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Evelo Biosciences' Potential Is 'Significant,' Says Bullish Morgan Stanley

Evelo Biosciences' Potential Is 'Significant,' Says Bullish Morgan Stanley

Evelo Biosciences Inc (NASDAQ: EVLO), a clinical stage biotechnology company that focuses on mining the gut for therapetuics that can modulate the immune system, boasts "significant" platform potential, according to Morgan Stanley.

The Analyst

Morgan Stanley's Matthew Harrison initiated coverage of Evelo Biosciences with an Overweight rating and $29 price target.

The Thesis

Evelo Biosciences develops monoclonal microbials, which are pharmaceutical compositions of naturally occurring microbes, Harrison said in the initiation note. The company is using its platform to screen the gut for microbes that could impact immune responses and its first program, EDP1066, will report initial data in the first half of 2019, the analyst said.

Preclinical information supports the view that the therapy has at least the potential clinical impact of strong steroid and biologic treatments, Harrison said. 

Two notable investor concerns surround Evelo Biosciences, the analyst said:

  • Prior microbiome companies haven't shown significant improvements in clinical trials.
  • Management's screening platform isn't robust enough to identify the right target for therapeutic intervention.

Evelo's focus on developing microbes from natural activity in the gut differs from other companies that work on on a repopulation of the gut, which is more complicated to modulate disease, Harrison said. It would difficult for the company to improve investor sentiment until it can demonstrate an initial proof-of-concept, he said.

Phase 1 data in the first half of 2019 is as a "key catalyst" for the stock, the analyst said. 

Price Action

Evelo Biosciences shares were trading 3 percent higher premarket Monday. 

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Latest Ratings for EVLO

May 2020Morgan StanleyDowngradesOverweightEqual-Weight
May 2020BMO CapitalMaintainsOutperform
May 2020JefferiesDowngradesBuyHold

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