Seres Therapeutics Inc (MCRB) 2023 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Seres Therapeutics' second quarter earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Dr. Carlo Tanzi, Head of Investor Relations. Please go ahead.

Thank you, and good morning. Our press release for the Company's second quarter 2023 financial results and a business update became available at 7 a.m. Eastern Time this morning and can be found on the Investors and News section of the Company's website.

I'd like to remind you that we will be making forward-looking statements including the commercial success of the VOWST, the timing and results of clinical studies, the ability for microbiome therapeutics to modulate the microbiome and treat or prevent infection, our ability to achieve sales targets and the receipt of future milestones and debt tranches, and other statements which are not historical fact. Actual results may differ materially.

Additionally, these statements are subject to certain risks and uncertainties which are discussed under the Risk Factors section of our recent SEC filings. 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 with prepared remarks, I'm joined by Eric Shaff, Seres' President and CEO; Dr. Lisa Von Moltke, Chief Medical Officer; Dr. Terri Young, Chief Commercial and Strategy Officer; and David Arkowitz, Chief Financial Officer. In addition, Dr. Matthew Henn, Chief Scientific Officer, will also be available to answer your questions.

With that, I'll pass the call to Eric.

Thank you, Carlo, and good morning, everyone. This has been a monumental period for Seres. Indeed, based on the progress we have made, developing microbiome therapeutics as a new medical category, Seres was recently nominated as a member of the TIME100 Most Influential Companies for 2023 within the Pioneers category. We are proud of the recognition, but more importantly, we are glad to now be making a positive difference in patient's lives with the recent approval of our first microbiome therapeutic.

On April 26th, we were thrilled to announce that the FDA approved VOWST, indicated for the prevention of recurrent C. difficile infections in adults following antibiotic treatment for recurrent CDI. We believe VOWST has the opportunity to transform how patients with recurrent C. difficile infections are managed, providing a new, meaningful therapeutic option for patients facing this disease.

In addition, we were very happy with the label that we received, which includes all adult patients with recurrent CDI, including those with the first recurrence. We are now working to commercialize VOWST alongside our collaborator, Nestle Health Science. VOWST has been available since early June, and we are pleased to report that preliminary uptake has been highly encouraging, with healthy product demand coming from a broad set of healthcare practitioners, and across the recurrent CDI patient pool, including in patients with their first recurrence. Terry will provide more detail on launch progress shortly.

The successful commercialization of VOWST is our top corporate priority and the clear focus of our organization. Over time, we expect that VOWST will provide tremendous benefit to patients, and in turn, we anticipate this therapeutic will represent an important financial driver to Seres. As we commercialize VOWST, we continue to expand our drug supply in collaboration with our manufacturing partner, Recipharm to enhance future supply capacity. Furthermore, our collaboration with Bacthera also continues to move forward, and we anticipate that Bacthera will begin to produce commercial drug product next year for release in 2025 as the VOWST market continues to expand.

While executing the VOWST launch, we also made meaningful progress with our earlier stage pipeline. In May, we reported highly promising Phase Ib Cohort 1 clinical data from our SER-155 program. This cultivated microbiome therapeutic candidate is designed to prevent infections and/or GvHD in patients undergoing HSCT. Initial data may support our therapeutic objective of reducing serious enteric infections resulting bloodstream infections and GvHD in this medically vulnerable patient population. The SER-155 study continues to enroll, and we anticipate top-line clinical results from the placebo-controlled portion of the study, encompassing Phase II -- Cohort 2, in mid-2024.

I would like to pass the call now over to Lisa.

Thanks, Eric. I'll begin with VOWST, a product consisting of a consortium of Firmicutes bacteria in their spore form. This therapy is designed to facilitate restoration of the GI microbiome and thereby reduce the risk of future recurrences of C. difficile infections. Importantly, the indication we received with the FDA approval is for the broad population of adult recurrent patients. VOWST has a straightforward oral dosing regimen of 4 capsules once a day for 3 days, following antibiotic treatment and use of a laxative to remove residual antibiotic from the GI tract. VOWST is stored in the original packaging and has no refrigeration requirement. The full label is available on VOWST's website at vowst.com.

To briefly recap, the VOWST approval was supported by remarkable clinical data from 2 Phase III studies. Our placebo-controlled ECOSPOR III study demonstrated that approximately 88% of patients did not experience a recurrence at the primary 8-week endpoint, compared to 60% in the group with antibiotics alone. We also observed durability of response out to 24 weeks. VOWST was well-tolerated, and patients administered the drug had no serious adverse events or deaths that were attributed to study drug.

Recurrent CDI is a serious disease that often results in hospitalization and can even lead to death. There are an estimated 156,000 recurrences in the United States per year and at least 20,000 deaths due to C. diff infections. Patients suffer debilitating symptoms, such as frequent diarrhea, which prevents them from conducting their normal daily activities, and these symptoms significantly lower quality of life. We along with our Nestle Health Science colleagues continue to present and publish VOWST clinical results to educate the medical community about recurrent CDI and VOWST. We provided support for a continuing medical education event at the American College of Physicians Annual Congress in April, and we participated in the Digestive Disease Week Annual Meeting in May. Interest in VOWST at the conference was extremely high, and during KOL engagements, we continue to observe significant levels of enthusiasm about the potential to use VOWST to stop the cycle of recurrence of CDI in eligible patients.

Moving now to our new SER-155 results, which we previously discussed in detail. The medical literature supports a strong connection between pathogen domination and lack of diversity in the GI tract with the endpoints of infection, graft-versus-host disease, and mortality in patients undergoing allo-HSCT.

SER-155 is an oral, investigational, cultivated microbiome therapeutic designed to prevent enteric-derived infections and resulting bloodstream infections, as well as to induce immune-tolerance responses to reduce the incidence of GvHD, and particularly severe acute GvHD in patients undergoing allo-HSCT.

The development of SER-155 is supported by strong exploratory proof-of-concept data from the SER-109 ECOSPOR III study, which showed that SER-109 administration resulted in the decolonization of gut pathogens beyond C. difficile, including bacteria carrying antibiotic-resistance genes. These data have been previously reported at various conferences.

Allo-HSCT patients are at high risk of enteric-derived infections and acute GvHD. These adverse events are frequently seen in the first 100 days following the procedure. This is a period when the patient's microbiomes are highly disrupted from numerous factors, including antibiotic treatments and chemotherapy regimens, and their immune systems are severely compromised.

In May, we announced initial safety and pharmacology data from study Cohort 1. Based on these data, a favorable tolerability profile was observed, with no serious adverse events attributed to SER-155 administration. Pharmacology data showed that bacteria in the SER-155 consortia engrafted, populating the GI microbiome with a magnitude and kinetic profile consistent with expectations based on prior clinical results from other Seres' microbiome therapeutics.

Importantly, we observed that the cumulative incidence of domination with bacterial ESKAPE pathogens was rare, and observed at substantially lower incidence rates than observed in a reference population of allo-HSCT patients. These are specific pathogens known to be associated with the risk of enteric-driven bloodstream infections and other downstream consequences such as GvHD in patients receiving allo-HSCT.

Enrollment is ongoing in Cohort 2, which incorporates a randomized, double-blind, placebo-controlled design to further evaluate safety and engraftment, as well as clinical outcomes. This portion of the study will enroll approximately 60 subjects administered either SER-155 or placebo at a 1:1 ratio, and we anticipate obtaining Cohort 2 study data in mid-2024.

And with that, I'll now turn the call to Terri.

Thank you, Lisa. I'm pleased to report that along with our collaborators at Nestle Health Science, we are making great progress in the early days of the VOWST launch. As Eric mentioned, we are highly encouraged by the magnitude and breadth of HCP demand that we have seen. This demand is consistent with our understanding of the enormous need for better options to prevent rCDI and the enthusiastic reception that the profile of VOWST has received since the release of our first Phase III data nearly 3 years ago. The performance we have observed also confirms that our commercial strategy, knowledge base, and launch execution are setting us up for success. We have been very focused on 4 areas during the early launch period; scaling our HCP education efforts, creating a positive customer experience, establishing payer coverage, and optimizing hospital outflow.

First, I'll describe our HCP education efforts. Immediately after FDA approval of VOWST, the Nestle customer-facing field teams were quickly trained and deployed. The field sales teams have been promoting VOWST and generating HCP demand since May 2nd, several weeks before product became commercially available in early June.

As a reminder, the 2 Nestle field sales teams are comprised of 150 gastroenterology representatives and a 20-person hospital and infectious disease-focused selling team.

We were also fortunate to have the DDW Conference that Lisa referenced earlier in mid-May right on the heels of approval. We had a significant presence at that key gastroenterology conference, including a highly attended product theatre and a large well-manned booth. The reaction to the profile of VOWST continues to be enthusiastic and confident. HCPs consistently mentioned the impressive efficacy and are encouraged to finally have a scalable highly effective option that meets their number one unmet need in rCDI, preventing recurrence.

As a result of our education efforts, we have observed the following magnitude and breadth of HCP demand as reported to us by Nestle Health Science. Early demand is broad across HCPs and patients, which is something we are very pleased to see. Importantly, we are seeing use across the recurrent patient pool, including demand in patients experiencing their first recurrence. The HCPs are choosing these patients as their very first patient for VOWST is highly encouraging, and you may recall that this is the largest patient pool within recurrent CDI.

We are seeing utilization across a broad HCP audience and received prescription enrollment from over 480 unique prescribers as of July 27, with approximately 70% from gastroenterology and the remainder from other specialties. There is also a group of VOWST prescribers who are not on the field team's call list, which is an indicator of the high unmet need and strong awareness in the provider and patient communities.

Finally, of the more than 480 HCPs that have prescribed VOWST, 78 have prescribed VOWST to multiple patients in their practice. This early depth of prescribing is a very positive sign given the moderate CDI patient volume which typically exists at the individual HCP level.

The second area of focus is providing a positive experience for patients and providers. Our VOWST voyage hub is a critical component of our commercial effort and provides a robust high-touch experience including treatment and financial support. The VOWST voyage team has been diligently working to convert patient enrollments into new patient starts. As with any new branded product, during the early launch period where payer policies are not in place, the prescriber must navigate the medical exception process.

Our team is highly skilled at supporting providers and patients as they seek approvals for VOWST, but in the event that it takes longer than the treatment window for VOWST allows, we offer a free drug option for eligible patients. This is one of several financial assistance programs we are providing in this early launch phase and we are seeing expected utilization of our patient assistance programs. For example, approximately 43% of the 282 new patient starts were dispensed via our free drug programs.

Our third focus area is engaging payers to build coverage, so that each patient who can benefit from VOWST has access as quickly and efficiently as possible. The Nestle payer field team continues payer engagement, building on the extensive pre-approval information exchange efforts executed during the year prior to approval. The team is making progress and is prioritizing the most important stakeholders, including the 3 largest PBMs, to reinforce the compelling value proposition for VOWST. We expect to see coverage policies issued as we move through the second half of this year.

During the early launch period, we are seeing approximately 57% of our 282 new patient starts reimbursed through the patient's drug benefit. Finally, the hospital selling team continues its efforts to enhance hospital outflow, and we believe these efforts will begin to bear fruit later this year into 2024.

On a related note, last week, CMS issued their final rules for inpatient reimbursement for 2024. Included in this was the approval of a new technology add-on payment, or NTAP for VOWST when used for patients treated in the inpatient setting. The result of this is that hospitals will receive extra payment for any Medicare patients treated with VOWST in the inpatient setting next year. We are pleased that VOWST has received this additional payment from CMS. CMS notes in its final rule that the agency considers VOWST to be a substantial clinical improvement over existing technologies, and that they see the importance of the technology in restoring the gut microbiome.

We know that the proportion of patients who would receive VOWST in the inpatient setting is smaller than our outpatient opportunity. And we do not expect that the NTAP will result in a significant number of additional VOWST patients in the near-term. However, for these patients who are undoubtedly among the sickest, we are pleased that CMS has addressed the financial barrier for a hospital that chooses to use a therapy that Medicare has recognized as a substantial clinical improvement. We believe that over time, the NTAP approval could result in an additional inpatient utilization.

In summary, we are highly encouraged by these early results. We, along with our collaborators at Nestle Health Science will continue our focus on HCP education, customer experience, payer coverage, and hospital outflow. And we expect to see continued acceleration of demand, progress on the payer front, and optimization of the provider in patient experience, as we move through the coming quarters.

Now, I'll turn the call over to David to cover our financials for the quarter.

Thank you, Terri. The details of our second quarter financials are included in the press release issued this morning. So, I won't reiterate all the figures here.

Seres reported net income of $46.6 million for the second quarter of 2023 as compared with a net loss of $64.7 million for the same period in 2022. The net income in the second quarter of 2023 is primarily due to the $125 million milestone received from Nestle upon FDA approval of VOWST. VOWST net sales for the partial commercialization period during the second quarter was $1.6 million and based on 105 units of VOWST sold during the period. The net sales reflect estimated gross-to-net reductions of 15%, primarily due to returns reserved, prompt payment, discounts, and patient co-pay assistance. This gross-to-net reduction is an estimate based on certain assumptions and limited information will be refined, over time as additional information becomes available.

As Terry mentioned, we are actively engaged with the 3 largest PBMs and as a result, the second quarter gross-to-net reductions do not reflect any discretionary payor contracting. Once VOWST became commercially available in early June, we started sharing equally with Nestle in the commercial profits and losses. VOWST profits and losses are determined based on VOWST net sales, cost of goods sold, and sales and marketing expenses. The total VOWST loss in the second quarter, in other words from when VOWST became available in early June, June 30, was $4.3 million, and our share of that was $2.1 million.

This amount our share of the VOWST loss for the second quarter is included in our P&L in the operating expense section as collaboration profit or loss sharing related party. We are responsible for supplying VOWST inventory to Nestle. We built up sufficient levels of supply in anticipation of launch and we are continuing to produce VOWST in support of the launch. In the near term, we expect to receive payments from Nestle related to their VOWST supply purchases, and in the future, we expect a steady pattern of purchases by Nestle to meet market demand.

For example, during the second quarter, Nestle purchased $7.6 million of VOWST supply from us, and we received the payment related to this purchase in the third quarter. As of the end of the second quarter, we estimate that there was less than 2 weeks of VOWST inventory in the channel at the specialty pharmacies based on forward demand, which is typical for this stage of a launch.

Following the approval of VOWST, commercial manufacturing costs will no longer be recognized as R&D expenses in our P&L, but instead will be capitalized and recognized on our balance sheet as inventory. Because the commercial manufacturing costs are now being capitalized, we expect that our total R&D expenses will decline going forward. For additional context, our second quarter 2023 financial results reflected total R&D expenses of $47 million, of which approximately $11 million was VOWST commercial manufacturing costs incurred prior to FDA approval.

Seres ended the second quarter of 2023 with $229.5 million in cash, cash equivalents, and investments as compared with $181.3 million at the end of 2022. In June, we received a $125 million milestone payment from Nestle associated with the FDA approval of VOWST. In April, we announced that we had entered into a new $250 million senior secured debt facility provided by Oaktree. We drew the first tranche of $110 million at closing, and after retiring our previously outstanding debt and deducting fees and expenses, the net proceeds to us were approximately $50 million. This debt facility has 3 additional tranches available, which are comprised of 2 tranches of $45 million each based upon the achievement of certain applicable VOWST sales targets, and an additional $50 million will be available to us at Oaktree's discretion to support potential future business development activities.

We remain highly disciplined with our cash deployment, and we are prioritizing the successful commercial launch of VOWST and the development of SER-155. Examples of actions taken and areas that we are pursuing to reduce costs and drive efficiencies include, we closed one of our 3 donor collection facilities supporting VOWST manufacturing, thereby reducing costs without impacting our ability to meet anticipated market demand. This closure was enabled by VOWST's 3-year shelf life as well as operational efficiencies related to the production process. Also, our centralized donor screening lab opened in the second quarter, allowing us to in-source donor medical testing, which is expected to result in future cost savings.

We are also actively consolidating office space and seeking to reduce our footprint, which enables us to be more efficient and save costs. And as we are allocating our resources in order to generate the greatest returns, we have reduced our headcount from the beginning of the year, in part driven by the closure of our donor collection facility that I just mentioned. These are just some of the actions we are taking in areas we are exploring. We're committed to further reducing costs and will share additional updates with you.

I'll now turn the call back to Eric.

Thank you, David. This is an exciting period for Seres, as we are now commercializing VOWST, the first-ever FDA-approved, orally-administered microbiome therapeutic. The launch is in its early days, and we are very pleased with the initial commercial results. Since obtaining the Phase III ECOSPOR III data in 2020, we believed that we had the opportunity to help transform how individuals with recurrent CDI are managed, and we are pleased to see the early signs of this transformation occurring in the medical community.

Over time, we are optimistic that VOWST uptake will continue to accelerate, and we expect that over time, this product will become an important financial driver for Seres. We are also very excited about the progress we are making with SER-155 and the data we have shared during the quarter we are hopeful that the initial data that we have seen will translate into meaningful clinical results, and we are looking forward to providing a robust clinical data set from Cohort 2 next year.

Before I close, I'd like to touch upon the momentum that we continue to observe within the scientific and medical communities regarding the microbiome and its relationship to serious infectious diseases. Last year, the NIH hosted a workshop on the topic to advance research into the medical significance of GI pathogen abundance. At the upcoming IDWeek conference, a symposium is being held on the establishment of pathogen decolonization as a surrogate for infection risk. The validation of this link would be highly valuable to Seres and supportive of our microbiome development efforts. We've previously discussed our own clinical results, linking GI microbiome health with a risk of CDI recurrence, and we are confident that over time, the state of the microbiome will be more clearly linked with the risk of other serious infections.

Importantly, this would have positive development, regulatory, and commercial implications that could be highly advantageous to our platform and our ability to develop and market new therapeutics. This is a topic of great interest to our company, and we look forward to discussing these concepts in depth in the future.

With that, I will conclude our remarks and open the line for questions.

(Operator Instructions) Your first question comes from the line of Joseph Thome with TD Cowen.

Congratulations on the launch, and thank you for taking my questions. Maybe the first one, can you talk a little bit more on maybe the recurrent timing between receipt of a prescription enrollment form and a new patient start? Maybe ask another way, kind of what proportion of those prescription enrollment forms mentioned in the press release? Do you expect we'll turn into new patient starts? I guess, over the next kind of quarter here, especially as it relates to the treatment window that VOWST allows and then, it's great to you seeing interest across refractory -- the therapeutics environment. Are you seeing kind of equal ease in getting the therapy to patients regardless of kind of where they are in their treatment journey?

Joe, thanks for the questions. I'm going to ask Terri to comment on the timing or evolution of the script, and then the second is just access across different recurrence.

Sure. So, I would start by saying that the vast majority of patients that are seeking access to VOWST today and going through the medical exception process are coming through. So, we're being successful in the vast majority of those cases.

It's important to note, when you look at the enrollment forms versus the new patient starts, that we've seen new demand for new patients building over time, right? So, a lot of the enrollment forms that we're getting are more recent versus from May, for example, so the hub has been very, very busy, as I mentioned in my prepared remarks, turning those enrollment forms into new patient starts, but the demand has been building over time as you would expect with any launch. So, I would expect as we move forward, we'll be accelerating the transition or the conversion of enrollment forms to new patient starts, as you would expect. So, we feel like we're being very successful early on, and this speaks to the investment that we made in selecting the right partners in terms of hub provider, but also specialty pharmacies, and making sure that we provided and invested in a very high-touch, robust patient experience. So, we're seeing this pay off for us now, early on in the launch, and we would expect that to continue over time.

With respect to where the patient is in their recurrence journey, whether they're first, second, or third, really the determinant for us, in terms of how we are fulfilling the physician demand is where they are in the antibiotic prescription, right? We are deploying our selling teams and making sure that we educate providers that they need to write VOWST at the same time as the antibiotic to provide the maximum time in the treatment window to fill the prescription. So, we do feel like those education efforts are paying off, but it will continue to take time.

So, that's the reason why we put forward the VOWST program as one of our patient assistance programs. At such a point in time where the patient is reaching the antibiotic regimen and we haven't been able to get VOWST through the medical exception process, it will trigger the offering of free drug. So, we feel like we have the right tools in place and the right support and assistance in place to ensure that we are to continuing to translate our physician demand into new patient starts.

Anything you want to add, Eric?

No, I think you covered it. I guess, Joe for me, to Terri's points, we're seeing the demand, which I think is first and foremost, we had hoped to see. And we are seeing the pull-through, including first-return patients, so overall very encouraging.

Perfect. And then maybe just one quick follow-up on more of the financial component. I guess, as it relates to closing one of those 3 donor facilities and then opening that central screening facility. I guess, what sort of scale should we expect on cost savings from that, and is that more of a Q4 kind of savings into 2024? How should we think about that?

Yes, maybe David can comment. Joe, I mean, as far as the donor facility, there's both a component of the facility itself. We will seek to sublet the space. There's approximately, I think its 18 FTEs. The savings will be more of a 2024 item. We may see some pieces of it at the end of 2023, but keep in mind there'll be a period cost savings as well as efficiency that will eventually roll through into COGS, and maybe David can comment further, including on the CLIA lab.

Yes, that's exactly right. I'd look for savings to be realized in 2024 going forward, and I think also as it relates to donor testing, there's a ramp-up there as our volumes increase, so I think one would start seeing that in 2024 and beyond.

Our next question comes from the line of Edward Tenthoff with Piper Sandler.

Congrats on a strong start with VOWST. Really exciting, and I know it's an important product. So, a couple of questions if I may. Firstly, just kind of a housekeeping question, and maybe a little bit early, but with the cash on hand, are you able or did you, and maybe I missed it, provide guidance in terms of what kind of runway that is? What's the milestone of the new debt? And then, as it comes to gross to net, do you anticipate that 15% to go up or down or what do you think we should be expecting in terms of pricing? Again, congrats on the launch.

Yes. Ed, good morning and thanks for the questions. I'll ask David to comment on the runway and Terry to comment on gross to net or maybe David and Terry. I think the answer to the second one is yes, we do expect it to go up, but they can provide better perspective or more fulsome perspective. So, David, on the cash.

Yes, thanks. Thanks, Ed. So, as we discussed, we ended the quarter with approximately $230 million in cash, cash equivalents investments. We have not provided runway guidance. I would just say we are focused on, as we talked about, opportunities to reduce our spend going forward, as well as we think there's tremendous opportunities to generate value as it relates to the VOWST launch and progress there.

On gross to net, as we talked about second quarter gross to net was 15%. We're not providing projections at this juncture, and as we indicated, the gross to net in the second quarter does not include any discretionary payer contracts at this point in time.

So, let me turn it over to Terri for additional color.

Sure. So, it's important to understand what's in the 15% and what's not. So, this is comprised of what it takes for us to get product to patient, right, and through the channels. So, specialty pharmacies, distributors, so on and so forth. And it also contains estimates for our assistance programs, as well as mandatory rebates, Medicaid and government programs, so on and so forth.

What it does not contain, as David shared, is discretionary rebates. Discretionary rebating is one tool that we have to ensure that we have broad, robust patient access, but I would also kind of counter that by so, balance it by saying that VOWST has an incredibly robust value proposition, supported by its clinical profile, but also by the fact that these patients are incredibly expensive. And if you use VOWST early on in the treatment paradigm, and we are seeing use there, you can achieve significant cost offsets.

So, we're going to be very judicious and thoughtful regarding how we leverage discretionary rebating moving forward. And as we do move forward through the following quarters, and have more cover to share, we will do that. Thanks for the question, Ed.

Next question comes from the line of Tessa Romero with JPMorgan.

So, for the 3 largest PBMs, are you able to give us a sense of cadence of the expected decisions here based on the cycles? On the call, you noted that 43% of your 282 new patient starts were dispensed via free drug programs. Just trying to get a sense of how you expect this to trend in the next couple of quarters here.

And then, second question for me is, can you give us a sense of what the new patient starts are looking like month-to-month qualitatively, any trend you'd point out between June and July?

Tess, good morning and thank you for the questions. I'm going to ask Terri to comment on both, the PBM cadence over time, and then kind of anecdotally, what are we seeing and maybe I'll add some comments on the end.

With respect to the PBM cadence, those conversations are actively in progress, I would say, and really begin even pre-launch, right, with the pre-approval information exchange. We made sure the payer field teams were covering those very, very important customers and ensuring that they understood the data and where we thought VOWST was best utilized and the value proposition. So, they're really going in now to reinforce those historical conversations that they've had and spend time with the clinical teams, and then you typically enter this phase of additional discussions/negotiations, and that's really still to come. So, we see that these conversations playing out over the rest of the year and I look forward to sharing more as we have more to share.

Free drugs you asked about. The free drug utilization is in line with the estimates that we had pre-approval. So, we're pretty pleased about that. This is an important tool for us to provide a positive patient and provider experience very early on, and we feel like that will pay dividends to us later on with respect to demand.

What I'll also tell you though, there are really 2 important components to the free drug program. One is the voucher program, which is triggered when a patient exceeds the treatment window when we're trying to navigate the medical exception process with them. So, this is something we anticipate. It's a program, really, we anticipate working itself out of a job, if you will to a large extent, as payer policies are issued and the prior authorization processes become more automatic. They'll become quicker, and patients shouldn't need to leverage that program as much as they might today.

The second element of free drug is a more traditional income qualification, PAP. And we are seeing utilization of that program largely by Medicare patients today. And we always knew that Medicare patients would have affordability challenges until the IRA takes effect. But in 2025, when the cost-sharing provisions and benefit design changes for Part D is mandated by the Inflation Reduction Act, we would anticipate this being another program that we see decline. So, hopefully, that color helps.

And maybe I'll just add, Tess, on top, that, in general, it's early. So, we're certainly cognizant of the fact that it's early. But we saw strong demand. We saw it across HCP specialties. We saw it across recurrent CDI patient profiles, including first recurrence. So, while early, we're really encouraged with what we've seen, and we're excited to continue, executing on the launch with Nestle.

Yes, and we did see, to your final question, growth month-on-month, as you would expect. So, we are seeing growth as we move through the months and the periods.

Next question comes from the line of Jeff Jones with Oppenheimer.

Congratulations on a great quarter. With respect about sales, can you comment on how much of that $1.6 million in 2Q are attributable to inventory build or channel stocking versus new patient starts? And the second question, can you provide any additional color to understand the profit share reported versus revenue and how you see that trending moving forward? Thank you.

Yes, Jeff, good morning, and thank you for the questions. Maybe David and I can handle those 2. On the first, there was an initial purchase of inventory from Nestle, but in terms of build or inventory build, I think David in his prepared remarks had a comment on how much was in the channel, which was not that much. But beyond that, maybe I can just comment and then David can take it further.

We didn't expect to see -- we don't think we have seen, warehousing of patients, right? This is not a chronic disease. This is an acute disease. And the breadth of prescribers that we have seen, I think, suggests to us that, whereas we did hear a couple of anecdotes of some of the physicians that we know well that had a number of patients on vanc taper and they've been waiting for the moment that VOWST would be available and switch some of those patients, that was really the minority of what we saw in this first period of launch. So, I don't think that there's an inventory that's really pushing this number. And maybe David can comment further and on the second question as well.

Yes, thanks, Eric. Yes, as we reported second quarter sales, $1.6 million, it was comprised of 105 VOWST units. Our estimation is at that point in time that represented less than 2 weeks of inventory in the channel at the specialty pharmacies. So, there is not a whole lot of channel inventory and that would be our expectation going forward as well.

I think your second question was about VOWST sales versus the profit loss sharing. So, what we reported the $1.6 million, those are the net sales of VOWST for the second quarter, that then generated a net loss of $4.3 million, which is shared 50:50 between Nestle and Seres. So, our books reflect that $2.1 million, the 50% of that $4.3 million.

How that's going to change over time? As VOWST sales increase, we are driving with our collaborator Nestle towards generating profitability as it relates to the VOWST P&L. We think that's very much achievable. And if you think about the sales and marketing expenses, we are fortunate to leverage Nestle's infrastructure and capabilities and believe that we can commercialize VOWST in a very cost-efficient manner.

(Operator Instructions) There are no further questions at this time. I would like to turn the call back over to the management team.

Thank you, operator, and thanks, you all, for joining us this morning. We look forward to updating you on our progress soon. Have a great week. Thanks very much.

Ladies and gentlemen, thank you for -- ladies and gentlemen, this conference has concluded. You may now disconnect.