Seres Therapeutics, Inc. (MCRB) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Seres Therapeutics second quarter earnings conference call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to Dr. Carlo Tanzi, Vice President of Investor Relations and Corporate Communications. Sir, you may begin.

Thank you, and good morning. A press release with the company's second 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 related to our development plan, 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. David Cook, Chief Scientific Officer, will also be available for Q&A. I'll now turn the call to 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 microbiota has a central role. We use live bacterial consortia, an entirely novel treatment modality, as therapeutic development candidates. We believe that microbiome therapeutics have the potential to address multiple disease states and our R&D efforts target the 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 continued to make strong progress on a number of our late and early clinical and preclinical stage programs. We continue to enroll patients with fully objectively-defined multiply recurrent C. difficile infections in our North American Phase III trial. We have met with the FDA and determined our plan to advance SER-287 into a Phase IIb ulcerative colitis study in the coming months. We obtained the clinical portion of the results from our SER-262 Phase Ib study. The mechanistic insights from this study inform potential development plans for SER-262 and future rationally-designed fermented microbiome therapeutic candidates. We advanced our SER-401 program designed to increase the efficacy of immuno-oncology checkpoint inhibitors and with our collaborators expect to initiate the clinical trial by the end of this year. In addition, we hosted Seres first ever R&D Investor Event in May and presented detailed preclinical and clinical data for a number of our pipeline programs, highlighting immunology and immuno-oncology. So let's begin with a review of SER-109 Phase III program. 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 SR-109 Phase III study. ECOSPOR III is a randomized, placebo-controlled study in approximately 320 patients with multiply recurrent C. diff infection. The design of ECOSPOR III incorporates our key learnings from prior development efforts. We increased the dose of SER-109 approximately 10-fold compared to the Phase II study and have incorporated the more accurate C. diff toxin tests as opposed to a PCR-based assay for both patient selection and in-study endpoint determination to reduce false positives. Based on FDA feedback, we believe that with compelling results ECOSPOR III may serve as a single pivotal study supporting SER-109 approval, which may make SER-109 the first ever FDA approved microbiome therapeutic. ECOSPOR III study enrollment, the top priority for the company, continues to progress forward. We have well over 100 ECOSPOR III clinical sites open across the U.S. and Canada. Several factors have impacted the study enrollment of this orphan disease. In ECOSPOR III, we require that C. diff infection be confirmed by the laboratory detection of the C. difficile toxin. Toxin testing has screened out some individuals, who might have otherwise been included had we used PCR-based testing. However, what is most important is that we include appropriate patients with truly an objectively-active C. diff infection. In addition, the widespread availability of unapproved and unregulated fecal microbiota transplantation approaches has been a challenge for all C. difficile clinical studies. While the use of FMT has, of course, impacted study enrollment, we are confident that the availability of an approved, effective and safe oral microbiome drug would displace the use of these unregulated procedures. We continue to add and implement various operational measures to expedite study enrollment. At this time, we believe it would be premature to provide a time estimate for study completion. Now moving to SER-287, an orally-administered biologically-sourced drug candidate comprised of commensal bacterial species that reside in the healthy human gastrointestinal tract. Our objective with SER-287 is to replace pro-inflammatory bacterial species that are often elevated in patients with ulcerative colitis with commensal bacterial species that modulate inflammation and enhance integrity of the gut barrier. We have made substantial progress preparing for further late-stage development. We reviewed the highly-encouraging Phase Ib clinical and microbiome results with the FDA and gained alignment on the path forward. Based on this feedback, we plan to initiate a Phase - excuse me, SER-287 Phase IIb induction study in patients with mild-to-moderate ulcerative colitis in the coming months. We expect that this study could serve as 1 of the 2 required pivotal induction studies to support product registration. We have obtained orphan designation for SER-287 in pediatric ulcerative colitis and are considering further development in this indication. Our planned SER-287 Phase IIb study will be a randomized, placebo-controlled four-arm induction trial in approximately 268 patients with mild to moderate ulcerative colitis, who are failing their current therapies. In arm A, patients will receive a six-day pre-treatment with oral vancomycin and then receive 10 weeks of the same high-dose regimen used in the most efficacious arm of the Phase Ib trial. In arms B and C, patients will receive two weeks of high-dose [indiscernible] SER-287 followed by eight weeks of a lower dose of the drug. These arms of the study will evaluate pre-treatment with either vancomycin orally or placebo. We believe the microbiome data showing the rapid engraftment following dosing observed in our Phase Ib study provide scientific support for the step-down dosing approach. Recall that by approximately day 10, Phase Ib patients achieved maximum engraftment of SER-287 species and remained stable up to the final four-week time point when samples were obtained. Study arm D will consist a placebo pre-treatment followed by placebo dosing. Consistent with the latest FDA guidance from August 2016, the primary endpoint, the only primary endpoint for this SER-287 Phase IIb study will be clinical remission. However, we also plan to evaluate various secondary endpoints including endoscopic improvement and histological mucosal healing, where we observed encouraging signals in our Phase Ib study. The Phase IIb study is designed to primarily evaluate shorter-term induction dosing. However, we will also evaluate the efficacy and tolerability of longer-term maintenance dosing. SER-287 is a living drug and we have reason to expect that we may observe long-lasting biological and clinical effects. Of note, in the Phase Ib study, we detected no flares in patients treated with SER-287 who obtained clinical remission for a full six months following completion of all SER-287 dosing. The maintenance phase will provide the basis for a final pivotal study that will include both induction and maintenance phases to support product registration. In prior calls, we have reviewed the positive SER-287 Phase Ib study results in some detail, so I won't go over those data again. I would, however, like to discuss some of the more recent supportive microbiome, metabolomic and transcriptomic data that provide key evidence for the biological mechanisms of action for SER-287. Our Phase Ib study was designed with comprehensive sampling of patients' stool, mucosal biopsies and blood to enable an assessment of specific correlates of remission. The engraftment analysis has defined a set of bacterial species that are highly correlated with clinical remission, yielding an affect-based signature. The metabolomic analysis showed significant changes in multiple microbial metabolic pathways that differentiate remitters from non-remitters. This includes aspects of bile acid metabolism, tryptophan metabolism and short-chain fatty acid production. In these and other cases, we have shown that the metabolic - the metabolic products are immunomodulatory in laboratory studies at relevant physiological concentrations. Furthermore, these metabolic products are associated with engrafting species found in SER-287 product, thus directly linking the microbiome changes to affect our molecules made by these bacteria. Most recently, we have analyzed changes in the patients' mucosal transcriptional profiles. These data revealed that multiple pathways including specific cytokine production, epithelial barrier function, innate immune responder sensors and metabolic pathways are differentially modulated in remitting patients as compared to non-remitters. The totality of these data define that some of the specific mechanisms by which SER-287 functions and gives us deep molecular biological insights, as we develop SER-301, our rationally-designed consortium product, that will follow SER-287. Overall, we believe that the consistency of the SER-287 clinical efficacy and engraftment data supporting pharmacodynamic data and favorable safety profile strongly support continued late-stage clinical development. We look forward to initiating the potentially pivotal SER-287 Phase IIb study in the coming months. Now moving to our preclinical stage microbiome therapeutic efforts. We are highly focused on advancing our SER-401 immuno-oncology program into full clinical development. SER-401 is a biologically-sourced microbiome therapy that is designed to replicate the bacterial profile and signature found in patients with a robust response to anti-PD-1 therapy. Our immuno-oncology microbiome program is designed to modify the cancer immune set point and meaningfully improve patient's response to checkpoint inhibitor therapy. The scientific basis for this program is supported by multiple high-caliber publications, which have demonstrated that the composition of bacteria in the gastrointestinal microbiome has an important impact on immunological response to checkpoint inhibitor therapy. Our pre-clinical research is focused on understanding how certain bacterial species impact the response to checkpoint inhibitor therapy. Our internal experiments and data demonstrate the strong role of specific members of the microbiome and anti-tumor response of anti-PD-1 therapy and the impact of the microbiome on specific T cell classes including CD8 and T regulatory cells. In collaboration with the Parker Institute of Immunotherapy and MD Anderson Cancer Center, we are planning to conduct a randomized study in 60 patients with metastatic melanoma where all patients will receive an anti-PD-1 therapy. Anti-PD-1 therapy will be followed by placebo, SER-401 or a microbiota transfer derived from a complete responder to anti-PD-1 in this three-arm trial. Together with our collaborators, we expect to initiate this 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 $27.8 million for the second quarter of 2018, as compared to a net loss of $28 million for the same period in 2017. The second quarter net loss was driven primarily by clinical and development expenses, personnel expenses and ongoing developments of the company's microbiome therapeutics platform. The second quarter net loss figure was inclusive of $4.6 million in recognized revenue primarily associated with the company's collaboration with Nestle Health Science. Research and development expenses for the second quarter were $24.1 million as compared to $23.1 million for the same period in 2017. Q2 2018 R&D expense was primarily related to Seres microbiome therapeutics platform, the clinical development of SER-109, SER-287 and SER-262 as well as the company's immuno-oncology platform. General and administrative expenses for the second quarter were $8.7 million as compared to a $8.4 million for 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 $26.1 million. We ended the second quarter with approximately $96.1 million in cash, cash equivalents and investments. Our guidance is that our current resources will fund the company into Q2 2019. Note that this estimate does not include a $20 million milestone payments that we expect to receive associated with the start of the SER-287 Phase IIb study. In addition, we were evaluating various options to extend our cash runway, including potential new collaborations. The microbiome has been an area of increasing interest among biopharma companies and several groups have expressed interest in the collaboration. We will evaluate any potential collaboration based on the opportunity to accelerate the development of our therapeutic candidates for patients as well as the opportunity to create value for Seres' shareholders. I'll now pass the call back over to Roger.

Thanks, Eric. I want to thank you for your continued interest in Seres and we look forward to keeping you updated on our progress. We are entering an exciting period, where we are looking forward to the initiation of two important clinical studies in SER-287 and SER-401, and we will also continue to make progress enrolling our SER-109 Phase III study. Thank you all for your attention and for your continued interest in Seres, as we pioneer the development of microbiome therapeutics. Operator, let's open the line for questions.

[Operator Instructions]. And our first question comes from the line of Mark Breidenbach from Oppenheimer

Just a couple of quick ones from me. First of all, on the SER-287 Phase IIb trial design, did I hear you say that the total trial size would be 268 patients, and if so, this sounds like it's a little larger than what was outlined during the May R&D Day. Can you just confirm that number for me, and maybe explain where those extra patients are fitting into the trial?

No, thanks for the question. Yes, we - it is the 268 and that's what we agreed with the FDA. It's a little bit larger. As we said, we had - we are continuing negotiations with the FDA. There was a very positive - we want this, as we've said to be, potentially a pivotal trial and with that comes the ability to have both safety and efficacy that is statistically significant and more than that is compelling, and so that is why the trial is at this size. The statistics are agreed on with the FDA and we again look forward to not just making this a IIb but potentially a pivotal that will be in 1 of the 2 pivotal trials needed in UC for approval.

And they're definitely not asking for vancomycin followed by placebo treatment arm correct.

The FDA has not mentioned that to us ever.

And just a quick one on ECOSPOR III. I'm just wondering if - one potential strategy to accelerate enrollment in the trial, could you be looking at ex-U.S. and ex-Canadian territories that maybe you wouldn't be competing so much with FMT or any considerations by looking at foreign sites.

Sure. I just wanted to add one thing to 287 and then I'll go back to 109. I do think that one of the reasons is that, that the FDA has never asked us about a vanco-only arm is that, we all agree and then literature and the KOLs agree that vanco alone does not work in this disease. That being said, let's get to 109 - this is a very high priority for the company. We've made many changes in study tactics, in particular, site engagement is paramount; opening more sites, we have done that. We want to have only good sites are open, as someone who has been in large pharma, much of this career, you don't want sites that are open but not for recruiting. So we want - it's not only the numbers, it's the quality of the sites and we've continued to look for those. I can tell you, one of the things that I would point out besides the three reasons that this is a difficult barrier to recruit in, as we've seen and as Merck has seen with their monoclonal antibody study, which took three years. We find that multiply recurrent orphan population is very important in understanding recruitment. Orphan populations - and which is what this is, this is not a rare disease, this is not primary or general studies in medicine. Orphan populations frequently have variability in monthly recruitment because you have to find these patients, meaning we do, our investigators have to - and that's what we've seen, we've seen variability on monthly basis and which is - and this is the main reason why we think it is premature to provide guidance for completion of the study enrollment. We want to be accurate and when we deal with a variable orphan disease, give us some time. We don't want to - we know everyone wants to know when this will complete, but with that variability, it's important that we get a real good idea before we provide guidance. It is also important to note that we still hold, as do the KOLs, a view that there is a tremendous need for better C. diff treatments in this area and that belief remains unchanged. We do expect, and I'll say it again, as I said in the script, that once an approved effective oral microbiome therapy becomes available, this will displace all the bruise of FMT and the drug will be widely adopted. That's what we're working for. The patients are waiting and that is where we're - that's where we are at this point moving forward in this orphan disease.

But no plans to open trial sites outside of U.S. and Canada as of right now?

As of right now, no. Obviously, we're working with our good colleagues and collaborators at Nestle Health Sciences to - we've been in front of the EMA multiple times. We may start sites there, but we're not planning it right now.

And our next question comes from the line of Vernon Bernardino from Seaport Global.

Just wanted to - hopefully, I didn't miss this, regarding the SER-287 studies, you mentioned that the Phase IIb could be a pivotal trial that serve as 1 or 2 required studies for product registration. Do you anticipate that the Phase IIb also will be somewhat exploratory such that the second study would need to be a full on Phase III?

Yes. So we are planning to have an exploratory maintenance phase in this. As you remember, as, and I said a little bit in the script, we didn't see any flares in the patients who were in remission off drug for six months. It's a small number, we don't want to get ahead of our skis, but that was interesting to us. I think it was interesting to when we talk to the regulators. We will put in an exploratory maintenance phase in this and then with some data there that is positive, we would certainly add a maintenance phase to the next trial. We are looking for induction, but we are also looking for maintenance.

And then switching gears to 401, will that study be an investigator initiative or sponsored by and conducted by Seres?

Like I said, this is a consortium of MD Anderson, Seres and the Parker Institute. Parker takes the IND lead on this, but I can tell you this is a study that Seres will be directly involved in as we make 401 and work with our collaborators to get it to patients.

And I'm showing no further questions at this time. I'd now like to turn the call back to the speakers for closing remarks.

Sure. Seres, excuse me - yes, this is Roger. So - I just want to close by thanking you all for your continued interest in the microbiome and in Seres Therapeutics. I will look forward to continuing to keep you updated on all our progress. I will now end today's call.

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