Evelo Biosciences(EVLO) - 2020 Q4 - Annual Report

PART I Business Evelo Biosciences develops oral biologics targeting the small intestinal axis (SINTAX™) for inflammatory diseases and cancer, advancing a pipeline of novel therapeutic candidates - Evelo is developing a new class of oral medicines targeting the small intestinal axis (SINTAX™) to produce therapeutic effects throughout the body for immune, metabolic, and neurologic diseases[24] - The company's lead product candidates are EDP1815 (for inflammatory diseases and COVID-19), EDP1867 and EDP2939 (for inflammatory diseases), and EDP1908 (for cancer)[25] - Evelo's strategy is to explore the full potential of SINTAX, develop best-in-class oral therapies, scale its platform, protect its intellectual property, and collaborate with partners to expand its reach[31][34][35] Product Pipeline Status | Product Candidate | Indication(s) | Development Stage | | :--- | :--- | :--- | | EDP1815 | Psoriasis, Atopic Dermatitis, COVID-19 | Phase 2 / Phase 2/3 | | EDP1867 | Atopic Dermatitis | Phase 1b | | EDP2939 | Inflammatory Diseases | Preclinical (Clinical development anticipated 2022) | | EDP1908 | Oncology | Preclinical (Clinical development anticipated 2022) | Research and Development Expenses | Year | R&D Expense (in millions) | | :--- | :--- | | 2020 | $69.6 | | 2019 | $63.1 | - As of March 5, 2021, the company had 90 full-time employees, with 67 engaged in research and development[228] Risk Factors The company faces significant risks as a development-stage entity, including substantial losses, capital needs, unproven therapeutic approach, reliance on third parties, and COVID-19 impacts - The company is a development-stage entity with a history of significant losses and expects to incur losses for the foreseeable future[231] Financial Losses | Period | Net Loss (in millions) | Accumulated Deficit (in millions) | | :--- | :--- | :--- | | Year ended Dec 31, 2020 | $93.7 | $292.5 | | Year ended Dec 31, 2019 | $85.5 | - | - Existing cash, combined with proceeds from a Q1 2021 stock issuance, is expected to fund operations into the third quarter of 2022, after which additional funding will be required[238][240] - The company's therapeutic approach targeting the small intestinal axis (SINTAX™) is unproven, and there is no guarantee it will lead to approvable or marketable products[256] - The COVID-19 pandemic has adversely impacted and may continue to disrupt clinical trial enrollment, operations, and supply chains[288][289] - The company relies on third-party Contract Manufacturing Organizations (CMOs) for the production of its product candidates, which poses risks to supply, quality, and cost[326] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[535] Properties The company's corporate headquarters, including office and laboratory space, is located in Cambridge, Massachusetts, leased under a sublease agreement expiring in September 2025 - The company leases 40,765 square feet of office and laboratory space in Cambridge, Massachusetts[536] - The current sublease agreement for its headquarters expires in September 2025[536] Legal Proceedings The company is not currently subject to any material legal proceedings, though a European patent unrelated to current products faces opposition - The company is not a party to any material legal proceedings[537] - In February 2021, a notice of opposition was filed against European patent EP 3223834, which the company states does not relate to any current product candidates and is not expected to affect development plans[538] Mine Safety Disclosures This item is not applicable to the company - Not applicable[539] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "EVLO", with approximately 31 record holders as of March 5, 2021, and no anticipated cash dividends - The company's common stock trades on the Nasdaq Global Select Market under the symbol "EVLO"[542] - As of March 5, 2021, there were approximately 31 holders of record of the common stock[542] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[543] Selected Financial Data As a smaller reporting company, Evelo Biosciences is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[545] Management's Discussion and Analysis of Financial Condition and Results of Operations Evelo reported increased net losses in 2020 driven by higher R&D expenses, with existing capital expected to fund operations into Q3 2022 following a Q1 2021 financing Results of Operations (in thousands) | Line Item | 2020 | 2019 | | :--- | :--- | :--- | | Research and development | $69,616 | $63,128 | | General and administrative | $22,270 | $23,229 | | Total operating expenses | $91,886 | $86,357 | | Loss from operations | ($91,886) | ($86,357) | | Net loss | ($93,666) | ($85,472) | - The increase in R&D expenses was primarily driven by the progression of EDP1815 to Phase 2, the addition of COVID-19 studies, and manufacturing costs for EDP1867's Phase 1 trial[596] Cash Flow Summary (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Cash used in operating activities | ($73,063) | ($71,980) | | Cash (used in)/provided by investing activities | ($1,315) | $51,970 | | Cash provided by financing activities | $65,465 | $4,992 | - As of December 31, 2020, the company had $68.9 million in cash and cash equivalents, with an additional $82.2 million raised in Q1 2021, expected to fund operations into Q3 2022[602][613] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Evelo Biosciences is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide this information[625] Financial Statements and Supplementary Data This section incorporates by reference the company's consolidated financial statements and the report of its independent registered public accounting firm - The company's consolidated financial statements and the report of its independent registered public accounting firm are incorporated by reference and begin on page F-1 of the report[626] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[626] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no attestation report required as an emerging growth company - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[627] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[629] - The company is exempt from providing an attestation report from its registered public accounting firm on internal controls because it is an "emerging growth company"[630] Other Information The company reports no other information for this item - None[631] PART III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[634] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[635] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized for issuance under equity compensation plans as of December 31, 2020, with other ownership information incorporated by reference Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Approved by Stockholders | | | | | 2015 Plan | 3,114,275 | $4.05 | — | | 2018 Plan | 3,780,387 | $8.77 | 951,621 | | ESPP | — | — | 307,753 | | Total | 6,894,662 | $6.64 | 1,259,374 | Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[646] Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from the company's 2021 proxy statement - Information is incorporated by reference from the 2021 proxy statement[647] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents and material contracts - This item lists all exhibits filed with the Form 10-K, including the Restated Certificate of Incorporation, Bylaws, various incentive plans, material contracts like leases and license agreements, and required certifications[649][650] Form 10-K Summary This item is not applicable to the company - Not applicable[658] Financial Statements and Notes Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the company's 2020 and 2019 consolidated financial statements, noting the adoption of ASU No 2016-02 and no internal control audit - Ernst & Young LLP provided an unqualified audit opinion on the consolidated financial statements for the fiscal years 2020 and 2019[667] - The report highlights the company's adoption of the new lease accounting standard, ASU No 2016-02, in 2020[668] - The company was not required to have, nor did the auditors perform, an audit of its internal control over financial reporting[670] Consolidated Financial Statements The consolidated financial statements show total assets of $90.6 million and an accumulated deficit of $292.5 million as of December 31, 2020, with a net loss of $93.7 million for the year Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $68,857 | $77,833 | | Total assets | $90,639 | $90,920 | | Total liabilities | $60,154 | $30,723 | | Accumulated deficit | ($292,519) | ($198,853) | | Total stockholders' equity | $30,485 | $60,197 | Consolidated Statement of Operations Data (in thousands) | Account | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Research and development | $69,616 | $63,128 | | General and administrative | $22,270 | $23,229 | | Loss from operations | ($91,886) | ($86,357) | | Net loss | ($93,666) | ($85,472) | | Net loss per share | ($2.37) | ($2.67) | Notes to Consolidated Financial Statements The notes detail accounting policies, including the resolution of going concern issues via Q1 2021 financing, adoption of ASC 842, long-term debt, and in-license agreements with potential milestone payments - The company's ability to continue as a going concern was resolved by financing activities in Q1 2021, which are expected to fund operations for at least one year from the financial statement issuance date[692] - The company adopted the new lease accounting standard (ASC 842) on January 1, 2020, resulting in the recognition of a $12.7 million right-of-use asset and a $13.9 million lease liability[716] - As of December 31, 2020, the company had $30.0 million in long-term debt outstanding from its 2019 Credit Facility with K2 HealthVentures[733][734] - The company has in-license agreements with the Mayo Clinic and the University of Chicago, with potential future milestone payments of up to $56.0 million and $60.9 million, respectively, plus royalties[737][738]