Upon closing, Seres to receive $175M cash infusion, including an upfront payment, prepayment of a future commercial milestone payment, and an equity investment in Seres common stock, less approximately $20M in settlement of net obligations between the Parties; anticipated deal closing in the next 90 days Additional approximately $75M in cash payments are due to Seres in 2025, contingent upon Seres' compliance with transition obligations, with the potential for additional future commercial milestone payments ...

Transaction ensures Nestlé Health Science will continue to commercialize the product BRIDGEWATER, N.J., June 6, 2024 /PRNewswire/ -- Seres Therapeutics, Inc. (Nasdaq: MCRB), announced today that it has agreed to a non-binding memorandum of understanding with Nestlé Health Science in which Nestlé Health Science will acquire certain tangible and intangible assets associated with VOWST (fecal microbiota spores, live-brpk) capsules. This transaction, when completed, supersedes any prior agreements between Nestl ...

Seres anticipates capital infusions, including an upfront payment, enabling the Company to fully retire its debt and extend its cash runway into Q4 2025, pending deal closure and subject to performance under a transition services agreement Future Company focus on advancement of SER-155 and other cultivated oral microbiome therapeutics for medically vulnerable patient populations with potential to address large commercial opportunities and commercial opportunities; operating plans and our future cash runway; ...

Seres anticipates capital infusions, including an upfront payment, enabling the Company to fully retire its debt and extend its cash runway into Q4 2025, pending deal closure and subject to performance under a transition services agreement Future Company focus on advancement of SER-155 and other cultivated oral microbiome therapeutics for medically vulnerable patient populations with potential to address large commercial opportunities CAMBRIDGE, Mass., June 06, 2024 (GLOBE NEWSWIRE) -- Seres Therapeutics, I ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 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) (State or other jurisdiction of incorpora ...

Exhibit 99.1 SERES THERAPEUTICS REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS AND PROVIDES BUSINESS UPDATES Continued market adoption of VOWST® with approximately 1,411 patient enrollment forms received, approximately 1,083 new patient starts, and net sales of $10.1 million during Q1 2024, and accelerated net sales in March and April SER-155 Phase 1b placebo-controlled Cohort 2 clinical readout expected end of Q3 2024 Further microbiome therapeutic candidates have potential to expand product franchise into a ...

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 For the fiscal year ended December 31, 2023 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 le Seres Therapeutics, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 27-4326290 (State or Other Jurisdict ...

[PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28unaudited%29) This section presents Seres Therapeutics' unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20September%2030%2C%202023%20and%20December%2031%2C%202022) The balance sheets show the company's financial position, with increased assets and liabilities, and a shift to negative stockholders' equity | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total current assets | $214,394 | $194,764 | $19,630 | | Total assets | $367,699 | $348,784 | $18,915 | | Total current liabilities | $79,225 | $85,596 | $(6,371) | | Total liabilities | $382,822 | $338,001 | $44,821 | | Total stockholders' (deficit) equity | $(15,123) | $10,783 | $(25,906) | - The company's total assets increased by **$18.9 million**, primarily driven by an increase in cash and cash equivalents, and the introduction of collaboration receivable and inventories[21](index=21&type=chunk) - Total liabilities increased by **$44.8 million**, largely due to an increase in the long-term portion of notes payable and deferred revenue, net of current portion - related party[21](index=21&type=chunk) - Stockholders' equity shifted from a positive **$10.8 million** to a deficit of **$(15.1) million**, reflecting accumulated losses[21](index=21&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202023%20and%202022) The statements show a significant revenue increase for the nine months ended September 30, 2023, leading to a substantially reduced net loss despite continued losses | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total revenue | $310 | $3,444 | $126,261 | $6,153 | | Research and development expenses | $28,253 | $43,116 | $119,014 | $126,700 | | General and administrative expenses | $19,989 | $18,384 | $70,510 | $57,290 | | Collaboration (profit) loss sharing - related party | $(519) | $1,051 | $5,194 | $346 | | Net loss | $(47,854) | $(60,002) | $(72,476) | $(181,361) | | Net loss per share (basic and diluted) | $(0.37) | $(0.49) | $(0.57) | $(1.77) | - Total revenue for the nine months ended September 30, 2023, increased significantly to **$126.3 million** from **$6.2 million** in the prior year, primarily due to a **$125 million** milestone payment received upon FDA approval of VOWST[22](index=22&type=chunk)[105](index=105&type=chunk) - Net loss for the nine months ended September 30, 2023, decreased to **$(72.5) million** from **$(181.4) million** in the prior year, reflecting the impact of higher revenue and reduced R&D expenses[22](index=22&type=chunk) - Research and development expenses decreased by **$7.7 million** for the nine months ended September 30, 2023, compared to the same period in 2022, mainly due to reduced VOWST program costs post-approval[22](index=22&type=chunk)[197](index=197&type=chunk) [Condensed Consolidated Statements of Stockholders' (Deficit) Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20%28Deficit%29%20Equity%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202023%20and%202022) The statements show a decrease in total stockholders' equity to a deficit, driven by net loss, partially offset by equity offerings and stock-based compensation | Metric | Dec 31, 2022 (in thousands) | Sep 30, 2023 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Common Stock | $125 | $129 | | Additional Paid-in Capital | $875,181 | $921,735 | | Accumulated Deficit | $(864,511) | $(936,987) | | Total Stockholders' (Deficit) Equity | $10,783 | $(15,123) | - Total stockholders' equity decreased by **$25.9 million**, moving from a positive balance to a deficit, primarily driven by the accumulated net loss of **$(72.5) million** for the nine months ended September 30, 2023[25](index=25&type=chunk)[22](index=22&type=chunk) - Additional paid-in capital increased by **$46.6 million**, reflecting proceeds from at-the-market equity offerings and stock-based compensation expenses[25](index=25&type=chunk)[84](index=84&type=chunk)[90](index=90&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20nine%20months%20ended%20September%2030%2C%202023%20and%202022) The statements show a significant reduction in cash used in operating activities, decreased cash from investing, and substantial financing cash flows | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash used in operating activities | $(69,855) | $(175,924) | | Net cash provided by investing activities | $11,459 | $76,502 | | Net cash provided by financing activities | $65,276 | $125,005 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $6,880 | $25,583 | | Cash, cash equivalents and restricted cash at end of period | $178,097 | $213,583 | - Net cash used in operating activities decreased significantly from **$(175.9) million** in 2022 to **$(69.9) million** in 2023, primarily due to a lower net loss and non-cash adjustments[28](index=28&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - Net cash provided by investing activities decreased from **$76.5 million** in 2022 to **$11.5 million** in 2023, mainly due to lower sales and maturities of investments[28](index=28&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) - Net cash provided by financing activities decreased from **$125.0 million** in 2022 to **$65.3 million** in 2023, driven by the Oaktree Term Loan proceeds and equity offerings, partially offset by debt repayment[28](index=28&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations for the financial statements, covering business, accounting policies, fair value, investments, inventories, property, liabilities, leases, debt, equity, net loss per share, revenue, collaboration, commitments, taxes, related parties, and subsequent events [1. Nature of the Business and Basis of Presentation](index=11&type=section&id=1.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) Seres Therapeutics is a commercial-stage microbiome company with FDA-approved VOWST and SER-155 in trials, recently implementing a restructuring plan to prioritize VOWST and SER-155, while facing going concern challenges - VOWST (fecal microbiota spores, live brpk) was approved by the FDA on April 26, 2023, and launched in June 2023 to prevent recurrent Clostridioides difficile infection (CDI)[31](index=31&type=chunk) - SER-155, a microbiome therapeutic candidate, is in a Phase 1b clinical trial to prevent enteric-derived infections and reduce Graft versus Host Disease (GvHD) in allo-HSCT patients, with 100-day topline results anticipated in Q3 2024[32](index=32&type=chunk) - A restructuring plan was approved on October 29, 2023, to reduce the workforce by approximately **41% (160 positions)**, significantly scale back non-partnered R&D (except SER-155 Phase 1b), and reduce G&A expenses[34](index=34&type=chunk) - As of September 30, 2023, the company had an accumulated deficit of **$936.987 million** and cash and cash equivalents of **$169.912 million**, raising substantial doubt about its ability to continue as a going concern without additional funding[36](index=36&type=chunk)[37](index=37&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section details the company's accounting policies, including inventory valuation at the lower of cost or net realizable value, expensing pre-approval manufacturing costs as R&D, and the use of estimates - Inventories are stated at the lower of cost or estimated net realizable value, using the first-in first-out (FIFO) method[43](index=43&type=chunk) - Costs for manufacturing drug product supplies incurred prior to regulatory approval are expensed as research and development costs[44](index=44&type=chunk) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $169,912 | $163,030 | | Restricted cash, non-current | $8,185 | $8,185 | | Total cash, cash equivalents and restricted cash | $178,097 | $171,215 | [3. Fair Value Measurements](index=13&type=section&id=3.%20Fair%20Value%20Measurements) This section outlines the company's fair value hierarchy, focusing on Level 3 warrant liabilities valued using a Monte-Carlo simulation model, which decreased to $956 thousand by September 30, 2023 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Warrant liabilities (Level 3) | $956 | $0 | | Money market funds (Level 1) | $0 | $47,863 | | Commercial paper (Level 2) | $0 | $14,156 | | Corporate bonds (Level 2) | $0 | $2,957 | | Government securities (Level 2) | $0 | $17,855 | - Level 3 financial liabilities, specifically warrant liabilities, are valued using a Monte-Carlo simulation model, including the Black-Scholes option pricing model, which incorporates inputs like the company's stock price, contractual terms, maturity, risk-free rates, volatility, and term to sales targets[49](index=49&type=chunk)[50](index=50&type=chunk) | Warrant Liabilities (in thousands) | Amount | | :--------------------------------- | :----- | | Balance as of December 31, 2022 | $0 | | Issuance of warrants | $2,100 | | Adjustment to fair value | $(132) | | Balance as of June 30, 2023 | $1,968 | | Adjustment to fair value | $(1,012) | | Balance as of September 30, 2023 | $956 | [4. Investments](index=14&type=section&id=4.%20Investments) As of September 30, 2023, the company held only $1,401 thousand in restricted investments, a significant change from December 31, 2022, when it held $18,311 thousand in short-term investments - As of September 30, 2023, the company held restricted investments of **$1,401 thousand**, which approximates current fair value, and no other investments[52](index=52&type=chunk) | Investment Type | Amortized Cost (Dec 31, 2022, in thousands) | Fair Value (Dec 31, 2022, in thousands) | | :---------------- | :---------------------------------------- | :-------------------------------------- | | Commercial paper | $2,465 | $2,465 | | Corporate bonds | $2,958 | $2,957 | | Government securities | $12,898 | $12,889 | | Total Investments | $18,321 | $18,311 | [5. Inventories](index=14&type=section&id=5.%20Inventories) This section details the company's inventory capitalization post-VOWST FDA approval, with $18,525 thousand in raw materials and work in process as of September 30, 2023, and no write-downs | Inventory Component | Sep 30, 2023 (in thousands) | | :------------------ | :-------------------------- | | Raw materials | $3,532 | | Work in process | $14,993 | | Finished goods | $0 | | Total | $18,525 | - No inventories were capitalized as of December 31, 2022, as all manufacturing costs for product supplies were expensed as R&D prior to VOWST's FDA approval on April 26, 2023[54](index=54&type=chunk) - Pre-launch inventory expensed as R&D totaled **$26,794 thousand** for the nine months ended September 30, 2023[54](index=54&type=chunk) [6. Property and Equipment, Net](index=15&type=section&id=6.%20Property%20and%20Equipment%2C%20Net) Property and equipment, net, increased slightly to $23,566 thousand, reflecting additions to laboratory, computer, and office equipment, partially offset by accumulated depreciation | Asset Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------- | :-------------------------- | :-------------------------- | | Laboratory equipment | $29,133 | $24,533 | | Computer equipment | $4,134 | $3,557 | | Furniture and office equipment | $5,347 | $3,491 | | Leasehold improvements | $32,963 | $32,474 | | Construction in progress | $1,640 | $3,970 | | Total Gross Property and Equipment | $73,217 | $68,025 | | Less: Accumulated depreciation and amortization | $(49,651) | $(45,040) | | Property and Equipment, Net | $23,566 | $22,985 | - Depreciation and amortization expense was **$4,611 thousand** for the nine months ended September 30, 2023, compared to **$5,002 thousand** for the same period in 2022[56](index=56&type=chunk) [7. Accrued Expenses and Other Current Liabilities](index=15&type=section&id=7.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities decreased to $54,158 thousand, primarily due to reductions in clinical and payroll-related costs, partially offset by new manufacturing and quality costs | Liability Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------- | :-------------------------- | :-------------------------- | | Clinical and development costs | $1,491 | $6,717 | | Manufacturing and quality costs | $1,719 | $0 | | Payroll and payroll-related costs | $13,479 | $14,709 | | Collaboration payable - related party | $34,543 | $34,770 | | Facility and other | $2,926 | $3,644 | | Total | $54,158 | $59,840 | [8. Leases](index=15&type=section&id=8.%20Leases) The company leases real estate, with total operating lease liabilities at $111,143 thousand and total lease costs significantly higher for the nine months ended September 30, 2023, reflecting new agreements | Lease Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------- | :-------------------------- | :-------------------------- | | Operating lease assets | $108,105 | $110,984 | | Operating lease liabilities | $111,143 | $111,543 | | Lease Cost Type | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :---------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Operating lease costs | $5,544 | $1,785 | $16,496 | $5,405 | | Short-term lease costs | $362 | $326 | $1,102 | $1,035 | | Variable lease costs | $1,699 | $1,135 | $5,643 | $3,437 | | Total lease costs | $7,605 | $3,246 | $23,241 | $9,877 | - The weighted average remaining lease term as of September 30, 2023, was **8.23 years**, with a weighted average incremental borrowing rate of **13%**[63](index=63&type=chunk) [9. Notes Payable](index=16&type=section&id=9.%20Notes%20Payable) This section details the company's debt, including the Oaktree Credit Agreement's $250 million Term Loan, with $110 million funded, an effective interest rate of 15.9%, and warrants issued to lenders - On April 27, 2023, the company entered into the Oaktree Credit Agreement for a **$250 million** Term Loan facility, with **$110 million** (Tranche A) funded at closing[70](index=70&type=chunk) - Approximately **$53.380 million** of the Tranche A Loan was used to repay the existing Hercules Credit Facility, resulting in a **$1,625 thousand** loss on extinguishment[71](index=71&type=chunk) - The Term Loan bears interest at three-month SOFR (**2.50% floor, 5.00% cap**) plus an applicable margin of **7.875%**, with quarterly interest-only payments for the first three years[72](index=72&type=chunk) - Warrants to purchase **647,589 shares** of common stock (Tranche A Warrant) were issued to Lenders, valued at **$2,785 thousand** and recorded as a discount to the Tranche A Loan[78](index=78&type=chunk)[79](index=79&type=chunk) | Year Ending December 31, | Principal (in thousands) | | :----------------------- | :----------------------- | | 2023 (remaining 3 months) | $0 | | 2024 | $0 | | 2025 | $0 | | 2026 | $24,750 | | 2027 | $33,000 | | Thereafter | $52,250 | | Total | $110,000 | [10. Common Stock and Stock-Based Awards](index=19&type=section&id=10.%20Common%20Stock%20and%20Stock-Based%20Awards) This section details the increase in authorized common stock, proceeds from equity offerings, and significant stock-based compensation expense due to performance achievements - Authorized common stock increased from **200 million** to **240 million shares** on June 27, 2023, following stockholder approval[83](index=83&type=chunk) - During the nine months ended September 30, 2023, **2,005,547 shares** of common stock were sold through an at-the-market offering, generating approximately **$11.730 million** in net proceeds[84](index=84&type=chunk) | Stock Option Activity | Dec 31, 2022 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | | Outstanding shares | 14,940,034 | 16,370,123 | | Weighted average exercise price | $10.03 | $9.47 | | Weighted average remaining contractual term (years) | 7.25 | 6.78 | | RSU Activity | Dec 31, 2022 | Sep 30, 2023 | | :------------- | :----------- | :----------- | | Unvested RSUs | 1,549,540 | 3,826,695 | | Weighted average grant date fair value | $9.37 | $6.23 | | Stock-based Compensation Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development expenses | $4,744 | $3,474 | $16,326 | $9,500 | | General and administrative expenses | $3,929 | $2,890 | $12,689 | $8,691 | | Total | $8,673 | $6,364 | $29,015 | $18,191 | [11. Net Loss per Share](index=20&type=section&id=11.%20Net%20Loss%20per%20Share) This section presents basic and diluted net loss per share, which were identical due to the anti-dilutive effect of potential common stock equivalents | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to common stockholders (in thousands) | $(47,854) | $(60,002) | $(72,476) | $(181,361) | | Weighted-average shares outstanding - basic and diluted | 128,289,871 | 122,527,275 | 127,297,667 | 102,380,700 | | Net loss per share - basic and diluted | $(0.37) | $(0.49) | $(0.57) | $(1.77) | - Potential dilutive securities (stock options, unvested restricted stock units, ESPP shares, and warrants) were excluded from diluted EPS calculation as their effect would be anti-dilutive[92](index=92&type=chunk) [12. Revenue from Contracts with Customers](index=21&type=section&id=12.%20Revenue%20from%20Contracts%20with%20Customers) This section details revenue from Nestlé collaboration agreements, including a $125 million VOWST FDA approval milestone payment and deferred revenue balances reflecting unsatisfied obligations - Under the 2021 License Agreement with Nestlé, the company received a **$125 million** milestone payment in May 2023 following FDA approval of VOWST[95](index=95&type=chunk)[105](index=105&type=chunk) - The 2021 License Agreement grants Nestlé a co-exclusive license to develop and commercialize VOWST in the United States and Canada, with the company sharing equally in commercial profits and losses post-launch[93](index=93&type=chunk)[94](index=94&type=chunk) - Under the 2016 License Agreement, the company has received **$80 million** in development milestones from Nestlé for various product candidates (VOWST, SER-262, SER-287, SER-301) in markets outside the US and Canada[108](index=108&type=chunk)[109](index=109&type=chunk)[113](index=113&type=chunk)[214](index=214&type=chunk) | Revenue Type | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Collaboration revenue - related party | $310 | $3,444 | $126,261 | $6,153 | | Contract Liabilities (in thousands) | Dec 31, 2022 | Sep 30, 2023 | | :---------------------------------- | :----------- | :----------- | | Deferred revenue - related party | $96,689 | $95,428 | [13. Collaboration Profit and Loss](index=24&type=section&id=13.%20Collaboration%20Profit%20and%20Loss) This section details the accounting for VOWST commercial profit and loss sharing with Nestlé, including inventory transfers and pre-launch expenses, resulting in $0.5 million collaboration income for Q3 2023 - The company and Nestlé share equally in the commercial profits and losses of VOWST, including commercial and medical affairs expenses, starting from the first commercial sale in June 2023[122](index=122&type=chunk) - Collaboration (profit) loss sharing also includes profit on the transfer of VOWST inventory to Nestlé and collaboration loss related to pre-launch activities[123](index=123&type=chunk)[124](index=124&type=chunk) | Collaboration Component (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Share of VOWST net loss | $6,463 | $0 | $8,604 | $0 | | Profit on transfer of VOWST inventory to Nestlé | $(7,295) | $0 | $(8,568) | $0 | | Collaboration (profit)/loss related to pre-launch activities | $313 | $1,051 | $5,158 | $346 | | Total collaboration (profit) loss sharing - related party | $(519) | $1,051 | $5,194 | $346 | [14. Commitments and Contingencies](index=25&type=section&id=14.%20Commitments%20and%20Contingencies) This section addresses the company's commitments related to leases and indemnification agreements, noting no accrued legal contingencies as of September 30, 2023, or December 31, 2022 - The company provides indemnification to vendors, lessors, business partners, and directors/officers, with maximum potential amounts often unlimited, but has not incurred material costs to date[126](index=126&type=chunk) - No liabilities related to legal contingencies were accrued as of September 30, 2023, or December 31, 2022[129](index=129&type=chunk) [15. Income taxes](index=26&type=section&id=15.%20Income%20taxes) The company did not provide for income taxes due to cumulative net losses and a full valuation allowance against deferred tax assets - No income taxes were provided for the three and nine months ended September 30, 2023 and 2022[130](index=130&type=chunk) - A full valuation allowance has been recorded against deferred tax assets due to the company's history of net losses and uncertainty of realizing future tax benefits[130](index=130&type=chunk) [16. Related Party Transactions](index=26&type=section&id=16.%20Related%20Party%20Transactions) This section details transactions with Nestlé, a significant stockholder, covering revenue from license agreements, deferred revenue, and collaboration receivables - Nestlé is an affiliate of one of the company's significant stockholders, Société des Produits Nestlé S.A.[131](index=131&type=chunk)[132](index=132&type=chunk) | Related Party Revenue (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | 2021 License Agreement | $0 | $1,497 | $126,975 | $3,678 | | 2016 License Agreement | $310 | $2,475 | $(714) | $6,153 | - As of September 30, 2023, there was **$16,857 thousand** in Collaboration receivable - related party due from Nestlé[131](index=131&type=chunk) - Deferred income - related party of **$9,465 thousand** as of September 30, 2023, represents inventory transferred to Nestlé that has not yet been sold or transferred to customers[131](index=131&type=chunk) [17. Subsequent Events](index=27&type=section&id=17.%20Subsequent%20Events) The Board approved a Restructuring Plan on October 29, 2023, to prioritize VOWST and SER-155, reducing workforce by 41% and expecting $75.0-$85.0 million in annual cash savings in 2024 - A Restructuring Plan was approved on October 29, 2023, to prioritize VOWST commercialization and SER-155 Phase 1b study, reducing costs and supporting long-term sustainability[134](index=134&type=chunk) - The plan involves a **41% workforce reduction** (approximately **160 positions**) and significantly scaling back non-partnered research and development activities[134](index=134&type=chunk) - Estimated restructuring costs are **$5.0 to $5.5 million**, primarily for workforce reduction, expected in Q4 2023[135](index=135&type=chunk) - Annual cash savings of approximately **$75.0 million to $85.0 million** are expected in 2024, with **$35.0 million** from workforce reduction[145](index=145&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, operational results, and liquidity, highlighting VOWST's launch, SER-155 development, and the recent restructuring plan [Overview](index=28&type=section&id=Overview) Seres Therapeutics, a commercial-stage microbiome company, launched VOWST in June 2023, is advancing SER-155, and approved a restructuring plan to achieve $75-85 million in annual cash savings in 2024 - Seres Therapeutics is a commercial-stage microbiome therapeutics company, with VOWST (formerly SER-109) approved by the FDA on April 26, 2023, and launched in June 2023 for recurrent CDI[139](index=139&type=chunk)[140](index=140&type=chunk) - The company is evaluating SER-155 in a Phase 1b study for patients undergoing allo-HSCT, with 100-day topline results for cohort 2 anticipated in Q3 2024[142](index=142&type=chunk) - Net loss for the nine months ended September 30, 2023, was **$72.5 million**, with an accumulated deficit of **$937.0 million**[144](index=144&type=chunk) - A restructuring plan approved on October 29, 2023, includes a **41% workforce reduction (160 positions)** and scaling back non-partnered R&D, expecting **$5.0-$5.5 million** in restructuring costs in Q4 2023 and **$75.0-$85.0 million** in annual cash savings in 2024[145](index=145&type=chunk) [VOWST](index=29&type=section&id=VOWST) VOWST, the first FDA-approved oral microbiome therapeutic, launched in June 2023 for recurrent CDI, with 506 units sold and $7.6 million in net sales in Q3 2023, and 934 new patient starts since launch - VOWST was approved by the FDA on April 26, 2023, and launched in the United States with Nestlé in June 2023, as the first orally administered microbiome therapeutic for recurrent CDI[148](index=148&type=chunk)[149](index=149&type=chunk) - The company received a **$125 million** milestone payment in May 2023 following FDA approval and shares equally in VOWST's commercial profits and losses with Nestlé[149](index=149&type=chunk) | Metric | Q3 2023 | | :---------------- | :------ | | VOWST units sold | 506 | | VOWST net sales | $7.6M | | Estimated gross-to-net reduction | 14% | | Total collaboration loss | $12.9M | | Company's share of VOWST net loss | $6.5M | - Since launch, **1,513 completed prescription enrollment forms** were received, leading to **934 new patient starts**, with **698 unique healthcare providers** prescribing VOWST[151](index=151&type=chunk) - VOWST received **seven years of orphan-drug exclusivity** starting April 26, 2023[155](index=155&type=chunk) [Infection Protection and SER-155](index=30&type=section&id=Infection%20Protection%20and%20SER-155) The company's Infection Protection approach uses microbiome therapeutics, with SER-155 in a Phase 1b study for allo-HSCT patients, showing successful engraftment and pathogen reduction, with cohort 2 results expected in Q3 2024 - The Infection Protection approach, validated by SER-109 data, aims to use microbiome therapeutics to decolonize pathogens and reduce infections in medically compromised patients[159](index=159&type=chunk) - SER-155 is being evaluated in a Phase 1b study in allo-HSCT recipients to prevent enteric-derived infections, bloodstream infections, and GvHD[160](index=160&type=chunk) - Phase 1b cohort 1 data showed successful engraftment of SER-155 bacterial strains and a substantial reduction in pathogen domination, with a favorable tolerability profile and no serious adverse events attributed to SER-155[163](index=163&type=chunk) - Enrollment for the randomized, double-blind, placebo-controlled cohort 2 is ongoing, with 100-day topline results anticipated in Q3 2024[165](index=165&type=chunk) [Intellectual Property](index=31&type=section&id=Intellectual%20Property) The company maintains an extensive patent portfolio for its microbiome therapeutics, with key IP rights for VOWST extending through 2034, SER-155 through 2041, and SER-301 through 2040, and VOWST benefiting from 12 years of reference product exclusivity - The company has an extensive patent portfolio covering rationally designed ecologies of spores and microbes, including **24 active patent application families** and **30 issued U.S. patents**[167](index=167&type=chunk) - Intellectual property rights related to VOWST extend through **2034**, SER-155 through **2041**, and SER-301 through **2040**[167](index=167&type=chunk) - VOWST has a **12-year period of reference product exclusivity** in the United States, starting April 26, 2023[168](index=168&type=chunk) - The company pays a **2.5% royalty** on net sales of VOWST, minimum annual royalties, and milestone payments (e.g., **$1.0 million** upon first commercial sale, **$2.5 million** at **$100 million** annual sales, **$10.0 million** at **$500 million** annual sales) under an exclusive license from Memorial Sloan Kettering Cancer Center[167](index=167&type=chunk) [Financial Operations Overview](index=32&type=section&id=Financial%20Operations%20Overview) This section overviews the company's financial operations, including collaboration-driven revenue, operating expenses expected to decrease post-restructuring, and interest income/expense, with no income tax benefits due to accumulated losses [Revenue](index=32&type=section&id=Revenue) Revenue is primarily from collaboration agreements, with VOWST net sales recorded by Nestlé and the company recognizing its 50% share of net profits or losses as collaboration (profit) loss sharing - Revenue is primarily derived from collaboration agreements[171](index=171&type=chunk) - Post-VOWST commercial launch (June 2023), net sales are recorded by Nestlé, and the company records its **50% share** of net profits or losses as collaboration (profit) loss sharing[171](index=171&type=chunk) [Operating Expenses](index=32&type=section&id=Operating%20Expenses) Operating expenses, comprising R&D, G&A, and collaboration profit/loss sharing, are expected to decrease in 2024 due to the restructuring plan and VOWST commercialization [Research and Development Expenses](index=32&type=section&id=Research%20and%20Development%20Expenses) R&D expenses, including costs for research, development, clinical trials, and manufacturing, are expensed as incurred and are anticipated to decrease in 2024 due to the restructuring plan's scale-back of non-partnered R&D - R&D expenses are expensed as incurred and include costs for third-party agreements (CROs, CMOs), personnel, consultants, lab supplies, and regulatory compliance[173](index=173&type=chunk)[176](index=176&type=chunk) - An overall decrease in R&D expenses is anticipated beginning in 2024 due to the Restructuring Plan, which significantly reduces non-partnered R&D activities, excluding the SER-155 Phase 1b study[175](index=175&type=chunk) [General and Administrative Expenses](index=32&type=section&id=General%20and%20Administrative%20Expenses) G&A expenses, covering salaries, stock-based compensation, legal, professional, and facility costs, are expected to decrease in 2024 due to workforce reductions and office consolidation from the restructuring plan - G&A expenses include personnel costs (salaries, stock-based compensation), legal fees, professional fees (accounting, auditing, consulting), insurance, travel, and facility-related expenses[176](index=176&type=chunk) - G&A expenses are expected to decrease starting in 2024 due to the Restructuring Plan's workforce reduction and consolidation of office space[177](index=177&type=chunk) [Collaboration (Profit) Loss Sharing - related party](index=33&type=section&id=Collaboration%20%28Profit%29%20Loss%20Sharing%20-%20related%20party) This line item reflects the company's net share of VOWST's commercial profits or losses with Nestlé, including commercial and medical affairs expenses, inventory transfers, and pre-launch activities - This line item includes the company's share of VOWST net profits or losses, commercial and medical affairs expenses, profit on VOWST inventory transfers to Nestlé, and collaboration loss related to pre-launch activities[178](index=178&type=chunk)[179](index=179&type=chunk) [Other Expense, Net](index=33&type=section&id=Other%20Expense%2C%20Net) Other expense, net, includes interest income from cash, interest expense from loan agreements (including Oaktree Term Loan discount accretion), and other income/expense from investment amortization and warrant fair value changes [Interest Income](index=33&type=section&id=Interest%20Income) Interest income is generated from the company's cash, cash equivalents, and investments - Interest income is derived from interest earned on cash, cash equivalents, and investments[180](index=180&type=chunk) [Interest Expense](index=33&type=section&id=Interest%20Expense) Interest expense includes costs incurred under the Hercules Capital and Oaktree loan agreements, as well as the accretion of the discount on the Oaktree Term Loan - Interest expense includes costs from the Hercules Capital and Oaktree loan agreements, and accretion of the Oaktree Term Loan discount[181](index=181&type=chunk) [Other Income (Expense)](index=33&type=section&id=Other%20Income%20%28Expense%29) Other income (expense) primarily consists of the amortization of premiums or accretion of discounts on investments and changes in the fair values of warrant liabilities associated with the Oaktree Term Loan - Other income (expense) primarily includes amortization/accretion of investment premiums/discounts and changes in fair value of Oaktree Term Loan warrant liabilities[182](index=182&type=chunk) [Income Taxes](index=33&type=section&id=Income%20Taxes) The company has not recorded any U.S. federal or state income tax benefits due to a history of net losses and uncertainty regarding the realization of deferred tax assets - No U.S. federal or state income tax benefits have been recorded due to a history of net losses and uncertainty of realizing deferred tax assets[183](index=183&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) No material changes occurred to critical accounting policies and significant judgments and estimates during the nine months ended September 30, 2023, except as detailed in Note 2 - No material changes to critical accounting policies and significant judgments/estimates occurred during the nine months ended September 30, 2023, except as detailed in Note 2[185](index=185&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) This section compares financial performance for the three and nine months ended September 30, 2023 and 2022, analyzing revenue, operating expenses, and other income/expense, highlighting VOWST's impact and restructuring efforts [Comparison of Three Months Ended September 30, 2023 and 2022](index=34&type=section&id=Comparison%20of%20Three%20Months%20Ended%20September%2030%2C%202023%20and%202022) For Q3 2023, total revenue decreased to $0.3 million, while net loss decreased to $(47.9) million, driven by reduced R&D and collaboration income, partially offset by increased G&A and interest expense | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Total revenue | $310 | $3,444 | $(3,134) | | Research and development | $28,253 | $43,116 | $(14,863) | | General and administrative | $19,989 | $18,384 | $1,605 | | Collaboration (profit) loss sharing - related party | $(519) | $1,051 | $(1,570) | | Net loss | $(47,854) | $(60,002) | $12,148 | [Revenue](index=34&type=section&id=Revenue_3M) Total revenue for the three months ended September 30, 2023, decreased to $0.3 million from $3.4 million in the prior year, primarily due to the completion of VOWST regulatory approval services - Total revenue decreased by **$3.1 million** for the three months ended September 30, 2023, compared to the prior year, due to the completion of VOWST regulatory approval services[188](index=188&type=chunk) [Research and Development Expenses](index=34&type=section&id=Research%20and%20Development%20Expenses_3M) R&D expenses decreased by $14.8 million to $28.3 million for Q3 2023, mainly due to reduced VOWST program costs and lower personnel-related costs, partially offset by increased microbiome therapeutics platforms and SER-155 expenses | R&D Category | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Microbiome therapeutics platforms | $10,172 | $9,347 | $825 | | VOWST | $274 | $12,372 | $(12,098) | | SER-155 | $1,935 | $1,308 | $627 | | Early stage programs | $382 | $152 | $230 | | Personnel-related | $15,490 | $19,937 | $(4,447) | | Total R&D expenses | $28,253 | $43,116 | $(14,863) | - VOWST program expenses decreased by **$12.1 million** due to capitalization of manufacturing costs into inventory, reduced consulting, and lower clinical trial costs post-commercialization[190](index=190&type=chunk) - Personnel-related costs decreased by **$4.4 million**, mainly due to capitalization of labor costs into inventory, partially offset by increased salaries and stock-based compensation[190](index=190&type=chunk) [General and Administrative Expenses](index=35&type=section&id=General%20and%20Administrative%20Expenses_3M) G&A expenses increased by $1.6 million to $20.0 million for Q3 2023, primarily due to higher personnel-related costs and increased facility-related and other costs, partially offset by decreased professional fees | G&A Category | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Personnel related | $9,048 | $7,663 | $1,385 | | Professional fees | $4,964 | $6,832 | $(1,868) | | Facility-related and other | $5,977 | $3,889 | $2,088 | | Total G&A expenses | $19,989 | $18,384 | $1,605 | - Personnel-related costs increased by **$1.4 million**, driven by higher salaries, bonuses, and stock-based compensation due to achieved performance conditions[195](index=195&type=chunk) - Facility-related and other costs increased by **$2.1 million** due to higher IT, rent, license, and office supply expenses[195](index=195&type=chunk) [Collaboration (Profit) Loss Sharing - related party](index=35&type=section&id=Collaboration%20%28Profit%29%20Loss%20Sharing%20-%20related%20party_3M) Collaboration (profit) loss sharing resulted in $0.5 million income for Q3 2023, a shift from $1.1 million expense in 2022, driven by profit on VOWST inventory transfer offsetting VOWST net loss and pre-launch expenses | Collaboration Component (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | | :------------------------------------- | :-------------------------- | :-------------------------- | | Share of VOWST net loss | $6,463 | $0 | | Profit on transfer of VOWST inventory to Nestlé | $(7,295) | $0 | | Collaboration (profit)/loss related to pre-launch activities | $313 | $1,051 | | Total collaboration (profit) loss sharing - related party | $(519) | $1,051 | - The shift from **$1.1 million expense** in 2022 to **$0.5 million income** in 2023 was due to the commercial launch of VOWST and related profit sharing[192](index=192&type=chunk) [Other Expense, Net](index=35&type=section&id=Other%20Expense%2C%20Net_3M) Other expense, net, decreased to $0.4 million for Q3 2023, primarily due to increased interest income and other income, partially offset by higher interest expense - Other expense, net, decreased by **$0.5 million**, driven by a **$1.7 million** increase in interest income and a **$1.0 million** increase in other income (due to warrant fair value changes), partially offset by a **$2.3 million** increase in interest expense[194](index=194&type=chunk) [Comparison of Nine Months Ended September 30, 2023 and 2022](index=36&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) For the nine months ended September 30, 2023, total revenue significantly increased to $126.3 million, leading to a substantial decrease in net loss to $(72.5) million, driven by a milestone payment and reduced R&D expenses | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Total revenue | $126,261 | $6,153 | $120,108 | | Research and development | $119,014 | $126,700 | $(7,686) | | General and administrative | $70,510 | $57,290 | $13,220 | | Collaboration (profit) loss sharing - related party | $5,194 | $346 | $4,848 | | Net loss | $(72,476) | $(181,361) | $108,885 | [Revenue](index=36&type=section&id=Revenue_9M) Total revenue for the nine months ended September 30, 2023, increased by $120.1 million to $126.3 million, primarily due to the $125 million milestone payment from Nestlé upon VOWST's FDA approval - Total revenue increased by **$120.1 million**, primarily due to the **$125 million** milestone payment from Nestlé upon VOWST FDA approval[196](index=196&type=chunk) [Research and Development Expenses](index=36&type=section&id=Research%20and%20Development%20Expenses_9M) R&D expenses decreased by $7.7 million to $119.0 million for the nine months ended September 30, 2023, mainly due to reduced VOWST program costs, partially offset by increased microbiome therapeutics platforms and personnel-related expenses | R&D Category | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Microbiome therapeutics platforms | $36,942 | $26,740 | $10,202 | | VOWST | $15,331 | $37,384 | $(22,053) | | SER-155 | $5,578 | $3,218 | $2,360 | | Early stage programs | $1,208 | $1,658 | $(450) | | Personnel-related | $59,955 | $57,700 | $2,255 | | Total R&D expenses | $119,014 | $126,700 | $(7,686) | - VOWST program expenses decreased by **$22.1 million** due to reduced clinical trial costs, consulting, and capitalization of manufacturing costs into inventory post-commercialization[198](index=198&type=chunk) - Microbiome therapeutics platforms research expenses increased by **$10.2 million**, driven by higher facilities costs, lab supplies, and professional fees[198](index=198&type=chunk) - Personnel-related costs increased by **$2.3 million**, primarily due to higher salaries and stock-based compensation from achieved performance conditions, partially offset by payroll tax credits and capitalization of labor costs[198](index=198&type=chunk)[199](index=199&type=chunk) [General and Administrative Expenses](index=37&type=section&id=General%20and%20Administrative%20Expenses_9M) G&A expenses increased by $13.2 million to $70.5 million for the nine months ended September 30, 2023, mainly due to higher personnel-related costs, legal expenses, and facility-related costs | G&A Category | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Personnel related | $28,848 | $22,999 | $5,849 | | Professional fees | $24,264 | $22,998 | $1,266 | | Facility-related and other | $17,398 | $11,293 | $6,105 | | Total G&A expenses | $70,510 | $57,290 | $13,220 | - Personnel-related costs increased by **$5.8 million**, driven by higher salaries, bonuses, payroll taxes, and stock-based compensation due to VOWST FDA approval[205](index=205&type=chunk) - Professional fees increased by **$1.3 million**, primarily due to **$6.1 million** in legal expenses related to VOWST FDA approval, partially offset by reduced consulting and recruiting fees[205](index=205&type=chunk) [Collaboration (Profit) Loss Sharing - related party](index=37&type=section&id=Collaboration%20%28Profit%29%20Loss%20Sharing%20-%20related%20party_9M) Collaboration (profit) loss sharing resulted in $5.2 million expense for the nine months ended September 30, 2023, an increase from $0.3 million in 2022, driven by VOWST net loss and pre-launch expenses, partially offset by inventory transfer profit | Collaboration Component (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------- | :-------------------------- | :-------------------------- | | Share of VOWST net loss | $8,604 | $0 | | Profit on transfer of VOWST inventory to Nestlé | $(8,568) | $0 | | Collaboration (profit)/loss related to pre-launch activities | $5,158 | $346 | | Total collaboration (profit) loss sharing - related party | $5,194 | $346 | - The increase in expense was primarily due to the company's share of VOWST net loss and pre-launch expenses following the commercial launch[201](index=201&type=chunk) [Other Expense, Net](index=37&type=section&id=Other%20Expense%2C%20Net_9M) Other expense, net, increased to $4.0 million for the nine months ended September 30, 2023, primarily due to a $5.0 million increase in interest expense, partially offset by increased interest income and decreased other expense - Other expense, net, increased by **$0.8 million**, driven by a **$5.0 million** increase in interest expense, partially offset by a **$3.7 million** increase in interest income and a **$0.5 million** decrease in other expense[203](index=203&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial position, including cash, accumulated deficit, and funding needs, detailing the Oaktree Credit Agreement, restructuring plan, collaboration agreements, and cash flow analysis - As of September 30, 2023, the company had **$169.9 million** in cash and cash equivalents and an accumulated deficit of **$937.0 million**, with a net loss of **$72.5 million** and **$69.9 million** cash used in operations for the nine months ended September 30, 2023[207](index=207&type=chunk) - The company received a **$125.0 million** milestone payment in May 2023 after VOWST FDA approval and is eligible for payments from Nestlé for VOWST supply and equal sharing of commercial profits/losses[208](index=208&type=chunk) - The Oaktree Credit Agreement provides a **$250.0 million** term loan facility, with **$110.0 million** (Tranche A) funded in April 2023, and additional tranches (B and C) available subject to VOWST net sales targets[209](index=209&type=chunk) - The company expects its cash and cash equivalents, combined with the Restructuring Plan, VOWST profit sharing, and the expected Tranche B Term Loan, to fund operations for at least the next 12 months[253](index=253&type=chunk) [Restructuring Plan](index=38&type=section&id=Restructuring%20Plan) The Restructuring Plan, approved October 29, 2023, prioritizes VOWST commercialization and SER-155 development, involving a 41% workforce reduction and expecting $75.0-$85.0 million in annual cash savings in 2024 - The Restructuring Plan, approved October 29, 2023, prioritizes VOWST commercialization and SER-155 Phase 1b study, reducing costs for long-term sustainability[210](index=210&type=chunk) - Key components include a **41% workforce reduction** (approx. **160 positions**) and significant scaling back of non-partnered R&D activities[210](index=210&type=chunk) - Estimated restructuring costs are **$5.0-$5.5 million**, primarily in Q4 2023, with expected annual cash savings of **$75.0-$85.0 million** in 2024[211](index=211&type=chunk) [Collaboration and Manufacturing Agreements](index=38&type=section&id=Collaboration%20and%20Manufacturing%20Agreements) This section details key collaboration and manufacturing agreements, including Nestlé license agreements for product development and commercialization, and a long-term manufacturing agreement with Bacthera for VOWST production [License Agreement with Société des Produits Nestlé S.A. (Nestlé)](index=38&type=section&id=License%20Agreement%20with%20Soci%C3%A9t%C3%A9%20des%20Produits%20Nestl%C3%A9%20S.A.%20%28Nestl%C3%A9%29) The 2016 License Agreement with Nestlé covers product development and commercialization outside the US/Canada, with $120 million upfront and $80 million in development milestones received, plus potential royalties and additional milestones - The 2016 License Agreement with Nestlé covers development and commercialization of product candidates (VOWST, SER-262, SER-287, SER-301) in markets outside the United States and Canada[213](index=213&type=chunk)[214](index=214&type=chunk) - The company received a **$120 million** upfront payment and **$80 million** in development milestones under this agreement[214](index=214&type=chunk) - Nestlé agreed to pay tiered royalties (**high single digits to high teens**) on net sales and potential milestones up to **$285 million** (development), **$375 million** (regulatory), and **$1.125 billion** (commercial)[214](index=214&type=chunk) [License Agreement with NHSc Rx License GmbH (Nestlé)](index=39&type=section&id=License%20Agreement%20with%20NHSc%20Rx%20License%20GmbH%20%28Nestl%C3%A9%29) The 2021 License Agreement grants Nestlé a co-exclusive license for VOWST in the US and Canada, with the company receiving a $175 million upfront payment and a $125 million FDA approval milestone, and sharing equally in commercial profits/losses - The 2021 License Agreement grants Nestlé a co-exclusive license for VOWST in the United States and Canada[218](index=218&type=chunk) - The company received a **$175 million** upfront payment and a **$125 million** milestone payment upon FDA approval of VOWST[221](index=221&type=chunk) - Since the first commercial sale of VOWST in June 2023, the company shares equally in its commercial profits and losses[220](index=220&type=chunk) [Long Term Manufacturing Agreement with Bacthera](index=40&type=section&id=Long%20Term%20Manufacturing%20Agreement%20with%20Bacthera) The Bacthera Agreement outlines Bacthera's construction of a dedicated production suite in Switzerland and provision of manufacturing services for VOWST and other products, with the company committing to pay at least 256 million CHF over ten years - The Bacthera Agreement (amended Dec 2022) involves Bacthera constructing a dedicated full-scale production suite in Switzerland and providing manufacturing services for VOWST and other products[224](index=224&type=chunk) - The company agreed to pay Bacthera at least **256 million CHF** (approx. **$277 million**) for construction and annual operating fees over the initial ten-year term[225](index=225&type=chunk) [Indebtedness](index=40&type=section&id=Indebtedness) This section details the company's debt, including the repayment of the Hercules Credit Facility and the new Oaktree Credit Agreement, which provides a $250 million Term Loan secured by assets, including IP, with additional tranches contingent on VOWST sales [Loan and Security Agreement with Hercules](index=40&type=section&id=Loan%20and%20Security%20Agreement%20with%20Hercules) The Hercules Credit Facility, initially for $50 million and amended to $100 million, was secured by company assets (excluding IP) and fully repaid on April 27, 2023, using proceeds from the Oaktree Credit Agreement - The Hercules Loan Agreement was amended in February 2022 to a **$100 million** Hercules Credit Facility[230](index=230&type=chunk) - The Hercules Credit Facility was secured by substantially all company assets, excluding intellectual property[231](index=231&type=chunk) - The Hercules Credit Facility was repaid on April 27, 2023, using proceeds from the Oaktree Credit Agreement[231](index=231&type=chunk)[232](index=232&type=chunk) [Oaktree Credit Agreement](index=41&type=section&id=Oaktree%20Credit%20Agreement) The Oaktree Credit Agreement provides a $250 million Term Loan, with $110 million funded, additional tranches contingent on VOWST sales, a variable interest rate, and security interests in all assets, including IP, with the company in compliance with covenants - The Oaktree Credit Agreement provides a **$250 million** Term Loan facility, with **$110 million** (Tranche A) funded on April 27, 2023[232](index=232&type=chunk) - Tranche B (**$45 million**) is available until September 30, 2024, if VOWST net sales meet specific trailing six-month and quarterly growth targets[232](index=232&type=chunk) - The loan bears interest at three-month SOFR (**2.50% floor, 5.00% cap**) plus **7.875%** (reducible to **7.50%** if VOWST sales targets are met), with quarterly interest-only payments for the first three years[233](index=233&type=chunk) - The company's obligations are secured by first priority security interests in substantially all assets, including intellectual property[235](index=235&type=chunk) - As of September 30, 2023, the company was in compliance with all financial covenants, including maintaining at least **$30.0 million** in cash and cash equivalents in controlled accounts[237](index=237&type=chunk)

Financial Data and Key Metrics Changes - The company reported a net income of $46.6 million for Q2 2023, compared to a net loss of $64.7 million for the same period in 2022 [89] - VOWST net sales for the partial commercialization period during Q2 was $1.6 million, based on 105 units sold [41][149] - The company ended Q2 2023 with $229.5 million in cash, cash equivalents, and investments, up from $181.3 million at the end of 2022 [38] Business Line Data and Key Metrics Changes - VOWST, the first FDA-approved orally administered microbiome therapeutic, is in its early commercialization phase with positive initial results [1][55] - Approximately 43% of the 282 new patient starts were dispensed via free drug programs, indicating strong utilization of patient assistance initiatives [40] - The gross to net reduction for VOWST was estimated at 15%, primarily due to returns reserves, prompt payment discounts, and patient copay assistance [90] Market Data and Key Metrics Changes - The company is seeing healthy product demand from a broad set of healthcare practitioners and across the recurrent CDI patient pool, including patients with their first recurrence [55][98] - The company has received prescription enrollment forms from over 480 unique prescribers, with approximately 70% from gastroenterology [69] Company Strategy and Development Direction - The successful commercialization of VOWST is the company's top corporate priority, with expectations that it will become an important financial driver over time [71] - The company is focused on scaling healthcare provider education, creating a positive customer experience, establishing payer coverage, and optimizing hospital outflow [80] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the continued acceleration of VOWST uptake and its potential as a financial driver for the company [2] - The company anticipates that the approval of VOWST will lead to a steady pattern of purchases by Nestle to meet market demand [42] Other Important Information - The company closed one of its three donor collection facilities to reduce costs, with savings expected to be realized in 2024 [108][129] - The company is actively engaged with the three largest pharmacy benefit managers (PBMs) to build coverage for VOWST [100] Q&A Session Summary Question: Can you talk about the current timing between prescription enrollment forms and new patient starts? - Management noted that the majority of patients seeking access to VOWST are successfully navigating the medical exception process, with demand for new patients building over time [5][115] Question: What is the expected scale of cost savings from closing a donor facility? - Management indicated that savings will be more of a 2024 item, with some pieces potentially realized at the end of 2023 [7][129] Question: Can you provide guidance on cash runway and gross to net expectations? - Management did not provide specific runway guidance but emphasized a focus on reducing spend and generating value from the VOWST launch [119][141]

PART I – FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20and%20December%2031%2C%202022) This section presents the company's financial position at specific dates, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :--------------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $229,520 | $163,030 | +$66,490 | | Total current assets | $251,238 | $194,764 | +$56,474 | | Total assets | $406,387 | $348,784 | +$57,603 | | Total current liabilities | $77,898 | $85,596 | -$7,698 | | Total liabilities | $383,773 | $338,001 | +$45,772 | | Total stockholders' equity | $22,614 | $10,783 | +$11,831 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) This section details the company's financial performance, including revenues, expenses, and net income or loss over specific periods Q2 2023 vs. Q2 2022 Financial Performance (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change (YoY) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Collaboration revenue - related party | $126,473 | $1,216 | +$125,257 | | Total revenue | $126,473 | $1,216 | +$125,257 | | Research and development expenses | $46,792 | $43,935 | +$2,857 | | General and administrative expenses | $28,051 | $20,335 | +$7,716 | | Collaboration (profit) loss sharing - related party | $2,106 | $271 | +$1,835 | | Net income (loss) | $46,552 | $(64,735) | +$111,287 | | Net income (loss) per share attributable to common stockholders, basic | $0.36 | $(0.70) | +$1.06 | | Net income (loss) per share attributable to common stockholders, diluted | $0.36 | $(0.70) | +$1.06 | H1 2023 vs. H1 2022 Financial Performance (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (YoY) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Collaboration revenue - related party | $125,951 | $2,709 | +$123,242 | | Total revenue | $125,951 | $2,709 | +$123,242 | | Research and development expenses | $90,761 | $83,584 | +$7,177 | | General and administrative expenses | $50,521 | $38,906 | +$11,615 | | Collaboration (profit) loss sharing - related party | $5,713 | $(705) | +$6,418 | | Net income (loss) | $(24,622) | $(121,359) | +$96,737 | | Net income (loss) per share attributable to common stockholders, basic | $(0.19) | $(1.32) | +$1.13 | | Net income (loss) per share attributable to common stockholders, diluted | $(0.19) | $(1.32) | +$1.13 | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) This section outlines changes in the company's equity, reflecting net income, stock issuances, and other comprehensive income or loss - Total stockholders' equity increased by **$11.8 million** from **$10.8 million** at December 31, 2022, to **$22.6 million** at June 30, 2023[22](index=22&type=chunk) - Additional paid-in capital increased by **$36.4 million**, from **$875.2 million** to **$911.6 million**, primarily due to equity offerings and stock-based compensation[22](index=22&type=chunk) - Accumulated deficit decreased by **$24.6 million**, from **$(864.5) million** to **$(889.1) million**, reflecting the net income for the three months ended June 30, 2023, and net loss for the six months ended June 30, 2023[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | Change (YoY) | | :-------------------------------------------------- | :--------- | :---------- | :----------- | | Cash used in operating activities | $(10,600) | $(116,342) | +$105,742 | | Cash provided by investing activities | $13,256 | $36,371 | -$23,115 | | Cash provided by financing activities | $63,833 | $26,978 | +$36,855 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $66,489 | $(52,993) | +$119,482 | | Cash, cash equivalents and restricted cash at end of period | $237,705 | $135,009 | +$102,696 | - Net cash used in operating activities significantly decreased by **$105.7 million**, from **$116.3 million** in 2022 to **$10.6 million** in 2023, primarily due to a reduced net loss and non-cash adjustments[25](index=25&type=chunk)[247](index=247&type=chunk) - Net cash provided by financing activities increased by **$36.9 million**, from **$27.0 million** in 2022 to **$63.8 million** in 2023, largely due to proceeds from the Oaktree Term Loan and at-the-market equity offerings[25](index=25&type=chunk)[252](index=252&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies, financial instruments, and significant transactions - VOWST (fecal microbiota spores, live brpk) was **approved by the FDA on April 26, 2023**, and launched in the U.S. in June 2023, becoming the first orally administered microbiome therapeutic[28](index=28&type=chunk) - The company entered into the Oaktree Credit Agreement on April 27, 2023, establishing a **$250 million** term loan facility, with **$110 million** funded on the closing date, partially used to repay the Hercules Credit Facility[68](index=68&type=chunk)[69](index=69&type=chunk) - The company received a **$125 million** milestone payment in May 2023 from Nestlé following FDA approval of VOWST, significantly contributing to revenue[36](index=36&type=chunk)[105](index=105&type=chunk) - As of June 30, 2023, the company had an accumulated deficit of **$889.1 million** but expects existing cash and cash equivalents to fund operations for **at least the next 12 months**, mitigating prior going concern doubts[34](index=34&type=chunk)[37](index=37&type=chunk) - The company shares equally in the commercial profits and losses of VOWST with Nestlé, with Nestlé recording total net sales[28](index=28&type=chunk)[122](index=122&type=chunk) [Note 1. Nature of the Business and Basis of Presentation](index=9&type=section&id=1.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) This note describes the company's business, product development, and the basis for preparing the financial statements, including going concern considerations - VOWST (fecal microbiota spores, live brpk) received **FDA approval on April 26, 2023**, and was launched in the U.S. in June 2023 to prevent recurrent Clostridioides difficile infection (CDI)[28](index=28&type=chunk) - The company is developing SER-155, a 16-strain bacterial consortium, to prevent enteric-derived infections and reduce Graft versus Host Disease (GvHD) in allo-HSCT patients, with Phase 1b cohort 1 showing successful engraftment and reduced pathogen domination[29](index=29&type=chunk) - As of June 30, 2023, the company had an accumulated deficit of **$889.1 million** and a net loss of **$24.6 million** for the six months ended June 30, 2023[34](index=34&type=chunk) - A **$125 million** milestone payment from Nestlé in May 2023 and the VOWST commercial launch mitigated prior substantial doubt about the company's ability to continue as a going concern, with cash expected to fund operations for **at least the next 12 months**[36](index=36&type=chunk)[37](index=37&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements, including estimates and assumptions - Inventories are now stated at the lower of cost or estimated net realizable value using the first-in first-out method, with costs capitalized post-regulatory approval[41](index=41&type=chunk)[42](index=42&type=chunk) - The company uses estimates and assumptions, particularly for revenue recognition and research and development expense accruals, which are periodically reviewed[43](index=43&type=chunk) - Restricted cash of **$8.2 million** as of June 30, 2023, and December 31, 2022, is classified as long-term, representing cash held for landlord benefits on leases[44](index=44&type=chunk) [Note 3. Fair Value Measurements](index=11&type=section&id=3.%20Fair%20Value%20Measurements) This note provides information on the fair value of financial instruments, categorized by valuation input levels Fair Value Measurements as of June 30, 2023 (in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :--------------------------- | :------ | :------ | :------ | :---- | | Cash equivalents: Money market funds | $20,620 | — | — | $20,620 | | Warrant liabilities | — | — | $1,968 | $1,968 | - Warrant liabilities, classified as Level 3, increased from $0 at December 31, 2022, to **$2.0 million** at June 30, 2023, due to the issuance of warrants and fair value adjustments[45](index=45&type=chunk)[48](index=48&type=chunk) - Level 3 warrant liabilities are valued using a Monte-Carlo simulation model incorporating stock price, contractual terms, maturity, risk-free rates, volatility (**82.0%** at June 30, 2023), and estimated sales target achievement term (1.5 years at June 30, 2023)[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 4. Investments](index=12&type=section&id=4.%20Investments) This note details the company's investment portfolio, including types of investments and their classification - As of June 30, 2023, the Company did not hold any investments other than restricted investments of **$1.4 million**[50](index=50&type=chunk) - As of December 31, 2022, investments totaled $18,311 thousand, comprising commercial paper ($2,465 thousand), corporate bonds ($2,957 thousand), and government securities ($12,889 thousand), all classified as available-for-sale and maturing within 12 months[49](index=49&type=chunk) [Note 5. Inventories](index=12&type=section&id=5.%20Inventories) This note describes the company's inventory accounting policies and provides a breakdown of capitalized inventory Capitalized Inventories at June 30, 2023 (in thousands) | Category | Amount | | :--------------- | :----- | | Raw materials | $547 | | Work in process | $4,750 | | Finished goods | $43 | | **Total** | **$5,340** | - No inventories were capitalized as of December 31, 2022, as all manufacturing costs prior to VOWST's FDA approval were expensed as research and development[52](index=52&type=chunk) - Pre-launch inventory expensed as R&D totaled **$11.2 million** and **$26.8 million** for the three and six months ended June 30, 2023, respectively[52](index=52&type=chunk) [Note 6. Property and Equipment, Net](index=13&type=section&id=6.%20Property%20and%20Equipment%2C%20Net) This note presents the company's property and equipment, net of accumulated depreciation, and related depreciation expenses Property and Equipment, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------ | :---------------- | | Laboratory equipment | $28,053 | $24,533 | | Leasehold improvements | $32,963 | $32,474 | | Total property and equipment, net | $24,026 | $22,985 | - Depreciation and amortization expense was **$2.9 million** for the six months ended June 30, 2023, compared to **$3.3 million** for the same period in 2022[54](index=54&type=chunk) [Note 7. Accrued Expenses and Other Current Liabilities](index=13&type=section&id=7.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This note provides a breakdown of accrued expenses and other current liabilities, including clinical, manufacturing, and payroll costs Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Clinical and development costs | $2,157 | $6,717 | | Manufacturing and quality costs | $2,707 | — | | Payroll and payroll-related costs | $11,688 | $14,709 | | Collaboration payable - related party | $31,372 | $34,770 | | Facility and other | $7,954 | $3,644 | | **Total** | **$55,878** | **$59,840** | - Accrued **$3.9 million** for transaction and milestone payments to third parties due to VOWST's FDA approval and commercial launch, included in "Facility and other"[55](index=55&type=chunk) [Note 8. Leases](index=13&type=section&id=8.%20Leases) This note details the company's operating lease assets and liabilities, lease costs, and key lease terms - Operating lease assets were **$110.3 million** and total operating lease liabilities were **$112.2 million** as of June 30, 2023[60](index=60&type=chunk) - Total lease costs for the six months ended June 30, 2023, were **$15.6 million**, up from **$6.6 million** in the prior year, primarily due to new leases for laboratory/office space in Pennsylvania and a donor collection facility in California[60](index=60&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - The weighted average remaining lease term was 8.47 years and the weighted average incremental borrowing rate was **13%** as of June 30, 2023[61](index=61&type=chunk) [Note 9. Notes Payable](index=15&type=section&id=9.%20Notes%20Payable) This note describes the company's debt instruments, including the Oaktree Credit Agreement, term loans, interest rates, and related warrants - On April 27, 2023, the company entered into the Oaktree Credit Agreement for a **$250 million** term loan facility[68](index=68&type=chunk) - The Tranche A Loan of **$110 million** was funded on the closing date, with approximately **$53.4 million** used to repay the Hercules Credit Facility, resulting in a **$1.6 million** loss on extinguishment[69](index=69&type=chunk) - The Term Loan bears interest at three-month SOFR (2.50% floor, 5.00% cap) plus an applicable margin of 7.875%, with an effective interest rate of **15.9%** as of June 30, 2023[70](index=70&type=chunk)[79](index=79&type=chunk) - The company issued warrants to lenders, including a Tranche A Warrant for **647,589 shares** (exercise price **$6.69**) classified as equity, and Additional Warrants (Tranche B and C) classified as derivative liabilities due to variable exercise prices[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - The carrying value of the Term Loan was **$100.7 million** as of June 30, 2023, classified as a long-term liability[79](index=79&type=chunk) [Note 10. Common Stock and Stock-Based Awards](index=18&type=section&id=10.%20Common%20Stock%20and%20Stock-Based%20Awards) This note provides information on common stock, equity offerings, stock options, restricted stock units, and stock-based compensation expense - Authorized common stock increased from **200 million** to **240 million** shares on June 27, 2023[81](index=81&type=chunk) - Sold **2,005,547 shares** of common stock through an "at the market" offering for net proceeds of **$11.7 million** during the six months ended June 30, 2023[82](index=82&type=chunk) - Stock-based compensation expense for the six months ended June 30, 2023, was **$20.3 million**, compared to **$11.8 million** in 2022, primarily due to performance-based stock options and PSUs achieving targets[89](index=89&type=chunk)[84](index=84&type=chunk)[88](index=88&type=chunk) - Outstanding stock options increased to **16.8 million shares** with a weighted average exercise price of **$9.43** as of June 30, 2023[83](index=83&type=chunk) - Unvested restricted stock units (RSUs) and performance-based stock units (PSUs) totaled **3.9 million shares** as of June 30, 2023[85](index=85&type=chunk) [Note 11. Net Income (Loss) per Share](index=19&type=section&id=11.%20Net%20Income%20(Loss)%20per%20Share) This note presents the calculation of basic and diluted net income or loss per share, including factors affecting dilutive shares Net Income (Loss) per Share (Basic and Diluted, in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $46,552 | $(64,735) | $(24,622) | $(121,359) | | Basic EPS | $0.36 | $(0.70) | $(0.19) | $(1.32) | | Diluted EPS | $0.36 | $(0.70) | $(0.19) | $(1.32) | - Weighted average common shares outstanding (diluted) for Q2 2023 were **129.8 million**, up from **92.3 million** in Q2 2022[21](index=21&type=chunk) - Anti-dilutive potential common stock equivalents, including stock options, unvested RSUs, and warrants, were excluded from diluted EPS calculations for periods with net losses or when their exercise price exceeded the average fair value[91](index=91&type=chunk) [Note 12. Revenue from Contracts with Customers](index=20&type=section&id=12.%20Revenue%20from%20Contracts%20with%20Customers) This note details revenue recognition from collaboration agreements, including milestone payments and deferred revenue - Received a **$125 million** milestone payment in May 2023 upon FDA approval of VOWST, recognized as revenue under the 2021 License Agreement[95](index=95&type=chunk)[105](index=105&type=chunk) - The 2021 License Agreement granted Nestlé a co-exclusive license for VOWST in the U.S. and Canada, with the company responsible for manufacturing and equal sharing of commercial profits and losses post-launch[92](index=92&type=chunk)[94](index=94&type=chunk) - The 2016 License Agreement granted Nestlé an exclusive, royalty-bearing license for product candidates (including VOWST, SER-262, SER-287, SER-301) outside the U.S. and Canada, with eligibility for significant milestone payments and tiered royalties[107](index=107&type=chunk)[108](index=108&type=chunk) - Deferred revenue related to Nestlé agreements was **$95.7 million** as of June 30, 2023, down from **$96.7 million** at December 31, 2022[115](index=115&type=chunk)[116](index=116&type=chunk) [Note 13. Collaboration Profit and Loss](index=24&type=section&id=13.%20Collaboration%20Profit%20and%20Loss) This note explains the components of collaboration profit and loss sharing with related parties, particularly for VOWST Components of Collaboration Profit (Loss) Sharing (in thousands) | Component | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :----------------------------- | | Share of VOWST net loss | $2,141 | $2,141 | | Profit on transfer of VOWST inventory to Nestlé | $(1,273) | $(1,273) | | Collaboration (profit)/loss related to pre-launch activities | $1,238 | $4,845 | | **Total collaboration (profit) loss sharing - related party** | **$2,106** | **$5,713** | - The company records its share of VOWST commercial profits or losses, including commercial and medical affairs expenses, on a net basis as collaboration (profit) loss sharing[122](index=122&type=chunk) - Pre-launch activities were completed prior to VOWST's first commercial sale in June 2023[121](index=121&type=chunk)[124](index=124&type=chunk) [Note 14. Commitments and Contingencies](index=25&type=section&id=14.%20Commitments%20and%20Contingencies) This note outlines the company's contractual commitments, indemnification agreements, and legal contingencies - The company has commitments associated with its lease portfolio, as detailed in Note 8[125](index=125&type=chunk) - Indemnification agreements are provided to vendors, lessors, business partners, and officers/directors, with maximum potential future payments often unlimited, but no material costs incurred to date[126](index=126&type=chunk) - No liabilities related to legal contingencies were accrued as of June 30, 2023, or December 31, 2022[129](index=129&type=chunk) [Note 15. Income taxes](index=25&type=section&id=15.%20Income%20taxes) This note discusses the company's income tax position, including the absence of income tax provision and the valuation allowance against deferred tax assets - No income taxes were provided for the three and six months ended June 30, 2023, or 2022[130](index=130&type=chunk) - A full valuation allowance has been established against deferred tax assets due to the company's history of cumulative net losses and early stage of VOWST commercialization, indicating it is more likely than not that the benefits will not be realized[131](index=131&type=chunk) [Note 16. Related Party Transactions](index=25&type=section&id=16.%20Related%20Party%20Transactions) This note details transactions with related parties, primarily collaboration revenue and deferred income from Nestlé - Under the 2021 License Agreement with Nestlé, the company recognized **$125.9 million** in related party revenue for the three months ended June 30, 2023, and reported a collaboration receivable of **$7.6 million** as of June 30, 2023[132](index=132&type=chunk)[133](index=133&type=chunk) - Deferred income - related party of **$2.8 million** as of June 30, 2023, represents inventory transferred to Nestlé that has not yet been sold[133](index=133&type=chunk) - Under the 2016 License Agreement with Nestlé, the company recognized **$0.6 million** in related party revenue for the three months ended June 30, 2023, with deferred revenue of **$95.7 million** as of June 30, 2023[134](index=134&type=chunk) - Expensed an **$0.8 million** option payment in June 2023 after electing not to renew a lease option with Flagship Pioneering Labs TPC, Inc., an affiliate of a significant stockholder[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, highlighting the commercial launch of VOWST, pipeline progress, and financial impacts [Overview](index=27&type=section&id=Overview) This overview highlights the commercial launch of VOWST, progress in the SER-155 pipeline, and the company's financial position and future funding needs - VOWST (fecal microbiota spores, live-brpk) received **FDA approval on April 26, 2023**, and was launched in the U.S. in June 2023 for recurrent CDI[139](index=139&type=chunk)[140](index=140&type=chunk) - The company is developing SER-155 in a Phase 1b study for allo-HSCT patients to prevent infections and GvHD, with cohort 1 showing successful engraftment and reduced pathogen domination[142](index=142&type=chunk) - As of June 30, 2023, the company had an accumulated deficit of **$889.1 million** and a net loss of **$24.6 million** for the six months ended June 30, 2023[148](index=148&type=chunk) - Existing cash and cash equivalents are expected to fund operations for at least the next 12 months, but additional financing will be needed for continued operations and commercialization efforts[148](index=148&type=chunk)[150](index=150&type=chunk) - The company's board approved an increase in authorized common stock from **200 million** to **240 million** shares, which stockholders approved on June 22, 2023[151](index=151&type=chunk) [VOWST](index=29&type=section&id=VOWST) This section details the FDA approval and commercial launch of VOWST, including initial sales, prescription data, and clinical efficacy - VOWST received **FDA approval on April 26, 2023**, and launched in the U.S. in June 2023, marking the first orally administered microbiome therapeutic for recurrent CDI[152](index=152&type=chunk)[153](index=153&type=chunk) - By July 27, 2023, 610 completed prescription enrollment forms for VOWST were received, leading to 282 new patient starts, with 78 healthcare providers prescribing to more than one patient[155](index=155&type=chunk) - Nestlé reported **$1.6 million** in net sales for **105 VOWST units** sold during Q2 2023, reflecting an estimated gross-to-net reduction of **15%**[154](index=154&type=chunk) - The total collaboration loss for Q2 2023 was **$4.3 million**, with the company's **50%** share being **$2.1 million**[154](index=154&type=chunk) - VOWST has **seven years** of orphan-drug exclusivity, starting April 26, 2023[159](index=159&type=chunk) - Clinical data from ECOSPOR III demonstrated VOWST's superiority to placebo in reducing CDI recurrence at eight weeks, with an **88%** recurrence-free rate and a **68%** relative risk reduction[161](index=161&type=chunk) [Infection Protection and SER-155](index=30&type=section&id=Infection%20Protection%20and%20SER-155) This section describes the Infection Protection approach and the development of SER-155 for allo-HSCT patients, including Phase 1b study results - The Infection Protection approach aims to decolonize pathogens and modulate host function to reduce and prevent infections, validated by SER-109 data showing gut microbiome restructuring and reduced antibiotic resistance genes[164](index=164&type=chunk) - SER-155 is an oral microbiome therapeutic candidate in a Phase 1b study for allo-HSCT recipients to prevent enteric-derived infections, bloodstream infections, and GvHD[165](index=165&type=chunk)[167](index=167&type=chunk) - Phase 1b cohort 1 results showed successful engraftment of SER-155 bacterial strains and a substantial reduction in cumulative incidence of pathogen domination, with a favorable tolerability profile[169](index=169&type=chunk) - Enrollment for the placebo-controlled cohort 2 is ongoing, with 100-day topline results anticipated in **mid-2024**[171](index=171&type=chunk) [Irritable Bowel Disease, Ulcerative Colitis, SER-287 and SER-301](index=31&type=section&id=Irritable%20Bowel%20Disease%2C%20Ulcerative%20Colitis%2C%20SER-287%20and%20SER-301) This section discusses research in ulcerative colitis, including preliminary analysis of SER-301 Phase 1b results and future development plans - The company is continuing research in ulcerative colitis (UC), including evaluating biomarker-based patient selection and stratification for future studies[173](index=173&type=chunk) - Preliminary analysis of SER-301 Phase 1b cohort 1 in mild-to-moderate UC patients showed no clinical remission but improvements in individual components (endoscopic, stool frequency, rectal bleeding subscores) in some patients[174](index=174&type=chunk) - SER-301 strains were observed to engraft and demonstrated pharmacological properties consistent with its design, leading to baseline-dependent modulation of the metabolic landscape[174](index=174&type=chunk) - The company decided not to proceed with the planned SER-301 Phase 1b second study cohort in April 2022[174](index=174&type=chunk) [Intellectual Property](index=32&type=section&id=Intellectual%20Property) This section outlines the company's patent portfolio, intellectual property rights, and regulatory exclusivity for its products and candidates [Patent Portfolio](index=32&type=section&id=Patent%20Portfolio) This section details the company's extensive patent portfolio, including issued U.S. patents and intellectual property protection timelines for key products - The company has an extensive patent portfolio with **24 active patent application families**, including 22 nationalized applications, one pending PCT, and one provisional[176](index=176&type=chunk) - Obtained **29 issued U.S. patents**, with one currently allowed[176](index=176&type=chunk) - Intellectual property rights related to VOWST extend through **2034**, SER-155 through **2041**, and SER-301 through **2040**[176](index=176&type=chunk) - Pays a **2.5%** royalty on net sales of VOWST, minimum annual royalties, and milestone payments (**$1.0 million** paid in July 2023 for first commercial sale) to Memorial Sloan Kettering Cancer Center[176](index=176&type=chunk) [Regulatory Exclusivity](index=32&type=section&id=Regulatory%20Exclusivity) This section describes the regulatory exclusivity periods granted for VOWST in the U.S. and typical exclusivity for new molecular entities in Europe - VOWST received **seven years** of orphan-drug exclusivity in the United States, starting April 26, 2023[159](index=159&type=chunk)[177](index=177&type=chunk) - New molecular entities in Europe typically receive **10 years** of exclusivity[177](index=177&type=chunk) [Financial Operations Overview](index=33&type=section&id=Financial%20Operations%20Overview) This overview explains the company's revenue sources, operating expenses, collaboration profit/loss sharing, and income tax considerations - Revenue is primarily derived from collaboration agreements, with VOWST net sales recorded by Nestlé and profits/losses shared equally post-June 2023 launch[180](index=180&type=chunk) - Operating expenses consist primarily of research and development (R&D) and general and administrative (G&A) costs[181](index=181&type=chunk) - R&D expenses are expected to increase for product candidates like SER-155 but decline for VOWST as commercial manufacturing costs are capitalized[184](index=184&type=chunk) - G&A expenses are expected to decrease in the short term due to completion of VOWST pre-launch activities and profit/loss sharing with Nestlé, but may increase with infrastructure expansion and public company costs[187](index=187&type=chunk) - Collaboration (profit) loss sharing includes the company's share of VOWST sales profits/losses and profit on inventory transfer to Nestlé, as well as its 50% share of pre-launch activity losses[188](index=188&type=chunk)[189](index=189&type=chunk) - No U.S. federal or state income tax benefits recorded due to uncertainty of realizing benefits from net losses and R&D tax credits[193](index=193&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section discusses the critical accounting policies and significant judgments and estimates used in preparing the financial statements, particularly for revenue and R&D accruals - The company's financial statements rely on GAAP and require significant estimates and judgments, particularly for revenue recognition and R&D expense accruals[196](index=196&type=chunk)[43](index=43&type=chunk) - No material changes to these policies occurred in the first six months of 2023, except for inventory accounting detailed in Note 2[196](index=196&type=chunk)[40](index=40&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2023, and 2022 [Comparison of Three Months Ended June 30, 2023 and 2022](index=35&type=section&id=Comparison%20of%20Three%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section compares the company's financial results for Q2 2023 versus Q2 2022, highlighting changes in revenue, expenses, and net income - Total revenue increased by **$125.3 million** to **$126.5 million** in Q2 2023, primarily due to a **$125 million** milestone payment from Nestlé for VOWST FDA approval[198](index=198&type=chunk) - Research and development expenses increased by **$2.9 million** to **$46.8 million**, driven by higher personnel-related costs (**$4.7 million** increase) and microbiome therapeutics platforms (**$4.2 million** increase), partially offset by a **$7.2 million** decrease in VOWST program expenses due to capitalization of manufacturing costs[199](index=199&type=chunk)[200](index=200&type=chunk) - General and administrative expenses increased by **$7.7 million** to **$28.1 million**, mainly due to higher personnel costs (**$3.1 million** increase), professional fees (**$3.5 million** increase, including legal and milestone payments), and facility-related costs (**$1.1 million** increase)[201](index=201&type=chunk)[204](index=204&type=chunk) - Collaboration (profit) loss sharing resulted in a **$2.1 million** expense in Q2 2023, compared to **$0.3 million** expense in Q2 2022, reflecting the company's share of VOWST net loss and pre-launch activities, partially offset by profit on inventory transfer[202](index=202&type=chunk)[203](index=203&type=chunk)[205](index=205&type=chunk) - Other expense, net increased by **$1.6 million** to **$3.0 million**, primarily due to higher interest expense (**$1.7 million** increase) and loss on extinguishment of Hercules Credit Facility (**$1.2 million** increase), partially offset by increased interest income (**$1.3 million** increase)[205](index=205&type=chunk) [Comparison of Six Months Ended June 30, 2023 and 2022](index=38&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section compares the company's financial results for H1 2023 versus H1 2022, detailing changes in revenue, expenses, and net income - Total revenue increased by **$123.2 million** to **$126.0 million** in H1 2023, primarily due to the **$125 million** milestone payment from Nestlé[206](index=206&type=chunk) - Research and development expenses increased by **$7.2 million** to **$90.8 million**, driven by higher personnel-related costs (**$6.7 million** increase) and microbiome therapeutics platforms (**$9.4 million** increase), partially offset by a **$10.0 million** decrease in VOWST program expenses due to capitalization[207](index=207&type=chunk)[208](index=208&type=chunk) - General and administrative expenses increased by **$11.6 million** to **$50.5 million**, mainly due to higher personnel costs (**$4.5 million** increase), professional fees (**$3.1 million** increase), and facility-related costs (**$4.0 million** increase)[208](index=208&type=chunk)[211](index=211&type=chunk) - Collaboration (profit) loss sharing resulted in a **$5.7 million** expense in H1 2023, compared to **$0.7 million** income in H1 2022, reflecting VOWST net loss and pre-launch activities, partially offset by inventory transfer profit[209](index=209&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk) - Other expense, net increased by **$1.3 million** to **$3.6 million**, primarily due to higher interest expense (**$2.7 million** increase) and loss on extinguishment of Hercules Credit Facility (**$0.6 million** increase), partially offset by increased interest income (**$2.0 million** increase)[212](index=212&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, funding sources, and future capital requirements, including collaboration agreements and indebtedness - As of June 30, 2023, cash and cash equivalents totaled **$229.5 million**, and the accumulated deficit was **$889.1 million**[216](index=216&type=chunk) - Received a **$125 million** milestone payment from Nestlé in May 2023 and entered into a **$250 million** Oaktree Term Loan facility in April 2023, with **$110 million** funded initially[217](index=217&type=chunk)[218](index=218&type=chunk) - Sold **2,660,547 shares** of common stock through an "at the market" equity offering, raising **$16.2 million** net proceeds as of June 30, 2023[215](index=215&type=chunk) - Existing cash and cash equivalents are expected to fund operating expenses, capital expenditure requirements, and debt service obligations for at least the next 12 months[258](index=258&type=chunk) - Future viability beyond 12 months depends on the ability to raise additional capital through financing or other transactions[216](index=216&type=chunk) [Collaboration and Manufacturing Agreements](index=40&type=section&id=Collaboration%20and%20Manufacturing%20Agreements) This section details the financial terms and milestones of collaboration agreements with Nestlé and the long-term manufacturing agreement with Bacthera - Under the 2016 License Agreement with Nestlé, the company received a **$120 million** upfront payment in 2016 and **$80 million** in development milestones to date for product candidates outside the U.S. and Canada[219](index=219&type=chunk)[220](index=220&type=chunk) - The 2016 License Agreement makes the company eligible for up to **$285 million** in development, **$375 million** in regulatory, and **$1.125 billion** in commercial milestones, plus tiered royalties[220](index=220&type=chunk) - Under the 2021 License Agreement with Nestlé, the company received a **$175 million** upfront payment in 2021 and **$125 million** upon VOWST FDA approval in May 2023 for VOWST in the U.S. and Canada[227](index=227&type=chunk) - The 2021 License Agreement makes the company eligible for **$10 million** upon Canadian regulatory approval and up to **$225 million** in sales target milestones, and it shares equally in VOWST commercial profits and losses since its June 2023 launch[227](index=227&type=chunk)[226](index=226&type=chunk) - The Long Term Manufacturing Agreement with Bacthera involves payments of at least **256 million CHF** (approximately **$277 million**) for a dedicated production suite and manufacturing services for VOWST and other products[231](index=231&type=chunk) [Indebtedness](index=42&type=section&id=Indebtedness) This section outlines the company's debt facilities, including the Oaktree Term Loan, its terms, and repayment of previous credit facilities - The Hercules Credit Facility of up to **$100 million** was repaid on April 27, 2023, using proceeds from the Oaktree Term Loan[236](index=236&type=chunk)[237](index=237&type=chunk) - The Oaktree Credit Agreement established a **$250 million** term loan facility, with **$110 million** (Tranche A) funded on April 27, 2023[238](index=238&type=chunk) - Tranche B (**$45 million**) and Tranche C (**$45 million**) loans are available subject to VOWST net sales targets, with a maturity date of April 27, 2029, and interest-only payments for the first three years[238](index=238&type=chunk)[239](index=239&type=chunk) - The Oaktree Term Loan is secured by substantially all company assets, including intellectual property[241](index=241&type=chunk) [Cash Flows](index=44&type=section&id=Cash%20Flows) This section summarizes the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 - Operating activities used **$10.6 million** cash for the six months ended June 30, 2023, a significant improvement from **$116.3 million** used in the prior year[246](index=246&type=chunk)[247](index=247&type=chunk) - Investing activities provided **$13.3 million** cash for the six months ended June 30, 2023, primarily from sales and maturities of investments, offset by purchases of property and equipment[246](index=246&type=chunk)[250](index=250&type=chunk) - Financing activities provided **$63.8 million** cash for the six months ended June 30, 2023, mainly from the Oaktree Term Loan proceeds and equity offerings, offset by Hercules Credit Facility repayment[246](index=246&type=chunk)[252](index=252&type=chunk) [Funding Requirements](index=45&type=section&id=Funding%20Requirements) This section discusses the company's anticipated increase in expenses and the need for additional financing to support ongoing operations and commercialization efforts - Expenses are expected to increase with VOWST commercialization, clinical development of SER-155, preclinical programs, and strategic investments in R&D and manufacturing[254](index=254&type=chunk) - Additional financing will be needed to support continuing operations, and adequate funding may not be available on acceptable terms, potentially forcing delays or termination of programs[250](index=250&type=chunk)[257](index=257&type=chunk) [Contractual Obligations and Commitments](index=47&type=section&id=Contractual%20Obligations%20and%20Commitments) This section addresses any material changes to contractual obligations and commitments since the last annual report, primarily related to the Oaktree Term Loan - No material changes to contractual obligations and commitments were reported since the Annual Report, other than those resulting from the Oaktree Term Loan, as detailed in Note 9[260](index=260&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate fluctuation risk. It notes that due to the short-term nature of its cash and cash equivalents, an immediate 10% change in interest rates would not materially impact its investment portfolio. Similarly, the variable interest rate on the Oaktree Term Loan is not expected to have a material impact on debt obligations from a 10% rate change [Interest Rate Fluctuation Risk](index=47&type=section&id=Interest%20Rate%20Fluctuation%20Risk) This section assesses the impact of interest rate changes on the company's investment portfolio and variable-rate debt obligations - An immediate 10% change in market interest rates would not have a material impact on the fair market value of the company's investment portfolio or on its financial position or results of operations, due to the short-term nature of its cash and cash equivalents[262](index=262&type=chunk) - An immediate 10% change in the Secured Overnight Financing Rate (SOFR) would not materially impact the company's debt-related obligations, financial position, or results of operations, despite the variable interest rate on the Oaktree Term Loan[263](index=263&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, concluding they were effective at a reasonable assurance level [Limitations on Effectiveness of Controls and Procedures](index=47&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) This section acknowledges that controls provide reasonable assurance, and management applies judgment in evaluating benefits versus costs - Management acknowledges that controls and procedures, no matter how well designed, can only provide reasonable assurance of achieving desired control objectives, and judgment is applied in evaluating benefits versus costs[264](index=264&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=47&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including principal executive and financial officers, concluded that disclosure controls and procedures were effective as of June 30, 2023 - As of June 30, 2023, the company's disclosure controls and procedures were evaluated by management, including the principal executive and financial officers, and concluded to be effective at the reasonable assurance level[265](index=265&type=chunk) [Changes in Internal Control Over Financial Reporting](index=47&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023 - No change in internal control over financial reporting occurred during the three months ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[266](index=266&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings for the period - **No legal proceedings** were reported[269](index=269&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks including financial position, product development, third-party dependence, competition, intellectual property, operations, and common stock [Risks Related to Our Financial Position and Need for Additional Capital](index=48&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) This section highlights the company's history of operating losses, ongoing need for additional funding, and challenges in evaluating future business success - The company has incurred significant operating losses since inception (**$889.1 million** accumulated deficit as of June 30, 2023) and expects to continue incurring losses, potentially never achieving profitability[272](index=272&type=chunk)[274](index=274&type=chunk) - Additional funding will be needed to complete product candidate development and commercialize VOWST, and inability to raise capital could force delays or elimination of programs[277](index=277&type=chunk)[280](index=280&type=chunk) - Limited operating history makes it difficult to evaluate business success and future viability[281](index=281&type=chunk) [Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates](index=50&type=section&id=Risks%20Related%20to%20the%20Discovery%2C%20Development%20and%20Regulatory%20Approval%20of%20Our%20Product%20Candidates) This section details risks associated with early-stage product development, regulatory uncertainty for novel therapeutics, and the lengthy, expensive nature of clinical trials - Most product candidates (other than VOWST) are in early stages of development, with no assurance of building a pipeline or developing additional marketable drugs[282](index=282&type=chunk) - Microbiome therapeutics is a novel approach, and regulatory authorities may lack experience, leading to longer review processes or increased costs[285](index=285&type=chunk) - Clinical drug development is risky, lengthy, and expensive, with uncertain outcomes, potentially leading to delays or inability to complete development[287](index=287&type=chunk)[289](index=289&type=chunk) - Failure or delays in obtaining regulatory approvals would materially impair revenue generation and commercialization[302](index=302&type=chunk)[309](index=309&type=chunk) - Fast Track, Breakthrough Therapy, or PRIME designations do not guarantee faster development or approval[310](index=310&type=chunk)[311](index=311&type=chunk)[314](index=314&type=chunk) - Disruptions at FDA or other government agencies caused by funding shortages or global health concerns could hinder timely product development and approval[321](index=321&type=chunk)[322](index=322&type=chunk) [Risks Related to our Dependence on Third Parties and Manufacturing](index=58&type=section&id=Risks%20Related%20to%20our%20Dependence%20on%20Third%20Parties%20and%20Manufacturing) This section outlines risks stemming from reliance on collaboration agreements, third-party clinical and manufacturing organizations, and limited commercial-scale manufacturing experience - Heavy dependence on collaboration and license agreements with Nestlé; failure to perform or termination could adversely affect development and commercialization of CDI and IBD product candidates and VOWST[324](index=324&type=chunk)[327](index=327&type=chunk)[329](index=329&type=chunk) - Reliance on Nestlé to provide accurate and timely commercialization data for VOWST; inaccuracies could affect financial statements, business operations, or stock price[330](index=330&type=chunk) - Reliance on third parties (CROs, CMOs) for clinical trials and manufacturing; unsatisfactory performance could lead to delays or impairment of efforts[331](index=331&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk) - Limited experience in commercial-scale manufacturing without third-party reliance, posing risks to cost and quantity[338](index=338&type=chunk)[339](index=339&type=chunk) [Risks Related to Commercialization of Our Products, Product Candidates and Other Legal Matters](index=61&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Our%20Products%2C%20Product%20Candidates%20and%20Other%20Legal%20Matters) This section covers risks related to market acceptance, sales capabilities, competition, pricing, reimbursement, product liability, and regulatory compliance for commercialized products - Commercial success of VOWST is heavily dependent on market acceptance by physicians, patients, and payors, which is not assured[343](index=343&type=chunk)[345](index=345&type=chunk) - Inability to establish effective sales, marketing, and distribution capabilities, or reliance on third parties, could hinder commercialization[347](index=347&type=chunk)[350](index=350&type=chunk) - Substantial competition from other pharmaceutical and biotechnology companies, potentially leading to others commercializing products more successfully[351](index=351&type=chunk)[354](index=354&type=chunk) - Unfavorable pricing regulations or third-party coverage and reimbursement policies could harm business[357](index=357&type=chunk)[360](index=360&type=chunk) - Product liability lawsuits against the company could cause substantial liabilities and limit commercialization[362](index=362&type=chunk) - Competition from biosimilars could materially impact future commercial prospects of VOWST or other product candidates[365](index=365&type=chunk)[367](index=367&type=chunk) - Failure to obtain marketing approval in international jurisdictions would prevent product candidates from being marketed abroad[368](index=368&type=chunk) - VOWST and any approved product candidates will remain subject to significant post-marketing regulatory requirements and oversight[369](index=369&type=chunk)[373](index=373&type=chunk) - Improper promotion of off-label uses of approved products could lead to significant liability[379](index=379&type=chunk) - Relationships with customers, physicians, and third-party payors are subject to applicable anti-kickback, fraud, and abuse laws, which could expose the company to criminal sanctions or civil penalties[380](index=380&type=chunk)[383](index=383&type=chunk) - Recently enacted and future legislation (e.g., ACA, IRA) may increase the difficulty and cost for the company to obtain marketing approval and commercialize products, and affect prices[384](index=384&type=chunk)[391](index=391&type=chunk) - Governments outside the United States tend to impose strict price controls, which may adversely affect revenues[393](index=393&type=chunk) [Risks Related to Our Intellectual Property](index=70&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) This section addresses risks concerning the protection of proprietary technology, patent validity, trade secret confidentiality, and potential infringement claims - Inability to adequately protect proprietary technology or obtain and maintain issued patents could lead to direct competition, materially impacting business[395](index=395&type=chunk)[400](index=400&type=chunk) - Failure to protect the confidentiality of trade secrets and know-how could harm the company's business and competitive position[407](index=407&type=chunk) - Changes in U.S. patent law (e.g., Leahy-Smith Act, Supreme Court rulings) could diminish the value of patents in general, impairing the ability to protect products[409](index=409&type=chunk)[411](index=411&type=chunk)[414](index=414&type=chunk) - Third parties may initiate legal proceedings alleging infringement of their intellectual property rights, leading to uncertain outcomes and material adverse effects[415](index=415&type=chunk)[419](index=419&type=chunk) - Issued patents covering VOWST or product candidates could be found invalid or unenforceable, or interpreted narrowly if challenged in court[422](index=422&type=chunk) - Noncompliance with procedural, document submission, and fee payment requirements by governmental patent agencies could reduce or eliminate patent protection[423](index=423&type=chunk) - The company may be subject to claims challenging the inventorship or ownership of its patents and other intellectual property[424](index=424&type=chunk)[425](index=425&type=chunk) - Claims by third parties asserting misappropriation of intellectual property by employees or claiming ownership of the company's IP could arise[427](index=427&type=chunk) - If trademarks and trade names are not adequately protected, the company may not be able to build name recognition, adversely affecting its business[430](index=430&type=chunk) - The company will not seek to protect its intellectual property rights in all jurisdictions and may not be able to adequately enforce them even where protection is sought[431](index=431&type=chunk)[435](index=435&type=chunk) [Risks Related to Our Operations](index=77&type=section&id=Risks%20Related%20to%20Our%20Operations) This section discusses operational risks including retaining key personnel, managing growth, international operations, cybersecurity, data protection, and potential acquisitions - Future success depends on the ability to retain key executives and to attract, retain, and motivate qualified personnel[438](index=438&type=chunk)[439](index=439&type=chunk) - Expansion of operational capabilities may lead to difficulties in managing growth, which could disrupt operations[440](index=440&type=chunk) - A variety of risks associated with operating internationally (e.g., conflicting laws, currency risks, political unrest) could materially adversely affect the business[442](index=442&type=chunk) - Business and operations may suffer in the event of information technology system failures, cyberattacks, or deficiencies in cybersecurity[443](index=443&type=chunk)[445](index=445&type=chunk) - Actual or perceived failures to comply with applicable data protection, privacy, and security laws could adversely affect business, results of operations, and financial condition[446](index=446&type=chunk)[449](index=449&type=chunk)[452](index=452&type=chunk) - Acquisitions or joint ventures could disrupt the business, cause dilution to stockholders, and otherwise harm the business[453](index=453&type=chunk)[455](index=455&type=chunk) [Risks Related to Our Common Stock](index=81&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) This section covers risks related to securities litigation, environmental compliance, tax limitations, debt restrictions, stockholder influence, anti-takeover provisions, and dividend policy - The company has been subject to securities class action litigation in the past and may be subject to similar or other litigation in the future, which may harm its business[456](index=456&type=chunk) - Failure to comply with environmental, health, and safety laws and regulations could result in fines or penalties or incur costs that could harm the business[457](index=457&type=chunk)[459](index=459&type=chunk) - The ability to use net operating loss carryforwards and research and development credits to offset future taxable income or income tax liabilities may be subject to certain limitations due to ownership changes[460](index=460&type=chunk) - The terms of the Oaktree Credit Agreement place restrictions on the company's operating and financial flexibility, and any new debt could further restrict its ability to operate[462](index=462&type=chunk)[465](index=465&type=chunk) - Executive officers, directors, and principal stockholders, if they choose to act together, have the ability to control or significantly influence all matters submitted to stockholders for approval, potentially delaying a change in control[468](index=468&type=chunk)[469](index=469&type=chunk) - Provisions in the restated certificate of incorporation and amended and restated bylaws and under Delaware law could make an acquisition of the company more difficult and may prevent attempts by stockholders to replace or remove current management[470](index=470&type=chunk)[471](index=471&type=chunk) - The certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, and bylaws designate federal district courts for Securities Act actions, which could limit stockholders' ability to obtain a favorable judicial forum[474](index=474&type=chunk)[475](index=475&type=chunk) - As the company does not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, will be the sole source of gain for stockholders[476](index=476&type=chunk) [General Risk Factors](index=84&type=section&id=General%20Risk%20Factors) This section addresses general risks such as stock price volatility, analyst opinions, public company costs, internal control effectiveness, pandemic impacts, and ESG expectations - The price of the company's common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers[478](index=478&type=chunk) - If securities or industry analysts issue an adverse or misleading opinion regarding the business, the common stock price and trading volume could decline[480](index=480&type=chunk) - The company will continue to incur costs as a result of being a public company, and management will continue to devote substantial time to compliance initiatives and corporate governance practices[481](index=481&type=chunk) - Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial reporting or fraud, harming business and stock price[483](index=483&type=chunk)[485](index=485&type=chunk) - The COVID-19 pandemic has adversely impacted and could continue to adversely impact the business, including preclinical studies, clinical trials, commercialization activities, results of operations, and financial condition[486](index=486&type=chunk)[488](index=488&type=chunk) - Failure to keep up with evolving trends and shareholder expectations relating to environmental, social, and governance (ESG) practices or reporting could adversely impact reputation, share price, and access to and cost of capital[489](index=489&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=86&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company reported no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities for the period - **No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities** were reported[490](index=490&type=chunk) [Item 3. Defaults Upon Senior Securities](index=86&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - **No defaults upon senior securities** were reported[491](index=491&type=chunk) [Item 4. Mine Safety Disclosures](index=87&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures for the period - **No mine safety disclosures** were reported[492](index=492&type=chunk) [Item 5. Other Information](index=87&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023 - **No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements** were adopted or terminated by directors or officers during Q2 2023[493](index=493&type=chunk) [Item 6. Exhibits](index=87&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including corporate documents and certifications - Includes **Restated Certificate of Incorporation** (filed July 1, 2015, and amended June 27, 2023), **Amended and Restated Bylaws**, and **certifications** from the CEO and CFO[494](index=494&type=chunk) - **Interactive Data Files (Inline XBRL)** are also filed[494](index=494&type=chunk) [SIGNATURES](index=88&type=section&id=SIGNATURES) The report is duly signed on behalf of Seres Therapeutics, Inc. by David Arkowitz, Executive Vice President, Chief Financial Officer, and Head of Business Development, on August 8, 2023 - Signed by **David Arkowitz, Executive Vice President, Chief Financial Officer and Head of Business Development**, on **August 8, 2023**[499](index=499&type=chunk)