Evelo Biosciences, Inc. (EVLO)·Q2 2023 Earnings Summary

Executive Summary

• Evelo reported Q2 2023 with continued operating expense reductions: R&D fell 39% YoY to $13.0M and G&A fell 41% YoY to $4.9M; net loss narrowed to $21.1M from $30.6M YoY as the company focused spend on EDP2939 and cut costs following AD wind-down .
• Clinical catalyst intact: EDP2939 (oral extracellular vesicles) Phase 2 in moderate psoriasis remained fully enrolled, with topline data guided for early Q4 2023; management reiterated conviction in the product profile and timing .
• Liquidity actions extend runway: A $25.5M private placement closed in July and a concurrent debt amendment reduced principal by $10M ($5M cash paydown + $5M conversion), with further paydown/convert options tied to future equity, extending runway into Q1 2024 .
• Capital structure and cost base simplified: 1-for-20 reverse split effected June 29 (Nasdaq compliance later regained), and the Cambridge facility sublease termination was executed effective September 15, 2023, lowering future facilities burden (with defined termination/contingent payments) .

What Went Well and What Went Wrong

• What Went Well

  • Cost discipline and focus: R&D ($13.0M) and G&A ($4.9M) both declined sharply YoY, narrowing the quarterly net loss to $21.1M; management also recognized impairment related to the discontinued AD program to clean up the cost base .
  • Financing and debt restructuring: $25.5M gross proceeds in July and Horizon’s $5M debt-to-equity conversion (plus $5M paydown) de-risk near-term liquidity and enable the EDP2939 catalyst; additional $10M paydown and $10M conversion are possible with future equity raises .
  • Clear near-term clinical catalyst: CEO stated, “We are on track for a top line read-out…with EDP2939…early in the fourth quarter,” underscoring continued operational execution toward data .

• What Went Wrong

  • Going concern and leverage: Management continued to disclose substantial doubt about going concern absent additional capital; the Horizon facility remained classified as current in Q2, highlighting balance-sheet strain prior to the July actions .
  • Program setback residue: EDP1815 atopic dermatitis discontinuation created one-time costs (e.g., $1.6M impairment) and underscores clinical risk history in non-psoriasis indications .
  • Cash draw continued pre-July financing: Cash fell to $7.6M at 6/30 from $27.5M at 3/31 and $47.9M at 12/31/22, necessitating the July capital raise and debt amendment .

Financial Results

Liquidity trend (period-end):

• Cash & Cash Equivalents: $47.940M (12/31/22) → $27.472M (3/31/23) → $7.622M (6/30/23) . Subsequent to quarter-end, the $25.5M private placement and debt restructuring extended runway into Q1 2024 .

KPIs (Operating/Balance Sheet):

• Workforce reduction: 48 employees (~45% of headcount) approved Jan 31 and further reductions in Q2 to preserve cash; $0.5M severance in Q2 and $3.1M in 1H23 recognized .
• Lease footprint: Sublease termination of 620 Memorial Drive effective Sept 15, 2023; $0.524M termination payment, $0.85M LC draw, and up to $2.5M contingent payment upon monetization events .

Estimates vs Actuals:

• Wall Street consensus (S&P Global) for Q2 2023 EPS/Revenue was unavailable; no comparison to estimates possible. Values unavailable from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Note: No Q2 2023 earnings call transcript was available in the document set; prior call references are from Q4 2022 –.

Management Commentary

• “We are on track for a top line read-out from our ongoing Phase 2 study in moderate psoriasis with EDP2939…early in the fourth quarter…EDP2939 has the potential, if approved, to be effective, safe and well tolerated, as well as affordably priced.” — CEO Simba Gill .
• “With our recent financing combined with the restructuring and reduction of our debt, we now have the financial resources to take us past the Phase 2 clinical readout of EDP2939 and into the first quarter of 2024.” — CEO Simba Gill .
• “We…closed the previously announced private placement, resulting in gross proceeds of approximately $25.5 million…[and] reduced [loan] principal by $10 million with $5 million paydown and $5 million converted to equity.” — Company press release .

Q&A Highlights

• No Q2 2023 earnings call transcript was available. The company furnished a press release and 10-Q; prior Q&A (Q4 2022) focused on EDP2939 efficacy bar (Otezla-like efficacy with better tolerability) and AD placebo issues, but these are not specific to Q2 2023 .

Estimates Context

• Street consensus from S&P Global for Q2 2023 EPS or revenue was unavailable; EVLO is pre-revenue and not broadly covered. As a result, no beat/miss vs consensus can be assessed this quarter. Values unavailable from S&P Global.

Key Takeaways for Investors

• Near-term catalyst: EDP2939 Phase 2 psoriasis topline is guided for early Q4 2023; positive data would be a major inflection given prior EDP1815 PoC and EDP2939’s higher preclinical potency .
• Liquidity improved but still dependent on outcomes: July equity/debt actions extend runway into Q1 2024, getting past the EDP2939 readout; further equity-linked paydown/conversion options remain .
• Leaner cost base: Significant YoY reductions in R&D and G&A plus lease termination should lower burn into 2H23, aligning spend with the EV platform focus .
• Balance sheet watch items: Despite restructuring, debt remains material and the business still disclosed going concern risk; additional capital likely needed post-readout depending on data/strategy .
• Execution risk shifts to data: With AD halted and resources focused on psoriasis, the binary clinical catalyst in early Q4 2023 is primed to drive stock reaction; downside if data underwhelms could re-raise financing pressure .
• Listing risk mitigated: Reverse split and regained Nasdaq compliance reduce mechanical delisting risk and should aid financing flexibility .

Supporting Data (Additional)

• Balance sheet select items (6/30/23): Cash & equivalents $7.622M; Current portion of debt $43.915M; Accumulated deficit $(575.666)M .
• Operating expenses (3 months ended 6/30/23): R&D $13.043M; G&A $4.915M; Impairment $1.616M .
• Sublease termination terms: $523,556 termination payment; $850,000 LC draw; up to $2,500,000 contingent upon specified monetization events .

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