Seres Therapeutics Inc (MCRB) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Seres Therapeutics' first-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I will now turn the call over to your host, Carlo Tanzi. Please go ahead.

Thank you, and good morning. A press release with the Company's first-quarter 2016 financial results and a progress update became available this morning, and can be found on the Investors' and Media section of the Company's website. We have also posted slides on our website that follow the discussions related to this call.

Before we begin, I would like to point out that we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include: statements about our future expectations; the sufficiency of our cash, cash equivalents and investments to fund our operations; the commercial and financial potential of our agreement with Nestle Health Science; the potential impact of our microbiome therapeutics platform on disease; the progress and development of our product candidates; our position in the marketplace; the potential for rapid adoption and the cost savings of our products; clinical development and regulatory approval; the potential of our manufacturing capabilities, and the timing and results of clinical trials and related data.

Actual results may differ materially from those indicated by these statements, as a result of various important factors, including those discussed in the Risk Factor's section of our Quarterly Report on Form 10-Q, filed today with the Securities and Exchange Commission, and our other reports filed with the SEC. Any forward-looking statements made on today's call represent our views as of today only. We may update those statements in the future, but we disclaim any obligation to do so.

On today's call, I'm joined by Dr. Roger Pomerantz, Seres' President, CEO and Chairman, and by Eric Shaff, our Chief Financial Officer. I will now pass the call over to Roger.

Thanks, Carlo, and thank you all for joining us. Seres continues to make great progress in its efforts to develop a totally new field of medicine. Using Ecobiotic microbiome therapeutics, we are working to create a paradigm-shifting therapeutic approach that uses bacteria to treat disease. Our vision for Seres is to pioneer and lead the microbiome field, harnessing this novel therapeutic approach to address serious diseases in multiple therapeutic areas of medicine.

On today's call we will discuss the excellent advances the Company has been making in extending our microbiome-leadership position, remaining focused on our three franchises in infectious diseases, inflammatory and immunological diseases, and finally metabolic diseases. We have been making great progress advancing our pipeline forward, including our more advanced programs, SER-109, SER-287, and SER-262.

We have entered into multiple important agreements with leading academic microbiome researchers, including Memorial Sloan Kettering, the University of Pennsylvania, St. Joseph's Hospital in Ontario, and the Medical University of Graz, Austria. And we expect that these collaborations will accelerate our R&D efforts in multiple indications within our three core franchises. I'll further discuss how each of these collaborations advances our integrated overall Company strategy in a few minutes.

But let's begin with SER-109, our lead program for the treatment of patients with multiply-recurrent C. diff infection; that is, three or more infections with this pathogen. We have completed the SER-109 Phase 2 study enrollment, and we now look forward to seeing the initial study results. SER-109 is a biologically-sourced, highly-purified microbiome therapeutic candidate, that is taken orally with a single administration.

This is not only the first placebo-controlled study for the multiply-recurrent C. diff indication, but also the first placebo-controlled microbiome therapeutic study ever. Truly a landmark study. The FDA has granted SER-109 both breakthrough therapy status, and orphan drug designation.

CDI, or C. diff infection, represents an enormous medical and cost burden, and better treatment approaches are desperately needed. In the US alone, approximately 29,000 patients lose their lives to CDI each year. To remind you of our prior SER-109 clinical results, we successfully completed a Phase 1b/2 study in a multiply-recurrent CDI patient population, and these results have been published in the Journal of Infectious Diseases.

The Phase 1b/2 study was a 30-patient open-label trial, that demonstrated that an unprecedented 97% of patients achieved the clinical cure. This being defined as no CDI recurrence during the pre-specified eight-week primary endpoint time period. Importantly, there were no drug-related adverse events. These remarkable results stand in stark contrast with the 25% to 30% cure rate expected with the standard of care antibiotic therapy in this patient population.

With these positive results, we have demonstrated the potential for SER-109 to break the backbone of the recurrent C. diff infection cycle, and dramatically alter how these patients are cared for. Completion of the SER-109 Phase 2 study enrollment is extremely important milestone for the Company, and a reflection of the quality of our experienced clinical team in the execution of this trial, which is the first trial in multiply-recurrent C. diff patients.

This 24-week study is a multi-center randomized placebo-controlled trial, being conducted at approximately 40 centers across the United States. The study enrolled 89 patients with multiple recurrent CDI, randomized two to one into treatment and placebo arms. We expect the report results from the study's primary efficacy endpoint, the relative risk of CDI recurrence up to eight weeks after treatment in the middle of this year.

Our objective is for SER-109 treatment to lead to both a statistically significant and a clinically meaningful degree of improvement in patient outcomes compared to placebo, and this is what we are expecting to see. Following the Phase 2 readout, we expect to initiate a Phase 3 study in the second half of this year.

We have made excellent progress on the design of the SER-109 Phase 3 program, taking into account feedback we have obtained from several regulatory agencies. The development of microbiome therapeutics remains a novel area for regulators, and we have been having very productive conversations, where we've helped to truly pioneer and define appropriate CMC parameters, and development requirements for this new field of medicine.

We also recently initiated a SER-109 expanded access program at sites being utilized in the current Phase 2 study. This program serves two important purposes: First, for the patients, the expanded access program will enable continued access to SER-109 prior to the expected Phase 3 initiation later this year. Also, we believe that SER-109 expanded access program will be a key component of the overall SER-109 development plan. Specifically, we expect that maintaining Phase 2 study sites open ahead of the Phase 3 start, should help expedite Phase 3 enrollment and therefore completion.

Moving on to SER-287, our second clinical candidate, we are currently evaluating SER-287 as an induction therapy in a 55-patient Phase 1b study, in patients with mild-to-moderate ulcerative colitis, who are failing first-line therapies. SER-287 is a biologically-sourced product that has been specially formulated for this indication, and for chronic oral administration.

Notably, this SER-287 Phase 1b study is the first human trial ever conducted of a microbiome drug candidate in a chronic disease, and the first in a non-infectious disease. Ulcerative colitis is a very serious disease, were new approaches remain much needed. The disease is characterized by inflammation of the colon and the rectum, and often results in debilitating symptoms, including abdominal pain, bowel urgency, and bloody diarrhea.

In serious cases, ulcerative colitis, or UC, can lead to surgical removal of the colon and even death. Approximately 700,000 patients are affected by ulcerative colitis in the US alone. Our decision to advance SER-287 into development rapidly but safely was supported by own internal pre-clinical data in animal models of colitis, as well as multiple clinical studies indicating that modulation of the microbiome through repetitive fecal microbiota transplants leads to meaningful clinical responses and long-term remissions.

Most recently, at the 2016 ECCO conference, investigators from the University of New South Wales in Australia presented results from an 81-patient placebo-controlled study demonstrating that repetitive FMT, performed five days per week for eight weeks led to clinical and endoscopic remission in a significant percentage of patients, with resistant active ulcerative colitis. While we don't believe that repetitive chronic fecal transplants is a viable long-term clinical solution for patients suffering from ulcerative colitis, these studies do provide compelling evidence that modification of the microbiome can lead to meaningfully improved clinical outcomes, and we believe that Seres is well-positioned to develop the first orally available microbiome therapeutics for ulcerative colitis, and then for other forms of inflammatory bowel disease, including Crohn's Disease.

Our objective with SER-287 is to develop an effective and safe therapy which is not immuno-suppressive, to benefit ulcerative colitis patients who have not yet transitioned to biologics, in essence, monoclonal antibodies, or other immuno-suppressive agents. Furthermore, a sizable fraction of ulcerative colitis patients are not adequately treated today, and we believe that microbiome therapeutics can be effective in some of these refractory patients as well.

The ongoing SER-287 1b trial is a placebo-controlled study, with multiple arms that will evaluate both daily and weekly oral dosing of SER-287, as well as the impact of Vancomycin pre-treatment. The primary objective of this study is to evaluate the change in the composition of the intestinal microbiome at eight weeks, but we will also measure safety and tolerability, as well as a number of important secondary endpoints, including: clinical response; clinical remissions; endoscopic improvement; change in serum and fecal biomarkers; and immunological and pathological changes in mucosal biopsies.

Multiple SER-287 clinical sites are now open and actively recruiting patients, and we expect to obtain the complete and final study results in 2017. Beyond the ongoing SER-287 Phase 1b ulcerative colitis induction therapy study, we are planning further development efforts on an ulcerative colitis maintenance therapy, and in other forms and stages of inflammatory bowel disease.

We've also continued to make excellent progress with SER-301, our synthetically-derived pre-clinical stage therapeutic candidate for inflammatory bowel diseases. SER-301 is being rationally designed, based on available biologic and clinical patient data. To further support the development of SER-301, we recently entered into key research collaborations with leading academic groups who have conducted ulcerative colitis FMT clinical trials at the Research Institute of St. Joseph's Hospital in Hamilton, Ontario, and Medical University of Graz in Austria.

Under these collaborations, Seres will obtain donor and patient samples from several completed and ongoing FMT clinical studies in ulcerative colitis patients. Metagenomic and other analyses will be performed on these samples, to better characterize the microbiome signatures associated with clinical response. The resulting data are expected to provide important insights to support the final development of SER-301.

Next let's move to SER-262, another synthetically-derived fermented microbiome therapeutic candidate. SER262 is being developed to prevent recurrence in patients with primary C. diff infection. Primary CDI represents a significant patient segment, with an estimated annual incidence of between 640,000 and 820,000 patients in the US alone.

Advancing SER-262 into development represents a landmark technical achievement for Seres, and for the entire field of microbiome therapeutics. We expect SER-262 to be the first-ever synthetically-derived microbiome therapeutic candidate to be studied in a clinical trial. This is expected to lead to more rapid and efficient development of a portfolio of synthetically-derived microbiome therapeutics at Seres, for multiple diseases, in different therapeutic areas. We believe we have the largest human microbiome library in the world, with now over 17,000 well-characterized human bacterial strains.

This allows us to leverage this field-leading library in the rational design of multiple-synthetic microbiome drug candidates. We believe our library is a very significant competitive advantage for Seres in the design of our expanding drug pipeline and portfolio. We have made excellent progress advancing that SER-262 program. Leveraging our learnings from SER-109, we have been engaged in a highly-productive dialogue with the FDA related to SER-262. We have successfully manufactured SER-262 product batches and at scale, that we believe are ready for clinical study use. We intend to conduct a Phase 1b study to assess SER-262 efficacy and safety in a patient population who have experienced the first episode of C. diff infection.

The planned Phase 1b study will be a 24-week placebo-controlled dose escalation design, with multiple patient cohorts. We expect this study's primary endpoint to be a comparison of CDI recurrence up to eight weeks after dosing in the SER-262 versus the placebo groups, and we expect to initiate the SER-262 Phase 1b study in the middle of this year.

Beginning with SER-262, our strategy is to increasingly focus on the development of synthetically derived fermented microbiome therapeutics. There are several advantages to using a synthetic microbiome therapeutic approach. Synthetically-derived product candidates can be scaled up to meet global demand for large patient populations, in a reliable and reproducible manner, with well-defined characteristics.

Also, by using our scientific and manufacturing expertise, we believe we can rationally design microbiome therapeutic candidates, using defined bacterial species for specific target indications, based on the specific biology that we are seeking to modulate. As such, we can then match the bacterial consortium to each human disease state, which is targeted. This approach will be increasingly helpful in disease states which required complex microbiome drugs.

Moving to our other R&D efforts, we have made significant progress advancing our pipeline in each of our three therapeutic franchises: infectious disease, inflammation and immunology, and metabolic disease. Within each of these areas, we believe that there are multiple indications where the available pre-clinical and human clinical evidence suggest that microbiome therapeutics could meaningfully improve disease outcomes.

I'll now discuss some of our newer programs, beginning with SER-155, for allogeneic hematopoetic stem cell transplantation, or allo-HSCT, and the related recent deep and broad collaboration with Memorial Sloan Kettering, one of the world's great medical institutions. SER-155 is a synthetically-derived microbiome therapeutic candidate in the pre-clinical stage, that is being developed to improve outcomes in patients who have undergone allo-HSCT.

Our rationale for developing SER-155 for allo-HSCT is supported by remarkable clinical data from Memorial Sloan Kettering, which demonstrated that HSCT patients with low microbiome diversity were about twice as likely to die from complications such as systemic bacterial infections and graft-versus-host disease, or GVHD, as compared to those patients with more diverse microbiomes. We believe that SER-155 will improve microbiome diversity, and thereby reduce the risk of bacteremia, GVHD, and meaningfully reduce all-cause mortality in these patients.

Our agreement with Memorial Sloan Kettering includes collaboration with several of the institution's top researchers at the forefront in these areas. In a related transaction, we have also obtained a license agreement that provides Seres with exclusive access to valuable intellectual property in this area, further bolstering our robust field-leading patent portfolio. We expect that scientific data and clinical insights obtained through our collaboration with Memorial Sloan Kettering will be tremendously valuable, as we advance SER-155 forward towards the clinic.

Another therapeutic area of high interest is the use of microbiome drugs to enhance the efficacy and the safety of immuno-oncology treatments. This is an exciting and rapidly-growing area of research. Three major papers published in Science and Nature in just the last six months have further highlighted the important role of the microbiome in impacting the clinical response and immunological adverse events related to the use of therapeutic checkpoint inhibitors, likely via the interactions of the microbiome with T regulatory cells in the gut-associated lymphoid tissue.

Of note, the interrogation of T regulatory cells, or Tregs, by the microbiome has also been shown in autoimmune diseases such as ulcerative colitis. Both pre-clinical and human clinical data demonstrate that an individual's microbiome's make-up impacts the overall tone of the immune system, and this immunological context alters both the therapeutic response as well as the rate of immunologically-induced adverse events.

Seres' research platform is based on applying our unique technology approach, including our genomic, bioinformatic, and microbiological capabilities to understand the functional bacterial ecologies or consortia in the human GI tract, and to rationally design therapeutics that optimize the microbiome state during cancer treatment with immune-oncology drugs. Here again, researchers at Memorial Sloan Kettering Cancer Center have been pioneering the field, and our broad agreement with the institution also includes a deep collaboration focused on the development of novel microbiome therapeutics for immuno-oncology. We are very pleased and proud to be working with Memorial Sloan Kettering teams, which we expect will lead to clear synergies, as we advance our programs in these new areas of biomedicine.

The microbiome also has an increasingly well-appreciated role in human metabolism and certain metabolic and liver diseases. Within this franchise, we have prioritized specific liver diseases, including NASH, an inflammatory disease characterized by a build-up of fat in the liver, primary biliary cirrhosis and primary sclerosing cholangitis, an orphan disease characterized by inflammation within the bile ducts of the liver.

There are no effective treatments for these serious diseases, which are major causes of hepatic dysfunction, leading to liver transplant. The underlying therapeutic hypothesis to the use of microbiome therapeutics for certain metabolic and liver diseases relates to the known role of the microbiome in producing virtually all of human secondary bile acids, which can have a beneficial effect on inflammation, metabolism, and gut-barrier function.

Bile acid receptors, including FXR, are now clinically validated therapeutic targets, and we believe that enhancing production of the appropriate bile acids through the use of Ecobiotic drugs, may lead to important therapeutic benefits to patients with NASH and other related liver and metabolic diseases. Indeed, our own SER-109 clinical results demonstrate that changes in the human microbiome can lead to remarkable changes in secondary bile acid metabolism.

Specifically, our completed SER-109 Phase 1b/2 study data demonstrated that patients with recurrent C. difficile, and degrees of dysbiosis, lacked significant levels of secondary bile acids in the stool, the urine and the bloodstream. In this study, we observed that secondary bile acid levels increased substantially, following treatment with SER-109. We are using insights generated from these human clinical data sets to inform the design of new microbiome therapeutics, targeting bile acid metabolism.

Secondary bile acids are known to have hormonal properties, and are also implicated in metabolic processes, such as glucose and lipid metabolism, and multiple clinical studies have suggested that the microbiome may have a significant role in fatty liver disease. We believe that our therapeutic approach may be able to repair the functional dysbiosis and thus reduce inflammation, lipid accumulation, and bile acid dysregulation observed in such diseases as NASH, primary biliary cirrhosis and primary sclerosing cholangitis. To expedite our efforts in this important area, we have recently begun a very key collaboration with researchers at the Mayo Clinic, who are at the forefront of this research.

We also recently entered into a collaboration with leading microbiome researchers from the University of Pennsylvania, to support the development of novel treatment approaches for certain inflammatory bowel diseases, but also rare genetic metabolic diseases, including urea-cycle disorders. As part of our efforts to develop a novel therapeutic for patients with urea-cycle disorders, Seres and Penn plan to initiate a clinical study, that will build upon published data suggesting that altering the gut microbiome may meaningfully reduce the toxic levels of ammonia observed in patients with inherited urea-cycle disorders. The Penn agreement is yet one more example of our strategic approach of leveraging the foremost world experts in areas of interest to accelerate the development of novel microbiome therapeutics.

In addition to driving forward our R&D efforts through these external collaborations, we have also utilized these external agreements to gain licenses to valuable intellectual property, related to microbiome therapeutics, and new indications of interest. In both the MSK and the Penn collaborations, we obtained additional IP rights related to the use of microbiome therapeutics. We believe that these new IP rights have bolstered Seres' robust field-leading patent portfolio, and support our efforts to expand our microbiome-leadership position.

With that, I will pass the call to Eric, to review our recent financial performance.

Thank you, Roger, and good morning, everyone. Today, I will review our first-quarter financial results. I will also provide an overview of our operating expenses, as well as provide an update on our balance sheet.

We reported a net loss of $19.7 million for the first quarter of 2016, as compared to a net loss of $8 million for the same period in 2015. The increase in net loss was driven primarily by continued growth in clinical and development spend, as well as increased headcount, and ongoing development of our microbiome therapeutics platform.

As a reminder, in January of this year, we entered into an agreement with Nestle Health Science for the development and commercialization outside of the US and Canada for product candidates for C. diff infection and inflammatory bowel disease. I'd like to provide a brief overview of how we plan to account for this collaboration.

The Company recognized $120 million up-front payment received in Q1 under an accounting method whereby the payment will be recognized over an estimated 10-year development period. In the first quarter, we recognized $2.7 million of the $120 million up-front payment as collaborative revenue, and we project to record $3 million of collaborative revenue per quarter over that estimated period.

Future quarterly revenue may be adjusted to account for the reimbursement of certain development costs received under the terms of the agreement. Potential additional development, regulatory, and commercial milestones are expected to be recognized as revenue in the period in which they are achieved. We expect to receive an additional $30 million in milestone payments later this year associated with the expected initiation of the SER-262 clinical study, and the SER-109 Phase 3 study.

R&D expenses for the first quarter were $15.4 million, as compared to $5.6 million for the same period in 2015. The increase in R&D expense was primarily due to expenses related to our microbiome therapeutics platform, and the clinical development of SER-109, SER-262, and SER-287.

G&A expense for the first quarter was $7.2 million, as compared to $2.6 million for the same period in the prior year. The increase in G&A expense was primarily due to increased headcount and facility expansion to support overall growth, as well as other costs associated with operating as a public Company. We ended the first quarter with approximately $303 million in cash, cash equivalents and investments, which includes the $120 million up-front payment received from Nestle Health Science.

The change in cash balances during the quarter, excluding the up-front payment received from Nestle, was $21.8 million, compared to $9.9 million for the same period in 2015. As a reminder, during the first quarter, Seres continued to build out its new corporate headquarters including labs, office space, and a pilot manufacturing facility, and we are pleased to have recently moved into this new location.

In our fourth-quarter earnings call, I shared our projection that the build-out of the facility, including the pilot plant, would require approximately $20 million during the first three quarters of 2016. We had $4.4 million of Seres-related facilities expenditures in Q1, and we are pleased that this project is tracking to our expectations in terms of timing and cost. We continue to expect that the build-out and equipment investment related to the facility, particularly to finish and commission the pilot plant, will require additional expenditures through the third quarter of this year.

I'll now turn the call back over to Roger.

Thanks, Eric. The beginning of 2016 has continued to be a remarkably effective period for Seres, where the Company has made great strides in strengthening its microbiome therapeutics leadership position.

The Company is exceptionally well-positioned to extend this lead by continuing to leverage our deep R&D and manufacturing capabilities, strong intellectual property, and significant capital resources. We will drive our R&D efforts by continuing to aggressively pursue new opportunities within our three franchises in infectious disease, inflammatory and immunological disease including immuno-oncology, and metabolic disease.

We've also continued to make progress in expanding our internal capabilities and our talent. We have recently appointed Thomas DesRosier as our Chief Legal Officer and Executive Vice President. In addition to his Chief Legal Officer role, Tom will also be a member of the Seres Leadership Team, and report directly to me.

Tom is a highly regarded professional with 30 years of deep biopharma industry experience in large and small companies, with significant L&A and M&A experience, and we are very pleased to have an individual of his caliber join the Leadership Team at Seres. In addition, Tom's expertise as an intellectual property attorney will be of great value, as we continue to further expand Seres' robust microbiome patent portfolio.

Looking ahead to the rest of 2016, we anticipate an exciting and eventful period of continued rapid progress. To recap several key up coming events, we expect to report initial SER-109 Phase 2 results in the middle of this year. We also expect to initiate a Phase 1b clinical study with SER-262, and assuming positive SER-109 Phase 2 results, we expect to initiate a SER-109 Phase 3 study in the second half of this year.

In addition to these clinical stage programs, we plan to continue to aggressively advance our other R&D efforts in our three focused therapeutic area franchises, and we look forward to providing meaningful updates on our progress throughout the year.

Operator, now let's open the call for questions.

(Operator Instructions)

Bill Tanner, Guggenheim Securities.

Thanks for taking the questions, and congrats, Roger, on all the progress. Just had a couple for you. One on the Phase 2 upcoming for 109, just curious your thoughts on the expectations for data, given that there is a placebo arm in this study, in contrast with what was done previously with the 1b/2, and specifically just obviously thinking about the treatment effect, and then I had a follow-up, please.

Sure, thanks Bill. Good to talk to you this morning. So that's a very important question.

I think it is important to remind people, many of you know this, that in a placebo-controlled trial, which the Phase 2 is, the critical analysis, the key functional metric, is actually the difference in efficacy between the active arm, in this case SER-109 and the placebo arm, which is just a standard of care antibiotics. That is the data point which is looked at by physicians, it will be looked at by regulatory agencies, and will be the one looked at by payers. And as an ID physician, who used to treat these exact patients, this is the data point which I would have looked at as well.

So the difference is very important here. We are looking, as I said in my remarks, to not only a very statistically significant effect, but a clinically meaningful degree of improvement. They are not always the same.

We expect these outcomes in the delta as you were, between 109 and placebo, and we expect this to lead to -- with a great Phase 3, a first in field label in this condition. No one has the label, and we expect it to be broad and meaningful for patients.

Just on that delta, is there a ballpark range that we should be thinking about, then?

I think you can look at this and know what the data is. We've seen that the placebo-controlled effects, when they have been done in other studies, not in microbiome studies but in FMT studies, have been quite low. And we have seen in the Phase 1b/2 that the efficacy is quite high. But the delta between those, you will know it when you see it, and you can see that the range can be -- we expect to be pretty broad.

Okay. Then I just had one follow-up. As you look at the other applications for the microbiome, and some of the recent collaborations that you have struck with HSCT, immuno-oncology, and as you think about metabolic disorders, just curious -- a lot of it obviously comes down to understanding the biology of the microbiome, and the constituents, as you say. But what kind of challenges might present as you are thinking about culturing maybe some of the species that might be needed or manufacturing?

That's a great and multi-armed question. I would try to keep a brief, but it is a great question. So one of the things that we have with this field-leading library is that we actually know how to grow the bugs, if you will.

This is not a trivial issue. These organisms have not been studied since the 1940s, because they don't cause disease, so many of the textbooks that you read are wrong. They will call them unculturable. Well, they're only unculturable until you put enough time, effort and talent into it.

Some of them will be said to be non-spore formers in the textbooks, well that's not going to be correct. We hold those as important trade secrets. So one of the things that we've gotten really good at is actually rewriting the textbooks in how to grow, how to sporulate these organisms.

And where we would see it being very important is when I said in complex diseases. In certain metabolic diseases, it will not be just spore formers, but we have the ability now to use this library to take vegetative organisms, pure bacteria, and put them in a pill, as well as combined them with spores. So we have a number of levers to address various diseases.

I'm going to say the last thing, because it's such a multi-layered question, but it is very important to realize that we believe that the probability of success in many of these new indications, the POS is actually high, compared to other drugs that I've worked on. Why? Because we have human data.

Remember, when you think about NASH and metabolic diseases, we now understand in humans or we can not only see changes in bile acid metabolism in a dysbiotic microbiome, but we have shown we can correct it. The same thing with 155, for human stem cell transplant patients for bacteremia, graft versus host. We've shown and published that we can not only detect dysbiosis, but we can correct the ability of the dysbiotic -- microbiome to carry resistant organisms. Having human data is what separates this field from many others, when it is obtained this early.

Terence Flynn, Goldman Sachs.

Thanks for the question. I noticed in the press release you mentioned the SER-109 Phase 3 program in Europe. I was just wondering if you can tell us a little bit more there about details, in terms of size and design, and then is there any possibility that either the ongoing Phase 2b be or US Phase 3 could serve as one of these two European registration trials? And then I have one follow-up.

Sure. As we have shown, and Eric mentioned, we have the Nestle Health Science deal to bring outside of North America this drug to Europe, and a number of the BRIC KTJM countries. When we've gone in front of EMEA, we had a really nice discussion, it's our initial discussions, and they are moving forward. What they are very excited about, that they have many things that overlap exactly with the FDA.

There may be a need for two Phase 3s in Europe, but we're continuing to talk to them, as we did, it is a process, as we did with the FDA. Certainly the Phase 3 that we are designing in the United States, as I've said before, will have sites in both the United States, Canada and Europe, both Eastern and Western Europe. So we do, to your point, consider this, and the EU is looking at this as one of the potential registration trials.

Certainly the Phase 2 will be important to not only give further efficacy data, but to further build the safety database. I would point out that in Europe and the United States, we will have expanded access, as well as the open label extensions, to further build safety and efficacy data. So we think this is a compendium that will work both in the United States, EU, and around the world.

Okay, thanks for that. And then on SER-262, you did give us some of the initial detail regarding this upcoming Phase 1b, trial, but can you give us a little bit more? Was just wondering if initial antibiotic treatment is going to be standardized here, or is it going to be left up to physicians' choice? And then what type of recurrence rate would you expect in this specific patient population? Thanks.

Sure. Those are great questions. We know that the recurrence rate is anywhere between 25% and 30%. For healthy individuals, it's 25% to 30%. For some of the sick or elderly individuals, it may even be a tad higher than that.

But the numbers to remember for primary C. diff, if you get it even if you are healthy, you have a 25% to 30% recurrence. We feel, based on animal model data and other data that we've accumulated, that we want to knock that down to low single digits, or eradicate it with 262. I can tell you this trial will be larger than a multi-recurrent C. diff trial because primary C. diff has the 25% to 30%, not the 60% to 80% recurrence rate.

So the other thing I can tell you is that we will have, as I said, a dose range here, because the dysbiosis is less intense than you see in multiply-recurrent C. diff, and we might be able to deal with even a lower dose than was used for SER-109 in multiply-recurrent. You had another part of the question? Terence?

I was just wondering if the initial antibiotic treatment is going to be standardized?

Yes, that's a really important point. Antibiotic treatment, as put by guidelines from IDSA, Infectious Disease Society of America, has changed a little bit in the last year or so. It's mainly in multiply-recurrent.

I will get back to primary, but I wanted to make this point, because it is important. In multiply-recurrent C. diff only Vancomycin and Fidaxomicin are approved now. Flagyl, metronidazole has shown to be not strong enough for the multiply-recurrent patient. But when you look at primary C. diff, all three drugs are used. Flagyl, Vancomycin, and Fidaxomicin, we will leave those three drugs up to the treating physician.

Joseph Schwartz, Leerink Partners.

Thanks for taking my question, this is actually Dae Gon dialing in for Joe. He sends his regards and congratulations on all the progress. Just a couple on SER-109. First, can you remind us in the Street on your power assumptions for the Phase 2 ECOSPOR trial.

And then with regards to the anticipated data by mid-year, with what was disclosed in the press release about the EMA discussions, I was wondering if you could comment the ongoing discussions, or maybe overhanging concern that the FDA might have on therapeutic usage would be, and whether you have a post Phase 2 meeting with the FDA penciled in? And lastly, if you could comment, if you do have this data, have you've been following up on those Phase 1b/2 trial patients for potential long-term effects, whether positive or negative?

Sure. I will try to deal with those four questions in sequence. So first, the power, we've told many people and have said this throughout, but I will remind everyone, it is powered to 92%. A power of 92% was obtained by being very conservative. Remember if your Bayesian and your pre-test probability, we have a high pre-test probability.

So we assumed only 80% cure rates for 109 and 40%, which is high, for placebo. So even with those, and that shows why it is important in the trial, even with those very conservative numbers, we still had a 92% power. If we get anything like the delta we are expecting and something like we saw in 1/b2 we are going to have a statistical significance with P, with a lot of zeros in front of it, and meaningful clinically. So again very conservative, still having great power.

I think your second question was on EMA, where again, we just started our conversations with them. It is going very well. We assume we will not need a lot of things that we didn't need with the FDA. There's great interactions there.

We don't I might add, comment in detail on ongoing discussions with regulatory agencies, but we've done this before with the FDA, and the process is moving smoothly. When you think of the post Phase 2 data, again, we have an accelerated post-Phase 2 meeting. Remember, we are breakthrough. One of the nice things about breakthrough therapy is that we not only have formal meetings, we have informal calls with the FDA, and we have an accelerated Phase 2 meeting, as soon as data is available, which is allowed in breakthrough.

And then I think you or also asking about long-term in 109 patients and yes, we've actually published this out to six months, we still have 90% cure rates and the ones, a few that fell off all got broad-spectrum antibiotics. This is a very important teaching point. Remember, when you get SER-109, you don't get a super microbiome, you don't get superpowers.

So if you get broad-spectrum antibiotics like any normal human, you can get dysbiotic and have a C. diff episode. But the beauty of 109 is it is not an antibiotic, there is no resistance. You can give it again. So the great news for us and for patients is this does seem to be a long term cure of the dysbiosis, and again we followed people out past the half a year after getting the therapy. I hope that helps.

Vernon Bernadino, FBR & Company.

This is actually Thomas Yip asking a couple of questions on behalf of Vernon. Last Friday, we saw that the White House announced an initiative called the National Microbiome Initiative. Just wondering, can you tell us if you think there are strategic or financial and implications of this initiative on Seres?

Yes, it is a great question. We have been at the White House, they had a meeting before this which was organizational, so we were part of the organizational meeting. I was there with a couple of my senior executives.

We believe this is a great thing, and not only because of the money they are putting out, but for Seres, it means much more. Because the money is nice and we will look at ways of trying to leverage it like everything, but the real thing that I want to bring up about the White House is to build the microbiome as a field.

When I was asked by Dr. Handelsman, who I know from Yale, who is the Head of the Office of Science and Technology at the White House, what would we need at Seres, what could the White House do? The key thing I said is to build the ability at the FDA to have a microbiome division on its own. I remember when virology used to be part of infectious disease, and the AIDS epidemic separated it, it is what changed virology and drug design.

We need to have a microbiome area in the FDA, getting the White House involved, and other governmental agencies, is the way you're going to build things. And we are devoted to working with them, again not only in doing research and trying to leverage some of the cash, but more importantly, on a global -- on a larger area, getting the White House, the FDA involved in building the microbiome as a set field in medicine, that is regulated as such.

Great. Yes, that certainly is a very grand scheme of things. That's an important initiative, and how to promote microbiome as a whole.

My next question is more specific. You mentioned that you are expecting total milestone from initiating 262 and 109 studies, can you please remind us what are these specific amounts for each study?

Yes, let me take that one. We haven't got it which is which yet, but it is basically $20 million and $10 million for those two events, together $30 million, and the events are the initiation of the 262 Phase 1 study, as well as the initiation of a Phase 3 for SER-109, so a total $30 million of expected milestones in 2016.

John Newman, Canaccord.

The question I had, I know this is looking ahead a little bit, but for 287, which you are looking at in ulcerative colitis, what are the different endpoints that you will be looking at there, once we get out to 2017 next year?

Sure. I think, as I said but I will try to go into a little more detail. The primary endpoint is can we change the microbiome to a normal healthy microbiome? It is a 1b trial, but the secondary endpoints are very large. One is obviously safety and efficacy. We are not expecting to see a safety signal, but it is a first time in a chronic disease, non-infectious so we will look carefully.

Number two, cynical response, both in Mayo Clinic scores, as well as complete remissions, as was seen in the FMT trials in North America and around the world. Then we are also going to be looking at -- it's very important to show that you have endothelial healing, mucosal healing, it is become sine qua non of a lot of drugs in the space of ulcerative colitis and Crohn's, and we do this by having flexible sigmoidoscopy, with mucosal biopsies, both at the beginning and at the end of the trial. This is important for us, not only for showing endothelial mucosal healing, but also, we are using this trial to develop key biomarkers.

Bio markers both in the microbiome space immunologically in obviously the human immune system, as well as other biomarkers and metabolic changes within the mucosa and ulcerative colitis. We think this is critical, as we look down the line for commercializing this drug.

It is very important that pay for performance or value-based pricing is going to be key, and being able to decide, based on biomarkers, who is going to respond very well to a microbiome solution, is going to help us as we go in front of payers and the front of the FDA. Just like in cancer, we think this is the way you change syndromes into molecular disease states, and that's what we want to do with this trial. It is going to be a data very-rich trial.

Great, and then just following up on that last comment that you made, do you think going forward, the therapy will be designed for a specific type of patient? Or do you think that you look at each patient individually, and figure out what each microbiome needs?

You're try to say can you do personalized microbiome medicine? At this point, we do not believe that will be necessary, but as someone who has said that most of internal medicine outside of infectious disease and some cancers are 19th century syndromes, that we're just now dissecting using molecular and microbiological approaches, I think you will see a lot of different diseases.

When I trained at Mass General, everyone who wheezed has asthma. Now, we know it is at least six molecular diseases, probably more. How many times you can cut that cake is always a question, but we expect that to be part of all -- I expect to be all of medicine, and certainly the microbiome will be a part of it.

Whether it will need to be absolutely personalized like a personalized tumor approach, we have no data for that. We think not, but how many different types of ulcerative colitis is in this syndrome, I think that's the exciting part of what we're going we are going to be able to figure out, help figure out, and this will be important not only for patients obviously, but as you think about how you price drugs in the future.

Ted Tenthoff, Piper Jaffray.

Really exciting series of news flow here from -- stuff done in Washington to your new collaborations. I guess, following up on all the other questions, I have a higher level question, really in terms of how Seres thinks about advancing things, going forward. Obviously, you have the partnership with Nestle in place, but when you start to look at larger disease areas like obesity, diabetes, again as you mentioned, the collaboration in immuno-oncology, are these areas where Seres is going to take these on themselves? Are these going to be areas where you seek new partnerships like the Nestle deal, with leaders in this space, in order to gain their expertise in those disease specific areas? Kind of a higher level question about --

I thank you for it. It is a great question.

So I'm going to start with one point is that, we try to build, I said this before, we don't want to become a mile wide and an inch deep, but we do want to build deeply, vertically, in the three therapeutic areas and that's what we've done. Actually with Seres, with having all this talent and all these different library of organisms, our CMC, it is very hard to decide what not to do. That's the important thing.

You have to be as good at saying what not to do as what you say to do at the time, because again, we don't want to be a mile wide and an inch deep. We nevertheless are very aggressive as the field world leader in this.

That being said, we are aggressive, but we're not crazy. Obesity trials, diabetes trials, cardiovascular outcomes trials, is something that you would have to do with collaborators. Collaborators are key, both as you have seen early on, as you develop a drug.

I've been able to develop nine drugs with great teams, it has always worked that way. You collaborate early, and then you find partners to help you late. Nestle Health Sciences is a great example of that as we looked around the world. With obesity and diabetes, expect seeing us do collaborations, both in academia early on, and you will hear more about that in the next quarter, as well as when we get clinically, to get to these large difficult to treat patient populations.

It is very important to also understand that we hold something very close to the chest, and that is manufacturing. We think that one of the great things we have, including for large complex diseases that are really syndromes, like obesity and diabetes, is our CMC. Unlike, and this is one of the things that we've seen, unlike other members of the microbiome field, we have this problem, it is not fully solved, certainly very well solved for many diseases. This is what separates us.

We are able to put a pill on the table, and we intend to continue to do that, and continue to hold manufacturing close to the chest. One of the things I can tell you is even with the deals we've done so far, we make all the drugs, because we are trying to continue to be the leader, in not only the area of the microbiome, but actually how you make microbiome drugs for both simpler as well as complex medical conditions.

Okay, good stuff, thank you.

Thank you, ladies and gentlemen, that does conclude today's Q&A session and today's conference call. You may all disconnect, and everyone have a great day.

Thank you.