UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-37465
le
Seres Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
200 Sidney Street – 4 Floor
Cambridge, Massachusetts
(Address of Principal Executive Offices)
th
27-4326290
(IRS Employer
Identification No.)
02139
(Zip Code)
(617) 945-9626
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.001 per share
Trading Symbol(s)
MCRB
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities Registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of the "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☐
☐
Accelerated filer
Smaller reporting company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant based on the closing price of the registrant’s common stock as reported on
the Nasdaq Global Select Market on June 30, 2022, was $239,918,450. Solely for purposes of this disclosure, shares of common stock held by executive officers, directors and certain
stockholders of the registrant as of such date have been excluded because such holders may be deemed to be affiliates.
As of March 3, 2023 there were 126,076,391 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2022 are incorporated herein by reference in Part III.
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16.
SIGNATURES
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. We intend such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including
without limitation statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals,
research and development costs, timing and likelihood of success, including the anticipated PDUFA target action date and potential FDA approval of SER-
109, manufacturing activities and related timing, commercialization efforts and related timing, our ability to continue as a going concern, plans and
objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known
and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar
expressions. The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and
results of operations. These forward-looking statements speak only as of the date of this report and are subject to a number of important factors that could
cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the
sections in this report titled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this Annual Report on Form 10-K.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for
management to predict all risk factors and uncertainties.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K completely and with
the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these
cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein,
whether as a result of any new information, future events, changed circumstances or otherwise.
TRADEMARKS, SERVICE MARKS AND TRADENAMES
We have proprietary rights to trademarks used in this Annual Report on Form 10-K, which are important to our business and many of which are
registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this
Annual Report on Form 10-K are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the
fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This Annual Report on Form 10-K contains additional
trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names
appearing in this Annual Report on Form 10-K are, to our knowledge, the property of their respective owners. We do not intend our use or display of other
companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other
companies.
SUMMARY RISK FACTORS
Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual Report on
Form 10-K. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting
our business include the following:
• We are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable
future and may never achieve or maintain profitability.
• We have identified conditions and events that raise substantial doubt regarding our ability to continue as a going concern.
• We will need additional funding in order to complete development of our product candidates and commercialize our products, if approved. If we
are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or
commercialization efforts.
•
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
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•
•
•
•
•
•
Other than SER-109, we are early in our development efforts and may not be successful in our efforts to use our reverse translational microbiome
therapeutics platform to build a pipeline of product candidates and develop marketable drugs.
Our product candidates are based on microbiome therapeutics, which is an unproven approach to therapeutic intervention.
Clinical drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Delays or difficulties in the enrollment of patients in clinical trials, could result in our receipt of necessary regulatory approvals being delayed or
prevented.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we or our collaborators will not be able to
commercialize our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially
impaired. Additionally, failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being
marketed abroad.
Our collaboration and license agreements with Société des Produits Nestlé S.A., successor in interest to Nestec Ltd., and NHSc Rx License
GmbH, successor in interest to NHSc Pharma Partners (collectively, and together with their affiliates and subsidiaries, Nestlé) are important to
our business. If we or Nestlé fail to adequately perform under these agreements, or if we or Nestlé terminate the agreements, the development
and commercialization of our CDI and IBD product candidates, including SER-109, SER-287 and SER-301, could be delayed or terminated and
our business would be adversely affected.
• We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily,
including failing to meet deadlines for the completion of such trials.
• We rely on third parties for certain aspects of the manufacture of our product candidates for preclinical and clinical testing and expect to continue
to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product
candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or
commercialization efforts.
•
Even if any of our product candidates receive marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients,
hospitals, third-party payors and others in the medical community necessary for commercial success.
• We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more
successfully than we do.
•
•
If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents that are sufficient to protect our product
candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations,
financial condition and prospects.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
• We may expand our operational capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our
operations.
• We will continue to incur costs as a result of being a public company, and our management will continue to devote substantial time to compliance
initiatives and corporate governance practices.
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Item 1. Business
PART I
Overview
We are a microbiome therapeutics company developing a novel class of biological drugs, which are designed to treat disease by modulating the
microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state. We have an advanced drug pipeline with clinical
assets that are formulated for oral delivery and a differentiated microbiome therapeutics drug discovery and development platform including good
manufacturing practices, or GMP, manufacturing capabilities for this novel drug modality.
Our highest priority is preparing for potential commercialization of SER-109, an investigational oral microbiome therapeutic in development for
recurrent Clostridioides difficile infection, or CDI. In October 2022, the U.S. Food and Drug Administration, or FDA, accepted for review our biologics
license application, or BLA, for SER-109. The BLA has been granted Priority Review designation with a Prescription Drug User Fee Act, or PDUFA,
target action date of April 26, 2023. If approved by the FDA, we plan to launch SER-109 with our collaborator, Nestlé Health Science, soon after approval.
We are also designing microbiome therapeutics to decolonize pathogens and modulate host function to reduce and prevent infections. We believe
that the scientific and clinical data from our SER-109 program validate this novel approach, which we refer to as Infection Protection. We believe the
Infection Protection approach may be replicable across different bacterial pathogens to develop microbiome therapeutics with the potential to protect a
range of medically compromised patients from infections. We are evaluating SER-155 in a Phase 1b study in patients receiving allogeneic hematopoietic
stem cell transplantation, or allo-HSCT, to reduce incidences of gastrointestinal infections, bloodstream infections and graft-versus-host disease, or GvHD.
In December 2022, the study’s Data and Safety Monitoring Board reviewed available clinical data for cohort 1 and cleared advancement to cohort 2. In
February 2023, we announced the initiation of enrollment in cohort 2. We plan to announce initial safety and pharmacological data, including drug bacterial
species engraftment from cohort 1, in May 2023. We are also progressing additional preclinical stage programs to evaluate how microbiome therapeutics
may reduce incidence of infections in indications such as cancer neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant
infections more broadly in settings of high-risk such as intensive care units, or ICUs.
We continue our research activities in ulcerative colitis, or UC, including evaluating the potential to utilize biomarker-based patient selection and
stratification for future studies. In addition, we continue to leverage microbiome pharmacokinetic and pharmacodynamic data from across our clinical and
preclinical portfolios, using our reverse translational microbiome therapeutic development platform to conduct research on various indications, including
inflammatory and immune diseases, cancer, and metabolic diseases.
We have built and deploy a reverse translational platform for the discovery and development of microbiome therapeutics. This platform incorporates
high-resolution analysis of human clinical data to identify microbiome biomarkers associated with disease and non-disease states; preclinical screening
using human cell-based assays and in vitro/ex vivo and in vivo disease models customized for microbiome therapeutics; and microbiological capabilities
and a strain library that spans broad biological and functional breadth to both identify specific microbes and microbial metabolites that are associated with
disease and to design consortia of bacteria with specific pharmacological properties.
We have assembled a world class group of scientists, clinicians, directors and investors, who have established our leadership in the field of
microbiome therapeutics. We were co-founded by Drs. Noubar Afeyan, David Berry and Geoffrey von Maltzahn of Flagship Pioneering. Through Flagship
Pioneering’s contribution of foundational scientific concepts and intellectual property, assembly of our management team and critical early-stage support,
we launched as the first company focused on the ecological nature of the microbiome. Led by Eric Shaff, our President and Chief Executive Officer, our
experienced management team possesses core capabilities and know-how in microbiome therapeutics, drug development, commercialization, chemistry,
manufacturing and controls, or CMC, public company management and finance.
Our Strategy
Our goal is to remain the leading biopharmaceutical company developing and commercializing microbiome therapeutics to address significant
unmet medical needs. We intend to focus in the near term on gaining FDA approval for SER-109 for recurrent CDI and continuing development of our
highest priority clinical programs. Additionally, we continue to advance our differentiated microbiome drug discovery, development and manufacturing
platforms and capabilities.
Advancing our Programs
•
Supporting the BLA submission for our lead product candidate, SER-109, for patients with recurrent CDI, and advancing preparations
for potential commercialization. In October 2022, our BLA for SER-109 was accepted for Priority Review by the FDA. A PDUFA target
action date has been set for April 26, 2023. We continue to execute pre-commercialization activities with our commercialization collaborator,
Nestlé Health Science, including appropriate market education and data dissemination to the medical community. In addition, activities are
ongoing to engage payers.
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We launched a disease education campaign in the fourth quarter of 2021 with an increasingly robust media plan as we approach potential
commercial launch. In the second quarter of 2022, we deployed an experienced Nestlé payer team to conduct preapproval information
exchange activities. To date, this team has engaged payers covering more than 150 million lives. In order to complement the current
gastroenterology sales force of Nestlé Health Science, in the fourth quarter of 2022, a hospital selling team of twenty employees were hired
to profile the top volume hospitals across the U.S. during the remainder of our prelaunch phase. In addition, we have SER-109 drug supply
ready in anticipation of product approval and continue to make progress expanding commercial-scale production of SER-109 to prepare for
anticipated future market demand. Our Long-Term Manufacturing Agreement with BacThera AG, or Bacthera, a global leader in
biopharmaceutical product manufacturing, is designed to increase longer-term SER-109 product supply and adds to existing manufacturing
capabilities.
•
•
Maximizing the opportunity in Infection Protection. We believe that the scientific and clinical data from our SER-109 program validate our
Infection Protection approach of using microbiome therapeutics to decolonize pathogens and modulate host function to reduce and prevent
infections. Infection Protection may be replicable across different bacterial pathogens to develop microbiome therapeutics with the potential
to protect a range of medically compromised patients from infections. We are evaluating SER-155 in a Phase 1b study in patients receiving
allo-HSCT to reduce incidences of gastrointestinal infections, bloodstream infections and GvHD. We are also progressing additional
preclinical stage programs to evaluate how microbiome therapeutics may reduce incidence of infection in indications such as cancer
neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant infections more broadly in settings of high-risk such as
ICUs.
Continuing research to inform further development in UC and immune modulation. We previously announced clinical, microbiome and
metabolomic data from our SER-287 Phase 2b study and the first cohort of our SER-301 Phase 1b study. Available data for these
investigational microbiome therapeutics suggest that there may be an opportunity to utilize biomarker-based patient selection and
stratification for future studies. Research activities remain ongoing to inform potential further development activities that include patient
population and disease severity selection and dose optimization in these populations.
Advancing Our Capabilities
•
•
Leveraging our leading reverse translational microbiome therapeutics platform to develop additional innovative and novel microbiome
therapeutics across a range of serious medical conditions with high unmet need including infectious and inflammatory disease and
disease associated with modulation of host immunity. We believe that the combination of experience, proprietary data and proprietary know-
how related to the microbiome, the functional properties of microbial species and strains, microbe-host interactions, the cultivation of
microbial strains, and microbiome-specific functional screens and analytics provides us a competitive advantage in the design and
development of microbiome therapeutics. Our platform enables us to build upon our existing and growing clinical experience to rationally
design treatments for acute and complex chronic diseases. We intend to leverage this advantage to develop additional innovative microbiome
therapeutics.
Developing manufacturing capabilities sufficient to support commercialization of any approved microbiome therapeutic candidates.
Microbiome therapeutic manufacturing requires capabilities that are distinct from other biologic drugs. We have made strategic investments
in manufacturing capabilities to help ensure that we maintain control of our know-how and also because we believe these capabilities will be
necessary and highly advantageous for the development of future microbiome therapeutic candidates. Our bioprocess and manufacturing
personnel are focused on creating a platform of manufacturing expertise that will set the stage for further advances in the emerging field of
microbiome therapeutics.
Our Microbiome Therapeutics Platform
We have developed the leading reverse translational microbiome therapeutics platform which we believe enables us to apply our capabilities to
efficiently identify, manufacture and develop novel microbiome therapeutics for serious human diseases. We use a reverse translational discovery platform
that incorporates analysis of microbiome biomarkers from human clinical data and preclinical assessments using human cell-based assays and in vitro/ex
vivo and in vivo disease models. Specifically, we start with data sets from both healthy subjects and subjects with disease to delineate at high-resolution the
composition of the microbiome and physiological state of subjects and to identify specific microbiome and host signatures that associate with disease or the
onset of disease. These in-human insights on how different microbe species and strains and microbe-associated metabolites are associated with disease
along with how these microbes and metabolites directly or indirectly modulate disease-relevant functional pathways in the host are leveraged in preclinical
drug design and development.
Our discovery process begins with human data derived from clinical trials and cohort studies, which we use as a basis for target identification and
the design of our microbiome therapeutic candidates. We compare healthy, normal colonic microbiomes to those in an unhealthy disrupted or disease state,
revealing the ecological, compositional and functional differences between various states of disease and during the transition from health to disease or vice
versa. Specifically, we utilize clinical data sets combined with
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advanced data sciences and microbiome analytics to identify microbiome signatures of disease at the resolution of specific species and strains, metabolites,
and even genes that are associated with disease states. These microbiome biomarkers are associated with host signatures and biomarkers of disease to
identify drug targets for our microbiome therapeutics. Our clinical data from the SER-109, SER-262, SER-401, SER-287 and SER-301 programs, and
microbiome data generated with external collaborators, serve to instruct us on how the introduction of certain keystone microbes have the potential to
restructure the microbiome and modulate the metabolic state of the gut to shift it to a non-disease state.
We have developed a proprietary functionally characterized strain library and a suite of assays and screens, bioinformatics and computational tools,
and databases, which facilitate our insights into the human microbiome. We have established proprietary, curated, reference databases and algorithms that:
(i) integrate high-resolution genomic, metagenomic, metabolomic, and transcriptomic data sets, and data from in vitro and human cell-based assays, and in
vitro/ex vivo and in vivo disease models, and (ii) enable us to track changes in the microbiome at the level of microbial species and individual strains and
associate these changes with changes in the metabolic state of the gut and host physiology. Our analytics can integrate gene profiling and metabolomics
data (the small molecules made by the microbiome) with genomic data (the collection of microbes defined by sequencing) to delineate microbiome
biomarkers (the specific species or strains and functional pathways) that contribute to the state of disease or health. Further, we have established de novo
analytics for pharmacokinetic and pharmacodynamic assessments of microbiome therapeutics. Additionally, leveraging all of these data we have curated
and continue to build a database that links and associates: (i) functional properties of microbial species/strains, (ii) functional pathways in hosts that can be
modulated by the microbiome, (iii) the association of functional pathways to disease, and (iv) the association of existing non-microbiome drugs to the
functional pathways. This continually growing database can be mined to inform drug design and disease area and patient population prioritization.
Our proprietary strain library of bacterial isolates from healthy donors and patients enables us to translate microbiome biomarker insights into
defined consortia of bacteria. The strain library contains bacterial species isolated from individuals that are either healthy or that have a disease. Seres has
developed extensive isolation and cultivation know-how. The strain library contains a majority of the Human Microbiome Project’s “most wanted” and
many novel species we do not believe are described in other databases or the scientific literature. The functional properties of strains are characterized
using proprietary in vitro and ex vivo human cell-based assays as well as full-genome sequences and genome functional annotation. Functional
characterization of target strains includes properties such as how the bacteria interact with human colonic epithelial cells and human immune cells. We also
seek to understand how these microbes improve the health of barrier cells in the gut and how they may impact immune responses.
We select bacteria from our library with specific predicted properties using novel algorithms for in silico functional design and optimization and
grow the compositions in the lab to be tested both in vitro/ex vivo models as delineated above and in in vivo animal models. Our animal models include
conventional mice, germ-free mice, and “humanized avatar” mice that possess only bacteria derived from humans; these models were developed to
minimize confounding variables presented by model organism microbes. Data from our in vitro/ex vivo and in vivo screens are analyzed and used to
optimize compositional designs; introducing new bacterial strains and optimizing existing strains until we identify a lead composition suitable for clinical
testing.
Finally, we manufacture the bacterial composition under current Good Manufacturing Practices, or cGMP, or similar foreign requirements, which
are required by FDA and European regulators. We believe our unique manufacturing capacities position us to exploit the insights of our proprietary human
data and the novel biology of species and strains that have not previously been used for therapeutics. We have optimized fermentation conditions to
generate spores and enhance bacterial yields in anaerobic fermentation and have in-house capabilities to formulate both spores and live non-spore bacteria.
Our manufacturing facility in Cambridge, Massachusetts was designed to be fit-for-purpose and is highly differentiated compared to the offerings of
commercial contract research organizations. We have secured additional capacity, designed to our specifications, via contract manufacturing organizations,
or CMOs, to ensure adequate supply for potential commercial products. We continue working to address quality control requirements for our microbiome
therapeutic candidates using proprietary microbiological and sequence-based testing schemes, including high-throughput quantitative analytics to assess the
identity, potency, and purity of the final product. We intend to continue to work with regulators to meet the requirements for product approval.
Taken together, we believe our platform, spanning drug discovery, preclinical translation, and novel manufacturing and quality control approaches,
has enabled a field leading pipeline across a range of therapeutics areas.
Disease Overview and Our Product Pipeline
We believe our microbiome therapeutic candidates represent a novel approach with potential application across a broad range of human diseases.
Our lead product candidate, SER-109, is designed to reduce further recurrence of CDI, a debilitating infection of the colon, in patients who have received
antibiotic therapy for recurrent CDI by restructuring the gastrointestinal microbiome and modulating the metabolic landscape to address CDI. If approved
by the FDA, we believe SER-109 will be a first-in-field oral microbiome drug. Building upon SER-109, we are developing novel microbiome therapeutics,
such as SER-155, to specifically target infections and antimicrobial resistance. SER-155, a microbiome therapeutic candidate consisting of a consortium of
cultivated bacteria, is designed to reduce incidences of gastrointestinal infections, bloodstream infections and GvHD in patients receiving allo-HSCT. We
are progressing additional preclinical stage programs to evaluate how microbiome therapeutics may reduce incidence of infection in indications such as
cancer neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant infections
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more broadly in settings of high-risk such as ICUs. We are also continuing research activities in UC, including evaluating the potential to utilize biomarker-
based patient selection and stratification for future studies. In addition, we continue to leverage microbiome pharmacokinetic and pharmacodynamic data
from across our clinical and preclinical portfolios, using our reverse translational microbiome therapeutic development platform to conduct research on
various indications, including inflammatory and immune diseases, cancer, and metabolic diseases.
CDI Overview and SER-109
Clostridioides difficile Infection
C. difficile is a Gram-positive, toxin-producing, spore forming bacterium that may cause debilitating diarrhea in infected individuals, but can also
lead to more severe outcomes, such as inflammation of the colon, or colitis, toxic megacolon and death. C. difficile bacteria express toxins that disrupt the
structural architecture of cells causing leakage of fluids through the gastrointestinal, or GI, epithelium. The cells disrupted by these toxins eventually
undergo apoptosis and die, disrupting the epithelial barrier and exposing the immune system to inflammatory stimuli, severe and persistent diarrhea and, in
the most serious cases, death.
CDI is most often associated with the prior use of antibiotics, although age and poor immune status are important risk factors as well. Antibiotics are
thought to decrease colonization resistance to CDI by disrupting the microbiome. Since C. difficile spores are able to survive for long periods of time
outside the body, and because healthcare settings are often sites of significant antibiotic use, CDI is a leading cause of healthcare-associated infections in
the United States. CDI is also a cause of morbidity and mortality among hospitalized cancer patients and bone marrow transplant patients as their immune
systems are suppressed by cytotoxic drugs, which inhibit or prevent the functioning of cells, and they may be heavily treated with antibiotics to prevent or
treat infections. More recently, the rise of community-acquired CDI has been recognized as a growing problem.
The Centers for Disease Control and Prevention, or CDC, has identified C. difficile as one of the top three most urgent antibiotic-resistant bacterial
threats in the United States. It is the most common cause of hospital acquired infection in the United States, having overtaken MRSA. CDI is responsible
for the deaths of over 20,000 Americans each year. During 2023, it is estimated that there will be approximately 459,000 cases of primary CDI and 156,000
incidences of recurrent CDI within the United States. CDI is also costly to the healthcare system. According to a study published in Clinical Infectious
Diseases, the economic burden of CDI in 2008 in U.S. acute care facilities alone was estimated to be as much as $4.8 billion. In addition, the average
recurrent CDI treatment cost in the U.S. is estimated to be $34 thousand per patient, comprising mostly (88%) hospital-related costs (Rodrigues Infect
Control Hosp Epidemiol 2017). The national incidence of CDI remains high despite declining from 476,000 in 2011 to 462,000 in 2017 (Guh, New
England Journal of Medicine 2020). Further, according to a 2014 article in the American Journal of Infection Control, from 2001 to 2010, incidence of CDI
per 1,000 patients discharged increased from 4.5 to 8.2 with an average hospital stay of eight days. Due to suboptimal approaches to treatment, patients
with primary CDI have an approximate 20% - 25% change of recurrent infection increasing to greater than 40% after the first recurrence (Gerding, CID
2018; Lashner ACG 2020; Dubberke CID 2018).
Current and developing treatment alternatives and their limitations
Antibiotics. According to the Infectious Disease Society of America, or IDSA, guidelines, the current standard of care for primary CDI is to treat
with antibiotics, such as fidaxomicin or vancomycin. Fidaxomicin is recommended to treat primary CDI, it does not have a label claim to reduce or prevent
CDI recurrence. No antibiotic therapeutics are currently approved for treatment of recurrent CDI.
Recurrent CDI, defined as the presence of diarrhea and a positive C. difficile stool assay within two to eight weeks following the initial episode, is
not well addressed by any of the available antibiotics. The risk of recurrent CDI increases to greater than 40% after the first recurrence. In extreme cases,
patients may be treated continuously for years with vancomycin.
Antibiotics have two major limitations: they have no effect on the spores that germinate in a disrupted microbiome and their use appears to
exacerbate microbiome disruption, resulting in increased risk of future CDI. Research in animal models has shown that antibiotic use not only eliminates
many healthy bacteria in the GI tract, but also leads to the release of nutrients that facilitate the growth of C. difficile. Antibiotics have also been shown to
change the ratio of primary versus secondary bile acids in the colon by killing bacteria required to metabolize bile acids. This shift to a predominance of
primary bile acids further facilitates the growth of C. difficile, as it requires primary bile acids for germination of its spores. As a result, antibiotic use may
induce a lasting microbiome disruption that makes it possible for C. difficile to colonize a person and then cause, or further perpetuate, disease.
Fecal microbiota transplantation. FMT, also known as a stool transplantation, is a procedure during which donated stool, including fecal microbes,
is typically instilled via colonoscopy into a patient with recurrent CDI. FMT presents several challenges for effective treatment of the disease. FMT has the
potential to transmit infectious or allergenic agents between hosts, involves the transmission of hundreds of unknown strains of bacteria, fungi, viruses and
potentially parasites from donor to subject, and is difficult to perform on a mass scale. In November 2019 the FDA held a public hearing to obtain input on
the use of FMT to treat Clostridioides difficile infection not responsive to standard therapies. Presentations were made by the academic community and
development companies regarding the current and future use of FMT. In January, 2020, we submitted comments to the docket for the meeting that
recommended: 1) increased scrutiny and regulation of unapproved, commercially available FMT that does not comply with IND requirements; 2)
implementation of guidance for establishing safety of source materials for all microbiome products; and 3) safety and
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efficacy of all microbiome products to reduce recurrent CDI must be based on adequate and well controlled clinical trials including accurate assurance of
diagnosis of the disease state – specifically toxin testing.
Fecal microbiota therapy. In November 2022, the FDA approved Rebyota, the first fecal microbiota product approved by the FDA, for the
prevention of recurrence of CDI in individuals 18 years of age and older following antibiotic treatment for recurrent CDI. Rebyota is administered rectally
and is prepared from stool sourced from qualified donors. The stool is tested for a panel of transmissible pathogens. We believe our CMC process is
differentiated by additional processes to inactivate and clear potential adventitious agents to help ensure product safety.
Antibodies. Bezlotoxumab a fully human monoclonal antibody directed against C. difficile toxin B was approved in the United States in October
2016 and in Europe in 2017 for the treatment of CDI. According to Phase 3 studies, the antibody demonstrated 10% absolute risk reduction in preventing
recurrence of CDI. Antibodies bind toxins to alleviate the symptoms of CDI, but they do not address the underlying disruption of the microbiome, which
we believe is the cause of recurrent CDI. Bezlotoxumab requires intravenous infusion.
SER-109
SER-109 is an oral microbiome therapeutic candidate consisting of a consortium of purified Firmicutes spores. The SER-109 manufacturing
purification process is designed to remove unwanted microbes in an effort to reduce the risk of pathogen transmission beyond donor screening alone. SER-
109 is designed to reduce recurrent CDI in patients with a history of CDI by modulating the microbiome to a state that resists C. difficile germination and
growth. SER-109, if approved, is intended to treat individuals with recurrent CDI, a patient population that is estimated to include approximately 156,000
cases in the United States during 2023.
Phase 1b/2 clinical study
The Phase 1b/2 clinical study was an open-label, single arm, descending-dose study that enrolled 30 patients with recurrent CDI. All enrolled
patients received standard-of-care antibiotic treatment, followed by oral administration of SER-109. Of the 30 study patients, 26 (87%) achieved the
primary endpoint of absence of CDI (defined in this study as more than three unformed bowel movements in a 24-hour period with laboratory confirmation
of a positive C. difficile stool test) up to eight weeks following dosing. Three of the four patients who did not meet the primary endpoint were determined
by their primary investigator to be recovering from CDI, and all symptoms resolved without further therapeutic intervention or antibiotics. In total, 29 of 30
patients (97%) achieved the clinical cure rate, which we defined as the absence of CDI requiring antibiotic treatment during the eight-week period after
SER-109 dosing. SER-109 was well tolerated in the study, with the most common adverse events being mild to moderate gastrointestinal symptoms. No
drug related serious adverse events were observed.
Phase 2 clinical study
The Phase 2 clinical study was a randomized, double-blinded, placebo-controlled, parallel-group two arm trial that enrolled a total of 89 patients
with a history of multiply-recurrent CDI, defined as 3 or more CDI episodes within 9 months. SER-109 was administered orally following the completion
of antibiotic treatment for CDI. The predefined study primary efficacy endpoint was the relative risk of CDI recurrence up to 8 weeks after treatment with
SER-109 compared to treatment with placebo. CDI recurrence was defined as diarrhea for 2 or more consecutive days, a positive CDI test, and the
requirement for antibiotic treatment. Based on 8-week data, CDI recurrence occurred in 44% of subjects (26 of 59) who received SER-109, compared to
53% of subjects (16 of 30) who received placebo. The relative risk of CDI recurrence for the placebo population compared to the SER-109 population was
not statistically significant. The most commonly reported AEs in both the SER-109 and placebo arms were in the GI category, and were diarrhea,
abdominal pain, flatulence, and nausea. No drug-related SAEs were observed.
Analysis of Phase 1b/2 and Phase 2 clinical study results
In our Phase 2 clinical study, the study’s primary endpoint of reducing the relative risk of CDI recurrence at up to 8 weeks after treatment was not
achieved. In order to understand the difference in outcome between Phase 1b/2 and Phase 2 clinical studies, we conducted an analysis of the available
clinical, microbiome and CMC data. We identified key factors that potentially explain the Phase 2 clinical study results, including issues related to both the
accurate diagnosis of C. difficile recurrent infection, and potential suboptimal dosing of subjects in the trial.
The key factors include:
•
•
•
The diagnostic test for entry may not have differentiated subjects with active CDI disease from those with other disease but who had C.
difficile carriage (e.g., irritable bowel syndrome);
The diagnostic test for CDI recurrence during the study (the primary endpoint) overestimated recurrences, as PCR was the most common test
performed;
The safety profile of SER-109, which may include diarrhea in the first week following dosing, led to SER-109 subjects presenting for
evaluation of recurrence at a time when they were likely to be colonized with C. difficile leading to mistaken diagnosis of recurrent CDI; and
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•
The dose and dosing regimen used in the study may not have been optimal in the Phase 2 clinical study based upon an assessment of the
microbiome response using whole metagenomics shotgun sequencing.
From our reanalysis of the phase 1b/2 and 2 trials, we learned that there is a dose-dependent response governing early SER-109 pharmacokinetics,
with increased engraftment associated with successful CDI resolution through 8 weeks. In the Phase 2 trial, SER-109 was dosed at 1 × 108 spores based on
equivalent clinical outcomes and week 8 engraftment measures observed between the phase 1 dosing cohorts. However, our integrated analysis of both
trials revealed that (1) engraftment kinetics at week 1 were of greater importance for reducing rCDI than later time points, (2) week 1 engraftment was
highly variable in Phase 2 subjects, and (3) rapid engraftment was dependent on dose, which was clearly suboptimal in the Phase 2 trial (McGovern, 2020;
Young, 2020). We hypothesized that rapid engraftment of a microbiome therapeutic may be critical to efficacy since CDI recurrence usually occurs within
1–3 weeks of antibiotic discontinuation, the “window of vulnerability”; consistent with this hypothesis, in the Phase 2 trial, greater engraftment of SER-109
species at week 1 was correlated with reduced CDI rates. This correlation was not previously appreciated due to the use of lower resolution 16S rRNA gene
amplicon–based methods used in the Phase 1b/2 study for determining drug engraftment (Khanna, 2016).
Phase 3 clinical study design
In the Phase 3 ECOSPOR III clinical study of SER-109, patients with multiply recurrent CDI were randomized 1:1 between SER-109 and placebo.
Diagnosis of CDI for both study entry and for endpoint analysis utilized a C. difficile cytotoxin assay, compared to the Phase 2 clinical study, where most
patients were diagnosed by PCR. Patients in the SER-109 arm received a total SER-109 dose, administered over three days, approximately 10-fold higher
than the dose used in the Phase 2 clinical study to drive rapid engraftment of SER-109 bacteria in treated patients. The study evaluated patients for 24
weeks and the primary endpoint was to compare the C. difficile recurrence rate in subjects who receive SER-109 verses placebo at up to eight weeks after
dosing. CDI recurrence is defined as diarrhea (>3 unformed bowel movements/day for 2 or more consecutive days), a positive CDI toxin test, and the
decision by the primary investigator that antibiotic treatment is warranted. The study was conducted at approximately 100 sites in the United States and
Canada.
Phase 3 clinical study results
The study enrolled 182 patients with multiply recurrent CDI. ECOSPOR III data demonstrated that the study achieved its primary endpoint where
SER-109 was superior to placebo in reducing CDI recurrence at eight weeks, reflecting a recurrence-free rate of approximately 88% at eight weeks post-
treatment. SER-109 resulted in a 27% absolute reduction of recurrence of CDI compared to placebo at eight weeks post-treatment, which is a relative risk
reduction of 68%. The number-needed-to treat was 3.6. The rate of recurrence at 12 weeks in the SER-109 arm was 18.0%, compared to a rate of 46.2% in
the placebo arm, representing an absolute risk reduction of 28% (relative risk 0.40; 95% CI 0.24-0.65; p <0.001 and p< 0.002 for the test sequence), and
thereby consistent with the results seen at eight weeks. Results across stratifications of age and antibiotics remained similar. The study’s efficacy results
related to the primary endpoint from all analyses exceeded the statistical threshold previously provided in consultation with the FDA that could allow this
single clinical study to fulfill efficacy requirements for a BLA. The efficacy results remained durable through 24 weeks of follow-up, as SER-109 was
observed to significantly reduced recurrence rates compared to placebo over 24 weeks, 21.3% vs. 47.3%, respectively. These data were published in the
New England Journal of Medicine in January 2022 and in the Journal of the American Medical Association in October 2022.
We believe the SER-109 safety results across completed studies have been favorable, with a well-tolerated adverse event profile. Overall incidence
of patients who experienced treatment-emergent adverse events, or TEAEs, was 92.2% for SER-109 and 91.3% for placebo. SER-109 had no serious
treatment-related adverse events. The most commonly observed TEAEs were gastrointestinal disorders, the majority of which were mild to moderate in
nature.
The study also examined the pharmacokinetics (i.e., drug bacterial species engraftment) and pharmacodynamics (i.e., metabolic changes) following
SER-109 dosing. The data demonstrate that SER-109 administration resulted in the rapid and durable engraftment of SER-109-derived bacterial species
into the gastrointestinal tract as soon as one week following dosing, and that this engraftment was maintained at subsequent timepoints evaluated, including
at the eight-week timepoint corresponding to the study’s primary endpoint and the 24-week safety follow-up timepoint. The presence of SER-109 bacterial
species was significantly greater (p<0.001) in SER-109 treated patients than in placebo patients at all timepoints evaluated. Significant differences were
maintained in predefined subpopulation analyses of age and antibiotic use. Seres utilized advanced microbiome biomarker analytics and proprietary
genomic reference datasets to identify, at a resolution of bacterial species, the gastrointestinal microbiome signatures associated with SER-109 engraftment.
SER-109 administration also resulted in modulation of the gastrointestinal metabolic landscape. Notably, data demonstrated a significant decrease in
primary bile acids (p=0.038) and an increase in secondary bile acids (p<0.001) by one-week post-dosing; significant differences were maintained through
week eight for secondary bile acids. Notably, SER-109 subjects had less variance across subjects in bile acid response than placebo subjects. Observations
for both primary and secondary bile acids were maintained in predefined subpopulation analyses of age and antibiotic use. All microbiome analyses were
conducted according to the treatment subjects actually received. Published research as well as preclinical studies have demonstrated that primary bile acids
support
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germination of C. difficile spores that are the source of disease recurrence. In contrast, secondary bile acids have been reported to inhibit germination and
the growth of C. difficile (Theriot and Young, Annu. Rev. Microbiol. 2015).
In November 2021, we initiated a SER-109 expanded access program across the United States. The program is designed to enable eligible adults
with recurrent CDI to obtain access to SER-109 prior to a potential FDA product approval.
In June 2022, we announced confirmatory results from the ECOSPOR IV open-label study. The overall safety results observed in ECOSPOR IV
through 24 weeks showed that SER-109 was well tolerated, consistent with the safety results observed in the prior completed Phase 3 study, ECOSPOR III.
In ECOSPOR IV, subjects treated with SER-109 had a recurrence rate of 8.7% at eight weeks, which represented a 91.3% recurrence-free rate, consistent
with the 88% rate observed in the ECOSPOR III study. Subjects with a first recurrence of CDI (29% of subjects in the ECOSPOR IV study) had a CDI
recurrence rate of 6.5%, and subjects with ≥ two prior CDI episodes (ECOSPOR III inclusion criteria) had a CDI recurrence rate of 9.7% at eight weeks. At
24 weeks, 13.7% of all subjects treated with SER-109 had a recurrence of CDI. In addition to data from the ECOSPOR III study, the ECOSPOR IV data
was included as part of our BLA submission to the FDA.
In October 2022, the FDA accepted for review our BLA for SER-109. The BLA has been granted Priority Review designation with a PDUFA target
action date of April 26, 2023. If approved by the FDA, we plan to launch SER-109 with our collaborator, Nestlé Health Science, soon after approval.
In addition, we plan on initiating a Phase 3 trial in the European Union, or EU, in order to expand access to the EU market upon potential approval.
Sales and Marketing
In July 2021, we entered into an agreement with NHSc Pharma Partners, succeeded by NHSc Rx License GmbH, or, together with Société des
Produits Nestlé S.A, Nestlé, to jointly commercialize SER-109 in the United States and Canada. Under the terms of the agreement, Nestlé will assume the
role of lead commercialization party. We received license payments of $175 million up front, and will receive an additional $125 million upon FDA
approval of SER-109. The agreement also includes sales target milestones which, if achieved, could total up to $225 million. We will be responsible for
development and pre-commercialization costs in the United States. Upon commercialization, we will be entitled to share equally in its commercial profits
and losses.
This agreement represents a second strategic collaboration between the companies. Nestlé already has commercial rights to our investigational
treatments for CDI and IBD outside of the United States and Canada, and with the July 2021 expansion, Nestlé became our global collaborator in SER-109.
If SER-109 is approved in the United States and Canada, we believe it can be commercialized with a focused specialty sales force that will target
gastrointestinal and infectious disease physicians, which are the two primary groups of physicians who treat recurrent CDI patients. We have initiated
commercial readiness activities that include: C. difficile market assessments, publication and presentation planning, stakeholder and advocacy relationship
mapping, brand name selection, and initiation of payer and reimbursement strategic planning. We launched a disease education campaign in the fourth
quarter of 2021 with an increasingly robust media plan as we approach potential commercial launch. In the second quarter of 2022, we deployed an
experienced Nestlé payer team to conduct preapproval information exchange activities. To date, this team has engaged payers covering more than 150
million lives. In order to complement the current gastroenterology sales force of our commercialization collaborator, Nestlé Health Science, in the fourth
quarter of 2022, a hospital selling team of twenty employees were hired to profile the top volume hospitals across the United States during the remainder of
our prelaunch phase.
Infection Protection and SER-155
We believe that the scientific and clinical data from our SER-109 program validate our novel approach of using microbiome therapeutics to
decolonize pathogens, resulting in reduced rate of infections in medically compromised patients. Data from the SER-109 Phase 3 trial published in the New
England Journal of Medicine and Journal of the American Medical Association show that microbiome therapeutics can restructure the gut microbiome and
shift the gut metabolic landscape. Additional data show that SER-109 rapidly reduces the abundance of bacteria associated with common antibiotic
resistance genes, or ARGs, and reduces ARG abundance in the gut. Collectively, these data demonstrate the potential for microbiome therapeutics to
restore colonization resistance and ultimately to reduce infections and antimicrobial resistance. This Infection Protection approach may be replicable in
protecting a range of medically compromised patients from infections seeded by the gut microbiome. It may also enable us to reduce antimicrobial resistant
infections, which the World Health Organization declared as a top ten global public health threat facing humanity.
We are evaluating SER-155 in a Phase 1b study in allo-HSCT recipients to reduce incidences of gastrointestinal infections, bloodstream infections
and GvHD. We are also progressing additional preclinical stage programs to evaluate how microbiome therapeutics may reduce incidence of infection in
indications such as cancer neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant infections more broadly in settings of high-
risk such as ICUs.
SER-155, an oral microbiome therapeutic candidate consisting of a consortium of cultivated bacteria, is designed to decrease infection and
translocation of antibiotic resistant bacteria in the gastrointestinal tract and modulate host immune responses to decrease GvHD. The rationale for this
program is based in part on published clinical evidence from our collaborators at Memorial Sloan
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Kettering Cancer Center showing that allo-HSCT patients with decreased diversity of commensal microbes are significantly more likely to die due to
infection and/or lethal GvHD. SER-155 was designed using our reverse translational microbiome therapeutics development platform to reduce incidences
of gastrointestinal infections, bloodstream infections and GvHD in patients receiving allo-HSCT. The SER-155 Phase 1b study is designed to include
approximately 70 patients in both an open-label and a randomized, double-blind, placebo-controlled cohort that will evaluate safety and tolerability before
and after HSCT. Additionally, the engraftment of SER-155 bacteria (a measure of pharmacokinetics) and the efficacy of SER-155 in preventing infections
and GvHD will be evaluated. In December 2022, the study’s Data and Safety Monitoring Board reviewed available clinical data for cohort 1 and cleared
advancement to cohort 2. In February 2023, we announced the initiation of enrollment in cohort 2. We plan to announce initial safety and pharmacological
data, including drug bacterial species engraftment from cohort 1, in May 2023. The study is being conducted at a number of leading cancer centers across
the U.S.
Irritable Bowel Disease, Ulcerative Colitis, SER-287 and SER-301
UC, a form of irritable bowel disease, or IBD, is a relapsing-remitting chronic inflammatory disorder affecting the mucosal surface of the colon,
leading to episodes of bloody diarrhea, urgency and mucosal inflammation (Danese and Fiocchi, 2011), which generally begins in young adulthood and
endures for life. The incidence of UC is rising worldwide, and the prevalence of the disease is highest in the United States, Canada, and Europe. In the
United States alone, the prevalence of UC in adults is estimated to be 263 per 100,000, while in the pediatric population (age <20 years), prevalence of the
disease is estimated to be 33.9 per 100,000. (Kappelman et al., 2013). The severity, extent, and duration of disease are also risk factors for developing colon
cancer, which occurs at a rate as high as 0.5-1.0% per year, an important complication given the young age at which the disease strikes. Patients with UC
also experience increased risk of CDI and primary sclerosing cholangitis, compared to the general population.
Currently, patients with UC require life-long therapy. Current medical therapies for the treatment of UC suppress the immune system rather than
reduce the triggers of immune activation. We believe there remains an unmet need for safer agents with novel non-immunosuppressive mechanisms of
action. Moreover, alternative therapy is needed for patients with UC who experience frequent flares or are intolerant to the aminosalicylate class of
medication or where there are safety concerns relating to the use of immunomodulator or steroid therapy.
We continue our research activities in IBD, including evaluating the potential to utilize biomarker-based patient selection and stratification in future
clinical studies in UC. UC patient populations are generally heterogeneous in their disease manifestation and we believe biomarker-based strategies may
enable targeting more homogeneous patient populations in future studies.
In July 2021, we announced topline results from the SER-287 Phase 2b study evaluating SER-287 in patients with mild-to-moderate UC, which did
not meet its primary endpoint of improving clinical remission rates compared to placebo. Following the data readout, in December 2021, we completed
preliminary microbiome drug pharmacology analyses that demonstrated the engraftment of SER-287 bacterial species, however, unlike the Phase 1b study,
anticipated changes in disease-relevant metabolites post-administration with SER-287 in the Phase 2b study were not observed to the same extent across
the patients treated in the Phase 1b study.
In addition, we have completed preliminary analysis of data from the first cohort of the SER-301 Phase 1b study evaluating SER-301 in patients
with mild-to-moderate UC, which included 15 subjects. Evaluation of the first cohort data by an independent Data Safety Monitoring Board indicated that
it would be safe to proceed to the placebo-controlled second cohort. While efficacy was not a defined endpoint in the first cohort, evaluation of clinical
outcome data collected as part of the study indicated that no subjects in the first cohort achieved clinical remission as defined by the FDA using the Three-
Component Modified Mayo Score after 10 weeks of treatment, though there were improvements in one or more individual components (endoscopic, stool
frequency and rectal bleeding subscores) in some patients. SER-301 was optimized relative to SER-287 to incorporate bacterial strains that engrafted across
the majority of patients in our previous trials, and strains that were associated with positive clinical outcomes and the modulation of key microbial-
associated metabolites. In the Phase 1b study, strains in SER-301 were observed to engraft in subjects across the trial period, and based on the assessment of
metabolomic data, SER-301 demonstrated pharmacological properties consistent with its design and further led to baseline-dependent modulation of the
metabolic landscape in the gastrointestinal tract of patients treated. In April 2022, we announced our decision not to proceed with the planned SER-301
Phase 1b second study cohort. In aggregate, our clinical and preclinical data suggest that there are IBD patient populations that may be more amenable to
microbiome therapeutic intervention, and we continue to conduct analyses of data from our UC clinical stage programs and conduct preclinical studies to
inform next steps for further development in UC and IBD more broadly.
Donor-derived product candidates
Manufacturing
SER-109 is a purified consortium of Firmicutes spores produced through a process of separation and purification from a natural human stool source,
obtained from qualified, highly screened donors. The donor raw material is collected in a controlled setting, under a protocol that is designed to ensure that
donors meet appropriate qualification criteria.
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Donors are required to be in good health, and to possess a medical history that minimizes the risk of exposure to and transmission of an infectious
disease. Donors are tested for infectious agents and screened for GI and other relevant health factors. Donors are monitored for health status changes on an
ongoing basis throughout the donation period. At periodic intervals, and at the end of the donation period, the qualification assessment is repeated to help
ensure the donor has maintained their health status. After successful completion of a periodic or exit screening, donations are released for use in
manufacturing.
We initially process the donor material in our in-house Cambridge manufacturing facility, and then transfer the process intermediate to our partner
CMO, GenIbet BioPharmaceuticals, SA, or GenIbet (acquired by Recipharm in February 2022), to further isolate and concentrate SER-109 for finishing to
the oral capsule dosage form. The manufacturing process includes processes to inactivate and clear potential adventitious agents, to help ensure product
safety. The purified drug substance is tested for identity, potency and purity, and subsequently formulated into drug product where it is again tested for
identity, potency, purity, and pharmaceutical properties. The final drug product oral dosage form is four capsules daily for 3-days. Steps are specifically
built into the process to remove and kill non-spore microbes. We have conducted validation studies demonstrating the ability of the process to inactivate
and clear any potential extraneous pathogens of concern, and we believe we have sufficient data from these studies to support product registration. If
approved, we anticipate that we will be able to produce a sufficient commercial supply of SER-109 to meet estimated demand in the United States using
donations from a modest number of donors.
Commercial product supply for the initial phase of U.S. commercial launch is being produced at our Cambridge manufacturing facility and further
processed at GenIbet. In November 2021, we entered into a collaboration with Bacthera to manufacture SER-109 to expand upon our existing capabilities
for commercial product supply to meet anticipated demand in later years. Under the terms of the agreement, Bacthera is constructing a dedicated full-scale
production suite for us at Bacthera’s Microbiome Center of Excellence in Visp, Switzerland, and is intended to provide manufacturing services for SER-
109.
Cultivated product candidates
The production of live bacterial products is highly specialized. Owing to their hardiness and environmental persistence, production of aerobic and
anaerobic vegetative bacteria, as well as spore-forming organisms, poses unique considerations for product, personnel, and facility design, operation,
quality assurance and quality control. Manufacturing activities with spores are subject to specialized regulations. We expect that a typical commercial
fermentation will yield on the order of hundreds or thousands of doses per liter depending on the product and its composition. Additionally, because a given
total dose contains multiple strains, the per-strain requirements for production may be even lower. As a result, we believe the relatively high productivity of
our manufacturing processes relative to the dose level will enable production scales for both clinical and commercial supply to be modest by traditional
industry standards for biologics and vaccine manufacturing.
We have developed supply chains for producing and testing materials to ensure the availability of future clinical trial supplies. Our development
processes are designed to ensure that the raw materials, process technologies and analytical tests we use are scalable and transferable to a cGMP
manufacturing environment. These include the following core elements:
•
•
•
Fermentation. We are using microscale screening to optimize culture of the bacterial strains of interest in our current and foreseeable
fermentation-based product candidates. These screens are designed to identify the fermentation platform that is best-suited for optimization
and scale-up of the strains. Small-scale fermentation systems (0.1 L to 50 L) enable the optimization of a wide variety of culture conditions
and have been demonstrated to be scalable to larger fermentation processes and enable technology transfer to clinical and final manufacturing
sites. We employ platform fermentation processes as starting points for cGMP production processes and develop strain specific processes as
required. To develop master cell banks, working cell banks, and bulk drug substance for commercial product, we are using bacterial strains
that each originate from a unique research cell bank precursor, so we expect the research cell banks and final drug product should be
genetically and physiologically similar.
Purification. Similar to fermentation, we believe small-scale purification operations are available for assessing large-scale cGMP
manufacturing of live cells, and to quickly assess downstream process yield, quality and robustness. Our products in development are
predominantly oral dosage forms containing live bacteria, hence purification is typically less complex than for parenteral biologics such as
monoclonal antibodies that must separate highly similar components from the culturing process. Separation of viable microbes from soluble
fermentation broth components is typically much simpler by comparison.
Formulation. Our microbiome therapeutic candidates are combinations of bacteria and can be administered by a number of methods and by
different routes. Where possible, our product formulation development is focused on oral delivery for patient convenience. The primary goal
in developing a formulation is to deliver bacteria to the intended location in a condition where they are able to replicate and modulate the
microbiome. Formulation development generally uses approved excipients and preservatives with pharmaceutical industry precedent, and
will include screening of liquid, solid, and suspension formulations to maximize the opportunity for extended stability with minimal cold-
chain requirements. Dosage forms for oral products may be liquid- or powder-filled capsules, tablets, sachets, or liquid containers.
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•
Analytical. We are addressing quality control requirements for our microbiome therapeutic candidates using proprietary microbiological,
chemical, biochemical, and molecular sequence-based testing schemes. We have available and are further developing quality control,
environmental monitoring and in-process analytical tools that can quantitatively measure the composition of spore, vegetative microbe and
spore/vegetative combinations, which we believe enable a wide variety of drug products to be manufactured. Throughout the bioprocess and
formulation development platform we use and will expand on quantitative analytics to assess the identity, potency and purity of the final
product.
We currently have a 10,000 square foot cGMP manufacturing facility at our headquarters where we conduct cGMP manufacture of therapeutic
candidates to support drug substance and drug product for early phase and small-scale clinical supplies and with the ability to perform both drug substance
and drug product manufacturing for early and late-phase clinical development and at larger scales of operation. We may establish further manufacturing
facilities that will serve late-phase clinical and commercial supply for our product candidates. We may do this by expanding our current facilities, or by
purchasing or building additional facilities. We also use contract manufacturing and testing organizations to supplement our internal capacity.
Collaboration and Manufacturing Agreements
Collaboration and License Agreement with Société des Produits Nestlé S.A. (Nestlé)
Material Agreements
In January 2016, we entered into the Collaboration and License Agreement, or the 2016 License Agreement, with Nestec, Ltd., as succeeded by
Société des Produits Nestlé S.A., or, together with NHSc Pharma Partners, succeeded by NHSc Rx License GmbH, their affiliates, and their subsidiaries,
Nestlé, for the development and commercialization of certain of our product candidates in development for the treatment and management of CDI and IBD,
including UC and Crohn’s disease. The 2016 License Agreement will support the development of our portfolio of products for CDI and IBD in markets
outside of the United States and Canada, or the 2016 Licensed Territory.
License Agreement with NHSc Rx License GmbH (Nestlé)
In July 2021, we entered into a License Agreement, or the 2021 License Agreement, with NHSc Pharma Partners, succeeded by NHSc Rx License
GmbH, or, together with Société des Produits Nestlé S.A., their affiliates and their subsidiaries, Nestlé. Pursuant to the 2021 License Agreement, we
granted to Nestlé, under certain of our patent rights and know how, a co-exclusive, sublicensable (under certain circumstances) license to develop,
commercialize and conduct medical affairs activities for (i) therapeutic products based on our microbiome technology (including our SER-109 product
candidate) that are developed by us or on our behalf for the treatment of CDI and recurrent CDI, as well as any other indications pursued for the products
upon mutual agreement of the parties, or the 2021 Field in the United States and Canada, or the 2021 Licensed Territory, and (ii) our SER-109 product
candidate and any improvements and modifications thereto developed pursuant to the terms of the 2021 License Agreement, or the 2021 Collaboration
Products, for any indications in the 2021 Licensed Territory. We are responsible for completing development of SER-109 in the 2021 Field in the United
States until first regulatory approval for SER-109 is obtained.
Long Term Manufacturing Agreement with Bacthera
In November 2021, we entered into a Long Term Manufacturing Agreement with BacThera AG, or Bacthera, a joint venture between Chr. Hansen
and a Lonza Group affiliate, which was amended on December 14, 2022, or the Bacthera Agreement. The Bacthera Agreement governs the general terms
under which Bacthera, or one of its affiliates, will (i) construct a dedicated full-scale production suite for us at Bacthera’s Microbiome Center of Excellence
in Visp, Switzerland, which is currently under construction; and (ii) provide manufacturing services to us for our SER-109 product and other products, as
agreed to by both parties.
GenIbet Supply Agreement
In September 2015, we entered into a Supply Agreement, or the Supply Agreement, with GenIbet BioPharmaceuticals, SA (acquired by Recipharm
in February 2022) to provide certain manufacturing and supply services to us for our product candidates for purposes of conducting clinical trials and
supporting commercial supply. In March 2022, the term of the Supply Agreement was extended through June 30, 2023.
Indebtedness
Loan and Security Agreement with Hercules
In October 2019, we entered into a loan and security agreement with Hercules Capital, Inc., or Hercules, pursuant to which a term loan in an
aggregate principal amount of up to $50.0 million, or the Original Credit Facility, was available to us in three tranches, subject to certain terms and
conditions. We received the first tranche of $25.0 million upon signing the agreement on October 29, 2019, but did not borrow either of the second two
tranches, which were available at different times upon Hercules’ approval until June 30, 2021.
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In April 2020, we entered into an amendment to the loan and security agreement with Hercules, or the First Amendment, permitting us to enter into
a promissory note under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Stability Act.
In February 2022, we entered into a Second Amendment to the Original Credit Facility (as amended by the First Amendment), or the New Credit
Facility, pursuant to which, term loans in an aggregate principal amount of up to $100.0 million have become available to us in five tranches subject to
certain terms and conditions: (i) the first tranche in an aggregate principal amount of $25.0 million that was outstanding as of the February 24, 2022
effective date, or the Effective Date, (ii) the second tranche in an aggregate principal amount of $12.5 million that has been advanced to us and was
outstanding as of the Effective Date, (iii) the third tranche in an aggregate principal amount of $12.5 million that has been advanced to us and was
outstanding as of the Effective Date, (iv) the fourth tranche in an aggregate principal amount of $25.0 million that is available upon satisfaction of certain
conditions, including the approval by the FDA of a biologics license application in respect of SER-109, or the Regulatory Approval Milestone, by no later
than December 15, 2023, and (v) the fifth tranche in an aggregate principal amount of up to $25.0 million that is available through the amortization date
upon satisfaction of certain conditions, including the lenders’ investment committee approval.
For a further description of our material agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Liquidity and Capital Resources" in Part II, Item 7 of this Annual Report on Form 10-K.
Intellectual Property
We strive to protect the proprietary technology that is important to our business, including seeking and, if granted, maintaining patents intended to
cover our product candidates and compositions, their methods of use and processes for their manufacture and any other aspects of inventions that are
commercially important to the development of our business. We also utilize regulatory exclusivity as well as trade secrets to protect aspects of our business.
We plan to continue to expand our intellectual property estate by filing patent applications directed to compositions, methods of treatment, methods
of manufacture and methods for patient selection created or identified from our ongoing development of our product candidates. Our success will depend
on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to
our business, defend and enforce any patents that we may obtain, preserve the confidentiality of our trade secrets and operate without infringing the valid
and enforceable patents and proprietary rights of third parties. We also rely on know-how and continuing technological innovation to develop and maintain
our proprietary position and, in the future, may rely on or leverage in-licensing opportunities. We seek to obtain domestic and international patent
protection, and endeavor to promptly file patent applications for new commercially valuable inventions.
The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions. In
addition, the coverage claimed in a patent may be challenged in courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued
patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict whether the patent
applications we are currently pursuing will issue as patents in any particular jurisdiction or at all, whether the claims of any patent applications, should they
issue, will cover our product candidates, or whether the claims of any issued patents will provide sufficient protection from competitors or otherwise
provide any competitive advantage.
Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer,
and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries and patent application filings, we cannot be
certain of the priority of inventions covered by pending patent applications. Accordingly, we may not have been the first to invent the subject matter
disclosed in some of our patent applications or the first to file patent applications covering such subject matter, and we may have to participate in
interference proceedings or derivation proceedings declared by the United States Patent and Trademark Office, or USPTO, to determine priority of
invention.
Our patent portfolio includes issued U.S. patents and patent applications in various stages of prosecution, including ex-U.S. international
counterparts. We believe that issued claims will provide protection for our microbiome therapeutic candidates.
Patent Term
The base term of a U.S. patent is 20 years from the filing date of the earliest-filed non-provisional, patent application from which the patent claims
priority. The term of a U.S. patent can be lengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the
USPTO. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that reduces its term to that of an earlier-expiring patent.
The term of a U.S. patent may be eligible for patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,
referred to as the Hatch-Waxman Act, to account for at least some of the time the drug is under development and regulatory review after the patent is
granted. With regard to a drug for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Act allows for
extension of the term of one U.S. patent that includes at least one claim covering the composition of matter of such an FDA-approved drug, an FDA-
approved method of treatment using the drug and/or a method of manufacturing the FDA-approved drug. The extended patent term cannot exceed the
shorter of five years beyond the non-extended
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expiration of the patent or fourteen years from the date of the FDA approval of the drug, and a patent cannot be extended more than once or for more than a
single product. During the period of extension, if granted, the scope of exclusivity is limited to the approved product for approved uses. Some foreign
jurisdictions, including Europe and Japan, have analogous patent term extension provisions, which allow for extension of the term of a patent that covers a
drug approved by the applicable foreign regulatory agency. In the future, if and when our product candidates receive FDA approval, we expect to apply, if
appropriate, for patent term extension on patents covering those product candidates, their methods of use and/or methods of manufacture.
Trade Secrets
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. We typically utilize trade secrets to
protect aspects of our business. We protect trade secrets and know-how by establishing confidentiality agreements and invention assignment agreements
with our employees, consultants, scientific advisors, contractors and collaborators. These agreements provide that all confidential information developed or
made known during the course of an individual or entities’ relationship with us must be kept confidential during and after the relationship. These
agreements also provide that all inventions resulting from work performed for us or relating to our business and conceived or completed during the period
of employment or assignment, as applicable, shall be our exclusive property. In addition, we take other appropriate precautions, such as physical and
technological security measures, to guard against misappropriation of our proprietary information by third parties.
Competition
The development and commercialization of new drug and biologic products is highly competitive and is characterized by rapid and substantial
technological development and product innovations. We face competition with respect to our current product candidates and will face competition with
respect to any product candidates that we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty
pharmaceutical companies and biotechnology companies worldwide. We are aware of a number of large pharmaceutical and biotechnology companies, as
well as smaller, early-stage companies, that are pursuing the development of products, including microbiome therapeutics, and disease indications we are
targeting. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct
research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial
resources, established presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries
may result in even more resources being concentrated among a smaller number of our competitors.
These third parties compete with us in recruiting and retaining qualified scientific, clinical, manufacturing sales and marketing and management
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for,
our programs.
The key competitive factors affecting the success of the product candidates that we develop, if approved, are likely to be their efficacy, safety,
convenience, price, the level of competition and the availability of reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have
fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a
strong market position before we are able to enter the market, especially for any competitor developing a microbiome therapeutic which will likely share
our same regulatory approval requirements. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors
seeking to encourage the use of lower cost products.
Government Regulation
The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things,
the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record
keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs and biologics such as those we are
developing. We, along with our contract manufacturers, will be required to navigate the various preclinical, clinical and commercial approval requirements
of the governing regulatory authorities of the countries in which we wish to conduct studies or seek approval for our product candidates. The process of
obtaining regulatory approvals and ensuring subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the
expenditure of substantial time and financial resources.
In the United States, the FDA regulates drug and biologic products under the Federal Food, Drug and Cosmetic Act, its implementing regulations
and other laws, including, in the case of biologics, the Public Health Service Act. Our product candidates
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are subject to regulation by the FDA as biologics. Biologics require the submission of a BLA and approval by the FDA before being marketed in the United
States.
The process required by the FDA before our biologic product candidates may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s good laboratory practice, or GLP,
regulations;
submission to the FDA of an IND, which must become effective before clinical trials in the United States may begin;
approval by an institutional review board, or IRB, or ethics committee at each clinical site before a trial is commenced;
performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the product candidate for each
proposed indication, conducted in accordance with the FDA’s good clinical practice, or GCP, regulations;
preparation and submission to the FDA of a BLA after completion of all pivotal trials;
satisfactory completion of an FDA Advisory Committee review, if applicable;
determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with cGMP regulations, and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued
safety, purity and potency, and of selected clinical investigation sites to assess compliance with GCPs; and
FDA review and approval of the BLA prior to any commercial marketing, sale or shipment of the product.
The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our
product candidates will be granted on a timely basis, if at all.
Preclinical and Clinical Trials
Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical studies include laboratory evaluations of
drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which must be conducted in accordance with GLP requirements.
The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. An IND is a
request for authorization from the FDA to administer an investigational new drug to humans. An IND must become effective before human clinical trials
may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or
questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a
case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may result in the FDA
not allowing clinical trials to commence or not allowing clinical trials to commence on the terms originally specified in the IND. A separate submission to
an existing IND must also be made for each successive clinical trial conducted during product development, and the FDA must grant permission, either
explicitly or implicitly by not objecting, before each clinical trial can begin.
Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance
with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical
trials are conducted under protocols detailing, among other things, the objectives of the clinical trial and the parameters and criteria to be used in
monitoring safety and evaluating effectiveness. Each protocol must be submitted to the FDA as part of the IND. While the IND is active, progress reports
summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at
least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse
events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing suggesting a
significant risk to humans exposed to the drug, and any clinically important increased rate of a serious suspected adverse reaction compared to that listed in
the protocol or investigator brochure.
An independent institutional review board, or IRB, for each investigator site proposing to participate in a clinical trial must also review and approve
the clinical trial before it can begin at that site, and the IRB must monitor the clinical trial until it is completed. Some studies also include oversight by an
independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for
whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it
determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. The FDA, the IRB, or the sponsor
may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health
risk. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.
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For purposes of BLA approval, clinical trials are typically conducted in three sequential phases, which may overlap or be combined.
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Phase 1 — The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition.
These studies are typically designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational
product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.
Phase 2 — The investigational product is typically administered to a limited patient population with a specified disease or condition to
evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.
Phase 3 — The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically
significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These
clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product
approval.
In some cases, the FDA may condition approval of a BLA on the sponsor’s agreement to conduct additional clinical trials to further assess the
biologic’s safety and effectiveness after BLA approval. Such post-approval clinical trials are typically referred to as Phase 4 clinical trials.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the biologic and finalize a process for manufacturing the biologic in commercial quantities in accordance with
cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and manufacturers
must develop, among other things, methods for testing the identity, strength, quality and purity of the final biological product. Additionally, appropriate
packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable
deterioration over its shelf life.
BLA Submission and FDA Review
The results of preclinical studies and clinical trials, together with other detailed information, including extensive manufacturing information and
information on the composition of the biologic, are submitted to the FDA in the form of a BLA requesting approval to market the biologic for one or more
specified indications. The BLA must include all relevant data available from preclinical and clinical studies, including negative or ambiguous results as
well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among
other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number
of alternative sources, including studies initiated by independent investigators. The submission of a BLA requires payment of a substantial user fee unless a
waiver is granted or exemption applies.
Each BLA submitted to the FDA is reviewed for administrative completeness and reviewability within 60 days of the FDA’s receipt of the
application. If the BLA is found to be complete, the FDA will file the BLA, triggering a full review of the application. The FDA may refuse to file any
BLA that it deems incomplete or not properly reviewable at the time of submission. In this event, the BLA must be resubmitted with the additional
information.
Once a BLA has been accepted for review, the FDA’s goal is to review standard applications within ten months after the filing date, or, if the
application qualifies for Priority Review, six months after the FDA accepts the application for filing, but the overall timeframe is often extended by FDA
requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether the biological product is safe, pure
and potent and whether the facility or facilities in which it is manufactured meet standards designed to assure the product’s continued safety, purity and
potency. The FDA may also refer the application to an Advisory Committee for review, evaluation, and recommendation as to whether the application
should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before approving a BLA, the FDA will inspect the facility or the facilities at which the biologic product is manufactured and will not approve the
product unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of
the product within required specifications. Additionally, before approving a BLA, the FDA may inspect one or more clinical sites to assure that such trials
were conducted in compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable,
it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested
additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will
be produced, the FDA may issue an approval letter or a Complete Response Letter, or CRL. An approval letter authorizes commercial marketing of the
product with specific prescribing information for specific indications. A CRL will describe all of the deficiencies that the FDA has identified in the BLA,
except that where the FDA determines that the data supporting the
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application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots,
and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the BLA in condition for
approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria
are not satisfied, require additional testing or information, and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated
uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to
ensure the benefits of the product outweigh its risks. A REMS is a safety strategy implemented to manage a known or potential serious risk associated with
a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician
communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA
also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once
approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur
after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the
product’s safety and effectiveness after commercialization and may limit further marketing of the product based on the results of these post-marketing
studies.
Expedited Development and Review Programs
The FDA maintains several programs intended to facilitate and expedite development and review of new biologics designed to address unmet
medical needs in the treatment of serious or life- threatening diseases or conditions. These programs include Fast Track designation, Breakthrough Therapy
designation, Priority Review designation and Accelerated Approval, and the purpose of these programs is to expedite the development and review of
qualifying product candidates.
A biologic is eligible for Fast Track designation if it is intended to treat a serious or life- threatening disease or condition and demonstrates the
potential to address unmet medical needs for such disease or condition. Fast Track designation provides increased opportunities for sponsor meetings with
the FDA during preclinical and clinical development, in addition to the potential for rolling review, meaning that the agency may review portions of the
marketing application before the sponsor submits the complete application, if the sponsor provides a schedule for the submission of the sections of the
BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon
submission of the first section of the BLA. Product candidates receiving Fast Track status may also be eligible for Priority Review, if the relevant criteria
are met.
In addition, a biologic product candidate may be eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening
disease or condition and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Breakthrough
Therapy designation provides all the features of Fast Track designation in addition to intensive guidance on an efficient development program beginning as
early as Phase 1, and FDA organizational commitment to expedited development, including involvement of senior managers and experienced review staff
in a cross-disciplinary review, where appropriate.
Any product candidate submitted to the FDA for approval, including a product candidate with Fast Track or Breakthrough Therapy designation, may
also be eligible for additional FDA programs intended to expedite the review process, including Priority Review designation and accelerated approval. A
BLA is eligible for Priority Review if the product candidate has the potential to provide a significant improvement in safety or effectiveness in the
treatment, diagnosis or prevention of a serious disease or condition. Additionally, product candidates are eligible for accelerated approval if they can be
shown to have an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured
earlier than an effect on irreversible morbidity or mortality which is reasonably likely to predict an effect on irreversible morbidity or mortality or other
clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Accelerated
approval is usually contingent on a sponsor’s agreement to conduct confirmatory studies to verify and describe the product’s clinical benefit. Products
receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory studies in a
timely manner or if such studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval
pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
Fast Track designation, Breakthrough Therapy designation, Priority Review designation and Accelerated Approval do not change the standards for
approval but may expedite the development or review process.
Post-Approval Requirements
Approved biologics that are manufactured or distributed in the United States are subject to pervasive and continuing regulation by the FDA,
including, among other things, requirements relating to recordkeeping, periodic reporting, product distribution, advertising and promotion and reporting of
adverse experiences with the product. There also are continuing, annual user fee requirements for products marketed pursuant to approved applications.
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Any biologics manufactured or distributed pursuant to FDA approvals remain subject to continuing regulation by the FDA, including recordkeeping
requirements and reporting of adverse experiences associated with the product. Manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for
compliance with ongoing regulatory requirements, including cGMP, which impose certain procedural and documentation requirements upon manufacturers
and contract manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require
prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose
reporting requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to
maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product
reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or
with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety
information, requirements for post-market studies or clinical trials to assess new safety risks, or imposition of distribution or other restrictions under a
REMS programs. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
fines, warning letters, untitled lets, or holds on clinical trials;
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product
approvals;
product seizure or detention, or refusal to permit the import or export of products;
consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;
mandated modification of promotional materials and labeling and the issuance of corrective information;
the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety
information about the product; or
injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations for direct-to-consumer
advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet and social media.
A company can make only those claims relating to safety and efficacy that are approved by the FDA. Physicians may prescribe legally available biologics
for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. The FDA does not regulate the
behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding
off-label use. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and
criminal penalties.
Biosimilars and Regulatory Exclusivity
The Affordable Care Act, signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act, or BPCIA, which
created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological
product. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms
of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a
product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference
product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be
alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of
the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference
product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date
on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the
reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and
well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for
biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be
readily substituted by pharmacies, which are governed by state pharmacy law.
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A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing
exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted
based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a
disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there
is no reasonable expectation that the cost of developing and making the product available in the United States for the disease or condition will be recovered
from sales of the product. Orphan designation must be requested before submitting a BLA. Orphan designation does not convey any advantage in or
shorten the duration of the regulatory review and approval process, though companies developing orphan products are eligible for certain incentives,
including tax credits for qualified clinical testing and waiver of application fees.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation,
the product is entitled to a seven-year period of marketing exclusivity during which the FDA may not approve any other applications to market the same
therapeutic agent for the same indication, except in limited circumstances, such as a subsequent product’s showing of clinical superiority over the product
with orphan exclusivity or where the original applicant cannot produce sufficient quantities of product. Competitors, however, may receive approval of
different therapeutic agents for the indication for which the orphan product has exclusivity or obtain approval for the same therapeutic agent for a different
indication than that for which the orphan product has exclusivity. Further, if a designated orphan product receives marketing approval for an indication
broader than the rare disease or condition for which it received orphan designation, it may not be entitled to orphan exclusivity.
Government Regulation Outside of the United States
To market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries
regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, manufacturing, commercial sales and distribution
of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the
commencement of clinical studies or marketing of the product in those countries. The requirements and process governing the conduct of clinical studies,
product licensing, pricing and reimbursement vary from country to country. Failure to comply with applicable foreign regulatory requirements, may be
subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and
criminal prosecution.
Non-clinical studies and clinical trials
Similar to the United States, the various phases of non-clinical and clinical research in the EU are subject to significant regulatory controls.
Non-clinical studies are performed to demonstrate the health or environmental safety of new biological substances. Non-clinical studies must be
conducted in compliance with the principles of good laboratory practice, or GLP, as set forth in EU Directive 2004/10/EC. In particular, non-clinical
studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which
define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect
the Organization for Economic Co-operation and Development requirements.
Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and the International Conference
on Harmonization, or ICH, guidelines on Good Clinical Practices, or GCP, as well as the applicable regulatory requirements and the ethical principles that
have their origin in the Declaration of Helsinki. Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to
clinical trials of advanced therapy medicinal products, or ATMPs. If the sponsor of the clinical trial is not established within the EU, it must appoint an EU
entity to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU member states, the sponsor is liable to
provide ‘no fault’ compensation to any study subject injured in the clinical trial.
The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials Regulation, or CTR, which
was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. Unlike directives, the CTR is directly
applicable in all EU member states without the need for member states to further implement it into national law. The CTR notably harmonizes the
assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal
and database.
While the Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state, to both the competent
national health authority and an independent ethics committee, much like the FDA and IRB respectively, the CTR introduces a centralized process and only
requires the submission of a single application to all member states concerned. The
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CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single
decision per member state. The CTA must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier
containing information about the manufacture and quality of the medicinal product under investigation. The assessment procedure of the CTA has been
harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific
requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal.
Once the CTA is approved, clinical study development may proceed.
The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical
trials for which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and January
31, 2023 and for which the sponsor has opted for the application of the Clinical Trials Directive remain governed by said Directive until January 31, 2025.
After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR.
Medicines used in clinical trials must be manufactured in accordance with Good Manufacturing Practice, or GMP. Other national and EU-wide
regulatory requirements may also apply.
During the development of a medicinal product, the EMA and national regulators provide the opportunity for dialogue and guidance on the
development program. At the EMA level, this is usually done in the form of scientific advice, which is given by the Scientific Advice Working Party of the
Committee for Medicinal Products for Human Use, or CHMP. A fee is incurred with each scientific advice procedure. Advice from the EMA is typically
provided based on questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical trials, and
pharmacovigilance plans and risk-management programs. Advice is not legally binding with regard to any future marketing authorization application of the
product concerned.
Marketing Authorizations
In the EU, medicinal products can only be placed on the market after obtaining a marketing authorization, or MA. To obtain regulatory approval of
an investigational biological product in the EU, we must submit a marketing authorization application, or MAA. The process for doing this depends, among
other things, on the nature of the medicinal product.
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Centralized procedure—Under the centralized procedure, following the opining of the EMA’s CHMP the European Commission issues a single MA
valid throughout the EU. The centralized procedure is compulsory for certain types of products, such as (i) medicinal products derived from biotechnology
processes, such as genetic engineering, (ii) designated orphan medicinal products, (iii) advanced therapy medicinal products, or ATMPs, such as gene
therapy, somatic cell therapy and tissue engineered products, and (iv) medicinal products that contain a new active substance indicated for the treatment of
certain diseases, such as HIV/AIDS, cancer, neurodegenerative diseases, diabetes, autoimmune diseases and other immune dysfunctions, and viral diseases.
The centralized procedure is optional for any products containing a new active substance not yet authorized in the EU, or for products that constitute a
significant therapeutic, scientific or technical innovation or for which the granting of a MA would be in the interest of public health in the EU.
Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA's CHMP is 210 days, excluding clock stops,
when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. At the end of the review period,
the CHMP provides an opinion to the European Commission. If this opinion is favorable, the Commission may then adopt a decision to grant an MA. In
exceptional cases, the CHMP might perform an accelerated review of a MAA in no more than 150 days (excluding clock stops), when a medicinal product
targets an unmet medical need and is expected to be of a major public health interest, particularly from the point of view of therapeutic innovation. The
timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock stops.
Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of
expedited development and review programs, such as the PRIME scheme, which provides incentives similar to the breakthrough therapy designation in the
U.S. In March 2016, the EMA launched an initiative, the Priority Medicines, or PRIME, scheme, a voluntary scheme aimed at enhancing the EMA’s
support for the development of medicines that target unmet medical needs. It is based on increased interaction and early dialogue with companies
developing promising medicines, to optimize their product development plans and speed up their evaluation to help them reach patients earlier. Product
developers that benefit from PRIME designation can expect to be eligible for accelerated assessment but this is not guaranteed. Many benefits accrue to
sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent
discussions on clinical trial designs and other development program elements, and accelerated MAA assessment once a dossier has been submitted.
Importantly, a dedicated contact and rapporteur from the CHMP is appointed early in the PRIME scheme facilitating increased understanding of the
product at EMA’s committee level. An initial meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide
guidance on the overall development and regulatory strategies.
National authorization procedures—There are also two other possible routes to authorize medicinal products in several member states, which are
available for products that fall outside the scope of the centralized procedure:
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Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorizations in more than one EU
member states of medicinal products that have not yet been authorized in any EU member states and that do not fall within the mandatory
scope of the centralized procedure. Under the decentralized procedure an identical dossier is submitted to the national competent authority of
each of the member states in which the MA is sought, one of which is selected by the applicant as the reference member state. National MAs
are issued by competent authorities of the EU member states for their respective territory.
Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one EU member state, in accordance
with the national procedures of that member state. Following this, further MAs can be sought from other EU member states in a procedure
whereby the countries concerned recognize the validity of the original national MA.
MAs have an initial duration of five years. After these five years, the authorization may be renewed on the basis of a reevaluation of the risk-benefit
balance. Once renewed, the MA is valid for an unlimited period unless the European Commission or the national competent authority decides, on justified
grounds relating to pharmacovigilance, to proceed with one additional five-year renewal.
Data and Marketing Exclusivity
In the EU, upon receiving a MA, reference medicinal products generally receive eight years of data exclusivity and an additional two years of
market exclusivity. If granted, data exclusivity period prevents generic or biosimilar applicants from relying on the preclinical and clinical trial data
contained in the dossier of the reference product when applying for a generic or biosimilar MA in the EU during a period of eight years from the date on
which the reference product was first authorized in the EU. During the additional two-year period of the market exclusivity period a generic or biosimilar
MA can be submitted, and the innovator’s data may be referenced but no generic or biosimilar can be marketed in the EU until ten years have elapsed from
the initial authorization of the reference product in the EU. The overall ten-year market exclusivity period can be extended to a maximum of eleven years
if, during the first eight years of those ten years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the
scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However, there is no
guarantee that a product will be considered by the EU’s regulatory authorities to be a new chemical entity, and products may not qualify for data
exclusivity.
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There is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the
definition of a generic medicinal product, for example, because of differences in raw materials or manufacturing processes. For such products, the results
of appropriate preclinical or clinical trials must be provided, and guidelines from the EMA detail the type of quantity of supplementary data to be provided
for different types of biological product. There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and
so it is unlikely that biosimilars of those products will currently be approved in the EU. However, guidance from the EMA states that they will be
considered in the future in light of the scientific knowledge and regulatory experience gained at the time.
Orphan Medicinal Products
The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. A medicinal product may
be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either
(a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from
orphan status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or
treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the
condition. The application for orphan drug designation must be submitted before the MAA. Orphan medicinal products are eligible for financial incentives
such as reduction of fees or fee waivers and are, upon grant of a MA, entitled to ten years of market exclusivity for the approved therapeutic indication.
During this ten-year orphan market exclusivity period, the competent authorities cannot accept another MAA, or grant a MA, or accept an application to
extend a MA for a similar product for the same indication. The period of market exclusivity is extended by two years for orphan medicinal products that
have also complied with an agreed pediatric investigation plan, or PIP. No extension to any supplementary protection certificate can be granted on the basis
of pediatric studies for orphan indications. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and
approval process.
The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the
criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, a MA
may be granted to a similar product for the same indication at any time if (i) the second applicant can establish that its product, although similar, is safer,
more effective or otherwise clinically superior; (ii) the applicant consents to a second orphan medicinal product application; or (iii) the applicant cannot
supply enough orphan medicinal product.
Pediatric Development
In the EU, MAAs for new medicinal products have to include the results of trials conducted in the pediatric population, in compliance with a
pediatric investigation plan, or PIP, agreed with the EMA’s Pediatric Committee, or PDCO. The PIP sets out the timing and measures proposed to generate
data to support a pediatric indication of the drug for which an MA is being sought. The PDCO can grant a deferral of the obligation to implement some or
all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide
pediatric clinical trial data can be waived by the PDCO when these data are not needed or appropriate because the product is likely to be ineffective or
unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a
significant therapeutic benefit over existing treatments for pediatric patients. Once the MA is obtained in all member states and study results are included in
the product information, even when negative, the product is eligible for a six-months supplementary protection certificate extension (if any is in effect at
the time of approval) or, in the case of orphan pharmaceutical products, a two year extension of the orphan market exclusivity is granted.
Post-Approval Requirements
Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the
EMA, the European Commission and/or the competent regulatory authorities of the member states. The holder of a MA must establish and maintain a
pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key
obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will put in place and
documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a
condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent
submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies.
The advertising and promotion of medicinal products is also subject to laws concerning promotion of medicinal products, interactions with
physicians, misleading and comparative advertising and unfair commercial practices. All advertising and promotional activities for the product must be
consistent with the approved summary of product characteristics, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of
prescription medicines is also prohibited in the EU. Although general
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requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each
member state and can differ from one country to another.
Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, MA of medicinal products
and marketing of such products, both before and after grant of the MA, manufacturing of pharmaceutical products, statutory health insurance, bribery and
anti-corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could include
delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal or
variation of the MA, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of
licenses, fines and criminal penalties.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA (comprised of the 27 EU member states plus
Iceland, Liechtenstein and Norway).
Brexit and the Regulatory Framework in the United Kingdom
Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not been directly subject to EU
laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. The EU laws that have been
transposed into United Kingdom, or UK, law through secondary legislation remain applicable in Great Britain. However, under the Retained EU Law
(Revocation and Reform) Bill 2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into
domestic law or extended by ministerial regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023. New
legislation such as the EU CTR or in relation to orphan medicines will not be applicable in Great Britain. The UK government has passed a new Medicines
and Medical Devices Act 2021, which introduces delegated powers in favor of the Secretary of State or an ‘appropriate authority’ to amend or supplement
existing regulations in the area of medicinal products and medical devices. This allows new rules to be introduced in the future by way of secondary
legislation, which aims to allow flexibility in addressing regulatory gaps and future changes in the fields of human medicines, clinical trials and medical
devices.
As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or MHRA, is the UK’s standalone medicines and medical
devices regulator. Whilst Northern Ireland will continue to follow the EU regulatory regime, but its national competent authority will remain the MHRA.
The MHRA has introduced changes to national licensing procedures, including procedures to prioritize access to new medicines that will benefit
patients, including a 150-day assessment and a rolling review procedure. All existing EU MAs for centrally authorized products were automatically
converted or grandfathered into UK MAs, effective in GB (only), free of charge on January 1, 2021, unless the MA holder chooses to opt-out. After Brexit,
companies established in the UK cannot use the centralized procedure and instead must follow one of the UK national authorization procedures or one of
the remaining post-Brexit international cooperation procedures to obtain an MA to commercialize products in the UK. The MHRA may rely on a decision
taken by the European Commission on the approval of a new (centralized procedure) MA when determining an application for a GB authorization; or use
the MHRA’s decentralized or mutual recognition procedures which enable MAs approved in EU member states (or Iceland, Liechtenstein, Norway) to be
granted in GB.
Other Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical and biological products, other healthcare regulatory laws restrict business practices
in the biotechnology industry, which include, but are not limited to, anti-kickback, false claims, and transparency laws regarding drug pricing and payments
and other transfers of value made to physicians and other healthcare providers. The federal Anti-Kickback Statute prohibits the offer, receipt, or payment of
remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare,
Medicaid or other federal healthcare programs. Remuneration has been broadly interpreted to include anything of value, including cash, improper discounts
and free or reduced-price items and services. Further, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it
to have committed a violation. Many states have similar laws that apply to their state healthcare programs as well as private payors.
The False Claims Act, or FCA, imposes liability on persons who, among other things, knowingly present or cause to be presented, a false, fictitious
or fraudulent claim for payment to, or approval by, the federal government, knowingly make, use, or cause to be made or used a false record or statement
material to a false or fraudulent claim to the federal government, or knowingly make a false statement to avoid, decrease or conceal an obligation to pay
money to the U.S. federal government. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that
are for services not provided as claimed, or for services that are not medically necessary. In addition, the government may assert that a claim including
items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Actions under the FCA may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. The federal
government is using the FCA, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology
companies throughout the country, and has obtained multi-million and multi–billion-dollar settlements under the FCA in addition to individual criminal
convictions under applicable criminal statutes. In addition, companies
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have been forced to implement extensive corrective action plans and have often become subject to consent decrees or corporate integrity agreements,
severely restricting the manner in which they conduct their business. Given the significant size of actual and potential settlements, it is expected that the
government authorities will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable
fraud and abuse laws.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among
other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-
party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a
healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or
entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers.
The ACA, among other things, imposed new reporting requirements through the Physician Payments Sunshine Act on certain manufacturers of drugs
covered by a federal healthcare program for payments made by them to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists,
anesthesiology assistants, and certified nurse midwives) and teaching hospitals, as well as ownership and investment interests held by physicians and their
immediate family members. Failure to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership
or investment interests that are not timely, accurately and completely reported in an annual submission. Manufacturers must submit reports by the 90th day
of each calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices
and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians, and pricing information and marketing expenditures.
To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and
regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and
implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.
The shifting commercial compliance environment and the need to build and maintain robust systems to comply with different compliance and/or
reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements. Violations
of any of such laws or any other governmental regulations that apply to drug manufacturers may result in significant penalties, including, without
limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, exclusion from
participation in federal and state healthcare programs, reporting obligations and integrity oversight, and imprisonment.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In
both domestic and foreign markets, sales and reimbursement of any approved products will depend, in part, on the extent to which third-party payors, such
as government health programs, commercial insurance and managed healthcare organizations provide coverage, and establish adequate reimbursement
levels for, such products. Third-party payors are increasingly challenging the prices charged for medical products and services and imposing controls to
manage costs. Third-party payors may limit, or hinder, coverage to specific products on an approved list, also known as a formulary, which might not
include all of the FDA-approved products for a particular indication. Additionally, we may need to conduct expensive pharmacoeconomic studies in order
to demonstrate the cost-effectiveness of our products, as well as provide rebates and discounts which may impact the net selling price of our products. If
third-party payors do not consider our products to be cost-effective compared to other therapies, the payors may not cover our products as a benefit under
their plans or, if they do, the level of reimbursement may not be sufficient to allow us to sell our products on a profitable basis.
The containment of healthcare costs also has become a priority of federal and state governments and the prices of pharmaceutical and biological
products have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures,
and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results.
Outside the United States, ensuring adequate coverage and payment for our products will face challenges. Pricing of prescription pharmaceuticals is
subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory
marketing approval for a product and may require us to conduct a clinical trial that compares the cost effectiveness of our product candidates or products to
other available therapies. Conducting such a clinical trial could be expensive and result in delays in our commercialization efforts. Third-party payors are
challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly approved healthcare
products. Recent budgetary pressures in many countries are also causing governments to consider or implement various cost-containment measures,
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such as price freezes, increased price cuts and rebates. If budget pressures continue, governments may implement additional cost-containment measures.
Cost-control initiatives could decrease the price we might establish for products that we may develop or sell, which would result in lower product revenues
or royalties payable to us. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will
allow favorable reimbursement and pricing arrangements for any of our products. The downward pressure on healthcare costs in general, particularly
prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some
countries, cross border imports from low priced markets exert a commercial pressure on pricing within a country.
Healthcare Reform
In the United States, there have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and
biological products, government control and other changes to the healthcare system. It is uncertain what legislative proposals will be adopted or what
actions federal, state or private payors for medical goods and services may take in response to any healthcare reform proposals or legislation. We cannot
predict the effect medical or healthcare reforms may have on our business, and no assurance can be given that any such reforms will not have a material
adverse effect.
By way of example, in March 2010, the ACA was signed into law, which, among other things, includes changes to the coverage and payment for
pharmaceutical and biological products under government health care programs. Among other things, the ACA:
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expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and
generic drugs and revising the definition of ‘‘average manufacturer price,’’ or AMP, for calculating and reporting Medicaid drug rebates on
outpatient prescription drug prices;
extended Medicaid drug rebates, previously due only on fee-for-service utilization, to Medicaid managed care utilization, and created an
alternate rebate formula for new formulations of certain existing products that is intended to increase the amount of rebates due on those
drugs;
expanded the types of entities eligible for the 340B drug discount program that mandates discounts to certain hospitals, community centers
and other qualifying providers. With the exception of children’s hospitals, these newly eligible entities will not be eligible to receive
discounted 340B pricing on orphan drugs. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the
revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase; and
established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 70% point-of-sale-discount off the
negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’
outpatient drugs to be covered under Medicare Part D.
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Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S.
Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the
ACA. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, President Biden issued an executive order to
initiate a special enrollment period from February 15, 2021, through August 15, 2021, for purposes of obtaining health insurance coverage through the
ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit
access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and
policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In For example, the Budget Control Act
of 2011, enacted in August 2011, among other things, included reductions of Medicare payments to providers, which went into effect in April 2013 and,
due to subsequent legislative amendments, will remain in effect through 2032, with the exception of a temporary suspension from May 1, 2020 through
March 31, 2022, unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which,
among other things, further reduced Medicare payments to several types of providers, including hospitals, and increased the statute of limitations period for
the government to recover overpayments to providers from three to five years. In addition, the American Rescue Plan Act of 2021 as signed into law, which
eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s AMP, beginning January 1, 2024.
More recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,
which have resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things, bring more transparency to
product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement
methodologies for pharmaceutical and biological products. Most recently, on August 16, 2022 the Inflation Reduction Act of 2022 (“IRA”) was signed into
law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices
that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first
due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary
of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial
years. For that and other reasons, it is currently unclear how the IRA will be effectuated, and the impact of the IRA on the pharmaceutical industry cannot
yet be fully determined. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations
designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access
and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Adoption of other new legislation at the federal, state, or foreign level could further limit reimbursement for pharmaceuticals, including our product
candidates if approved.
Data Privacy and Security
We may also be subject to U.S. federal, state and laws, regulations and standards governing the collection, use, access to, confidentiality, and
security of health-related and other personal information, that could apply now or in the future to our operations or the operations of our partners.
Numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws and consumer
protection laws and regulations, govern the collection, use, disclosure, and protection of health-related and other personal information.
In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy and security laws,
regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations,
proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Employees
Human Capital
As of December 31, 2022, we had 431 full-time permanent employees. Sixty-four employees work in administration, operations, and commercial
and 367 work in research and development. None of our employees in the U.S. are represented by a labor union or covered by collective bargaining
agreements, and we believe our relationship with our employees is good. During 2022, we enhanced our capabilities by significantly expanding our
employee base. The new employees were hired to support a variety of functions and key initiatives, including extending our research, clinical and pre-
clinical pipeline development, as well as our medical affairs, manufacturing and commercialization capabilities, with hires in commercial, clinical
development and operations, research, medical affairs, manufacturing, and general and administrative functions. We expect to continue to add additional
employees in 2023, with a focus on further enhancing our capabilities and increasing our capacities in these areas as we continue our focus on gaining FDA
approval for SER-109 for recurrent CDI.
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Talent Acquisition and Development
We consider the intellectual capital, skills and experience of our employees to be an essential driver of our business and key to our future prospects.
We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and
other research institutions, and we believe that our future success will depend in large part on our continued ability to attract and retain highly skilled
employees. To attract qualified applicants to our company and retain our employees, we offer a total rewards package consisting of base salary and cash
to 75th percentile of the market based on geography, a comprehensive benefit package and equity compensation for every
target bonus targeting the 50th
employee. Annual cash bonus opportunity and equity compensation increase as a percentage of total compensation based on level of responsibility. Any
actual bonus payout is based on a combination of individual performance and corporate performance.
Diversity, Inclusion, and Belonging
As a microbiome therapeutics company developing a novel class of live biotherapeutic drugs, we believe that our long-term success and ability to
deliver innovative, safe and effective medicines to patients requires a diverse and inclusive workforce. We value diversity at all levels of the organization
and continue to focus on extending our diversity, equity and inclusion initiatives across our entire workforce, from: working with managers to develop
strategies for building diverse, high performing teams; to ensuring that we attract, develop and retain diverse talent from all backgrounds; to increasing
awareness within our company of unconscious biases, and supporting affinity groups comprised of individuals who are underrepresented in our company,
industry or society, such as women, members of the LGBTQ community and people of color. In addition, we pride ourselves on an open culture that
respects co-workers, values employees’ health and well-being and fosters professional development. We support employee growth and development in a
variety of ways including with group training, individual mentoring and coaching, conference attendance and tuition reimbursement. Our management
conducts annual employee engagement surveys and reports to our board of directors on human capital management topics, including corporate culture,
diversity, equity and inclusion, employee development and retention, and compensation and benefits. Similarly, our board of directors regularly provides
input on important decisions relating to these matters, including with respect to employee compensation and benefits, talent retention and development.
Our Corporate Information
We were incorporated in the State of Delaware in 2010 under the name Newco LS21, Inc. In October 2011, we changed our name to Seres Health,
Inc., and in May 2015, we changed our name to Seres Therapeutics, Inc. Our principal executive offices are located at 200 Sidney Street, Cambridge,
Massachusetts 02139 and our telephone number is (617) 945-9626. Our website address is www.serestherapeutics.com. The information contained in, or
accessible through, our website does not constitute a part of this Annual Report on Form 10-K.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and, accordingly, file
reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. The SEC maintains a web site
(http://www.sec.gov) that contains material regarding issuers that file electronically, such as ourselves, with the SEC.
We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.
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Item 1A. Risk Factors
Our business faces significant risks and uncertainties. Accordingly, in evaluating our business, you should carefully consider the risk factors
discussed below, as well as the other information included or incorporated by reference in this Annual Report on Form 10-K, including our consolidated
financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence
of any of the events or developments described below or elsewhere in this report could harm our business, financial condition, results of operations or
growth prospects.
Risks Related to Our Financial Position and Need for Additional Capital
We are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and
may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss was $250.2 million for the year ended December 31, 2022, $65.6 million
for the year ended December 31, 2021, and $89.1 million for the year ended December 31, 2020. As of December 31, 2022, we had an accumulated deficit
of $864.5 million. As noted elsewhere in this Annual Report on Form 10-K, we have identified conditions and events that raise substantial doubt about our
ability to continue as a going concern. To date, we have financed our operations through the public offerings of our common stock, private placements of
our common stock and preferred stock, payments under our collaboration agreements, and loan facility. We have devoted substantially all of our financial
resources and efforts to developing our reverse translational microbiome therapeutics platform, identifying potential product candidates and conducting
preclinical studies and clinical trials. We have not completed development of any of our product candidates, which we call microbiome therapeutic
candidates, or other drugs or biologics. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate
that our expenses may increase substantially as we:
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complete the clinical development, seek regulatory approval, and prepare for potential commercialization of SER-109 for patients with
recurrent CDI;
continue the clinical development of SER-155 to reduce incidences of gastrointestinal infections, bloodstream infections and GvHD in
patients receiving allo-HSCT;
continue evaluating preclinical stage programs to reduce incidence of infection, in indications such as cancer neutropenia, chronic liver
disease, solid organ transplant, and antimicrobial resistant infections more broadly;
continue translational research activities, informed by the SER-287 Phase 2b and SER-301 Phase 1b study data, to evaluate the potential to
utilize biomarker-based patient selection and stratification in future clinical development efforts;
make strategic investments in our research discovery and development platforms and capabilities to advance our priority programs;
make strategic investments in manufacturing capabilities;
maintain and augment our intellectual property portfolio and opportunistically acquire complementary intellectual property;
potentially establish a sales and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which
we may obtain regulatory approval;
perform our obligations under our agreements with our collaborators;
seek to obtain regulatory approvals for our product candidates; and
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues
or other regulatory challenges.
To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This
will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates,
discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any
products for which we may obtain regulatory approval. We are in the preliminary stages of many of these activities. We may never succeed in these
activities and, even if we do, may never generate revenue that is significant enough to achieve profitability.
Because of the numerous risks and uncertainties associated with pharmaceutical product and biological development, we are unable to accurately
predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and
remain profitable would depress our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts,
diversify our product offerings or even continue our operations.
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We have identified conditions and events that raise substantial doubt regarding our ability to continue as a going concern.
Based on our currently available cash resources and our current level of operations and cash flows for the 12-month period subsequent to the date of
issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe it is reasonably likely that we will
require additional funding in early 2024. There are certain contingent payments associated with the approval of our BLA for SER-109, which is currently
under priority review by the FDA, including the potential to receive a $125.0 million milestone payment from Nestlé pursuant to the 2021 License
Agreement, and a $25.0 million tranche under our New Credit Facility with Hercules, which becomes available upon the satisfaction of certain conditions,
including FDA approval of SER-109. While we anticipate receiving these contingent payments in the first half of 2023, there is no assurance we will
receive them. Because these contingent payments, and the ability to obtain sufficient additional equity or debt financing with terms favorable or acceptable
to us, cannot be considered probable according to the applicable accounting standards because they are outside our control, there is substantial doubt about
our ability to continue as a going concern for at least 12 months from the date that our consolidated financial statements for the year ended December 31,
2022 were issued.
Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock, and
it may be more difficult for us to obtain financing. If potential collaborators decline to do business with us or potential investors decline to participate in
any future financings due to such concerns, our ability to increase our cash position may be limited. The perception that we may not be able to continue as a
going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.
We have prepared our consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. Our audited consolidated financial statements included in this Annual Report on Form 10-K
do not include any adjustments to reflect the possible inability of the Company to continue as a going concern within 12 months after the issuance of such
financial statements.
We will need additional funding in order to complete development of our product candidates and commercialize our products, if approved. If we
are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization
efforts.
Our expenses may increase in connection with our ongoing activities, particularly as we complete clinical development, scale up manufacturing
operations, seek regulatory approval, and prepare for commercialization of SER-109 if approved, continue the SER-155 Phase 1b study, continue research
activities evaluating UC, and continue to research, develop and initiate clinical trials of our other product candidates. In addition, if we obtain regulatory
approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales
and distribution, and may not generate meaningful product revenues or collaboration profit in the near future. Furthermore, we have incurred and expect to
continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in
connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or
eliminate our research and development programs or any future commercialization efforts.
As noted above, we have identified conditions and events that raise substantial doubt about our ability to continue as a going concern. Our future
capital requirements will depend on many factors, including:
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the ongoing and long-term impact of the COVID-19 pandemic;
the impact of a continued increase in inflation rates or interest rates;
the progress and results of our clinical studies;
the cost of manufacturing our product candidates;
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our product candidates;
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and
defending any intellectual property-related claims;
the effect of competing technological and market developments; and
the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration
arrangements for product candidates.
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Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms
acceptable to us, if at all. Additionally, market volatility resulting from current macroeconomic conditions, the COVID-19 pandemic, or other factors could
also adversely impact our ability to access capital as and when needed. Moreover, the terms of any financing may adversely affect the holdings or the
rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market
price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders and may decrease our stock price.
The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as
limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with
collaborators or others at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or
product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and
prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay, or discontinue one or more of our research or
development programs or the commercialization of any product candidates, or be unable to expand our operations or otherwise capitalize on our business
opportunities, as desired, which could materially adversely affect our business, financial condition and results of operations.
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
Since our inception in October 2010, we have devoted substantially all of our resources to developing our clinical and preclinical program, building
our intellectual property portfolio, developing our supply chain, planning our business, raising capital and providing general and administrative support for
these operations. We have not yet demonstrated our ability to obtain regulatory approvals, manufacture a commercial-scale product, or arrange for a third
party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Additionally, we expect our
financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of
which are beyond our control. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a
longer operating history.
Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates
Other than SER-109, we are early in our development efforts and may not be successful in our efforts to use our reverse translational microbiome
therapeutics platform to build a pipeline of product candidates and develop marketable drugs.
We are using our reverse translational microbiome therapeutics platform to develop microbiome therapeutic candidates. Other than SER-109, we are
at an early stage of development and our platform has not yet, and may never, lead to approvable or marketable drugs. We are developing additional
product candidates that we intend to be used to reduce infection and treat diseases where the microbiome is implicated. We may have problems applying
our technologies to these areas, and our product candidates may not be effective in reducing infection and disease. Our product candidates may not be
suitable for clinical development, including as a result of their harmful side effects, limited efficacy or other characteristics that indicate that they are
unlikely to be products that will receive marketing approval and achieve market acceptance.
The success of our product candidates will depend on several factors, including the following:
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completion of preclinical studies and clinical trials with positive results;
receipt of marketing approvals from applicable regulatory authorities;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
making arrangements with third-party manufacturers for, or establishing our own, commercial manufacturing capabilities;
launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;
entering into new collaborations throughout the development process as appropriate, from preclinical studies through to commercialization;
acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies;
obtaining and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for our products, if
approved;
protecting our rights in our intellectual property portfolio;
operating without infringing or violating the valid and enforceable patents or other intellectual property of third parties;
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maintaining a continued acceptable safety profile of our products following approval; and
maintaining and growing an organization of scientists and business people who can develop and commercialize our products and technology.
If we or our collaborators do not successfully develop and commercialize product candidates we will not be able to obtain product revenue in future
periods, which likely would result in significant harm to our financial position and adversely affect our stock price.
Our product candidates are based on microbiome therapeutics, which is an unproven approach to therapeutic intervention.
All of our product candidates are based on microbiome therapeutics, a novel potential class of biological drugs, which are designed to treat disease
by modulating the microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state. We have not, nor to our
knowledge has any other company, received regulatory approval for, or manufactured on a commercial scale, a therapeutic based on this approach. We
cannot be certain that our approach will lead to the development of approvable or marketable products or that we will be able to manufacture at commercial
scale, if approved. In addition, our microbiome therapeutic candidates may have different effectiveness rates in various indications and in different
geographical areas. Finally, the FDA or other regulatory authorities may lack experience in evaluating the safety and efficacy of products based on
microbiome therapeutics, which could result in a longer than expected regulatory review process, increase our expected development costs and delay or
prevent commercialization of our product candidates.
Our reverse translational microbiome therapeutics platform relies on third parties for biological materials, including human stool. Some biological
materials have not always met our expectations or requirements, and any disruption in the supply of these biological materials could materially adversely
affect our business. For example, if any supplied biological materials are contaminated with disease organisms, we would not be able to use such biological
materials. Although we have control processes and screening procedures, biological materials are susceptible to damage and contamination and may
contain active pathogens. Improper storage of these materials, by us or any third-party suppliers, may require us to destroy some of our materials or
products, which could delay the development or commercialization of our product candidates.
Clinical drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience
delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
It is difficult to predict when or if any of our product candidates will prove effective and safe in humans or will receive regulatory approval, and the
risk of failure through the development process is high. Before obtaining marketing approval from regulatory authorities for the sale of any product
candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product
candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A
failure of one or more clinical trials can occur at any stage of testing, and our clinical trials may not be successful. The outcome of preclinical testing and
early clinical trials may not be predictive of the success of later clinical trials, and interim or preliminary results of a clinical trial, that we may from time to
time announce, do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we
cannot be certain that we will not face similar setbacks.
In addition, we cannot be certain as to what type and how many clinical trials the FDA, or other regulatory authorities, will require us to conduct
before we may successfully gain approval to market any of our other product candidates. Prior to approving a new therapeutic product, the FDA (or other
regulatory authorities) generally requires that safety and efficacy be demonstrated in two adequate and well-controlled clinical trials. In some situations,
evidence from a Phase 2 trial and a Phase 3 trial or from a single Phase 3 trial can be sufficient for FDA approval, such as in cases where the trial or trials
provide highly reliable and statistically strong evidence of an important clinical benefit.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing
approval or commercialize our product candidates, including:
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inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials;
regulatory authorities or institutional review boards or ethics committees may not authorize us or our investigators to commence a clinical
trial or conduct a clinical trial at a prospective trial site;
failures or delays in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
clinical trials of our product candidates may demonstrate undesirable side effects or produce negative or inconclusive results, and we may
decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials
may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or
at all;
we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are
being exposed to unacceptable health risks;
regulatory authorities or institutional review boards or ethics committees may require that we or our investigators suspend or terminate
clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being
exposed to unacceptable health risks;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be
insufficient or inadequate;
regulatory authorities may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate;
and
regarding trials managed by any current or future collaborators, our collaborators may face any of the above issues, and may conduct clinical
trials in ways they view as advantageous to them but potentially suboptimal for us.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we
are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only
modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our product candidates;
lose the support of current or any future collaborators, requiring us to bear more of the burden of development of certain compounds;
not obtain marketing approval at all;
obtain marketing approval in some countries and not in others;
obtain approval for indications or patient populations that are not as broad as we intend or desire;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
be subject to additional post-marketing testing requirements;
be subject to increased pricing pressure; or
have the product removed from the market after obtaining marketing approval.
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Additional clinical trials or changes in our development plans could cause us to incur significant development costs, delay or prevent the
commercialization of SER-109 or otherwise adversely affect our business. In addition, prolonged disruptions caused by the COVID-19 pandemic could
severely impact our preclinical studies and clinical trials, including by causing further difficulties or delays in initiating, enrolling, conducting, or
completing our planned and ongoing clinical trials. See “—Risks Related to Our Operations—The COVID-19 pandemic has adversely impacted and could
continue to adversely impact, our business, including our preclinical studies and clinical trials, results of operations and financial condition.”
Our product development costs will increase if we continue to experience delays in clinical testing or marketing approvals. We do not know whether
any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant
preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or
allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and
harming our business and results of operations.
In addition, the FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted with respect to
clinical trials. For instance, the regulatory landscape related to clinical trials in the European Union, or EU, recently evolved. The EU Clinical Trials
Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the
Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state, to both the competent national health
authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application to all
member states concerned. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member
state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all
member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics
rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development
may proceed. The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies.
Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and
January 31, 2023 and for which the sponsor has opted for the application of the Clinical Trials Directive remain governed by said Directive until January
31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR. Compliance with the CTR
requirements by us and our third-party service providers, such as contract research organizations, or CROs, may impact our developments plans.
The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary
legislation). However, on January 17, 2022, the UK Medicines and Healthcare products Regulatory Agency, or MHRA, launched an eight-week
consultation on reframing the UK legislation for clinical trials. The consultation closed on March 14, 2022 and aims to streamline clinical trials approvals,
enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials.
The Government has not yet published a response to the consultation but the outcome will be closely watched and will determine whether the UK chooses
to align with the CTR or diverge from it to maintain regulatory flexibility. Under the terms of the Protocol on Ireland/Northern Ireland, provisions of the
CTR which relate to the manufacture and import of investigational medicinal products and auxiliary medicinal products apply in Northern Ireland. A
decision by the UK Government not to closely align its regulations with the new approach that has been adopted in the EU may have an effect on the cost
of conducting clinical trials in the UK as opposed to other countries.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our
business may be impacted.
Delays or difficulties in the enrollment of patients in clinical trials, could result in our receipt of necessary regulatory approvals being delayed or
prevented.
Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. These trials and other trials
we conduct may be subject to delays for a variety of reasons, including as a result of patient enrollment taking longer than anticipated, patient withdrawal
or adverse events. These types of developments could cause us to delay the trial or halt further development.
Our clinical trials will compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition
reduces the number and types of patients available to us, as some patients who might have opted to enroll in our trials may instead opt to enroll in a trial
being conducted by one of our competitors. Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct
some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for
our clinical trials at such clinical trial sites. In addition, there may be limited patient pools from which to draw for clinical studies. In addition to the rarity
of some diseases, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have
specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study.
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Patient enrollment is also affected by other factors including:
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the severity of the disease under investigation;
the patient eligibility criteria for the study in question;
the perceived risks and benefits of the product candidate under study;
the availability of other treatments for the disease under investigation, including the use of fecal microbiota transplant, or FMT;
the existence of competing clinical trials;
the efforts to facilitate timely enrollment in clinical trials;
our payments for conducting clinical trials;
the patient referral practices of physicians;
the burden, or perceived burden, of the clinical study;
the ability to monitor patients adequately during and after treatment; and
the proximity and availability of clinical trial sites for prospective patients.
Our inability to enroll a sufficient number of patients for our clinical trials or a delayed rate of enrollment would result in significant delays and
could require us to abandon one or more clinical trials altogether.
Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data
become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim, top-line or preliminary data from our preclinical studies and clinical trials, which is based on a
preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive
review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of
data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we
report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been
received and fully evaluated. Top-line or preliminary data also remain subject to audit and verification procedures that may result in the final data being
materially different from the top-line or preliminary data we previously published. As a result, top-line and preliminary data should be viewed with caution
until the final data are available. Adverse differences between interim data and final data could significantly harm our business prospects. Further,
disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.
Further, others, including regulatory authorities, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or
may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization
of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a
particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or
otherwise appropriate information to include in our disclosure.
If the interim, top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the
conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business,
operating results, prospects or financial condition.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we or our collaborators will not be able to commercialize
our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture,
safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the
FDA and other regulatory agencies in the United States and similar regulatory authorities outside the United States. Failure to obtain marketing approval
for a product candidate in any jurisdiction will prevent us and our collaborators from commercializing the product candidate in that jurisdiction and may
affect our plans for commercialization in other jurisdictions as well. We have not received approval to market any of our product candidates from
regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals
and expect to rely on third parties to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data
and supporting information to regulatory authorities for each therapeutic indication to establish the product
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candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and
inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may
prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or
limit commercial use.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive, risky and may take many years. The scope and
amount of clinical data required to obtain marketing approvals can vary substantially from jurisdiction to jurisdiction, and it may be difficult to predict
whether a particular regulatory body will require additional or different studies than those conducted by a sponsor, especially for novel product candidates
such as our microbiome therapeutic candidates. The FDA or foreign regulatory authorities may delay, limit, or deny approval to market our product
candidates for many reasons, including: our inability to demonstrate that the clinical benefits of our product candidates outweigh any safety or other
perceived risks; the regulatory authority’s disagreement with the interpretation of data from nonclinical or clinical studies; the regulatory authority’s
requirement that we conduct additional preclinical studies and clinical trials; changes in marketing approval policies during the development period;
changes in or the enactment of additional statutes or regulations, or changes in regulatory review process for each submitted product application; or the
regulatory authority’s failure to approve the manufacturing processes or third-party manufacturers with which we contract. For instance, the EU
pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched
by the European Commission in November 2020. A proposal for revision of several legislative instruments related to medicinal products (potentially
revising the duration of regulatory exclusivity, eligibility for expedited pathways, etc.) is currently expected to be adopted by the European Commission in
the first quarter of 2023. The proposed revisions, once they are agreed and adopted by the European Parliament and European Council (currently not
expected before the end of 2024 or early 2025) may have a significant impact on the biopharmaceutical industry in the long term.
There may also be interruptions or delays in the operations of the FDA or other foreign regulatory authorities due to the COVID-19 pandemic,
which may impact approval timelines. The FDA has continued to monitor and implement changes to its inspectional activities to ensure the safety of its
employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic, and any resurgence of the virus or emergence of new
variants may lead to further inspectional delays. Additionally, regulatory authorities have substantial discretion in the approval process and may refuse to
accept a marketing application if deficient. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or
prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable. Of the large number of drugs in development, only a small percentage successfully
complete the FDA or other regulatory approval processes and are commercialized.
Furthermore, our product candidates may not receive marketing approval even if they achieve their specified endpoints in clinical trials. Clinical
data is often susceptible to varying interpretations and many companies that have believed that their products performed satisfactorily in clinical trials have
nonetheless failed to obtain regulatory authority approval for their products. The FDA or foreign regulatory authorities may disagree with our trial design
and our interpretation of data from nonclinical and clinical studies, or they may require additional confirmatory or safety evidence beyond our existing
clinical studies. Upon the FDA’s review of data from any pivotal trial, it may request that the sponsor conduct additional analyses of the data or gather more
data and, if it believes the data are not satisfactory, could advise the sponsor to delay filing a marketing application.
Even if we eventually complete clinical testing and receive approval of a biologics license application, or BLA, or foreign marketing authorization
for one of our product candidates, the FDA or the applicable foreign regulatory authority may grant approval contingent on the performance of costly
additional clinical trials, which may be required after approval. The FDA or the applicable foreign regulatory authority may also approve our product
candidates for a more limited indication and/or a narrower patient population than we originally request, and the FDA, or applicable foreign regulatory
authority, may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates. Any delay
in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of our product candidates and would
materially adversely impact our business and prospects.
The development of therapeutic products targeting the underlying biology of the human microbiome is an emerging field, and it is possible that the
FDA and other regulatory authorities could issue regulations or new policies in the future that could adversely affect our microbiome therapeutic
candidates.
If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product
candidates may be harmed and our ability to generate revenues will be materially impaired.
A Fast Track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.
We may seek Fast Track designation for some of our product candidates. If a drug or biologic is intended for the treatment of a serious or life-
threatening condition and nonclinical or clinical data demonstrate the potential to address unmet medical needs for this condition, the drug or biologic
sponsor may apply for Fast Track designation. SER-287 received Fast Track designation from the FDA for the induction and maintenance of clinical
remission in adults with mild-to-moderate UC. Fast Track designation provides increased opportunities for sponsor meetings with the FDA during
preclinical and clinical development, in addition to the potential for rolling review of a BLA for such product candidate. The FDA has broad discretion
whether or not to grant this designation, and even if we
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believe another particular product candidate is eligible for this designation, we cannot be certain that the FDA would decide to grant it. Even with Fast
Track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. Fast Track
designation does not assure ultimate approval by the FDA. The FDA may withdraw Fast Track designation if it believes that the designation is no longer
supported by data from our clinical development program.
A Breakthrough Therapy designation by the FDA for our product candidates may not lead to a faster development, regulatory review or approval
process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We have received Breakthrough Therapy designation for SER-109 for treatment of CDI, and we may seek a Breakthrough Therapy designation for
our other product candidates. A Breakthrough Therapy is defined as a drug or biologic that is intended to treat a serious or life-threatening disease or
condition, and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or
more clinically significant endpoints, such as substantial treatment effects observed in early clinical development. For drugs or biologics that have been
designated as breakthrough therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for
clinical development. Drugs designated as breakthrough therapies by the FDA are also eligible for rolling review of the associated marketing application.
Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the
criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. The receipt of a
Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to conventional
FDA procedures and does not assure ultimate approval by the FDA. In addition, not all products designated as breakthrough therapies ultimately will be
shown to have the substantial improvement over available therapies suggested by the preliminary clinical evidence at the time of designation. As a result, if
the Breakthrough Therapy designation for SER-109 or any future designation we receive is no longer supported by subsequent data, the FDA may rescind
the designation.
We may seek PRIME designation by EMA or other designations, schemes or tools in the EU for one or more of our product candidates, which we may
not receive. Such designations may not lead to a faster development or regulatory review or approval process and do not increase the likelihood that
our product candidates will receive marketing authorization.
We may seek EMA PRIME (Priority Medicines) designation or other designations, schemes or tools for one or more of our product candidates. In
the EU, innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of
expedited development and review programs, such as the PRIME scheme, which provides incentives similar to the Breakthrough Therapy designation in
the United States. PRIME is a voluntary scheme aimed at enhancing the European Medicines Agency’s, or EMA, support for the development of medicines
that target unmet medical needs. It is based on increased interaction and early dialogue with companies developing promising medicines, to optimize their
product development plans and speed up their evaluation to help them reach patients earlier. The benefits of a PRIME designation include the appointment
of a rapporteur before submission of a marketing authorization application, early dialogue and scientific advice at key development milestones, and the
potential to qualify products for accelerated review earlier in the application process.
Even if we believe one of our product candidates is eligible for PRIME, the EMA may disagree and instead determine not to make such designation.
The EMA PRIME scheme or other schemes, designations, or tools, even if obtained or used for any of our product candidates may not lead to a faster
development, regulatory review or approval process compared to therapies considered for approval under conventional procedures and do not assure
ultimate approval. In addition, even if one or more of our product candidates is eligible to the PRIME scheme, the EMA may later decide that such product
candidates no longer meet the conditions for qualification or decide that the time period for review or approval will not be shortened.
Product developers that benefit from PRIME designation may be eligible for accelerated assessment (in 150 days instead of 210 days), which may
be granted for medicinal products of major interest from a public health perspective or that target an unmet medical need, but this is not guaranteed.
The competent regulatory authorities in the EU have broad discretion whether to grant such an accelerated assessment, and, even if such assessment
is granted, we may not experience a faster development process, review or authorization compared to conventional procedures. Moreover, the removal or
threat of removal of such an accelerated assessment may create uncertainty or delay in the clinical development of our product candidates and threaten the
commercialization prospects of our products and product candidates, if approved. Such an occurrence could materially impact our business, financial
condition and results of operations.
We may seek orphan drug designation for some of our product candidates but may not be able to obtain it.
We have obtained orphan drug designation from the FDA for SER-109 for recurrent CDI and SER-287 for pediatric UC and may seek orphan drug
designation and exclusivity for some of our future product candidates. Regulatory authorities in some jurisdictions, including the United States and Europe,
may designate drugs and biologics for relatively small patient populations as orphan drugs. In the United States, the FDA may designate a drug or biologic
as an orphan drug if it is intended to treat a rare disease or condition, which is defined as a disease or condition that affects fewer than 200,000 individuals
in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing
the drug will be recovered from sales in the United States. Orphan drug designation must be requested before submitting a BLA. In the United
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States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages
and application fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed
publicly by the FDA.
In addition, if a product with an orphan drug designation subsequently receives the first marketing approval for the disease or condition for which it
has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or other regulatory authorities from approving
another marketing application for the same drug or biologic for that time period, except in limited circumstances, such as a showing of clinical superiority
over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity for the orphan patient population. The
applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if, at the end of
the fifth year, it is established that a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that
market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or other regulatory authorities determine that the request for
designation was materially defective or if the manufacturer is unable to assure a sufficient quantity of the drug or biologic to meet the needs of patients with
the rare disease or condition. Exclusive marketing rights in the United States may also be unavailable if we or our collaborators seek approval for an
indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially
defective.
Even if we obtain orphan drug designation, we may not be the first to obtain marketing approval for any particular orphan indication due to the
uncertainties associated with developing pharmaceutical products. Further, even if we obtain orphan drug exclusivity for a product candidate, that
exclusivity for a product may not effectively protect the product from competition because different drugs and biologics can be approved for the same
disease or condition. Even after an orphan drug or biologic is approved, the FDA or other regulatory authorities can subsequently approve the same drug or
biologic for the same disease or condition if the FDA or other regulatory authorities conclude that the later drug is clinically superior in that it is shown to
be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review
time nor gives the drug any advantage in the regulatory review or approval process.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain
or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a
timely manner or at all, which could negatively impact our business.
The ability of the FDA and other regulatory authorities to review and or approve new products can be affected by a variety of factors, including
government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s and other regulatory authorities' ability to hire and retain key
personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s and other regulatory authorities' ability to perform
routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government
agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the
FDA and other regulatory authorities, such as the EMA, following its relocation to Amsterdam and resulting staff changes, may also slow the time
necessary for new drugs and biologics to be reviewed and/or approved by necessary regulatory authorities, which would adversely affect our business. For
example, over the last several years, the U.S. government has shut down several times and certain regulatory authorities, such as the FDA, have had to
furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various
points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, the FDA has continued to monitor and
implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-
19 pandemic, and any resurgence of the virus or emergence of new variants may lead to further inspectional delays. Regulatory authorities outside the
United States, including the EMA, have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged
government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular
inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and
process our regulatory submissions, which could have a material adverse effect on our business.
Risks Related to our Dependence on Third Parties and Manufacturing
The collaboration and license agreements with Société des Produits Nestlé S.A. and NHSc Rx License GmbH (collectively, and together with their
affiliates and subsidiaries, Nestlé) are important to our business. If we or Nestlé fail to adequately perform under these agreements, or if we or Nestlé
terminate the agreements, the development and commercialization of our CDI and IBD product candidates, including SER-109, SER-287 and SER-
301, could be delayed or terminated and our business would be adversely affected.
In January 2016, we entered into a Collaboration and License Agreement with Nestlé, or the 2016 License Agreement. The 2016 License Agreement
may be terminated:
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by Nestlé in the event of serious safety issues related to SER-109, SER-287, SER-301 or other specific products added under the 2016
License Agreement, or, collectively, the 2016 Collaboration Products;
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by us if Nestlé challenges the validity or enforceability of any of our licensed patents; and
by either Nestlé or us in the event of the other party’s uncured material breach or insolvency.
Upon termination of the 2016 License Agreement, all licenses granted to Nestlé by us will terminate, and all rights in and to the 2016 Collaboration
Products held by Nestlé will revert to us. If we commit a material breach of the 2016 License Agreement, Nestlé may elect not to terminate the 2016
License Agreement but instead apply specified adjustments to its payment obligations and other terms and conditions of the 2016 License Agreement. If
Nestlé were to make such adjustments, the funding from and benefits of the 2016 License Agreement could be diminished, which could adversely affect
our financial condition. Unless the 2016 License Agreement is terminated by us for Nestlé’s uncured material breach, upon termination of the 2016 License
Agreement, Nestlé will be eligible to receive post-termination royalties from us until Nestlé has recouped certain development costs related to the 2016
Collaboration Products and specified percentages of any milestone payments paid to us under the 2016 License Agreement prior to termination, which
could have a material adverse effect on our business.
In July 2021, we entered into a License Agreement with Nestlé, or the 2021 License Agreement. The 2021 License Agreement may be terminated:
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by Nestlé with twelve months’ prior written notice, effective only on or after the third anniversary of first commercial sale of our SER-109
product and any improvements and modifications thereto developed pursuant to the terms of the 2021 License Agreement, or the 2021
Collaboration Products;
by Nestlé if first commercial sale of the first 2021 Collaboration Product has not occurred by the fifth anniversary of the effective date of the
2021 License Agreement, with 180 days’ prior written notice, which must be provided during a specified period set forth in the 2021 License
Agreement;
by Nestlé if regulatory approval for SER-109 is not granted after submission by us of a filing seeking first regulatory approval as set forth in
the development and regulatory activity plan, and the parties fail to agree on further development of SER-109 in accordance with the terms of
the 2021 License Agreement, with 180 days’ prior written notice, which must be provided within a specified period set forth in the 2021
License Agreement;
by us if Nestlé challenges the validity or enforceability of any of our licensed patents; and
by either Nestlé or us in the event of the other party’s uncured material breach or insolvency.
Upon termination of the 2021 License Agreement, all licenses granted to Nestlé by us will terminate. If we commit a material breach of the 2021
License Agreement, Nestlé may elect not to terminate the 2021 License Agreement but instead apply specified adjustments to the payment terms and other
terms and conditions of the agreement. If Nestlé were to make such adjustments, the funding from and benefits of the 2021 License Agreement could be
diminished, which could adversely affect our financial condition. In the event we materially breach the 2021 License Agreement or file for bankruptcy, the
share of profits and milestones due to us will be reduced by a specified percentage until Nestlé has recouped twice the losses caused by our material breach
or bankruptcy.
Termination of these agreements could cause significant delays in our product development and commercialization efforts that could prevent us
from commercializing our CDI and IBD product candidates without first expanding our internal capabilities or entering into another agreement with a third
party. Any alternative collaboration or license could also be on less favorable terms to us. In addition, under the agreements, Nestlé agreed to provide
funding for certain clinical development activities. If either of the agreements were terminated, we may need to refund those payments and seek additional
financing to support the research and development of any terminated products or discontinue any terminated products, which could have a material adverse
effect on our business.
Under the collaboration and license agreements, we are dependent upon Nestlé to successfully commercialize any applicable collaboration products
both outside and within the United States and Canada, as applicable. We cannot directly control Nestlé’s commercialization activities or the resources it
allocates to our product candidates. Our interests and Nestlé’s interests may differ or conflict from time to time, or we may disagree with Nestlé’s level of
effort or resource allocation. Nestlé may internally prioritize our product candidates differently than we do or it may not allocate sufficient resources to
effectively or optimally commercialize them. If these events were to occur, our business would be adversely affected.
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We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including
failing to meet deadlines for the completion of such trials.
We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators,
to conduct and manage our clinical trials.
Our reliance on these third parties for research and development activities will reduce our control over these activities but does not relieve us of our
responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards, commonly referred to as good clinical practices, or
GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the
rights, safety and welfare of trial participants are protected. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors,
principal investigators and trial sites. If we or any of these third parties or our CROs fail to comply with applicable GCPs, the clinical data generated in our
clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials
before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will
determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP
regulations or similar regulatory requirements outside the United States. Our failure to comply with these regulations may require us to repeat clinical
trials, which would delay the regulatory approval process. Moreover, our business may be adversely affected if any of these third parties violates federal or
state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. Other countries’ regulatory authorities also have
requirements for clinical trials with which we must comply. We also are required to register ongoing clinical trials and post the results of completed clinical
trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil
and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not
successfully carry out their contractual duties, do not meet expected deadlines, experience work stoppages, terminate their agreements with us or need to be
replaced, or do not conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may need to enter into new
arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed, or terminated or
may need to be repeated. If any of the foregoing occur, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product
candidates and may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our
distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional
losses and depriving us of potential product revenue.
We rely on third parties for certain aspects of the manufacture of our product candidates for preclinical and clinical testing and for potential
commercial manufacture, and we expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not
have sufficient quantities of our product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or
impair our development or commercialization efforts.
We rely, and expect to continue to rely, on third parties, including GenIbet and Bacthera, for certain aspects of materials supply for our product
candidates in preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates receive marketing approval. This
reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates on a timely basis or at all, or that such
quantities will be available at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. For
example, certain of our product candidates rely on human stool from third-party donors. If we do not obtain an adequate supply of donor-derived material
to meet clinical or commercial demand, our ability to manufacture our product candidates may be delayed or adversely impacted.
We rely on third-party manufacturers, which entails additional risks, including:
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failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance;
failure of third-party manufacturers to perform the manufacturing process adequately;
breach of supply agreements by the third-party manufacturers;
failure to supply components, intermediates, services, or product according to our specifications;
failure to supply components, intermediates, services, or product according to our schedule or at all;
misappropriation or disclosure of our proprietary information, including our trade secrets and know-how; and
termination or nonrenewal of agreements by third-party manufacturers at times that are costly or inconvenient for us.
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Third-party manufacturers may not be able to comply with current good manufacturing processes, or cGMP, regulations or similar regulatory
requirements inside or outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could
result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license
revocations, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect supplies of our products. Some of the contract manufacturers we rely on to produce our product candidates have never produced an FDA-
approved therapeutic. One of the contract manufacturers on which we rely will be constructing a building in which to manufacture our product candidates,
which may not be completed on time or at all or, upon completion, may not be approved by the FDA. If our manufacturers are unable to comply with
cGMP regulation or similar regulatory requirements outside the United States or if the FDA or other regulatory authorities do not approve their facility
upon a pre-approval inspection, our therapeutic candidates may not be approved or may be delayed in obtaining approval. In addition, there are a limited
number of manufacturers that operate under cGMP regulations and similar regulatory requirements outside the United States that might be capable of
manufacturing our products. Therefore, our product candidates and any future products that we may develop may compete with other products for access to
manufacturing facilities. Any failure to gain access to these limited manufacturing facilities could severely impact the clinical development, marketing
approval and commercialization of our product candidates.
Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not
currently have a second source for certain required materials used for the manufacture of finished product. If our current manufacturers cannot perform as
agreed, we may be required to replace such manufacturers and we may be unable to replace them on a timely basis or at all. Our current and anticipated
future dependence upon others for the manufacture of our product candidates or products could delay, prevent or impair our development and
commercialization efforts. Moreover, as a result of the COVID-19 pandemic, third-party manufacturers may be affected, which could disrupt their
activities and as a result we could face difficulty sourcing key components necessary to produce supply of our product candidates, which may negatively
affect our preclinical and clinical development activities.
We have no experience manufacturing our product candidates commercially, and we cannot assure you that we can manufacture our product
candidates in compliance with regulations at a cost or in quantities necessary to make them commercially viable.
We have manufacturing facilities at our Cambridge, Massachusetts locations where we conduct process development, scale-up activities and a
portion of the manufacture of microbiome therapeutics. The FDA and other comparable foreign regulatory authorities must, pursuant to inspections that are
conducted after submitting a BLA or relevant foreign marketing submission, confirm that the manufacturing processes for the product meet cGMP or
similar regulatory requirements outside the United States. We have not yet received the final results of any inspections of our manufacturing facilities.
We currently intend to rely in part on third-party manufacturers for the commercial manufacturing of SER-109 and may establish a manufacturing
facility for SER-109 or any of our other product candidates for production at a commercial scale. We have no experience in manufacturing sufficient
volume of our product candidates to meet potential market demands. We may not be able to develop commercial-scale manufacturing facilities that are
adequate to produce materials for commercial use.
The equipment and facilities employed in the manufacture of pharmaceuticals are subject to stringent qualification requirements by regulatory
agencies, including validation of facility, equipment, systems, processes and analytics. We may be subject to lengthy delays and expense in conducting
validation studies, if we can meet the requirements at all.
In addition, some of our product candidates require donor material, of which we may not be able to collect sufficient quantities for commercial-scale
or other manufacturing.
Risks Related to Commercialization of Our Product Candidates and
Other Legal Matters
Even if any of our product candidates receive marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients,
hospitals, third-party payors and others in the medical community necessary for commercial success.
If any of our product candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients,
third-party payors and others in the medical community. For example, current CDI treatment involves the use of antibiotics that are well established in the
medical community or the use of FMT, and physicians may continue to rely on these treatments. If our product candidates receive approval but do not
achieve an adequate level of acceptance, we or our collaborators may not generate significant product revenue and we may not become profitable. The
degree of market acceptance of our approved product candidates, if any, will depend on a number of factors, including:
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their efficacy, safety and other potential advantages compared to alternative treatments;
the clinical indications for which our products are approved;
our ability to offer them for sale at competitive prices;
their convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
the availability of third-party coverage and adequate reimbursement for our product candidates;
the prevalence and severity of their side effects and their overall safety profiles;
any restrictions on the use of our products together with other medications;
interactions of our products with other medicines patients are taking; and
the ability of patients to take our products.
If we or our collaborators are unable to establish effective sales, marketing and distribution capabilities or enter into agreements with third parties with
such capabilities, we or our collaborators may not be successful in commercializing our product candidates if and when they are approved.
We have employees with experience in sales and marketing, but we have limited sales or marketing infrastructure and, as a company, have no
experience in the sale, marketing, or distribution of pharmaceutical products. To achieve commercial success for any product for which we obtain
marketing approval, we will need to establish a sales and marketing organization or make arrangements with third parties to perform sales and marketing
functions and we may not be successful in doing so.
In July 2021, we entered into the 2021 License Agreement with Nestlé, pursuant to which we granted Nestlé, under certain of our patent rights and
know how, a co-exclusive, sublicensable (under certain conditions) license to develop, commercialize and conduct medical affairs activities for the 2021
Collaboration Products in the United States and Canada. Under the 2021 License Agreement, Nestlé has the sole right to commercialize the 2021
Collaboration Products in the 2021 Licensed Territory in accordance with a commercialization plan, subject to our right to elect to provide up to a specified
percentage of all promotional details for a certain target audience. Each party will use commercially reasonable efforts to commercialize the 2021
Collaboration Products in the 2021 Licensed Territory in accordance with the commercialization plan. Both parties will perform medical affairs activities
for 2021 Collaboration Products in the 2021 Licensed Territory in accordance with a medical affairs plan. We will be responsible for commercialization and
medical affairs activities costs incurred by the parties until first commercial sale of the first 2021 Collaboration Product in the 2021 Licensed Territory and
in accordance with a pre-launch plan, up to a specified cap.
In the future, we expect to build a focused sales and marketing infrastructure, or certain components of such infrastructure, to market or co-promote
our product candidates in the United States and potentially elsewhere, if and when they are approved. There are risks involved with establishing our own
sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time-consuming and could delay any
product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does
not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment
would be lost if we or our collaborators cannot retain or reposition sales and marketing personnel.
Factors that may inhibit efforts to commercialize our products include:
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inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to or educate physicians on the benefits of our products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies
with more extensive product lines;
unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.
Outside the United States, we rely and may increasingly rely on third parties, including Nestlé, to sell, market and distribute our product candidates.
We may not be successful in entering into arrangements with such third parties or may be unable to do so on terms that are favorable to us. In addition, our
product revenue and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any
products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources
and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own
or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more
successfully than we do.
The development and commercialization of new drug and biologic products is highly competitive and is characterized by rapid and substantial
technological development and product innovations. We and our collaborators face competition with respect to our
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current product candidates and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future,
from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. We are aware of a number of large
pharmaceutical and biotechnology companies, as well as smaller, early-stage companies, that are pursuing the development or commercialization of
products, including microbiome therapeutics, for reducing CDI and other disease indications we are targeting. Some of these competitive products and
therapies are based on scientific approaches that are the same as or similar to our approach, and others may be based on entirely different approaches. For
example, FMT is a procedure that has resulted in reports of high success rates for recurrent CDI. Potential competitors also include academic institutions,
government agencies, not-for-profits, and other public and private research organizations that conduct research, seek patent protection and establish
collaborative arrangements for research, development, manufacturing and commercialization.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial
resources, established presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and reimbursement and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and
biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors.
These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management personnel, establishing
clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have
fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a
strong market position before we are able to enter the market, especially for any competitor developing a microbiome therapeutic which will likely share
our same regulatory approval requirements. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors
seeking to encourage the use of generic or biosimilar products.
Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations or third-party
coverage and reimbursement policies, any of which would harm our business.
Our ability to commercialize any product candidates successfully will depend, in part, on the extent to which coverage and reimbursement for these
products and related treatments will be available from government health administration authorities, private health insurers and other organizations.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will
pay for and impact reimbursement levels.
Obtaining and maintaining adequate reimbursement for our products may be difficult. We cannot be certain if and when we will obtain an adequate
level of reimbursement for our products by third-party payors. Even if we do obtain adequate levels of reimbursement, third-party payors, such as
government or private healthcare insurers, carefully review, and increasingly question the coverage of, and challenge the prices charged for, drugs.
Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A primary trend in the
U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with
predetermined discounts from list prices and are challenging the prices charged for drugs. We may also be required to conduct expensive
pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and reimbursement
are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for which
we obtain marketing approval, and the royalties resulting from the sales of those products may also be adversely impacted.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for
which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply
that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim
reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may
vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost treatment
approaches and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates
required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries
where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and adequate reimbursement rates from both
government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability
to raise capital needed to commercialize products and our overall financial condition.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country.
Current and future legislation may significantly change the approval requirements in ways that could involve
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additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be reimbursed. In many
countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical
pricing remains subject to continuing governmental control, including possible price reductions, even after initial approval is granted. As a result, we might
obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product,
possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing
limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
There can be no assurance that our product candidates, if they are approved for sale in the United States or in other countries, will be considered medically
necessary for a specific indication or cost-effective, or that coverage or an adequate level of reimbursement will be available.
Product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater
risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or
products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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regulatory investigations, product recalls or withdrawals, or labeling, marketing or promotional restrictions;
decreased demand for any product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue;
reduced resources of our management to pursue our business strategy; and
the inability to commercialize any products that we may develop.
We currently hold $5.0 million in product liability insurance coverage in the aggregate, with a per occurrence limit of $5.0 million, which may not
be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence
commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a
reasonable cost or in an amount adequate to satisfy any liability that may arise.
We may face competition from biosimilars, which may have a material adverse impact on the future commercial prospects of our product candidates.
Even if we and our collaborators are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors,
we may face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act, or BPCIA, enacted in 2010 as part of
the Patient Protection and Affordable Care Act, created an abbreviated approval pathway for biological products that are demonstrated to be “highly
similar,” or biosimilar, to or “interchangeable” with an FDA-approved biological product. Under the BPCIA, an application for a biosimilar product may
not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a
biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-
year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the
competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity
and potency of their product. This pathway could allow competitors to reference data from innovative biological products 12 years after the time of
approval of the innovative biological product. This data exclusivity does not prevent another company from developing a product that is highly similar to
the innovative product, generating its own data and seeking approval. Data exclusivity only assures that another company cannot rely upon the data within
the innovator’s application to support the biosimilar product’s approval.
We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity.
However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product
candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. It is
possible that Congress or the FDA may take these or other measures to reduce or eliminate periods of exclusivity. The BPCIA is complex and continues to
be interpreted and implemented by the FDA, and such FDA implementation could have a material adverse effect on the future commercial prospects for
our product candidates.
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In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-
specific guidelines for biosimilar approvals issued over the past few years. In Europe, a competitor may reference data supporting approval of an innovative
biological product but will not be able to get on the market until 10 years after the time of approval of the innovative product. This 10-year marketing
exclusivity period can be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or
more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing
biosimilars in other countries that could compete with our products. If competitors are able to obtain marketing approval for biosimilars referencing our
products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.
Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
In order to market and sell our products in the European Union, or EU, and many other jurisdictions, we or our collaborators must obtain separate
marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve
additional testing. The time required to obtain approval in foreign countries may differ substantially from that required to obtain FDA approval. Clinical
trials conducted in one country may not be accepted by regulatory authorities in other countries. The regulatory approval process outside the United States
generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the
product be approved for reimbursement before the product can be approved for sale in that country. We or our collaborators may not obtain approvals for
our product candidates from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by
regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by
regulatory authorities in other countries or jurisdictions or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may
have a negative effect on the regulatory process in others. We may not be able to file for marketing approvals and may not receive necessary approvals to
commercialize our products in any market.
Any product candidate for which we obtain marketing approval will remain subject to significant post-marketing regulatory requirements and
oversight.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling,
advertising and promotional activities for such product, will be subject to the continual requirements of and review by the FDA and other regulatory
authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements,
cGMP and similar foreign requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and
documents, requirements regarding the distribution of samples to physicians and recordkeeping. We and our contract manufacturers will also be subject to
continual review and periodic inspections to assess compliance with cGMP and similar foreign requirements. Accordingly, we, and our collaborators and
others with whom we work, must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and
quality control.
Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product
may be marketed or to specific conditions of approval, including a requirement to implement a risk evaluation and mitigation strategy, which could include
requirements for a medication guide, communication plan, or restricted distribution system. If any of our product candidates receives marketing approval,
the accompanying label may limit the approved use of our drug, which could limit sales of the product.
The FDA or other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor
the safety or efficacy of our approved products. The FDA or other regulatory authorities closely regulates the post-approval marketing and promotion of
drugs and biologics to ensure they are marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Violations of the FDA’s and other regulatory authorities’ restrictions relating to the promotion of prescription drugs by us or our collaborators may also lead
to investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, if a regulatory authority, we or our collaborators later discover previously unknown problems with our products, such as adverse events
of unanticipated severity or frequency, problems with manufacturers or manufacturing processes, or failure to comply with regulatory requirements, the
regulatory authority may impose restrictions on the products or us and our collaborators, including requiring withdrawal of the product from the market.
Any failure by us or our collaborators to comply with applicable regulatory requirements may yield various results, including:
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litigation involving patients taking our products;
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
warning letters;
withdrawal of products from the market;
suspension or termination of ongoing clinical trials;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
damage to relationships with potential collaborators;
unfavorable press coverage and damage to our reputation;
refusal to permit the import or export of our products;
product seizure or detention;
injunctions; or
imposition of civil or criminal penalties.
Noncompliance with similar EU requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties.
Similarly, failure to comply with U.S. and foreign regulatory requirements regarding the development of products for pediatric populations and the
protection of personal health information can also lead to significant penalties and sanctions.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity.
In addition, the FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. We also cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or administrative action, either in the United States or abroad. It is difficult to predict whether or how any executive
orders will be implemented, or whether they will be rescinded and replaced under future administrations. The policies and priorities of the new
administrations are unknown and could materially impact the regulations governing our product candidates.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain profitability.
The FDA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If any of our product candidates are approved and we or our collaborators are found to have improperly promoted off-label uses of those products,
we may become subject to significant liability. The FDA and other regulatory authorities strictly regulate the promotional claims that may be made about
prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA
or such other regulatory authorities as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians
may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we or our collaborators are found to have
promoted such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against
companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also
requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we
cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially
adversely affect our business and financial condition.
Our relationships and any collaborators' relationships with customers, physicians and third-party payors are and will be subject to applicable anti-
kickback, fraud and abuse and other healthcare laws and regulations, which could expose us or our collaborators to criminal sanctions, civil penalties,
exclusion from governmental healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates
for which we obtain marketing approval. Our and our collaborators' current and future arrangements with third-party payors, physicians and customers
expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may restrict the business or financial arrangements and
relationships through which we market, sell and distribute any products for
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which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
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the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for,
or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program, such
as Medicare and Medicaid; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have
committed a violation;
the False Claims Act, imposes, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam
actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment
that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or
fraudulent claim or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-
Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act;
HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of these
statutes or specific intent to violate them to have committed a violation;
the federal Physician Payment Sunshine Act requires applicable manufacturers of covered drugs to report payments and other transfers of
value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners
(physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiology assistants, and
certified nurse midwives), and teaching hospitals, and ownership and investment interests held by physicians and their immediate family
members; manufacturers are required to submit reports to the government by the 90th day of each calendar year; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to our business practices,
including but not limited to, research, distribution, sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply
with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government (or foreign governments) and may require drug manufacturers to report information related to payments and other transfers of
value to physicians and other healthcare providers, pricing information or marketing expenditures.
The risk of our or our collaborators being found in violation of these laws is increased by the fact that many of them have not been fully interpreted
by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us or our collaborators for
violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention
from the operation of our business. The shifting compliance environment and the need to build and maintain a robust system to comply with multiple
jurisdictions with different compliance and reporting requirements increases the possibility that we may violate one or more of the requirements.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any
of these laws or any other governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, reporting obligations
and oversight if we become subject to a corporate integrity agreement or other agreement, and the curtailment or restructuring of our operations.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product
candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding
the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our
ability to profitably sell any product candidates for which we obtain marketing approval.
In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, or collectively the ACA, is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and
fees on the health industry and impose additional health policy reforms.
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Among the provisions of the ACA of importance to our potential product candidates are the following:
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establishment of a new pathway for approval of lower-cost biosimilars to compete with biologic products, such as those we are developing;
an annual, nondeductible fee payable by any entity that manufactures or imports specified branded prescription drugs and biologic agents;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated
prices;
extension of manufacturers’ Medicaid rebate liability;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research,
along with funding for such research.
Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S.
Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the
ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order initiating a special enrollment period from February 15, 2021
through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain
governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011,
enacted in August 2011, required sequestration that included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went
into effect on April 1, 2013 and, due to subsequent legislative amendments, will remain in effect through 2030, unless additional Congressional action is
taken. Under current legislation, the actual reduction in Medicare payments will increase in future years of the sequester. On January 2, 2013, the American
Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and an
increase in the statute of limitations period for the government to recover overpayments to providers from three to five years.
Further, in March 2021, the American Rescue Plan Act of 2021 was signed into law, which, among other things, eliminated the statutory cap on drug
manufacturers’ Medicaid Drug Rebate Program rebate liability, effective January 1, 2024. Under current law enacted as part of the ACA, drug
manufacturers’ Medicaid Drug Rebate Program rebate liability is capped at 100% of the average manufacturer price for a covered outpatient drug. We
expect that other healthcare reform measures that may be adopted in the future may result in additional reductions in Medicare and other healthcare
funding, more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved
product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or
commercialize our product candidates, if approved.
Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products.
Individual states in the United States have become increasingly active in implementing regulations designed to contain pharmaceutical and biological
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures. Most significantly, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or the IRA, into law. This
statute marks the most significant action by Congress with respect to the pharmaceutical industry since adoption of the ACA in 2010. Among other things,
the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated
subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and
replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department
of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other
reasons, it is currently unclear how the IRA will be effectuated, and while the impact of the IRA on the pharmaceutical industry cannot yet be fully
determined, it is likely to be significant. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our
business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using
bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare
programs. This could reduce the ultimate demand for our product candidates, if approved, or put pressure on our product pricing, which could negatively
affect our business, results of operations, financial condition and prospects.
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Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA or foreign regulations, guidance or
interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,
increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more
stringent product labeling and post-marketing testing and other requirements.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In some countries, particularly the EU member states, the pricing of certain pharmaceuticals is subject to governmental control. In these countries,
pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be
considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political,
economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and
reimbursement have been obtained. Reference pricing used by various EU member states and parallel distribution or arbitrage between low-priced and
high-priced member states, can further reduce prices. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. Other member states allow companies to fix their
own prices for medicines but monitor and control company profits. Even if a pharmaceutical product obtains a marketing authorization in the EU, there can
be no assurance that reimbursement for such product will be secured on a timely basis or at all. If coverage and reimbursement of our products are
unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Risks Related to Our Intellectual Property
If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents that are sufficient to protect our product
candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial
condition and prospects.
Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and
other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the
United States and abroad related to our novel technologies and product candidates. We also rely on trade secrets to protect aspects of our business that are
not amenable to, or that we do not consider appropriate for, patent protection.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost, in a timely manner, or in all jurisdictions. Prosecution of our patent portfolio is at a very early stage. For some patent
applications in our portfolio, we have filed national stage applications based on our Patent Cooperation Treaty, or PCT, applications, thereby limiting the
jurisdictions in which we can pursue patent protection for the various inventions claimed in those applications. It is also possible that we will fail to identify
patentable aspects of our research and development output before it is too late to obtain patent protection. It is possible that defects of form in the
preparation or filing of our patents or patent applications may exist, or may arise in the future, such as, with respect to proper priority claims, inventorship,
claim scope or patent term adjustments. If there are material defects in the form or preparation of our patents or patent applications, such patents or
applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial
condition and operating results.
We have obtained licenses and options to obtain licenses from third parties and may obtain additional licenses and options in the future. In some
circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology that we license from third parties. We may also require the cooperation of our licensors to enforce any licensed patent rights, and such
cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best
interests of our business. Moreover, if we do obtain necessary licenses, we will likely have obligations under those licenses, and any failure to satisfy those
obligations could give our licensor the right to terminate the license. Termination of a necessary license could have a material adverse impact on our
business.
We have had in the past, and may have in the future, certain funding arrangements. Such funding arrangements impose various obligations on us,
including reporting obligations, and may subject certain of our intellectual property, such as intellectual property made using the applicable funding, to the
rights of the U.S. government under the Bayh-Dole Act. Any failure to comply with our obligations under a funding arrangement may have an adverse
effect on our rights under the applicable agreement or our rights in the applicable intellectual property. Compliance with our obligations or the exercise by
the government or other funder of its rights, may limit certain opportunities or otherwise have an adverse effect on our business.
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Our patent portfolio currently includes 24 active patent application families (which includes an option to license certain IP from MD Anderson and
exclusive licenses to certain IP from Memorial Sloan Kettering Cancer Center). Of these, 22 applications have been nationalized and two are pending at the
PCT stage. While we have obtained 24 issued U.S. patents with one currently allowed, we cannot provide any assurances that any of our pending patent
applications will mature into issued patents and, if they do, that such patents or our current patents will include claims with a scope sufficient to protect our
product candidates or otherwise provide any competitive advantage. For example, we are pursuing claims to therapeutic, binary compositions of certain
bacterial populations. Any claims that may issue may provide coverage for such binary compositions and/or their use. However, such claims would not
prevent a third party from commercializing alternative compositions that do not include both of the bacterial populations claimed in pending applications,
potential applications or patents that have or may issue. There can be no assurance that any such alternative composition will not be equally effective.
Further, given that our SER-109 product candidate is a complex composition with some variation from lot-to-lot and that, likewise, third-party
compositions may have similar complexity and variability, it is possible that a patent claim may provide coverage for some but not all lots of a product
candidate or third-party product. These and other factors may provide opportunities for our competitors to design around our patents, should they issue.
Moreover, other parties have developed technologies that may be related or competitive to our approach and may have filed or may file patent
applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming similar methods or
by claiming subject matter that could dominate our patent position or cover one or more of our products. In addition, given the early stage of prosecution of
our portfolio, it may be some time before we understand how patent offices react to our patent claims and whether they identify prior art of relevance that
we have not already considered.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other
jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were
the first to make the inventions claimed in any owned patents or pending patent applications, or that we were the first to file for patent protection of such
inventions, nor can we know whether those from whom we may license patents were the first to make the inventions claimed or were the first to file. For
these and other reasons, the issuance, scope, validity, enforceability and commercial value of our patent rights are subject to a level of uncertainty. Our
pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which
effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent
laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
We may be subject to third-party preissuance submissions of prior art to the United States Patent and Trademark Office, or USPTO, or in a foreign
jurisdiction in which our applications are filed, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or
interference proceedings challenging our patent rights or the patent rights of others. For example, on April 25, 2017, we filed a notice of opposition in the
European Patent Office challenging the validity of a patent issued to The University of Tokyo. See “—Third parties may initiate legal proceedings alleging
that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of
our business.” The oral proceedings were held at the European Patent Office on February 18, 2019 and the Opposition Division required The University of
Tokyo to narrow the scope of the claims of the patent. The University of Tokyo appealed certain aspects of the Opposition Division’s decision, as did we
and other opponents. On November 18, 2022, The University of Tokyo requested termination of the appeal proceeding and revocation of its patent. On
December 19, 2022, the Opposition Division officially terminated the appeal proceeding, and European Patent No. 2 575 835 B1 has been revoked in its
entirety.
An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third
parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or
commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent
applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn
could affect our ability to develop, market or otherwise commercialize our product candidates. The issuance, scope, validity, enforceability and commercial
value of our patents are subject to a level of uncertainty.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and
has in recent years been the subject of much litigation. Due to legal standards relating to patentability, validity, enforceability and claim scope of patents
covering biotechnological and pharmaceutical inventions, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and
factual questions. Even if issued, a patent’s validity, inventorship, ownership or enforceability is not conclusive. Accordingly, rights under any existing
patent or any patents we might obtain or license may not cover our product candidates, or may not provide us with sufficient protection for our product
candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical
companies.
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The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our product candidates or any other
products or product candidates;
any of our pending patent applications will issue as patents at all;
we will be able to successfully commercialize our product candidates, if approved, before our relevant patents expire;
we were the first to make the inventions covered by any existing patent and pending patent applications;
we were the first to file patent applications for these inventions;
others will not develop similar or alternative technologies that do not infringe or design around our patents;
others will not use pre-existing technology to effectively compete against us;
any of our patents, if issued, will be found to ultimately be valid and enforceable;
third parties will not compete with us in jurisdictions where we do not pursue and obtain patent protection;
we will be able to obtain and/or maintain necessary or useful licenses on reasonable terms or at all;
any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any
competitive advantages or will not be challenged by third parties;
we will develop additional proprietary technologies or product candidates that are separately patentable; or
our commercial activities or products will not infringe upon the patents or proprietary rights of others.
Any litigation to enforce or defend our patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attention
of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies
awarded if we were to prevail may not be commercially meaningful. Even if we are successful, domestic or foreign litigation, or USPTO or foreign patent
office proceedings, may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or potential
collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the
United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings,
there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. In addition,
during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common
stock could be significantly harmed.
If we are unable to protect the confidentiality of our trade secrets and know-how, our business and competitive position may be harmed.
In addition to seeking patents for some of our technology and product candidates, we also utilize our trade secrets, including unpatented know-how,
technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-
disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third parties. We also seek to enter into confidentiality and invention or patent
assignment agreements with our employees, advisors and consultants. Despite these efforts, any of these parties may breach the agreements and disclose
our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Our trade secrets may also
be obtained by third parties by other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside
and outside the United States are less willing or unwilling to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully obtained or
independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or
information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position
would be harmed.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and
enforcing patents in the biotechnology industry involves both technological and legal complexity, and is therefore costly, time-consuming and inherently
uncertain. In addition, patent reform legislation could further increase the uncertainties and costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into
law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are
prosecuted and may also affect patent litigation. The USPTO developed new regulations and procedures to govern administration of the Leahy-Smith Act,
and many of the substantive changes to patent law associated with the Leahy-Smith Act, in particular the first to file provisions, only became effective on
March 16, 2013. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an
invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time
from invention to filing of a patent application. Thus, for our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater
level of uncertainty in the patent law. Moreover, some of the patent applications in our portfolio will be subject to examination under the pre-Leahy- Smith
Act law and regulations, while other patent applications in our portfolio will be subject to examination under the law and regulations, as amended by the
Leahy-Smith Act. This introduces additional complexities into the prosecution and management of our portfolio.
In addition, the Leahy-Smith Act limits where a patentee may file a patent infringement suit and provides opportunities for third parties to challenge
any issued patent in the USPTO. These provisions apply to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary
standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could
potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient
to invalidate the claim if first presented in a federal court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our
patent claims because it may be easier for them to do so relative to challenging the patent in a federal court action. It is not clear what, if any, impact the
Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and
costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material
adverse effect on our business and financial condition.
In addition, Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of
patent owners in certain situations. From time to time, the Supreme Court, other federal courts, Congress, or the USPTO, may change the standards of
patentability and any such changes could have a negative impact on our business.
A number of cases decided by the Supreme Court have involved questions of when claims reciting abstract ideas, laws of nature, natural phenomena
and/or natural products are eligible for a patent, regardless of whether the claimed subject matter is otherwise novel and inventive. These cases include
Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 12-398 (2013); Alice Corp. v. CLS Bank International, 573 U.S. 13-298 (2014);
and Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 10-1150 (2012). In response to these cases, the USPTO has issued guidance to
the examining corps.
The USPTO first issued a memorandum reflecting the USPTO’s interpretation of the cases related to patent eligibility of natural products on March
4, 2014, which it subsequently revised and expanded upon in several additional updates now incorporated into its Manual of Patent Examination Procedure.
The USPTO’s interpretation of the case law and new guidelines for examination may influence, possibly adversely, prosecution and defense of certain types
of claims in our portfolio.
In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with
respect to the value of patents, once obtained. Depending on these and other decisions by Congress, the federal courts and the USPTO, the laws and
regulations governing patents could change or be interpreted in unpredictable ways that would weaken our ability to obtain new patents or to enforce any
patents that may issue to us in the future. In addition, these events may adversely affect our ability to defend any patents that may issue in procedures in the
USPTO or in courts.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain
and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product
candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property
litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought against us and we have not been held by any court
to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology, products or use of our products do not infringe third-
party patents.
We are aware of numerous patents and pending applications owned by third parties in the fields in which we are developing product candidates, both
in the United States and elsewhere. However, we may have failed to identify relevant third-party patents or applications. For example, applications filed
before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents
issue. Moreover, it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates
and technologies because patent searching is
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imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We may fail
to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that
such patent applications may issue with claims of relevance to our technology. In addition, we may be unaware of one or more issued patents that would be
infringed by the manufacture, sale or use of a current or future product candidate, or we may incorrectly conclude that a third-party patent is invalid,
unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to certain limitations, be
later amended in a manner that could cover our technologies, our products or the use of our products. We are aware of several pending patent applications
containing one or more claims that could be construed to cover some of our product candidates or technology, should those claims issue in their original
form or in the form presently being pursued. In addition, we are aware of third-party patent families that include issued and allowed patents, including in
the United States, including claims that, if valid and enforceable, could be construed to cover some of our product candidates or their methods of use. On
April 25, 2017, we filed a notice of opposition in the European Patent Office challenging the validity of a patent issued to The University of Tokyo and
requesting that it be revoked in its entirety for the reasons set forth in our opposition. The oral proceedings were held at the European Patent Office on
February 18, 2019 and the Opposition Division required The University of Tokyo to narrow the scope of the claims of the patent. The University of Tokyo
appealed certain aspects of the Oppositions Division’s decision, as did we and other opponents. On November 18, 2022, The University of Tokyo
requested termination of the appeal proceeding and revocation of its patent. On December 19, 2022, the Opposition Division officially terminated the
appeal proceeding, and European Patent No. 2 575 835 B1 has been revoked in its entirety.
The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights.
Other parties may allege that our product candidates or the use of our technologies infringes patent claims or other intellectual property rights held by them
or that we are employing their proprietary technology without authorization. We may become party to, or threatened with, future adversarial proceedings or
litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings before the
USPTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights and
intellectual property rights that may be granted in the future. If we were to challenge the validity of an issued U.S. patent in court, such as an issued U.S.
patent of potential relevance to some of our product candidates or methods of use, we would need to overcome a statutory presumption of validity that
attaches to every U.S. patent. This means that in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s
claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. If we are
found or believe there is a risk we may be found, to infringe a third party’s intellectual property rights, we could be required or may choose to obtain a
license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any such license
on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the
same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition,
we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding
of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially
harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact
on our business.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these
proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a
license, defend an infringement action or challenge the validity of the patents in court, or redesign our products. Patent litigation is costly and time-
consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, intellectual property litigation or claims
could force us to do one or more of the following:
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cease developing, selling or otherwise commercializing our product candidates;
pay substantial damages for past use of the asserted intellectual property;
obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and
in the case of trademark claims, redesign, or rename, some or all of our product candidates or other brands to avoid infringing the intellectual
property rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition and prospects.
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Issued patents covering our product candidates could be found invalid or unenforceable or could be interpreted narrowly if challenged in court.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file
infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-
consuming. If we initiated legal proceedings against a third party to enforce a patent, if and when issued, covering one of our product candidates, the
defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States,
defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any
of several statutory requirements, including lack of novelty, obviousness or non-enablement, or failure to claim patent eligible subject matter. Grounds for
unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or
made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad,
even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, such
as opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product
candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for
example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant
were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product
candidates. Moreover, even if not found invalid or unenforceable, the claims of our patents could be construed narrowly or in a manner that does not cover
the allegedly infringing technology in question. Such a loss of patent protection would have a material adverse impact on our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these
requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent and, in some jurisdictions, during the pendency of a patent application. The USPTO and various foreign governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an
inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in
which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the
relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to,
failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In
such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
It is our policy to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, contractors and
advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property.
However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, even if we have a consulting
agreement in place with an academic advisor pursuant to which such academic advisor is required to assign any inventions developed in connection with
providing services to us, such academic advisor may not have the right to assign such inventions to us, as it may conflict with his or her obligations to
assign all such intellectual property to his or her employing institution.
Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims,
in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable
intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees.
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We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership
of what we regard as our own intellectual property.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or
potential competitors. We may also engage advisors and consultants who are concurrently employed at universities or other organizations or who perform
services for other entities. Although we try to ensure that our employees, advisors and consultants do not use the proprietary information or know-how of
others in their work for us, we may be subject to claims that we or our employees, advisors or consultants have used or disclosed intellectual property,
including trade secrets or other proprietary information, of any such party’s former or current employer or in violation of an agreement with another party.
Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any
such claims.
In addition, while it is our policy to require our employees, consultants, advisors and contractors who may be involved in the development of
intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each
party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be
breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we
regard as our intellectual property. Similarly, we may be subject to claims that an employee, advisor or consultant performed work for us that conflicts with
that person’s obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out
of work performed for us. Litigation may be necessary to defend against these claims. Although we have no knowledge of any such claims being alleged to
date, if such claims were to arise, litigation may be necessary to defend against any such claims.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or
personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to
management.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among
potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby
impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark
infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks
or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to
compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets,
domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could
adversely impact our financial condition or results of operations.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our
intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States could be less extensive than in the United States, assuming that
rights are obtained in the United States and assuming that rights are pursued outside the United States. The statutory deadlines for pursuing patent
protection in individual foreign jurisdictions are based on the priority date of each of our patent applications. For each of the patent families that we believe
provide coverage for our product candidates, we decide whether and where to pursue protection outside the United States. In addition, the laws of some
foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, even if we do
elect to pursue patent rights outside the United States, we may not be able to obtain relevant claims and/or we may not be able to prevent third parties from
practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions.
Additionally, Europe's planned Unified Patent Court, or UPC, may present uncertainties for our ability to protect and enforce our patent rights
against competitors in Europe. Although this new court is being implemented to provide more certainty and efficiency to patent enforcement throughout
Europe, it will also provide our competitors with a new forum to use to centrally challenge our patents if opted into the UPC, rather than having to seek
invalidity or non-infringement decisions on a country-by-country basis. Once the UPC is established, it will be several years before the scope of patent
rights that will be recognized and the strength of patent remedies that will be provided is known.
Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and
further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United
States. These products may compete with our products and our patents or other intellectual property
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rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent
claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies
have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some
countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to
biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual
property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In
addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these
countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and
time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the
benefit of patent protection in such countries.
If our ability to obtain and, if obtained, enforce our patents to stop infringing activities is inadequate, third parties may compete with our products,
and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Accordingly, our intellectual
property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property we develop or license.
Risks Related to Our Operations
The COVID-19 pandemic has adversely impacted and could continue to adversely impact, our business, including our preclinical studies and clinical
trials, results of operations and financial condition.
The COVID-19 pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses
and commerce, as worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. We are
continuing to monitor the impact of the COVID-19 pandemic on our operations and ongoing clinical development activity. Our mitigation activities to
minimize COVID-19-related operation disruptions are ongoing, however, given the severity and evolving nature of the situation, the timing of clinical
readouts is uncertain. As a result of the COVID-19 pandemic, including any resurgence or the emergence of new variants, we or our collaborators may
experience further disruptions that could severely impact our business, preclinical studies and clinical trials, including:
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delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites
and hospital staff supporting the conduct of our clinical trials;
risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results
of the clinical trial, including by increasing the number of observed adverse events;
interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by
federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (such as endoscopies
that are deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;
interruption or delays in the operations of the FDA or other regulatory authorities, which may impact approval timelines;
interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing
shortages, production slowdowns, global shipping delays or stoppages and disruptions in delivery systems;
limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including
because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.
refusal of the FDA or other regulatory authorities to accept data from clinical trials in affected geographies;
impacts from prolonged remote work arrangements, such as increased cybersecurity risks and strains on our business continuity plans; and
delays or difficulties with equity offerings due to disruptions and uncertainties in the securities market.
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In addition, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the COVID-19
pandemic and the continued increase in inflation rates and interest rates. As a result, we may face difficulties raising capital through sales of our common
stock and any such sales may be on unfavorable terms. The COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic further
impacts our business, including our preclinical studies and clinical trials, results of operations and financial condition will depend on future developments
which are highly uncertain and cannot be predicted with confidence. Such factors include but are not limited to the duration and severity of the pandemic,
the impact of variants, travel restrictions, quarantines, shelter-in-place orders and social distancing recommendations and regulations in the U.S. and other
countries, business closures or business disruptions, the adoption and effectiveness of vaccines and vaccine distribution efforts, and the effectiveness of
other actions taken in the U.S. and other countries to contain and treat the disease.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Eric Shaff, our President and Chief Executive Officer, as well as the other principal members of our management,
scientific and clinical team. Although we have entered into employment agreements with our executive officers, each of them may terminate their
employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss
of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization
objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees
may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and
experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense,
and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and
research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and
development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments
under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality
personnel, our ability to pursue our growth strategy will be limited.
We may expand our operational capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our
operations.
We may experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of lead discovery
and product development, regulatory affairs, clinical affairs and manufacturing and, if any of our product candidates receives marketing approval, sales,
marketing and distribution. To manage potential future growth, we must continue to implement and improve our managerial, operational and financial
systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited
experience of our management team in managing a company with such potential growth, we may not be able to effectively manage the expansion of our
operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management
and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
A variety of risks associated with operating internationally could materially adversely affect our business.
We currently have limited international operations, but our business strategy incorporates potentially expanding internationally if any of our product
candidates receive regulatory approval. We have conducted clinical studies in Australia and New Zealand in the past, and may in the future conduct clinical
studies in other countries as well. We currently plan to rely on collaborators, including Nestlé, to commercialize certain approved products outside of North
America. Also, for certain manufacturing services for SER-109, we rely on GenIbet in Portugal, and Bacthera, which is constructing a dedicated full-scale
production suite for us in Switzerland. Doing business internationally involves a number of risks, including but not limited to:
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multiple, conflicting and changing laws and regulations, such as privacy regulations, tax laws, export and import restrictions, employment
laws, regulatory requirements and other governmental approvals, permits and licenses;
failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;
additional potentially relevant third-party patent rights;
complexities and difficulties in obtaining protection and enforcing our intellectual property;
difficulties in staffing and managing foreign operations;
complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
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limits in our ability to penetrate international markets;
global macroeconomic conditions, including a continued increase in inflation rates or interest rates, labor shortages, supply chain shortages,
or other economic, political or legal uncertainties or adverse developments;
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on
demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
political unrest and wars, such as the current situation with Ukraine and Russia, which could delay or disrupt our business, and if such
political unrest escalates or spills over to or otherwise impacts additional regions it could heighten many of the other risk factors included in
this Item 1A;
natural disasters, political and economic instability, including terrorism and political unrest, outbreak of disease or epidemics such as the
COVID-19 pandemic, boycotts, curtailment of trade and other business restrictions;
certain expenses including, among others, expenses for travel, translation and insurance; and
regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the
purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions, or its anti-bribery provisions.
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Our business and operations may suffer in the event of information technology system failures, cyberattacks or deficiencies in our cybersecurity.
In the ordinary course of our business, we collect and store sensitive data, including personally identifiable information, intellectual property and
proprietary business information owned or controlled by ourselves or our employees, customers and other parties. We manage and maintain our
applications and data utilizing a combination of on-site systems and cloud-based data centers. We utilize external security and infrastructure vendors to
manage parts of our data centers, and as a result a number of third-party vendors may or could have access to our confidential information. These
applications and data encompass a wide variety of business-critical information, including research and development information, customer information,
commercial information and business and financial information. We face a number of risks relative to protecting this critical information, including loss of
access risk, inappropriate use or disclosure, unauthorized access, inappropriate modification and the risk of our being unable to adequately monitor and
audit and modify our controls over our critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive
data or otherwise process it on our behalf. The secure processing, storage, maintenance and transmission of this critical information are vital to our
operations and business strategy, and we devote significant resources to protecting such information. Although we take reasonable measures to protect
sensitive data from unauthorized access, use or disclosure, our information technology systems and those of our third-party service providers, strategic
partners and other contractors or consultants are vulnerable to attack, damage and interruption from computer viruses and malware (e.g. ransomware),
malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social
engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-
supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization.
We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working
remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain
unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to
anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an
extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools
and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
We and certain of our service providers are from time to time subject to cyberattacks and security incidents. If such an event were to occur and cause
interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss,
corruption or unauthorized disclosure of our trade secrets, personal information or other proprietary or sensitive information or other similar disruptions. If
we or our third-party vendors were to experience a significant cybersecurity breach of our or their information systems or data, the costs associated with the
investigation and remediation could be material. Any such access, breach, or other loss of information could also result in legal claims or proceedings, and
liability under federal or state laws that protect the privacy of personal information, and regulatory penalties. Notice of breaches may be required to
affected individuals or other state, federal or foreign regulators, and for extensive breaches, notice may need to be made to the media or State Attorneys
General. Such a notice could harm our reputation and our ability to compete. Although we have implemented security measures to prevent unauthorized
access, such data is currently accessible through multiple channels, and there is no guarantee we can protect our data from breach.
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Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could
adversely affect our business, results of operations, and financial condition.
The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws,
requirements and regulations governing the collection, use, disclosure, retention, and security of personal information, such as information that we may
collect in connection with clinical trials in the U.S. and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the
foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our
business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and
share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The
cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply
with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information
could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which
could have a material adverse effect on our results of operations, financial performance and business.
In the U.S., HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations,
or collectively HIPAA, imposes privacy, security and breach notification obligations on certain healthcare providers, health plans, and healthcare
clearinghouses, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or
transmitting individually identifiable health information for or on behalf of such covered entities, and their covered subcontractors. Most healthcare
providers, including research institutions from which we obtain clinical trial information, are subject to privacy and security regulations promulgated under
HIPAA. We do not believe that we are currently acting as a covered entity or business associate under HIPAA and thus are not regulated under HIPAA.
However, any person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles.
Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable
health information from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of
individually identifiable health information.
Certain states have also adopted comparable privacy and security laws and regulations, which govern the privacy, processing and protection of
health-related and other personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental
authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California
Consumer Privacy Act of 2018, or CCPA, went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and
increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well
as a private right of action for data breaches has increased the likelihood of, and risks associated with data breach litigation. Further, the California Privacy
Rights Act, or CPRA, generally went into effect on January 1, 2023, and significantly amends the CCPA. It imposes additional data protection obligations
on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs
for certain uses of sensitive data. It also creates a new California data protection agency authorized to issue substantive regulations and could result in
increased privacy and information security enforcement. Additional compliance investment and potential business process changes may also be required.
Similar laws have passed in Virginia, Colorado, Connecticut and Utah, and have been proposed in other states and at the federal level, reflecting a trend
toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make
compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws,
any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
Our operations abroad may also be subject to increased scrutiny or attention from data protection authorities. For example, in Europe, European
Union General Data Protection Regulation, or the GDPR, went into effect in May 2018 and imposes strict requirements for processing the personal data of
individuals within the European Economic Area, or EEA. Companies that must comply with the GDPR face increased compliance obligations and risk,
including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the
annual global revenues of the noncompliant company, whichever is greater. Among other requirements, the GDPR regulates transfers of personal data
subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States; in July
2020, the Court of Justice of the EU, or CJEU, limited how organizations could lawfully transfer personal data from the EU/EEA to the United States by
invalidating the Privacy Shield for purposes of international transfers and imposing further restrictions on the use of standard contractual clauses, or SCCs.
In March 2022, the US and EU announced a new regulatory regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy
Framework has not been implemented beyond an executive order signed by President Biden on October 7, 2022 on Enhancing Safeguards for United States
Signals Intelligence Activities. European court and regulatory decisions subsequent to the CJEU decision of July 16, 2020 have taken a restrictive approach
to international data transfers. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the
SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or
if we are otherwise unable to transfer personal data between and among countries and regions in which
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we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations,
and could adversely affect our financial results.
Since the beginning of 2021, after the end of the transition period following the UK’s departure from the European Union, we are also subject to the
UK data protection regime, which imposes separate but similar obligations to those under the GDPR and comparable penalties, including fines of up to
£17.5 million or 4% of a noncompliant company’s global annual revenue for the preceding financial year, whichever is greater. Additionally, the EU
adopted the EU Clinical Trials Regulation, which came into effect on January 31, 2022. This regulation imposes new obligations on the use of data
generated from clinical trials and enables European patients to have the opportunity to access information about clinical trials. As we continue to expand
into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these
requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with
one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors,
consultants, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded,
could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.
Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business.
We may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments in
complementary businesses. We have not made any acquisitions to date, and our ability to do so successfully is unproven. Any of these transactions could be
material to our financial condition and operating results and expose us to many risks, including:
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disruption in our relationships with future customers or with current or future distributors or suppliers as a result of such a transaction;
unanticipated liabilities related to acquired companies;
additional exposure to cybersecurity risks and vulnerabilities from any newly acquired information technology infrastructure;
difficulties integrating acquired personnel, technologies and operations into our existing business;
diversion of management time and focus from operating our business to acquisition integration challenges;
increases in our expenses and reductions in our cash available for operations and other uses;
possible write-offs or impairment charges relating to acquired businesses; and
inability to develop a sales force for any additional product candidates.
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different
cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
Also, the anticipated benefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances
of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our
financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have
on our operating results.
We have in the past been subject to securities class action litigation and may be subject to similar or other litigation in the future, which may harm our
business.
Securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is
especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. On September 28, 2016,
a purported stockholder filed a putative class action lawsuit in the U.S. District Court for the District of Massachusetts against us entitled Mariusz Mazurek
v. Seres Therapeutics, Inc., et.al. alleging false and misleading statements and omissions about our clinical trials for our product candidate SER-109 in our
public disclosures between June 25, 2015 and July 29, 2016. Although this lawsuit has been dismissed by the court, should we face similar or other
litigation again, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. In addition, the
uncertainty of a pending lawsuit or potential filing of additional lawsuits could lead to more volatility and a reduction in our stock price.
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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials,
including chemicals and biological materials such as human stool. Our operations also produce hazardous waste products. We generally contract with third
parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury, including from the novel coronavirus SARS-
CoV-2, which causes the COVID-19 disease, from these materials. In the event of contamination or injury resulting from our use of hazardous materials,
we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil
or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting
from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for
environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive
materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These
current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations
also may result in substantial fines, penalties or other sanctions.
Our ability to use our net operating loss carryforwards and research and development credits to offset future taxable income or income tax liabilities
may be subject to certain limitations.
As of December 31, 2022, we had net operating loss carryforwards, or NOLs, of $501.8 million for federal income tax purposes and $481.9 million
for state income tax purposes, which may be available to offset our future taxable income, if any. Our federal and state NOLs begin to expire in various
amounts in 2035, provided that federal NOLs generated in taxable years after December 31, 2017 will not be subject to expiration. As of December 31,
2022, we also had federal and state research and development and other tax credit carryforwards of approximately $42.1 million and $8.5 million,
respectively, net of uncertain tax position reserves, available to reduce future income tax liabilities. Our federal and state tax credit carryforwards begin to
expire in various amounts in 2031 and 2028, respectively. The federal research and development tax credit carryforwards include an orphan drug credit
carryforward of $25.6 million. These NOLs and tax credit carryforwards could expire unused, to the extent subject to expiration, and be unavailable to
offset future taxable income or income tax liabilities. In addition, in general, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), a corporation that undergoes an “ownership change” is subject to limitations on its ability to use its pre-change NOLs and tax credit
carryforwards to offset future taxable income and income taxes. For these purposes, an ownership change generally occurs where the aggregate change in
stock ownership of one or more stockholders or groups of stockholders owning at least 5% of a corporation’s stock exceeds 50 percentage points over a
three-year period. We have experienced ownership changes in the past, per the Section 382 study performed through December 31, 2020, and may
experience ownership changes in the future because of future transactions in our stock, some of which may be outside our control. We believe that none of
the existing tax attributes will expire unused as a result of the calculated limitations. If we undergo future ownership changes, our ability to use our NOLs
and tax credit carryforwards could be further limited. For these reasons, we may not be able to use a material portion of our NOLs or tax credit
carryforwards, even if we attain profitability. We have recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the
uncertainty of the ultimate realization of the future tax benefits of such assets. Federal NOLs arising in periods beginning after December 31, 2017 may
generally only be used to offset 80% of taxable income in years beginning after December 31, 2020, which may require us to pay federal income taxes in
future years despite generating federal NOLs in prior years.
The terms of our credit facility place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the
terms of any new debt could further restrict our ability to operate our business.
In October 2019, we entered into a loan and security agreement with Hercules Capital, Inc., or Hercules, pursuant to which a term loan in an
aggregate principal amount of up to $50.0 million, or the Original Credit Facility, was available to us in three tranches, subject to certain terms and
conditions. We received the first tranche of $25.0 million upon signing the agreement on October 29, 2019, but did not borrow either of the second two
tranches, which were available at different times upon Hercules’ approval until June 30, 2021.
In April 2020, we entered into an amendment to the loan and security agreement with Hercules, or the First Amendment, permitting us to enter into
a promissory note under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Stability Act.
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In February 2022, we entered into a second amendment to the loan and security agreement with Hercules, or the Second Amendment, which
amended the Original Credit Facility. Pursuant to the Second Amendment, term loans in an aggregate principal amount of up to $100.0 million, or the New
Credit Facility, have become available to us in five tranches, subject to certain terms and conditions: (i) the first tranche in an aggregate principal amount of
$25.0 million that was outstanding as of the February 24, 2022 effective date, or the Effective Date, (ii) the second tranche in an aggregate principal amount
of $12.5 million that has been advanced to us and was outstanding as of the Effective Date, (iii) the third tranche in an aggregate principal amount of $12.5
million that has been advanced to us and was outstanding as of the Effective Date, (iv) the fourth tranche in an aggregate principal amount of $25.0 million
available upon satisfaction of certain conditions, including the approval by the FDA of a biologics license application in respect of SER-109 by no later
than December 15, 2023, or the Regulatory Approval Milestone, and (v) the fifth tranche in an aggregate principal amount of up to $25.0 million that is
available through the amortization date upon satisfaction of certain conditions, including the lenders’ investment committee approval. The New Credit
Facility is secured by a lien on substantially all of our assets, other than intellectual property. We also agreed not to pledge or secure our intellectual
property to others.
The New Credit Facility includes affirmative and negative covenants and events of default applicable to us. The affirmative covenants include,
among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports and maintain insurance
coverage. The negative covenants include, among others, restrictions on our transferring collateral, making changes to the nature of our business, incurring
additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, engaging in transactions
with affiliates. The New Credit Facility also includes a conditional liquidity covenant commencing on June 15, 2023, which ceases to apply if certain
conditions including the Regulatory Approval Milestone are satisfied. Events of default include, among other things and subject to customary exceptions:
(i) insolvency, liquidation, bankruptcy or similar events; (ii) failure to pay any debts due under the loan and security agreement with Hercules or other loan
documents on a timely basis; (iii) failure to observe certain covenants under the loan and security agreement with Hercules; (v) occurrence of a material
adverse effect; (vi) material misrepresentation by us; (vii) occurrence of any default under any other agreement involving material indebtedness; and (viii)
certain material money judgments. If we default under the loan and security agreement, Hercules may accelerate all of our repayment obligations and take
control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations.
Further, if we are liquidated, the lenders’ right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from
the liquidation. Any declaration by Hercules of an event of default could significantly harm our business and prospects and could cause the price of our
common stock to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial
flexibility.
Risks Related to Our Common Stock
Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to control or significantly influence all
matters submitted to stockholders for approval.
Our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates, in the
aggregate, hold shares representing approximately 68.5% of our outstanding voting stock as of December 31, 2022. As a result, if these stockholders were
to choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our
management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and
approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:
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delay, defer or prevent a change in control;
entrench our management and the board of directors; or
impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
A significant portion of our total outstanding shares are eligible to be sold into the market, which could cause the market price of our common stock to
drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number
of shares intend to sell shares, could reduce the market price of our common stock. We have also registered and intend to continue to register all shares of
common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon
issuance, subject to volume limitations applicable to affiliates.
Provisions in our restated certificate of incorporation and amended and restated bylaws and under Delaware law could make an acquisition of our
company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions in our restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger, acquisition
or other change in control of our company that stockholders may consider favorable, including transactions in which stockholders might otherwise receive
a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock,
thereby depressing the market price of our common stock. In
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addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any
attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of
directors. Among other things, these provisions include those establishing:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a
majority of our board of directors;
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;
the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including
preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the ability of our board of directors to alter our bylaws without obtaining stockholder approval;
the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal
our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our
stockholders;
the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive
officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take
action, including the removal of directors; and
advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters
to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to
elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State
of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three
years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware, subject to certain exceptions, as the sole and exclusive
forum for certain types of actions and proceedings that may be initiated by our stockholders and our bylaws designate the federal district courts of the
United States as the exclusive forum for actions arising under the Securities Act of 1933, as amended, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our restated certificate of incorporation specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of
the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. In addition, our
bylaws provide that the federal district courts of the United States are the exclusive forum for any complaint raising a cause of action arising under the
Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to
have consented to the provisions of our restated certificate of incorporation and bylaws described above.
We believe these choice of forum provisions benefit us by providing increased consistency in the application of Delaware law by chancellors
particularly experienced in resolving corporate disputes and in the application of the Securities Act by federal judges, as applicable, efficient administration
of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provisions may
have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’
certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a
court could find the choice of forum provisions contained in our restated certificate of incorporation or bylaws to be inapplicable or unenforceable in such
action. If a court were to find the choice of forum provisions contained in our restated certificate of incorporation or bylaws to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our
business, financial condition or results of operations.
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Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be the sole
source of gain for our stockholders.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the
growth and development of our business. In addition, our loan and security agreement with Hercules Capital currently prohibits us from paying dividends
on our equity securities, and any future debt agreements may likewise preclude us from paying dividends. As a result, capital appreciation, if any, of our
common stock will be our stockholders’ sole source of gain for the foreseeable future.
General Risk Factors
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common
stock.
Our stock price is likely to be volatile. Furthermore, the stock market in general and the market for smaller biopharmaceutical companies in
particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this
volatility, our stockholders may not be able to sell their common stock at or above the price they paid for their common stock. The market price for our
common stock may be influenced by many factors, including:
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the success of competitive products or technologies;
actual or anticipated changes in our growth rate relative to our competitors;
results of clinical trials of our product candidates or those of our competitors;
developments related to any future collaborations;
regulatory or legal developments in the United States and other countries;
development of new product candidates that may address our markets and may make our product candidates less attractive;
changes in physician, hospital or healthcare provider practices that may make our product candidates less useful;
announcements by us, our collaborators or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or
capital commitments;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our product candidates or clinical development programs;
failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
If securities or industry analysts issue an adverse or misleading opinion regarding our business, our common stock price and trading volume could
decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our
business. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock
performance, or if our clinical studies and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of
these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our
stock price or trading volume to decline.
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We will continue to incur costs as a result of being a public company, and our management will continue to devote substantial time to compliance
initiatives and corporate governance practices.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of
2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Select Market and other applicable
securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and
financial controls and corporate governance practices. Our management and other personnel devote and will need to continue to devote a substantial
amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial
compliance costs and make some activities more time-consuming and costly. For example, we expect that these rules and regulations will continue to make
it more difficult and more expensive for us to maintain director and officer liability insurance, which in turn could make it more difficult for us to attract
and retain qualified members of our board of directors.
These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their
application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in future uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or
prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the
trading price of our common stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure
controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting obligations.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting. Additionally, we are
no longer a non-accelerated filer, so we are required to include an attestation report on internal control over financial reporting issued by our independent
registered public accounting firm. If we are unable to maintain effective internal control over financial reporting, we may not have adequate, accurate or
timely financial information, and we may be unable to meet our reporting obligations as a public company or comply with the requirements of the
Securities and Exchange Commission or Section 404. This could result in a restatement of our financial statements, the imposition of sanctions, including
the inability of registered broker dealers to make a market in our common stock, or investigation by regulatory authorities. Any such action or other
negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory requirements or by disclosure of an
accounting, reporting or control issue could adversely affect the trading price of our securities and our business. Material weaknesses in our internal control
over financial reporting could also reduce our ability to obtain financing or could increase the cost of any financing we obtain. This could result in an
adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
Failure to keep up with evolving trends and shareholder expectations relating to environmental, social and governance, or ESG, practices or
reporting could adversely impact our reputation, share price and access to and cost of capital.
Certain institutional investors, investor advocacy groups, investment funds, creditors and other influential financial market participants have become
increasingly focused on companies’ ESG practices in evaluating their investments and business relationships, including the impact of business on the
environment. Certain organizations also provide ESG ratings, scores and benchmarking studies that assess companies’ ESG practices. Although there are
no universal standards for such ratings, scores or benchmarking studies, they are used by some investors to inform their investment and voting decisions. It
is possible that our future stockholders or organizations that report on, rate or score ESG practices will not be satisfied with our ESG strategy or
performance. Unfavorable press about or ratings or assessments of our ESG strategies or practices, regardless of whether or not we comply with applicable
legal requirements, may lead to negative investor sentiment toward us, which could have a negative impact on our share price and our access to and cost of
capital.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Cambridge, Massachusetts, where we lease approximately 83,396 square feet of office, laboratory, and pilot
manufacturing space under a lease that was originally set to expire in November 2023. In December 2022, we amended the lease to extend the expiration
date with respect to 68,636 square feet of office, laboratory, and pilot manufacturing space to January 2030.
Research and Offices
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Clinical Manufacturing
We currently conduct part of our manufacturing operations in our leased facilities in Cambridge, Massachusetts, which contain manufacturing
facilities for clinical products. We believe our current laboratory facilities and contract relationships are sufficient to meet our current bioprocess
development and manufacturing needs. Product candidates may be brought into the facilities for economies of operation, or may remain external with
contract manufacturing organizations, depending on business dynamics and development needs.
We plan to control the production of all products under current good manufacturing practices by making strategic investments in manufacturing,
which may include collaborations with third parties, the design and renovation of existing facilities and the construction of additional new facilities for
commercial supply.
Item 3. Legal Proceedings
Opposition Proceeding
On October 19, 2016, the European Patent Office granted European Patent No. 2 575 835 B1 to The University of Tokyo. On April 25, 2017, we
filed a notice of opposition to this patent in the European Patent Office, requesting that it be revoked in its entirety for the reasons set forth in our
opposition. The oral proceedings were held at the European Patent Office on February 18, 2019 and the Opposition Division required The University of
Tokyo to narrow the scope of the claims of the patent. The University of Tokyo appealed certain aspects of the Opposition Division’s decision, as did we
and other opponents. On November 18, 2022, The University of Tokyo requested termination of the appeal proceeding and revocation of its patent. On
December 19, 2022, the Opposition Division officially terminated the appeal proceeding, and European Patent No. 2 575 835 B1 has been revoked in its
entirety.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has been publicly traded on the Nasdaq Global Select Market under the symbol “MCRB” since June 26, 2015. Prior to that time,
there was no public market for our common stock.
The graph set forth below compares the cumulative total stockholder return on our common stock between January 1, 2018 and December 31, 2022,
with the cumulative total return of (a) the Nasdaq Biotechnology Index and (b) the Nasdaq Composite Index, over the same period. This graph assumes the
investment of $100 on December 31, 2017 in each of our common stock, the Nasdaq Biotechnology Index and the Nasdaq Composite Index and assumes
the reinvestment of dividends, if any. The comparisons reflected in the graph and table are not intended to forecast the future performance of our stock and
may not be indicative of our future performance.
Stock Performance Graph
Holders
As of March 3, 2023, there were approximately nine holders of record of our common stock. The actual number of stockholders is greater than this
number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have not paid any cash dividends on our common stock since inception and do not anticipate paying cash dividends in the foreseeable future. In
addition, our loan and security agreement with Hercules Capital currently prohibits us from paying dividends on our equity securities, and any future debt
agreements may likewise preclude us from paying dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources.”
Recent Sales of Unregistered Securities
We did not make any sales of unregistered securities during the quarter ended December 31, 2022.
There were no repurchases of shares of common stock made during the quarter ended December 31, 2022.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of financial condition and results of operations together with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and
projections. Our actual results could differ materially from those discussed in these forward-looking statements. Important factors that could cause or
contribute to such differences include, but are not limited to, those discussed in “Summary Risk Factors” and Part I and Item 1A. “Risk Factors” of this
Annual Report on Form 10-K.
A discussion regarding our financial condition and results of operations for the years ended December 31, 2022 and 2021, including a year-to-year
comparison between 2022 and 2021, is presented below. For a discussion regarding our financial condition and results of operations for the year ended
December 31, 2020, including a year-to-year comparison between 2021 and 2020, refer to Part II, Item 7. "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on
March 1, 2022.
Overview
We are a microbiome therapeutics company developing a novel class of biological drugs, which are designed to treat disease by modulating the
microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state. We have an advanced drug pipeline with clinical
assets that are formulated for oral delivery and a differentiated microbiome therapeutics drug discovery and development platform including good
manufacturing practices, or GMP, manufacturing capabilities for this novel drug modality.
Our highest priority is preparing for potential commercialization of SER-109, an investigational oral microbiome therapeutic in development for
recurrent Clostridioides difficile infection, or CDI. In October 2022, the FDA accepted for review our BLA for SER-109. The BLA has been granted
Priority Review designation with a Prescription Drug User Fee Act, or PDUFA, target action date of April 26, 2023. If approved by the FDA, we plan to
launch SER-109 with our collaborator, Nestlé Health Science, soon after approval.
We are also designing microbiome therapeutics to decolonize pathogens and modulate host function to reduce and prevent infections. We believe
that the scientific and clinical data from our SER-109 program validate this novel approach, which we refer to as Infection Protection. We believe the
Infection Protection approach may be replicable across different bacterial pathogens to develop microbiome therapeutics with the potential to protect a
range of medically compromised patients from infections. We are evaluating SER-155 in a Phase 1b study in patients receiving allogeneic hematopoietic
stem cell transplantation, or allo-HSCT, to reduce incidences of gastrointestinal infections, bloodstream infections and graft-versus-host disease, or GvHD.
In December 2022, the study’s Data and Safety Monitoring Board reviewed available clinical data for cohort 1 and cleared advancement to cohort 2. In
February 2023, we announced the initiation of enrollment in cohort 2. We plan to announce initial safety and pharmacological data, including drug bacterial
species engraftment from cohort 1, in May 2023. We are also progressing additional preclinical stage programs to evaluate how microbiome therapeutics
may reduce incidence of infection in indications such as cancer neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant
infections more broadly in settings of high-risk such as intensive care units, or ICUs.
We continue our research activities in ulcerative colitis, or UC, including evaluating the potential to utilize biomarker-based patient selection and
stratification for future studies. In addition, we continue to leverage microbiome pharmacokinetic and pharmacodynamic data from across our clinical and
preclinical portfolios, using our reverse translational microbiome therapeutics development platform to conduct research on various indications, including
inflammatory and immune diseases, cancer, and metabolic diseases.
We have built and deploy a reverse translational platform for the discovery and development of microbiome therapeutics. This platform incorporates
high-resolution analysis of human clinical data to identify microbiome biomarkers associated with disease and non-disease states; preclinical screening
using human cell-based assays and in vitro/ex vivo and in vivo disease models customized for microbiome therapeutics; and microbiological capabilities
and a strain library that spans broad biological and functional breadth to both identify specific microbes and microbial metabolites that are associated with
disease and to design consortia of bacteria with specific pharmacological properties.
Since our inception in October 2010, we have devoted substantially all of our resources to developing our programs, platforms, and technologies,
building our intellectual property portfolio, developing our supply chain, business planning, raising capital and providing general and administrative
support for these operations.
Many of our product candidates are still in preclinical development or early-stage discovery. Our ability to generate product revenue or collaboration
profit sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product
candidates. Since our inception, we have incurred significant operating losses. Our net loss was $250.2 million for the year ended December 31, 2022 and
as of December 31, 2022, we had an accumulated deficit of $864.5 million.
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While we plan to focus our investment on our highest priority clinical programs in the near-term, our expenses may increase substantially in
connection with our ongoing and planned activities, particularly as we:
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complete the clinical development, seek regulatory approval, and prepare for commercialization of SER-109 for patients with recurrent CDI;
continue the clinical development of SER-155 to reduce incidences of gastrointestinal infections, bloodstream infections and GvHD in
patients receiving allo-HSCT;
continue evaluating preclinical stage programs to reduce incidence of infection, in indications such as cancer neutropenia, chronic liver
disease, solid organ transplant, and antimicrobial resistant infections more broadly;
continue translational research activities, informed by the SER-287 Phase 2b and SER-301 Phase 1b study data, to evaluate the potential to
utilize biomarker-based patient selection and stratification in future clinical development efforts;
make strategic investments in our research discovery and development platforms and capabilities, to advance our priority programs;
make strategic investments in manufacturing capabilities;
maintain and augment our intellectual property portfolio and opportunistically acquire complementary intellectual property;
potentially establish a sales and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which
we may obtain regulatory approval;
perform our obligations under our agreements with our collaborators;
seek to obtain regulatory approvals for our product candidates; and
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues
or other regulatory challenges.
In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to
product manufacturing, marketing, sales and distribution. Furthermore, we expect to continue to incur additional costs associated with operating as a public
company.
As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from
product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may
include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. For example, the trading
prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of factors such as the impacts of the COVID-19
pandemic, the continued increase in inflation, and rising interest rates. As a result, we may face difficulties raising capital through sales of our common
stock and any such sales may be on unfavorable terms. Our inability to raise capital as and when needed would have a negative impact on our financial
condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.
As of December 31, 2022, we had cash, cash equivalents and short- and long-term investments totaling $181.3 million. Based on our currently
available cash resources and our current level of operations and cash flows for the 12-month period subsequent to the date of issuance of the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K we will require additional funding in early 2024. In accordance with
applicable accounting standards, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our
ability to continue as a going concern within 12 months after the date of the issuance of the consolidated financial statements included elsewhere in this
Annual Report on Form 10-K. In performing this analysis, we excluded certain elements of our operating plan that cannot be considered probable of
occurring. Under the applicable accounting standards, the receipt of potential funding from future equity or debt issuances, and certain contingent payments
associated with the approval of our BLA for SER-109, which is currently under priority review by the FDA, cannot be considered probable, as these events
are outside our control. These contingent payments include a $125.0 million milestone payment from Nestlé pursuant to the 2021 License Agreement, and
a $25.0 million tranche under our New Credit Facility with Hercules, which becomes available upon the satisfaction of certain conditions, including FDA
approval of SER-109. Accordingly, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for
12 months from the date the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, are issued. See “Risk Factors—
Risks Related to Our Financial Position and Need for Additional Capital —We have identified conditions and events that raise substantial doubt regarding
our ability to continue as a going concern.”
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SER-109
SER-109 is an oral microbiome therapeutic candidate consisting of a consortium of purified Firmicutes spores. The SER-109 manufacturing
purification process is designed to remove unwanted microbes in an effort to reduce the risk of pathogen transmission beyond donor screening alone. SER-
109 is designed to reduce recurrent CDI in patients with a history of CDI by modulating the microbiome to a state that resists C. difficile germination and
growth. SER-109, if approved, is intended to treat individuals with recurrent CDI, a patient population that is estimated to include approximately 156,000
cases in the United States during 2023.
The Phase 3 ECOSPOR III study was a multicenter, randomized, placebo-controlled study that enrolled 182 patients with multiply recurrent CDI.
All patients who entered ECOSPOR III must have tested positive for C. difficile toxin. This inclusion criterion was implemented in an effort to ensure
enrollment of only patients with active infection rather than simple colonization. The study was designed to evaluate patients for 24 weeks, with the
primary endpoint comparing the C. difficile recurrence rate in subjects who received SER-109 verses placebo at up to eight weeks after dosing.
ECOSPOR III data demonstrated that the study achieved its primary endpoint where SER-109 was superior to placebo in reducing CDI recurrence
at eight weeks, reflecting a recurrence-free rate of approximately 88% at eight weeks post-treatment. SER-109 resulted in a 27% absolute reduction of
recurrence of CDI compared to placebo at eight weeks post-treatment, which is a relative risk reduction of 68%. The number-needed-to treat was 3.6. The
rate of recurrence at 12 weeks in the SER-109 arm was 18.0%, compared to a rate of 46.2% in the placebo arm, representing an absolute risk reduction of
28% (relative risk 0.40; 95% CI 0.24-0.65; p <0.001 and p< 0.002 for the test sequence), and thereby consistent with the results seen at eight weeks.
Results across stratifications of age and antibiotics remained similar. The study’s efficacy results related to the primary endpoint from all analyses exceeded
the statistical threshold previously provided in consultation with the FDA that could allow this single clinical study to fulfill efficacy requirements for a
BLA. The efficacy results remained durable through 24 weeks of follow-up, as SER-109 was observed to significantly reduced recurrence rates compared
to placebo over 24 weeks, 21.3% vs. 47.3%, respectively. These data were published in the New England Journal of Medicine in January 2022 and in the
Journal of the American Medical Association in October 2022.
In November 2021, we initiated a SER-109 expanded access program across the United States. The program is designed to enable eligible adults
with recurrent CDI to obtain access to SER-109 prior to a potential FDA product approval.
In June 2022, we announced confirmatory results from the ECOSPOR IV open-label study. The overall safety profile observed in ECOSPOR IV
through 24 weeks indicated that SER-109 was well tolerated, consistent with the safety profile observed in the prior completed Phase 3 study, ECOSPOR
III. In ECOSPOR IV, subjects treated with SER-109 had a recurrence rate of 8.7% at eight weeks, which indicates a 91.3% recurrence-free rate, consistent
with the 88% rate observed in the ECOSPOR III study. Subjects with a first recurrence of CDI (29% of subjects in the ECOSPOR IV study) had a CDI
recurrence rate of 6.5%, and subjects with ≥ two prior CDI episodes (ECOSPOR III inclusion criteria) had a CDI recurrence rate of 9.7% at eight weeks. At
24 weeks, 13.7% of all subjects treated with SER-109 had a recurrence of CDI. In addition to data from the ECOSPOR III study, the ECOSPOR IV data
was included as part of the rolling submission of the BLA to the FDA.
In October 2022, the FDA accepted for review our BLA for SER-109. The BLA has been granted Priority Review designation with a PDUFA target
action date of April 26, 2023. If approved by the FDA, we plan to launch SER-109 with our collaborator, Nestlé Health Science, soon after approval.
In addition, we plan on initiating a Phase 3 trial in the European Union, or EU, in order to expand access to the EU market upon potential approval.
SER-155
SER-155, an oral microbiome therapeutic candidate consisting of a consortium of cultivated bacteria, is designed to decrease infection and
translocation of antibiotic resistant bacteria in the gastrointestinal tract and modulate host immune responses to decrease GvHD. The rationale for this
program is based in part on published clinical evidence from our collaborators at Memorial Sloan Kettering Cancer Center showing that allo-HSCT patients
with decreased diversity of commensal microbes are significantly more likely to die due to infection and/or lethal GvHD. SER-155 was designed using our
reverse translational discovery platform to reduce incidences of gastrointestinal infections, bloodstream infections and GvHD in patients receiving allo-
HSCT. The SER-155 Phase 1b study is designed to include approximately 70 patients in both an open-label and a randomized, double-blind, placebo-
controlled cohort that will evaluate safety and tolerability before and after HSCT. Additionally, the engraftment of SER-155 bacteria (a measure of
pharmacokinetics) and the efficacy of SER-155 in preventing infections and GvHD will be evaluated. In December 2022, the study’s Data and Safety
Monitoring Board reviewed available clinical data for cohort 1 and cleared advancement to cohort 2. In February 2023, we announced the initiation of
enrollment in cohort 2. We plan to announce initial safety and pharmacological data, including drug bacterial species engraftment from cohort 1, in May
2023. The study is being conducted at a number of leading cancer centers across the U.S.
Irritable Bowel Disease, Ulcerative Colitis, SER-287 and SER-301
We continue our research activities in irritable bowel disease, or IBD, including evaluating the potential to utilize biomarker-based patient selection
and stratification in future clinical studies in UC. UC patient populations are generally heterogeneous in their
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disease manifestation, and we believe biomarker-based strategies may enable targeting more homogeneous patient populations in future studies.
In July 2021, we announced topline results from our SER-287 Phase 2b study in mild-to-moderate UC patients, which did not meet its primary
endpoint of improving clinical remission rates compared to placebo. Following the data readout, in December 2021, we completed preliminary
microbiome drug pharmacology analyses that demonstrated the engraftment of SER-287 bacterial species, however, unlike the Phase 1b study, anticipated
changes in disease-relevant metabolites post-administration with SER-287 in the Phase 2b study were not observed to the same extent across the patients
treated in the Phase 1b study.
In addition, we have completed preliminary analysis of data from the first cohort of our SER-301 Phase 1b study in mild-to moderate UC patients,
which included 15 subjects. Evaluation of the first cohort data by an independent Data Safety Monitoring Board indicated that it would be safe to proceed
to the placebo-controlled second cohort. While efficacy was not a defined endpoint in the first cohort, evaluation of clinical outcome data collected as part
of the study indicated that no subjects in the first cohort achieved clinical remission as defined by the FDA using the Three-Component Modified Mayo
Score after 10 weeks of treatment, though there were improvements in one or more individual components (endoscopic, stool frequency and rectal bleeding
subscores) in some patients. SER-301 was optimized relative to SER-287 to incorporate bacterial strains that engrafted across the majority of patients in
our previous trials, and strains that were significantly associated with positive clinical outcomes and the modulation of key microbial-associated
metabolites. In the Phase 1b study, strains in SER-301 were observed to engraft in subjects across the trial period, and based on the assessment of
metabolomic data, SER-301 demonstrated pharmacological properties consistent with its design and further led to baseline-dependent modulation of the
metabolic landscape in the gastrointestinal tract of patients treated. In April 2022, we announced our decision not to proceed with the planned SER-301
Phase 1b second study cohort. In aggregate, our clinical and preclinical data suggest that there are IBD patient populations that may be more amenable to
microbiome therapeutic intervention, and we continue to conduct analyses of data from our UC clinical stage programs and conduct preclinical studies to
inform next steps for further development in UC and IBD more broadly.
Patent Portfolio
Intellectual Property
We have an extensive patent portfolio directed to rationally designed ecologies of spores and microbes. The portfolio includes both company-owned
patents and applications, and those that we have rights to as licensee. For example, our portfolio includes an option to license foundational intellectual
property related to the use of bacteria in combination with checkpoint inhibitors from MD Anderson. The patents and applications included in our portfolio
cover both composition of matter and methods (e.g., method of treating). Our intellectual property rights related to SER-109, SER-155, SER-287 and SER-
301 extend through 2034. We plan on continuing to broaden our patent portfolio. Currently, we have 24 active patent application families, which includes
22 nationalized applications and two pending at the PCT stage. To date, we have obtained 24 issued U.S. patents and one U.S. patent application has been
currently allowed.
Regulatory Exclusivity
If we obtain marketing approval for any of our product candidates, we expect to receive marketing exclusivity against biosimilar products. For a
new biological composition approved by the FDA, a 12-year period of exclusivity in the United States may be obtained. In Europe, the European
Medicines Agency awards 10 years of exclusivity for new molecular entities.
Revenue
Financial Operations Overview
To date we have not generated any revenues from the sale of products. Our revenues have been derived primarily from our agreements with our
collaborators. See “—Liquidity and Capital Resources.”
Operating Expenses
Our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the
development of our product candidates, which include:
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expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical
activities and clinical trials on our behalf as well as contract manufacturing organizations that manufacture drug products for use in our
preclinical and clinical trials;
salaries, benefits and other related costs, including stock-based compensation expense, for personnel in our research and development
functions;
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costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
the cost of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
costs related to compliance with regulatory requirements; and
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other
operating costs.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to
completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on
the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or
accrued research and development expenses.
Our primary focus of research and development since inception has been on our reverse translational microbiome therapeutics platform and the
subsequent development of our product candidates. Our direct research and development expenses are tracked on a program-by-program basis and consist
primarily of external costs, such as fees paid to investigators, consultants, CROs in connection with our preclinical studies and clinical trials, lab supplies
and consumables, and regulatory fees. We do not allocate employee-related costs and other indirect costs to specific research and development programs
because these costs are deployed across multiple product programs under development.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have
higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
We expect that our research and development expenses will continue to increase in the near future as we scale up manufacturing operations, support the
BLA review process by the FDA, and prepare for commercialization of SER-109, however in the event of approval of our BLA for SER-109, we expect the
potential decline in research and development expenses related to SER-109 as the majority of commercial manufacturing costs will be capitalized. We
expect to continue to discover and develop additional product candidates, including SER-155, and pursue later stages of clinical development of our
product candidates. We also expect to continue conducting analyses of data from our UC clinical stage programs to inform next steps for further
development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our
executive, finance, commercial, business development and administrative functions. General and administrative expenses also include professional service
fees for marketing and market access activities in preparation for the commercial launch of SER-109; legal fees relating to patent and corporate matters;
professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct
depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we increase our headcount and expand our infrastructure to
support the potential growth in our research and development activities and the potential commercialization of our product candidates, and as we conduct
pre-launch activities to prepare for commercialization of SER-109. We also may continue to incur increased expenses associated with being a public
company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange
listing rules and the requirements of the Securities and Exchange Commission, director and officer insurance costs and investor and public relations costs.
Collaboration (Profit) Loss Sharing - related party
Collaboration (profit) loss sharing – related party includes 50% sharing of the profit or loss related to the pre-launch activities and
commercialization activities associated with the 2021 License Agreement with Nestlé as discussed in Note 11 to our consolidated financial statements.
Other (Expense) Income, Net
Interest Income, Net
Interest income consists of interest earned on our cash, cash equivalents and investments.
Interest Expense
Interest expense consists of interest incurred under our loan and security agreement with Hercules.
Other (Expense) Income
Other (expense) income primarily consists of amortization of premiums on investments, amortization of debt issuance costs, and sublease income.
73
Income Taxes
Since our inception in 2010, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or
our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2022, we had federal
and state net operating loss carryforwards of $501.8 million and $481.9 million, respectively, both of which begin to expire in 2035. As of December 31,
2022, we also had federal and state research and development tax credit carryforwards of $42.1 million and $8.5 million, respectively, net of uncertain tax
position reserves, which begin to expire in 2031 and 2028, respectively. The federal research and development tax credits include an orphan drug credit
carryforward of $25.6 million.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles, or GAAP, in the United States. The
preparation of our consolidated financial statements and related disclosures requires the application of appropriate technical accounting rules and guidance,
as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in
and of themselves, could materially impact the consolidated financial statements and disclosures based on varying assumptions. We believe that the
estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial
statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual
results may differ from these estimates under different assumptions and conditions.
Revenue Recognition
We recognize revenue in accordance with the guidance under ASC 606, Revenue from Contracts with Customers. ASC 606 applies to all contracts
with customers, except those contracts that are within the scope of other guidance, such as leases, insurance, and financial instruments. We enter into
agreements that are within the scope of ASC 606, under which we license certain of our product candidates and perform research and development services
in connection with such arrangements. The terms of these arrangements typically include payment of one or more of the following: nonrefundable up-front
fees, reimbursement of research and development costs, development, clinical, regulatory and commercial sales milestone payments, and royalties on net
sales of licensed products. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that
reflects the consideration which we expect to receive in exchange for those goods or services. When determining the timing and extent of revenue
recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:
(i)
(ii)
(iii)
(iv)
(v)
identify the contract(s) with a customer;
identify the performance obligation(s) in the contract;
determine the transaction price;
allocate the transaction price to the performance obligation(s) in the contract; and
recognize revenue when (or as) the entity satisfies a performance obligation.
We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the
goods or services transferred to our customer.
At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the
contract to determine whether each promised good or service is a performance obligation. The promised goods or services in our arrangements typically
consist of a license to our intellectual property and/or research and development services. We may provide options to additional items in such
arrangements, which are accounted for as separate contracts when our customer elects to exercise such options, unless the option provides a material right
to our customer. Performance obligations are promises in a contract to transfer a distinct good or service to our customer that (i) our customer can benefit
from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services
that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meets
the requirements of a performance obligation.
We determine transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the
contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, we
estimate the probability and extent of consideration we expect to receive under the contract utilizing either the most likely amount method or expected
amount method, whichever best estimates the amount expected to be received. We then consider any constraints on the variable consideration and include
in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
We then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognize as revenue the
amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to our customer and the
performance obligation is satisfied. For performance obligations which consist of licenses and
74
other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance
obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress
each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
We record amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such
consideration is unconditionally due, from our customer prior to transferring goods or services to our customer under the terms of a contract, a contract
liability is recorded for deferred revenue.
We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between
payment by our customer and the transfer of the promised goods or services to our customer will be one year or less. Incremental costs of obtaining a
contract are expensed as and when incurred if the expected period over which we would have amortized the asset is one year or less, or the amount is
immaterial.
Collaboration Revenue
Arrangements with collaborators may include licenses to intellectual property, research and development services, manufacturing services for
clinical and commercial supply, and participation on joint steering committees. We evaluate the promised goods or services to determine which promises,
or group of promises, represent performance obligations. In contemplation of whether a promised good or service meets the criteria required of a
performance obligation, we consider the stage of development of the underlying intellectual property, the capabilities and expertise of our customer relative
to the underlying intellectual property, and whether the promised goods or services are integral to or dependent on other promises in the contract. When
accounting for an arrangement that contains multiple performance obligations, we must develop judgmental assumptions, which may include market
conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success to determine the stand-alone selling
price for each performance obligation identified in the contract.
When we conclude that a contract should be accounted for as a combined performance obligation and recognized over time, we must then determine
the period over which revenue should be recognized and the method by which to measure revenue. We generally recognize revenue using a cost-based
input method.
Licenses of Intellectual Property
If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we
recognize revenue allocated to the license when the license is transferred to our customer and our customer is able to use and benefit from the license. For
licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of
recognizing revenue associated with the bundled performance obligation. We evaluate the measure of progress each reporting period and, if necessary,
adjust the measure of progress and related revenue recognition.
Milestone Payments
At the inception of each arrangement that includes developmental and regulatory milestone payments, we evaluate whether the achievement of each
milestone specifically relates to our efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the
achievement of a milestone is considered a direct result of our efforts to satisfy a performance obligation or transfer a distinct good or service and the
receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service, otherwise
it will be allocated to all performance obligations of the arrangement based on the initial allocation.
We evaluate each milestone to determine when and how much of the milestone to include in the transaction price. We first estimate the amount of
the milestone payment that we could receive using either the expected value or the most likely amount approach. We primarily use the most likely amount
approach as that approach is generally most predictive for milestone payments with a binary outcome. Then, we consider whether any portion of that
estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would
not occur upon resolution of the uncertainty). We update the estimate of variable consideration included in the transaction price at each reporting date
which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and
circumstances.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the
predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation
to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any revenue related to
sales-based royalties or milestone payments based on the level of sales.
75
Manufacturing Supply Services
For arrangements that include a promise of supply of clinical or commercial product, we determine if the supply is a promise in the contract or a
future obligation at our customer’s option. If determined to be a promise at inception of the contract, we evaluate the promise to determine whether it is a
separate performance obligation or a component of a bundled performance obligation. If determined to be an option, we determine if the option provides a
material right to our customer and if so, account for the option as a separate performance obligation. If determined to be an option but not a material right,
we account for the option as a separate contract when our customer elects to exercise the option.
Application of the above guidance requires significant judgment and requires us to make determinations based on the facts and circumstances under
each arrangement.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development
expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been
performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been
invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined
schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each
balance sheet date in our financial statements based on facts and circumstances known to us at that time, which include information from our CROs and
CMOs reported to us on a periodic basis. Examples of estimated accrued research and development expenses include fees paid to:
•
•
•
•
CROs in connection with performing research services on our behalf and clinical trials;
investigative sites or other providers in connection with clinical trials;
vendors in connection with preclinical and clinical development activities; and
vendors related to product manufacturing, development and distribution of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to
quotes and contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to
negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will
exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as
the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which
services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of
the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do
not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative
to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.
To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
76
Comparison of the Years Ended December 31, 2022 and 2021
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021.
Results of Operations
Revenue:
Collaboration revenue - related party
Grant revenue
Total revenue
Operating expenses:
Research and development
General and administrative
Collaboration (profit) loss sharing - related party
Total operating expenses
Loss from operations
Other (expense) income:
Interest income
Interest expense
Other (expense) income
Total other expense, net
Net loss
Revenue
Year Ended
December 31,
2022
2021
(in thousands)
Change
$
7,128 $
—
7,128
143,857 $
1,070
144,927
(136,729 )
(1,070 )
(137,799 )
172,920
79,694
1,004
253,618
(246,490 )
3,058
(6,020 )
(705 )
(3,667 )
(250,157 ) $
141,891
69,261
(1,732 )
209,420
(64,493 )
2,870
(2,910 )
(1,045 )
(1,085 )
(65,578 ) $
31,029
10,433
2,736
44,198
(181,997 )
188
(3,110 )
340
(2,582 )
(184,579 )
$
Total revenue was $7.1 million and $144.9 million for the years ended December 31, 2022 and 2021, respectively. The decrease in total revenue of
$137.8 million was primarily due to the collaboration revenue that was recognized during the year ended December 31, 2021 upon on the transfer of
control of the license by the Company to Nestlé, pursuant to the 2021 License Agreement. In addition, the decrease was partially driven by a $7.4 million
decrease in collaboration revenue attributable to the services performed pursuant to the 2016 License Agreement, partially offset by an increase of $2.0
million attributable to the services performed pursuant to the 2021 License Agreement. Revenue for the year ended December 31, 2021 also included $1.1
million of grant revenue related to our CARB-X grant for SER-155, from which we will receive no additional funding.
Research and Development Expenses
Microbiome therapeutics platform
SER-109
SER-287
Early stage programs
Total direct research and development expenses
Personnel-related (including stock-based compensation)
Total research and development expenses
Year Ended
December 31,
2022
2021
(in thousands)
Change
36,142 $
48,649
1,715
6,828
93,334
79,586
172,920 $
34,784 $
40,510
9,881
4,953
90,128
51,763
141,891 $
1,358
8,139
(8,166 )
1,875
3,206
27,823
31,029
$
$
Research and development expenses were $172.9 million for the year ended December 31, 2022, compared to $141.9 million for the year ended
December 31, 2021. The increase of $31.0 million was due primarily to the following:
•
•
an increase in personnel-related costs of $27.8 million primarily due to an increase of $24.5 million in salaries, bonus, payroll taxes and
employee benefits expenses as well as a $3.3 million increase in stock-based compensation expense;
an increase of $8.1 million in expenses related to our SER-109 program, due primarily to an increase of $8.7 million in lab supplies and
consumables, and facility-related costs, primarily from the opening of both the new donor collection facility in Tempe and the quality control
lab in Waltham, as we advance development and scale SER-109 manufacturing to prepare for commercialization. The total increase is also
attributable to an increase of $1.2 million in other manufacturing
77
costs, and an increase of $0.8 million in professional fees, partially offset by a decrease in clinical trial costs of $1.9 million, and analytical
testing of $0.7 million;
an increase of $1.9 million in expenses of our early stage programs primarily driven by an increase of $1.5 million in external consulting
expenses, lab supplies and consumables of $0.3 million, and professional fees of $0.1 million;
an increase of $1.4 million in research expenses related to our reverse translational microbiome therapeutics platform due primarily to an
increase of $1.6 million in lab supplies and consumables and $2.1 million in analytical testing, offset by a decrease of $1.6 million in
professional fees and $0.7 million in clinical trials costs; partially offset by
a decrease of $8.2 million in expenses of our SER-287 program primarily driven by a decrease of $7.2 million in clinical trial costs and $1.2
million in analytical testing, offset by an increase of $0.3 million in materials storage costs.
•
•
•
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have
higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
We expect that our research and development expenses will continue to increase in the near future as we scale up manufacturing operations, support the
BLA review process by the FDA, and prepare for commercialization of SER-109, however in the event of approval of our BLA for SER-109, we expect the
potential decline in research and development expenses related to SER-109 as the majority of commercial manufacturing costs will be capitalized. We
expect to continue to discover and develop additional product candidates, including SER-155, and pursue later stages of clinical development of our
product candidates. We also expect to continue conducting analyses of data from our UC clinical stage programs to inform next steps for further
development.
General and Administrative Expenses
Personnel-related (including stock-based compensation)
Professional fees
Facility-related and other
Total general and administrative expenses
Year Ended
December 31,
2022
2021
(in thousands)
Change
$
$
31,277 $
32,260
16,157
79,694 $
23,933 $
33,754
11,574
69,261 $
7,344
(1,494 )
4,583
10,433
General and administrative expenses were $79.7 million for the year ended December 31, 2022, compared to $69.3 million for the year ended
December 31, 2021. The increase of $10.4 million was primarily due to the following:
•
•
•
an increase in personnel-related costs of $7.3 million, due to an increase of $5.3 million in salaries, bonus, payroll taxes and employee benefit
expenses, and a $2.0 million increase in stock-based compensation expense; and
an increase in facility-related and other costs of $4.6 million due primarily to increases in licenses, computer expenses and office supplies of
$5.4 million, offset by a decrease in information technology costs of $0.9 million; partially offset by
a decrease in professional fees of $1.5 million primarily due to a $2.0 million decrease in consulting and recruiting fees, offset by a $0.5
million increase in legal expenses.
Collaboration (Profit) Loss Sharing - related party
Collaboration (profit) loss sharing – related party was $1.0 million of expense for the year ended December 31, 2022, compared to $1.7 million of
income for the year ended December 31, 2021. For the year ended December 31, 2022 we incurred $15.1 million of pre-launch expenses which we
recorded within research and development expense or general and administrative expense based on the nature of the underlying expense, and our
collaborative partner incurred $17.1 million of pre-launch expenses. Pre-launch expenses incurred by us and our collaborative partners increased from $5.6
million and $2.1 million, respectively, for the year ended December 31, 2021, due to 2022 being the first full year of the agreement. The $1.0 million of
expense and $1.7 million of income recorded for the years ended December 31, 2022 and 2021, respectively, represent the sharing of 50% of the pre-launch
expenses. These amounts represent expense to us in 2022 because our collaborative partner performed more of the pre-launch activities than we, and
income to us in 2021 because we performed more of the pre-launch activities than our collaborative partner.
Other (Expense) Income, Net
Other (expense) income, net was $3.7 million of expense for the year ended December 31, 2022 compared to $1.1 million of expense for the year
ended December 31, 2021. This increase was primarily driven by the increase in interest expense on the New Credit Facility, as a result of the increased
outstanding balance and increasing interest rate throughout the year ended December 31, 2022.
78
Liquidity and Capital Resources
Since our inception, we have generated revenue only from collaborations and have incurred recurring net losses. We anticipate that we will
continue to incur losses for at least the next several years. Our research and development and general and administrative expenses may continue to increase
and, as a result, we will need additional capital to fund our operations, which we may obtain from additional financings, public offerings, research funding,
additional collaborations, contract and grant revenue or other sources.
In November 2019, we entered into a common stock sales agreement, or the 2019 Sales Agreement, with Cowen to sell shares of our common stock
with aggregate gross sales proceeds of up to $25.0 million, from time to time, through an "at the market" equity offering program, or ATM, under which
Cowen acts as sales agent. In March 2020, in connection with filing an updated registration statement on Form S-3 (File No. 333-237033), we entered into
a new common stock sales agreement, or the 2020 Sales Agreement, with Cowen on substantially the same terms as the 2019 Sales Agreement and
terminated the 2019 Sales Agreement. In May 2021, we entered into a new common stock sales agreement, or the 2021 Sales Agreement, with Cowen to
sell shares of our common stock with aggregate gross sales proceeds of up to $150.0 million, from time to time, through an ATM under which Cowen acts
as sales agent, and terminated the 2020 Sales Agreement. During the year ended December 31, 2022, we sold approximately 655 thousand shares of
common stock under the 2021 Sales Agreement, at an average price of approximately $7.26 per share, raising aggregate net proceeds of approximately $4.4
million after deducting an aggregate commission of approximately 3%. During the year ended December 31, 2021, we did not sell any shares of common
stock under the 2020 Sales Agreement or the 2021 Sales Agreement. During the year ended December 31, 2020, we sold approximately 5.8 million shares
of common stock under the 2019 Sales Agreement and the 2020 Sales Agreement, as applicable, at an average price of approximately $4.40 per share,
raising aggregate net proceeds of approximately $24.8 million after deducting an aggregate commission of approximately 3%.
On June 29, 2022, we entered into securities purchase agreements with new and existing investors and certain directors and officers in a registered
direct offering, or the Registered Direct Offering, of an aggregate of 31,746,030 shares of our common stock at a purchase price of $3.15 per share for total
net proceeds of approximately $96.7 million, after deducting placement agent’s fees and other estimated offering expenses. Net proceeds included an
aggregate of $27.5 million received from Flagship Pioneering Fund VII, L.P. and Nutritional Health LTP Fund, L.P., affiliates of Flagship Pioneering, or
Flagship, one of our significant stockholders, in exchange for 8,738,243 shares. The closing date of the Registered Direct Offering was July 5, 2022.
As of December 31, 2022, we had cash, cash equivalents and short- and long-term investments totaling $181.3 million and an accumulated deficit of
$864.5 million. For the year ended December 31, 2022, we incurred a net loss of $250.2 million, and used cash in operations of $228.8 million. We expect
that our operating losses and negative cash flows will continue for the foreseeable future. We are eligible to receive contingent milestone payments under
the 2021 License Agreement if certain development, regulatory approval or sales target milestones are achieved. In the event of the approval of our BLA
for SER-109, which is currently under priority review by the FDA, we will receive an additional $125.0 million payment from Nestlé pursuant to the 2021
License Agreement (see Note 11, Collaboration Revenue, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-
K), and become eligible to receive a $25.0 million tranche under our New Credit Facility with Hercules, which becomes available upon the satisfaction of
certain conditions, including FDA approval of SER-109. Additionally, following approval, we will be eligible to receive payments from Nestlé for the
supply of SER-109. Following first commercial sale of SER-109, we will be entitled to share equally in its commercial profits and losses.
Under applicable accounting standards, we have the responsibility to evaluate whether conditions or events raise substantial doubt about our ability
to meet our future financial obligations as they become due within 12 months after the date the consolidated financial statements are issued. The receipt of
certain contingent payments associated with the FDA approval of our BLA for SER-109, which include the $125.0 million milestone payment from Nestlé
and the $25.0 million tranche under our New Credit Facility with Hercules, cannot be considered probable, as these events are outside of our control. Based
on its currently available cash resources, we believe it is reasonably likely that we will require additional funding in early 2024. Accordingly, management
has concluded that these circumstances raise substantial doubt about our ability to continue as a going concern. Substantial doubt about our ability to
continue as a going concern may materially and adversely affect the price per share of our common stock, and it may be more difficult for us to obtain
financing. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns,
our ability to increase our cash position may be limited. We will need to generate significant revenues to achieve profitability, and we may never do so.
Because of the numerous risks and uncertainties associated with the development of our current and any future product candidates, the development of our
platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product
candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses required for completing the research and
development of our product candidates.
Collaboration and Manufacturing Agreements
License Agreement with Société des Produits Nestlé S.A. (Nestlé)
In January 2016, we entered into the 2016 License Agreement with Nestec, Ltd., as succeeded by Société des Produits Nestlé S.A., or, together with
NHSc Rx License GmbH, their affiliates, and their subsidiaries, Nestlé, for the development and commercialization of certain of our product candidates in
development for the treatment and management of CDI and IBD, including
79
UC and Crohn’s disease. In exchange for the license, Nestlé agreed to pay us an upfront cash payment of $120.0 million, which we received in February
2016. Nestlé has also agreed to pay us tiered royalties, at percentages ranging from the high single digits to high teens, of net sales of certain products
based on our microbiome technology that are being developed for the treatment of CDI and IBD, including SER-109, SER-262, SER-287 and SER-301, or
collectively, the 2016 Collaboration Products, in markets outside of the United States and Canada, or the 2016 Licensed Territory. We are eligible to receive
up to $285.0 million in development milestone payments, $375.0 million in regulatory payments and up to an aggregate of $1.1 billion for the achievement
of certain commercial milestones related to the sales of 2016 Collaboration Products. The full potential value of the up-front payment and milestone
payments payable by Nestlé is over $1.9 billion, assuming all products receive regulatory approval and are successfully commercialized. In September
2016, we received a $10.0 million milestone payment associated with the initiation of the Phase 1b clinical study for SER-262 in CDI. In June 2017, we
initiated a Phase 3 clinical study of SER-109 (ECOSPOR III) in patients with multiply recurrent CDI. In July 2017, we received $20.0 million based on the
achievement of this milestone under the 2016 License Agreement. In November 2018, we executed a letter agreement with Nestlé, or the Letter Agreement,
modifying certain terms of the 2016 License Agreement. Under the Letter Agreement, Nestlé agreed to pay us the $20.0 million Phase 3 milestone payment
upon commencement of the Phase 2b study for SER-287. In December 2018, we received $40.0 million in milestone payments in connection with the
commencement of the Phase 2b study for SER-287. In August 2020, we received $10.0 million from Nestlé in connection with the initiation of the Phase
1b SER-301 study. To date, we have received $80.0 million in development milestones under the 2016 License Agreement with Nestlé.
For the development of 2016 Collaboration Products for IBD under a global development plan, we agreed to pay the costs of clinical trials of such
products up to and including Phase 2 clinical trials, and 67% of the costs for Phase 3 and other clinical trials of such products, with Nestlé bearing the
remaining 33% of such costs. The Letter Agreement also provides scenarios under which Nestlé’s reimbursement to us for certain Phase 3 development
costs would be reduced or delayed depending on the outcomes of the SER-287 Phase 2b study. For other clinical development of 2016 Collaboration
Products for IBD, we agreed to pay the costs of such activities to support approval in the United States and Canada, and Nestlé agreed to bear the cost of
such activities to support approval of 2016 Collaboration Products in the 2016 Licensed Territory.
With respect to development of 2016 Collaboration Products for CDI under a global development plan, we agreed to pay all costs of Phase 2 clinical
trials for SER-109 and for Phase 3 clinical trials for SER-109. We agreed to bear all costs of conducting any Phase 1 or Phase 2 clinical trials under a global
development plan for 2016 Collaboration Products other than SER-109 for CDI. We agreed to pay 67% and Nestlé agreed to pay 33% of other costs of
Phase 3 clinical trials conducted for 2016 Collaboration Products other than SER-109 for CDI under a global development plan. For other clinical
development of 2016 Collaboration Products for CDI, we agreed to pay costs of such development activities to support approval in the United States and
Canada, and Nestlé agreed to bear the cost of such activities to support approval of 2016 Collaboration Products in the 2016 Licensed Territory.
The 2016 License Agreement continues in effect until terminated by either party on the following bases: (i) Nestlé may terminate the 2016 License
Agreement in the event of serious safety issues related to any of the 2016 Collaboration Products; (ii) we may terminate the 2016 License Agreement if
Nestlé challenges the validity or enforceability of any of our licensed patents; and (iii) either party may terminate the 2016 License Agreement in the event
of the other party’s uncured material breach or insolvency. Upon termination of the 2016 License Agreement, all licenses granted to Nestlé by us will
terminate, and all rights in and to the 2016 Collaboration Products in the 2016 Licensed Territory will revert to us. If we commit a material breach of the
2016 License Agreement, Nestlé may elect not to terminate the 2016 License Agreement but instead apply specified adjustments to its payment obligations
and other terms and conditions of the 2016 License Agreement.
License Agreement with NHSc Rx License GmbH (Nestlé)
On July 1, 2021, we entered into a License Agreement, or the 2021 License Agreement, with NHSc Pharma Partners, succeeded by NHSc Rx
License GmbH, or, together with Société des Produits Nestlé S.A., their affiliates, and their subsidiaries, Nestlé. Pursuant to the 2021 License Agreement,
we granted to Nestlé, under certain of our patent rights and know how, a co-exclusive, sublicensable (under certain circumstances) license to develop,
commercialize and conduct medical affairs activities for (i) therapeutic products based on our microbiome technology (including our SER-109 product
candidate) that are developed by us or on our behalf for the treatment of CDI and recurrent CDI, as well as any other indications pursued for the products
upon mutual agreement of the parties, or the 2021 Field, in the United States and Canada, or the 2021 Licensed Territory, and (ii) our SER-109 product
candidate and any improvements and modifications thereto developed pursuant to the terms of the 2021 License Agreement, or the 2021 Collaboration
Products, for any indications in the 2021 Licensed Territory.
The 2021 License Agreement sets forth the parties’ respective obligations for development, regulatory, commercialization, medical affairs, and
manufacturing and supply activities for the 2021 Collaboration Products with respect to the 2021 Field and the 2021 Licensed Territory. Pursuant to the
2021 License Agreement, we are responsible for, and will use commercially reasonable efforts in, conducting development of SER-109 in the 2021 Field in
the United States until first regulatory approval for SER-109 is obtained in the 2021 Field in the United States and in accordance with a development and
regulatory activity plan, at our cost, subject to certain exceptions specified in the 2021 License Agreement. We are also responsible for all regulatory
affairs related to 2021 Collaboration Products in the 2021 Field in the 2021 Licensed Territory, at its cost, except that expenses incurred for regulatory
activities approved by a joint steering committee pursuant to a life cycle management plan for 2021 Collaboration Products are shared
80
equally between the parties. We will be solely responsible for manufacturing and supplying 2021 Collaboration Products for development in the 2021
Field in the 2021 Licensed Territory.
Nestlé has the sole right to commercialize the 2021 Collaboration Products in the 2021 Licensed Territory in accordance with a commercialization
plan, subject to our right to elect to provide up to a specified percentage of all promotional details for a certain target audience. Each party will use
commercially reasonable efforts to commercialize the 2021 Collaboration Products in the 2021 Licensed Territory in accordance with the
commercialization plan. Both parties will perform medical affairs activities for 2021 Collaboration Products in the 2021 Licensed Territory in accordance
with a medical affairs plan. We will be solely responsible for the manufacturing and supply of 2021 Collaboration Products for commercialization under a
supply agreement that will be entered into between the parties. We are responsible for commercialization and medical affairs activities costs incurred by
the parties until first commercial sale of the first 2021 Collaboration Product in the 2021 Licensed Territory and in accordance with a pre-launch plan, up to
a specified cap. Following first commercial sale of the first 2021 Collaboration Product, we will be entitled to share equally in its commercial profits and
losses.
In exchange for the grant of the licenses under the 2021 License Agreement, Nestlé agreed to pay us a non-refundable, non-creditable and non-
cancelable upfront payment of $175.0 million, which was received in July 2021. Nestlé also agreed to pay us an additional $125.0 million due upon FDA
approval of SER-109, $10.0 million upon Canadian regulatory approval of SER-109, and sales target milestones payments totaling up to $225.0 million.
The 2021 License Agreement continues in effect until all development and commercialization activities for all 2021 Collaboration Products in the
2021 Licensed Territory have permanently ceased. The 2021 License Agreement may be terminated by either party upon sixty days’ written notice for the
other party’s material breach that remains uncured during such sixty-day period, or immediately upon written notice for the other party’s insolvency. Nestlé
may also terminate the 2021 License Agreement at-will (i) with twelve months’ prior written notice, effective only on or after the third anniversary of first
commercial sale of the first 2021 Collaboration Product in the 2021 Licensed Territory, (ii) if first commercial sale of the first 2021 Collaboration Product
in the 2021 Licensed Territory has not occurred by the fifth anniversary of the effective date of the 2021 License Agreement, with one hundred eighty days’
prior written notice, which must be provided during a specified period set forth in the 2021 License Agreement, or (iii) if regulatory approval for SER-109
is not granted after submission by us of a filing seeking first regulatory approval as set forth in the development and regulatory activity plan, and the parties
fail to agree on further development of SER-109 in accordance with the terms of the 2021 License Agreement, with one hundred eighty days’ prior written
notice, which must be provided within a specified period set forth in the 2021 License Agreement. We may also terminate the 2021 License Agreement
immediately upon written notice if Nestlé challenges any licensed patent in the 2021 Licensed Territory.
Upon termination of the 2021 License Agreement, all licenses granted to Nestlé by us will terminate. If we commit a material breach of the 2021
License Agreement, Nestlé may elect not to terminate the 2021 License Agreement but instead apply specified adjustments to the payment terms and other
terms and conditions of the 2021 License Agreement. The 2021 License Agreement contains customary representations and warranties by the parties,
intellectual property provisions including ownership, patent prosecution, enforcement and defense, certain indemnification rights in favor of each party, and
customary confidentiality provisions and limitations of liability.
Long Term Manufacturing Agreement with Bacthera
In November 2021, we entered into a Long Term Manufacturing Agreement with BacThera AG, or Bacthera, a joint venture between Chr. Hansen
and a Lonza Group affiliate, which was amended on December 14, 2022, or the Bacthera Agreement. The Bacthera Agreement governs the general terms
under which Bacthera, or one of its affiliates, will (i) construct a dedicated full-scale production suite for us at Bacthera’s Microbiome Center of Excellence
in Visp, Switzerland, which is currently under construction; and (ii) provide manufacturing services to us for our SER-109 product and other products, as
agreed to by the parties.
Under the terms of the Bacthera Agreement, we agreed to pay Bacthera a total of at least 256 million CHF (or approximately $277 million) for the
initial term of the agreement, inclusive of the construction fees and annual operating fees. Bacthera is funding the majority of the construction costs and
will own and control the manufacturing suite during construction. The construction fees that we are responsible for represent a small percentage of the
overall construction costs and are payable upon the achievement of certain milestones related to the construction of the dedicated manufacturing suite. The
annual operating fee includes the cost of a baseline annual batch production volume. We have also agreed to pay certain other ancillary fees and a per-
batch fee in excess of the baseline batches. These fees are subject to adjustment during construction for certain items outside of Bacthera’s control and
annually against an agreed index. We will supply the active pharmaceutical ingredients to Bacthera to enable it to perform the services and pay for certain
other raw materials and manufacturing components, which will be acquired by Bacthera.
The Bacthera Agreement has an initial term that continues until the tenth anniversary of the earlier of (a) successful completion of construction and
demonstration of Bacthera’s readiness for commercial production or (b) the commencement of manufacturing. The initial term is subject to renewals, which
could extend the term to 16 years, and additional three-year terms thereafter. Each party has the ability to terminate the Bacthera Agreement upon the
occurrence of certain customary conditions. We may also terminate the Bacthera Agreement for convenience after a defined period. In the event of a
termination, we have certain financial obligations that would apply, and Bacthera has agreed to grant a license to Bacthera-developed manufacturing know
how, if any, and provide technical
81
assistance to us, so that we could transfer the manufacturing operations to ourselves or a third party. The Bacthera Agreement also contains
representations, warranties and indemnity obligations as well as limitations of liability that are customary for agreements of this type.
Indebtedness
Loan and Security Agreement with Hercules
In October 2019, we entered into a loan and security agreement with Hercules Capital, Inc., or Hercules, pursuant to which a term loan in an
aggregate principal amount of up to $50.0 million, or the Original Credit Facility, was available to us in three tranches, subject to certain terms and
conditions. We received the first tranche of $25.0 million upon signing the agreement on October 29, 2019, but did not borrow either of the second two
tranches, which were available at different times upon Hercules’ approval until June 30, 2021.
On April 16, 2020, we entered into an amendment to the Loan Agreement, or the First Amendment, permitting us to enter into a promissory note
under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Stability Act. On April 17, 2020 we issued a Promissory Note to
Bank of America, NA, or the Loan, pursuant to which we received loan proceeds of $2.9 million, however, based on updated guidance related to this
program, we decided to repay the full amount of the Loan, and repaid the Loan on May 4, 2020.
Effective as of February 24, 2022, or the Effective Date, we entered into a Second Amendment to the Original Credit Facility (as amended by the
First Amendment), or the New Credit Facility, pursuant to which term loans in an aggregate principal amount of up to $100.0 million have become
available to us in five tranches including the first tranche under the Original Credit Facility, subject to certain terms and conditions.
The first tranche in an aggregate principal amount of $25.0 million was outstanding as of the Effective Date, after taking into account reborrowing
by us on the Effective Date of a previously-repaid principal amount of approximately $2.9 million. The second tranche in an aggregate principal amount of
$12.5 million and the third tranche in an aggregate principal amount of $12.5 million have been advanced to us and were outstanding as of the Effective
Date. The fourth tranche in an aggregate principal amount of $25.0 million is available upon satisfaction of certain conditions, including the approval by
the FDA of a biologics license application in respect of SER-109, or the Regulatory Approval Milestone, by no later than December 15, 2023. The fifth
tranche in an aggregate principal amount of up to $25.0 million is available through the Amortization Date (as defined below) upon satisfaction of certain
conditions, including the Lenders’ investment committee approval.
All advances outstanding under the New Credit Facility bear interest at a rate equal to the greater of either (i) the Prime Rate (as reported in The
Wall Street Journal) plus 6.40%, and (ii) 9.65%. For all advances outstanding under the New Credit Facility, we will make interest only payments through
December 31, 2023, extendable to December 31, 2024 upon satisfaction of certain conditions, such applicable date, the Amortization Date. The principal
balance and interest of the advances will be repaid in equal monthly installments after the Amortization Date and continuing through October 1, 2024,
extendable to October 1, 2025, upon satisfaction of certain conditions, such applicable date, the Maturity Date.
We may prepay advances under the New Credit Facility, in whole or in part, at any time subject to a prepayment charge equal to: (a) 2.0% of
amounts so prepaid, if such prepayment occurs during the first year following the Effective Date; (b) 1.5% of the amount so prepaid, if such prepayment
occurs during the second year following the Effective Date, and (c) 1.0% of the amount so prepaid, if such prepayment occurs during the third year
following the Effective Date.
We will pay an end of term charge of 4.85% of the aggregate amount of the advances made under the Old Credit Facility on the earliest date of (i)
November 1, 2023; (ii) the date that we prepay all of the outstanding principal in full, or (iii) the date the loan payments are accelerated due to an event of
default. We will pay an additional end of term charge of 1.75% of the aggregate amount of the advances under the New Credit Facility (including the first
tranche of $25.0 million) on the earliest date of (i) the Maturity Date; (ii) the date that we prepay all of the outstanding principal in full, or (iii) the date the
loan payments are accelerated due to an event of default.
Other terms of the New Credit Facility remain generally identical to those under the Old Credit Facility, with certain covenants amended by the
Second Amendment to provide us with additional operational flexibility, including the ability for us to issue up to $350.0 million in convertible notes. The
New Credit Facility includes a conditional liquidity covenant commencing on June 15, 2023, which ceases to apply if certain conditions including the
Regulatory Approval Milestone are satisfied.
The New Credit Facility is secured by substantially all of our assets, other than our intellectual property. We have agreed to not pledge or secure our
intellectual property to others.
As of December 31, 2022 and 2021, the outstanding principal under the New Credit Facility was $50.0 million and $24.1 million, respectively. For
a further description of the New Credit Facility, see Note 8 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-
K.
82
Cash Flows
The following table summarizes our sources and uses of cash, cash equivalents and restricted cash for the years ended December 31, 2022 and 2021.
Cash (used in) provided by operating activities
Cash provided by investing activities
Cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Operating Activities
Year Ended December 31,
2022
2021
(in thousands)
$
$
$
$
(228,816 ) $
$
82,428
129,602
$
(16,786 ) $
6,688
64,088
1,178
71,954
During the year ended December 31, 2022, net cash used in operating activities was $228.8 million, primarily due to net loss of $250.2 million and
changes in our operating assets and liabilities of $18.4 million, partially offset by non-cash charges of $39.7 million. Non-cash charges consisted of $25.5
million of stock-based compensation expense, $5.2 million related to the amortization of right-of-use assets, $6.6 million of depreciation, $1.4 million of
net amortization of premiums related to our investments and amortization of debt issuance costs, and collaboration loss sharing of $1.0 million related to
the 2021 License Agreement with Nestlé. Changes in our operating assets and liabilities during the year ended December 31, 2022 primarily consisted of a
$12.6 million increase in prepaid expenses and other current and non-current assets, a $7.1 million decrease in deferred revenue and a $4.2 million decrease
in operating lease liabilities, partially offset by a $3.3 million increase in accrued expenses and other liabilities and a $2.2 million increase in accounts
payable. The increase in prepaid expenses and other current and non-current assets was primarily due to the remittance of the second milestone payment
pursuant to the Bacthera Agreement. The decrease in deferred revenue is due to recognition of revenue during the year for services performed under both
the 2021 License Agreement and the 2016 License Agreement. The decrease in operating lease liabilities was due to the cash payment of lease obligations.
During the year ended December 31, 2021, net cash provided by operating activities was $6.7 million, primarily due to changes in our operating
assets and liabilities of $41.5 million and non-cash charges of $30.7 million, partially offset by a net loss of $65.6 million. Non-cash charges consisted
primarily of $20.2 million of stock-based compensation expense, $3.3 million related to the amortization of right-of-use assets, $5.9 million of
depreciation, and $2.5 million of net amortization of premiums related to our investments, partially offset by collaboration profit sharing of $1.7 million
related to the 2021 License Agreement with Nestlé. Changes in our operating assets and liabilities during the year ended December 31, 2021 primarily
consisted of a $43.0 million increase in accrued expenses and other liabilities, a $9.4 million increase in accounts payable and a $9.4 million decrease in
accounts receivable, partially offset by a $12.3 million increase in prepaid expenses and other current and non-current assets, a $4.4 million decrease in
deferred revenue and a $3.6 million decrease in operating lease liabilities. The increase in accrued expenses and other current and long-term liabilities was
primarily due to the liability established for pre-launch activities in conjunction with the 2021 License Agreement with Nestlé. The decrease in deferred
revenue is due to recognition of revenue during the year, partially offset by an increase of $8.2 million, which represents the portion of the transaction price
for the 2021 License Agreement allocated to the research and development services. The decrease in operating lease liabilities was due to the cash payment
of lease obligations.
Investing Activities
During the year ended December 31, 2022, net cash provided by investing activities was $82.4 million, primarily due to maturities of investments of
$140.5 million, partially offset by purchases of investments of $48.2 million and purchases of property and equipment of $9.8 million.
During the year ended December 31, 2021, net cash provided by investing activities was $64.1 million, primarily due to maturities of investments of
$169.6 million, partially offset by purchases of investments of $96.0 million and purchases of property and equipment of $9.6 million.
Financing Activities
During the year ended December 31, 2022, net cash provided by financing activities was $129.6 million, consisting of $96.7 million of net proceeds
received from the Registered Direct Offering that we completed in July 2022, $27.6 million of proceeds received from the New Credit Facility, and $4.4
million from the issuance of common stock via our at the market equity program, net of issuance costs. We also received $1.0 million from the issuance of
common stock associated with the exercise of stock options and $1.8 million in connection with the issuance of common stock under our 2015 Employee
Stock Purchase Plan, or ESPP. These cash inflows were partially offset by principal payments under the Original Credit Facility of $1.9 million.
During the year ended December 31, 2021, net cash provided by financing activities was $1.2 million. This was a result of $1.3 million from the
exercise of stock options and $0.8 million from the issuance of common stock under the ESPP, partially offset by $0.9 million of principal payments
relating to our term loan.
83
Funding Requirements
Our expenses may increase substantially in connection with our ongoing clinical development activities and our research and development activities.
In addition, we expect to continue to incur additional costs associated with operating as a public company. We anticipate that our expenses will increase
substantially if and as we:
•
•
•
•
•
•
•
•
•
•
•
complete the clinical development, seek regulatory approval, and prepare for commercialization of SER-109 for patients with recurrent CDI;
continue the clinical development of SER-155 to reduce incidences of gastrointestinal infections, bloodstream infections and GvHD in
patients receiving allo-HSCT;
continue evaluating preclinical stage programs to reduce incidence of infection, in indications such as cancer neutropenia, chronic liver
disease, solid organ transplant, and antimicrobial resistant infections more broadly;
continue translational research activities, informed by the SER-287 Phase 2b and SER-301 Phase 1b study data, to evaluate the potential to
utilize biomarker-based patient selection and stratification in future clinical development efforts;
make strategic investments in our research discovery and development platforms and capabilities to advance our priority programs;
make strategic investments in manufacturing capabilities;
maintain and augment our intellectual property portfolio and opportunistically acquire complementary intellectual property;
potentially establish a sales and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which
we may obtain regulatory approval;
perform our obligations under our agreements with our collaborators;
seek to obtain regulatory approvals for our product candidates; and
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues
or other regulatory challenges.
Because of the numerous risks and uncertainties associated with the development of our product candidates, we are unable to estimate the amounts
of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital
requirements will depend on many factors, including:
•
•
•
•
•
•
•
•
•
•
the impact of the COVID-19 pandemic, including any resurgence or the emergence of new variants;
the impact of continued increase in inflation rates or interest rates;
the progress and results of our clinical studies and preclinical development;
the cost of manufacturing our product candidates;
the costs, timing and outcome of regulatory review of our product candidates and research activities;
the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product
candidates for which we receive marketing approval;
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and
defending any intellectual property-related claims;
the effect of competing technological and market developments; and
the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration
arrangements for product candidates.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process
that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In
addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of
products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to
achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. Additionally, market volatility resulting from macroeconomic
conditions, the COVID-19 pandemic, or other factors could also adversely impact our ability to access capital as
84
and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders’ ownership
interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our shareholders’ rights as
common stockholders. Our loan and security agreement with Hercules currently includes, and any additional debt financing and preferred equity financing,
if available, may involve agreements that include, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends. Additional debt or preferred equity financing may also require the issuance of warrants, which could
potentially dilute our shareholders’ ownership interest.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, in addition to our existing
collaboration agreements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates
or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we
may be required to delay, limit, reduce or terminate our product development programs or any future commercialization efforts or grant rights to develop
and market product candidates that we would otherwise prefer to develop and market ourselves.
As noted above, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain
as of the filing date of this Annual Report on Form 10-K as this continues to evolve globally. See “Risk Factors—Risks Related to Our Operations—The
COVID-19 pandemic has adversely impacted and could continue to adversely impact, our business, including our preclinical studies and clinical trials,
results of operations and financial condition” in Part I, Item 1A of this Annual Report on Form 10-K for a further discussion of the possible impact of the
COVID-19 pandemic on our business.
As discussed in Note 1 of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we have the responsibility
to evaluate whether conditions or events raise substantial doubt about our ability to meet our future financial obligations as they become due within 12
months after the date the consolidated financial statements are issued. The receipt of potential funding from future equity or debt issuances and certain
contingent payments associated with the FDA approval of our BLA for SER-109, which is currently under priority review by the FDA, which include the
potential to receive a $125.0 million milestone payment from Nestlé pursuant to the 2021 License Agreement, and a $25.0 million tranche under our New
Credit Facility with Hercules, cannot be considered probable, as these events are outside of our control. Based on our currently available cash resources and
our current level of operations and cash flow analysis for the 12-month period subsequent to the date of issuance of the consolidated financial statements,
we believe it is reasonably likely that it will require additional funding in early 2024. Accordingly, management has concluded that these circumstances
raise substantial doubt about our ability to continue as a going concern.
We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods.
Such arrangements include those related to our lease commitments, long-term debt, and long-term manufacturing agreements.
Contractual Obligations and Commitments
Lease Commitments
Our lease commitments reflect payments due under our operating lease agreements for our corporate headquarters, office and laboratory space, and
donor collection facilities, that expire between May 2028 and April 2033. As of December 31, 2022, our contractual commitments for our leases were
$187.2 million, of which $16.8 million is expected to be paid within one year, and $170.5 million will be paid over the remaining term of such leases. Our
lease commitments also include $5.5 million for leases that had not yet commenced as of December 31, 2022. For additional information on our leases and
timing of future payments, please read Note 7, Leases, to the consolidated financial statements included in this Form 10-K.
Loan Agreement
Our commitments due for our term loan under our arrangement with Hercules total $7.0 million in interest-only payments through January 1, 2024,
and a backend fee of $1.2 million due in November 2023. Our remaining commitments are due through October 2024, and include principal and interest
payments of $53.3 million, and an additional fee upon maturity of the loan of $0.9 million. The interest rate in effect at December 31, 2022 was 13.40%.
See Note 8, Notes Payable, to the consolidated financial statements for further discussion of the Hercules term loan.
Bacthera Long Term Manufacturing Agreement
Our commitments due under our long-term manufacturing agreement with Bacthera, inclusive of construction fees and annual operating fees, total
$263.1 million, of which $65.5 million in construction fees are expected to be paid within one year, and the remaining $197.6 million in operating fees will
be paid over the remaining 10 years, beginning in 2024 upon completion of the construction of the facility.
Other Obligations
85
We enter into contracts in the normal course of business with CROs for clinical trials, preclinical research studies and testing, manufacturing and
other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-
cancelable obligations under these agreements are not material.
For a discussion of recent accounting standards see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements
Recently Issued and Adopted Accounting Pronouncements
included in this report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates.
Interest Rate Fluctuation Risk
As of December 31, 2022, our cash and cash equivalents consisted of cash and money market accounts. Our interest income is sensitive to changes
in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, an immediate 10% change in
market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of
operations.
As of December 31, 2022, we had outstanding borrowings under the New Credit Facility. We accrue interest at a rate equal to the greater of either
(i) the Prime Rate (as reported in The Wall Street Journal) plus 6.40%, and (ii) 9.65%. An immediate 10% change in the Prime Rate would not have a
material impact on our debt‑related obligations, financial position or results of operations
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in
Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible
controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of
the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer has
concluded that as of December 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in
Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in
“Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K on page F-1.
86
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
87
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Director Biographical Information
Name
Age
Position
Dennis A. Ausiello, M.D. (3)(4)
Grégory Behar (3)
Stephen Berenson (3)
Paul R. Biondi (2)
Willard H. Dere, M.D. (4)
Claire M. Fraser, Ph.D. (1)(4)
Kurt C. Graves (2)
Richard N. Kender (1)(2)
Eric D. Shaff
Meryl S. Zausner (1)(2)
77
53
62
53
69
67
55
67
47
66
Director
Director
Chairman of the Board of Directors
Director
Director
Director
Director
Director
President, Chief Executive Officer and Director
Director
(1)
(2)
(3)
(4)
Member of the audit committee.
Member of the compensation and talent committee.
Member of the nominating and corporate governance committee.
Member of the science and clinical development committee.
Dennis A. Ausiello, M.D. has served as a member of our board of directors since April 2015. Dr. Ausiello has served as the Jackson Distinguished Professor
of Clinical Medicine at Harvard Medical School and Director, Emeritus of Harvard Medical School’s M.D./Ph.D. Program since 1996, Chair of Medicine,
Emeritus, and Director of the Center for Assessment Technology and Continuous Health (CATCH) at Massachusetts General Hospital, which he co-
founded, since 2012, and Physician-in-Chief Emeritus at Massachusetts General Hospital since 2013. From 1996 to April 2013, Dr. Ausiello served as the
Chief of Medicine at Massachusetts General Hospital. Dr. Ausiello is a member of the Institute of Medicine of the National Academy of Sciences and a
fellow of the American Academy of Arts and Sciences. Dr. Ausiello has served on the board of directors of Alnylam Pharmaceuticals since April 2012 and
previously served on the board of directors of Pfizer Inc. from 2006 to 2020, where he currently serves on the advisory board since 2019. Dr. Ausiello also
serves on the boards of directors of numerous privately held companies. Dr. Ausiello received a B.A. in Biochemistry from Harvard College and an M.D.
from the University of Pennsylvania. We believe that Dr. Ausiello is qualified to serve on our board of directors because of his extensive experience as a
physician and as a director of pharmaceutical companies.
Grégory Behar has served as a member of our board of directors since December 2014. Mr. Behar has served as Chief Executive Officer of Nestlé Health
Science, a business unit of Société des Produits Nestlé S.A., a health sciences company, since July 2014. From August 2011 to May 2014, Mr. Behar was
President and Chief Executive Officer of Boehringer Ingelheim Pharmaceuticals Inc. (USA), a pharmaceutical company. From 2010 to July 2011, Mr.
Behar was Corporate Vice President Region NECAR (North European Union, Canada and Australasia) for Boehringer-Ingelheim GmbH, a pharmaceutical
company. Mr. Behar has served on the boards of directors of Nestlé Health Science since July 2014, Axcella Health, Inc. since February 2016 and Sonova
AG since April 2021 and previously served on the board of directors of Aimmune Therapeutics, Inc. from November 2016 until its acquisition in October
2020. Mr. Behar received his B.S. in Mechanical Engineering from the University of California, Los Angeles, an M.S. in Mechanical Engineering and
Manufacturing from EPFL in Switzerland and an M.B.A. from INSEAD in France. We believe that Mr. Behar is qualified to serve on our board of directors
because of his extensive business experience in the health sciences and pharmaceutical industries.
Stephen Berenson has served as Chairman of our board of directors since December 2019 and as a member of our board of directors since August 2019.
Mr. Berenson has been a Managing Partner at Flagship Pioneering, a life sciences innovation firm which conceives, creates, resources and develops first-in-
category life sciences companies, since June 2017. Prior to Flagship, Mr. Berenson spent 33 years in various roles as an investment banker at J.P. Morgan,
most recently serving in the role of Vice Chairman of Investment Banking from 2005 to April 2017, where he focused on providing high-touch strategic
advice and complex transaction execution to leading companies across all industries globally. He was co-founder of J.P. Morgan’s Global Strategic
Advisory Council and co-founder of the firm’s Board Initiative. Mr. Berenson has served as chairman of the board of directors of Cellarity, a privately held
company, since July 2021, and has served on the boards of directors of Moderna, Inc. since October 2017 and Repertoire Immune Medicines, a privately
held company, since May 2021. Mr. Berenson received an S.B. in Mathematics from the Massachusetts Institute of Technology. We believe that Mr.
Berenson is qualified to serve on our board of directors because of his extensive experience working with rapidly-growing companies across various
industries.
Paul R. Biondi has served as a member of our board of directors since March 2020. Mr. Biondi is an Executive Partner and President of Pioneering
Medicines at Flagship Pioneering, roles he has held since November 2019. Mr. Biondi joined Flagship Pioneering
88
following a seventeen-year tenure at Bristol-Myers Squibb, or BMS, a pharmaceutical company, where he was most recently the Senior Vice President of
Strategy and Business Development from October 2015 to November 2019. Prior to serving in the role of Senior Vice President of Strategy, from 2002 to
2015, Mr. Biondi held a series of other leadership roles within BMS’ Research and Development organization overseeing strategy, portfolio, and project
management, as well as clinical and business operations. Mr. Biondi holds a bachelor’s degree from Dartmouth College and an M.B.A. from the J.L.
Kellogg School of Management at Northwestern University. We believe that Mr. Biondi is qualified to serve on our board of directors because of his
extensive experience in biopharmaceutical strategy and corporate development.
Willard H. Dere, M.D. has served as a member our board of directors since July 2017. Dr. Dere has been Professor Emeritus, Department of Internal
Medicine, at the University of Utah School of Medicine since July 2022. Prior to retirement, and beginning in November 2014, Dr. Dere held multiple roles
at the University of Utah Health Sciences Center, including Associate Vice President for Research, Co-Director of the Utah Clinical and Translational
Science Institute, and Co-Director of the Center for Genomic Medicine. Prior to his professorship, from 2003 until 2014, Dr. Dere worked at Amgen, where
he was Senior Vice President and head of Global Development, and led development programs in multiple therapeutic areas. From 1989 to 2014, he
worked at Eli Lilly and led multiple development programs, and also worked in clinical pharmacology, regulatory affairs and safety. Dr. Dere has served
on the boards of directors of BioMarin Pharmaceutical, Inc. since 2016 and Mersana Therapeutics, Inc. since 2018, and previously served on the boards of
directors of Ocera Therapeutics and Radius Health. Dr. Dere received his B.A. in History and Zoology and M.D. from the University of California, Davis,
completed his internal medicine residency training at the University of Utah, and his postdoctoral training in endocrinology and metabolism at the
University of California, San Francisco. We believe Dr. Dere is qualified to serve on our board of directors due to his extensive academic experience and
his knowledge of the biotechnology industry.
Claire M. Fraser, Ph.D. has served as a member of our board of directors since January 2023. Since 2007, Dr. Fraser has been the director of the Institute
for Genome Sciences and a Professor of Medicine and Microbiology and Immunology at the University of Maryland School of Medicine in Baltimore,
Maryland. From 1998 to 2007, she served as president and director of The Institute for Genomic Research, a not-for-profit research organization engaged in
human and microbial genomics studies. Dr. Fraser has served on the board of directors of Becton, Dickinson, and Company since 2006, and previously
served as the Chair of the Board and a director of the American Association for the Advancement of Science. Dr. Fraser received her bachelor’s degree in
Biology from Rensselaer Polytechnic Institute and her Ph.D. in Pharmacology from State University of New York-Buffalo. We believe Dr. Fraser is
qualified to serve on our board of directors due to her extensive academic experience and her knowledge of the microbiome industry.
Kurt C. Graves has served as a member of our board of directors since November 2015. Mr. Graves has served as the Executive Chairman of i20
Therapeutics, Inc., a biotechnology company, since August 2021. Mr. Graves was previously the Chairman, President and Chief Executive Officer of
Intarcia Therapeutics, Inc., a biotechnology company, from September 2010 to December 2020 and on its board of directors from August 2010 to
December 2020. Previously, he served as Executive Vice President, Chief Commercial Officer and Head of Strategic Development at Vertex
Pharmaceuticals Inc., or Vertex, from July 2007 to October 2009. Prior to joining Vertex, Mr. Graves held various leadership positions at Novartis
Pharmaceuticals Corporation, or Novartis Corp., from 1999 to June 2007, including the Global General Medicines Business Unit Head and Chief
Marketing Officer for the pharmaceuticals division of Novartis Corp. from September 2003 to June 2007. He served on the boards directors of Radius
Health, Inc. from May 2011 to March 2020, and Achillion Pharmaceuticals, Inc. from June 2012 to January 2020. Mr. Graves received a B.S. in Biology
from Hillsdale College. We believe Mr. Graves is qualified to serve as a member of our board of directors because of his extensive experience in the life
sciences industry, membership on various boards of directors and his leadership and management experience.
Richard N. Kender has served as a member of our board of directors since October 2014. From October 1978 to September 2013, Mr. Kender held
positions in a variety of corporate areas at Merck & Co., Inc., or Merck, a pharmaceutical company, most recently serving as Senior Vice President of
Business Development and Corporate Licensing. Mr. Kender has served on the boards of directors of Poxel S.A. since March 2015 and Bicycle
Therapeutics PLC since July 2019. He previously served on the boards of directors of INC Research Holdings, Inc. between December 2014 and August
2017, Abide Therapeutics, Inc., a privately held company, between December 2015 and May 2019, and ReViral Ltd., a privately held company, from
November 2019 to June 2022. Mr. Kender received a B.S. in Accounting from Villanova University and an M.B.A. from Fairleigh Dickinson University.
We believe Mr. Kender is qualified to serve on our board of directors because of his finance experience and knowledge of the biotechnology industry.
Eric D. Shaff has served as our President and Chief Executive Officer and a member of our board of directors since January 2019. Previously, he served as
our Chief Operating and Financial Officer and Executive Vice President from January 2018 until January 2019 and as our Chief Financial Officer from
November 2014 until January 2019. From January 2012 to November 2014, Mr. Shaff was Vice President of Corporate Finance for Momenta
Pharmaceuticals, or Momenta, a biotechnology company, where he helped manage Momenta’s accounting, finance, planning, and procurement functions,
as well as contributing to Momenta’s investor relations efforts. Prior to Momenta, Mr. Shaff held a number of corporate development and finance positions
with Genzyme Corporation, a biotechnology company, most recently as Vice President of Finance/Controller for the Personalized Genetic Health division.
Mr. Shaff has served on the board of directors of Sigilon Therapeutics, Inc. since November 2017. Mr. Shaff received his B.A. from the University of
Pennsylvania and his M.B.A. from Cornell University. We believe Mr. Shaff is qualified to serve on our board of directors because of his extensive
business and finance experience and his knowledge of the biotechnology industry.
89
Meryl Zausner has served as a member of our board of directors since August 2018. Ms. Zausner worked for Novartis Pharmaceuticals, Inc., or Novartis, a
pharmaceutical company, from 1988 until her retirement in 2017, most recently serving as Chief Financial and Administrative Officer and a member of the
Pharmaceutical Executive Committee and Global Finance Leadership Team of Novartis in the United States. At Novartis, she helped launch the Oncology
Business Unit, as well as the company’s shared services organization. Prior to serving as Chief Financial and Administrative Officer, Ms. Zausner was a
member of the Novartis Global Oncology leadership team, where she contributed to the development and commercialization of therapies, including
Gleevec® (imatinib). Ms. Zausner previously served on the boards of directors of Goldfinch Bio, Inc., a privately held company, from February 2021 to
December 2022, the Multiple Myeloma Research Foundation from September 2009 to June 2021, and Neon Therapeutics, Inc. from December 2017 to
May 2020. Ms. Zausner received a B.S. in Accounting and Economics from the University at Albany, SUNY. We believe Ms. Zausner is qualified to serve
on our board of directors because of her finance and leadership experience and knowledge of the pharmaceutical industry.
Name
Eric D. Shaff
David Arkowitz
Paula A. Cloghessy
Thomas J. DesRosier
David S. Ege, Ph.D.
Matthew Henn, Ph.D.
Lisa von Moltke, M.D.
Teresa L. Young, Ph.D.
Information about our Executive Officers
Age
Position
47
61
52
68
48
48
64
56
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer and Head of Business
Development
Executive Vice President and Chief People Officer
Executive Vice President and Chief Legal Officer
Executive Vice President and Chief Technology Officer
Executive Vice President and Chief Scientific Officer
Executive Vice President and Chief Medical Officer
Executive Vice President, Chief Commercial and Strategy Officer
Information concerning Eric D. Shaff, our President and Chief Executive Officer, may be found above in the section entitled “Director Biographical
Information.”
David Arkowitz has served as our Executive Vice President, Chief Financial Officer and Head of Business Development since June 2021. Previously, he
served as the Chief Financial Officer of Flexion Therapeutics, Inc., a biotechnology company, from May 2018 to May 2021. From September 2013 to May
2018, Mr. Arkowitz served as Chief Operating Officer and Chief Financial Officer at Visterra, Inc., a biotechnology company that was acquired by Otsuka
Pharmaceutical Co. He also previously served as Chief Financial Officer at each of Mascoma Corporation, AMAG Pharmaceuticals Inc., and Idenix
Pharmaceuticals LLC and held additional leadership positions within each company. Preceding his tenure at Idenix, Mr. Arkowitz spent more than 13 years
at Merck & Co., Inc. where he held roles of increasing responsibility, including Vice President and Controller of the U.S. operations, Controller of the
global research and development division, and the Chief Financial Officer of Merck’s Canadian subsidiary. Mr. Arkowitz has served on the boards of
directors of F-star Therapeutics, Inc. since November 2020 and Kineta, Inc. since December 2022, and previously served on the boards of directors of
Yumanity Therapeutics, Inc., Spring Bank Pharmaceuticals, Inc. and Proteostasis Therapeutics, Inc. He obtained his B.A. in mathematics at Brandeis
University and his M.B.A. in finance at Columbia University Business School.
Paula A. Cloghessy has served as our Executive Vice President and Chief People Officer since February 2022. Previously, Ms. Cloghessy served in roles of
increasing seniority at Translate Bio, Inc., or Translate Bio, a biotechnology company acquired by Sanofi S.A., or Sanofi, a global biopharmaceutical
company, from 2016 to December 2021, culminating in her role as Chief People Officer. In these roles, Ms. Cloghessy was responsible for leading human
resources and organizational development and performance. Prior to Translate Bio, Ms. Cloghessy held senior roles at Joule Unlimited Technologies, Inc.
and Interleukin Genetics, Inc. Ms. Cloghessy received her B.A. in Psychology from University of Massachusetts, Boston.
Thomas J. DesRosier has served as our Chief Legal Officer, Executive Vice President, and Secretary since May 2016. Previously, he served as Executive
Vice President, Chief Legal and Administrative Officer and Secretary of ARIAD Pharmaceuticals, Inc., a biopharmaceutical company, from 2015 to 2016,
Executive Vice President, Chief Legal and Administrative Officer and Secretary of Cubist Pharmaceuticals, Inc., or Cubist, a biopharmaceutical company,
from 2014 to 2015 and Senior Vice President, Chief Legal Officer and Secretary of Cubist from 2013 to 2014. Before that, Mr. DesRosier served as Senior
Vice President, General Counsel North America of Sanofi from 2011 to 2013. From 1999 to 2011, Mr. DesRosier held leadership roles of increasing
seniority within the legal group of Genzyme Corporation, a biotechnology company, culminating in his role as Senior Vice President, Chief Legal Officer.
Mr. DesRosier has served as a member of the board of directors of Avanir Pharmaceuticals, a privately held company and wholly-owned subsidiary of
Otsuka Pharmaceutical Company, Ltd., since June 2017. Mr. DesRosier earned a B.A. in Chemistry from the University of Vermont and a J.D. from Wake
Forest University School of Law.
David S. Ege, Ph.D. has served as our Executive Vice President and Chief Technology Officer since October 2020. Previously, Dr. Ege served in a variety
of technical and leadership roles in R&D and manufacturing at Merck from November 2003 to October 2020, most recently as global lead for digital
strategy in Merck’s Manufacturing Division from June 2019 to October 2020. From April 2015 to June 2019, Dr. Ege served as Executive Director of
Vaccines & Biologics Manufacturing at Merck’s plant in Elkton, Virginia,
90
where he led bulk manufacturing operations for Gardasil®, Gardasil9® and Cancidas®. He has contributed to the successful first-in-class licensure and
launch of cervical cancer vaccines, Gardasil® (2006) and Gardasil9® (2014), and a breakthrough cancer immunotherapy, Keytruda® (2014). He graduated
summa cum laude from Princeton with a B.S.E. in chemical engineering and earned his Ph.D. in chemical engineering from the University of
Pennsylvania.
Matthew Henn, Ph.D. has served as our Executive Vice President and Chief Scientific Officer since February 2019. Since joining our company at its launch
in June 2012, he has held positions of increasing seniority, most recently as Executive Vice President, Head of Discovery and Microbiome R&D from
January 2018 to February 2019, and previously as Senior Vice President, Head of Discovery and Bioinformatics from June 2012 to January 2018. Prior to
joining our company, he was the Director of Viral Genomics and Assistant Director of the Genome Sequencing Center for Infectious Diseases at the Broad
Institute of the Massachusetts Institute of Technology and Harvard. He currently serves on the scientific advisory boards of the Forsyth Institute and
Growcentia, Inc., an agricultural microbiome company. Dr. Henn earned his B.S. in Ecology and Evolutionary Sciences from the University of New
Hampshire and his Ph.D. in Ecosystem Sciences from the University of California at Berkeley, where he was a NASA Earth Systems Sciences Fellow, and
trained as a NSF Postdoctoral Fellow in Microbiology at Duke University.
Lisa von Moltke, M.D. has served as our Executive Vice President and Chief Medical Officer since March 2020. Previously, Dr. von Moltke worked for
Alkermes, Inc., a pharmaceutical company, from June 2015 to December 2019, where she served in roles of increasing seniority, culminating as Senior
Vice President and Head of Clinical Development. Beginning in June 2015, Dr. Moltke served as VP Clinical Pharmacology, DMPK and Bioanalytics, was
promoted to Head of Clinical Development in November 2015, and became SVP in June 2018. Prior to joining Alkermes, Dr. von Moltke served as Vice
President Clinical Pharmacology at Sanofi/Genzyme Corporation, a biotechnology company, from 2009 to 2015 and was US Head Clinical & Exploratory
Pharmacology Sciences (CEP) and Early Development. Starting in 2014 she was Head CEP for Japan and China regions. From 2006 to 2009, Dr. von
Moltke was Head, Translational Medicine for the Takeda Oncology Company, a biopharmaceutical company, in Cambridge, MA. Dr. von Moltke has
served on the board of directors of Cara Therapeutics, Inc. since November 2022. She has served as President of the American College of Clinical
Pharmacology, and as the Editor-in-Chief of The Journal of Clinical Pharmacology. Dr. von Moltke earned a B.A. degree at Wellesley College and her
M.D. from Michigan State University, College of Human Medicine.
Teresa L. Young, Ph.D. has served as our Executive Vice President, Chief Commercial and Strategy Officer since June 2020. Previously, Dr. Young served
as Vice President, Global Commercial Strategy at Sage Therapeutics from March 2018 to June 2020, where she led development of Sage’s global
commercial capabilities, including global marketing, insights and analytics and new product planning. Prior to that, she held commercial leadership roles of
increasing responsibility at Bristol-Myers Squibb from November 2010 to March 2018, culminating in her role as Vice President and General Manager,
Cardiovascular, in which she led the global ELIQUIS® business to become the company’s largest product by revenue. Earlier in her career, Dr. Young held
marketing and sales roles at GlaxoSmithKline from June 1993 to November 2010, where she catalyzed growth for the company’s Urology, Diabetes and
NeuroHealth organizations. Dr. Young is a member of the Women in Bio and Healthcare Businesswomen’s Association and served on the Advisory Board
of the Healthcare Businesswomen’s Association. Dr. Young received her B.S. in pharmacy and her Ph.D. in healthcare marketing from the University of
South Carolina.
Code of Ethics
Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees, which is available on
our website at www.serestherapeutics.com in the “Investors and News” section under “Corporate Governance.” We intend to satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics, as well as
Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information on our website at the address and
location specified in the preceding sentence. The information contained on our website is not incorporated by reference into this Annual Report on Form
10-K.
The remainder of the information required to be disclosed by this item will be contained in the Proxy Statement for our Annual Meeting of
Stockholders to be held in 2023 and is incorporated herein by reference.
Other
91
Item 11. Executive Compensation
The information required to be disclosed by this item will be contained in the Proxy Statement for our Annual Meeting of Stockholders to be held in
2023 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be disclosed by this item will be contained in the Proxy Statement for our Annual Meeting of Stockholders to be held in
2023 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required to be disclosed by this item will be contained in the Proxy Statement for our Annual Meeting of Stockholders to be held in
2023 and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required to be disclosed by this item will be contained in the Proxy Statement for our Annual Meeting of Stockholders to be held in
2023 and is incorporated herein by reference.
92
Item 15. Exhibits and Financial Statements Schedules
(a)(1) Financial Statements.
PART IV
See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part of this report.
(a)(2) Financial Statement Schedules.
All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements
or Notes thereto set forth below beginning on page F-1.
(a)(3) Exhibits.
The following is a list of all exhibits filed as a part of this Annual Report on Form 10-K.
Filed/
Furnished
Herewith
*
*
*
Exhibit
Number
3.1
3.2
4.1
4.2
10.1#
10.2#
10.3#
10.4#
10.5#
10.6
10.7
10.8
10.9#
10.10#
10.11#
10.12#
10.13#
Exhibit Description
Form
File No.
Exhibit
Incorporated by Reference
Restated Certificate of Incorporation
Amended and Restated Bylaws
8-K
8-K
001-37465
001-37465
Specimen Stock Certificate evidencing the shares of common
stock
S-1/A
333-204484
Description of Capital Stock
10-K
001-37465
2015 Incentive Award Plan, as amended and forms of award
agreements thereunder
3.1
3.2
4.2
4.2
Filing
Date
7/1/15
12/7/20
6/16/15
3/2/21
2015 Employee Stock Purchase Plan
S-1/A
333-204484
2012 Stock Incentive Plan, as amended and form of option
agreement thereunder
S-1
333-204484
10.3
10.1
6/16/15
5/27/15
2022 Employment Inducement Award Plan and forms of award
agreements thereunder
Non-Employee Director Compensation Program
Lease Agreement, dated April 1, 2015, by and between the
Registrant and ARE-MA Region No. 38, LLC
S-1
333-204484
10.13
5/27/15
Lease, dated November 11, 2015, by and between the Registrant
and BMR-Sidney Research Campus, LLC
10-K
001-37465
10.13
3/14/16
First Amendment to Lease, dated December 9, 2022, by and
between Registrant and BMR-Sidney Research Campus, LLC
(f/k/a BMR 200-Sidney Street LLC)
Second Amended and Restated Employment Agreement, dated
January 29, 2021, by and between the Registrant and Eric D.
Shaff
Amended and Restated Employment Agreement, dated January
29, 2021 by and between the Registrant and Thomas J.
DesRosier
Second Amended and Restated Employment Agreement, dated
January 29, 2021, by and between the Registrant and Matthew
R. Henn, Ph.D.
Amended and Restated Employment Agreement, dated January
29, 2021, by and between the Registrant and David S. Ege,
Ph.D.
8-K
001-37465
10.1
12/14/22
8-K
001-37465
10.1
2/1/21
8-K
001-37465
10.2
2/1/21
8-K
001-37465
10.3
2/1/21
10-Q
001-37465
10.2
8/3/21
Letter Agreement, dated November 4, 2021, by and between the
Registrant and David S. Ege, Ph.D.
10-Q
001-37465
10.2
11/10/21
93
10.14#
10.15#
Amended and Restated Employment Agreement, dated January
29, 2021, by and between the Registrant and Teresa L. Young
Amended and Restated Employment Agreement, dated January
29, 2021, by and between the Registrant and Lisa von Moltke,
M.D.
10-K
001-37465
10.13
3/2/21
10-K
001-37465
10.14
3/2/21
10.16#
Employment Agreement, dated May 10, 2021 by and between
8-K
001-37465
10.1
5/20/21
the Registrant and David Arkowitz
10.17#
Employment Agreement, dated January 5, 2022, by and
10-K
001-37465
10.16
3/1/22
between the Registrant and Paula Cloghessy
10.18
10.19
10.20
10.21^
10.22
10.23^
10.24
Loan and Security Agreement, dated October 29, 2019, between
the Registrant and Hercules Capital, Inc.
8-K
001-37465
10.1
11/4/19
First Amendment to Loan and Security Agreement by and
between the Registrant and Hercules Capital, Inc., dated April
16, 2020
Second Amendment to Loan and Security Agreement, dated
February 24, 2022 by and between the Registrant and Hercules
Capital, Inc.
Collaboration and License Agreement, dated January 9, 2016,
by and between the Registrant and Société des Produits Nestlé
S.A.
Amendment No. 1 to the Collaboration and License Agreement,
dated August 10, 2016, by and between the Registrant and
Nestec Ltd.
Letter Agreement dated October 30, 2018, by and between the
Registrant and Nestec Ltd.
10-Q
001-37465
10.2
7/28/20
10-K
001-37465
10.19
3/1/22
10-Q
001-37465
10.1
5/16/16
10-K
001-37465
10.22
3/6/19
10-K
001-37465
10.23
3/6/19
Securities Purchase Agreement, dated August 12, 2020 by and
between the Company and Société des Produits Nestlé S.A.
8-K
001-37465
10.1
8/14/20
10.25†
License Agreement, dated July 1, 2021, by and between the
10-Q
001-37465
10.1
11/10/21
Registrant and NHSc Pharma Partners
10.26†
Amendment No. 1 to License Agreement, dated March 24,
10-Q
001-37465
10.3
5/4/222
2022, by and between the Registrant and NHSc Pharma Partners
10.27†
Long Term Manufacturing Agreement, dated November 8,
2021, by and between the Registrant and BacThera AG
10-K
001-37465
10.25
3/1/22
10.28†
Amendment to Long Term Manufacturing Agreement, dated
December 14, 2022, by and between the Registrant and
BacThera AG
10.29
10.30
10.31
10.32†
21.1
23.1
Form of Non-Affiliate Purchase Agreement
Form of Affiliate Purchase Agreement
Placement Agency Agreement, dated June 29, 2022, by and
between Registrant and J.P. Morgan Securities LLC
Supply Agreement, dated September 15, 2015, by and between
Registrant and GenIbet BioPharmaceuticals, SA, as amended
8-K
8-K
8-K
001-37465
001-37465
001-37465
10.1
10.2
10.3
6/30/22
6/30/22
6/30/22
10-Q
001-37465
10.1
11/2/22
Subsidiaries of Seres Therapeutics, Inc.
10-K
001-37465
21.1
3/2/20
Consent of PricewaterhouseCoopers LLP, Independent
Registered Public Accounting Firm
94
*
*
31.1
31.2
32.1
32.2
101.INS
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer
Inline XBRL Instance Document- the Instance Document does
not appear in the interactive data file because its XBRL tags are
embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
101.DEF
104
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
Inline XBRL Taxonomy Extension Definition Linkbase
Document
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
*
*
**
**
*
*
*
*
*
*
*
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan.
^ Confidential treatment has been granted with respect to redacted portions of this exhibit. Redacted portions of this exhibit have been filed separately with
the SEC.
† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Regulation S-K, Item 601(b)(10)(iv). Such omitted information is both (i)
not material and (ii) the type that the Registrant treats as private or confidential.
Item 16. Form 10-K Summary
None.
95
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 7, 2023
SERES THERAPEUTICS, INC.
By:
/s/ Eric D. Shaff
Eric D. Shaff
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Eric D. Shaff
Signature
Eric D. Shaff
/s/ David Arkowitz
Title
Date
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Executive Vice President, Chief Financial Officer,
and Head of Business Development
David Arkowitz
(Principal Financial and Accounting Officer)
/s/ Stephen Berenson
Chairman of the Board
Stephen Berenson
/s/ Dennis A. Ausiello
Dennis A. Ausiello, M.D.
/s/ Grégory Behar
/s/ Paul R. Biondi
Grégory Behar
Paul R. Biondi
/s/ Willard H. Dere
Willard H. Dere, M.D.
/s/ Claire M. Fraser
Claire M. Fraser, Ph.D.
/s/ Kurt C. Graves
Kurt C. Graves
/s/ Richard N. Kender
Richard N. Kender
/s/ Meryl S. Zausner
Meryl S. Zausner
Director
Director
Director
Director
Director
Director
Director
Director
96
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity (Deficit) as of December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Seres Therapeutics, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Seres Therapeutics, Inc. and its subsidiaries (the “Company”) as of December 31, 2022
and 2021, and the related consolidated statements of operations and comprehensive loss, of stockholders' equity (deficit) and of cash flows for each of the
three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also
have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has incurred losses and negative cash flows from operations since its inception and needs to
raise additional capital to fund future operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
F-2
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Collaboration and License Agreement with Société des Produits Nestlé S.A. (Nestlé) Recognized Under an Input Method
As described in Notes 2 and 11 to the consolidated financial statements, the Company recognizes revenue arising from a collaboration and license
agreement with Nestlé, which totaled $3.0 million for the year ended December 31, 2022. The promised goods and services represent one combined
performance obligation and the entire transaction price was allocated to that single combined performance obligation. When management concludes that a
contract should be accounted for as a combined performance obligation and recognized over-time, management must then determine the period over which
revenue should be recognized and the method by which to measure revenue. Management generally recognizes revenue using a cost-based input method,
which measures the extent of progress towards completion based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying
the performance obligation.
The principal considerations for our determination that performing procedures relating to revenue recognition for the collaboration and license agreement
with Nestlé recognized under an input method is a critical audit matter are the significant judgment by management when determining the total estimated
costs expected upon satisfying the performance obligation, which in turn led to significant auditor judgment, subjectivity and effort in performing
procedures to evaluate the total estimated costs expected upon satisfying the performance obligation.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to the revenue arising from the collaboration and license
agreement with Nestlé, including controls over the total estimated costs expected upon satisfying the performance obligation. These procedures also
included, among others, evaluating and testing management’s process for determining the total estimated costs expected upon satisfying the performance
obligation, which included testing actual costs incurred and evaluating the reasonableness of estimated costs to satisfy the performance obligation.
Evaluating the reasonableness of estimated costs to satisfy the performance obligation involved assessing management’s ability to reasonably estimate
costs to satisfy the performance obligation by (i) evaluating the appropriateness of changes to management’s estimates of total costs to satisfy the
performance obligation; (ii) performing a comparison of management’s prior period cost estimates to actual costs incurred; and (iii) evaluating whether the
cost estimates used by management were reasonable considering consistency with industry and company-specific data.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 7, 2023
We have served as the Company’s auditor since 2014.
F-3
SERES THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Short term investments
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease assets
Restricted cash
Restricted investments
Long term investments
Other non-current assets
Total assets
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities (1)
Operating lease liabilities
Short term portion of note payable, net of discount
Deferred revenue - related party
Total current liabilities
Long term portion of note payable, net of discount
Operating lease liabilities, net of current portion
Deferred revenue, net of current portion - related party
Other long-term liabilities (2)
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2022 and 2021;
no shares issued and outstanding at December 31, 2022 and 2021, respectively
Common stock, $0.001 par value; 200,000,000 shares authorized at December 31, 2022 and 2021;
125,222,273 and 91,889,418 shares issued and outstanding at December 31, 2022 and 2021,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2022
2021
163,030 $
18,311
13,423
194,764
22,985
110,984
8,185
1,401
—
10,465
348,784 $
17,440 $
59,840
3,601
456
4,259
85,596
50,591
107,942
92,430
1,442
338,001
180,002
110,704
12,922
303,628
17,938
18,208
8,000
1,401
495
5,189
354,859
13,735
45,094
6,610
—
16,819
82,258
24,643
17,958
86,998
11,495
223,352
—
—
125
875,181
(12 )
(864,511 )
10,783
348,784 $
92
745,829
(60 )
(614,354 )
131,507
354,859
$
$
$
$
[1] Includes related party amounts of $34,770 and $21,098 at December 31, 2022 and December 31, 2021, respectively (see Note 11)
[2] Includes related party amounts of $0 and $10,585 at December 31, 2022 and December 31, 2021, respectively (see Note 11)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SERES THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Revenue:
Collaboration revenue - related party
Grant revenue
Collaboration revenue
Total revenue
Operating expenses:
Research and development expenses
General and administrative expenses
Collaboration (profit) loss sharing - related party
Total operating expenses
Loss from operations
Other (expense) income:
Interest income
Interest expense
Other (expense) income
Total other (expense) income, net
Net loss
Net loss per share attributable to common stockholders, basic and diluted
Weighted average common shares outstanding, basic and diluted
Other comprehensive loss:
Unrealized gain (loss) on investments, net of tax of $0
Currency translation adjustment
Total other comprehensive income (loss)
Comprehensive loss
2022
Year Ended December 31,
2021
2020
$
$
$
$
7,128 $
—
—
7,128
172,920 $
79,694
1,004
253,618
(246,490 )
3,058
(6,020 )
(705 )
(3,667 )
(250,157 ) $
(2.31 ) $
143,857 $
1,070
—
144,927
141,891 $
69,261
(1,732 )
209,420
(64,493 )
2,870
(2,910 )
(1,045 )
(1,085 )
(65,578 ) $
(0.72 ) $
11,897
4,157
17,161
33,215
90,570
30,775
—
121,345
(88,130 )
946
(2,924 )
981
(997 )
(89,127 )
(1.12 )
108,077,043
91,702,866
79,789,220
49
(1 )
48
$
(250,109 ) $
(12 )
(1 )
(13 )
(65,591 ) $
(47 )
—
(47 )
(89,174 )
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SERES THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
Common Stock
Additional
Total
Stockholders
Shares
70,143,252 $
Par
Value
Paid-in
Capital
70 $
411,255 $
Accumulated
Deficit
(459,649 ) $
- $
Equity
(Deficit)
(48,324 )
Accumulated
Other
Comprehensiv
e
Loss
12,075,000
12
243,736
—
—
243,748
19,899
—
19,900
959,002
5,787,681
2,214,011
125,000
155,293
—
—
—
91,459,239
329,112
100,417
650
—
—
—
91,889,418
326,864
282,401
322,560
31,746,030
1
6
2
—
—
—
—
—
91
1
—
—
—
—
—
92
—
—
—
32
24,767
14,419
120
462
8,824
—
—
723,482
1,298
827
—
20,222
—
—
745,829
966
—
1,769
96,689
—
—
—
—
—
(47 )
—
(47 )
—
—
—
—
(13 )
—
(60 )
—
—
—
—
—
—
48
—
(12 ) $
—
24,773
—
14,421
—
—
—
—
(89,127 )
(548,776 )
—
—
—
—
—
(65,578 )
(614,354 )
—
—
—
—
—
—
—
(250,157 )
(864,511 ) $
120
462
8,824
(47 )
(89,127 )
174,750
1,299
827
—
20,222
(13 )
(65,578 )
131,507
966
—
1,769
96,721
4,447
25,482
48
(250,157 )
10,783
655,000
—
—
—
125,222,273
$
1
—
—
—
125 $
4,446
25,482
—
—
875,181
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Balance at December 31, 2019
Issuance of common stock from public
offering, net of commissions, underwriting
discounts and offering costs of $288
Issuance of common stock from Securities Purchase
Agreement, net of offering costs - related party of
$100
Issuance of common stock from at the market equity
offering, net of issuance costs of $673
Issuance of common stock upon exercise of stock
options
Issuance of common stock upon vesting of RSUs, net
of tax withholdings
Issuance of common stock under ESPP plan
Stock-based compensation expense
Other comprehensive loss
Net loss
Balance at December 31, 2020
Issuance of common stock upon exercise of stock
options
Issuance of common stock under ESPP plan
Issuance of common stock upon vesting of RSUs, net
of tax withholdings
Stock-based compensation expense
Other comprehensive loss
Net loss
Balance at December 31, 2021
Issuance of common stock upon exercise of stock
options
Issuance of common stock upon vesting of RSUs and
PSUs,
net of tax withholdings
Issuance of common stock under ESPP
Issuance of common stock net of issuance costs of
$3,279
Issuance of common stock from at the market equity
offering,
net of issuance costs of $310
Stock-based compensation expense
Other comprehensive loss
Net loss
Balance at December 31, 2022
SERES THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Stock-based compensation expense
Depreciation and amortization expense
Non-cash operating lease cost
Amortization of premiums on investments
Amortization of debt issuance costs
Collaboration (profit) loss sharing - related party
Changes in operating assets and liabilities:
Prepaid expenses and other current and non-current assets
Accounts receivable
Deferred revenue - related party
Accounts payable
Operating lease liabilities
Accrued expenses and other current and long-term liabilities (3)
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of investments
Sales and maturities of investments
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs
Proceeds from Securities Purchase Agreement, net of issuance costs -
related party
Proceeds from issuance of note payable
Proceeds from at the market equity offering, net of issuance costs
Proceeds from exercise of stock options
Proceeds from issuance of common stock and restricted common stock
Issuance of common stock under ESPP
Repayment of notes payable
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Supplemental disclosure of non-cash investing and financing
activities:
Property and equipment purchases included in accounts payable and
accrued expenses
Lease liability arising from obtaining right-of-use assets
Prepaid rent reclassified to right-of-use assets
Year Ended December 31,
2021
2022
2020
$
(250,157 ) $
(65,578 ) $
(89,127 )
25,482
6,629
5,224
688
705
1,004
(12,599 )
—
(7,128 )
2,203
(4,203 )
3,336
(228,816 )
(9,821 )
(48,221 )
140,470
82,428
20,222
5,947
3,275
498
2,526
(1,732 )
(12,337 )
9,387
(4,357 )
9,362
(3,550 )
43,025
6,688
(9,566 )
(95,971 )
169,625
64,088
8,824
6,578
2,315
446
551
-
(2,186 )
(7,602 )
(11,565 )
(1,159 )
(4,456 )
3,771
(93,610 )
(591 )
(218,284 )
59,984
(158,891 )
96,721
—
243,748
—
27,606
4,447
966
—
1,769
(1,907 )
129,602
(16,786 )
(1 )
188,002
171,215 $
—
—
—
1,299
—
827
(948 )
1,178
71,954
(1 )
116,049
188,002 $
19,900
—
24,773
14,421
120
462
—
303,424
50,923
—
65,126
116,049
4,926 $
2,446 $
2,453
2,276 $
91,412 $
6,822 $
874 $
12,442 $
— $
451
—
—
$
$
$
$
$
[3] Includes related party amounts of $3,087 and $31,683 at December 31, 2022 and 2021 respectively (see Note 11)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1.
Nature of the Business and Basis of Presentation
Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21,
Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc.
The Company is a microbiome therapeutics company developing a novel class of biological drugs, which are designed to treat disease by modulating the
microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state. The Company’s lead product candidate, SER-109,
is designed to reduce further recurrences of Clostridioides difficile infection (“CDI”), a debilitating infection of the colon, in patients who have received
antibiotic therapy for recurrent CDI by restructuring the colonic microbiome and changing its function. If approved by the U.S. Food and Drug
Administration (“FDA”), the Company believes SER-109 will be a first-in-field oral microbiome drug. Building upon SER-109, the Company is
developing therapeutic candidates, such as SER-155, to specifically target infections and antimicrobial resistance. SER-155, a microbiome therapeutic
candidate consisting of a consortium of cultivated bacteria, is designed to reduce incidences of gastrointestinal infections, bloodstream infections and graft
versus host disease ("GvHD”) in patients receiving allogeneic hematopoietic stem cell transplantation (“allo-HSCT”). The Company is progressing
additional preclinical stage programs to evaluate how microbiome therapeutics may reduce incidence of infection, which the Company refers to as
Infection Protection, in indications such as cancer neutropenia, chronic liver disease, solid organ transplant, and antimicrobial resistant infections more
broadly in settings of high-risk such as intensive care units. The Company is also continuing its research activities in ulcerative colitis ("UC"), including
evaluating the potential to utilize biomarker-based patient selection and stratification for future studies. In addition, the Company continues to leverage
microbiome pharmacokinetic and pharmacodynamic data from across its clinical and preclinical portfolios, using its reverse translational microbiome
therapeutic development platform to conduct research on various indications, including inflammatory and immune diseases, cancer, and metabolic diseases.
The Company has built and deploys a reverse translational platform for the discovery and development of microbiome therapeutics. This platform
incorporates high-resolution analysis of human clinical data to identify microbiome biomarkers associated with disease and non-disease states; preclinical
screening using human cell-based assays and in vitro/ex vivo and in vivo disease models customized for microbiome therapeutics; and microbiological
capabilities and a strain library that spans broad biological and functional breadth to both identify specific microbes and microbial metabolites that are
associated with disease and to design consortia of bacteria with specific pharmacological properties.
The accompanying consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern
and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of December 31, 2022,
the Company had an accumulated deficit of $864,511 and cash, cash equivalents and short- and long-term investments of $181,341.
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations,
protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing.
Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and
clinical testing and regulatory approval, prior to commercialization. The Company operates in an environment of rapid change in technology and
substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and
consultants.
The Company’s product candidates are in development. There can be no assurance that the Company's research and development will be
successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any product candidate
developed will obtain necessary government regulatory approval or that any approved product will be commercially viable. Even if the Company’s product
development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.
The Company's primary focus in recent months has been and will continue to be supporting the Biologics License Application ("BLA") submission
for our lead product candidate, SER-109, and continuing to prepare for potential commercialization, including the manufacture of SER-109, until and
continuing after the Prescription Drug User Fee Act ("PDUFA") target action date set by the FDA of April 26, 2023. The Company has commenced
manufacture of SER-109 in consideration of potential commercialization, which requires capital and resources. Successful execution of the pre-
commercialization activities required by our collaboration agreement with Société des Produits Nestlé S.A., successor in interest to Nestec Ltd., and NHSc
Rx License GmbH, a significant stockholder of the Company and successor in interest to NHSc Pharma Partners (collectively, and together with their
affiliates and subsidiaries, “Nestlé”), requires continued investment in readying for launch. Still, there can be no assurance that the BLA for SER-109,
which is currently under priority review by the FDA, will be approved, that the FDA will complete its review of the BLA in the anticipated timeline, or
that, in the event of approval, the demand for SER-109 will be sufficient to meet the Company's forecasted cash needs without raising significant additional
capital.
The Company also has a credit facility (the "New Credit Facility") pursuant to a Loan and Security Agreement (the “Loan Agreement”) with
Hercules Capital, Inc. ("Hercules," see Note 8, Notes Payable), which is collateralized by substantially all of the
F-8
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Company’s assets excluding intellectual property. The Company is currently in compliance with the financial covenants in the New Credit Facility. The
New Credit Facility includes a conditional liquidity covenant commencing on June 15, 2023, which ceases to apply if certain conditions are satisfied.
Violation of any covenant under the New Credit Facility provides Hercules with the option to accelerate repayment of amounts borrowed and terminate its
commitment to extend further credit, among other remedies as defined in the New Credit Facility.
Primarily as a result of the increased and costly efforts to prepare for potential commercialization of SER-109, in conjunction with the Company's
research and development efforts for other preclinical and product candidates, for the year ended December 31, 2022, the Company incurred a net loss of
$250,157, and had net operating cash outflows of $228,816. The Company expects that its operating losses and negative cash flows will continue for the
foreseeable future. The Company is eligible to receive contingent milestone payments under its license agreement with Nestlé executed in July 2021 (see
Note 11, Collaboration Revenue) if certain development, regulatory approval or sales target milestones are achieved. Upon approval of the BLA, the
Company is entitled to receive an additional $125,000 payment from Nestlé, and a $25,000 tranche under the New Credit Facility, which becomes available
upon the satisfaction of certain conditions, including FDA approval of SER-109. Additionally, following FDA approval, the Company will be eligible to
receive payments from Nestlé for the supply of SER-109. In the event of commercial sale of SER-109, the Company will be entitled to share equally in its
commercial profits and losses. The payments under the 2021 License Agreement and the additional tranche under the New Credit Facility are uncertain and
there is no assurance that the Company will receive any of them, because they are contingent upon approval of the Company's BLA, which is currently
under priority review by the FDA. Based on the Company's currently available cash resources, current and forecasted level of operations, and forecasted
cash flows for the 12 month period subsequent to the date of issuance of these consolidated financial statements, in the absence of approval of SER-109 by
the FDA, and therefore, without the receipt of the approval milestone and other payments to which it is entitled to receive as a result thereof, the Company
believes it is reasonably likely that it will require additional funding in early 2024. These factors raise substantial doubt about the Company’s ability to
continue as a going concern.
Management's plans to mitigate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern include
continuing to seek regulatory approval of the BLA for SER-109 and therefore earning the $125,000 milestone payment from Nestlé and becoming eligible
for the $25,000 tranche under the New Credit Facility, as well as the ability to commercialize SER-109 and receive payments from Nestlé for the supply of
SER-109, and share equally in commercial profits and losses with Nestlé pursuant to the 2021 License Agreement. Management may also seek to raise
additional capital through financing or other transactions, including the Company's at the market equity offering. Because certain elements of the
Company’s operating plan are outside of the Company’s control, primarily the approval of its BLA for SER-109, which has not occurred as of the issuance
of these consolidated financial statements, and the ability to raise capital through an equity or other financing, those elements cannot be considered
probable according to Accounting Standards Codification (“ASC”) 205-40, Going Concern ("ASC 205-40"), and therefore cannot be considered in the
evaluation of mitigating factors. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going
concern for 12 months from the date these consolidated financial statements are issued.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries after elimination of all intercompany accounts and
transactions.
2.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenue and expenses during the reporting periods. In these consolidated financial statements, the Company uses estimates and assumptions
related to revenue recognition and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in
circumstances, facts and experience. Actual results could differ from the Company’s estimates.
Cash Equivalents
The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash
equivalents. Cash equivalents, which consist of money market accounts, commercial paper and corporate bonds purchased with original maturities of less
than 90 days from the date of purchase, are stated at fair value.
F-9
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Investments
The Company classifies all of its marketable debt securities as available-for-sale securities. Accordingly, these marketable debt securities are
recorded at fair value and unrealized gains and losses are reported as a separate component of accumulated other comprehensive loss in stockholders’
equity (deficit), unless the Company has determined that the security has experienced a credit loss, or the Company expects to sell the security prior to the
recovery of its unrealized losses. In such cases a security is considered impaired, and adjusted through a charge to the consolidated statement of operations
and comprehensive loss. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other
income (expense) within the consolidated statement of operations and comprehensive loss. No credit losses were recorded during the years ended
December 31, 2022, 2021, and 2020.
The Company classifies its available-for-sale marketable debt securities as current assets on the consolidated balance sheet if they mature within one
year from the balance sheet date. Any available-for-sale marketable debt securities with maturities greater than one year from the balance sheet date are
classified as long-term assets on the consolidated balance sheet.
Restricted Investments
The Company held investments of $1,401 as of December 31, 2022 and 2021, in a separate restricted bank account as a security deposit for the lease
of the Company’s headquarters in Cambridge, Massachusetts. The Company has classified these deposits as long-term restricted investments on its
consolidated balance sheet.
Restricted Cash
The Company held restricted cash of $8,185 and $8,000 as of December 31, 2022 and 2021, respectively, which represents cash held for the benefit
of the landlord for the Company's other leases. The Company has classified the restricted cash as long-term on its consolidated balance sheet as the
underlying leases are greater than 1 year.
Cash, cash equivalents and restricted cash were comprised of the following (in thousands):
Cash and cash equivalents
Restricted cash, non-current
Total cash, cash equivalents and restricted cash
Concentration of Credit Risk
December 31,
2022
2021
$
$
163,030
8,185
171,215
$
$
180,002
8,000
188,002
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and
investments. The Company has all cash, cash equivalents and investments balances at accredited financial institutions, in amounts that exceed federally
insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking
relationships.
Fair Value Measurements
Certain assets and liabilities are carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three
levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted
prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by
observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the
assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
F-10
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above. The
Company’s investments in certificates of deposit are carried at amortized cost, which approximates fair value. The carrying values of the Company’s
prepaid expenses and other current and non-current assets, accounts payable and accrued expenses approximate their respective fair values due to the short-
term nature of these assets and liabilities. The carrying value of the Company’s long-term debt approximates its fair value (a level 2 measurement) at each
balance sheet date due to its variable interest rate, which approximates a market interest rate.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the
useful life of the asset, which are as follows:
Laboratory equipment
Computer equipment, furniture and office equipment
Leasehold improvements
Estimated Useful Life (In
Years)
5
3
Lesser of useful life
or lease term
Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated
depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment and right-of-use assets associated with our lease agreements. All of the Company's long-lived
assets are to be held and used and have definitive lives and accordingly are tested for recoverability whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an
impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and
significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the
Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying
value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its
carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on
discounted cash flows. To date, the Company has not recorded any impairment losses on long-lived assets.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses include salaries, stock-based compensation and
benefits of employees, third-party license fees and other operational costs related to the Company’s research and development activities, including allocated
facility-related expenses and external costs of outside vendors engaged to conduct both preclinical studies and clinical trials.
Research Contract Costs and Accruals
The Company has entered into various research and development contracts with research institutions and other companies. These agreements are
generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated
ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or
completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued and prepaid
balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not
been materially different from the actual costs.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about
the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.
F-11
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Accounting for Stock-Based Compensation
The Company measures all stock options and other stock-based awards granted to employees, non-employees, and directors based on the fair value
on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the
respective award. Generally, the Company issues stock options, restricted stock units and restricted stock awards with only service-based vesting conditions
and records the expense for these awards using the straight-line method. For stock options or restricted stock units issued with performance-based vesting
conditions, the stock compensation expense related to these awards is recognized based on the grant date fair value when achievement of the performance
condition is deemed probable.
The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner
in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.
The Company accounts for forfeitures of stock-based awards as they occur rather than applying an estimated forfeiture rate to stock-based
compensation expense.
The fair value of each stock option grant is estimated on the date of grant using the Black- Scholes option-pricing model. The Company estimates its
expected common stock volatility based on its historical common stock volatility for the same time period. The Company uses the simplified method
prescribed by Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of options
granted to employees, non-employees and directors. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the
time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the
Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
Revenue Recognition
The Company recognizes revenue in accordance with the guidance under ASC 606, Revenue from Contracts with Customers ("ASC 606"). ASC 606
applies to all contracts with customers, except those contracts that are within the scope of other guidance, such as leases, insurance, and financial
instruments. The Company enters into agreements that are within the scope of ASC 606, under which the Company licenses certain of the Company’s
product candidates and performs research and development services in connection with such arrangements. The terms of these arrangements typically
include payment of one or more of the following: nonrefundable up-front fees, reimbursement of research and development costs, development, clinical,
regulatory and commercial sales milestone payments, and royalties on net sales of licensed products. Under ASC 606, an entity recognizes revenue when
its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for
those goods or services. When determining the timing and extent of revenue recognition for arrangements that the Company determines are within the
scope of ASC 606, the Company performs the following five steps:
a.
b.
c.
d.
e.
identify the contract(s) with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to the performance obligations in the contract; and
recognize revenue when (or as) the entity satisfies a performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in
exchange for the goods or services transferred to the customer.
F-12
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised
within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s
arrangements typically consist of a license to the Company’s intellectual property and/or research and development services. The Company may provide
options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless
the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the
customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other
promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services
until such combined group of promises meet the requirements of a performance obligation.
The Company determines the transaction price based on the amount of consideration the Company expects to receive for transferring the promised
goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include
variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most
likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any
constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently
resolved.
The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as
revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and
the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess
the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time
and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary,
adjusts the measure of performance and related revenue recognition.
The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or
such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract
liability is recorded for deferred revenue.
The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period
between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Incremental costs of obtaining
a contract are expensed as and when incurred if the expected period over which the Company would have amortized the asset is one year or less, or the
amount is immaterial.
Collaboration Revenue
Arrangements with collaborators may include licenses to intellectual property, research and development services, manufacturing services for
clinical and commercial supply, and participation on joint steering committees. The Company evaluates the promised goods or services to determine which
promises, or group of promises, represent performance obligations. In contemplation of whether a promised good or service meets the criteria required of a
performance obligation, the Company considers the stage of development of the underlying intellectual property, the capabilities and expertise of the
customer relative to the underlying intellectual property, and whether the promised goods or services are integral to or dependent on other promises in the
contract. When accounting for an arrangement that contains multiple performance obligations, the Company must develop judgmental assumptions, which
may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success to determine the
stand-alone selling price for each performance obligation identified in the contract.
When the Company concludes that a contract should be accounted for as a combined performance obligation and recognized over time, the
Company must then determine the period over which revenue should be recognized and the method by which to measure revenue. The Company generally
recognizes revenue using a cost-based input method.
Licenses of intellectual property
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement,
the Company recognizes revenue allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the
license. For licenses that are bundled with other promises, the Company utilizes judgment
F-13
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point
in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue associated with the bundled performance
obligation. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of progress and related revenue
recognition.
Milestone Payments
At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the
achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within
a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or
transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated
to that distinct good or service, otherwise it will be allocated to all performance obligations of the arrangement based on the initial allocation.
The Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first
estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The
Company primarily uses the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome.
Then, the Company considers whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable
that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty). The Company updates the estimate of variable
consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the
application of the constraint to reflect current facts and circumstances.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the
predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the
performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not
recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.
Manufacturing supply services
For arrangements that include a promise of supply of clinical or commercial product, the Company determines if the supply is a promise in the
contract or a future obligation at the customer’s option. If determined to be a promise at inception of the contract, the Company evaluates the promise to
determine whether it is a separate performance obligation or a component of a bundled performance obligation. If determined to be an option, the Company
determines if the option provides a material right to the customer and if so, accounts for the option as a separate performance obligation. If determined to be
an option but not a material right, the Company accounts for the option as a separate contract when the customer elects to exercise the option.
Grant Revenue
The Company generates revenue from government contracts that reimburse the Company for certain allowable costs for funded projects. For
contracts with government agencies, when the Company has concluded that it is the principal in conducting the research and development expenses, and
where the funding arrangement is considered central to the Company’s ongoing operations, the Company classifies the recognized funding received as
revenue.
The Company has concluded to recognize funding received as revenue, rather than as a reduction of research and development expenses, because
the Company is the principal in conducting the research and development activities and these contracts are central to its ongoing operations. Revenue is
recognized as the qualifying expenses related to the contracts are incurred. Revenue recognized upon incurring qualifying expenses in advance of receipt of
funding is recorded in the Company’s consolidated balance sheet as accounts receivable. The related costs incurred by the Company are included in
research and development expense in the Company’s consolidated statements of operations and comprehensive loss.
F-14
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Collaboration Profit and Loss
We analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements ("ASC 808"),
which includes determining whether such arrangements involve joint operating activities performed by parties that are both active participants in the
activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the
life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC
808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are
more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For those elements of the arrangement that are accounted for
pursuant to ASC 606, we apply the five-step model prescribed in ASC 606, as described above. For elements of collaboration arrangements that are
accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. In
arrangements where we do not deem our collaborator to be our customer, up-front payments from our collaborator are presented in the consolidated balance
sheets as liabilities, and adjusted as we perform activities pursuant to the collaboration arrangement. As the Company and its collaborator perform activities
pursuant to the arrangement, amounts due to or from the Company or the collaborator, based on the relative contributions of activities of each party, are
recognized in the consolidated statements of operations and comprehensive loss as an increase or reduction in operating expenses based on the nature of the
payments.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred
taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The
Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the
weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is
established through a charge to income tax expense.
The Company applies ASC 740-10, Accounting for Uncertain Tax Positions. The Company accounts for uncertainty in income taxes recognized in
the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to
determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to
be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that
may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes
includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and
penalties.
Segment Data
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The
Company’s singular focus is on developing microbiome therapeutics to treat the modulation of the colonic microbiome. Revenue to date has been
generated solely through the Company's agreements with its collaborators, all of which has been earned in the United States. All tangible assets are held in
the United States.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events
other than those with stockholders. For the years ended December 31, 2022, 2021 and 2020, other comprehensive income (loss) consisted of changes in
unrealized gains (losses) from available-for-sale investments and a currency translation adjustment.
Net Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share
is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number
of potential shares of common stock, including the assumed exercise of stock options and unvested restricted stock. The Company applies the two-class
method to calculate its basic and diluted net loss per share attributable to common stockholders. The two-class method is an earnings allocation formula
that treats a participating security as having rights to
F-15
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of
common stock as the Company was in a net loss position for each of the periods presented.
The Company’s convertible preferred stock contractually entitle the holders of such shares to participate in dividends but do not contractually
require the holders of such shares to participate in losses of the Company. Similarly, restricted stock awards entitle the holder of such awards to dividends
declared or paid by the board of directors, regardless of whether such awards are unvested, as if such shares were outstanding common shares at the time of
the dividend. However, the unvested restricted stock awards are not entitled to share in the residual net assets (deficit) of the Company. Accordingly, in
periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the
same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is
anti-dilutive.
Leases
In accordance with ASC 842, Leases, the Company determines if an arrangement is or contains a lease at inception. A contract is or contains a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at
the lease commencement date as operating or finance leases and records a right-of-use asset and a lease liability on the consolidated balance sheet for all
leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded on the balance sheet, but
payments are recognized as expense on a straight-line basis over the lease term. The Company has elected not to record a right-of-use asset or lease liability
for leases with terms of 12 months or less.
A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset
to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the
lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds
substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no
alternative use at the end of the lease term.
The Company enters into contracts that contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other
operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable
costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when
the event determining the amount of variable consideration to be paid occurs.
Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the
lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, the Company utilizes an estimate of its incremental
borrowing rate based upon the available information at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued
lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. The Company’s lease
terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Finance lease assets are
amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term. Finance lease
payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the
lease.
Right-of-use assets and lease liabilities are reassessed and remeasured when amendments to the terms of the lease agreement require reassessment
and remeasurement of the lease payments and other inputs to the calculation of right-of-use assets and lease liabilities. The Company accounts for
remeasurements and modifications to lease liabilities using the present value of remaining lease payments and estimated incremental borrowing rate at the
date of remeasurement. The adjustment to the lease liability is recognized as a gain or loss in operating expenses, or as an adjustment to the right-of-use
asset, as appropriate, based on the terms and conditions within the lease that are amended.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for
F-16
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates
the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance
for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In
November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the
scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No.
2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably
elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and Exchange
Commission ("SEC") filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after
December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after
December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new standard using a
modified retrospective approach as of January 1, 2022. The adoption of this standard did not have a material impact on the Company's consolidated
financial statements.
Recently Issued Accounting Pronouncements
The Company has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements
will not have a material effect on the Company’s financial statements.
3.
Fair Value of Financial Assets and Liabilities
The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in
thousands):
Cash Equivalents:
Money market funds
Commercial paper
Government securities
Investments:
Commercial paper
Corporate bonds
Government securities
Cash Equivalents:
Money market funds
Commercial paper
Investments:
Commercial paper
Corporate bonds
Government securities
Fair Value Measurements as of December 31, 2022 Using:
Level 1
Level 2
Level 3
Total
$
$
$
$
$
$
47,863 $
—
—
— $
—
—
$
47,863
— $
11,691
4,966
2,465 $
2,957
12,889
34,968 $
— $
—
—
— $
—
—
— $
47,863
11,691
4,966
2,465
2,957
12,889
82,831
Fair Value Measurements as of December 31, 2021 Using:
Level 1
Level 2
Level 3
Total
70,322 $
—
— $
—
—
70,322
$
— $
3,999
6,250 $
40,095
64,854
$
115,198
— $
—
— $
—
—
$
—
70,322
3,999
6,250
40,095
64,854
185,520
Money market funds are valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value
hierarchy. Commercial paper, corporate bonds, and government securities are valued by the Company using quoted prices in active markets for similar
securities, which represent a Level 2 measurement within the fair value hierarchy. There were no transfers between Level 1 or Level 2 during the years
ended December 31, 2022 and 2021.
F-17
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
As of December 31, 2022 and 2021 the Company held a restricted investment of $1,401, which represents a certificate of deposit that is classified as
Level 2 in the fair value hierarchy.
4.
Investments
Investments by security type consisted of the following at December 31, 2022 and 2021 (in thousands):
Investments:
Commercial paper
Corporate bonds
Government securities
Investments:
Commercial paper
Corporate bonds
Government securities
Amortized
Cost
Gross
Unrealized Gain
Gross
Unrealized Loss
Fair
Value
December 31, 2022
$
$
2,465 $
2,958
12,898
18,321 $
— $
—
3
3 $
— $
(1 )
(12 )
(13 ) $
2,465
2,957
12,889
18,311
Amortized
Cost
Gross
Unrealized Gain
Gross
Unrealized Loss
Fair
Value
December 31, 2021
$
$
6,250 $
40,123
64,885
111,258 $
— $
—
—
— $
— $
(28 )
(31 )
(59 ) $
6,250
40,095
64,854
111,199
Investments with original maturities of less than 90 days are included in cash and cash equivalents on the consolidated balance sheets and are not
included in the table above. Investments with maturities of less than twelve months are considered current assets and those investments with maturities
greater than twelve months are considered non-current assets.
Excluded from the tables above at December 31, 2022 and 2021 are restricted investments of $1,401, as the cost approximates current fair value.
The amortized cost and fair value of investments in commercial paper, corporate bonds, and government securities by contractual maturity, as of
December 31, 2022 and were as follows (in thousands):
Due in 1-year or less
Due after 1-year through 5-years
Available-for-Sale
Cost
Fair Value
$
$
18,321 $
—
18,321 $
18,311
—
18,311
The amortized cost and fair value of investments in commercial paper, corporate bonds, and government securities by contractual maturity, as of
December 31, 2021 were as follows (in thousands):
Due in 1-year or less
Due after 1-year through 5-years
Available-for-Sale
Cost
Fair Value
$
$
110,762 $
496
111,258 $
110,704
495
111,199
F-18
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
5.
Property and Equipment, Net
Property and equipment, net consisted of the following:
Laboratory equipment
Computer equipment
Furniture and office equipment
Leasehold improvements
Construction in progress
Less: Accumulated depreciation and amortization
December 31,
2022
2021
24,533 $
3,557
3,491
32,474
3,970
68,025
(45,040 )
22,985 $
19,137
3,255
1,219
32,925
1,670
58,206
(40,268 )
17,938
$
$
Depreciation and amortization expense was $6,629, $5,947 and $6,578 for the years ended December 31, 2022, 2021 and 2020, respectively. During
the year ended December 31, 2022, the Company disposed of certain fully-depreciated assets with a cost basis of $1,857.
6.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
Development and manufacturing costs
Payroll and payroll-related costs
Liability related to 2021 License Agreement (Note 11)
Facility and other
December 31,
2022
2021
$
$
6,717 $
14,709
34,770
3,644
59,840 $
11,147
9,216
21,098
3,633
45,094
7.
Leases
The Company leases real estate, primarily laboratory, office and manufacturing space. The Company’s leases have remaining terms ranging from
approximately two to ten years. Certain leases include one or more options to renew, exercisable at the Company’s sole discretion, with renewal terms that
can extend the lease from approximately one year to five years. The Company evaluated the renewal options in its leases to determine if it was reasonably
certain that the renewal option would be exercised, given the Company’s current business structure, uncertainty of future growth, and the associated impact
to real estate, the Company concluded that it is not reasonably certain that any renewal options would be exercised. Therefore, the operating lease assets
and operating lease liabilities only contemplate the initial lease terms. All the Company’s leases qualify as operating leases.
In July 2021, the Company entered into a lease agreement for a donor collection facility in Tempe, Arizona with a lease term of ten years,
commencing in March 2022, subject to certain renewal options, which are not deemed reasonably certain. Minimum lease payments total $4,052, net of
tenant improvement allowance of $770, through the lease term. At lease commencement, the Company recorded a right-of-use asset of $5,900, which
consists of the lease liability of $2,327 and $3,573 of leasehold improvements that revert back to the lessor at the termination of the lease.
In August 2021, the Company entered into a lease for additional office and laboratory space in Waltham, Massachusetts with a lease term of ten
years, commencing in two phases in October 2021 and March 2022, respectively, with a third and final phase for laboratory space, not yet commenced at
December 31, 2022. Minimum lease payments for the two phases that commenced in 2022 total $12,125 and $2,449, respectively, net of tenant
improvement allowance of $767 for the laboratory space, through the lease term. At each lease commencement, the Company recorded right-of-use assets
of $7,602 and $2,662, respectively, which consist of the lease liability of $7,602 for the office space, and the lease liability of $1,273 and $1,389 of
leasehold improvements that revert back to the lessor at the termination of the lease for the laboratory space. The lease is subject to certain renewal options,
which are not deemed reasonably certain at commencement of the first two phases.
In September 2021, the Company entered into a lease for additional laboratory and office space in Cambridge, Massachusetts with a lease term of
ten years and a renewal option for an additional seven-year term. The lease commenced in December 2022, and the
F-19
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
renewal option was not deemed reasonably certain of exercise. Minimum lease payments total $101,548 throughout the lease term. At lease
commencement, the Company recorded a right-of-use asset of $56,065, which consists of the lease liability of $54,206 and $1,859 of leasehold
improvements that revert back to the lessor at the termination of the lease.
In April 2022, the Company entered into a lease for additional laboratory and office space in Spring House, Pennsylvania, with a lease term of ten
years and a renewal option, subject to certain conditions, for an additional five-year term. The undiscounted minimum lease payments are $2,980, net of a
tenant improvement allowance of $1,223, over the original ten-year term. As of December 31, 2022, the lease has not yet commenced, and accordingly the
Company has not recorded a right-of-use asset or a lease liability with respect thereto.
In December 2022, the Company amended its lease of its corporate headquarters in Cambridge, Massachusetts (the "Lease Amendment"). The
Lease Amendment reduced the office space subject to the lease while maintaining the laboratory and manufacturing space and extended the term to begin
in November 2023, when the term of the original lease concludes, and continue through January 2030. The Company accounted for the Lease Amendment
as a modification to the existing lease and not a new contract separate from the existing contract, and accordingly increased the associated lease liability
and right-of-use asset by $32,837. Minimum lease payments total $60,022 throughout the term of the Lease Amendment, net of a tenant improvement
allowance of $1,000.
The Company has committed to restore the leased space subject to the Lease Amendment to the condition specified in the original lease, and the
Company updated its estimate of the costs required to fulfill this obligation in accordance with ASC 410, Asset Retirement Obligations, at the effective date
of the modification. Based on current estimates, the Company recorded an additional asset retirement obligation of $452 in December 2022.
The following table summarizes the presentation in the Company’s consolidated balance sheets of its operating leases:
Assets:
Operating lease assets
Liabilities:
Operating lease liabilities
Operating lease liabilities, net of current portion
Total operating lease liabilities
December 31,
2022
2021
$
110,984
$
18,208
$
$
3,601
107,942
111,543
$
$
6,610
17,958
24,568
The following table summarizes the effect of lease costs in the Company’s consolidated statement of operations and comprehensive loss:
Operating lease costs
Short-term lease costs
Variable lease costs
Sublease income
Total lease costs
2022
Year Ended December 31,
2021
2020
$
$
8,830 $
1,375
4,547
—
14,752 $
5,170 $
1,452
3,300
(1,575 )
8,347 $
4,163
1,457
2,890
(1,813 )
6,697
During the years ended December 31, 2022, 2021, and 2020, the Company made cash payments for operating leases of $7,809, $6,821 and $6,302,
respectively.
F-20
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
As of December 31, 2022, future payments of operating lease liabilities are as follows (in thousands):
2023
2024
2025
2026
2027 and thereafter
Total future payments of operating lease liabilities
Less: imputed interest
Present value of operating lease liabilities
As of December 31, 2022
16,815
19,055
21,164
21,755
108,383
187,172
(75,629 )
111,543
$
$
$
As of December 31, 2022, the weighted average remaining lease term was 8.92 years and the weighted average incremental borrowing rate used to
determine the operating lease liability was 13%. As of December 31, 2021, the weighted average remaining lease term was 6.12 years and the weighted
average incremental borrowing rate used to determine the operating lease liability was 10%.
8.
Notes Payable
On October 29, 2019 (the “Closing Date”), the Company entered into the Loan Agreement with Hercules pursuant to which a term loan in an
aggregate principal amount of up to $50,000 (the “Original Credit Facility”) was available to the Company in three tranches, subject to certain terms and
conditions. The first tranche of $25,000 was advanced to the Company on the Closing Date. The Company did not meet the milestone requirements for the
second tranche under the Original Credit Facility, and as such, the additional amount of up to $12,500 was not available for the Company to borrow. The
Company elected not to borrow the third tranche of $12,500, which was available upon Hercules’ approval until June 30, 2021. Advances under the
Original Credit Facility will bear interest at a rate equal to the greater of either (i) the Prime Rate (as reported in The Wall Street Journal) plus 4.40%, and
(ii) 9.65%. Following an interest-only period of 24 months, principal payments are due in 24 equal monthly installments commencing December 1, 2021
and ending November 1, 2023.
Effective as of February 24, 2022 (the “Effective Date”), the Company entered into an Amendment to the Loan and Security Agreement (the
“Amendment”), with the lenders party thereto (the “Lenders”), and Hercules in its capacity as the administrative agent and the collateral agent for the
Lenders, which amended the Original Credit Facility. Pursuant to the Amendment, term loans in an aggregate principal amount of up to $100,000 (the
“New Credit Facility”) became available to the Company in five tranches, subject to certain terms and conditions.
The first tranche in an aggregate principal amount of $25,000 was outstanding as of the Effective Date, after taking into account reborrowing by the
Company on the Effective Date of a previously-repaid principal amount of approximately $2,900. The second tranche in an aggregate principal amount of
$12,500 and the third tranche in an aggregate principal amount of $12,500 have been advanced to the Company and were outstanding as of the Effective
Date. The fourth tranche in an aggregate principal amount of $25,000 is available upon satisfaction of certain conditions, including the approval by the
FDA of a biologics license application in respect of SER-109 (the "Regulatory Approval Milestone") by no later than December 15, 2023. The fifth tranche
in an aggregate principal amount of up to $25,000 is available through the Amortization Date (as defined below) upon satisfaction of certain conditions,
including the Lenders’ investment committee approval.
All advances outstanding under the New Credit Facility will bear interest at a rate equal to the greater of either (i) the Prime Rate (as reported in The
Wall Street Journal) plus 6.40%, and (ii) 9.65%. For all advances outstanding under the New Credit Facility, the Company will make interest only
payments through December 31, 2023, extendable to December 31, 2024 upon satisfaction of certain conditions (such applicable date, the “Amortization
Date”). The principal balance and interest of the advances will be repaid in equal monthly installments after the Amortization Date and continuing through
October 1, 2024, extendable to October 1, 2025, upon satisfaction of certain conditions (such applicable date, the “Maturity Date”).
The Company may prepay advances under the New Credit Facility, in whole or in part, at any time subject to a prepayment charge equal to: (a) 2.0%
of amounts so prepaid, if such prepayment occurs during the first year following the Effective Date; (b) 1.5% of the amount so prepaid, if such prepayment
occurs during the second year following the Effective Date, and (c) 1.0% of the amount so prepaid, if such prepayment occurs during the third year
following the Effective Date.
The Company will pay an end of term charge of 4.85% of the aggregate amount of the advances made under the Original Credit Facility on the
earliest date of (i) November 1, 2023; (ii) the date that the Company prepays all of the outstanding principal in full, or (iii) the date the loan payments are
accelerated due to an event of default. The Company will pay an additional end of term charge of 1.75% of the aggregate amount of the advances under the
New Credit Facility (including the first tranche of $25,000) on the earliest
F-21
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
date of (i) the Maturity Date; (ii) the date that the Company prepays all of the outstanding principal in full, or (iii) the date the loan payments are
accelerated due to an event of default.
Other terms of the New Credit Facility remain generally identical to those under the Original Credit Facility, with certain covenants amended by the
Amendment to provide the Company with additional operational flexibility, including the ability for the Company to issue up to $350,000 in convertible
notes. The New Credit Facility includes a conditional liquidity covenant commencing on June 15, 2023, which ceases to apply if certain conditions are
satisfied.
The New Credit Facility is secured by substantially all of the Company’s assets, other than the Company’s intellectual property. The Company has
agreed to not pledge or secure its intellectual property to others.
The Company accounted for the New Credit Facility as a modification in accordance with the guidance in ASC 470-50, Debt. Amounts paid to the
lenders were recorded as debt discount and a new effective interest rate was established. Upon issuance, the New Credit Facility was recorded as a liability
with an initial carrying value of $50,586, net of debt issuance costs. The initial carrying value will be accreted to the repayment amount, which includes the
outstanding principal plus the end of term charge, through interest expense using the effective interest rate method over the term of the Loan Agreement.
As of December 31, 2022, the carrying value of the New Credit Facility is $51,047 and the effective interest rate in effect is 15.01%. As of December 31,
2021, the carrying value of the New Credit Facility was $24,643, and the effective interest rate in effect was 11.47%. The New Credit Facility is classified
as a long-term liability on the consolidated balance sheet.
The future principal payments due under the New Credit Facility, excluding interest and the end of term charge, are as follows:
Year Ending December 31,
2023
2024
Total
Principal
—
50,000
50,000
$
$
During the years ended December 31, 2022 and 2021, the Company recognized $6,020 and $2,910 of interest expense related to the Loan
Agreement, respectively, which is reflected in interest expense on the consolidated statement of operations and comprehensive loss.
9.
Convertible Preferred Stock
On July 1, 2015, in connection with the closing of the initial public offering of the Company’s common stock (“IPO”), the Company effected its
Restated Certificate of Incorporation, which authorizes the Company to issue 10,000,000 shares of preferred stock, $0.001 par value per share.
10.
Common Stock and Stock-Based Awards
On July 1, 2015, in connection with the closing of the IPO, the Company effected its Restated Certificate of Incorporation, which authorizes the
Company to issue 200,000,000 shares of common stock, $0.001 par value per share.
In November 2019, the Company entered into a common stock sales agreement, or the 2019 Sales Agreement, with Cowen to sell shares of the
Company's common stock with aggregate gross sales proceeds of up to $25,000, from time to time, through an "at the market" equity offering program, or
ATM, under which Cowen acts as sales agent. In March 2020, in connection with filing an updated registration statement on Form S-3 (File No. 333-
237033), the Company entered into a new common stock sales agreement, or the 2020 Sales Agreement, with Cowen on substantially the same terms as the
2019 Sales Agreement and terminated the 2019 Sales Agreement. In May 2021, the Company entered into a new common stock sales agreement, or the
2021 Sales Agreement, with Cowen to sell shares of its common stock with aggregate gross sales proceeds of up to $150,000, from time to time, through
an ATM under which Cowen acts as sales agent, and terminated the 2020 Sales Agreement. During the year ended December 31, 2022, the Company sold
approximately 655,000 shares of common stock under the 2021 Sales Agreement, at an average price of approximately $7.26 per share, raising aggregate
net proceeds of approximately $4,447 after deducting an aggregate commission of approximately 3% and other issuance costs. During the year ended
December 31, 2021, the Company did not sell any shares of common stock under the 2020 Sales Agreement or the 2021 Sales Agreement. During the year
ended December 31, 2020, the Company sold approximately 5,788,000 shares of common stock under the 2019 Sales Agreement and the 2020 Sales
Agreement, as applicable, at an average price of approximately
F-22
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
$4.40 per share, raising aggregate net proceeds of approximately $24,773 after deducting an aggregate commission of approximately 3% and other issuance
costs.
On August 12, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Cowen and Company, LLC and
Piper Sandler & Co., as representatives of the several underwriters named therein (collectively, the “Underwriters”), in connection with the issuance and
sale by the Company in a public offering of 10,500,000 shares of the Company’s common stock at a public offering price of $21.50 per share, less
underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-244401) and a related
prospectus supplement filed with the SEC (such public offering, the “offering”). Under the terms of the Underwriting Agreement, the Company granted the
Underwriters an option exercisable for 30 days to purchase up to an additional 1,575,000 shares of its common stock at the public offering price, less
underwriting discounts and commissions, which the underwriters exercised in full. The Company received aggregate net proceeds from the offering of
approximately $243,748 after deducting underwriting discounts and commissions and offering expenses payable by the Company.
Additionally on August 12, 2020, the Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with Nestlé for the sale
by the Company of 959,002 shares of the Company’s common stock at a purchase price of $20.855 per share (the “concurrent placement”). The Company
received aggregate net proceeds from the concurrent placement of approximately $19,900 after deducting offering expenses payable by the Company. The
consummation of the concurrent placement was contingent upon the closing of the offering and the satisfaction of certain other customary conditions. The
shares were offered and sold to Nestlé pursuant to an effective registration statement on Form S-3 (File No. 333-237033) and a related prospectus
supplement filed with the SEC.
On June 29, 2022, the Company entered into securities purchase agreements with new and existing investors and certain directors and officers in a
registered direct offering, or the Registered Direct Offering, of an aggregate of 31,746,030 shares of its common stock at a purchase price of $3.15 per
share for total net proceeds of approximately $96,721, after deducting placement agent’s fees and other estimated offering expenses. Net proceeds included
an aggregate of $27,525 received from Flagship Pioneering Fund VII, L.P. and Nutritional Health LTP Fund, L.P., affiliates of Flagship Pioneering, or
Flagship, one of its significant stockholders, in exchange for 8,738,243 shares. The closing date of the Registered Direct Offering was July 5, 2022.
2012 Stock Incentive Plan
The Company’s 2012 Stock Incentive Plan, as amended, (the “2012 Plan”) provided for the Company to sell or issue common stock or restricted
common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of
directors and consultants of the Company. The 2012 Plan is administered by the board of directors, or at the discretion of the board of directors, by a
committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their
committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of
common stock on the date of grant and the term of stock option may not be greater than ten years. The Company generally granted stock-based awards with
service conditions only (“service-based” awards).
Stock options granted under the 2012 Plan generally vest over four years and expire after ten years, although options have been granted with vesting
terms less than four years. As of December 31, 2022, there were no shares available for future grant under the 2012 Plan.
2015 Incentive Award Plan
On June 16, 2015, the Company’s stockholders approved the 2015 Incentive Award Plan (the “2015 Plan”), which became effective on June 25,
2015. The 2015 Plan was subsequently amended on December 14, 2022, and provides for the grant of incentive stock options, nonqualified stock options,
stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The number of shares initially reserved for issuance
under the 2015 Plan was the sum of (i) 2,200,000 shares of common stock and (ii) the number of shares subject to awards outstanding under the 2012 Plan
that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company on or after the effective date of the 2015 Plan. In
addition, the number of shares of common stock that may be issued under the 2015 Plan is subject to increase on the first day of each calendar year,
beginning in 2016 and ending in 2025, equal to the lesser of (i) 4% of the number of shares of the Company’s common stock outstanding on the last day of
the preceding applicable calendar year and (ii) an amount determined by the Company’s board of directors.
Stock awards granted under the 2015 Plan generally vest over four years and expire after ten years, although options have been granted with vesting
terms less than four years. As of December 31, 2022, there were 967,206 shares available for future grant under the 2015 Plan.
F-23
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
2015 Employee Stock Purchase Plan
On June 16, 2015, the Company’s stockholders approved the 2015 Employee Stock Purchase Plan (the “ESPP”), which became effective on June
25, 2015. A total of 365,000 shares of common stock were reserved for issuance under the ESPP. In addition, the number of shares of common stock that
may be issued under the ESPP automatically increase on the first day of each calendar year, beginning in 2016 and ending in 2025, by an amount equal to
the lesser of (i) 400,000 shares, (ii) 1% of the number of shares of the Company’s common stock outstanding on the last day of the applicable preceding
calendar year and (iii) an amount determined by the Company’s board of directors. Offering periods under the ESPP will commence when determined by
the plan administrator. During the year ended and as of December 31, 2022, there were 322,560 shares issued and 2,469,204 shares were reserved and
available for issuance under the ESPP, respectively.
The ESPP provides that eligible employees may contribute up to 15% of their eligible earnings toward the semi-annual purchase of the Company's
common stock. The ESPP is qualified under Section 423 of the Internal Revenue Code. The employee's purchase price is derived from a formula based on
the closing price of the common stock on the first day of the offering period versus the closing price on the date of purchase (or, if not a trading day, on the
immediately preceding trading day). The offering period under the ESPP has a duration of six months, and the purchase price with respect to each offering
period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of the Company's common stock
at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company's common stock on the purchase date.
2022 Employment Inducement Award Plan
On December 14, 2022, the Company’s board of directors approved the 2022 Employment Inducement Award Plan (the "2022 Plan"), which
became effective on such date without stockholder approval pursuant to Rule 5635(c)(4) of The Nasdaq Stock Market LLC listing rules (“Rule 5635(c)
(4)”). The 2022 Plan provides for the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and other
stock- or cash-based awards. In accordance with Rule 5635(c)(4), awards under the 2022 Plan may only be made to a newly hired employee who has not
previously been a member of our board of directors, or an employee who is being rehired following a bona fide period of non-employment by us as a
material inducement to the employee’s entering into employment with us. A total of 2,500,000 shares of common stock were reserved for issuance under
the 2022 Plan. Any shares subject to awards previously granted under the 2022 Plan that expire, terminate or are otherwise surrendered, canceled, or
forfeited in any case, in a manner that results in the Company acquiring the shares covered by the award at a price not greater than the price (as adjusted to
reflect any equity restructuring) paid by the Participant for such shares or not issuing any shares covered by the award, the unused shares covered by the
award will again be available for award grants under the 2022 Plan.
As of December 31, 2022, there were no awards outstanding and 2,500,000 shares available for future grant under the 2022 Plan.
Stock Options
The following table summarizes the Company’s stock option activity for the year ended December 31, 2022:
Outstanding as of December 31, 2021
Granted
Exercised
Forfeited
Outstanding as of December 31, 2022
Options exercisable as of December 31, 2022
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractua
l
Term
(in years)
Aggregate
Intrinsic
Value
11,517,189 $
4,527,897
(326,864 )
(778,188 )
14,940,034 $
7,441,253 $
11.10
6.89
2.96
10.62
10.03
10.38
7.42 $
28,007
7.25 $
5.88 $
11,608
8,115
The weighted average grant-date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 was $5.53, $15.33,
and $5.08 per share, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2022, 2021, and 2020 was $981,
$4,727, and $37,255, respectively.
F-24
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the
Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.
During the year ended December 31, 2021, the Company granted performance-based stock options to employees for the purchase of an aggregate of
562 thousand shares of common stock with a grant date fair value of $5.53 per share. These stock options are exercisable only upon achievement of
specified performance targets. As of December 31, 2022, none of these options were exercisable because none of the specified performance targets had
been achieved. Because achievement of the specified performance targets was not deemed probable as of December 31, 2022, the Company did not record
any expense for these stock options from the dates of issuance through December 31, 2022.
Restricted Stock Units
The Company has granted restricted stock units ("RSUs") with service-based vesting conditions. RSUs represent the right to receive shares of
common stock upon meeting specified vesting requirements. Restricted stock units may not be sold or transferred by the holder and vest according to the
vesting conditions of each award. The table below summarizes the Company’s RSU activity for the year ended December 31, 2022:
Unvested restricted stock units as of December 31, 2021
Granted
Forfeited
Vested
Unvested restricted stock units as of December 31, 2022
Number
of Shares
Weighted
Average Grant
Date Fair Value
734,755 $
1,302,844 $
(205,658 ) $
(282,401 ) $
1,549,540 $
17.68
6.95
11.82
18.06
9.37
During the years ended December 31, 2022, 2021 and 2020, the Company granted 1,302,844, 768,998 and 6,500 RSUs, respectively. RSUs
generally vest over four years, with 25% vesting after one year, and the remaining 75% vesting quarterly over the next 3 years, subject to continued service
to the Company through the applicable vesting date.
The aggregate intrinsic value of restricted stock units that vested during the years ended December 31, 2022, 2021 and 2020 was $1,809, $16, and
$532, respectively.
During the year ended December 31, 2021, the Company granted performance-based restricted stock awards to two employees for the purchase of
an aggregate of 85,000 shares of common stock with a grant date fair value of $9.59 per share and 40,000 shares with a grant date fair value of $20.35 per
share. These restricted stock awards vest only upon achievement of specified performance targets. As of December 31, 2021, these awards were not vested
because the specified performance targets had not been achieved. In addition, the performance targets were not deemed probable of achievement.
Accordingly, the Company did not record any expense for these awards from the dates of issuance through December 31, 2021. In October 2022, 42,500 of
the awards with a grant date fair value of $9.59, and 20,000 of the awards with a grant date fair value of $20.35, vested fully, as the associated performance
targets were achieved. Accordingly, the Company recorded $815 in compensation expense during the year ended December 31, 2022, with respect to these
awards. As of December 31, 2022, the remaining performance-based restricted stock awards in these grants were not vested because the associated targets
had not been achieved. In addition, the performance targets were not deemed probable of achievement. Accordingly, the Company did not record any
expense for these remaining awards from the dates of issuance through December 31, 2022.
F-25
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Stock-based Compensation Valuation
The assumptions that the Company used to determine the fair value of the stock options granted to employees and directors were as follows,
presented on a weighted average basis:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
2022
Year Ended December 31,
2021
2020
1.67 %
6.0
104.0 %
0 %
0.73 %
5.4
106.5 %
0 %
1.26 %
6.0
73.3 %
0 %
The Company estimates the fair value of rights to acquire common stock under the ESPP using a Black-Scholes valuation model on the date of grant
and the straight-line attribution approach to recognize the expense. The assumptions that the Company used to determine the fair value of rights to acquire
common stock under the ESPP were as follows, presented on a weighted average basis:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
Stock-based Compensation
2022
Year Ended December 31,
2021
2020
2.11 %
0.5
99.0 %
0 %
0.97 %
0.5
123.8 %
0 %
1.20 %
0.5
74.9 %
0 %
The Company recorded stock-based compensation expense related to stock options and restricted stock units in the following expense categories of
its consolidated statements of operations and comprehensive loss:
Research and development expenses
General and administrative expenses
2022
Year Ended December 31,
2021
2020
$
$
13,429 $
12,053
25,482 $
10,146 $
10,076
20,222 $
4,760
4,064
8,824
As of December 31, 2022, the Company had an aggregate of $57,005 of unrecognized stock-based compensation cost, which is expected to be
recognized over a weighted average period of 1.8 years.
11.
Collaboration Revenue
License Agreement with NHSc Rx License GmbH (Nestlé)
Summary of Agreement
In July 2021, the Company entered into the 2021 License Agreement with NHSc Pharma Partners, succeeded by NHSc Rx License GmbH (together
with Société des Produits Nestlé S.A., their affiliates, and their subsidiaries, "Nestlé"). Under the terms of the Agreement, the Company granted Nestlé a
co-exclusive, sublicensable (under certain circumstances) license to develop, commercialize and conduct medical affairs activities for (i) therapeutic
products based on the Company's microbiome technology (including the Company's SER-109 product candidate) that are developed by the Company or on
the Company's behalf for the treatment of CDI and recurrent CDI, as well as any other indications pursued for the products upon mutual agreement of the
parties (the “2021 Field”) in the United States and Canada (the “2021 Licensed Territory”), and (ii) the Company's SER-109 product candidate and any
improvements and modifications thereto developed pursuant to the terms of the 2021 License Agreement (the "2021 Collaboration Products") for any
indications in the 2021 Licensed Territory. The Company is responsible for completing development of SER-109 in the 2021 Field in the United States
until first regulatory approval for SER-109 is obtained.
Nestlé has the sole right to commercialize the 2021 Collaboration Products in the 2021 Licensed Territory in accordance with a commercialization
plan. Both parties will perform medical affairs activities in the 2021 Licensed Territory in accordance with a medical affairs plan. The Company will be
responsible for the manufacturing and supply for commercialization under a supply agreement that will be entered into between the parties. Both parties
will perform pre-launch activities of 2021 Collaboration Products prior to the first
F-26
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
commercial sale in the United States. The Company is responsible for funding the pre-launch activities until first commercial sale of 2021 Collaboration
Products in the 2021 Licensed Territory and in accordance with a pre-launch plan, up to a specified cap. Following first commercial sale of the first 2021
Collaboration Product, the Company will be entitled to share equally in its commercial profits and losses.
In connection with the 2021 License Agreement, the Company received an upfront payment of $175,000. The Company is eligible to receive
additional payments of up to $360,000 if certain regulatory and sales milestones are achieved. The potential future milestone payments include up to
$135,000 for the achievement of specified regulatory milestones and up to $225,000 for the achievement of specified net sales milestones.
The 2021 License Agreement continues in effect until all development and commercialization activities for all 2021 Collaboration Products in the
2021 Licensed Territory have permanently ceased. The 2021 License Agreement may be terminated by either party upon sixty days’ written notice for the
other party’s material breach that remains uncured during such sixty-day period, or immediately upon written notice for the other party’s insolvency. Nestlé
may also terminate the 2021 License Agreement at-will (i) with twelve months’ prior written notice, effective only on or after the third anniversary of first
commercial sale of the first 2021 Collaboration Product in the 2021 Licensed Territory, (ii) if first commercial sale of the first 2021 Collaboration Product
in the 2021 Licensed Territory has not occurred by the fifth anniversary of the effective date of the 2021 License Agreement, with one hundred eighty days’
prior written notice, which must be provided during a specified period set forth in the 2021 License Agreement, or (iii) if regulatory approval for SER-109
is not granted after submission by the Company of a filing seeking first regulatory approval as set forth in the development and regulatory activity plan, and
the parties fail to agree on further development of SER-109 in accordance with the terms of the 2021 License Agreement, with one hundred eighty days’
prior written notice, which must be provided within a specified period set forth in the 2021 License Agreement. The Company may also terminate the 2021
License Agreement immediately upon written notice if Nestlé challenges any licensed patent in the 2021 Licensed Territory. Upon termination of the 2021
License Agreement, all licenses granted to Nestlé by the Company will terminate. If the Company commits a material breach of the 2021 License
Agreement, Nestlé may elect not to terminate the 2021 License Agreement but instead apply specified adjustments to the payment terms and other terms
and conditions of the 2021 License Agreement.
Accounting Analysis
The 2021 License Agreement represents a separate contract between Nestlé and the Company. The 2021 License Agreement is within the scope of
Accounting Standard Update 2018-18, Collaborative Arrangements (Topic 808), and has elements that are within the scope of ASC 606 - Revenue From
Contracts with Customers (Topic 606) and Topic 808.
The Company identified the following promises in the 2021 License Agreement that were evaluated under the scope of Topic 606: (i) delivery of a
co-exclusive license for SER-109 to develop, commercialize and conduct medical affairs in the United States and Canada; (ii) services to be performed in
accordance with the development and regulatory activity plan to obtain regulatory approval of SER-109 in the United States. The Company also evaluated
whether certain options outlined within the 2021 License Agreement represented material rights that would give rise to a performance obligation and
concluded that none of the options convey a material right to Nestlé and therefore are not considered separate performance obligations within the 2021
License Agreement.
The Company assessed the above promises and determined that the co-exclusive license for SER-109 and the services to obtain regulatory approval
of SER-109 in the United States are reflective of a vendor-customer relationship and therefore represent performance obligations within the scope of Topic
606. The co-exclusive license for SER-109 in the United States and Canada is considered functional intellectual property and distinct from other promises
under the contract as Nestlé can benefit from the license on its own or together with other readily available resources. The services performed by the
Company to obtain regulatory approval of SER-109 are not complex or specialized, could be performed by another qualified third party, are not expected to
significantly modify or customize the license given that SER-109 is late-stage intellectual property that has completed clinical development and the
services are expected to be performed over a short period of time. Therefore, the license and the services each represents a separate performance obligation
within a contract with a customer under the scope of Topic 606 at contract inception.
The Company considers the collaborative pre-launch activities and commercialization activities to be separate units of account within the scope of
Topic 808 and are not deliverables under Topic 606. The Company and Nestlé are both active participants in the pre-launch activities and
commercialization activities and are exposed to significant risks and rewards that are dependent on the commercial success of the activities in the
arrangement.
F-27
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
The up-front payment of $175,000 compensated the Company for: (i) the co-exclusive license for SER-109 to develop, commercialize and conduct
medical affairs in the United States and Canada, (ii) services performed in accordance with the development and regulatory activity plan to obtain
regulatory approval of SER-109 in the United States and (iii) pre-launch activities performed by Nestlé and the Company until the first commercial sale of
SER-109 in the United States. The commercialization activities, which include the commercial manufacturing, participation on joint steering committees
and medical affairs work, that occur after regulatory approval of SER-109 in the United States, are part of the 50/50 sharing of commercial profits.
Therefore, the up-front payment of $175,000 does not compensate the Company for these activities.
The Company allocated the $175,000 between the Topic 606 unit of account and the Topic 808 unit of account by determining the standalone selling
price (SSP) of each good or service. The selling price of each good or service was determined based on the Company’s SSP with the objective of
determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. The Company determined the transaction
price under Topic 606 to be $139,500 and the Topic 808 amount to be $35,500 at the inception of the 2021 License Agreement.
The Company determined that any variable consideration related to regulatory milestones is deemed to be fully constrained and therefore excluded
from the transaction price due to the high degree of uncertainty and risk associated with these potential payments, as the Company determined that it could
not assert that it was probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company also determined that
sales milestones relate solely to the license of intellectual property and are therefore excluded from the transaction price under the sales- or usage-based
royalty exception of Topic 606. Revenue related to these sales milestones will only be recognized when the associated sales occur, and relevant thresholds
are met.
The Topic 606 transaction price of $139,500 has been allocated to the co-exclusive license for SER-109 and the services performed in accordance
with the development and regulatory activity plan to obtain regulatory approval of SER-109 in the United States based on the Company’s SSP. The
Company recognized revenue for the license performance obligation at a point in time, that is upon transfer of the license to Nestlé. As control of the
license was transferred in July 2021, the Company recognized $131,343 of collaboration revenue - related party during the year ended December 31, 2021
pertaining to the license performance obligation. The remaining amount of the Topic 606 transaction price of $8,157 was allocated to the services
performance obligation and is being recognized over time as the services are performed. During the years ended December 31, 2022 and 2021, the
Company recognized $4,114 and $2,068, of collaboration revenue - related party, respectively, related to the services performance obligation under the
2021 License Agreement.
The amount allocated to the Topic 808 unit of accounting relates to the pre-launch activities performed prior to the first commercial sale of SER-109
and was determined to be $35,500 based on standalone selling price.
The Company recorded the $35,500 in total liabilities on its consolidated balance sheet at the inception of the arrangement. On a quarterly basis, the
Company and Nestlé will provide financial information about the pre-launch activities performed by both parties. The Company reduces the $35,500
liability as the pre-launch activities are performed and it makes payments to Nestlé for the pre-launch costs Nestlé incurs. As of December 31, 2022 and
2021, there is $34,770 and $21,098 included in accrued expenses and other current liabilities and $0 and $10,585 included in other long-term liabilities,
respectively.
The cost associated with pre-launch activities performed by the Company is recorded within total operating expenses in the Company’s consolidated
statements of operations and comprehensive loss. In the years ended December 31, 2022 and 2021, the Company recognized $6,102 and $2,168 in research
and development expenses and $8,953 and $3,383 in general and administrative expenses, respectively, associated with pre-launch activities performed.
As the Company and Nestlé are both active participants in the pre-launch activities, the sharing of 50% of the pre-launch costs will be recognized in
collaboration (profit) loss sharing - related party in the Company’s consolidated statements of operations and comprehensive loss. The Company recorded
$1,004 of expense and $1,732 of income in the collaboration (profit) loss sharing line for the years ended December 31, 2022 and 2021, respectively.
Collaboration and License Agreement with Société des Produits Nestlé S.A. (Nestlé)
Summary of Agreement
In January 2016, the Company entered into a collaboration and license agreement with Nestec Ltd., succeeded by Société des Produits Nestlé S.A.
(together with NHSc Rx License GmbH, their affiliates and their subsidiaries, “Nestlé”) (the “2016 License Agreement”) for the development and
commercialization of certain product candidates for the treatment and management of CDI and
F-28
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
inflammatory bowel disease (“IBD”), including UC and Crohn’s disease. The 2016 License Agreement supports the development of the Company’s
portfolio of products for CDI and IBD in markets outside of the United States and Canada (the “2016 Licensed Territory”).
Under the 2016 License Agreement, the Company granted to Nestlé an exclusive, royalty-bearing license to develop and commercialize, in the 2016
Licensed Territory, certain products based on its microbiome technology that are being developed for the treatment of CDI and IBD, including SER-109,
SER-262, SER-287 and SER-301 (collectively, the “2016 Collaboration Products”). The 2016 License Agreement sets forth the Company’s and Nestlé’s
respective obligations for development, commercialization, regulatory and manufacturing and supply activities for the 2016 Collaboration Products with
respect to the licensed fields and the 2016 Licensed Territory.
Under the 2016 License Agreement, Nestlé agreed to pay the Company an upfront cash payment of $120,000, which the Company received in
February 2016. The Company is eligible to receive up to $285,000 in development milestone payments, $375,000 in regulatory payments and up to an
aggregate of $1,125,000 for the achievement of certain commercial milestones related to the sales of the 2016 Collaboration Products. Nestlé also agreed to
pay the Company tiered royalties, at percentages ranging from the high single digits to high teens, of net sales of 2016 Collaboration Products in the 2016
Licensed Territory.
Under the 2016 License Agreement, the Company is entitled to receive a $20,000 milestone payment from Nestlé following initiation of a SER-287
Phase 2 study and a $20,000 milestone payment from Nestlé following the initiation of a SER-287 Phase 3 study. In November 2018, the Company entered
into a letter agreement with Nestlé which modified the 2016 License Agreement to address the current clinical plans for SER-287. Pursuant to the letter
agreement, the Company and Nestlé agreed that following initiation of the SER-287 Phase 2b study, the Company would be entitled to receive $40,000 in
milestone payments from Nestlé, which represent the milestone payments due to the Company for the initiation of a SER-287 Phase 2 study and a Phase 3
study. The SER-287 Phase 2b study was initiated and the $40,000 of milestone payments were received in December 2018. The letter agreement also
provides scenarios under which Nestlé’s reimbursement to the Company for certain Phase 3 development costs would be reduced or delayed depending on
the outcomes of the SER-287 Phase 2b study.
The 2016 License Agreement continues in effect until terminated by either party on the following bases: (i) Nestlé may terminate the 2016 License
Agreement in the event of serious safety issues related to any of the 2016 Collaboration Products; (ii) the Company may terminate the 2016 License
Agreement if Nestlé challenges the validity or enforceability of any of the Company’s licensed patents; and (iii) either party may terminate the 2016
License Agreement in the event of the other party’s uncured material breach or insolvency. Upon termination of the 2016 License Agreement, all licenses
granted to Nestlé by the Company will terminate, and all rights in and to the 2016 Collaboration Products in the 2016 Licensed Territory will revert to the
Company. If the Company commits a material breach of the 2016 License Agreement, Nestlé may elect not to terminate the 2016 License Agreement but
instead apply specified adjustments to its payment obligations and other terms and conditions of the 2016 License Agreement.
Accounting Analysis
The Company assessed the 2016 License Agreement in accordance with Topic 606 and concluded that Nestlé is a customer. The Company identified
the following promises under the contract: (i) a license to develop and commercialize the 2016 Collaboration Products in the 2016 Licensed Territory, (ii)
obligation to perform research and development services, (iii) participation on a joint steering committee, and (iv) manufacturing services to provide
clinical supply to complete future clinical trials. In addition, the Company identified a contingent obligation to perform manufacturing services to provide
commercial supply if commercialization occurs, which is contingent upon regulatory approval. This contingent obligation is not a performance obligation
at inception and has been excluded from the initial allocation as it represents a separate buying decision at market rates, rather than a material right in the
contract. The Company assessed the promised goods and services to determine if they are distinct. Based on this assessment, the Company determined that
Nestlé cannot benefit from the promised goods and services separately from the others as they are highly interrelated and therefore not distinct.
Accordingly, the promised goods and services represent one combined performance obligation and the entire transaction price was allocated to that single
combined performance obligation.
At contract inception, the Company determined that the $120,000 non-refundable upfront amount constituted the entirety of the consideration to be
included in the transaction price as the development, regulatory, and commercial milestones were fully constrained. During the year ended December 31,
2016, the Company received $10,000 from Nestlé in connection with the initiation of the Phase 1b study for SER-262 in CDI. During the year ended
December 31, 2017, the Company received $20,000 from Nestlé in connection with the initiation of the Phase 3 study for SER-109. During the year ended
December 31, 2018, the Company received $40,000 from Nestlé in connection with the initiation of the Phase 2b study for SER-287. During the year
ended December 31, 2020, the Company received
F-29
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
$10,000 from Nestlé in connection with the initiation of the Phase 1b SER-301 study. As of December 31, 2022, the aggregate amount of the transaction
price allocated to the performance obligation of the 2016 License Agreement was approximately $200,000.
During the years ended December 31, 2022, 2021, and 2020 using the cost-to-cost method, which best depicts the transfer of control to the
customer, the Company recognized $3,014, $10,446, and $11,897 of Collaboration revenue – related party, respectively, relating to the 2016 License
Agreement.
As of December 31, 2022 and 2021, there was $96,689, and $103,817 of deferred revenue related to the unsatisfied portion of the performance
obligation under the Nestlé agreements. As of December 31, 2022, deferred revenue is classified as current or non-current in the consolidated balance
sheets based on the Company’s estimate of revenue that will be recognized within the next twelve months, which is determined by the cost-to-cost method
which measures the extent of progress towards completion based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying
the performance obligation. All costs associated with the 2016 License Agreement are recorded in research and development expense in the consolidated
statements of operations and comprehensive loss.
AstraZeneca Research Collaboration and Option Agreement
Summary of the Agreement
In March 2019, the Company entered into a Research Collaboration and Option Agreement (the “Research Agreement”) with MedImmune, LLC, a
wholly owned subsidiary of AstraZeneca Inc. (“AstraZeneca”), to advance the mechanistic understanding of the microbiome in augmenting the efficacy of
cancer immunotherapy. Under the Research Agreement, the Company and AstraZeneca would conduct certain research and development activities as set
forth on a research plan focused on the role of the microbiome in certain cancers and cancer immunotherapies, including furthering the research program
for SER-401, in combination with AstraZeneca compounds targeting various cancers.
Pursuant to the Research Agreement, the Company agreed not to conduct research or development on any microbiome products specifically
designed by the Company during the term of the Research Agreement for the treatment of cancer (“Microbiome Oncology Products”), with or on behalf of
any third-party without the prior approval of the joint steering committee for the Research Agreement for at least three years after the effective date (the
“Exclusivity Period”). Additionally, AstraZeneca was to pay to the Company a total of $20,000 in three equal installments, the first of which the Company
received in April 2019, the second of which the Company received in December 2019, and the third of which the Company received in January 2021.
Additionally, AstraZeneca was to bear its costs of conducting activities under the research plan and to reimburse the Company for all activities performed
under the research plan based on actual full-time employee (“FTE”) time and certain third-party costs incurred by the Company in connection therewith.
Under the Research Agreement, the Company granted to AstraZeneca an exclusive option to negotiate a worldwide, sublicensable exclusive license
under relevant intellectual property rights controlled by the Company to exploit Microbiome Oncology Products for the treatment of cancer. Additionally,
the Company granted to AstraZeneca an additional exclusive option to obtain a worldwide, sublicensable, license under certain intellectual property rights
arising out of the Agreement or coming into the control of the Company during the term of the Agreement, which AstraZeneca did not exercise.
In December 2020, the Company received written notice from AstraZeneca that AstraZeneca elected to terminate the Research Agreement by and in
accordance with its terms. The termination of the Research Agreement was effective on April 2, 2021 (the “Termination Date”), which was 120 days from
the date of the termination notice.
Accounting Analysis
The Company assessed the Research Agreement in accordance with ASC 606 and concluded that AstraZeneca was a customer, and that the
promised goods and services in the Research Agreement represented one combined performance obligation to which the entire transaction price was
allocated. The Company also concluded that each option does not constitute a performance obligation at inception and was therefore excluded from the
initial allocation since each option represents a separate buying decision at market rates, rather than a material right in the contract.
At contract inception, the Company determined that the transaction price was comprised of: (i) the $20,000 fee, which represents fixed
consideration, and (ii) the estimated reimbursement of research and development costs incurred, which totaled approximately
F-30
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
$13,900, which represents variable consideration. The Company included the variable consideration in the transaction price at contract inception because
the Company had determined it was not probable that a significant reversal of cumulative revenue would occur.
The Company determined that revenue under the Research Agreement should be recognized over time, using a cost-to-cost input method, as
AstraZeneca simultaneously receives the benefit from the Company as the Company performs under the single performance obligation over time.
In December 2020, the Company received written notice that AstraZeneca elected to terminate the Research Agreement. As a result of
AstraZeneca’s decision to terminate the Research Agreement, the Company’s performance obligations under the Research Agreement ended as of
December 31, 2020. The final transaction price of $23,377 is comprised of the $20,000 fixed consideration and $3,376 for the reimbursed research and
development costs. The Company recognized its remaining deferred revenue of $15,145 in collaboration revenue in the year ended December 31, 2020.
No collaboration revenue was recognized for the years ended December 31, 2022 and 2021, as the Company's performance obligations under the Research
Agreement ended December 31, 2020.
Contract Balances from Contracts with Customers
The following tables present changes in the Company’s contract liabilities during the year ended December 31, 2022 and 2021:
Year ended December 31, 2022
Contract liabilities:
Deferred revenue - related party
Year ended December 31, 2021
Contract liabilities:
Deferred revenue - related party
Balance as of
December 31,
2021
Additions
Deductions
Balance as of
December 31,
2022
$
103,817
—
(7,128 ) $
96,689
Balance as of
December 31,
2020
Additions
Deductions
Balance as of
December 31,
2021
$
108,174
8,157
(12,514 ) $
103,817
During the year ended December 31, 2022, the Company recognized the following revenues as a result of changes in the contract liability balances
in the respective periods:
Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the period
Year Ended December 31,
2022
2021
$
7,128 $
10,446
When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer
under the terms of a contract, a contract liability is recorded. Revenue is recognized from the contract liability over time using the cost-to-cost method.
12.
Net Loss per Share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows:
Numerator:
Net loss attributable to common stockholders
$
(250,157 ) $
(65,578 ) $
(89,127 )
Denominator:
Weighted average common shares outstanding, basic and diluted
Net loss per share attributable to common stockholders, basic and diluted
108,077,043
(2.31 ) $
91,702,866
(0.72 ) $
79,789,220
(1.12 )
$
2022
Year Ended December 31,
2021
2020
F-31
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
The Company’s potential dilutive securities, which include stock options, unvested restricted common stock and shares issuable under the ESPP,
have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share and therefore been anti-
dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to
common stockholders is the same. The following potential common shares, presented based on amounts outstanding at each period end, were excluded
from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an
anti-dilutive effect:
Stock options to purchase common stock
Unvested restricted stock units
Shares issuable under employee stock purchase plan
Year Ended December 31,
2021
2022
14,940,034 11,517,189
734,755
165,047
16,579,167 12,416,991
1,549,540
89,593
2020
10,037,130
6,500
10,786
10,054,416
13.
Commitments and Contingencies
Leases
Refer to Note 7 “Leases” for discussion of the commitments associated with the Company’s lease portfolio.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and
other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property
infringement claims made by third-parties. In addition, the Company has entered into indemnification agreements with members of its board of directors
and its officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or
service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does
not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or
cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2022 or 2021.
Legal Contingencies
The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that the
Company can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations,
settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the views on the probable
outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the
period in which such determination is made.
In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of material loss is at least reasonably
possible, the Company will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will
provide disclosure to that effect. The Company expenses legal costs as they are incurred.
The Company did not accrue any liabilities related to legal contingencies in its consolidated financial statements as of December 31, 2022 and
2021.
Bacthera Long Term Manufacturing Agreement
On November 8, 2021, the Company entered into a Long Term Manufacturing Agreement with BacThera AG (“Bacthera”), a joint venture between
Chr. Hansen and a Lonza Group affiliate, which was amended on December 14, 2022 (the "Bacthera Agreement"). The Bacthera Agreement governs the
general terms under which Bacthera, or one of its affiliates, will (i) construct a dedicated full-scale production suite for the Company at Bacthera’s
Microbiome Center of Excellence in Visp, Switzerland, which is currently under construction; and (ii) provide manufacturing services to the Company for
its SER-109 product and other products, as agreed to by the parties.
F-32
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Under the terms of the Bacthera Agreement, the Company agreed to pay Bacthera a total of at least 256,000 CHF (or approximately $277,000) for
the initial term of the agreement, inclusive of the construction fees and annual operating fees. Bacthera is funding the majority of the construction costs and
will own and control the manufacturing suite during construction. The construction fees that the Company is responsible for represent a small percentage of
the overall construction costs and are payable upon the achievement of certain milestones related to the construction of the dedicated manufacturing suite.
The annual operating fee includes the cost of a baseline annual batch production volume. The Company has also agreed to pay certain other ancillary fees
and a per-batch fee in excess of the baseline batches. These fees are subject to adjustment during construction for certain items outside of Bacthera’s
control and annually against an agreed index. The Company will supply the active pharmaceutical ingredients to Bacthera to enable it to perform the
services and pay for certain other raw materials and manufacturing components, which will be acquired by Bacthera.
The Bacthera Agreement has an initial term that continues until the tenth anniversary of the earlier of (a) successful completion of construction and
demonstration of Bacthera’s readiness for commercial production or (b) the commencement of manufacturing.
The initial term is subject to renewals, which could extend the term to 16 years, and additional three-year terms thereafter. Each party has the
ability to terminate the Bacthera Agreement upon the occurrence of certain customary conditions. The Company may also terminate the Bacthera
Agreement for convenience after a defined period. In the event of a termination, the Company has certain financial obligations that would apply, and
Bacthera has agreed to grant a license to Bacthera-developed manufacturing know how, if any, and provide technical assistance to the Company, so that the
Company could transfer the manufacturing operations to itself or a third party. The Bacthera Agreement also contains representations, warranties and
indemnity obligations as well as limitations of liability that are customary for agreements of this type.
The Bacthera Agreement represents a lease as the Company will have the right to use the dedicated manufacturing suite for a period of time
following completion of the construction of the manufacturing suite and approval by regulatory authorities. As of December 31, 2022, the lease
commencement date has not occurred and therefore the Company has not recorded an operating lease asset or an operating lease liability on its
consolidated balance sheets. As of December 31, 2022, the Company has paid Bacthera $12,276, of which $3,448 was expensed in the year ended
December 31, 2021, and $8,828 relate to the construction of the dedicated manufacturing suite and are included in other non-current assets in the
accompanying consolidated balance sheet.
14.
Income Taxes
During the years ended December 31, 2022, 2021 and 2020, the Company recorded no income tax benefits for the net operating losses incurred in
each year or interim period, due to its uncertainty of realizing a benefit from those items.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
Federal statutory income tax rate
Research and development tax credits
State taxes, net of federal benefit
Stock-based compensation
Uncertain tax position reserves
Other
Change in deferred tax asset valuation allowance
Effective income tax rate
F-33
2022
Year Ended December 31,
2021
2020
(21.0 )%
(3.1 )
(4.3 )
0.6
4.6
0.3
22.9
— %
(21.0 )%
(16.6 )
(2.8 )
(0.4 )
—
0.4
40.4
— %
(21.0 )%
(6.4 )
(7.8 )
(5.8 )
—
0.2
40.8
— %
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
Net deferred tax assets as of December 31, 2022 and 2021 consisted of the following:
Deferred tax assets:
Net operating loss carryforwards
Research and development tax credit carryforwards
Section 174 capitalized research and development expenses
Stock-based compensation expense
Lease liability
Deferred revenue
Accrued expenses
Section 163(j) limitation
Depreciation and amortization
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Right of use assets
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
December 31,
2022
2021
132,560 $
48,854
38,894
20,048
29,717
29,922
4,044
2,303
396
200
306,938 $
—
(29,568 )
(29,568 )
(277,370 ) $
— $
108,189
53,133
—
16,045
6,635
36,666
2,475
1,368
247
274
225,032
—
(4,918 )
(4,918 )
(220,114 )
—
$
$
$
$
The Tax Cuts and Jobs Act ("TCJA") requires taxpayers to capitalize and amortize research and experimental expenditures under IRC Section 174
for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022 and resulted in the
capitalization of research and development costs of $160,586. The Company will amortize these costs for tax purposes over five years if the research and
development was performed in the U.S. and over 15 years if the research and development was performed outside the U.S.
As of December 31, 2022, the Company had net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of $501,789 and
$481,862, respectively. Federal NOLs of $119,800, generated before 2018, will begin expiring in varying amounts in 2035 unless utilized. The remaining
federal NOLs of $381,989, generated after 2017, will be carried forward indefinitely and could be used to offset up to 80% of taxable income in future tax
years. The Company's state NOLs will expire at various times starting in 2035. As of December 31, 2022, the Company also had available gross research
and development tax credit carryforwards for federal and state income tax purposes of $50,248 and $12,925, respectively, which begin to expire in 2031
and 2028, respectively. The federal research and development tax credits include an orphan drug credit carryforward of $25,623.
Utilization of the NOLs and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382
and 383 of the Internal Revenue Code ("IRC") of 1986 due to ownership changes that have occurred previously or that could occur in the future. These
ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as
defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more
than 50% over a three-year period. Since its formation, the Company has raised capital through the issuance of capital stock on several occasions. These
financings, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control or could result in a
change of control in the future upon subsequent disposition. The Company conducted an analysis to determine if historical changes in ownership through
December 31, 2020 would limit or otherwise restrict its ability to utilize these NOLs and research and development credit carryforwards. As a result of this
analysis, the Company does not believe there are any significant limitations on its ability to utilize these carryforwards. However, future changes in
ownership after December 31, 2020 could affect the limitation in future years. Any limitation may result in expiration of a portion of the NOLs or research
and development credit carryforwards before utilization.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has
considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any
revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred
tax assets. Accordingly, a full valuation allowance has been established against
F-34
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
the deferred tax assets as of December 31, 2022 and 2021. Management reevaluates the positive and negative evidence at each reporting period.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2022, 2021 and 2020 related primarily to the
increases in NOLs, research and development tax credit carryforwards and capitalized research and development expenses pursuant to IRC Section 174,
and stock-based compensation were as follows:
Valuation allowance at beginning of year
Decreases recorded as benefit to income tax provision
Increases recorded to income tax provision
Valuation allowance as of end of year
2022
(220,114 ) $
—
(57,256 )
(277,370 ) $
Year Ended December 31,
2021
(193,736 ) $
—
(26,378 )
(220,114 ) $
$
$
2020
(157,346 )
—
(36,390 )
(193,736 )
The Company is currently under examination by the Internal Revenue Service ("IRS") for the period ended December 31, 2018 related to its 2018
research and development tax credits ("R&D Credit(s)"). The Company has adjusted its 2018 R&D Credits and its overall federal and state R&D Credit
carryforward balance from the Company's inception to December 31, 2022, based on the most recent information received from the IRS regarding the
examination. Also, the Company has reviewed each of its overall filing positions since inception and has not identified any additional positions that do not
meet the more likely than not threshold. The Company does not anticipate a material change to its uncertain tax position reserves in the next 12 months.
The changes in the Company's unrecognized tax benefits for the years ended December 31, 2022, 2021, and 2020 were as follows:
Balance at beginning of year
Increase in unrecognized tax benefits as a result of tax positions taken
during the year
Reduction to unrecognized tax benefits
Increases in unrecognized tax benefits as a result of tax positions taken
during current period
2022
Year Ended December 31,
2021
2020
$
— $
— $
12,528
—
—
—
$
12,528 $
— $
—
—
—
—
The Company has not yet conducted a study of its research and development credit carry forwards. This study may result in further adjustment to
the Company’s R&D Credits; however, a full valuation allowance has been provided against the Company’s R&D Credits, and if an adjustment is required,
this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheet or statement
of operations if an adjustment were required. The Company had no other unrecognized tax benefits accrued for the years ended December 31, 2022 and
2021, or related interest and penalties as of such dates. The Company will recognize any interest and penalties related to uncertain tax positions in income
tax expense.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company
is subject to examination by federal and state jurisdictions, where applicable. The Company's tax years are still open under statute from 2011 to present. All
years may be examined to the extent the tax credit or net operating loss carryforwards are used in future periods.
15.
Related Party Transactions
As described in Note 11, in July 2021, the Company entered into the 2021 License Agreement with NHSc Pharma Partners (together with Société
des Produits Nestlé S.A., “Nestlé”). NHSc Pharma Partners is an affiliate of two of the Company's significant stockholders, Société des Produits Nestlé
S.A. and Nestlé Health Science U.S. Holdings, Inc. During the years ended December 31, 2022 and 2021, the Company recognized $4,114 and $133,411 of
related party revenue, respectively, associated with the 2021 License Agreement. As of the years ended December 31, 2022 and 2021, there was $1,976 and
$6,089 of deferred revenue related to the 2021 License Agreement, which is classified as current or non-current in the consolidated balance sheets. As of
December 31, 2022 and 2021 there was $34,770 and $21,098 included in accrued expenses and other liabilities and $0 and $10,585 included in other long
term liabilities, respectively, related to the 2021 License Agreement. The Company has made no payments to Nestlé during the years ended December 31,
2022 and 2021. There was no amount due from Nestlé as of December 31, 2022 and 2021.
F-35
SERES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
As described in Note 11, in January 2016, the Company entered into the 2016 License Agreement with Société des Produits Nestlé S.A. (successor
in interest to Nestec, Ltd.) for the development and commercialization of certain product candidates in development for the treatment and management of
CDI and IBD, including UC and Crohn’s disease. Société des Produits Nestlé S.A. and its affiliate Nestlé Health Science U.S. Holdings, Inc. are two of the
Company's significant stockholders. During the years ended December 31, 2022, 2021, and 2020, the Company recognized $3,014, $10,446, and $11,897,
respectively, of related party revenue associated with the 2016 License Agreement. As of December 31, 2022 and 2021, there was $94,713 and $97,728,
respectively, of deferred revenue related to the 2016 License Agreement, which is classified as current or non-current in the consolidated balance sheets.
The Company has made no payments to Nestlé during the years ended December 31, 2022 and 2021. There was no amount due from Nestlé as of
December 31, 2022 and 2021.
As described in Note 10, the Company entered into a securities purchase agreement with Flagship Pioneering Fund VII, L.P. and Nutritional Health
LTP Fund, L.P., affiliates of Flagship, one of the Company's significant stockholders, for the sale of 8,738,243 shares of its common stock at a purchase
price of $3.15 per share as part of the Registered Direct Offering, which closed on July 5, 2022. The Company received proceeds from Flagship of $27,525.
In July 2022, the Company entered into a Pledge and Utilization Agreement with Flagship Pioneering Labs TPC, Inc., an affiliate of Flagship, for an
option to lease certain manufacturing space. The Company paid $833 for this option which is classified in other non-current assets on the Company's
condensed consolidated balance sheet as of December 31, 2022.
In July 2019, the Company entered into a sublease agreement with Flagship to sublease a portion of its office and laboratory space in Cambridge,
Massachusetts. The term of the sublease agreement commenced in July 2019 and ended in November 2021. Under this agreement, the Company recorded
other income of $0 and $1,575 during the years ended December 31, 2022 and 2021. The Company received cash payments of $0 and $1,575 during the
years ended December 31, 2022 and 2021.
16.
401(k) Savings Plan
The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.
Effective January 1, 2016, the Company elected to match 50% of the first 6% of an employee’s deferral. Company contributions are expensed in the year
for which they are declared. During the years ended December 31, 2022, 2021, and 2020 the Company recorded expense of $1,921, $1,087, and $586,
respectively, for 401(k) match contributions.
F-36
SERES THERAPEUTICS, INC.
2015 INCENTIVE AWARD PLAN
(AS AMENDED AND RESTATED EFFECTIVE DECEMBER 14, 2022)
Exhibit 10.1
I.PURPOSE
The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing these individuals with equity ownership opportunities. Capitalized terms used in the
Plan are defined in Section XI. This Plan constitutes an amendment and restatement of the Seres Therapeutics, Inc. 2015 Incentive Award
Plan.
II.ELIGIBILITY
Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.
III.ADMINISTRATION AND DELEGATION
(a)
Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which
Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan.
The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award
Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may
correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate
to administer the Plan and any Awards. The Administrator’s determinations under the Plan are in its sole discretion and will be final and
binding on all persons having or claiming any interest in the Plan or any Award.
(b)
Appointment of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers
under the Plan to one or more Committees. The Board may abolish any Committee or re-vest in itself any previously delegated authority at
any time.
IV.STOCK AVAILABLE FOR AWARDS
(a)
Number of Shares. Subject to adjustment under Section VIII and the terms of this Section IV, Awards may be made under
the Plan covering up to the Overall Share Limit. As of the Plan’s effective date under Section X(c), the Company will cease granting awards
under the Prior Plans; however, Prior Plan Awards will remain subject to the terms of the applicable Prior Plan. Shares issued under the Plan
may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
(b)
Share Recycling. If all or any part of an Award or Prior Plan Award expires, lapses or is terminated, exchanged for cash,
surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company
acquiring Shares covered by the Award or Prior Plan Award at a price not greater than the price (as adjusted to reflect any Equity
Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award or Prior Plan Award, the unused Shares
covered by the Award or Prior Plan Award will, as applicable, become or again be available for Award grants under the Plan. Further, Shares
delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an
Award or Prior Plan Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the
1
Company from the Award or Prior Plan Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or
again be available for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding
Awards or Prior Plan Awards shall not count against the Overall Share Limit.
(c)
Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than 17,200,000 Shares
may be issued pursuant to the exercise of Incentive Stock Options.
(d)
Substitute Awards. In connection with an entity’s merger or consolidation with the Company or the Company’s
acquisition of an entity’s property or stock, the Administrator may grant Awards in substitution for any options or other stock or stock-based
awards granted before such merger or consolidation by such entity or its affiliate. Substitute Awards may be granted on such terms as the
Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall
Share Limit, except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares
that may be issued pursuant to the exercise of Incentive Stock Options under the Plan.
(e)
Non-Employee Director Compensation. Notwithstanding any provision to the contrary in the Plan, the Administrator may
establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Administrator will from
time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to
the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time
to time, provided that the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance
with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a
non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed
$700,000. The Administrator may make exceptions to this limit for individual non-employee Directors in extraordinary circumstances, as the
Administrator may determine in its discretion, provided that the non-employee Director receiving such additional compensation may not
participate in the decision to award such compensation or in other compensation decisions involving non-employee Directors.
V.STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
(a)
General. The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the
limitations in the Plan, including Section IX(i) with respect to Incentive Stock Options. The Administrator will determine the number of
Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the
conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle
the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the
exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one
Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which
the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash,
Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.
(b)
Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify
the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the
Option or Stock Appreciation Right.
2
(c)
Duration of Options. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the
Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years.
(d)
Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of
exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock
Appreciation Right, together with, as applicable, payment in full (i) as specified in Section V(e) for the number of Shares for which the
Award is exercised and (ii) as specified in Section IX(e) for any applicable taxes. Unless the Administrator otherwise determines, an Option
or Stock Appreciation Right may not be exercised for a fraction of a Share.
(e)
Payment Upon Exercise. The exercise price of an Option must be paid in cash, wire transfer of immediately available
funds or by check payable to the order of the Company or, subject to Section X(h), any Company insider trading policy (including blackout
periods) and Applicable Laws, by:
(i)
if there is a public market for Shares at the time of exercise, unless the Administrator otherwise determines, (A)
delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker
acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participant’s delivery to
the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the
Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be
required by the Administrator;
by the Participant valued at their Fair Market Value;
(ii)
to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned
valued at their Fair Market Value on the exercise date;
(iii)
to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise
Administrator determines is good and valuable consideration; or
(iv)
to the extent permitted by the Administrator, delivery of a promissory note or any other property that the
(v)
any combination of the above permitted payment forms (including cash, wire transfer or check).
VI.RESTRICTED STOCK; RESTRICTED STOCK UNITS
(a)
General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service
Provider, subject to the Company’s right to repurchase all or part of such shares at their issue price or other stated or formula price from the
Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before
the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may
grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction
period or periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and
conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
3
(b)
Restricted Stock.
(i)
Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid
with respect to such shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator
provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock
of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and
forfeitability as the shares of Restricted Stock with respect to which they were paid.
designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.
(ii)
Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its
(c)
Restricted Stock Units.
Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon
as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s
election, in a manner intended to comply with Section 409A.
(i)
Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
(ii)
Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any
(iii)
Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a
Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the
Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with
respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
VII.OTHER STOCK OR CASH BASED AWARDS
Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be
delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance
Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be
available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a
Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator
determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash
Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and
vesting conditions, which will be set forth in the applicable Award Agreement.
VIII.ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a)
Equity Restructuring. In connection with any Equity Restructuring, notwithstanding anything to the contrary in this
Section VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring,
which may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant
price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided
4
under this Section VIII(a) will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the
Administrator will determine whether an adjustment is equitable.
(b)
Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), reorganization, merger, consolidation, combination, repurchase, recapitalization, liquidation, dissolution,
or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock
or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of
the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its
financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it
deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action
to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and
either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the
Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits
intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate
such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(i)
To provide for the cancellation of any such Award in exchange for either an amount of cash or other property
with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or
realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been
obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to
or less than zero, then the Award may be terminated without payment;
thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(ii)
To provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered
(iii)
To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by
the Administrator;
(iv)
To make adjustments in the number and type of shares of Common Stock (or other securities or property)
subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments
of the limitations in Section IV hereof on the maximum number and kind of shares which may be issued) and/or in the terms and conditions
of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(v)
(vi)
event.
To replace such Award with other rights or property selected by the Administrator; and/or
To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable
(c)
Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares,
merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary
transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering
or other
5
similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days
before or after such transaction.
(d)
General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have
any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of
any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with
respect to an Equity Restructuring under Section VIII(a) above or the Administrator’s action under the Plan, no issuance by the Company of
Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of
Shares subject to an Award or the Award’s grant or exercise price. The existence of the Plan, any Award Agreements and the Awards granted
hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (i) any adjustment, recapitalization,
reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of
the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the
Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof)
differently under this Section VIII.
(e)
Change in Control. Notwithstanding Section VIII(b) above, if a Change in Control occurs and Awards are not continued,
converted, assumed, or replaced with a comparable award (as determined by the Administrator) by (i) the Company or (ii) a successor entity
or its parent or subsidiary (an “Assumption”), and provided that the Participant has not had a Termination of Service, then immediately prior
to the Change in Control, such Awards (other than any Award that is regularly scheduled to vest based on the attainment of Performance
Criteria or other performance-based vesting conditions) will become fully vested, exercisable and/or payable, as applicable, and all forfeiture,
repurchase and other restrictions on such Awards will lapse, in which case, such Awards will be canceled upon the consummation of the
Change in Control in exchange for the right to receive the Change in Control consideration payable to other holders of Shares, which may be
on such terms and conditions as apply generally to holders of Shares under the Change in Control documents (including, without limitation,
any escrow, earn-out or other deferred consideration provisions) or such other terms and conditions as the Administrator may provide, and
determined by reference to the number of Shares subject to such Awards and net of any applicable exercise price; provided that to the extent
that any Awards constitute “nonqualified deferred compensation” that may not be paid upon the Change in Control under Section 409A
without the imposition of taxes thereon under Section 409A, the timing of such payments shall be governed by the applicable Award
Agreement (subject to any deferred consideration provisions applicable under the Change in Control documents); and provided, further, that
if the amount to which a Participant would be entitled upon the settlement or exercise of such Award at the time of the Change in Control is
equal to or less than zero, then such Award may be terminated without payment. An Award will be considered replaced with a comparable
award if the Award is exchanged for an amount of cash or other property with a value equal to the amount that could have been obtained
upon the settlement of such Award in such Change in Control (as determined by the Administrator), even if such cash or other property
payable with respect to the unvested portion of such Award remains subject to similar vesting provisions following such Change in Control.
Notwithstanding the foregoing, the Administrator will have full and final authority to determine whether an Assumption of an Award has
occurred in connection with a Change in Control.
IX.GENERAL PROVISIONS APPLICABLE TO AWARDS.
(a)
Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards
other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by
operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic
relations order,
6
and, during the life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the
context, will include references to a Participant’s authorized transferee that the Administrator specifically approves.
(b)
Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the
Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.
(c)
Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any
other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or
portions thereof) uniformly.
(d)
Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence
or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period
during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights
under the Award, if applicable.
(e)
Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment
of, any taxes required by law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability.
The Company may deduct an amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates from any
payment of any kind otherwise due to a Participant. Participants may satisfy such tax obligations in cash, by wire transfer of immediately
available funds, by check made payable to the order of the Company, or subject to Section X(h) and any Company insider trading policy
(including blackout periods), (i) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares
retained from the Award creating the tax obligation, valued at their Fair Market Value, (ii) if there is a public market for Shares at the time the
tax obligations are satisfied, unless the Administrator otherwise determines, (A) delivery (including telephonically to the extent permitted by
the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company
sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional
instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax
withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iii) any
combination of the foregoing permitted payment forms (including cash, wire transfer or check). If any tax withholding obligation will be
satisfied under clause (i) of the immediately preceding sentence by the Company’s retention of Shares from the Award creating the tax
obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage
firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained
and to remit the proceeds of the sale to the Company or its designee, and each Participant’s acceptance of an Award under the Plan will
constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the
transactions described in this sentence.
(f)
Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award, including
by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock
Option to a Non-Qualified Stock Option. The Participant’s consent to such action will be required unless (i) the action, taking into account
any related action, does not materially and adversely affect the Participant’s rights under the Award, or (ii) the change is permitted under
Section VIII or pursuant to Section X(f). Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may,
without the approval of the stockholders of the Company, reduce the exercise price per share of outstanding Options or Stock Appreciation
Rights or cancel
7
outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an
exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights.
(g)
Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove
restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s
satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied,
including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable
Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is
necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as
to which such requisite authority has not been obtained.
(h)
Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or
partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
(i)
Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of
the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and
any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is
granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Option’s grant date,
and the term of the Option will not exceed five years. All Incentive Stock Options will be subject to and construed consistently with Section
422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or
other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the
grant date of the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other
transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such
disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive
Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code . Any Incentive Stock Option or portion
thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with
respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-
Qualified Stock Option.
X.MISCELLANEOUS.
(a)
No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of
an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The
Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability
or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
(b)
No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will
have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares.
Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company
will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award
8
and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The
Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with
Applicable Laws.
(c)
Effective Date and Term of Plan. The Plan, as amended and restated, shall become effective as of the Amendment Date.
The Plan will remain in effect until the tenth anniversary of the day prior to the Public Trading Date, unless earlier terminated by the Board.
No Awards may be granted under the Plan during any suspension period or after Plan termination. Notwithstanding anything in the Plan to
the contrary, an Incentive Stock Option may not be granted under the Plan after ten years from the earlier of (i) the date the Board adopted
the Plan or (ii) the date the Company’s stockholders approved the Plan, but Awards previously granted may extend beyond that date in
accordance with the Plan.
(d)
Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no
amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such
amendment without the affected Participant’s consent. Awards outstanding at the time of any Plan suspension or termination will continue to
be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder
approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
(e)
Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign
nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules,
regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
(f)
Section 409A.
(i)
General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A,
such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award
Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures,
or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the
intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B)
comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after
an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or
otherwise. The Company will have no obligation under this Section X(f) or otherwise to avoid the taxes, penalties or interest under Section
409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other
benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest
under Section 409A.
(ii)
Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A,
any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to
avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A),
whether such “separation from service” occurs upon or after the termination of the Participant’s Service Provider relationship. For purposes
of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment”
or like terms means a “separation from service.”
9
(iii)
Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award
Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as
defined under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to
avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from
service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day
immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of
“nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service”
will be paid at the time or times the payments are otherwise scheduled to be made.
(g)
Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer,
other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any
other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be
personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator,
director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director,
officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating
to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in
settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such
person’s own fraud or bad faith.
(h)
Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with
registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or
otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date
of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
(i)
Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the
collection, use and transfer, in electronic or other form, of personal data as described in this paragraph by and among the Company and its
Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The
Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name,
address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any
Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards
(the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement,
administer and manage a Participant’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to
third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the
Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’
country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in
electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer
to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant
will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at
any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing
of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or
10
withdraw the consents in this Section X(i) in writing, without cost, by contacting the local human resources representative. The Company
may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding
Awards if the Participant refuses or withdraws the consents in this Section X(i). For more information on the consequences of refusing or
withdrawing consent, Participants may contact their local human resources representative.
(j)
Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality
or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions
had been excluded, and the illegal or invalid action will be null and void.
(k)
Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written
agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is
expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.
Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of
Delaware, disregarding any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.
(l)
(m)
Claw-back Provisions. All Awards (including any proceeds, gains or other economic benefit the Participant actually or
constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to
any Company claw-back policy, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall
Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or the
Award Agreement.
(n)
Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the
Plan’s text, rather than such titles or headings, will control.
(o)
Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary
with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance
with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to
conform to Applicable Laws.
(p)
Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under
any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as
expressly provided in writing in such other plan or an agreement thereunder.
(q)
Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed
by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section IX(e): (a) any
Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable;
(b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c)
the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees
to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the
Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the
applicable Participant as soon as reasonably practicable; (e) the Company
11
and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are
insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the
Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.
XI.DEFINITIONS
As used in the Plan, the following words and phrases will have the following meanings:
(a)
“Administrator” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have
been delegated to such Committee.
(b)
“Amendment Date” means December 14, 2022.
(c)
“Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal and
state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which
the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are
granted.
(d)
“Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units or Other Stock or Cash Based Awards.
(e)
“Award Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms
and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
(f)
(g)
“Board” means the Board of Directors of the Company.
“Change in Control” means and includes each of the following:
(i)
A transaction or series of transactions (other than an offering of Common Stock to the general public through a
registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the
requirements of clauses (A) and (B) of subsection (iii) below) whereby any “person” or related “group” of “persons” (as such terms are used
in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained
by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities
outstanding immediately after such acquisition; or
(ii)
During any period of two consecutive years, individuals who, at the beginning of such period, constitute the
Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the
Company to effect a transaction described in subsections (i) or (iii)) whose election by the Board or nomination for election by the
Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the
beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute
a majority thereof; or
Company through one or more intermediaries) of (x) a merger, consolidation, reorganization,
(iii)
The consummation by the Company (whether directly involving the Company or indirectly involving the
12
or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series
of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(A)
which results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the
Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or
indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the
Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power
of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(B)
after which no person or group beneficially owns voting securities representing 50% or
more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated
for purposes of this clause (B) as beneficially owning 50% or more of the combined voting power of the Successor Entity
solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that
provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes
under Section 409A, the transaction or event described in subsection (i), (ii) or (iii) with respect to such Award (or portion thereof) shall only
constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control
event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change
in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters
relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in
control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
(h)
“Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
(i)
“Committee” means one or more committees or subcommittees of the Board, which may include one or more Company
directors or executive officers, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it
is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to
Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-
employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly
granted under the Plan.
(j)
(k)
“Common Stock” means the common stock of the Company.
“Company” means Seres Therapeutics, Inc., a Delaware corporation, or any successor.
(l)
“Consultant” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render
services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection with
the offer or sale of securities in a capital-raising
13
transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) is a natural person.
(m)
“Designated Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator
determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated. Without a
Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.
(n)
(o)
(p)
“Director” means a Board member.
“Disability” means a permanent and total disability under Section 22(e)(3) of the Code, as amended.
“Dividend Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or
Shares) of dividends paid on Shares.
(q)
“Employee” means any employee of the Company or its Subsidiaries.
(r)
“Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock
dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or
other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of
the Common Stock underlying outstanding Awards.
(s)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t)
“Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock
is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such
exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The
Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is
quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the
last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems
reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its
discretion.
(u)
“Greater Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined
in Section 424(e) and (f) of the Code, respectively.
(v)
“Incentive Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422 of
the Code.
(w)
(x)
“Non-Qualified Stock Option” means an Option not intended or not qualifying as an Incentive Stock Option.
“Option” means an option to purchase Shares.
14
(y)
“Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially
by referring to, or are otherwise based on, Shares or other property.
(z)
“Overall Share Limit” means the sum of (i) 2,200,000 Shares; (ii) any shares of Common Stock which are subject to Prior
Plan Awards which become available for issuance under the Plan pursuant to Section IV(b) and (iii) an annual increase on the first day of
each calendar year beginning January 1, 2016 and ending on and including January 1, 2025, equal to the lesser of (A) 4% of the aggregate
number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of
Shares as is determined by the Board.
(aa)
“Participant” means a Service Provider who has been granted an Award.
(bb)
“Performance Criteria” mean the criteria (and adjustments) that the Administrator may select for an Award to establish
performance goals for a performance period, which may include the following: net earnings or losses (either before or after one or more of
interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or
revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits,
profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or
after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash
flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders’ equity; total stockholder
return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted
earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory
achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory,
commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or
corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel;
human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios
(including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other
capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be
measured in absolute terms or as compared to any incremental increase or decrease, peer group results, or market performance indicators or
indices.
(cc)
“Plan” means this 2015 Incentive Award Plan, as amended or restated from time to time.
(dd)
“Prior Plans” means, collectively, the Seres Therapeutics, Inc. 2012 Stock Incentive Plan and any prior equity incentive
plans of the Company or its predecessor.
(ee)
“Prior Plan Award” means an award outstanding under the Prior Plans as of the Plan’s effective date in Section X(c).
(ff)
“Public Trading Date” means the first date upon which the Common Stock is listed (or approved for listing) upon notice
of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on
an interdealer quotation system, or, if earlier, the date on which the Company becomes a “publicly held corporation” for purposes of Treasury
Regulation Section 1.162-27(c)(1).
(gg)
“Restricted Stock” means Shares awarded to a Participant under Section VI subject to certain vesting conditions and other
restrictions.
15
(hh)
“Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an
amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain
vesting conditions and other restrictions.
(ii)
(jj)
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act.
“Section 409A” means Section 409A of the Code and all regulations, guidance, compliance programs and other
interpretative authority thereunder.
(kk)
“Securities Act” means the Securities Act of 1933, as amended.
(ll)
“Service Provider” means an Employee, Consultant or Director.
(mm)
“Shares” means shares of Common Stock.
(nn)
“Stock Appreciation Right” means a stock appreciation right granted under Section V.
(oo)
“Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities
beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the
determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in
one of the other entities in such chain.
(pp)
“Termination of Service” means the date the Participant ceases to be a Service Provider.
* * * * *
16
Form of Stock Option Grant Notice
SERES THERAPEUTICS, INC.
2015 INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
Capitalized terms not specifically defined in this Stock Option Grant Notice (the “Grant Notice”) have the meanings given to them in the 2015
Incentive Award Plan (as amended from time to time, the “Plan”) of Seres Therapeutics, Inc. (the “Company”).
The Company hereby grants to the participant listed below (“Participant”) the stock option described in this Grant Notice (the “Option”), subject
to the terms and conditions of the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “Agreement”), both of which are incorporated
into this Grant Notice by reference.
Participant:
Grant Date:
Exercise Price per Share:
Shares Subject to the Option:
Final Expiration Date:
Vesting Commencement Date:
Vesting Schedule:
Type of Option
[To be specified in individual award agreements]
☐ Incentive Stock Option ☐ Non-Qualified Stock Option
By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has
reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this
Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
SERES THERAPEUTICS, INC.
PARTICIPANT
By:
Print Name:
Title:
17
STOCK OPTION AGREEMENT
Exhibit A
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant
Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Grant of Option. Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the Option
effective as of the grant date set forth in the Grant Notice (the “Grant Date”).
1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions set forth in this Agreement and the Plan, which is
incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
ARTICLE II.
PERIOD OF EXERCISABILITY
2.1 Commencement of Exercisability. The Option will vest and become exercisable according to the vesting schedule in the Grant Notice (the
“Vesting Schedule”) except that any fraction of a Share as to which the Option would be vested or exercisable will be accumulated and will vest and
become exercisable only when a whole Share has accumulated. Notwithstanding anything in the Grant Notice, the Plan or this Agreement to the contrary,
unless the Administrator otherwise determines, the Option will immediately expire and be forfeited as to any portion that is not vested and exercisable as of
Participant’s Termination of Service for any reason.
2.2 Duration of Exercisability. The Vesting Schedule is cumulative. Any portion of the Option which vests and becomes exercisable will remain
vested and exercisable until the Option expires. The Option will be forfeited immediately upon its expiration.
2.3 Expiration of Option. The Option may not be exercised to any extent by anyone after, and will expire on, the first of the following to occur:
(a) The final expiration date in the Grant Notice;
(b) Except as the Administrator may otherwise approve, the expiration of three (3) months from the date of Participant’s Termination
of Service, unless Participant’s Termination of Service is for Cause or by reason of Participant’s death or Disability;
(c) Except as the Administrator may otherwise approve, the expiration of one (1) year from the date of Participant’s Termination of
Service by reason of Participant’s death or Disability; and
(d) Except as the Administrator may otherwise approve, Participant’s Termination of Service for Cause.
As used in this Agreement, “Cause” means (i) if Participant is a party to a written employment or consulting agreement with the Company or its Subsidiary
in which the term “cause” is defined (a “Relevant Agreement”), “Cause” as defined in the Relevant Agreement, and (ii) if no Relevant Agreement exists,
(A) the Administrator’s determination that Participant failed to substantially perform Participant’s duties (other than a failure resulting from Participant’s
Disability); (B) the Administrator’s determination that Participant failed to carry out, or comply with any lawful and reasonable directive of the Board or
Participant’s immediate supervisor; (C) Participant’s conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for
any felony or indictable offense or crime involving moral turpitude; (D) Participant’s unlawful use (including being under the influence) or possession of
illegal drugs on the premises of the Company or any of its Subsidiaries or while performing
18
Participant’s duties and responsibilities for the Company or any of its Subsidiaries; or (E) Participant’s commission of an act of fraud, embezzlement,
misappropriation, misconduct, or breach of fiduciary duty against the Company or any of its Subsidiaries.
ARTICLE III.
EXERCISE OF OPTION
3.1 Person Eligible to Exercise. During Participant’s lifetime, only Participant may exercise the Option. After Participant’s death, any
exercisable portion of the Option may, prior to the time the Option expires, be exercised by Participant’s Designated Beneficiary as provided in the Plan.
3.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised, in whole or in
part, according to the procedures in the Plan at any time prior to the time the Option or portion thereof expires, except that the Option may only be
exercised for whole Shares.
3.3 Tax Withholding.
(a) The Company has the right and option, but not the obligation, to treat Participant’s failure to provide timely payment in accordance with the
Plan of any withholding tax arising in connection with the Option as Participant’s election to satisfy all or any portion of the withholding tax by requesting
the Company retain Shares otherwise issuable under the Option.
(b) Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the Option, regardless of
any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Option. Neither the
Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding,
vesting or exercise of the Option or the subsequent sale of Shares. The Company and the Subsidiaries do not commit and are under no obligation to
structure the Option to reduce or eliminate Participant’s tax liability.
ARTICLE IV.
OTHER PROVISIONS
4.1 Adjustments. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided
in this Agreement and the Plan.
4.2 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care
of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile number. Any notice to be given
under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the person entitled to
exercise the Option) at Participant’s last known mailing address, email address or facsimile number in the Company’s personnel files. By a notice given
pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when
actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch
post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt
of a facsimile transmission confirmation.
4.3 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.4 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the
extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable
Laws.
4.5 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this
Agreement will inure to the benefit of the successors and assigns of the
19
Company. Subject to the restrictions on transfer set forth in the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees,
legal representatives, successors and assigns of the parties hereto.
4.6 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to
Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Option will be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such
exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.7 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
4.8 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be
severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or
this Agreement.
4.9 Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement
creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor
any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to
amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Shares as a general unsecured
creditor with respect to the Option, as and when exercised pursuant to the terms hereof.
4.10
Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue
in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which
rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause,
except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.11
Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to
Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
4.12 Incentive Stock Options. If the Option is designated as an Incentive Stock Option:
(a)
Participant acknowledges that to the extent the aggregate fair market value of shares (determined as of the time the option with respect to
the shares is granted) with respect to which stock options intended to qualify as “incentive stock options” under Section 422 of the Code, including the
Option, are exercisable for the first time by Participant during any calendar year exceeds $100,000 or if for any other reason such stock options do not
qualify or cease to qualify for treatment as “incentive stock options” under Section 422 of the Code, such stock options (including the Option) will be
treated as non-qualified stock options. Participant further acknowledges that the rule set forth in the preceding sentence will be applied by taking the Option
and other stock options into account in the order in which they were granted, as determined under Section 422(d) of the Code. Participant also
acknowledges that if the Option is exercised more than three (3) months after Participant’s Termination of Service, other than by reason of death or
disability, the Option will be taxed as a Non-Qualified Stock Option.
(b) Participant will give prompt written notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement
if such disposition or other transfer is made (a) within two (2) years from the Grant Date or (b) within one (1) year after the transfer of such Shares to
Participant. Such notice will specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of
indebtedness or other consideration, by Participant in such disposition or other transfer.
20
* * * * *
21
Form of Restricted Stock Unit Grant Notice
SERES THERAPEUTICS, INC.
2015 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Capitalized terms not specifically defined in this Restricted Stock Unit Grant Notice (the “Grant Notice”) have the meanings given to them in the
2015 Incentive Award Plan (as amended from time to time, the “Plan”) of Seres Therapeutics, Inc. (the “Company”).
The Company hereby grants to the participant listed below (“Participant”) the Restricted Stock Units described in this Grant Notice (the
“RSUs”), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”), both of
which are incorporated into this Grant Notice by reference.
Participant:
Grant Date:
Number of RSUs:
Vesting Commencement Date:
Vesting Schedule:
[To be specified in individual award agreements]
By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has
reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this
Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
SERES THERAPEUTICS, INC.
PARTICIPANT
By:
Print Name:
Title:
22
RESTRICTED STOCK UNIT AGREEMENT
Exhibit A
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant
Notice, in the Plan.
1.1 Award of RSUs and Dividend Equivalents.
ARTICLE I.
GENERAL
(a) The Company has granted the RSUs to Participant effective as of the grant date set forth in the Grant Notice (the “Grant Date”). Each RSU
represents the right to receive one Share or, at the option of the Company, an amount of cash, in either case, as set forth in this Agreement. Participant will
have no right to the distribution of any Shares or payment of any cash until the time (if ever) the RSUs have vested.
(b) The Company hereby grants to Participant, with respect to each RSU, a Dividend Equivalent for ordinary cash dividends paid to
substantially all holders of outstanding Shares with a record date after the Grant Date and prior to the date the applicable RSU is settled, forfeited or
otherwise expires. Each Dividend Equivalent entitles Participant to receive the equivalent value of any such ordinary cash dividends paid on a single Share.
The Company will establish a separate Dividend Equivalent bookkeeping account (a “Dividend Equivalent Account”) for each Dividend Equivalent and
credit the Dividend Equivalent Account (without interest) on the applicable dividend payment date with the amount of any such cash paid.
1.2 Incorporation of Terms of Plan. The RSUs are subject to the terms and conditions set forth in this Agreement and the Plan, which is
incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
1.3 Unsecured Promise. The RSUs and Dividend Equivalents will at all times prior to settlement represent an unsecured Company obligation
payable only from the Company’s general assets.
ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT
2.1 Vesting; Forfeiture. The RSUs will vest according to the vesting schedule in the Grant Notice except that any fraction of an RSU that would
otherwise be vested will be accumulated and will vest only when a whole RSU has accumulated. In the event of Participant’s Termination of Service for
any reason, all unvested RSUs will immediately and automatically be cancelled and forfeited, except as otherwise determined by the Administrator or
provided in a binding written agreement between Participant and the Company. Dividend Equivalents (including any Dividend Equivalent Account
balance) will vest or be forfeited, as applicable, upon the vesting or forfeiture of the RSU with respect to which the Dividend Equivalent (including the
Dividend Equivalent Account) relates.
2.2 Settlement.
(a) RSUs and Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid in Shares or cash at the Company’s
option as soon as administratively practicable after the vesting of the applicable RSU, but in no event more than sixty (60) days after the RSU’s vesting
date. Notwithstanding the foregoing, the Company may delay any payment under this Agreement that the Company reasonably determines would violate
Applicable Law until the earliest date the Company reasonably determines the making of the payment will not cause such a violation (in accordance with
Treasury Regulation Section 1.409A-2(b)(7)(ii)), provided the Company reasonably believes the delay will not result in the imposition of excise taxes
under Section 409A.
(b) If an RSU is paid in cash, the amount of cash paid with respect to the RSU will equal the Fair Market Value of a Share on the day
immediately preceding the payment date. If a Dividend Equivalent is paid
23
in Shares, the number of Shares paid with respect to the Dividend Equivalent will equal the quotient, rounded down to the nearest whole Share, of the
Dividend Equivalent Account balance divided by the Fair Market Value of a Share on the day immediately preceding the payment date.
Article III.
TAXATION AND TAX WITHHOLDING
3.1 Representation. Participant represents to the Company that Participant has reviewed with Participant’s own tax advisors the tax
consequences of this Award and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and
not on any statements or representations of the Company or any of its agents.
3.2 Tax Withholding.
(a) The Company has the right and option, but not the obligation, to treat Participant’s failure to provide timely payment in accordance with the
Plan of any withholding tax arising in connection with the RSUs or Dividend Equivalents as Participant’s election to satisfy all or any portion of the
withholding tax by requesting the Company retain Shares otherwise issuable under the Award.
(b) Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs and the
Dividend Equivalents, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in
connection with the RSUs or Dividend Equivalents. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the
treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the Dividend Equivalents or the subsequent sale of
Shares. The Company and the Subsidiaries do not commit and are under no obligation to structure the RSUs or Dividend Equivalents to reduce or eliminate
Participant’s tax liability.
(c) Mandatory Sell to Cover
(i) By accepting this Award, Participant understands and agrees that as a condition of the grant of the RSUs hereunder, Participant is
required to, and hereby affirmatively elects to (the “Sell to Cover Election”), (1) sell that number of Shares determined in accordance with this
Section 3.2(c) as may be necessary to satisfy all applicable withholding obligations with respect to any taxable event arising in connection with
the RSUs and similarly sell such number of Shares as may be necessary to satisfy all applicable withholding obligations with respect to any other
awards of restricted stock units granted to Participant under the Plan or any other equity incentive plans of the Company or its predecessor, and
(2) to allow the transfer agent (together with any other party the Company determines necessary to execute the Sell to Cover Election, the
“Agent”) to remit the cash proceeds of such sale(s) to the Company. Furthermore, Participant directs the Company to make a cash payment equal
to the required tax withholding from the cash proceeds of such sale(s) directly to the appropriate taxing authorities.
(ii) Participant hereby appoints the Agent as Participant’s agent and authorizes the Agent to (1) sell on the open market at the then
prevailing market price(s), on the Participant’s behalf, as soon as practicable on or after the date the Shares are issued upon the vesting of the
RSUs, that number (rounded up to the next whole number) of the Shares so issued necessary to generate proceeds to cover (x) any tax
withholding obligations incurred with respect to such vesting or issuance and (y) all applicable fees and commissions due to, or required to be
collected by, the Agent with respect thereto and (2) apply any remaining funds to Participant’s tax withholding obligations hereunder. Participant
hereby authorizes the Company and the Agent to cooperate and communicate with one another to determine the number of Shares that must be
sold pursuant to this Section 3.2(c)(ii). Participant understands that the Agent may effect sales as provided in this Section 3.2(c)(ii) in one or
more sales and that the average price for executions resulting from bunched orders will be assigned to Participant’s account. In addition,
Participant acknowledges that it may not be possible to sell Shares as provided by this Section 3.2(c)(ii) due to (1) a legal or contractual
restriction applicable to Participant or the Agent, (2) a market disruption, or (3) rules
24
governing order execution priority on the national exchange where the Shares may be traded. Participant further agrees and acknowledges that in
the event the sale of Shares would result in material adverse harm to the Company, as determined by the Company in its sole discretion, the
Company may instruct the Agent not to sell Shares as provided by this Section 3.2(c)(ii). In the event of the Agent’s inability to sell Shares, the
Participant will continue to be responsible for the timely payment to the Company and/or its affiliates of all federal, state, local and foreign taxes
that are required by applicable laws and regulations to be withheld, including but not limited to those amounts specified in this Section 3.2(c)(ii).
Participant acknowledges that regardless of any other term or condition of this Section 3.2(c), the Agent will not be liable to Participant for (1)
special, indirect, punitive, exemplary, or consequential damages, or incidental losses or damages of any kind, or (2) any failure to perform or for
any delay in performance that results from a cause or circumstance that is beyond its reasonable control. Participant hereby agrees to execute and
deliver to the Agent any other agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and
intent of this Section 3.2(c). The Agent is a third-party beneficiary of this Section 3.2(c). This Section 3.2(c) shall terminate not later than the
date on which all tax withholding obligations arising in connection with the Award have been satisfied.
(iii) Participant has carefully reviewed this Section 3.2(c) and Participant hereby represents and warrants that on the date hereof he or
she is not aware of any material, nonpublic information with respect to the Company or any securities of the Company, is not subject to
any legal, regulatory or contractual restriction that would prevent the Agent from conducting sales, does not have, and will not attempt
to exercise, authority, influence or control over any sales of Shares effected by the Agent pursuant to the Agreement, and is entering into
the Agreement and this election to “sell to cover” in good faith and not as part of a plan or scheme to evade the prohibitions of Rule
10b5-1 (regarding trading of the Company’s securities on the basis of material nonpublic information) under the Exchange Act. It is
Participant’s intent that this election to “sell to cover” comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act
and be interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act.
ARTICLE IV.
OTHER PROVISIONS
4.1 Adjustments. Participant acknowledges that the RSUs, the Shares subject to the RSUs and the Dividend Equivalents are subject to
adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
4.2 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in
care of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile number. Any notice to be
given under the terms of this Agreement to Participant must be in writing and addressed to Participant at Participant’s last known mailing address, email
address or facsimile number in the Company’s personnel files. By a notice given pursuant to this Section, either party may designate a different address for
notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return
receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when
delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.3 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.4 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the
extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable
Laws.
4.5 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this
Agreement will inure to the benefit of the successors and assigns of the Company.
25
Subject to the restrictions on transfer set forth in the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal
representatives, successors and assigns of the parties hereto.
4.6 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to
Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement, the RSUs and the Dividend Equivalents will be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements
for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such
applicable exemptive rule.
4.7 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
4.8 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be
severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or
this Agreement.
4.9 Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement
creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor
any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to
amounts credited and benefits payable, if any, with respect to the RSUs and Dividend Equivalents, and rights no greater than the right to receive cash or the
Shares as a general unsecured creditor with respect to the RSUs and Dividend Equivalents, as and when settled pursuant to the terms of this Agreement.
4.10 Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in
the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which
rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause,
except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.11 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to
Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
* * * * *
26
SERES THERAPEUTICS, INC.
2022 EMPLOYMENT INDUCEMENT AWARD PLAN
Exhibit 10.4
1.Purpose
The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who are expected to make important
contributions to the Company by providing these individuals with equity ownership opportunities. Capitalized terms used in the Plan are
defined in Section 11.
2.Eligibility
Eligible Individuals are eligible to be granted Awards under the Plan, subject to the limitations described herein.
3.Administration and Delegation
(a)
Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which
Eligible Individuals receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan.
The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award
Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator
may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or
appropriate to administer the Plan and any Awards. The Administrator may adopt procedures from time to time that are intended to ensure
that an individual is an Eligible Individual prior to the granting of any Awards to such individual (including without limitation a
requirement that each such individual certify to the Company prior to the receipt of an Award that he or she is not currently employed by
the Company or a Subsidiary and, if previously so employed, has had a bona fide period of interruption of employment, and that the grant
of Awards is an inducement material to the Eligible Individual's agreement to enter into employment with the Company or a Subsidiary).
The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming
any interest in the Plan or any Award.
(b)
Appointment of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers
under the Plan to one or more Committees. The Board may abolish any Committee or re-vest in itself any previously delegated authority at
any time.
4.Stock Available for Awards
(a)
Number of Shares. Subject to adjustment under Section 8 and the terms of this Section 4, Awards may be made under
the Plan covering up to the Overall Share Limit. Shares issued under the Plan may consist of authorized but unissued Shares, Shares
purchased on the open market or treasury Shares.
(b)
Share Recycling. If all or any part of an Award expires, lapses or is terminated, exchanged for cash, surrendered,
repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring
Shares covered by the Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for
such Shares or not issuing any Shares covered by the Award, the unused Shares covered by the Award will again be available for Award
grants under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the
applicable exercise or purchase price of an Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by
the Company from the Award being exercised or purchased and/or creating the tax obligation) will again be available for Award grants
under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not count against the
Overall Share Limit.
5.Stock Options and Stock Appreciation Rights
(a)
General. The Administrator may grant Non-Qualified Options or Stock Appreciation Rights to Eligible Individuals
subject to the conditions and limitations in the Plan. The Administrator will determine the number of Shares covered by each Option and
Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to
the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled
to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation
Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the
exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is
exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market
Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.
(b)
Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and
specify the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date
of the Option or Stock Appreciation Right.
(c)
Duration of Options. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the
Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years.
(d)
Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of
exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock
Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5(e) for the number of Shares for which the
Award is exercised and (ii) as specified in Section 9(e) for any applicable taxes. Unless the Administrator otherwise determines, an Option
or Stock Appreciation Right may not be exercised for a fraction of a Share.
(e)
Payment Upon Exercise. The exercise price of an Option must be paid in cash, wire transfer of immediately available
funds or by check payable to the order of the Company or, subject to Section 10(i), any Company insider trading policy (including blackout
periods) and Applicable Laws, by:
(i)
if there is a public market for Shares at the time of exercise, unless the Administrator otherwise determines, (A)
delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a
broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the
Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the
Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid
to the Company at such time as may be required by the Administrator;
(ii)
to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned
by the Participant valued at their Fair Market Value;
(iii)
to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued
at their Fair Market Value on the exercise date;
(iv)
to the extent permitted by the Administrator, delivery of a promissory note or any other property that the
Administrator determines is good and valuable consideration; or
(v)
any combination of the above permitted payment forms (including cash, wire transfer or check).
6.Restricted Stock; Restricted Stock Units
(a)
General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Eligible
Individual, subject to the Company’s right to repurchase all or part of such shares at their issue price or other stated or formula price from
the Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied
before the end of the applicable restriction period or periods that the Administrator establishes for such Award and subject to the conditions
and limitations in the Plan. In addition, subject to the conditions and limitations in the Plan, the Administrator may grant to Eligible
Individuals Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or
periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and
conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
(b)
Restricted Stock.
(i)
Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid
with respect to such shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the
Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to
holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same
restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(ii)
Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its
designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.
(c)
Restricted Stock Units.
(i)
Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon
as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the
Participant’s election, in a manner intended to comply with Section 409A.
(ii)
Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any
Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
(iii)
Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a Participant
with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the
Participant, settled in cash or Shares and
subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend
Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
7.Other Stock or Cash Based Awards
Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be
delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance
Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be
available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a
Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator
determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash
Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and
vesting conditions, which will be set forth in the applicable Award Agreement.
8.Adjustments for Changes in Common Stock and Certain Other Events
(a)
Equity Restructuring. In connection with any Equity Restructuring, notwithstanding anything to the contrary in this
Section 8, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which
may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant price
(if applicable), granting new Awards to Participants (subject to Section 10(d)), and making a cash payment to Participants. The adjustments
provided under this Section 8(a) will be nondiscretionary and final and binding on the affected Participant and the Company; provided that
the Administrator will determine whether an adjustment is equitable.
(b)
Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), reorganization, merger, consolidation, combination, repurchase, recapitalization, liquidation, dissolution,
or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock
or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of
the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its
financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it
deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that
action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such
change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions
whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or
potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the
Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(i)
to provide for the cancellation of any such Award in exchange for either an amount of cash or other property with
a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or
realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could
have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the
Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;
(ii)
to provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(iii)
to provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases,
as determined by the Administrator;
(iv)
to make adjustments in the number and type of shares of Common Stock (or other securities or property) subject
to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to,
adjustments of the limitations in Section 4 hereof on the maximum number and kind of shares which may be issued) and/or in the
terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(v)
(vi)
event.
to replace such Award with other rights or property selected by the Administrator; and/or
to provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable
(c)
Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares,
merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other
extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any
securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any
Award for up to sixty days before or after such transaction.
(d)
General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have
any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of
any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with
respect to an Equity Restructuring under Section 8(a) above or the Administrator’s action under the Plan, no issuance by the Company of
Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of
Shares subject to an Award or the Award’s grant or exercise price. The existence of the Plan, any Award Agreements and the Awards
granted hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (i) any adjustment,
recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution
or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior
to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or
portions thereof) differently under this Section 8.
(e)
Change in Control. Notwithstanding Section 8(b) above, if a Change in Control occurs and Awards are not continued,
converted, assumed, or replaced with a comparable award (as determined by the Administrator) by (i) the Company or (ii) a successor
entity or its parent or subsidiary (an “Assumption”), and provided that the Participant has not had a Termination of Service, then
immediately
prior to the Change in Control, such Awards (other than any Award that is regularly scheduled to vest based on the attainment of
Performance Criteria or other performance-based vesting conditions) will become fully vested, exercisable and/or payable, as applicable,
and all forfeiture, repurchase and other restrictions on such Awards will lapse, in which case, such Awards will be canceled upon the
consummation of the Change in Control in exchange for the right to receive the Change in Control consideration payable to other holders of
Shares, which may be on such terms and conditions as apply generally to holders of Shares under the Change in Control documents
(including, without limitation, any escrow, earn-out or other deferred consideration provisions) or such other terms and conditions as the
Administrator may provide, and determined by reference to the number of Shares subject to such Awards and net of any applicable exercise
price; provided that to the extent that any Awards constitute “nonqualified deferred compensation” that may not be paid upon the Change in
Control under Section 409A without the imposition of taxes thereon under Section 409A, the timing of such payments shall be governed by
the applicable Award Agreement (subject to any deferred consideration provisions applicable under the Change in Control documents); and
provided, further, that if the amount to which a Participant would be entitled upon the settlement or exercise of such Award at the time of
the Change in Control is equal to or less than zero, then such Award may be terminated without payment. An Award will be considered
replaced with a comparable award if the Award is exchanged for an amount of cash or other property with a value equal to the amount that
could have been obtained upon the settlement of such Award in such Change in Control (as determined by the Administrator), even if such
cash or other property payable with respect to the unvested portion of such Award remains subject to similar vesting provisions following
such Change in Control. Notwithstanding the foregoing, the Administrator will have full and final authority to determine whether an
Assumption of an Award has occurred in connection with a Change in Control.
9.General Provisions Applicable to Awards.
(a)
Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise, Awards
may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the
laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the
Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, will include
references to a Participant’s authorized transferee that the Administrator specifically approves.
(b)
Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the
Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.
(c)
Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any
other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards
(or portions thereof) uniformly.
(d)
Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of
absence or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the
period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award, if applicable.
(e)
Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment
of, any taxes required by law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability.
The Company may deduct an
amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates from any payment of any kind otherwise
due to a Participant. Participants may satisfy such tax obligations in cash, by wire transfer of immediately available funds, by check made
payable to the order of the Company, or subject to Section 10(i) and any Company insider trading policy (including blackout periods), (i) to
the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the
tax obligation, valued at their Fair Market Value, (ii) if there is a public market for Shares at the time the tax obligations are satisfied, unless
the Administrator otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable
and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax
obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable
to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is
paid to the Company at such time as may be required by the Administrator, or (iii) any combination of the foregoing permitted payment
forms (including cash, wire transfer or check). If any tax withholding obligation will be satisfied under clause (i) of the immediately
preceding sentence by the Company’s retention of Shares from the Award creating the tax obligation and there is a public market for Shares
at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for
such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the
Company or its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the
Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
(f)
Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award,
including by substituting another Award of the same or a different type or changing the exercise or settlement date. The Participant’s
consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect
the Participant’s rights under the Award, or (ii) the change is permitted under Section 8 or pursuant to Section 10(g). Notwithstanding the
foregoing or anything in the Plan to the contrary, the Administrator may, without the approval of the stockholders of the Company, reduce
the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation
Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the
exercise price per share of the original Options or Stock Appreciation Rights.
(g)
Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove
restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s
satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been
satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has
executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy
any Applicable Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator
determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell
such Shares as to which such requisite authority has not been obtained.
(h)
Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or
partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
(i)
Action Required Upon Grant of Award. Promptly following the grant of an Award, the Company shall, in accordance
with NASDAQ Rule 5635(c), (a) issue a press release disclosing the
material terms of the Award, including the recipient(s) of the Award and the number of Shares involved and(b) provide written notice to the
NASDAQ of the grant.
10.Miscellaneous.
(a)
No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant
of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company.
The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any
liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
(b)
No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will
have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such
Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the
Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead
such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company
may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with
Applicable Laws.
(c)
Effective Date and Term of Plan. Unless earlier terminated by the Board, the Plan will become effective on the date it is
approved by the Board and will remain in effect until the tenth anniversary of such date, but Awards previously granted may extend beyond
that date in accordance with the Plan. No Awards may be granted under the Plan during any suspension period or after Plan termination.
(d)
Stockholder Approval Not Required. It is expressly intended that approval of the Company’s stockholders not be
required as a condition of the effectiveness of the Plan, and the Plan’s provisions shall be interpreted in a manner consistent with such intent
for all purposes. Specifically, NASDAQ Rule 5635(c) generally requires stockholder approval for equity compensation plans adopted by
companies whose securities are listed on the NASDAQ Stock Market that provide for the delivery of equity securities to any employees,
directors or other service providers of such companies as compensation for services. NASDAQ Rule 5635(c)(4) provides an exemption in
certain circumstances for employment inducement awards. Notwithstanding anything to the contrary herein, in accordance with NASDAQ
Rule 5635(c)(4), Awards may only be granted as material inducements to Eligible Individuals being hired or rehired as Employees, as
applicable, and must be approved by (a) the Board, acting through a majority of the Company’s Independent Directors or (b) the
independent Compensation Committee of the Board. Accordingly, pursuant to NASDAQ Rule 5635(c)(4), the issuance of Awards and the
Shares issuable upon exercise or vesting of such Awards pursuant to the Plan is not subject to the approval of the Company’s stockholders.
(e)
Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no
amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of
such amendment without the affected Participant’s consent. Awards outstanding at the time of any Plan suspension or termination will
continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain
stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
(f)
Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign
nationals or employed outside the United States or establish subplans or
procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax,
securities, currency, employee benefit or other matters.
(g)
Section 409A.
(i)
General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A,
such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or
any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt
policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are
necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this
Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs
and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or
warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this
Section 10(g) or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no
liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to
constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
(ii)
Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A,
any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent
necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of
Section 409A), whether such “separation from service” occurs upon or after the termination of the Participant’s Service Provider
relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a
“termination,” “termination of employment” or like terms means a “separation from service.”
(iii)
Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement,
any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined
under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to
avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such
“separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award
Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without
interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the
Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
(h)
Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer,
other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any
other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be
personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator,
director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director,
officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power
relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability
(including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan
unless arising from such person’s own fraud or bad faith.
(i)
Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with
registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or
otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date
of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
(j)
Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the
collection, use and transfer, in electronic or other form, of personal data as described in this paragraph by and among the Company and its
Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The
Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name,
address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s);
any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and
Awards (the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to
implement, administer and manage a Participant’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer
the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be
located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than
the recipients’ country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the
Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required
Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related
to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A
Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the
storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or
refuse or withdraw the consents in this Section 10(j) in writing, without cost, by contacting the local human resources representative. The
Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any
outstanding Awards if the Participant refuses or withdraws the consents in this Section 10(j). For more information on the consequences of
refusing or withdrawing consent, Participants may contact their local human resources representative.
(k)
Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality
or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions
had been excluded, and the illegal or invalid action will be null and void.
(l)
Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written
agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it
is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.
(m)
Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of
Delaware, disregarding any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of
Delaware.
(n)
Claw-back Provisions. All Awards (including any proceeds, gains or other economic benefit the Participant actually or
constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to
any Company claw-back policy, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall
Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or
the Award Agreement.
(o)
Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the
Plan’s text, rather than such titles or headings, will control.
(p)
Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary
with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance
with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to
conform to Applicable Laws.
(q)
Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under
any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as
expressly provided in writing in such other plan or an agreement thereunder.
(r)
Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed
by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9(e): (a) any
Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable;
(b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c)
the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant
agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent
the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the
applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale
at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the
Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any
remaining portion of the Participant’s obligation.
11.Definitions
As used in the Plan, the following words and phrases will have the following meanings:
(a)
“Administrator” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have
been delegated to such Committee.
(b)
“Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal
and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on
which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are
granted.
(c)
“Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units or Other Stock or Cash Based Awards.
(d)
“Award Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms
and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
(e)
(f)
“Board” means the Board of Directors of the Company.
“Change in Control” means and includes each of the following:
(i)
a transaction or series of transactions (other than an offering of Common Stock to the general public through a
registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the
requirements of clauses (A) and (B) of subsection (iii) below) whereby any “person” or related “group” of “persons” (as such terms
are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit
plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly
controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total
combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(ii)
during any period of two consecutive years, individuals who, at the beginning of such period, constitute the
Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement
with the Company to effect a transaction described in subsections (i) or (iii)) whose election by the Board or nomination for election
by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were
Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(iii)
the consummation by the Company (whether directly involving the Company or indirectly involving the
Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale
or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z)
the acquisition of assets or stock of another entity, in each case other than a transaction:
(A)
which results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the
person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of
the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly
or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the
transaction, and
after which no person or group beneficially owns voting securities representing 50%
or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of
this clause (B) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting
power held in the Company prior to the consummation of the transaction.
(B)
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that
provides for the deferral of compensation that is subject to Section
409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection
(i), (ii) or (iii) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of
such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change
in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters
relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in
control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
(g)
“Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
(h)
“Committee” means one or more committees or subcommittees of the Board, which may include one or more Company
directors or executive officers, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it
is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject
to Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-
employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly
granted under the Plan.
(i)
(j)
“Common Stock” means the common stock of the Company.
“Company” means Seres Therapeutics, Inc., a Delaware corporation, or any successor.
(k)
“Consultant” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render
services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection
with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the
Company’s securities; and (iii) is a natural person.
(l)
“Designated Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the
Administrator determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated.
Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.
(m)
“Director” means a Board member.
(n)
(o)
“Disability” means a permanent and total disability under Section 22(e)(3) of the Code, as amended.
“Dividend Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or
Shares) of dividends paid on Shares.
(p)
“Eligible Individual” means any individual who was not previously an Employee or Director hired as a new Employee
or rehired as an Employee following a bona fide period of interruption of employment if such person is granted an Award as a material
inducement to his or her entering into employment with the Company or a Subsidiary (within the meaning of the NASDAQ Rule 5635(c)
(4)).
(q)
“Employee” means any employee of the Company or its Subsidiaries.
(r)
“Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock
dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or
other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of
the Common Stock underlying outstanding Awards.
(s)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t)
“Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock
is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such
exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in
The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but
is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on
the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator
deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its
discretion.
(u)
of the Code.
“Incentive Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422
(v)
“Independent Director” means a Director who qualifies as “independent” within the meaning of NASDAQ Rule 5635(c)
(4), or any successor rule, as such rule may be amended from time to time.
(w)
“NASDAQ Rule 5635(c)(4)” means NASDAQ Rule 5635(c)(4), or any successor rule, and all guidance and other
interpretative authority thereunder, as such rule, guidance and other authority may be amended from time to time.
(x)
(y)
(z)
“Non-Qualified Stock Option” means an Option not intended to qualify as an Incentive Stock Option.
“Option” means an option to purchase Shares.
“Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially
by referring to, or are otherwise based on, Shares or other property.
(aa)
“Overall Share Limit” means 2,500,000 Shares.
(bb)
“Participant” means an Eligible Individual who has been granted an Award.
(cc)
“Performance Criteria” mean the criteria (and adjustments) that the Administrator may select for an Award to establish
performance goals for a performance period, which may include the following: net earnings or losses (either before or after one or more of
interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or
revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net
profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either
before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash
flow or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return
on stockholders’ equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working
capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or
maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives
relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or
economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee
satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters;
strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or
reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing
activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease,
peer group results, or market performance indicators or indices.
(dd)
“Plan” means this 2022 Employment Inducement Award Plan, as it may be amended and/or restated from time to time.
(ee)
“Restricted Stock” means Shares awarded to a Participant under Section 6 subject to certain vesting conditions and other
restrictions.
(ff)
“Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or
an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain
vesting conditions and other restrictions.
(gg)
(hh)
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act.
“Section 409A” means Section 409A of the Code and all regulations, guidance, compliance programs and other
interpretative authority thereunder.
(ii)
(jj)
“Securities Act” means the Securities Act of 1933, as amended.
“Service Provider” means an Employee, Consultant or Director.
(kk)
“Shares” means shares of Common Stock.
(ll)
“Stock Appreciation Right” means a stock appreciation right granted under Section 5.
(mm)
“Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities
beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the
determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in
one of the other entities in such chain.
(nn)
“Termination of Service” means the date the Participant ceases to be a Service Provider.
* * * * *
SERES THERAPEUTICS, INC.
2022 EMPLOYMENT INDUCEMENT AWARD PLAN
STOCK OPTION GRANT NOTICE
Form of Stock Option Grant Notice
Capitalized terms not specifically defined in this Stock Option Grant Notice (the “Grant Notice”) have the meanings given to them
in the 2022 Employment Inducement Award Plan (as amended from time to time, the “Plan”) of Seres Therapeutics, Inc. (the “Company”).
The Company hereby grants to the participant listed below (“Participant”) the stock option described in this Grant Notice (the
“Option”), subject to the terms and conditions of the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “Agreement”),
both of which are incorporated into this Grant Notice by reference.
Participant:
Grant Date:
Exercise Price per Share:
Shares Subject to the Option:
Final Expiration Date:
Vesting Commencement Date:
Vesting Schedule:
Type of Option:
[____________]
[____________]
$[______]
[____________]
[____________]
[____________]
[To be specified in individual award agreements]
Non-Qualified Stock Option
By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement.
Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement.
Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions
arising under the Plan, this Grant Notice or the Agreement.
SERES THERAPEUTICS, INC.
PARTICIPANT
By:
Name:
Title:
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in
the Grant Notice, in the Plan.
STOCK OPTION AGREEMENT
ARTICLE I.
GENERAL
1.1
Grant of Option. Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to
Participant the Option effective as of the grant date set forth in the Grant Notice (the “Grant Date”).
1.2
Incorporation of Terms of Plan. The Option is subject to the terms and conditions set forth in this Agreement and the Plan,
which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will
control.
1.3
Employment Inducement Award. The Option is intended to constitute an “employment inducement award” under
NASDAQ Rule 5635(c)(4) that is exempt from the requirements of shareholder approval of equity compensation plans under NASDAQ Rule
5635(c)(4). This Agreement and the terms and conditions of the Option will be interpreted consistent with such intent.
ARTICLE II.
PERIOD OF EXERCISABILITY
2.1
Commencement of Exercisability. The Option will vest and become exercisable according to the vesting schedule in the
Grant Notice (the “Vesting Schedule”) except that any fraction of a Share as to which the Option would be vested or exercisable will be
accumulated and will vest and become exercisable only when a whole Share has accumulated. Notwithstanding anything in the Grant
Notice, the Plan or this Agreement to the contrary, unless the Administrator otherwise determines, the Option will immediately expire and be
forfeited as to any portion that is not vested and exercisable as of Participant’s Termination of Service for any reason.
2.2
Duration of Exercisability. The Vesting Schedule is cumulative. Any portion of the Option which vests and becomes
exercisable will remain vested and exercisable until the Option expires. The Option will be forfeited immediately upon its expiration.
2.3
Expiration of Option. The Option may not be exercised to any extent by anyone after, and will expire on, the first of the
following to occur:
(a)
the final expiration date in the Grant Notice;
except as the Administrator may otherwise approve, the expiration of three (3) months from the date of
Participant’s Termination of Service, unless Participant’s Termination of Service is for Cause or by reason of Participant’s death or Disability;
(b)
Participant’s Termination of Service by reason of Participant’s death or Disability; and
(c)
except as the Administrator may otherwise approve, the expiration of one (1) year from the date of
(d)
except as the Administrator may otherwise approve, Participant’s Termination of Service for Cause.
As used in this Agreement, “Cause” means (i) if Participant is a party to a written employment or consulting agreement with the Company or
its Subsidiary in which the term “cause” is defined (a “Relevant Agreement”), “Cause” as defined in the Relevant Agreement, and (ii) if no
Relevant Agreement exists, (A) the Administrator’s determination that Participant failed to substantially perform Participant’s duties (other
than a failure resulting from Participant’s Disability); (B) the Administrator’s determination that Participant failed to carry out, or comply
with any lawful and reasonable directive of the Board or Participant’s immediate supervisor; (C) Participant’s conviction, plea of no contest,
plea of nolo contendere, or imposition of unadjudicated probation for any felony or indictable offense or crime involving moral turpitude; (D)
Participant’s unlawful use (including being under the influence) or possession of illegal drugs on the premises of the Company or any of its
Subsidiaries or while performing Participant’s duties and responsibilities for the Company or any of its Subsidiaries; or (E) Participant’s
commission of an act of fraud, embezzlement, misappropriation, misconduct, or breach of fiduciary duty against the Company or any of its
Subsidiaries.
ARTICLE III.
EXERCISE OF OPTION
3.1
Person Eligible to Exercise. During Participant’s lifetime, only Participant may exercise the Option. After Participant’s
death, any exercisable portion of the Option may, prior to the time the Option expires, be exercised by Participant’s Designated Beneficiary
as provided in the Plan.
3.2
Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised,
in whole or in part, according to the procedures in the Plan at any time prior to the time the Option or portion thereof expires, except that the
Option may only be exercised for whole Shares.
3.3
Tax Withholding.
The Company has the right and option, but not the obligation, to treat Participant’s failure to provide
timely payment in accordance with the Plan of any withholding tax arising in connection with the Option as Participant’s election to satisfy
all or any portion of the withholding tax by requesting the Company retain Shares otherwise issuable under the Option.
(a)
(b)
Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in
connection with the Option, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations
that arise in connection with the Option. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the
treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option or the subsequent sale of Shares. The
Company and the Subsidiaries do not commit and are under no obligation to structure the Option to reduce or eliminate Participant’s tax
liability.
ARTICLE IV.
OTHER PROVISIONS
4.1
Adjustments. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain
events as provided in this Agreement and the Plan.
4.2
Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to
the Company in care of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile
number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if
Participant is
then deceased, to the person entitled to exercise the Option) at Participant’s last known mailing address, email address or facsimile number in
the Company’s personnel files. By a notice given pursuant to this Section, either party may designate a different address for notices to be
given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return
receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal
Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.3
Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of
this Agreement.
4.4
Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended
to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as
necessary to conform to Applicable Laws.
4.5
Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees,
and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in
the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of
the parties hereto.
4.6
Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if
Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Option will be subject to any
additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule
16b‑3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be
deemed amended as necessary to conform to such applicable exemptive rule.
4.7
Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to
the subject matter hereof.
4.8
Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the
provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining
provisions of the Grant Notice or this Agreement.
4.9
Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided.
This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating
a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general
unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no
greater than the right to receive the Shares as a general unsecured creditor with respect to the Option, as and when exercised pursuant to the
terms hereof.
4.10
Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any
right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the
Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for
any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the
Company or a Subsidiary and Participant.
4.11
Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic
signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
* * * * *
SERES THERAPEUTICS, INC.
2022 EMPLOYMENT INDUCEMENT AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Capitalized terms not specifically defined in this Restricted Stock Unit Grant Notice (the “Grant Notice”) have the meanings given
to them in the 2022 Employment Inducement Award Plan (as amended from time to time, the “Plan”) of Seres Therapeutics, Inc. (the
“Company”).
The Company hereby grants to the participant listed below (“Participant”) the Restricted Stock Units described in this Grant Notice
(the “RSUs”), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement attached hereto as Exhibit A (the
“Agreement”), both of which are incorporated into this Grant Notice by reference.
Participant:
Grant Date:
Number of RSUs:
Vesting Commencement Date:
[____________]
[____________]
[____________]
[____________]
Vesting Schedule:
[To be specified in individual award agreements]
By Participant’s signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement.
Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement.
Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions
arising under the Plan, this Grant Notice or the Agreement.
SERES THERAPEUTICS, INC.
PARTICIPANT
By:
Print Name:
Title:
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in
the Grant Notice, in the Plan.
RESTRICTED STOCK UNIT AGREEMENT
1.1
Award of RSUs and Dividend Equivalents.
ARTICLE I.
GENERAL
(a)
The Company has granted the RSUs to Participant effective as of the grant date set forth in the Grant
Notice (the “Grant Date”). Each RSU represents the right to receive one Share or, at the option of the Company, an amount of cash, in either
case, as set forth in this Agreement. Participant will have no right to the distribution of any Shares or payment of any cash until the time (if
ever) the RSUs have vested.
(b)
The Company hereby grants to Participant, with respect to each RSU, a Dividend Equivalent for
ordinary cash dividends paid to substantially all holders of outstanding Shares with a record date after the Grant Date and prior to the date the
applicable RSU is settled, forfeited or otherwise expires. Each Dividend Equivalent entitles Participant to receive the equivalent value of any
such ordinary cash dividends paid on a single Share. The Company will establish a separate Dividend Equivalent bookkeeping account (a
“Dividend Equivalent Account”) for each Dividend Equivalent and credit the Dividend Equivalent Account (without interest) on the
applicable dividend payment date with the amount of any such cash paid.
1.2
Incorporation of Terms of Plan. The RSUs are subject to the terms and conditions set forth in this Agreement and the
Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the
Plan will control.
1.3
Unsecured Promise. The RSUs and Dividend Equivalents will at all times prior to settlement represent an unsecured
Company obligation payable only from the Company’s general assets.
1.4
Employment Inducement Award. The RSUs are intended to constitute an “employment inducement award” under
NASDAQ Rule 5635(c)(4) that is exempt from the requirements of shareholder approval of equity compensation plans under NASDAQ Rule
5635(c)(4). This agreement and the terms and conditions of the RSUS will be interpreted consistent with such intent.
ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT
2.1
Vesting; Forfeiture. The RSUs will vest according to the vesting schedule in the Grant Notice except that any fraction of
an RSU that would otherwise be vested will be accumulated and will vest only when a whole RSU has accumulated. In the event of
Participant’s Termination of Service for any reason, all unvested RSUs will immediately and automatically be cancelled and forfeited, except
as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company. Dividend
Equivalents (including any Dividend Equivalent Account balance) will vest or be forfeited, as applicable, upon the vesting or forfeiture of the
RSU with respect to which the Dividend Equivalent (including the Dividend Equivalent Account) relates.
2.2
Settlement.
(a)
RSUs and Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid in
Shares or cash at the Company’s option as soon as administratively practicable after the vesting of the applicable RSU, but in no event more
than sixty (60) days after the RSU’s vesting date. Notwithstanding the foregoing, the Company may delay any payment under this
Agreement that the Company reasonably determines would violate Applicable Law until the earliest date the Company reasonably
determines the making of the payment will not cause such a violation (in accordance with Treasury Regulation Section 1.409A-2(b)(7)(ii)),
provided the Company reasonably believes the delay will not result in the imposition of excise taxes under Section 409A.
(b)
If an RSU is paid in cash, the amount of cash paid with respect to the RSU will equal the Fair Market
Value of a Share on the day immediately preceding the payment date. If a Dividend Equivalent is paid in Shares, the number of Shares paid
with respect to the Dividend Equivalent will equal the quotient, rounded down to the nearest whole Share, of the Dividend Equivalent
Account balance divided by the Fair Market Value of a Share on the day immediately preceding the payment date.
ARTICLE III.
TAXATION AND TAX WITHHOLDING
3.1
Representation. Participant represents to the Company that Participant has reviewed with Participant’s own tax advisors
the tax consequences of this Award and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely
on such advisors and not on any statements or representations of the Company or any of its agents.
3.2
Tax Withholding.
(a)
The Company has the right and option, but not the obligation, to treat Participant’s failure to provide
timely payment in accordance with the Plan of any withholding tax arising in connection with the RSUs or Dividend Equivalents as
Participant’s election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise issuable under
the Award.
(b)
Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in
connection with the RSUs and the Dividend Equivalents, regardless of any action the Company or any Subsidiary takes with respect to any
tax withholding obligations that arise in connection with the RSUs or Dividend Equivalents. Neither the Company nor any Subsidiary makes
any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the
RSUs or the Dividend Equivalents or the subsequent sale of Shares. The Company and the Subsidiaries do not commit and are under no
obligation to structure the RSUs or Dividend Equivalents to reduce or eliminate Participant’s tax liability.
(c) Mandatory Sell to Cover
(i)
By accepting this Award, Participant understands and agrees that as a condition of the grant of the RSUs
hereunder, Participant is required to, and hereby affirmatively elects to (the “Sell to Cover Election”), (1) sell that number of Shares
determined in accordance with this Section 3.2(c) as may be necessary to satisfy all applicable withholding obligations with respect
to any taxable event arising in connection with the RSUs and similarly sell such number of Shares as may be necessary to satisfy all
applicable withholding obligations with respect to any other awards of restricted stock units granted to Participant under the Plan or
any other equity incentive plans of the Company or its predecessor, and (2) to allow the transfer agent (together with any other party
|US-DOCS\137823120.2||
A-2
the Company determines necessary to execute the Sell to Cover Election, the “Agent”) to remit the cash proceeds of such sale(s) to
the Company. Furthermore, Participant directs the Company to make a cash payment equal to the required tax withholding from the
cash proceeds of such sale(s) directly to the appropriate taxing authorities.
(ii)
Participant hereby appoints the Agent as Participant’s agent and authorizes the Agent to (1) sell on the open
market at the then prevailing market price(s), on the Participant’s behalf, as soon as practicable on or after the date the Shares are
issued upon the vesting of the RSUs, that number (rounded up to the next whole number) of the Shares so issued necessary to
generate proceeds to cover (x) any tax withholding obligations incurred with respect to such vesting or issuance and (y) all
applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto and (2) apply any remaining
funds to Participant’s tax withholding obligations hereunder. Participant hereby authorizes the Company and the Agent to
cooperate and communicate with one another to determine the number of Shares that must be sold pursuant to this Section 3.2(c)
(ii). Participant understands that the Agent may effect sales as provided in this Section 3.2(c)(ii) in one or more sales and that the
average price for executions resulting from bunched orders will be assigned to Participant’s account. In addition, Participant
acknowledges that it may not be possible to sell Shares as provided by this Section 3.2(c)(ii) due to (1) a legal or contractual
restriction applicable to Participant or the Agent, (2) a market disruption, or (3) rules governing order execution priority on the
national exchange where the Shares may be traded. Participant further agrees and acknowledges that in the event the sale of Shares
would result in material adverse harm to the Company, as determined by the Company in its sole discretion, the Company may
instruct the Agent not to sell Shares as provided by this Section 3.2(c)(ii). In the event of the Agent’s inability to sell Shares, the
Participant will continue to be responsible for the timely payment to the Company and/or its affiliates of all federal, state, local and
foreign taxes that are required by applicable laws and regulations to be withheld, including but not limited to those amounts
specified in this Section 3.2(c)(ii). Participant acknowledges that regardless of any other term or condition of this Section 3.2(c),
the Agent will not be liable to Participant for (1) special, indirect, punitive, exemplary, or consequential damages, or incidental
losses or damages of any kind, or (2) any failure to perform or for any delay in performance that results from a cause or
circumstance that is beyond its reasonable control. Participant hereby agrees to execute and deliver to the Agent any other
agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and intent of this
Section 3.2(c). The Agent is a third-party beneficiary of this Section 3.2(c). This Section 3.2(c) shall terminate not later than the
date on which all tax withholding obligations arising in connection with the Award have been satisfied.
(iii)
Participant has carefully reviewed this Section 3.2(c) and Participant hereby represents and warrants that
on the date hereof he or she is not aware of any material, nonpublic information with respect to the Company or any
securities of the Company, is not subject to any legal, regulatory or contractual restriction that would prevent the Agent
from conducting sales, does not have, and will not attempt to exercise, authority, influence or control over any sales of
Shares effected by the Agent pursuant to the Agreement, and is entering into the Agreement and this election to “sell to
cover” in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 (regarding trading of the
Company’s securities on the basis of material nonpublic information) under the Exchange Act. It is Participant’s intent that
this election to “sell to cover” comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act and be
interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act.
|US-DOCS\137823120.2||
A-3
ARTICLE IV.
OTHER PROVISIONS
4.1
Adjustments. Participant acknowledges that the RSUs, the Shares subject to the RSUs and the Dividend Equivalents are
subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
4.2
Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to
the Company in care of the Company’s Secretary at the Company’s principal office or the Secretary’s then-current email address or facsimile
number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant at
Participant’s last known mailing address, email address or facsimile number in the Company’s personnel files. By a notice given pursuant to
this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when
actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post
office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express
shipping company or upon receipt of a facsimile transmission confirmation.
4.3
Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of
this Agreement.
4.4
Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended
to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as
necessary to conform to Applicable Laws.
4.5
Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees,
and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in
the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of
the parties hereto.
4.6
Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if
Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement, the RSUs and the Dividend Equivalents
will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this
Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.7
Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to
the subject matter hereof.
4.8
Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the
provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining
provisions of the Grant Notice or this Agreement.
4.9
Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided.
This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating
a trust. Neither the Plan nor any
|US-DOCS\137823120.2||
A-4
underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company
with respect to amounts credited and benefits payable, if any, with respect to the RSUs and Dividend Equivalents, and rights no greater than
the right to receive cash or the Shares as a general unsecured creditor with respect to the RSUs and Dividend Equivalents, as and when
settled pursuant to the terms of this Agreement.
4.10
Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any
right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the
Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for
any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the
Company or a Subsidiary and Participant.
4.11
Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic
signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
|US-DOCS\137823120.2||
* * * * *
A-5
SERES THERAPEUTICS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM
(as amended effective February 17, 2023)(the “Effective Date”)
Exhibit 10.5
Non-employee members of the board of directors (the “Board”) of Seres Therapeutics, Inc. (the “Company”) shall
receive cash and equity compensation as set forth in this Non-Employee Director Compensation Program (this “Program”). The
cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically and without
further action of the Board (other than the determination by the Compensation and Talent Committee of the number of shares
subject to an Initial Award as set forth in Section II(A)), to each member of the Board who is not an employee of the Company or
any parent or subsidiary of the Company (each, a “Non-Employee Director”) who is entitled to receive such cash or equity
compensation, unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to
the Company. This Program shall remain in effect until it is revised or rescinded by further action of the Board. This Program
may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and conditions of this
Program shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board between
the Company and any of its Non-Employee Directors. No Non-Employee Director shall have any rights hereunder, except with
respect to stock options granted pursuant to the Program.
I. CASH COMPENSATION
A. Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $45,000 for service on
the Board.
retainers:
B. Additional Annual Retainers. In addition, each Non-Employee Director shall receive the following annual
Chairman of the Board or Lead Independent Director shall receive an additional annual retainer of $35,000 for such service.
1. Chairman of the Board or Lead Independent Director. A Non-Employee Director serving as
2. Audit Committee. A Non-Employee Director serving as Chairperson of the Audit Committee shall
receive an additional annual retainer of $20,000 for such service. A Non-Employee Director serving as a member other than the
Chairperson of the Audit Committee shall receive an additional annual retainer of $10,000 for such service.
3. Compensation and Talent Committee. A Non-Employee Director serving as Chairperson of the
Compensation and Talent Committee shall receive an additional annual retainer of $15,000 for such service. A Non-Employee
Director serving as a member other than the Chairperson of the Compensation and Talent Committee shall receive an additional
annual retainer of $7,500 for such service.
|US-DOCS\138718768.2||
4. Nominating and Corporate Governance Committee. A Non-Employee Director serving as
Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $10,000 for
such service. A Non-Employee Director serving as a member other than the Chairperson of the Nominating and Corporate
Governance Committee shall receive an additional annual retainer of $5,000 for such service.
5. Science and Clinical Development Committee. A Non-Employee Director serving as Chairperson
of the Science and Clinical Development Committee shall receive an additional annual retainer of $15,000 for such service. A
Non-Employee Director serving as a member other than the Chairperson of the Science and Clinical Development Committee
shall receive an additional annual retainer of $7,500 for such service.
C. Payment of Retainers. The annual retainers described in Sections I(A) and I(B) shall be earned on a quarterly
basis based on a calendar quarter and shall be paid in cash by the Company in arrears not later than the fifteenth day following
the end of each calendar quarter. In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the
applicable positions described in Section I(B), for an entire calendar quarter, the retainer paid to such Non-Employee Director
shall be prorated for the portion of such calendar quarter actually served as a Non-Employee Director, or in such position, as
applicable.
II. EQUITY COMPENSATION
Non-Employee Directors shall be granted the equity awards described below. The awards described below shall be
granted under and shall be subject to the terms and provisions of the Company’s 2015 Incentive Award Plan or any other
applicable Company equity incentive plan then-maintained by the Company (the “Equity Plan”) and shall be granted subject to
award agreements, including attached exhibits, in substantially the form previously approved by the Board. All applicable terms
of the Equity Plan apply to this Program as if fully set forth herein, and all grants of stock options hereby are subject in all
respects to the terms of the Equity Plan and the applicable award agreement. For the avoidance of doubt, the share numbers in
Sections II(A) and II(B) shall be subject to adjustment as provided in the Equity Plan, including without limitation with respect to
any stock dividend, stock split, reverse stock split or other similar event affecting the Company’s common stock that is effected
prior to the Effective Date.
A.
Initial Awards. Each Non-Employee Director who is initially elected or appointed to the Board after the
Effective Date shall receive an option to purchase shares of the Company’s common stock on the date of such initial election or
appointment in an amount determined by the Compensation and Talent Committee prior to such initial election or appointment
and subject to the terms and provisions of the Equity Plan, including without limitation Section IV.(e) thereto. The awards
described in this Section II(A) shall be referred to as “Initial Awards.” No Non-Employee Director shall be granted more than
one Initial Award.
B. Subsequent Awards. A Non-Employee Director who (i) has been serving as a Non-Employee Director on the
Board for at least six months as of the date of any annual meeting of the Company’s stockholders after the Effective Date and (ii)
will continue to serve as a Non-Employee Director immediately following such meeting, shall be automatically granted an option
to purchase 35,000 shares of the Company’s common stock on the date of such annual meeting. The awards
|US-DOCS\138718768.2||
described in this Section II(B) shall be referred to as “Subsequent Awards.” For the avoidance of doubt, a Non-Employee
Director elected for the first time to the Board at an annual meeting of the Company’s stockholders shall only receive an Initial
Award in connection with such election, and shall not receive any Subsequent Award on the date of such meeting as well.
C. Termination of Service of Employee Directors. Members of the Board who are employees of the Company
or any parent or subsidiary of the Company who subsequently terminate their service with the Company and any parent or
subsidiary of the Company and remain on the Board will not receive an Initial Award pursuant to Section II(A) above, but to the
extent that they are otherwise entitled, will receive, after termination from service with the Company and any parent or subsidiary
of the Company, Subsequent Awards as described in Section II(B) above.
D. Terms of Awards Granted to Non-Employee Directors
equal the Fair Market Value (as defined in the Equity Plan) of a share of common stock on the date the option is granted.
1. Exercise Price. The per share exercise price of each option granted to a Non-Employee Director shall
2.
Vesting. Each Initial Award shall vest and become exercisable in four substantially equal annual
installments following the date of grant, such that the Initial Award shall be fully vested on the fourth anniversary of the date of
grant, subject to the Non-Employee Director continuing in service as a Non-Employee Director through each such vesting date.
Each Subsequent Award shall vest and become exercisable on the earlier of the first anniversary of the date of grant or the day
immediately prior to the date of the next annual meeting of the Company’s stockholders occurring after the date of grant, in either
case subject to the Non-Employee Director continuing in service on the Board as a Non-Employee Director through each such
vesting date. Unless the Board otherwise determines, any portion of an Initial Award or Subsequent Award which is unvested or
unexercisable at the time of a Non-Employee Director’s termination of service on the Board as a Non-Employee Director shall be
immediately forfeited upon such termination of service and shall not thereafter become vested and exercisable. All of a Non-
Employee Director’s Initial Awards and Subsequent Awards shall vest in full immediately prior to the occurrence of a Change in
Control (as defined in the Equity Plan), to the extent outstanding at such time.
shall be ten (10) years from the date the option is granted.
3. Term. The maximum term of each stock option granted to a Non-Employee Director hereunder
|US-DOCS\138718768.2||
* * * * *
Exhibit 10.28
[***] Certain informa on in this document has been excluded pursuant to Regula on S-K, Item (601)(b)(10). Such excluded informa on
is both (i) not material and (ii) the type that the Registrant treats as private or confiden al.
AMENDMENT TO LONG TERM MANUFACTURING AGREEMENT
THIS AMENDMENT (the “Amendment”), to that certain Long Term Manufacturing Agreement by and between Seres
Therapeu cs, Inc. and BacThera AG, dated as of November 8, 2021 (the “LTMA”), is made and entered into as of December 14, 2022 by
and between Seres Therapeu cs, Inc. (“Seres”), a corpora on organized and exis ng under the laws of Delaware, having its principal
place of business at 200 Sidney Street, Cambridge, MA 02139, USA; and BacThera AG, a joint venture between Chr. Hansen A/S and
Capsugel Belgium NV, a Lonza Group Affiliate, (“Lonza”), having a place of business at Hochbergerstrasse 60A, 4057 Basel, Switzerland
(“Bacthera”). Seres and Bacthera may be referred to herein individually as a “Party” or collec vely as the “Par es.”
WHEREAS, pursuant to Sec on 10.2 of Exhibit 1 to the LTMA, Bacthera has proposed two adjustments to the CapEx Target (defined
therein); and
WHEREAS, pursuant to Sec on 12.1 of Exhibit 1 to the LTMA, Bacthera has proposed certain changes to the Work (defined therein).
NOW, THEREFORE, in considera on of the mutual covenants and obliga ons set forth herein, and for other good and valuable
considera on, the receipt and sufficiency of which is hereby acknowledged, the Par es agree as follows:
1.
1.1
1.2
2.
2.1
2.2
3.
3.1
DEFINITIONS
The defini on of Product(s) in the LTMA shall be revised to “SER-109 and other products, as agreed to by both Par es”.
Capitalized terms not defined in this Amendment shall have the defini on ascribed to them in the LTMA.
CHANGE ORDER
Change Order. The Change Order a ached hereto as Exhibit 1, totaling [***], is hereby accepted and agreed to by the Par es.
Addi onal Scope. Bacthera agrees to complete development of Spray Drying technologies Proof of Concept for Seres at the
Hørsholm Facility [***].
CAPEX TARGET ADJUSTMENTS
First Adjustment. Pursuant to Sec on 10.2(a)(i) of Exhibit 1 to the LTMA, the Par es hereby agree that the First Adjustment shall
not exceed [***]. The Adjusted CapEx Target shall not exceed [***] including the Change Order.
1
3.2
4.
4.1
4.2
5.
5.1
6.
6.1
7.
7.1
Second Adjustment. Purusant to Sec on 10.2(a)(ii) of Exhibit 1 to the LTMA, the Par es hereby agree that the Second
Adjustment shall not exceed [***](1) which is [***].
FINAL CAPEX AMOUNT
Final CapEx Amount. The Par es agree that following the adjustments to the CapEx Target and the Change Order, the Final
CapEx Amount shall not exceed [***](2).
Reduc ons. Consistent with Sec on 10.2 of Exhibit 1 to the LTMA, Bacthera will [***].
MILESTONE PAYMENTS
The table in Sec on 11.1(a) of Exhibit 1 to the LTMA is hereby replaced with the following:
MILESTONE
MILESTONE PAYMENT (CAPEX TARGET)
Contract Signature
[***]
[***]
[***]
[***]
BUDGET UPDATES
[***].
MISCELLANEOUS
[***]
[***]
[***]
[***]
[***]
Counterparts. This Amendment may be executed simultaneously in any number of counterparts, any one of which need not
contain the signature of more than one Party but all such counterparts taken together will cons tute one and the same
agreement.
[Signature page follows]
2
I W W , the Par es have caused this Agreement to be executed by their respec ve duly authorized officers as of the
Effec ve Date, each copy of which will for all purposes be deemed to be an original.
SIGNED BY:
FOR AND ON BEHALF OF
SERES THERAPEUTICS, INC.
/s/ Eric D. Shaff
NAME ERIC D. SHAFF
TITLE PRESIDENT, CEO
DATE December 17, 2022 | 1:11PM PST
SIGNED BY:
For and on behalf of
BacThera AG
/s/ [***]
Name [***]
Title [***]
Date December 20, 2022
SIGNED BY:
For and on behalf of
BacThera AG
/s/ [***]
Name [***]
Title [***]
Date December 20, 2022
[***]
Exhibit 1
Change Order
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-269081, 333-263134, 333-
253776, 333-236824, 333-230092, 333-223514, 333-210171 and 333-205253) and Form S-3 (Nos.333-244401, 333- 237033 and 333-216735)
of Seres Therapeutics, Inc. of our report dated March 7, 2023 relating to the financial statements and the effectiveness of internal control over
financial reporting, which appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
March 7, 2023
1
Exhibit 31.1
I, Eric D. Shaff, certify that:
1. I have reviewed this Annual Report on Form 10-K of Seres Therapeutics, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 7, 2023
By:
/s/ Eric D. Shaff
Eric D. Shaff
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, David Arkowitz, certify that:
1. I have reviewed this Annual Report on Form 10-K of Seres Therapeutics, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 7, 2023
By:
/s/ David Arkowitz
David Arkowitz
Executive Vice President, Chief Financial Officer and Head of
Business Development
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Eric D. Shaff, President and Chief Executive Officer of Seres Therapeutics, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
(2)
The Annual Report on Form 10-K of the Company for the period ended December 31, 2022 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
March 7, 2023
/s/ Eric D. Shaff
Eric D. Shaff
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, David Arkowitz, Executive Vice President, Chief Financial Officer and Head of Business Development of Seres Therapeutics, Inc. (the “Company”),
hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
(2)
The Annual Report on Form 10-K of the Company for the period ended December 31, 2022 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
March 7, 2023
/s/ David Arkowitz
David Arkowitz
Executive Vice President, Chief Financial Officer and Head of Business
Development
(Principal Financial and Accounting Officer)