Seres Therapeutics, Inc.

Welcome to the Series Therapeutics Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kevin Mannix, head of investor relations. Please go ahead.

Thank you, Dave, and good morning, everyone. Our press release for the company's third quarter 2023 financial results and business update became available at 7 a.m. Eastern time this morning and can be found on the investor and news section of the company's website. I'd like to remind you that we'll be making forward-looking statements, including the availability of cash to fund operations, the potential sales for Vaust, the timing and results of clinical studies, our ability to achieve sales targets, and other statements which are not historical fact. Actual results may differ materially. Additionally, these statements are subject to certain risks and uncertainties, which are discussed under the risk factors section of our SEC filings. Any forward-looking statements made on today's call represent our views as of today only. We may update these statements in the future, but we disclaim any obligation to do so. On today's call, with prepared remarks, I'm joined by Eric Schaaf, CERI's Chief Executive Officer, Dr. Terry Young, Chief Commercial Officer, and David Arkowitz, Chief Financial Officer. In addition, Dr. Matthew Henn, Chief Scientific Officer, Dr. Lisa Von Mulkey, Chief Medical Officer, CMO, and Dr. Dave Egge, Chief Technology Officer, will also be available to address questions. With that, I'll now pass the call over to Eric Scheff. Eric, please.

Thank you, Kevin, and good morning, everyone. By now, I hope you have all had the opportunity to read our press release, including the continued strong VAUST launch performance and our decision to implement a strategic restructuring. Since the beginning of the year, the innovation and perseverance of our team has been extraordinary, culminating with the approval and commercialization of Voust in collaboration with Nestle Health Science. Everything we do at CERES has and always will be driven by a desire to support patients with unmet medical needs. It is the hope and resilience of each patient and their families that inspires us and drives us to fulfill our mission. Voust is the perfect example of this. In Vaust, we have developed an incredible and unique option for patients battling recurrent C. diff infection, one with a strong efficacy and safety profile, as well as remote administration. Today, Vaust is changing lives. It is improving the lives of not just the patients we serve, but their families. Now, with the significant success that we have had with Vaust, there also comes a profound responsibility to ensure that our ability to help recurrent C. diff patients is preserved. This has required us to make commitments, particularly in CMC Equality, to continue and expand our ability to deliver VOWS to patients. The environment we find ourselves operating in, coupled with our desire to help patients in need, has resulted in our making the difficult decision to implement a significant corporate restructuring. We have been very thoughtful in our analysis, and after a thorough review, we believe that a substantial reduction in expenses and a streamlining of our organization is the best way for Ceres to prioritize Vaust and support those companies' longer-term business sustainability. David is going to discuss the financials surrounding the restructuring, but I would like to touch on what it means for the Ceres workforce. We are reducing the size of the current staff by approximately 41%. This is not an action that we take lightly. We have an extremely dedicated and talented team at CERES, many of whom have been pioneering microbiome therapeutics for more than a decade and who have been responsible for the construction of an unprecedented platform and knowledge base in microbiome therapeutics. We are deeply appreciative of the dedication and valuable contributions of our colleagues who have worked tirelessly and have successfully brought VAUST to the market as the first ever orally delivered microbiome therapy. Although the decision to restructure the organization is a difficult one, it is essential for positioning series optimally for the future. We believe that starts with VAUST. which today is the first and only FDA-approved orally-administered microbiome therapeutic. Our teams are continuing to work alongside our collaborator, Nestle Health Science, to execute our launch strategy, and together we have successfully delivered on the first full quarter of launch while laying the foundation for VOWS to become standard of care for preventing further CDI recurrences. seeing continued strong demand from a broad set of healthcare practitioners and across the recurrent CDI patient pool. Terry will cover our commercial metrics, but I am extremely proud that we achieved the 1,000th Voust patient start in early October. We see substantial opportunity for growth given the broad label and robust clinical profile of Voust, which makes it an appropriate choice for so many of the estimated 156,000 cases this year alone in the U.S. We see the potential for Vaust to reach significant levels of peak annual net sales, including, as we have previously said, the potential to reach or surpass the highest sales-based milestone threshold in the 2021 Nestle co-commercialization agreement of 750 million of sales. We've also announced our plans to support our ongoing 0155 Phase 1B study to an anticipated clinical data set expected in the third quarter of 2024 with approximately 50 subjects expected to be enrolled in Cohort 2. 0155 is a cultivated microbiome therapeutic candidate that is designed to prevent infections and or GVHD in patients undergoing HSCT. You will recall in May, we reported highly promising phase 1B cohort 1 clinical data with SIR-155 well-tolerated in highly immunocompromised HSCT patients and an enteric pathogen overgrowth in only a single patient, leading to a cumulative incidence that was markedly lower than that observed in a larger reference cohort of patients. We look forward to data from the placebo-controlled cohort two next year to confirm these results, meaningful findings, and to gain insights on clinical outcomes and translational biomarkers that will inform a phase two study. These results, if favorable, will provide another opportunity to create value for all stakeholders, especially patients. I would like to pass the call over now to Terry to cover the significant progress we've made bringing VAUST to patients in Q3.

Thank you, Eric. I'm pleased to report that along with our collaborators at Nestle Health Science, we made significant progress on our launch priorities in the third quarter, building upon the already strong momentum from the previous quarter. These encouraging results support our view that valves can become a foundational treatment for recurrent C. diff infection and a highly significant commercial opportunity over time.

In fact,

With a strong HCP demand and patient access that we're observing, it's clear that VALST is already changing the course of this disease for many patients caught in the vicious cycle of RCBI just months after approval. Today I'll provide an update on our four focus areas, scaling HCP education efforts, creating a positive customer experience, establishing payer coverage, and optimizing hospital outflow. First, I'll describe our HCP education efforts, which are focused on the importance of microbiome restoration in our CDI and the unprecedented efficacy and safety profile of DALST. We have made significant progress in this area, supported by the promotional efforts of the Nestle field team, which have now been deployed for a full six months post-approval. Last month, we also participated, along with our Nestle collaborators, in both the Infectious Disease Week and the American College of Gastroenterology conferences. We took the opportunity to broadly engage many of our leading KOLs at these conferences, and the feedback we are hearing continues to embody excitement and a high level of interest in balance. As a result of our successful HCP education efforts, we've seen demand grow significantly in Q3, as reported to us by Nestle Health Science. In total, across both the second and third quarters, We received 1,513 completed prescription enrollment forms for VALST, including 1,215 in the third quarter alone. Of the total second and third quarter enrollments, 934 culminated in new patient starts, including 837 in the third quarter alone. We received prescription enrollment forms from 698 unique prescribers between approval and September 30th with a continued split of approximately 70% from gastroenterology and the remainder from other specialties. Like in the previous quarter, we continue to see VALS prescribers who are not on the Nestle Field Sales Team's call list, in line with the high unmet need and strong awareness across the provider and patient communities. Of the 698 HCPs who have prescribed VALS, 129 of them have prescribed VALS to more than one patient. As expected, the majority of utilization for VALST in the early launch period has been in the multiply recurrent patient group. VALST demand was also observed in patients with their first recurrence, and we expect this to grow over time as HCPs gain experience with an entirely new modality and develop an understanding of the foundational and distinct role that VALST plays in preventing recurrence after completion of successful treatment with antibiotics. Our most recent market research supports this view and tells us that HCPs expect to continue to increase their use of VALST over time. To grow breadth of use for VALST, we continue to scale promotional efforts to deepen the understanding of the role of VALST across the recurrent CDI population. For example, at ID Week, we launched an updated branded campaign for VALST and subsequently trained the Nestle field teams and redeployed them to educate their HCPs accordingly. We are also increasing our investment in speaker programs, given the high level of interest we've seen from providers. We expect these efforts to translate into further growth in demand, and importantly, earlier use in the recurrent cycle over time. In terms of providing a positive experience for patients and providers, our VALS Voyage Hub continues with its mission of providing a high level of patient treatment and financial support. As expected, Valsvoi had significantly increased its successful conversion of enrollments to new patient starts in Q3. In terms of free drug utilization, we saw approximately 48% of the 934 second and third quarter new patient starts dispensed via our free drug program. The use of free drug was mostly due to patient affordability challenges with co-pays or other cost-sharing requirements after the prescription was approved by their insurer. Our third focus area is engaging payers to insure access, and to date we have been pleased with the broad patient access we are seeing. In fact, more people have already gained access to VALST than we had anticipated at this point in our launch, with the vast majority of patients able to gain access to VALST through their insurer. As of September 30th, we had received coverage for VALST across approximately 50% of commercial and 35% of Medicare Part D lives, and estimate that the remaining plans will issue coverage policies in the coming quarters. To date, we are seeing some coverage policies for VALS that are quite broad, per the approved indication, and others with some utilization management restrictions. Through September 30th, we saw 52% of our 934 new patient starts reimbursed through the patient's drug benefits. Our gross-to-net rate remains modest with minimal discretionary rebates at this stage of the launch. David will say more about our gross-to-net rates momentarily. In summary, the vast majority of patients who are prescribed VALS are able to obtain approval for the product either through the medical exception process prior to a policy being issued or via a prior authorization. As the first recurrent demand for VALS builds, we will continue to work with prominent payers to ensure that we preserve the broad patient access to valves that we are currently observing. Finally, the hospital selling team continues its efforts to enhance hospital outflow, and we believe that these efforts will begin to bear fruit later this year and into 2024. As of September 30th, the hospital team had successfully engaged approximately 350 of the top volume hospitals more than once a month. We believe these conversations are critical to ensuring structural modifications to how RCDI patients are discharged. Education of hospital-based HCPs and development of protocols for RCDI that include VALST will enable more consistent consideration of VALST as patients flow from the inpatient to the outpatient setting. Ultimately, the hospitals will benefit as fewer patients return with recurrences, especially during the 30-day window after initial discharge, where CMS financial penalties could be applied. These results, representing our first full quarter of the launch, show that we are off to a very strong start with the VALST launch. While we are not completely surprised at the speed and magnitude of this early uptake, given the unmet need and the robust profile of VALST, these results have exceeded the company's expectations across multiple dimensions. We, along with our collaborators at Nestle Health Science, will continue our focus on HCP education, customer experience, payer coverage, and hospital outflow, and expect to see continued acceleration of demand and progress on our key priorities as we move through the coming quarters. As a result, we have confidence that we will ultimately achieve our goal of VALS becoming a foundational therapy for our CDI, alleviating the significant burden experienced today by patients, HCPs, and the healthcare system. Now I'll turn the call over to David for an update on our financials.

Thanks, Terry, and good morning. The details of our third quarter financials are included in the press release issued this morning. Before I provide an overview of our financial performance in the third quarter, I'd like to share some additional details on our restructuring plan that we announced this morning. We are focusing our business operations, prioritize the commercialization of VAUST, and the completion of the SEER 155 Phase 1B study. As a result, we are restructuring the company and undertaking a series of prudent and disciplined steps to significantly reduce spending across the organization in order to enhance our financial flexibility and liquidity. In total, we believe that these steps will result in between $75 and $85 million of cash savings for 2024, excluding any one-time charges. These savings will be realized by reducing our workforce by 41%, which results in the elimination of approximately 160 positions across the organization, significantly scaling back all non-partnered R&D programs and activities other than the completion of the SEER 155 Phase 1B study. Annualization of savings related to closing one of our three donor facilities supporting BAUS manufacturing that we announced earlier this year and continuing to drive BAUS manufacturing efficiencies. reducing G&A expenses and consolidating office space, including planned subleasing of existing space, and the elimination of nonessential operating expenses. Ceres anticipates incurring a one-time charge of $5 to $5.5 million in the fourth quarter of 2023, primarily related to the workforce reduction. We believe the restructuring will yield significant savings for the company and position it for longer-term business sustainability. We ended the third quarter of 2023 with $169.9 million cash, cash equivalents, and investments. We anticipate that this cash balance, in conjunction with the savings from the restructuring and the expected receipt of the $45 million tranche B under our existing term loan facility with Oaktree, will support our operations into the fourth quarter of 2024. We are eligible for this tranche B until September 30, 2024, and it's based upon the achievement of trailing six-month BAUST net sales of at least $35 million and other applicable conditions. I would now like to discuss our financial performance for the third quarter starting with BAUST. Let's remind everyone that Ceres does not recognize BAUST net sales in its financial statements. but instead we share equally with Nestle in the commercial profits and losses and we record our share in collaboration profit and loss sharing related party. VOWS profits or losses are determined based on VOWS net sales, cost of goods sold, and sales and marketing expenses. VOWS net sales for the third quarter were very strong at 7.6 million based on 506 units of VOWS sold during the period to specialty pharmacies and distributors. The net sales reflect estimated gross-to-net reductions of approximately 14%, primarily due to returns reserved, prompt payment discounts, statutory discounts and rebates, and limited discretionary commercial rebates. This gross-to-net reduction is an estimate based on certain assumptions, and limited information will be refined over time as additional information becomes available. Ceres is responsible for supplying VAUSE inventory to Nestle. we received payments from Nestle related to their VOWS supply purchases to meet market demand. During the third quarter, Nestle purchased approximately 24 million of VOWS supply from us, and we received approximately 14 million in payments from Nestle during the third quarter related to these and second quarter purchases. Estimate that at the end of the third quarter, there was less than two weeks of VOWS inventory in the channel at the specialty pharmacies based on forward demand, which is typical for this stage of the launch and consistent with what we saw at the end of the second quarter. The total VOWS loss in the third quarter was $12.9 million, and our share of that was $6.5 million. This amount, our share of the VOWS loss for the third quarter, is recognized in our P&L in the operating expense section as collaboration profit or loss sharing related party. For the third quarter, We also recognized as collaboration profit or loss sharing related party a $7.3 million profit on the transfer of VOWS inventory to Nestle, and this amount serves to offset the $6.5 million that I just mentioned, which is our share of the VOWS operating loss. This profit on the transfer of VOWS inventory represents the supply price to Nestle, net of the cost of the inventory for the units sold and free goods distributed by Nestle during the quarter, because the vast majority of this VOWS inventory was manufactured prior to approval, its cost was largely previously expensed, and therefore the inventory value is low, resulting in the profit on the transfer of the VOWS inventory that's close to its supply price. Over time, as the VOWS preapproval inventory is consumed, the magnitude of this profit component from the transfer of the inventory will diminish. Given that the third quarter was the first Full quarter following the approval of VOWS, I wanted to spend a little bit more time reviewing our financial results for the quarter. Series reported a net loss of $47.9 million for the third quarter of 2023 as compared to a net loss of $60 million for the same period in 2022. Total operating expenses for the third quarter of this year were $47.7 million as compared to total operating expenses of $62.6 million for the same period in 2022. $76.9 million for the second quarter of this year. This significant sequential quarterly decline of approximately $29 million is primarily driven by an $18.5 million decrease in R&D expenses and an $8.1 million decrease in G&A expenses. R&D expenses for the third quarter of this year were $28.3 million as compared to $43.1 million for the same period last year and $46.8 million for the second quarter of 2023. These year-over-year and sequential decreases are primarily driven by VOWS commercial manufacturing costs no longer being recognized in series P&L following product approval, but instead capitalized and recognized on the company's balance sheet. The sequential quarterly decrease was also driven by lower stock-based compensation expense in the third quarter of 2023, as the second quarter of 2023 reflected meaningfully higher stock-based compensation expense primarily due to awards with performance conditions that either started vesting or vested upon Faust approval. G&A expenses for the third quarter of this year were $20 million as compared to $18.4 million for the same period last year and $28.1 million for the second quarter of 2023. As we discussed during our last earnings call, G&A expenses for the second quarter of 2023 reflected meaningfully higher stock-based compensation expense primarily due to stock awards with performance conditions that either started vesting or vested upon BAUST approval, as well as approximately $4 million of one-time transaction and milestone payments due to third parties as a result of the FDA approval of BAUST. Thank you, and I will now turn the call back to Eric.

Thank you, David, and thanks to everyone for listening in. Before opening up the call for Q&A, I would like to say that we could not be more pleased with the initial performance of Voust since its launch in June, and we are very excited to be bringing such an important medicine to patients in need. As I said at the start of the call, it is the desire to assist patients that drives everything we do at Ceres. I have and continue to believe that if the company can softly create value for patients, that value will be recognized by other stakeholders, especially our shareholders. Unquestionably, we are creating value for patients. It is our goal and aim that through the prioritization of VAUST and the deliberate actions announced today, the value will be recognized. With that, I will conclude our remarks and open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Joseph Thon with TD Talon. Please go ahead.

Hi there. Good morning. Thank you for taking my questions. Congrats on the progress and best of luck to the team and those impacted by the restructuring. I know it's always a challenging day. Maybe the first question, I know it was mentioned maybe that there were some utilization management restrictions in some of the pairs that you're working with. Maybe if you could elaborate that on a little bit more. And then second, just in terms of the prescriber base, maybe who are these early adopters maybe that are using in more than one patient? Do they kind of fit a certain mold? And based on your field conversations, how are they using VALS versus maybe like a rebiota? Thank you.

So, Jo, good morning, and thank you for the questions and utilization prescriber base. Maybe I can ask Terri to comment.

Right, so I think I want to start, Jo, by just doubling down on a key concept that I put forward in my prepared remarks, which is that we are very pleased with the patient access that we are observing during the first six months of launch. The vast majority of patients are able to obtain the needed approvals for-voused through their insurer, either via the medical exception process if there's not a policy in place yet, or via a prior authorization process if there is a coverage policy. So that, for us, is the most important outcome. And in fact, that outcome has exceeded the expectations that we had coming into the launch and is one of the key drivers of the launch performance. So in terms of the coverage policies that we're seeing, I shared in my prepared remarks the percentages across commercial and Part D. We have some policies, it's really a mix. We have some policies that contain little to no utilization management, while others have varied restrictions, and they really are sort of a mixed bag. But I think really the most important piece is that these claims are coming through, they're being approved, And as you can see in our demand results and the new patient starts, they're being dispensed either via through, you know, reimbursed claim from the payer or by our free drug program if the patient can't afford the cost sharing that's imposed by the payer. So I think that's the most important piece for us. You asked about our prescriber base. Again, we continue to see a very broad prescriber base, both across specialty, as I shared, as well as across called-on and non-called-on positions. And the repeat prescriber base is also very broad. We're seeing utilization across the patient base as well. So there's nothing particularly distinctive or unique about the repeat prescriber base other than as in with any launch, you just get people who are ahead of the curve. They're change agents. They're willing to try new therapies. And those are the positions that we're seeing.

Great. Thank you very much.

The next question comes from Edward Tenthos with Piper Sandler.

Please go ahead.

And I'm really impressed by the launch and the launch dynamics taking place so far. I'm curious, as you look at the market, you know, What is the opportunity to really expand outreach here? And is there anything else you guys think you can be doing just to access more patients? I know the strategy is to really get patients as they're coming out of the hospital. So impressed by the launch so far and just want to know if there's any planned changes to how you're doing this. Thanks.

Ted, thank you for the question, and good morning. I think that there's different phases that we think about, and we've talked about that in the past. We're pleased with where we are in this first phase, where the profile of the drug really is leading us, and I think as Terry has talked about in the past, we've been really pleased with the breadth of prescribers that we've seen, which suggests to us that some of the efforts that we've done, including maybe some of the publication work, is really kind of... coming home. But keep in mind, there's additional opportunity with IRA. There's additional opportunity for continued expansion. And maybe I can ask Terry to comment further.

Sure. Thanks for the question, Chad. A few things that I mentioned in my prepared remarks I would just remind everybody of. The fact that we were able to launch our branded campaign, the full launch campaign, on the back of a pre-review that we did, a pre-clearance with the FDA. This is very typical for a launch. We were able to do that, I think, quite quickly out of the gate. And so launching that, just this, or sorry, last month now in October, training the representatives very quickly in getting that scaled, including a full digital campaign. And that digital presence, and Nestle has a full capability around this, right, because they're not only in pharma. They're used to reaching consumers effectively and engaging them. And HCPs as well, we leverage that capability. So that campaign is very strong. And we're scaling it fully. And that's important because of the utilization that we're seeing outside of the field representative's call list. So we want to continue to engage those physicians effectively. We are also scaling our patient campaign. And you'll see a new patient campaign roll out eminently. Eric mentioned the IRA. So those are near-term efforts that the team is taking to really scale the outreach and engagement that we have with our key customers. The IRA, Eric mentioned, that's a more medium-term opportunity. We expect to see the use of our income-qualified free drug program drop as those IRA provisions come online in 2025 and more paid patients coming through and more demand coming through from the Medicare Part D segment.

That's a super helpful color. Thank you so very much. Thanks for the question, Ted.

Our next question comes from John Newman with Canaccord Genuity.

Please go ahead. John, your line is now live.

Why don't we move forward and we can come back to John later in the queue.

The next question comes from Tess Romero with JP Morgan. Please go ahead.

Good morning. Good morning. Thank you for taking our question. Can you clarify for us, for the three largest PDMs, what progress you've made, and are you able to give us a sense of cadence of the expected decisions here based on their cycles? And more broadly, where would you say payer coverage is tracking compared to your target? Thank you.

Tess, good morning, and thank you for the question. Let me ask Terry to comment.

Sure. Tess, I'll just reiterate once more that we're very focused on the end outcome for patients, and we're very, very pleased with the patient access we're seeing and the approval rates through patients' insurers today and overall patient access. With respect to coverage, as I outlined, we're seeing a mix. of very little or no utilization management across health plans and PBMs to some utilization management. And you asked about expectations. This is very much as we expected. We did an enormous amount of payer engagement prior to the launch. So we're feeling very good about the coverage that we're getting. As you might imagine, Nestle is still in active discussions with many of these plans, including the PBMs. And we wouldn't want to share additional details today that would disrupt those efforts in any way. But I'll tell you, we may consider providing more granularity in the future once we have further progress on this front. Thank you for the question. Thank you.

Thank you.

Our next question comes from Jeff Jones with Oppenheimer. Please go ahead.

Good morning, guys, and thanks for taking the question. Can you give any additional granularity on how we should think about the savings breakdown that you described for 2024 in respect of R&D versus G&A spend? And then a second question, is there any guidance on how we can think about a break-even point in terms of net sales for the profit share calculation and, of course, As you mentioned, that's changing dynamically as your inventory calculations and accounting is changing now. Thank you.

Yeah, Jeff, good morning, and thank you for the questions. Let me start, and then I'm going to ask David to comment further. But as it relates to the breakdown of the savings, I would say that with a 40% cut, it's a pretty deep cut, and just about all savings groups within the enterprise were impacted, were affected, and contributed to that cut. I would say it was not an across-the-board cut. We did take a disproportionate focus on, in particular, areas of G&A and areas of R&D with the idea of preserving and protecting our ability to not just support VAWS, but continue to support a growing top line. We have been incredibly pleased with what we've seen so far in terms of the track and as we've mentioned in our prepared remarks, actually even exceeded our expectations in terms of the launch. From an R&D perspective, as we noted in the comments, we are focused on continuing to support the cohort two part of the phase one study from 155 to a readout, which we expect in the third quarter. We saw some incredibly interesting data from the first cohort If we're able to replicate what we saw in the first cohort and the second cohort and together between the two, we think that's interesting for that indication, but also to open up other areas within, for instance, AMR. That said, we are incredibly focused in R&D on that. So we are pausing our activities elsewhere. We do think there's an opportunity to re-engage But for the time being, our focus is really on Vaust, and maybe I can hand it over to David.

Yes. Thanks, Jeff. Thanks, Eric. Yeah, Jeff, let me give a little bit more granularity. So, the reduction in force is generating, out of that 75 to 85 million in 2024 cash savings, it's generating about $35 million of it. So, that's about 40 percent of that total range. Another 40% is coming, roughly, is coming from R&D expenses. And then the remaining 20% coming from G&A expenses and other activities. As it relates to, I can also just provide a little bit more color on your break-even question. If we just look at the Q3 results, as we talked about, VOWS collaboration had a total loss of $12.9 million, and that was on a base of $7.6 million in sales. So COGS and sales and marketing expenses for the quarter were about $21 million. So that's just one quarter, our first full quarter, so I would caution folks in extrapolating that extensively, but it just gives you some additional insights on the level of support required to drive

sales early in the launch. Great. Thanks, guys. Thanks for the question, Jeff.

Our next question comes from Kia Nikkei with Chardon.

Please go ahead. Yeah, thanks, Kia, Chardon. Two questions. First, in terms of the reimbursement discussions, is there specific areas where you hope to see some you know, the next tranche of wins? And then the second question, with respect to the next tranche from the debt facility, beyond the sales metric, any other conditions that are notable that you need to qualify under in order to get that tranche? Thanks.

Yeah, good morning, and thanks for the question. On the reimbursement piece, I think, Terry, Hit that beforehand, but maybe a quick response from Terry, and then I'll ask David to comment on the debt charge.

So I guess one thing to add is our focus, as a reminder, has really been on the commercial plans and the commercial business because of the Part D mandated contracting cycle and the contracting window they are having passed for 24. So we're very focused on commercial, and those particular plans... it's not like there's a bolus of them that come online at any given time. They come online month by month by month, so we expect to continue progress across the commercial space as we move through Q4 in the first half of next year with a steady pace.

David, on the debt question?

Yeah, there's really no other meaningful, applicable conditions. There is a requirement of low single-digit, quarter-over-quarter sales growth, which we're in, obviously, ramp mode here as it relates to the BaaS launch, so we do not view that as particularly notable.

Okay, thank you.

Thanks for the question.

Our next question comes from Chris Cibutani with Goldman Sachs. Please go ahead.

Hi, good morning. This is Steven on for Chris. We had a couple questions. First on the VALS launch, can you comment on the utilization trends, particularly thinking about the split of patients between the inpatient versus outpatient setting? And then if there is a differential response from payers approving reimbursement in those two settings. And then on the restructuring, I'm hearing some cognitive dissonance given that you're framing the VALS launch as very successful, but on the other hand, this restructuring. Is this more coming from the pipeline just not generating more near-term commercial opportunities? Some color around that would be helpful. Thank you.

Steven, maybe I can ask Teri to hit the first one, and then I'm happy to answer the second one.

Sure. So with respect to reimbursement, you know, again, I keep emphasizing the outcome we're so pleased with that the vast majority of patients can get access to VALS via their insurer today. We're very pleased with that, exceeded our expectations. With respect to inpatient and outpatient use, even the inpatient segment that we are focusing on, that the hospital team is focusing on creating access for, those patients receive VALS through the outpatient drug benefit. So they're really, in terms of reimbursement and the drug benefit, they don't behave any differently than a true outpatient. who is both diagnosed and fully treated in the outpatient setting. It's the same set of insurers. So that patient access, again, we continue to be very pleased with.

And then, Steven, on the second question, you know, maybe I can just share how I think about this. And certainly, the notion that we're not pleased with the productivity in the R&D side of things is absolutely not the case. you know, and I think Vaust is our best example of why. You know, we did not have a straight line with Vaust from phase one to phase three, but, you know, we had incredible science, incredible commitment, perseverance through adversity, including a pandemic, and ultimately, we believe that we're changing patients' lives and their families' lives because of that. So, We absolutely believe that there is utility of our technology well beyond recurrent C. diff infection, and the next step of that, we believe, is 155 with some really interesting early data that we saw earlier this year. But we are in an incredibly challenging environment, and we think that the responsible thing for us to do as a team is to ensure that we're focusing on Voust, which, by the way, we think has a particularly attractive return profile given the launch trajectory, and also being really cautious and careful and focused as to how we're deploying finite resources. And perhaps when the environment improves, we'll think about broadening the aperture, but we think that's the responsible thing to do right now for shareholders and for patients. So that's the underlying thinking behind our action. Got it. Thank you. Thanks for the question, Stephen.

The next question comes from John Newman with Canaccord Genuity.

Please go ahead.

John, your line is now live.

John, I think it sounds like we're having some trouble with audio, but we're happy to connect with you and take your question anytime.

All righty. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Well, thank you, Dave, and thanks to everyone on the line for your attention this morning. We look forward to keeping you updated on our progress. We hope everyone has a good week.

Thanks very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. you Thank you. Thank you. Welcome to the Series Therapeutics Third Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kevin Mannix, head of investor relations. Please go ahead.

Thank you, Dave, and good morning, everyone. Our press release for the company's third quarter 2023 financial results and business update became available at 7 a.m. Eastern time this morning and can be found on the investor and news section of the company's website. I'd like to remind you that we'll be making forward-looking statements, including the availability of cash to fund operations, the potential sales for Vaust, the timing and results of clinical studies, our ability to achieve sales targets, and other statements which are not historical fact. Actual results may differ materially. Additionally, these statements are subject to certain risks and uncertainties, which are discussed under the risk factors section of our SEC filings. Any forward-looking statements made on today's call represent our views as of today only. We may update these statements in the future, but we disclaim any obligation to do so. On today's call, with prepared remarks, I'm joined by Eric Schaaf, CERI's Chief Executive Officer, Dr. Terry Young, Chief Commercial Officer, and David Arkowitz, Chief Financial Officer. In addition, Dr. Matthew Henn, Chief Scientific Officer, Dr. Lisa Von Molke, Chief Medical Officer, CMO, and Dr. Dave Egge, Chief Technology Officer, will also be available to address questions. With that, I'll now pass the call over to Eric Sheff. Eric, please.

Thank you, Kevin, and good morning, everyone. By now, I hope you have all had the opportunity to read our press release, including the continued strong VAUST launch performance and our decision to implement a strategic restructuring. Since the beginning of the year, the innovation and perseverance of our team has been extraordinary, culminating with the approval and commercialization of Voust in collaboration with Nestle Health Science. Everything we do at CERES has and always will be driven by a desire to support patients with unmet medical needs. It is the hope and resilience of each patient and their families that inspires us and drives us to fulfill our mission. Voust is the perfect example of this. In Vaust, we have developed an incredible and unique option for patients battling recurrent C. diff infection, one with a strong efficacy and safety profile, as well as mode of administration. Today, Vaust is changing lives. It is improving the lives of not just the patients we serve, but their families. Now, with the significant success that we have had with Vaust, there also comes a profound responsibility to ensure that our ability to help recurrent C. diff patients is preserved. This has required us to make commitments, particularly in CMC Equality, to continue and expand our ability to deliver VOWS to patients. The environment we find ourselves operating in, coupled with our desire to help patients in need, has resulted in our making the difficult decision to implement a significant corporate restructuring. We have been very thoughtful in our analysis, and after a thorough review, we believe that a substantial reduction in expenses and a streamlining of our organization is the best way for Ceres to prioritize Vaust and support those companies' longer-term business sustainability. David is going to discuss the financials surrounding the restructuring, but I would like to touch on what it means for the Ceres workforce. We are reducing the size of the current staff by approximately 41%. This is not an action that we take lightly. We have an extremely dedicated and talented team at CERES, many of whom have been pioneering microbiome therapeutics for more than a decade and who have been responsible for the construction of an unprecedented platform and knowledge base in microbiome therapeutics. We are deeply appreciative of the dedication and valuable contributions of our colleagues who have worked tirelessly and have successfully brought VAUST to the market as the first ever orally delivered microbiome therapy. Although the decision to restructure the organization is a difficult one, it is essential for positioning series optimally for the future. We believe that starts with VAUST. which today is the first and only FDA-approved orally-administered microbiome therapeutic. Our teams are continuing to work alongside our collaborator, Nestle Health Science, to execute our launch strategy, and together we have successfully delivered on the first full quarter of launch while laying the foundation for VOWS to become standard of care for preventing further CDI recurrences. seeing continued strong demand from a broad set of healthcare practitioners and across the recurrent CDI patient pool. Terry will cover our commercial metrics, but I am extremely proud that we achieved the 1,000th Voust patient start in early October. We see substantial opportunity for growth given the broad label and robust clinical profile of Voust, which makes it an appropriate choice for so many of the estimated 156,000 cases this year alone in the U.S. We see the potential for Vaust to reach significant levels of peak annual net sales, including, as we have previously said, the potential to reach or surpass the highest sales-based milestone threshold in the 2021 Nestle co-commercialization agreement of 750 million of sales. We've also announced our plans to support our ongoing 0155 Phase 1B study to an anticipated clinical data set expected in the third quarter of 2024 with approximately 50 subjects expected to be enrolled in Cohort 2. 0155 is a cultivated microbiome therapeutic candidate that is designed to prevent infections and or GVHD in patients undergoing HSCT. You will recall in May, we reported highly promising phase 1B cohort 1 clinical data with SIR-155 well-tolerated in highly immunocompromised HSCT patients and an enteric pathogen overgrowth in only a single patient, leading to a cumulative incidence that was markedly lower than that observed in a larger reference cohort of patients. We look forward to data from the placebo-controlled cohort two next year to confirm these results, meaningful findings, and to gain insights on clinical outcomes and translational biomarkers that will inform a phase two study. These results, if favorable, will provide another opportunity to create value for all stakeholders, especially patients. I would like to pass the call over now to Terry to cover the significant progress we've made bringing Vous to patients in Q3.

Thank you, Eric. I'm pleased to report that along with our collaborators at Nestle Health Science, we made significant progress on our launch priorities in the third quarter, building upon the already strong momentum from the previous quarter. These encouraging results support our view that VALS can become a foundational treatment for recurrent C. diff infection and a highly significant commercial opportunity over time.

In fact,

With a strong HCP demand and patient access that we're observing, it's clear that VALST is already changing the course of this disease for many patients caught in the vicious cycle of RCBI just months after approval. Today I'll provide an update on our four focus areas, scaling HCP education efforts, creating a positive customer experience, establishing payer coverage, and optimizing hospital outflow. First, I'll describe our HCP education efforts, which are focused on the importance of microbiome restoration in our CDI and the unprecedented efficacy and safety profile of BALST. We have made significant progress in this area, supported by the promotional efforts of the Nestle field team, which have now been deployed for a full six months post-approval. Last month, we also participated, along with our Nestle collaborators, in both the Infectious Disease Week and the American College of Gastroenterology conferences. We took the opportunity to broadly engage many of our leading KOLs at these conferences, and the feedback we are hearing continues to embody excitement and a high level of interest in balance. As a result of our successful HCP education efforts, we've seen demand grow significantly in Q3, as reported to us by Nestle Health Science. In total, across both the second and third quarters, We received 1,513 completed prescription enrollment forms for VALST, including 1,215 in the third quarter alone. Of the total second and third quarter enrollments, 934 culminated in new patient starts, including 837 in the third quarter alone. We received prescription enrollment forms from 698 unique prescribers between approval and September 30th with a continued split of approximately 70% from gastroenterology and the remainder from other specialties. Like in the previous quarter, we continue to see VALS prescribers who are not on the Nestle Field Sales Team's call list, in line with the high unmet need and strong awareness across the provider and patient communities. Of the 698 HCPs who have prescribed VALS, 129 of them have prescribed VALS to more than one patient. As expected, the majority of utilization for VALST in the early launch period has been in the multiply recurrent patient group. VALST demand was also observed in patients with their first recurrence, and we expect this to grow over time as HCPs gain experience with an entirely new modality and develop an understanding of the foundational and distinct role that VALST plays in preventing recurrence after completion of successful treatment with antibiotics. Our most recent market research supports this view and tells us that HCPs expect to continue to increase their use of VALST over time. To grow breadth of use for VALST, we continue to scale promotional efforts to deepen the understanding of the role of VALST across the recurrent CDI population. For example, at ID Week, we launched an updated branded campaign for VALST and subsequently trained the Nestle field teams and redeployed them to educate their HCPs accordingly. We are also increasing our investment in speaker programs, given the high level of interest we've seen from providers. We expect these efforts to translate into further growth in demand, and importantly, earlier use in the recurrent cycle over time. In terms of providing a positive experience for patients and providers, our VALS Voyage Hub continues with its mission of providing a high level of patient treatment and financial support. As expected, Valsvoi had significantly increased its successful conversion of enrollments to new patient starts in Q3. In terms of free drug utilization, we saw approximately 48% of the 934 second and third quarter new patient starts dispensed via our free drug program. The use of free drug was mostly due to patient affordability challenges with co-pays or other cost-sharing requirements after the prescription was approved by their insurer. Our third focus area is engaging payers to insure access, and to date we have been pleased with the broad patient access we are seeing. In fact, more people have already gained access to VALST than we had anticipated at this point in our launch, with the vast majority of patients able to gain access to VALST through their insurer. As of September 30th, we had received coverage for VALST across approximately 50% of commercial and 35% of Medicare Part D lives and estimate that the remaining plans will issue coverage policies in the coming quarters. To date, we are seeing some coverage policies for VALS that are quite broad, per the approved indication, and others with some utilization management restrictions. Through September 30th, we saw 52% of our 934 new patient starts reimbursed through the patient's drug benefits. Our gross to net rate remains modest with minimal discretionary rebates at this stage of the launch. David will say more about our gross to net rates momentarily. In summary, the vast majority of patients who are prescribed VALS are able to obtain approval for the product either through the medical exception process prior to a policy being issued or via a prior authorization. As the first recurrent demand for VALS builds, we will continue to work with prominent payers to ensure that we preserve the broad patient access to valves that we are currently observing. Finally, the hospital selling team continues its efforts to enhance hospital outflow, and we believe that these efforts will begin to bear fruit later this year and into 2024. As of September 30th, the hospital team had successfully engaged approximately 350 of the top volume hospitals more than once a month. We believe these conversations are critical to ensuring structural modifications to how RCDI patients are discharged. Education of hospital-based HCPs and development of protocols for RCDI that include VALST will enable more consistent consideration of VALST as patients flow from the inpatient to the outpatient setting. Ultimately, the hospitals will benefit as fewer patients return with recurrences, especially during the 30-day window after initial discharge, where CMS financial penalties could be applied. These results, representing our first full quarter of the launch, show that we are off to a very strong start with the VALST launch. While we are not completely surprised at the speed and magnitude of this early uptake, given the unmet need and the robust profile of VALST, these results have exceeded the company's expectations across multiple dimensions. We, along with our collaborators at Nestle Health Science, will continue our focus on HCP education, customer experience, payer coverage, and hospital outflow, and expect to see continued acceleration of demand and progress on our key priorities as we move through the coming quarters. As a result, we have confidence that we will ultimately achieve our goal of VALS becoming a foundational therapy for our CDI, alleviating the significant burden experienced today by patients, HCPs, and the healthcare system. Now I'll turn the call over to David for an update on our financials.

Thanks, Terry, and good morning. The details of our third quarter financials are included in the press release issued this morning. Before I provide an overview of our financial performance in the third quarter, I'd like to share some additional details on our restructuring plan that we announced this morning. We are focusing our business operations, prioritize the commercialization of VOWS, and the completion of the SEER 155 Phase 1B study. As a result, we are restructuring the company and undertaking a series of prudent and disciplined steps to significantly reduce spending across the organization in order to enhance our financial flexibility and liquidity. In total, we believe that these steps will result in between $75 and $85 million of cash savings for 2024, excluding any one-time charges. These savings will be realized by reducing our workforce by 41%, which results in the elimination of approximately 160 positions across the organization, significantly scaling back all non-partnered R&D programs and activities other than the completion of the SEER 155 Phase 1B study, annualization of savings related to closing one of our three donor facilities supporting BAUS manufacturing that we announced earlier this year and continuing to drive BAUS manufacturing efficiencies. reducing G&A expenses and consolidating office space, including planned subleasing of existing space, and the elimination of nonessential operating expenses. Ceres anticipates incurring a one-time charge of $5 to $5.5 million in the fourth quarter of 2023, primarily related to the workforce reduction. We believe the restructuring will yield significant savings for the company and position it for longer-term business sustainability. We ended the third quarter of 2023 with $169.9 million cash, cash equivalents, and investments. We anticipate that this cash balance, in conjunction with the savings from the restructuring and the expected receipt of the $45 million tranche B under our existing term loan facility with Oaktree, will support our operations into the fourth quarter of 2024. We are eligible for this tranche B until September 30, 2024, and it's based upon the achievement of trailing six-month VAUST net sales of at least $35 million and other applicable conditions. I would now like to discuss our financial performance for the third quarter starting with VAUST. Let's remind everyone that Ceres does not recognize VAUST net sales and its financial statements. but instead we share equally with Nestle in the commercial profits and losses and we record our share in collaboration profit and loss sharing related party. VOWS profits or losses are determined based on VOWS net sales, cost of goods sold, and sales and marketing expenses. VOWS net sales for the third quarter were very strong at 7.6 million based on 506 units of VOWS sold during the period to specialty pharmacies and distributors. The net sales reflect estimated gross-to-net reductions of approximately 14%, primarily due to returns reserved, prompt payment discounts, statutory discounts and rebates, and limited discretionary commercial rebates. This gross-to-net reduction is an estimate based on certain assumptions, and limited information will be refined over time as additional information becomes available. Ceres is responsible for supplying BAUS inventory to Nestle. We received payments from Nestle related to their vouch supply purchases to meet market demand. During the third quarter, Nestle purchased approximately 24 million of vouch supply from us, and we received approximately 14 million in payments from Nestle during the third quarter related to these and second quarter purchases. Estimate that at the end of the third quarter, there was less than two weeks of vouch inventory in the channel at the specialty pharmacies based on forward demand, which is typical for this stage of the launch and consistent with what we saw at the end of the second quarter. The total VOWS loss in the third quarter was $12.9 million, and our share of that was $6.5 million. This amount, our share of the VOWS loss for the third quarter, is recognized in our P&L in the operating expense section as collaboration profit or loss sharing related party. For the third quarter, We also recognized as collaboration profit or loss sharing related party a $7.3 million profit on the transfer of BAU's inventory to Nestle, and this amount serves to offset the $6.5 million that I just mentioned, which is our share of the BAU's operating loss. This profit on the transfer of BAU's inventory represents the supply price to Nestle, net of the cost of the inventory for the units sold and free goods distributed by Nestle during the quarter, because the vast majority of this VOWS inventory was manufactured prior to approval, its cost was largely previously expensed, and therefore the inventory value is low, resulting in the profit on the transfer of the VOWS inventory that's close to its supply price. Over time, as the VOWS preapproval inventory is consumed, the magnitude of this profit component from the transfer of the inventory will diminish. Given that the third quarter was the first Full quarter following the approval of VOWS, I wanted to spend a little bit more time reviewing our financial results for the quarter. Series reported a net loss of $47.9 million for the third quarter of 2023 as compared to a net loss of $60 million for the same period in 2022. Total operating expenses for the third quarter of this year were $47.7 million as compared to total operating expenses of $62.6 million for the same period in 2022. 76.9 million for the second quarter of this year. This significant sequential quarterly decline of approximately 29 million is primarily driven by an $18.5 million decrease in R&D expenses and an $8.1 million decrease in G&A expenses. R&D expenses for the third quarter of this year were 28.3 million as compared to 43.1 million for the same period last year and 46.8 million for the second quarter of 2023. These year-over-year and sequential decreases are primarily driven by vows commercial manufacturing costs no longer being recognized in series P&L following product approval, but instead capitalized and recognized on the company's balance sheet. The sequential quarterly decrease was also driven by lower stock-based compensation expense in the third quarter of 2023, as the second quarter of 2023 reflected meaningfully higher stock-based compensation expense primarily due to awards with performance conditions that either started vesting or vested upon Faust approval. G&A expenses for the third quarter of this year were $20 million as compared to $18.4 million for the same period last year and $28.1 million for the second quarter of 2023. As we discussed during our last earnings call, G&A expenses for the second quarter of 2023 reflected meaningfully higher stock-based compensation expense primarily due to stock awards with performance conditions that either started vesting or vested upon VOWS approval, as well as approximately $4 million of one-time transaction and milestone payments due to third parties as a result of the FDA approval of VOWS. Thank you, and I will now turn the call back to Eric.

Thank you, David, and thanks to everyone for listening in. Before opening up the call for Q&A, I would like to say that we could not be more pleased with the initial performance of Voust since its launch in June, and we are very excited to be bringing such an important medicine to patients in need. As I said at the start of the call, it is the desire to assist patients that drives everything we do at Ceres. I have and continue to believe that if the company can softly create value for patients, that value will be recognized by other stakeholders, especially our shareholders. Unquestionably, we are creating value for patients. It is our goal and aim that through the prioritization of VAUST and the deliberate actions announced today, the value will be recognized. With that, I will conclude our remarks and open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Joseph Thon with TD Talon. Please go ahead.

Hi there. Good morning. Thank you for taking my questions. Congrats on the progress and best luck to the team and those impacted by the restructuring. I know it's always a challenging day. Maybe the first question, I know it was mentioned maybe that there were some utilization management restrictions in some of the pairs that you're working with. Maybe if you could elaborate that on a little bit more. And then second, just in terms of the prescriber base, maybe who are these early adopters maybe that are using in more than one patient? Do they kind of fit a certain mold? And based on your field conversations, how are they using VALS versus maybe like a rebiota? Thank you.

So, Jo, good morning, and thank you for the questions and utilization prescriber base. Maybe I can ask Terri to comment.

Right. So, I think I want to start, Jo, by just doubling down on a key concept that I put forward in my prepared remarks, which is that we are very pleased with the patient access that we are observing during the first six months of launch. The vast majority of patients are able to obtain the needed approvals for VALST through their insurer, either via the medical exception process if there's not a policy in place yet, or via a prior authorization process if there is a coverage policy. So that, for us, is the most important outcome. And, in fact, that outcome has exceeded the expectations that we had coming into the launch and is one of the key drivers of the launch performance. So in terms of the coverage policies that we're seeing, I shared in my prepared remarks the percentages across commercial and Part D. We have some policies, it's really a mix. We have some policies that contain little to no utilization management, while others have varied restrictions, and they really are sort of a mixed bag. But I think really the most important piece is that these claims are coming through, they're being approved, And as you can see in our demand results and the new patient starts, they're being dispensed either via through, you know, reimbursed claim from the payer or via our free drug program if the patient can't afford the cost sharing that's imposed by the payer. So I think that's the most important piece for us. You asked about our prescriber base. Again, we continue to see a very broad prescriber base, both across specialty, as I shared, as well as across called-on and non-called-on physicians. And the repeat prescriber base is also very broad. We're seeing utilization across the patient base as well. So there's nothing particularly distinctive or unique about the repeat prescriber base other than as in with any launch, you just get people who are ahead of the curve. They're change agents. They're willing to try new therapies. And those are the positions that we're seeing.

Great. Thank you very much.

The next question comes from Edward Tenthos with Piper Sandler. Please go ahead.

And I'm really impressed by the launch and the launch dynamics taking place so far. I'm curious, as you look at the market, you know, What is the opportunity to really expand outreach here? And is there anything else you guys think you can be doing just to access more patients? Like I know the strategy is to really get patients as they're coming out of the hospital. So impressed by the launch so far and just want to know if there's any planned changes to how you're doing it. Thanks.

Ted, thank you for the question, and good morning. I think that there's different phases that we think about, and we've talked about that in the past. We're pleased with where we are in this first phase, where the profile of the drug really is leading us, and I think as Terry has talked about in the past, we've been really pleased with the breadth of prescribers that we've seen, which suggests to us that some of the efforts that we've done, including maybe some of the publication work, is really kind of... coming home. But keep in mind, there's additional opportunity with IRA. There's additional opportunity for continued expansion. And maybe I can ask Terry to comment further.

Sure. Thanks for the question, Chad. A few things that I mentioned in my prepared remarks I would just remind everybody of. The fact that we were able to launch our branded campaign, the full launch campaign, on the back of a pre-review that we did, a pre-clearance with the FDA. This is very typical for a launch. We were able to do that, I think, quite quickly out of the gate. And so launching that just this, or sorry, last month now in October, training the representatives very quickly in getting that scaled, including a full digital campaign. And that digital presence And Nestle has a full capability around this, right, because they're not only in pharma. They're used to reaching consumers effectively and engaging them. And HCPs as well, we leverage that capability. So that campaign is very strong. And we're scaling it fully. And that's important because of the utilization that we're seeing outside of the field representative's call list. So we want to continue to engage those physicians effectively. We are also scaling our patient campaign. And you'll see a new patient campaign roll out imminently. Eric mentioned the IRA. So those are near-term efforts that the team is taking to really scale the outreach and engagement that we have with our key customers. The IRA, Eric mentioned, that's a more medium-term opportunity. We expect to see the use of our income-qualified free drug program drop as those IRA provisions come online in 2025 and more paid patients coming through and more demand coming through from the Medicare Part D segment.

That's a super helpful color. Thank you so very much.

Thanks for the question, Ted. Our next question comes from John Newman with Canaccord Genuity. Please go ahead. John, your line is now live.

Why don't we move forward and we can come back to John later in the queue.

The next question comes from Tess Romero with JP Morgan. Please go ahead.

Good morning. Good morning. Thank you for taking our question. Can you clarify for us, for the three largest PDMs, What progress you've made, and are you able to give us a sense of cadence of the expected decisions here based on their cycles? And more broadly, where would you say payer coverage is tracking compared to your target? Thank you.

Tess, good morning, and thank you for the question. Let me ask Terry to comment.

Sure. Tess, I'll just reiterate once more that we're very focused on the end outcome for patients and we're very, very pleased with the patient access we're seeing and the approval rates through patients insurers today and overall patient access. With respect to coverage, as I outlined, we're seeing a mix of very little or no utilization management across health plans and PBMs to some utilization management. And you asked about expectations. This is very much as we expected. We did an enormous amount of payer engagement prior to the launch. So we're feeling very good about the coverage that we're getting. As you might imagine, Nestle is still in active discussions with many of these plans, including the PBMs. And we wouldn't want to share additional details today that would disrupt those efforts in any way. But I'll tell you, we may consider providing more granularity in the future once we have further progress on this front.

Thank you for the question.

Thank you.

Our next question comes from Jeff Jones with Oppenheimer.

Please go ahead. Good morning, guys, and thanks for taking the question. Can you give any additional granularity on how we should think about the savings breakdown that you described for 2024 in respect of R&D versus G&A spend. And then a second question, is there any guidance on how we can think about a break-even point in terms of net sales for the profit share calculation? And of course, as you mentioned, that's changing dynamically as you're as your inventory calculations and accounting is changing now. Thank you.

Yeah, Jeff, good morning, and thank you for the questions. Let me start, and then I'm going to ask David to comment further. But as it relates to the breakdown of the savings, I would say that with a 40% cut, it's a pretty deep cut, and just about all groups within the enterprise were impacted, were affected, and contributed to that cut. I would say it was not an across-the-board cut. We did take a disproportionate focus on, in particular, areas of G&A and areas of R&D with the idea of preserving and protecting our ability to not just support VAWS, but continue to support a growing top line. We have been incredibly pleased with what we've seen so far in terms of the track, and as we've mentioned in our prepared remarks, actually even exceeded our expectations in terms of the launch. From an R&D perspective, as we noted in the comments, we are focused on continuing to support the cohort two part of the phase one study from 155 to a readout, which we expect in the third quarter. We saw some incredibly interesting data from the first cohort. If we're able to replicate What we saw in the first cohort and the second cohort and together between the two, we think that's interesting for that indication, but also to open up other areas within, for instance, AMR. That said, we are incredibly focused in R&D on that. So we are pausing our activities elsewhere. We do think there's an opportunity to re-engage, but for the time being, our focus is really on VAUST, and maybe I can hand it over to David.

Yeah, thanks, Jeff. Thanks, Eric. Yeah, Jeff, let me give a little bit more granularity. So, the reduction in force is generating, out of that 75 to 85 million in 2024 cash savings, it's generating about $35 million of it. So, that's about 40 percent of that total range. Another 40 percent is coming, roughly, is coming from R&D expenses. and then the remaining 20% coming from G&A expenses and other activities. As it relates to, I can also just provide a little bit more color on your break-even question. If we just look at the Q3 results, as we talked about, VOWS collaboration had a total loss of 12.9 million, and that was on a base of 7.6 million in sales. So COGS and sales and marketing expenses for the quarter were about $21 million. So that's just one quarter, our first full quarter, so I would caution folks in extrapolating that extensively, but it just gives you some additional insights on the level of support required to drive sales early in the launch.

Great. Thanks, guys. Thanks for the question, Jeff.

Our next question comes from Kia Nikkei with Chardon.

Please go ahead. Yeah, thanks, Kia, Chardon. Two questions. First, in terms of the reimbursement discussions, is there specific areas where you hope to see some, you know, the next tranche of wins? And then the second question, with respect to the next tranche from the debt facility, beyond the sales metric, any other conditions that are notable that you need to qualify under in order to get that tranche? Thanks.

Yeah, good morning, and thanks for the question. On the reimbursement piece, I think Terry had Hit that beforehand, but maybe a quick response from Terry, and then I'll ask David to comment on the debt charge.

So I guess one thing to add is our focus, as a reminder, has really been on the commercial plans and the commercial business because of the Part D mandated contracting cycle and the contracting window they are having passed for 24. So we're very focused on commercial, and those particular plans... it's not like there's a bolus of them that come online at any given time. They come online month by month by month, so we expect to continue progress across the commercial space as we move through Q4 in the first half of next year with a steady pace.

David, on the debt question?

Yeah, there's really no other meaningful, applicable conditions. There is a requirement of low single-digit, quarter-over-quarter sales growth, which we're in, obviously, ramp mode here as it relates to the BaaS launch, so we do not view that as particularly notable.

Okay, thank you. Thanks for the question.

Our next question comes from Chris Cibutani with Goldman Sachs. Please go ahead.

Hi, good morning. This is Steven on for Chris. We had a couple questions. First on the VALS launch, can you comment on the utilization trends, particularly thinking about the split of patients between the inpatient versus outpatient setting? And then if there is a differential response from payers approving reimbursement in those two settings. And then on the restructuring, I'm hearing some cognitive dissonance given that you're framing the VALS launch as very successful, but on the other hand, this restructuring. Is this more coming from the pipeline just not generating more near-term commercial opportunities? Some color around that would be helpful. Thank you.

Steven, maybe I can ask Teri to hit the first one, and then I'm happy to answer the second one.

Sure. So with respect to reimbursement, you know, again, I keep emphasizing the outcome we're so pleased with that the vast majority of patients can get access to VALS via their insurer today. We're very pleased with that, exceeded our expectations. With respect to inpatient and outpatient use, even the inpatient segment that we are focusing on, that the hospital team is focusing on creating access for, those patients receive VALS through the outpatient drug benefit. So they're really, in terms of reimbursement and the drug benefit, they don't behave any differently than a true outpatient. who is both diagnosed and fully treated in the outpatient setting. It's the same set of insurers. So that patient access, again, we continue to be very pleased with.

And then, Steven, on the second question, you know, maybe I can just share how I think about this. And certainly, the notion that we're not pleased with the productivity in the R&D side of things is absolutely not the case. you know, and I think Vaust is our best example of why. You know, we did not have a straight line with Vaust from phase one to phase three, but, you know, we had incredible science, incredible commitment, perseverance through adversity, including a pandemic, and ultimately, we believe that we're changing patients' lives and their families' lives because of that. So, We absolutely believe that there is utility of our technology well beyond recurrent C. diff infection, and the next step of that, we believe, is 155 with some really interesting early data that we saw earlier this year. But we are in an incredibly challenging environment, and we think that the responsible thing for us to do as a team is to ensure that we're focusing on Voust, which, by the way, we think has a particularly attractive return profile given the launch trajectory, and also being really cautious and careful and focused as to how we're deploying finite resources. And perhaps when the environment improves, we'll think about broadening the aperture, but we think that's the responsible thing to do right now for shareholders and for patients. So that's the underlying thinking behind our action. Got it. Thank you. Thanks for the question, Stephen.

The next question comes from John Newman with Canaccord Genuity.

Please go ahead.

John, your line is now live.

John, I think it sounds like we're having some trouble with audio, but we're happy to connect with you and take your question anytime.

All righty. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Well, thank you, Dave, and thanks to everyone on the line for your attention this morning. We look forward to keeping you updated on our progress. We hope everyone has a good week. Thanks very much. The conference is now concluded.

Thank you for attending today's presentation. You may now disconnect.