Seres Therapeutics, Inc. (MCRB) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter Seres Therapeutics Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference may be recorded. [Operator Instructions] I would now like to turn the conference over to your speaker today, Mr. Carlo Tanzi, Head of Investor Relations. Please go ahead, sir.

Thank you Olivia and good morning everyone. Our press release with the company's fourth 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 and Media section of the company's website. I'd like to remind you that we'll be making forward-looking statements relating to the timing, enrollment, and results of our clinical studies, regulatory approval, the promise and potential impact of any of our microbiome therapeutics, the sufficiency of our cash and cash equivalents to fund operations, and the availability of additional cash resources. 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. Matt Henn, Seres’ Chief Scientific Officer. And with that, I'll pass the call to Eric.

Thanks, Carlo and good morning everyone. 2019 and the beginning of 2020 have been a period of substantial R&D in corporate progress for Seres. Our major accomplishments include appointment of new company leadership, prioritization of our pipeline, initiation of the new SER-287 and SER-401 clinical studies, a collaboration with AstraZeneca in immuno-oncology, initiation of SER-301 clinical development activities, and, activities to substantially strengthen Seres balance sheet and provide sufficient runway to reach Seres critical 2020 late stage readouts. With these efforts, the company is now set up for an eventful and data rich 2020, including two late stage clinical readouts. With success, we expect that 2020 will be a transformative year for the company, and this is a year that could provide clear validation for the emerging microbiome therapeutic field, more generally. I'll start with an update on our late stage programs beginning with SER-109. SER-109 is an orally administered drug candidate, designed to restructure the microbiome to increase the diversity of commensal microbes in patients with recurrent C. difficile infection. SER-109 was designed based on reverse translational and preclinical insights that indicated that the microbiome of patients with C. difficile disease is depleted in specific firmicute spore forming bacteria. Pre-clinical and clinical studies confirm that treatment with SER-109 can enrich for these depleted bacteria, and more broadly restructure the microbiome to increase the diversity of commensal microbes. Our SER-109 manufacturing process fractionates and purifies bacterial spores, and then activates vegetative bacteria and potential pathogens. This includes pathogens, which have been linked to FMT-associated disease transmission. We believe that the SER-109 manufacturing process, which is unique to Seres, provides a critically important safety advantage to our products. Based on SER-109 clinical and microbiome data, this candidate has obtained both breakthrough therapy and orphan-drug designations from the FDA. SER-109 is now being evaluated in a randomized, placebo-controlled Phase 3 study known as ECOSPOR III in 188 subjects with a recurrent C. diff infection. All ECOSPOR III study subjects are treated with standard-of-care antibiotics to address the qualifying C. diff infection and subjects are then randomized one-to-one to receive either SER-109 or placebo. We have been steadfast in our commitment to completing a rigorous SER-109 Phase 3 study in a well-defined patient population and using an objective endpoint. All patients enrolled in ECOSPOR III are required to test positive for C. diff cytotoxin. We have taken this rigorous step, which is unusual in the field to ensure that we obtain high quality data; by enrolling only patients with an active C. diff infection and not those who are simply carriers of the C. diff bacterium. Notably, several prominent infectious disease treatment guidelines have recently been modified to recommend the use of toxin testing for C. diff infection. While the stringency of our study has made enrollment more challenging, we feel that the steps we've taken are essential to generating valid, interpretable study results. The ECOSPOR III primary endpoint compares the C. diff recurrence rate in subjects who receive SER-109 versus placebo at up to eight weeks after dosing. In this study, we're hoping to observe a statistically significant, and clinically meaningful therapeutic benefit in patients who received SER-109. I'm pleased to report that ECOSPOR III is now over 95% enrolled. We eagerly look forward to obtaining SER-109 study results in the middle of this year. Based on our prior discussions with the FDA, we believe that with clinically meaningful results, this single pivotal study may support product registration. However, this would depend on the strength of the data and additional safety data may be required. If successful, SER-109 could represent a major breakthrough for patients suffering from recurrent C. diff infection. The disease is the leading cause of hospital acquired infection in the U.S. and is responsible for the deaths of approximately 29,000 Americans each year. Better treatments for C. diff infection are urgently needed. The limitation of current approaches are highlighted by published case reports of drug resistant E. coli Bacteremia transmitted by FMT including a case that led to a patient death reported this past summer. We were excited by the potential for SER-109, and we are eagerly looking forward to our study read out in the coming months. Let me now turn to our SER-287 program, which is in a potentially pivotal, phase 2b study in patients with mild-to-moderate active ulcerative colitis. SER-287 is an orally administered biologically derived live-drug candidate comprised of commensal bacterial spores derived from a healthy human gastrointestinal tracts. Our objective with SER-287 is to develop a first-in-class microbiome therapeutic that modulates the microbiome, in microbe associated metabolites in UC patients. SER-287 is intended to reduce the impact of a dysfunctional microbiome as a trigger, and amplifier of inflammation. Moreover, we believe that SER-287 may provide a much needed non-immunosuppressive treatment option for this serious disease. Our SER-287 phase 1b proof-of-concept study demonstrated a statistically, significant difference in the clinical remission rate between patients treated with vancomycin followed by SER-287 for eight weeks compared to the placebo group. In that study, we observed a 40% remission rate with SER-287 versus 0% with placebo. We have also obtained additional support in microbiome, metabolite and transcriptomic data sets that bolster the observed clinical therapeutic activity. Clear changes in both bacterial species and metabolites were found to be associated with SER-287 administration and clinical remission. Furthermore, the safety profile for SER-287 was highly favourable. Supported by the success of the Phase 1b study, we are now running a SER-287 phase 2b induction study termed ECO-RESET. Based on feedback from the FDA, we expect that ECO-RESET could support registration as one of two pivotal studies. The SER-287 ECO-RESET study is a randomized, placebo controlled, three arm induction trial, designed to enrol 201 patients with active mild-to-moderate ulcerative colitis, who have failed prior therapy. In arm A, patients receive a short course of vancomycin pre-treatment followed by 10-weeks of the same daily regimen used in the arm of the Phase 1b trial that showed the highest clinical remission rate. In arm B, patients receive vancomycin pre-treatment followed by two weeks of the SER-287 daily regimen as in the first arm, followed by eight weeks of a lower dose. In arm C, patients receive placebo. We continue to move forward with ECO-RESET patient recruitment, and we are very much looking forward to having top line data in the second half of this year. I'd like to now pass the call over to Matt to discuss our next generation development candidate SER-301 in our immune-oncology programs.

Thanks, Eric. I'll begin with SER-301, our next generation rationally designed live microbiome therapeutic candidate for the treatment of ulcerative colitis. SER-301 was designed using our inhuman reverse translational drug discovery and development platform. Seres has established deep expertise in state-of-the-art computational, culturing, screening and manufacturing platforms that utilize insights from our human clinical data to inform the design of our therapeutic candidates. We believe, that our next-generation drugs like SER-301 may provide important benefits that include optimization of microbiome therapeutic candidate's pharmacological properties --excuse me for a targeted diseases and streamlined drug product manufacturing. We have finalized design of SER-301 and nominated a candidate that incorporates specific, defined, commensal bacterial species. The consortia of bacteria in SER-301 are designed to modify the microbiome and microbiome associated metabolites in the gastrointestinal tract to favorably impact UC relevant anti-inflammatory and immune pathways and to improve epithelial barrier integrity. The design of SER-301 incorporates insights on microbiome biomarkers and microbial mediated functional pathways associated with clinical remission and endoscopic improvement from our SER-287 phase 1b study. Our SER-301 consortia have demonstrated the capacity to modulate disease relevant cellular mechanisms in human cell-based screening assays and in vivo models. In addition, the SER-301 bacterial species have been confirmed to engraft in humans. SER-301 is manufactured in Seres in-house GMP facility and we recently initiated SER-301 clinical development activities to evaluate safety and drug activity in ulcerative colitis patients. The study will be run in Australia and New Zealand and pending regulatory approvals, we expect to start dosing patients later this year. We have selected these countries for our SER-301 study based on substantial physician interest in microbiome therapeutic approaches, and to minimise recruitment competition with our on-going SER-287 study. Moving now to SER-401 and our oncology focused work. SER-401 is an orally administered biologically derived live microbiome therapeutic candidate comprising bacteria that reflect the gastrointestinal microbiome bacterial signature, associated with response to checkpoint inhibitor therapies. In collaboration with the Parker Institute for Cancer Immunotherapy and MD Anderson Cancer Center, we continue to enroll our randomized placebo-controlled phase 1b study in 30 subjects with metastatic melanoma. All patients receive nivolumab; an FDA approved anti-PD-1 therapy, and are randomized at a 2:1 ratio to either SER-401 or placebo. The study will evaluate safety, clinical response, and various potential biomarkers of response including microbiome signatures and response. We will specifically examine tumor biopsies to evaluate immunological activity and other potential pharmacodynamic biomarkers. We expect to report preliminary 401 phase 1b study results in the second half of this year. We also continue to make progress with our AstraZeneca immuno oncology related research collaboration. The research work combined Seres microbiome drug discovery and manufacturing expertise with AstraZeneca’s extensive oncology experience to further our understanding of the potential of the microbiome therapies to improve checkpoint inhibitor clinical response. We expect the collaboration to extend our understanding of the promise of microbiome therapies as a new therapeutic approach for cancer. In addition, disagreement provides Seres with 20 million in financial support, two thirds of which have already been obtained, and AstraZeneca also reimburses all research activities related to the collaboration. I'll now pass the call back to Eric.

Thanks, Matt. Turning now to an overview of the financials. Seres reported a net loss of $70.3 million for the fourth quarter of 2019 as compared to a net loss of $98.9 million for the same period in 2018. The reduction in our 2019 corporate spend is a result of the refocusing efforts implemented early last year. The fourth quarter net loss was driven primarily by clinical and development expenses, personnel expenses and on-going development of the company's microbiome therapeutics platform. Seres ended the fourth quarter, with approximately $94.8 million in cash and cash equivalents, an increase sequentially from the $83.8 million that we reported for the end of the third quarter. Our fourth quarter cash position included the second of three $6.7 million payments from AstraZeneca related to our on-going immune-oncology agreements as well as the first tranche of $25 million that we received upon the closing of our previously announced debt agreement. The company's 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 second quarter of 2021. This cash runway does not include a $10 million SER-301 Phase 1 associated milestone payment that Seres would be entitled to as part of our Nestlé Health Science Collaboration. Before opening up the call to your questions, I will mention that we have decided to make a change to our chief medical officer position. Kevin Horgan, Seres prior CMO is no longer with the company, and we wish him the best on his future endeavors. As we discussed today, Seres is entering an eventful period with late stage clinical readouts and important regulatory interactions. We are fortunate to have a strong clinical team in place today with experienced medical, clinical operations, and regulatory professionals that are effectively executing on our on-going development programs. A search is underway for a CMO, who will provide expert leadership, and we have been in dialogue with several strong candidates today. Operator, let's open the line-up for questions.

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

Hi guys. This is Pam Barrett on for Chris. Thanks for the update. We have a few questions. First, can you provide some thoughts on what investors should expect in terms of release format, before the SER-109 data, the first release where you just mentioned whether it’s positive or negative, will you provide numbers? Do you expect a press release in a call? Any help you can provide there would be great?

Yes, Pam. Thanks for the question. We have a certain number of precedents as it relates to disclosing top line clinical data. I think that it's likely that we would follow those precedents. I think you would get a reasonably robust set of clinical endpoints not just whether it was positive or negative. I would point out that it is unlikely that we would have the support of microbiome analysis alongside the topline clinical analysis because of blinding constraints, of course, but we will be working to have both sets of data as quickly as possible.

Got it. And maybe a question about SER-301 since we're hearing more about that. Are you actually planning to begin dosing patients this half, this quarter? Can you provide full timelines there?

Yes Pam, we haven't provided specificity except that we've begun clinical. We've initiated clinical operations. I will say that we are really excited about moving forward into this program. I think that 301 is illustrative of some of the benefit or the synergy that we have between our biologically sourced platform and our synthetic platform. The learning’s that we've taken from our 1b study for SER-287 have been specifically applied to the design in the manufacture of our 301 program, and we're excited about that. I -- certainly we do expect first patient in, in 2020. Later this year, we haven't guided with more specificity than that, but maybe I can Matt just to comment on where we are with 301 and some of the reasons why we're excited about the program.

Yes, this is a very exciting program where I feel we've been able to very effectively leverage our in-human clinical insights from SER-287 and design on these candidate that we've been able to optimize for a very specific set of pharmacological properties, which include improving the epithelial barrier integrity, as well as modulating various different innate and adaptive immune pathways that we have identified as important in response of microbiome therapeutic too in the context of EC disease. And as Eric noted, we are moving rapidly into the clinic.

Got it. Thank you very much.

Thanks for the question, Pam.

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

Hi, this is Missy Hudson [ph] on for Terrence. Thank you for taking the question. For SER-287, would you mind powering of the phase 2b trial and when -- you're such -- the control arm of that study?

Yes, Missy, most of the question we have not provided a specific guidance in terms of the power. And I will say that, we were highly encouraged with the 1b results in the signals of efficacy and the safety that we saw. And we're looking to replicate those results in a significantly larger study, approximately 200 subjects and we're really excited about moving forward this study. We think that there's a tremendous opportunity in this space based on the commercial opportunity, based on the unmet medical need, and by that we mean both the efficacy as well as the safety. As you know a number of agents that are on the market today, or are in development can carry a meaningful side effects including immunosuppression, and we think that the solution with SER-287 could meaningfully address those dimensions. I'll remind you that we’ve received feedback from the FDA that this study could be one of two pivotal studies, and we're really excited about moving forward. We're in execution mode in terms of enrollments. I'm very pleased that our February was our largest month-to-date in terms of enrollment. So we look forward to receiving those top line results in the second half of this year.

The next question comes from the line of Mark Breidenbach with Oppenheimer. Your line is open.

Hey, good morning guys. Thanks for taking the questions. Two quick ones from us. Maybe you could just let us know when your next scheduled meeting with the FDA to discuss the registration or requirements for SER-109 would be? And what do you have any kind of envision for a potential confirmatory trial if that goes for three is sufficient to file a BLA? And then I've got a follow up maybe directed at Matt Henn? Thanks.

Yes. Mark thanks for the question. Our expectation is that we would have an end of Phase 3 meeting following the top line results this year, and as I'll remind you this is the breakthrough designated program by the FDA. So we will be as focused as diligence in making sure that we're getting this therapy of the patients as quickly as possible. I think as you know, some of the safety dimensions that have been highlighted recently including the patient deaths that happened over the summer, and the FDA meeting that was convened in November as maybe a consequence of that of that patient death, just speak to the fact that there's a significant need in the space for a solution like what we're hoping to provide with 109 so, we'll be moving aggressively to try to get in front of the FDA to get this to patients as quickly as possible. And you’ve had the second question for Matt, Mark?

Yes. So Matt, reflecting back to the last rationally defined product, so SER-262, I’m wondering if you could just comment on how your strength selection criteria have evolved overtime to improve your confidence or improve our confidence with SER-301?

Yes sure, absolutely. So it's great question, Mark. Thanks. So, primarily one of the fundamental changes has been the inclusion of our various inhuman datasets that we have acquired over the year since the original design of our 262 and the launch of that into the clinic. And we've actually been able to leverage our learnings from 262 in the clinic, which was the first rationally designed composition to go into human subjects, and the dynamics that we saw there with respect to dose, and key bacteria that engraft and how they engraft in various different patient populations, and incorporating those data as well as our data from SER-287 in terms of which gains and grafted in which subjects, the timing of those dynamics and specifically which functional properties were conveyed given those different dynamics have all been incorporated into the design of SER-301. So we believe, we have a robust composition that will achieve the pharmacological properties that we have designed it to do, based on those in human learning. And of course have advanced our various in vivo and ex-vivo screening assays, human based cell assays that allow us to then confirm that we have the functional properties of these strains in the composition itself. And the last the last piece, I'd add is on the manufacturing side. We've also continued to advance our manufacturing capabilities in-house with respect to these competitions since the design of 262 and moving 262 into the clinic, and those learnings have been incorporated into 301 and have advanced the manufacturing of that product as well.

Okay, perfect. Thanks for taking the questions.

Our next question coming from the line of John Newman with Canaccord. Your line is open.

Hi guys, good morning. Thanks for taking my question, and congrats on the progress with 109. I'm just curious how are you defining recurrence in the phase 3 ECOSPOR study. I'm just wondering if recurrence will be based solely on a positive C. diff toxin test or if it would need to include symptoms as well?

Yes John, good morning and thanks for the question. It's both, but I think one of the key learnings that we've taken from the phase 2 is that symptomatic presentation is necessary, but insufficient. And we feel strongly that if you're not using cytotoxin as an assay for both inclusion in the study in the first place as well, as calling occurrence then you -- it's possible that you may not have an interpretable dataset. And as a result of requiring cytotoxin, we have experienced incremental headwinds to enrolment, but at the same time, we feel strongly that there will be a return based on the additional time and resources that have taken to finish the study. So you know, we really do believe strongly that cytotoxin will be a key differentiator in terms of having the study culminate in a clear interpretable dataset, that we're allowed to use to move forward.

Hey, great. And just curious, if you have any sense as to what the breakdown might look like between patients that were treated with vancomycin or fidaxomicin before coming into the study. Just curious if you have any sense as to whether it will be about 50:50 or whether you might get a little bit more one or the other?

Yes John, I don't think we've provided that level of specificity beforehand. And it's possible that we might include some of that analysis as part of the topline result or some analysis that would support it. But we have not done that to date.

Okay. Great. Thank you.

Thanks for the questions, John.

And our next question coming from the line of [Indiscernible] Your line is open.

Hi, it’s [Indiscernible]. Thanks for taking my call. Just a quick check-in question since you obviously have a lot of important data this year, and the clinical path forward depends on the nature of the data, and your conversations subsequently with regulators. But can you say any more than you said in the past in terms of what good data sets might look like that would mean a faster path to market in UC and C. diff?. And then secondly, and I'm only asking this question, because others are asking me, can you comment on what aspects of your timelines if any could be sensitive to pandemic concerns, or an outright pandemic? I know you did say recruitment was February was really good, but any color would be appreciated?

Yes. So Boller [ph] thanks for the questions. Maybe I'll start with the second one first, since it's certainly on everybody's mind. What I'll say is that, we're taking precautions like any other company in response to the coronavirus. We don't have business operations in some of the countries, which have been and maybe at the leading end of this, whether it's China or Italy or others. We feel very good about our clinical supplies and our ability to execute the studies. But if you ask – and now that you asked the question, I think it’s actually interesting as we think about safety, as it relates to you know the microbiome approach. And if you think about our -- really all of our clinical studies, but in particular, our 109 study based on the transmission of the pathogen that happened over the summer and the patient death. We believe strongly that our approach is differentiated, because we believe that donor selection is necessary but insufficient for patient safety, and that we have steps in our manufacturing process, which are intended to deactivate pathogens and maybe I can ask Matt to comment on that and then we'll come back to your second question.

Sure. So as Eric said, are our products SER-109 undergoes a rigorous manufacturing process, which isolates the specific bacterial spores that we have identified as depleted in patients with C. difficile dysbiosis. And that manufacturing process inactivates pathogens, and including pathogens such as coronavirus. And we actually have clearance data from the early days of the program that demonstrate the clearance of such viruses.

Yes. And then Boller [ph] on your first question is in terms of data that I think, I might have mentioned this before in the earlier Q&A, but we do expect to present rigorous top line clinical results on 109, 287 combined with the microbiome analysis that we think are have been supportive and have correlated with the topline results in the past. Of course, there's a time lag between when we can begin doing that work before and blinding the study. So we do expect the clinical results to leave. But of course the microbiome analysis is part of the picture as we think about the moving towards late stage in commercial for 109, and 287. But really also for learning as we move forward in this new space. So, and just lastly I would say, we are looking for a clinically significant, statistically significant results in both of these studies that, that will be the benchmark that we look at.

Great. Thanks.

I'm not showing any further questions. I would now like to turn the call back to management for closing remarks.

Thank you operator. And thank you for your continued interest in Seres Therapeutics. I do want to mention in closing, that we will be presenting at the Catlin Conference later today, and we will look forward to meeting investors at the events. Have a great day and have a great week. Thanks very much.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect. Good day.