10-Q 1 mcrb-20240331.htm 10-Q 10-Q
false0001609809Q1--12-31http://fasb.org/us-gaap/2023#LicenseAndServiceMemberhttp://fasb.org/us-gaap/2023#LicenseAndServiceMemberP1Yhttp://fasb.org/us-gaap/2023#WarrantMember0001609809mcrb:TrancheAWarrantMembermcrb:TermLoanFacilityMember2023-04-270001609809mcrb:TrancheBWarrantMember2023-12-310001609809mcrb:NestleHealthScienceMember2023-01-012023-03-310001609809mcrb:EmployeeStockPurchasePlanMember2023-01-012023-03-310001609809mcrb:IrvineCaliforniaMember2023-06-010001609809mcrb:NestleHealthScienceMemberus-gaap:ServiceMembermcrb:TwentyTwentyOneLicenseAgreementMember2024-01-012024-03-310001609809mcrb:TrancheALoanMembermcrb:TermLoanFacilityMember2023-04-272023-04-270001609809mcrb:TwentyTwentyOneLicenseAgreementMember2023-01-012023-12-3100016098092016-01-312016-01-310001609809srt:MaximumMembermcrb:TermLoanFacilityMember2023-04-272023-04-270001609809us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001609809mcrb:TermLoanFacilityMembersrt:MinimumMember2023-04-272023-04-270001609809us-gaap:CommonStockMember2023-12-310001609809us-gaap:ComputerEquipmentMember2023-12-310001609809us-gaap:CommonStockMember2022-12-310001609809srt:ScenarioForecastMemberus-gaap:PerformanceSharesMember2024-10-012024-10-310001609809mcrb:ServiceBasedRestrictedStockUnitsRsusMember2024-01-012024-03-310001609809us-gaap:RelatedPartyMember2024-03-310001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2023-12-310001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2024-01-012024-03-310001609809mcrb:LegalContingenciesMember2024-03-310001609809mcrb:AtTheMarketEquityOfferingProgramMembermcrb:SalesAgreementMembermcrb:CowenAndCompanyLimitedLiabilityCompanyMember2021-05-212021-05-210001609809mcrb:TermLoanFacilityMembersrt:MinimumMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809srt:MaximumMember2024-01-012024-03-310001609809mcrb:TrancheAWarrantMembermcrb:TermLoanFacilityMember2023-04-272023-04-270001609809mcrb:TrancheAWarrantMember2023-04-272023-04-270001609809mcrb:NestleHealthScienceMember2018-01-012018-12-310001609809us-gaap:PerformanceSharesMember2024-01-012024-03-310001609809mcrb:NestleHealthScienceMembermcrb:PhaseTwoStudyMember2016-01-310001609809mcrb:AccruedExpensesAndOtherCurrentLiabilitiesMember2024-01-012024-03-3100016098092024-05-060001609809mcrb:TermLoanFacilityMembermcrb:OaktreeCreditAgreementMember2024-01-012024-03-310001609809us-gaap:ShareBasedCompensationAwardTrancheOneMembermcrb:ServiceBasedRestrictedStockUnitsRsusMember2024-01-012024-03-310001609809mcrb:NestleHealthScienceMember2020-01-012020-12-310001609809us-gaap:AdditionalPaidInCapitalMember2022-12-310001609809mcrb:TermLoanFacilityMembermcrb:SecuredOvernightFinancingRateSofrMemberus-gaap:InterestRateCapMember2023-04-272023-04-270001609809mcrb:TermLoanFacilityMemberus-gaap:InterestRateFloorMembermcrb:SecuredOvernightFinancingRateSofrMember2023-04-272023-04-270001609809mcrb:EmployeeStockPurchasePlanMember2024-01-012024-03-310001609809mcrb:TranchebLoanMembermcrb:TermLoanFacilityMembersrt:MinimumMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809mcrb:OaktreeFundAdministrationLlcMember2023-04-272023-04-270001609809mcrb:FurnitureAndOfficeEquipmentMember2024-03-310001609809mcrb:TwentyTwentyOneLicenseAgreementMember2023-05-012023-05-310001609809us-gaap:LeaseholdImprovementsMember2024-03-310001609809mcrb:DebtInstrumentTrancheOneMembermcrb:TermLoanFacilityMembermcrb:OaktreeFundAdministrationLlcMember2023-04-2700016098092023-12-310001609809mcrb:NestleHealthScienceMember2016-01-012016-12-310001609809mcrb:TotalLiabilitiesRelatedPartyMembermcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-010001609809us-gaap:ResearchAndDevelopmentExpenseMembermcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2023-01-012023-03-310001609809us-gaap:CommonStockMember2024-01-012024-03-310001609809us-gaap:IndemnificationGuaranteeMember2023-12-310001609809us-gaap:WarrantMember2023-12-310001609809mcrb:MarketEquityOfferingMember2023-01-012023-03-310001609809mcrb:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-03-310001609809us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001609809us-gaap:RetainedEarningsMember2023-03-310001609809us-gaap:RetainedEarningsMember2023-01-012023-03-310001609809us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001609809us-gaap:CommonStockMember2023-03-310001609809mcrb:TermLoanFacilityMember2023-04-272023-04-270001609809mcrb:IrvineCaliforniaMember2023-12-310001609809mcrb:UnvestedRestrictedStockUnitsMember2023-01-012023-03-310001609809mcrb:NestleHealthScienceMember2023-12-310001609809us-gaap:ComputerEquipmentMember2024-03-310001609809us-gaap:PerformanceSharesMember2023-01-012023-03-310001609809us-gaap:RetainedEarningsMember2024-01-012024-03-310001609809us-gaap:AccountingStandardsUpdate201409Member2023-12-310001609809us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001609809mcrb:LaboratoryEquipmentMember2024-03-310001609809us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001609809us-gaap:AccountingStandardsUpdate201409Member2023-01-012023-03-310001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-212021-07-210001609809mcrb:ServiceBasedRestrictedStockUnitsRsusMember2023-01-012023-03-310001609809us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001609809mcrb:AccruedExpensesAndOtherCurrentLiabilitiesMember2023-12-310001609809mcrb:NestleHealthScienceMembermcrb:PhaseTwoBStudyMember2018-11-300001609809mcrb:TrancheDLoanMembermcrb:TermLoanFacilityMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809us-gaap:CommonStockMember2023-01-012023-03-310001609809us-gaap:LeaseholdImprovementsMember2023-12-310001609809us-gaap:WarrantMember2023-01-012023-12-310001609809us-gaap:AccountingStandardsUpdate201409Member2024-01-012024-03-310001609809mcrb:LegalContingenciesMember2023-12-310001609809mcrb:LaboratoryEquipmentMember2023-12-310001609809us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001609809us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-3100016098092023-03-3100016098092023-01-012023-09-300001609809us-gaap:ShareBasedCompensationAwardTrancheTwoMembermcrb:ServiceBasedRestrictedStockUnitsRsusMember2024-01-012024-03-310001609809mcrb:TranchebLoanMembermcrb:TermLoanFacilityMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809mcrb:TrancheCLoanMembermcrb:TermLoanFacilityMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809mcrb:SpringHousePennsylvaniaMember2022-04-012022-04-300001609809mcrb:TrancheALoanMembermcrb:TermLoanFacilityMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809us-gaap:FairValueMeasurementsRecurringMember2024-03-310001609809mcrb:NestleHealthScienceMembermcrb:PhaseTwoBStudyMember2018-01-012018-12-310001609809mcrb:FurnitureAndOfficeEquipmentMember2023-12-310001609809srt:MaximumMember2024-03-310001609809mcrb:NestleHealthScienceMember2017-01-012017-12-310001609809mcrb:BactheraAgreementMember2024-03-310001609809mcrb:BactheraAgreementMember2024-03-310001609809mcrb:NestleHealthScienceMemberus-gaap:ServiceMembermcrb:TwentyTwentyOneLicenseAgreementMember2023-01-012023-03-310001609809us-gaap:ResearchAndDevelopmentExpenseMembermcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2024-01-012024-03-310001609809mcrb:MarketEquityOfferingMember2024-01-012024-03-310001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-210001609809mcrb:BactheraAgreementMember2023-12-310001609809mcrb:NestleHealthScienceMemberus-gaap:GeneralAndAdministrativeExpenseMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2023-01-012023-03-310001609809us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-03-310001609809mcrb:LoanAndSecurityAgreementMembermcrb:HerculesCreditFacilityMember2023-01-012023-03-310001609809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001609809mcrb:SeveranceAndOtherEmployeeCostsMember2023-01-012023-12-310001609809us-gaap:ResearchAndDevelopmentExpenseMembermcrb:CambridgeMassachusettsMember2024-01-012024-03-3100016098092022-12-310001609809us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001609809mcrb:TrancheCLoanMember2023-04-272023-04-270001609809mcrb:NestleHealthScienceMembermcrb:PhaseThreeStudyMember2016-01-310001609809mcrb:UnvestedRestrictedStockUnitsMember2024-01-012024-03-310001609809us-gaap:AdditionalPaidInCapitalMember2023-03-310001609809us-gaap:PerformanceSharesMember2021-01-012021-12-310001609809mcrb:TrancheBWarrantMember2023-04-272023-04-270001609809us-gaap:RetainedEarningsMember2022-12-3100016098092023-10-292023-10-290001609809mcrb:AtTheMarketEquityOfferingProgramMembermcrb:SalesAgreementMembermcrb:CowenAndCompanyLimitedLiabilityCompanyMember2024-03-310001609809us-gaap:RestrictedStockUnitsRSUMember2023-11-012023-11-300001609809mcrb:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-01-012024-03-310001609809us-gaap:AccountingStandardsUpdate201409Member2022-12-310001609809mcrb:TwentyTwentyOneLicenseAgreementMembermcrb:NestleHealthScienceMembermcrb:AccruedExpensesAndOtherCurrentLiabilitiesMember2024-03-310001609809us-gaap:WarrantMember2024-01-012024-03-310001609809us-gaap:CommonStockMember2024-01-012024-03-310001609809us-gaap:AccountingStandardsUpdate201409Member2024-03-3100016098092022-01-012022-09-300001609809mcrb:TwentyTwentyOneLicenseAgreementMember2021-07-012021-07-010001609809mcrb:AccruedExpensesAndOtherCurrentLiabilitiesMember2024-03-3100016098092023-01-012023-03-310001609809mcrb:TranchebLoanMember2023-04-272023-04-270001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-012021-07-0100016098092023-01-012023-12-310001609809us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-3100016098092024-01-012024-03-310001609809us-gaap:WarrantMember2024-03-310001609809us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-03-310001609809us-gaap:RetainedEarningsMember2023-12-310001609809mcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-210001609809us-gaap:RetainedEarningsMember2024-03-310001609809us-gaap:PerformanceSharesMember2023-04-012023-04-300001609809mcrb:RetentionRestrictedStockUnitsMember2024-01-012024-03-310001609809mcrb:NestleHealthScienceMember2024-03-310001609809srt:MinimumMembermcrb:SpringHousePennsylvaniaMember2022-04-012022-04-300001609809us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001609809us-gaap:ConstructionInProgressMember2024-03-310001609809mcrb:PerformanceBasedRestrictedStockUnitsPsusMember2023-01-012023-03-310001609809mcrb:TrancheCWarrantMember2023-12-310001609809us-gaap:ConstructionInProgressMember2023-12-310001609809mcrb:IrvineCaliforniaMembersrt:MinimumMember2023-06-012023-06-300001609809us-gaap:IndemnificationGuaranteeMember2024-03-310001609809us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001609809mcrb:TermLoanFacilityMembermcrb:DebtInstrumentTrancheTwoMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809us-gaap:AdditionalPaidInCapitalMember2023-12-310001609809mcrb:LoanAndSecurityAgreementMembermcrb:OaktreeCreditAgreementMember2024-03-310001609809us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMemberus-gaap:LicenseMember2021-01-012021-12-310001609809mcrb:TermLoanFacilityMembersrt:ScenarioForecastMember2026-06-302026-06-300001609809mcrb:TrancheAWarrantMember2023-04-270001609809mcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:AccruedExpensesAndOtherCurrentLiabilitiesMembermcrb:TwentyTwentyOneLicenseAgreementMember2023-12-310001609809mcrb:TrancheBWarrantMember2024-03-310001609809mcrb:NestleHealthScienceMemberus-gaap:GeneralAndAdministrativeExpenseMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2024-01-012024-03-3100016098092022-04-010001609809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001609809mcrb:LoanAndSecurityAgreementMembermcrb:TermLoanFacilityMembermcrb:OaktreeCreditAgreementMember2024-03-310001609809us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001609809mcrb:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-12-310001609809mcrb:CambridgeMassachusettsMember2024-01-012024-03-3100016098092024-02-220001609809srt:MinimumMember2024-03-310001609809mcrb:NestleHealthScienceMember2024-01-012024-03-3100016098092023-04-272023-04-270001609809us-gaap:CommonStockMember2023-01-012023-03-310001609809us-gaap:AdditionalPaidInCapitalMember2024-03-310001609809mcrb:TrancheCLoanMember2023-04-2700016098092023-11-020001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-010001609809srt:MinimumMember2024-01-012024-03-310001609809us-gaap:AccountingStandardsUpdate201409Member2023-03-310001609809us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001609809mcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:AccruedExpensesAndOtherCurrentLiabilitiesMembermcrb:TwentyTwentyOneLicenseAgreementMember2024-03-310001609809mcrb:SpringHousePennsylvaniaMember2022-04-010001609809us-gaap:CommonStockMember2024-03-310001609809mcrb:TermLoanFacilityMembermcrb:OaktreeFundAdministrationLlcMember2023-04-270001609809mcrb:AccelerationOfUnvestedEquityAwardsMember2023-01-012023-12-310001609809mcrb:TrancheCWarrantMember2024-03-310001609809us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-3100016098092024-02-210001609809mcrb:HerculesCapitalIncMembermcrb:TrancheALoanMembermcrb:TermLoanFacilityMember2023-04-272023-04-270001609809mcrb:AtTheMarketEquityOfferingProgramMembermcrb:SalesAgreementMembermcrb:CowenAndCompanyLimitedLiabilityCompanyMember2023-01-012023-03-310001609809mcrb:AtTheMarketEquityOfferingProgramMembermcrb:SalesAgreementMembermcrb:CowenAndCompanyLimitedLiabilityCompanyMember2024-01-012024-03-310001609809mcrb:EmployeeStockOptionMarketConditionMember2024-01-012024-03-310001609809mcrb:TranchebLoanMember2023-04-270001609809us-gaap:GeneralAndAdministrativeExpenseMembermcrb:CambridgeMassachusettsMember2024-01-012024-03-310001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMember2023-01-012023-03-310001609809mcrb:PerformanceBasedRestrictedStockUnitsPsusMember2024-01-012024-03-310001609809mcrb:TwentyTwentyOneLicenseAgreementMembermcrb:NestleHealthScienceMember2024-03-310001609809mcrb:NestleHealthScienceMember2016-02-290001609809us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-03-310001609809us-gaap:FairValueMeasurementsRecurringMember2023-12-310001609809us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-03-310001609809mcrb:NestleHealthScienceMemberus-gaap:ServiceMembermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-210001609809mcrb:NestleHealthScienceMemberus-gaap:AccountingStandardsUpdate201818Membermcrb:TwentyTwentyOneLicenseAgreementMember2021-07-010001609809mcrb:NestleHealthScienceMembermcrb:TwentyTwentyOneLicenseAgreementMembermcrb:AccruedExpensesAndOtherCurrentLiabilitiesMember2023-12-3100016098092023-11-022023-11-020001609809us-gaap:RelatedPartyMember2023-12-310001609809us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001609809us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001609809mcrb:LoanAndSecurityAgreementMembermcrb:TermLoanFacilityMembermcrb:OaktreeCreditAgreementMember2023-12-3100016098092024-03-31xbrli:purexbrli:sharesmcrb:TradingDaysmcrb:Employeeiso4217:USDxbrli:sharesiso4217:USD

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

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: 001-37465

 

 

Seres Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-4326290

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

101 Cambridgepark Drive

Cambridge, MA

 

02140

(Address of principal executive offices)

 

(Zip Code)

 

(617) 945-9626

(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

Common Stock, par value $0.001

MCRB

The Nasdaq Stock Market LLC

(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

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. ☐

 

 

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 May 6, 2024, the registrant had 151,447,763 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Seres Therapeutics, Inc.

INDEX

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

5

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

 

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

 

6

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the three months ended March 31, 2024 and 2023

 

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

44

Item 4. Controls and Procedures

 

44

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

45

Item 1A. Risk Factors

 

45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

86

Item 3. Defaults Upon Senior Securities

 

86

Item 4. Mine Safety Disclosures

 

86

Item 5. Other Information

 

86

Item 6. Exhibits

 

88

 

 

SIGNATURES

 

89

 

 

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, our intent or ability to transfer the listing of our common stock to The Nasdaq Capital Market, regain compliance with any applicable Nasdaq listing requirements, implement a reverse stock split, 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:

We have identified conditions and events that raise substantial doubt regarding our ability to continue as a going concern.
We may be unable to realize the expected benefits from our restructuring and other cost reduction efforts.
We are a commercial-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

3


 

We will need additional funding in order to complete development of our product candidates and commercialize VOWST and our product candidates, if approved. If we are unable to raise or access capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
The terms of the Credit Agreement and Guarantee with Oaktree Fund Administration, LLC place restrictions on our operating and financial flexibility.
We rely on third parties for certain aspects of the manufacture of our product and product candidates and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product and product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We depend heavily on the commercial success of VOWST, which was only recently approved for marketing by the FDA and launched in the United States. There is no assurance that our commercialization efforts or those of our collaborators will be successful or that we will be able to generate collaboration profit at the levels or within the timing we expect.
We have received a notice of delisting or failure to satisfy a continued listing rule from The Nasdaq Stock Market LLC.
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
Other than VOWST, we are early in our development efforts of our product candidates and may not be successful in our efforts to use our microbiome therapeutics platform to build a pipeline of product candidates and develop additional marketable drugs.
VOWST and our product candidates are based on microbiome therapeutics, which is a novel approach to therapeutic intervention.
Clinical drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Delays or difficulties in the enrollment of patients in clinical trials, could result in our receipt of necessary regulatory approvals being delayed or prevented.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we or our collaborators will not be able to commercialize our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired. Additionally, failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
The collaboration and license agreements with Société des Produits Nestlé S.A., successor in interest to Nestec Ltd., and NHSc Rx License GmbH, successor in interest to NHSc Pharma Partners (collectively, and together with their affiliates and subsidiaries, Nestlé) are important to our business. If we or Nestlé fail to adequately perform under these agreements, or if we or Nestlé terminate the agreements, the development and commercialization of our CDI and IBD product candidates could be delayed or terminated and our business would be adversely affected.
We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
Even though VOWST has received FDA approval and even if any of our product candidates receive marketing approval, VOWST and such product candidates may fail to achieve the degree of market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community necessary for commercial success.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents that are sufficient to protect our product or product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

 

4


 

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)

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,184

 

 

$

127,965

 

Collaboration receivable - related party

 

 

7,418

 

 

 

8,674

 

Inventories

 

 

41,973

 

 

 

29,647

 

Prepaid expenses and other current assets

 

 

4,606

 

 

 

9,124

 

Total current assets

 

 

165,181

 

 

 

175,410

 

Property and equipment, net

 

 

19,115

 

 

 

22,457

 

Operating lease assets

 

 

105,669

 

 

 

109,793

 

Restricted cash

 

 

8,430

 

 

 

8,185

 

Restricted investments

 

 

1,401

 

 

 

1,401

 

Other non-current assets (1)

 

 

41,466

 

 

 

41,354

 

Total assets

 

$

341,262

 

 

$

358,600

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,219

 

 

$

3,641

 

Accrued expenses and other current liabilities (2)

 

 

76,317

 

 

 

80,611

 

Operating lease liabilities

 

 

8,833

 

 

 

6,677

 

Deferred income - related party

 

 

8,109

 

 

 

7,730

 

Total current liabilities

 

 

98,478

 

 

 

98,659

 

Long term portion of note payable, net of discount

 

 

102,009

 

 

 

101,544

 

Operating lease liabilities, net of current portion

 

 

103,341

 

 

 

105,715

 

Deferred revenue - related party

 

 

95,364

 

 

 

95,364

 

Warrant liabilities

 

 

130

 

 

 

546

 

Other long-term liabilities

 

 

1,678

 

 

 

1,628

 

Total liabilities

 

 

401,000

 

 

 

403,456

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; no shares issued and outstanding at March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.001 par value; 240,000,000  shares authorized at March 31, 2024 and December 31, 2023, respectively; 151,442,034 and 135,041,467 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

151

 

 

 

135

 

Additional paid-in capital

 

 

958,479

 

 

 

933,244

 

Accumulated other comprehensive loss

 

 

 

 

 

 

Accumulated deficit

 

 

(1,018,368

)

 

 

(978,235

)

Total stockholders’ deficit

 

 

(59,738

)

 

 

(44,856

)

Total liabilities and stockholders’ deficit

 

$

341,262

 

 

$

358,600

 

[1] Includes $38,877 as of March 31, 2024 and December 31, 2023, of milestones related to the construction of the Company's dedicated manufacturing suite at BacThera AG, or Bacthera. Such amounts will form part of the right-of-use asset upon lease commencement.

[2] Includes related party amounts of $36,211 and $28,053 at March 31, 2024 and December 31, 2023, respectively (see Note 17)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except share and per share data)

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

Collaboration revenue - related party

$

 

 

$

(522

)

Total revenue

 

 

 

 

(522

)

Operating expenses:

 

 

 

 

 

Research and development expenses

 

21,702

 

 

 

43,969

 

General and administrative expenses

 

15,466

 

 

 

22,470

 

Collaboration (profit) loss sharing - related party

 

2,418

 

 

 

3,607

 

Total operating expenses

 

39,586

 

 

 

70,046

 

Loss from operations

 

(39,586

)

 

 

(70,568

)

Other income (expense):

 

 

 

 

 

Interest income

 

1,648

 

 

 

1,032

 

Interest expense

 

(4,663

)

 

 

(1,948

)

Other income

 

2,468

 

 

 

310

 

Total other expense, net

 

(547

)

 

 

(606

)

Net loss

$

(40,133

)

 

$

(71,174

)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.27

)

 

$

(0.57

)

Weighted average common shares outstanding, basic and diluted

 

146,101,581

 

 

 

125,862,975

 

Other comprehensive income (loss):

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

 

 

 

12

 

Currency translation adjustment

 

 

 

 

2

 

Total other comprehensive income (loss)

 

 

 

 

14

 

Comprehensive loss

$

(40,133

)

 

$

(71,160

)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(unaudited, in thousands, except share data)

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par
Value

 

 

Paid-in
Capital

 

 

Comprehensive
Loss (Income)

 

 

Accumulated
Deficit

 

 

Stockholders’
(Deficit) Equity

 

Balance at December 31, 2022

 

 

125,222,273

 

 

$

125

 

 

$

875,181

 

 

$

(12

)

 

$

(864,511

)

 

$

10,783

 

Issuance of common stock upon exercise of stock options

 

 

56,523

 

 

 

 

 

 

188

 

 

 

 

 

 

 

 

 

188

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

259,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

267,615

 

 

 

1

 

 

 

1,228

 

 

 

 

 

 

 

 

 

1,229

 

Issuance of common stock from at the market equity offering, net of issuance costs of $225

 

 

787,170

 

 

 

1

 

 

 

4,238

 

 

 

 

 

 

 

 

 

4,239

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,850

 

 

 

 

 

 

 

 

 

6,850

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,174

)

 

 

(71,174

)

Balance at March 31, 2023

 

 

126,592,604

 

 

$

127

 

 

$

887,685

 

 

$

2

 

 

$

(935,685

)

 

$

(47,871

)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par
Value

 

 

Paid-in
Capital

 

 

Comprehensive
Loss (Income)

 

 

Accumulated
Deficit

 

 

Stockholders’
(Deficit)

 

Balance at December 31, 2023

 

 

135,041,467

 

 

$

135

 

 

$

933,244

 

 

$

 

 

$

(978,235

)

 

$

(44,856

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

609,962

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

423,975

 

 

 

 

 

 

353

 

 

 

 

 

 

 

 

 

353

 

Issuance of common stock from at the market equity offering, net of issuance costs of $548

 

 

15,366,630

 

 

 

15

 

 

 

18,394

 

 

 

 

 

 

 

 

 

18,409

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,489

 

 

 

 

 

 

 

 

 

6,489

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,133

)

 

 

(40,133

)

Balance at March 31, 2024

 

 

151,442,034

 

 

$

151

 

 

$

958,479

 

 

$

 

 

$

(1,018,368

)

 

$

(59,738

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(40,133

)

 

$

(71,174

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

6,489

 

 

 

6,850

 

Depreciation and amortization expense

 

 

1,559

 

 

 

1,400

 

Non-cash operating lease cost

 

 

2,393

 

 

 

2,070

 

Net (accretion) amortization of (discounts) premiums on investments

 

 

 

 

 

(187

)

Amortization of debt issuance costs

 

 

465

 

 

 

187

 

Loss on disposal of fixed assets

 

 

293

 

 

 

 

Impairment of long-lived assets

 

 

3,267

 

 

 

 

Change in fair value of warrant liabilities

 

 

(416

)

 

 

 

Collaboration (profit) loss sharing - related party (3)

 

 

 

 

 

3,607

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current and other non-current assets

 

 

4,406

 

 

 

3,044

 

Collaboration receivable - related party

 

 

1,256

 

 

 

 

Inventories

 

 

(12,326

)

 

 

 

Deferred income - related party

 

 

379

 

 

 

 

Deferred revenue - related party

 

 

 

 

 

522

 

Accounts payable

 

 

1,594

 

 

 

(3,806

)

Operating lease liabilities

 

 

(218

)

 

 

(67

)

Accrued expenses and other current and long-term liabilities (4)

 

 

(4,244

)

 

 

(19,030

)

Net cash used in operating activities

 

 

(35,236

)

 

 

(76,584

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(62

)

 

 

(4,068

)

Purchases of investments

 

 

 

 

 

(4,426

)

Sales and maturities of investments

 

 

 

 

 

11,233

 

Net cash (used in) provided by investing activities

 

 

(62

)

 

 

2,739

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from at the market equity offering, net of issuance costs

 

 

18,409

 

 

 

4,239

 

Proceeds from exercise of stock options

 

 

 

 

 

188

 

Issuance of common stock under ESPP

 

 

353

 

 

 

1,229

 

Net cash provided by financing activities

 

 

18,762

 

 

 

5,656

 

Net (decrease) in cash, cash equivalents, and restricted cash

 

 

(16,536

)

 

 

(68,189

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

136,150

 

 

 

171,215

 

Cash, cash equivalents and restricted cash at end of period

 

$

119,614

 

 

$

103,026

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

3,580

 

 

$

1,737

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

 

 

$

928

 

[3] Includes non-cash collaboration profits and losses related to pre-launch activities; subsequent to the approval of VOWST in April 2023, collaboration (profit) loss sharing - related party is included within changes in operating assets and liabilities

[4]Includes related party amounts of $8,158 and $(9,812) at March 31, 2024 and 2023, respectively (see Note 17)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


 

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 Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc. The Company is a commercial-stage microbiome therapeutics company focused on the development and commercialization of a novel class of biological drugs, which are designed to treat disease by modulating the microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state.

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 microbiome therapeutic 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 late in the third quarter of 2024.

The Company has built and deploys a reverse translational platform and knowledge base for the discovery and development of microbiome therapeutics, 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 microbiome therapeutics; 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 microbiome therapeutics.

On October 29, 2023, the Company's board of directors approved a restructuring plan to prioritize the commercialization of VOWST and the completion of the SER-155 Phase 1b study, while significantly reducing costs and supporting longer-term business sustainability (the "Restructuring Plan"). The Restructuring Plan included (i) a reduction of the Company's workforce by approximately 41% across the organization, resulting in the elimination of approximately 160 positions; (ii) significantly scaling back all non-partnered research and development activities other than the completion of the SER-155 Phase 1b study; and (iii) reducing general and administrative expenses, including consolidating office space. For additional information on the Restructuring Plan, see Note 12, Restructuring.

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 normal course of business. As of March 31, 2024, the Company had an accumulated deficit of $1,018,368 and cash and cash equivalents of $111,184.

The Company’s primary focus in recent months has been and will continue to be supporting commercialization, including the manufacture of VOWST, and the completion of the SER-155 Phase 1b study, which requires capital and resources. Other than

9


 

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 $40,133 and had net operating cash outflows of $35,236 for the three months ended March 31, 2024. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. Based on the Company’s currently available cash resources, current and forecasted level of operations, and forecasted cash flows for the 12-month period subsequent to the date of issuance of these condensed consolidated financial statements, the Company will require additional funding to supply product and support commercialization of VOWST, continue to progress the SER-155 Phase 1b study, and meet its operational obligations as they come due. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

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 financing or other strategic transactions, including potential business development transactions, and selling shares under the Company’s at the market equity offering. There can be no assurance that the Company will generate significant profit from the transfer of VOWST to Nestlé or its share of collaboration profits resulting from net sales of VOWST, or that it 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 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 March 31, 2024 and for the three months ended March 31, 2024 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 months ended March 31, 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 three months ended March 31, 2024.

10


 

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 $8,430 as of March 31, 2024 and $8,185 as of December 31, 2023, which represents cash held for the benefit of the landlords for certain of the Company’s leases. The Company has classified the restricted cash as long-term on its condensed consolidated balance sheets as the terms of the underlying leases are greater than one year.

Cash, cash equivalents and restricted cash were comprised of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

111,184

 

 

$

127,965

 

Restricted cash, non-current

 

 

8,430

 

 

 

8,185

 

Total cash, cash equivalents and restricted cash

 

$

119,614

 

 

$

136,150

 

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 information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis. 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 that the adoption of ASU 2023-07 may have on its consolidated financial statements.

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 additional information for reconciling items that exceed a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid disaggregated by federal, state and foreign taxes, and further disaggregated for specific jurisdictions that exceed 5% of total income taxes paid, among other expanded disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its consolidated financial statements.

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 March 31, 2024 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

82

 

 

$

 

 

$

 

 

$

82

 

Total assets

 

$

82

 

 

$

 

 

$

 

 

$

82

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

 

 

$

 

 

$

130

 

 

$

130

 

Total liabilities

 

$

 

 

$

 

 

$

130

 

 

$

130

 

 

 

 

Fair Value Measurements as of December 31, 2023 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

81

 

 

$

 

 

$

 

 

$

81

 

Total assets

 

$

81

 

 

$

 

 

$

 

 

$

81

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

 

 

$

 

 

$

546

 

 

$

546

 

Total liabilities

 

$

 

 

$

 

 

$

546

 

 

$

546

 

 

11


 

 

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 both March 31, 2024 and December 31, 2023, the Company held a restricted investment of $1,401, which represents a certificate of deposit that is classified as Level 2 in the fair value hierarchy.

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 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 March 31, 2024 and December 31, 2023, the Level 3 inputs to the warrant liabilities are as follows:

 

 

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Volatility

 

 

100.2

%

 

 

101.0

%

Term (in years)

 

 

1.3

 

 

 

1.3

 

 

A reconciliation of the beginning and ending balances for the three months ended March 31, 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

 

$

546

 

Issuance of warrants

 

 

 

Adjustment to fair value

 

 

(416

)

Balance as of March 31, 2024

 

 

130

 

 

There were no assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2023. There were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2024 and 2023.

4. Investments

As of March 31, 2024 and December 31, 2023, the Company held restricted investments of $1,401, the cost of which approximates current fair value. The Company did not hold any other investments as of March 31, 2024 and December 31, 2023.

Investments with original maturities of less than 90 days are included in cash and cash equivalents on the condensed consolidated balance sheets and are not included in the table above. Investments with maturities of less than 12 months are considered current assets and those investments with maturities greater than 12 months are considered non-current assets.

5. Inventories

Capitalized inventories consist of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

4,224

 

 

$

4,426

 

Work in process

 

 

37,265

 

 

 

25,221

 

Finished goods

 

 

484

 

 

 

 

Total

 

$

41,973

 

 

$

29,647

 

 

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

12


 

it is depleted. Pre-launch inventory expensed as research and development totaled $0 and $15,613 for the three months ended March 31, 2024 and 2023, respectively.

Inventory amounts written down as a result of excess, obsolescence, or unmarketability and determined not to be recoverable pursuant to the 2021 License Agreement are expensed in the period in which they are identified. There were no such write-downs during the three months ended March 31, 2024.

6. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

Laboratory equipment

 

$

29,003

 

 

$

29,081

 

Computer equipment

 

 

4,142

 

 

 

4,142

 

Furniture and office equipment

 

 

5,188

 

 

 

5,430

 

Leasehold improvements

 

 

32,039

 

 

 

33,549

 

Construction in progress

 

 

1,139

 

 

 

1,393

 

 

 

 

71,511

 

 

 

73,595

 

Less: Accumulated depreciation and amortization

 

 

(52,396

)

 

 

(51,138

)

 

 

$

19,115

 

 

$

22,457

 

 

 

 

Depreciation and amortization expense was $1,559 and 1,400 for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, the Company disposed of certain assets with a cost basis of $594 and $9, respectively. In addition, the Company recorded an impairment loss of $1,536 related to leasehold improvements at one of the Company’s locations for which impairment indicators were determined to exist as of March 31, 2024. See Note 8, Leases, for further details.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Clinical and development costs

 

$

1,405

 

 

$

1,404

 

Manufacturing and quality costs

 

 

30,574

 

 

 

31,917

 

Payroll and payroll-related costs

 

 

6,137

 

 

 

16,465

 

Collaboration payable - related party (Note 17)

 

 

36,211

 

 

 

28,053

 

Facility and other

 

 

1,990

 

 

 

2,772

 

 

 

$

76,317

 

 

$

80,611

 

As of March 31, 2024, the Company accrued a total of $28,046 payable to Bacthera for the substantial completion of the Company’s dedicated production suite for long-term supply of VOWST. This amount is included in the Manufacturing and quality costs category above.

Additionally, included within payroll and payroll-related costs as of March 31, 2024 and December 31, 2023 is $564 and $5,080, respectively, of accrued severance related to the Restructuring Plan. See Note 12, Restructuring, for further details.

8. Leases

The Company leases real estate, primarily laboratory, office and manufacturing space. The Company’s leases have remaining terms ranging from approximately one to nine years. Certain leases include one or more options to renew, exercisable at the Company’s sole discretion, with renewal terms that can extend the lease from approximately one year to ten years. The Company evaluated the renewal options in its leases to determine if it was reasonably certain that the renewal option would be exercised, given the Company’s current business structure, uncertainty of future growth, and the associated impact to real estate, the Company concluded that it is not reasonably certain that any renewal options would be exercised. Therefore, the operating lease assets and operating lease liabilities only contemplate the initial lease terms. All the Company’s leases qualify as operating leases.

In April 2022, the Company entered into a lease for additional laboratory and office space in Spring House, Pennsylvania, with a lease term of ten years and a renewal option, subject to certain conditions, for an additional five-year term. The undiscounted minimum lease payments were $3,029, net of a tenant improvement allowance of $1,184, over the original ten-year term. The lease

13


 

commenced in April 2023, at which point, the Company recorded a right-of-use asset of $3,546, which consists of the lease liability of $1,210, and $2,336 of leasehold improvements that revert back to the lessor at the termination of the lease.

In June 2023, the Company entered into a lease for a donor collection facility in Irvine, California, with a lease term of approximately six years and a renewal option, subject to certain conditions, for an additional five-year term. The undiscounted minimum lease payments are $1,079 over the original term. The lease commenced in December 2023, at which point, the Company recorded a right-of-use asset of $1,830, which consists of the lease liability of $768, and $1,062 of leasehold improvements that revert back to the lessor at the termination of the lease.

In January 2024, the Company entered into a sublease agreement with an unrelated third party to sublease a portion of its office and laboratory space in Cambridge, Massachusetts. The term of the sublease agreement commenced in March 2024 and ends on January 13, 2030. The Company will receive lease payments over the sublease term totaling $10,400. The sublessee is obligated to pay all real estate taxes and costs related to the subleased premises, including cost of operations, maintenance, repair, replacement and property management.

As of March 31, 2024, the Company identified an indicator of impairment of its donor collection facility in Cambridge, Massachusetts, as the facility is no longer being used by the Company as a result of operational efficiencies implemented related to the production process and is being marketed for sublease. The Company determined that this represents a significant adverse change in the extent in which the long-lived asset was being used. The Company determined that the location contains multiple asset groups for the purpose of the long-lived asset impairment assessment. The Company concluded that the carrying value of each asset group was not recoverable as it exceeded the future net undiscounted cash flows that are expected to be generated from the assets within the asset group. For the three months ended March 31, 2024, the Company recognized an impairment loss of $3,267, consisting of $1,731 on the operating lease right-of-use asset and $1,536 on the leasehold improvements. $2,727 of the total impairment loss is included in research and development expenses and the remaining $540 is included in general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

The following table summarizes the presentation in the Company’s condensed consolidated balance sheets of its operating leases (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets:

 

 

 

 

 

 

Operating lease assets

 

$

105,669

 

 

$

109,793

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Operating lease liabilities

 

$

8,833

 

 

$

6,677

 

Operating lease liabilities, net of current portion

 

 

103,341

 

 

 

105,715

 

Total operating lease liabilities

 

$

112,174

 

 

$

112,392

 

The following table summarizes the effect of lease costs in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Operating lease costs

 

$

5,771

 

 

$

5,410

 

Short-term lease costs

 

 

374

 

 

 

368

 

Variable lease costs

 

 

1,967

 

 

 

1,763

 

Sublease income

 

 

(376

)

 

 

 

Total lease costs

 

$

7,736

 

 

$

7,541

 

 

14


 

During the three months ended March 31, 2024 and 2023, the Company made cash payments for operating leases of $3,596 and $3,413 respectively.

As of March 31, 2024, future payments of operating lease liabilities are as follows (in thousands):

 

 

As of
 March 31, 2024

 

2024 (remaining 9 months)

 

$

16,273

 

2025

 

$

22,062

 

2026

 

$

22,674

 

2027

 

$

23,347

 

2028

 

$

23,580

 

2029 and thereafter

 

$

65,819

 

Total future minimum lease payments

 

$

173,755

 

Less: interest

 

 

(61,581

)

Present value of operating lease liabilities

 

$

112,174

 

 

As of March 31, 2024, the weighted average remaining lease term was 7.70 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 13%. As of March 31, 2023, the weighted average remaining lease term was 8.68 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 13%.

9. Notes Payable

On April 27, 2023 (the “Closing Date”), the Company entered into the Credit Agreement and Guaranty (the “Oaktree Credit Agreement”) among the Company, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto (the “Lenders”), and Oaktree Fund Administration, LLC, in its capacity as administrative agent for the Lenders (in such capacity, the “Agent”). The Oaktree Credit Agreement establishes a term loan facility of $250,000 (the “Term Loan”) consisting of (i) $80,000 (“Tranche A-1”) and (ii) $30,000 (“Tranche A-2” and collectively, “Tranche A Loan”), funded on the Closing Date. The Term Loan also consists of (i) $45,000 (the “Tranche B Loan”) and (iii) $45,000 (the “Tranche C Loan”), each of which the Company may borrow subject to certain conditions, and (iv) $50,000 (the “Tranche D Loan”) available in Oaktree’s sole discretion. The Tranche B Loan may be drawn by the Company until September 30, 2024, if VOWST net sales for the trailing six consecutive months are at least $35,000 and at least 4.5% greater in the calendar quarter prior to the Applicable Funding Date (as defined in the Oaktree Credit Agreement) over the calendar quarter immediately preceding it. The Tranche C Loan may be drawn until September 30, 2025, if VOWST net sales for the trailing 12 consecutive months are at least $120,000 and at least 4.5% greater in each of the two calendar quarters prior to the Applicable Funding Date relative, in each case, to the calendar quarter immediately preceding it. The Term Loan has a maturity date of April 27, 2029 (the “Maturity Date”).

Of the $110,000 Tranche A Loan advanced by the Lenders at closing, approximately $53,380 repaid the Company’s existing credit facility with Hercules. After deducting other transaction expenses and fees, the Company received net proceeds of approximately $50,446. The Company accounted for the repayment of the Hercules credit facility as an extinguishment in accordance with the guidance in ASC 470-50, and recognized a loss on extinguishment of $1,625 in other income (expense) in the accompanying condensed consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

Borrowings under the Term Loan bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a 2.50% floor and a 5.00% cap), plus an applicable margin of 7.875%, payable quarterly in arrears. If certain VOWST net sales targets are met, the applicable margin will be reduced from 7.875% to 7.50% through the Maturity Date. The Company is required to make quarterly interest-only payments on the Term Loan for the first three years after the Closing Date. Beginning on June 30, 2026, the Company will be required to make quarterly payments of interest, plus repay 7.50% of the outstanding principal of the Term Loan in quarterly installments until the Maturity Date, unless the interest only period is extended based upon the achievement of certain VOWST net sales targets.

The Company is obligated to pay the Lenders an exit fee equal to 1.50% of the aggregate amount of the Term Loan funded, such exit fee to be due and payable upon the earliest to occur of (1) the Maturity Date, (2) the acceleration of the outstanding Term Loan, and (3) the prepayment of the outstanding Term Loan. The Company may voluntarily prepay the outstanding Term Loan, subject to a customary make-whole for the first two years following the Closing Date plus 4.0% of the principal amount of the Term Loan prepaid, and thereafter a prepayment premium equal to (i) 4.0% of the principal amount of the Term Loan prepaid, if prepaid after the second anniversary of the Closing Date through and including the third anniversary of the Closing Date, (ii) 2.0% of the principal amount of the Term Loan if prepaid after the third anniversary of the Closing Date through and including the fourth anniversary of the Closing Date, (iii) 1.0% of the principal amount of the Term Loan if prepaid after the fourth anniversary of the Closing Date through and

15


 

including the fifth anniversary of the Closing Date, with no prepayment premium due after the fifth anniversary of the Closing Date through the Maturity Date.

The Company’s obligations under the Oaktree Credit Agreement and the other Loan Documents (as defined in the Oaktree Credit Agreement) will be guaranteed by any domestic subsidiaries of the Company that become Guarantors (as defined in the Oaktree Credit Agreement), subject to certain exceptions. The Company’s and the Guarantors’ (collectively, the “Loan Parties”) respective obligations under the Oaktree Credit Agreement and the other Loan Documents are secured by first priority security interests in substantially all assets of the Loan Parties, including intellectual property, subject to certain customary thresholds and exceptions. As of March 31, 2024, there were no Guarantors.

The Oaktree Credit Agreement contains customary representations, warranties and affirmative and negative covenants, including a financial covenant requiring the Company to maintain certain levels of cash and cash equivalents in accounts subject to a control agreement in favor of the Agent of at least $30,000 at all times commencing from 30 days after the Closing Date and decreasing to $25,000 of cash and cash equivalents in such controlled accounts after the Company borrows any Tranche B Loan. As of March 31, 2024, the Company was in compliance with all financial covenants pursuant to the Oaktree Credit Agreement.

In addition, the Oaktree Credit Agreement contains certain events of default that entitle the Agent to cause the Company’s indebtedness under the Oaktree Credit Agreement to become immediately due and payable, and to exercise remedies against the Loan Parties and the collateral securing the Term Loan, including cash. In an event of default and for its duration, as defined in the Oaktree Credit Agreement, an additional default interest rate equal to 2.0% per annum may apply to all obligations owed under the Oaktree Credit Agreement.

On the Closing Date, the Company issued to the Lenders warrants to purchase 647,589 shares (subject to certain adjustments) of the Company’s common stock (the “Tranche A Warrant”), at an exercise price per share of $6.69. The Tranche A Warrant is immediately exercisable and the exercise period expires on April 26, 2030. Upon the funding of each of the Tranche B Loan and the Tranche C Loan, the Company is required to issue to the Lenders warrants to purchase 264,922 shares (subject to certain adjustments) of the Company’s common stock on each such funding date at an exercise price equal to the trailing volume weighted average price of the Company’s common stock for the 30 trading days prior to the funding date for each tranche (the “Tranche B Warrant” and the “Tranche C Warrant,” respectively, and together the “Additional Warrants”). The Additional Warrants will be immediately exercisable upon issuance, and the exercise period will expire seven years from the date of issuance.

The Company determined that the Tranche A Loan, the Tranche A Warrant, the commitment by the Lenders to fund the Tranche B Loan and the Tranche C Loan, and the Tranche B Warrant and Tranche C Warrant, are all freestanding financial instruments. On the Closing Date, the Company evaluated the Tranche A Warrant and determined that it meets the requirements for equity classification under ASC 815, Derivatives and Hedging (“ASC 815”). The net proceeds from the Tranche A Loan were allocated to the Tranche A Warrant and the Tranche A Loan using the relative fair value method, and the relative fair value of the Tranche A Warrant, $2,785, is recorded as an increase to additional paid-in-capital on the consolidated statements of stockholder’s equity (deficit), and as a discount to the Tranche A Loan that will be amortized over the life of the Tranche A Loan using the effective interest method. The Company used the Black-Scholes option pricing model to determine the fair value of the Tranche A Warrant. Assumptions used in the Black-Scholes model included the fair market value per share of common stock on the valuation date of $5.32, the exercise price per warrant equal to $6.69, the expected volatility of 111.6%, the risk-free interest rate of 3.57%, the expected term of 7 years and the absence of a dividend.

The Additional Warrants are considered outstanding instruments at the Closing Date of the Oaktree Credit Agreement and in accordance with ASC 815, are initially recognized at their respective fair values as derivative liabilities given the variable settlement amount of their respective aggregate exercise prices. The Company adjusts the carrying values of the Additional Warrants to their respective fair values at each reporting period, until such time that the Additional Warrants are issued and their respective exercise prices become fixed, and the value of the Additional Warrants is reclassified to additional paid-in capital. The Company uses a simulation model to determine the fair value of the Additional Warrants, as described in Note 3, Fair Value Measurements. The fair value of the Tranche B Warrant and Tranche C Warrant derivative liabilities was $66, $64, $276, and $270 as of March 31, 2024 and December 31, 2023, respectively.

Changes in the fair values of the Additional Warrants are recorded as other income (expense) in the condensed consolidated statements of operations and comprehensive loss. In addition to the relative fair value of the Tranche A Warrant, the original issue discount and certain debt issuance costs were recorded as a discount to the Tranche A Loan, the total of which will be accreted to the Tranche A Loan as interest expense over the life of the Tranche A Loan using the effective interest method. The fair values of the derivative liabilities associated with the Tranche B Warrant and Tranche C Warrant are recorded as loan commitment prepaid assets on the Closing Date, which are included in the condensed consolidated balance sheets in other non-current assets, and will be reclassified as discounts to the associated Term Loan balances at such time that they are drawn.

 

16


 

The effective interest rate in effect as of March 31, 2024 was 15.9%. As of March 31, 2024 and December 31, 2023, the carrying value of the Term Loan was $102,009 and 101,544, which is classified as a long-term liability on the condensed consolidated balance sheets. The future principal payments due under the Oaktree Credit Agreement, excluding interest and the end of term charge, are as follows:

Year Ending December 31,

 

Principal

 

2024 (remaining 9 months)

 

$

 

2025

 

 

 

2026

 

 

24,750

 

2027

 

 

33,000

 

2028

 

 

33,000

 

Thereafter

 

 

19,250

 

Total

 

$

110,000

 

During the three months ended March 31, 2024, the Company recognized $4,046 of interest expense related to the Term Loan, which is reflected in interest expense on the condensed consolidated statements of operations and comprehensive loss. During the three months ended March 31, 2023, the Company recognized $1,948 of interest expense related to the Loan and Security Agreement with Hercules.

On May 1, 2024, the Company received a Notice of Default and Reservation of Rights (the “Notice”) from the Agent under the Oaktree Credit Agreement. The Notice specified that in the Agent’s view, one or more events of default have occurred under the Oaktree Credit Agreement due to (a) the Company’s non-payment of a milestone payment to Bacthera under the Bacthera Agreement which the Agent characterized as “Indebtedness” that would not be permitted under the Oaktree Credit Agreement and (b) the Company’s failure to deliver written notice to the Agent regarding such non-payment.

The Company has responded by letter to the Notice, advising the Agent that no default or event of default under the Oaktree Credit Agreement has occurred or is continuing, because the payment under the Bacthera Agreement is not due, and, as a result, no notice of non-payment was required. Moreover, even if the payment were due, the Company does not believe such payment would constitute Indebtedness (as defined in the Oaktree Credit Agreement).

Based on the above, the Company believes that it is not in default under the Oaktree Credit Agreement, and that the Agent does not have the right to accelerate the indebtedness or otherwise pursue remedies thereunder. As a result, the Company continues to classify the carrying value of the Term Loan as non-current on its condensed consolidated balance sheet as of March 31, 2024. If the Agent were to pursue any such actions, the Company intends to vigorously defend itself against them and to pursue any counterclaims available to it. The Company is attempting to resolve this matter with the Agent consensually.

10. Common Stock and Stock-Based Awards

On February 22, 2024, the Company's board of directors adopted a resolution to amend the Restated Certificate of Incorporation, subject to stockholder approval, by increasing the number of authorized shares of the Company's Common Stock from 240,000,000 shares to 360,000,000 shares, (the “Share Increase Amendment”). At the Company’s annual meeting of stockholders held on April 4, 2024, the Company’s stockholders approved the Share Increase Amendment. On April 5, 2024, the Company amended its Restated Certificate of Incorporation to reflect the Share Increase Amendment.

On May 21, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) to sell shares of the Company’s common stock, with aggregate gross sales proceeds of up to $150,000, from time to time, through an “at the market” equity offering program under which Cowen acts as sales agent. During the three months ended March 31, 2024 and 2023, the Company sold 15,366,630 and 787,170 shares of common stock under the Sales Agreement, at an average price of approximately $1.23 and $5.67 per share, raising aggregate net proceeds of approximately $18,409 and $4,238, after deducting an aggregate commission of approximately 3% and other issuance costs.

17


 

Stock Options

The following table summarizes the Company’s stock option activity since December 31, 2023:

 

 

 

Number
of Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual
Term

 

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

Outstanding as of December 31, 2023

 

 

14,844,112

 

 

$

9.64