Evolus, Inc. (EOLS) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for dialing in. My name is Balaji Prasad. I cover specialty pharma for Barclays. Continuing our Virtual Health Care Conference sessions for the day, we have with us for the next session management team from Evolus. We have Lauren Silvernail, CFO and the EVP Corporate Development; and Ashwin Agarwal from Investor Relations. Lauren and Ashwin, thank you for joining us. Would you like to -- Lauren, would you like to provide a quick overview and kick start the proceedings, and then we could launch into our Q&A session?

That sounds perfect. Balaji, I want to thank you so much for the invitation, the Barclays team and the Barclays access team for scrambling so that we could all still be on call today, even with the ongoing coronavirus crisis. See, prior to taking any questions, I thought I'd start off with a quick update and why we believe we're a compelling investment opportunity today. Evolus, in case you're not that familiar with us, is a performance beauty company. We have the first aesthetic-only neurotoxin in the U.S., and we're well positioned for long-term success. We have a singularity in focus, and that theme will likely come up during some of the questions you have today and that investors may have. We have one product in a very large, fast-growing $1.4 billion U.S. aesthetic neurotoxin market. We have a target investment against the millennial population, what we call our DTM or Direct to Millennial strategy. We believe the millennial population is going to double -- the treated part of that population will double for each of the next 2 years, growing from about 900,000 last year to more than 4 million by 2021. This creates an incredible opportunity for us. And our digital proprietary platform allows us to personalize at the account of the customer and consumer level, which we can talk a little bit more about today. Last year was highly successful. We did our earnings call just about 2 weeks ago, marked by rapid uptake from our U.S. launch of our product, Jeuveau. We achieved the #3 unit share position within 90 days of launch. We increased our purchasing account base from about 350 in the second quarter of last year, to 2,000 in the third quarter and finished the year with a cumulative 3,500 purchasing accounts, quite an accomplishment of our sales force and our marketing team. We generated $34.5 million full year revenue in the 7.5 months we were on the market last year. Importantly, during the fourth quarter, net revenue was $19.5 million, which was a 48% increase over Q3, pleased by the quality of that revenue and the growth trajectory we had coming out of 2019. All key performance indicators, if you'd look through our slide decks, trended up into the right, the right direction. We established a strong account base that grew at a steady rate. The order rates continue to rise and our patients reported satisfaction out to day 150 after treatment, exceeding -- 75% of our customers did that. We ended the year with a strong cash position of $130 million and showed continued improvement throughout last year in quarterly cash burn. Moving to this year, we're transitioning to the second phase of our launch, which is focused on building Jeuveau into a consumer brand. We launched our DTM, Direct to Millennial strategy. Our DTM investment has 3 components: first, we launched our national digital campaign in January called, "Is Your Tox," short for toxin, "Modern Made?" Second, we introduced a co-branded digital advertising program we call Evolux to the U.S. market. Evolux is powered by our technology platform, and it's the first end-to-end solution offered by a company in our space. Every account is able to see their status, their price, their benefits and what's needed in terms of purchases to unlock future value, all of this in a matter of seconds. And lastly, soon we will unveil in the coming weeks, our consumer loyalty program, which is designed to make the treatment more affordable for patients. Collectively, we expect these programs to further enhance the Jeuveau value proposition and create long-term loyalty with both practices and consumers. We expect Jeuveau to be one of the top 5 aesthetic launches on a revenue basis, and we're well on our way to achieving the #2 unit share position within 24 months of launch, that is in 2021. And those are really my opening remarks. With that, I'd like to turn it back to Balaji for questions and answers. Thank you.

Thank you for the tall view, Lauren. Your execution has been there for everyone to see, but I'll probably start with the most complicated part of the business currently, especially as we get a lot of questions from investors on this. I'm also conscious that it's an ongoing legal process and you're limited in what you can say. But I'm sure you will appreciate that any color that you can throw will be very much valuable. So during the recent conference call and after your recent earnings call, you had cautioned the financial community from reading too much against any interim statements or views, which may come out before the ITC decisions. And last week, we saw that the stock reacted strongly to Medytox's press release. One of the procedural points David had mentioned was that for anything to be made public, it has to be agreed by all the parties. So the press release and the disclosure, which came out last week, was there something that you had agreed to? And if you had not, does Medytox face any legal ramifications for disclosing this?

Great. Very good. Thanks for the questions on the legal side. I think it's really important to start off there. We are getting a lot of questions on the litigation and the various press reports. I think it's important when you look through all the press reports coming out of Korea, which we need to translate on Google Translate, as you know, they're very contradictory, which means there are various versions of the truth being released by all the parties in the case. Our understanding here in the U.S., and U.S. companies tend to approach this differently on the public relations side, is that we're really not supposed to be discussing the facts of the case. If it is confidential information, we're not able to release it. So we have been a bit perplexed by some of the releases. But looking at it all, as we stated on our earnings call, and we mentioned, you really can't draw definitive conclusions from companies releasing information into the Korean press. There is confusing and conflicting information out there now. And we believe the case will be decided on the totality of the merits. First, by Judge Shaw in June in a preliminary decision, and then in October by the 6 ITC commissioners.

Sure. Thank you. Maybe just on the point to clarify, too, on this. Going by your press release last week, you stated that it's perfectly normal for the attorney and ruling judge to have divergent stands. We read some independent checks and kind of corroborated that. But your press release, should we interpret this as a fact that the ITC attorney did indeed side with Medytox, or is that fact under dispute?

I think if you look through it all and you look through all the information that is out there, it's very contradictory. And so I'd be careful about drawing any conclusions about who sided with whom on what. There just is a tremendous amount of information coming out and will come out over the next 90 days or so. And we believe in the merits of our case, we're confident in our IP. But it's hard to comment on each individual fact that's going to come out. Some of them are going to look like the case is swinging to Daewoong and some are going to make it look like it's swinging to Medytox.

Okay. Maybe then, let me just step away from the minor share and look at the scenarios or the broad scenarios from here. So the way we see it, eventually, there's one of 3 scenarios: you win the dispute, and everything settles down and it's back to business as usual; or two, there is some kind of midway path where you have a settlement with Medytox; or three, you lose the case. Is the last scenario, which investors are worried especially, if such a scenario pans out, what could the back-up be for you to continue business as usual?

Sure, sure. As I mentioned earlier, when you look at the case, there will be a preliminary decision in June and a final decision in October. If there is a settlement, it will be between Medytox and Daewoong. And only they can really comment on that, and so we won't be commenting on settlement today at all. For us, we have -- we are in a very solid position. We like our odds in this. We believe in the merits of our case and are very confident in the IP. So we are not really worried about the outcome here.

Understood. One final question on this is, if it comes to just having any restrictions importing Jeuveau, can you bring the manufacturing into the U.S.? What kind of time lines on capital allocation would that take? Have you ever considered that scenario?

Sure, sure. Of course, we have. And you know we own the U.S. BLA for Jeuveau. So that is ours, and we can do as we wish there. Again, given our confidence in the case and the confidence around the IP, it's not something we're going to comment on today, but we do have a lot of options. That's right.

Okay. Great. Good to hear that, Lauren. Maybe I think it's time to shift focus back to the business in Jeuveau now. So another topic du jour certainly is COVID-19. And we do get questions on your supply chain and very potential impact on contingency plan that you may have on this. Could you maybe start with some comments on it?

Absolutely. Like all other companies, we're on top of the current situation with COVID-19. We're really concerned about mostly, as you and I were talking about before the call started today, the health of our employees and the health of our customers, right, and all of our stakeholders. So what we've done is establish a task force of our executive team that meets daily to talk about where we are as a business and where we are in terms of the various stakeholders to make sure we're taking the right actions here. We're not so worried about the business in the short term. We think it's -- this is a perturbation that all countries will get through and hopefully get through well without too much human cost. But the most important thing here is to take care of the people in our world. So right now, we're in the fortunate position of not seeing a lot of impacts. What we have done is to cut back on non-essential travel. Just as -- we were very grateful to Barclays for turning this into a virtual conference, because we didn't have to make a difficult choice. Many of the conferences we're participating in, like the American Academy of Dermatology, are now canceled. So as much as we can, we're pulling back on travel. Our sales reps are continuing to make sales calls. What we are hearing, David Moatazedi, our CEO, is in the field today with Mike Jafar, our Head of Marketing. They were in Atlanta yesterday and are in Houston today. And what we're finding in those cities is, is that business there is continuing as usual at this point. I think if we were in Seattle or in Westchester County, New York, you'd see something a little bit different. And I think as this rolls through the country, hopefully, having minor impact, but as it rolls through, we'll see certain practices that are impacted if folks are sick, either consumers or practitioners. Our practices are typically not in hospitals. So we're not asking folks to go in, make sales calls in situations where there are folks that are sick, and nor are we having any issues with access. Because again, these are dermatology offices and medical office buildings. So so far, we've had virtually no impact.

Great. And some of your recent announcements was -- I was pleased to see the launch of Evolux. Now while it's still in its early days, 1.5, 2 months now, how would you describe -- has the response been to your --the approach -- to your digital campaigns and your advertising programs now?

Sure. The response has been tremendous. And I'll turn it over to Ashwin Agarwal, our VP of Finance, IR and Treasury in a moment to talk about the specific programs. I was in the field about 1.5 weeks ago, traveling with one of our super reps. And as I watched her present the Evolux program to each account, the reception was just excellent. The co-branding is really being well received. Ashwin, do you want to talk a little bit about the program?

Sure. Thanks, Lauren. Hi, Balaji. Great to be with you. Yes, as Lauren said, we've been on the market now for just over a month with the Evolux program, and the response we're getting is overwhelmingly positive. The markets -- the aesthetic market in the U.S. has really never seen a program like this, where you have co-investment between the company and the customer, where they -- as they purchase, we continue to invest behind them, right? And what we're really attempting to do here is drive patients into the practice. The program itself is designed with perks to bring value back to the customer. That really goes, Balaji, beyond price, right? Depending on where you're at in our Evolux structure, we're going to provide you with various perks. One of them being, co-branded media, right, which is really geo-targeted and very hyperlocal to that respective practice to help them amplify their brand awareness within their specific target market.

Thank you, Ashwin. So look forward to more updates on it as we get more deeper into the program. Something else that I also wanted to discuss was your loyalty program. So as you get closer to the unveiling of it, can you just compare this program with other competitor programs out there and highlight to us what are the standout features of this program?

Sure. Great question. We haven't unveiled all the way yet. But what's exciting about it is how it really uses our technology. So it allows us to work directly with the consumers using the technology allows that consumer to work directly with a single practice, which is a real advantage of our program. More on this in the coming weeks as we get closer to the earnings.

Okay. As I kind of look at 2020, so I think there are a couple of things playing out in your favor, you have your biggest competitor going through a merger scenario and your next closest competitor is probably coming in at the end of the year, really at the far end of the year. So you have a fairly disruption-free 2020 in front of you. So considering this and the programs that you're launching, is there any exit market share aspiration that you can provide now?

Sure, sure. A super question. We do get that one a lot. We aren't providing an exit share for this year, but what we are saying is, is that by 2 years from launch, which will be before the first half of 2021 is over, we expect to be #2 in the market.

And you'll still be on track to get back through the course of the year?

We think so. We think we're well on track to that. Absolutely.

Sure. So how would that be playing out in the course of the year? So would you see more of growth coming in from reorder rates? Or would you be growing your purchasing accounts from the current 3,400-odd accounts that you have?

I think it's going to be both this year. We're counting on the sales force to do both. We ended up the year with 3,500 cumulative purchasing accounts, as we mentioned. We expect to be higher than 5,000 by the end of 2020, purchasing accounts. We also expect to be deeper in those accounts from a market share perspective. And we have incentives for our sales force in place to do both.

So that's nearly a 40% incremental addition in your purchasing accounts by the end of the year?

That's right, in the cumulative purchasing accounts. That's correct.

Fantastic. On the international market, and [ yes you are ], can you contextualize this opportunity more for us? And maybe take us through, again, the ramp that you see across different markets that we should factor in? And maybe also some color around the investments or spend that you'd need to achieve these ramps?

Sure. Super question. On the international, if you look at where we're approved, we're approved in 28 countries across Europe, plus 3 others in the EU. And so when you think about where we're headed, what the best thing is for us is the singularity of focus I mentioned in my opening remarks. We -- the more we focus on building the Jeuveau business in the United States, we think the faster our overall revenue will grow. For that reason, we are in partnering discussions across Europe. And what we are trying to decide is whether one partner will do it or whether multiple will do it. And we are clearly in discussions with multiple parties around all of that. We expect to launch in the second half of 2020. Therefore, the impact on this year will be very minimal. It's also important to remember that price in Europe is much lower than the U.S. and that us, a partner and Daewoong are all splitting that smaller sales dollar. So while volumes will be impactful, the actual dollar amounts on our P&L are pretty small for this year and next year.

And sorry, towards this year, and did you say next year, too?

Yes. If you think about the fact that, and Ash can give us more details here, but if you think about it, the actual sales dollars in the U.S., what might be a $600 list price here in the United States is in the $200 range in Europe, and you're dividing that between 3 partners. So the amount for any one partner at the table will always be very small in Europe.

Sure. Something else that I wanted to ask, Lauren, and I'm sorry to come back to the subject. But as you go through your partnership discussions, are there any concerns at all about your ongoing litigation from the partners that you engage in? And what message are you communicating to them about the stability of supply?

Oh, of course. It's important to remember that the ITC case is a U.S. case. So right there, that's an issue that I think all parties in Europe really understand. That's very clear. There is no litigation in Europe today. So it's not a large factor in any of our discussions. That said, folks still have questions on it, just as the investment community does. And I think overall, it adds to the time any process takes, but it's not a large factor because again, the litigation is in the U.S.

Understood. Moving to the operational side of the business and the various moving pieces now. So as far as I can see, there doesn't seem to be a significant shift in your OpEx at least on the sales side. And so if we consider the moving parts to this, should we consider the personnel cost table and any kind of incremental cost for the year is going to come from your digital campaigns?

Sure. If you think about where our incremental costs are, and I'm going to turn it over to Ashwin in a minute to talk about a process he ran last year, our operating expense this year is not tremendously different from last year. We talked a little bit about this on our earnings call. And by operating expense, I'm talking about non-GAAP OpEx. Our non-GAAP operating expense last year between the 3 quarters we were on the market range from $28 million to about $33 million. We'll run in the high end of that or even a hair higher, as I mentioned on the earnings call in the first part of this year as we launch these programs. But Ashwin ran a process, and I guess I'll just keep going here, Ash, I've gotten this far into it, where he really worked with a team to strip out the cost of any experienced trials at the beginning of the launch, the launch cost, standing up the sales force, standing up the operating organization, and we redeployed all those costs into Evolux and a consumer program this year. So we made quite a few changes, actually, they're not as transparent because the total dollars are the same, but we actually stripped out quite a bit of cost to fund those programs.

Got it. Maybe just spending some time on the balance sheet and your capital deployment plans for the year, and any kind of business development plans, too. You have, in the past, highlighted interest in continuing [ BD ]. So as you think about it now, what other areas do you think are most interesting to you, considering that your targeted population is the millennial group? And what is it that you want to add to your portfolio to continue or strengthen your focus on this particular group?

Sure. Well, first and foremost, we mentioned singularity of focus. Right now, we're very focused on Jeuveau. We think that we are -- we've had tremendous success to this point. And that focus has really helped us. So we will continue making the investments in Jeuveau we just talked about, particularly with Evolux and with the consumer program. That said, our R&D team has performed just brilliantly, if you look at the approvals in 3 areas, right, in the United States, the EU and other countries in Europe and Canada. And we do have room now to put something into the bag, into the pipeline. And so Rui Avelar, who is our head of R&D and Chief Medical Officer, is working on evaluating a lot of different things out there. And what's interesting to us, your question was really directed at that, is anything that is an aesthetic medicine. We don't plan to add anything that would be a reimbursed product. But we're looking at a number of opportunities that would be interesting for practices and consumers that are aesthetic medicine based and generally for the U.S. right now, unless it's a global pipeline opportunity.

Understood. So for a company at your stage of growth and cash flows. So would it be fair to assume that you'll probably be looking at assets, which are not yet on the market or a slightly earlier stage? Or are you comfortable looking at later stage commercial products, too? How should we factor this into your capital allocation thoughts?

So that's a good question. We look at both. Because of the management team that we have from David Moatazedi to Mike and Rui and others on the team, we see a lot of opportunities, and some of them are commercial and some are more pipeline based. We look at both -- we look at opportunities on all sides of that. Let me turn it back to you, Balaji, to wrap up.

Sure. Well, very helpful comments, Lauren and Ashwin, thank you so much, again, for your time and for your support in converting this conference to a virtual one and still delivering the message to your investors. Appreciate your time, and have a great day.

Thank you very much. Bye-bye.

Thank you, Balaji.

Have a good day.