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

Okay. Welcome, everybody. This is Doug Tsao, I'm a senior analyst at H.C. Wainwright. Up next, we are thrilled to have Evolus presenting, represented by CEO, David Moatazedi; CFO, Lauren Silvernail; as well as VP for Investor Relations, David Erickson. So with that, we don't have a ton of time, so why don't we just jump right in there.

David, COVID seems to have been a little bit of a mixed bag for the aesthetics industries. On the one hand, it clearly affected doctors' offices as they implemented social distancing, but there was also a Zoom boom, as people spent a lot of time staring themselves on the screen. COVID is proving more persistent than we hoped this spring, but we're obviously not going back to sort of shutdowns either. So perhaps provide some sort of context for everybody in terms of this current state of the market?

Great. Doug, thanks for the question. Thanks for having us on. So clearly, our market, just like many others around the country, has been very resilient as the markets open back up, and they -- these practices, they really have been diligent about the measures they take in order to prevent COVID from spreading within their practice. And I do believe that medical practices in general are probably best suited to weather through the various forms of the viruses that may unfortunately surface over the coming quarters going forward. That being said, that resilience is certainly persisting as we're in the markets. We're seeing that these practices are continuing to operate and function at a very high level just as they were in the second quarter. We are aware of a few, and I mean literally a few accounts that have had to shut down because maybe they've had an outbreak within their practice. But that's an isolated circumstance. It's not something we're seeing widespread. And it's generally limited to a few days and these practices are then back and operating at the same levels they were before. So we feel very good about the way these practices are weathering through it until that they have the right approach to navigating through this uncertainty.

Okay. Great. And then you obviously settled the IT issues that were facing the company. Coming out of the settlement, one of the things that was really impressive to me was how quickly many of your key accounts order, and basically as soon as you were back in the market, they were picking up the app and placing orders for product. What is do you think has driven that customer loyalty and sort of desire on the part of some of your customers to support you as a company?

I think when we launched Jeuveau in the U.S., we really approached the category very differently than the prior companies that have entered the space. And not that there was anything wrong with their approach, we wanted to add value to this category as a new entrant. And I do believe that these accounts reordering from us as we settle the case reflects why they believe we're doing just that. We focused on a younger demographic of millennials that are looking for the brand to communicate to them differently with a level of energy that we brought to this product. We also have a digital footprint that allows us to do things very differently. You're seeing that reflected in our marketing, where not only is it targeting a millennial patient, but we're targeting them in partnership with our practices. We call it co-branded media, where every time a consumer sees an ad unit for Jeuveau, there's an injector next to it. And that's really the first time a neurotoxin has had a partnership with these injectors. This is the #1 procedure that's done in aesthetics, and we're the first company to be partnering with practices on that level. And then lastly, I do think that in the end, these are all small practice business owners, right? And there's thousands of them around the country. And they view us in the same light. We're a small company trying to build value for their practices. And we weathered through it with them through COVID as well. We introduced a number of stimulus measures to help them as they went through a challenging time. And I was really pleased on a personal level just to see the commitment that these customers have had, and I think a lot of credit goes to our organization, the selling team. That customer centricity starts with them. They're in there servicing these customers day-in and day-out. And their resilience certainly shine through all this.

And there was obviously a period of sort of uncertainty related to the ITC situation as well as sort of another layer of uncertainty related to COVID. How did that affect your commercial efforts and how you thought about what you needed to do to be effective in the market right now?

When you go through challenging times, so there's COVID or legal uncertainty, you really do spend more time reflecting on how you can be sharper in the way that you operate. You see that in the second quarter, our revenue hit an all-time high, and up roughly 25%. Yet our spend base relative to the prior high was significantly lower than it was when we first launched. So I think some of those efficiencies that we talked about leading into our digital, putting more spend into variable, which is more of the co-branded media and asking the team to do more around the customer and bring more value to them. We're a slightly leaner infrastructure, but we've also been able to gain a lot of efficiencies to our business model. I'd say the aggregate that it was a more powerful company, a business that is on a pace to exceed $100 million run rate coming out of the second quarter in a business that we believe is in the early stages of showing very healthy growth. But a very different composition of how we got there.

Okay. And one thing that you already mentioned was that co-branded advertising has been a big focus for your marketing efforts. How does that differentiate you from the approach taken by AbbVie or Galderma and Merz in the marketplace?

Well, we're the first company that, on the neurotoxin side, partners with an account. And we only run an ad unit when there's an injector that's associated with that ad. That's a really important step when you think about the consumer journey to go from considering getting a treatment to actually taking action. When she sees our ad, and she's on digital, and she sees an ad unit for Jeuveau, she's not thinking about where should I go? Who should I get treated by? She immediately sees that link between our product and the injector. And that injector when we run that ad is within a short radius of their practice. And so it makes that injector very accessible to that patient. And by eliminating some of these traditional barriers, so to speak, of entry into this category by partnering up the injector with our product, what we're seeing is a very good transition from consideration into action. But we're doing more than just that. It's not just in digital or billboards that we've put up around the country, it's that we're trying to eliminate even more friction points. We've piloted now and successfully been able to engineer a book now function. Our digital team has plugged into an EMR solution that enables a consumer who sees an ad unit on social media to click and book an appointment right there. Now that may sound like a small win if we were in the tech world. But in the health care space, there are examples of companies that have been able to do that. And we believe it's a combination of our technology platform, our engineering focus, and our understanding of the commercial markets that enables us to do that. And this is just the early stages of us innovating differently in order to build our own space in this market. And that's ultimately what this millennial consumer wants. She wants an experience. She wants ease of the transaction, and we're finding ways to eliminate friction points to get her to take action.

And I mean, obviously, a couple of times in our conversation, you've mentioned the millennial consumer. Can you maybe discuss some of the differences between more traditional toxin customers and the millennial customer? And how does that affect the market and how you're thinking about the market going forward?

Sure. Look, the millennial consumer generally, as we all know, she consumes very differently than the generations prior, myself included and the way that my parents did. She expects things to be at her fingertips. And she doesn't just want a product that's handed to her with a single approach. She wants a more customized feel to it. And some of the biggest brands that millennials consume are very different in the same segment as brands that their parents consume. And that really is where we bring value to this market. We're the first new toxin to enter this market in nearly a decade. And we designed the brand from the ground up to appeal to that millennial segment. The way that it communicates both from our models, the language that we use to communicate, all of it is fresh and different in the way that we do it. The vehicle by which we deliver it then is the CBM platform. And we believe that's the extension of our brand then to the consumer. And we're doing it in digital. We do it in billboards, and we also are now piloting it in television as well where we're partnering and doing TV spots with doctors. And all of these different vehicles we're measuring. And so we'll see the return against each of them. And over time, that mix will certainly shift, I suspect, across the country where certain areas have performed better with certain channels over another. But when you step back, the strategy of focusing on the younger demographic with co-branded media and finding ways for that consumer to book that appointment to go in for a quick in-office treatment make it easier on her. That is the key to unlocking the value in this market. This market segment is single-digit penetration. Meaning, there's over 30 million consumers interested in doing it, and you've got less than 5% of them actually in the doctor's office. The newer practices that are opening up, they want to get that younger demographic in. That is the growth driver for them. And we think the positioning that we have, we're hearing it back that it's working. That the doctors are seeing the value of our co-branded media, and we're building a brand in partnership with them. But again, this is going to be a multiyear effort, and this is the early innings, and there's a lot we're going to learn through this.

And David, just as a quick follow-up to that. Do you find your key customers are somewhat selective for those who practices, perhaps are a little bit more skewed to millennial customers? And you ever hear of people say like, yes, my business is mostly focused on the slightly older age cohort and so Jeuveau doesn't necessarily fit for me?

Sure. I think you'll -- what you see around the country is practices that are investing to expand their business. And even if an injector has been injecting for 20 years, who may be at capacity, to your point, treating an older demographic, a lot of time those practices are hiring new injectors. And those new injectors, they want to feed them with new patients coming in through the door, and they recognize the millennial segment is the key to doing that. And that applies whether it's a new practice or an established one, that's looking to continue to expand. I think the only time we come across that issue that you just mentioned is a practice that's at capacity and has no interest in growing any further, and they don't want to see new patients. But I think we all know, in a free market economy with a category that's growing as fast as this, you'd be pretty hard pressed to find many accounts that will tell you they have no interest in growing. Most of them are investing in different ways, whether it's new facilities that they're adding or new injectors that they're adding and are positioning -- positions us really well to capitalize on that growth.

Okay. And it seems increasingly likely that the toxin market is going to have Revance enter as a new competitor. Does that affect your marketing strategy in any way? And does that sort of change how you're thinking about what you're trying to accomplish in the marketplace?

No. Look that, having another neurotoxin and call it the -- more the fourth entrant, having a fifth entrant in a category that has as much growth potential as this one does, I think it's a great thing for the overall growth of the market. With every new entrant, including ours, what you see is more interest in the category, not just from the injectors, but in media. There's more media coverage of the space. And then, of course, investors like us, where we're now investing to grow the market. And you used last quarter as an example, our revenue is at an all-time high. The market leader also achieved an all-time high in revenue. So I've always been a big believer that this is a consumer-driven category. And that low consumer penetration is going to fuel this category for all the manufacturers for the coming future. And certainly, in the event that Revance gets through the review process and enters the market, I do think that that's going to be another catalyst to the market growth.

And do you think that to some extent, as they have always said consistently that they want to sort of be a premium priced product and sort of focus on a different segment that in some ways where you are right now isn't necessarily sort of going to mean that you're going to be butting heads, and that to your point about growth with the overall market should play more than sort of a head-to-head zero-sum game dynamic?

Well, that's right. Every product has its own positioning. And that enables the market to understand where they're best suited to be using the products and positioning evolves over time as well. So that will be something that, obviously, we'll watch closely. You never underestimate a new entrant in any market at the same time. I'm optimistic about the growth potential this category has in front of it. And I think that there's plenty of room for new entrants to help drive that growth.

And an important growth driver for Evolus is going to be your launch outside the United States, in particular, in Europe. And that represents a little bit of a shift in your strategy. Originally, you had spoken about finding a partner to lead the efforts there. I'm just curious what led you to make that decision?

Sure. It's a fair question and one we often get from investors. A number of things changed since we come out of COVID and sell the ITC. The first is -- and let's not forget, Europe is the second largest market in the globe for neurotoxins. So it's a very sizable market, and an important one in terms of the aesthetic category globally and that Europe has been a significant driver of future assets that have entered at a global footprint. That's number one. Number two, through the ITC settlements that we announced, one of the settlements was with our partner, Daewoong. And as part of that settlement, we restructured our agreement in Europe. And in that restructuring, it changed the economic profile of entering that market versus looking to partner. And when you combine the 2, the attractiveness of the European market with the economics that we now have in Europe as a result of that settlement, it made it very attractive for us to look to enter. But keep in mind, even as we launch in Europe, it could be a combination of some direct markets and also some distributor markets. But we also have the learning now as we've been on the market for 2 years in the U.S. around this product and how to best position it. And we'll apply that in Europe, where we'll also be the fourth entrant to enter just as we were here in the U.S. And so we feel more confident now given our success and our learnings that we can make greater impact than we would have maybe otherwise.

In particular, what things that you learned that gave you that confidence to launch in Europe? And also, are there differences in the European market that would necessitate some tweaking to sort of your commercial strategy?

Sure. So yes, there's the product side and then there's the commercial or the marketing story, if you will, around the customer. I'll start on the product side. We've learned a lot in 2 years around how this product performs. As you know, we conducted the largest head-to-head trial against the market leader as part of our Phase III studies, which ultimately was used to gain approval in Europe. And so we'll enter into the European market with the confidence of having that largest data set of head-to-head data. But in addition to that, now that we've had 2 years of experience on the market and over 1 million patients treated, we've also learned the nuances of how this product performs in certain areas of the face. And what we consistently hear and it's now been in publications is, there's a precision to the Jeuveau product that's unique and different from the other toxins. And I think it's fair to say, every one of the toxins has their own unique personalities. It takes time to learn what those are, because the FDA trials as great as they are in teasing out certain pieces of information, they're limited to the glabellar area where it's a 5-point injection. Once it gets to the real world, these doctors use these products in different ways, reconstitute them differently, and some prefer to dose higher or lower than their approved indication. Of course, we can't promote that, but that is what occurs in the market. Through all of that, you learn a lot about the brand. And those -- and some of those insights will be very beneficial for us going forward. Now moving on to the marketing side. There are some things that you can do in the United States like direct-to-consumer marketing, which is what our CBM program is, our co-branded media, that you can't engage in those types of activities in Europe. So clearly, our commercial structure will be different. But it will be leaning heavily on our digital platform, and we're taking some of the key learnings from our digital side and transitioning it over to Europe as well, where we have a Head of International, who's actively building out our commercialization plans as we speak.

Okay. And with 2Q's earnings, another sort of takeaway was that you indicated business development was becoming a bigger priority for the company. When people think about sort of portfolio matches for a neurotoxin they naturally think of dermal fillers, because there was so much -- because the 2 of them were so foundational for Allergan's success on the aesthetics business. And obviously, Revance is RHA filler market or filler portfolio which seems to be off to a good start as well. That said, dermatologists are engaged in a range of procedures. So -- and they sell a lot of different products. And so are you looking more broadly than just a filler? And maybe are there segments that you don't think would be a fit for Evolus? And how are you -- and are you thinking about opportunities that are ready to be sort of our commercial stage or ones that might need a little help or sort of investment to get across the finish line?

A lot of good questions there, Doug, on the BD side. It is becoming a bigger priority for us. As we look at 2021, what we really think singularity of focus is our friend this year, and so we're very focused on Jeuveau and hitting the quarters. That's set in the background. We really are very interested in looking at business development deals that will play out over time. We're very interested in marketed products and over the longer term, interested in very innovative things for our pipeline. And that's really how we look at it. There's a lot of categories of products that are on the market today. We're pretty agnostic as to what the product would be, but obviously very important that it fit with our current Jeuveau business and with the value proposition that we bring.

And Lauren, I'm just sort of just curious, I think I asked an admittedly a multipart question. In terms of the stage of development, are you looking at things that are purely developmental or purely commercial? Or would there be things that might need a little sort of help to get across the finish line that might be of interest for you?

Sure. We really look at both. As you know, there are far fewer marketed products than there are pipeline deals. And so we have the ability to be very, very selective, particularly on the pipeline side. But when we look for things, we look for things that fit well with Jeuveau and that our value proposition would fit across the board, whether it's commercial or pipeline.

Okay. Well, I think we're almost out of time. And I think that sort of ran through most of my key questions. I do want to pass it on to you if you have any sort of closing remarks that you want to deliver?

Well, Doug, again, thank you for having us on. I think you followed our story very closely and know that the second quarter was our first full quarter that we reported free from the litigation or the COVID direct impacts on practices being open. And so we're really pleased with the strong start we had in the second quarter where we delivered $26 million of revenue. Although we don't -- we haven't guided in terms of the future, we have said that we feel confident that our business is -- this is a starting point, and we'll continue to grow. We're pleased with the continued strength of our business and the support of the customers. And we'll look forward to giving you an update as we close the quarter.

Okay. Well, great. Thank you so much, and look forward to getting a further update.

Great. Thank you, Doug.

Thank you, Doug.

Thank you.