UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
(Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No |
As of August 9, 2024, the registrant had
Seres Therapeutics, Inc.
INDEX
2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or the Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including without limitation statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, manufacturing activities and related timing, expected benefits of our restructuring initiative and cost saving measures, commercialization efforts and related timing, our ability to continue as a going concern, timing and likelihood of completing the pending Transaction (as defined herein), the completion of the production suite and milestone payments under the Bacthera Agreement, our rights and potential resolutions under the Oaktree Credit Agreement and our ability or intention to pursue any remedies thereunder, or the timing of any of the foregoing, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this report titled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
TRADEMARKS, SERVICE MARKS AND TRADENAMES
We have proprietary rights to trademarks used in this Quarterly Report, which are important to our business and many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Quarterly Report are without the ® and symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This Quarterly Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
SUMMARY RISK FACTORS
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:
3
4
5
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
SERES THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share data)
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June 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Collaboration receivable - related party |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease assets |
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Restricted cash |
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Restricted investments |
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Other non-current assets (1) |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities (2) |
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Operating lease liabilities |
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Deferred income - related party |
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Total current liabilities |
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Long term portion of note payable, net of discount |
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Operating lease liabilities, net of current portion |
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Deferred revenue - related party |
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Warrant liabilities |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ deficit |
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( |
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( |
) |
Total liabilities and stockholders’ deficit |
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$ |
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$ |
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[1]
[2]
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
SERES THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (INCOME)
(unaudited, in thousands, except share and per share data)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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- related party |
$ |
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$ |
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$ |
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$ |
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Total revenue |
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Operating expenses: |
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Research and development expenses |
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$ |
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General and administrative expenses |
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$ |
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Collaboration (profit) loss sharing - related party |
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( |
) |
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$ |
( |
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Total operating expenses |
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$ |
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(Loss) income from operations |
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( |
) |
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$ |
( |
) |
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( |
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Other income (expense): |
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Interest income |
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$ |
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Interest expense |
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( |
) |
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( |
) |
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$ |
( |
) |
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( |
) |
Other income (expense) |
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( |
) |
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$ |
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( |
) |
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Total other expense, net |
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( |
) |
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( |
) |
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$ |
( |
) |
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( |
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Net (loss) income |
$ |
( |
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$ |
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$ |
( |
) |
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$ |
( |
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Net (loss) income per share attributable to common stockholders, basic |
$ |
( |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Net (loss) income per share attributable to common stockholders, diluted |
$ |
( |
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$ |
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$ |
( |
) |
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$ |
( |
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Weighted average common shares outstanding, basic |
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Weighted average common shares outstanding, diluted |
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Other comprehensive (loss) income: |
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Unrealized (loss) income on investments, net of tax of $ |
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( |
) |
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Currency translation adjustment |
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( |
) |
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Total other comprehensive (loss) income |
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( |
) |
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Comprehensive loss (income) |
$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
SERES THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(unaudited, in thousands, except share data)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Par |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock upon vesting of RSUs, net of tax withholdings |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock under ESPP |
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— |
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— |
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Issuance of common stock from at the market equity offering, net of issuance costs of $ |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
||||
Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock upon vesting of RSUs, net of tax withholdings |
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|
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— |
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— |
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— |
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— |
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— |
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|
Issuance of common stock from at the market equity offering, net of issuance costs of $ |
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— |
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— |
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Issuance of warrants (Note 9) |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net income |
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— |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Par |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon vesting of RSUs and PSUs, net of tax withholdings |
|
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( |
) |
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— |
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— |
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— |
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Issuance of common stock under ESPP |
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— |
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— |
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— |
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Issuance of common stock from at the market equity offering, net of issuance costs of $ |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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|
— |
|
|
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— |
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— |
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|
|
— |
|
|
|
( |
) |
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|
( |
) |
Balance at March 31, 2024 |
|
|
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|
$ |
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|
$ |
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|
$ |
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|
$ |
( |
) |
|
$ |
( |
) |
||||
Issuance of common stock upon exercise of stock options |
|
|
— |
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— |
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|
— |
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— |
|
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|
— |
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|
Issuance of common stock upon vesting of RSUs, net of tax withholdings |
|
|
|
|
|
|
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( |
) |
|
|
— |
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— |
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|||
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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||
Other comprehensive loss |
|
|
— |
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— |
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— |
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— |
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|
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— |
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Net loss |
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at June 30, 2024 |
|
|
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|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
SERES THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
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Six Months Ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization expense |
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Non-cash operating lease cost |
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Net (accretion) amortization of (discounts) premiums on investments |
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( |
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Amortization of debt issuance costs |
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Loss on extinguishment of debt |
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Loss on disposal of fixed assets |
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Impairment of long-lived assets |
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Change in fair value of warrant liabilities |
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( |
) |
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( |
) |
Collaboration (profit) loss sharing - related party (3) |
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Changes in operating assets and liabilities: |
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||
Prepaid expenses and other current and other non-current assets |
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||
Collaboration receivable - related party |
|
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( |
) |
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( |
) |
Inventories |
|
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( |
) |
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( |
) |
Deferred income - related party |
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Deferred revenue - related party |
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( |
) |
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Accounts payable |
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( |
) |
|
Operating lease liabilities |
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( |
) |
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( |
) |
Accrued expenses and other current and long-term liabilities (4) |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of investments |
|
|
|
|
|
( |
) |
|
Sales and maturities of investments |
|
|
|
|
|
|
||
Sales of restricted investments |
|
|
|
|
|
|
||
Net cash provided by investing activities |
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from at the market equity offering, net of issuance costs |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Issuance of common stock under ESPP |
|
|
|
|
|
|
||
Proceeds from issuance of debt, net of issuance costs |
|
|
|
|
|
|
||
Repayment of notes payable |
|
|
|
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Property and equipment purchases included in accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
Prepaid rent reclassified to right-of-use assets |
|
$ |
|
|
$ |
|
||
Lease liability arising from obtaining right-of-use assets |
|
$ |
|
|
$ |
|
||
Recognition of warrant liabilities |
|
$ |
|
|
$ |
|
||
Warrants issued related to Term Loan and recorded as debt discount (Note 9) |
|
$ |
|
|
$ |
|
[3]
[4]
9
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
SERES THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(Unaudited)
1. Nature of the Business and Basis of Presentation
Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of
The Company’s product, VOWST, formerly called SER-109, was approved by the U.S. Food and Drug Administration (“FDA”) on April 26, 2023 and is the first and only orally administered microbiome therapeutic. VOWST is indicated to prevent the recurrence of Clostridioides difficile infection (“CDI”) in patients 18 or older following antibacterial treatment for recurrent CDI. The Company launched VOWST in the United States with its collaborator, Nestlé Health Science (“Nestlé”), in June 2023.
Building upon VOWST, the Company is progressing the Phase 1b clinical trial of SER-155, a live biotherapeutic candidate consisting of a 16-strain consortium of cultivated bacteria designed to prevent gastrointestinal (“GI”)-derived infections and resulting bloodstream infections, as well as induce immune tolerance responses to reduce the incidence of graft-versus-host-disease (“GvHD”) in patients undergoing allogeneic hematopoietic stem cell transplantation (“allo-HSCT”). Study cohort 1, which included 13 participants, was designed to assess safety and drug pharmacology, including the gastrointestinal microbiome data from the first 100 days, which showed the successful engraftment of SER-155 bacterial strains in all nine subjects with evaluable microbiome samples, and a substantial reduction in the cumulative incidence of pathogen domination (a biomarker associated with the risk of serious GI infections and enteric-derived bloodstream infections, as well as GvHD) as compared to a reference cohort of patients. The tolerability profile observed was favorable, with no serious adverse events attributed to SER-155 administration. Enrollment in study cohort 2, which includes 45 participants, was completed in April 2024. Study cohort 2 incorporates a randomized, double-blinded placebo-controlled 1:1 design to further evaluate safety and engraftment as well as clinical outcomes, and data readout is anticipated in September 2024.
The Company has built and deploys a reverse translational platform and knowledge base for the discovery and development of live biotherapeutics, and maintains extensive proprietary know-how that may be used to support future research and development efforts. This platform incorporates high-resolution analysis of human clinical data to identify microbiome biomarkers associated with disease and non-disease states; preclinical screening using human cell-based assays and in vitro/ex vivo and in vivo disease models customized for live biotherapeutics; and microbiological capabilities and a strain library that spans broad biological and functional breadth to both identify specific microbes and microbial metabolites that are associated with disease and to design consortia of bacteria with specific pharmacological properties. In addition, the Company owns a valuable intellectual property estate related to the development and manufacture of live biotherapeutics.
On August 5, 2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Société des Produits Nestlé S.A. (“SPN”), a wholly-owned subsidiary of Nestlé S.A., pursuant to which the Company agreed, subject to the satisfaction or waiver of the conditions set forth therein, to sell the Company’s VOWST microbiome therapeutic business (the “VOWST Business”), including inventory and equipment, certain patents and patent applications, know-how, trade secrets, trademarks, domain names, marketing authorizations and related rights, documents, materials, business records and data and contracts that are used or held for use primarily in the development, commercialization and manufacturing of the microbiome product sold under the brand name VOWST, formerly known as SER-109 (the “Product”), as provided for in accordance with the terms of the Purchase Agreement to SPN and its designated affiliates (collectively, “Nestlé Health Science”), and Nestlé Health Science will assume certain liabilities from the Company (the "Transaction"). As consideration for the Transaction, SPN has agreed to pay the Company the following consideration (the “Transaction Consideration”):
11
As they are earned, the Milestone Payments will be satisfied as follows: (i) first, by set-off against all accrued interest on the Prepaid Milestone until the amount of such accrued interest has been paid in full, (ii) second, by set-off against the outstanding balance of the Prepaid Milestone until the Prepaid Milestone has been repaid in full and (iii) thereafter, in cash. If any amount of the Prepaid Milestone (and any accrued interest thereon) remains outstanding as of following the last day of the Milestone Period (defined below), the balance thereof (together with any interest accrued thereon) will be forgiven and the right of set-off of SPN with respect thereto will be deemed forfeited. The Installment Payment due on July 1, 2025 will be reduced by an amount related to certain employment obligations assumed by SPN through the period prior to the Closing Date.
The Company and SPN will share 50/50 in the net profit or net loss achieved during the period from the date of Closing until December 31, 2025 (the “Profit Sharing Period”), with the net profit or net loss calculated as (i) the net sales of VOWST in the United States and Canada, plus (ii) other income received in connection with the grant of a license or sublicense with respect to VOWST in the United States and Canada as described in the Purchase Agreement, minus (iii) allowable expenses directly attributable or reasonably allocable to certain development activities, commercialization activities, medical affairs activities, manufacturing activities or other relevant activities, as described in the Purchase Agreement. During the Profit Sharing Period, the Company will reimburse SPN for (i) certain payments under the exclusive license agreement between the Company and Memorial Sloan Kettering Cancer Center, (ii) certain costs incurred in connection with an ongoing post-marketing safety study of VOWST and (iii)
The Closing is subject to the approval of the transaction by the Company’s stockholders and other customary conditions. At Closing, in exchange for a payment to be made by SPN to Bacthera AG, the Long Term Manufacturing Agreement, dated November 8, 2021 between the Company and Bacthera AG (the “Bacthera Manufacturing Agreement”) will be terminated and each of Bacthera and Seres will release one another from any and losses, liabilities or other obligations arising thereunder with respect to the period ending as of the date of the Closing, including without limitation any milestone payments required to be paid to Bacthera thereunder.
As a condition to Closing, the Company and SPN will enter into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which SPN will agree to purchase
As a condition to Closing, the parties intend to enter into a Transition Services Agreement (the “TSA”), which will provide for services to be performed by the Company in order to facilitate a transition of the business associated with the VOWST Business to SPN and its affiliates. The scope of the transition services is expected to include the provision of certain manufacturing services and certain administrative functions related to the VOWST Business and operations, including the maintenance of certain manufacturing services and the related facility in which such services are currently conducted. The Company will provide the manufacturing services until December 31, 2025 and other services, until the later of the period specified in the schedule to the TSA for each service or June 30, 2026. SPN will agree to pay the Company for certain fixed costs, including a monthly fixed fee for preserved raw material suspension manufacturing, and will reimburse the Company for the costs of any transition services performed by the Company under the TSA. The know-how and other intellectual property generated in connection with the performance of the TSA will be owned by SPN with the Company having a non-exclusive license to such know-how and other intellectual property under the Cross-License Agreement. During the term of the TSA, upon SPN request, the Company will transfer the manufacturing services to a third party service provider designated by SPN. In the event of a material failure by the Company to maintain the manufacturing facility under the TSA, SPN will have step-in rights to negotiate to enter into a direct lease with the landlord of the manufacturing facility with respect to the portion of such facility used in connection with the VOWST Business or to cause such services to be performed, with any reasonable out-of-pocket costs and expenses incurred in connection therewith reimbursed by the Company.
As a condition to Closing, the Company intends to enter into a cross-license agreement with SPN under which the Company will grant to SPN a perpetual, worldwide, non-exclusive, fully paid-up license under certain Company patents that have been issued or
12
will issue in the future and current know-how controlled by the Company that is not transferred to SPN pursuant to the Purchase Agreement. In the field of the treatment of CDI and recurrent CDI and associated complications (collectively the “CDI Field”) the license to SPN under such Company patents and know-how would be exclusive to SPN for five years after Closing and co-exclusive between SPN and the Company following that five year period. The license from the Company to SPN is to issued Company patents that currently or in the future cover the Product or improvements thereof, and know-how that is used or reasonably useful in connection with the exploitation of the VOWST Business. The Company will also grant SPN an exclusive, perpetual, worldwide, fully paid-up license under issued Company patents that currently or in the future cover the Product and improvements thereof and know-how that is used or reasonably useful in connection with the exploitation of the Product to exploit SER-262 in the CDI Field. The license to SPN would be exclusive to SPN for five years after Closing and co-exclusive between SPN and us following that five year period. SPN will grant to the Company a perpetual, worldwide, non-exclusive license under the patents and know-how that are transferred to SPN pursuant to the Purchase Agreement or developed under the TSA, for the Company’s products for use outside of the CDI Field, and after five years from Closing for Company products containing designed, cultivated, bacterial consortia not manufactured using human stool (excluding SER-262) in the CDI Field. From and after Closing, certain license agreements between the Company, SPN, and/or their respective affiliates will terminate and be of no further force or effect, except as contemplated by the Purchase Agreement.
Concurrently with the execution of the Purchase Agreement, the Company’s directors and executive officers and certain stockholders affiliated with Flagship Pioneering, Inc. entered into support agreements with the Company and SPN (the “Support Agreements”), pursuant to which, among other things and subject to the terms and conditions therein, such parties agreed, solely in their capacities as holders of shares of common stock (collectively, the “Subject Shares”), to vote all Subject Shares beneficially owned by such parties at every meeting of the stockholders of the Company (including the special meeting to consider the transactions contemplated by the Purchase Agreement) (i) in favor of adopting and approving the Purchase Agreement and the transactions contemplated by the Purchase Agreement, (ii) against any proposal that would otherwise be reasonably be expected to adversely affect the transactions contemplated by the Purchase Agreement, (iii) against any Acquisition Proposal (as defined therein), and (iv) in favor of approving any proposal to adjourn or postpone the special meeting of stockholders to a later date, if there are not sufficient votes for the adoption of the Purchase Agreement on the date on which such meeting is held. In addition, each stockholder party to a Support Agreement provided an irrevocable proxy to SPN to vote such party’s Subject Shares in favor of adopting and approving the Purchase Agreement and the transactions contemplated by the Purchase Agreement.
As a condition to Closing, the parties intend to enter into assignment and assumption of lease agreements (the “Assignment and Assumption Agreements”). Under the Assignment and Assumption Agreements, the Company will assign to SPN or its designated affiliates the Company’s rights in, to and under certain real property leases, and SPN or its designated affiliates will assume the liabilities related thereto.
As a condition to Closing, the parties intend to enter into an employee support agreement (the “Employee Support Agreement”). Under the Employee Support Agreement, among other things and subject to the terms and conditions therein, certain employees of the Company related to the VOWST Business who accept employment with SPN or one of its designated affiliates will provide the services they provided to the Company prior to the Transaction to SPN, as well as other services as SPN may reasonably request, from Closing until the day prior to the beginning of SPN’s or its designated affiliate’s next pay period following the Closing. SPN will reimburse the Company’s out of pocket costs in connection with such employees’ services, including certain compensation and benefits paid or provided to such employees pursuant to the terms of the Employee Support Agreement.
The Company is obligated to use the proceeds from the completion of the Transaction to fully retire its senior secured debt facility with Oaktree Capital Management. The Company intends to use the remaining proceeds to support the further advancement of SER-155 and the Company’s other wholly-owned cultivated live biotherapeutic candidates for medically vulnerable patient populations with potential to address large commercial opportunities.
The Company expects to incur certain significant costs relating to the Transaction, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments. Through June 30, 2024, these costs amounted to approximately $
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to potential commercialization. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.
The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the
13
normal course of business. As of June 30, 2024, the Company had an accumulated deficit of $
The Company’s primary focus has been supporting commercialization, including the manufacture of VOWST, and the completion of the SER-155 Phase 1b study Cohort 2, which requires capital and resources. Other than VOWST, the Company’s product candidates are in development, and will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to potential commercialization. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any product candidate developed will obtain necessary government regulatory approval, or that any approved product will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.
Primarily as a result of the costs associated with commercializing VOWST and continuing the research and development efforts for other product candidates and preclinical programs, the Company incurred a net loss of $
The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements through receipt of the upfront payments due upon closing of the Transaction and subsequent payments that are contingent upon compliance with the TSA, as well as other potential financing transactions, including selling shares under the Company’s at the market equity offering. The Transaction is subject to stockholder approval, which has not been received as of the date of this Quarterly Report on Form 10-Q. Additionally, there can be no assurance that the Company will be able to raise additional capital to fund operations with terms acceptable to the Company, or at all. Because certain elements of management’s plans to mitigate the conditions that raised substantial doubt about the Company’s ability to continue as a going concern are outside of the Company’s control, including obtaining stockholder approval for and satisfying other closing conditions to the Transaction and the ability to raise capital through an equity or other financing, those elements cannot be considered probable according to Accounting Standards Codification (“ASC”) 205-40, Going Concern (“ASC 205-40”), and therefore cannot be considered in the evaluation of mitigating factors. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for 12 months from the date these condensed consolidated financial statements are issued.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on March 5, 2024 (the “Annual Report”).
The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2023 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.
2. Summary of Significant Accounting Policies
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2023, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2024.
14
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. In the unaudited condensed consolidated financial statements, the Company uses estimates and assumptions related to revenue recognition and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates.
Restricted Cash
The Company held restricted cash of $
Cash, cash equivalents and restricted cash were comprised of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, non-current |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose significant segment expenses and other segment items on an interim and annual basis, and provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative threshold to determine its reportable segments. The new disclosure requirements are also applicable to entities that account and report as a single operating segment entity. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact related to the adoption of ASU 2023-07 on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which requires public entities to disclose specific categories in the effective tax rate reconciliation as well as expanded disclosures on income taxes paid by jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact related to the adoption of ASU 2023-09 on its financial statement disclosures.
3. Fair Value Measurements
The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|
|
Fair Value Measurements as of December 31, 2023 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Money market funds are valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.
As of June 30, 2024 and December 31, 2023, the Company held a restricted investment of $
Level 3 financial liabilities consist of the warrant liabilities for which there is no current market such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded through other income (expense). The Company uses a Monte-Carlo simulation model which includes the Black-Scholes option pricing model to value the Level 3 warrant liabilities at inception and on each subsequent reporting date. This model incorporates transaction details such as the Company’s stock
15
price, contractual terms of the underlying warrants, maturity, risk free rates, volatility, as well as the term to achievement of estimated sales targets. The unobservable inputs for all of the Level 3 warrant liabilities are volatility and the term to achievement of estimated sales targets. The Company utilizes its historical and implied volatility, using its closing common stock prices and market data, to reflect future volatility over the expected term of the warrants. The Company estimates the time to achievement of sales targets of VOWST using information and forecasts generated by the Company in consideration of the terms of the 2021 License Agreement. As of June 30, 2024, given the anticipated Transaction and expected repayment of the Oaktree Term Loan, the probability of drawing the Tranche B and C Loans that would trigger the issuance of these warrants was deemed to be remote. As a result, the fair value of the warrant liabilities at June 30, 2024 was deemed to be $
As of December 31, 2023, the Level 3 inputs to the warrant liabilities are as follows:
|
|
|
|
|
|
|
December 31, 2023 |
|
|
Volatility |
|
|
% |
|
Term (in years) |
|
|
|
A reconciliation of the beginning and ending balances for the six months ended June 30, 2024 for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):
|
|
Warrant Liabilities |
|
|
|
|
|
|
|
Balance as of December 31, 2023 |
|
$ |
|
|
Issuance of warrants |
|
|
|
|
Adjustment to fair value |
|
|
( |
) |
Balance as of June 30, 2024 |
|
$ |
|
There were
4. Investments
As of June 30, 2024 and December 31, 2023, the Company held restricted investments of $
Investments with original maturities of less than
5. Inventories
Capitalized inventories consist of the following (in thousands):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
Prior to the FDA’s approval for VOWST on April 26, 2023, all costs for the manufacture of product supplies to support clinical development and commercial launch, including pre-launch inventory, were expensed as incurred or otherwise accounted for pursuant to the 2021 License Agreement. Pre-launch inventory manufactured prior to the FDA approval of VOWST, which was not capitalized into inventory but instead was expensed as research and development in previous periods, will be used in commercial production until it is depleted. Pre-launch inventory expensed as research and development totaled $