Seres Therapeutics(MCRB) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Seres Therapeutics reported a significant net loss for H1 2022, driven by decreased revenue and increased expenses, resulting in reduced cash and stockholders' equity Condensed Consolidated Balance Sheets The balance sheet reflects decreased total assets and a significant decline in stockholders' equity from year-end 2021 to June 2022 Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $126,824 | $180,002 | | Total current assets | $209,580 | $303,628 | | Total assets | $273,196 | $354,859 | | Liabilities & Equity | | | | Total current liabilities | $89,037 | $82,258 | | Total liabilities | $250,138 | $223,352 | | Total stockholders' equity | $23,058 | $131,507 | | Total liabilities and stockholders' equity | $273,196 | $354,859 | - Total assets decreased by approximately 23% from December 31, 2021, to June 30, 2022, primarily due to a reduction in cash, cash equivalents, and short-term investments. Total stockholders' equity saw a significant decline of 82.5% over the same period, largely driven by the net loss incurred[21] Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income The statement of operations shows a substantial increase in net loss for the first half of 2022, driven by decreased revenue and higher operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,216 | $5,263 | $2,709 | $10,981 | | Research and development expenses | $43,935 | $35,954 | $83,584 | $65,257 | | General and administrative expenses | $20,335 | $17,451 | $38,906 | $29,192 | | Loss from operations | $(63,325) | $(48,142) | $(119,076) | $(83,468) | | Net loss | $(64,735) | $(48,330) | $(121,359) | $(83,795) | | Net loss per share | $(0.70) | $(0.53) | $(1.32) | $(0.91) | - Net loss for the first six months of 2022 increased by 45% year-over-year, driven by a 75% decrease in total revenue and a 29% increase in total operating expenses. The rise in operating expenses was primarily due to higher R&D costs related to the SER-109 program and increased personnel-related costs[23][175] Condensed Consolidated Statements of Cash Flows Cash flow analysis indicates a significant increase in cash used in operating activities, partially offset by cash provided from financing activities Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(116,342) | $(69,191) | | Net cash provided by investing activities | $36,371 | $25,790 | | Net cash provided by financing activities | $26,978 | $1,349 | | Net decrease in cash, cash equivalents, and restricted cash | $(52,993) | $(42,052) | - Cash used in operating activities increased by 68% in the first half of 2022 compared to the same period in 2021, reflecting the higher net loss. Financing activities provided a significant source of cash in H1 2022, primarily from $27.6 million in net proceeds from the issuance of debt[28][216] Notes to Condensed Consolidated Financial Statements Key notes detail the company's lead product candidate, financing arrangements, and significant collaboration agreements - The company's lead product candidate is SER-109 for recurrent C. difficile infection (CDI). The company believes its cash, cash equivalents, and investments as of June 30, 2022, along with the $96.8 million in net proceeds from a July 2022 registered direct offering, are sufficient to fund operations for at least the next 12 months[31][36] - In February 2022, the company amended its loan agreement with Hercules Capital, making a new credit facility of up to $100 million available in five tranches. As of June 30, 2022, the carrying value of the debt was $50.6 million[57][64] - The company has two significant collaboration agreements with Nestlé. The 2021 License Agreement for SER-109 in the US and Canada included a $175 million upfront payment. The 2016 License Agreement covers CDI and IBD product candidates outside the US and Canada[76][94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management prioritizes SER-109 BLA submission and SER-155 development, while discontinuing SER-301's second cohort, and projects sufficient cash to fund operations for at least 12 months Overview The overview highlights the company's primary clinical development priorities and strategic decisions regarding its product pipeline - The company's highest priority is the BLA submission for SER-109 for recurrent CDI. A rolling submission has been initiated, with completion anticipated in the coming weeks, targeting a potential U.S. product launch in the first half of 2023[120] - The SER-155 Phase 1b study in patients receiving allogeneic hematopoietic stem cell transplantation (allo-HSCT) is ongoing to evaluate its potential to reduce infections and GvHD[121][136] - In April 2022, the company announced its decision not to proceed with the planned second cohort of the SER-301 Phase 1b study for ulcerative colitis, after preliminary analysis of the first cohort showed no subjects achieved clinical remission[122][144] Results of Operations Operating results show a significant increase in net loss for both Q2 and H1 2022, driven by decreased revenue and higher R&D and G&A expenses Comparison of Operating Results (in thousands) | Period | Revenue | R&D Expense | G&A Expense | Net Loss | | :--- | :--- | :--- | :--- | :--- | | Q2 2022 | $1,216 | $43,935 | $20,335 | $(64,735) | | Q2 2021 | $5,263 | $35,954 | $17,451 | $(48,330) | | H1 2022 | $2,709 | $83,584 | $38,906 | $(121,359) | | H1 2021 | $10,981 | $65,257 | $29,192 | $(83,795) | - The decrease in revenue for Q2 and H1 2022 was primarily due to a change in the estimate of future costs to complete the performance obligation under the 2016 Nestlé License Agreement and fewer clinical trial activities for SER-109 and UC programs[166][174] - R&D expenses increased in Q2 and H1 2022 mainly due to higher personnel-related costs from increased headcount and increased expenses for the SER-109 program, partially offset by decreased spending on the SER-287 program[167][175] Liquidity and Capital Resources The company's liquidity position is supported by existing cash and recent financing activities, projected to fund operations for at least 12 months - As of June 30, 2022, the company had cash, cash equivalents, and investments totaling $195.8 million[126][184] - In June 2022, the company entered into a registered direct offering for 31.7 million shares at $3.15 per share, raising total net proceeds of approximately $96.8 million. The offering closed on July 5, 2022[181] - The company believes its existing cash, combined with proceeds from the recent offering, will be sufficient to fund operating expenses, capital expenditures, and debt service obligations for at least the next 12 months[184] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its cash and variable-rate debt, but a 10% change is not expected to have a material financial impact - The company's primary market risk is interest rate sensitivity on its cash, cash equivalents, and investments. Due to the short-term nature of these instruments, a 10% change in rates is not expected to have a material impact[224][225] - The company's outstanding debt under the New Credit Facility with Hercules bears a variable interest rate tied to the Prime Rate, but with a floor of 9.65%. An immediate 10% change in the Prime Rate would not have a material impact on debt-related obligations[226] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - As of June 30, 2022, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[228] - No material changes to the company's internal control over financial reporting occurred during the three months ended June 30, 2022[229] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in an ongoing patent opposition proceeding at the European Patent Office against a patent granted to The University of Tokyo - The company filed a notice of opposition in the European Patent Office in April 2017 against a patent granted to The University of Tokyo, seeking its revocation[232] - Following a 2019 decision that narrowed the patent's claims, both Seres and The University of Tokyo have appealed, and the matter remains ongoing[232] Item 1A. Risk Factors The company faces significant financial, development, regulatory, third-party reliance, and commercialization risks inherent to its development-stage microbiome therapeutics business - Financial Risk: The company is a development-stage entity with a history of significant losses ($735.7 million accumulated deficit as of June 30, 2022) and expects to incur losses for the foreseeable future. It will require additional funding to complete development and commercialization[235][240] - Development and Regulatory Risk: Product candidates are based on microbiome therapeutics, an unproven approach. Clinical development is a lengthy, expensive, and uncertain process, and there is no guarantee of regulatory approval from the FDA or other authorities[248][250] - Third-Party Reliance Risk: The company's collaboration and license agreements with Nestlé are critical to the development and commercialization of its CDI and IBD product candidates. It also relies on third parties for clinical trial conduct and manufacturing, which increases risks related to supply and quality[287][298] - Commercialization Risk: Even if approved, products may fail to achieve market acceptance due to competition from established treatments, including FMT. Success is also dependent on securing favorable pricing and reimbursement from third-party payors[307][313][318] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period covered by this report - The company reported no unregistered sales of equity securities for the reporting period[449]