evlo-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38473

Evelo Biosciences, Inc.

(Exact name of registrant as specified in its charter)


Delaware						46-5594527
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

620 Memorial Drive Cambridge, Massachusetts						02139
(Address of principal executive offices)						(Zip Code)

(617) 577-0300

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,

$0.001 par value per share

EVLO

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large

accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 27, 2021, the registrant had 53,373,882 shares of common stock, $0.001 par value per share, outstanding.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, the anticipated impact of the COVID-19 pandemic on our business, business strategy, prospective products, product approvals, research and development costs, timing and plans for clinical trials, expected timing of the release of clinical trial data, new formulations and product candidates, the scalability of manufacturing for EDP1815, activities related to strategic collaborations and anticipated revenue therefrom, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These forward-looking statements are subject to numerous risks, including, without limitation, the following:

•our status as a development-stage company and our expectation to incur losses in the future;

•our estimates regarding our expenses, future revenues, anticipated future capital requirements and our need to raise additional funds;

•our ability to build a pipeline of product candidates and develop and commercialize drugs;

•our unproven approach to therapeutic intervention;

•our ability to enroll patients and volunteers in clinical trials, timely and successfully complete those trials and receive necessary regulatory approvals;

•our ability to establish our own manufacturing facilities and to receive or manufacture sufficient quantities of our product candidates;

•the impact of the COVID-19 pandemic on our operations, including our preclinical studies and clinical trials, and the continuity of our business;

•our ability to protect and enforce our intellectual property rights;

•federal, state, and foreign regulatory requirements, including FDA regulation of our product candidates;

•the timing of clinical trials and the likelihood of regulatory filings and approvals;

•our ability to obtain and retain key executives and attract and retain qualified personnel; and

•our ability to successfully manage our growth.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

As forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not occur or be achieved, and actual results could differ materially from those projected in the forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Except as required by

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applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. Principal risks and uncertainties affecting our business include the following:

• We are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. Moreover, our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

• We will need additional funding in order to complete development of our product candidates and commercialize our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or discontinue our product development programs or commercialization efforts.

• Our product candidates are based on targeting SINTAX™, the small intestinal axis, which is an unproven approach to therapeutic intervention

• We are dependent on the success of our product candidates. If the product candidates do not successfully complete clinical development or receive regulatory approval, our business may be harmed.

• The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements of the United States and internationally. The denial or delay of any such approval would delay commercialization of our product candidates and adversely impact our ability to generate revenue, our business and our results of operations.

• We rely, and will continue to rely, on third parties to conduct our clinical trials for our product candidates, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

• We do not have our own manufacturing capabilities and will rely on third parties to produce additional clinical supplies, if needed, and commercial supplies of our product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

• If we are unable to establish our own sales, marketing and distribution capabilities, or enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved, and we may not be able to generate any revenue.

• The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

• We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do.

• Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, cause us to suspend or discontinue clinical trials, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

• If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our product candidates, other companies could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

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• The COVID-19 pandemic has adversely impacted and may continue to adversely impact, our business, including our preclinical studies and clinical trials, results of operations and financial condition.

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Evelo Biosciences, Inc.

Form 10-Q for the Quarterly Period Ended March 31, 2021

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020			1
Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020			2
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2021 and 2020			3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020			4
Notes to the Condensed Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosure About Market Risk			37
Item 4. Controls and Procedures			37

PART II: OTHER INFORMATION
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			80
Item 3. Defaults Upon Senior Securities			80
Item 4. Mine Safety Disclosures			80
Item 5. Other Information			80
Item 6. Exhibits			81

Signatures			81

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Evelo Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except per share and share amounts)


	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	124,591	$	68,857
Prepaid expenses and other current assets	2,090		2,123
Accounts receivable	7,500		—
Total current assets	134,181		70,980
Property and equipment, net	7,236		7,478
Right of use asset - operating lease	10,312		10,757
Other assets	1,313		1,424
Total assets	$	153,042	$	90,639
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	380	$	1,442
Accrued expenses	15,197		16,254
Operating lease liability, current portion	1,742		1,674
Short-term debt	914		—
Other current liabilities	486		463
Total current liabilities	18,719		19,833
Noncurrent liabilities:
Long-term debt	29,258		30,048
Operating lease liability, net of current portion	9,463		9,989
Deferred revenue	7,500		—
Other noncurrent liabilities	263		284
Total liabilities	65,203		60,154
Commitments and contingencies
Stockholder’s equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding as of March 31, 2021 and December 31, 2020, respectively	—		—
Common stock, $0.001 par value; 200,000,000 shares authorized; 53,376,125 and 47,488,505 shares issued and 53,357,739 and 47,470,119 shares outstanding as of March 31, 2021 and December 31, 2020, respectively	53		47
Additional paid-in capital	408,501		322,957
Accumulated deficit	(320,715)		(292,519)
Total stockholders’ equity	87,839		30,485
Total liabilities and stockholders’ equity	$	153,042	$	90,639

See accompanying notes to condensed consolidated financial statements.

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Evelo Biosciences, Inc.

Condensed Consolidated Statements of Operations

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


	Three Months Ended March 31,
	2021		2020
Operating expenses:
Research and development	$	21,508	$	17,419
General and administrative	5,963		5,842
Total operating expenses	27,471		23,261
Loss from operations	(27,471)		(23,261)
Other (expense) income:
Interest expense, net	(765)		(181)
Other income, net	162		466
Other (expense) income, net	(603)		285
Loss before income taxes	(28,074)		(22,976)
Income tax expense	(122)		(65)
Net loss	$	(28,196)	$	(23,041)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.55)	$	(0.71)
Weighted-average number of common shares outstanding, basic and diluted	51,343,923		32,250,050

See accompanying notes to condensed consolidated financial statements.

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Evelo Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share amounts)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balance-December 31, 2020	47,470,119	$	47	$	322,957	$	(292,519)	$	30,485
Issuance of common stock, net	5,814,734	6		81,955		—		81,961
Issuance of common stock under Employee Stock Purchase Plan	27,587	—		90		—		90
Exercise of stock options	45,299	—		235		—		235
Stock-based compensation expense	—	—		3,264		—		3,264
Net loss	—	—		—		(28,196)		(28,196)
Balance-Balance-March 31, 2021	53,357,739	$	53	$	408,501	$	(320,715)	$	87,839

See accompanying notes to condensed consolidated financial statements.

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Evelo Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share amounts)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balance-December 31, 2019	32,170,605	$	32	$	259,018	$	(198,853)	$	60,197
Vesting of restricted common stock	13,390	—		7		—		7
Exercise of stock options	137,213	—		226		—		226
Stock-based compensation expense	—	—		1,955		—		1,955
Net loss	—	—		—		(23,041)		(23,041)
Balance-March 31, 2020	32,321,208	$	32	$	261,206	$	(221,894)	$	39,344

See accompanying notes to condensed consolidated financial statements.

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Evelo Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Three Months Ended March 31,
	2021		2020
Operating activities
Net loss	$	(28,196)	$	(23,041)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	3,264		1,955
Depreciation expense	536		491
Non-cash interest ex

SEC Form 10-Q filed by Evelo Biosciences, Inc.