing and results of any clinical studies and the sufficiency of cash to fund operations. Actual results may differ materially. Additionally, these statements are subject to certain risks and uncertainties, which are discussed under the Risk Factors section of our recent SEC filings. Any forward-looking statements made on today's call, represent our views as of today only. We may update these statements in the future, but we disclaim any obligation to do so. On today's call, I'm joined by Dr. Roger Pomerantz, Seres' President, CEO and Chairman; and Eric Shaff, Chief Operating and Financial Officer. Roger?

Thanks, Carlo, and thank you all for joining us. Seres is focused on developing new therapeutics for serious human diseases, where dysbiosis of the gastrointestinal microbiome is thought to play a central role. We are using live bacterial consortia, an entirely new treatment modality as the therapeutic development candidates. We believe that microbiome therapeutics have the potential to address multiple disease states and our R&D efforts target therapeutic areas where compelling preclinical and clinical data indicate that the microbiome is important, such as, infectious diseases, metabolic diseases and inflammatory and immune diseases, including immuno-oncology. Seres has made continued strong progress on a number of our clinical and preclinical stage programs. 1; we continue to enroll patients with objectively defined multiply recurrent C. diff infection into our Phase III trial across North America. 2; we have made progress in advancing our SER-287 program for ulcerative colitis into further late-stage clinical development. 3; we obtained important learnings from our SER-262 Phase 1b study results, the first ever rationally designed, synthetically fermented microbiome therapeutic to reach clinical development. The mechanistic insights obtained from this program will inform how we advance SER-262 as well as future synthetic microbiome therapeutic candidates. And number 4; we also continue to make significant progress in our preclinical stage programs, including our SER-401 program designed to increase the efficacy of immune oncology checkpoint inhibitors. So let's begin with SER-109. To remind you, SER-109 has received both Breakthrough and Orphan Drug designations from the FDA for the treatment of multiply recurrent C. diff infection. Last year, we began ECOSPOR III, our SER-109 Phase III study based on the extensive learnings we obtained from our prior SER-109 trials. ECOSPOR III is randomized placebo-controlled study in 320 patients with multiply recurrent C. diff infection. The design of ECOSPOR III incorporates our key learnings from our prior development efforts. We've increased the dose of SER-109 approximately 10-fold as compared to the Phase II. In addition, we have incorporated the more accurate C. diff toxin test as opposed to a PCR-based assay for both patient selection and in-study endpoint determination to reduce false positives. We now have over 100 ECOSPOR III clinical sites open across the U.S. and Canada. We continue to make progress in enrolling ECOSPOR III a top priority for the company. Based on FDA feedback that we've received, we believe that with compelling results, ECOSPOR III may serve as a single pivotal study supporting SER-109 approval as the first ever microbiome therapeutic. Now moving to SER-287. SER-287 is an orally administered, biologically sourced drug candidate comprised of commensal bacterial species that reside in the healthy human gastrointestinal track. Multiple randomized placebo-controlled clinical studies with fecal transplants support our conviction that the microbiome will be an important therapeutic modality in ulcerative colitis. These studies provided compelling proof-of-concept data supporting our microbiome approach in this indication, demonstrating that modulation of the microbiome of ulcerative colitis patients via repetitive fecal microbiota transplants, results in improved clinical outcomes, including endoscopic improvement. Our objective with SER-287 is to replace proinflammatory bacterial species that are often elevated in patients with ulcerative colitis with commensal bacterial species found in healthy individuals. We thus seek to alter the immunological tone in the gut, decreasing inflammation and inflammatory signals from the microbiota. We have previously reported encouraging results from our SER-287 Phase 1b study in patients with ulcerative colitis. Our SER-287 Phase 1b study was a randomized double-blinded placebo-controlled multiple regimen trial in 58 patients with active mild to moderate ulcerative colitis who were failing their currently prescribed therapies. Study subjects were assigned to 1 of 3 SER-287 treatment arms or a placebo arm. The SER-287 arms in this induction study included a daily dosing arm with vancomycin pretreatment, a weekly dosing arm with vancomycin pretreatment and a weekly dosing arm without vancomycin pretreatment. The short course of 6 days of oral vancomycin was included in the study to open an ecological niche in patients existing microbiomes to enable more robust engraftment of SER-287 bacterial species. To remind you of the efficacy that we reported, in a prespecified missing data counted as failure analysis, 40% or 6 out of 15 patients reached clinical remission as compared to 0%, 0 of 11 patients in the placebo group. This result was statistically significant with a p-value of 0.024. Study results demonstrated a dose dependent response in remission, endoscopic improvement, histopathological measures and microbiome engraftment. We observed the most meaningful impact in patients administered vancomycin pretreatment followed by daily treatment with SER-287, supporting the concept that vancomycin pretreatment conditions the gastrointestinal tract for optimal SER-287 microbiome engraftment. The data also revealed a signature of engrafting bacterial species that were correlated with clinical remission. Notably, we also previously reported preliminary data from our SER-262 Phase 1b study where we demonstrated that pretreatment with vancomycin followed by SER-262 resulted in statistically, significantly more robust and kinetically more rapid engraftment of SER-262 bacterial species as compared to patients treated only with metronidazole. Thus, data from both the SER-287 and SER-262 studies have provided Seres with vital proprietary human clinical data that inform us of the optimal conditions for microbiome engraftment in differing human disease states. Now the SER-287 safety and tolerability profile observed in the Phase 1b study was very favorable. Phase 1b results demonstrated no imbalance in adverse events in SER-287 treated subjects and there were no drug related serious adverse events. The favorable SER-287 safety profile observed was consistent with our expectations based on the use of naturally occurring commensal bacteria comprising our therapeutic candidates. We believe that the favorable safety profile of our drug candidates is an important benefit of our approach and we believe this safety advantage should enable accelerated future development. We have also previously described the robust and durable SER-287 engraftment observed in treated patients. We recently obtained additional microbiome and metabolomic data that we believe provide further mechanistic support for SER-287 efficacy. Some of these data are quite detailed and we look forward to discussing the data in depth at our upcoming R&D event that we will be holding on May 24th in New York City. Overall, we believe that the consistency of the SER-287 clinical efficacy and engraftment data that support a pharmacodynamic data and the favorable safety profile, strongly support continued clinical development. We have continued to make progress towards advancing SER-287 toward the initiation of the next clinical study. Positive dialogue has been ongoing with the FDA where we have reviewed the Phase 1b study results and initial plans for further SER-287 development. Our dialogue with the FDA has been constructive and we recently obtained feedback regarding specific elements of our next planned clinical study. While the specifics of this study are now being finalized, we are still planning to conduct a larger SER-287 induction study in patients with mild to moderate active ulcerative colitis. We intend to initiate this next clinical study in the middle of this year. We will discuss this upcoming trial in more detail at our upcoming R&D Day. Now, moving to our preclinical stage microbiome therapeutic efforts, we are highly focused on advancing our SER-401 immuno-oncology program into clinical development. Our immuno-oncology microbiome program is designed to modify the cancer-immune set point and hopefully meaningfully improve patients' response to checkpoint inhibitor therapy. The scientific basis for this program is supported by multiple high profile recent studies that demonstrate that the composition of bacteria in the gastrointestinal microbiome have important impact on the immunological response to checkpoint inhibitor therapy. The colon is the body's largest immune reservoir, and our own recent important animal data showed that T-cells traffic through the colon and are educated by the microbiome to enhance the response to checkpoint inhibitors. Our preclinical research is focused on understanding how certain bacterial species impact to response to checkpoint inhibitor therapy. Last month, we presented some of our foundational preclinical results in the American Association for Cancer Research Conference in Chicago. These data demonstrate the critical role of the microbiome in the anti-tumor response of anti-PD-1 therapy. Remarkably, the activity of anti-PD-1 inhibitors in these models require a functional microbiome and our research shows that specific lymphocyte classes including CD8 T regulatory cells traffic through the gut and are linked to activity in the tumor. Seres is also leveraging synergistically are human data in ulcerative colitis patients which give us direct insight into the bacterial species and metabolites that modulate immune cell subsets. I will also mention that while our initial focus has been on the impact of the microbiome on checkpoint inhibitor therapy, a recent paper published in February in JCI Insight has shown that the microbiome can also alter the activity of CAR T therapies in animal tumor models. We now look forward to moving this promising research forward towards clinical development in collaboration with both the Parker Institute for immunotherapy and the MD Anderson Cancer Center. We expect to initiate a clinical study later this year to evaluate the potential for SER-401 to augment anti-PD-1 responses in patients with metastatic melanoma. I'll now pass the call to Eric to review our recent financial performance.

Thanks, Roger, and good morning everyone. Seres reported a net loss of $27.9 million for the first quarter of 2018 as compared to a net loss of $25.5 million for the first quarter of the prior year. The first quarter net loss was driven primarily by clinical and development expenses, personnel expenses and ongoing development of the company's microbiome therapeutics platform. The first quarter net loss figure was inclusive of $4 million in recognized revenue, associated primarily with a company's collaboration with Nestlé Health Science. Research and development expenses for the first quarter were $23.5 million, as compared to $20.1 million for the same period in 2017. The R&D expense was primarily related to Seres microbiome therapeutics platform, the clinical development of SER-109, SER-262 and SER-287 as well as the company's immuno-oncology preclinical programs. General and administrative expenses for the first quarter were $8.8 million unchanged compared to the same period in the prior year. G&A expenses were primarily due to headcount, professional fees and facility costs. The decrease in our cash, cash equivalents and investments balance during the quarter was $27.8 million. Seres ended the first quarter with approximately $122.2 million in cash, cash equivalents and investments. Cash resources are expected to fund operating expenses and capital expenditure requirements, excluding cash inflows or outflows from future business development activities or potential incoming milestone payments through at least the next 12 months. Seres is also eligible to receive a substantial milestone payment that is not considered in the financial guidance update associated with the planned initiation of the next SER-287 clinical study. Previous milestones have represented a meaningful offset to Seres expenses and we expect that potential future milestones may also partially offset Seres operational investment. I'll now pass the call back over to Roger.

Thanks, Eric. I want to thank you for continued interest in Seres and we look forward to keeping you updated in our progress. As I mentioned, we will be hosting an upcoming webcast R&D Day -- our first R&D Day where we plan to discuss our microbiome approach and our pipeline programs in more depth. Given the exciting recent activity mentioned related to IVD and immuno-oncology, we will focus this event on the role of the microbiome in immune biology. This first R&D Day for Seres will be held on May 24th and will feature both our own clinicians and scientists as well as prominent external academic experts. Thank you all for your attention and for your continued interest in Seres and our pioneering microbiome therapeutics. Operator let's open the line for questions.

[Operator Instructions]. Your first question comes from Terence Flynn with Goldman Sachs.

Hey, this is Jason Jakoby on for Terence. Can you share any of the feedback that you received from the FDA on 287, specifically, just what should we expect for the trial design and will it be registration enabling?

Yes. No, thanks for the good questions. Yes, we were very happy with the responses that we've received from the FDA. As usual, as I've said before on these calls, the group has been very collaborative with us. I would like to wait until we finalize the trial and the end of our discussions with them. And I would just point out that much of what you asked we will discuss in more detail at the R&D Day. Right now, we've just heard back from the FDA. As I said in the script, we feel strongly that we will go into the next trial. And as soon as we've finished the dialogue, at R&D Day we'll talk more about it. Thank you.

Your next question comes from Chris Shibutani with Cowen and Company.

This is Pam Barendt on for Chris Shibutani. Just wanted to ask a little bit about SER-109. Do you have any framework for how we should think about when we might receive updates on enrollment for that?

Yes, we will, as I said, be providing updates on enrollment for this drug. It is an Orphan Drug I'm very happy to say that we have well over 100 sites now in the U.S. and throughout Canada. Certainly the biggest site trial for multiply recurrent C. diff ever done. And I'll remind you it is an orphan disease. We're looking for every orphan patient throughout the continent. And we'll give feedback when we know exactly when we can meaningfully predict Last Patient In, LPI.

And if I can just ask one more.

Sure.

Looking forward to R&D Day, can we look forward to thinking about at that R&D Day any discussion of strategic partnership outside of academia in the realm of immuno-oncology as well as different indications?

Yes, so we're -- as I've always said, we're always open to strategic partnerships that the -- two things, create value for our company, but most importantly, value for our patients in moving drugs as rapidly, but as safely to them as possible. We are in constant dialogue. Obviously, we have lots of drugs both in clinical and preclinical development with what's becoming large armamentarium. So I can't make any promises. But I can tell you we always talk about what's the best way to get each of these drugs to patients. Sometimes it includes a partnership. As you know, we did what I think is a great one for both companies with Nestlé Health Science, so stay tuned.

Your next question comes from Mark Breidenbach with Oppenheimer.

First, a quick one on ECOSPOR III SER-109. I know you can't comment on enrolment timelines. But I was wondering if they are plans to open any EU sites. You mentioned there are over 100 sites opened all in the U.S. and Canada, what about Europe?

Yes, that's a great question. So we are keeping this in North America. We think that that would be best way of getting the most objective best qualified patients into this trial without getting too diverse. But we are very interested in Europe. Obviously, working with Nestlé Health Science, we've been in front of those regulators a number of times. We've had very positive responses and they're assuming that we have continued good data. We look forward to doing a trial in Europe. But at this time, we're concentrating in putting all our effort into North America and finishing this 109 pivotal trial as rapidly as possible. But most importantly, making sure as I sort of outlined, that we get only the best patients, the ones that definitely have recurrent C. diff and within our trial, we objectively now measure who fails and who doesn't. So it's rapid, but the best patients.

And just couple on SER-287.

Sure.

First of all, I'm wondering if there are any plans in addition to an induction studies to also at SER-287 in a maintenance setting? And also second part of the question is, are there any expected changes in formulation between what you use in Phase 1b and the next trial? I recall in SER-109, there were some changes. Anything similar...

Those are both great questions. So starting with the first. We are considering maintenance. I want to just remind you, it's a very small trial, but it was a very interesting data where with all the patients that were in clinical remission with SER-287 we followed them for 6 months off of drug and none of them flared. Small dataset, but interesting. So when we think about maintenance, we have to take that into consideration. Certainly, we will talk with our colleagues at the FDA and think about if and when maintenance therapy should be sought out. Again, I really am intrigued by the fact that even in a small trial we did not see flares with -- off of drug. We, as a commented before, think about the microbiome as a living drug, so that unlike TNF inhibitor or small molecule, were you turn it off, it goes to zero with T1/2. Here it continues, so maintenance is an interesting area that maybe something that we can help patients with. Your second question with on CMC, there is no plan to make changes in formulation for the next trial with CMC. I can even tell you that we have most of that already made and banked as we do most of our trials, so -- but no changes in formulation.

We're looking forward to see you guys on May 24th.

Looking forward to you being there.

Your next question comes from John Newman with Canaccord Genuity.

Hey, John.

This is David Jones [ph] associate on for John. So could you talk to us about how you use vancomycin ahead of therapy in the planned induction study in patients with active mild to moderate UC?

Yes, as I said, we think this is a huge learning in humans that only we have, which is that there does seem in multiple disease states for the best engraftment of microbiome. And when I say best, it's not only the degree of engraftment, it's the kinetics of engraftment, how fast it engrafts. And what we've shown is that when you create an ecological niche in both inflamed and non-inflamed colons, you get better engraftment. Vancomycin is an interesting drug when given orally, because there are almost no AEs associated with it unlike IV vancomycin. And it has a major effect on the areas in the microbiome that we want to create enough ecological niche for our drug to then repopulate as a foundation for the new ecosystem that we're creating. We, right now, think that in many of these cases whether it's 287, 109, 262, and we can even say potentially in 401, that a short course of vancomycin may allow and data suggests does allow faster and higher engraftment, which is something that we want. Thank you.

And I'm sure no further questions at this time. I'd like to turn the call back over to the company for closing remarks.

Sure. Thank you very much. This is Roger. Thank you. I want to just say to everyone on the call thank you for your continued interest in the microbiome and in Seres Therapeutics. I will look forward to seeing many of you at our R&D Day in a few weeks in New York City. It is going to be a very interesting day. And I will now end today's call and see you all there. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you all may disconnect. Everyone have a wonderful day.