Shares of Seres Therapeutics (Nasdaq: MCRB), a research stage biotech company looking to treat gut related diseases by using the body’s own bacteria,  were down sharply in early trading on July 29 as the company announced disappointing results of its SER-109 clinical trial against the disease causing gut bacteria Clostridium difficile (C. diff.). 

In my recent BTP article featuring Seres I asked:  “What could go wrong? As with any biotech company at this stage of development, the clinical trials could go wrong, the Food and Drug Administration could reject any drug candidate, or management could lay an egg.”  Unfortunately, one of the common issues that can arise in this field raised its head and the stock is taking a hit.  This is the risk one takes when investing in research stage biotech companies.

According to the company’s press release, SER-109 did not perform better than placebo in the trial.  It is not certain what this means for SER-109 or the company at this point.  The company reports that it is working with the FDA and has not made a final decision about the study or SER-109 as a drug prospect.  There were no reported deaths in the study.

The key to survival in the biotech research arena is money and having more than one drug candidate.  MCRB is well financed and has a $1.9 billion dollar funding agreement with Nestle in place.  The company also has $193 million on its balance sheet in cash, which is more than adequate to keep operations on track for some time.  More important, its Total Trailing Liabilities/Current Asset Ratio is 0.47, which means that it has more than twice the amount of money in the bank that it would cover a catastrophic event that would lead to a liquidation and closure of the company.  Sere also has several other ongoing clinical trials currently under way, which means that it is still in the hunt for a viable drug candidate.

The bottom line is that it’s not good news, but we don’t have enough information to make a buy or sell decision at this point.  I recommend holding on to the shares for now as things develop.  I will have more in depth detailed analysis on Monday’s BTP Weekly.

Disclosure:  I own shares in MCRB.