Evelo Biosciences’ last roll of the dice has come up snake eyes. After seeing its lead candidate flounder in the clinic, the biotech has revealed its next-generation asset performed worse than placebo in a phase 2 psoriasis trial, prompting it to start searching for strategic alternatives.
The past 12 months have been hard on Evelo, a Flagship Ventures-backed company that went public in 2018. Evelo raised money from a who’s who of VCs on the strength of evidence that orally administered microbial strains can up- or down-regulate immune pathways by interacting with cells in the gut. The idea was to intervene early in inflammatory diseases such as eczema and psoriasis to improve outcomes.
That idea has taken big hits this year. Evelo kept going after the failure of its lead candidate in eczema, pointing to evidence that its next-generation drug candidate EDP2939 could have greater activity than its failed predecessor.
Now, phase 2 data on EDP2939 have eroded the foundations of that argument. Investigators randomized people with moderate psoriasis to receive EDP2939 or placebo. After 16 weeks, 19.6% of patients on the investigational candidate had a 50% or greater reduction in their symptoms, a response level known as PASI-50. The problem, for Evelo, is that 25% of people had that level of response on placebo.
The failure of EDP2939 to improve on placebo’s 16-week rate of PASI-50 caused the clinical trial to miss its primary endpoint. Evelo highlighted the PASI-50 rates at Week 20, when EDP2939 leapfrogged placebo, as notable. But the 33.9% to 26.9% result favoring the study drug at the later time point failed to mollify investors, who sent shares in Evelo plummeting 44% to $1.62 in premarket trading.
Evelo responded to the latest setback by starting to explore strategic alternatives. The biotech identified EDP1815, the lead candidate that failed earlier this year, and the Sintax small intestinal axis platform that underpins its pipeline as assets that could attract partners. Evelo has a Nasdaq listing that could support a reverse merger, too.
That option is complicated by Evelo’s financial position. With investors staying on the sidelines, biotechs have identified mergers as ways to bolster their bank balances, effectively swapping equity for cash, but Evelo ended June with $7.6 million in cash and $43.9 million in debt. Subsequent deals generated $25.5 million and wiped $10 million off the debt but still left Evelo in a precarious financial position.