Understanding the reasons for share price appreciation in the biotech space can be a black art. Seres Therapeutics (NASDAQ:MCRB) offers such a conundrum at the moment. I summarised recent clinical trial developments just last month, so readers are referred to this summary. In that article I noted it seemed that the share price was breaking through a $10 barrier and this recovery was sustained until last week. Here I look for evidence on which a share price recovery could be based (remembering that 12 months ago the share price crashed from $35.77 on July 28 to $10.94 the following day).
Recent share price movements
Two charts give a clear picture of the situation.
Firstly, there is the 18 month chart for Seres. This shows the crash in late July 2016, followed by the share price moving in the range $8.99-$14.56.
Secondly, the 3 month chart indicates a breakout, although this has not been smooth with a correction along the way. The range is $9.60 to $14.56. Apart from a brief peak in September 2016, the increase in share price since June indicated a breakout from the past 12 months. However in the past 5 days trading the share price has fallen back to ~$13.30.
Why did the share price increase over the past couple of months?
The first answer to this question is that it seems that share price increase is not being sustained and the share price may be reverting towards the mean around $10, which has been the pattern for the past 12 months.
However, there are two developments that might explain some recovery in the share price since early June. The first began on 12 June when Seres reported initiation of the Phase 3 trial on SER-109. The second occurred after appointment of Willard Dere to the Seres Board of Directors on July 10 (see below).
Does the increased share price indicate less risk of failure for the current clinical trials?
The trials are ongoing and we shall only know how they perform when the data is in. The rest is speculation. There is not long to wait for the initial readout from the Phase 1b SER-287 trial as results will be available before the end of 2107. The SER-109 Phase 3 trial is much larger and it has many centers in the US and Canada. Enrolment is underway (one quarter of the sites are enrolling) but as yet there is no clarity as to when enrolment for this trial will be completed.
Q2 results
Seres reported “steady as you go” Q2 results, with Q2 net loss of $28.0 million compared with a loss of $27.9 million for Q2 2016. $3 million revenue came from the Nestle Health Science collaboration in Q2. R&D expense at $23.1 million was similar to the $22.2 million expense for Q2 2016. General & administration expenses were down a little at $8.4 million compared with $9.0 million in Q2 2016. A significant $20 million milestone payment for SER-109 entering Phase 3 trial is expected in Q3 2017. This payment will cover a significant portion of the decrease in cash of $27.0 million in Q2, which left cash at $175.2 million, so after the milestone payment the cash balance will be close to $200 million entering Q3. One unexplained change is that a long term investment of $36.752 million on December 31,2016 is reported at $3.962 million as of June 30, 2017.
Q2 Conference Call
While things haven’t changed greatly since I last reported on Seres in mid-June, the investor call did provide some more information about Seres second generation drugs that are composed of mixtures of spores obtained from culture of anaerobic bacteria from the proprietary Seres microbiome library. These drugs are better defined than those containing spores derived from processing human feces.
Three of these defined products were discussed (SER-262 for primary C.difficile infection, SER-301 for Inflammatory Bowel Disease (including Ulcerative Colitis), and SER-155 for prevention of infection and Graft Versus Host Disease following hematopoietic stem cell or solid organ transplant). The choice of the spores used in these second generation microbiomic drugs is not casual. For example, in developing SER-301, Seres has multiple animal models for Ulcerative Colitis in humans and these models are being used to examine the effect of various mixtures of bacterial spores to refine the most suitable composition for SER-301.
SER-262, which is composed of spores of 12 bacteria from the Seres microbiome library, is in Phase 1b clinical trial. This is a first in human 24 week dose escalation trial using cultured bacteria prepared using anaerobic fermentation (no human donor material).
There is a lot of cutting edge science happening in defining these new products as well as in developing metrics for assessing efficacy of the drugs.
Appointment of Willard Dere to the Seres Board of Directors
Continuing the tradition of highly credentialed individuals on the Seres board, Willard Dere joins the board with 2 decades of scientific, clinical and strategic biopharma experience at Amgen (NASDAQ:AMGN). His previous experience as Chief Medical Officer at Amgen for a decade and also as Head of Global Development brings deep industry experience to the board. His leadership of clinical development of a number of approved products including in inflammation is valuable experience for Seres.
Conclusion
The conclusions I reached in my last article on Seres still stand. I think this is an interesting investment opportunity in an emerging field of biotech that could become very large. After a recent rise over the past month, there may be an opportunity to take a position with a pullback in the leadup to the results of the SER-287 trials towards the end of this year.
The Q2 results are steady as you go. With cash at $175.2 million and a $20 million milestone payment due imminently, the company remains well funded. The critical determinant for share price recovery is success in either the SER-287 Phase 1b or SER-109 Phase 3 trials. The SER-109 trial result is more critical as success would herald approval for this drug for treating recurrent CDI.
I am not an financial advisor and so you need to do your own due diligence or talk with your financial advisor. I do have a significant technical background in biotech and offer my commentary from that perspective. If my commentary is helpful, please consider following me.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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