Seres Therapeutics and the Microbiome : Revolutions take time!

The results are getting interesting but the share price is below $1…

My whimsical view of the microbiome rising from an exhausted figure … a sign of hope!

My background is in science and an important thing I learned from studying a small soil microbe is that signals don’t work if you don’t have receptors to “see” them. My take on the Seres Therapeutics (NASDAQ:MCRB) story is that virtually all of the investment community still lacks the “receptors” to allow them to see the revolution that Seres heralds. In the scientific community the expanding importance of the microbiome is becoming acknowledged. Our gut is the home for a whole world of microorganisms that thrive by us providing them with a happy environment. It is now quite clear that in return “good” gut bacteria have all kinds of positive impacts on their human hosts. It is also clear that if you get the wrong tenants the consequences can be stark. Seres’ first FDA approved product, VOWST, is a mix of living bacteria that stop a nasty bacterium from making you sick through upsetting the gut, causing severe life threatening diarrhea. VOWST came through a partnership with Nestle. The path to FDA approval was not straight and there were big setbacks along the way.

Seres Q3 2024 reporting

I’ve covered the Seres story in February of this year. In that report I gave some history, including the partnered development of VOWST with Nestle (SWX:NESN) and my view about a sustained short attack which put Seres’ survival in question. Recently Nestle has given Seres a lifeline by purchasing all rights to VOWST. This has enabled Seres to repay debt and it has funds until the end of 2025 to advance the development of its new generation microbiomic antibacterial products to prevent blood-borne disease in susceptible individuals. VOWST, while being the first FDA approved oral microbiome product, is a primitive early product because the bacteria comprising VOWST are purified from stool donors. The process of putting together a safe confection of bacteria from “poo” samples for preventing C.difficile reinfection is non-trivial and this has meant that approximately half of the Seres headcount has moved over to Nestle, thereby slimming substantially the size of Seres to ~100 staff. What seems to have been overlooked by the market is the fact that Seres is now focused on the next generation microbiomic products that are made by culturing bacteria, which means a much better defined (and scalable?) product portfolio. So the Seres business post-VOWST is now tighter and more future-focused.

 The knockers might say that we are close to the end with the share price now substantially below $1, but my read of the Q3 2024 earnings call transcript is that the company is very focused on its next generation products for preventing blood-borne infections in patients for whom blood-borne bacterial infections are life threatening. These products might end up becoming a portfolio of related blockbuster “drugs” that are targeted at specific applications.

It requires courage to keep one’s head in the face of extreme adversity, but Seres management seems very calm and clear that it is on the right track.

SER-155

SER-155 is Seres first fully defined live product which is a mixture of fermenter-grown microbes. SER-155’s mode of action is to decolonize specific gastrointestinal pathogens and help the gut barrier prevent bacteria getting into the bloodstream.

It has undergone two stages of a Phase 1 trial successfully and currently Seres is seeking QIDP (Qualified Infectious Disease Product) designation. This program, established by the FDA, encourages development of new drugs for treating life-threatening bacterial or fungal infections. The benefits of QIDP designation is that drugs get priority FDA examination and when FDA approved receive 5 additional years of market exclusivity. 11 out of 12 FDA approved antimicrobial drugs between 2018 and 2022 have received QIDP approval. Seres has also applied for Breakthrough Therapy Designation for SER-155, which is relevant for drugs treating life-threatening conditions that have clinical evidence of improved endpoint compared with existing treatments. Breakthrough designation means interactions with the FDA to improve the process of application for FDA approval. Seres is hopeful of getting feedback from the FDA concerning these applications by the end of 2024.

The initial trials of SER-155 (which Seres owns) indicate potential for reduced risk of bacterial infections (down a probably clinically meaningful ~77% in a small sample) that are life-threatening for allo-HSCT (Hematopoetic Stem Cell Transplantation) recipients.

The allo-HSCT treatments are mostly used for treating blood cancers and these are very expensive treatments with incremental costs/patient estimated at $180,000 using 2016 cost data! High risk blood-borne infections are a significant (and expensive) part of post-operative challenges.

There are also a number of non-cancerous blood diseases at risk of being affected by bloodstream infection. Infection of allo-HSCT patients seems to be an increasing problem. SER-155 treatment meant significantly less need for antimicrobial and antimycotic treatments. It was demonstrated that the bacteria in SER-155 got established in the gut of patients and no SER-155 bacteria were found in the blood of the patients. There were no serious adverse events with SER-155 treatment.

Seres management anticipates that SER-155 will have application for blood-borne disease beyond allo-HSCT recipients and opportunities to explore this expansion are underway. Rather than needing to open up a number of new trials for FDA approval of different applications, it seems that Seres is exploring ways to consolidate related opportunities in a single registration study. My take on this is that it could dramatically speed up FDA approval for more than 1 use of SER-155 and reduce the cost of achieving FDA approval. Of course the FDA might have its own views and there are some shadows looming for the FDA (see below), so caution is needed when thinking too optimistically about ease of achieving FDA approval.

Seres has SER-147, a variant of SER-155, which has been developed to prevent bacterial bloodstream antimicrobial resistant and spontaneous bacterial peritonitis infections in patients with metabolic disease, including chronic liver disease. Plans are beginning to bring SER-147 into Seres clinical programs. Note that SER-147 has a different, but related, spectrum of bacteria from SER-155 to address a somewhat different set of bacterial pathogens and also a different set of patient challenges.

Seres sees considerable opportunity for managing a variety of antimicrobial resistant pathogens. The plan for SER-155 is to find a global partner with vision, finance and other capacities to speed its development. Specifically a partner would hopefully bring global sites for incorporating into the ongoing studies. Seres is moving forward on manufacture of SER-155 for the next study and selecting the CRO for the study at the same time as a partner is being sought.

When asked about how Seres sees its future, CEO Eric Shaff indicated that Seres feels it has done the hard yards at the front end of drug discovery and also pioneering partnering with the FDA on a completely new kind of living, mixed culture drug. This experience means that Seres feels well positioned to be able to become  “an engine of creating multiple shots on goal for patients”. He indicates that with Ser-155 on the way and SER-147 emerging as a second major opportunity, Seres feels it has some basis for a multiple shots approach.

When asked about taking a big view, Shaff indicated that he thinks Seres fits within the paradigm of biotech companies (think Amgen, Genzyme, Biogen etc) that have created significant value by being vertically integrated, including discovery, development, manufacture and ultimately commercialization. I think that Shaff was modest in understating the unique position that Seres occupies in the field on microbiomics. There is a big intellectual moat around the skills that reside in Seres. Investors will be happy to hear that Eric Shaff made clear that he is no purist and the company will do whatever it takes to reward long suffering shareholders.

Robert F Kennedy as Health Secretary?

We live in weird times, especially when extremists get considered for key positions in the new Trump government. If RFK, a vaccine sceptic and denier of lots of factual information in relation to healthcare, gets confirmed as Health Secretary, there might be an earthquake for Health and Biotech investors, with Big Pharma a key target. Apart from his antagonism to fluoride in water (a major impact on tooth decay) and vaccines, another key statement concerns his planned focus on chronic diseases (eg obesity, cardiovascular disease) and the falling life-expectancy in the US. This focus on lifestyle, fast food etc is overdue. The problem is that RFK is arguing that the US is too focused on infectious disease and in one extreme statement he has advocated terminating development of new treatments for infectious disease for 8 years! Since Seres has innovative approaches to currently poorly treated infectious disease, I wonder if part of the 35% fall in Seres share price in the past month relates to this negative news about addressing infectious disease in the US.

In the world of investment analysts, you get lots of analysis of factual details like quarterly earnings, which have virtually no meaning for a company that is pre-revenue. Critics have helped almost destroy Seres by saying that the company has spent too much on building the knowledge base and infrastructure to manufacture the new living products that Seres makes. These critics assume that the hard slog of discovery and commercialisation is straightforward and that companies like Seres shouldn’t have to “waste” money on the hard slog of invention and product development. If you knew the answer, then no doubt development of the first microbiomic drugs would go smoothly. Starting out when there is no successful pathway paved is different. If Seres fails, I’m pessimistic that the field of microbiomics will be commercialised for a long time. Seres is a key pioneer.

Conclusion  

There is an emerging consensus that one view of complex organisms like humans is that we are hosts for a universe of microbes who work hard to make their “home” a happy one for both us (the humans) and hence them (the microbes). The science is complex because a lot of different microbes are involved and these microbes interact in ways poorly understood, to either help keep us healthy or lead to sickness. There are thousands of scientists digging into the details and the scale of the research is indicated in scientific publications in the field of the microbiome. Pubmed, an international index of scientific papers, indicates that more than 180,000 papers have been published involving the key term microbiome.

A view of a healthy human microbiome is starting to emerge, but we are still early in understanding about the microbiome… and that is just the basic science. To turn science into a medicine is a huge additional step, involving working out which microorganisms are needed and how to grow, stabilise and deliver them for specific diseases. That is what Seres has been pioneering during its 13 years of existence. It is hard and Seres remains the company that has the first real FDA approved oral blockbuster product in the field for preventing C.difficile reinfection (the major cause of hospital-acquired infections).

Here I indicate why I’m encouraged by the Q3 2024 earnings call and why I’m contemplating adding to my investment in Seres, while acknowledging that this is a very risky investment given the pressure that Seres in under currently. On the upside a significant global deal to develop SER-155 would undoubtedly dramatically change the share price. The race is on as to whether Seres gets to prosper or the company fails.

I’m not a financial advisor but I’ve lived the biotech startup world personally, so I know the game. I hope that my comments about Seres might be of interest to you and your financial advisor at the risky end of a biotech portfolio, if you are brave enough to play in this space.