SERES THERAPEUTICS, INC. 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 for the three and nine months endedSeptember 30, 2020 , or the Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as statements regarding our plans, objectives, expectations, intentions and projections, 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. Overview We are a microbiome therapeutics company developing a novel class of live biotherapeutic drugs, which are consortia of microbes designed to treat disease by modulating the microbiome to repair the function of a disease susceptible microbiome to a non-disease state. We have an advanced drug candidate pipeline with late-stage clinical assets and a differentiate microbiome therapeutics drug discovery and development platform including good manufacturing processes, or GMP, capabilities for this novel drug modality. SER-109 is designed to reduce recurrences of Clostridioides difficile infection (formerly Clostridium 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. As described in further detail below, inAugust 2020 , we reported positive topline results from the pivotal Phase 3 ECOSPOR III study evaluating SER-109 for recurrent CDI. If approved by theU.S. Food and Drug Administration , or FDA, SER-109 could be a first-in-field oral microbiome drug. SER-287 and SER-301 are being developed to treat ulcerative colitis, or UC. In addition, using our microbiome therapeutics platform, we are developing SER-401, a microbiome therapeutic candidate for use with checkpoint inhibitors in patients with metastatic melanoma and SER-155 to prevent mortality due to gastrointestinal infections, bacteremia and graft versus host disease ("GvHD") in immunocompromised patients, including in patients receiving allogeneic hematopoietic stem cell transplantation (allo-HSCT). Supporting our R&D efforts are our deep capabilities related to microbiome therapeutic drug discovery, manufacturing, quality, and clinical development. We believe that these capabilities provide us with important competitive advantages related to the advancement of this novel treatment modality. Since our inception inOctober 2010 , we have devoted substantially all of our resources to developing our programs, 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-287, SER-301, SER-401, and SER-155 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$70.9 million for the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , we had an accumulated deficit of$530.5 million and cash, cash equivalents and short- and long-term investments totaling$320.3 million . Based on our current plans and forecasted expenses, we believe that our existing cash, cash equivalents and investments as ofSeptember 30, 2020 will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12-months from issuance of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. InAugust 2020 , we completed an underwritten public offering in which we sold 10,500,000 shares of our common stock at a public offering price of$21.50 per share. In addition, we granted the underwriters a 30-day option to purchase up to an additional 1,575,000 shares of our common stock at the public offering price, less underwriting discounts and commissions, which the underwriters exercised in full. We received aggregate net proceeds from the offering of approximately$243.7 million after deducting underwriting discounts and commissions and offering expenses payable by us.
Also in
Impact of Novel Coronavirus
We are monitoring the global outbreak and spread of the novel strain of
coronavirus, or COVID-19, and have taken steps to identify and mitigate the
adverse impacts on, and risks to, our business posed by its spread and actions
taken by governmental and health authorities to address the COVID-19 pandemic.
The spread of COVID-19 has caused us to modify our business practices, including
implementing a work from home policy for all employees who are able to perform
their duties remotely and restricting all nonessential travel, and we expect to
continue to take actions as may be required or recommended by government
authorities or as we
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determine are in the best interests of our employees, and other business
partners in light of COVID-19. Given the fluidity of the COVID-19 pandemic
however, we do not yet know the full extent of the potential impact of COVID-19
on our business operations. We will continue to closely monitor the impact of
the COVID-19 pandemic on our operations and ongoing clinical development
activity. For additional information related to the potential impact of COVID-19
on our business, please read Part II-Item 1A, "Risk Factors" of this Quarterly
Report on Form 10-Q.
SER -109
SER-109 is an oral, biologically-derived, purified bacterial spore-based
microbiome therapeutic candidate consisting of bacterial species purified from
healthy donor stool. Our SER-109 manufacturing process includes inactivation and
clearance steps designed to eliminate potential pathogens. SER-109 is designed
to prevent further recurrences of CDI in patients with a history of multiple
infections by restructuring the dysbiotic microbiome to a state that resists C.
difficile colonization and growth.
In August 2020 , we reported positive topline results from the pivotal Phase 3
ECOSPOR III study evaluating SER-109 for recurrent CDI. The study showed
that SER-109 administration resulted in a highly statistically significant
absolute decrease of 30.2% in the proportion of patients who experienced a
recurrence in CDI within eight weeks of administration versus placebo, the
study's primary endpoint, and which remained consistent at 12-weeks end point
with a 31.1% absolute decrease. At eight weeks of treatment, 11.1% of patients
administered SER-109 experienced a CDI recurrence, versus 41.3% of placebo
patients. The study results were equally compelling when characterized by the
alternative metric of sustained clinical response, where 88.9% of patients in
the SER-109 arm achieved this objective at eight weeks.
The study's efficacy results exceeded the statistical threshold previously
provided in consultation with the FDA that could allow this single clinical
study to fulfill efficacy requirements for a biological license application, or
BLA. The SER-109 safety results observed to-date were favorable, with an adverse
event profile comparable to placebo. We are actively enrolling patients in our
SER-109 open-label study, which also admits patients with a single recurrence of
CDI, to expand the safety database to meet the FDA guidance of at least 300
patients.
SER-109, if approved, is intended to treat individuals with recurrent CDI, a
patient population which includes approximately 170,000 individuals per year in
the United States . We completed enrollment with 182 patients of 188 intended
subjects with multiply recurrent CDI in ECOSPOR III. All patients who entered
ECOSPOR III must have tested positive for C. difficile toxin, as currently
recommended by the Infectious Diseases Society of America guidelines (McDonald
Clin Infect Dis 2018). 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 of comparing the C. difficile recurrence rate in subjects who
receive SER-109 verses placebo at up to eight weeks after dosing.
SER-287
SER-287 is an oral, biologically-derived purified microbiome therapeutic candidate designed to normalize the gastrointestinal microbiome of individuals with UC. InDecember 2018 , we commenced a three-arm placebo-controlled Phase 2b clinical trial that was designed to evaluate SER-287 in approximately 201 patients with mild-to-moderate UC. Two groups of patients are receiving different doses of SER-287, both following pretreatment with a short course of oral vancomycin. A third study arm will receive placebo. The study's primary endpoint will evaluate clinical remission measured after 10 weeks of SER-287 administration. Patients then enter a 2-week exploratory maintenance follow-up period. Endoscopic improvement will be measured as a secondary efficacy measure. Based on feedback from the FDA, if the data from this trial is positive, we expect that the Phase 2b clinical trial could be one of two pivotal trials to enable a BLA to be submitted for SER-287 for the treatment of UC. The SER-287 Phase 2b study is over 75% enrolled based on the 201-patient target study size. SER-287 development activity has been adversely impacted by the COVID-19 pandemic and by multiple clinical sites halting non-essential procedures, including endoscopies. In recent weeks, we have observed an increase in ECO-RESET clinical site activity, the availability of endoscopies, and in the volume of clinical study subject screening. Seres is evaluating enrollment mitigation strategies and possible trial design modifications with the goal of obtaining a high-quality, clinically meaningful dataset. We plan to engage FDA in discussions regarding any potential trial modifications. There are approximately 700,000 UC patients inthe United States and fewer than one-third of patients on current therapies achieve remission. Approved treatments are often inadequate to control disease activity and are often associated with significant side effects, including immunosuppression. We believe that SER-287 may address underlying drivers of inflammation in UC and, based on the favorable tolerability profile observed in our clinical trials of SER-287, has the potential to be developed as both a foundational monotherapy, as well as a combination therapy with other UC drugs. SER-287 has been granted Fast Track Designation by the FDA for the induction and maintenance of clinical remission in adult subjects with active mild-to-moderate UC. SER-287 has been designated an Orphan Drug for pediatric UC by the FDA. 23
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SER-301
We are also advancing our next generation, rationally-designed, fermented microbiome drug discovery and development capabilities, focusing on advancing SER-301, a therapeutic candidate for UC. We have nominated the SER-301 lead candidate. SER-301 is a consortia of bacteria designed using our 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. SER-301 is designed to reduce induction of pro-inflammatory activity, improve epithelial barrier integrity and TNF-? driven inflammation in IECs, and modulate UC-relevant anti-inflammatory, innate and adaptive immune pathways. SER-301 is being produced by our advanced fermentation, formulation and delivery platforms. It includes strains delivered in spore form, as well as strains fermented in non-spore (vegetative) form and delivered using enterically-protected technology designed to release in the colon. We have initiated clinical development activities for SER-301, and inNovember 2020 we enrolled our first patient in the SER-301 Phase 1b study. This initial clinical study of SER-301 will be conducted inAustralia and New Zealand . As a result of enrolling the first patient in the clinical study, we are entitled to receive a$10.0 million milestone payment under our collaboration agreement withNestec Ltd. SER-401 SER-401 is an oral biologically-derived purified microbiome therapeutic candidate comprising a bacterial signature similar to that observed in checkpoint inhibitor immunotherapy responders. InMarch 2019 , the first patient was dosed in the Phase 1b clinical study with MD Anderson and PICI, to evaluate SER-401's potential to augment the response of anti-PD-1 checkpoint inhibitor therapy. The study is designed to enroll 30 patients with metastatic melanoma who are being treated with nivolumab, an anti-PD-1 therapy. Patients are randomized at a 2-to-1 ratio to either SER-401 or placebo. The study's primary endpoints are to evaluate safety and tolerability. Its secondary endpoints are to evaluate the correlation of microbiome biomarkers of response to various clinical and immunological outcome measures. Seres continues to monitor the impact of the COVID-19 pandemic on company operations and ongoing clinical development activity, including on the SER-401 Phase 1b study in metastatic melanoma. Mitigation activities to minimize COVID-19-related operation disruptions are ongoing, however, given the severity and evolving nature of the situation, the timing of the SER-401 Phase 1b clinical readout is uncertain.
SER-155
We have nominated the SER-155 lead candidate, a rationally-designed, fermented microbiome drug and are advancing the candidate into clinical development. The rationale for this program is based in part on published clinical evidence from our collaborators atMemorial 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 graft versus host disease, or GvHD. SER-155 is consortia of bacteria designed using our reverse translational discovery platform to prevent mortality due to gastrointestinal infections, bacteremia and GvHD in immunocompromised patients, including in patients receiving allogeneic hematopoietic stem cell transplantation (allo-HSCT) or solid organ transplants. SER-155 lead candidate is designed to decrease infection and translocation of antibiotic resistant bacteria in the gastrointestinal tract and modulate host immune responses to decrease GvHD. InNovember 2017 , we were awarded a highly competitive grant from CARB-X to support continued preclinical research and early development work for SER-155. In 2019, Seres was awarded additional funding from CARB-X to support clinical development of SER-155, including support through IND filing and Phase 1b evaluation. The 2019 CARB-X grant provides us with an additional$4.8 million of funding for research, manufacture, and IND application, with potential for an additional$7.0 million for Phase 1b development, upon completion of milestones. 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:
• complete the clinical development and prepare for commercialization of
SER-109 for the prevention of recurrent CDI;
• continue the clinical development of SER-287 in our Phase 2b clinical
trial for the treatment of UC;
• continue the clinical development of SER-301 for the treatment of UC;
• continue the clinical development of SER-401 in our Phase 1b clinical
trial for use with checkpoint inhibitors in patients with metastatic
melanoma;
• initiate clinical development of SER-155 for the prevention of mortality
due to GvHD in immunocompromised patients, including in patients receiving
allo-HSCT;
• make strategic investments in manufacturing capabilities;
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• make strategic investments in our research discovery and development
platforms and 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 the COVID-19 pandemic. As a result, we may face difficulties
raising capital through sales of our common stock and any such sales may be on
unfavorable terms. See "Risk Factors-Risks Related to Our Operations-The
COVID-19 pandemic caused by the novel strain of coronavirus 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 II, Item 1A of this Quarterly Report on Form 10-Q. 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.
Intellectual Property
Patent Portfolio
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 (C. difficile) and SER-287 (ulcerative
colitis) extend through 2033. We plan on continuing to broaden our patent
portfolio. Currently, we have 21 active patent application families, which
includes 15 nationalized applications and 1 pending US provisional application.
To date, we have obtained 13 issued U.S. patents.
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 inthe United States may be obtained. InEurope , theEuropean Medicines Agency awards 10 years of exclusivity for new molecular entities. Financial Operations Overview
Revenue
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.
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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:
• expenses incurred under agreements with third parties, including contract
research organizations, or CROs, that conduct research, pre-clinical
activities and clinical trials on our behalf as well as contract
manufacturing organizations that manufacture drug products for use in our
pre-clinical and clinical trials;
• salaries, benefits and other related costs, including stock-based
compensation expense, for personnel in our research and development
functions;
• costs of outside consultants, including their fees, stock-based
compensation and related travel expenses;
• the cost of laboratory supplies and acquiring, developing and
manufacturing pre-clinical 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. All costs associated with the collaboration and license agreement, or the License Agreement, withNestec Ltd. , or NHS, and the Research Agreement are recorded in research and development expense in the condensed consolidated statements of operations and comprehensive loss. Our primary focus of research and development since inception has been on our 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 pre-clinical 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 and, as such, are classified as costs of our microbiome therapeutics platform research, along with external costs directly related to our microbiome therapeutics platform. The table below summarizes our research and development expenses incurred on our platform and by product development program for those that have begun clinical development. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (in thousands) (in thousands) Microbiome therapeutics platforms$ 12,456 $ 10,861 $ 36,744 $ 37,684 SER-109 5,668 2,829 12,199 7,690 SER-287 3,870 4,430 13,109 12,105 Early stage programs 1,867 197
3,651 1,630
Total research and development expenses
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 foreseeable future as we conduct our ECOSPOR III Phase 3 clinical study
of SER-109, advance the clinical development of SER-287, continue to discover
and develop additional product candidates, including SER-301, SER-401 and
SER-155 and pursue later stages of clinical development of our product
candidates.
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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, corporate business development and administrative functions. General and administrative expenses also include 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. Our general and administrative expenses may increase in the future as we increase our headcount to support the potential growth in our research and development activities and the potential commercialization of our product candidates. 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 theSecurities and Exchange Commission , or theSEC , director and officer insurance costs and investor and public relations costs. Restructuring InFebruary 2019 , we implemented corporate changes to focus our resources on advancing our clinical-stage therapeutic candidates. As a result, we are concentrating on obtaining results from the ongoing SER-109 Phase 3 study for recurrent CDI, completing our SER-287 Phase 2b study in mild-to-moderate UC patients, advancing the SER-401 Phase 1b study in collaboration with the PICI and MD Anderson to evaluate augmenting checkpoint inhibitor response in patients with metastatic melanoma, and advancing SER-301 into clinical development. In connection with the prioritization of these therapeutics candidates, we made changes to our management team and reduced headcount by approximately 30 percent.
Other Income (Expense), Net
Interest Income (Expense), Net
Interest income consists of interest earned on our cash, cash equivalents and investments.
Interest expense consists of interest incurred under our loan and security agreement with Hercules.
Other Income
Other income primarily consists of sublease income.
Income Taxes
Since our inception in 2010, we have not recorded anyU.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. We did not provide for any income taxes in the three and nine months endedSeptember 30, 2020 or 2019. Critical Accounting Policies and Significant Judgments and Estimates Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these condensed consolidated financial statements 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 condensed consolidated financial statements and disclosures based on varying assumptions. The accounting policies discussed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed with theSEC onMarch 2, 2020 , or the Annual Report, are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations. There have been no material changes to that information disclosed in our Annual Report during the three and nine months endedSeptember 30, 2020 . 27 -------------------------------------------------------------------------------- Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Revenue:
Collaboration revenue - related party $ 80 $ 4,840 $ (4,760 )
Grant revenue 1,337 85 1,252
Collaboration revenue - 2,106 (2,106 )
Total revenue 1,417 7,031 (5,614 )
Operating expenses:
Research and development 23,861 18,317 5,544
General and administrative 7,551 5,897 1,654
Restructuring expenses - - -
Total operating expenses 31,412 24,214 7,198
Loss from operations (29,995 ) (17,183 ) (12,812 )
Other (expense) income:
Interest income 100 335 (235 )
Interest expense (730 ) - (730 )
Other income 345 439 (94 )
Total other (expense) income, net (285 ) 774 (1,059 )
Net loss $ (30,280 ) $ (16,409 ) $ (13,871 )
Revenue
Total revenue was $1.4 million and $7.0 million for the three months ended
September 30, 2020 and 2019, respectively. The revenue for the three months
ended September 30, 2020 relates primarily to $1.3 million of grant revenue and
$0.1 million recognized under our license and collaborative agreement with
Nestec Ltd. , or the License Agreement. The revenue for the three months ended
September 30, 2019 principally relates to the recognition of amounts received
under the License Agreement of $4.8 million and $2.1 million associated with our
research collaboration and option agreement with MedImmune, LLC , a wholly owned
subsidiary of AstraZeneca Inc. , or the Research Agreement. The decrease of $5.6
million is mainly attributed to a $4.8 million decrease in the License Agreement
revenue, which is primarily a result of an increase in our total estimated costs
expected to complete our single performance obligation driven by our active
enrollment of patients in our open-label study for SER-109 in order to expand
the safety database to meet the FDA guidance of at least 300 patients and
SER-287 clinical development activity being adversely impacted by the COVID-19
pandemic. This decrease was partially off-set by cumulative catch-up revenue of
$4.6 million associated with the increase of $10.0 million to the transaction
price related to the milestone payment we are entitled to receive from NHS for
initiating the SER-301 Phase 1b study. Additionally, there was a $2.1 million
decrease in the revenue associated with the Research Agreement due to the
curtailment of preclinical research activities contemplated under the original
research plan in the second quarter of 2020. This is off-set by an increase of
$1.3 million in grant revenue.
Research and Development Expenses
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Microbiome therapeutics platforms $ 12,456 $ 10,861 $ 1,595
SER-109 5,668 2,829 2,839
SER-287 3,870 4,430 (560 )
Early stage programs 1,867 197 1,670
Total research and development expenses $ 23,861 $ 18,317 $ 5,544
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Research and development expenses were
• an increase of
therapeutics platform due primarily to employee related costs;
• an increase of
primarily to an increase in sequencing work of
in employee related costs of $0.8 million , an increase in contract
manufacturing of $0.7 million , and an increase in facility expenses of
$0.2 million ;
• a decrease of $0.6 million in expenses for our SER-287 program due
primarily to a decrease in contract manufacturing of $0.8 million , a
decrease in clinical trial consulting expense of $0.3 million , and
partially offset by an increase in employee related costs of
and
• an increase of
primarily to an increase in clinical trials consulting expense of $1.4
million and an increase in facility expenses of $0.2 million .
General and Administrative Expenses
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel related (including stock-based
compensation) $ 2,659 $ 2,103 $ 556
Professional fees 3,354 2,406 948
Facility-related and other 1,538 1,388 150Total general and administrative expenses $ 7,551 $
5,897 $ 1,654 General and administrative expenses were
• an increase in personnel related costs of
to an increase in salaries and related payroll taxes;
• an increase in professional fees of
increase in consulting fees; and
• an increase in facility-related and other costs of
due to an increase in IT-related expenses
Other Income (Expense), Net
Other income (expense), net for the three months endedSeptember 30, 2020 and 2019 was$(0.3) million and$0.8 million , respectively. The decrease is primarily due to an increase in interest expense of$0.7 million and a decrease of interest income of$0.2 million . 29
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30,
2020 2019 Change
(in thousands)
Revenue:
Collaboration revenue - related party $ 10,728 $ 21,909 $ (11,181 )
Grant revenue 2,907 791 2,116
Collaboration revenue 2,016 4,183 (2,167 )
Total revenue 15,651 26,883 (11,232 )
Operating expenses:
Research and development 65,703 59,109 6,594
General and administrative 20,180 18,966 1,214
Restructuring expenses - 1,492 (1,492 )
Total operating expenses 85,883 79,567 6,316
Loss from operations (70,232 ) (52,684 ) (17,548 )
Other income (expense):
Interest income 333 744 (411 )
Interest expense (2,165 ) - (2,165 )
Other income 1,189 439 750
Total other income (expense), net (643 ) 1,183 (1,826 )
Net loss $ (70,875 ) $ (51,501 ) $ (19,374 )
Revenue
Total revenue was $15.7 million and $26.9 million for the nine months ended
September 30, 2020 and 2019, respectively. The revenue for the nine months ended
September 30, 2020 relates to $10.7 million recognized under the License
Agreement, $2.9 million for grant revenue and $2.0 million recognized under the
Research Agreement. The revenue for the nine months ended September 30,
2019 principally relates to the recognition of amounts received under the
License Agreement. The decrease of $11.2 million is mainly attributed to a $11.2
million decrease in the License Agreement revenue, which is primarily a result
of an increase in our total estimated costs expected to complete our single
performance obligation driven by our active enrollment of patients in our
open-label study for SER-109 in order to expand the safety database to meet the
FDA guidance of at least 300 patients and SER-287 clinical development activity
being adversely impacted by the COVID-19 pandemic. This decrease was partially
off-set by cumulative catch-up revenue of $4.6 million associated with the
increase of $10.0 million to the transaction price related to the milestone
payment we are entitled to receive from NHS for initiating the SER-301 Phase 1b
study.
Research and Development Expenses
Nine Months Ended
September 30,
2020 2019 Change
(in thousands)
Microbiome therapeutics platforms $ 36,744 $ 37,684 $ (940 )
SER-109 12,199 7,690 4,509
SER-287 13,109 12,105 1,004
Early stage programs 3,651 1,630 2,021
Total research and development expenses
Research and development expenses were
• a decrease of
therapeutics platform, due primarily to a decrease in facility expenses of
of
• an increase of
primarily to an increase in employee related costs of
increase in sequencing costs of
manufacturing of $0.8 million , and an increase in facility expenses of
$0.5 million ;
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• an increase of
primarily to an increase in lab services and maintenance of
an increase in clinical trial consulting expense of
increase in employee related costs of
sequencing costs of
contract manufacturing of
• an increase of
primarily to an increase clinical trials consulting expense of
million, and an increase in lab service and maintenance of
General and Administrative Expenses
Nine Months Ended
September 30,
2020 2019 Change
(in thousands)
Personnel related (including stock-based
compensation) $ 7,304 $ 7,486 $ (182 )
Professional fees 8,676 6,883 1,793
Facility-related and other 4,200 4,597 (397 )
Total general and administrative expenses $ 20,180 $ 18,966 $ 1,214 General and administrative expenses were
• a decrease in personnel related costs of
a decrease in salary costs;
• an increase in professional fees of $1.8 million primarily due to an
increase in consulting; and
• a decrease in facility-related and other costs of
due to a decrease in IT-related expenses.
Restructuring
There were no restructuring charges for the nine months ended
Other Income (Expense), Net
Other income (expense), net for the nine months endedSeptember 30, 2020 and 2019 was$(0.6) million and$1.2 million , respectively. The decrease is primarily due to an increase in interest expense of$2.2 million and partially offset by an increase in other income of$0.8 million primarily related to our sublease. 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. InAugust 2020 , we completed an underwritten public offering in which we sold 10,500,000 shares of the Company's common stock at a public offering price of$21.50 per share. In addition, we granted the underwriters a 30-day option 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. We received aggregate net proceeds from the offering of approximately$243.7 million after deducting underwriting discounts and commissions and offering expenses payable by us. InAugust 2020 , we entered into a Securities Purchase Agreement with Nestlé for the sale of 959,002 shares of our common stock at a purchase price of$20.855 per share (the "concurrent placement"). We received aggregate net proceeds from the concurrent placement of approximately$19.9 million after deducting offering expenses payable by us. InNovember 2019 , we entered into a sales agreement, 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 ATM under which Cowen acts as sales agent. InMarch 2020 , in connection with filing an updated registration statement on Form S-3 (File No. 333-237033), we entered into a new sales agreement, the 2020 Sales Agreement, with Cowen on substantially the same terms as the 2019 Sales Agreement and terminated the 2019 Sales Agreement. FromJanuary 1, 2020 toSeptember 30, 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%. 31 -------------------------------------------------------------------------------- As ofSeptember 30, 2020 , we had cash, cash equivalents and short- and long-term investments totaling$320.3 million and an accumulated deficit of$530.5 million . Based on our current plans and forecasted expenses, we believe that our cash, cash equivalents and investments as ofSeptember 30, 2020 will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements for at least the next 12-months from issuance of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, subject to compliance with the conditions and covenants of our Loan and Security Agreement with Hercules Capital, Inc. 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.
Collaboration Agreements
Agreement with NHS
InJanuary 2016 , we entered into the License Agreement, 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. In exchange for the license, NHS agreed to pay us an upfront cash payment of$120.0 million , which we received inFebruary 2016 . NHS 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 NHS Collaboration Products in markets outside ofthe United States andCanada , or the Licensed Territory. We have retained full commercial rights to the NHS Collaboration Products with respect tothe United States andCanada , where we plan to build our own commercial organization. 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 NHS Collaboration Products. The full potential value of the up-front payment and milestone payments payable by NHS is over$1.9 billion , assuming all products receive regulatory approval and are successfully commercialized. InSeptember 2016 , we received a$10.0 million milestone payment associated with the initiation of the Phase 1b clinical study for SER-262 in CDI. InJune 2017 , we initiated a Phase 3 clinical study of SER-109 (ECOSPOR III) in patients with multiply recurrent CDI. InJuly 2017 , we recorded revenue of$20.0 million based on the achievement of this milestone under the License Agreement. InNovember 2018 , we executed a letter agreement with NHS, or the Letter Agreement, modifying certain terms of the License Agreement. Under the Letter Agreement, NHS agreed to pay us the$20.0 million Phase 3 milestone payment upon commencement of the Phase 2b study for SER-287. InDecember 2018 , we received$40.0 million in milestone payments in connection with the commencement of the Phase 2b study for SER-287. For the development of NHS 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 NHS bearing the remaining 33% of such costs. The Letter Agreement also provides scenarios under which NHS' 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 NHS Collaboration Products for IBD, we agreed to pay the costs of such activities to support approval inthe United States andCanada , and NHS agreed to bear the cost of such activities to support approval of NHS Collaboration Products in the Licensed Territory. With respect to development of NHS 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 NHS Collaboration Products other than SER-109 for CDI. We agreed to pay 67% and NHS agreed to pay 33% of other costs of Phase 3 clinical trials conducted for NHS Collaboration Products other than SER-109 for CDI under a global development plan. For other clinical development of NHS Collaboration Products for CDI, we agreed to pay costs of such development activities to support approval inthe United States andCanada , and NHS agreed to bear the cost of such activities to support approval of NHS Collaboration Products in the Licensed Territory. Agreement with AstraZeneca InMarch 2019 , we entered into the Research Agreement with AstraZeneca. Pursuant to the Research Agreement, we and AstraZeneca agreed to conduct certain pre-clinical and development activities and may conduct certain clinical research with the goal of advancing the mechanistic understanding of the microbiome in augmenting the efficacy of cancer immunotherapy, including potential synergy with AstraZeneca compounds in accordance with a mutually agreed research plan. Pursuant to the Research Agreement, we agreed not to conduct research or development of any microbiome products specifically designed by us during the term of the Research Agreement for the treatment of cancer with or on behalf of any third party without the prior approval of the joint steering committee for the Research Agreement until at least three years after the effective date of the Research Agreement. AstraZeneca has agreed to bear all costs of conducting its activities under the research plan and to reimburse us for certain costs incurred under the research plan. Additionally, AstraZeneca has agreed to pay to us a total of$20.0 million in three equal installments, the first of which we received inApril 2019 , the second of which we received inDecember 2019 , and the third of which will become due onJanuary 4, 2021 . Such payments are payable even if the Research Agreement is terminated in accordance with its terms, unless the Research Agreement is terminated by AstraZeneca for our uncured material breach. 32 -------------------------------------------------------------------------------- We also granted AstraZeneca an exclusive option to negotiate exclusive license rights to certain of our technologies and assets. If AstraZeneca exercises this option, we have agreed to enter into good faith negotiations with them for terms and conditions of such license agreement for a specified time period. InApril 2020 , preclinical research activities contemplated under the original research plan, in connection with the Research Agreement, were curtailed. We are in discussions regarding the future scope of translational and clinical activities to be performed by us under the research plan. We did not perform, or incur costs, under the single performance obligation this quarter. Therefore, no revenue was recognized under the Research Agreement for the three months endedSeptember 30, 2020 . Indebtedness
Loan and Security Agreement with Hercules
InOctober 2019 , we entered into a loan and security agreement with Hercules, pursuant to which a term loan in an aggregate principal amount of up to$50.0 million , or the Term Loan 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 onOctober 29, 2019 . We did not meet the milestone requirements for the second tranche under the Term Loan Facility, and as such, the additional second tranche amount of up to$12.5 million is not available for us to borrow. The third tranche, which allows us to borrow an additional$12.5 million , will be available upon Hercules' approval on or prior toJune 30, 2021 . Advances under the Term Loan 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%. We will make interest only payments throughDecember 1, 2021 , or extended toJune 1, 2022 upon satisfaction of certain milestones, and will then repay the principal balance and interest of the advances in equal monthly installments after the interest only period and continuing throughNovember 1, 2023 . We paid Hercules a commitment fee of$0.4 million at the closing. We may prepay advances under the loan and security agreement with Hercules, in whole or in part, at any time subject to a prepayment charge equal to: (a) 3.0 % of amounts so prepaid, if such prepayment occurs during the first year; (b) 2.0% of the amount so prepaid, if such prepayment occurs during the second year, and (c) 1.0% of the amount so prepaid, if such prepayment occurs after the second year. Upon prepayment or repayment of all or any of the term loans, we will pay (in addition to the prepayment premium) an end of term charge of 4.85% of the aggregate funded amount under the Term Loan Facility.
The Term Loan 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.
The Term Loan Facility includes affirmative and negative covenants 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, creating liens and selling assets, in each case subject to certain exceptions, including, among others, the ability for us to issue up to$150.0 million in convertible notes and entering into exclusive outbound licenses for our intellectual property. The Term Loan Facility also includes a liquidity covenant that commences eitherOctober 31, 2020 , orDecember 31, 2020 based upon our satisfying certain performance milestones. If our market capitalization exceeds$350.0 million , we do not have to comply with the liquidity covenant if such covenant is required. The Term Loan Facility also includes events of default, the occurrence and continuance of which provide Hercules with the right to demand immediate repayment of all principal and unpaid interest, and to exercise remedies against us and the collateral. These 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. OnApril 16, 2020 , we entered into an amendment to the loan and security agreement with Hercules, permitting us to enter into a promissory note under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Stability Act. OnApril 17, 2020 we issued a Promissory Note toBank of America, NA , pursuant to which we received loan proceeds of$2.9 million (the "Loan"), however, based on updated guidance related to this program, we decided to repay the full amount of the Loan, and repaid the Loan onMay 4, 2020 . As ofSeptember 30, 2020 andDecember 31, 2019 , the outstanding principal under the Term Loan Facility was$25.0 million and$24.6 million , respectively. For a further description of the Term Loan Facility, see Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 33
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Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine Months Ended
September 30,
2020 2019
(in thousands)
Cash used in operating activities $ (75,683 ) $ (62,473 )
Cash used in investing activities (83,556 ) (35,171 )
Cash provided by financing activities 301,439 61,121
Net increase (decrease) in cash, cash equivalents and
restricted cash$ 142,200 $ (36,523 ) Operating Activities During the nine months endedSeptember 30, 2020 , operating activities used$75.7 million of cash, primarily due to a net loss of$70.9 million and cash used from changes in our operating assets and liabilities of$17.9 million , partially offset by non-cash charges of$13.1 million . Net cash used for changes in our operating assets and liabilities during the nine months endedSeptember 30, 2020 consisted of an increase in prepaid expenses and other current assets of$3.1 million , an increase in accounts receivable of$1.6 million , a decrease in deferred revenue of$11.9 million , an increase in accounts payable of$1.0 million , a decrease in operating lease liabilities of$3.3 million and an increase in accrued expenses and other current liabilities of$0.9 million . The increase in prepaid expenses is due to timing of payments to vendors. The increase in accounts receivable is due to our reimbursable costs per our agreements. The decrease in deferred revenue was primarily due to the recognition of collaboration revenue. The increase in accounts payable was due to the timing of payments. The decrease in operating lease liabilities was due to the cash payment of lease obligations. During the nine months endedSeptember 30, 2019 , operating activities used$62.5 million of cash, primarily due to a net loss of$51.5 million and cash used from changes in our operating assets and liabilities of$24.6 million , partially offset by non-cash charges of$13.6 million . Net cash used for changes in our operating assets and liabilities during the nine months endedSeptember 30, 2019 consisted of a decrease in prepaid expenses and other current assets of$2.8 million , an increase in accounts receivable of$1.7 million , a decrease in deferred revenue of$17.7 million , a decrease in accounts payable of$1.9 million , a decrease in operating lease liabilities of$3.2 million , and a decrease in accrued expenses and other current liabilities of$2.9 million . The decrease in prepaid expenses and other current liabilities is due to amortization. The increase in accounts receivable is primarily due to our reimbursable costs per our agreements. The decrease in deferred revenue was due to the recognition of collaboration revenue. The decrease in accounts payable and accrued expenses and other current liabilities was due to the timing of payments. The decrease in operating lease liabilities was due to the cash payment of lease obligations.
Investing Activities
During the nine months ended
During the nine months ended
Financing Activities
During the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$301.4 million , consisting of$244.0 million in proceeds from our follow-on public offering of common stock, net of commissions, underwriting discounts and offering costs,$20.0 million in proceeds from the concurrent placement, net of issuance costs,$12.1 million from the issuance of common stock and exercise of stock options,$24.8 million from the issuance of common stock under the 2019 and 2020 Sales Agreements, and$0.5 million in connection with the issuance of common stock under our ESPP plan. During the nine months endedSeptember 30, 2019 , net cash provided by financing activities was$61.1 million , consisting of$60.5 million in proceeds from our public offering of common stock, net of commissions, underwriting discounts and offering costs,$0.3 million in connection with the issuance of common stock under our ESPP plan and$0.2 million from the issuance of common stock and exercise of stock options. 34
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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 and prepare for commercialization of
SER-109 for the prevention of recurrent CDI;
• continue the clinical development of SER-287 in our Phase 2b clinical
trial for the treatment of UC;
• continue the clinical development of SER-301 for the treatment of UC;
• continue the clinical development of SER-401 in our Phase 1b clinical
trial for use with checkpoint inhibitors in patients with metastatic
melanoma;
• conduct research and initiate clinical development of SER-155 for the
prevention of mortality due to GvHD in immunocompromised patients,
including in patients receiving allo-HSCT;
• make strategic investments in manufacturing capabilities;
• make strategic investments in our research discovery and development
platforms and 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;
• the progress and results of our clinical studies and pre-clinical
development;
• the cost of manufacturing clinical supplies of 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 patentapplications, 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 pre-clinical 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.
35
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Adequate additional funds may not be available to us on acceptable terms, or at
all. Additionally, market volatility resulting from the COVID-19 pandemic or
other factors could also adversely impact our ability to access capital as 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 Quarterly Report on Form 10-Q as this continues to evolve
globally. See "Impact of Novel Coronavirus" above and "Risk Factors-Risks
Related to Our Operations-The COVID-19 pandemic caused by the novel strain of
coronavirus 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 II, Item 1A of this Quarterly Report
on Form 10-Q for a further discussion of the possible impact of the COVID-19
pandemic on our business.
Contractual Obligations and Commitments
The disclosure of our contractual obligations and commitments was included in our Annual Report. There have been no material changes from the contractual commitments and obligations previously disclosed in our Annual Report.
Off-Balance Sheet Arrangements
As of
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