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Is Seres Therapeutics Still A Buy After Disappointing SER-287 Topline Results?

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Seres Therapeutics (NASDAQ: MCRB) is a microbiome therapeutics company developing a novel class of multifunctional bacterial consortia that interact with host cells and tissues to treat disease.

Seres’ SER-109 is the company’s lead clinical candidate and has achieved Breakthrough Therapy and Orphan Drug designations from the U.S. Food and Drug Administration (FDA). SER-109 is being advanced for the treatment of recurrent inflammation of the colon caused by Clostridioides difficile bacteria.

The company’s other therapeutic candidates in the pipeline include SER-301 and SER-155. Seres is currently studying SER-301 in a Phase 1b study in patients with ulcerative colitis, and SER-155 is being evaluated in a Phase 1b study for the treatment of gastrointestinal infections.

Disappointing Topline Results for SER-287

Yesterday, Seres reported disappointing topline results for SER-287 in a Phase 2b study for the treatment of mild to moderate ulcerative colitis (UC), a chronic inflammatory bowel disease (IBD). The company stated in its press release that the study did not meet its objective of improving clinical remission rates compared to the placebo.

As a result, Seres will close the open-label and maintenance portions of the SER-287 study.

Eric Shaff, CEO of Seres Therapeutics, stated, “While these outcomes were not what we, nor the UC community, were hoping for, we remain committed to leading the creation of a new class of medicines designed to impact how diseases like ulcerative colitis are treated.”

"We are well resourced and continue to prepare for SER-109 commercialization, in collaboration with Nestlé Health Science, and we are excited about advancing the development of our SER-301 and SER-155 investigational candidates as well as our earlier stage pipeline,” Shaff added. (See Seres Therapeutics stock chart on TipRanks)

Following the news, shares of MCRB went into free fall and the stock tanked 61.8% to close at $7.95.

However, Oppenheimer analyst Mark Breidenbach viewed the sharp fall in MCRB’s stock price as “a market over-reaction”. According to the analyst, MCRB shares remain undervalued considering the “commercial potential of the company’s pipeline.”

Breidenbach halved the price target from $36 to $18 (126.4% upside potential) and reiterated a Buy on the stock after removing SER-287 from the company’s financial model.

Potential for Commercialization of SER-109

Earlier this month, MCRB entered into a co-commercialization agreement with Nestlé Health Science to jointly commercialize SER-109. As a part of this agreement, Seres will receive upfront license payments of $175 million and an additional payment of $125 million upon approval of SER-109 by the U.S. FDA.

This agreement also includes contingent sales milestone payments of up to $225 million.

Analyst Breidenbach remains impressed with the potential for the commercialization of SER-109 considering the “impressive efficacy” of the drug in the pivotal Phase 3 ECOSPOR III study conducted last year. In the study, SER-109 indicated “a highly statistically significant reduction in the rate of CDI [Clostridioides difficile infection] recurrence compared to placebo at 8 weeks, with an absolute reduction of 27% and a relative risk reduction of 68%.”

As a result, the analyst believes that Seres could file a Biologics License Application (BLA) with the FDA for SER-109 by the middle of next year, and this could be a positive catalyst for the stock. Breidenbach’s base-case scenario assumes the approval of SER-109 next year, with peak sales in the U.S. and European Union of around $850 million.

As of June 30, the company had around $229 million in cash on its balance sheet. However, this cash balance does not include the upfront payment of $175 million paid by Nestlé Health Science following the Co-Commercialization License Agreement for SER-109.

Considering the cash balance, the analyst added, “Seres is well-capitalized with $404M in cash (pro forma) and SER-109 development milestones that could sustain operations beyond 2024 thanks to an expanded partnership with Néstle.”

Summing up, Breidenbach stated, “We ascribe value to its SER-109 and SER-301 assets. We believe SER-109 could be approved in 2022 (90% POS) [probability of development success] in recurrent CDI, based on results from the ongoing ECOSPOR III trial. SER-301 for the treatment of mild-to-moderate ulcerative colitis, with a 15% POS of regulatory approval and commercial launch in 2027.”

Turning to the rest of the Street, consensus is that MCRB is a Moderate Buy based on 7 Buys, 1 Hold, and 1 Sell. The average Seres Therapeutics price target of $28 implies 252.2% upside potential to current levels.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.