Financial Overview

For the fiscal year ended December 31, 2022, Evelo Biosciences reported an annual net loss of $114,527,000, with no revenue generated. The company's annual operating cash flow was -$101,235,000, and its annual free cash flow was -$101,857,000. These financial results reflect the significant investments Evelo Biosciences has made in its research and development efforts to advance its pipeline of product candidates.

In the latest quarter, the company reported a net loss of $12,364,000 for the three months ended September 30, 2023. This represents a decrease from the net loss of $30,564,000 reported in the same period of the prior year. The reduction in net loss was primarily driven by a decrease in research and development expenses, which fell from $21,928,000 in the third quarter of 2022 to $6,499,000 in the third quarter of 2023. General and administrative expenses also decreased from $7,126,000 in the third quarter of 2022 to $3,891,000 in the third quarter of 2023.

Business Overview

Evelo Biosciences is focused on developing a new class of oral medicines that target the small intestinal axis (SINTAX), the network of connections that links the small intestine and the rest of the body. The company's product candidates are pharmaceutical compositions of specific single strains of commensal microbes or the extracellular vesicles they shed, which are designed to engage with immune cells in the small intestine and modulate systemic immunity.

The company's lead product candidate, EDP1815, is a pharmaceutical preparation of a single strain of Prevotella histicola isolated from a human donor. EDP1815 has been studied in more than 800 patients to date and has displayed a safety and tolerability profile comparable to placebo. In a Phase 2 trial for the treatment of psoriasis, EDP1815 demonstrated durable, clinically meaningful improvement in disease for some patients.

However, the company's development efforts have also faced setbacks. In February and April 2023, Evelo Biosciences announced that each of the four patient cohorts in a Phase 2 trial of EDP1815 for the treatment of atopic dermatitis failed to meet the primary endpoint. Additionally, in October 2023, the company announced that the top-line results from the Part B (Phase 2) clinical study with EDP2939 in moderate psoriasis did not achieve the primary endpoint. As a result, the company has decided to cease development of EDP2939.

Strategic Review and Cost-Cutting Measures

In light of the recent setbacks, Evelo Biosciences has initiated a process to explore strategic alternatives, including without limitation seeking to partner EDP1815 and/or the SINTAX platform. The company has also implemented cost-reduction initiatives, including a reduction in workforce of 48 employees, or approximately 45% of its headcount as of January 2023, in order to preserve cash and prioritize investment in its core clinical programs.

Liquidity

As of September 30, 2023, Evelo Biosciences had $17.3 million in cash and cash equivalents. The company's ability to continue as a going concern is dependent on its ability to secure additional funding, as its current cash resources are not sufficient to meet its future debt repayment obligations.

In December 2022, Evelo Biosciences entered into a Loan and Security Agreement with Horizon Technology Finance Corporation, under which the company borrowed $45.0 million. The company is required to make interest-only payments on the loans until February 2026, at which point it must begin repaying the principal. With its current cash resources, the company will be unable to meet these future debt repayment obligations unless it is able to raise additional capital and/or restructure its existing debt, which may be on unfavorable terms, if available at all.

Risks and Challenges

Evelo Biosciences faces a number of risks and uncertainties that could impact its future performance. As a development-stage company, the company is heavily dependent on the success of its product candidates, and if it is unable to complete development, obtain regulatory approval, and successfully commercialize its products, its business may be harmed. The company also faces the risk of not being able to secure additional funding to support its operations and meet its debt obligations, which could force it to pursue alternative options, including a further workforce reduction, implementing other cost-reduction initiatives, seeking relief in the U.S. Bankruptcy Courts, and/or winding down operations.

Additionally, the company's product candidates are based on a novel approach to therapeutic intervention, and the company may face challenges in demonstrating the safety and efficacy of its products to regulatory authorities. The company also faces competition from larger, more established pharmaceutical and biotechnology companies, which could impact its ability to successfully commercialize its products, if approved.

Outlook

Evelo Biosciences is at a critical juncture in its development, as it navigates the challenges of a development-stage biotech company. The company's recent setbacks with its product candidates have led it to initiate a strategic review process and implement cost-cutting measures to preserve its cash resources. However, the company's ability to continue as a going concern is dependent on its ability to secure additional funding or restructure its existing debt obligations.

Despite the challenges, Evelo Biosciences remains committed to its mission of developing a new class of oral medicines that target the small intestinal axis. The company's platform and product candidates, if successfully developed and approved, have the potential to address a wide range of inflammatory diseases. Investors will be closely watching the outcome of the strategic review process and the company's ability to secure the necessary funding to continue its operations and advance its pipeline.