Seres Therapeutics, Inc. (MCRB) Earnings Call Transcript & Summary

Welcome, everyone, to the 42nd Annual JPMorgan Healthcare Conference. My name is Tess Romero, and I'm one of the senior biotech analysts here at JPMorgan. Our next presenting company is Seres Therapeutics. And presenting on behalf of the company, we have CEO, Eric Shaff. Eric?

Well, thank you, Tess, and thanks to JPMorgan for having us here today. It's great to be in person with you this morning at JPMorgan and have the opportunity to connect. And together, I'm joined with my team, David, Terri, Matt and Rob, and we're thrilled to be here to talk about Seres and answer your questions following a short presentation. So I will be making forward-looking statements in this presentation. So as usual, I encourage you to review our safe harbor statement and risk factors in our last 10-Q. So excited to start this morning with a discussion around 2 key updates that we are pleased to share. The first is preliminary Q4 commercial results of VOWST. So this is our second full quarter of VOWST launch. Over 2,000 new patient starts since we launched the product in June, $10.4 million in expected unaudited net sales. We were, we continue to be extremely pleased with the breadth and depth of demand for VOWST since we launched the product. And I look forward to telling you more about VOWST this morning. We were also excited earlier this week to announce that we received Fast Track designation for our SER-155 program. We think that SER-155 is the next opportunity to help patients through our microbiome technologies. And while we'll talk about today 2023 as a seminal year in our work to help patients, we think what's next for us is not only continued expansion of VOWST but also SER-155, with an expected Phase Ib readout second cohort expected later this year, exciting to us. So let's start talking about Seres, who we are, what we do, why we think the microbiome is not a hope or a dream, but rather the microbiome is here now helping patients in an incredibly difficult-to-treat disease, and with an opportunity to improve the lives of patients in a number of other indications. Of course, starting with our current C. diff infection, but also importantly, outside of C.diff infection. And let's step back, and I always like to start our presentation with our mission, which is to transform the lives of patients worldwide with revolutionary microbiome therapeutics. And our goal in using bacteria as therapy is to modulate the human microbiome from a state of disorder or injury, what we call a dysbiosis, to a state of health. Now we know that the microbiome is essential to human health and disruptions to a healthy microbiome can have direct connections to serious diseases like C. diff infections, certainly not only C. diff infection, and the application of our technology we think is incredibly broad. So we absolutely believe in the potential for a microbiome approach to help patients in inflammatory disease, in metabolic disease. We believe in the gut brain access and the potential to help patients in CNS disorders. But we have chosen to step deliberately into more and more complex areas of biology and disease. And that strategy is relevant to how we think about SER-155 as the next step after VOWST. And our focus certainly is a critical theme for us in 2024, but we've proven that now is the time for the emergence of the microbiome as a new modality in medicine. And so let's talk about VOWST. So VOWST was approved by the FDA on its PDUFA date on April 26 as the first oral microbiome therapeutic for adults with recurrent C. diff infection. VOWST was approved with a recurrent label, which was the best case and allows us, we believe, to serve the broadest possible group of patients. We were thrilled to announce the launch of VOWST in June and that VOWST was available to patients suffering from this terrible disease. Now I'm going to tell you more about VOWST. But what we've heard, what we've learned from patients, from physicians, from other stakeholders, is that they have been waiting for a solution in this space, right? One that's effective, one that's well tolerated and critically important, one that's oral that can help patients prevent a recurrence of this disease. Now given the success that we've had in our launch, the label, our work with Nestlé, our CMC work to prepare for expansion, we're excited about VOWST. But certainly, we're most excited about the profile and the opportunity to help patients. So let's dig a little bit deeper into C. diff infection and VOWST and the difference that we're making today for patients. We think that the opportunity to help patients in this space is quite considerable. So just for background, C. diff is an urgent threat, as designated by the CDC. It's estimated that over 20,000 people die each year in the U.S. from C. diff. This is a major health care issue. And if you think about the nature of the disease, you'll understand that you're more likely to get C. diff once you've already had C. diff. And once you get into the recurrent C. diff patient group, which is the group that we're looking to help with VOWST, it's an orphan disease, high unmet medical need. It's extremely costly to the system and there are, we believe, inadequate solutions for patients in this space. Now the profile of VOWST is unique. What we have talked about, I think, in great depth is the clinical results of what was then SER-109, what is now VOWST. Approximately 9 out of 10 patients were treated without a recurrence in our Phase III study. Those results were published in the New England Journal of Medicine, a longer-term duration study that was published subsequently in JAMA. Remember that these Phase III results were sufficient to support the BLA, with one single pivotal study in the efficacy side of our BLA. We certainly followed up our Phase III with ECOSPOR IV, which is an open-label study, which further supported the BLA. So VOWST was approved on its PDUFA date of April 26, as I mentioned, a recurrent label, including folks who are suffering with the disease who've had a first recurrence. We also received a favorable shelf life, which has created opportunities for efficiency in our supply chain. So VOWST delivers highly attractive attributes in terms of efficacy, in terms of safety, in terms of administration. Four capsules for 3 days following antibiotic treatment. So in a complex disease where patients and physicians have had limited treatment options, this is a new approach, and it's an approach that we believe will become standard of care in the space. So what do physicians care about in the space? Our research suggests that health care providers say that their #1 treatment goal is the prevention of a recurrence, and that they say that this goal is not meant with standard of care. So as a reminder, standard of care was actually the placebo arm in our Phase III study, antibiotic treatment alone. So you can see that VOWST is going a long way towards satisfying this unmet need, again, with approximately 9 out of 10 patients that were served in our Phase III study. Now just to provide some more perspective on how Nestlé and Seres are addressing this market. We've mapped our potential recurrent C. diff patient population across sites of care in the U.S., and you can see the results on this slide. So approximately 70% of patients complete treatment for recurrent C. diff infection in the outpatient setting. We are prioritizing these patients at launch because they're concentrated in areas that we believe we can reach effectively, efficiently. We can easily get the product to patients. We believe and we have seen a clear path to effective reimbursement for these patients via the outpatient pharmacy benefit. Now it's not that we won't tackle these other areas or sites of care over time, we certainly will, but they were longer-term play for us and they're not our focus with our initial launch activities. Now just to speak a little bit more about our partnership with Nestlé. You may remember that we have a co-commercialization agreement with Nestlé for VOWST in the U.S. We're leveraging their commercial infrastructure for the launch. And we have 2 field groups, both a GI sales group as well as a hospital sales group. About 150 people on the gastro side, about 20 people on the hospital side. These teams are focused on the highest recurrent C. diff patient volumes and institutions. And thus far, with initial results in launch, they are delivering. So earlier this week, we were pleased to announce preliminary unaudited Q4 2023 commercial results as well as year-to-date numbers. And we're really pleased with what we've seen in terms of the progress, the momentum behind VOWST. Strong initial adoption since launch, breadth and depth of demand, Q4 built significantly on our progress in the previous quarter. So over 1,300 enrollments in the fourth quarter in terms of patient enrollment forms, over 1,000 new patient starts, $10.4 million in Q4 revenue. So again, breadth of use across HCPs, including specialties. We're pleased with where we have started. And we think that there's a great deal of progress that we can make. We have a lot of enthusiasm about where we go next. And we do expect continued growth with new prescribers, and those who have prescribed and have had positive experiences prescribing VOWST. So who is that patient in a physician's mind, an HCP's mind? It might be a younger patient who can't afford another recurrence and be out of work. It might be an older patient with comorbidities. Both we expect will provide support for continued growth and expansion quarter-over-quarter on an ongoing basis from here forward. Now the team, especially with our Nestlé partners, have been really focused on key priorities to deliver the launch, which we've done in the last 2 -- let's call it, 2 and 1/3 quarter. So for example, patient -- I'm sorry, payer policies have been issued for 80% of commercial and 54% of Medicare Part D patients to date for recurrent C. diff patients who navigate the payer approval process. The vast majority of the scripts are being approved by the insurer. So we've been very pleased by this aspect of the launch. I referenced earlier how quickly the hospital selling team got out of the gate and engaged with customers by the end of the third quarter. The VOWST Voyage, which is our hub, is focused on operational excellence and is bearing fruit in terms of conversions of enrolled patients into new patient starts. So we and Nestlé will be building upon the success in 2024 to broaden use, to build positive patient and HCP experiences, and to ensure that patients have access to drug. Now one of the most, in my opinion, chronically underappreciated aspects of moving forward in a new modality is manufacturing and quality. And we've been investing in our manufacturing capabilities since the company's inception, right? So we have a strong relationship with our existing partner, Recipharm. Remember that one of the reasons that we were able to move so quickly from Phase III into launch was that we were taking the same process from Phase III to launch. We also look forward to developing our partnership and expanding with Bacthera to augment our capacity to meet demand growth beyond the initial phase of launch. We have stated that we are producing product and expect to produce product in 2024 for expected release in 2025. And as I mentioned before, we ended with best case in terms of shelf life with VOWST, which provides the opportunity to create additional efficiency in our supply chain. So I also think it's perhaps underappreciated that there's significant value in developing the release specs that we have. We have a system, we have processes in place that have been through the ringer with the FDA, and a new modality that gives us confidence to continue moving forward as we expand our operations with VOWST as well as in new products. So let's talk about new products. As a company, 2024 is a year of focus, not just where we have had success in terms of VOWST, but also where we go next. And the opportunity to explore adjacencies from VOWST, where we leverage existing capabilities and insights and tools and knowledge that ultimately, we believe, will allow us to address patient needs with a greater probability of success. So we have been pointing our research engine in a focused way into those dimensions. And for us, that really points us to SER-155. So we think that SER-155 is the next opportunity for us. We've demonstrated with our technology that we can bring solutions to hard-to-treat diseases in approaches that can be effective, that can be well tolerated and I think critically important, can be delivered in an oral form. Now we've had early but encouraging Cohort 1 results from our SER-155 Phase Ib study, and we expect to read out our second cohort later this year. I'll note that we also announced earlier this week that we received Fast Track designation for SER-155, which we believe will enhance the quality and quantity of our interactions with the agency as we move forward. So again, for background, we think that antimicrobial resistance is a major public health threat that results in mortality or [ VNDs ] and substantially increased the health care costs. With the urgent threat of the pandemic, there was really incredible innovation, right, in terms of vaccines, in terms of therapeutics. While this threat continues to accelerate, there has been limited innovation to address it, right? So we think that this is an incredible opportunity. And these are particularly relevant and needed solutions in patient populations at greater risk, right? So hospitalized patients, people with suppressed or compromised immune systems, people with chronic diseases that might be able -- or might be limited in fighting off infections. And based on an oral formulation, we think that there is a unique opportunity to bring potential therapies to populations in need. So that brings us to 155. What is 155? It's a consortia of 16 cultivated strands of bacteria delivered again in oral form. Cultivated meaning that we select the strains from our bacteria library, and we ferment them, it is not biologically sourced. SER-155 is designed to reduce pathogen abundance, particularly VRE and CRE, where the literature suggests there's an association with infections as well as designed to promote gut barrier integrity to prevent the translocation of pathogens from the gut to the bloodstream. So we read out SER-155 Cohort 1 data, clinical data, earlier last year. It showed favorable tolerability. It showed successful drug bacteria engraftment. It also showed, which I'll show you in a second, a substantial reduction in pathogen domination in the gastrointestinal microbiome, which supported progression from the first cohort to a placebo-controlled second cohort of approximately 50 patients, so 25 patients per arm. Enrollment in that study is ongoing, and we anticipate clinical and microbiome study results in the third quarter of this year. So we will be interested in this cohort to be studying safety, the safety profile of patients, engraftment, the reduction of pathogens as well as clinical insights on GI-associated infections, bloodstream infections, neutropenia, and the most severe forms of GVHD. Now just to take a little bit of a deeper look into the data that we saw in the first cohort. The Phase Ib data provided an important mechanistic insights that support the potential utility of not just 155 but microbiome therapeutics such as 155 to individuals receiving allo-HSCT. So 155 showed pharmacological activity that was consistent with its design. Remarkably, the cumulative incidence of domination by ESKAPE pathogens in the GI were rare. We only saw one single domination event that occurred in a single patient's GI microbiome through 30 days post HSCT, and that one incident was, in fact, transient. So compared to the data that we have collected with our reference cohort, which we've been working with MSK for a number of years, reasonably remarkable, and our KOLs are telling us that they're excited about it, too. So very excited, but exciting preliminary data that gives us a lot of excitement around our second cohort. So we start with VOWST, we then have the Phase Ib data for SER-155 to assess the safety engraftment of bacteria. Also understand that SER-155 can provide signals of reduced bloodstream infections in the most severe forms of GVHD. I would say that we are early in this journey, but it's worth pointing out that the unmet need in this patient population of reducing pathogens is considerable. And always with an eye towards value in this therapy. If we are successful, it could bring value to the system to patients. These tend to be incredibly expensive patients. Okay. Before I conclude and we answer questions, just a couple of quick comments on where we go from here. So as I said before, 2024 will be a year of focus for Seres, focus on continued momentum for VOWST and our VOWST launch, focus on continuing to drive towards the SER-155 Cohort 2 study results. We did announce a restructuring at the end of last year. Approximately 40% reduction in headcount, scaling back and focusing R&D efforts to SER-155, and a number of other activities that are designed to streamline our operations and prioritize short-term value creation in what was and continues to be a reasonably difficult environment. While these choices are not easy, we think that these changes position the company for success and ultimately are the right choices for our patients. So I started the presentation by saying that 2023 was a pivotal year, a seminal year for Seres Therapeutics. We got approval for VOWST on time, on plan and with the best possible label. We have launched VOWST shortly after approval. We had product ready to go. We continue to make progress in scaling up our capacity to continue to support what we expect will be increasing demand going forward. We received the SER-155 first cohort set of results with intriguing pathogen abundance data. And we move forward with the restructuring, which we think sets the company up for the best possible future. Now one question that Seres was really founded around was the question of what if, right? What if you could use bacteria as therapy? And at the time, it was kind of an audacious notion. There was certainly an understanding that bacteria could be harmful or maybe that bacteria could be neutral. But the idea that the ecosystem of bacteria in your body, and specifically your gut, is essential to human health was a really audacious thought. And that was the notion, the premise, the thesis behind the catalyzing of Seres. So where we are now is that we are changing patients' lives, we believe, today with VOWST. But I would say that we continue as a group to ask the what if question ourselves. And what if VOWST is just the beginning, right? What if VOWST is just the first step in applying the microbiome technologies to help patients with a broad set of indications with high unmet medical needs. So we are thrilled about what's ahead for us as a group. We're thrilled and privileged to help patients with our technology, and we appreciate the support. We appreciate it be here with Tess and with JPMorgan. And with that, I'll conclude. I'll invite the team up, and we're thrilled to answer your questions. So I'll ask David Arkowitz, our CFO, to come up; Terri Young, our Chief Commercial and Strategy Officer, to come up; and Matt Henn, our Chief Scientific Officer, to come up. We might be [indiscernible].

Thank you, Eric, for the presentation. Welcome, everybody. So I thought we'd start the discussion here on the commercial side and talk a little bit about big picture. What specifically you're hearing from the field that is really resonating with doctors about VOWST's profile? And maybe we'll start there.

Well, maybe I can start and then Terri can add perspective. So I think for us, what we have heard from physicians is that the solution that VOWST provides is a game changer for these patients. Historically, in this field, there has been limited innovation, right? For patients, the standard of care is antibiotics. So hit them again and hope for a different result. So once a patient has had C. diff and has recurred, they're marked. They know that your chance of getting a C. diff again increases once you've already had it. So for us to provide physicians with a solution which is effective, first and foremost, which is well tolerated and incredibly important, which is oral, is just a different paradigm from antibiotics or fecal transplants for the most of your patients. So maybe Terri can comment further.

Yes. I think no surprise, Tess. Based on what Eric shared in his presentation, the #1 treatment goal of HCPs is preventing recurrence, and the #1 unmet need is the same. And that's what VOWST does uniquely well in 9 out of 10 patients. So the field representatives are telling us that the physicians are very receptive to the profile of VOWST. It gives them hope. I hear that a lot in our market research, the word hope, when they look at the profile. So it's an important product. And I guess the last anecdote I'll share is that I sat next to a hospital sales representative at IDWeek for dinner, and she was a former Merck employee. And she said, "I've sold some game-changing products in my day," and she said, "This is really special, physicians are very, very interested."

What percent of patients who complete an enrollment form actually convert to drug and over what time? And what are the reasons a patient might not convert to drug?

Okay. Sure. So we are seeing, quarter-on-quarter, an increase in conversion. And that's based on, right out of the gate, we were working -- and this is mostly Nestlé, by the way. They're executing the hub and patient assistance programs. But there was a lot of attention paid to operational excellence with our hub and specialty pharmacy partners. So in Q2, very early because we had a partial quarter, we were roughly at 30%. And we moved in Q3 to 70%, and in Q4 were 80%. And for the year, we're exiting around -- about 70-odd percent. And when we look at specialty product benchmarks, we're seeing a lot of specialty products at 70%. So we're really pleased where we are exiting the year. And we were very deliberate in selecting our partners, a very defined network of specialty pharmacies, a very experienced hub vendor. So we're really pleased with our ability to pull patients through the funnel. And the reasons why they may not come through the funnel is, yet, it might be timing, right, because it takes time to get from enrollment to convert to a new a patient start. So you always have a lag. But also physician education is important. We still have work to do there. A physician may have selected a patient, and we're aware of one physician who did this early on in the launch, who, for example, finished antibiotic 4 months ago. Could we dispense VOWST for that patient? Yes, but it's not the right thing to do. So we'll cancel that script out. So those are just some examples.

And of the unique health care prescribers that are currently prescribing VOWST, are there -- are they prescribers that are using more drug? And are they concentrated in certain centers or pretty spread out?

Yes. We're seeing very broad use, and that was one of the, I think, not surprises because we did see pent-up demand. We really had physicians wanting to use this product and asking about product availability and when it was coming to market. But we saw a really broad use right out of the gate in terms of across specialties, but also in terms of physicians that the field sales teams from Nestlé were calling on and physicians that they were not calling on. So this speaks to the awareness that we created prior to the launch, the HCP education that the Nestlé teams have conducted to date, and the robust profile that we have. So we're really pleased with the broad use. It's across geographies, across different centers, cities and rural. So very broad.

I just might add. I think, anecdotally, we've been really pleased with the awareness of VOWST. I think some of that may result from some of the publications that we had prior to launch, right? So we had the New England Journal paper that was shared as well as the JAMA paper, which showed some more durability data alongside prevention of recurrence. So I think those were helpful for us as well.

Please wave your hand if you do have a question. So I would love to talk a little bit about how we should really think about sales trajectory here in 2024 for VOWST. What do you see as the key drivers of growth with respect to prescribers, patient types?

Yes. So we expect to continue to execute our plan, which includes seeking out, targeting new prescribers as well as repeat use. And we've invested carefully and in a focused way with Nestlé to ensure that the patient experience, the physician experience is as positive as possible. And certainly, as Terri mentioned before, that starts with the operational excellence in the patient hub of VOWST Voyage. Certainly, we're not guiding to 2024 numbers, but we do expect strong continued sequential growth quarter-on-quarter. And maybe Terri can comment further.

Yes, where you asked about our priorities, I mean, we've talked about these. It's physician awareness and adoption, and we're seeing very good progress there. It's the customer experience. And we just completed some user market research. And for physicians who have used the product, they're reporting a very positive and smooth experience supported by the VOWST Voyage hub and our specialty pharmacy partners, but also the field teams as well as appropriate. So positive customer experience, which is good. And we were very careful about planning for that, a lot of attention paid to that. We've talked about the hospital to home segment. So really opening up structurally the hospital outflow. Eric talked about that as a launch priority in his presentation. We're seeing good progress from the hospital selling team. He talked about the reach that they achieved. They exceeded the goal in Q3, touching 350 hospitals when the goal was 300. And so that will go a long way toward opening up these institutions in 2024 as we make structural modifications to how patients are discharged in treatment protocols there. And then finally, he talked about progress for payer policies. 80% of commercial lives have a coverage policy to date, 50% -- just north of 50% for Medicare Part D, which is significant growth based on Q3. So we're very happy with the progress and optimistic about this year.

I have a question. You mentioned that the vast majority of scripts are approved by payers. Can you provide the paid-for prescription rate that you are seeing?

Yes. So exiting the year, we were at 46% free drug, 54% reimbursed through the patient's insurer.

How should we think about the strategy around when is the right time to think about forward-looking guidance? How -- like when -- what do you need to know about the product before you're comfortable doing that? You don't necessarily need to say when you're going to do it today, but just like what are the pushes and pulls we should think about there?

Yes. I think for us, it's an ongoing discussion. We're still reasonably early, so it's the second full quarter of launch. And I think we're making progress. So I think as we get a better sense of the trajectory of the launch, we may be in a position to provide more guidance. I think what we have said, at least in a more tactical short-term lens towards things, is that we do expect to qualify for the next tranche of debt, which requires a backward 6-month look of $35 million or more. And we think that's achievable, including with the growth that we saw from Q3 to Q4. So in the short term, we continue to focus on our execution with Nestlé, supporting Nestlé, and then we'll keep it as an open item moving forward.

I actually do have one more U.S. commercial question, if you don't mind.