Seres Therapeutics: Microbiomics Back In The Game

Between May 2016 and August 2017, I wrote 8 articles for Seeking Alpha addressing the ambitious and transforming developments pioneered by Seres Therapeutics (NASDAQ:MCRB) as they sought to move beyond cleaning up "poo" samples to develop microbiomic drugs. The new drugs would be based on purified microbial populations from faeces or cultured microorganisms thought to be critical for the beneficial results obtained from faecal transplants. This promised to turn an art form into a new era of drug development based on live organisms, resulting in transforming results for diseases involving a dysfunctional gut. I stopped writing about this area when the early results had some setbacks and the open cheque book approach by Seres became unsustainable. Since that time, the share price crashed, and the company has been doing the hard yards on more modest budgets (although the loss has increased substantially in Q3 to $30.3 million from $15.4 million in the previous quarter).

Three years later, it starts to look like Seres is back on track. So, here, I review its prospects. For long-term investors who bought shares before mid-2016, the share price is back to where they invested (in fact, the MCRB share price is up 10% over 5 years). On the other hand, investors between early August 2016 when the share price crashed to $9 and late July 2020, where the share price had drifted down to $4.20, are looking at very happy recent returns as the share price now sits at $34.41. This is an interesting company with a huge upside if things go well.

Update Q3 Earnings

Here, I summarise developments in the latest quarterly earnings report. This report defines a new era for Seres and provides reasons for paying attention.

When I last wrote about Seres, it had just commenced a Phase 3 trial for its SER-109 treatment of recurrent Clostridium difficile infection. This trial was completed successfully in August 2020, resulting in 30% reduction in re-occurrence of C.difficile infection compared with placebo, and the company raised $264 million to strengthen its balance sheet. Subsequently, in October, the company showed extended data to take effectiveness of SER-109 beyond the 8-week primary endpoint out to 12 weeks. While the company showed a favourable safety profile for SER-109, it needs additional patients to fulfil the FDA requirement for safety information. Meanwhile, things are progressing towards an aggressive launch of SER-109 for recurrent C.difficile infection. The company has hired Dave Ege (formerly senior manufacturing executive from Merck (NYSE:MRK)) as its new Chief Technology Officer.

SER-109 is a big deal because C.difficile infections and their recurrence are a big and costly medical problem, and resolving this intractable problem will be a significant (and lucrative) medical advance.

Another first generation drug, SER-287, is in Phase 2b trial for patients with mild to moderate Ulcerative Colitis (UC). It is manufactured by processing healthy human gut microorganisms and taken orally. The microbiomic drug aims to fix a defective microbiome by rebalancing it (as opposed to SER-109 which aims to suppress a C.difficile infection of the gut). The Phase 2b UC trial involves combining the use of antibiotic vancomycin treatment with the SER-287.

A third first-generation microbiomic drug SER-401 is in a Phase 1b study that aims to help fight metastatic melanoma cancer by providing gut microorganisms that might help the cancer fight. Immunotherapy drugs can be highly effective, but not all patients respond to them. The theory that SER-401 is testing is that the gut can help the immunotherapy drugs to work. Hence, SER-401 is manufactured to reflect the gut microorganisms of patients who have responded positively to immunotherapy. This is a pretty interesting application of microbiomics that will be really big if it works. The Phase 1b trial involves combining SER-401 treatment with an immunotherapy drug nivolumab.

However, it doesn't stop there. SER-109, SER-287, and SER-401 remain early microbiomic drugs, because they are manufactured from faeces by extracting and purifying the faecal bacteria. The big advance will come from new microbiomic products manufactured from cultured bacteria, as these will be much better defined new generation drugs.

SER-301 is a microbiomic drug manufactured by culturing bacteria rather than sampling healthy faeces. It is now in a Phase 1b study for the treatment of mild to moderate Ulcerative Colitis in adults. The bacterial mixture in SER-301 aims to reshape the gut of patients with Ulcerative Colitis to address gut inflammation and also to help keep the lining of the gut happy. The development of SER-301 benefits from discoveries made in the development SER-287.

SER-155 is a further second-generation microbiomic product which is likely to enter Phase 1b trial soon to see if microbiomic drugs can assist in stem cell transplantation therapies.

The above programs are breathtaking in their ambition, but Seres is keeping each of these programs moving forward. There is a lot of technology and knowhow behind especially the products manufactured by culturing and combining mixtures of the gut bacteria. The spend on the various programs has increased substantially since the recent capital raising but the company finished with $320 million cash (as against $63.9 million at end of Q2). At current spend, this should last at least 2 years and might last until the release of SER-109 (my speculation).

Conclusion

The story of Seres Therapeutics over the past 5 years is a classic biotech investor tale of euphoria followed by anguish and now, finally, euphoria again. Time is always the enemy in biotech as it costs a lot to break new ground, and during this time, one needs to keep going back to investors. Delays in development can be fatal to the enterprise if the market loses confidence. Seres has had a clear vision and developmental path for a long time now, and it looks like it is finally close to having a product that will be financially interesting.

It proves the value of identifying a transforming technology advance and backing the company that ends up commercialising the opportunity, but it is a happier story if you can time when to buy so that you don't go through a "down" period. Seres isn't there yet, but the prospects look interesting (again). I remain convinced that the field of microbiomics has a bright future, but it very hard to predict when the final breakthrough will occur. Certainly, the field looks more solid than it was 5 years ago, but there are still some barriers to climb over.

Time is still the enemy, especially for second-generation microbiome products manufactured by culturing chosen gut bacteria, although having SER-109 in the market would provide cash flow to continue to fund the various programs. However, I'm cautious as to whether the current share price in the mid-$30s is a good entry point (indeed, it may be a time for existing investors who have done well to exit). The point is that the world is a dangerous place as the COVID-19 pandemic is far from resolved. A tough winter in Europe and the US might provide a market reversal that could provide an opportunity to find a better entry point. It looks like COVID-19 might slow some of the clinical trials too. On the other hand, the share price trajectory remains upward (up 6.8% in the past month). If you are reviewing the biotech part of your portfolio, Seres is certainly worth having on your watch list.

I am not a financial advisor, and so, you need to do your own due diligence or talk with your financial advisor. I do have a significant technical background in biotech and offer my commentary from that perspective. If my commentary is helpful, please consider following me.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.