| --- | --- | --- | --- | |-------|-----------------------------------|-------|-----------------------------| | | | | | | | | | | | | | | | | | | | Seres Therapeutics Overview | | | Stifel 2019 Healthcare Conference | | | | | November 19, 2019 | | | | | | | | | | | | | Forward looking statements | --- | --- | |----------------------------------------------------------------------------------------------------------------------------------------------------|-------------------| | | | | included herein repres ...

PART I – FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the company's unaudited financial position, operational results, equity changes, and cash flows [Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets detail the company's assets, liabilities, and stockholders' deficit at specific points in time Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $49,296 | $85,820 | $(36,524) | | Investments | $34,492 | $0 | $34,492 | | Prepaid expenses and other current assets | $4,073 | $6,845 | $(2,772) | | Accounts receivable | $1,717 | $0 | $1,717 | | Total current assets | $89,578 | $92,665 | $(3,087) | | Property and equipment, net | $21,160 | $26,294 | $(5,134) | | Operating lease assets | $11,899 | $0 | $11,899 | | Restricted investments | $1,400 | $1,400 | $0 | | Restricted cash | $114 | $113 | $1 | | Total assets | $124,151 | $120,472 | $3,679 | | Accounts payable | $4,455 | $6,415 | $(1,960) | | Accrued expenses and other current liabilities | $10,522 | $15,207 | $(4,685) | | Operating lease liabilities | $4,335 | $0 | $4,335 | | Deferred revenue - related party (current) | $21,135 | $20,419 | $716 | | Deferred revenue (current) | $1,790 | $0 | $1,790 | | Total current liabilities | $42,237 | $42,041 | $196 | | Operating lease liabilities, net of current portion | $16,844 | $0 | $16,844 | | Lease incentive obligation, net of current portion | $0 | $6,776 | $(6,776) | | Deferred rent | $0 | $2,216 | $(2,216) | | Deferred revenue, net of current portion - related party | $94,215 | $116,840 | $(22,625) | | Deferred revenue, net of current portion | $2,410 | $0 | $2,410 | | Other long-term liabilities | $664 | $644 | $20 | | Total liabilities | $156,370 | $168,517 | $(12,147) | | Common stock | $70 | $41 | $29 | | Additional paid-in capital | $408,575 | $341,284 | $67,291 | | Accumulated other comprehensive income | $7 | $0 | $7 | | Accumulated deficit | $(440,871) | $(389,370) | $(51,501) | | Total stockholders' deficit | $(32,219) | $(48,045) | $15,826 | | Total liabilities and stockholders' deficit | $124,151 | $120,472 | $3,679 | [Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) These statements outline revenues, expenses, and the resulting net and comprehensive loss for the reported periods Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018 | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Collaboration revenue - related party | $4,840 | $8,684 | $21,909 | $16,721 | | Grant revenue | $85 | $371 | $791 | $917 | | Collaboration revenue | $2,106 | $0 | $4,183 | $0 | | Total revenue | $7,031 | $9,055 | $26,883 | $17,638 | | Research and development expenses | $18,317 | $23,675 | $59,109 | $71,188 | | General and administrative expenses | $5,897 | $7,591 | $18,966 | $25,063 | | Restructuring expenses | $0 | $0 | $1,492 | $0 | | Total operating expenses | $24,214 | $31,266 | $79,567 | $96,251 | | Loss from operations | $(17,183) | $(22,211) | $(52,684) | $(78,613) | | Interest income (expense), net | $335 | $262 | $744 | $958 | | Other income | $439 | $0 | $439 | $0 | | Total other income (expense), net | $774 | $262 | $1,183 | $958 | | Net loss | $(16,409) | $(21,949) | $(51,501) | $(77,655) | | Net loss per share attributable to common stockholders, basic and diluted | $(0.23) | $(0.54) | $(0.99) | $(1.91) | | Weighted average common shares outstanding, basic and diluted | 69,944,068 | 40,806,413 | 52,143,492 | 40,699,422 | | Unrealized gain on investments, net of tax of $0 | $7 | $20 | $7 | $137 | | Comprehensive loss | $(16,402) | $(21,929) | $(51,494) | $(77,518) | [Condensed Consolidated Statement of Stockholders' Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Stockholders%27%20Equity%20(Deficit)) This statement tracks changes in stockholders' deficit resulting from stock issuance and net loss - Total stockholders' deficit improved from **$(48,045) thousand** at December 31, 2018, to **$(32,219) thousand** at September 30, 2019[19](index=19&type=chunk) - Issuance of common stock from a public offering, net of commissions, underwriting discounts, and offering costs, contributed **$60,527 thousand** during the nine months ended September 30, 2019[19](index=19&type=chunk) - Accumulated deficit increased from **$(389,370) thousand** at December 31, 2018, to **$(440,871) thousand** at September 30, 2019, primarily due to net losses incurred[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 | Metric (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash (used in) operating activities | $(62,473) | $(75,520) | | Net cash (used in) provided by investing activities | $(35,171) | $94,922 | | Net cash provided by (used in) financing activities | $61,121 | $223 | | Net increase (decrease) in cash and cash equivalents | $(36,523) | $19,625 | | Cash, cash equivalents and restricted cash at end of period | $49,410 | $57,226 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures and explanations for the figures presented in the financial statements [Note 1. Nature of the Business and Basis of Presentation](index=9&type=section&id=Note%201.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) Seres Therapeutics is a clinical-stage microbiome company developing biological drugs and facing ongoing operating losses - Seres Therapeutics, Inc is a microbiome therapeutics platform company developing a novel class of biological drugs designed to treat disease by restoring the function of a dysbiotic microbiome[25](index=25&type=chunk) - Key product candidates include **SER-287** for ulcerative colitis (UC), **SER-109** for recurrent Clostridium difficile infection (CDI), **SER-301** for inflammatory bowel disease (IBD), and **SER-401** for metastatic melanoma[25](index=25&type=chunk) - In February 2019, the company implemented corporate changes to focus resources on advancing clinical-stage therapeutic candidates and **reduced headcount by approximately 30%**[28](index=28&type=chunk) - Completed an underwritten public offering in June 2019, generating approximately **$55,976 thousand in net proceeds**[29](index=29&type=chunk) - Reported an **accumulated deficit of $440,871 thousand** as of September 30, 2019, and expects continued operating losses and negative cash flows[30](index=30&type=chunk) - Cash, cash equivalents, and investments of **$83,788 thousand** as of September 30, 2019, are expected to fund operations for at least the next 12 months, but additional capital will be needed beyond that point[30](index=30&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines key accounting policies, including estimates and the adoption of new lease standards (ASC 842) - Significant estimates and assumptions in financial statements include revenue recognition and the accrual of research and development expenses[35](index=35&type=chunk) - Basic and diluted net loss per share are the same in periods of net loss because potential common shares are anti-dilutive[36](index=36&type=chunk)[37](index=37&type=chunk) - Adopted new lease accounting guidance **(Topic 842)** on January 1, 2019, using a modified retrospective transition approach without restatement of prior periods[41](index=41&type=chunk)[42](index=42&type=chunk) - Upon adoption of ASC 842, recognized an operating lease asset of approximately **$13,737 thousand** and a corresponding operating lease liability of approximately **$24,497 thousand**[42](index=42&type=chunk) - The adoption of the new leasing standards **did not have any impact** on the company's condensed consolidated statements of operations and comprehensive loss[42](index=42&type=chunk) [Note 3. Fair Value Measurements](index=13&type=section&id=Note%203.%20Fair%20Value%20Measurements) This note details the fair value hierarchy for financial assets, primarily Level 1 and Level 2 investments - Financial assets and liabilities are classified into a three-level fair value hierarchy: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (unobservable inputs)[45](index=45&type=chunk)[48](index=48&type=chunk) - As of December 31, 2018, money market funds (Level 1) totaled **$39,982 thousand**[47](index=47&type=chunk) Fair Value Measurements as of September 30, 2019 (in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Money market funds | $24,134 | $— | $— | $24,134 | | Commercial paper | $— | $23,415 | $— | $23,415 | | Corporate bonds | $— | $15,029 | $— | $15,029 | | Government securities | $— | $545 | $— | $545 | | Treasury bonds | $— | $998 | $— | $998 | | **Total** | **$24,134** | **$39,987** | **$—** | **$64,121** | [Note 4. Investments](index=14&type=section&id=Note%204.%20Investments) This note details the company's available-for-sale investments, which totaled $34,492 thousand as of September 30, 2019 - Investments with original maturities of less than 90 days are included in cash and cash equivalents[49](index=49&type=chunk) Available-for-Sale Investments as of September 30, 2019 (in thousands) | Investment Type | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | | :--- | :--- | :--- | :--- | :--- | | Commercial paper | $17,920 | $— | $— | $17,920 | | Corporate bonds | $15,023 | $6 | $— | $15,029 | | Government securities | $545 | $— | $— | $545 | | Treasury bonds | $997 | $1 | $— | $998 | | **Total** | **$34,485** | **$7** | **$—** | **$34,492** | [Note 5. Property and Equipment, Net](index=14&type=section&id=Note%205.%20Property%20and%20Equipment%2C%20Net) Property and equipment, net, decreased to $21,160 thousand due to accumulated depreciation - Depreciation and amortization expense was **$1,876 thousand** for the three months ended September 30, 2019, and **$5,803 thousand** for the nine months ended September 30, 2019[50](index=50&type=chunk) Property and Equipment, Net (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Laboratory equipment | $15,078 | $14,695 | | Computer equipment | $2,874 | $2,864 | | Furniture and office equipment | $1,033 | $1,033 | | Leasehold improvements | $27,977 | $27,977 | | Construction in progress | $140 | $26 | | Less: Accumulated depreciation and amortization | $(25,942) | $(20,301) | | **Total Property and equipment, net** | **$21,160** | **$26,294** | [Note 6. Accrued Expenses and Other Current Liabilities](index=14&type=section&id=Note%206.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses decreased to $10,522 thousand, driven by lower development and payroll costs Accrued Expenses and Other Current Liabilities (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Development and manufacturing costs | $5,537 | $7,046 | | Payroll and payroll-related costs | $3,564 | $5,020 | | Facility and other | $1,421 | $3,141 | | **Total** | **$10,522** | **$15,207** | [Note 7. Stockholders' Deficit Common Stock](index=15&type=section&id=Note%207.%20Stockholders%27%20Deficit%20Common%20Stock) This note details changes in stock options, restricted stock units, and stock-based compensation expense [Stock Options](index=15&type=section&id=Stock%20Options) - Weighted average grant-date fair value of stock options granted was **$2.12 per share** for the three months ended September 30, 2019, and **$5.67 per share** for the nine months ended September 30, 2019[52](index=52&type=chunk) - Granted **1.1 million performance-based stock options** during the nine months ended September 30, 2019, which were not exercisable as performance targets were not deemed probable of achievement[53](index=53&type=chunk) Stock Option Activity (in thousands, except share and per share data) | Metric | Number of Shares | Weighted Average Exercise Price | | :--- | :--- | :--- | | Outstanding as of Dec 31, 2018 | 7,561,719 | $12.26 | | Granted | 2,346,350 | $5.90 | | Exercised | (90,125) | $1.61 | | Forfeited | (1,559,913) | $12.69 | | **Outstanding as of Sep 30, 2019** | **8,258,031** | **$10.49** | | Options exercisable as of Sep 30, 2019 | 4,641,642 | $12.49 | [Restricted Stock Units](index=15&type=section&id=Restricted%20Stock%20Units) Restricted Stock Unit Activity (in thousands, except share data) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :--- | :--- | :--- | | Unvested restricted stock units as of Dec 31, 2018 | 226,900 | $9.64 | | Granted | 15,000 | $2.29 | | Forfeited | (22,500) | $8.77 | | Vested | (73,500) | $9.98 | | **Unvested restricted stock units as of Sep 30, 2019** | **145,900** | **$8.85** | [Stock-based Compensation Expense](index=15&type=section&id=Stock-based%20Compensation%20Expense) Stock-based Compensation Expense (in thousands) | Expense Category | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Research and development expenses | $1,033 | $2,246 | $3,574 | $6,436 | | General and administrative expenses | $1,004 | $2,071 | $2,625 | $6,451 | | **Total** | **$2,037** | **$4,317** | **$6,199** | **$12,887** | [Employee Stock Purchase Plan](index=16&type=section&id=Employee%20Stock%20Purchase%20Plan) - The ESPP allows eligible employees to contribute up to 15% of earnings to purchase common stock at **85% of the lesser of the fair market value** at the start or end of the six-month offering period[56](index=56&type=chunk) - As of September 30, 2019, **1.8 million shares** were reserved and available for issuance under the ESPP[57](index=57&type=chunk) [Note 8. Collaboration Revenue](index=16&type=section&id=Note%208.%20Collaboration%20Revenue) This note details revenue from collaboration agreements, primarily with Nestec Ltd and AstraZeneca [NHS Collaboration Agreement](index=16&type=section&id=NHS%20Collaboration%20Agreement) - Entered into a collaboration and license agreement with Nestec Ltd (NHS) in January 2016 for development and commercialization of CDI and IBD product candidates outside the United States and Canada[58](index=58&type=chunk)[59](index=59&type=chunk) - Received an upfront cash payment of **$120,000 thousand** in February 2016[60](index=60&type=chunk) - Eligible to receive up to **$285,000 thousand** in development milestone payments, **$375,000 thousand** in regulatory payments, and **$1,125,000 thousand** for commercial milestones, plus tiered royalties[60](index=60&type=chunk) - Received **$40,000 thousand** in milestone payments in December 2018 following the initiation of the SER-287 Phase 2b study[61](index=61&type=chunk) - Recognized **$4,840 thousand** (Q3 2019) and **$21,909 thousand** (9 months 2019) in Collaboration revenue – related party[66](index=66&type=chunk) - Deferred revenue related to the NHS License Agreement was **$115,350 thousand** as of September 30, 2019[67](index=67&type=chunk) [AstraZeneca Research Collaboration and Option Agreement](index=17&type=section&id=AstraZeneca%20Research%20Collaboration%20and%20Option%20Agreement) - Entered into a Research Collaboration and Option Agreement with AstraZeneca in March 2019 to advance understanding of the microbiome in augmenting cancer immunotherapy[68](index=68&type=chunk) - AstraZeneca will pay **$20,000 thousand** in three equal installments, with the first received in April 2019 and subsequent payments due in January 2020 and January 2021[69](index=69&type=chunk) - Granted AstraZeneca an exclusive option to negotiate a worldwide, sublicensable exclusive license for Microbiome Oncology Products[71](index=71&type=chunk) - Recognized **$2,106 thousand** (Q3 2019) and **$4,183 thousand** (9 months 2019) in collaboration revenue under the Research Agreement[77](index=77&type=chunk) - Deferred revenue associated with the Research Agreement was **$4,200 thousand** as of September 30, 2019[78](index=78&type=chunk) [Contract Balances from Contracts with Customers](index=20&type=section&id=Contract%20Balances%20from%20Contracts%20with%20Customers) - Revenue recognized in the period from amounts included in the contract liability at the beginning of the period was **$6,081 thousand** for the three months ended September 30, 2019, and **$21,909 thousand** for the nine months ended September 30, 2019[79](index=79&type=chunk) Contract Liabilities (Deferred Revenue) (in thousands) | Category | Balance as of Dec 31, 2018 | Additions | Deductions | Balance as of Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Deferred revenue - related party | $137,259 | $— | $(21,909) | $115,350 | | Deferred revenue | $— | $8,383 | $(4,183) | $4,200 | [Note 9. Leases](index=20&type=section&id=Note%209.%20Leases) This note details the company's operating lease arrangements and the impact of adopting ASC 842 - Entered into a sublease agreement in July 2019 with a related party for a portion of its office and laboratory space[81](index=81&type=chunk)[102](index=102&type=chunk) - Sublease income was **$439 thousand** for both the three and nine months ended September 30, 2019[84](index=84&type=chunk)[102](index=102&type=chunk) - As of September 30, 2019, the weighted average remaining lease term was **4.12 years**, and the weighted average incremental borrowing rate was **11%**[86](index=86&type=chunk) Operating Lease Balances as of September 30, 2019 (in thousands) | Category | Amount | | :--- | :--- | | Operating lease assets | $11,899 | | Operating lease liabilities (current) | $4,335 | | Operating lease liabilities, net of current portion | $16,844 | | **Total operating lease liabilities** | **$21,179** | Lease Costs (in thousands) | Category | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Operating lease costs | $1,148 | $3,456 | | Short-term lease costs | $330 | $1,547 | | Variable lease costs | $716 | $2,302 | | Sublease income | $(439) | $(439) | | **Total lease costs** | **$1,755** | **$6,866** | [Note 10. Restructuring](index=22&type=section&id=Note%2010.%20Restructuring) A February 2019 restructuring led to a 30% headcount reduction and $1,492 thousand in charges - In February 2019, the company implemented corporate changes to focus resources on advancing clinical-stage therapeutic candidates, leading to a **reduction in headcount by approximately 30%**[90](index=90&type=chunk) - Recorded **$1,492 thousand** in restructuring charges related to severance and other termination benefits during the nine months ended September 30, 2019[91](index=91&type=chunk) - As of September 30, 2019, the remaining restructuring liability included in accrued expenses and other current liabilities was **$391 thousand**[92](index=92&type=chunk) [Note 11. Income Taxes](index=22&type=section&id=Note%2011.%20Income%20Taxes) No income taxes were provided due to a history of net losses and a full valuation allowance - No income taxes were provided for the three and nine months ended September 30, 2019 and 2018[93](index=93&type=chunk) - A **full valuation allowance** has been established against deferred tax assets due to the company's history of cumulative net losses and uncertainty of realizing future tax benefits[94](index=94&type=chunk) [Note 12. Commitments and Contingencies](index=23&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) The company has commitments for operating leases and provides indemnification agreements in the ordinary course of business - Commitments are associated with the company's lease portfolio (refer to Note 9)[96](index=96&type=chunk) - Provides indemnification of varying scope and terms to vendors, lessors, business partners, directors, and officers; the maximum potential amount of future payments is often unlimited[97](index=97&type=chunk) - **No material costs** have been incurred as a result of indemnifications to date, and no liabilities were accrued for legal contingencies as of September 30, 2019 or December 31, 2018[97](index=97&type=chunk)[100](index=100&type=chunk) [Note 13. Related Party Transactions](index=23&type=section&id=Note%2013.%20Related%20Party%20Transactions) This note details transactions with related parties, including collaboration revenue from Nestec Ltd and sublease income - Recognized **$4,840 thousand** (Q3 2019) and **$21,909 thousand** (9 months 2019) in collaboration revenue from Nestec Ltd (NHS), a related party[101](index=101&type=chunk) - Deferred revenue related to the NHS License Agreement was **$115,350 thousand** as of September 30, 2019[101](index=101&type=chunk) - Entered into a sublease agreement in July 2019 with Flagship Pioneering, a significant stockholder, and recorded **$439 thousand** in other income during the three and nine months ended September 30, 2019[102](index=102&type=chunk) [Note 14. Subsequent Events](index=24&type=section&id=Note%2014.%20Subsequent%20Events) In October 2019, the company secured a Term Loan Facility of up to $50,000 thousand - In October 2019, the company entered into a loan and security agreement with Hercules Capital, Inc for a Term Loan Facility of up to **$50,000 thousand**[103](index=103&type=chunk) - Received the first tranche of **$25,000 thousand** (net $24,575 thousand after closing costs) at the closing on October 29, 2019[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, and strategic actions amid ongoing losses [Overview](index=25&type=section&id=Overview) Management discusses the company's focus on microbiome therapeutics, recent strategic actions, and financial status - Seres Therapeutics is a microbiome therapeutics platform company developing a novel class of biological drugs designed to treat disease by restoring the function of a dysbiotic microbiome[106](index=106&type=chunk) - Reported a **net loss of $51.5 million** for the nine months ended September 30, 2019, and an **accumulated deficit of $440.9 million** as of September 30, 2019[108](index=108&type=chunk) - In February 2019, implemented corporate changes to focus resources on advancing clinical-stage therapeutic candidates (SER-287, SER-109, SER-401, SER-301) and **reduced headcount by approximately 30%**[109](index=109&type=chunk) - Completed an underwritten public offering in June 2019, raising approximately **$60.6 million in net proceeds**[111](index=111&type=chunk) - Entered into a loan and security agreement with Hercules Capital, Inc in October 2019 for a **$50.0 million Term Loan Facility**, with $24.6 million received at closing[112](index=112&type=chunk) [Product Candidates](index=26&type=section&id=Product%20Candidates) The company is advancing several clinical-stage microbiome therapeutic candidates for various diseases [SER-287](index=26&type=section&id=SER-287) - SER-287 is an oral, donor-derived microbiome therapeutic candidate designed to normalize the gastrointestinal microbiome of individuals with ulcerative colitis (UC)[113](index=113&type=chunk) - A three-arm placebo-controlled **Phase 2b clinical trial** for SER-287 in approximately 201 patients with mild-to-moderate UC commenced in December 2018, with top-line data expected in the second half of 2020[113](index=113&type=chunk) - SER-287 has been granted **Fast Track Designation** by the FDA for the induction and maintenance of clinical remission in adult subjects with active mild-to-moderate UC[114](index=114&type=chunk) [SER-109](index=26&type=section&id=SER-109) - SER-109 is an oral, donor-derived microbiome therapeutic candidate designed to restore the dysbiotic gastrointestinal microbiome of patients with recurrent Clostridium difficile infection (CDI)[116](index=116&type=chunk) - SER-109 has been granted **Breakthrough Therapy Designation** and **Orphan Drug Designation** for the treatment of recurrent CDI[116](index=116&type=chunk) - The ongoing ECOSPOR III **Phase 3 study** for recurrent CDI has been revised, reducing the target enrollment from 320 to **188 patients** to expedite clinical results, with top-line data expected in mid-2020[117](index=117&type=chunk)[118](index=118&type=chunk) [SER-401](index=27&type=section&id=SER-401) - SER-401 is an oral microbiome therapeutic candidate for use with checkpoint inhibitors in patients with metastatic melanoma[119](index=119&type=chunk) - A **Phase 1b clinical study** with MD Anderson and PICI initiated in March 2019, with preliminary results expected in the second half of 2020[119](index=119&type=chunk) [SER-301](index=27&type=section&id=SER-301) - SER-301 is a preclinical-stage, rationally-designed, fermented microbiome therapeutic candidate for ulcerative colitis (UC)[120](index=120&type=chunk) - Clinical development of SER-301 is expected to initiate in early 2020[120](index=120&type=chunk) - The company is entitled to receive a **$10.0 million milestone payment** under its collaboration with Nestec Ltd upon initiation of the SER-301 Phase 1 study[120](index=120&type=chunk) [Intellectual Property](index=27&type=section&id=Intellectual%20Property) The company maintains an extensive patent portfolio and relies on regulatory exclusivities for its product candidates [Patent Portfolio](index=27&type=section&id=Patent%20Portfolio) - The company has an extensive patent portfolio directed to rationally designed ecologies of spores and microbes, covering both composition of matter and methods of treatment[124](index=124&type=chunk) - Intellectual property rights related to SER-109 (C difficile) and SER-287 (ulcerative colitis) **extend through 2033**[124](index=124&type=chunk) - Currently holds **15 active patent application families** (including 8 nationalized and 1 pending US provisional applications) and **13 issued U.S. patents**[124](index=124&type=chunk) [Regulatory Exclusivity](index=28&type=section&id=Regulatory%20Exclusivity) - If marketing approval is obtained for any product candidates, the company expects to receive **12 years of marketing exclusivity** in the United States for new biological compositions[125](index=125&type=chunk) - In Europe, the European Medicines Agency awards **10 years of exclusivity** for new molecular entities[125](index=125&type=chunk) [Financial Operations Overview](index=28&type=section&id=Financial%20Operations%20Overview) The company's revenue is from collaborations, while operating expenses are primarily for R&D and G&A [Revenue](index=28&type=section&id=Revenue_F) - To date, the company has not generated any revenues from the sale of products; revenues have been derived primarily from collaboration agreements[127](index=127&type=chunk) [Operating Expenses](index=28&type=section&id=Operating%20Expenses_F) - Operating expenses since inception have consisted primarily of research and development activities and general and administrative costs[127](index=127&type=chunk) [Research and Development Expenses](index=28&type=section&id=Research%20and%20Development%20Expenses_F) - Research and development costs are expensed as incurred and include costs for third-party contractors (CROs, CMOs), personnel, consultants, laboratory supplies, and regulatory compliance[128](index=128&type=chunk) - Direct research and development expenses are tracked on a program-by-program basis, while employee-related and other indirect costs are classified as microbiome therapeutics platform research[129](index=129&type=chunk) - Expects research and development expenses to **continue to increase** in the foreseeable future as clinical development of SER-287, SER-109, SER-401, and SER-301 advances[132](index=132&type=chunk) [General and Administrative Expenses](index=29&type=section&id=General%20and%20Administrative%20Expenses_F) - General and administrative expenses primarily consist of salaries, stock-based compensation, legal fees, professional fees, insurance, travel, and facility-related expenses[133](index=133&type=chunk) - General and administrative expenses may increase in the future to support growth in research and development activities and potential commercialization, as well as costs associated with being a public company[134](index=134&type=chunk) [Restructuring](index=29&type=section&id=Restructuring_F) - In February 2019, the company implemented corporate changes to focus resources on advancing clinical-stage therapeutic candidates, leading to a **reduction in headcount by approximately 30%**[135](index=135&type=chunk) [Other Income (Expense), Net](index=29&type=section&id=Other%20Income%20(Expense)%2C%20Net_F) - Other income (expense), net, consists of interest earned on cash, cash equivalents, and investments, and sublease income[136](index=136&type=chunk) [Income Taxes](index=29&type=section&id=Income%20Taxes_F) - No U.S federal or state income tax benefits have been recorded since inception due to uncertainty of realizing a benefit from net losses and research and development tax credits[137](index=137&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Financial statements require estimates, particularly for revenue recognition and R&D expenses, with no material policy changes - Condensed consolidated financial statements are prepared in accordance with GAAP, requiring estimates and judgments, particularly for revenue recognition and the accrual of research and development expenses[140](index=140&type=chunk) - **No material changes** to significant accounting policies occurred during the nine months ended September 30, 2019, except for the adoption of the new lease accounting standard discussed in Note 9[140](index=140&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section compares financial performance for the three and nine months ended September 30, 2019 and 2018 [Comparison of Three Months Ended September 30, 2019 and 2018](index=30&type=section&id=Comparison%20of%20Three%20Months%20Ended%20September%2030%2C%202019%20and%202018) Net loss improved to $(16.4) million in Q3 2019, driven by lower R&D and G&A expenses - Total revenue decreased by **$2.0 million (22.4%)** in Q3 2019, primarily due to a cumulative catch-up adjustment in Q3 2018 related to a $20.0 million milestone[143](index=143&type=chunk) - Research and development expenses decreased by **$5.4 million (22.6%)** in Q3 2019, mainly due to a $4.7 million decrease in microbiome therapeutics platform expenses and a $1.6 million decrease in SER-109 program expenses, partially offset by a $1.5 million increase in SER-287 program expenses[145](index=145&type=chunk) - General and administrative expenses decreased by **$1.7 million (22.3%)** in Q3 2019, primarily due to a $1.7 million decrease in personnel-related costs[146](index=146&type=chunk) Results of Operations (Three Months Ended September 30, in thousands) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $7,031 | $9,055 | $(2,024) | | Research and development | $18,317 | $23,675 | $(5,358) | | General and administrative | $5,897 | $7,591 | $(1,694) | | Total operating expenses | $24,214 | $31,266 | $(7,052) | | Loss from operations | $(17,183) | $(22,211) | $5,028 | | Net loss | $(16,409) | $(21,949) | $5,540 | [Comparison of Nine Months Ended September 30, 2019 and 2018](index=32&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030%2C%202019%20and%202018) Net loss improved to $(51.5) million for the nine-month period, driven by higher revenue and lower operating expenses - Total revenue increased by **$9.2 million (52.4%)** for the nine months ended September 30, 2019, primarily due to a $6.8 million cumulative catch-up adjustment from the SER-109 Phase 3 trial modification and $4.2 million from the AstraZeneca Research Agreement[150](index=150&type=chunk) - Research and development expenses decreased by **$12.1 million (17.0%)** for the nine months ended September 30, 2019, mainly due to decreases in microbiome therapeutics platform ($7.2 million), SER-109 program ($7.7 million), and SER-262 program ($2.2 million) expenses, partially offset by a $4.9 million increase in SER-287 program expenses[151](index=151&type=chunk)[152](index=152&type=chunk) - General and administrative expenses decreased by **$6.1 million (24.3%)** for the nine months ended September 30, 2019, primarily due to a $4.9 million decrease in personnel-related costs[153](index=153&type=chunk) - Restructuring charges of **$1.5 million** were recorded during the nine months ended September 30, 2019[154](index=154&type=chunk) Results of Operations (Nine Months Ended September 30, in thousands) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $26,883 | $17,638 | $9,245 | | Research and development | $59,109 | $71,188 | $(12,079) | | General and administrative | $18,966 | $25,063 | $(6,097) | | Restructuring expenses | $1,492 | $0 | $1,492 | | Total operating expenses | $79,567 | $96,251 | $(16,684) | | Loss from operations | $(52,684) | $(78,613) | $25,929 | | Net loss | $(51,501) | $(77,655) | $26,154 | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity was enhanced by a public offering and a new loan facility, funding operations into Q2 2021 [Collaboration Agreements](index=34&type=section&id=Collaboration%20Agreements_L) - Under the NHS License Agreement, the company received a **$120.0 million** upfront payment in 2016 and is eligible for up to **$285.0 million** in development, **$375.0 million** in regulatory, and **$1.1 billion** in commercial milestones, plus tiered royalties[162](index=162&type=chunk) - Under the AstraZeneca Research Agreement, AstraZeneca will pay **$20.0 million** in three equal installments, with the first received in April 2019 and the remaining two due in January 2020 and January 2021[166](index=166&type=chunk) [Loan and Security Agreement with Hercules](index=35&type=section&id=Loan%20and%20Security%20Agreement%20with%20Hercules) - Entered into a loan and security agreement with Hercules Capital, Inc in October 2019 for a Term Loan Facility of up to **$50.0 million**, available in three tranches[168](index=168&type=chunk) - Received the first tranche of **$25.0 million** (net $24.6 million after closing costs) on October 29, 2019[168](index=168&type=chunk) - Advances bear interest at the greater of **Prime Rate + 4.40% or 9.65%**, with interest-only payments through December 1, 2021 (extendable to June 1, 2022 upon milestones)[169](index=169&type=chunk) - The Term Loan Facility is secured by substantially all of the company's assets, **excluding intellectual property**[170](index=170&type=chunk) [Cash Flows](index=35&type=section&id=Cash%20Flows_L) - Net cash used in operating activities decreased by **$13.0 million**, from $(75.5) million in 2018 to **$(62.5) million** in 2019, primarily due to a lower net loss[174](index=174&type=chunk)[175](index=175&type=chunk) - Net cash used in investing activities was **$(35.2) million** in 2019, compared to **$94.9 million** provided in 2018, mainly due to purchases of investments in 2019 versus sales and maturities of investments in 2018[176](index=176&type=chunk)[177](index=177&type=chunk) - Net cash provided by financing activities significantly increased to **$61.1 million** in 2019 from $0.2 million in 2018, driven by proceeds from the public offering of common stock[178](index=178&type=chunk)[179](index=179&type=chunk) Cash Flow Summary (Nine Months Ended September 30, in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Cash (used in) operating activities | $(62,473) | $(75,520) | | Cash provided by (used in) investing activities | $(35,171) | $94,922 | | Cash provided by (used in) financing activities | $61,121 | $223 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(36,523) | $19,625 | [Funding Requirements](index=36&type=section&id=Funding%20Requirements) - Based on current plans, cash, cash equivalents, investments as of September 30, 2019, and the $25.0 million drawn from the Term Loan Facility are expected to fund operating expenses and capital expenditure requirements **into the second quarter of 2021**[161](index=161&type=chunk) - Anticipates **substantial increases in expenses** for ongoing clinical development (SER-287, SER-109, SER-401, SER-301), manufacturing, potential commercialization, and public company operations[180](index=180&type=chunk) - Will need **additional financing**, which may involve equity or convertible debt securities (diluting shareholders), debt financing (imposing restrictive covenants), or collaborations (relinquishing rights)[182](index=182&type=chunk)[183](index=183&type=chunk) [Contractual Obligations and Commitments](index=37&type=section&id=Contractual%20Obligations%20and%20Commitments) - Material changes to contractual obligations and commitments since the Annual Report include a sublease agreement (Note 9) and the loan and security agreement with Hercules[184](index=184&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) As of September 30, 2019, the company did not have any off-balance sheet arrangements - As of September 30, 2019, the company did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC[185](index=185&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest income sensitivity, which is not considered material - The company's primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S interest rates[186](index=186&type=chunk) - Due to the short-term nature of the instruments in its portfolio, an immediate **10% change in market interest rates would not have a material impact** on the fair market value of its investment portfolio or on its financial position or results of operations[186](index=186&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2019 - Management concluded that disclosure controls and procedures were **effective** at the reasonable assurance level as of September 30, 2019[188](index=188&type=chunk) - **No change** in internal control over financial reporting occurred during the three months ended September 30, 2019, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[189](index=189&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in an ongoing European patent opposition proceeding with The University of Tokyo - On April 25, 2017, the company filed a notice of opposition to European Patent No 2 575 835 B1, granted to The University of Tokyo, requesting its revocation[192](index=192&type=chunk) - The Opposition Division required The University of Tokyo to narrow the scope of the patent claims, and **both The University of Tokyo and Seres Therapeutics have appealed** certain aspects of this decision[192](index=192&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Investing in the company's stock involves significant risks across its finances, product development, and operations [Risks Related to Our Financial Position and Need for Additional Capital](index=39&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) The company has a history of significant losses and requires substantial additional capital to fund future operations - The company has incurred significant operating losses since inception, with a **net loss of $51.5 million** for the nine months ended September 30, 2019, and an **accumulated deficit of $440.9 million**[195](index=195&type=chunk) - Expects to continue incurring significant expenses and operating losses for the foreseeable future, requiring **substantial additional funding** to complete product development and commercialization[195](index=195&type=chunk)[199](index=199&type=chunk) - Inability to raise capital when needed or on attractive terms could force **delays, reductions, or elimination** of research and development programs or commercialization efforts[199](index=199&type=chunk)[202](index=202&type=chunk) - Future financing efforts may **dilute stockholders**, result in increased fixed payment obligations, or require relinquishing rights to technologies or product candidates[201](index=201&type=chunk) [Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates](index=41&type=section&id=Risks%20Related%20to%20the%20Discovery%2C%20Development%20and%20Regulatory%20Approval%20of%20Our%20Product%20Candidates) The company's microbiome therapeutics approach is unproven, and clinical development is risky, lengthy, and expensive - Microbiome therapeutics is an **unproven approach**; the company has not, nor to its knowledge has any other company, received regulatory approval or manufactured on a commercial scale a therapeutic based on this approach[207](index=207&type=chunk) - Clinical drug development is a **risky, lengthy, and expensive process** with an uncertain outcome, and the risk of failure is high at any stage of testing[209](index=209&type=chunk) - Delays or difficulties in patient enrollment in clinical trials could **delay or prevent regulatory approvals** and increase development costs[214](index=214&type=chunk)[217](index=217&type=chunk) - The reduction in trial size for the SER-109 Phase 3 study may necessitate **additional confirmatory evidence** of efficacy or patient exposure for safety to gain approval[218](index=218&type=chunk) - Obtaining marketing approvals is expensive, risky, and may take many years, with potential for **delays, limited indications, or denial** by regulatory authorities[219](index=219&type=chunk)[221](index=221&type=chunk) - Fast Track and Breakthrough Therapy designations **do not guarantee a faster development**, regulatory review, or approval process, nor do they increase the likelihood of marketing approval[226](index=226&type=chunk)[228](index=228&type=chunk) - Orphan drug exclusivity **may not effectively protect a product from competition**, as different drugs can be approved for the same condition or the same drug can be approved if clinically superior[232](index=232&type=chunk) [Risks Related to our Dependence on Third Parties and Manufacturing](index=47&type=section&id=Risks%20Related%20to%20our%20Dependence%20on%20Third%20Parties%20and%20Manufacturing) The company relies heavily on third parties for clinical trials, manufacturing, and commercialization - The Collaboration and License Agreement with NHS is critical; failure by either party to perform or termination could **delay or terminate development and commercialization** of CDI and IBD product candidates outside the US and Canada[236](index=236&type=chunk)[238](index=238&type=chunk) - Reliance on third parties (CROs, medical institutions, clinical investigators) to conduct clinical trials **reduces control** and poses risks of unsatisfactory performance, missed deadlines, or non-compliance with regulatory requirements[239](index=239&type=chunk)[241](index=241&type=chunk) - Reliance on third parties for manufacturing product candidates increases the risk of **insufficient quantities, unacceptable cost, or quality issues**, which could delay, prevent, or impair development or commercialization efforts[243](index=243&type=chunk) - Third-party manufacturers may not comply with cGMP regulations, leading to **sanctions, clinical holds, or delays in approval**[244](index=244&type=chunk) - The company has **no experience manufacturing product candidates at commercial scale** and may face challenges in developing adequate facilities and staffing[246](index=246&type=chunk)[247](index=247&type=chunk) - Some product candidates require donor material, and the company may not be able to collect **sufficient quantities for commercial-scale manufacturing**[249](index=249&type=chunk) [Risks Related to Commercialization of Our Product Candidates and Other Legal Matters](index=49&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Our%20Product%20Candidates%20and%20Other%20Legal%20Matters) The company faces challenges in market acceptance, competition, and complex healthcare regulations - Even if approved, product candidates may **fail to achieve sufficient market acceptance** by physicians, patients, and third-party payors due to competition (e.g., FMT for CDI), efficacy, safety, or pricing[251](index=251&type=chunk) - The company has **limited sales and marketing infrastructure** and no experience in commercializing pharmaceutical products, posing risks in establishing effective capabilities or securing favorable third-party agreements[252](index=252&type=chunk)[254](index=254&type=chunk) - Faces **substantial competition** from major pharmaceutical, specialty pharmaceutical, and biotechnology companies, as well as academic institutions, some with significantly greater resources[255](index=255&type=chunk)[256](index=256&type=chunk) - Commercial opportunity could be reduced or eliminated if competitors develop and commercialize **more effective, safer, convenient, or less expensive products**, or obtain regulatory approval more rapidly[258](index=258&type=chunk) - Subject to **unfavorable pricing regulations** and third-party coverage and reimbursement policies, which could harm business and limit revenue generation[259](index=259&type=chunk)[260](index=260&type=chunk) - **Product liability lawsuits** could result in substantial liabilities, regulatory investigations, product recalls, reputational damage, and limit commercialization[263](index=263&type=chunk) - May face competition from **biosimilars**, potentially shortening exclusivity periods and materially adversely impacting future commercial prospects[266](index=266&type=chunk)[267](index=267&type=chunk) - Failure to obtain marketing approval in **international jurisdictions** would prevent product candidates from being marketed abroad[269](index=269&type=chunk) - Approved products are subject to **post-marketing restrictions**, withdrawal from the market, and penalties for non-compliance with regulatory requirements[270](index=270&type=chunk)[273](index=273&type=chunk) - Relationships with customers, physicians, and third-party payors are subject to **anti-kickback, fraud and abuse, and other healthcare laws**, risking criminal sanctions, civil penalties, and exclusion from government programs[278](index=278&type=chunk)[281](index=281&type=chunk) - Recently enacted and future legislation (e.g., ACA) and governmental scrutiny over pricing could **increase costs, delay approvals, and affect the prices obtainable** for products[282](index=282&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) [Risks Related to Our Intellectual Property](index=57&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Success depends on obtaining and maintaining intellectual property protection, which is expensive and uncertain - The company's success depends on its ability to obtain and maintain patent and other intellectual property protection, which is an **expensive, time-consuming, and inherently uncertain process**[292](index=292&type=chunk)[293](index=293&type=chunk) - The patent portfolio is at a **very early stage**, and there is no assurance that pending patent applications will mature into issued patents or provide sufficient scope to protect product candidates or prevent competition[296](index=296&type=chunk)[298](index=298&type=chunk) - The company may be subject to **third-party challenges** (e.g., opposition, reexamination, inter partes review) to its patent rights, which could reduce the scope of, or invalidate, its patents[299](index=299&type=chunk) - The patent position of biotechnology and pharmaceutical companies is **highly uncertain** and involves complex legal and factual questions, making the ability to obtain, maintain, and enforce patents uncertain[300](index=300&type=chunk) - Inability to protect the confidentiality of **trade secrets and know-how** could harm the company's business and competitive position[303](index=303&type=chunk) - Changes in U.S patent law (e.g., Leahy-Smith America Invents Act) and Supreme Court rulings (e.g., on patent eligibility of natural products) have **increased uncertainties and costs** surrounding patent prosecution and enforcement[304](index=304&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) - Third parties may initiate legal proceedings alleging **infringement of their intellectual property rights**, which could lead to costly litigation, the need to obtain licenses, or cessation of commercializing infringing technology[310](index=310&type=chunk)[313](index=313&type=chunk) - Issued patents covering product candidates could be found **invalid or unenforceable** or interpreted narrowly if challenged in court, leading to a loss of patent protection[316](index=316&type=chunk) - Failure to comply with procedural requirements for patent maintenance (e.g., fee payments, document submissions) could result in **abandonment or lapse of patent rights**[318](index=318&type=chunk) - The company may be subject to claims challenging the **inventorship or ownership** of its patents and other intellectual property, or claims of misappropriation of third-party intellectual property[319](index=319&type=chunk)[321](index=321&type=chunk) - The company will not seek to protect its intellectual property rights in all jurisdictions, and enforcement may be **inadequate in countries where protection is sought**, allowing competitors to use its technologies[325](index=325&type=chunk)[327](index=327&type=chunk) [Risks Related to Our Operations](index=64&type=section&id=Risks%20Related%20to%20Our%20Operations) The company's new strategy, reliance on key personnel, and public company status present operational risks - The new corporate strategy and restructuring implemented in February 2019 **may not be successful**, potentially leading to unexpected risks, costs, or an inability to effectively retain management or personnel[330](index=330&type=chunk)[332](index=332&type=chunk) - Future success depends on the ability to **retain key executives** and to attract, retain, and motivate qualified scientific, clinical, manufacturing, and sales and marketing personnel[333](index=333&type=chunk)[334](index=334&type=chunk) - Expansion of operational capabilities may lead to **difficulties in managing growth**, diverting management and business development resources, and disrupting operations[335](index=335&type=chunk) - As a public company, the company incurs **significant legal, accounting, and other expenses**, and management devotes substantial time to compliance initiatives and corporate governance practices[336](index=336&type=chunk)[337](index=337&type=chunk) - Operating internationally involves various risks, including conflicting laws, regulatory requirements, intellectual property enforcement challenges, and financial risks[338](index=338&type=chunk) - **Information technology and other system failures** could disrupt business operations, delay development programs, and lead to data loss or security breaches[340](index=340&type=chunk) - Acquisitions or joint ventures could **disrupt business, cause dilution to stockholders**, and expose the company to unanticipated liabilities and integration difficulties[341](index=341&type=chunk) - The company has been subject to **securities class action litigation** in the past and may face similar or other litigation in the future, resulting in substantial costs and diversion of management's attention[344](index=344&type=chunk) - Failure to comply with **environmental, health, and safety laws** and regulations could result in fines, penalties, or significant costs[345](index=345&type=chunk)[347](index=347&type=chunk) - Comprehensive tax reform bills could adversely affect the company's business and financial condition, and its ability to use **net operating loss carryforwards** may be subject to limitations[348](index=348&type=chunk)[349](index=349&type=chunk) - The terms of the Hercules credit facility place **restrictions on operating and financial flexibility**, and a default could significantly harm the business and prospects[350](index=350&type=chunk)[351](index=351&type=chunk) [Risks Related to Our Common Stock](index=71&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The company's common stock price is highly volatile, and insiders hold significant voting power - The price of the company's common stock is likely to be **volatile and fluctuate substantially** due to various factors, including clinical trial results, regulatory developments, and financial performance[354](index=354&type=chunk) - Executive officers, directors, and principal stockholders, collectively holding approximately **62% of outstanding voting stock**, have the ability to control or significantly influence matters submitted to stockholders, potentially delaying or preventing a change in control[355](index=355&type=chunk)[356](index=356&type=chunk) - A significant portion of total outstanding shares are eligible to be sold into the market, which could cause the **market price of the common stock to drop significantly**[357](index=357&type=chunk) - As an "emerging growth company" and "smaller reporting company," the company benefits from **reduced disclosure requirements**, which may make its common stock less attractive to some investors and potentially lead to a less active trading market or reduced stock price[358](index=358&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk) - Provisions in the restated certificate of incorporation and amended and restated bylaws, along with Delaware law, could **make an acquisition of the company more difficult** and may prevent attempts by stockholders to replace or remove current management[363](index=363&type=chunk)[364](index=364&type=chunk) - The company **does not anticipate paying any cash dividends** on its capital stock in the foreseeable future, making capital appreciation the sole source of gain for stockholders[365](index=365&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[366](index=366&type=chunk) [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None[367](index=367&type=chunk) [Item 4. Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There were no mine safety disclosures to report for the period - None[368](index=368&type=chunk) [Item 5. Other Information](index=74&type=section&id=Item%205.%20Other%20Information) There was no other information to report for the period - None[369](index=369&type=chunk) [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate and contractual documents - Includes Restated Certificate of Incorporation, Amended and Restated Bylaws, and Amended and Restated Investors' Rights Agreement[371](index=371&type=chunk) - Filed Employment Agreement with Marcus Chapman and Loan and Security Agreement with Hercules Capital, Inc[371](index=371&type=chunk) - Filed Sublease Agreement dated July 1, 2019, by and between the Registrant and Flagship VL56, Inc and Flagship VL58, Inc[371](index=371&type=chunk) - Includes Rule 13a-14(a)/15d-14(a) Certifications and Section 1350 Certifications from the Chief Executive Officer and Principal Financial and Accounting Officer[371](index=371&type=chunk) [SIGNATURES](index=76&type=section&id=SIGNATURES) The report was duly signed by the company's authorized officer on November 5, 2019 - The report was signed on **November 5, 2019**[375](index=375&type=chunk) - Signed by **Marcus Chapman**, Vice President, Finance and Principal Financial and Accounting Officer of Seres Therapeutics, Inc[375](index=375&type=chunk)

Financial Data and Key Metrics Changes - The company reported a net loss of $16.4 million for Q3 2019, compared to a net loss of $21.9 million for the same period in 2018, indicating an improvement in financial performance [41] - The cash and cash equivalents at the end of Q3 2019 were approximately $83.8 million, which does not include recent debt financing [42] Business Line Data and Key Metrics Changes - The SER-287 Phase 2b study is ongoing, with a focus on patients with mild to moderate active ulcerative colitis, aiming to replicate positive results from the previous Phase 1b study [11][55] - The SER-109 ECOSPOR III Phase 3 study is over 85% enrolled, with top-line results expected in mid-2020 [26][80] Market Data and Key Metrics Changes - The company has strengthened its balance sheet with a $51 million equity raise and access to an additional $50 million in debt financing, positioning itself for a data-rich 2020 [8][9][47] Company Strategy and Development Direction - The company is focused on advancing its microbiome therapeutics platform and executing its promising pipeline of drug candidates, including collaborations with AstraZeneca in immuno-oncology [7][9][37] - The company aims to develop first-in-class microbiome therapeutics that provide non-immunosuppressive treatment options for serious diseases [12][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing clinical studies and the unmet medical needs that their products aim to address, particularly in the context of SER-109 and SER-287 [53][86] - The company anticipates reaching multiple significant R&D milestones in 2020, which could be transformative for both the company and the industry [47][92] Other Important Information - The company has implemented disciplined financial management and streamlined operations to enhance efficiency and focus on key programs [46][92] - SER-109 has received breakthrough therapy and orphan drug designations from the FDA, highlighting its potential impact in treating recurrent C. difficile infection [26][27] Q&A Session Summary Question: Enrollment trends for the SER-109 trial - Management noted variability in month-to-month enrollment but expressed optimism as the study is nearing full enrollment, with over 85% completed [51][52] Question: Pros and cons of starting a second pivotal trial for SER-287 - Management indicated a focus on the ongoing 2b study and emphasized the importance of replicating previous positive data before considering additional trials [54][55] Question: Expectations for SER-401 Phase 1b data - Management highlighted the importance of evaluating safety and efficacy in the context of improving responses to checkpoint inhibitor therapies, particularly in metastatic melanoma [59][62] Question: Interactions with the FDA regarding donor-driven therapies - Management confirmed ongoing discussions with the FDA and emphasized the safety of their products compared to unregulated FMT [67][70] Question: Gating factors for SER-301 IND filing - Management outlined the final stages of design and manufacturing for SER-301, with plans to initiate clinical development in early 2020 [78][79] Question: Confidence in SER-109 timing for results - Management reiterated confidence in the timing of SER-109 results due to the high enrollment rate and the significance of the upcoming data [80][81] Question: Additional cash and focus on current programs - Management confirmed a focus on current programs and the potential for transformative results in the upcoming year, while remaining open to exploring new opportunities [90][92]

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-37465 Seres Therapeutics, Inc. (Exact name of registrant as specified in its charter) Delaware 27-4326290 (State or other jurisd ...

[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) This section provides basic registrant information for Seres Therapeutics, Inc.'s 10-Q quarterly report, including company details and filing status [Registrant Information](index=1&type=section&id=Registrant%20Information) This chapter provides basic information about Seres Therapeutics, Inc. as the registrant, including company name, jurisdiction, principal executive offices, telephone number, SEC file number, and its status as an accelerated filer and smaller reporting company - Seres Therapeutics, Inc. is a Delaware-registered company with its principal executive offices located in Cambridge, Massachusetts[2](index=2&type=chunk) Registrant Information Summary | Indicator | Detail | | :--- | :--- | | Quarterly Report End Date | March 31, 2019 | | SEC File Number | 001-37465 | | Registrant Telephone Number | (617) 945-9626 | | Filing Status | Accelerated filer ☒, Small reporting company ☒, Emerging growth company ☒ | | Common Stock Trading Symbol | MCRB | | Registered Exchange | The Nasdaq Global Select Market | | Shares Outstanding as of April 24, 2019 | 41,094,832 shares | [FORWARD-LOOKING STATEMENTS](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This chapter highlights forward-looking statements, outlining known and unknown risks that could cause actual results to differ materially from expectations - All non-historical statements in the report are forward-looking, covering future operating results, financial condition, business strategy, product approvals, R&D costs, and the timing and likelihood of success[10](index=10&type=chunk) - Forward-looking statements involve known and unknown risks, uncertainties, and other material factors that could cause actual results to differ materially from expectations[10](index=10&type=chunk) - Key risks include continuous losses as a clinical-stage company, future capital needs and financing ability (including going concern), product pipeline development, unproven therapeutic interventions, clinical trial patient enrollment, regulatory approvals, impact of ECOSPOR III trial size reduction, manufacturing capabilities, intellectual property protection, regulatory requirements, and ability to attract and retain key personnel[14](index=14&type=chunk) [PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, accompanied by detailed notes on business nature, accounting policies, and financial position [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This chapter provides the company's unaudited condensed consolidated financial statements, including balance sheets, income statements, equity statements, cash flow statements, and explanatory notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2019, total assets decreased to **$107,042 thousand** from **$120,472 thousand** on December 31, 2018, with cash and cash equivalents falling to **$53,600 thousand**, total liabilities increasing to **$176,875 thousand**, and stockholders' deficit expanding to **$69,833 thousand** Condensed Consolidated Balance Sheets | Indicator (in thousands) | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | 53,600 | 85,820 | | Accounts receivable | 6,667 | — | | Prepaid expenses and other current assets | 7,488 | 6,845 | | Total current assets | 67,755 | 92,665 | | Property and equipment, net | 24,571 | 26,294 | | Operating lease assets | 13,202 | — | | Restricted investments | 1,400 | 1,400 | | Restricted cash | 114 | 113 | | **Total assets** | **107,042** | **120,472** | | **Liabilities and Stockholders' Deficit** | | | | Accounts payable | 3,918 | 6,415 | | Accrued expenses and other current liabilities | 11,789 | 15,207 | | Operating lease liabilities | 4,407 | — | | Deferred revenue - related party | 18,685 | 20,419 | | Deferred revenue | 2,770 | — | | Total current liabilities | 41,569 | 42,041 | | Operating lease liabilities, net of current portion | 19,066 | — | | Deferred revenue, net of current portion - related party | 111,959 | 116,840 | | Deferred revenue, net of current portion | 3,637 | — | | **Total liabilities** | **176,875** | **168,517** | | **Stockholders' Deficit** | | | | Accumulated deficit | (413,703) | (389,370) | | **Total stockholders' deficit** | **(69,833)** | **(48,045)** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the three months ended March 31, 2019, total revenue increased to **$7,321 thousand**, but due to research and development expenses and restructuring costs, net loss was **$24,333 thousand**, a narrowing from **$27,919 thousand** in the prior year period Condensed Consolidated Statements of Operations and Comprehensive Loss | Indicator (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | **Revenue** | | | | Collaboration revenue - related party | 6,615 | 3,766 | | Grant revenue | 446 | 205 | | Other revenue | 260 | — | | **Total revenue** | **7,321** | **3,971** | | **Operating expenses** | | | | Research and development expenses | 22,887 | 23,460 | | General and administrative expenses | 7,495 | 8,777 | | Restructuring expenses | 1,492 | — | | **Total operating expenses** | **31,874** | **32,237** | | **Operating loss** | **(24,553)** | **(28,266)** | | **Other income (expense), net** | 220 | 347 | | **Net loss** | **(24,333)** | **(27,919)** | | Net loss per share (basic and diluted) | (0.59) | (0.69) | | Weighted-average common shares (basic and diluted) | 41,027,824 | 40,628,434 | [Condensed Consolidated Statement of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Stockholders'%20Equity%20(Deficit)) As of March 31, 2019, the company's stockholders' deficit expanded to **$69,833 thousand** from **$48,045 thousand** on December 31, 2018, primarily due to a net loss of **$24,333 thousand**, partially offset by share issuances from equity incentives and stock option exercises Condensed Consolidated Statement of Stockholders' Equity (Deficit) | Indicator (in thousands) | December 31, 2018 | March 31, 2019 | | :--- | :--- | :--- | | Common stock shares | 40,936,735 | 41,094,832 | | Common stock par value | 41 | 41 | | Additional paid-in capital | 341,284 | 343,829 | | Accumulated deficit | (389,370) | (413,703) | | **Total stockholders' deficit** | **(48,045)** | **(69,833)** | - Stockholders' equity changes for the period included **$120 thousand** from stock option exercises, **$153 thousand** from RSU vesting, **$207 thousand** from common stock issued under the ESPP, and **$2,065 thousand** in stock-based compensation expense[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2019, the company experienced **$32,393 thousand** cash outflow from operating activities, **$306 thousand** cash outflow from investing activities, and **$480 thousand** cash inflow from financing activities, resulting in a net decrease of **$32,219 thousand** in cash and cash equivalents Condensed Consolidated Statements of Cash Flows | Cash Flow Category (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash (used in) operating activities | (32,393) | (26,763) | | Net cash (used in) provided by investing activities | (306) | 38,034 | | Net cash provided by (used in) financing activities | 480 | (165) | | **Net (decrease) increase in cash and cash equivalents** | **(32,219)** | **11,106** | | Cash, cash equivalents, and restricted cash at beginning of period | 85,933 | 37,601 | | Cash, cash equivalents, and restricted cash at end of period | 53,714 | 48,707 | - Operating cash outflow was primarily driven by a **$24,333 thousand** net loss and changes in working capital (e.g., **$6,667 thousand** increase in accounts receivable)[24](index=24&type=chunk) - Investing cash inflow in the prior year period was mainly from sales and maturities of investments, while in 2019 it was primarily for property and equipment purchases[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This chapter provides detailed notes to the condensed consolidated financial statements, covering business nature, accounting policies, and key financial items - The company prepares financial statements under GAAP, involving numerous estimates and assumptions for revenue recognition, R&D expenses, and stock-based compensation valuation[39](index=39&type=chunk) - The company adopted new lease accounting standards (Topic 842) on January 1, 2019, recognizing approximately **$13,737 thousand** in operating lease assets and **$24,497 thousand** in operating lease liabilities, with no impact on the statements of operations and comprehensive loss[47](index=47&type=chunk) - The company adopted ASU 2018-07 on January 1, 2019, simplifying accounting for non-employee share-based payment transactions, with no material impact[47](index=47&type=chunk) [Note 1. Nature of the Business and Basis of Presentation](index=9&type=section&id=Note%201.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) The company is a microbiome therapeutics platform company developing novel biological drugs to treat diseases by restoring dysbiotic microbiome function, facing significant going concern doubts and having implemented a restructuring in February 2019 to focus resources - The company develops SER-287 for ulcerative colitis (UC), SER-109 to reduce *C. difficile* infection (CDI) recurrence, SER-301 for IBD, and SER-401 for checkpoint inhibitor treatment in metastatic melanoma patients[26](index=26&type=chunk) - As of March 31, 2019, the company had an accumulated deficit of **$413.7 million** and cash and cash equivalents of **$53.6 million**, with existing funds expected to sustain operations only until Q4 2019, raising substantial doubt about its ability to continue as a going concern[30](index=30&type=chunk)[31](index=31&type=chunk) - In February 2019, the company implemented a corporate restructuring, reducing its workforce by approximately **30%** to focus resources on advancing clinical-stage therapeutic candidates, including SER-287 Phase 2b, SER-109 Phase 3, SER-401 Phase 1b, and SER-301 clinical development[32](index=32&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies and estimates used in preparing the condensed consolidated financial statements, including revenue recognition, R&D expenses, and equity incentive valuation, with the adoption of new lease accounting standards (Topic 842) and simplified accounting for non-employee equity payments on January 1, 2019 [Net Loss per Share](index=11&type=section&id=Net%20Loss%20per%20Share) This section explains the calculation of basic and diluted net loss per share, which are identical due to the company's net loss, as potential common shares (such as stock options and unvested restricted stock units) are anti-dilutive and excluded - Basic net loss per share is calculated using the weighted-average number of common shares outstanding, while diluted net loss per share is the same as basic during periods of net loss due to the anti-dilutive effect of potential common shares[40](index=40&type=chunk)[41](index=41&type=chunk) Potential Common Shares | Potential Common Shares | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Stock options to purchase common stock | 8,908,432 | 7,498,791 | | Unvested restricted stock units | 150,400 | 302,665 | | Shares issuable under ESPP | 6,911 | — | | **Total** | **9,065,743** | **7,801,456** | [Leases](index=11&type=section&id=Leases) The company recognizes operating lease assets and liabilities at the lease commencement date, based on the present value of lease payments over the lease term, considering lease incentives and rent escalations, and using the incremental borrowing rate to determine present value - Operating lease assets and liabilities are recognized at the lease commencement date, based on the present value of lease payments over the lease term[43](index=43&type=chunk) - The company uses the incremental borrowing rate to determine the present value of lease payments, considering options to extend or terminate leases[43](index=43&type=chunk) - Operating lease assets are amortized as rent expense, and operating lease liabilities accrue interest at the incremental borrowing rate, both recognized as operating expenses[44](index=44&type=chunk) [Restructuring](index=11&type=section&id=Restructuring) Restructuring costs primarily consist of severance benefits resulting from workforce reductions, with the company recognizing restructuring expenses when the liability is incurred and accruing employee termination benefits when management commits to a termination plan and notifies employees of the termination date and expected severance - Restructuring costs primarily consist of severance benefits related to workforce reductions[45](index=45&type=chunk) - The company recognizes restructuring expenses when the liability is incurred, and employee termination benefits are accrued when management commits to a termination plan and notifies employees of the termination date and expected severance[45](index=45&type=chunk) [Recently Issued Accounting Standards](index=11&type=section&id=Recently%20Issued%20Accounting%20Standards) The company adopted new lease accounting standards (Topic 842) on January 1, 2019, electing the transition practical expedient not to restate prior periods, also adopting ASU 2018-07 to simplify non-employee equity payment accounting, and is evaluating the impact of ASU 2018-13 and ASU 2018-18 - The company adopted ASU No. 2016-02 (Topic 842), the new lease accounting standard, on January 1, 2019, electing not to restate prior periods[47](index=47&type=chunk) - Upon adoption of the new lease standard, the company recognized approximately **$13,737 thousand** in operating lease assets and **$24,497 thousand** in operating lease liabilities, with no impact on the statements of operations and comprehensive loss[47](index=47&type=chunk) - The company adopted ASU 2018-07 on January 1, 2019, simplifying accounting for non-employee share-based payment transactions, with no material impact[47](index=47&type=chunk) [Note 3. Fair Value Measurements](index=13&type=section&id=Note%203.%20Fair%20Value%20Measurements) This note describes the company's fair value measurement methods for certain assets and liabilities according to the fair value hierarchy, with cash equivalents primarily consisting of money market funds valued using the net asset value (NAV) practical expedient, not classified within the fair value hierarchy - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date[50](index=50&type=chunk) - The company's cash equivalents primarily consist of money market funds, valued using the net asset value (NAV) practical expedient, and are not classified within the fair value hierarchy[51](index=51&type=chunk)[54](index=54&type=chunk) Cash Equivalents Fair Value | Asset Category (in thousands) | Fair Value as of March 31, 2019 | Fair Value as of December 31, 2018 | | :--- | :--- | :--- | | Cash equivalents (unclassified) | 40,187 | 39,982 | [Note 4. Investments](index=13&type=section&id=Note%204.%20Investments) As of March 31, 2019, and December 31, 2018, the company held no other investments but maintained **$1,400 thousand** in restricted investments, primarily a certificate of deposit serving as a security deposit for a building lease - As of March 31, 2019, and December 31, 2018, the company held no other investments[55](index=55&type=chunk) - The company held **$1,400 thousand** in restricted investments, which is a certificate of deposit serving as a security deposit for a building lease at 200 Sidney Street, Cambridge[55](index=55&type=chunk) [Note 5. Property and Equipment, Net](index=14&type=section&id=Note%205.%20Property%20and%20Equipment,%20Net) As of March 31, 2019, the company's net property and equipment was **$24,571 thousand**, a decrease from **$26,294 thousand** on December 31, 2018, with laboratory equipment and leasehold improvements being major components, and depreciation and amortization expense for the period totaling **$2,006 thousand** Property and Equipment, Net | Category (in thousands) | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Laboratory equipment | 14,806 | 14,695 | | Computer equipment | 2,875 | 2,864 | | Furniture and office equipment | 1,033 | 1,033 | | Leasehold improvements | 27,977 | 27,977 | | Construction in progress | 26 | 26 | | **Total** | **46,717** | **46,595** | | Less: Accumulated depreciation and amortization | (22,146) | (20,301) | | **Property and equipment, net** | **24,571** | **26,294** | - Depreciation and amortization expense for the three months ended March 31, 2019, was **$2,006 thousand**, compared to **$1,941 thousand** for the same period in 2018[56](index=56&type=chunk) [Note 6. Accrued Expenses and Other Current Liabilities](index=14&type=section&id=Note%206.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) As of March 31, 2019, total accrued expenses and other current liabilities were **$11,789 thousand**, a decrease from **$15,207 thousand** on December 31, 2018, primarily due to reductions in development and manufacturing expenses, payroll and related expenses, and facilities and other expenses Accrued Expenses and Other Current Liabilities | Category (in thousands) | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Development and manufacturing expenses | 6,779 | 7,046 | | Payroll and related expenses | 3,550 | 5,020 | | Facilities and other | 1,460 | 3,141 | | **Total** | **11,789** | **15,207** | [Note 7. Stockholders' Equity](index=14&type=section&id=Note%207.%20Stockholders'%20Equity) This note details the company's stockholders' equity composition, including common stock, stock options, restricted stock units (RSUs), and Employee Stock Purchase Plan (ESPP) activities, with **41,094,832** shares of common stock outstanding as of March 31, 2019, and equity incentive expenses recognized due to grants, exercises, and vesting [Common Stock](index=14&type=section&id=Common%20Stock) As of March 31, 2019, the company had **41,094,832** shares of common stock outstanding with a par value of **$0.001** per share, primarily serving as background information for stock options and restricted stock units - As of March 31, 2019, the company had **200,000,000** shares of common stock authorized, with **41,094,832** shares issued and outstanding[17](index=17&type=chunk) [Stock Options](index=14&type=section&id=Stock%20Options) As of March 31, 2019, the company had **8,908,432** stock options outstanding with a weighted-average exercise price of **$10.79**, with **2,148,250** options granted during the period, including **1.1 million** performance-based options for which no expense was recognized due to unmet performance goals Stock Option Activity | Indicator | As of December 31, 2018 | As of March 31, 2019 | | :--- | :--- | :--- | | Number of options | 7,561,719 | 8,908,432 | | Weighted-average exercise price | $12.26 | $10.79 | | Weighted-average remaining contractual term (years) | 7.23 | 7.57 | | Options granted | — | 2,148,250 | | Options exercised | — | (38,125) | | Options forfeited | — | (763,412) | - The weighted-average grant date fair value of stock options granted for the three months ended March 31, 2019, was **$4.60** per share[58](index=58&type=chunk) - **1.1 million** performance-based stock options were granted during the period, but no related expense was recognized as performance goals were not met[59](index=59&type=chunk) [Restricted Stock Units](index=15&type=section&id=Restricted%20Stock%20Units) As of March 31, 2019, the company had **150,400** unvested restricted stock units (RSUs) with a weighted-average grant date fair value of **$9.51**, with **73,500** RSUs vesting and **3,000** forfeited during the period Restricted Stock Unit Activity | Indicator | As of December 31, 2018 | As of March 31, 2019 | | :--- | :--- | :--- | | Number of unvested restricted stock units | 226,900 | 150,400 | | Weighted-average grant date fair value | $9.64 | $9.51 | | Number vested | — | (73,500) | | Number forfeited | — | (3,000) | [Stock-based Compensation Expense](index=15&type=section&id=Stock-based%20Compensation%20Expense) For the three months ended March 31, 2019, the company recognized total stock-based compensation expense of **$2,065 thousand**, primarily allocated to research and development and general and administrative expenses, a decrease from **$4,236 thousand** in the prior year period Stock-based Compensation Expense Allocation | Expense Category (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Research and development expenses | 1,448 | 1,928 | | General and administrative expenses | 617 | 2,308 | | **Total** | **2,065** | **4,236** | [Employee Stock Purchase Plan](index=15&type=section&id=Employee%20Stock%20Purchase%20Plan) The company's ESPP allows eligible employees to purchase common stock at a discount, with the purchase price being the lower of **85%** of the stock price at the beginning or end of the six-month offering period, and **1.9 million** shares reserved for issuance under the plan as of March 31, 2019, with immaterial stock-based compensation expense recognized for the period - The ESPP allows employees to purchase common stock at the lower of **85%** of the stock price at the beginning or end of the offering period[62](index=62&type=chunk) - As of March 31, 2019, a total of **1.9 million** shares were reserved for issuance under the ESPP[63](index=63&type=chunk) - Stock-based compensation expense under the ESPP for the three months ended March 31, 2019, was immaterial[62](index=62&type=chunk) [Note 8. Collaboration Revenue](index=15&type=section&id=Note%208.%20Collaboration%20Revenue) This note details the company's collaboration agreements with NHS and AstraZeneca, outlining revenue recognition from CDI, IBD, and cancer immunotherapy product candidates - For the three months ended March 31, 2019, the company recognized **$6,615 thousand** in related party collaboration revenue and **$260 thousand** in AstraZeneca collaboration revenue[70](index=70&type=chunk)[80](index=80&type=chunk) - As of March 31, 2019, deferred revenue related to the NHS agreement was **$130,644 thousand**, and deferred revenue related to the AstraZeneca agreement was **$6,407 thousand**[71](index=71&type=chunk)[81](index=81&type=chunk) [NHS Collaboration Agreement](index=15&type=section&id=NHS%20Collaboration%20Agreement) The company's January 2016 collaboration and license agreement with NHS grants NHS exclusive rights to develop and commercialize CDI and IBD product candidates outside the US and Canada, with the company having received **$120 million** upfront and eligible for up to **$285 million** in development milestones, **$375 million** in regulatory payments, **$1.125 billion** in commercial milestones, and high single-digit to high double-digit percentage sales royalties - The company's collaboration agreement with NHS grants NHS exclusive rights to develop and commercialize CDI and IBD product candidates outside the US and Canada[64](index=64&type=chunk)[65](index=65&type=chunk) - The company has received **$120 million** upfront and is eligible for up to **$285 million** in development milestones, **$375 million** in regulatory payments, and **$1.125 billion** in commercial milestones[66](index=66&type=chunk) - In December 2018, the company received a **$40 million** milestone payment related to the initiation of the SER-287 Phase 2b study[67](index=67&type=chunk) [AstraZeneca Research Collaboration and Option Agreement](index=17&type=section&id=AstraZeneca%20Research%20Collaboration%20and%20Option%20Agreement) The company's March 2019 research collaboration and option agreement with AstraZeneca aims to advance the mechanistic understanding of the microbiome in enhancing cancer immunotherapy efficacy, with AstraZeneca paying **$20 million** in three tranches and reimbursing certain company costs incurred under the research plan, and the company granting AstraZeneca an exclusive option to negotiate a license agreement for microbiome oncology products and AstraZeneca oncology assets - The company's collaboration with AstraZeneca aims to advance the mechanistic understanding of the microbiome in enhancing cancer immunotherapy efficacy[72](index=72&type=chunk) - AstraZeneca will pay **$20 million** in three tranches, with the first tranche received in April 2019, and will reimburse certain company costs incurred under the research plan[73](index=73&type=chunk)[108](index=108&type=chunk) - The company granted AstraZeneca an exclusive option to negotiate a license agreement for microbiome oncology products and AstraZeneca oncology assets[74](index=74&type=chunk) [Contract Balances from Contracts with Customers](index=18&type=section&id=Contract%20Balances%20from%20Contracts%20with%20Customers) This section presents changes in the company's contract liabilities related to customer contracts, with related party deferred revenue at **$130,644 thousand** and deferred revenue at **$6,407 thousand** as of March 31, 2019, and the company recognizing revenue using the cost-to-cost method Contract Balances from Customers | Contract Liability Category (in thousands) | Balance as of December 31, 2018 | Additions | Deductions | Balance as of March 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Deferred revenue - related party | 137,259 | — | (6,615) | 130,644 | | Deferred revenue | — | 6,667 | (260) | 6,407 | - For the three months ended March 31, 2019, the company recognized **$6,615 thousand** in related party deferred revenue and **$260 thousand** in deferred revenue[82](index=82&type=chunk) [Note 9. Leases](index=19&type=section&id=Note%209.%20Leases) The company leases real estate primarily for laboratory, office, and manufacturing space, recognizing **$13,202 thousand** in operating lease assets and **$23,473 thousand** in operating lease liabilities as of March 31, 2019, with total lease costs of **$2,528 thousand** and cash payments of **$1,642 thousand** for the period Lease Metrics | Lease Metrics (in thousands) | As of March 31, 2019 | | :--- | :--- | | Operating lease assets | 13,202 | | Operating lease liabilities | 23,473 | | Operating lease cost | 1,154 | | Short-term lease cost | 648 | | Variable lease cost | 726 | | **Total lease cost** | **2,528** | - For the three months ended March 31, 2019, the company paid **$1,642 thousand** in cash for operating leases[85](index=85&type=chunk) - As of March 31, 2019, the weighted-average remaining lease term was **4.56 years**, and the weighted-average incremental borrowing rate was **11%**[87](index=87&type=chunk) [ASC 840 Disclosures](index=20&type=section&id=ASC%20840%20Disclosures) This section provides lease information disclosed under the old accounting standard ASC 840, with total future minimum lease payments of **$30,213 thousand** as of December 31, 2018, and **$1,099 thousand** in rent expense recognized for the three months ended March 31, 2018 Future Minimum Lease Payments | Year | Future Minimum Lease Payments as of December 31, 2018 (in thousands) | | :--- | :--- | | 2019 | 6,342 | | 2020 | 6,120 | | 2021 | 6,221 | | 2022 | 6,372 | | 2023 | 5,158 | | 2024 and thereafter | — | | **Total future minimum lease payments** | **30,213** | - For the three months ended March 31, 2018, the company recognized **$1,099 thousand** in rent expense[89](index=89&type=chunk) [Note 10. Restructuring](index=20&type=section&id=Note%2010.%20Restructuring) In February 2019, the company implemented a corporate restructuring, reducing its workforce by approximately **30%** to focus resources on advancing clinical-stage therapeutic candidates, recording **$1,492 thousand** in severance and other termination benefits for the three months ended March 31, 2019, of which **$608 thousand** has been paid, with the remaining **$884 thousand** expected to be paid in 2019 - In February 2019, the company implemented a corporate restructuring, reducing its workforce by approximately **30%** to focus resources on advancing clinical-stage therapeutic candidates[90](index=90&type=chunk) Restructuring Expenses | Restructuring Expense Category (in thousands) | Amount | | :--- | :--- | | Employee severance and other benefits | 1,492 | | Cash paid | 608 | | Liability in accrued expenses and other current liabilities as of March 31, 2019 | 884 | [Note 11. Income Taxes](index=20&type=section&id=Note%2011.%20Income%20Taxes) For the three months ended March 31, 2019, and March 31, 2018, the company did not record any income tax expense, as management has fully reserved deferred tax assets due to accumulated net losses since inception and a lack of product sales revenue - For the three months ended March 31, 2019, and March 31, 2018, the company did not record any income tax expense[92](index=92&type=chunk) - Due to accumulated net losses since inception and a lack of product sales revenue, the company has fully reserved its deferred tax assets[93](index=93&type=chunk) [Note 12. Commitments and Contingencies](index=21&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note discusses the company's lease commitments, indemnification agreements, and legal contingencies, with ongoing lease commitments and indemnification provided to suppliers, landlords, business partners, directors, and officers, but no liabilities recorded for legal contingencies as of March 31, 2019, and December 31, 2018 - The company has ongoing lease commitments, as detailed in Note 9[95](index=95&type=chunk) - The company provides indemnification to suppliers, landlords, business partners, directors, and officers, but has not incurred significant costs to date[96](index=96&type=chunk) - As of March 31, 2019, and December 31, 2018, the company had not recorded any liabilities related to legal contingencies[99](index=99&type=chunk) [Note 13. Related Party Transactions](index=21&type=section&id=Note%2013.%20Related%20Party%20Transactions) This note discloses the company's related party transactions with Nestec Ltd. (NHS), an affiliate of Nestlé Health Science, a significant stockholder, with **$6,615 thousand** in related party revenue recognized for the three months ended March 31, 2019, related to the NHS license agreement - NHS is an affiliate of Nestlé Health Science, a significant stockholder of the company[100](index=100&type=chunk) - For the three months ended March 31, 2019, the company recognized **$6,615 thousand** in related party revenue related to the NHS license agreement[100](index=100&type=chunk) - As of March 31, 2019, deferred revenue related to the license agreement was **$130,644 thousand**[100](index=100&type=chunk) [Note 14. Subsequent Events](index=21&type=section&id=Note%2014.%20Subsequent%20Events) In April 2019, the company modified the SER-109 clinical trial, reducing the target enrollment from **320** to **188** patients, with enrollment expected to complete by the end of 2019 and top-line data reported in early 2020, which will result in approximately **$7,000 thousand** of revenue recognized in Q2 2019 - In April 2019, the company modified the SER-109 clinical trial, reducing the target patient enrollment from **320** to **188**[101](index=101&type=chunk) - Enrollment is expected to complete by the end of 2019, with top-line data reported in early 2020[101](index=101&type=chunk) - This modification will result in approximately **$7,000 thousand** of revenue recognized in the second quarter of 2019[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This chapter provides management's discussion and analysis of financial condition and results of operations, covering company overview, product pipeline, intellectual property, financial operations, and liquidity [Overview](index=22&type=section&id=Overview) The company is a microbiome therapeutics platform company developing novel biological drugs, with key product candidates including SER-287, SER-109, SER-301, and SER-401, facing significant going concern doubts due to accumulated deficit and limited cash, having implemented a restructuring in February 2019 and entered a research collaboration with AstraZeneca in March 2019 - The company is a microbiome therapeutics platform company, developing product candidates such as SER-287, SER-109, SER-301, and SER-401[104](index=104&type=chunk) - As of March 31, 2019, the company had an accumulated deficit of **$413.7 million** and cash and cash equivalents of **$53.6 million**, with existing funds expected to sustain operations only until Q4 2019, raising substantial doubt about its ability to continue as a going concern[106](index=106&type=chunk) - In February 2019, the company implemented a restructuring, reducing its workforce by approximately **30%** to focus resources on advancing clinical-stage therapeutic candidates[107](index=107&type=chunk) - In March 2019, the company entered into a research collaboration and option agreement with AstraZeneca, where AstraZeneca will pay **$20 million** and reimburse certain R&D costs[108](index=108&type=chunk) [Intellectual Property](index=24&type=section&id=Intellectual%20Property) The company possesses an extensive patent portfolio covering the rational design ecology of spores and microbes, including owned and licensed rights, crucial for products like SER-109 and SER-287 with validity extending to 2033, and anticipates **12 years** of US market exclusivity and **10 years** of European market exclusivity for approved biological products - The company possesses an extensive patent portfolio covering the rational design ecology of spores and microbes, including **18** active patent application families, **10** national stage applications, **3** pending US provisional applications, and **12** granted US patents[122](index=122&type=chunk) - Intellectual property related to SER-109 and SER-287 is valid until **2033**[122](index=122&type=chunk) - If product candidates receive marketing approval, they are expected to obtain **12 years** of market exclusivity in the US and **10 years** in Europe[124](index=124&type=chunk) [Patent Portfolio](index=24&type=section&id=Patent%20Portfolio) The company holds an extensive patent portfolio covering the rational design ecology of spores and microbes, including owned and licensed rights, with **18** active patent application families and **12** granted US patents, and intellectual property for SER-109 and SER-287 valid until **2033** - The company possesses an extensive patent portfolio covering the rational design ecology of spores and microbes, including owned and licensed rights[122](index=122&type=chunk) - There are currently **18** active patent application families, including **10** national stage applications and **3** pending US provisional applications[122](index=122&type=chunk) - Intellectual property related to SER-109 and SER-287 is valid until **2033**[122](index=122&type=chunk) [Regulatory Exclusivity](index=24&type=section&id=Regulatory%20Exclusivity) If the company's product candidates receive marketing approval, they are expected to obtain market exclusivity against biosimilars, with new biological products receiving **12 years** of exclusivity in the US and **10 years** in Europe from the EMA - If the company's product candidates receive marketing approval, they are expected to obtain market exclusivity against biosimilars[124](index=124&type=chunk) - In the US, new biological products can receive **12 years** of exclusivity[124](index=124&type=chunk) - In Europe, the EMA grants **10 years** of exclusivity for new molecular entities[124](index=124&type=chunk) [Financial Operations Overview](index=25&type=section&id=Financial%20Operations%20Overview) This chapter outlines the company's revenue sources and operating expense structure, with collaboration revenue and increasing R&D costs as primary components - The company has not generated revenue from product sales to date, with primary revenue derived from the collaboration and license agreement with NHS[126](index=126&type=chunk) - Operating expenses primarily consist of R&D activities and general and administrative costs[126](index=126&type=chunk) - R&D expenses are recognized as incurred and assessed based on information provided by third parties regarding the completion of specific tasks[127](index=127&type=chunk) [Revenue](index=25&type=section&id=Revenue) The company has not generated revenue from product sales to date, with its primary revenue source being the collaboration and license agreement with Nestec Ltd. (NHS) - The company has not generated revenue from product sales to date[126](index=126&type=chunk) - Primary revenue is derived from the collaboration and license agreement with NHS[126](index=126&type=chunk) [Operating Expenses](index=25&type=section&id=Operating%20Expenses) The company's operating expenses primarily include R&D expenses, general and administrative expenses, and restructuring expenses, with R&D expenses recognized as incurred and tracked by project, expected to continue increasing, and **$1.5 million** in restructuring costs incurred in February 2019 - Operating expenses primarily include R&D activities and general and administrative costs[126](index=126&type=chunk) - R&D expenses are recognized as incurred and tracked by project, expected to continue increasing in the future[127](index=127&type=chunk)[131](index=131&type=chunk) - In February 2019, the company incurred **$1.5 million** in restructuring expenses, primarily for severance and termination benefits[134](index=134&type=chunk)[144](index=144&type=chunk) [Research and Development Expenses](index=25&type=section&id=Research%20and%20Development%20Expenses) R&D expenses primarily include third-party agreement fees, personnel costs, consulting fees, lab supplies, and regulatory compliance costs, recognized as incurred and tracked by project, with future R&D expenses expected to continue increasing to advance the clinical development of SER-287, SER-109, SER-401, and SER-301 - R&D expenses primarily include fees for agreements with third parties (e.g., CROs and CMOs), salaries and benefits for R&D personnel, external consulting fees, laboratory supplies, and regulatory compliance costs[127](index=127&type=chunk) - Direct R&D expenses are tracked by project, while employee-related costs and other indirect costs are categorized as microbiome therapeutics platform research costs[128](index=128&type=chunk) - Future R&D expenses are expected to continue increasing to advance the clinical development of SER-287, SER-109, SER-401, and SER-301[131](index=131&type=chunk) [General and Administrative Expenses](index=26&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses primarily include salaries and related costs (including stock-based compensation) for executive, finance, corporate business development, and administrative personnel, as well as legal fees for patent and corporate matters, accounting, audit, tax, and consulting professional services, insurance, travel, and facilities-related expenses - General and administrative expenses primarily include salaries and related costs (including stock-based compensation) for executive, finance, corporate business development, and administrative personnel[132](index=132&type=chunk) - These also include legal fees for patent and corporate matters, accounting, audit, tax, and consulting professional services, insurance, travel, and facilities-related expenses[132](index=132&type=chunk) - Future general and administrative expenses may increase due to growth in R&D activities, product commercialization, and additional costs incurred as a public company[133](index=133&type=chunk) [Restructuring](index=26&type=section&id=Restructuring_2) In February 2019, the company implemented a corporate restructuring, reducing its workforce by approximately **30%** to focus resources on advancing clinical-stage therapeutic candidates, including the clinical development of SER-287, SER-109, SER-401, and SER-301 - In February 2019, the company implemented a corporate restructuring, reducing its workforce by approximately **30%** to focus resources on advancing clinical-stage therapeutic candidates[134](index=134&type=chunk) - The restructuring aims to focus efforts on completing the SER-287 Phase 2b study, SER-109 Phase 3 study, SER-401 Phase 1b study, and advancing SER-301 into clinical development[134](index=134&type=chunk) [Other Income (Expense), Net](index=26&type=section&id=Other%20Income%20(Expense),%20Net) Other income (expense), net primarily consists of interest income generated from investment activities - Other income (expense), net primarily consists of interest income generated from investment activities[135](index=135&type=chunk) [Income Taxes](index=26&type=section&id=Income%20Taxes) Since its inception in 2010, the company has not recognized any US federal or state income tax benefits due to continuous losses and has fully reserved its deferred tax assets with a valuation allowance - Since its inception in 2010, the company has not recognized any US federal or state income tax benefits due to continuous losses[136](index=136&type=chunk) - The company has fully reserved its deferred tax assets with a valuation allowance[136](index=136&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=27&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This chapter states that the company's financial statements are prepared under US GAAP, involving judgments and estimates, with no material changes to critical accounting policies except for new lease standards - The company's financial statements are prepared under GAAP, involving judgments and estimates about future events[138](index=138&type=chunk) - No material changes were made to the critical accounting policies disclosed in the 2018 annual report, except for the adoption of the new lease standard[138](index=138&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) This chapter compares the operating results for the first quarters of 2019 and 2018, showing a significant increase in total revenue, a decrease in R&D and general and administrative expenses, additional restructuring costs, and a narrowing of the net loss [Comparison of Three Months Ended March 31, 2019 and 2018](index=27&type=section&id=Comparison%20of%20Three%20Months%20Ended%20March%2031,%202019%20and%202018) This section details the financial performance comparison for the first quarters of 2019 and 2018, with total revenue increasing from **$3.971 million** to **$7.321 million** due to collaboration revenue growth, R&D expenses slightly decreasing, general and administrative expenses significantly reducing, but with an additional **$1.5 million** in restructuring costs, ultimately narrowing the net loss from **$27.919 million** to **$24.333 million** Operating Results Comparison | Indicator (in thousands) | March 31, 2019 | March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | **Total revenue** | **7,321** | **3,971** | **3,350** | | Research and development expenses | 22,887 | 23,460 | (573) | | General and administrative expenses | 7,495 | 8,777 | (1,282) | | Restructuring expenses | 1,492 | — | 1,492 | | **Operating loss** | **(24,553)** | **(28,266)** | **3,713** | | **Net loss** | **(24,333)** | **(27,919)** | **3,586** | [Revenue](index=27&type=section&id=Revenue_2) For the three months ended March 31, 2019, total revenue increased to **$7.3 million** from **$4.0 million** in the prior year period, primarily attributable to increased collaboration revenue with NHS and revenue recognition related to the AstraZeneca research agreement - For the three months ended March 31, 2019, total revenue was **$7.3 million**, an increase from **$4.0 million** in the prior year period[141](index=141&type=chunk) - The increase in revenue was primarily attributable to increased collaboration revenue with NHS and revenue recognition related to the AstraZeneca research agreement[141](index=141&type=chunk) [Research and Development Expenses](index=27&type=section&id=Research%20and%20Development%20Expenses_2) For the three months ended March 31, 2019, R&D expenses were **$22.9 million**, a **$0.6 million** decrease from **$23.5 million** in the prior year period, primarily due to reduced SER-109 and SER-262 project costs, partially offset by increased microbiome therapeutics platform and SER-287 project costs Research and Development Expenses by Project | Project (in thousands) | March 31, 2019 | March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Microbiome therapeutics platform | 15,899 | 15,084 | 815 | | SER-109 | 2,649 | 6,144 | (3,495) | | SER-262 | 86 | 842 | (756) | | SER-287 | 4,253 | 1,390 | 2,863 | | **Total R&D expenses** | **22,887** | **23,460** | **(573)** | - SER-109 project expenses decreased by **$3.5 million**, primarily due to reduced clinical trial consulting fees, contract manufacturing fees, and laboratory supplies[147](index=147&type=chunk) - SER-287 project expenses increased by **$2.9 million**, primarily due to increased clinical trial consulting fees and contract manufacturing fees[147](index=147&type=chunk) [General and Administrative Expenses](index=28&type=section&id=General%20and%20Administrative%20Expenses_2) For the three months ended March 31, 2019, general and administrative expenses were **$7.5 million**, a **$1.3 million** decrease from **$8.8 million** in the prior year period, primarily due to reduced personnel-related costs (including stock-based compensation), partially offset by increased professional service fees General and Administrative Expenses by Category | Category (in thousands) | March 31, 2019 | March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Personnel-related (including stock-based compensation) | 3,088 | 4,627 | (1,539) | | Professional service fees | 2,691 | 1,776 | 915 | | Facilities-related and other | 1,716 | 2,374 | (658) | | **Total G&A expenses** | **7,495** | **8,777** | **(1,282)** | - Personnel-related costs decreased by **$1.5 million**, primarily related to stock-based compensation expense[148](index=148&type=chunk) - Professional service fees increased by **$0.9 million**, primarily due to increased legal and consulting fees[148](index=148&type=chunk) [Restructuring](index=28&type=section&id=Restructuring_2) For the three months ended March 31, 2019, the company recorded **$1.5 million** in restructuring expenses, primarily for severance and other termination benefits, with **$0.6 million** paid and the remaining **$0.9 million** expected to be paid during the rest of 2019 - For the three months ended March 31, 2019, the company recorded **$1.5 million** in restructuring expenses, primarily for severance and other termination benefits[144](index=144&type=chunk) - Of this amount, **$0.6 million** has been paid, with the remaining **$0.9 million** expected to be paid during the rest of 2019[144](index=144&type=chunk) [Other Income (Expense), Net](index=28&type=section&id=Other%20Income%20(Expense),%20Net_2) For the three months ended March 31, 2019, other income (expense), net was **$0.2 million**, a decrease from **$0.3 million** in the prior year period, primarily consisting of interest income generated from investment activities - For the three months ended March 31, 2019, other income (expense), net was **$0.2 million**, a decrease from **$0.3 million** in the prior year period[145](index=145&type=chunk) - This primarily consisted of interest income generated from investment activities[145](index=145&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company has incurred continuous losses since inception and expects to continue incurring losses for the foreseeable future, with **$53.6 million** in cash and cash equivalents as of March 31, 2019, expected to sustain operations only until Q4 2019, raising significant going concern doubts, and plans to raise additional funds through equity or debt financing and collaboration agreements to support product development and commercialization - The company has incurred continuous losses since inception and expects to continue incurring losses for the foreseeable future[150](index=150&type=chunk) - As of March 31, 2019, the company had **$53.6 million** in cash and cash equivalents and an accumulated deficit of **$413.7 million**[151](index=151&type=chunk) - Existing funds are expected to sustain operations only until Q4 2019, raising substantial doubt about the company's ability to continue as a going concern[151](index=151&type=chunk)[152](index=152&type=chunk) [Collaboration Agreements](index=29&type=section&id=Collaboration%20Agreements) The company has significant collaboration agreements with NHS and AstraZeneca, involving product development, commercialization, and cancer immunotherapy research - The license agreement with NHS involves the development and commercialization of CDI and IBD product candidates, with the company having received **$120 million** upfront and multiple milestone payments[153](index=153&type=chunk) - The research agreement with AstraZeneca aims to advance the microbiome's role in cancer immunotherapy, with AstraZeneca paying **$20 million** and reimbursing certain R&D costs[157](index=157&type=chunk) [Agreement with NHS](index=29&type=section&id=Agreement%20with%20NHS) The company's license agreement with NHS grants NHS exclusive rights to develop and commercialize CDI and IBD product candidates outside the US and Canada, with the company having received **$120 million** upfront and eligible for up to **$285 million** in development milestones, **$375 million** in regulatory payments, and **$1.125 billion** in commercial milestones, plus high single-digit to high double-digit percentage sales royalties - The company's license agreement with NHS grants NHS exclusive rights to develop and commercialize CDI and IBD product candidates outside the US and Canada[153](index=153&type=chunk) - The company has received **$120 million** upfront and is eligible for up to **$285 million** in development milestones, **$375 million** in regulatory payments, and **$1.125 billion** in commercial milestones[153](index=153&type=chunk) - In December 2018, the company received a **$40 million** milestone payment related to the initiation of the SER-287 Phase 2b study[153](index=153&type=chunk) [Agreement with AstraZeneca](index=30&type=section&id=Agreement%20with%20AstraZeneca) The company's March 2019 research collaboration and option agreement with AstraZeneca aims to advance the mechanistic understanding of the microbiome in enhancing cancer immunotherapy efficacy, with AstraZeneca paying **$20 million** in three tranches, the first received in April 2019, and reimbursing certain company costs incurred under the research plan, and the company granting AstraZeneca an exclusive option to negotiate a license agreement - The company's collaboration with AstraZeneca aims to advance the mechanistic understanding of the microbiome in enhancing cancer immunotherapy efficacy[156](index=156&type=chunk) - AstraZeneca will pay **$20 million** in three tranches, with the first tranche received in April 2019, and will reimburse certain company costs incurred under the research plan[157](index=157&type=chunk) - The company granted AstraZeneca an exclusive option to negotiate a license agreement[158](index=158&type=chunk) [Cash Flows](index=30&type=section&id=Cash%20Flows) For the three months ended March 31, 2019, the company experienced **$32.4 million** cash outflow from operating activities, **$0.3 million** cash outflow from investing activities, and **$0.5 million** cash inflow from financing activities, resulting in a net decrease of **$32.2 million** in cash and cash equivalents Cash Flow Summary | Cash Flow Category (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash (used in) operating activities | (32,393) | (26,763) | | Net cash (used in) provided by investing activities | (306) | 38,034 | | Net cash provided by (used in) financing activities | 480 | (165) | | **Net (decrease) increase in cash and cash equivalents** | **(32,219)** | **11,106** | [Operating Activities](index=30&type=section&id=Operating%20Activities) For the three months ended March 31, 2019, operating activities used **$32.4 million** in cash, primarily due to a **$24.3 million** net loss and **$12.7 million** in working capital changes, partially offset by **$4.6 million** in non-cash expenses, with working capital changes including a **$6.7 million** increase in accounts receivable and a **$2.5 million** decrease in accounts payable - For the three months ended March 31, 2019, operating activities used **$32.4 million** in cash[160](index=160&type=chunk) - This was primarily due to a **$24.3 million** net loss and **$12.7 million** in working capital changes, partially offset by **$4.6 million** in non-cash expenses[160](index=160&type=chunk) - Working capital changes included a **$6.7 million** increase in accounts receivable (due to AstraZeneca upfront payment) and a **$2.5 million** decrease in accounts payable[160](index=160&type=chunk) [Investing Activities](index=31&type=section&id=Investing%20Activities) For the three months ended March 31, 2019, investing activities used **$0.3 million** in cash, primarily for property and equipment purchases, whereas the prior year period saw **$38.0 million** in cash provided by investing activities, mainly from sales and maturities of investments - For the three months ended March 31, 2019, investing activities used **$0.3 million** in cash, primarily for property and equipment purchases[163](index=163&type=chunk) - In the prior year period, investing activities provided **$38.0 million** in cash, primarily from sales and maturities of investments (**$44.3 million**)[163](index=163&type=chunk) [Financing Activities](index=31&type=section&id=Financing%20Activities) For the three months ended March 31, 2019, financing activities provided **$0.5 million** in cash, primarily related to stock option exercises, whereas the prior year period saw **$0.2 million** in cash used by financing activities, mainly for employee tax obligations related to RSU vesting - For the three months ended March 31, 2019, financing activities provided **$0.5 million** in cash, primarily related to stock option exercises[164](index=164&type=chunk) - In the prior year period, financing activities used **$0.2 million** in cash, primarily for employee tax obligations related to RSU vesting[164](index=164&type=chunk) [Funding Requirements](index=31&type=section&id=Funding%20Requirements) The company anticipates significantly increased expenditures for future R&D and clinical development activities, requiring substantial additional funding to support ongoing operations, with funding needs dependent on clinical study progress, manufacturing costs, regulatory approvals, commercialization activities, and intellectual property maintenance, and without committed external funding, the company may be forced to delay, scale back, or terminate product development plans - The company anticipates significantly increased expenditures for future R&D and clinical development activities, requiring substantial additional funding to support ongoing operations[165](index=165&type=chunk) - Funding needs will depend on clinical study progress, manufacturing costs, regulatory approvals, commercialization activities, and intellectual property maintenance, among other factors[165](index=165&type=chunk)[171](index=171&type=chunk) - The company currently has no committed external funding sources, and failure to obtain timely funding may force it to delay, scale back, or terminate product development plans[167](index=167&type=chunk)[168](index=168&type=chunk) [Contractual Obligations and Commitments](index=32&type=section&id=Contractual%20Obligations%20and%20Commitments) This chapter states that the company's contractual obligations and commitments have been disclosed in its annual report, with no material changes occurring during the current quarter - The company's contractual obligations and commitments have been disclosed in its annual report[169](index=169&type=chunk) - No material changes occurred during the current quarter[169](index=169&type=chunk) [Off-Balance Sheet Arrangements](index=32&type=section&id=Off-Balance%20Sheet%20Arrangements) As of March 31, 2019, the company had no off-balance sheet arrangements as defined by SEC rules and regulations - As of March 31, 2019, the company had no off-balance sheet arrangements as defined by SEC rules and regulations[170](index=170&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This chapter discloses the company's market risk exposure, primarily to interest rate fluctuations, with cash and cash equivalents mainly comprising cash and money market accounts as of March 31, 2019, and an immediate **10%** change in market interest rates not expected to materially impact the fair value or financial condition of the investment portfolio due to its short-term nature - The company is primarily exposed to interest rate fluctuation risk[172](index=172&type=chunk) - As of March 31, 2019, the company's cash and cash equivalents primarily consisted of cash and money market accounts[172](index=172&type=chunk) - Due to the short-term nature of the investment portfolio, an immediate **10%** change in market interest rates would not materially impact the fair value or financial condition of the portfolio[172](index=172&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures.) This chapter discusses the effectiveness of the company's disclosure controls and procedures, which management believes were effective at a reasonable assurance level as of March 31, 2019, with no material changes in internal control during the quarter - Management believes that any control and procedure, no matter how well designed and operated, can only provide reasonable assurance of achieving its control objectives[173](index=173&type=chunk) - As of March 31, 2019, the company's disclosure controls and procedures were effective at a reasonable assurance level[174](index=174&type=chunk) - No material changes in internal control occurred during the three months ended March 31, 2019[175](index=175&type=chunk) [PART II - OTHER INFORMATION](index=34&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section contains other information not included in the financial statements, covering legal proceedings, risk factors, and various disclosures [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings.) This chapter discloses the company's opposition proceedings against a University of Tokyo patent at the European Patent Office, where an oral hearing was held on February 18, 2019, and the Opposition Division required the University of Tokyo to narrow its patent claims, with an appeal expected from the University of Tokyo - On April 25, 2017, the company filed an opposition against a European patent (No. 2 575 835 B1) owned by the University of Tokyo at the European Patent Office[177](index=177&type=chunk) - An oral hearing was held on February 18, 2019, where the Opposition Division required the University of Tokyo to narrow its patent claims[177](index=177&type=chunk) - The University of Tokyo is expected to appeal this decision[177](index=177&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors.) This chapter details various high risks associated with investing in the company's common stock, covering financial condition, product development, third-party reliance, commercialization, intellectual property, and operations [Risks Related to Our Financial Position and Need for Additional Capital](index=34&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) The company has incurred continuous losses since inception and expects to continue incurring losses, raising significant going concern doubts, requiring substantial additional funding to complete product development and commercialization, and if unable to obtain timely funding, it may be forced to delay, scale back, or terminate product development plans, with its limited operating history making future viability assessment difficult - The company has incurred significant operating losses since inception, with an accumulated deficit of **$413.7 million** as of March 31, 2019, and expects to continue incurring losses, raising substantial doubt about its ability to continue as a going concern[180](index=180&type=chunk)[184](index=184&type=chunk) - The company requires substantial additional funding to complete the development and commercialization of its product candidates, and failure to obtain timely funding may force it to delay, scale back, or terminate product development plans[185](index=185&type=chunk)[189](index=189&type=chunk) - The company's limited operating history (since October 2010) makes it difficult to assess its future success or viability[190](index=190&type=chunk) [Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates](index=36&type=section&id=Risks%20Related%20to%20the%20Discovery,%20Development%20and%20Regulatory%20Approval%20of%20Our%20Product%20Candidates) The company's product candidates are based on unproven microbiome therapies in early development, may not be successfully developed into approvable or marketable drugs, and clinical drug development is a high-risk, lengthy, and expensive process with uncertain outcomes, potentially leading to additional costs or delays, while obtaining regulatory approval is complex, time-consuming, and may face delays or rejections, even if approved, it may be subject to restrictions - The company's product candidates are based on unproven microbiome therapies in early development and may not be successfully developed into approvable or marketable drugs[191](index=191&type=chunk)[194](index=194&type=chunk) - Clinical drug development is a high-risk, lengthy, and expensive process with uncertain outcomes, potentially leading to additional costs or delays, or even failure to complete development and commercialization[196](index=196&type=chunk)[198](index=198&type=chunk)[200](index=200&type=chunk) - The reduction in the SER-109 Phase 3 trial size from **320** to **188** patients may require additional evidence of efficacy and safety for approval[203](index=203&type=chunk) - Obtaining regulatory approval is an expensive, high-risk, and time-consuming process that may face delays, restrictions, or rejections, and even if approved, products may be subject to lim

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-37465 Seres Therapeutics, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 27-4326290 (State or Other Jurisdiction of Incorporation or Organization) 200 Sidney Street – 4th Floor Cambridge, Massachusetts 02139 (Address of Principal Executive Offices) (Zip Code) (IRS Employer Identifica ...