Core Viewpoint - Evelo Biosciences is experiencing significant trading decline, with a reported drop of 80.0% in stock value, indicating potential financial distress and market volatility [1]. Company Overview - Evelo Biosciences is a clinical-stage biotechnology company focused on developing orally delivered immunomodulatory therapies that utilize the gut-body network [2]. - The company's proprietary platform aims to replicate signals from gut commensal bacteria to modulate immune function across the body, targeting a new class of biologics that can be taken orally [2]. Product Pipeline - The company's pipeline includes therapies for inflammatory, autoimmune, and oncology indications, showcasing a diverse range of potential applications for its products [3]. Market Activity - Recent unusual options trading activity was noted, with traders acquiring 1,885 put options, representing a 1,101% increase compared to the average daily volume of 157 put options, suggesting heightened investor concern or speculation regarding the stock [5].

Financial Performance - Net loss for the three months ended September 30, 2023, was $12,364,000, compared to a net loss of $30,564,000 for the same period in 2022, reflecting a reduction of approximately 59.5%[25] - Net loss for the nine months ended September 30, 2023, was $58.8 million, a decrease of $32.2 million compared to a net loss of $91.0 million for the same period in 2022[166] - The net loss for the three months ended September 30, 2023, was $12.4 million, a decrease of $18.2 million from a net loss of $30.6 million in the same period of 2022[159] - Basic and diluted net loss per share for Q3 2023 was $(0.71), significantly better than $(5.66) in Q3 2022[114] Cash and Liquidity - Cash and cash equivalents decreased from $70,209,000 at the end of September 2022 to $18,059,000 at the end of September 2023, a decline of approximately 74.3%[33] - As of September 30, 2023, Evelo Biosciences had cash and cash equivalents of $17.3 million and an accumulated deficit of $588.0 million[37] - Cash used in operating activities for the nine months ended September 30, 2023, was $50.5 million, a decrease from $78.0 million in the same period of 2022[208][210] - The company reported a net decrease in cash, cash equivalents, and restricted cash of $31.0 million for the three months ended September 30, 2023[207] Operating Expenses - Total operating expenses for the nine months ended September 30, 2023, were $55,657,000, down from $87,379,000 for the same period in 2022, a decrease of approximately 36.3%[25] - Total operating expenses decreased by $17.9 million to $11.2 million for the three months ended September 30, 2023, compared to $29.1 million in the same period of 2022[158] - General and administrative expenses were $15.8 million for the nine months ended September 30, 2023, compared to $24.9 million in 2022, reflecting a decrease of $9.1 million[169] - General and administrative (G&A) expenses decreased to $3.9 million for the three months ended September 30, 2023, from $7.1 million in 2022, driven by a $2.4 million decrease in personnel-related costs[162] Research and Development - Research and development expenses for the nine months ended September 30, 2023, were $37,399,000, down from $62,470,000 for the same period in 2022, a decrease of about 40.2%[25] - Research and development (R&D) expenses were $6.5 million for the three months ended September 30, 2023, down from $21.9 million in 2022, primarily due to a $11.2 million decrease in inflammation programs spending[160] - R&D expenses are expected to decrease in the near future as the company halts further development of product candidates while exploring strategic alternatives[148] Debt and Financing - The company has a loan agreement with Horizon Technology Finance Corporation for $45.0 million, with interest accruing at a variable rate of at least 11%[79] - As of September 30, 2023, total debt was $33.948 million, with minimum future loan payments totaling $35.0 million due by 2027[92] - The company has a Loan and Security Agreement with Horizon for up to $45.0 million, with an interest rate of at least 11%[194][195] - The company anticipates needing additional capital to fund operations, as current cash resources are insufficient for the next twelve months[178] Strategic Alternatives and Future Outlook - Evelo is exploring strategic alternatives to inform future financial and clinical development plans due to substantial doubt about its ability to continue as a going concern within one year[38] - The company has not generated any product or license revenue to date and expects operating losses and negative cash flows to continue for the foreseeable future[36] - The company is currently facing liquidity issues and is considering various options, including potential workforce reductions and seeking relief in U.S. Bankruptcy Courts[204] - The company has reported net losses since inception, with a total net loss of $58.808 million for the nine months ended September 30, 2023, compared to $90.986 million in the same period of 2022[114] Stock and Equity - The weighted average number of common shares outstanding increased from 3,976,438 for the nine months ended September 30, 2022, to 9,546,129 for the same period in 2023, an increase of about 140.5%[25] - The company completed a private placement on July 7, 2023, raising approximately $25.5 million by issuing 11,025,334 shares at $2.31 per share[101] - The company has 423,536 unvested RSUs as of September 30, 2023, with a weighted-average grant date fair value of $10.29[109] - Stock-based compensation expense related to restricted stock units (RSUs) was $1.2 million for the three months ended September 30, 2023, compared to $0.2 million for the same period in 2022[109] Impairments and Losses - An impairment charge of $1.6 million was recorded for long-lived assets related to the EDP1815 program, reducing the carrying amount from $2.1 million to a fair value of $0.5 million[70] - The company recognized a loss on disposal of $0.2 million from furniture and fixtures and office equipment due to the sublease termination, along with a $0.6 million loss from leasehold improvements[71] - The company incurred a severance charge of $1.6 million during the nine months ended September 30, 2023, due to workforce reduction[167] Clinical Development - EDP2939 did not achieve the primary endpoint in the Phase 2 clinical study for moderate psoriasis, leading to the decision to cease its development[130][137] - The company announced the suspension of development for EDP2939 on October 17, 2023, following the failure to meet primary endpoints in clinical trials[174] - EDP1815 has been studied in over 800 patients and has shown a safety profile comparable to placebo[138] - The company is exploring strategic alternatives for EDP1815 and the SINTAX platform following the Phase 2 study results[130]

Financial Position - As of June 30, 2023, Evelo Biosciences had cash and cash equivalents of $7.6 million, a decrease of 84.1% from $47.9 million as of December 31, 2022[23]. - Total current liabilities increased significantly to $55.5 million from $12.4 million as of December 31, 2022, primarily due to the current portion of debt[23]. - The accumulated deficit as of June 30, 2023, was $575.7 million, an increase from $529.2 million as of December 31, 2022[23]. - As of June 30, 2023, the company has a cash and cash equivalents balance of $7.62 million, down from $92.01 million in the same period of 2022, indicating a significant decrease of approximately 91.7%[53]. - The company reported a substantial doubt about its ability to continue as a going concern within one year due to insufficient cash resources and the need for additional funding[36]. - The company has $1.2 million in restricted cash as of June 30, 2023, consistent with the previous year[52]. - As of June 30, 2023, the total debt was reported at $43,915 thousand after accounting for a debt discount of $1,085 thousand[83]. - The company has identified conditions that raise substantial doubt about its ability to continue as a going concern without raising additional capital or restructuring existing debt[208]. Operating Performance - The net loss for the three months ended June 30, 2023, was $21.1 million, compared to a net loss of $30.6 million for the same period in 2022, representing a 30.3% improvement[25]. - Total operating expenses for the three months ended June 30, 2023, were $19.6 million, a decrease of 33.8% from $29.6 million in the same period of 2022[25]. - Research and development expenses for the six months ended June 30, 2023, were $30.9 million, down 23.7% from $40.5 million in the same period of 2022[25]. - The net loss for the six months ended June 30, 2023, was $46.4 million, a decrease of $14.0 million compared to a net loss of $60.4 million for the same period in 2022[155]. - Total operating expenses decreased by $13.9 million to $44.5 million for the six months ended June 30, 2023, down from $58.3 million in 2022[155]. - General and administrative (G&A) expenses were $4.9 million for the three months ended June 30, 2023, compared to $8.4 million in 2022, driven by a reduction in personnel-related costs and stock-based compensation[151]. - The company expects to continue incurring operating losses and negative cash flows for the foreseeable future[35]. Research and Development - Evelo has not generated any product or license revenue to date, focusing primarily on research and development[34]. - Research and development (R&D) expenses decreased to $13.0 million for the three months ended June 30, 2023, down from $21.2 million in 2022, primarily due to reduced spending on inflammation programs and personnel costs[149]. - The company expects R&D expenses to continue increasing in the foreseeable future as it implements its business strategy and advances clinical trials for product candidates[141]. - The company anticipates continuing to control spending in R&D while prioritizing key clinical programs and potentially expanding into additional therapeutic areas as resources permit[150]. - The company has commenced a Phase 1/2 trial for EDP2939, with topline results expected in early Q4 2023[123]. - EDP1815 showed a PASI-50 response rate of 29% compared to 12% for placebo in a Phase 2 trial, with statistical significance (p=0.027)[126]. - The company discontinued further development of EDP1815 for atopic dermatitis after all cohorts failed to meet the primary endpoint due to high placebo response rates[128]. Capital and Funding - The company intends to obtain additional funding through public offerings, private financing, and strategic partnerships, but there is no assurance that it will secure funding on acceptable terms[36]. - The company raised approximately $25.5 million in a private placement by issuing 11,025,334 shares of common stock at a price of $2.31 per share on July 7, 2023[93]. - The company has incurred significant operating losses, with a net loss of $46.4 million for the six months ended June 30, 2023, compared to a net loss of $60.4 million for the same period in 2022[193][195]. - The company expects to incur significant expenses and operating losses for the foreseeable future, particularly as it conducts clinical trials and scales manufacturing capabilities[219]. - The company anticipates needing additional funding to complete the development of its product candidates and commercialize products if approved[219]. - The company has entered into a Loan and Security Agreement with Horizon Technology Finance Corporation for term loans of up to $45.0 million, which were fully drawn down[182]. - The interest on the outstanding loan balance accrues at a variable annual rate of at least 11%[183]. Stock and Corporate Governance - The company conducted a 1-for-20 reverse stock split on June 29, 2023, retroactively adjusting all share amounts in the financial statements[38]. - The company remains classified as an "emerging growth company" and a "smaller reporting company," allowing it to take advantage of reduced reporting requirements[46][48]. - The company has authorized 200 million shares of common stock, with no dividends declared for common stockholders unless approved by the board of directors[91]. - The company appointed two new board members, Jeff Moore and Alec Reynolds, while four directors stepped down, reducing the board size to seven[134]. Impairments and Charges - An impairment charge of $1.6 million was recorded for long-lived assets related to the EDP1815 program, reducing their carrying amount from $2.1 million to an estimated fair value of $0.5 million[67]. - An impairment charge of $1.6 million was recorded for property and equipment due to the halted development of EDP1815 in atopic dermatitis[152]. - The company incurred a severance charge of $0.3 million during the three months ended June 30, 2023, as part of a workforce reduction strategy[149]. - The company reduced its workforce by 48 employees, approximately 45% of total headcount, resulting in charges of $0.5 million and $3.1 million for the three and six months ended June 30, 2023, respectively[110].

Financial Position - As of March 31, 2023, Evelo Biosciences had cash and cash equivalents of $27.5 million, down from $47.9 million as of December 31, 2022, representing a decrease of 42.6%[22] - Total current liabilities increased significantly to $57.2 million as of March 31, 2023, compared to $12.4 million as of December 31, 2022, indicating a rise of 361.5%[22] - Evelo reported a total stockholders' deficit of $27.4 million as of March 31, 2023, compared to a deficit of $5.0 million as of December 31, 2022[22] - As of March 31, 2023, cash and cash equivalents totaled $27.472 million, a decrease of 30.6% from $39.631 million as of March 31, 2022[51] - The company has an accumulated deficit of $554.6 million as of March 31, 2023, highlighting ongoing financial challenges[176] - As of March 31, 2023, total debt was $43.774 million, with minimum future loan payments totaling $45.0 million[70] - The company has received gross proceeds of $520.1 million since inception, including $45.0 million borrowed under debt facilities[132] - The company has $69.1 million remaining available to be sold under an "at-the-market" offering sales agreement as of March 31, 2023[151] Operating Performance - The net loss for the three months ended March 31, 2023, was $25.3 million, a decrease of 15.8% compared to a net loss of $29.9 million for the same period in 2022[24] - The total operating expenses for Q1 2023 were $24.9 million, a reduction of 13.3% from $28.7 million in Q1 2022[24] - The company incurred net cash used in operating activities of $20.3 million for Q1 2023, a decrease from $28.9 million in Q1 2022[30] - General and administrative (G&A) expenses for Q1 2023 were $7.0 million, down $2.4 million from $9.4 million in Q1 2022[129] - Stock-based compensation expense for the three months ended March 31, 2023, was $2.909 million, down from $4.275 million in the same period in 2022[85] Research and Development - Research and development expenses for Q1 2023 were $17.9 million, down 7.5% from $19.3 million in Q1 2022[24] - The company has incurred significant R&D expenses primarily for the development of product candidates, with costs recognized based on progress evaluations[115] - R&D expenses for inflammation programs increased by $1.4 million to $8.4 million in Q1 2023, driven by the EDP2939 program and EDP1815 Phase 2 trial[128] - EDP1815, a first-generation product candidate, showed a PASI-50 response rate of 29% compared to 12% for placebo in a Phase 2 trial, with statistical significance (p=0.027)[107] - EDP2939, a second-generation product candidate, is currently in a Phase 1/2 trial, with topline results expected in early Q4 2023[104] Going Concern and Financial Challenges - Management expressed substantial doubt about the company's ability to continue as a going concern within one year due to insufficient cash resources as of March 31, 2023[35] - The company has identified conditions that raise substantial doubt about its ability to continue as a going concern without securing additional financing[176] - The company faces substantial doubt about its ability to continue as a going concern within one year after the filing of its Quarterly Report due to insufficient cash resources[138] - Future defaults under the Loan Agreement could lead to immediate repayment demands, significantly harming the company's business and financial prospects[182] - The company is exploring changes to its capital structure to increase cash runway and maintain liquidity amid ongoing financial difficulties[159] Workforce and Cost Management - In January 2023, the company approved a workforce reduction plan affecting 48 employees, approximately 45% of total headcount, resulting in $2.7 million in charges for the three months ended March 31, 2023[92] - The company reduced its workforce by 48 employees, approximately 45% of its headcount, to preserve cash and prioritize core clinical programs[133] Regulatory and Market Risks - The company has not yet demonstrated the ability to successfully complete pivotal clinical trials or obtain regulatory approvals for its product candidates[189] - The company’s product candidates are based on an unproven therapeutic approach targeting the small intestinal axis, with no prior regulatory approvals for similar therapies[200] - Market volatility and rising interest rates may adversely impact the company's ability to access capital when needed[186] - The FDA may require more complex clinical trials than anticipated, increasing development costs and delaying commercialization[214] - Conducting clinical trials in foreign countries presents additional risks that may delay completion[219] Future Outlook - The company anticipates significant increases in research and development and general and administrative expenses, necessitating additional capital to fund operations[136] - The company expects expenses to increase as it conducts clinical trials and expands manufacturing capacity[185] - The company may need to pursue strategic partnerships, licensing arrangements, and collaborations to secure additional funding[134]

Financial Performance and Projections - Evelo has incurred significant losses since inception and expects to continue incurring losses for the foreseeable future[11]. - As of December 31, 2022, Evelo's existing cash and cash equivalents are projected to fund operating expenses into the third quarter of 2023, necessitating additional funding for product development and commercialization[17]. - The company incurred a net loss of $114.5 million and $122.2 million for the years ended December 31, 2022, and 2021, respectively[207]. - As of December 31, 2022, the company had an accumulated deficit of $529.2 million[207]. - The company anticipates significant increases in expenses due to potential delays or issues in clinical studies and trials[208]. - There is substantial doubt about the company's ability to continue as a going concern[207]. - The company may never generate significant revenue to achieve profitability[209]. - The company expects to continue incurring significant operating losses for the foreseeable future[207]. Product Development and Clinical Trials - EDP1815 has been administered to approximately 821 human subjects and has been generally well tolerated in clinical trials to date[22]. - The company is developing SINTAX medicines, which are oral biologics targeting immune-mediated diseases, with an initial focus on inflammatory diseases[33]. - EDP1815, a whole-microbe product candidate, completed a Phase 2 trial for psoriasis, showing a PASI-50 response rate of 29% compared to 12% for placebo, statistically significant with a p-value of 0.027[46][49]. - EDP2939, the first product candidate based on extracellular vesicles (EVs), has initiated dosing in Phase 2 trials for inflammatory diseases as of February 2023[39][42]. - The primary endpoint of the Phase 2 trial for EDP1815 indicated probabilities of superiority over placebo ranging from 80% to 90% across analyses[47]. - In the Phase 2 trial, 25% to 32% of patients treated with EDP1815 achieved a PASI-50 response at week 16, compared to 12% on placebo, with significant results in two of the three cohorts[48]. - EDP1815 was well tolerated in the Phase 2 trial, with no significant differences in gastrointestinal adverse events compared to placebo[51]. - EDP1815 demonstrated statistically significant reductions in pro-inflammatory cytokines IL-6 (p=0.0003), IL-8 (p=0.0007), and TNF (p=0.0037) compared to placebo in the Phase 2 psoriasis trial[58]. - In the Phase 2 trial of EDP1815 for atopic dermatitis, EASI-50 responses were achieved in 41%, 38%, and 32% of patients in cohorts 1, 2, and 3 respectively, while the placebo group had a 56% response rate[64]. - Cohort 4 of the Phase 2 trial for atopic dermatitis is testing a faster release capsule of EDP1815, with data expected in Q2 2023[65]. - The company is conducting a Phase 1/2 trial for EDP2939, with data from the Phase 2 cohort expected in the second half of 2023[73]. - The company aims to evaluate EDP1815 in additional inflammatory diseases, including psoriatic arthritis and asthma[67]. - The inflammation program targets psoriasis and atopic dermatitis, which affect over 25 million people in the U.S., focusing on underserved patient populations[77]. Market Potential and Competitive Landscape - The potential market for anti-TNFα antibodies, including HUMIRA, generated worldwide annual net sales of $20.4 billion in 2020, indicating a substantial unmet need for new therapies[25]. - The company aims to expand its market by developing product candidates that demonstrate placebo-like safety and tolerability, potentially opening a larger market than currently treated by biologics[79]. - The company anticipates intensifying competition in inflammatory diseases as new therapies are approved, with competitors having greater financial and technical resources[119]. - The population in Africa is projected to reach 1.7 billion by 2030 and 2.5 billion by 2050, highlighting significant market potential[116]. Regulatory Environment - The regulatory approval process for Evelo's product candidates is lengthy and uncertain, which could delay commercialization and revenue generation[17]. - The FDA requires a biologics license application (BLA) for marketing, which involves extensive preclinical and clinical trials[122]. - Approval of a BLA requires satisfactory compliance with current Good Manufacturing Practices (cGMP) and Good Clinical Practices (GCP)[131]. - The FDA may issue a Complete Response Letter (CRL) detailing deficiencies in the BLA, which could delay or refuse approval if regulatory criteria are not met[132]. - The FDA requires post-marketing studies to monitor safety and efficacy, which may lead to revised labeling or additional restrictions[147]. - Regulatory requirements for clinical trials and product licensing vary significantly across different countries, necessitating compliance for international marketing[154]. - The EU Clinical Trials Regulation (CTR) became applicable on January 31, 2022, replacing the previous Clinical Trials Directive, and harmonizes clinical trial processes across EU member states[158]. - Medicines used in clinical trials must be manufactured in accordance with Good Manufacturing Practice (GMP) standards, ensuring product quality and safety[162]. Intellectual Property and Collaborations - Evelo aims to protect its intellectual property through exclusive rights and patents in the United States and other regions[23]. - The patent portfolio includes 17 issued U.S. patents and 1 European patent, with 68 patent families covering compositions, methods of use, formulations, and manufacturing processes[93]. - The company has established relationships with contract manufacturing organizations (CMOs) to ensure reliable, high-quality drug supply for clinical development[86]. - The company has paid the Mayo Clinic $0.3 million in upfront payments for licensing intellectual property and microbial strains, with potential future milestone payments totaling up to $59.1 million[102]. - The strategic collaboration with Meddist Company Limited for the development of EDP1815 includes an upfront payment and a 50:50 profit share arrangement[117]. Workforce and Operational Strategy - As of March 1, 2023, the company had 66 full-time employees, with 46 engaged in research and development[200]. - The company plans to reduce its workforce by 48 employees, approximately 45% of its headcount, to preserve cash and prioritize investment in core clinical programs[201]. - The company has dedicated a significant portion of its resources to developing product candidates[199]. - The company emphasizes competitive salaries, bonuses, and development programs to attract and retain skilled employees[202]. - The company is not represented by a labor union, which may impact its operational flexibility[200].

Financial Performance - Total current assets increased to $72,327 million as of September 30, 2022, compared to $71,026 million as of December 31, 2021, reflecting a growth of 1.83%[17] - Total liabilities decreased to $77,002 million from $79,204 million, a reduction of 2.77%[17] - Net loss for the three months ended September 30, 2022, was $30,564 million, an improvement from a net loss of $33,730 million in the same period of 2021, representing a decrease in loss of 6.43%[19] - For the nine months ended September 30, 2022, the net loss was $90.986 million, a slight improvement from a net loss of $93.524 million in the same period of 2021[27] - The company reported a net loss of $30.564 million for the three months ended September 30, 2022, with a net loss per share of $(0.28)[90] - The company reported a net loss of $91.0 million for the nine months ended September 30, 2022, with an accumulated deficit of $505.7 million[132] - The company concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the date of the financial statements issued for the period ended September 30, 2022[186] Expenses - Research and development expenses for the three months ended September 30, 2022, were $21,928 million, down from $22,599 million in 2021, a decrease of 2.97%[19] - Total operating expenses decreased to $29,054 million for the three months ended September 30, 2022, compared to $32,710 million in 2021, a decline of 11.93%[19] - General and administrative expenses for the three months ended September 30, 2022, were $7.1 million, down $3.0 million from $10.1 million in 2021, driven by lower personnel costs and stock-based compensation[167] - Research and development expenses for the nine months ended September 30, 2022, were $62.5 million, down $2.3 million from $64.8 million in 2021, due to completion of certain programs[172] - General and administrative expenses for the nine months ended September 30, 2022, were $24.9 million, an increase of $1.8 million from $23.1 million in 2021, primarily due to higher personnel-related costs[173] Cash Flow and Financing - Cash and cash equivalents rose to $69,053 million as of September 30, 2022, compared to $68,441 million as of December 31, 2021, an increase of 0.90%[17] - The company reported a net cash used in operating activities of $78.0 million for the nine months ended September 30, 2022, primarily due to a net loss of $91.0 million[188] - Net cash provided by financing activities for the nine months ended September 30, 2022, was $79.9 million, consisting of net proceeds from the issuance of common stock and the exercise of stock options[193] - The company plans to raise additional capital through public offerings, private financing, and strategic partnerships to meet its obligations[186] - The company has drawn down the full $45.0 million available under its amended loan and security agreement with K2 HealthVentures LLC[141] Research and Development - Research and development costs are expensed as incurred, reflecting ongoing investment in product development[48] - The company has not generated any product or license revenue to date, focusing primarily on R&D[30] - EDP1815 is in Phase 2 clinical trials for atopic dermatitis, with a primary endpoint of achieving a 50% improvement in Eczema Area and Severity Index (EASI) score at week 16[105] - EDP2939 is set to enter a Phase 1/2 trial, with dosing for healthy volunteers anticipated in Q1 2023 and data from psoriasis patients expected in the second half of 2023[125] - The company plans to increase expenses significantly to support ongoing and new clinical trials, including EDP1815 and EDP2939, and to enhance manufacturing capabilities[133] Strategic Partnerships and Agreements - The company entered into a collaborative commercialization and license agreement with ALJ, granting an exclusive license for EDP1815 for a one-time fee of $7.5 million, with future profits and losses shared equally[55] - The company has a strategic collaboration with ALJ for EDP1815 in the Middle East, Turkey, and Africa, involving a 50:50 profit share arrangement[126] - The company has recognized no revenue under the ALJ Agreement to date, with the $7.5 million upfront fee recorded as deferred revenue[56] Compliance and Regulatory Matters - The company identified non-compliance with certain provisions of its loan agreement, but K2 HealthVentures waived all identified Events of Default[141] - The ongoing COVID-19 pandemic has impacted the company's operations and may affect patient enrollment in clinical trials[142] - The company expects interest expense on its outstanding loan to increase as interest rates rise[159] - Regulatory approvals for product candidates that successfully complete clinical trials are a key focus for the company[214]

| --- | --- | |-------|-------| | | | | | | | | | | | | Legal Disclaimer 2 This presentation contains forward-looking statements, including within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this presentation that do not relate to matters of historical fact should be considered forwardlooking statements, including without limitation statements concerning the development of EDP1815 and EDP2939, the promise and potential impact of our product candidates, th ...

Financial Data and Key Metrics Changes - The company is focused on capital preservation and cost-saving measures due to the current financial environment, having already implemented several cost control measures to ensure cash availability for critical clinical milestones [21][22] - The company anticipates moving EDP1815 into registration trials next year based on expected feedback from health authorities [21][22] Business Line Data and Key Metrics Changes - EDP1815 is progressing towards registration trials in psoriasis and is in Phase 2 for atopic dermatitis, with data readouts expected in the first and second quarters of 2023 [5][17] - EDP2939, the first microbial extracellular vesicle product candidate, is expected to provide Phase 1 and Phase 2 data for psoriasis in the second half of 2023 [17][18] Market Data and Key Metrics Changes - The company sees a significant opportunity to expand beyond dermatological conditions into arthritis, inflammatory bowel disease, asthma, and other inflammatory diseases due to the broad applicability of its platform [6][10] - There is a strong demand for oral treatments among patients, as evidenced by the success of Otezla, which has significant tolerability issues but is still being adopted [35][36] Company Strategy and Development Direction - The company aims to create a volume-driven business model focused on treating previously overlooked patient populations with effective, safe, and affordable oral therapies [10][36] - The management emphasizes the importance of safety and tolerability for both adults and children, which is a critical parameter for clinicians [7][10] Management's Comments on Operating Environment and Future Outlook - The management is optimistic about the future, highlighting the potential of EDP1815 and SINTAX medicines to revolutionize treatment for inflammatory diseases [18][31] - The company is committed to understanding the durability and deepening responses observed in clinical studies, which is a unique aspect compared to other therapies [31][33] Other Important Information - The company announced a succession plan for CEO Simba Gill, who will transition to the role of Chair while continuing to support the new CEO [9][11] - The company has engaged an executive search firm to assist in finding a suitable successor for the CEO position [14] Q&A Session Summary Question: What types of activities might be expected in terms of capital preservation or cost-saving measures? - The company is focused on cost control and has already taken measures to bring costs under control while prioritizing core investments [21] Question: Is there a go/no-go decision expected from health authorities regarding pivotal trials? - The company expects guidance on Phase 3 clinical design and does not anticipate substantive issues, aiming to move towards registration trials next year [21] Question: What formulation and dosing profile are being considered for the Phase 3 trial of EDP1815? - The company plans to use the original formulation with once-daily dosing, but may consider a faster-release capsule if it shows significant improvement in upcoming data [24][25] Question: What EASI50 response is needed to move forward into a pivotal program for atopic dermatitis? - The company is looking for a 20% or greater separation in EASI50 responders compared to placebo to consider moving forward [25] Question: What differential efficacy impact is expected from EDP2939 compared to EDP1815? - The company anticipates that EDP2939 may provide significant improvement in efficacy and responder rates compared to EDP1815, with the potential for antibody-like efficacy [28] Question: What work is being done to understand durable and deepening responses observed in clinical studies? - The company is investigating the mechanism of action and plans to include longer duration treatments and open-label extensions in clinical studies to assess durability [31][33] Question: Are patients expressing interest in switching to oral therapies? - There is clear feedback indicating a strong demand for oral treatments, which supports the company's strategy to offer affordable oral therapies for inflammatory diseases [35][36]

Financial Performance - Net loss for the six months ended June 30, 2022, was $60.422 million, slightly higher than the $59.794 million loss for the same period in 2021[25]. - Net loss for the three months ended June 30, 2022, was $30.6 million, compared to a net loss of $31.6 million for the same period in 2021, representing a decrease of 3.3%[112]. - For the six months ended June 30, 2022, the company reported a net loss of $60.4 million, with an accumulated deficit of $475.1 million as of the same date[166]. - Net loss for the six months ended June 30, 2022, was $60.4 million, compared to $59.8 million for the same period in 2021, reflecting a $3.2 million loss on debt extinguishment recognized last year[209]. Assets and Liabilities - Total assets increased to $111.901 million as of June 30, 2022, up from $87.871 million at December 31, 2021, representing a growth of 27.3%[15]. - Total liabilities decreased to $76.253 million from $79.204 million, a reduction of 3.7%[15]. - Stockholder's equity increased to $35.648 million as of June 30, 2022, up from $8.667 million at the end of 2021, representing a growth of 311.5%[15]. - As of June 30, 2022, the company held cash, cash equivalents, and restricted cash totaling $93.2 million, with an accumulated deficit of $475.1 million[29]. Cash Flow - Cash and cash equivalents rose to $92.007 million, compared to $68.441 million at the end of 2021, marking an increase of 34.4%[15]. - Net cash used in operating activities for the six months ended June 30, 2022, was $55.458 million, compared to $41.712 million in 2021, indicating a 32.9% increase in cash outflow[25]. - Cash and cash equivalents increased from $68.4 million as of December 31, 2021, to $92.0 million as of June 30, 2022, representing a growth of approximately 34.5%[41]. Expenses - Total operating expenses for the six months ended June 30, 2022, were $58.325 million, compared to $55.127 million in the same period of 2021, an increase of 4.0%[17]. - Total operating expenses for the three months ended June 30, 2022, were $29.6 million, an increase of $1.9 million from $27.7 million in the prior year[200]. - Research and development expenses for the six months ended June 30, 2022, were $40.5 million, down from $42.2 million in the same period of 2021, due to the completion of certain trials[210]. - General and administrative expenses for the six months ended June 30, 2022, were $17.8 million, an increase of $4.8 million compared to $13.0 million in the prior year, driven by higher personnel costs and stock-based compensation[212]. Research and Development - Research and development expenses for Q2 2022 were $21.221 million, up from $20.655 million in Q2 2021, reflecting a 2.7% increase[17]. - The company has not generated any product or license revenue to date, focusing primarily on research and development[28]. - The company expects significant increases in expenses related to ongoing clinical trials for EDP1815 and EDP2939, as well as strategic investments in manufacturing capabilities[167]. - EDP1815, the most advanced product candidate, is being developed for the treatment of inflammatory diseases, with positive Phase 2 trial results showing a PASI-50 response rate of 29% compared to 12% for placebo[129]. Funding and Capital - Proceeds from the issuance of common stock, net of issuance costs, amounted to $79.092 million during the six months ended June 30, 2022[25]. - The company plans to obtain additional funding through public offerings, private financing, or strategic partnerships to support its operations[30]. - In February 2021, the company completed a public offering of 5,175,000 shares at $15.00 per share, generating gross proceeds of $77.6 million and net proceeds of $72.7 million[88]. - In May 2022, the company conducted a registered direct offering of 54,246,358 shares at $1.46 per share, resulting in gross proceeds of $79.2 million[92]. Stock and Equity - The company reported a weighted-average number of common shares outstanding of 75,719,092 for Q2 2022, compared to 53,379,415 for Q2 2021, an increase of 41.8%[17]. - As of June 30, 2022, the company had total unrecognized stock-based compensation expense of $28.5 million, expected to be recognized over a weighted average period of 2.6 years[105]. - The company issued 2,032,505 stock options during the six months ended June 30, 2022, with a weighted average exercise price of $4.64[103]. Regulatory and Compliance - The company is classified as an "emerging growth company," allowing it to take advantage of reduced reporting requirements until it exceeds certain thresholds[35]. - The European Medicines Agency approved a Pediatric Investigation Plan for EDP1815, allowing inclusion of patients aged 12-17 in Phase 3 trials and requiring trials for younger age groups post-Marketing Authorization Application[148]. Strategic Collaborations - A strategic collaboration with Meddist Company Limited aims to develop and commercialize EDP1815 in the Middle East, Turkey, and Africa, addressing healthcare access disparities[160]. - A collaboration agreement with ALJ will result in the recognition of $7.5 million in revenue upon regulatory approval of EDP1815 in designated markets[182].

Financial Performance - As of March 31, 2022, the company reported total assets of $58.8 million, a decrease from $87.9 million as of December 31, 2021, representing a decline of approximately 33%[15]. - The company incurred a net loss of $29.9 million for the three months ended March 31, 2022, compared to a net loss of $28.2 million for the same period in 2021, reflecting an increase in losses of about 6%[17]. - The company has an accumulated deficit of $444.6 million as of March 31, 2022, up from $414.7 million at the end of 2021, marking an increase of approximately 7%[29]. - The net loss for the three months ended March 31, 2022, was $29.861 million, compared to a net loss of $28.196 million for the same period in 2021[106]. - The company anticipates continuing to incur losses for at least the next several years, raising substantial doubt about its ability to continue as a going concern[202]. Cash and Cash Equivalents - Cash and cash equivalents at the end of Q1 2022 were $40.8 million, down from $126.2 million at the end of Q1 2021, indicating a decrease of about 68%[24]. - As of March 31, 2022, total cash and cash equivalents were $39.631 million, down from $68.441 million as of December 31, 2021, representing a decrease of approximately 42.2%[42]. - Total cash, cash equivalents, and restricted cash decreased by $29.0 million during the three months ended March 31, 2022[204]. - Net cash used in operating activities was $28.9 million for the three months ended March 31, 2022, compared to $26.3 million for the same period in 2021[205][206]. - Net cash provided by financing activities was $0.1 million for the three months ended March 31, 2022, a significant decrease from $82.3 million in the same period in 2021[209]. Operating Expenses - Total operating expenses for Q1 2022 were $28.7 million, slightly higher than $27.5 million in Q1 2021, representing an increase of about 5%[17]. - General and administrative expenses increased to $9.4 million for the three months ended March 31, 2022, up from $6.0 million in the same period in 2021, representing a $3.5 million increase[195]. - The company expects significant increases in expenses related to ongoing and new clinical trials, manufacturing capabilities, and regulatory approvals[161]. - Total other expense, net for the three months ended March 31, 2022, was $1.0 million, an increase of $0.4 million from $0.6 million in the same period in 2021[196]. Research and Development - Research and development expenses decreased to $19.3 million in Q1 2022 from $21.5 million in Q1 2021, a reduction of approximately 10%[17]. - The company is developing EDP1815, an investigational oral biologic for treating inflammatory diseases, with positive Phase 2 trial results in psoriasis showing a 29% PASI-50 response rate compared to 12% for placebo[119][122]. - The company anticipates that research and development expenses will continue to increase as it advances clinical trials for product candidates including EDP1815 and EDP2939[180]. - Research and development expenses for the three months ended March 31, 2022, were $19.3 million, a decrease of $2.2 million from $21.5 million in the same period in 2021, primarily due to the completion of the first EDP1815 Phase 2 clinical trial[192]. Strategic Plans and Partnerships - The company plans to pursue strategic partnerships and collaborations to secure additional funding, as current cash reserves are insufficient to support operations for the next twelve months[30]. - A strategic collaboration with ALJ for EDP1815 development in the Middle East, Turkey, and Africa includes a 50:50 profit share arrangement[157]. - The company plans to seek additional capital through future equity financings, debt financings, or partnerships to fund operations beyond the current cash reserves[202]. Clinical Trials and Product Development - EDP1815 demonstrated a statistically significant reduction in pro-inflammatory cytokines IL-6 (p=0.0003), IL-8 (p=0.0007), and TNF (p=0.0037) compared to placebo, indicating its potential efficacy[135]. - The European Medicines Agency approved a Pediatric Investigation Plan for EDP1815, allowing inclusion of patients aged 12-17 in Phase 3 trials and requiring a clinical trial for younger age groups post-Marketing Authorization Application[140]. - The Phase 2 trial of EDP1815 began in February 2022, enrolling up to 400 patients with a primary endpoint of achieving an EASI-50 response at week 16[146]. - EDP1867 was well-tolerated in a Phase 1b trial but showed no clear clinical benefit, leading the company to place the program on hold[151]. - EDP2939 is being developed for inflammatory diseases, with clinical development anticipated to start in Q3 2022 and data expected in H2 2023[153]. Debt and Financing - The total debt under the Amended Credit Facility as of March 31, 2022, is $46.616 million, after accounting for interest and discount[76]. - Interest expense for the three months ended March 31, 2022, was approximately $1.0 million, compared to $0.8 million for the same period in 2021, indicating a year-over-year increase of 25%[76]. - The company has drawn down the full $45.0 million available under its amended loan and security agreement[165]. - The company has financed operations primarily through public and private offerings, with gross proceeds of $434.9 million from equity and debt transactions since inception[197]. Impact of COVID-19 - The COVID-19 pandemic has negatively impacted the company's operations, particularly in patient enrollment and retention in clinical trials[172].