Good morning, and welcome to Evelo's conference call to discuss the fourth quarter and full year 2019 financial results and business highlights. [Operator Instructions]. At this time, I'd like to turn the call over to Jessica Cotrone of Evelo. Please proceed..

Thank you, Sarah. This morning, we issued a press release that outlines the topics we plan to discuss today. This release is available at www.evelobio.com under the Investors tab.

Today on our call, Simba Gill, Chief Executive Officer; Duncan McHale, Chief Medical Officer; Mark Bodmer, President of R&D and Chief Scientific Officer; and Jonathan Poole, Chief Financial Officer, will review the fourth quarter and full year 2019 financial results and some recent business highlights.

Before we begin, I would like to remind everyone that statements made during this conference call that do not relate to matters of historical facts, including statements about our objectives and anticipated clinical milestones for 2020, the impact of any of our monoclonal microbials and the timing and results of any clinical studies and the sufficiency of cash to fund operations 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 quarterly report on Form 10-Q for the quarter ended September 30, 2019, 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 view to change. It is now my pleasure to pass the call over to Simba..

Thank you, Jessica. Good morning, everyone, and thank you for joining us. As you know, we are focused on the small intestinal axis, a newly uncovered area of biology with the potential to transform the treatment of many major diseases. Evelo is harnessing the ability of the small intestinal axis, or SINTAX, to govern biology throughout the body.

We are developing a new type of medicine which acts locally in the small intestine for effects throughout the body. We believe our medicines will be superior to alternatives in terms of efficacy, safety, convenience and affordability. Slide 4 highlights our accomplishments during 2019.

During the second and third quarter of 2019, we reported positive clinical data for EDP1815, our lead inflammation candidate, in two cohorts of individuals with psoriasis. These data are important for two reasons.

Firstly, they validate our core hypothesis that we can target the small intestinal axis to develop a unique profile of orally-delivered, effective and safe immunomodulatory medicines. Secondly, they provide proof of mechanism for EDP1815 as a new medicine.

EDP1815 has the potential to address the needs of millions of people with psoriasis as well as other inflammatory diseases for which effective, safe, convenient and affordable treatment options are not readily available. After discussions with global regulatory agencies, we are advancing EDP1815 into Phase II with the improved formulation.

We expect to initiate the Phase II trial in the second quarter of this year. Moving to Slide 5. In 2020, we anticipate several readouts from our existing inflammation and oncology clinical programs.

We expect to have additional Phase Ib data and interim Phase II data for EDP1815 in psoriasis; Phase Ib data for EDP1815 in atopic dermatitis, which would potentially expand our opportunity in inflammatory diseases; and further clinical data in our ongoing Phase I/II clinical trial evaluating EDP1503 in combination with Merck's anti-PD-1 KEYTRUDA in individuals with microsatellite stable colorectal cancer, triple-negative breast cancer and patients with other tumor types who have relapsed after prior PD-1/L1 inhibitor treatment.

Alongside these clinical programs, we are continuing our research into the full potential of SINTAX. Let me now turn the call over to Duncan..

Thank you, Simba. I'm pleased to be able to talk to you today about the opportunities ahead of us as we progress our Phase II program for EDP1815. So moving to Slide 6, and before focusing on psoriasis, I wanted to highlight that chronic inflammation is a central driver of some of the most burdensome diseases we face today.

As you know, many important and common chronic diseases, including the different forms of arthritis and HPs as well as neurodegenerative diseases such as Alzheimer's and Parkinson's disease and metabolic syndrome are linked to chronic inflammation. Worldwide, 1 in 7 people suffer from a chronic inflammatory disease.

By targeting SINTAX with Evelo's platform, we have the potential to develop novel oral biologic therapies to treat many of these people. So moving to Slide 7. So we chose to start in psoriasis as it enables rapid and informative clinical trial readouts, which have broad relevance in inflammation.

It also provides the potential for rapid approval of EDP1815 for the treatment of mild to moderate psoriasis, for which there are currently limited treatment options. Now this slide has some examples of what would be termed mild psoriasis.

And although characterized as mild to moderate in terms of body surface area, as you can see from these pictures, the individual psoriatic lesions can be severe and distressing. And in addition to the skin features, there are also serious comorbidities associated with psoriasis.

There is a need for an effective, safe and affordable oral therapy, and Evelo's platform allows us to develop medicines with this unparalleled profile. Slide 8 provides a snapshot of the psoriasis data we reported last year in 2 separate cohorts receiving EDP1815.

The primary endpoint of this trial was safety and tolerability, and the EDP1815 was well tolerated with no overall difference reported from placebo in either cohort. The study also looked at a number of secondary and exploratory endpoints to evaluate potential pharmacodynamic responses, including PASI scores and lesion severity scores.

We saw reductions in PASI and lesion severity score in both cohorts dosed with EDP1815. And in the high-dose cohort, we saw continued improvement to day 42, beyond the 28-day dosing period, suggesting sustained clinical activity and a dose response.

EDP1815 is showing the clinical and pharmacodynamic activity we'd hoped for as we look to develop an effective, safe, convenient and affordable medicine for psoriasis. The data from the high- and low-dose cohorts provide a clear rationale for us to advance into Phase II.

Slide 9 shows the design of our Phase II dose-ranging study, and we have agreed on the design of this trial with the FDA and MHRA. The study will evaluate 3 doses of a new formulation of EDP1815 versus placebo in approximately 180 individuals.

The new formulation is the same API as the original trial but has an improved release profile to more specifically target SINTAX, which Mark will discuss in more detail later. The primary endpoint will be the main reduction in PASI score at week 16.

We expect to initiate the trial in the second quarter of 2020 and to announce interim data by the end of 2020. Clinical data from this study could enable us to advance into Phase III registration studies in 2021, subject to end of Phase II discussions with regulatory agencies.

Now moving to Slide 10, you can see we have a broad clinical and preclinical pipeline across multiple therapeutic areas. In inflammation, we've already talked about the Phase II trial in EDP1815 in psoriasis. And I want to spend a few moments talking about the opportunity for EDP1815 to treat atopic dermatitis, another condition with unmet need.

Atopic dermatitis is a chronic inflammatory skin disease characterized by patches of oozing red skin, pain, swelling and an unrelenting itch that can severely affect quality of life. In the U.S., atopic dermatitis affects 18 million to 25 million people, and 90% of these subjects are mild or moderate.

Whilst atopic dermatitis is more prevalent than psoriasis, there are a few systemic therapies available to patients. EDP1815 is currently in Phase Ib development for mild to moderate atopic dermatitis, and we expect initial data from a cohort of approximately 24 subjects in the second quarter of this year.

EDP1815 also has the potential in other inflammatory diseases, and our preclinical data demonstrates clear effects on Th17, Th1 and Th2 biology. Based on this preclinical data and EDP1815's activity in psoriasis in man, we visit exploring EDP1815 and other Th17-driven diseases, such as psoriatic arthritis and axial spondyloarthritis.

Preclinical data for EDP1815 also supports the potential in atopic diseases based on its modulation of the IL-4 and IL-13 pathway and Th1-driven diseases such as rheumatoid arthritis. This year, since we're advancing 1867, our first nonreplicating monoclonal microbial into the clinic.

We are planning to initiate a Phase Ib trial in asthma in the second half of the year and we will continue to build our preclinical pipeline in inflammation. We have decided to discontinue development of EDP1066 following completion of the final cohort of the Phase Ib trial due to its less marked effect on systemic immunology than EDP1815.

The Phase Ib trial evaluated EDP1066 in both mild to moderate atopic dermatitis and mild to moderate psoriasis and was well-tolerated with no overall difference reported from placebo.

In the cohort of individuals with mild to moderate atopic dermatitis treated with the high dose of the new formulation of EDP1066, we again observed changes in biomarkers of inflammation consistent with a positive pharmacodynamic effect.

The biomarker changes were greater in this cohort than those we observed with a high dose of the original formulation. In our oncology portfolio, we expect to have further clinical data in the first half of the year from our ongoing Phase I/II clinical trial evaluating EDP1503 in combination with Merck's anti-PD-1 antibody KEYTRUDA.

This study includes individuals with microsatellite stable colorectal cancer, triple-negative breast cancer and individuals with other tumor types who relapsed following an initial response to a checkpoint inhibitor. With that, I'd now like to turn the call over to Mark..

Thank you, Duncan. We've learned a great deal about how to make medicines, which target the small intestinal axis. One of our key discoveries is the importance of formulation for release of the drug in the right place. Different parts of the small intestine have different effects on the state of inflammation in the body.

Academic publications show that responses in the upper part are more anti-inflammatory than further down. So the faster the drug is released after passing from the stomach, the better the anti-inflammatory effect. Slide 11 shows the rate of release of drug from our existing enteric capsule formulation on the left and the new formulation on the right.

This is an in vitro simulation of conditions in the small intestine. The formulation reduces the release time from 90 to 5 minutes. This will maximize the amount of drug, which targets the anti-inflammatory upper SINTAX.

The same drug substance is used in both formulations, and we've previously shown the benefit of improved dose response in preclinical models. We're taking full advantage of this on our future clinical studies in inflammatory diseases, as you've heard from Simba and Duncan.

The clinical data we've reported over the last few months confirm the preclinical discoveries that underpin our new drug platform. We're using single strains of microbes, hence monoclonal microbials. Their distribution is limited to the gut, and yet they have striking pharmacological effects throughout the body.

They don't modify the microbiome or persist in the gut. In fact, they work when they're nonreplicating, directly modifying host cells in the lining of the small intestine, for example, what's passing by. This has led us to a completely new notion of how a medicine can work. The inside of the gut is actually partly outside of the body.

Our medicines are signaling from the outside in. As well as a huge range of potential inflammatory diseases in cancer, we have monoclonal microbial candidates, which, in animal models, resolve central nervous system inflammation by their action in the intestine. Think about that for a moment. It's an extraordinary statement.

We can resolve inflammation in the CNS with a monoclonal microbial in the gut. We also have a discovery program in metabolism, which is finding new microbes and will surely couple metabolism back to inflammation via the small intestine.

All of this work, clinical and discovery, is building the picture of the central importance of the small intestine as a motherboard regulating physiology throughout the body. Now I'll hand to Jonathan..

Thanks, Mark. We ended 2019 with cash and cash equivalents of $77.8 million compared to cash, cash equivalents and investments of $147.9 million at the end of 2018. The decrease in cash was due to operating spend for 2019 and was partially offset by net proceeds from our debt refinancing with K2 HealthVentures in July 2019.

We expect that our cash and cash equivalents will enable us to fund our planned operating expenses and capital expenditure requirements through the end of 2020. R&D expenses were $16.4 million for the fourth quarter and $63.1 million for the full year compared to $11.3 million for the fourth quarter of 2018 and $39 million for the full year 2018.

The increase of $23.2 million for 2019 was due primarily to increases in costs related to our clinical programs in inflammation, our R&D platform and personnel. G&A expenses were $6.3 million for the fourth quarter and $23.2 million for the full year compared to $4.7 million for the fourth quarter of 2018 and $18.2 million for the full year of 2018.

The increase of $5 million for 2019 was due primarily to increased personnel costs, professional and consulting fees to support our R&D pipeline and the full year of public company infrastructure costs following our IPO in May of 2018.

Net loss was $22.6 million for the fourth quarter and $85.5 million for the full year as compared to a net loss of $15.4 million for the fourth quarter of 2018 and $60.9 million for the full year 2018. And with that, I'll hand it over to Simba..

Thank you, Jonathan. What we've highlighted today is only possible because of the exceptional work of our exceptional team. Thanks to all of you. We expect a cashless rich 2020, and we look forward to updating you further as our programs progress during the year. We'd now like to open the call to take any questions that you may have..

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

This is Connor on for Matthew.

We were just wondering about how many patients and what sort of data we should expect regarding the interim for 1815 for the end of the year? And if you could just give us a little background on that and sort of what to expect there?.

Connor, this is Simba. I'll let Duncan answer that..

Great. Thanks, Connor, for the question. So we have designed the trial flexibly so we can perform the interim at any point beyond which 50% of the subjects have reached 12 weeks of treatment, and we'll make a decision as to when we actually look at that interim later on in the year.

In terms of the endpoints, the endpoints for the trial, which we look at, at the interim include Ez Scorad, IGA and body surface area. So we're going to look at a range of the endpoints as well. Untimely, I beg your pardon. It wasn't easy..

Our next question comes from the line of Chris Shibutani with Cowen & Company..

This is CJ on for Chris.

Curious with the difference in baseline severity for the patient population in Phase II versus 1b for 1815, what sort of effect would you be looking for to be confident to move a dose level forward? And if there's not much a dose response, how will secondary endpoints factor into the decision-making?.

Thanks, CJ. So I think two questions. One is what level of response would give us confidence to move into Phase III. I think that was your first question. The second is around dose response. Let me take the first and put it into the context of the current treatment regimens, which are available for patients.

So as you know, CJ, the fundamental unmet need that we're aiming to address broadly is related to the fact that for mild to moderate patients, there are very few therapies available today. So very different to the situation in moderate to severe, where, for example, antibodies are used extensively with different levels of effect.

There are very few therapies available for mild to moderate. So patients typically have to use creams and lotions, which have or do not have some sort of pharmaceutical active component in them. So the bar is actually quite low. So we've not given formal guidance as to exactly what level of response we're looking for.

But I'll emphasize that it's a low bar because there is such poor currently available therapy. What's very important is safety and tolerability. We have clearly demonstrated in the studies we've pushed forward so far that we have something that, from a data perspective, appears to be very safe and well tolerated.

We're not seeing any differences between patients on drug and patients on placebo in terms of adverse events, tolerability, safety parameters.

What we have seen already, actually, with the data we've reported, are effects that, as far as we can compare, are at least as good as the oral agents, which are being investigated, such as Otezla, when we try and look at like-to-like based on what they've published. So we believe we already have very compelling data from the efficacy perspective.

And as I said, we're not giving specific guidance, but I'll leave it with those comments. In terms of the dosing question, I'll let Duncan answer the dose question..

So in terms of the dose response, we've got three active doses there that cover the dose range we looked at in our Phase Ib study, and we will look across that whole dose range and make a choice then of doses that we could take further in development..

Our next question comes from the line of Matthew Luchini with BMO Capital Markets..

Great. So two from me on 1815 and then one on 1867. First, on 1815, I guess, you mentioned a second ago that you're able to conduct the interim at any point once at least 50% of patients have reached 16 weeks of treatment.

So other than the fact that you've committed to having data in the fourth quarter, are there any other sort of considerations as to when you might actually stop the study once you cross that threshold? And then relatedly, we know that at the 16-week time mark, antibodies or even Otezla are still sort of ramping their full therapeutic impact.

So how should we think about what level of sort of maximum therapeutic effect we think 1815 would have at that 16-week time point? And then I'll ask -- have 1 in 1867 after this..

Matt, so let me take the first one because it's pretty straightforward, and then I'll let Duncan take the second one. So just actually one mine correction. It's at least 50% of patients for at least 12 weeks for the interim and there's no other specific considerations that we're commenting on at this stage.

In terms of the 16 weeks and time to optimal effect, I'll let Duncan answer that question..

Yes, thanks for that question. And you're absolutely right that without current precedented therapies that are approved out there, there is some continued improvement out beyond 16 weeks, although the majority of clinical benefit is seen in 16 weeks.

We chose 16 weeks because this is an optimal time in terms of the period that subjects on placebo would need to receive placebo and understanding the full clinical benefit based on feedback from some KOLs and also from presidents from other agents. So 16 weeks will give us a very good handle on the clinical benefits of EDP1815..

Okay. And then on 1867. You've mentioned that it's -- a couple of times, it's your first sort of nonreplicating monoclonal microbial.

Could you talk about what, I guess, specifically, you think the fact that it's nonreplicating brings from a profile perspective, if anything?.

Yes, I'll let Mark talk to that point..

Yes, sure. That's why we emphasize the nonreplicating. So there are a number of practical advantages here. One is just from a manufacturing and stability point of view. A nonreplicating microbe is much easier to manage, stability is easier to manage. So that's one. It removes any theoretical possibility of infection risk.

And although that's probably a fairly limited risk even with a viable replicating microbe. It also -- actually, one of the things that's been very important, I spoke earlier about some of the principles we've learned about in terms of how monoclonal microbials are modifying the small intestinal axis.

And one of the big questions has been to do with the requirement or not for colonization and persistence in order to get the therapeutic effect.

The fact that we can get this with nonreplicating microbes is a formal indication of mechanism to do with the direct interaction of cells, which are targeted in the lining of the small intestine in relation to the modification of systemic immunology. So it's really those things that are driving this consideration.

And just so you know in the discovery of 1867, because we already had some indication that nonreplicating microbes were pharmacologically active, in fact, all of our anti-inflammatories are pharmacologically active, it turns out, in that state.

We deliberately screened quite a large number of microbes in a nonreplicated state in the discovery program for EDP1867. So it was a determined effort for the reasons, for the benefits that I outlined to have a nonreplicating product, deliberately nonreplicating..

[Operator Instructions]. Our next question comes from the line of Chris Howerton with Jefferies..

So I guess, the first one on just 1815, just a clarification.

What formulation is expected to go into the Phase II? Is this the new formulation that Mark described in terms of the fast lease? Is this the same one that we're going to see from the Phase Ib cohort? And I guess, just how can we translate between the 2, if they're different?.

So it is the new formulation, Chris. Thanks for the question. And just to recap some of the history. At the end of last year, we had positive feedback from discussions with both the FDA and MHRA. And based on those discussions, are moving forward with the new formulation in a dose-ranging study.

So it's a dose-ranging study with the new formulation in terms of the Phase II, which positions us, assuming positive data on that, we expect to go into a full registration study.

And just a reminder, we also had positive discussion with regulators on the Phase III, which given the inherent safety and tolerability of EDP1815 and the data-driven safety and tolerability we've seen, we believe we can move forward with an accelerated and abbreviated safety database.

So something more along the lines of 800 patients versus a typical 1,500. So a few points there linked to the Phase II. And then obviously, we're already thinking about the Phase III in the registration study. The upcoming Phase Ib data is also with the new formulation. So same formulation. So obviously, the translation there is fairly straightforward..

Got it. Okay. I appreciate that. That's interesting about the abbreviated safety database as well. Okay. And so for Mark, I guess, could you maybe elaborate a little bit on the data and the rationale in terms of that a quick-release, post the gastric stomach, will drive the best anti-inflammatory effects.

Just maybe a little more color in terms of the rationale and data driving that decision?.

the independent evidence, the preclinical evidence that we have about speed and post-release and then the clinical data that we have with EDP1066. ..

Got it. Okay. Makes sense. And actually, that was going to be maybe one of the questions I had in terms of learnings from the 1066 programs. Obviously, you have adjudication that the formulation work is positive.

It has beneficial effects but was there any learnings in terms of translation of preclinical to clinical that you took away from that program or any other learnings outside of the formulation that you can translate to further enhancing your pipeline?.

Mark?.

Yes. Let me take that as well. So EDP1066 and EDP1815 are very different microbes in a number of respects. Actually, our original strategy, this is going back probably 2.5 years when we were putting this clinical program together, was to pick microbes which had a variety of properties because actually, this is a new field.

We didn't know what the ideal pharmaceutical effects are going to be. So EDP1066 is actually a gram-positive, facultative anaerobe, almost probiotic-type organism. It's the type that's used in food production. So these all types of orgasms are very prevalent.

And so we're interested in finding the one that seemed to have decent preclinical activity and find out whether that would translate. You're probably aware that there's a long history of trying to use probiotic and food organisms in clinical trials, which has had a pretty modest effect.

EDP1815 actually and EDP1867 have very different origins and properties. So these are both organisms that are isolated from mucosal surfaces in the small intestine. One's from the -- EDP1815 is from the duodenum and EDP1867 is lower down. And they are obligate anaerobes.

So these are microbes of the type that naturally live in close proximity with host cells. And it's turned out, in the clinic, actually, we were seeing in preclinical studies that microbes of that type or that origin are the ones that have the best anti-inflammatory effects.

And the discriminatory data around this from an immunological point of view is actually an extensive series of work that we've done on co-culturing individual strains of microbes with human primary immune cells.

We do this with human macrophages, and we can generate quite complex patterns of change of phenotype of those cells, cytokines secretion of the like. And then plus the organisms, according to their phenotypes and those assays.

And very interestingly, EDP1815, along with EDP1867 and some of our other discovery and anti-inflammatories, cluster in a completely different place to EDP1066.

So 1066 clusters were gram-positive facultative anaerobe probiotic-type organisms, which actually have a partial pro-inflammatory component as well as anti-inflammatory component, which is absent from the organisms that work better.

And then one final comment is that actually turned out, as we got into the deep formulation studies, that EDP1815 was just more potent in the animal models than EDP1066. So I think that's panning out in the clinical studies as well.

So it's a long answer, but it's actually a critical question because it's -- the difference between EDP1066 and 1815 has spent a lot of understanding into the platform and how we selected developed microbes..

Right. So essentially, the ecological niche of the source organism seems to have a profound effect on their pharmacological effect in that those that are more closely associated with human tissue have been those that you've observed to have the best anti-inflammatory effects..

Correct..

Got it. Okay. And then maybe if -- just I've asked a few questions. But just a quick housekeeping one for Jonathan.

I might have missed this, but is the cash runway that you mentioned, is that inclusive of the remaining tranche from the debt facility from K2?.

Chris, no. The assumption we've made in our guidance is that we have not drawn any more of the tranches from the K2 facilities. That's just existing cash and cash equivalents..

This concludes today's question-and-answer session. I would now like to turn the call back to Simba for closing remarks..

Thank you, everyone, for joining us today. So I appreciate your continued interest in Evelo and the support and questions. Thanks very much..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..