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Edited Transcript of MCRB earnings conference call or presentation 8-Nov-18 1:30pm GMT

Q3 2018 Seres Therapeutics Inc Earnings Call

Cambridge Nov 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Seres Therapeutics Inc earnings conference call or presentation Thursday, November 8, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlo Tanzi

Seres Therapeutics, Inc. - VP of IR & Corporate Communications

* Eric D. Shaff

Seres Therapeutics, Inc. - Executive VP, Chief Operating & Financial Officer and Treasurer

* Roger James Pomerantz

Seres Therapeutics, Inc. - Chairman of the Board, President & CEO

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Conference Call Participants

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* David Huang

Canaccord Genuity Limited, Research Division - Associate

* Holly Samantha Barra

Goldman Sachs Group Inc., Research Division - Business Analyst

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Presentation

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Operator [1]

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Hello and welcome to the Seres Therapeutics Q3 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

And now I would like to introduce your host for today's call, Dr. Carlo Tanzi, Vice President, Investor Relations and Corporate Communications. Sir, you may begin.

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Carlo Tanzi, Seres Therapeutics, Inc. - VP of IR & Corporate Communications [2]

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Thank you, and good morning. A press release with the company's third quarter 2018 financial results and a business update became available at 7 a.m. Eastern Time this morning and can be found on the Investors and Media section of the company's website.

I'd like to remind you that we'll be making forward-looking statements relating to our development plans, the ability of ECOSPOR III to support SER-109 approval, the promise and potential impact of any of our microbiome therapeutics or clinical trial data, our plans to initiate clinical studies for SER-287 and SER-401, the timing and results of any clinical studies and the sufficiency of cash to fund operations. Actual results may differ materially. Additionally, these statements are subject to certain risks and uncertainties, which are discussed under the Risk Factors section of our recent SEC filings. Any forward-looking statements made on today's call represent our views as of today only. We may update these statements in the future, but we disclaim any obligation to do so.

On today's call, I'm joined by Dr. Roger Pomerantz, Seres' President, CEO and Chairman; and Eric Shaff, Chief Operating and Financial Officer. Dr. David Cook, our Chief Scientific Officer, is attending the Society of Immunotherapy for Cancer Conference and will also be on the line and available for Q&A.

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

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Roger James Pomerantz, Seres Therapeutics, Inc. - Chairman of the Board, President & CEO [3]

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Thanks, Carlo, and thank you all for joining us. Seres is working to develop new microbiome-based therapeutics for serious human diseases where dysbiosis of the gastrointestinal microbiome has a central role. We are using consortia of live bacteria as therapeutic development candidates, an entirely novel treatment modality that we believe holds great promise. Since Seres was first launched in 2012, the company has been a pioneer in this emerging area. And during this time, our understanding of the potential for microbiome therapeutics has quickly advanced. As the field has progressed, our R&D focus has also evolved to follow the most promising science and data. In particular, clinical and preclinical data from our own programs as well as external findings had demonstrated the potential for microbiome therapeutics to impact the immunology and the adjacent field of immuno-oncology. Based on our view of this significant medical potential for our approach in these areas, we will be deepening our strategic focus in these important areas.

As an important part of this strategy, we are very pleased to have recently hired Dr. Kevin Horgan as Executive Vice President and Chief Medical Officer. Over a 3-decade academic and industry career, Kevin has contributed to the development and approval of multiple therapeutics across immunology and oncology indications. He contributed to the development and approval of several leading products for inflammatory bowel disease, including Remicade, Stelara and Simponi. Most recently, Kevin was Vice President of Clinical Development at AstraZeneca where he led the development of combination immuno-oncology programs.

Now let's review the progress with our pipeline programs beginning with our SER-109 ECOSPOR III Phase III program. ECOSPOR III is a randomized placebo-controlled study designed to enroll approximately 320 patients. Study enrollment is ongoing, with approximately 100 clinical sites open across the U.S. and Canada. Several factors have continued to impact the rate of study enrollment in ECOSPOR III, including the requirement that C. difficile infection be confirmed by the laboratory detection of the C. difficile toxin. PCR-based testing often gives false positives compared to toxin testing. And as a result, toxin testing has screened out some individuals who might have otherwise been included had we only used PCR-based testing. However, what is most important is that we include appropriate patients with an objectively defined active C. difficile infection.

Based on the ECOSPOR III study screening to date, 38% of subjects screened have had a negative C. difficile toxin test despite having a positive C. diff PCR test. These subjects are C. diff carriers but do not have active C. diff infection, and they are therefore not eligible for our study. We believe our clinical development efforts are pushing the field forward and providing new medical insights about the nature of C. diff infection. Our data suggests that prior C. diff clinical studies as well as any ongoing other studies which do not use cytotoxin included -- will include a significant proportion of subjects without active disease, thereby confounding the study results.

The increasingly widespread use of unapproved FMT has also been a challenge for the enrollment of a placebo-controlled study where patients have experienced multiple debilitating episodes of C. diff infection and are often desperate for treatment. However, while FMT provides competition to study enrollment, we continue to strongly believe that the availability of an approved, effective and safe oral microbiome drug will displace the use of these unregulated and less convenient procedures.

With this continued confidence in the science underlying the SER-109 program, we have also been evaluating approaches to expedite the timing of top line clinical data from this study. We have continuously been seeking to optimize study execution, and we have also been evaluating various alternatives, including study design modification to accelerate the availability of the clinical results.

Now moving to SER-287. SER-287 is an orally administered, biologically sourced drug candidate comprised of commensal bacterial species derived from the healthy human gastrointestinal tract. Our therapeutic approach with SER-287 is to replace the pro-inflammatory bacterial species associated with ulcerative colitis with commensal bacterial species that modulate inflammation and enhance integrity of the gut barrier. Ulcerative colitis is our lead indication for SER-287, but dysbiosis is also implicated in other forms of inflammatory bowel disease such as Crohn's disease, and we are considering expanded future development. I will also remind you that we have obtained Orphan Drug Designation for SER-287 in pediatric ulcerative colitis and are considered -- and are considering further development in this patient population.

We have continued to make progress preparing for a late-stage SER-287 clinical study following the positive SER-287 Phase Ib data. During the last few months, we have further refined the study design to accelerate the timing to top line clinical results. We have decided to modify our prior 4-arm clinical trial into a smaller 3-arm study, including 2 different doses of SER-287 both following pretreatment with oral vancomycin and a placebo arm. Based on clinical data from our prior clinical studies, including both SER-287 and SER-262, we determined that antibiotic pretreatment is required for the robust engraftment of our microbiome therapeutics. Our data show that without vancomycin pretreatment, SER-287 engrafts inefficiently and is unlikely to result in robust clinical activity. Elimination of a study arm reduces the study size from approximately 270 to 200. We expect this to meaningfully accelerate study readout timing.

Our planned SER-287 Phase IIb study will be randomized placebo-controlled 3-arm induction trial in approximately 200 patients with mild to moderate ulcerative colitis who are failing their current therapies. In Arm A, patients will receive vancomycin pretreatment followed by 10 weeks of the same high-dose regimen used in the most efficacious arm of the Phase Ib trial. In Arm B, patients will receive vancomycin pretreatment followed by 2 weeks of high-dose SER-287, then 8 weeks of a lower dose. Study Arm C will consist of placebo dosing.

Consistent with most current FDA guidance, the primary endpoint in the study will be clinical remission, which we will evaluate at 10 weeks. We also plan to evaluate various secondary endpoints, including endoscopic improvement and histological mucosal healing where we observed encouraging signals in our Phase Ib study.

While the Phase IIb study is designed to primarily evaluate induction dosing, we will also evaluate the efficacy and tolerability of longer-term maintenance dosing. Please recall, in the Phase Ib study, we observed that SER-287 engraftment was durable for at least 1 month after the completion of dosing. The use of a living drug may therefore result in long-lasting biological and possibly clinical effects that alters how we think about maintenance treatment for this chronic disease, for SER-287 Phase IIb study has been designed so that the trial could serve as part of a potential data package to support product registration as a potentially pivotal study. And we're awaiting further feedback from the FDA regarding this study design. We are now in the final stages of SER-287 study preparation.

Moving to our immuno-oncology efforts. As mentioned, we believe immuno-oncology is an area with great commercial opportunity and is based on compelling scientific data that suggest that microbiome therapeutics may play an important role in determining the response to checkpoint inhibitor therapy. Our lead I/O asset is SER-401, a biologically sourced microbiome therapy designed to replicate the bacterial signature found in the approximately 1/3 of patients who have a robust response to anti-PD-1 therapy. SER-401 is designed to modify the cancer immune set point and meaningfully improve patient's response to checkpoint inhibitor therapy. The scientific basis for SER-401 is supported by published findings from our collaborator, Dr. Jennifer Wargo of MD Anderson Cancer Center, indicating that a specific set of bacteria in the gastrointestinal microbiome can have an important impact on the immunological response to checkpoint inhibitor therapy.

Our own preclinical research has extended these findings and continues to ascertain how specific bacterial species impact the response to checkpoint inhibitors. These data demonstrate the strong role of specific bacterial species and antitumor response to anti-PD-1 therapy and on the impact of the microbiome on specific T cell classes, including CD8 and T regulatory cells. In collaboration with the Parker Institute for Cancer Immunotherapy and MD Anderson Cancer Center, we are planning to conduct a randomized study in 60 patients with metastatic melanoma where all patients will receive nivolumab, an approved anti-PD-1 therapy. Nivolumab was selected for the study given its favorable dosing schedule and significant current usage in metastatic melanoma. In addition to nivolumab, patients will receive either one, SER-401; two, a microbiota transfer derived from a complete responder to anti-PD-1; or three, placebo. We have made excellent progress working with our collaborators at MD Anderson and the Parker Institute to advance our SER-401 immuno-oncology program toward the clinic.

To summarize, this has been a productive time for Seres, where we have made both strategic and operational progress. We focus much of our future R&D strategy in the areas of immunology and oncology. We appointed Dr. Kevin Horgan, a highly accomplished physician scientist as our Chief Medical Officer. We advanced SER-109 study enrollment. And we have taken steps to accelerate important clinical milestones for both the SER-109 and the SER-287 programs. And finally, we advanced into final preparations for the SER-287 clinical trial initiation.

Looking ahead, we are anticipating an eventful several months for Seres. We are looking forward to dosing the first patient in our next SER-287 study. In addition, as part of our financial update, Eric will outline meaningful new cash milestones that we are -- we -- that we anticipate obtaining with that study start.

So now I'll pass the call to Eric.

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Eric D. Shaff, Seres Therapeutics, Inc. - Executive VP, Chief Operating & Financial Officer and Treasurer [4]

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Thanks, Roger, and good morning, everyone. Seres reported a net loss of $21.9 million for the third quarter of 2018 as compared to a net loss of $6.9 million for the same period in 2017. The third quarter net loss was driven primarily by clinical and development expenses, personnel expenses and ongoing development of the company's microbiome therapeutics platform. The third quarter net loss figure was inclusive of $9.1 million in recognized revenue, primarily associated with the company's collaboration with Nestlé Health Science.

Research and development expenses for the third quarter were $23.7 million as compared to $22.2 million for the same period in 2017. The R&D expenses were primarily related to Seres' microbiome therapeutics platform, the clinical development of SER-109, SER-262 and SER-287 as well as the company's preclinical programs.

General and administrative expenses for the third quarter were $7.6 million as compared to $8.1 million for the same period in the prior year. G&A expenses were primarily due to headcounts, professional fees and facilities costs. The decrease in cash, cash equivalents and investments balance during the quarter was $23.2 million. We ended the third quarter with approximately $72.9 million in cash, cash equivalents and investments.

Based on an agreement to modify the company's collaboration with Nestlé Health Science, Seres expects to receive $40 million in milestone payments in connection with the SER-287 Phase IIb study. Because of the expectation that the SER-287 Phase IIb study could potentially serve as a pivotal trial, in our discussions with Nestlé, we agreed that following the SER-287 Phase IIb study initiation, Seres would receive $40 million in contractual payments corresponding to both the Phase II and the Phase III milestones. Current resources that do not include the $40 million milestone payments that the company expects to receive following the initiation of the SER-287 Phase IIb study are expected to fund the company into the second quarter of 2019.

Beyond the expected SER-287 milestone payments, we continue to evaluate various options to strengthen the balance sheet and extend the company's operating runway. Our objective is to ensure that the company has sufficient capital to reach meaningful value inflection points. We have been and will continue to be deliberate in our capital allocation process. And as Roger mentioned, we are making decisions to accelerate the timing of clinical data readouts. During the last several months, we have had discussions with several companies interested in microbiome therapeutics for various imitations. We will evaluate any potential collaboration based on the opportunity to accelerate the development of our therapeutic candidates and the opportunity to create value for Seres' shareholders.

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

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Roger James Pomerantz, Seres Therapeutics, Inc. - Chairman of the Board, President & CEO [5]

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Thanks, Eric.

I want to thank you for your continued interest in Seres, and we look forward to keeping you updated on our progress.

Operator, let's open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Terence Flynn with Goldman Sachs.

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Holly Samantha Barra, Goldman Sachs Group Inc., Research Division - Business Analyst [2]

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This is Holly on for Terence. Just one on SER-401. Just wondering what the gating factors are to starting that trial? And if we could potentially see initial data next year? And what you're going to be looking for with regard to that data?

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Roger James Pomerantz, Seres Therapeutics, Inc. - Chairman of the Board, President & CEO [3]

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Yes. So remember, we're working with 2 collaborators. We think some of the best in the business within the Anderson and the Parker Institute. With Seres, we consider this sort of the dream team. And answering the question of whether microbiome therapeutics can make meaningful changes in these desperately ill patients on checkpoint inhibitors. So we're working as rapidly but as safely as possible in getting this to patients. It's -- the centers that we're working with are highly excited with this approach. As you know, there's a lot of data both in our hands and beforehand that the microbiome clearly has a role here. We're -- we feel that with this team and moving deliberately, we'll be able to answer this question. And we look forward to doing that.

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Operator [4]

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Our next question comes from the line of John Newman with Canaccord.

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David Huang, Canaccord Genuity Limited, Research Division - Associate [5]

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This is David for John. We just have two questions. One, what do you expect the primary endpoint will be for SER-287 for Phase II? And also, can you describe the pretreatment with oral vancomycin in terms of number of doses and dose level?

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Roger James Pomerantz, Seres Therapeutics, Inc. - Chairman of the Board, President & CEO [6]

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Sure. Thanks for the questions on this important trial. First of all, as I said, the primary endpoint is clinical remission. In 2016, for the first time in a long time, the FDA had new guidance. You can no longer use response. Only remission will be accepted as a primary endpoint allowing registration. We did that in the Ib because we knew that was coming. We will have that in the IIb that we're planning on starting in the near future. When you think about vancomycin, it's actually oral vanco which get -- does not get into the bloodstream. It's located totally in the G.I. tract. It's given orally for 6 days. There's no -- almost no AEs associated with this. And we found that the vancomycin, whether it is in 109, 287 and 262, the first synthetic, is critical in allowing the proper level and kinetics of engraftment. We think that the data here is pretty just positive at this point because we've seen it now in 3 different diseases and 3 different drugs. So we will use it that way, and that's what we used in the Ib, where we saw the best data high-dose 287 but first, with the oral vanco for 6 days.

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David Huang, Canaccord Genuity Limited, Research Division - Associate [7]

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Got it.

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Roger James Pomerantz, Seres Therapeutics, Inc. - Chairman of the Board, President & CEO [8]

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Hope that helps.

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Operator [9]

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(Operator Instructions) I'm showing no further questions at this time. I'd like to turn the call back over to the company for closing remarks.

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Roger James Pomerantz, Seres Therapeutics, Inc. - Chairman of the Board, President & CEO [10]

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Sure. Thanks. This is Roger. Thank you for your continued interest in the microbiome, everyone, and in Seres Therapeutics. I will look forward to continuing to keep you updated on our progress, and I will now end today's call. Thank you very much.

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Operator [11]

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Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.