Goodbye, my name is Dee, and I will be your conference operator today. At this time, I would like to welcome everyone to the Seres Therapeutics Investor Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Carlo Tanzi, Investor Relations. Please go ahead.
Thank you, operator. This morning, we issued a press release announcing the signing of the VOWST asset sale to Nestlé. I want to remind you that we are making forward-looking statements, including regarding the closing of the VOWST asset sale and use of proceeds, the timing and results of clinical studies, the ability of our therapeutics to prevent infections, the probability of achieving VOWST net sales targets and related impact on future milestones, our cash runway, and other statements which are not historical fact. Actual results may differ materially. Additionally, these statements are subject to certain risks and uncertainties discussed under the Risk Factors section of our 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 with prepared remarks, I'm joined by Eric Shaff, Seres President and CEO, and Marella Thorell, CFO. Additional members of the management team are also available to answer your questions. With that, I'll pass the call to Eric.
Thank you, Carlo, and good morning, everyone. We are pleased to announce today the signing of an agreement to sell Seres' VOWST assets and commercial rights to Nestlé in exchange for substantial, immediate, and future financial consideration. Our team is proud to have developed and brought VOWST to the market as the first-ever FDA-approved oral microbiome therapy. But VOWST was not just an incremental advance. It has transformed the lives of patients with recurrent C. diff infections, preventing devastating recurrences of infections for individuals who have few therapeutic options. VOWST represents the first successful medicine to emerge from our core technology platform, which currently focuses on preventing life-threatening infections in medically vulnerable patient populations. The development of VOWST spanned over a decade and required our team to overcome a number of challenges, including those unique to a novel therapeutic modality.
We successfully developed numerous capabilities, including creating entirely new manufacturing methods related to live biotherapeutics. We worked closely with FDA to secure regulatory approval for a product in a new therapeutic class. These capabilities will serve the company into the future as we continue to create new therapies. We are now turning our focus to advancing the therapeutic potential of our technology in other patient populations with significant unmet medical needs. The capital provided by this transaction will support the continued development of our live biotherapeutic products that are designed to prevent infections and induce immune tolerance in a variety of settings, extending well beyond recurrent C. diff infection, including targeting modulation of immune function. Through this transaction, Seres will receive a meaningful capital infusion, including upfront payments, an equity investment, and future payments.
We are pleased to be moving forward with this transaction, and as we shared at the signing of the memorandum of understanding, we feel this is the best option to balance the need to continue to ensure VOWST is available to patients, and that Seres has resources to support SER-155 and our pipeline ahead of the upcoming readout in a challenging economic environment. The capital from this deal will allow Seres to strengthen our balance sheet by retiring our existing debt facility, eliminating certain key obligations, and most importantly, support our pipeline's advancement. I'll now pass the call over to Marella to cover the business terms of the transaction.
Thank you, Eric, and good morning. I'd like to summarize the key financial terms of the transaction. These are more fully detailed in our press release and in the 8-K, which will be filed with exhibits later today. Under the terms of the agreement, Seres will receive the following: a payment at closing of $100 million, which is reduced by approximately $20 million related to the settlement of net payables to Nestlé from Seres for VOWST operational activities and other obligations. An additional payment at closing of $60 million, representing a prepaid milestone payment tied to the achievement of annual worldwide net sales of $100 million-$150 million.
This prepayment accrues interest and will be offset, along with the interest, which accrues, which will accrue from closing until the net sales milestone is met, against the future milestone payments when and if they become due. If such milestones never become due, no interest will be paid, and there is no repayment of the prepaid milestone. This is structured so that Seres will have no future cash outlay with respect to this prepayment, just lower milestone payments if and when future net sales targets are met. Further, concurrent with closing, Nestlé will make an equity investment in Seres common stock of $15 million, with the purchase of approximately 14 million shares at a price of $1.05, which represents a 10% premium to the thirty-day VWAP prior to the announcement of the memorandum of understanding.
With the above three elements, inclusive of the net settlement offset, Seres will receive cash of approximately $155 million at closing. Seres is also due to receive installment payments of $50 million in January 2025 and $25 million, less approximately $1.5 million in employment-related payments in July 2025, provided we are in material compliance with the terms of the transition services agreement, which I'll describe shortly.
As to future milestones, in addition to the aforementioned $60 million due upon the achievement of $150 million in VOWST worldwide, net sales, which will be offset against the prepayment received at closing, Seres also has the potential to earn $125 million upon achievement of annual worldwide net sales of $400 million, and has the potential to achieve an additional $150 million upon the achievement of annual worldwide net sales of VOWST of $750 million. The structure of these net sales milestone payments are similar to those in the 2021 license agreement. Also consistent with the terms of the 2021 license agreement, we will continue to share 50/50 in the future profit or loss of the VOWST business presently and through the end of 2025.
At closing, we, along with Nestlé, have also entered into a termination agreement with Bacthera, whereby Nestlé will pay Bacthera a termination payment, and there will be no further obligations thereafter by either Seres or Nestlé following closing. At closing of the transaction, we will fully retire our senior secured debt facility with Oaktree Capital Management, consistent with the terms of the loan agreement. It is essential that patients and healthcare providers continue to have seamless access to VOWST moving forward. Accordingly, Seres will continue to support ongoing VOWST availability by providing manufacturing transition services through the end of 2025, and certain other transition support services through the first quarter of 2025, with Nestlé having limited options to extend this timing.
The completion of the transaction is subject to Seres shareholder approval and other customary conditions, and on current timelines, we expect the transaction to close in the next 90 days. Because various VOWST-related capabilities, including product manufacturing, will transition to Nestlé, Seres' employee base will be reduced by more than one-third following closing of the transaction. Moving forward, Seres will be a streamlined and more focused organization. Therefore, following closing, Seres' cash burn rate will be reduced. Now I'd like to turn to how we plan to allocate this capital infusion. We expect the capital obtained after retirement of the Oaktree debt to extend our runway, enabling Seres to meaningfully advance its pipeline. Based on our current cash, future operating plans, and the capital from the transaction, and accounting for the ongoing deal-related obligations, we anticipate a cash runway into the fourth quarter of 2025.
I'll now pass the call back to Eric.
Thanks, Marella. Moving forward, Seres will pursue a focused corporate strategy where we will apply our experience with the discovery, development, manufacture, and commercialization of bacterial-based live biotherapeutics to improve patient outcomes in a variety of medically vulnerable patient populations. Specifically, we will develop our therapeutics for populations who are known to have functional deficiencies due to a disrupted gastrointestinal microbiome that can lead to increased susceptibility to infection and immune-related negative clinical outcomes. Our strategy is initially focused on reducing the risk of bacterial infections in high-risk populations, beginning with Allo HCT. In the future, we also believe that our biotherapeutics could be developed to improve epithelial barrier function and immune tolerance, thereby enabling the treatment of other large opportunities, including hematological cancers, cancer treatment-induced neutropenia, individuals with chronic liver disease, solid organ transplants treatment, and autoimmune deficiencies and diseases such as inflammatory bowel disease.
We believe VOWST has clearly and definitively validated the premise of our treatment approach. Through the clinical data we've generated in that program, bacterial-based therapeutics have undeniably demonstrated their ability to meaningfully reduce life-threatening infections and decolonize the GI of pathogens. Our lead program, SER-155, is designed to prevent enteric-derived infections and resulting bloodstream infections, as well as induce immune tolerance responses to reduce the incidence of graft-versus-host disease, or GVHD. Our initial development efforts target patient populations undergoing Allo-HSCT, a population at very high risk of serious and life-threatening infections. We believe that SER-155 could fundamentally transform how these patients are managed. This program is currently being evaluated in an ongoing placebo-controlled cohort two of a phase Ib study.
We previously reported supportive initial SER-155 results from patient cohort 1, that demonstrated a favorable safety profile and engraftment of SER-155 bacteria into the GI microbiome, and also our data suggest that SER-155 is reducing pathogen abundance in the GI. This pathogen domination is frequently associated with negative clinical outcomes, including bloodstream infections and GVHD. The placebo-controlled portion of this study, including about 45 patients in cohort 2, is ongoing, and we eagerly anticipate clinical results at the end of this quarter. In this pending data set, we will be evaluating the safety profile, the degree of GI microbiome pathogen reduction, and evidence that SER-155 is reducing the frequency of serious GI and bloodstream infections, febrile neutropenia, the frequency of use of antibiotics and other immune-related targets.
If these results are supportive, we plan to move forward with the development of SER-155 in a range of patient groups, and we believe that the medical and commercial opportunities could be very significant. In summary, we are pleased with the resources provided by the sale of VOWST to Nestlé, and we are excited about the potential to use this capital to continue to transform the management of medically vulnerable patient groups through the use of our cultivated bacterial-based therapeutic technology. Next steps with respect to the transaction are to file the preliminary and final proxies and conduct the shareholder meeting. We appreciate the dedication and results delivered by our team members, who are expected to join the Nestlé team following closing of the transaction, and we wish them and Nestlé Health Science all the best moving forward in continuing to deliver the transformative VOWST product to patients.
You may have seen that we announced this morning that we will be sharing our second quarter results and providing a business update next Tuesday. We look forward to sharing more about the upcoming SER-155 readout in our future at that time. But for now, we're happy to take your questions.
Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question or are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. The first question comes from the line of Joseph Thome from TD Cowen. Please go ahead.
Hi there. Good morning. Thank you for taking my questions, and congratulations on the deal terms. Just a couple points of clarification. Those installment payments of the $50 million in January and 25 in July, I guess maybe if you can just give us a overall idea of your level of confidence that you can achieve those, if there's anything, you know, specific that you have to hit, and is that included in that 2024 Q4 2025 guidance? And then second, can you just remind us the carrying value of the Oaktree facility? Is it still a hair over $100 million? And is there any prepayment penalties that you would have to pay? Thank you.
Yeah, Joe, good morning, and thank you for the question. So, let me start on the first, and I'll ask for Marella's involvement on the second. So in terms of our confidence on the subsequent payments, I, the bottom line is, it's high. Basically, we have to be in compliance with the transition services agreement. You can imagine that, you know, after roughly a decade of building a unique and novel manufacturing and quality infrastructure, the idea of kind of us, you know, throwing the keys to Nestlé Health Science and saying, "Good luck," that obviously doesn't work for us, doesn't work for them, doesn't work for patients.
So, we will be transitioning, as we said, as we said earlier in the call, a number of our team members as well as certain contracts, certain facilities, to ensure that there is a reliable, steady, uninterrupted supply of VOWST to patients. And basically, we do our part, and those payments will be paid. So our confidence is high. I think your second question was on Oaktree, so maybe I can ask Marella to jump in on that.
Sure. And just to confirm, Joe, the milestone payments, the installment payments, are included in our runway guidance. With respect to Oaktree-
... the principal outstanding is $110 million, and yes, there are certain prepayment and exit fees associated with that. That's approximately another $15 million at the, that's our approximation at the time that we expect to pay off the loan.
Perfect. Very helpful. Thank you very much. Congrats again.
Thank you.
Thanks for the question, Jeff.
Our next question comes from the line of Tessa Romero with J.P. Morgan. Please go ahead.
Good morning, team. Thanks for taking our questions. Couple of accounting questions from us this morning. Can you walk us through the expected treatment of these upfront and milestone payments from Nestlé? And then, second question is, any more detail you can provide on the costs expected under the transition services, expected through the first quarter of next year and manufacturing support through the end of next year? Is it possible that you could quantify these for us? Thanks so much.
Sure, Tess. Good morning, and thanks for the questions. And maybe I can ask Marella to jump in.
Sure. Thanks for the questions, Tess. So with respect to the upfront payments, they will be recognized when received. With respect to the installment payments, they will also be recognized upon receipt, the ones that will be due, that are due in 2025. With respect to the accounting treatment and the estimates for the support under the transition services and the cost of manufacturing, we're still working through all of that. And so we'll have a better sense of that, as we get to closing and how that will impact our, the accounting treatment. So we're still working with that, on that with our outside advisors.
Okay, thanks so much for taking our question.
Thanks for the question, Tess.
Our next question comes from the line of John Newman with Canaccord Genuity. Please go ahead.
Hi, guys. Good morning. Congrats on the completion of the transaction. Just had some questions here on future development for the platform. So you've got a pretty exciting reading coming up here at the end of the third quarter for SER-155, in the Allo-HSCT study. Should it be successful, just curious, which indications might be most interesting? I know, Eric, you went through several different indications, but just curious if that study is successful, kind of which indications might be most interesting to look at taking forward?
Yeah, John, good morning, and thank you for the question. Maybe I'll start, and I might ask Lisa to just comment to ensure that everybody's up to speed on the one-five-five readout and why we're excited about it, and perhaps how we think about leveraging a positive readout in one-five-five or beyond, and maybe Teri can comment too. But, you know, look, I just start by saying I think that this transaction really is the best of both worlds for us. So, we have a deep commitment to ensuring that VOWST is available for patients today and into the future.
We've seen the difference that VOWST has made in patients' lives, patients who have had multiple recurrences, who are really out of options, who are desperate, and we've, we've, you know, we've spoken with these patients. We've had them as part of our company presentations, and we feel a deep commitment and need to ensure that VOWST continues to be available. We really do think that Nestlé is the right partner to continue to bring VOWST forward. They have been our partner for a decade. They were early believers in the program, and they've got the resources to ensure that we can continue that commitment. So you know, we think that this is the right transaction in terms of ensuring that VOWST continues to thrive.
The other side of it, as you alluded to, is just putting Seres in the best position to be successful going forward. And I think Marella talked about some of the financials. We want to ensure that if SER-155 is successful, that we've got clear line of sight to bringing SER-155 forward and other opportunities in our cultivated program. And I think that clearing some of the obligations associated with VOWST really allows us to do that. But maybe I can ask Lisa to comment on the study itself, and perhaps Terri can comment on where we go next and what's possible.
Sure. Thanks for the question, John. So as you know, we're excited we have a readout coming up very soon. The infection endpoint, in particular, have applicability not just to the Allo-HSCT patients, but to a broader range. And recall, the infection endpoints include neutropenia and fever, bloodstream infections, GI infections, and we know that those are all tied to dysbiosis, pathogen overgrowth, and difficulty with the maintaining epithelial barrier function. We know that that same setup occurs in auto-HSCT, in CAR T patients, other chemotherapy-related neutropenia and fever patients, and even a broader range of populations where we know there is infection taking place from the GI tract. So this really does have applicability to a much broader range of patients.
And then maybe, Terri, do you want to comment on how we think about what's possible?
... Sure. Well, what Lisa just covered really is you know, identifying other indications and patient populations where, you know, infections are a problem. They're frequent, they're serious, they're extensive, they can be fatal. In addition to that, you know, we're some of these indications, many of them, in fact, could benefit from a treatment with an attractive profile, like we think SER-155 will bring and like VOWST brought to patients. Highly effective, incredibly safe, orally administered, easy for patients to take. So we're excited about the unmet need, the potential for an attractive profile to solve a problem for these patients and these physicians. And each one of these patients' populations is significant on its own. For example, allo, we estimate 10,000 patients annually in the U.S., another 13,000 in the top EU countries.
If you move into auto, as Lisa pointed out, there's another significant patient population there. We estimate 23,000 patients across the U.S. and Europe annually. If you move into some of these other blood cancers that Lisa referenced, AML, multiple myeloma, for example, you could add on an additional 190,000 patients annually across the U.S. and Europe. And then you could even imagine moving into solid organ transplants, i.e., liver and kidney, adding on another 65,000 patients annually across the U.S. and Europe. So each one of these indications is significant on its own, but together, you can just imagine how many patients we could help and how excited we are about this opportunity and what this data could portend for us. Back to you, Eric.
Yeah, that's it.
Our next question comes from the line of Jeff Jones with Oppenheimer. Please go ahead.
Good morning, guys, and thanks for taking the question. One clarification. You'd mentioned the proxy process, and I just wanted to confirm whether the closing of the transaction required a shareholder vote, and if so, if that was a simple majority or otherwise. And then, one on one, the 155 program. For the cash runway estimate and for Q 25, what are the assumptions around the studies that'll be taking place and are supported by that burn rate? Thanks.
Yeah, Jeff, good morning, and thank you for the question. So maybe I'll start with the first and hand it to Marella. Sorry, I'll start with the second, I'll hand it to Marella for the first. As always, we follow the data, right? So, as it relates to what happens after the 155 readout, we need to see what the data results are. But, we certainly have built into our forecasting and our modeling, the presumption that we're doing work into 2025 for the next study of 155, engaging with regulators and thinking about that, that program moving forward. That is embedded in the assumptions around our forecasting. On your first question on the proxy process, we do expect to require a shareholder vote.
We expect it to be a majority of shares outstanding. I believe that the proxy materials should be available within approximately a week, and Marella can check me on all those or add anything else that I missed.
Yes, the proxy materials will be in sort of the next 10 days or so, I would say, but yes, it's the majority of shares outstanding that are required.
Great. Thank you, guys, very much, and congratulations on signing the deal.
Thanks for the questions, Jeff.
Our next question comes from the line of Keay Nakae with Chardan. Please go ahead.
Yes, thanks. So beyond 155, what is, what is the company's plans for development of other-
I think we might have. Do we have a question?
Can you hear me?
Yep.
Yeah. So, so beyond 155, what are the company's plans for spending R&D budget on other earlier stage programs? It's, you know, maybe around 2% last year. Should we expect that to increase at this point?
Yes, thanks for the question, and good morning. I, I'll ask Marella to comment, but, part of our, design in this transaction was to be able to invest in and bring forward programs, in the pipeline that we have been constrained in doing historically, and that starts with SER-155. As we think about as an enterprise where we can create the most value, it's in the collaboration, creativity, discovery around this novel therapeutic area, and I think that, that VOWST is, is a great example of what's possible, in terms of impacting patients, if we are, are successful in how we develop, programs.
That said, we also will be highly focused, but the good news is that we've got a readout coming shortly, that will provide additional information on how we move forward in 155 and other programs thereafter. So, I think the ability to move forward in the pipeline, starting with 155, is augmented by this deal, but you can expect us to continue to have a focused approach. And I certainly think that we will have more to say about that, in more detail next week at our Q2 earnings announcement, but I'll invite Marella to comment further.
Yes, I would echo what Eric has said. We'll be informed by the data. We do, in that projection, have funds set aside to support development in our platform and our cultivated product platform, but we'll be informed ultimately by the data as to what is the best investment use of our funds. But expect to see growth and focus on our SER-155 as well as our pipeline.
All right, thanks.
Thank you for the question.
That concludes our Q&A session. I will now turn the conference back over to the management team for closing remarks.
Well, thank you for joining this morning. We look forward to further updating you on our Q2 earnings call, which we have scheduled for next Tuesday, August thirteenth. Thanks again for joining. We hope everyone has a great day. Talk soon.