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

Good afternoon, everyone. My name is Balaji Prasad. I lead the specialty pharma coverage for Barclays. And thank you for dialing into the Barclays Global Healthcare Conference. Today is Day 2. And continuing the specialty pharma track of the conference, I'm pleased to introduce the management of Evolus to you. So we have with us today David Moatazedi, President and CEO; Lauren Silvernail, CFO and VP; and Ashwin, VP Finance in the conference room. So as we look at Evolus now, David, Lauren, you've reached that pivotal point with -- setting aside the legal, there's overhangs in the past. And so I would presume I want to start with your priorities now, how do you look at business now and start with few introductory comments?

Sure, Balaji. Firstly, thank you for having us on the conference. It's a pleasure to be here. And for us, it's nice to actually be in a conference room all together again, and I know you probably feel the same. It's good to be getting back closer to normalcy as we approach a year since we shut down our office space. And it's also an exciting time for us. As you know, we spent a little over the past year, dealing with litigation matters that ultimately came to a head here, and we resolved them just in the last number of weeks. And so with the legal case behind us, we believe it's unlocked a lot of value and potential for this company to continue to perform. In our talks with investors, many have asked about the case in particular. And I think the main thing to point out is, not only did we settle on the ITC case itself, but we settled all outstanding litigation matters relating to Korea and any other future potential litigation that may have resulted from those cases. So we feel very good about the fact that it is a clear resolution that gives investors the ability to look at this company now for what it is, which is a company that finished 2020 with incredibly strong trends in the fourth quarter. As you know, Balaji, we preannounced revenue several weeks back, and we had our largest quarter on record since we had launched in the fourth quarter, nearly $21 million in revenue on the quarter. And that's despite the fact that the last 2 weeks of December, we were under a bond period related to the litigation that carried through to the middle of February. And so despite that backdrop and the legal overhang during the fourth quarter, the business continued to perform strongly. As a matter of fact, the same trends that we're carrying through in the front part of the year carried through to exit the year. We on the year added over 2,000 accounts, grew our injector base from 3,500 to over 5,500 by year-end. Fourth quarter is no exception. We grew at a faster clip as a matter of fact, in terms of the number of new accounts that we were able to open. We launched our consumer loyalty program. This gives every patient who gets injected with Jeuveau $40 off of treatment, and that extends our value proposition, not just to the doctors buying our product, but also to the patient using the product. And we launched it on the same frictionless platform that we launched the company with. And that's why we saw such a strong uptake because it's so simple to use this program. And over 100,000 new consumers who are enrolled in that loyalty program from May through the end of the year. So we feel very good about the traction that we're getting with our consumer loyalty program, which is such an important part to a procedure like this where the patient is coming back each -- multiple times a year for treatment. And then lastly, our value proposition's in play. We're doing a lot of branding with this product. We target this millennial segment, which is the fastest-growing segment in aesthetics, and it's working. We over-index in millennial use for Jeuveau, so the dedication to -- on the marketing side and targeting that consumer is working. And also, where we've rolled out now our value proposition with digital co-branding as well as co-branding for billboards, which basically means that our customers as they move up and purchase more product, they become eligible for an investment from Evolus into their practice to brand in partnership with us. And we're doing that extensively now. And I'm really pleased to see that the awareness of Jeuveau across the U.S. has really increased significantly over the prior years. As a matter of fact, Facebook did a survey late last year, and we ranked #2 among neurotoxins in overall brand awareness. And that has a lot to do with our focus against the millennial segment and dedication to digital media. And so as we turn the corner to 2021, there's an intense focus around execution is our #1 priority. We have the key elements to successful 2021 with our value proposition now in play, and it's about execution. In addition to that, we have approval in Europe. And now with the litigation behind us, the international expansion strategy becomes more clear, and we'll provide more color on that in our upcoming earnings call. And then lastly, as myself and the team here joined this company with a focus around building more assets around our flagship product. And with the litigation behind us, we can now move forward in executing on the business development side, and there's a lot more to come this year on that front as well. So with that, I'll turn it back over to you, Balaji, any questions you have.

Great. Thanks for the overview, David. And clearly, many things seem to be falling into place for you and great to see that. And when, as a company, you go through such a pivotal shift going in from significant questions about business continuity to now just looking at what's ahead, typically, such situations bring in lots of new things for you. Commercially, strategically and even as simple as hiring. I think in terms of talent that you can acquire, these things do change significantly. So can you maybe take us through if there's been any quite near-term changes for you in terms of business priority? And are newer doors or newer revenues being open? And discuss that?

Yes. So I walked through the 3 key priorities. And what's most exciting to us as it relates to execution is this is now the first time when the entire value proposition is available to share with customers, from billboards to co-branding to the consumer loyalty program, and our ability to put that in front of the customer now without the backdrop of the ITC case gives us the ability to sell into a favorable environment. And I spent a lot of time over the last 2 weeks talking to key customers, and I can tell you that the excitement around Jeuveau continue to be available to them on the market, gives us a lot of tailwind to build on, but there's so much opportunity ahead here, both in terms of market expansion with this millennial segment that we over-indexed against as well as we're still a product with single-digit market share. And there's just a lot of opportunity for us to gain ground in some of these accounts. And it is a favorable environment to be operating in as COVID gets behind us.

Great. The maybe one -- another big picture question is really on the COVID-19 and the aftermath of COVID-19 and how the landscape has evolved or shifted for you. So clearly, what we saw Q3, Q4, very strong rebound in aesthetics. The demand was never in question. The demand was never in question, but there have been many things which have changed in terms of how practicers have opted. What are their pain points now or none at all? And how could you help practicers handle things better, including Jeuveau.

Sure. Yes. Look, the practicers have certainly weathered through what was a very challenging front half of the year. And some of the decisions they made are part of the reasons why the market recovered as quickly as they did. So a lot of credit to the different constituents that we support, whether that be the specialties of dermatology and plastic surgery even the medical spas. What we've seen consistently is a very strong rebound in the back half of 2020, it serves as a great backdrop as we now enter 2021 that we believe will continue to drive growth. And of course, most paramount for patients was just safety measures. And the concept of no-touch practice became an aspirational goal for all of these medical facilities. And that's exactly what they continue to practice with and the throughput, although initially, had been somewhat reduced because of the new measures they were taking. What we're finding now is these are resilient practices, and they found a way to bring patients in more efficiently and to continue to work through the same volume. And one of the pleasant surprises probably that none of us anticipated is as these patients are coming in, they're taking advantage of those moments in that room with the injector, and they may be taking on more units than they would have otherwise in a pre-COVID environment or choosing to add on more procedures than they would have otherwise. That's consistently what I hear from our accounts, and all of those reflect a real positive environment. And for us, that was no exception in the third quarter, we grew over 30%. In the fourth quarter, we grew double digits despite the soft quarter that we had. And as you know, the fourth quarter comp was -- for the industry was a pre-COVID period comp. And yes, you saw double-digit growth even from the market leader. So we do feel that we have a very favorable backdrop to end the year that sets a really nice pace for us as we now kick off the front part of the year. And to the extent the situation appears to be improving around the country, around COVID and with the vaccines more broadly becoming available, it could potentially be another catalyst to this segment continuing to grow. Now that being said, we've always believed that on the macro scale, this is a high-growth category. COVID was a speed bump in terms of the growth trajectory of the space. And I think it's probably a smaller speed bump than we all would have anticipated as we talked in the second quarter of last year. And that's all very positive, I think, for investors, as they look at companies in the space.

Great. Maybe just on one point, you did bring on a very valid point, saying that you are over-indexed to growth towards millennials, probably constitute 30% of the neurotoxin market today. And have you seen -- or have there been signs of this segment being either particularly affected by COVID or are comparable to other population segments? How -- what's it that you have seen on the ground?

Yes. So we do surveys on the millennial segment. I can speak to the brand. At this point, we over-index almost 40% of Jeuveau users are millennials. We do know that, that millennial segment, of course, is going to be more price-sensitive. They generally start out in this category with injectables. And our value proposition now with the consumer loyalty program, offering $40 for those patients for every treatment, gives them the ability to plan out a year in advance sort of what their cost would be when they come back in for treatments. And what we're seeing is that, that trend of millennials entering this market hasn't slowed by any means. As a matter of fact, millennials are probably less impacted, right? Many of them weren't homeowners, they didn't carry all those extra costs that others had, had significant discretionary income that was being used for lifestyle experiences. And with travel impacted, that gave them the ability to shift those dollars elsewhere. That's anecdotal, though. I don't have the data, as you asked, in terms of showing what that mix is, the millennials in the back half of the year [indiscernible] return for the overall market, but I don't anticipate that there would be anything that would change the trends that we're seeing prior.

Got it. And still continue to be drivers of growth for you. So I had a specific question -- more specific question on the pricing comment of Jeuveau. So you had -- when you gave the 4Q update, you did just mention that you increased customer pricing significantly due to the bond amount required to keep Jeuveau on market. So now that is resolved, how should we think about this price moving forward? And what are we thinking about near term, both this year and next year?

Sure. So as you pointed out, we -- during that 60-day bond period, which went from mid-December to the middle of February, when we raised the price of Jeuveau to the list price, we saw, of course, our revenue declined to roughly by 95% from pre bond levels. Once we settled the case though, we went back to our Evolux pricing, which is basically the pricing tiers as customers buy more and they move up more tiers, they get better pricing. On average, that pricing is roughly 30% lower than the market leader. Of course, that varies by account and they're different tiers. So those are individual conversations we have, but we've been able to keep our overall pricing structure intact. We did take a nominal price increase post the settlement that filtered through the different levels but ultimately, as accounts move up, they continue to benefit from the price that they had before. So we really do view it as a nominal event and still a significant pricing advantage and a profitability story for these practices, which is really critical here, not just the profitability of the practice, but the value of the patient of coming in for each treatment. When you put those together, it really screams an advantage to that younger millennial population that we speak to in our branding and advertising. So fortunately, with the settlement, we've been able to keep the value proposition intact with no impact to the way that we operate around the customer.

Great. And David, when you launched 2 years ago, you had clear goals, right? I think 2 years we'll be the #2 market share leader in the New York tox industry. And now we are 2 years out. I think all of the bigger picture questions are behind us. And so as you look out now over the next couple of years, is there any kind of comfort that you can provide to investors as to where you can take the business to the next leg and to the next level in terms of market share and leadership?

Sure. Look, I think first off, we love our singularity and focus. I think you've seen Evolus perform even through the most challenging of times as evidenced by the fourth quarter. We think we have a sustainable value proposition in both the profitability of the product, the value to the consumer and the way we're building the brand. And that really is the story here, Jeuveau is a brand, and we're investing heavily with our customers to build that brand in as efficient a way as possible. And we think that is what makes us such a durable asset as we both continue to over-index against the younger demographic of millennials and continue to penetrate in terms of our market share footprint in this category on what is -- what I believe is a very efficient spend base. You may have seen our burn in the fourth quarter was only roughly $3 million. And through COVID, one of the advantages that we have is that we lean further into our digital platform to do a lot of the heavy lifting. And now the majority of our transactions go directly to that digital platform rather than a sales rep having to take those orders, which enables our sales reps to focus on the value building elements [indiscernible]. And when I think of the aesthetic market, and I look back over the last 10, 15 years, some of the biggest brands in this space have been built on a singularity in focus. And that's what I like about where we sit today. And I expect that we'll continue to give you updates in terms of our shared trajectory and the potential here, but it's very significant, and we feel good about now getting back into the market and starting to regain ground with some of these customers.

Got it. Maybe on the [indiscernible] regarding the nature and terms of the settlement. But as I look out and try to think about the the operating profit and think about the gross margins and how could the earnings pan out now for you, I think I'm still handicapped by the -- by not having a gauge on the gross margin percentage just because there's something that it's not disclosed. Is there a point that you would look in terms of providing more details in terms of settlement so that our models could be more accurate?

You bet. Balaji, again, thanks for having us here. Yes. With regard to that, obviously, with the settlement agreement, we're not able to disclose the exact terms other than what's in the 8-K we filed on February 19, but what we plan to do on our earnings call coming up in the next few weeks is to walk through some of our guidance for the year. And obviously, the settlement economics, in particular, I think you're probably referring to the per vial payment on the U.S. sales for 21 months, which started last December and runs through September of 2022. We'll give gross margin guidance that I think will make it clear what the impact of that is, so you can build your models.

Yes. That would be great. Look forward to that. Coming back to the -- shifting away from the U.S. market, David. So now the international expansion is fully back on track. How do we think about your focus now on Canada and Europe? And any particular geographies that you'll be targeting? Any color that you can provide here?

Yes. We'll provide more color on the upcoming earnings call. As it relates to our international expansion strategy. As you know, Europe is the second-largest market for neurotoxins. And we now have, of course, approval in Europe and with the litigation behind us, it gives us the ability to think about Europe differently than we would have prior and so we are actively spending time on that now, and we'll provide more color once we're prepared to give you the full disclosure there.

Got it. And maybe going back to beyond toxins, I think there's a question that you have often received in the past. And you're -- hopefully, you have much better visibility now to thinking about how you could buttress or support your toxins further out in the go. Are you looking now looking at other assets and other aesthetic components that you probably want to add on to your offering? Is that something that you feel the need for? Or it's something that is occurring now?

Sure. Yes. So as I went through our 2021 priorities, commercial execution is number one. Number two is international expansion, and the third is business development. So it is a very important topic to us. It's an area we've spent a significant amount of time on, and as I mentioned, now gives us the opportunity with the litigation behind us to put a concerted effort there. And as we do, we'll provide more color around what those business development activities will be. That being said, we don't have a sense of urgency to build portfolio. We think that our singularity and focus is an advantage. And we're just now getting to the point where the full value proposition is in front of the customer. And we want to see that continue to perform as it did in the fourth quarter for the very beginning of time of the full value proposition and now continuing on. And so we'll provide some more color around our business development strategy. We plan to give TheStreet a little bit more color on how we think about that.

Great. Maybe on the competitive side, some are anticipating a long-acting toxin to come into the market, and management data has been pretty clear that, that is going to be a premium product targeting the top 1/3 to top off of the physicians and practitioners and also by default, the population segment. So I'd like to look out over how the aesthetic neurotoxin market is going to evolve over the next couple of years. Is it reasonable to think that there's going to be 3 segments of population, you have a premium end product, long-acting, probably priced at a different price point, you have BOTOX in the middle that's still the lion's share. And Evolus would be a strong competitor from a pricing perspective, if taken towards different population segments, so to speak. So is this how the market is going to look like 2, 3 years out?

Yes. Look, I can't comment on future products and how they may ultimately position themselves. I think that's something that you'll have to watch over time. I like our positioning in this segment regardless of how it evolves over time. I think we have a very sustainable and ownable position. We're building a brand that's very relevant to this younger demographic, and we're building it around value. It's value to the doctor, it's value to the consumer, but it is a brand. These are not commodities. These are products that consumers demand, and we believe that the way that this product performs, supports the fact that it is a 900 kilojoule molecule, which today, that is the gold standard, and we have the only alternative 900 kilojoule molecule. We do believe that this market will continue to be a market that's driven by a 900 kilojoule molecule over time. To the extent that other assets enter, I think there's opportunities here for this market to grow. There's no doubt about it. And as you've seen biology, having been in the space for a while, you know that BOTOX over 20 years has seen multiple competitors and still has grown double digits. These are high-growth markets. With more entrants, it creates more opportunities and as much as we like to think about this as one may win and the other might lose, you can see even with our entrants and the success we've had, competitors have also grown, and that just speaks to the potential here. That's why investors really want to be in the aesthetic space. It's still in the early days of high growth, very low consumer penetration, and there is an opportunity for companies to come in here, brand themselves, build value around these customers and build a loyal consumer base, and we certainly welcome that.

Great. So I'll definitely look forward to the earnings and -- for the details on the international expansion, on operating profits. Maybe one last thing, and we'll leave you there. We'll leave you at the point. So on the loyalty program and you did give some of the progress you achieved in 2020. And as you look out now over 2021 with loyalty program and the traction that you intend to gain with accounts to validate your execution plans, is there some numbers that you can provide us now?

Yes. [indiscernible] take that royalty numbers.

Yes. Number of patients...

What we press released last week was about 110,000 through year-end. And if you think about it, that program started in may during COVID, and we were able to gather that many patients that have been treated in-office. So it's been a really successful program that has exceeded our expectations.

Okay. Great. So we'll probably leave it at that. And David, Lauren, Ashwin, thank you again for your time, pleasure speaking about business with you and congratulations again.

That's great. Very good to see you. Thanks, Balaji.

Thank you. Thank you.