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

Good afternoon. I am Louise Chen, the large-cap and biopharma analyst here at Cantor. Thank you for joining us today for our virtual fireside chat with Evolus. We are excited to have with us today David Moatazedi, President and CEO; Lauren Silvernail, Chief Financial Officer; and David Erickson in Investor Relations to discuss the uptake of Jeuveau and also the EU launch in early 2022. Despite COVID-19, the uptake of Jeuveau and its underlying growth has been very strong, and we continue to expect Jeuveau to be at least the #2 toxin on the market, and for Evolus to expand it's aesthetic offerings to build out a leading aesthetic company over time.

So with that, I wanted to ask you the first question I have for you all. For investors who may be new to the toxin story, can you give us a sense of the size of the market, how fast it's growing and where you are in terms of market share?

Sure. And thanks, Louise, for having us on. It's a pleasure to be here. This is an incredible market for those of you that haven't followed aesthetics closely. The neurotoxin market is the largest category in aesthetics. It's valued at roughly $3 billion globally, with the U.S. representing the largest piece of that overall market. We believe this year, the U.S. neurotoxin market for aesthetics is $1.8 billion, growing at a very fast clip. In the second quarter, if you look at other companies that report publically, the market leader reported record revenues. And we're seeing that this market is growing fast on the back of several things: Number one, a younger generation of millennials that are entering this category at an incredible pace; and number two, the Zoom boom, being on these calls, as we are, has increased the awareness levels of doing procedures like Jeuveau in the U.S. We have a unique business model, which I know we'll talk about, that enables us to capitalize on that trend of these younger demographic consumers coming into the office, and we think that positions us for really strong growth going forward.

Okay. And then maybe if I could ask you just broadly speaking, without getting into too many specifics, how do you compare and contrast Jeuveau to other toxins that are on the market and the ones that are in development that might eventually come to the market?

Sure. Yes. So in the U.S. this market has been in existence for 20 years, and we were the fourth entrant to enter the market just 2 years ago. What makes us unique is, we're the first 900-kilodalton molecule, which is the same as the market leader, and we're the first to enter with that molecule. We're also the first to do the largest head-to-head study against the market leader to prove how effective our product is and that really has given injectors around the country, the confidence in how our product performs. Now what's challenging in this market also is that just as -- because of the labels of these products, just as we can't differentiate from the competitive set, the inverse applies here as well. But in the end, the consumer is really looking at this category as a beauty treatment. And she's looking to preserve her beauty and maintenance over time, and it really is how you build your brand around the consumer with these practices. And that's really what's made us unique is, we're an aesthetic-only company. In this category, all [ other ] neurotoxins have approvals for both aesthetic as well as therapeutic uses. And by being focused on aesthetics, we think we can meet the needs of these customers and have the latitude to do things differently around them. That's really what makes our business model unique from the others.

And then in terms of COVID, I know there's been somewhat of a resurgence, I think maybe things have stabilized a little bit now. But how has COVID-19 impacted the toxin market? And have things returned to pre-COVID levels yet? And do you see any of these variants or the upcoming cough, cold season having the potential to sort of dampen the market growth that we've seen?

Sure. Well, COVID impact in 2020 was clearly a significant impact to the market. That being said, on the overall macro trends, if you look at 2021, this market is going to hit an all-time high and will be growing at a very fast clip even relative to pre-COVID levels. So from that standpoint, it's an incredibly resilient market, primarily because of the factors I talked about earlier in terms of the overall macro trends being favorable in this market. As we look forward, of course, the uncertainty of COVID and how the strain evolves has us all watching very closely what happens with aesthetic procedures. Fortunately, aesthetic providers were -- have been very diligent about the way that they handle their patients through any outbreaks. And so they, of course, practice all the proper COVID measures, and they've been able to stay resilient and open through the latest strain. And unlike where we've heard about hospital procedures being impacted, from an elective procedure standpoint, we haven't seen that impact the aesthetic space. So we continue to see robust demand as we enter the back half of the year.

Okay. Great. So Evolus has survived a period of existential uncertainty. And it appears you now have the wind at your back. Perhaps you can talk about how your customers have responded and some of the challenges you faced and what you've learned from those?

I think we're stronger than we've ever been. I think on one hand, you look at -- just focus on the business itself. Our top line in the second quarter was 20% above our all-time high, and our expense base was 20% below our pre-COVID expense levels. And so when I say, we're stronger than we were ever before, what's in that is that we've leaned more heavily into our digital platform and relied less on fixed expenses to help fuel our growth. In fact, as you look at our expense base from COVID levels to where they were in the second quarter and going forward, the majority of the incremental expense came in the form of advertising for our customers. We do co-branded media, where we invest directly around an account in their local geography, and based on the purchase volume that the account does, we invest more. And the majority of that incremental expense actually went into co-branded media. So as I look at the overall health of our business, I'd say, number one, the product itself has never been stronger, and we feel that we've got great confidence in how the product performs. The second is, we're really leaning into digital, which gives us an efficiency to put more money into our unique business model, which is not just digital but co-branded media, only enabled because we believe we have this unique aesthetic-only platform. So -- of course, we recognize with the history that you talked about, Louise, on one hand, yes, we've been resilient to weather through it. On the other hand, for investors, they want to see multiple quarters of consistency. The second quarter sort of marked the baseline that we'll build from as we continue this launch, but we feel that we're on a very strong trajectory.

Okay. So Evolus has a differentiated approach and that it specifically targets the millennial consumer. Why is that such an important demographic? And how is that consumer different from the traditional toxin consumer?

Sure. Well, the millennial segment is the fastest-growing segment of consumers in the U.S. across industries. But in aesthetics, specifically, today, she represents anywhere from 20% to 30% of toxin users. Over the next several years, she'll be the majority of the user base. So clearly, there's a favorable trend in that group. But what the millennial mindset also represents is a different mindset in terms of how they choose products. And by positioning Jeuveau as a performance beauty company and branding it around that millennial segment, everything we do is wired for the way that they consume. And when we did our initial market research several years back, as we worked through our positioning, we quickly learned that, that millennial is actually not looking to do what her parents did. She doesn't gravitate to the same brands that maybe the parents had gravitated to. She looks for brands that deliver a fulsome experience, and that's exactly what we're trying to drive to. And we think that, that combination of building our brand around that segment and co-branded media to help build that brand around each practice, will continue to fuel our growth and create the brand awareness that over time will be the differentiator that makes Jeuveau a durable asset.

Okay. So Evolus is doing some very innovative things, both in its advertising and the way that it partners with its customers. Can you describe your approach and why it's successful? And how it's differentiated from some of your competitors?

Sure. Well, in this phase, what we hear about often from investors is, how can you compete against a product bundle. The biggest players in the space have a number of portfolio brands and their aesthetic pricing programs. And the more you buy of one, the better your pricing on the other, and that's ultimately the selling model. We created something very different. We introduced a program called Evolux, which is designed to compete against those portfolios. It offers the same idea of as you buy more, you save more, which is, of course, what accounts would expect. But one thing that we do that no other competitor does is, we reinvest based on the amount they purchased in the advertising. And that is what you talked about, what's unique is our co-branded media. And our co-branded media is something we do in partnership with the account. And we do it digitally, we do it with billboards, and we take an injector in any local market and we partner them with our brand, and we advertise it to consumers within a radius of their practice. If you use one of the vehicles -- as an example, we did billboards. We placed nearly 1,000 billboards to date, and we just launched this program less than a year ago. And to my knowledge, that's significantly greater than any other penetration of billboards that have ever been done in this category. And so we're seeing very strong interest. And it's fueled by the fact that, number one, when a consumer is considering getting treated with a neurotoxin, the first question is, who's going to do the treatment. And when we put the picture of that injector next to a brand within that local radius, we've eliminated that question of who they go to. The second is, we track all of these metrics, including the phone number on the billboards so we can report back how effective our branding has been. And we find that our customers really value seeing that return on investment from our advertising. But I guess when you step back, we're changing the paradigm. It's not just about giving you savings by buying more products and handcuffing customers, it's about reinvestment in growth. And that's what differentiates us as an aesthetic-only company is, we're really fueling growth. And it's really targeting that millennial group, and that millennial segment is exactly where these practices want to grow for the future. They know that, that consumer target represents the largest growth driver for them in the future.

So how do you think about more competition coming into the U.S. toxin market? Do you actually think that will materialize over the next 1 to 2 years? And then how do you plan to position Jeuveau against these new entrants?

Yes. Look, I think competition in this market is fantastic. You've got a demographic here where only about 6%, 7% of consumers that are interested in getting a toxin are actually in the practice. So the real competition is the consumer. It's a fight to get more consumers into this market. And where we're positioned, we believe is very differentiated and very durable. And we're going to continue to drive that focus against millennials. We're 2 years in as a new company in the aesthetic space, and we're just now representing how unique our business model is to this market, and we're just now really starting to build the brand in a way that's appealing to that demographic. And I look at this market, 20 years mature, there's 4 toxins, there's certainly room for more. And as more toxins enter, I suspect the market growth will continue to accelerate, and you know the proof is in the pudding. I think, the market leader that's been around for 20 years grew to all-time highs in revenue in the second quarter, and that's despite the fact that there's 3 other toxins in the United States. So there's plenty of room for more and there's plenty of room for growth. But -- to your last question around what changes for us, really nothing changes. We developed our positioning, our messaging and designed the company from the asset, recognizing that this market would evolve and there would be more entrants. And we chose this strategic focus against the millennial as really the way that we continue to build our company.

Can you talk a little bit more then about what is the penetration of toxins today for aesthetic use? And what do you think it could be over time? Do you feel maybe that's underappreciated by the street?

Yes. The toxin market, as I mentioned earlier, roughly mid to high single-digit consumer penetration. And it makes sense, right? And this market is only 20 years mature, and we're just now starting to enter the next generation of consumers that's been around this category long enough to feel like they weren't the first to start using it like the parents were, like my generation or even my parents. So this group does not have the same barriers to seeking treatment. They view this as a beauty treatment, whereas it was viewed as a medical treatment when it first got introduced. And just as much as it needs to be -- the procedure needs to be done by a medical professional, it is for that consumer about treating herself to an experience. And I think that's where we differentiate ourselves is, we are focused on this being a beauty experience for that consumer. And that is what we believe, ultimately, will lead to double-digit penetration of the consumer base, and beyond, which creates incredible potential, not just for Jeuveau, but for this market overall. And I think that's why you're starting to see now companies that are focused more within aesthetic medicine because the traditional pharmaceutical approach to a beauty treatment is just not going to work with this younger demographic. And we think that latitude to do things differently around it makes us more appealing.

Okay. Switching gears a little bit away from the U.S. and thinking about international expansion here. Can we talk about your launch in the EU next year? How big is this opportunity for you? And how do you plan to differentiate Nuceiva?

Sure. So what's exciting about Europe is, it's the second largest market in the world. And we're already approved there, and we're developing our commercialization strategy to launch early next year. It's about $500 million to $600 million toxin market there, and we'll be the fourth entrant there just as we were here in the U.S., although we'll have the foresight now from 2 years of experience with this brand. And we'll apply, obviously, those key learnings as we prepare to launch in Europe. And we do -- we're very excited about the opportunity there. We think it's going to represent a significant new opportunity for us as we expand our footprint.

Okay. And then presently, Evolus is a one-product company, but you've communicated a desire to add to the portfolio. What kinds of things do you think make the most sense? And would you acquire something, build it, partner? How do you think you write your next steps here?

Sure. That one is good. Lauren, do you want to?

Yes. Sure, be glad to. Thanks for the question, Louise. As you look out into the future for us, this year is all about Jeuveau and getting ready for the Europe Nuceiva launch. That said, we continue to look at business development opportunities and divide them into 2 buckets. Transformational deals, which with where our stock price is today, we don't like the price we're at. Probably not something that's going to happen in the short term. And then deals that add to the pipeline in areas of interest to us that go on our platform, that go on the digital platform, that go with the sales force we have. And so really represent pipeline. Everything we look at is in aesthetics, and it's very focused around our core markets of the U.S. and Europe overall.

Okay. Great. Well, those are all the questions that I have for you today. Before we close, I wanted to open up to you to see if you have any closing comments for the audience.

Sure. Look -- again, thank you for taking the time. I think the key themes here are very real that you've got a fast-growing toxin market, probably faster than anyone anticipated coming off of COVID. And we believe we have a unique business model catering to that younger generation of millennials and to these practices that are looking for faster growth through our co-branded media. And so we think it positions us for strong growth, both in the U.S. and next year, as we look to enter 31 countries, it helps fuel our growth there as well. And fortunately, we're in a strong financial position to be able to invest into that growth now. And we recognize it's now all about execution, and that's what we're focused on doing.

Okay. Well, thank you, David, Lauren and David, for your time today. And thank you to the audience for your participation. We respond to any questions via e-mail. And with that, we'll end everything here.

Great. Thanks, Louise.

Thank you.