evlo-20230930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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.)
One Kendall Square, 600/700, Suite 7-201 Cambridge, Massachusetts						02139
(Address of principal executive offices)						(Zip Code)

(617) 577-0300

(Registrant's telephone number, including area code)

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, par value $0.001 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 ☒ No ☐

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 ☒ No ☐

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 November 6, 2023, there were 18,930,960 shares of the registrant's common stock outstanding.

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Evelo Biosciences, Inc.

Form 10-Q for the Quarterly Period Ended September 30, 2023

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Special Note Regarding Forward-Looking Statements

Summary Risk Factors

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			1
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022			2
Condensed Consolidated Statements of Stockholders' Deficit for the three and nine months ended September 30, 2023 and 2022			3
Condensed Consolidated Statements of Cash flows for the nine months ended September 30, 2023 and 2022			5
Notes to the Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosure About Market Risk			35
Item 4. Controls and Procedures			35

PART II: OTHER INFORMATION

Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities.			87
Item 3. Defaults Upon Senior Securities			87
Item 4. Mine Safety Disclosures			87
Item 5. Other Information			87
Item 6. Exhibits			87

Signatures			89

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, including within the meaning of 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 fact contained in this Quarterly Report on Form 10-Q are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q. These statements involve known and unknown risks, uncertainties, assumptions 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 terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” "target," “predict,” “project,” "contemplate," “should,” “will,” “would,” "continue" or the negative or plural of those terms or other similar expressions.

Forward-looking statements may include, but are not limited to, statements about:

•our plans to explore strategic alternatives;

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

•our ability to continue as a going concern, our cash runway, our future capital needs, our ability to satisfy our debt obligations (including any restrictive covenants) and our need and ability to raise additional funds;

•our estimates, including our future expenses, research and development and general and administrative costs, future revenues and anticipated future capital requirements;

•our future results of operations, financial position, business strategy and prospective products;

•our ability to build a pipeline of product candidates and develop, partner and/or commercialize drugs;

•our ability to develop therapeutic interventions;

•plans and objectives of management for future operations and the future results of anticipated products;

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

•timing and plans for clinical trials, including registration trials, and product candidate approvals;

•the timing, progress, receipt and release of data from our clinical trials and the potential use of our product candidates to treat various indications;

•our ability to establish our own manufacturing facilities, to effectively leverage our contract manufacturing organization partnerships and to receive or manufacture sufficient quantities of our product candidates;

•our expectations regarding the potential safety, efficacy or clinical utility 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, local and foreign regulatory requirements, including regulation of our product candidates by the U.S. Food and Drug Administration ("FDA"), European Medicines Agency ("EMA") and UK Medicines and Healthcare products Regulatory Agency ("MHRA") and our interactions with such agencies;

•our ability to successfully address regulatory questions and requirements and the likelihood of regulatory filings and approvals;

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

•activities related to strategic collaborations and anticipated revenue therefrom;

•our ability to maintain our listing on Nasdaq; and

•developments relating to our competitors and our industry.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We 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. Forward-looking

statements are inherently subject to risks, uncertainties and assumptions, some of which cannot be predicted or quantified and some of which are beyond our control. Risks, uncertainties and assumptions that may cause actual results to differ materially from current expectations include, among other things, those set forth below in “Summary Risk Factors,” in Part I, Item 1A “Risk Factors," in Part II, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations," and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events, speaks only as of the date of this Quarterly Report on Form 10-Q, and is subject to these and other risks, uncertainties and assumptions. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our information may be incomplete or limited and we cannot guarantee future results. 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. Except as required by law, we do not plan, and assume no obligation, to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

This Quarterly Report on Form 10-Q may also contain estimates, projections and other information concerning our industry, our business and the markets for certain drugs and consumer products, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources, and we have not independently verified the data from third party sources. In some cases, we do not expressly refer to the sources from which these data are derived.

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to the "Company," “Evelo,” “we,” “us,” “our” and similar references refer to Evelo Biosciences, Inc. and our wholly owned subsidiaries. This Quarterly Report on Form 10-Q may also contain references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to, including logos, artwork and other visual displays, may appear without the "®" or "TM" symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend any use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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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.

•With our current cash resources, we will be unable to meet our future debt repayment obligation to our current Lender unless we are able to raise additional capital and / or restructure our existing debt, which may be on unfavorable terms, if available at all, and we could be forced to pursue alternative options, including, but not limited to, a further workforce reduction, implementing further cost-reduction initiatives, seeking relief in the U.S. Bankruptcy Courts and/or winding down operations.

•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, should we resume such efforts in the future.

•Any financial or strategic option we pursue may not be successful. Moreover, our decision to discontinue program development efforts may not result in the anticipated savings for the Company and may adversely affect our business.

•Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

•We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern.

•The terms of our loan and security agreements place restrictions on our operating and financial flexibility, and if we are unable to comply with any of the covenants, we could be subject to adverse consequences including, without limitation, our having to immediately repay all amounts outstanding under the Loan Agreement and the Lender could seek to foreclose on the collateral.

•We are early in our development efforts and, should we resume development of our product candidates, may not be successful in our efforts to use our platform to build a pipeline of product candidates and develop marketable drugs.

•Should we resume development of our product candidates, we would be highly dependent on the success of our product candidates, and if we are unable to complete development of, obtain approval for and commercialize any of our product candidates for one or more indications in a timely manner, our business will be harmed.

•Our product candidates are an unproven approach to therapeutic intervention.

•Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Should we resume development of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

•If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired.

•We rely, and will continue to rely, on third parties to conduct the 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 rely on third parties for the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

•We have no experience manufacturing our product candidates at commercial scale, and if we decide to establish our own manufacturing facility, we cannot assure you that we can manufacture our product candidates

iii

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in compliance with regulations at a cost or in quantities necessary to make them commercially viable.

•Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, any of which could harm our business.

•We face substantial competition, which may result in others discovering, developing or commercializing competing products 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.

•Our reductions in force undertaken to extend our cash runway and focus more of our capital resources on our prioritized research and development programs may not achieve our intended outcome.

•Our common stock may be delisted from The Nasdaq Global Select Market if we cannot maintain compliance with Nasdaq’s continued listing requirements, which could harm our business, the trading price of our common stock, our ability to raise additional capital and the liquidity of the market for our common stock.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Evelo Biosciences, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)


(Unaudited)
	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	17,262	$	47,940
Prepaid expenses and other current assets	1,674		3,633
Total current assets	18,936		51,573
Property and equipment, net	894		4,842
Right of use asset - operating lease	—		6,868
Other assets	797		1,158
Total assets	$	20,627	$	64,441
Liabilities and stockholders’ deficit
Current liabilities:
Debt, current portion	$	33,948	$	—
Accounts payable	526		1,764
Accrued expenses	4,550		7,945
Operating lease liability, current portion	—		2,259
Other current liabilities	737		427
Total current liabilities	39,761		12,395
Noncurrent liabilities:
Debt, net of current portion	—		43,614
Operating lease liability, net of current portion	—		5,265
Deferred revenue	7,500		7,500
Other noncurrent liabilities	73		659
Total liabilities	47,334		69,433
Commitments and contingencies (Note 9)
Stockholder’s deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	—		—
Common stock, $0.001 par value; 200,000,000 shares authorized; 18,853,587 and 5,542,637 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	19		6
Additional paid-in capital	561,304		524,224
Accumulated deficit	(588,030)		(529,222)
Total stockholders’ deficit	(26,707)		(4,992)
Total liabilities and stockholders’ deficit	$	20,627	$	64,441

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Evelo Biosciences, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share and share amounts)


(Unaudited)
	Three Months Ended September 30,		Nine months ended September 30,
	2023	2022	2023

SEC Form 10-Q filed by Evelo Biosciences Inc.