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Recently I gave a “big picture” perspective which covered the emerging field of microbiomics and why I think that Seres Therapeutics (NASDAQ:MCRB) is likely to be the company that helps define a significant commercial opportunity for this new area of biotech. Here I update on recent developments and make some suggestions about where things might be headed for MCRB.
Positive signs from FDA?
The FDA has accepted the BLA (Biologics Licence Application) for SER-109 for treating recurrent C.difficile infection and provided a firm date (April 26, 2023) for an approval decision. Seres and Nestle (OTCPK:NSRGY) plan for a launch soon after if the FDA approves the application. Of course there will be interest in the details of any FDA response, but having clarity about the date of FDA action is helpful. Perhaps indicating that the FDA is comfortable with Seres’ completed BLA, it seems that the FDA is not planning an Advisory Committee meeting for the SER-109 BLA. Seres CMO Lisa von Moltke indicates that there has been (and continues to be) close engagement with the FDA on the BLA submission.
The marketing agreements between Seres and Nestle not only involve the US and Canada, but also the global market. It is clear that the big focus currently is on FDA approval and the US and Canadian markets, but it is also clear that a lot is happening elsewhere especially in Europe.
The scale of the SER-109 opportunity
The US has ~170,000 cases of recurrent C.diff annually, and it is a leading cause of health care-associated infections. This is a worldwide problem (including Europe and Asia) that leads to significant mortality in people of all ages, and not only the traditional at-risk groups of hospitalised patients, aged care facilities and those under anti-microbial therapy.
The simplicity of SER-109 being an oral pill means that the treatment can be considered in an outpatient setting. Indeed in the Seres Phase 3 clinical trials a number of the patients were treated entirely in an outpatient setting because patients come to hospital for acute antibiotic treatment but are discharged when the symptoms are relieved and even the last antibiotic treatment (before SER-109 treatment starts) occurs in an outpatient setting. CEO Eric Shaff emphasised that the SER-109 treatment was applicable to all cases of recurrence, including those experiencing a first recurrence. There is a lot of interest in addressing C.difficile recurrences as they represent the major hospital infections. Clearly there are measures that can be taken to minimise risk of transmission, but I suspect that SER-109 could be part of the solution because a tablet treatment option is simple to implement.
The Q3 Earnings transcript paid particular attention to the preparations for manufacture, which CEO Eric Shaff indicated has been a preoccupation of the company for the past decade. He stated that Seres already has commercial SER-109 drug manufactured in anticipation of FDA approval in April next year. Also being funded currently is expansion of manufacturing capacity, including with outside partners (Recipharm and Bacthera) to service long term product needs.
Also covered was the work being done to prepare for market acceptance. Mention was made of an investor webcast on December 8 which will expand on the market opportunity and launch preparations. It is clear that there is a lot of pre-launch activity both at Seres and also Aimmune (Nestle). The December 8 webcast will also address pricing, which will help investors understand the likely market value of SER-109. It is noted that each patient for C.diff recurrence costs ~$34,000, so premium pricing is a possibility. The company is aware of the need to make the product widely available and no doubt the disaster of the Biogen (BIIB) Aduhelm pricing is being considered in deciding the pricing of SER-109. Not long to wait to see how this will play out.
Other bacterial infections
As a logical extension of the work being done on C.diff recurrence, Seres is working on expanding the scope of gastrointestinal, bloodstream and GvDH (Graft-versus Host Disease) treatment opportunities. These include high risk serious infections (eg carbapenem- and vancomycin-resistant bacteria). The work on SER-155 is progressing on safety, pharmacological data and engraftment data and will be reported on early in 2023. This includes safety for highly immunocompromised patients. The early indications are that SER-155 might eventually provide utility in possibly preventing infection in patients at high risk of blood stream infections. The patient groups for this kind of approach are varied ( e.g. those with cancer neutropenia, cirrhosis and solid organ transplant patients). There is a lot of data analysis involved with exploring these new microbiome opportunities. They make clear that SER-109 C.diff recurrence is the beginning of a much bigger and diverse opportunity. These opportunities extend into microbiome therapeutics for inflammatory and immune-mediated disease.
Risks
A stock isn’t unloved without reason and some in the market (eg Goldman Sachs) still think that Seres is a sell. My take is that a lot of the negativity around Seres is more about the industry overall, and in fact the weaknesses that swirl around Seres in relation to SER-109 may not be its problem as much as a problem for the emerging field of microbiomics. In particular I discern concern about manufacture and quality of the manufacturing chain. I suspect this comes from problems that the FDA have articulated about other companies (eg Finch Therapeutics (FNCH) manufacturing challenges) where approvals have been delayed by concerns about manufacture. The Q3 earnings transcript made clear that the initial launch product and product through next year is already well in hand with partner Recipharm. Bacthera is not involved with initial launch materials and it will be involved with product capacity for market development in the future.
Another concern about Seres is its cash burn. Part of that is about Seres cost structure as it invests substantially in documenting lots of data surrounding its trials. The point is that this is new territory and biomarkers as well as documenting the microbiome flora are key issues that provide guidance about the effect of the Seres treatments and what needs to be tweaked. CEO Eric Shaff has made the point that Seres doesn’t just keep doing the same thing when setbacks occur. They dig deeply into the data and in particular the company looks where there might be effects and makes changes to explore a path to clinical success.
The other aspect of the big spend is in building a manufacturing capacity for capturing the substantial market for SER-109. While Seres is fortunate to have as partner Nestle’s Aimmune gastro teams, who sell products in that market now, to decide upon how to position the product and prepare the medical community for the product release, there is still a substantial spend on building a whole new class of product.
I agree that Seres needs to look at the cost base for the company, but I’m also clear that it doesn’t make sense to scrimp on preparations for market release of SER-109 and indeed sorting out how the product will be presented.
What the market thinks
Emerging biotech stocks, especially those engaged in transforming developments like MCRB, are a qualitative story. It makes little sense to use traditional quantitative metrics to make investment decisions about such stocks because they miss the point. StockNews recently downgraded its rating to “sell” and Zachs Equity Research published a negative report based on higher quarterly loss and lower earnings than consensus estimates. These kinds of reports, plus a continuing “sell” recommendation from Goldman Sachs, undoubtedly are scaring off investors and the share price has fallen in recent days after a high of $9.05 on the FDA accepting the SER-109 BLA.
Conclusion
As I indicate above, quantitative metrics like earnings and quarterly losses are of little relevance to the current investment thesis for a stock like MCRB, which represents the vanguard of a major new direction (the microbiome) in the biotech sector. Losing one’s nerve because analyst consensus estimates are not achieved misses the point, and if investors are worried about this they should not consider investment in MCRB.
At $7.12 the MCRB share price is substantially up from when I last wrote about the stock in August (when the share price was $5.54). The reason the share price has risen substantially is that the FDA has accepted the SER-109 BLA and given a firm date (April 26, 2023) for its decision. This caused the share price to increase to $9.05 at the beginning of November but is has fallen on negative reports which seem not to be substantial. I expect that the share price could drift if there are further negative reports. Mostly the market isn’t paying attention, although there are five strong buy, two buy and just one sell recommendation from Wall Street analysts in the past 90 days. I’m the lone Seeking Alpha author who has covered the stock (positively) recently. To be clear FDA approval of SER-109 will transform Seres’ investor interest because this would trigger a $125 million payment from Nestle Health Science plus a further $225 million in launch milestone payments and a 50/50 profit share with Nestle Aimmune. The rest is noise, although canny investors will be aware that share price falls based on news/sentiment that may be more relevant to other microbiome companies, could offer attractive entry opportunities. The current share price of $7.12 might be such an opportunity although the share price could drift lower. You have until April 2023, at which time the share price will either crash (if the FDA doesn’t approve SER-109) or make you happy (FDA approval).
I am not a financial advisor, but I have lived biotech from discovery to startup and public listing. I look for opportunities that are overlooked by the market. This article is not providing financial advice as that is for you and your advisor to consider. Here represented are my personal views about Seres Therapeutics which may or may not be useful in your investment considerations.
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