Seres Therapeutics Inc

(Amounts in thousands, except share and per share data)

(Unaudited)

1. Nature of the Business and Basis of Presentation

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc. The Company is a clinical-stage company focused on improving patient outcomes in medically vulnerable populations through novel live biotherapeutics. The Company led the successful development and approval of VOWST (previously referred to as SER-109), the first FDA-approved orally administered microbiome therapeutic, which was sold to Nestlé Health Science (as defined below) in September 2024. The Company is progressing the development of SER-155, an investigational, oral, live biotherapeutic designed to decolonize gastrointestinal (“GI”) pathogens, improve epithelial barrier integrity, and induce immune tolerance to prevent bacterial bloodstream and antimicrobial resistant (“AMR”) infections as well as other pathogen-associated negative clinical outcomes in patients undergoing allogeneic hematopoietic stem cell transplantation (“allo-HSCT”). The placebo-controlled Phase 1b study Cohort 2 results demonstrated that SER-155 was associated with a significant reduction in both bloodstream infections and systemic antibiotic exposure as well as a lower incidence of febrile neutropenia, as compared to placebo through day 100 post HSCT. SER-155 was generally well tolerated, with no observed treatment-related serious adverse events. In addition to allo-HSCT, the Company intends to evaluate SER-155 and other cultivated live biotherapeutic candidates in other medically vulnerable patient populations, including autologous-HSCT patients, cancer patients with neutropenia, chimeric antigen receptors therapy (“CAR-T”) recipients, individuals with chronic liver disease, solid organ transplant recipients, as well as patients in the intensive care unit and long-term acute care facilities. SER-155 and the Company's other pipeline programs are designed to target multiple disease-relevant pathways and are manufactured from standard clonal cell banks via cultivation, rather than from the donor-sourced production process used for VOWST.

The Company has built and deploys a reverse translational platform and knowledge base for the discovery and development of live biotherapeutics, and maintains extensive proprietary know-how that may be used to support future research and development efforts. This platform incorporates high-resolution analysis of human clinical data to identify microbiome biomarkers associated with disease and non-disease states; preclinical screening using human cell-based assays and in vitro/ex vivo and in vivo disease models customized for live biotherapeutics; and microbiological capabilities and a strain library that spans broad biological and functional breadth to both identify specific microbes and microbial metabolites that are associated with disease and to design consortia of bacteria with specific pharmacological properties. In addition, the Company owns a valuable intellectual property estate related to the development and manufacture of live biotherapeutics.

At a special meeting of stockholders held on September 26, 2024, the Company’s stockholders approved, and on September 30, 2024(the "Closing Date"), the Company completed, the sale (the “Transaction”) of its VOWST microbiome therapeutic business (the “VOWST Business”), including inventory and equipment, certain patents and patent applications, know-how, trade secrets, trademarks, domain names, marketing authorizations and related rights, documents, materials, business records and data and contracts that are used or held for use primarily in the development, commercialization and manufacturing of the microbiome product sold under the brand name VOWST as provided for in accordance with the terms of the Purchase Agreement (the “Product”), to Société des Produits Nestlé S.A. (“SPN”), a wholly-owned subsidiary of Nestlé S.A., and its designated affiliates (collectively, “Nestlé Health Science”) pursuant to the Asset Purchase Agreement, dated as of August 5, 2024 (the “Purchase Agreement”), by and among the Company and SPN, and a wholly-owned subsidiary of Nestlé S.A. As consideration for the Transaction, SPN paid or agreed to pay, as applicable, the following Transaction Consideration:

(i)

a cash payment, which was paid upon completion of the Transaction (“Closing”), of $100,000, less approximately $17,900 owed by the Company to an affiliate of SPN as of March 31, 2024 under the prior license agreement between the Company and the SPN affiliate, less approximately CHF 2,000 in satisfaction of fees due under the Bacthera Manufacturing Agreement (defined below);

(ii)

cash installment payments of $50,000 on January 15, 2025 and $25,000 on July 1, 2025 (the “Installment Payments”), conditioned on the Company’s material compliance with obligations under the Transition Services Agreement (the “TSA”) (as described below) entered into at Closing between the Company and SPN;

(iii)

prepayment of the $60,000 milestone payment tied to the achievement of worldwide annual net sales of the Product of $150,000 (the “First Sales Milestone”), which was paid in cash at Closing (the “Prepaid Milestone”), which Prepaid Milestone will accrue interest at a fixed rate of 10% per annum until the First Sales Milestone is achieved and 5% per annum thereafter until the earlier of (x) the date on which the Prepaid Milestone, plus accrued interest thereon, has been repaid in full by set-off and (y) the last day of the Milestone Period (as defined below); and

(iv)

future milestone payments of (x) $125,000 tied to the achievement of worldwide annual net sales of the Product of $400,000 and (y) $150,000 tied to the achievement of worldwide annual net sales of the Product of $750,000, during the period from Closing until December 31 of the calendar year in which the tenth anniversary of Closing occurs (the “Milestone Period”) (together, the “Future Milestone Payments” and, together with the Prepaid Milestone, the “Milestone Payments”).

As they are earned, the Milestone Payments will be satisfied as follows: (i) first, by set-off against all accrued interest on the Prepaid Milestone until the amount of such accrued interest has been paid in full, (ii) second, by set-off against the outstanding balance of the Prepaid Milestone until the Prepaid Milestone has been repaid in full and (iii) thereafter, in cash. If any amount of the Prepaid Milestone (and any accrued interest thereon) remains outstanding as of following the last day of the Milestone Period (defined below), the balance thereof (together with any interest accrued thereon) will be forgiven and the right of set-off of SPN with respect thereto will be deemed forfeited. The Installment Payment due on July 1, 2025 will be reduced by approximately $1,500 related to certain employment obligations assumed by SPN with respect to the period ended as of the Closing Date.

The Company and SPN will share 50/50 in the net profit or net loss (the “Profit Sharing Payments”) achieved during the period from the date of Closing until December 31, 2025 (the “Profit Sharing Period”), with the net profit or net loss calculated as (i) the net sales of VOWST in the United States and Canada, plus (ii) other income received in connection with the grant of a license or sublicense with respect to VOWST in the United States and Canada as described in the Purchase Agreement, minus (iii) allowable expenses directly attributable or reasonably allocable to certain development activities, commercialization activities, medical affairs activities, manufacturing activities or other relevant activities, as described in the Purchase Agreement. During the Profit Sharing Period, the Company will reimburse SPN for (i) certain payments under the exclusive license agreement between the Company and Memorial Sloan Kettering Cancer Center, (ii) certain costs incurred in connection with an ongoing post-marketing safety study of VOWST and (iii)80.1% of all rent and other costs due to the landlord under the lease for the Company’s Waltham facility.

At Closing, in exchange for a payment to be made by SPN to Bacthera AG, the Long Term Manufacturing Agreement, dated November 8, 2021 between the Company and Bacthera AG (the “Bacthera Manufacturing Agreement”) was terminated and each of Bacthera and Seres released one another from any and all losses, liabilities or other obligations arising thereunder with respect to the period ending at the Closing Date, including without limitation any milestone payments required to be paid to Bacthera thereunder.

On the Closing Date, the Company and SPN entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which SPN purchased 14,285,715 shares (the “Shares”) of common stock at Closing, at a purchase price per share of$1.05, for an aggregate purchase price of $15,000. Under the terms of the Securities Purchase Agreement, SPN agreed not to sell or transfer the Shares for a period of six months after Closing, subject to certain customary exceptions. The Company agreed to register the resale of the Shares by SPN within 90 days of Closing. On October 1, 2024, the Company filed a registration statement to register the Shares, which became effective on October 11, 2024. In addition, under the terms of the Securities Purchase Agreement, for as long as SPN, together with its affiliates, beneficially owns at least 10% of the Company’s outstanding shares of common stock, the Company has agreed to take such action within its control to include one individual designated by SPN in the slate of nominees recommended by the Company’s board of directors (or the applicable committee of the board of directors) to the Company’s stockholders for election to the board of directors at the applicable stockholder meeting. The Securities Purchase Agreement contains customary representations and warranties and closing conditions.

On the Closing Date, the Company entered into a TSA with Nestlé Enterprises S.A., an affiliate of SPN (“NESA”), which provides for services to be performed by the Company in order to facilitate a transition of the business associated with the VOWST Business to NESA and its affiliates. The scope of the transition services includes the provision of certain manufacturing services and certain administrative functions related to the VOWST Business and operations, including the maintenance of certain manufacturing services and the related facility in which such services are currently conducted. The Company will provide the manufacturing services until December 31, 2025, which period may be extended by up to six months (solely to ensure the manufacturing facility is in a state of compliance with the biologics license application for VOWST and readiness for potential regulatory inspection), and other services for the duration specified in the schedule to the TSA for each service. NESA has agreed to pay the Company for certain fixed costs, including a monthly fixed fee for preserved raw material suspension manufacturing, and will reimburse the Company for certain costs of the transition services performed by the Company under the TSA. The know-how and other intellectual property generated in connection with the performance of the TSA will be owned by NESA with the Company having a non-exclusive license to such know-how and other intellectual property under the Cross-License Agreement. During the term of the TSA, upon NESA's request, the Company will transfer the specifications for materials and documentation necessary to enable preserved raw material suspension manufacturing services to a third party service provider designated by NESA. In the event of a material failure by the Company to deliver preserved raw material suspension under the TSA, NESA will have step-in rights to negotiate to enter into a direct lease with the landlord of the manufacturing facility with respect to the portion of such facility used in connection with the VOWST Business or to cause such services to be performed, with any reasonable out-of-pocket costs and expenses incurred in connection therewith reimbursed by the Company.

At the Closing Date, the Company entered into a cross-license agreement with SPN under which the Company granted to SPN a perpetual, worldwide, non-exclusive, fully paid-up license under certain Company patents that have been issued or will issue in the future and current know-how controlled by the Company that is not transferred to SPN pursuant to the Purchase Agreement. In the field of the treatment of Clostridioides difficile infections ("CDI") and recurrent CDI and associated complications (collectively, the “CDI Field”) the license to SPN under such Company patents and know-how will be exclusive to SPN for five years after Closing and co-exclusive between SPN and the Company following that five year period. The license from the Company to SPN is to issued Company patents that currently or in the future cover the Product or improvements thereof, and know-how that is used or reasonably useful in connection with the exploitation of the VOWST Business. The Company also granted SPN an exclusive, perpetual, worldwide, fully paid-up license under issued Company patents that currently or in the future cover the Product and improvements thereof and know-how that is used or reasonably useful in connection with the exploitation of the Product to exploit SER-262 in the CDI Field. SPN granted to the Company a perpetual, worldwide, non-exclusive license under the patents and know-how that are transferred to SPN pursuant to the Purchase Agreement or developed under the TSA, for the Company’s products for use outside of the CDI Field, and after five years from Closing for Company products containing designed, cultivated, bacterial consortia not manufactured using human stool (excluding SER-262) in the CDI Field. From and after Closing, certain license agreements between the Company, SPN, and/or their respective affiliates terminated and are of no further force or effect, except as contemplated by the Purchase Agreement. For example, on September 30, 2024, in connection with the Transaction, the 2016 License Agreement (the “2016 License Agreement”) with Nestec, Ltd., as succeeded by SPN (together with NHSc Rx License GmbH, their affiliates, and their subsidiaries “Nestlé”), and the 2021 License Agreement (the “2021 License Agreement”) with NHSc Pharma Partners, succeeded by NHSc Rx License GmbH (together with Société des Produits Nestlé S.A, their affiliates, and their subsidiaries “Nestlé”) were terminated upon mutual agreement of the parties, with provisions related to record retention, confidentiality obligations, indemnification obligations, intellectual property ownership, and any outstanding payment obligations surviving the termination of each of the 2016 License Agreement and 2021 License Agreement, respectively.

On the Closing Date, the parties entered into assignment and assumption of lease agreements (the “Assignment and Assumption Agreements”). Under the Assignment and Assumption Agreements, the Company assigned to SPN the Company’s rights in, to and under certain real property leases, and SPN assumed the liabilities related thereto.

On the Closing Date, the parties entered into an employee support agreement (the “Employee Support Agreement”). Under the Employee Support Agreement, among other things and subject to the terms and conditions therein, certain employees of the Company related to the VOWST Business who accepted employment with SPN or one of its designated affiliates provided the services they provided to the Company prior to the Transaction to SPN, as well as other services as SPN may reasonably request, from Closing until the day prior to the beginning of SPN’s or its designated affiliate’s next pay period following the Closing. SPN reimbursed the Company’s out of pocket costs in connection with such employees’ services, including certain compensation and benefits paid or provided to such employees pursuant to the terms of the Employee Support Agreement.

In connection with the Transaction, the Company fully retired its senior secured debt facility with Oaktree Capital Management. The Company intends to use the remaining proceeds to support the further advancement of SER-155 and the Company’s other wholly-owned cultivated live biotherapeutic candidates for medically vulnerable patient populations with potential to address large commercial opportunities.

The Company incurred certain significant costs relating to the Transaction, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments. Through September 30, 2024, these costs amounted to approximately$9,016, which is included within the net income (loss) from discontinued operations, net of tax line item on the Company's condensed consolidated statement of operations.

Going Concern

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2024, the Company had an accumulated deficit of$962,462 and cash and cash equivalents of$66,824.

The Company’s product candidates are in development, and will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to potential commercialization. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any product candidate developed will obtain necessary government regulatory approval, or that any approved product will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

Primarily as a result of the costs associated with commercializing VOWST and continuing the research and development efforts for other product candidates and preclinical programs, the Company incurred a net loss from continuing operations of$110,134 and had net operating cash outflows of$109,727 for the nine months ended September 30, 2024. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. Based on the Company’s currently available cash resources, current and forecasted level of operations, and forecasted cash flows for the 12-month period subsequent to the date of issuance of these condensed consolidated financial statements, the Company will require additional funding to support its ongoing operations and meet its obligations as they come due. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements through financing or other strategic transactions, including potential business development transactions, and selling shares under the Company’s at the market equity offering. There can be no assurance that the Company will be able to raise additional capital to fund operations with terms acceptable to the Company, or at all. Because certain elements of management’s plans to mitigate the conditions that raised substantial doubt about the Company’s ability to continue as a going concern are outside of the Company’s control, including the ability to raise capital through an equity or other financing, those elements cannot be considered probable according to Accounting Standards Codification (“ASC”) 205-40, Going Concern (“ASC 205-40”), and therefore cannot be considered in the evaluation of mitigating factors. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for 12 months from the date these condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on March 5, 2024 (the “Annual Report”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2023 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

In late September 2024, the Company’s VOWST Business met all the conditions to be classified as held for sale and, because the Company considers the disposal of the VOWST Business to be a strategic shift that will have a major effect on its operations and financial results, represented a discontinued operation. All assets and liabilities associated with the Company’s VOWST Business were therefore classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets for the periods presented. Further, all historical operating results for the Company’s VOWST Business are reflected within discontinued operations in the condensed consolidated statements of operations for all periods presented. For additional information, see Note 3, Discontinued Operations.

Our condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in conformity with U.S. GAAP.

Reclassifications

Certain amounts in prior periods have been reclassified to reflect the impact of the discontinued operations treatment of the VOWST Business in order to conform to the current period presentation.

2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2023, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2024, with the exception of those detailed below.

Discontinued Operations

The Company accounted for the sale of its VOWST Business in accordance with ASC 205 Discontinued Operations and ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Company followed the held-for-sale criteria as defined in ASC 205. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of, the results of operations for the periods presented are reclassified into separate line items in the unaudited condensed consolidated statements of operations. In the period a discontinued operation is classified for sale, the assets and liabilities of the discontinued operation are also reclassified into separate line items on the related condensed consolidated balance sheets for the periods presented.

Due to the sale of the VOWST Business during the third quarter of 2024 (see Note 3, Discontinued Operations), in accordance with ASC 205, Discontinued Operations, the Company has classified the results of the VOWST Business as discontinued operations in its unaudited condensed consolidated statements of operations and cash flows for all periods presented. All assets and liabilities associated with the Company's VOWST Business were therefore classified as assets and liabilities of discontinued operations in its condensed consolidated balance sheets for the periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amount of expenses during the reporting periods. In the unaudited condensed consolidated financial statements, the Company uses estimates and assumptions related to the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates.

Restricted Cash

The Company held restricted cash of$9,873 as of September 30, 2024 and $8,185 as of December 31, 2023, which represents cash held for the benefit of the landlords for certain of the Company’s leases. The Company has classified the restricted cash as long-term on its condensed consolidated balance sheets as the terms of the underlying leases are greater than one year.

Cash, cash equivalents and restricted cash were comprised of the following (in thousands):

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose significant segment expenses and other segment items on an interim and annual basis, and provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative threshold to determine its reportable segments. The new disclosure requirements are also applicable to entities that account and report as a single operating segment entity. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact related to the adoption of ASU 2023-07 on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which requires public entities to disclose specific categories in the effective tax rate reconciliation as well as expanded disclosures on income taxes paid by jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact related to the adoption of ASU 2023-09 on its financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Topic 220), which requires disclosure in the notes to financial statements about specific types of expenses included in the expense captions presented on the face of the statement of operations. The requirements of the ASU are effective for annual periods beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The requirements will be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact related to the adoption of ASU 2024-03 on its financial statement disclosures.

3. Discontinued Operations

On September 30, 2024, the Company completed the sale of its VOWST Business to SPN. The Company has determined the sale of the VOWST Business represents a strategic shift that will have a major effect on its business and therefore met the criteria for classification as discontinued operations on September 30, 2024. Accordingly, the VOWST Business is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations. The related assets and liabilities of the VOWST Business are classified as assets and liabilities of discontinued operations in the condensed consolidated balance sheets and the results of operations from the VOWST Business as discontinued operations in the condensed consolidated statements of operations. Applicable amounts in prior years have been recast to conform to this discontinued operations presentation. The Company recognized a gain on the sale of the VOWST Business upon closing.

The following table presents the assets and liabilities of the discontinued operations as of December 31, 2023:

As of September 30, 2024, there were no assets or liabilities of discontinued operations.

The following table presents the gain on the sale of the VOWST Business as of September 30, 2024, pursuant to the Purchase Agreement:

[1] The upfront payment consists of$100,000, less $17,857 owed by the Company to an affiliate of SPN under the prior license agreement between the Company and the SPN affiliate, less approximately $2,355 in satisfaction of fees due under the Bacthera Manufacturing Agreement.

For the three and nine months ended September 30, 2024, the gain from sale of the VOWST Business, net of tax of $146,707 wasincluded in the net income (loss) from discontinued operations, net of tax line item of the Company’s condensed consolidated statements of operations and comprehensive loss. While the Company has net income from discontinued operations for the three and nine months ended September 30, 2024, the Company is projecting book and tax losses for the full year ended December 31, 2024, for whichit is more likely than not that the Company will not realize a benefit. The Company has recorded a full valuation allowance against its net deferred tax assets as of September 30, 2024 and December 31, 2023.

The following table presents the financial results of the discontinued operations:

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the research and development and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the VOWST Business.

The Company has also entered into a TSA with NESA, through which the Company will provide the manufacturing services until December 31, 2025, which period may be extended by up to six months (solely to ensure the manufacturing facility is in a state of compliance with the biologics license application for VOWST and readiness for potential regulatory inspection), and other services for the duration specified in the schedule to the TSA for each service. No expenses have been incurred and no reimbursements have been received in connection with the TSA for the three and nine months ended September 30, 2024.

The Company has estimated costs associated with certain accrued liabilities due to SPN as a loss contingency in accordance with ASC 450, Contingencies. These contingent liabilities are presented as Accrued Liabilities due to SPN from continuing operations on the condensed consolidated balance sheet as of September 30, 2024 and consist of the following:

[1]Includes $6,594 and $3,014 related to the settlement of the collaboration payable to SPN for the quarters ended June 30, 2024 and September 30, 2024, respectively.

The contingent liabilities accrued on the Company's condensed consolidated balance sheet as of September 30, 2024 will be remeasured at each reporting period based on i) cash payments made by the Company to reduce the accrued liabilities due to SPN and ii) revised estimates of the total remaining liabilities due to SPN.

The Company has excluded from its condensed consolidated balance sheet the effects of i) future fixed installment payments to be received by the Company after it performs services and is determined by SPN to be in material compliance with the terms and conditions of the TSA and ii) certain milestone payments received by the Company after the Product has achieved net sales-based milestones. These contingent receivables will be recognized as a gain contingency, in accordance with ASC 450, Contingencies, in continuing operations in the period when the contingencies are resolved.

The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows. For the nine months ended September 30, 2024 and 2023, capital expenditures related to the VOWST

Business were $112 and $2,219, respectively. Depreciation expense related to the VOWST Business for the same periods was $989 and $1,468, respectively. Non-cash operating lease costs related to the VOWST Business for thenine months ended September 30, 2024 and 2023 were $1,447 and $1,451, respectively, while the share based compensation expense for the same periods were $1,884 and $1,947 respectively. The collaboration loss sharing (related party) related to the VOWST Business was $0 and $5,158 for thenine months ended September 30, 2024 and 2023, respectively. Excluding the gain of $146,707 recognized on the sale of the VOWST Business presented in the condensed consolidated statements of cash flows for thenine months ended September 30, 2024 there were no other material operating or investing non-cash items related to the VOWST Business for either period presented.

4. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

Money market funds are valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

As of September 30, 2024 and December 31, 2023, the Company held a restricted investment of $0 and $1,401, respectively, which represents a certificate of deposit that is classified as Level 2 in the fair value hierarchy.

Level 3 financial liabilities as of December 31, 2023 consisted of the warrant liabilities for which there is no current market such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy were analyzed each period based on changes in estimates or assumptions and recorded through other income (expense). The Company used a Monte-Carlo simulation model which includes the Black-Scholes option pricing model to value the Level 3 warrant liabilities at inception and on each subsequent reporting date. This model incorporates transaction details such as the Company’s stock price, contractual terms of the underlying warrants, maturity, risk free rates, volatility, as well as the term to achievement of estimated sales targets. The unobservable inputs for all of the Level 3 warrant liabilities are volatility and the term to achievement of estimated sales targets. The Company utilizes its historical and implied volatility, using its closing common stock prices and market data, to reflect future volatility over the expected term of the warrants. The Company estimated the time to achievement of sales targets of VOWST using information and forecasts generated by the Company in consideration of the terms of the 2021 License Agreement. As of September 30, 2024, given the repayment of the Oaktree Term Loan, the fair value of the warrant liabilities was deemed to be $0.

As of December 31, 2023, the Level 3 inputs to the warrant liabilities are as follows:

A reconciliation of the beginning and ending balances for thenine months ended September 30, 2024 for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

There wereno assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during thenine months ended September 30, 2023. There wereno transfers between Level 1, Level 2, or Level 3 during thethree and nine months ended September 30, 2024 and 2023.

5. Investments

As of September 30, 2024 and December 31, 2023, the Company held restricted investments of $0 and $1,401, respectively, the cost of which approximates current fair value. The Company did not hold any other investments as of September 30, 2024 and December 31, 2023.

Investments with original maturities of less than 90 days are included in cash and cash equivalents on the condensed consolidated balance sheets and are not included in the table above. Investments with maturities of less than 12 months are considered current assets and those investments with maturities greater than 12 months are considered non-current assets.

6. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Depreciation and amortization expense was$1,404, $4,383, $1,684 and $4,611 for the three and nine months ended September 30, 2024 and 2023, respectively, which includes amounts related to both continuing and discontinued operations. During the nine months ended September 30, 2024 and 2023, the Company disposed of certain assets with a cost basis of $594 and $9, respectively. In addition, during thenine months ended September 30, 2024, the Company recorded an impairment loss of $1,536 related to leasehold improvements at one of the Company’s locations for which impairment indicators were determined to exist as of September 30, 2024. See Note 8, Leases, for further details.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

Included within the Facility and other caption as of September 30, 2024 is $4,578 of accrued transaction costs related to the sale of the VOWST Business. These amounts are expected to be paid in the normal course following the Closing of the Transaction.

8. Leases

The Company leases real estate, primarily laboratory, office and manufacturing space. The Company’s leases have remaining terms ranging from approximatelyone tonine years. Certain leases include one or more options to renew, exercisable at the Company’s sole discretion, with renewal terms that canextend the lease from approximatelyone year to ten years. The Company evaluated the renewal options in its leases to determine if it was reasonably certain that the renewal option would be exercised, given the Company’s current business structure, uncertainty of future growth, and the associated impact to real estate, the Company concluded that it is not reasonably certain that any renewal options would be exercised. Therefore, the operating lease assets and operating lease liabilities only contemplate the initial lease terms. All the Company’s leases qualify as operating leases.

In January 2024, the Company entered into a sublease agreement with an unrelated third party to sublease a portion of its office and laboratory space in Cambridge, Massachusetts. The term of the sublease agreement commenced in March 2024 and ends on

January 13, 2030. The Company will receive lease payments over the sublease term totaling $10,400. The sublessee is obligated to pay all real estate taxes and costs related to the subleased premises, including cost of operations, maintenance, repair, replacement and property management.

During the three months ended March 31, 2024, the Company identified an indicator of impairment of its donor collection facility in Cambridge, Massachusetts, as the facility is no longer being used by the Company as a result of operational efficiencies implemented related to the production process and is being marketed for sublease. The Company determined that this represents a significant adverse change in the extent in which the long-lived asset was being used. The Company determined that the location contains multiple asset groups for the purpose of the long-lived asset impairment assessment. The Company concluded that the carrying value of each asset group was not recoverable as it exceeded the future net undiscounted cash flows that are expected to be generated from the assets within the asset group. In the first quarter of 2024, the Company recognized an impairment loss of $3,267, consisting of $1,731 on the operating lease right-of-use asset and $1,536 on the leasehold improvements. $2,727 of the total impairment loss is included in research and development expenses and the remaining $540 is included in general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

The following table summarizes the presentation in the Company’s condensed consolidated balance sheets of its operating leases (in thousands):

The following table summarizes the effect of lease costs in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):

During the three and nine months ended September 30, 2024 and 2023, the Company made cash payments for operating leases of $5,364, $14,321,$4,399, and $11,687, respectively. The lease cost and lease payment amounts above include amounts related to discontinued operations.

As of September 30, 2024, future payments of operating lease liabilities are as follows (in thousands):

As of September 30, 2024, the weighted average remaining lease term was 7.21 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 13%. As of September 30, 2023, the weighted average remaining lease term was 8.19 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 13%.

9. Notes Payable

On April 27, 2023 (the “Oaktree Closing Date”), the Company entered into the Credit Agreement and Guaranty (the “Oaktree Credit Agreement”) among the Company, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto (the “Lenders”), and Oaktree Fund Administration, LLC, in its capacity as administrative agent for the Lenders (in such capacity, the “Agent”). The Oaktree Credit Agreement established a term loan facility of $250,000 (the “Oaktree Term Loan”) consisting of (i) $80,000 (“Tranche A-1”) and (ii) $30,000 (“Tranche A-2” and collectively, “Tranche A Loan”), funded on the Oaktree Closing Date. The Oaktree Term Loan also consisted of (i) $45,000 (the “Tranche B Loan”), (iii) $45,000 (the “Tranche C Loan”), and (iv) $50,000 (the “Tranche D Loan”), which were available upon satisfaction of certain conditions or in Oaktree’s sole discretion, but were not drawn before the extinguishment of the Oaktree Term Loan. The Oaktree Term Loan had a maturity date of April 27, 2029 (the “Maturity Date”).

Of the $110,000 Tranche A Loan advanced by the Lenders at closing, approximately $53,380 repaid the Company’s then existing credit facility with Hercules. After deducting other transaction expenses and fees, the Company received net proceeds of approximately $50,446. The Company accounted for the repayment of the Hercules credit facility as an extinguishment in accordance with the guidance in ASC 470-50, and recognized a loss on extinguishment of $1,625 in other income (expense) in the accompanying condensed consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

Borrowings under the Oaktree Term Loan bore interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a 2.50% floor and a 5.00% cap), plus an applicable margin of 7.875%, payable quarterly in arrears. The Company was required to make quarterly interest-only payments on the Oaktree Term Loan for the first three years after the Oaktree Closing Date. The Company was obligated to pay the Lenders an exit fee equal to 1.50%of the aggregate amount of the Oaktree Term Loan funded, such exit fee was due and paid upon the prepayment of the outstanding Oaktree Term Loan. Such prepaymentwas subject to a customary make-whole for the first two years following the Closing Date plus 4.0% of the principal amount of the Oaktree Term Loan prepaid.

On the Oaktree Closing Date, the Company issued to the Lenders warrants to purchase 647,589 shares (subject to certain adjustments) of the Company’s common stock (the “Tranche A Warrant”), at an exercise price per share of $6.69. The Tranche A Warrant is immediately exercisable and the exercise period expires on April 26, 2030. Upon the funding of each of the Tranche B Loan and the Tranche C Loan, the Company was required to issue to the Lenders warrants to purchase 264,922 shares (subject to certain adjustments) of the Company’s common stock on each such funding date at an exercise price equal to the trailing volume weighted average price of the Company’s common stock for the 30 trading days prior to the funding date for each tranche (the “Tranche B Warrant” and the “Tranche C Warrant,” respectively, and together the “Additional Warrants”).

The Company determined that the Tranche A Loan, the Tranche A Warrant, the commitment by the Lenders to fund the Tranche B Loan and the Tranche C Loan, and the Tranche B Warrant and Tranche C Warrant, are all freestanding financial instruments. On the Oaktree Closing Date, the Company evaluated the Tranche A Warrant and determined that it meets the requirements for equity classification under ASC 815, Derivatives and Hedging (“ASC 815”). The net proceeds from the Tranche A Loan were allocated to the Tranche A Warrant and the Tranche A Loan using the relative fair value method, and the relative fair value of the Tranche A Warrant, $2,785, is recorded as an increase to additional paid-in-capital on the consolidated statements of stockholder’s equity (deficit), and as a discount to the Tranche A Loan that will be amortized over the life of the Tranche A Loan using the effective interest method. The Company used the Black-Scholes option pricing model to determine the fair value of the Tranche A Warrant. Assumptions used in the Black-Scholes model included the fair market value per share of common stock on the valuation date of $5.32, the exercise price per warrant equal to $6.69, the expected volatility of 111.6%, the risk-free interest rate of 3.57%, the expected term of 7 years and the absence of a dividend.

The Additional Warrants were considered outstanding instruments at the Oaktree Closing Date of the Oaktree Credit Agreement and in accordance with ASC 815, were initially recognized at their respective fair values as derivative liabilities given the variable settlement amount of their respective aggregate exercise prices. The Company adjusted the carrying values of the Additional Warrants to their respective fair values at each reporting period, until such time that the Additional Warrants were issued and their respective exercise prices became fixed, and the value of the Additional Warrants was reclassified to additional paid-in capital. The Company used a simulation model to determine the fair value of the Additional Warrants, as described in Note 4, Fair Value Measurements. As of September 30, 2024, given the Transaction and repayment of the Oaktree Term Loan, the probability of drawing the Tranche B and C Loans that would trigger the issuance of these warrants was deemed to be remote. As a result, the fair value of Tranche B and C Warrants was deemed to be $0. The fair value of the Tranche B Warrant and Tranche C Warrant derivative liabilities was$276 and$270 as of December 31, 2023, respectively.

Changes in the fair values of the Additional Warrants were recorded as other income (expense) in the condensed consolidated statements of operations and comprehensive loss. In addition to the relative fair value of the Tranche A Warrant, the original issue discount and certain debt issuance costs were recorded as a discount to the Tranche A Loan, the total of which will be accreted to the Tranche A Loan as interest expense over the life of the Tranche A Loan using the effective interest method. The fair values of the derivative liabilities associated with the Tranche B Warrant and Tranche C Warrant are recorded as loan commitment prepaid assets on the Oaktree Closing Date, which are included in the condensed consolidated balance sheets in other non-current assets, and will be reclassified as discounts to the associated Oaktree Term Loan balances at such time that they are drawn.

As of December 31, 2023, the carrying value of the Oaktree Term Loan was $101,544, which was classified as a long-term liability on the condensed consolidated balance sheets.

During the three and nine months ended September 30, 2023, the Company recognized$0 and $2,468, respectively, of interest expense related to the Loan and Security Agreement with Hercules, which is reflected in interest expense on the condensed consolidated statements of operations and comprehensive loss.

On September 30, 2024, in connection with the sale of the VOWST Business to SPN, the Company terminated and voluntarily prepaid in full all outstanding amounts due under the Oaktree Credit Agreement. The Company paid $127,905 to Oaktree, representing $110,000 of principal, $3,698 of accrued interest, $12,457 of yield protection premium, $1,650 in exit fee, and $100 in third-party fees and expenses. In connection with the termination and repayment in full of all outstanding amounts under the Oaktree Credit Agreement, Oaktree terminated and released its liens and security interests in the collateral securing the Company's obligations under the Credit Agreement. The Company accounted for the repayment of the Oaktree Credit Facility as an extinguishment in accordance with the guidance in ASC 470-50, and recognized a loss associated with the extinguishment of $23,351 in other income (expense) in the accompanying condensed consolidated statements of operations and comprehensive loss for thethree and nine months ended September 30, 2024.

10. Common Stock and Stock-Based Awards

On September 30, 2024, the Company entered into the Securities Purchase Agreement with SPN, pursuant to which SPN purchased 14,285,715 Shares at the Closing at a purchase price per share of $1.05, for an aggregate purchase price of $15,000. Under the terms of the Securities Purchase Agreement, SPN has agreed not to sell or transfer the shares for a period of six months after Closing, subject to certain customary exceptions. The Company agreed to register the resale of the Shares by SPN within 90 days of Closing. On October 1, 2024, the Company filed a registration statement to register the Shares, which became effective on October 11, 2024. In addition, under the terms of the Securities Purchase Agreement, for as long as SPN, together with its affiliates, beneficially owns at least 10% of the Company's outstanding shares of common stock, the Company has agreed to take such action within its control to include one individual designated by SPN in the slate of nominees recommended by the Company's board of directors (or the applicable committee of the board) to the Company's stockholders for election to the board at the applicable stockholder meeting. The Securities Purchase Agreement contains customary representations and warranties and closing conditions. The aggregate fair value of $13,516 for the common stock issued to SPN was recorded in equity, with the remaining $1,484 cash received from SPN under the Securities Purchase Agreement allocated to the consideration transferred for the VOWST Business.

On February 22, 2024, the Company's board of directors adopted a resolution to amend the Restated Certificate of Incorporation, subject to stockholder approval, by increasing the number of authorized shares of the Company's Common Stock from 240,000,000 shares to 360,000,000 shares, (the “Share Increase Amendment”). At the Company’s annual meeting of stockholders held on April 4, 2024, the Company’s stockholders approved the Share Increase Amendment. On April 5, 2024, the Company amended its Restated Certificate of Incorporation to reflect the Share Increase Amendment.

On May 21, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) to sell shares of the Company’s common stock, with aggregate gross sales proceeds of up to $150,000, from time to time, through an “at the market” equity offering program under which Cowen acts as sales agent. During thethree and nine months ended September 30, 2024, the Company sold 3,285,203 and 18,651,833 shares, respectively, of common stock under the Sales Agreement, at an average price of$1.09 and approximately$1.21 per share, respectively, raising aggregate net proceeds of approximately$3,384 and$21,793, after deducting an aggregate commission of approximately 3% and other issuance costs. During the three andnine months ended September 30, 2023, the Company sold 0 and 2,005,547 shares, respectively, of common stock under the Sales Agreement, at an average price of approximately $0 and $6.11 per share, respectively, raising aggregate net proceeds of approximately $0 and $11,730, respectively, after deducting an aggregate commission of approximately 3% and other issuance costs.

Stock Options

The following table summarizes the Company’s stock option activity since December 31, 2023:

The weighted average grant date fair value of stock options granted during the three and nine months ended September 30, 2024 and 2023 was$0.88,$0.93,$3.14 and$4.52 per share, respectively.

During the year ended December 31, 2021, the Company granted performance-based stock options to employees for the purchase of an aggregate of approximately 562,000 shares of common stock with a grant date fair value of $5.53 per share. These stock options are exercisable only upon achievement of specified performance targets. In April 2023, the performance target associated with 50% of the performance-based stock options was achieved. Accordingly, the Company recorded$0,$8,$109 and$2,481 of compensation expense during the three and nine months ended September 30, 2024 and 2023, respectively, with respect to these performance-based stock options, which represents a cumulative catch-up from the grant date through the achievement of the performance targets, and vesting of the remaining 50% of the options beginning in April 2023. The remaining compensation expense associated with these performance-based stock options was recognized as of April 2024, for all such options for which ongoing performance targets were achieved and service requirements were met.

During the three months ended March 31, 2024, the Company granted stock options to certain executives for the purchase of an aggregate of 2,550,010 shares of common stock. These awards will vest only to the extent that the 30-day trailing simple average public market closing price of the Company's common stock reaches certain price thresholds. These awards have an exercise price of $1.10 and vest and become exercisable when the market conditions are satisfied or, if later, on the first anniversary of the grant date. These awards expire 10 years from the date of grant. The fair value of these market-based stock options was estimated using a Monte Carlo valuation method. During thethree and nine months ended September 30, 2024, the Company recognized $207 and $633 of compensation expense related to these awards, respectively.

Restricted Stock Units

The Company has granted restricted stock units with service-based vesting conditions (“RSUs”) and restricted stock units with performance-based vesting conditions (“PSUs”). RSUs and PSUs represent the right to receive shares of common stock upon meeting specified vesting requirements. Restricted stock units may not be sold or transferred by the holder and vest according to the vesting conditions of each award. The following table summarizes the Company’s RSU and PSU activity since December 31, 2023:

During the three and nine months ended September 30, 2024 and 2023, the Company granted 0,1,288,127,85,308 and 1,806,103 RSUs, respectively. During the three and nine months ended September 30, 2024 and 2023, the Company granted 0,0,0 and 1,322,715 PSUs, respectively. RSUs generally vest over four years, with 25% vesting afterone year, and the remaining 75% vesting quarterly over the next 3 years, subject to continued service to the Company through the applicable vesting date. PSUs vest accordingto the performance requirements of the awards, generally when the Company has determined that the specified performance targets have been achieved.

In November 2023, as part of the corporate restructuring described in Note 12, Restructuring, the Company issued retention awards to employees of the Company in the form of RSUs which vested as to the first tranche on August 15, 2024, and which will vest as to the second tranche on May 15, 2025, subject to remaining actively employed with the Company through such date. The compensation expense associated with these awards will be recognized ratably over the vesting period. For the three and nine months ended September 30, 2024, the Company recognized $178 and $536, respectively, in compensation expense with respect to the retention awards.

During the three months ended March 31, 2023, the Company granted PSUs to employees for the purchase of an aggregate of 1,322,715 shares of common stock with a grant date fair value of $5.50. These PSUs begin to vest ratably only upon achievement of specified performance targets, which were achieved in April 2023. Accordingly, the Company recorded$194,$721,$1,610 and$4,378 in compensation expense during the three and nine months ended September 30, 2024 and 2023, respectively, with respect to these PSUs. The remaining $71 in compensation expense associated with these PSUs will be recognized ratably through October 2024.

Stock-based Compensation Expense

The Company recorded stock-based compensation expense in the following expense categories of its condensed consolidated statements of operations and comprehensive loss (in thousands):

Stock-based compensation expense related to discontinued operations is included in the table above and is disclosed within the financial results of discontinued operations in Note 3.

11. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):

The Company utilizes the control number concept in the computation of diluted earnings per share to determine whether potential common stock equivalents are dilutive. The control number used is loss from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories. Since the Company had a net loss from continuing operations for all periods presented, no dilutive effect has been recognized in the calculation of income from discontinued operations per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The Company’s potential dilutive securities, which include stock options, unvested restricted common stock and shares issuable under the 2015 Employee Stock Purchase Plan, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share and therefore be anti-dilutive. Additionally, for the three and nine months ended September 30, 2024 and 2023, the warrants to purchase common stock were excluded because the exercise price of the Tranche A Warrants was greater than the average fair value of the Company's common shares, and the necessary conditions for exercise of the Tranche B and Tranche C Warrants had not been met.

12. Restructuring

On November 2, 2023, the Company announced a restructuring plan to prioritize the commercialization of VOWST and the completion of the SER-155 Phase 1b study, while significantly reducing costs and supporting longer-term business sustainability. The restructuring plan included (i) a reduction of the Company’s workforce by approximately 41% across the organization, resulting in the elimination of approximately 160 positions; (ii) significantly scaling back all non-partnered research and development activities other than the completion of the SER-155 Phase 1b study; and (iii) reducing general and administrative expenses, including consolidating office space.

During the year ended December 31, 2023, the Company recognized a restructuring charge of $5,606, which was incurred entirely in the fourth quarter of 2023, and which represents all restructuring charges expected to be incurred. Restructuring charges included approximately $5,345 of employee related termination costs in the form of salary continuation and cash severance payments, and $261 related to the acceleration of vesting of certain previously granted RSUs and PSUs.

The unpaid restructuring charges are included in accrued expenses and other current liabilities in the Company’s consolidated balance sheets. The following table presents changes in the restructuring liability for thenine months ended September 30, 2024 (in thousands):

The Company expects the remaining accrued restructuring charges to be paid in cash by March 31, 2025.

Retention Awards

In November 2023, upon recommendation of the Company's Compensation Committee, the board of directors approved retention awards for employees of the Company in the form of RSUs, which vested as to the first tranche on August 15, 2024, and which will vest as to the second tranche on May 15, 2025, subject to remaining actively employed with the Company through such date. The $1,255 in compensation expense associated with these awards will be recognized ratably over the vesting period.

13. Commitments and Contingencies

Leases

Refer to Note 8, Leases, for discussion of the commitments associated with the Company’s lease portfolio.

Indemnification Agreements

Inthe ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does notbelieve that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it hasnot accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2024 or December 31, 2023.

Legal Contingencies

The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that the Company can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made.

In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of material loss is at least reasonably possible, the Company will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect. The Company expenses legal costs as they are incurred.

The Company didnot accrue any liabilities related to legal contingencies in its consolidated financial statements as of September 30, 2024 or December 31, 2023.

14. Income taxes

The Company didnot provide for any income taxes in its condensed consolidated statement of operations and comprehensive loss for thethree and nine months ended September 30, 2024 and 2023. While the Company has net income for the three and nine months ended September 30, 2024, the Company is projecting book and tax losses for the full year ended December 31, 2024, for which it is more likely than not that the Company will not realize a benefit. Based on its evaluation of the positive and negative evidence bearing upon its ability to realize its deferred tax assets, the Company determined that it is more likely than not that it will not realize such benefits. Accordingly, the Company has recorded a full valuation allowance against its deferred tax assets as of September 30, 2024 and December 31, 2023, and has not recorded any income taxes for the three and nine months ended September 30, 2024 and 2023. Management reevaluates the positive and negative evidence at each reporting period.

15. Related Party Transactions

As described in Note 1, Nature of the Business and Basis of Presentation and Note 3, Discontinued Operations, in September 2024, the Company sold the VOWST Business, including inventory and equipment, certain patents and patent applications, know-how, trade secrets, trademarks, domain names, marketing authorizations and related rights, documents, materials, business records and data and contracts that are used or held for use primarily in the development, commercialization and manufacturing of VOWST, to SPN, and SPN assumed certain liabilities from the Company. As consideration for the Transaction, the Company received an upfront cash payment of $139,788, which consists of$100,000, less $17,857 owed by the Company to an affiliate of SPN under the prior license agreement between the Company and the SPN affiliate, less approximately $2,355 in satisfaction of fees due under the Bacthera Manufacturing Agreement; plus a prepayment of the $60,000 milestone payment tied to the achievement of worldwide annual net sales of VOWST of $150,000; plus an equity investment of $15,000 based on the Securities Purchase Agreement pursuant to which SPN purchased 14,285,715 shares of common stock at a purchase price of$1.05 per share.

As of September 30, 2024, there was $33,458 included in Accrued Liabilities due to SPN on the Company's condensed consolidated balance sheet, which represents amounts due to SPN pursuant to the Purchase Agreement, which are further described in Note 3, Discontinued Operations. Other than the net settlement of outstanding amounts owed to an affiliate of SPN under the prior license agreement between the Company and the SPN affiliate, no amounts were paid to SPN during the three and nine months ended September 30, 2024 and 2023 related to the Purchase Agreement.

As described in Note 3, Discontinued Operations, the Company entered into a Transition Services Agreement with NESA, an affiliate of SPN, in connection with the Transaction, through which the Company will provide manufacturing services until December 31, 2025, and other services, for the duration specified in the schedule to the TSA for each service. No expenses have been incurred and no reimbursements have been received in connection with the TSA for the three and nine months ended September 30, 2024. As of September 30, 2024 and December 31, 2023, there are no amounts due from SPN pursuant to the Purchase Agreement or the TSA.