Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2024 Seres Therapeutics Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Carlo Tanzi, Investor Relations. Please go ahead.

Thank you, and good morning. Our press release for the company's first quarter 2024 financial results and business update became available at 7:00 a.m. Eastern Time this morning and can be found on the Investors and News section of the company's website. I'd like to remind you that we will be making forward-looking statements, including about the potential for VOWST, the timing and results of our clinical studies, future product candidates and development plans, our ability to generate additional capital, the sufficiency of cash to fund operations, and other statements, all of which are not historical facts. 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 with prepared remarks, I'm joined by Eric Shaff, Seres' Chief Executive Officer; Dr. Terri Young, Chief Commercial and Strategy Officer; Dr. Lisa von Moltke, Chief Medical Officer; and Marella Thorell, Chief Financial Officer. In addition, Dr. Matthew Henn, Chief Scientific Officer, will be available to answer questions. With that, I'll pass the call to Eric.

Thank you, Carlo, and good morning, everyone. In 2024, Seres has continued executing on our mission of bringing revolutionary microbiome therapeutics options to patients in need. We will provide an update today on the commercial launch of VOWST as well as our plans to develop a next wave of life-changing microbiome therapeutics. We have tremendous optimism in the promise of microbiome therapeutics to provide transformative clinical benefits to patients, including for serious diseases that impact large populations and the potential to impact the growing risk that antimicrobial resistance poses to global public health. Last year was an historic year for the company as we obtained FDA approval for VOWST and, alongside our collaborator Nestle Health Science, we successfully launched VOWST into the marketplace for adults suffering from recurrence C. diff infection. These events marked major milestones for Seres for the microbiome field in general and most importantly for patients who have been waiting for a more effective approach to treat this difficult disease. We believe that obtaining FDA approval of the first oral microbiome therapeutic provides clear evidence of the company's scientific leadership position in the field. We are proud of the impact that VOWST has had on patients, their families and on the entire recurrence C. diff community. To date, we have seen demand from an extensive group of health care practitioners for VOWST across the recurrence C. diff patient pool and thousands of patients have now been treated with VOWST. However, we did not see the continued level of growth that we had hoped for in the first quarter as compared to the fourth quarter of 2023. Accelerating demand is a top priority for the Seres-Nestle partnership, and we are optimistic about 2024 growth potential based on the refinement to launch execution Nestle has recently implemented. Nestle has…

Thank you, Eric. Although meaningful progress was made across the VOWST launch priorities during the first quarter, as Eric shared just now, we did not see the growth we had hoped for across the entirety of the period. In February based on analysis of launch execution, Nestle identified a number of opportunities for refinement and retrain their sales teams to reinforce a focus on the earlier use of VOWST. As a result, we saw that net sales in March and April ended much higher than those in January and February. In April, Nestle also significantly increased the number of HCPs on the GI sales team's call list, and we believe this will drive meaningful acceleration in the months to come. I'll move now to the details around Q1 results as provided to us by Nestle Health Science. In the first quarter, we observed continued growth of enrollment, while new patient starts remained at a similar level to that observed in Q4 of last year. In total, between the June 2023 launch and the end of the first quarter, 4,239 completed prescription enrollment forms were received for VOWST, including 1,411 in the first quarter alone. Of total enrollment, 3,096 culminated in new patient starts, including 1,083 in the first quarter. We continue to observe new prescribers of VOWST with 609 prescribers added in the first quarter. Since approval, prescription enrollment forms were received from a total of 1,939 unique prescribers. In terms of specialty mix, approximately 65% of VOWST prescribers in Q1 were from gastroenterology with the remainder from other specialties. Of the 1,939 HCPs through a prescribed VOWST, 604 of them prescribed VOWST to more than one patient in their practice. Although as expected, the majority of utilization for VOWST to date continues to be in the multiply-recurrent patient group,…

Thank you, Terri. As a reminder, SER-155 is a consortium of bacterial strains cultivated from clonal master cell banks. This therapeutic candidate is designed to prevent GI infections, including those from antibiotic-resistant organisms and to reduce bloodstream infections by promoting epithelial barrier integrity. SER-155 was also intended to modulate immune pathways with the potential to induce immune tolerance, both locally and systemically. SER-155 is being evaluated in an ongoing Phase 1b study in patients who have undergone allo-HSCT following a diagnosis of AML or other hematologic malignancy. As a result of extensive exposure to antibiotics and the effects of HSCT conditioning regimens, these patients experience a highly disrupted GI microbiome, which is linked to pathogen overgrowth and domination in the GI tract. This domination has been shown to be significantly associated with increased risks of bloodstream infections, graft versus host disease and mortality. Last year, we reported promising Phase 1b Cohort 1 clinical data with SER-155 being well tolerated in highly immunocompromised allo-HSCT patients. In this open-label cohort, SER-155 was administered to 13 subjects, and we had a valuable microbiome data from 9 subjects. Our data indicated that of the subjects administered 155, only a single patient had enteric pathogen domination within 30 days following stem cell transplant. This domination event was transient and the resulting incidence of domination in Cohort 1 was markedly lower than the incidents observed in a large reference cohort of patients. Last month, we reported that enrollment was complete for Cohort 2 of the study, which incorporates a randomized, double-blinded, placebo-controlled design. This portion of the study enrolled 45 subjects. We anticipate obtaining Cohort 2 study data in late Q3 of this year. In addition to continued evaluation of the safety profile and drug pharmacology, we will assess the ability of SER-155 to decrease rates of pathogen domination, the incidence of GI and related bloodstream infections, and the incidence of acute graft versus host disease. We will also assess the ability of SER-155 to decrease rates of fever during neutropenia and the initiation of attendant antibiotic therapy. We believe positive data from this readout would further validate the promise of this novel therapeutic modality in addressing serious infections in medically-vulnerable populations, including potentially patients with chronic liver disease, cancer neutropenia and solid organ transplant. We also believe that this approach could reduce the use of antibiotics by reducing events of infection or suspected infection that require antibiotic initiation. A reduction in antibiotic use could impact the problem of antimicrobial resistance more broadly. This could be especially important in settings with high rates of antibiotic use and resistance such as intensive care units. These additional opportunities could extend the clinical utility of SER-155 and our preclinical stage programs, while establishing a fundamentally new approach to protect substantial numbers of medically vulnerable patients from life-threatening infections. And with that, I'll turn the call to Marella.

Thanks, Lisa, and good morning. I'd like to discuss our financial performance for the first quarter, starting with VOWST. To remind you, Seres does not recognize VOWST net sales in its financial statements. But instead, we share equally with Nestle the commercial profits and losses, and we record our share in collaboration, profit and loss sharing related party. VOWST profits and losses are determined based on VOWST net sales, cost of goods sold, and sales and marketing expenses. Net sales of VOWST for the first quarter were $10.1 million and based on 642 units of VOWST sold during the period to specialty pharmacies and distributors. The net sales reflected estimated gross to net reductions of approximately 15%. This is slightly higher than the previous quarter due primarily to an increase in co-pay assistance. We estimate that at the end of the quarter, there were approximately 2 weeks of VOWST inventory in the channel at specialty pharmacies, consistent with the levels at the end of last year. Seres supplies VOWST inventory to Nestle, and we receive payments from Nestle related to their VOWST supply purchases to meet market demand. During the first quarter, Nestle purchased approximately $7.4 million of VOWST supply from the company, and we received approximately $8.7 million in payments from Nestle related to prior quarter purchases. The total VOWST loss in the first quarter was $14.3 million, and our share of that was $7.1 million. The first quarter VOWST collaboration expenses, meaning COGS and sales and marketing expenses for VOWST, decreased from the prior quarter. This decrease was due to prior period adjustments or charges recognized in the fourth quarter and lower external costs in the first quarter of this year. For the first quarter, we also recognized as collaboration profit or loss sharing related party approximately $4.7…

Thank you, Marella. Seres has continued to execute with the ongoing commercialization of VOWST as well as driving our additional promise in microbiome therapeutic candidates forward in clinical development. We are particularly excited about the upcoming SER-155 data readout later this year as an important potential value driver for the company. We look forward to keeping you updated on our progress during 2024 and as we evaluate options to support the company. With VOWST, we have clearly demonstrated the potential for microbiome therapeutics. We believe that many more opportunities lie ahead and that Seres has the potential to bring additional transformative new therapies to patients in need. With that, operator, we'll conclude our prepared remarks and open up the line to questions.

[Operator Instructions] And your first question comes from the line of Ted Tenthoff with Piper Sandler.

I was wondering whether or not you could remind us if there was any price changes for VOWST this year, and if you can, what the current gross price is. And I appreciate all the color on the adjustments being made by Nestle. Can you remind us how many reps in total are detailing VOWST?

Yes, Ted, thank you for the question. So maybe I'll take the first -- or the second and I'll ask Terri to comment on the pricing and then the other comments on salesforce. So there's approximately 150 reps on the GI side as well as 20 reps that are devoted towards the hospital and really being the quarterbacks of helping patients on how to get to the hospital infrastructure. But maybe Terri can comment further on that as well as the WACC question.

Sure. And thanks for the questions, Ted. With respect to the Nestle representatives, I would highlight the fact that based on the refinement that Nestle has implemented, they have increased the call list, specifically for the GI sales team that carries both the Zenpep and VOWST. And they haven't increased the size of the sales team. So I think this gives us all a message on the importance of this launch and accelerating performance for both companies, but particularly Nestle, and that they are allocating additional representatives time and effort away from Zenpep and to VOWST. So we're very pleased with the digging under the hood that they've done and the refinement of the execution of the field sales team, and it really speaks to the importance of this launch to their company, the fact that they are allocating resources in this manner. With respect to price change, the price increases taken on December 31 of last year, it was a 6% increase. So that brings us to a WACC of $18,550 for the product. Thanks for the question.

Super helpful, and I really appreciate the color on the focus of the rep. Thank you.

Thanks for the question, Ted.

Your next question comes from the line of John Newman with Canaccord Genuity.

So wondering if you could talk to us on SER-155 about the efficacy endpoints. So looking at some really interesting and important outcomes here, I think, following transplant. And just wondering what do you think will be particularly interesting here for investors to focus on the data readout late 3Q?

John, thank you for the question. So maybe I'll start, and I'll ask Lisa to comment and Matt after Lisa. But I'll just start by reminding everyone, this is a 1b study. So primarily, we're looking at engraftment and safety. But we are very excited about this study. We think it's representative of where the technology is going. And not only are we excited about the potential to help patients within this specific indication, but what it unlocks for us as we mentioned in our prepared remarks. But with that, maybe I can turn it over to Lisa for your question.

Sure. John, yes, just as you noted, there's a number of endpoints in the study that would be -- could be great positive outcomes for patients. But we are going to be paying particular attention to the ability of 155 to decrease incidence of neutropenia and fever as well as bloodstream infections. And that's because of the ability of 155 to decrease pathogen domination and infectious events, including things that might be further downstream like antibiotic starts and more time in the hospital would be applicable not just to HSCT patients, but to broader patient groups, some of which we mentioned in our prepared remarks. So in that way, 155 could offer a whole new therapeutic approach to reducing infections in a very large number of patients. So we're very excited to see the results on that.

And then Matt, maybe a comment on endpoints.

Sure. Yes, John. And again, from a pharmacology standpoint, the thing we're most focused on is the type of data we reported in the first cohort, which is that pathogen domination and the incidence of that across different patient population. Remember, we saw a very promising result there where we saw a substantially lower rate of these incidence events than we did in a reference control cohort. And we'll be looking to see that type of data again compared to the control cohort, but also importantly in the context of the placebo control. These are the types of data we used along with the safety profile of the drug from the first cohort to give fast track designation from the FDA on this program. So we'll be looking to see those types of data play out in the second cohort.

Your next question comes from the line of Tess Romero with JPMorgan.

So a big picture one from us. Can you provide your latest thinking around how we should think about the launch trajectory here over the next few quarters for VOWST? You talked about how net sales were roughly flattish quarter-over-quarter. But how does that kind of play into your degree of confidence in being able to meet this net sales requirement in order to draw down on that Oaktree tranche by the end of 3Q? Really, what I'm trying to get at, guys, is you talked about a number of refinements that Seres is making to the launch strategy. But how quickly do those refinements actually translate to an acceleration of the launch here?

Yes, Tess, thank you for the question. Maybe I'll start and then I'll hand it over to Terri for her comments. But I guess I'll begin where you ended your question, which is how quickly may we see an acceleration. And I think the short answer is that we have begun to see it, including in March and April. So as it relates to the milestone, we would need to see growth from the March and April numbers in order to put us in a position to earn it. On the other hand, we think that that growth is achievable. And maybe I'll ask Terri to comment and I can add some comments at the end.

Sure. Thanks for the question, Tess. It's actually -- it's a really important nuance and point to make. We don't believe that we have the long-launch strategy. Our strategy has been set since prior to the launch and agreed with Nestle. We believe we have an execution issue on a number of fronts. And so Nestle having obviously the customer-facing teams deployed from their company, they're closest to those teams, they're closest to the customer. And as you could see in my -- or here in my prepared remarks, they've done a remarkable job of really getting under the hood of execution and where there are some areas that we can refine and improve working with their sales teams. And I saw that pull through at their February sales meeting in terms of really focusing the representatives on making the case for earlier use of VOWST and getting them out of the weeds with their HCPs on logistics and allowing the field reimbursement team to take the helm and take the baton on that with the office staff. But that -- we have the conversations now and the places where they belong. Those executional refinements are critical. And we're seeing the results not only in net sales, but also in some of the other metrics like enrollments and new patient starts. So April, for example, was an all-time high for patient enrollment and net sales, all-time highs for March and April. And new patient starts as well, all-time highs in March and April versus previous months. So we're really pleased with the turning of the tide here, and we would expect that acceleration to continue over the coming quarters. The most important refinement that happened in April is the revision of the call list and the expansion of that call list to include additional high volume or high potential HCPs. So we're very optimistic about the potential for the product, both in the long term but also in the short term here, based on the changes that Nestle's making.

Yes. I might just add one more comment, which is Tess, your question has kind of 2 dimensions to it. One is the underlying commercial opportunity, the other was the next tranche of debt. What I would say is that while we do think that the conditions of reaching the threshold to qualify for the debt are possible, we are not building our financial strategy around the next tranche of debt as the solution. So as we mentioned in our prepared remarks, we have urgency in considering and acting on different alternatives that we have ahead of us to support the company both this year and into the future. And certainly those include options that wouldn't require the next tranche of debt as the primary financing vehicle for the company.

Your next question comes from the line of Jeff Jones with Oppenheimer.

Can you speak to any cost modifications as a result in the revised sales strategy and efforts coming from Nestle? And any visibility on where you see sales needing to be to reach a breakeven here?

Yes, Jeff, maybe I can start and then I can hand it to Marella. But as you know, we instituted and executed upon a significant restructuring in November of last year, and certainly we're on target for those actions. We are highly focused on reaching the 155 results as well as putting the company in a position to be successful in the longer term. So what Marella had mentioned in her prepared remarks is we certainly expect to get there. There are different ways in which we can get there. I don't think that we can be specific in terms of -- too far in terms of the types of alternatives that we're considering. But certainly, you should know that we are active in considering those options now and we expect to report back to you shortly. But maybe Marella can comment further.

Yes. Agreed. We are being mindful and proactive in making sure that we're continually looking for opportunities to save and those that make sense that don't compromise our clinical development plans and equally don't compromise our ability and Nestle's ability in collaboration to grow the VOWST sales. So we are in lockstep with them about the need to support and to then to deliver the growth, and we have a good mechanism in our joint steering committee to make those decisions thoughtfully and we'll continue to support that.

One follow-up question on manufacturing. When do you expect the majority of that investment in the Bacthera's facility to be completed triggering the milestone. And when would you have visibility to whether you can use those validation batches for salable goods?

Yes. I guess let me answer it this way, Jeff, which is we had embarked upon the Bacthera project. We had designed it. We had worked collaboratively to support it based on a number of factors. One is the quality of their team. Two is the quality of the facility and the campus. Three is, of course, the capacity that it would add. Four is the efficiency that we expect to accrue into the reduced cost of manufacturing through automation and back side and so forth. All of those factors continue to be critical for us and for our partners at Nestle. So we're making great progress with Bacthera, and we do expect that the milestones that we talked about in our filings will be hit shortly, and we continue to work collaboratively with them to bring VOWST to patients. So I do think that we will continue to work with them with urgency like everything else. I think it's to our shareholders' benefits and it's to our patients' benefits. So I think we continue to view them as a critical partner and we'll work together to bring those validation batches to patients as quickly as we can.

Your next question comes from the line of Keay Nakae with Chardan.

A couple of questions. One, you did see a sequential increase in inventory on the balance sheet. Can you talk about that. And separate from that, in terms of the capitalized product once you went commercial, when will you exhaust that?

Sure. Let me ask Marella to answer the first and then pick up the second.

Yes. So we are thoughtfully building up inventory in anticipation of the transition to Bacthera, and so we're going to continue, again, to do that as it makes sense.

And then I don't think we've provided guidance on when the capitalized inventory would fall through, except to say that we're working collaboratively with Nestle to ensure that we're utilizing the assets and the capabilities and capacity that we have to try to ensure that we don't leave patients short but also continue to build the capacity that we think we will need over time to support patients. And what we expect will continue to be a growing top line.

Okay. And then just a strategy question as it pertains to 155, given the strength of your balance sheet currently and given that VOWST is, let's say, the bird in the hand, how likely are you to partner out 155 opportunities?

Yes. I think you probably can anticipate the answer is that we can't provide specifics. What I will say is that we are actively considering options across a number of different dimensions. It always strikes me that nondilutive capital sometimes doesn't mean what people think whenever you're giving rights or valued away. Then that is, in some sense, dilutive. But we are focused on short-term cash and the need to support the company and to support other programs that we think can help patients. So we think about BD holistically short term, long term, what it enables for today, what it supports for tomorrow. And those are obviously discussions and decisions that have multiple dimensions to them. We've done it before in a meaningful way when we thought it was right and helpful to shareholders, and we'll consider it again. But I can't specifically comment on 155 except to say we're really excited about this readout. I think that the data from the first cohort was impressive and interesting to us. It was to our stakeholders and our KOLs. And the ability to help what is a different patient population with our technology and what it could potentially open up for us is just incredibly exciting to us. So I think you can imagine we're excited about these results.

That concludes our Q&A session. I will now turn the conference back over to management for closing remarks.

So I thank, everybody, for your time this morning. We appreciate it, and we look forward to keeping you updated as we go. So thanks, and have a great week.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.