Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the ‘‘Risk Factors’’ section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.
We are a microbiome therapeutics platform company developing a novel class of biological drugs, which are designed to treat disease by restoring the function of a dysbiotic microbiome. Our lead product candidate, SER-109, is designed to reduce recurrences of Clostridium difficile, or C. difficile infection, or CDI, a debilitating infection of the colon, in patients who have received antibiotic therapy for recurrent CDI by treating the dysbiosis of the colonic microbiome and, if approved by the U.S. Food and Drug Administration, or FDA, could be a first-in-field oral microbiome drug. Our second product candidate, SER-287, is being developed to treat inflammatory bowel disease, or IBD, including ulcerative colitis, or UC. In addition, using our microbiome therapeutics platform, we are developing product candidates to treat diseases where the microbiome is implicated, including SER-401, a microbiome therapeutic candidate for use with checkpoint inhibitors, or CPIs, in patients with metastatic melanoma, SER-262, a rationally designed product candidate, to reduce recurrence of CDI in patients who have received antibiotic therapy for an initial or primary CDI, SER-301, a rationally designed IBD candidate, and SER-155, a rationally designed product candidate to prevent infections and improve gastrointestinal barrier function (including the consequences of graft versus host disease) in patients following allogeneic hematopoietic stem cell transplants or solid organ transplants. We are also using our microbiome therapeutics platform to conduct research on various indications, including: infectious diseases, metabolic diseases, and inflammatory and immune diseases, including immuno-oncology.
Since our inception in October 2010, we have devoted substantially all of our resources to developing SER-109, SER-287 and SER-262, researching our pre-clinical candidates SER-401, SER-155 and SER-301, building our intellectual property portfolio, developing our supply chain, business planning, raising capital and providing general and administrative support for these operations.
All of our product candidates other than SER-109, SER-262, SER-287 and SER-401 are still in pre-clinical development or early stage discovery. Our ability to generate product revenue 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 $77.7 million for the nine months ended September 30, 2018. As of September 30, 2018, we had an accumulated deficit of $368.1 million and cash, cash equivalents and investments totaling $72.9 million. Based on our current plans and forecasted expenses, we believe that our existing cash, cash equivalents, and investments as of September 30, 2018, will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2019, raising a substantial doubt regarding our ability to continue as a going concern. This evaluation does not take into consideration the potential mitigating effects of any potential contingent milestone payments under our license and collaboration agreement with NHS that we have not earned, including the $40.0 million in milestone payments we could now receive from NHS following the initiation of the SER-287 phase 2b study planned for later this year as a result of entering into a letter agreement with NHS on November 1, 2018 (Note 12). We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. As further discussed in “—Liquidity and Capital Resources” below, these factors raise substantial doubt about our ability to continue as a going concern.
In June 2017 we initiated a Phase 3 clinical study of SER-109, termed ECOSPOR III, in approximately 320 patients with multiply recurrent CDI. Based on analysis of the available clinical, microbiome, and chemistry, manufacturing and control data from our Phase 1b and Phase 2 clinical studies of SER-109, diagnosis of CDI for both study entry and for endpoint analysis will be confirmed by C. difficile cytotoxin assay, rather than polymerase chain reaction, or PCR, which was used in the prior studies. Patients in the SER-109 arm will receive a total SER-109 dose, administered over three days, approximately 10-fold higher than the dose used in the Phase 2 clinical study. The study will evaluate patients for 24 weeks and the primary endpoint will compare the CDI recurrence rate in subjects who receive SER-109 verses placebo at up to eight weeks after dosing. ECOSPOR III enrolment continues to progress, with over 100 sites open across the US and Canada. Several factors have impacted study enrollment, including the C. difficile cytotoxin test required for diagnosis, which has screened out some individuals who might otherwise have been included had we used PCR-based testing, and the widespread availability of unapproved and unregulated fecal microbiota transplantation. We continue to add and implement various operational measures to expedite study enrollment. Additionally, we are considering alternatives, including study design modification, to expedite the availability of clinical results.