Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2024 Seres Therapeutics Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Carlo Tanzi, Investor Relations. Please go ahead. .

Thank you, and good morning. Our press release for the company's first quarter 2024 financial results and business update became available at 7:00 a.m. Eastern Time this morning and can be found on the Investors and News section of the company's website.

I'd like to remind you that we will be making forward-looking statements, including about the potential for VOWST, the timing and results of our clinical studies, future product candidates and development plans, our ability to generate additional capital, the sufficiency of cash to fund operations, and other statements, all of which are not historical facts.

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 recent 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 Shaff, Seres' Chief Executive Officer; Dr. Terri Young, Chief Commercial and Strategy Officer; Dr. Lisa von Moltke, Chief Medical Officer; and Marella Thorell, Chief Financial Officer. In addition, Dr.

Matthew Henn, Chief Scientific Officer, will be available to answer questions. With that, I'll pass the call to Eric. .

Thank you, Carlo, and good morning, everyone. In 2024, Seres has continued executing on our mission of bringing revolutionary microbiome therapeutics options to patients in need. We will provide an update today on the commercial launch of VOWST as well as our plans to develop a next wave of life-changing microbiome therapeutics.

We have tremendous optimism in the promise of microbiome therapeutics to provide transformative clinical benefits to patients, including for serious diseases that impact large populations and the potential to impact the growing risk that antimicrobial resistance poses to global public health.

Last year was an historic year for the company as we obtained FDA approval for VOWST and, alongside our collaborator Nestle Health Science, we successfully launched VOWST into the marketplace for adults suffering from recurrence C. diff infection.

These events marked major milestones for Seres for the microbiome field in general and most importantly for patients who have been waiting for a more effective approach to treat this difficult disease.

We believe that obtaining FDA approval of the first oral microbiome therapeutic provides clear evidence of the company's scientific leadership position in the field. We are proud of the impact that VOWST has had on patients, their families and on the entire recurrence C. diff community.

To date, we have seen demand from an extensive group of health care practitioners for VOWST across the recurrence C. diff patient pool and thousands of patients have now been treated with VOWST. However, we did not see the continued level of growth that we had hoped for in the first quarter as compared to the fourth quarter of 2023.

Accelerating demand is a top priority for the Seres-Nestle partnership, and we are optimistic about 2024 growth potential based on the refinement to launch execution Nestle has recently implemented. Nestle has been carefully examining launch execution and has implemented refinements as the launch proceeds.

During the first quarter and into April, Nestle has retrained their sales teams to educate HCPs about the role VOWST should play in patients early in the recurrent cycle. We believe that we are beginning to see the benefits of these efforts, and we have been encouraged by a recent acceleration in VOWST net sales during March and April.

In both months, net sales were the highest seen to date. In addition, Nestle has recently increased the number of HCPs on the call list of their GI sales team, which we expect will help further accelerate sales in the near future.

We believe that the commercial opportunity for VOWST remains substantial, especially when considering the large underlying patient population with an estimated 156,000 cases of recurrent CDI in the U.S. each year and given the severity of this life-threatening disease.

Terri will provide more detail about the progress of the commercialization efforts and actions taken to accelerate product growth. Before she does, I'd like to take a moment to summarize our company priorities, beginning with the continued delivery of VOWST to eligible patients and working with Nestle to maximize commercial performance.

We were also preparing for the clinical readout of Cohort 2 in our ongoing SER-155 Phase 1b study in HSCT patients. SER-155 is a consortia of 16 cultivated bacterial strains and a wholly owned program that could represent an important opportunity for the company and for patients.

As we announced in April, we completed enrollment for the placebo-controlled Cohort 2 of this study.

Last year, we announced encouraging SER-155 Phase 1b Cohort 1 clinical data that showed favorable tolerability, successful drug bacteria engraftment and a substantial reduction in pathogen domination in the gastrointestinal microbiome compared to a reference cohort of patients.

The pending clinical data from Cohort 2 could provide further demonstration of our approach to address an important new patient group. The pending SER-155 data are on track for late Q3 of this year, and we are highly optimistic about the prospects for this readout.

Following our strategy, we aim to leverage Seres' industry-leading microbiome capabilities and know-how to advance the development of promising new candidates in our pipeline.

We believe these programs have the potential to protect millions of medically vulnerable individuals, such as those with chronic liver disease, cancer neutropenia or who have received solid organ transplants from life-threatening infections.

We recognize that it is critically important to ensure that Seres has the resources required to execute on these initiatives. We are working with urgency to evaluate various options to support our promising pipeline with additional capital. With that, I'll now pass the call over to Terri. .

Thank you, Eric. Although meaningful progress was made across the VOWST launch priorities during the first quarter, as Eric shared just now, we did not see the growth we had hoped for across the entirety of the period.

In February based on analysis of launch execution, Nestle identified a number of opportunities for refinement and retrain their sales teams to reinforce a focus on the earlier use of VOWST. As a result, we saw that net sales in March and April ended much higher than those in January and February.

In April, Nestle also significantly increased the number of HCPs on the GI sales team's call list, and we believe this will drive meaningful acceleration in the months to come. I'll move now to the details around Q1 results as provided to us by Nestle Health Science.

In the first quarter, we observed continued growth of enrollment, while new patient starts remained at a similar level to that observed in Q4 of last year. In total, between the June 2023 launch and the end of the first quarter, 4,239 completed prescription enrollment forms were received for VOWST, including 1,411 in the first quarter alone.

Of total enrollment, 3,096 culminated in new patient starts, including 1,083 in the first quarter. We continue to observe new prescribers of VOWST with 609 prescribers added in the first quarter. Since approval, prescription enrollment forms were received from a total of 1,939 unique prescribers.

In terms of specialty mix, approximately 65% of VOWST prescribers in Q1 were from gastroenterology with the remainder from other specialties. Of the 1,939 HCPs through a prescribed VOWST, 604 of them prescribed VOWST to more than one patient in their practice.

Although as expected, the majority of utilization for VOWST to date continues to be in the multiply-recurrent patient group, we do continue to see use in patients with their first recurrence. Moving now to the 4 focus areas for the launch. I'll first discuss HCP education.

The initial launch focus of the Nestle field sales teams was on educating a select group of high prescribers about the benefits of VOWST. As a result of those efforts, many of these high-volume prescribers have tried VOWST and are adopting it in their routine practice.

However, in the rCDI market, even the highest prescribers see a limited number of patients annually. This creates the need to rapidly expand education efforts to a broader HCP audience in order to accelerate growth. In April, Nestle proposed refinement of their call list to significantly expand the number of HCPs covered by their sales team.

This expanded list implemented in April will also be used to inform targeted digital promotion to HCPs. At launch, early uptake in the multiply-recurrent segment was pronounced, providing much initial success for the sales team. But we know that in order to accelerate adoption, penetration of the earlier patient segment is a must.

It's patients with first and second recurrent represent a significant proportion of the rCDI patient opportunity. Nestle held its national sales meeting at the end of February and during the meeting, we saw the significant training provided to the sales teams in support of sourcing patients from the early recurrent patient pool.

Providing a positive experience for patients and providers is the second launch priority. Last year, the Nestle team made significant progress, converting patient enrollment to new patient starts, meeting and then exceeding benchmarks for specialty products.

The sales team supported this key priority by working closely with HCPs, their office staff and the VOWST Voyage hub.

In their efforts to provide a positive customer experience, in some cases the sales representatives were having in-depth conversations directly with HCPs regarding the patient enrollment process at the expense of time spent on why VOWST should be used early and often to prevent future recurrences.

Nestle recently increased the staff of a separate field reimbursement team and enhanced the remit of this team to proactively educate and support HCP office staff on the patient enrollment process.

These changes will empower their representatives to focus on the robust profile of VOWST first and foremost, leaving conversations about enrollment forms and how to start a patient for the HCP's office staff and the field reimbursement team.

Finally, in late Q1, the patient enrollment process was simplified to reduce the amount of required information and to move to an entirely new digital format. We believe that these refinements were necessary to accelerate trial and adoptions across the entire rCDI patient pool.

The VOWST patient assistance programs continue to support a positive HCP and patient experience. And in the first quarter, we observed that 44% of new patient starts were dispensed by the VOWST patient assistance programs. This level is consistent with that observed in Q4 of last year.

As a reminder, dispensing drug at no cost to the patient is primarily triggered by patient affordability challenges with co-pays or other cost-sharing requirements imposed by the patient's health plan once the prescription is approved.

We believe these programs are an important investment to support future demand across the broad rCDI patient population.

We also believe that the need for these programs is likely to decline as the Inflation Reduction Act provisions governing Medicare Part D benefit design and specifically capping patient cost-sharing requirements come into effect over the next year.

The third focus area for the launch is engaging payers to ensure access and we continue to be pleased with the broad patient access we are seeing. In Q1, like in Q4, we saw 56% of new patient starts reimbursed through the patient's drug benefit. Our gross-to-net rate remains modest with minimal discretionary rebates.

Marella will provide more context around the gross-to-net rates for VOWST on this. By the end of Q1, coverage [indiscernible] for VOWST crossed approximately 83% of commercial and 55% of Medicare Part D lives.

At this point in the launch, the larger plans and PBMs have issued policies for VOWST and the remainder of smaller plans have decided to simply extend the new-to-market block phase versus exert effort to construct a policy.

In summary, when an HCP office is staffed, works with the VOWST Voyage hub to navigate the approval process, we continue to see the vast majority of patients gain access to valve through their insurer.

Finally, the hospital selling team continues its efforts to educate hospital outflow -- regarding hospital outflow, and we believe these efforts will accelerate demand this year.

Education of hospital-based HCPs and development protocols for rCDI that include VOWST will enable more consistent consideration of VOWST as patients flow from the inpatient to the outpatient setting.

As the launches progress, Nestle has refined execution with this team as well, prioritizing institutions where significant progress is well underway to make VOWST available broadly to their patients.

Nestle is also scaling a pilot program from last year, which would allow certain hospitals to be considered for inclusion in the VOWST distribution network. Thus, we expect some further net sales growth independent of the enrollment in new patient starts reported to Nestle and then to Seres by the core specialty pharmacies.

To wrap up my remarks, I'll remind you that in 2023, we saw the early and substantial uptake of VOWST, leading to financial performance for the year that exceeded both our expectations and those of Nestle. We believe these results reflect 3 important factors.

First, the extensive pre-commercialization work conducted that remains foundational to future success. Second, a simple, effective launch strategy that remains in place. And third, focused execution during the early period by the Nestle sales team.

We believe that we have the path forward to reach the full potential of VOWST, and our Nestle colleagues have proven that they can focus to drive results as they did early in the launch. With the recent refinements and refocusing of launch execution, we expect acceleration of performance and in fact, early results in March and April demonstrate this.

I would now like to pass the call over to Lisa to give more details about the SER-155 program. .

Thank you, Terri. As a reminder, SER-155 is a consortium of bacterial strains cultivated from clonal master cell banks. This therapeutic candidate is designed to prevent GI infections, including those from antibiotic-resistant organisms and to reduce bloodstream infections by promoting epithelial barrier integrity.

SER-155 was also intended to modulate immune pathways with the potential to induce immune tolerance, both locally and systemically. SER-155 is being evaluated in an ongoing Phase 1b study in patients who have undergone allo-HSCT following a diagnosis of AML or other hematologic malignancy.

As a result of extensive exposure to antibiotics and the effects of HSCT conditioning regimens, these patients experience a highly disrupted GI microbiome, which is linked to pathogen overgrowth and domination in the GI tract.

This domination has been shown to be significantly associated with increased risks of bloodstream infections, graft versus host disease and mortality. Last year, we reported promising Phase 1b Cohort 1 clinical data with SER-155 being well tolerated in highly immunocompromised allo-HSCT patients.

In this open-label cohort, SER-155 was administered to 13 subjects, and we had a valuable microbiome data from 9 subjects. Our data indicated that of the subjects administered 155, only a single patient had enteric pathogen domination within 30 days following stem cell transplant.

This domination event was transient and the resulting incidence of domination in Cohort 1 was markedly lower than the incidents observed in a large reference cohort of patients. Last month, we reported that enrollment was complete for Cohort 2 of the study, which incorporates a randomized, double-blinded, placebo-controlled design.

This portion of the study enrolled 45 subjects. We anticipate obtaining Cohort 2 study data in late Q3 of this year.

In addition to continued evaluation of the safety profile and drug pharmacology, we will assess the ability of SER-155 to decrease rates of pathogen domination, the incidence of GI and related bloodstream infections, and the incidence of acute graft versus host disease.

We will also assess the ability of SER-155 to decrease rates of fever during neutropenia and the initiation of attendant antibiotic therapy.

We believe positive data from this readout would further validate the promise of this novel therapeutic modality in addressing serious infections in medically-vulnerable populations, including potentially patients with chronic liver disease, cancer neutropenia and solid organ transplant.

We also believe that this approach could reduce the use of antibiotics by reducing events of infection or suspected infection that require antibiotic initiation. A reduction in antibiotic use could impact the problem of antimicrobial resistance more broadly.

This could be especially important in settings with high rates of antibiotic use and resistance such as intensive care units.

These additional opportunities could extend the clinical utility of SER-155 and our preclinical stage programs, while establishing a fundamentally new approach to protect substantial numbers of medically vulnerable patients from life-threatening infections. And with that, I'll turn the call to Marella. .

Thanks, Lisa, and good morning. I'd like to discuss our financial performance for the first quarter, starting with VOWST. To remind you, Seres does not recognize VOWST net sales in its financial statements.

But instead, we share equally with Nestle the commercial profits and losses, and we record our share in collaboration, profit and loss sharing related party. VOWST profits and losses are determined based on VOWST net sales, cost of goods sold, and sales and marketing expenses.

Net sales of VOWST for the first quarter were $10.1 million and based on 642 units of VOWST sold during the period to specialty pharmacies and distributors. The net sales reflected estimated gross to net reductions of approximately 15%. This is slightly higher than the previous quarter due primarily to an increase in co-pay assistance.

We estimate that at the end of the quarter, there were approximately 2 weeks of VOWST inventory in the channel at specialty pharmacies, consistent with the levels at the end of last year. Seres supplies VOWST inventory to Nestle, and we receive payments from Nestle related to their VOWST supply purchases to meet market demand.

During the first quarter, Nestle purchased approximately $7.4 million of VOWST supply from the company, and we received approximately $8.7 million in payments from Nestle related to prior quarter purchases. The total VOWST loss in the first quarter was $14.3 million, and our share of that was $7.1 million.

The first quarter VOWST collaboration expenses, meaning COGS and sales and marketing expenses for VOWST, decreased from the prior quarter. This decrease was due to prior period adjustments or charges recognized in the fourth quarter and lower external costs in the first quarter of this year.

For the first quarter, we also recognized as collaboration profit or loss sharing related party approximately $4.7 million of profit on the transfer of VOWST inventory to Nestle. [Indiscernible] the supply price to Nestle, net of the cost of inventory for the units sold and free goods distributed by Nestle during the quarter.

Research and development expenses for the first quarter were $21.7 million, reduced from $44 million for the same period in 2023.

The year-over-year decrease in R&D expenses is primarily driven by VOWST commercial manufacturing costs no longer being recognized in the Seres P&L following the product approval in April 2023, but instead capitalized and recognized on our balance sheet.

In addition, reductions in headcount and other expenses contributed to decreased expenses following the implementation of the restructuring plan in the fourth quarter of last year and the focus of our resources on the SER-155 program.

General and administrative expenses for the first quarter were $15.5 million, reduced from $22.5 million from the same period in 2023, again reflecting lower headcount following the restructuring actions and other cost reduction efforts.

In May, we received a notice of default and reservation of rights letter from our lender, Oaktree, stating that an event of default had occurred due to our nonpayment of a milestone due to Bacthera under our manufacturing agreement with Bacthera.

We advised Oaktree that no event of default has occurred because we believe the milestone has not yet been met. And we're also in constructive discussions with Bacthera regarding the steps necessary to achieve the milestone. Turning to our cash position.

As of March 31, 2024, we had $111.2 million in cash and cash equivalents as compared with $128 million at the end of 2023. Based on our various operating plans, we anticipate these resources will support our operations through obtaining the SER-155 Cohort 2 data and into the fourth quarter of this year.

Company's operating plans may include drawing down the $45 million Tranche B under the company's existing senior secured debt facility with Oaktree if the net sales and other conditions are met as well as alternate plans if the necessary conditions are not met.

Our operating plans may include selling shares under the company's ATM, implementing additional cost reduction initiatives and other measures. Importantly, as Eric mentioned, activities are underway to strengthen the company's balance sheet to support our pipeline and drive value. Thank you. I will now turn the call back to Eric. .

Thank you, Marella. Seres has continued to execute with the ongoing commercialization of VOWST as well as driving our additional promise in microbiome therapeutic candidates forward in clinical development. We are particularly excited about the upcoming SER-155 data readout later this year as an important potential value driver for the company.

We look forward to keeping you updated on our progress during 2024 and as we evaluate options to support the company. With VOWST, we have clearly demonstrated the potential for microbiome therapeutics.

We believe that many more opportunities lie ahead and that Seres has the potential to bring additional transformative new therapies to patients in need. With that, operator, we'll conclude our prepared remarks and open up the line to questions. .

[Operator Instructions] And your first question comes from the line of Ted Tenthoff with Piper Sandler. .

I was wondering whether or not you could remind us if there was any price changes for VOWST this year, and if you can, what the current gross price is. And I appreciate all the color on the adjustments being made by Nestle.

Can you remind us how many reps in total are detailing VOWST?.

Yes, Ted, thank you for the question. So maybe I'll take the first -- or the second and I'll ask Terri to comment on the pricing and then the other comments on salesforce.

So there's approximately 150 reps on the GI side as well as 20 reps that are devoted towards the hospital and really being the quarterbacks of helping patients on how to get to the hospital infrastructure. But maybe Terri can comment further on that as well as the WACC question. .

Sure. And thanks for the questions, Ted. With respect to the Nestle representatives, I would highlight the fact that based on the refinement that Nestle has implemented, they have increased the call list, specifically for the GI sales team that carries both the Zenpep and VOWST. And they haven't increased the size of the sales team.

So I think this gives us all a message on the importance of this launch and accelerating performance for both companies, but particularly Nestle, and that they are allocating additional representatives time and effort away from Zenpep and to VOWST.

So we're very pleased with the digging under the hood that they've done and the refinement of the execution of the field sales team, and it really speaks to the importance of this launch to their company, the fact that they are allocating resources in this manner.

With respect to price change, the price increases taken on December 31 of last year, it was a 6% increase. So that brings us to a WACC of $18,550 for the product. Thanks for the question. .

Super helpful, and I really appreciate the color on the focus of the rep. Thank you. .

Thanks for the question, Ted. .

Your next question comes from the line of John Newman with Canaccord Genuity. .

So wondering if you could talk to us on SER-155 about the efficacy endpoints. So looking at some really interesting and important outcomes here, I think, following transplant.

And just wondering what do you think will be particularly interesting here for investors to focus on the data readout late 3Q?.

John, thank you for the question. So maybe I'll start, and I'll ask Lisa to comment and Matt after Lisa. But I'll just start by reminding everyone, this is a 1b study. So primarily, we're looking at engraftment and safety. But we are very excited about this study. We think it's representative of where the technology is going.

And not only are we excited about the potential to help patients within this specific indication, but what it unlocks for us as we mentioned in our prepared remarks. But with that, maybe I can turn it over to Lisa for your question. .

Sure. John, yes, just as you noted, there's a number of endpoints in the study that would be -- could be great positive outcomes for patients. But we are going to be paying particular attention to the ability of 155 to decrease incidence of neutropenia and fever as well as bloodstream infections.

And that's because of the ability of 155 to decrease pathogen domination and infectious events, including things that might be further downstream like antibiotic starts and more time in the hospital would be applicable not just to HSCT patients, but to broader patient groups, some of which we mentioned in our prepared remarks.

So in that way, 155 could offer a whole new therapeutic approach to reducing infections in a very large number of patients. So we're very excited to see the results on that. .

And then Matt, maybe a comment on endpoints. .

Sure. Yes, John. And again, from a pharmacology standpoint, the thing we're most focused on is the type of data we reported in the first cohort, which is that pathogen domination and the incidence of that across different patient population.

Remember, we saw a very promising result there where we saw a substantially lower rate of these incidence events than we did in a reference control cohort. And we'll be looking to see that type of data again compared to the control cohort, but also importantly in the context of the placebo control.

These are the types of data we used along with the safety profile of the drug from the first cohort to give fast track designation from the FDA on this program. So we'll be looking to see those types of data play out in the second cohort. .

Your next question comes from the line of Tess Romero with JPMorgan. .

So a big picture one from us. Can you provide your latest thinking around how we should think about the launch trajectory here over the next few quarters for VOWST? You talked about how net sales were roughly flattish quarter-over-quarter.

But how does that kind of play into your degree of confidence in being able to meet this net sales requirement in order to draw down on that Oaktree tranche by the end of 3Q? Really, what I'm trying to get at, guys, is you talked about a number of refinements that Seres is making to the launch strategy.

But how quickly do those refinements actually translate to an acceleration of the launch here?.

Yes, Tess, thank you for the question. Maybe I'll start and then I'll hand it over to Terri for her comments. But I guess I'll begin where you ended your question, which is how quickly may we see an acceleration. And I think the short answer is that we have begun to see it, including in March and April.

So as it relates to the milestone, we would need to see growth from the March and April numbers in order to put us in a position to earn it. On the other hand, we think that that growth is achievable. And maybe I'll ask Terri to comment and I can add some comments at the end. .

Sure. Thanks for the question, Tess. It's actually -- it's a really important nuance and point to make. We don't believe that we have the long-launch strategy. Our strategy has been set since prior to the launch and agreed with Nestle. We believe we have an execution issue on a number of fronts.

And so Nestle having obviously the customer-facing teams deployed from their company, they're closest to those teams, they're closest to the customer.

And as you could see in my -- or here in my prepared remarks, they've done a remarkable job of really getting under the hood of execution and where there are some areas that we can refine and improve working with their sales teams.

And I saw that pull through at their February sales meeting in terms of really focusing the representatives on making the case for earlier use of VOWST and getting them out of the weeds with their HCPs on logistics and allowing the field reimbursement team to take the helm and take the baton on that with the office staff.

But that -- we have the conversations now and the places where they belong. Those executional refinements are critical. And we're seeing the results not only in net sales, but also in some of the other metrics like enrollments and new patient starts.

So April, for example, was an all-time high for patient enrollment and net sales, all-time highs for March and April. And new patient starts as well, all-time highs in March and April versus previous months. So we're really pleased with the turning of the tide here, and we would expect that acceleration to continue over the coming quarters.

The most important refinement that happened in April is the revision of the call list and the expansion of that call list to include additional high volume or high potential HCPs. So we're very optimistic about the potential for the product, both in the long term but also in the short term here, based on the changes that Nestle's making. .

Yes. I might just add one more comment, which is Tess, your question has kind of 2 dimensions to it. One is the underlying commercial opportunity, the other was the next tranche of debt.

What I would say is that while we do think that the conditions of reaching the threshold to qualify for the debt are possible, we are not building our financial strategy around the next tranche of debt as the solution.

So as we mentioned in our prepared remarks, we have urgency in considering and acting on different alternatives that we have ahead of us to support the company both this year and into the future. And certainly those include options that wouldn't require the next tranche of debt as the primary financing vehicle for the company. .

Your next question comes from the line of Jeff Jones with Oppenheimer. .

Can you speak to any cost modifications as a result in the revised sales strategy and efforts coming from Nestle? And any visibility on where you see sales needing to be to reach a breakeven here?.

Yes, Jeff, maybe I can start and then I can hand it to Marella. But as you know, we instituted and executed upon a significant restructuring in November of last year, and certainly we're on target for those actions. We are highly focused on reaching the 155 results as well as putting the company in a position to be successful in the longer term.

So what Marella had mentioned in her prepared remarks is we certainly expect to get there. There are different ways in which we can get there. I don't think that we can be specific in terms of -- too far in terms of the types of alternatives that we're considering.

But certainly, you should know that we are active in considering those options now and we expect to report back to you shortly. But maybe Marella can comment further. .

Yes. Agreed. We are being mindful and proactive in making sure that we're continually looking for opportunities to save and those that make sense that don't compromise our clinical development plans and equally don't compromise our ability and Nestle's ability in collaboration to grow the VOWST sales.

So we are in lockstep with them about the need to support and to then to deliver the growth, and we have a good mechanism in our joint steering committee to make those decisions thoughtfully and we'll continue to support that. .

One follow-up question on manufacturing. When do you expect the majority of that investment in the Bacthera's facility to be completed triggering the milestone.

And when would you have visibility to whether you can use those validation batches for salable goods?.

Yes. I guess let me answer it this way, Jeff, which is we had embarked upon the Bacthera project. We had designed it. We had worked collaboratively to support it based on a number of factors. One is the quality of their team. Two is the quality of the facility and the campus. Three is, of course, the capacity that it would add.

Four is the efficiency that we expect to accrue into the reduced cost of manufacturing through automation and back side and so forth. All of those factors continue to be critical for us and for our partners at Nestle.

So we're making great progress with Bacthera, and we do expect that the milestones that we talked about in our filings will be hit shortly, and we continue to work collaboratively with them to bring VOWST to patients. So I do think that we will continue to work with them with urgency like everything else.

I think it's to our shareholders' benefits and it's to our patients' benefits. So I think we continue to view them as a critical partner and we'll work together to bring those validation batches to patients as quickly as we can. .

Your next question comes from the line of Keay Nakae with Chardan. .

A couple of questions. One, you did see a sequential increase in inventory on the balance sheet. Can you talk about that.

And separate from that, in terms of the capitalized product once you went commercial, when will you exhaust that?.

Sure. Let me ask Marella to answer the first and then pick up the second. .

Yes. So we are thoughtfully building up inventory in anticipation of the transition to Bacthera, and so we're going to continue, again, to do that as it makes sense. .

And then I don't think we've provided guidance on when the capitalized inventory would fall through, except to say that we're working collaboratively with Nestle to ensure that we're utilizing the assets and the capabilities and capacity that we have to try to ensure that we don't leave patients short but also continue to build the capacity that we think we will need over time to support patients.

And what we expect will continue to be a growing top line. .

Okay.

And then just a strategy question as it pertains to 155, given the strength of your balance sheet currently and given that VOWST is, let's say, the bird in the hand, how likely are you to partner out 155 opportunities?.

Yes. I think you probably can anticipate the answer is that we can't provide specifics. What I will say is that we are actively considering options across a number of different dimensions. It always strikes me that nondilutive capital sometimes doesn't mean what people think whenever you're giving rights or valued away.

Then that is, in some sense, dilutive. But we are focused on short-term cash and the need to support the company and to support other programs that we think can help patients. So we think about BD holistically short term, long term, what it enables for today, what it supports for tomorrow.

And those are obviously discussions and decisions that have multiple dimensions to them. We've done it before in a meaningful way when we thought it was right and helpful to shareholders, and we'll consider it again. But I can't specifically comment on 155 except to say we're really excited about this readout.

I think that the data from the first cohort was impressive and interesting to us. It was to our stakeholders and our KOLs. And the ability to help what is a different patient population with our technology and what it could potentially open up for us is just incredibly exciting to us. So I think you can imagine we're excited about these results. .

That concludes our Q&A session. I will now turn the conference back over to management for closing remarks. .

So I thank, everybody, for your time this morning. We appreciate it, and we look forward to keeping you updated as we go. So thanks, and have a great week. .

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect..