Seres Therapeutics, Inc. (MCRB) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Q1 2019 Seres Therapeutics Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded. At this time, I would like to turn the conference call over to Dr. Carlo Tanzi, Vice President of Investor Relations and Corporate Communications. You may begin.

Thank you, and good morning. A press release for the Company's first quarter 2019 financial results and a business update became available at 7:00 a.m. Eastern Time this morning and can be found on the Investors & Media section of the Company's website. I would like to remind you that we'll be making forward-looking statements relating to the timing, enrollment and results of our clinical studies, including changes related to the design of our ECOSPOR III study, regulatory matters, study designs, our development plans, our potential competitive advantages, the promise and potential impact of our microbiome therapeutics or clinical trial data and the sufficiency of our cash and cash equivalents 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 Eric Shaff, Seres' President and CEO; and Dr. Kevin Horgan, our Chief Medical Officer. Dr. Matt Henn, our Chief Scientific Officer, is also here and will be available for the Q&A portion of this morning's call. And with that, I'll pass the call to Eric.

Thanks Carlo, and good morning, everyone. 2019 has been a period of exciting and meaningful progress for Seres. We have taken important steps in recent months to support our goal of rapidly driving towards multiple microbiome pipeline readouts: Namely, we have new leadership with my appointment as President and CEO, the appointment of Kevin Horgan as Chief Medical Officer, and the promotion of Matt Henn to Chief Scientific Officer. We have focused the Company's pipeline on our highest priority programs. We have reduced cash burn and streamlined our workforce. We have initiated two new clinical studies with SER-287 and SER-401, and we entered into an exciting new collaboration with AstraZeneca that combines our capabilities in the microbiome with their capabilities on oncology, while providing additional cash and resources to Seres. I was honored to be appointed President and CEO in January, and I'm excited to lead Seres forward. I feel privileged to work with the team that is focused on making a meaningful difference in the lives of patients through microbiome therapies. We're focused, we work with a sense of urgency, and we're committed to delivering value. My intention was and remains to take whatever actions that are required to best position the Company to advance our development programs, serve patients and create value for shareholders. You have seen decisive actions from us following my appointment and you will continue to see decisive action. Looking forward, our Company is pursuing a two-pronged clinical strategy. First, we're working to rapidly achieve readouts for our three highest priority clinical studies, SER-287 for ulcerative colitis, SER-109 recurrent C. diff infection, and SER-401 for metastatic melanoma. Second, we're advancing our next-generation rationally designed fermented microbiome therapeutic capabilities with SER-301 for ulcerative colitis as our lead program. Each of our pipeline programs is supported by solid scientific and clinical data, and we're optimistic about the therapeutic potential as well as the sizable commercial opportunity of each program. Supporting these four programs are Seres' field-leading capabilities related to microbiome therapeutic drug discovery, manufacturing and clinical development. We believe that these capabilities provide Seres with important competitive advantages related to drug development with this novel treatment modality. Seres has a clear path to reaching important milestones, and we expect 2020 to be a data-rich year with important milestones for each of our four prioritized programs. This will include readouts from our two late-stage programs, starting with SER-109 in early 2020. We have continued to make progress advancing our pipeline, which Kevin will discuss in further detail. Following Kevin's comments, I will provide additional detail on our goals and our strategy and how the upcoming period represents a significant opportunity for the Company, for our shareholders and especially for the patients we're seeking to help with our microbiome therapeutic candidates. Kevin?

Thank you, Eric. Seres is developing new microbiome-based therapeutics for serious human diseases. Our drug candidates contain consortia of live bacterial spores, designed to remodel the human gastrointestinal microbiome, impacts downstream biological processes and address target disease states. There is both preclinical and clinical evidence suggesting that modification of the gastrointestinal microbiome with our drug candidates has the potential to improve patient outcomes. I'll begin with SER-287, which is in Phase IIb for ulcerative colitis. SER-287 is an orally-administered donor-derived living drug candidate comprised of commensal bacterial spores derived from the healthy human gastrointestinal tract. Our overall objective with SER-287 is to develop a first-in-class microbiome therapeutic for ulcerative colitis that effectively modulates the microbiome as a root trigger of inflammation. We believe this has the potential to result in significant improvements in patient outcomes. SER-287 will potentially provide a novel, non-immunosuppressive treatment option for this serious disease. We're enthusiastic about SER-287 based on several lines of supporting data as well as the significant need for improved therapeutic options in ulcerative colitis, particularly in the mild-to-moderate ulcerative colitis patient population that our clinical trial is targeting. There are three independent data sets supporting the program. First, patients with ulcerative colitis can have a gastrointestinal microbiome rich in pro-inflammatory bacterial species. Second, several published clinical studies have suggested that fecal microbiota transplantation, FMT, can result in clinical remission. Thus providing proof-of-concept for the impact microbiome modulation on ulcerative colitis. And third and most notably is our own body of compelling clinical data. We have successfully completed a SER-287 Phase Ib proof-of-concept study in 58 patients with active mild-to-moderate ulcerative colitis. The study showed a statistically significant difference in clinical remission rate between patients treated with vancomycin followed by daily 287 for eight weeks compared to the placebo group. 40% remission rate with SER-287 versus 0% with placebo. In the months following the release of our initial clinical results, we obtained additional microbiome metabolite and transcriptomic data sets that provide important mechanistic support for the observed clinical therapeutic activity. In addition, the safety profile for SER-287 was comparable to placebo, with no imbalance and adverse events seen in patients administered SER-287 compared to placebo and no drug-related serious adverse events. In December of 2018, supported by these strong results, we initiated our SER-287 Phase IIb ECO-RESET study. Based on written FDA feedback, we expect that the ECO-RESET study could serve as one of two pivotal studies to support product registration. We are also pleased to announce this morning that Seres has recently received FDA Fast Track designation for SER-287. The SER-287 ECO-RESET study is a randomized placebo-controlled three arm induction trial that will enroll approximately 201 patients with active mild-to-moderate ulcerative colitis who have failed prior therapy. In the first of three arms, patients receive vancomycin pretreatment followed by 10 weeks of the same daily regimen used in the arm of the Phase Ib trial that showed the highest clinical remission rate. In the second arm, patients also receive vancomycin pretreatment followed by two weeks of the same SER-287 daily regimen as in the first arm, followed by eight weeks of a lower dose. In the third arm, patients receive only placebo. ECO-RESET will evaluate induction dosing. In addition, we are also evaluating longer-term maintenance dosing of SER-287 in the study. Results from the Phase Ib study suggested that SER-287 bacterial engraftment in gastrointestinal tract was durable one month after the completion of dosing. In ECO-RESET, we will confirm that SER-287 provides sustained clinical benefit as suggested in the Phase Ib study. In that study, those patients achieving clinical remission with SER-287 did not experience a disease flare in the subsequent 26-week period following study initiation, suggestive of a sustained treatment effect. Such a sustained therapeutic effect would have important clinical implication and also potentially indicate that SER-287 by modulating the microbiome is addressing a fundamental inflammatory process that defines ulcerative colitis. The SER-287 ECO-RESET study initiated in December. We've been very pleased with the enthusiasm of site investigators and patients. Study start-up and recruitment are progressing as planned. We expect to complete ECO-RESET enrollment by mid-2020 and report top line data in the third quarter of 2020. I'll now turn to the SER-109 ECOSPOR III Phase III study. SER-109 is designed to restore the health and diversity of the microbiome, resulting in pathogen resistance that reduces the rate of C. diff infection recurrence. The rationale for the initial development of SER-109 was supported by proof-of-concept data related to the current medical use of fecal microbiota transplantation, or FMT, to treat fetus infection as well as our completed Phase I and Phase II study results, which provide evidence supporting biological activity. ECOSPOR III is a randomized placebo-controlled study where all patients are treated with standard-of-care antibiotics to address the qualifying acute C. diff infection and subjects then receive either SER-109 or placebo. The primary endpoint compares to C. diff recurrence rate in subjects who receive SER-109 versus placebo at up to eight weeks after dosing. As of April 30, 2019, ECOSPOR III had enrolled 135 patients. As previously discussed, study enrollment has been slowed by the widespread use of unapproved FMT and also by the ECOSPOR III study inclusion criterion, which requires a positive C. diff cytotoxin test result. This latter requirement was implemented to ensure that patients with an active C. diff infection are enrolled. And we believe this meaningfully enhances the clinical and scientific rigor of the study. Since the initiation of the ECOSPOR III study in mid-2017, a number of actions have been implemented to expedite study enrollment. Immediately, after I joined Seres last fall, optimizing the execution and study design of the SER-109 study became a primary area of focus for me and my clinical team. In January of this year, with the approval of the FDA, we made a protocol change to allow ECOSPOR III patients who recur prior to the eight week primary endpoint assessment to obtain open label SER-109 immediately, rather than having to wait until the end of the eight week assessment period. After careful consideration, we recently made the decision to modify ECOSPOR III to reduce the number of patients from 320 to 188. The original study was designed to both evaluate SER-109 efficacy and provide a comprehensive assessment of safety in order to potentially serve as a single study enabling BLA submission. In order to rapidly obtain meaningful clinical data, a revised study design has been implemented with the goal of expediting a rigorous efficacy assessment of SER-109. We expect the complete enrollment of ECOSPOR III by the end of 2019 and report top line data in early 2020. The size and powering calculations of the modified ECOSPOR III study were informed by a number of inputs, including data sets that we have obtained since starting the study. Informing our analysis our SER-109 Phase II study results for patients who are confirmed to have C. diff infection by cytotoxin assay and an analysis of published C. diff infection trial data using diagnostic criteria based on cytotoxin assays. In addition, we have analyzed preliminary blinded and open label C. diff infection recurrence rate data from ECOSPOR III. Based on all of these data sets, we believe that a 188-patient study with 94 patients per arm provide statistical power to demonstrate SER-109 efficacy in patients with recurrent C. diff infection. In previous communications with the FDA regarding a potential reduction in ECOSPOR III study size, the agency indicated that if the statistical significance of the outcome of the study is insufficient for product registration, the company could be required to obtain additional confirmatory evidence of efficacy such as the second Phase III study. Reducing the study size will likely require additional patient exposure to further establish safety. We believe that this study revision is optimally designed to provide statistically rigorous efficacy data in early 2020. Furthermore, based on the historical safety results observed in all of our microbiome therapeutics clinical trials to date, we expect to be able to work with the FDA to satisfy additional safety requirements, if needed. Seres has informed the FDA of the ECOSPOR III study modification, and we plan to further discuss with the agency options to expedite SER-109 registration. Moving to our SER-401 program. SER-401 is an oral microbiome therapeutic candidate, comprising a bacterial signature similar to that observed in the gastrointestinal microbiome responders to checkpoint inhibitor immunotherapy. This microbiome therapeutic candidate is designed to modify the cancer immune set point and improve patient's response to checkpoint inhibitor therapy, which is a significant unmet medical need. The scientific basis for SER-401 is supported by published findings from our collaborator, Dr. Jennifer Wargo of MD Anderson Cancer Center, indicating that a specific constellation of bacteria in the gastrointestinal microbiome can have an important impact on the clinical and immunologic response to checkpoint inhibitor therapy. Analyses of additional human data sets and preclinical research, including data we presented at the American Association for Cancer Research meeting in March had extended and refined these findings. Last month, we initiated a randomized placebo-controlled SER-401 study in collaboration with the Parker Institute for Cancer Immunotherapy and MD Anderson Cancer Center. This is a Phase Ib study, which will enroll 30 patients with metastatic melanoma, with all patients receiving nivolumab, an FDA approved anti-PD-1 therapy. Patients are randomized at a 2:1 ratio to either SER-401 or placebo. The study will evaluate safety and also evaluate tumor biopsies and various clinical immunologic and biomarkers of response. We expect to obtain SER-401 Phase Ib study preliminary results in 2020. Seres recently announced a collaboration with AstraZeneca to focus on advancing a mechanistic understanding of the microbiome with the goal of augmenting the efficacy of cancer immunotherapy. Under the terms of the collaboration, AstraZeneca has agreed to provide Seres financial milestones as well as support for research activity related to the collaboration. We're very pleased to be collaborating with AstraZeneca, a global leader in oncology. Through this collaboration and through our SER-401 Phase Ib study, we hope to meaningfully advance our understanding of the potential for microbiome therapeutics in cancer therapy. We also continue to advance our preclinical development of SER-301, a rationally designed fermented microbiome therapeutic candidate for the treatment of ulcerative colitis. The design of SER-301 incorporates mechanistic insights from our prior human clinical data set. More specifically, we have utilized learnings on the dynamics of engraftment of specific bacterial species, the association of particular species with clinical remission and our proprietary understanding of the metabolites produced by various bacterial species, able to modulate inflammatory and immunologic functional targets of interest. We continue to make excellent progress with SER-301 and our capabilities to rationally design fermented microbiome therapies in general. We expect to submit an investigational new drug application and initiate clinical development for SER-301 in early 2020. I'll now pass the call back to Eric to provide concluding remarks.

Thanks, Kevin. I'll provide a brief overview of our financials and I will note that additional detail is included in the press release we issued this morning. Seres reported a net loss of $24.3 million for the first quarter of 2019 as compared to a net loss of $27.9 million for the same period in 2018. 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. Seres ended the first quarter with approximately $53.6 million in cash and cash equivalents. The ending cash balance did not include the first three installment payments due under the terms of the collaboration with AstraZeneca of $6.7 million, which we received in April 2019. Based on our current operative plan, cash resources are expected to fund operating expenses and capital expenditure requirements, excluding net cash flows from future business development activities or potential incoming milestone payments into the fourth quarter of this year. Before we move to Q&A, I would like to elaborate on the recent progress and highlight anticipated upcoming pipeline milestone. As I noted at the beginning of the call, we have taken decisive action during the last several months to prioritize our pipeline and obtain key clinical data as quickly as possible. Our objective with these changes is to best position Seres to achieve important near-term value-creating milestones. As Kevin discussed, one change we announced today was the modification of ECOSPOR III and I want to provide a little bit more context. In 2017, we designed and initiated ECOSPOR III with the goal of enrolling 320 patients to both obtain conclusive efficacy data and to develop a comprehensive safety database that would with favorable study results directly enable a BLA submission. The 320-patient design was constructed with a hope of accomplishing all objectives at once, answering all questions and satisfying all potential obligations. Since that period, Seres has evolved as a company and consistent with our actions over the last several months, we have taken a fresh look at our objectives and goals, combined with obtaining important new information about SER-109, which has informed our study assumptions. We believe that the modified ECOSPOR III study design provides the most direct and rapid route to obtain clear evidence of SER-109 efficacy. I am committed to making the optimal decisions to create value for patients and shareholders. Together with our leadership changes, our corporate focus and prioritization, our recent transaction with AstraZeneca and our commitment to delivering milestones in a relevant time frame, I strongly believe that the ECOSPOR III revision maximizes the company's and our stakeholders' chances for success. Looking across our pipeline, we've a lot that we're excited about. We believe that each of our development candidates are supported by promising a mechanistic and clinical data, and we look forward to obtaining our next clinical data sets from each program. We expect 2020 to be a data-rich period for Seres with four meaningful company milestones expected, including our two late-stage programs to summarize our upcoming milestones. We expect to complete enrollment of the SER-287 Phase IIb ECO-RESET study by mid-2020 and obtain top line data in the third quarter of 2020. We expect to complete enrollment of the SER-109 ECOSPOR III study by late 2019 and obtain top line data in early 2020. We expect to obtain SER-401 Phase Ib study preliminary results in 2020, and we expect to initiate SER-301 clinical development in early 2020. You have seen recently and I believe that you will continue to see increased momentum across the industry targeting microbiome therapeutics. With our upcoming clinical milestones, we have a unique opportunity to lead this new modality forward. As I conclude, I'd like to thank all the patients involved in our clinical studies, our employees and our investors for your continued support. Operator, let's open the line now for questions.

[Operator Instructions] Our first question coming from the line of Chris Shibutani from Cowen. Your line is now open.

This is Pam Barendt on for Chris. Thanks so much for taking my question. A couple of ones actually. The first one would be regarding 109. You mentioned that a statistical significance for some reason would not be obtained, that another study would be needed. While that's clear, is there any potential you're seeing currently for having a second study be required even if statistical significance is obtained? Thanks.

Let me take that, Pam. Thanks for the question. I think what you're driving at is does this have the potential to be one pivotal study. And the answer is that it may or may not and let me be more specific. So the 320 study design was constructed to satisfy all potential obligations, including the accumulation of a safety database that would support BLA, right? So as a result, the 320 was called overpowered statistically. Reducing the size to 188, still allows us to reach a statistically rigorous result and importantly, to do so in a critical and relevant time frame. Now our assumptions are informed as Kevin mentioned in his prepared remarks by a set of data that we have available today and ensure the -- the overall study is blinded and the open label data that we have is a relatively small end. But collectively, these data points give us confidence to move forward. And if they didn't, then we wouldn't. So let me be clear. If we have a positive efficacy read in early 2020 that we think will be hugely impactful for patients, for the company and frankly for the microbiome field, we will look forward to engaging in a dialogue with the FDA to determine what the right next steps are in that circumstance, whether it's additional clinical work or additional patient exposure to support safety, we think that this is the right decision today. And we would be happy to be in that position.

And if can ask a follow-up question, a related question on 287. You mentioned that this pivotal study if positive could be one of two supporting an NDA. I believe you -- I'm sorry, BLA. So have you thought about the design of the second study or timing at all?

Thanks for the question, Pam. Let me ask Kevin to talk about that.

Pam, thanks for the question. Absolutely. I mean this is -- the study was designed as a IIb. We had a dialogue with the FDA who said that it could satisfy the requirements to be one of the two required studies. It is a well-established development paradigm for therapeutics in inflammatory bowel disease in general and ulcerative colitis in particular. And so the -- our thinking about the program in general and the second study [indiscernible] to that established development paradigm.

And our next question coming from the line of Terence Flynn with Goldman Sachs. Your line is now open.

This is Holly [ph] on for Terence. Thanks so much for taking the question. Just one for us on SER-109. What was the patient receptivity to your prior protocol change for the ECOSPOR III study? And did you see any pickup in enrollments on this modification?

This is Eric. And I'll ask Kevin to talk about the details, but on the study modification, it's a little bit early for us to really get a sense of the impact. We only implemented it within the last month or so. So we are optimistic that it will have an impact going forward. We're confident in our projection for any enrollment by year end based on where we are. But I think we'll have a sense in the next couple of months of the impact of that protocol amendment. We think -- obviously, we think it makes sense. We thought it made sense originally and we're pleased to implement it. So let me ask Kevin to comment on your first question in terms of the patient dimension.

So there is two components to that. One was that, it had been an issue that the people have brought up to us before. And they were delighted that we were able to implement the amendment once we got the go ahead from the FDA. So the response has been positive.

Next question coming from the line of Taylor Feehley with Chardon. Your line is open.

Good morning, guys. Thanks for taking my question. Apologies, if this is already touched on. But can the open label extension patients possibly be used for the increased safety data you mentioned might be required or is that -- does the new -- does the alternative, excuse me, safety data potentially have to come from a separate study for 109?

Taylor, thanks for the question. Let me ask Kevin to hit that.

Taylor, I think we -- the data -- all data is relevant from the study. Obviously, the placebo-controlled data provides a certain degree of rigor and insight that is kind of the top tier, but all data can be used. And so we fully intend to leverage the open label extension and indeed, the data -- the reassuring safety data that we've got from across our various development programs to really provide the most comprehensive and definitive insight into the safety of our products.

Let me just add to that, Taylor. We're highly confident that with a positive efficacy read in the beginning of 2020, if there were additional safety requirements, we would be very pleased to engage in that dialogue. And as Kevin mentioned in his prepared remarks, whether it's configured open label exposure or a phase IV commitment or other means, given the track record of safety in our pipeline -- in our platform, we are confident that we would be able to satisfy whatever additional obligations would be in place.

And then just one other question on SER-103, if possible. Any comments on the trial design there? What we can expect, should we think of it in parallel to the early trials for 287?

I think you may have 301, just to confirm.

Sorry. Apologies.

We're talking about the fermented design following the SER-287, which we expect to put into clinical development in early 2020. Maybe I can ask Kevin and Matt to both comment on our work on 301, both the clinical design and how we're thinking about putting together the consortium.

So I'll just take the clinical. I mean, yes. I mean, this is one of the -- what we perceive as one of our competitive advantages is that we have clinical data from the 287 program that is very, very informative. And we're leveraging that in order to design, have an even more refined approach to the first clinical study with 301. I'll pass it on.

And so, in building on that, some of the most important insights that we've been obtaining from our earlier 287 study obviously is the engraftment dynamics of the bacteria that are in the 287 composition. We are leveraging that type of data heavily in our design of SER-301 in addition with other key functional parameters. I'm pointing out the engraftment data, because that data really informs our dosing strategies moving forward. So we can leverage our learnings from 287 to have a refined trial design as Kevin alluded to in the context of 301. The other types of data that we're using in design of our SER-301 study as well are kind of key functional mechanistic learnings that we've taken from SER-287. And these include insights into specific metabolites that are being modified post-treatment with SER-287 and having a positive impact on both inflammatory pathways in the subjects. And then in addition, we've been looking at and designing the composition to take into consideration, improving epithelial barrier integrity and now have data, both pre-clinically and from 287 that show that the composition has the ability to impact important pathways with respect to that as well.

Great. Thank you so much for the clarification and the increased color on that.

And our next question coming from the line of Mark Breidenbach with Oppenheimer. Your line is now open.

This is Matt [ph] on for Mark. Thank for so much for the update. I just wanted to clarify with ECOSPOR III. Have your assumptions on the recurrence rates changed with the repowering? And if so, can you give us any idea on maybe the extent to which they have changed?

Matt, let me ask Kevin to comment on that question.

Well -- so I joined the Company at the end of October. So I was taking a fresh look at everything, which is our prior clinical data through kind of a forensic lens of the cytotoxin assay results and also the evolving literature. And then a very careful assessment of our blinded data and within the context of the placebo controlled component of the study and then also the open label data. And so, really when you integrate all that together, there is a very consistent story and in terms of our perception of what the recurrence rate should be and what we're actually seeing in the context of the overall blinded data. So, I wouldn't say that our thinking has really changed, but it's evolved and it's more precise now than it was before because we've got more information, and it's all very consistent as best as we can -- at this point in time.

And then maybe actually more a theoretical question on the 401 program. So by our account, there has been at least three high impact publications on this topic, and all have agreed that the microbiome does seem to influence response rates to checkpoint therapy, but all three differed on what species they thought were actually important to elicit that benefit. So we were just wondering what gives you guys confidence that you've got the right mix of the right actors in SER-401.

It's a great question. Let me ask Matt to discuss the answer.

So it's a very good question. And you are correct that the results that had been published have been varied across the various different publications that have come out. At the same time, there are subsets to those signals that are consistent across at least a couple of the papers. Importantly, we've worked with MD Anderson and Jennifer Wargo who is one of the publishers of -- sorry, authors of one of those particular publication in which they identified a signature that had a strong pharmaceutic signature, and this was confirmed as well by the Zitvogel group. So that gave us some initial interest in this space. And for obvious reasons, since it's well aligned with sort of the area of biology and the microbiome that we understand well at Seres and have been exploring comprehensively over the past many years with respect to the functional properties of those microbes. What gives us confidence in 401 and its composition is both that alignment with the Wargo data, but more importantly preclinical data sets that we've been generating here over the past couple of years where we've been looking at the ability of different compositions of microbes to actually elicit a particular response in various different tumor models. And what we observe in those studies, heavily focused on germ-free studies, is that when you do not inoculate and then treat with an anti-PD-1, you do not get a response and an improvement in terms of progression. But when you inoculate with SER-401 as well as other compositions that we've been designing to have both negative and positive impacts in that model, you can see that when 401 is used as well as other compositions that we've designed have a positive impact, we can have a significant reduction in tumor progression as well as CD8 T cell infiltration into the tumors. And so those preclinical data sets increased our confidence in 401.

And our next question coming from the line of Chris Howerton with Jefferies. Your line is now open.

So the first one that I wanted to ask was just about the SER-109 and kind of the relative difference between PCR-based result and a toxin ELISA assay result. I think there's been some information that the effect sizes would be different using those different parameters. Can you tell us a little bit about what your expectations are in terms of the overall effect size with respect to recurrence rates and how they might differ between those two variables?

Chris, thanks for the question. Obviously, the PCR versus toxin dynamic was one of the key learnings that we took from the Phase II study that we're leading the field in understanding that dynamic. Let me ask Kevin to comment.

I think the most informative single data point that we have is the patients that we're screening for the current study, and that approximately 1/3 of them are having negative toxin tests. And so our working hypothesis is that those patients with a negative toxin test are not likely to have a clinically meaningful disease. And so that we're very gratified that we've got a way of excluding them from enrollment in the study. And so the consequence of that means the subset of patients who do get enrolled and they have their cytotoxin positive that the signal there, we've got a stronger signal that's going to facilitate the detection of the therapeutic effect with SER-109. That's our fundamental premise. And there's nothing -- everything as I said previously, it's lining up consistent with that premise.

So basically this new measure reduces the rate of false positives. And so the working hypothesis or your belief right now is that the signals to noise ratio are to be reduced given that perspective?

Exactly.

And so for the significance hurdle for the 109 trial in terms of reaching significance, am I wrong in assuming that the alpha value for that would be 0.01 or do you think 0.05 would be sufficient for a single efficacy trial?

Yes. We don't want to get into -- for primarily competitive reasons, we don't want to get into the nuances of that.

Okay, fair enough. And then for the 401 trial that's ongoing right now, I think that there's been some discussion with respect to introducing an FMT arm for that trial for additional kind of mechanistic understanding of potentially life cycle management opportunities. Has there been any progress in terms of thinking of including that in the trial? And what would be kind of the deciding factors for that?

So the study is designed on a modular basis. So there's 1 module that addresses SER-401, which is the module that's been initiated. And this will be followed in due course by the module that addresses FMT. So it's part of the study and the program, and it will take place in due course.

And then for the AstraZeneca collaboration, is there a cap to the R&D spend that you can put towards that program with respect to AstraZeneca reimbursement?

Chris, thanks for the question. I think we disclosed the parameters of the collaboration in 8-K when we announced the deal. There is a budget that's set and mutually agreed to by both parties. And, of course, we will (inaudible) by that budget going forward. I do think that it's worth noting that this is in my mind exactly the type of approach that we should be taking with our technology going forward. We're combining our expertise in the microbiome with AZ's expertise and leadership in oncology in not only a P&L friendly way, but in really a P&L accretive way which adds resources to the pie. So we're incredibly excited to work with these folks in moving this forward.

And you don't mind just one last question for 301. I was just curious, what are the kind of operational or gating steps to where we are right now to kind of the initial clinical study in early part of next year or whenever it is in next year?

Yes, there is elements of push and pull from design to manufacturing to clinical involvement. I think we've touched on some of those beforehand, but maybe I can ask Matt to just provide an overview since obviously the design of the consortium is critically important.

So, the key here is we're in the process of essentially optimizing the lead. We're in the final stages of that as well as manufacturing the particular composition and basically we continue to stay on track as to our guidance of an early 2020 IND filing. And that's what we're looking to do, basically finalize the competition, get it fully optimized, finalize the IND data package that's required for that and moving into the clinic as rapidly as possible. And we're on track.

Well, thanks for the update and I appreciate you taking the questions. Thank you.

Our next question coming from the line of Vernon Bernardino from H.C. Wainwright. Your line is open.

Good morning, everyone. Just wanted to follow up on the changes for the ECOSPOR III design. Just wondering if you could comment, and my apologies if I missed it, on what drove the decision on the number 201 -- 188 patients versus some other number? And if you could -- if there is anything out there that you could comment and might be add to our knowledge regarding the FDA's recent views or any changes on FMT?

Yes, Vernon, thanks for the question. I think we covered some of this. But I'll ask Kevin just to provide some color as to how we derive the 188 figure.

So the primary motivation is we want a rigorous efficacy readout. We wanted to expedite that. And synthesizing all the information that we have, we came up with 188 as being a robust sample size to provide proper power for a rigorous assessment. So that was the -- this was -- we did meticulous interrogation of all the information from the various domains from our prior study, from the literature assessments of the significance of using cytotoxin as an enrollment criteria and looking at the blinded data in the current study.

And Vernon, just maybe step back for a minute, we're incredibly enthusiastic about where we are. So the revision here allows us to get a well-powered read on efficacy in early 2020. Together, we expect meaningful milestones from each of our four prioritized programs and that includes two late-stage programs. So it's the 109 read in early 2020 and then the 287 IIb study in Q3 of 2020. So we think that this is an incredibly important moment for the company and for the space. And as we think about the tipping point to momentum in the microbiome, there's a couple of ways to getting there. One is continued interest in the field and continued data sets and investment in new areas and exciting new applications and new technology, but the other is late-stage data. And we feel confident in our ability to deliver two late-stage programs in 2020 that we think are going to be [indiscernible].

Terrific. Yes. So I'm excited to look forward to that data as well. But regarding the powering, so the change in the powering -- or preservation of an adequate amount of powering led to the number 188?

Yes.

Okay, that's simple. And anything you can comment us regarding FMT and the label used out there?

Look, I think we've taken the position before and we'll reiterate again that in the absence of other options, we're supportive of anything that helps patients. But, our view is that, with a well-controlled FDA supervised GMP manufactured therapeutic, the patients and physicians will strongly prefer that over an uncontrolled, unregulated procedure with the untested efficacy and safety. So we feel strongly about that and that's what we're working to move forward.

At this time, I'm showing no further questions. I would like to turn the call back over to management for closing remarks.

Thank you, operator and thanks, again, for joining us with our Q1 '19 earnings update and business update. And we look forward to connecting with each of you in the future. Thanks very much and have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Good day.