Seres Therapeutics Inc (MCRB) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Seres Therapeutics Third Quarter 2016 Financial Results Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Mr. Carlo Tanzi, Head of Investor Relations and Corporate Communications. Sir, you may begin.

Thank you, and good morning. A press release with the company's third quarter 2016 financial results and a progress update became available at 7:30, Eastern Time, today and can be found on the Investors & Media section of the company's website.

Before we begin, I would like to point out that we'll 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 and statements regarding SER-109, including our continuing review and assessment related to the interim results from our Phase 2 clinical trial of SER-109; our evaluation in consultation with the FDA of future development plans for SER-109; our development of microbiome therapeutics; the ability of microbiome therapy to treat disease; the timing and results of our clinical trials; and our available cash to fund operations in the future. Actual results may differ materially from those indicated in these statements as a result of various important factors, including those discussed in the Risk Factors section in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 11, 2016, and our other reports filed with the SEC, including the quarterly report that we intend to file later today.

Any forward-looking statements made on today's call represent our views as of today only. We may update these statements in the future, but we disclaim any obligation to do so.

On today's call, I'm joined by Dr. Roger Pomerantz, Seres' President, CEO and Chairman; and Eric Shaff, 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 strong progress in its efforts to develop a totally new field of medicine, using bacteria to treat disease. We are working to create a paradigm-shifting therapeutic approach based on Ecobiotic microbiome therapeutics to create new medicines for patients with serious diseases. Seres is the pioneer and leader in this new microbiome field, and we have continued to advance our understanding of the underlying new science with the goal of developing innovative, new therapeutics.

On today's conference call, I will provide an update on our SER-109 program for multiply recurrent c. diff infection, and we'll then discuss the progress we've been making with our other clinical development efforts.

I'll begin with SER-109.

To remind you, the SER-109 Phase 2 study enrolled 89 patients in a randomized, double-blind, placebo-controlled, 24-week study conducted to evaluate the safety and efficacy of the product candidate in patients will multiply recurrent C. diff infection. The previously reported interim results, including the primary eight-week study endpoint, demonstrated that the relative risk of C. diff recurrence to the placebo population compared to the SER-109 population was not statistically significant.

All SER-109 Phase 2 study patients have now completed their 24-week end-of-study visit and full study clinical results are expected in early 2017. In addition, we also continued to collect and review results from the Phase 2 open-label extension study.

After obtaining the interim SER-109 Phase 2 study results, our focus has been on completing robust analyses to more fully understand the study results, including differences compared to the prior Phase 1b study results. Given that this work remains ongoing, we believe it remains premature to discuss any preliminary findings. We do not believe it is helpful to provide piecemeal data analysis as these may not have proper scientific and medical context.

We have previously discussed our broad approach to the SER-109 program analyses. Our team is evaluating CMC, clinical, microbiomics and translational research data. We have finished a significant volume of this work with good progress towards completing this effort. We have carefully analyzed the available Phase 2 clinical data and conducted detailed reviews of patient subset data based on clinical site, age, C. diff history and multiple other parameters. We have also conducted a thorough evaluation of the method used to diagnose C. diff infection and C. diff recurrence.

We expect that the proprietary learnings arising from this work will enable us better understand the underlying pathophysiology and clinical characteristics of C. diff infection. And this information will inform our specific plan for further clinical development of SER-109.

Our approach will be to discuss our SER-109 analyses with the FDA and obtain feedback on our proposed plan for further clinical development of the program. We expect to be able to provide a further update on SER-109 in early 2017.

I will now transition to discuss the important progress we've been making with several other of our microbiome therapeutic programs. So let's begin with the SER-262 program.

We have continued to make substantial progress with the execution of the SER-262 Phase 1b study to prevent recurrence in patients with primary C. diff infection, a significantly large patient population.

SER-262 is manufactured by a synthetic process that is fundamentally different than that used to generate SER-109 and does not require human donor material. SER-262 contains a consortium of 12 bacterial strains in spore form rationally selected from Seres' field-leading bacterial strain library comprising more than 14,000 strains. The strains selected for SER-262 were rationally chosen based on multiple criteria, including in silico, in vitro and in vivo modeling, and the final product composition was selected from over 100 different consortia that were fully evaluated. In selecting bacterial strains for SER-262, we considered human microbiome data, the results from C. diff preclinical efficacy studies, as well as the individual characteristics of each bacterial strain in the drug.

The SER-262 Phase 1b study is a 24-week, randomized, placebo-controlled, dose escalation study. The study is planned to include approximately 60 patients who have experienced a first episode of C. diff infection and where we hope to reduce the risk of recurrent infection. We have continued to advance the execution of the study and patient recruitment, and we continue to expect SER-262 top line study results in 2017.

Now moving to the SER-287 program.

We continue to execute our SER-287 Phase 1b study in patients with mild-to-moderate ulcerative colitis. The SER-287 study will evaluate the impact of ongoing dosing of this microbiome drug administered either daily or weekly. The study will evaluate changes in the microbiome as well as efficacy and safety measures in this chronic inflammatory disease.

The rationale for evaluating microbiome therapy in this indication is supported by a number of controlled clinical studies that have demonstrated that repetitive fecal microbiota transplant, FMT, led to meaningful clinical responses in patients with ulcerative colitis.

Our objective is to develop a safe and effective product which is not immunosuppressive, targeting the substantial proportion of ulcerative colitis patients that are not well managed by currently available drugs and are reluctant to advance to later-line therapies that may be associated with serious adverse events. We have continued to make excellent progress advancing the SER-287 study, and we also look forward to two SER-287 study results in the coming year.

In addition to our clinical programs, the company has made meaningful progress in advancing our earlier-stage research effort in new disease areas where microbiome therapeutics may be an important treatment modality.

Much of this research is done in close collaboration with world-leading academic research institutions. And as a result, we are able to advance these efforts in a focused and resource-efficient manner. I'd like to highlight several of these preclinical efforts.

In collaborations with investigators at Memorial Sloan Kettering, we continue to make progress on research related to our SER-155 program, which is being developed to improve outcomes, including bacteremia and graft-versus-host disease in patients receiving allergenic hematopoietic stem cell transplantation.

A separate component of our Memorial Sloan Kettering collaboration seeks to build on research indicating that a patient's microbiome profile can meaningfully impact outcomes after immuno-oncology treatment. I will remind you that despite all the tremendous progress being made in immuno-oncology, still only a minority of patients benefit from these therapies, and there is a great opportunity to improve clinical response as well as safety. We continue to believe that the microbiome therapeutics are a highly promising approach that may positively complement immuno-oncology drugs.

Moving on to our intellectual property.

Seres continues to strengthen its patent estate related to microbiome therapeutics. We recently obtained an additional U.S. patent covering the use of a composition of bacterial spores to treat gastrointestinal diseases associated with dysbiosis to the microbiome, and the patent provides coverage through at least 2034. This latest patent represents the fifth U.S. patent issued to the company and extends our prior composition of matter and method of use patents.

Seres has continued to broaden its differentiated microbiome drug development capabilities. The company has made excellent progress towards significantly expanding its manufacturing capacity. The construction of a new facility capable of the manufacture and formulation of microbiome therapeutic candidates is near completion. Activities that support full validation of the new facility are ongoing, and we expect these to be completed in the coming months.

The manufacturing of microbiome therapeutic candidates requires a highly specialized approach, and we believe that our facility is unparalleled in the industry and will provide the company with a distinctive competitive advantage.

I'll now pass the call to Eric to review our recent financial performance.

Thank you, Roger, and good morning, everyone. Today, I will review our third 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 $18.7 million for the third quarter of 2016 as compared to a net loss of $14.6 million for the same period in 2015. The increase in net loss was driven primarily by continued growth in the clinical and development expenses as well as increased headcount and ongoing development of our microbiome therapeutics platform. The third quarter net loss figure was inclusive of $13 million in revenues, including a $10 million milestone payment from Nestle Health Science, associated with the start of the SER-262 Phase I clinical study.

Research and development expenses for the third quarter were $24.1 million as compared to $9.9 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, SER-287 as well as our preclinical program.

G&A expenses for the third quarter were $8 million as compared to $4.7 million for the same period in the prior year. The increase in G&A expense was primarily due to increased headcount, an increase in professional fees and facility expansion to support overall growth.

We ended the third quarter with approximately $256 million in cash, cash equivalents and investments. The reduction in cash balance during the quarter was approximately $16 million. The change in cash balance during the quarter reflects $4 million of expenditures related to the company's new corporate headquarters, including laboratories, office space and the manufacturing facility, as well as the $10 million milestone payment previously mentioned. We expect that facility-related expenditures will continue into the fourth quarter of this year, though the majority of the work and project expenditures occurred in the first three quarters of 2016.

We continue to expect that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements well into 2018. This estimate excludes net cash flows from potential future business development activities.

As we continue to execute on our corporate strategy, we intend to maintain our attention on financial discipline and focused execution on our strategic priorities. We are committed to achieving our R&D goals, and we are prioritizing the use of company resources towards the advancement of microbiome programs through meaningful value inflection points.

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

Thanks, Eric. This has been a productive period for Seres, and we have continued to robustly advance our pipeline while continuing to add to our scientific understanding supporting our microbiome therapeutic approach.

Our belief in the potential premise of microbiome therapeutics remains very strong, and this is based on the continued growth of the supportive biological, preclinical and clinical data in multiple human diseases. We also certainly understand that we are working in a totally new field of medicine. And as with other innovative, new therapeutic approaches, we expect the scientific knowledge to continue to build and that we will continue to gather important new learnings as the science and the medicine evolve. Our expectation is that we will continue to refine our approach as we drive our microbiome development efforts forward for C. diff infection and other serious human diseases.

We, as always, are moving our clinical programs forward with focus and alacrity. By the end of this year, we expect to complete our SER-109 study analyses, discuss these datasets with the FDA. And in early 2017, we expect to have further clarity of future clinical development plans for this program. We also look forward to an eventful year ahead with two important clinical data readouts from our SER-262 and our SER-287 program. In addition, we expect continued progress in our R&D efforts, including those in new disease areas.

As a company, the development of meaningful, new treatments for serious diseases is our ultimate objective. Recently, the FDA approved bezlotoxumab talks about for C. diff patients at high risk of recurrence. We are pleased that patients have a new therapeutic option for this debilitating and deadly disease. However, I would like to highlight the substantial unmet need that remains to effectively address C. diff infection. At the present time, all available treatment approaches, including unregulated fecal microbiological transplants, certainly remain suboptimal, and we continue to believe that there remains a substantial opportunity for an effective, safe and orally administered therapy for C. diff infection.

I want to thank you for your continued interest in Seres and in the development of the emerging field of microbiome therapeutics. We will continue to passionately drive our efforts forward, and we look forward to keeping you informed of our progress.

Operator, let's open the line for questions.

(Operator Instructions) And our first question comes from the line of Ritu Baral with Cowen and Company.

Roger, I understand you don't want to dribble out findings piecemeal from the SER-109 study. But can you take us through maybe some of your best hypothesis right now? On one hand, I've been involved in a number of investor discussions about potential changes in the manufacturing process and potentially the potency of the spores. But I'd note discussion in IDSA about the whole idea of screening criteria and C. diff toxin positivity at active disease versus merely PCR positivity, which could suggest maybe you guys involved just colonize patients. Can you talk to your hypothesis at least?

I think you talked to some of the hypotheses, Ritu. As we said, we don't want to dribble out things piecemeal. I've before this before. That doesn't help. You create hypotheses and then you bring the data together from the different areas. As I talked about, we're doing a lot of what you were talking about, and we are interested in the microbiomics, CMC, clinical data, which includes how you diagnose the new disease states, as well as translational medicine. So it's truly a comprehensive event that we want to talk about in compendium not just with the public but with the FDA.

And again, our -- we are still on track, as I said before, to finish in 2017. The hypotheses that are generated are all data driven and you've mentioned some of them, and I look forward to bringing forward the analyses. But at this time, we'd probably leave it. I think that we understand the need for wanting more knowledge, but -- and we, most importantly, understand that we have many stakeholders. Number one are the patients. I know they are actively waiting for new disease-altering medications. So we're moving really as fast as we can, and we're still on target to what I said in previous talks.

Got it. And moving to that FDA meeting that you mentioned. What are you going to ask the FDA? What are the prime topics of discussion? Will it be the next trial? Whatever points you feel you need [surety] on that point.

Yes. Sure. I just want to remind you we are breakthrough in orphans, so we have close collaboration with the FDA. As we've said before, we talk to the FDA after the interim analysis is out very promptly. We will go back and do two things, review the full analyses in compendium with the FDA; and, based on data, drive -- data-driven events, we will discuss with them potential hypotheses and then potential development plan for further investigating 109 clinically. But again, that's probably an outline of what the discussion would be. We don't like to talk about points in an active FDA discussion, as you know.

Got it. And last question is on the 262 clinical study. You mentioned the dose escalation study. I believe there are five doses according to my notes in that, and we mentioned in [NS60]. Can you take us through what the doses are and why -- and maybe what the doses are and why you think dose finding and dose ranging may be more important for 262 than they proved to be in 109?

Yes. So that's as usual, a great question. I can't comment on it. There are five doses from 10 to the 4th to 10 to the 8th. This is all on ClinicalTrials.gov using a spore colony-forming unit assay. And so the single ascending dose is typical for 1b. Remember, this is a synthetic drug. It is -- we are able to do very clear dose finding. Why it may be important? Remember, these are very different diseases. The dysbiosis of multiply recurrent C. diff is profoundly different than what you see in primary C. diff, which is why primary C. diff has about a 25% to 30% recurrence rate.

Because of that, dosing may be important, and we want to look at it both for safety as a new synthetic -- first, synthetic microbiome drug, as well as getting the lowest dose where efficacy is seen. We think that both -- any regulatory authority with a new synthetic drug will ask for that, and we think the 1b trial will be ready to provide that answer.

And our next question comes from the line of Joseph Schwartz with Leerink Partners.

And I also understand that you don't want to provide piecemeal data without full context, but I was just hoping to ask a little bit about the process in a general sense. Now that you've been going through the root cause analysis, has the exercise grown or shrunk as you've gone through it? Have more question been raised as you've been digging? Or have things been getting clearer to you? You don't have to tell us what. I was just hoping you can just give us some qualitative --

Yes. No, I get it, Joe. Thanks. This is Roger. So obviously, this is -- these processes are iterative. And if you're not learning something, then you're probably not doing a good root cause analysis. We have had learnings from this. I can tell you that all of the teams -- of the four teams are working on different -- separate and then interrelated issues. We feel that again, this is going to provide, as I said, some proprietary learnings in understanding not only microbiomics as therapeutics but actually understanding C. diff as a disease at a level that is not usually known for the field. Why is that possible? Because for the first time, we actually perturbed the primary cause of the disease, the dysbiosis. So the learnings on the medicine will be as important as the basic science of the drug, and that's all going on.

Okay, that's very helpful. And then just to expand on that a little bit and think about the 287 and 262 programs, have you been thinking about those programs any differently based on what you've been learning? In other words, have you discovered anything new that you can do to reduce the risk of having any confounding results in those programs?

I think that's a very good question. We obviously, as medical scientists, don't put our heads in the sand. If we see data that comes out of this root cause analysis that would interdict in other programs, we would certainly be open to investigating that, potentially adjusting the program. We have not done that as of yet.

I would point out that one of the important things in the SER-287 program, as I mentioned, is this is not a one-and-done study, meaning you get one dose, As we saw with the 109 and as you do with 262. Remember, 287 is a naturally sourced microbiomic drug, but it is given in arms once a week and once a day. So some of the learnings that may impact C. diff and some of the learnings in C. diff that may impact chronic disease therapy is whether there is a difference in safety and efficacy depending on one dose or multiple doses. So we do think that we'll have learnings from both trials that may overlap with the others. I can tell you that we're looking at that, but we have not changed any of the trials based on what we've learned.

And our next question comes from the line of Ted Tenthoff with Piper Jaffray.

My question had to do with, well, the focus was clearly on the Houston program. I'm wondering, what is still going on? Sort of what's the discovery level? And how is the partnership with Nestle going?

Thank you, Ted. Those are two great questions. So yes, we're excited about 287 high unmet medical need. We hope to be able to bring out a non-immunosuppressive drug in this field. And it's moving quite well. We have, as -- and we've talked about this before, we have a synthetic drug, SER-301, that's the follow-on to 287. Clearly, learnings from the 287 1b trial will also be important in getting the final composition of 301. So we feel that they are interactive. You've seen us do this before in C. diff, start with a biologic, move to a synthetic when you understand the medicine and the biology that are -- that's what we're going to do in UC. And as we've said before, making good progress in the lab. We are waiting for the data for 287, and that will inform the 301 final composition as we try to rationally pick these approaches.

And the Nestle collaboration is strong and they are extremely supportive. We're very close with them, obviously. And as we look to get SER-109's analysis done and think about clinical developments further, it will be not only based in the U.S. but with Nestle, our partners in Europe. That will be a very important interaction, and we look forward to doing that again as partners as we try to bring out this first drug not only in the U.S. but around the world.

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

I just wondered on the 287 program in ulcerative colitis. How do you think about the way that this drug is going to potentially work versus some of the more traditional therapies, which are obviously very different, specifically in terms of where in the digestive tract you're likely to get the most effect from 287 versus some of the more traditional (multiple speakers)?

Great question. And I think this is really important. So we know -- remember why we went into ulcerative colitis as the first chronic disease is based on clinical data. We had as the [stocking] for us four large trials around the world, first with fecal transplant and then continuous fecal transplant, where you saw effects not only in Mayo Clinic scale but with remissions increasing to very significant levels. So then we did a translational medicine with the drug. We did some very basic science looking at how the drug might work not only in the microbiome but in the GALT, the gut associated lymphoid tissue. And the hypothesis is, is that fecal transplants -- and we expect our drug to work by interdicting with T regulatory cells in the GALT, the gut associated lymphoid tissue.

Remember, most of the regulatory cells are in the colon, not in your lymph nodes, and they interact with the microbiome. There is data that short-chain fatty acids are the signaling molecules made by Firmicutes, made by Clostridiales, which are in 287. So we expect it to work in the colon, obviously. Ulcerative colitis is limited just to the colon. We expect it to have a very different mechanism of action from anything out there such as the immunosuppressive TNF inhibitors and such. And we expect to see a change in the microbiome. That's what we will look for. We will also look for efficacy events. Again, interdicting, we hypothesize with the gut associated lymphoid tissue and T regulatory cells in particular.

And our next question comes from the line of Carol Werther with H.C. Wainwright.

So I just want -- I'm sorry if I didn't understand this correctly. When do you think you're going to be meeting with the FDA before you even give us the update on 109? Is that this year or is it early [next year]?

I can help you with that. I can help you with that, Carol. So we said before and we're saying again we're on track to finish the compendium of analyses by the end of this year. We will then work, as I said, with alacrity using breakthrough in our orphan status to get rapidly in front of the FDA. So we expect it early next year. And the same thing with coming to the public potentially through scientific meeting. But again, we want to complete this and get the information out as rapidly but as thoughtfully as possible. And we'll do it with both our stakeholders that are public and, of course, our regulatory stakeholders.

And do you have a medical meeting identified?

We're looking at them. Pretty soon.

Oh, okay. Okay. And then the other question I just wanted to ask on the financials, you have enough money, I mean, you're well capitalized. But in your comments about how much cash you have, have you included any other milestones?

Yes, Carol, thanks for the question. We don't, as a policy, comment on future milestones. I will say that we expect the current resources to take us well into 2018. And just as a reminder, in our comments, we did receive a $10 million milestone in the third quarter associated with initiating the SER-262 trial from Nestle Health Science.

Thank you. And I'm not showing any further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.