evlo-20200630
10-QFALSE2020Q20001694665December 31P6MP1YP1Y00016946652020-01-012020-06-30xbrli:shares00016946652020-07-27iso4217:USD00016946652020-06-3000016946652019-12-31iso4217:USDxbrli:shares00016946652020-04-012020-06-3000016946652019-04-012019-06-3000016946652019-01-012019-06-300001694665us-gaap:PreferredStockMember2019-12-310001694665us-gaap:CommonStockMember2019-12-310001694665us-gaap:AdditionalPaidInCapitalMember2019-12-310001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001694665us-gaap:RetainedEarningsMember2019-12-310001694665us-gaap:CommonStockMember2020-01-012020-03-310001694665us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100016946652020-01-012020-03-310001694665us-gaap:RetainedEarningsMember2020-01-012020-03-310001694665us-gaap:PreferredStockMember2020-03-310001694665us-gaap:CommonStockMember2020-03-310001694665us-gaap:AdditionalPaidInCapitalMember2020-03-310001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001694665us-gaap:RetainedEarningsMember2020-03-3100016946652020-03-310001694665us-gaap:CommonStockMember2020-04-012020-06-300001694665us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001694665us-gaap:RetainedEarningsMember2020-04-012020-06-300001694665us-gaap:PreferredStockMember2020-06-300001694665us-gaap:CommonStockMember2020-06-300001694665us-gaap:AdditionalPaidInCapitalMember2020-06-300001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001694665us-gaap:RetainedEarningsMember2020-06-300001694665us-gaap:PreferredStockMember2018-12-310001694665us-gaap:CommonStockMember2018-12-310001694665us-gaap:AdditionalPaidInCapitalMember2018-12-310001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001694665us-gaap:RetainedEarningsMember2018-12-3100016946652018-12-310001694665us-gaap:CommonStockMember2019-01-012019-03-310001694665us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-3100016946652019-01-012019-03-310001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001694665us-gaap:RetainedEarningsMember2019-01-012019-03-310001694665us-gaap:PreferredStockMember2019-03-310001694665us-gaap:CommonStockMember2019-03-310001694665us-gaap:AdditionalPaidInCapitalMember2019-03-310001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310001694665us-gaap:RetainedEarningsMember2019-03-3100016946652019-03-310001694665us-gaap:CommonStockMember2019-04-012019-06-300001694665us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300001694665us-gaap:RetainedEarningsMember2019-04-012019-06-300001694665us-gaap:PreferredStockMember2019-06-300001694665us-gaap:CommonStockMember2019-06-300001694665us-gaap:AdditionalPaidInCapitalMember2019-06-300001694665us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001694665us-gaap:RetainedEarningsMember2019-06-3000016946652019-06-300001694665evlo:JuneOfferingMember2020-06-012020-06-300001694665evlo:JuneOfferingMember2020-06-300001694665us-gaap:OverAllotmentOptionMember2020-06-012020-06-300001694665evlo:A2019CreditFacilityMemberus-gaap:SubsequentEventMemberevlo:SecurityAndLoanAgreementTrancheTwoMemberus-gaap:LineOfCreditMember2020-07-142020-07-14evlo:segment0001694665us-gaap:AccountingStandardsUpdate201602Member2020-01-01utr:sqft00016946652018-01-31xbrli:pure0001694665us-gaap:MoneyMarketFundsMember2020-06-300001694665us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2020-06-300001694665us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2020-06-300001694665us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2020-06-300001694665us-gaap:FairValueInputsLevel1Member2020-06-300001694665us-gaap:FairValueInputsLevel2Member2020-06-300001694665us-gaap:FairValueInputsLevel3Member2020-06-300001694665us-gaap:MoneyMarketFundsMember2019-12-310001694665us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2019-12-310001694665us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2019-12-310001694665us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2019-12-310001694665us-gaap:FairValueInputsLevel1Member2019-12-310001694665us-gaap:FairValueInputsLevel2Member2019-12-310001694665us-gaap:FairValueInputsLevel3Member2019-12-310001694665us-gaap:EquipmentMember2020-06-300001694665us-gaap:EquipmentMember2019-12-310001694665us-gaap:LeaseholdImprovementsMember2020-06-300001694665us-gaap:LeaseholdImprovementsMember2019-12-310001694665us-gaap:FurnitureAndFixturesMember2020-06-300001694665us-gaap:FurnitureAndFixturesMember2019-12-310001694665evlo:ComputersAndSoftwareMember2020-06-300001694665evlo:ComputersAndSoftwareMember2019-12-310001694665us-gaap:OfficeEquipmentMember2020-06-300001694665us-gaap:OfficeEquipmentMember2019-12-310001694665us-gaap:ConstructionInProgressMember2020-06-300001694665us-gaap:ConstructionInProgressMember2019-12-310001694665evlo:A2016CreditFacilityMember2020-06-300001694665evlo:A2019CreditFacilityMemberus-gaap:LineOfCreditMember2019-07-19evlo:tranche0001694665evlo:A2019CreditFacilityMemberus-gaap:LineOfCreditMemberevlo:SecurityAndLoanAgreementTrancheOneMember2019-07-192019-07-190001694665evlo:A2019CreditFacilityMemberus-gaap:LineOfCreditMemberevlo:SecurityAndLoanAgreementTrancheThreeMember2019-07-192019-07-190001694665evlo:A2019CreditFacilityMemberus-gaap:LineOfCreditMemberus-gaap:PrimeRateMember2019-07-192019-07-190001694665evlo:A2019CreditFacilityMemberus-gaap:LineOfCreditMember2019-07-192019-07-190001694665evlo:A2016CreditFacilityMemberus-gaap:LineOfCreditMember2020-06-300001694665us-gaap:LineOfCreditMember2020-06-300001694665evlo:A2016CreditFacilityMember2019-04-012019-06-300001694665evlo:A2016CreditFacilityMember2019-01-012019-06-300001694665evlo:A2019CreditFacilityMember2020-04-012020-06-300001694665evlo:A2019CreditFacilityMember2020-01-012020-06-300001694665evlo:TwoThousandSeventeenMayoLicenseAgreementMember2017-08-062017-08-060001694665evlo:TwoThousandSeventeenMayoLicenseAgreementMembersrt:MaximumMember2017-08-062017-08-060001694665evlo:TwoThousandSeventeenMayoLicenseAgreementMember2020-01-012020-06-300001694665evlo:TwoThousandSeventeenMayoLicenseAgreementMember2020-06-300001694665evlo:UniversityOfChicagoMembersrt:MaximumMember2016-03-102016-03-100001694665evlo:UniversityOfChicagoMember2016-03-102016-03-100001694665evlo:UniversityOfChicagoMember2020-01-012020-06-300001694665evlo:SaccoS.r.l.Memberus-gaap:CollaborativeArrangementMember2019-07-012019-07-31iso4217:EUR0001694665evlo:SaccoS.r.l.Memberus-gaap:CollaborativeArrangementMember2019-07-310001694665evlo:ExclusivityAndCommitmentAgreementMemberevlo:BioseIndustrieMember2020-06-300001694665evlo:RegistrationStatementMember2019-06-030001694665evlo:RegistrationStatementMember2019-06-032019-06-030001694665evlo:SalesAgreementCowenAndCompanyLLCMember2019-06-030001694665evlo:TwoThousandAndEighteenStockIncentivePlanMembersrt:MaximumMember2018-05-080001694665evlo:TwoThousandAndEighteenStockIncentivePlanMembersrt:MaximumMember2020-01-012020-06-300001694665evlo:TwoThousandAndEighteenStockIncentivePlanMembersrt:MaximumMember2019-01-012019-01-010001694665evlo:TwoThousandAndEighteenStockIncentivePlanMembersrt:MaximumMember2020-01-012020-01-010001694665evlo:TwoThousandAndEighteenStockIncentivePlanMemberus-gaap:EmployeeStockOptionMember2020-01-012020-06-300001694665srt:MinimumMemberevlo:NonEmployeeOptionsMemberevlo:TwoThousandAndEighteenStockIncentivePlanMember2020-01-012020-06-300001694665evlo:NonEmployeeOptionsMemberevlo:TwoThousandAndEighteenStockIncentivePlanMembersrt:MaximumMember2020-01-012020-06-300001694665evlo:TwoThousandAndEighteenStockIncentivePlanMember2020-01-012020-06-300001694665evlo:TwoThousandAndEighteenStockIncentivePlanMember2020-06-300001694665evlo:TwoThousandAndFifteenStockIncentivePlanMember2020-01-012020-06-300001694665evlo:TwoThousandAndFifteenStockIncentivePlanMemberus-gaap:EmployeeStockOptionMember2020-01-012020-06-300001694665srt:MinimumMemberevlo:NonEmployeeOptionsMemberevlo:TwoThousandAndFifteenStockIncentivePlanMember2020-01-012020-06-300001694665evlo:NonEmployeeOptionsMemberevlo:TwoThousandAndFifteenStockIncentivePlanMembersrt:MaximumMember2020-01-012020-06-300001694665evlo:TwoThousandAndFifteenStockIncentivePlanMembersrt:MaximumMember2020-01-012020-06-300001694665evlo:TwoThousandAndFifteenStockIncentivePlanMember2020-06-300001694665evlo:TwoThousandAndFifteenStockIncentivePlanMember2018-05-082018-05-080001694665evlo:TwoThousandAndFifteenStockIncentivePlanMember2018-05-080001694665us-gaap:GeneralAndAdministrativeExpenseMember2020-04-012020-06-300001694665us-gaap:GeneralAndAdministrativeExpenseMember2019-04-012019-06-300001694665us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-06-300001694665us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-06-300001694665us-gaap:ResearchAndDevelopmentExpenseMember2020-04-012020-06-300001694665us-gaap:ResearchAndDevelopmentExpenseMember2019-04-012019-06-300001694665us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-06-300001694665us-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-06-300001694665us-gaap:EmployeeStockOptionMember2020-06-300001694665us-gaap:EmployeeStockOptionMember2020-01-012020-06-300001694665evlo:TwoThousandAndEighteenStockIncentivePlanMember2018-04-182018-04-180001694665evlo:UnvestedCommonStockMember2020-01-012020-06-300001694665evlo:UnvestedCommonStockMember2019-01-012019-06-300001694665us-gaap:EmployeeStockOptionMember2020-01-012020-06-300001694665us-gaap:EmployeeStockOptionMember2019-01-012019-06-300001694665us-gaap:EmployeeStockMember2020-01-012020-06-300001694665us-gaap:EmployeeStockMember2019-01-012019-06-300001694665evlo:WeatherdenLtdMember2020-01-012020-06-300001694665evlo:WeatherdenLtdMember2019-01-012019-06-300001694665evlo:WeatherdenLtdMember2020-06-300001694665evlo:WeatherdenLtdMember2019-06-300001694665evlo:VL46Member2020-04-300001694665evlo:VL46Member2020-04-012020-06-300001694665evlo:ConsultingAgreementMembersrt:BoardOfDirectorsChairmanMember2019-09-162019-09-16evlo:installment0001694665evlo:ConsultingAgreementMembersrt:BoardOfDirectorsChairmanMember2019-09-16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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.)
620 Memorial Drive
Cambridge, Massachusetts
 02139
(Address of principal executive offices) (Zip Code)
(617) 577-0300
(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
$0.001 par value per share
EVLONasdaq 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  x    No  o
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  x    No  o
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 July 27, 2020, the registrant had 46,136,643 shares of common stock, $0.001 par value per share, outstanding.



FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in 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 facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, the anticipated impact of the novel coronavirus (“COVID-19”) pandemic on our business, business strategy, prospective products, product approvals, research and development costs, timing and plans for clinical trials, expected timing of the release of clinical trial data, new formulations and product candidates, the scalability of manufacturing for EDP1815, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties 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 terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have 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. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These forward-looking statements are subject to numerous risks, including, without limitation, the following:
 
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 future capital needs and our need to raise additional funds;

our ability to build a pipeline of product candidates and develop and commercialize drugs;
our unproven approach to therapeutic intervention;
our ability to enroll patients and volunteers in clinical trials, timely and successfully complete those trials and receive necessary regulatory approvals;
our ability to establish our own manufacturing facilities and to receive or manufacture sufficient quantities 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, and foreign regulatory requirements, including FDA regulation of our product candidates;
the timing of clinical trials and the likelihood of regulatory filings and approvals;
our ability to obtain and retain key executives and attract and retain qualified personnel; and
our ability to successfully manage our growth.
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.
As forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not occur or be achieved, and actual results could differ materially from those projected in the forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.



Evelo Biosciences, Inc.
Form 10-Q for the Quarterly Period Ended June 30, 2020
Table of Contents
 



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Evelo Biosciences, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share and share amounts)
June 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$90,173  $77,833  
Prepaid expenses and other current assets2,544  3,176  
Total current assets92,717  81,009  
Property and equipment, net8,002  8,341  
Right of use asset - operating lease11,616  —  
Other assets1,570  1,570  
Total assets$113,905  $90,920  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$3,439  $620  
Accrued expenses7,986  8,758  
Operating lease liability, current portion1,788  —  
Other current liabilities395  365  
Total current liabilities13,608  9,743  
Noncurrent liabilities:
Long-term debt19,806  19,634  
Operating lease liability, net of current portion10,982  —  
Deferred rent, net of current portion—  1,148  
Other noncurrent liabilities303  198  
Total liabilities44,699  30,723  
Commitments and contingencies
Stockholder’s equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019, respectively
    
Common stock, $0.001 par value; 200,000,000 shares authorized; 46,173,415 and 32,232,258 shares issued and 46,136,643 and 32,170,605 shares outstanding at June 30, 2020 and December 31, 2019, respectively
46  32  
Additional paid-in capital311,706  259,018  
Accumulated deficit(242,546) (198,853) 
Total stockholders’ equity69,206  60,197  
Total liabilities and stockholders’ equity$113,905  $90,920  
See accompanying notes to condensed consolidated financial statements.
1

Evelo Biosciences, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited, in thousands, except share and per share data)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Operating expenses:
Research and development$15,174  $15,464  $32,593  $31,141  
General and administrative5,071  5,923  10,913  11,050  
Total operating expenses20,245  21,387  43,506  42,191  
Loss from operations(20,245) (21,387) (43,506) (42,191) 
Other (expense) income:
Interest (expense) income, net(458) 446  (639) 951  
Other income, net140    606    
Other (expense) income, net(318) 446  (33) 951  
Loss before income taxes(20,563) (20,941) (43,539) (41,240) 
Income tax expense(89)   (154)   
Net loss$(20,652) $(20,941) $(43,693) $(41,240) 
Net loss per share attributable to common stockholders, basic and diluted$(0.63) $(0.65) $(1.35) $(1.29) 
Weighted-average number of common shares outstanding, basic and diluted32,634,468  32,041,401  32,442,259  31,983,558  
Comprehensive loss:
Net loss$(20,652) $(20,941) $(43,693) $(41,240) 
Other comprehensive loss:
Unrealized gain (loss) on investments, net of tax of $0
  3    19  
Comprehensive loss$(20,652) $(20,938) $(43,693) $(41,221) 
See accompanying notes to condensed consolidated financial statements.
2

Evelo Biosciences, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share amounts)
Six Month Periods Ended June 30, 2020
Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
SharesAmountSharesAmount
Balance-December 31, 2019  $  32,170,605  $32  $259,018  $  $(198,853) $60,197  
Vesting of restricted common stock—  —  13,390  —  7  —  —  7  
Exercise of stock options —  —  137,213  —  226  —  —  226  
Stock-based compensation expense—  —  —  —  1,955  —  —  1,955  
Unrealized gain on investments—  —  —  —  —  —  —  
Net loss—  —  —  —  —  (23,041) (23,041) 
Balance-March 31, 2020  $  32,321,208  $32  $261,206  $  $(221,894) $39,344  
Issuance of common stock in public offering, net of fees—  —  13,800,000  14  48,393  —  —  48,407  
Vesting of restricted common stock—  —  11,491  —  5  —  —  5  
Exercise of stock options—  —  3,944  —  9  —  —  9  
Stock-based compensation expense—  —  —  —  2,093  —  —  2,093  
Unrealized gain on investments—  —  —  —  —  —  —  —  
Net loss—  —  —  —  —  —  (20,652) (20,652) 
Balance-June 30, 2020  $  46,136,643  $46  $311,706  $  $(242,546) $69,206  
See accompanying notes to condensed consolidated financial statements.

3


Evelo Biosciences, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share amounts)
Six Month Periods Ended June 30, 2019
Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
SharesAmountSharesAmount
Balance-December 31, 2018  $  31,825,769  $32  $250,316  $(18) $(113,381) $136,949  
Vesting of restricted common stock—  —  23,345  —  7  —  —  7  
Exercise of stock options —  —  181,521  —  257  —  —  257  
Stock-based compensation expense—  —  —  —  1,953  —  —  1,953  
Unrealized gain on investments—  —  —  —  —  16  —  16  
Net loss—  —  —  —  —  —  (20,299) (20,299) 
Balance-March 31, 2019  $  32,030,635  $32  $252,533  $(2) $(133,680) $118,883  
Vesting of restricted common stock—  —  13,692  —  7  —  —  7  
Exercise of stock options—  —  1,379  —  1  —  —  1  
Stock-based compensation expense—  —  —  —  2,135  —  —  2,135  
Unrealized gain on investments—  —  —  —  3  —  3  
Net loss—  —  —  —  —  —  (20,941) (20,941) 
Balance-June 30, 2019  $  32,045,706  $32  $254,676  $1  $(154,621) $100,088  
See accompanying notes to condensed consolidated financial statements.
4

Evelo Biosciences, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 Six Months Ended
June 30,
 20202019
Operating activities
Net loss$(43,693) $(41,240) 
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense4,048  4,088  
Depreciation expense1,031  803  
Net (accretion of discount)/amortization of premium on marketable securities  (161) 
Non-cash interest expense132  51  
Non-cash lease expense1,117  —  
Gain on sale of fixed assets, net(5)   
Changes in assets and liabilities:
Prepaid expenses and other current assets632  (144) 
Accounts payable2,812  1,324  
Accrued expenses and other current liabilities(1,001) 1,920  
Operating lease liabilities(1,111) —  
Other liabilities147  10  
Net cash used in operating activities(35,891) (33,349) 
Investing activities
Proceeds from sales and maturities of investments  51,000  
Purchases of property and equipment(651) (1,480) 
Proceeds from sale of fixed assets6    
Net cash (used in)/provided by investing activities(645) 49,520  
Financing activities
Payment of deferred offering costs  (56) 
Proceeds from issuance of common stock, net of issuance cost48,641    
Proceeds from the exercise of stock options235  259  
Net cash provided by financing activities48,876  203  
Net (decrease) increase in cash, cash equivalents and restricted cash12,340  16,374  
Cash, cash equivalents and restricted cash – beginning of period79,333  94,351  
Cash, cash equivalents and restricted cash – end of period$91,673  $110,725  
Supplemental disclosure of cash flow information
Cash paid for interest$875  $436  
Cash paid for taxes$20  $  
Noncash investing and financing activities
Deferred financing and public offering costs in accounts payable and accrued expenses$234  $46  
Property and equipment additions in accounts payable and accrued expenses$248  $211  
See accompanying notes to the condensed consolidated financial statements.
5

EVELO BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Organization
Evelo Biosciences, Inc. ("Evelo" or the "Company”) is a biotechnology company which was incorporated in Delaware on May 6, 2014. The Company is discovering and developing oral biologics designed to act on cells in the small intestine with systemic therapeutic effects. The Company is advancing these oral biologics with the aim of treating a broad range of immune mediated diseases with an initial focus on inflammatory diseases and oncology. The Company is headquartered in Cambridge, Massachusetts.
Since inception, the Company has devoted substantially all of its efforts to research and development and raising capital. The Company has not generated any revenue related to its primary business purpose to date. The Company is subject to a number of risks similar to those of other development stage companies, including dependence on key individuals, the need to develop commercially viable products, competition from other companies, many of whom are larger and better capitalized, and the need to obtain adequate additional financing to fund the development of its products.

In June 2020, the Company sold 13,800,000 shares of its common stock in an underwritten public offering at a public offering price of $3.75 per share, including the underwriters' exercise of their option to purchase 1,800,000 shares to cover over-allotment, generating gross proceeds of $51.8 million and estimated net proceeds of $48.4 million, after deducting underwriting discounts and commission and other offering expenses payable by the Company. Issuance costs totaling $0.2 million were unpaid as of June 30, 2020 and have been included in accounts payable and accrued expenses in the Company's unaudited condensed consolidated balance sheet.

The Company has incurred operating losses since inception and expects such losses and negative operating cash flows to continue for the foreseeable future. The Company historically has funded its operations from the issuance of convertible notes, convertible preferred stock and common stock, and through debt financings. As of June 30, 2020, the Company had cash and cash equivalents of $90.2 million and an accumulated deficit of $242.5 million.
Going Concern
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. The transition to profitability is dependent upon the successful development, approval, and commercialization of its products and product candidates and the achievement of a level of revenues adequate to support its cost structure. Based on the Company’s current operating plan and due to the uncertainty related to the impact of the COVID-19 and the nature of Evelo's business, the Company has substantial doubt that its cash and cash equivalents at June 30, 2020, together with the $10.0 million in additional debt drawdown in the third quarter of 2020, will be sufficient to fund operations and capital expenditures for at least the twelve months following the filing of this Quarterly Report on Form 10-Q, and the Company will need to obtain additional funding. The Company intends to pursue strategic partnerships and collaborations, or obtain additional funding through its available financing sources which include, additional public offerings of common stock and private financing of debt or equity. Management’s belief with respect to its ability to fund operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management’s estimates, the Company may need to seek additional funding sooner than would otherwise be expected. There can be no assurance that the Company will be able to obtain additional funding on acceptable terms, if at all. If the Company is unable to obtain sufficient funding, it could be required to delay its development efforts, limit activities and reduce research and development costs, which could adversely affect its business prospects. Because of the uncertainty in securing additional funding and the insufficient amount of cash and cash equivalent resources at June 30, 2020, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.
6

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standard Codification (“ASC”) and ASU of the FASB. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and notes thereto. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of June 30, 2020, the results of its operations and stockholders' equity for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020, or for any future period.
Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of stock-based awards. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned, controlled subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Subsequent Event Considerations
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the unaudited condensed consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure in this Quarterly Report on Form 10-Q, except as disclosed in Note 6 to these unaudited condensed consolidated financial statements.
Emerging Growth Company Status
Evelo is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and it may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Evelo may take advantage of these exemptions until it is no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. Evelo has elected to use the extended transition period for complying with new or revised accounting standards, and, as a result of this election, its consolidated financial statements may not be comparable to companies that comply with public company effective dates. Evelo may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its IPO or such earlier time that it is no longer an emerging growth company. Evelo would cease to be an emerging growth company if it has more than $1.07 billion in annual revenue, it has more than $700.0 million in market value of its stock held by non-affiliates (and has been a public company for at least 12 months and has filed one annual report on Form 10-K), or it has issued more than $1.0 billion of non-convertible debt securities over a three-year period.
7

Comprehensive Loss
Comprehensive loss includes net loss and certain changes in stockholders’ equity that are excluded from net loss. The Company's only element of other comprehensive loss is unrealized gains on available-for-sale investments. Comprehensive loss totaled $20.7 million and $43.7 million, respectively, for the three and six months ended June 30, 2020. For the three and six months ended June 30, 2019 comprehensive loss was $20.9 million and $41.2 million, respectively.
Cash, Cash Equivalents, and Restricted Cash
Cash equivalents are comprised of highly liquid investments that are readily convertible into cash with original maturities of three months or less. Cash and cash equivalents include cash held in banks and amounts held in money market funds. Cash equivalents are stated at cost, which approximates market value. The Company’s restricted cash consists of restricted cash in connection with building leases for the Company’s office and laboratory premises and deposits held in relation to the company's credit card facility. Restricted cash totaled approximately $1.5 million at June 30, 2020 and December 31, 2019, and is classified within other assets on the accompanying condensed consolidated balance sheet. The following reconciles cash, cash equivalents and restricted cash as of June 30, 2020 and December 31, 2019, as presented on the Company's statements of cash flows, to its related balance sheet accounts (in thousands):
June 30, 2020December 31, 2019
Cash and cash equivalents:
Cash$8,461  $1,634  
Money market funds81,712  76,199  
Total cash and cash equivalents90,173  77,833  
Restricted cash1,500  1,500  
Cash, cash equivalents and restricted cash$91,673  $79,333  
Fair Value of Financial Instruments
ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
8

An entity may choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company did not elect to measure any additional financial instruments or other items at fair value.
Research and Development Costs
Research and development costs are expensed in the period incurred. Research and development expenses consist of both internal and external costs such as payroll, consulting, and manufacturing costs associated with the development of the Company’s product candidates. Costs for certain development activities, such as clinical trials and manufacturing development activities, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and information provided to the Company by its vendors on their actual costs incurred or level of effort expended. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid or accrued research and development expenses.
Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
The Company has and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, product or rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is no alternative future use of the rights in other research and development projects. Any milestone payments made for Intellectual Property after regulatory approval, or that have alternative future use, are capitalized and amortized.
Stock-Based Compensation
The Company records stock-based compensation for options granted to employees and directors based on the grant date fair value of awards issued. The expense is recorded over the requisite service period, which is the vesting period, on a straight-line basis. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the Company’s common stock price, as well as a number of other assumptions. The Company records forfeitures as they occur.
The Company accounts for stock-based compensation arrangements with non-employees based upon the fair value of the consideration received or the equity instruments issued, whichever is more reliably measurable. The measurement date for non-employee awards is generally the date performance of services required from the non-employee is complete. Stock-based compensation costs for non-employee awards are recognized as services are provided, which is generally the vesting period, on a straight-line basis.
Segments
The Company has one operating segment. The Company's chief operating decision maker, its Chief Executive Officer, manages the Company's operations on a consolidated basis for the purposes of allocating resources.
9

Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes the guidance in former ASC 840, Leases. The new accounting guidance requires recognition of all long-term lease assets and lease liabilities by lessees and sets forth new disclosure requirements for those lease assets and liabilities. It requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The FASB subsequently issued several ASUs amending the new standard. This guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018 for most public entities. The Company adopted this new standard on January 1, 2020 using the required modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840.
ASU 2016-02 provides a number of optional practical expedients in transition. The Company elected to adopt the 'package of practical expedients', which permits the Company (i) not to reassess whether expired existing contracts are or contain leases, (ii) not to reassess the classification of expired or existing leases, and (iii) not to reassess initial direct costs for any existing leases. The Company will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance. Adoption of this standard resulted in the recognition of a right-of-use asset and a lease liability on the Company’s January 1, 2020 condensed consolidated balance sheet of $12.7 million and $13.9 million, respectively. There was no material impact resulting from the adoption on the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2020. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease liability at the present value of lease payments over the term. As the Company’s leases do not provide readily determinable implicit interest rates, the Company utilized its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates. The application of the new standard required netting of unamortized balance of lease incentives and deferred lease obligation to the right-of-use asset at the adoption date. The Company’s operating leases include rental escalation clauses that are factored into the determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts. Refer to Note 3, Leases within these unaudited condensed consolidated financial statements for additional information.
Share-Based Compensation
In June 2018, the FASB issued ASU No. 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting (Topic 718) ("ASU 2018-07"), which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. Entities will apply the ASU by recognizing a cumulative-effect adjustment, if any, to retained earnings as of the beginning of the annual period of adoption. The Company adopted ASU 2018-07 on January 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements.
Accounting Pronouncements Issued and Not Adopted as of June 30, 2020
Income Taxes
In December 2019, the FASB issued ASU No. 2019 -12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new standard includes several provisions which simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and increasing consistency and clarity for the users of financial statements. This standard will be effective for the Company on January 1, 2021. Early adoption is permitted. The Company is currently evaluating the potential impact ASU 2019-12 may have on its financial position and results of operations upon adoption.
10

3. Leases
In January 2018, the Company entered into an operating sublease arrangement to lease approximately 40,765 square feet for its office and research development space at 620 Memorial Drive, Cambridge, MA 02139 from February 2018 to September 2025. The Company maintains an additional separate operating lease for office and laboratory space that expired in May 2020. The leases require security deposits, which the Company has primarily met with letters of credit from a financial institution that are secured with cash on deposit.
In June 2018, the Company entered into a sublease arrangement with a third party to lease space subject to an operating lease that expired in April 2020. The minimum rental payments received under this agreement totaled $0.1 million and $0.2 million, respectively, for the three and six months ended June 30, 2020 and were equivalent to the minimum payments due from the Company to the landlord.
For both the three months ended June 30, 2020 and June 30, 2019 and for both the six months ended June 30, 2020 and June 30, 2019, the Company recorded rent expense of $0.7 million and $1.4 million, respectively. Rent expense was net of sublease rental income of $0.1 million for both three months ended June 30, 2020 and June 30, 2019 and was net of $0.3 million sublease rental income for both six months ended June 30, 2020 and June 30, 2019. Sublease rental income is inclusive of rental payments, taxes and operating expenses.
The minimum aggregate future lease commitments, exclusive of any offsetting sublease rental payments, at June 30, 2020, are as follows (in thousands):
Amount
2020 (excluding six month ended June 30. 2020)$1,454  
20212,973  
20223,062  
20233,154  
20243,249  
Thereafter2,491  
Total lease payments16,383  
Less imputed interest(3,613) 
$12,770  
Other information:
Operating cash flows used for operating leases$1,634  
Weighted-average remaining lease term (in years)5.25
Weighted-average discount rate9.5 %

11

4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value as of June 30, 2020 and December 31, 2019 (in thousands):
DescriptionJune 30, 2020
(Level 1)

(Level 2)

(Level 3)
Assets:
Money market funds included within cash and cash equivalents$81,712  $81,712  $  $  
Total$81,712  $81,712  $  $  

DescriptionDecember 31, 2019
(Level 1)

(Level 2)

(Level 3)
Assets:
Money market funds included within cash and cash equivalents$76,199  $76,199  $  $  
Total$76,199  $76,199  $  $  
As of June 30, 2020 and December 31, 2019, the Company's cash equivalents have been initially valued at the transaction price and subsequently valued utilizing a third party pricing service. The Company validates the prices provided by its third-party pricing service by understanding the models used and obtaining market values from other pricing sources.
5. Property and Equipment, Net
Property and equipment consists of the following (in thousands):
June 30, 2020December 31, 2019
Property and equipment:
Lab equipment$8,300  $7,479  
Leasehold improvements2,157  2,014  
Furniture and fixtures822  750  
Computers and software230  204  
Office equipment3  9  
Construction-in-process1,138  1,594  
Property and equipment12,650  12,050  
Less: accumulated depreciation(4,648) (3,709) 
Property and equipment, net$8,002  $8,341  
The Company recognized $0.5 million and $1.0 million of depreciation expense for the three and six months ended June 30, 2020, respectively and $0.4 million and $0.8 million for the three and six months ended June 30, 2019, respectively.
12

6. Loan and Security Agreements
2016 Credit Facility
In 2016, the Company entered into a credit facility (the “2016 Credit Facility”) with a bank that allowed the Company to borrow up to $15.0 million. Borrowings under the 2016 Credit Facility were secured by a lien on all Company assets, excluding intellectual property. The Company borrowed the entire $15.0 million available under the 2016 Credit Facility prior to its extinguishment in July 2019 as discussed in further detail below.
The 2016 Credit Facility contained negative covenants restricting the Company’s activities, including limitations on cash deposits, dispositions, mergers or acquisitions, incurring indebtedness or liens, paying dividends or making investments and certain other business transactions. There were no financial covenants associated with the agreement.
2019 Credit Facility
On July 19, 2019, the Company entered into a loan and security agreement (as amended, the "2019 Credit Facility") with K2 HealthVentures LLC and others (collectively, "K2HV") pursuant to which the K2HV agreed to make term loans in an aggregate principal amount of up to $45.0 million available to the Company in three tranches. The initial tranche of $20.0 million was funded upon closing on July 19, 2019. As amended on May 15, 2020, the second tranche of $10.0 million was available to be funded between December 1, 2019 and July 15, 2020 and was drawdown on July 14, 2020. The third tranche of $15.0 million is available to be funded at the Company's election on or before January 15, 2021, subject to certain customary conditions and the achievement of certain clinical development milestones. Borrowings under the 2019 Credit Facility are collateralized by substantially all of the Company's personal property, excluding intellectual property, and the Company pledged its equity interests in its subsidiaries, subject to certain limitations with respect to its foreign subsidiaries.

Interest on the outstanding loan balance will accrue at a variable annual rate equal to the greater of (i) 8.65% and (ii) the prime rate plus 3.15%. The Company is required to make interest-only payments on the loans on a monthly basis through February 28, 2022. If the Company elects to draw the third tranche, the interest-only period will be extended through August 31, 2022. Subsequent to the interest only periods, the Company is required to make equal monthly payments of principal plus interest until the loans mature on August 1, 2024. Upon final payment or prepayment of the loans, the Company must pay a final payment equal to 4.3% of the loans borrowed, which is being accrued to interest expense over the term of the loan using the effective-interest method. The Company incurred fees associated with establishing the 2019 Credit Facility of $0.4 million. The Company has an option to prepay the loans in whole, subject to a prepayment fee of 2% of the amount prepaid or, if the prepayment occurs after the 18-month anniversary of the funding date of the loans, 1% of the amount prepaid.

The 2019 Credit Facility contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, change of control and occurrence of a material adverse effect. The Company has determined that the risk of subjective acceleration under the material adverse events clause was remote and therefore has classified the long-term portion of the outstanding principal in non-current liabilities. Upon the occurrence and continuation of an event of default, a default interest rate of an additional 5% per annum may be applied to the outstanding loan balances, and the administrative agent, collateral agent, and lenders may declare all outstanding obligations immediately due and payable and exercise all of their rights and remedies as set forth in the 2019 Credit Facility and under applicable law. As of June 30, 2020, the Company was in compliance with all covenants under the 2019 Credit Facility.

The Company used the proceeds from the initial $20.0 million tranche to prepay on July 19, 2019 the full $15.0 million loan balance outstanding under the 2016 Credit Facility.
13


The Company has the following minimum aggregate future loan payments at June 30, 2020 (in thousands). The table below excludes minimum future payments related to second tranche drawdown on July 14, 2020 in the total of $10.0 million. These payments will be made based on the same terms as the initial borrowing.
Twelve month period ending June 30,Amount
2021$1,754  
20224,391  
20239,199  
20248,498  
Thereafter2,208  
Total minimum payments26,050  
Less amounts representing interest and discount(6,244) 
Long-term debt$19,806  
Interest expense related to the Company's 2016 Credit Facility was approximately $0.2 million and $0.4 million for the three and six months ended June 30, 2019.
Interest expense related to the Company's 2019 Credit Facility was approximately $0.4 million and $0.8 million for the three and six months ended June 30, 2020.
14

7. In-License Agreements
Mayo Foundation for Medical Education and Research

On June 10, 2016, the Company entered into a Research and License Agreement, (the “2016 Mayo License Agreement”) with the Mayo Foundation for Medical Education and Research, an affiliate of Mayo Clinic (the “Mayo Clinic”). Under the 2016 Mayo License Agreement, the Mayo Clinic was entitled to certain participation rights in connection with the issuance and sale of preferred stock that was issued prior to the Company’s public offering and warrants which were issued in 2016 and exercised in 2018.
On August 6, 2017, the Company and the Mayo Clinic entered into a license agreement (“2017 Mayo License Agreement”). Under the 2017 Mayo License Agreement, the Mayo Clinic granted the Company (i) an exclusive, worldwide, sublicensable license under the Mayo Clinic’s rights to certain intellectual property and microbial strains (ii) a non-exclusive, worldwide, sublicensable license to certain related know-how, in each case, to develop and commercialize certain microbial strains and licensed products incorporating any such strains. As consideration, the Company paid a nonrefundable upfront fee of $0.2 million and annual license maintenance fees. Nonrefundable upfront fees were expensed in full to research and development expense in 2017. Annual maintenance fees will be expensed as incurred over the term of the agreement. The Company may owe the Mayo Clinic milestone payments upon the achievement of certain development, regulatory, and commercial milestones, up to a maximum of $56.0 million in the aggregate, as well as royalties on net sales of licensed products in low single-digit percentages. As of June 30, 2020, the Company has incurred milestone payments to date totaling approximately $0.2 million under the agreement of which no amounts are currently due.
University of Chicago
On March 10, 2016, the Company and the University of Chicago entered into a patent license agreement (“2016 University of Chicago Agreement”). Under the 2016 University of Chicago Agreement, the University of Chicago granted the Company (i) an exclusive, royalty-bearing and sublicensable license under the Licensed Patents and (ii) a non-exclusive, royalty-bearing, sublicensable license to access the technical information to diligently develop and commercialize Licensed Products. As consideration, the Company paid a nonrefundable upfront fee of less than $0.5 million and will pay annual license maintenance fees. Nonrefundable upfront fees were expensed in full to research and development expense in 2016. Annual maintenance fees will be expensed as incurred over the term of the agreement. The Company may owe the University of Chicago milestone payments, totaling an aggregate of approximately $60.9 million upon the achievement of certain development, regulatory, and commercial milestones, as well as royalties on net sales of licensed products ranging from low to high single-digit percentages. As of June 30, 2020, the Company has incurred milestone payments to date totaling approximately $0.4 million.
15

8. Commitments and Contingencies
Collaboration Agreement with Sacco S.r.l.
In July 2019, the Company entered into an agreement with Sacco S.r.l. ("Sacco"), an affiliate of one of the Company’s existing contract manufacturing organizations, pursuant to which and subject to certain exceptions for pre-existing products for pre-existing customers, Sacco will manufacture and supply single strain, non-genetically modified microbes intended for oral delivery or oral use in pharmaceutical products exclusively for the Company for a period of five years. Sacco may terminate the agreement if the provision of manufacturing services has been, or is scheduled to be, inactive for a period of six consecutive months. The Company has agreed to pay Sacco an aggregate of €3.0 million, €0.6 million annually, during the exclusivity period. The Company has incurred milestone payments to date totaling approximately €0.6 million of which no amounts are currently due as of June 30, 2020.
Agreement with Biose Industrie
On February 15, 2018, the Company entered into an agreement with Biose Industrie (“Biose”), a French corporation, in which Biose has agreed to exclusively manufacture certain microbial biotherapeutic products for the Company and reserve agreed upon manufacturing resources to conduct manufacturing runs for such products. Under the terms of this agreement, the Company agreed to annual fees in the mid-six digits in consideration of both exclusivity for the manufacture of monoclonal microbials and for a set minimum number of manufacturing runs per year. Exclusivity fees paid and any minimum commitments are expensed as incurred. As of June 30, 2020, aggregate minimum payments over the remaining contract life total approximately $1.1 million.
Litigation and Other Proceedings
The Company may periodically become subject to legal proceedings and claims arising in connection with on-going business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which the Company is focused. The Company is not a party to any material litigation and does not have contingency reserves established for any litigation liabilities.

In April 2019, the United States Patent and Trademark Office ("USPTO"), granted a third party petition to initiate a post-grant review of a patent issued to the University of Chicago, to which the Company has an exclusive license from the University of Chicago. In April 2020, the USPTO issued its decision in post-grant review, finding unpatentable all of the current claims in the patent. In June 2020, the University of Chicago filed a re-issue application to seek narrowed claims. Importantly, the USPTO decision does not hinder the Company's ability to continue developing its oncology or other product candidates. Under the terms of our license agreement, the Company has been responsible for reimbursing the University of Chicago for patent defense costs.
16

9. Stockholders’ Equity
Common Stock
On June 3, 2019, the Company filed a Registration Statement on Form S-3 (File No. 333-231911) (the “Shelf”) with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof in the aggregate amount of up to $200.0 million for a period of up to three years from the date of the filing. The Company also simultaneously entered into a sales agreement with Cowen and Company, LLC, as sales agent, providing for the offering, issuance and sale by the Company of up to an aggregate $50.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf. As of June 30, 2020, no securities have been issued pursuant to the sales agreement.
In June 2020, the Company sold 13,800,000 shares of its common stock pursuant to the Shelf in the 2020 Offering at public offering price of $3.75 per share, for gross proceeds of $51.8 million and estimated net proceeds of $48.4 million, after deducting underwriting discounts and commission and other offering expenses payable by the Company.
10. Stock-Based Compensation
2018 Incentive Award Plan
The Company’s board of directors adopted on April 18, 2018, and the Company’s stockholders approved, the 2018 Incentive Award Plan (the “2018 Plan”), which became effective May 8, 2018 and under which the Company may grant cash and equity-based incentive awards to the Company’s employees, officers, directors, consultants and advisors. Following the effectiveness of the 2018 Plan, the Company ceased making grants under the 2015 Stock Incentive Plan (as amended, the "2015 Plan"). The 2018 Plan initially allowed the Company to grant awards for up to 1,344,692 shares of common stock plus that number of shares of common stock subject to awards outstanding under the 2015 Plan that expire, lapse or become terminated or are exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited following the effective date of the 2018 Plan. Each year starting with 2019 and ending in and including 2028, the number of shares available for grants of awards under the 2018 Plan will be increased automatically on January 1 by a number of shares of common stock equal to the lesser of 4% of the shares of common stock outstanding on the final day of the preceding calendar year or the number of shares determined by the Company’s board of directors. Accordingly, on January 1, 2019, the number of shares authorized for issuance under the 2018 Plan was increased by 1,273,031 shares, and on January 1, 2020 this number was further increased by 1,286,824 shares. The 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it. 
The exercise price of stock options granted under the 2018 Plan is not less than the fair market value of a share of the Company’s common stock on the grant date. Other terms of awards, including vesting requirements, are determined by the board of directors and are subject to the provisions of the 2018 Plan. Stock options granted to employees generally vest over a four-year period but may be granted with different vesting terms. Certain options provide for accelerated vesting in the event of a change in control. Awards granted to non-employee consultants generally vest monthly over a period of one to four years. Stock options granted under the 2018 Plan expire no more than 10 years from the date of grant. As of June 30, 2020, equity-based incentive awards covering up to 3,831,544 shares of the Company’s common stock have been issued under the 2018 Plan, of which 630,458 have been canceled and none have been exercised. As of June 30, 2020, 1,515,072 shares of common stock are available for future grant under the 2018 Plan, which includes 811,611 shares subject to awards that were originally granted, and have, since the effective date of the 2018 Plan, been canceled or repurchased under the 2015 Plan.
2015 Stock Incentive Plan
Prior to the approval of the 2018 Plan, the Company granted equity awards under the 2015 Plan, which originally provided for grant of incentive stock options, non-qualified stock options, restricted stock awards ("RSAs"), and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors.
The terms of equity award agreements, including vesting requirements, were determined by the board of directors and are subject to the provisions of the 2015 Plan. Stock options granted to employees generally vest over a four-year period but may be granted with different vesting terms. A limited number of awards contain performance-based vesting criteria and for such awards that are deemed probable of vesting, the Company records expense in the
17

period in which such determination is made through any estimated remaining vesting period. Certain options provide for accelerated vesting in the event of a change in control. Awards granted to non-employee consultants generally vest monthly over a period of one to four years. Stock options issued under the 2015 Plan expire no more than 10 years from the date of grant. As of the effectiveness of the 2018 Plan, the Company ceased making awards under the 2015 Plan.
Under the 2015 Plan, the Company was authorized to grant equity awards up to an aggregate of 5,417,044 shares of common stock. As of June 30, 2020, an aggregate of 5,758,518 options and other equity awards had been granted under the 2015 Plan, of which 1,326,425 have been exercised, 1,247,620 have been canceled and 18,468 have been repurchased as of June 30, 2020. A total of 113,006 shares previously reserved under the 2015 Plan that had not been exercised or were otherwise subject to outstanding exercise awards were no longer authorized for issuance under the 2015 Plan as of May 8, 2018.
Stock-Based Compensation Expense
Stock-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
General and administrative$1,010  $1,162  $1,899  $2,224  
Research and development1,083  973  2,149  1,864  
Total stock-based compensation expense$2,093  $2,135  $4,048  $4,088  
Stock Options
A summary of the Company’s stock option activity and related information is as follows: 
SharesWeighted-
Average
Exercise
Price
Options outstanding at December 31, 20195,691,474  $6.99  
Granted1,616,718  6.51  
Exercised(141,157) 1.67  
Canceled(781,463)