Good morning, and welcome to the Evelo First Quarter 2019 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded at the Company's request. At this time, I'd like to turn the call over to Stefan Riley of Evelo. Please proceed..

Thank you, operator. Good morning, and welcome to Evelo's first quarter 2019 financial and operating results conference call. This morning, we issued a press release that outlines the topics that we plan to discuss today. This release is available at www.evelobio.com under the Investors tab.

Today, on our call Simba Gill, Evelo's CEO, together with key members of our leadership team, will review the Company's strategy, recent progress and our financial results.

Before we begin, I would like to remind everyone that statements made during this conference call that do not relate to matters of historical fact, including statements about our objectives and anticipated clinical milestones for 2019 and 2020, the impact of any of our monoclonal microbials and the timing and results of any clinical studies should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are intended to be subject to the safe harbor protection provided by the reform act. Actual results could differ materially from those indicated by the forward-looking statements, due to the impact of many factors.

Participants are directed to the risk factors set forth in Evelo's Annual Report on Form 10-K for the year ended December 31, 2018, and the Company's other filings with the Securities and Exchange Commission. Any forward-looking statements made today speak only to Evelo's operations as of today.

Evelo disclaims any duty to provide updates to its forward-looking statements even if subsequent events cause the Company's views to change. It is now my pleasure to pass the call over to Simba..

Thanks, Stefan. Good morning, everyone, and thank you for joining us today. With me are Mark Bodmer, our President of Research and Development and Chief Scientific Officer; Duncan McHale, our Chief Medical Officer; and Jonathan Poole, our Chief Financial Officer.

On today's call, we will highlight new platform discoveries related to the formulation of monoclonal microbials and our plans to introduce a new formulation into the clinic. We will also outline our anticipated near-term clinical readouts and review our financial results.

I wanted to begin by recapping our core thesis, which is that specific cells in the small intestine have evolved to play a central role in governing immune and biological activity throughout the body.

We can harness this newly understood biology to develop orally-delivered therapeutic candidates, which act on these cells locally in the small intestine to transmit therapeutic effects throughout the body. Our first novel modality of medicine are called monoclonal microbials.

Monoclonal microbials are a new class of oral immunomodulatory medicines, which have the potential to impact major chronic conditions and cancers at all stages of disease. Monoclonal microbials have the potential to be effective, safe and affordable, breaking multiple dogmas across science, medicine and business.

Our strategy combines a diversified clinical portfolio with continued investment in our platform and pipeline. On the platform side, in today's press release, we announced important discoveries from our research team.

These discoveries link to our view that target engagement is the key driver of efficacy for monoclonal microbials, as indeed it is for most medicines. We need to deliver the right amount of the right agent to the right place in the small intestine for the right period of time.

To address this, we have ongoing research efforts focused on developing new and improved formulations. We are delighted to report that we have recently discovered a novel formulation that improves the potency of our monoclonal microbials by up to 30-fold in preclinical in vivo models.

This is a significant advance across our platform for the three key reasons. First, it reinforces the dose-dependent activity of our monoclonal microbials, which we believe is linked to the magnitude of engagement of immune cells in the small intestine. This new class of oral immunomodulators has defined dose and formulation-dependent pharmacology.

Second, it allows significant flexibility to optimize the potency and presentation of our therapies in later-stage trials and towards commercialization. Third, it further strengthens our position as the clear leader in our field and the value of our intellectual property. Mark, over to you..

Thank you, Simba. I like to tell you more about the discovery of the impact of formulation of the potency of monoclonal microbials. There are three basic requirements for an effective medicine. The first is relevant biology.

As Simba said, our central idea is that orally administered biologics can act on immune cells in the small intestine to drive effects throughout the body, which is supported by our extensive preclinical evidence. The second is safety and tolerability.

Over 100 people have taken one of our development candidates in a range of doses and the safety and tolerability profile is in line with our expectations.

And the third is that adequate formulation and dose are required for effective target engagement in the correct tissue, and formulation and dose are major part of translating interesting biology into effective medicines.

The oral delivery of biologic medicines, which cause systemic effects from action in the lumen of the small intestine, present some particular challenges, but with that opportunities, our current clinical formulation is a capsule, which protects the monoclonal microbials from the conditions in the stomach and releases when in the small intestine.

As Simba said, we have discovered a new formulation which enhances pharmacological potency by as much as 30-fold in preclinical in vivo models. And this is an extraordinary finding. It means that for a given level of efficacy compared to our original preclinical formulation, we can reduce dose by up to 97% with the new formulation.

At higher doses, we can also boost efficacy to a greater maximum. We've seen both of these effects. So it turns out that pharmacological potency of monoclonal microbials can be profoundly affected by formulation to optimize delivery to the right location with the drug in the right active state at the right dose.

This is entirely the effective formulation. There's no modification of the drug substance. And these formulations are expected to be simple and convenient for patients and can be developed and manufactured cost effectively.

This discovery enhances the probability of translating preclinical effects into patients and we're working to incorporate it into our clinical trials. And since the formulations use the same drug substance, this can happen quickly over the coming months.

In a moment, Duncan will give a clinical update including how we plan to introduce this new formulation into the current and future trials. To finish, I'd like to make a brutal comment about our research into form and formulation. It's the pharmaceutics of medicines that act in the small intestine.

Last quarter, I mentioned that we have effective pharmacology with non-replicating monoclonal microbials, and today, I've talked about the striking effect of formulation. We haven't yet reached the limits of potency of oral medicines, which engage cells in the small intestine and we continue to invest in new technologies.

We'll give news of these in the future.

Duncan?.

Thanks, Mark. Good morning, everyone. We continue to execute on our clinical strategy of advancing multiple product candidates and doses into multiple diseases. As mark mentioned, we've now dosed over 100 subjects with multiple doses of our first three monoclonal microbials.

The safety and tolerability profile of monoclonal microbials remain in line with our expectations. And we announced today that we've completed dosing of the two healthy volunteer cohorts in the EDP1815 Phase 1b trial.

Following review of the data by the trial safety committee, we have proceeded, as planned to the cohorts of patients with atopic dermatitis or psoriasis. So I'll now briefly review the EDP1066 and EDP1815 programs, which are both in Phase 1b clinical studies in patients with mild-to-moderate atopic dermatitis or psoriasis.

Now as a reminder, the primary endpoint of these first trials is the safety and tolerability of EDP1066 and EDP1815. And in addition to the safety endpoints, we're also measuring exploratory endpoints, which will give us insights into the potential clinical benefits of these product candidates and their effects on the systemic immune system.

For EDP1066, we expect to report initial clinical data from three healthy volunteer cohorts and two dose-ascending cohorts of patients with psoriasis dosed with the initial capsule formulation early in the third quarter of 2019.

You will recall that we added a lower-dose cohort of patients with atopic dermatitis earlier in this year in order to obtain data in atopic dermatitis across two doses with the capsule formulation. With the addition of this cohort, we expect to report initial clinical data from atopic dermatitis in the third quarter of 2019.

Based on the new formulation data from Mark's team and the rapid development of this biomanufacturing team, we now expect to dose two additional cohorts of patients with psoriasis or atopic dermatitis in this study in the second half of this year.

This gives us the potential for initial clinical data from the new formulation during the fourth quarter of 2019 and the first quarter of 2020, respectively.

For EDP1815, this study has the similar design and endpoints to the EDP1066 study and we're currently modifying its design to accommodate the introduction of the new formulation during the second half of 2019. So we now expect initial clinical data from this trial, including patients dosed with the new formulation in early 2020.

As we announced in February, we are studying EDP1066 in an immuno-pharmacology clinical study in healthy volunteers, designed to efficiently test different doses and formulations. We also expect to introduce EDP1815 and future anti-inflammatory monoclonal microbials into this immuno-pharmacology clinical model.

Taken together, we believe the wealth of expected data in the coming months from these initial inflammatory studies will significantly advance our understanding of the effects of monoclonal microbials in patients and position us optimally to advance into next-phase clinical trials in the multiple inflammatory diseases.

So moving to oncology; EDP1503 is being investigated in two clinical trials in a diversity of tumor types, which are either non-responsive or poorly responsive to checkpoint inhibitors. In a Phase 1/2 clinical collaboration with Merck, we are investigating the effective EDP1503 and KEYTRUDA combination therapy in patients with one of the following.

Microsatellite stable colorectal carcinoma, triple-negative breast cancer and the basket of PD-1 relapsed tumor types. This study is currently enrolling.

As a reminder, patients will be dosed daily with EDP1503 monotherapy for two weeks at the start of the trial and then receive daily EDP1503 in combination with the checkpoint inhibitor therapy for the remainder of the study.

Biopsies will be taken at baseline and at the end of the monotherapy period to measure the effect of EDP1503 monotherapy on the tumor-immune microenvironment. We continue to expect initial clinical data from this trial in the first half of 2020.

The second, ongoing oncology study is a Phase two investigator-sponsored study being conducted by the University of Chicago, also in collaboration with Merck.

This study is looking at the effects of EDP1503 and KEYTRUDA combination therapy in metastatic melanoma, in both patients who are checkpoint inhibitor naive and those who've relapsed on checkpoint inhibitor therapy.

As with our Evelo-sponsored study, there is a monotherapy period at the beginning of the dosing period, when the patients are dosed with EDP1503 in monotherapy and paired tumor biopsies are collected. We continue to anticipate initial clinical data from this trial in the second half of 2020.

I would now like to hand over to Jonathan to take you through our financials..

Thanks, Duncan. In today's press release, we reported cash, cash equivalents and investments of $129.4 million at the end of the first quarter of 2019 compared to $147.9 million at the end of 2018. We expect that these funds will be sufficient for our operating and capital expenditure requirements into the second half of 2020.

As Simba mentioned, our current operating plans include the completion of our ongoing clinical trials for EDP1066, EDP1815 and EDP1503 and based on data from ongoing clinical trials, the potential initiation of clinical trials in two additional indications in our inflammatory disease therapeutic area.

Continued research and development of new forms and formulations of oral medicines, which engage immune cells in the small intestine, also remains core to our strategy. R&D expenses for the first quarter increased $8.6 million to $15.7 million from the same period in 2018, reflecting our expanding portfolio of clinical trials.

We now have three monoclonal microbials in four separate clinical trials in nine different patient groups. We also have continued investment in our platform and clinical pipeline. G&A expenses for the first quarter of 2019 were $5.1 million compared to $3.3 million for the same period in 2018.

These increases were due to cost to support Evelo's growing R&D organization and public company infrastructure required following our IPO in May 2018. And finally, net loss was $20.3 million for the first quarter compared to a net loss of $12.9 million for the same period in 2018. And with that, let me hand back over to Simba..

Thanks, Jonathan. To recap the science behind Evelo, we are developing monoclonal microbials, a potential new modality of oral immunomodulators, which act one cells locally in the small intestine to transmit therapeutic effects throughout the body.

I would like to emphasize the important announcement today of our significant leap forward in optimizing the formulation and pharmacology of monoclonal microbials. This strongly positions us to advance with confidence towards our vision of developing monoclonal microbials as a broadly-applicable new class of oral immunomodulators.

We expect a wealth of important clinical data over the coming months and look forward to keeping you apprised of our progress. We'd now be happy to take any questions you may have..

[Operator Instructions] Our first question comes from Matthew Harrison with Morgan Stanley..

Hi, everyone. This is Connor Meehan on for Matthew Harrison. Thank for taking my questions. So we were just wondering, based on having added additional patients to both programs, we were wondering how we should interpret the need for these additional cohorts.

Is it purely because you have wide therapeutic window? Or you in need to push the dose?.

It's a very positive development driven by, as Mark said, the discovery that we have a new formulation that's driving potency up to 30-fold more powerfully than anything we've seen before. But we remain very much on track with the existing clinical studies. So positive development is the driver..

Awesome. And just a quick follow-up; could you also characterize how you plan to compare the psoriasis and AD data against currently-approved agents? We noticed that these studies have shorter duration, so we are just wondering what kind of impact that might have on the data..

Yes. So the main purpose of the ongoing studies is signal finding beyond, obviously, confirming safety and tolerability in healthy volunteers and in patients. And that signal finding is based upon looking through biopsies at an integrated set of biomarkers. So that is what we're looking for.

And so it's not valid to look for comparison with the existing therapies in that context. The other thing is, we're focused on -- the other point is we're focused on mild to moderate patient and actually core to our strategy is the fact that, that is an area of significant unmet need.

So existing antibodies, for example, are not generally used in that mild to moderate disease population. So we can't make comparisons with that..

Thank you. Our next question comes from Chris Shibutani with Cowen..

Good morning. Thank you for taking the question. This is CJ [ph] on for Chris.

I was wondering, if you can provide a little bit more color about the change in formulation, specifically how, maybe, at a high level, is this change in potency being affected, is this due to, as you've been highlighting, delivery to a slightly different portion of the small intestine? Just wondering if you could provide a little extra color there..

CJ, this is Simba, good morning. We're very deliberately not giving any details on the formulation. As again, Mark said, it's pretty remarkable discovery, and from a competitive and intellectual property perspective, it's very important for us to keep the information confidential.

So we're very deliberately not giving any details, but it's really quite a groundbreaking leap forward, as we said during the call. Okay.

And then if I could just have one follow-up, phased about how this might -- as you integrate into the clinical trials, will you be able to bridge safety data things like that from the older formulation or will there be new data that you need to accumulate for the new formulation? What are the requirements going to be moving forward? I'll let Duncan, our Chief Medical Officer, answer that question..

Obviously, it's the first study. So it's not that we're trying to bridge across a large safety database, but in fact, we can compare from the earlier cohorts to the later cohorts. But there's no need to bridge the first study and we'll develop the safety database through the ongoing studies with the optimum formulation..

Okay. Thank you..

Thank you. And our next question comes from Matthew Luchini with BMO Capital..

Good morning, thanks for taking the questions. A couple for me.

So first, coming back to the new formulation, can you maybe then if -- recognizing you're trying to keep things somewhat confidential or quite confidential, can you maybe talk about the type of models that you've evaluated this new formulation in, and how those are similar or different from those that were used in -- with the initial formulation? Just trying to get a little bit more around sort of what gives you confidence in the higher probability of translating what you've seen preclinically into patients.

And then in terms of the upcoming data sets, just wanted to hear a little bit more about the rationale for staggering, the psoriasis in healthy volunteer 1066 data relative to the atopic dermatitis data? And given that you're going to be introducing a -- you have the follow-up, new formulation cohorts coming later in the year, does that at all change the guidepost that we should be thinking about in terms of how these data will be presented or communicated relative to each other? Thanks..

Thanks, Matt. So I'm going to let Mark answer the first question about formulation and which models we've looked at from a comparative perspective..

Thanks, Matt. So we've held the models constant. Actually, that was a critical part of making sure we could get a valid comparison from one formulation to the other. You may recall that we used the dose response in the mouse inflammation model to estimate doses in man. So we've been looking at the shifts in dose response with the new formulation.

And so we are increasing target engagement of the potency through that. So this is same mouse model, but a difference in the effect that we get for the doses administered, which is dependent on the formulation..

I hope that was helpful, Matt. And then let me address the question on clinical timing. And I think I've understood the question, but let me give you an answer and if that's not what you were looking for, let me know, obviously.

So, if we look at guidance for 1066, essentially we have first readout in healthy volunteers in psoriasis with the 1x and 5x patient cohorts early in the third quarter of this year. And that's simply driven from recruitment time. So that will be ready to read out in that time frame.

Also in the third quarter, we'll read out in atopic dermatitis 1x and 5x. So that's with the existing formulations at the 1x and 5x dose levels. And then with the new formulation, as we described in the prepared remarks, we're able to move that forward very rapidly versus current anticipation.

So manufacturing and process development team's done a great job, and Duncan's ready and principled to move that forward. So we are giving guidance of 1066 in psoriasis and atopic dermatitis being read out in the fourth quarter this year and the first quarter 2020, respectively. And then for 1815, we're immediately integrating the new formulation.

And so we expect to read out across all cohorts with all doses and formulations in early 2020.

Does that answer your question, Matt?.

Well, sort of. I guess, the -- maybe, let me try again. So the first question was what -- tell me if you could just talk a little bit more about the decision to stagger the healthy volunteer in psoriasis data from the atopic dermatitis data? I guess, we've been expecting all these kind of come together.

And then given that you are talking about the introduction -- you'll have follow-on data from the new formulation shortly thereafter, how, if at all, does that change the interpretability, if you will, of this initial data, given that we're about to see something that's potentially much more potent right on its heels? Is that a little bit clear?.

Yes. I think it's a little bit clear. So to be clear just in terms of the timing of the readouts, et cetera. On the atopic dermatitis side of things, because we added the extra cohort which we announced on the last earnings call, the timing is, as I described.

I think in terms of your question on how should you interpret the data, it's going to be driven by the date, essentially. So if we see a positive signal in the first readout, that's great news.

And obviously with the new formulation, there's good expectation that we should be able to improve whatever signal we see, but we went into these initial studies, because the data on the first formulations is very striking. So if we see positive data, that's great news. And one would assume there's a good possibility that we can improve on that.

In the event that we don't see positive data, we've got a very good shot at seeing it with the follow-on formulation.

Does that answer your question, Matt?.

Yes, that's helpful. Thank you..

[Operator Instructions] Our next question comes from Rogers Song with Jefferies..

Good morning to you and thanking for taking my question. So, my question is around 1815 healthy volunteer cohorts. So obviously, you've already completed the cohort, so just curious that any additional information you can share beyond the safety, any kind of PD biomarker signal you have observed.

How, if at all, you will communicate the results sometime in the future? Thank you..

Thanks for your question. So no additional data to report other than, as Duncan said, the fact that we've gone through the safety cohort. And in terms of future announcements, very similar to 1066, once we've completed the full set of cohorts, we'll present data on safety, tolerability in patients as well as the integrated biomarkers.

We are, in all cases, also looking at a variety of clinical scores as well, and that's expected by early 2020 in the case of 1815..

Got it, thank you. So maybe just one more question.

So regarding the immuno-pharmacological study for 1066 and 1815, so obviously you already -- this study is ongoing, so any updates from there? And how you will communicate us results, if at all?.

Yes. So just to step back a little bit, the purpose of the immuno-pharmacology studies is to allow us to test the variety of different doses, forms and formulations. And so, that's an ongoing set of experimental studies that we'll carry out. To the degree, we find something that is important, we'll announce it when and if we see that data basically.

But there's no formal guidance, because it's going to be driven by whether or not we see something that matters through those studies..

Thank you. Our next question comes from Taylor Feehley with Chardan..

And congratulations on the progress. The formulation sounds like it's a huge advance. I was wondering though, based on some of the other questions that have already been asked, is there any concern that the change in formulation could change the tolerability that you've seen thus far which sounds like it's quite positive..

Taylor, thanks for your comment and we are very excited about the new formulation. I think the short answer is, no. We have no reason to believe that there is any issue with regards to tolerability.

Mark, I don't know if you want to expand a little?.

Yes, just from a profile point of view, it's the same drug substance and delivery to the same part of the gut. It changes slightly the kinetics. But since we've looked at quite a range of doses for safety and tolerability, we don't see that as a major risk going forward.

What we think we're doing is improving, setting the target engagement within the small intestine, but without achieving overall increase in exposure, so we're not expecting that..

And then just one more quick follow-up to clarify.

As you said, the drug substance hasn't changed, so we should still be thinking about the direct interaction of the monoclonal microbial with the small intestinal immune cells, correct?.

Correct..

Correct..

Okay, fantastic. Thanks so much for taking the questions..

Thanks very much..

Ladies and gentlemen, thank you for participating in today's question-and-answer session as well as today's conference call. This does conclude the program. You may all disconnect, and have a wonderful day..