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

Good afternoon, everyone. So continuing this, especially from a track of the conference, we have with us our next company management team from Evolus. And so from Evolus, we have Lauren Silvernail, the CFO and VP of Corporate Development; and Rui Avelar, Chief Medical Officer and Head of R&D.

So Evolus just recently had a sprint, had a pretty good number. I will get into that more in detail. But over the past couple of years, I think one of the things that I'm sure your investors that constantly asked you about was about pipeline, what is next after Jeuveau? And we're looking forward to it. And so you seem to have been tackling that now with extra strength Jeuveau. And so can you -- since we have new year, I would like to put this to you. Can you take us through the rationale of Jeuveau? And how we arrived to this point where you have an incremental pipeline or your existing commercialized product?

Sure. First of all, just on the comment on building a pipeline, one, I think a really important thing that I -- that we announced recently is we telegraphed that we're very interested in continuing to build that with the new hire, we have the Senior Vice President. Obviously, there are a number of assets that we're interested in looking at, and we look forward to kind of sharing that later on. With regards to the extra strength and where that came from, just a couple of things. The first one is [indiscernible] others were the first to publish on this concept that you can actually get a longer duration when you use more drug. And what we're seeing now over time is there's a market that has an interest, a subset of a market that has an interest in a longer duration platform. On our last quarter, we shared with you that we actually did a survey of Jeuveau users, and 86% of those users said that they would like to have the optionality of having a longer duration formulation in their quiver. Just as important, though, they also said that, that would be a subset of the market that their main workhorse would be the original strength. So from a corporate perspective, we're in a very unique position. We are a company that does not have a therapeutic arm. So that allows us a great deal of flexibility in terms of how we can price things as we consider some of the nuances of that. As we drill down on kind of the extra strength Jeuveau, the other landmark that's out there or goalpost that I think is important is longer duration. Right now, if we look at the literature, it's been defined at about 24 weeks. DAXI shown that, onabotulinum shown that. And so when we look at that, and we look at our own data and we think about the probability of success, but when we look at our Phase III data, and we use an apples-to-apples comparison and use one point as a duration, we get about 21 weeks. So by doubling the dose and by hyper concentrating it, we think we'll have the ability to flex and have an offering for our users and our patients to either go with the original strength or an extra version.

Got it. I'll probably come to the commercial aspect of a slightly later on, but I think when we were discussing around 10 days ago, you told me about the effect of hyper concentrating the neuromuscular junction. And why is it that it's specific for Jeuveau? And why could not -- why cannot other toxins in the market have the same effect?

Yes. It's again, another excellent question. I'm going to take a step back to -- your MD is playing on you here. I'll take a step back. When we look at toxins right now, we look at a lot spectrum. There are some toxins that have no accessory proteins whatsoever. And there are some toxins that have a full complement and then there's some toxins, they are in the middle. The second thing that I'll bring out is a lot of people dismissed the accessory proteins, and they basically say that was there just to protect the active toxin going through the GI tract. A lot of people are ignoring some important literature. In 1999, there was a very nice paper that showed that when you take the Bayer toxin, you get a certain amount of activity in vivo and in vitro. And when you take the toxins with accessory proteins, you get much more activity. And then that was followed up in -- back in 2003, there was another paper that published and looked at specific accessory proteins. And they showed that when you have specific accessory proteins, once again, you have much more efficacy. And what we're starting to see now is those accessory proteins may actually play a role in the uptake at the neuro junction -- function, and there may be a residual residence time within the axone that is differentiating the effectiveness. So Jeuveau has the full complement. I guess the last paper just for completeness sake is there's an important paper that was published in 2016 by [indiscernible]. And not sponsored by industry, not sponsored by anyone. She took it upon herself to do a plastic surgery. And she was actually able to show the efficacy of the 150 and the 900 complement and the 900 did better than the 150 and the one with the mix of accessory proteins blended in the middle, which seems to support that. So those are variable that may play into this. And then when we throw in the fact that we're hearing fairly consistently that our product seems to be very precise. And we think about the concept of hyper concentrating at a neuromuscular injunction that may actually be a benefit that plays well for this.

Understood. And Lauren, to you, as you did this research and came up with these servings, what kind of commercial implications did you draw from this research and think about what is the market potential out there for you to invest in this development? Can you take us through that?

You bet. Great question. When you look at the market for this, we look at the extra strength market, the one that we're targeting. We see that as part of the overall market. The majority of the market, as Rui said, will stay with the original tox. And I think we took you through when you look at all the potential uses around the face, most of them are best suited for the original strength with a few areas physicians and practitioners are going to be willing to lengthen that by upping the dose or doubling the dose. So we see it as a subset of the overall market.

Got it. And is the scope for this extra strength Jeuveau with great duration to potentially expand the market versus what you have as the current market now?

I think overall, every new entrant, whether it's us or someone else, history has shown, has expanded the volume market. And we think new products will continue to expand this market. Today, the market overall, I should say, last year was at $2 billion for the U.S. neurotoxin market. And we think our own research would show it's growing in the mid-teens this year, and any new entrants tend to have the impact of increasing that.

Understood. Rui, for you, as you think about those, what are the next developmental steps for extra strength Jeuveau?

I'll speak to it, I just wanted to comment also on the market expansion because you're making a really good point. And if I look at how the market is evolving right now, we've seen fillers, a start with nasolabial folds, and then we saw their label expansion, and we saw doctors experimenting effectively and creating all sorts of different therapies. I would suggest that we're seeing that with toxins right now. So if I think about expansion of the market, we are now doing things with fillers -- sorry, with toxins that we used to do with fillers. And so there's a tremendous amount of expansion going on right now and people and clinicians are seeing the versatility of this product beyond just wrinkle, where we're starting to see it as a volumizing agent in the temporalis and lip flips, et cetera. And so I think the market expands by virtue of the way we're going. And then just to add in, as we think about places where you'd want to use a longer duration, there's a market and there's an area where it makes sense and there are areas in the face where people, I think, are going to be reluctant to go. So being able to have the flexibility for those is important. And that brings me to the question you're asking. We're doing a Phase II study right now. And the reason we elected to do a Phase II is it gives us the flexibility to either see what kind of data we have and publish that and see where that goes. And if the market research and it continues to make sense that we want to pursue this all the way to the label, then again, we sit in a fairly unique position on having the therapeutic arm to be able to have them both on label and be able to be competitive from a pricing perspective. And the route that, that would take is you'd have to go on and do a long-term repeat dose study in Phase III.

Yes. And one of the comments that you made was about the precision of Jeuveau as a differentiator. I want to probe a bit more on that and want to see how you'll be able to capitalize on that? And secondly, how confident are you of this feedback about the precision of Jeuveau, which directs your next steps now?

The first inkling that we had of that was a consensus paper that was published, and the people that wrote that were part of that roundtable discussions were the investigators that have gone across all toxins. And these are the folks who are very well known. They're the ones that have done all the registration studies. It's Michael Kaminer, Joely Kaufman, Steve Fagien, Sue Ellen Cox. And that was the first time we actually got that feedback. And in that consensus paper, they talk about all the different toxins. And they highlight that they and their clinical use have found that this Jeuveau seems to be a very precise drug, and they've actually quantified it and used their own comparison. They felt that relative to the others, it was the most narrow field. Again, that was a consensus paper from them. As it's played out and it's been put into the hands, we're seeing evidence of that. We're seeing from a clinical feedback perspective that doctors find that it's very precise and they've used a technique to optimize on that and to take advantage of it. For instance, the forehead, you're able to get a very nice effect when you injected deep and intramuscular. And yet, because of precision, you're able to preserve a little bit of movement, you have to face everything and you don't get the heaviness. That's the feedback that we get. And then we've had a number of other feedbacks from folks that seem to fairly consistently clinically, that -- just this seems to be quite a narrow field [indiscernible] precise.

Understood. And maybe just one last question on the subject, it's DAXI. I mean that's kind of where we seem to be heading up, right? So the product doesn't come for multiple reasons. It's not yet commercial, so which -- assuming that it does get approved sometime by the end of the year and this comes out into the market, how do you see this playing out for you? Do you think it's beneficial for you to have a product out there, which convinces the market -- section of the market and a market which is readily adaptable for extra strength Jeuveau when it comes on? Or do you think it's a competitor out there, which is going to challenge the existence of...

Yes. So I mean we assume that Revance and DAXI successful. They have a lot of good people there who know what they're doing. So we assume they're going to execute. And I think it's actually good for all of us. If I take a step back and I just think about the market, it's -- as we all know, it's grossly underpenetrated with a lot of room to go up. We were a new market entrant, and we really focused on the millennials. And it's been to our benefit. Clearly, we over-index on there. But I think it's been to everyone's benefit. I mean, Allergan continues to grow and have a healthy business as everyone else has, but we were able to really shine a light on the population that didn't exist. I mentioned to you that one of the big things that are happening right now, and I see happening into the future is just the expansion of where we can use the product. I think DAXI and Revance have done a really nice job of highlighting a subset that is looking for a longer duration. And -- but if we take a step back, the only place where we have robust data is in the glabella region. That's it. And I think they have robust data there, and we see all the competitors having and will have a nice data set too to show that if you inject in the glabellar line you can do that. And I think we're bringing in interest and bringing a broader population in that's interested in the toxins, maybe those who are there, those who may have seen it as a barrier. And so I think it stimulates interest. So I think that's good for all of us. As an organization, specifically in Evolus, we really like that because we will be the only ones that will actually be able to say, here's your longer duration and by the way, here's your original if we want to go through this and take this all the way to the indication to be able to offer them both.

Got it. Changing gears probably slightly, Lauren, you had a very good Q4 print.

We did.

You initiated a guidance for the first time in 2022, line guidance.

We did.

And I'm sure market received that positively. So take us through what you're seeing in the market? I mean, this market has had a bit of a rough ride over the last 2 years, I'd say, but at a pretty steep trough and then recovered pretty rapidly...

Very rapidly. Yes.

Speaking about the resilience of the market, and now you're at the edge of -- you are in 2022. So what do you see as the underlying market growth? And what are the pushes and pulls towards this growth?

Sure. No, great question, thank you, on the market. If you look at it, the market hit an all-time high last year, to your point of about $2 billion in the United States, and I'll focus on the U.S. And what was really driving a lot of that is really the younger consumer, that millennial consumer coming in. And that has benefited us more than the other market participants, we grew much faster than the market leader. If you look at our '21 performance over '20, our sales growth was about 76%, and the market leader grew a lot less. So we are not only growing faster than everyone else, but because of that, we're also taking share from all others. So just a fantastic year for us, but really driven by the actual market dynamics, the millennial coming back. And then the whole what we call the Zoom boom, right, and that all of us are tired of but forces us to look at our faces all day long. And that has resulted in folks wanting to be treated and wanting to be retreated once you start on a toxin, you tend to stay with it. And we saw that in our consumer. We have a consumer loyalty program that launched. We had 270,000 consumers in that by the end of last year, up 120,000 over the prior year. So all the metrics and dynamics in our business, adding 400 accounts a quarter on average in Q2, 3, 4 last year, just show how strong the business is both on the market side and then the effectiveness which we haven't talked about yet of our marketing programs.

Got it. And when you launched Jeuveau, a couple of years, 3 years ago, you had this goal of being #2 in terms of market share.

That's right.

And granted that there's still limited data out there in the market, but where do you think you are right now? And 3 years from now, 2024, where do you think you're going to be with Jeuveau?

Great questions, both. So if you look at last year, if the market was $2 billion in the U.S. and our sales were USD 100 million, we were about 5% on a dollar share. The market leader is priced higher than us. So on a unit share basis, we were in the mid-single digits of market share. And that was really a huge amount of growth for us to break that and to exit the year at roughly $140 million sales growth -- sales run rate, excuse me. As far as a couple of years out, we haven't guided on that yet. We obviously is are growing faster than the market leader, as I said. So we expect to continue to take share.

So it looks fair to say that you're probably going to grow faster than the market rate, at least for the next few years.

We certainly expect to do that this year. There's no doubt about it. I haven't guided after that. But if we do that this year, one would expect you would.

Got it. One thing which has been very interesting for me as I see your execution, which has been great is your co-branded loyalty program, right, your co-branding program. And clearly, that seems to be resonating. Can you give more insights into that? How many of your accounts are on the co-branding platform? What kind of expectations do you have with this? And at what point do you think you would say that, okay, maybe this effort has outlived its validity. So at what point are you going to take a call on that? Or is this going to be a permanent part of your business?

Sure. Great questions again. I think if you look at our co-branded program and what we mean by that is that we invest and basically become the ad agency for one of our customers, and we provide them with content. We take a crew into their office, make up, hair everything, do their office staff, shoot very high-quality material so that, that practice now has a way to market to the millennial through social media. We also then add to that 60, 30, 90-minute spot footage on Jeuveau or Evolus, depending on the audience. So you've got co-branding here that builds our brand which is a key part of our multiyear strategy of how we continue to grow share in the market, but we're also helping typically a millennial provider to attract millennial consumers to the practice by filming and doing things the way you would for social media. Last year, we were one of the biggest buyers of billboards in the United States, which is almost the antithesis of social media, but that's where we started. And we bought 1,000 of those across the U.S. And those skew, to your question, to our larger accounts. So if you are buying hundreds of vials from us at a time, you might have a billboard this year, you might have then an add that you would see on a local TV spot like a Hulu ad or something like that. And I think what we continue to do is innovate and differentiate with our CBM. So what we did last year, we won't do this year, we won't do in the second half of this year. We'll continue to do new things. Ideas and things that we're working on are find a doctor. And that's so different than what's on websites right now. This is book an appointment, book now. And each of these things that we do ties us in tighter and tighter, and we are able to do things, as Rui mentioned earlier, because we are a cash pay. If we had a therapeutic business, we could not partner with the accounts this way. And because we have the precise product with all the advantages we recited, and we have this differentiated marketing approach, we are different than anyone else in the space. All of them have therapeutic businesses and cannot compete with us in the way we do.

Understood. And earlier you did provide some updates around the number of accounts you have reached out to and your reordering rates. Can you provide some more metrics on that into what kind of data are you seeing with your -- with the purchasing with the accounts as of now? I think Q4 was good. January, we hit into Omicron, an update on maybe how it impacted you? And where we are now at the end of middle of March?

Yes. We're getting to the end of a quarter here and when we look back on the fourth quarter, and I can speak to that, obviously, I can't speak yet to first quarter, but very strong when you look across all the metrics in the business; year-over-year, '21 -- fiscal '21 over fiscal '20, our average price was way up. Our volumes grew even more. So when I look at the mix of the business between '21 to '20, it was really volume-driven, and CBM played a big role in that. And when we go through all the metrics, we see that accounts are buying more to get these benefits and that we are able to increase price relative to how we competed during the COVID period.

Understood. Shifting gears slightly to your international strategy as you expect to launch in a few countries, give us a sense of the cadence of your international launches. And as you think about expanding OUS, what kind of an optimal mix would you want to have in a couple of days from now and which are the markets which are key for this goal?

Sure. We thought a lot about this. What is the right pace of growth and from a strategic standpoint, what is the right capital allocation. And for the first half of this year, we are allocating capital largely towards the U.S. market. Your question is very appropriate. A lot of debate on this at the end of last year. The reason for that is because of the high gross margins we have in this market, the growth rates and the fact that we've got an established CBM program that's working so well, it's driving the high volume at the higher prices. As we look out over the next few years, we want to be a global business. And thanks to Rui and the entire R&D team at Evolus, they've had a lot of successes there. So we are launching in Europe in the second half, but in a very measured fashion. What we plan to do is launch in a few countries, less than a handful and then roll them out over the next few years. The goal is not to have a large loss in Europe in any one particular quarter and instead take that capital that we're not investing in a big launch over a quarter or 2 in Europe, but over several years and put it behind the U.S. launch to get ourselves to profitability faster. So that's how we think about it strategically. In addition, Rui and his team have filed in Australia, as we announced. So we expect that is -- and that's another higher-priced market. That will launch sometime in 2023. And all of this then lays the platform for us for business development, which is very important. As Rui mentioned, we've hired an SVP Corp Dev, who's just a real rock star. And we will continue to look at adding to the pipeline and marketed products over the next few years.

Understood. We have l minute left, but I still want to discuss financials though. I think one of the themes that we have been articulating this year is of inflection with many companies at different points with you, it's your breakeven, right? You're reaching breakeven this year. So take us through your expectations around what will get you there? And how should we think about this going forward in terms of cash generation?

You bet. We haven't guided on the time frame to breakeven, but when you look at it, take a look at our fourth quarter, our gross margins there are 68% to 71% that we've guided. And if you look at our expense levels, which have been in the high $20 million to low $30 million on a non-GAAP operating expense basis, you can see what type of sales level gets us there. We're very mindful of getting to that point. As I mentioned earlier, our capital allocation strategy is really trying to drive us in that direction.

Great. With that, we have come to the end of our time, but I do want to also take this opportunity to thank you, Lauren. I know that you're retiring after this, so I wish you the best for your next phase.

Thank you.

And Rui, thank you for taking your time out and speak to us today. Wish you the best for the next goals that you have set for Evolus, and have a productive conference. Thank you again for your time.

Thank you.

Thank you for the invitation.