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

My name is Balaji Prasad. I'm the senior analyst for the spec pharma coverage. Continuing our sessions for this afternoon. We have with us the management team from Evolus. So Sandra Beaver, the CFO; and Rui Avelar, Chief Medical Officer with us. And Sandra and Rui, you just recently had your earnings release call. Maybe why don't you recap, scoping the key points from the earnings and then jump into Q&A from there.

Sure. Sounds great. Thank you also for having us here. Thanks to everyone. Just last week, we did our Q4 earnings announcement. We put up 49% growth for 2022 revenue, ending the year at $149 million. We achieved our guidance target of top end of $140 million to $150 million of revenue. Had $137 million for cost, which is also at the low end of our operating cost guidance. We're really pleased with the results, really pleased with the level of growth we're seeing in the market in 2022. We also reiterated our 2023 guidance where we had guided to $180 million to $190 million of revenue, $145 million to $150 million of operating expenses as well as achieving non-GAAP operating income and profit for the fourth quarter of 2023. We're very excited about putting up that guidance and really [indiscernible].

Fantastic. A few things to dig into that. But before that, so yesterday, we also had an aesthetic clinic per se on the back of the conference or as a filler to the conference. And we had an interested conversation. I think one of the topics which came out was that something that into last week [indiscernible] as a duration of being an unmet need in the aesthetics? And also we're also discussing the holy grail of wrinkle care like topical toxins, too. But I want to start on the -- since we have Rui here, I don't want to start on the extra [ usual ] that we have now -- it's been a year that [ discussed ], you recently released an interim Phase II data for ESJ. So walk us through these results. It looked compelling. It looked pretty strong. So how do we interpret those results? And extrapolate that to final readout, which is coming end of the year.

Sure. So when we started, the questions that we had to answer is, number one, the safety profile at 40 units. And the second one is when we create this extra-strength formulation, which is a combination of increasing the dose and making it concentrated, what impact does it have on duration? And then just to kind of give some background numbers as people think about it. There have been a couple of companies that have actually done 40 units. And when we look at like -- something like a 1-point improvement on the glabellar line scale, and a 1-point improvement is important because most people have reported that out. And by definition, it's a clinically significant change. We've see about 24 weeks of duration at 1 point. And we came in pretty much along with that. We came in at 26.1 weeks. So that's where the data is today. Now that's interim analysis, and we still have patients in the trial to end in June. So our expectation is by the end of June, the number would be same or it actually has the potential to improve a little bit more. That's where we are now with that study.

Fantastic. So as you come to the final readout, what are the key signals that you're looking to interpret from it or gather from this that will convince you of its potential, despite, okay, we have [indiscernible] that's happening.

I mean, another really good question. From a -- I think from a top line perspective, we already see that we have a duration value that's just as good as anything that's been shown. Numerically, maybe is a little bit better. But again, it's not much of a difference. The -- we don't expect the final data out -- comes out that it will be any different. We'll just have more data inputs. Probably the thing that's most important is what our HCPs say. So this new kind of longer duration sector is a great opportunity, I think, for a lot of folks. It's a market [indiscernible]. The nice thing about toxins, it's an underpenetrated market. The nice thing about longer duration is it just helps make the market bigger. So what we're showing is that if that actually becomes a meaningful market, then we'll be able to participate. The question that we want to ask the HCPs is what do they advise us to do next. And there's kind of 3 different ways we can go. One is simply publish the data that we have today and effectively, in that publication is the recipe of how to do extra-strength. It's the same vial, same 100 unit vial. The second step is do, for instance, a large Phase II maybe head to head. And then the third option is actually take it all the way through registration, conduct the Phase III studies and take it all the way to registration. The -- now that we've released the data, and we've been discussing with HCPs, we're really getting doctors asking us, "How do I do this? I'd like to try it myself. I'll do my own [indiscernible]. I'll do my own little experiment in my clinic, try it on patients or staff or on myself." And the sentiment right now is either publish it in like a Phase IV study. We're not really getting people saying that we should take it to Phase III at this point.

have it. That's interesting. So the quickest path to commercialization is you leave it in that [ phase ].

[indiscernible].

All right. Great. And I think -- and for you, the interesting thing is that you're looking that [indiscernible], which is going ahead, which has gone ahead of you, is prepping the market, which has -- there have been -- shows a win-win for this product. Like there is -- they are now ready to receive one of all products in there. Is it a fair read?

Yes. I mean, I think we've seen, as Rui stated, really good market reaction to the idea of long duration, but also just really good reaction in terms of media coverage of toxins, right? So I think it's going to provide, hopefully, either expansion of the markets for new consumers coming into the market that maybe hadn't heard of things otherwise and/or if there's higher usage of the product, which is higher volume of units and you're just going to have same consumers consuming the product that will provide some market expansion for us. So I think we see nothing but opportunity and sort of positive buzz around the conversation around duration.

Great. Maybe just last question on this topic. Can you give us a sense of the market expansion potential that you speak about, like if it's a $2.2 billion aesthetic market in the U.S. today, what kind of market expansion could we think about in the longer duration product, 1 or 2 longer duration products out there in terms this market?

I think it's early days, right? So I don't know that we've started with any specificity the opportunity around longer duration from a total market perspective. We have some, I'll call it, anecdotal evidence or evidence from talking to our HCPs about the interest level and what percentage of the patients might be considering something like longer duration, which is in the minority, call it, 20%-ish range, right? So then you kind of extrapolate some thinking, but I don't know if it's fair to do that without higher knowledge or adoption rates in the market yet.

Fair enough. And Rui, maybe just one last question again. I think one of the clinical differentiators, which has come out with Jeuveau has been precision and with longer duration or greater, there were talks and there have been challenge always in ensuring that the side effects don't really stay on for a long time, and that's been a deterrent in this -- in the past for this, right? So comparing the 2, it looks like it's a better win for Jeuveau?

Well, I mean, first of all, I want to commend our friends at Revance. I think they've done a really nice job of creating a new market sector and bring a lot of awareness. So that helps everyone. In terms of the profile, the one thing that we've learned about Jeuveau, and there's a consensus paper on this, it seems to be a very precise drug. And to your point, when you look at the adverse events and the toxins, they're usually related to just central [indiscernible] spread. And that also plays into this adoption, the question you asked in terms of how big this market. I think we're going to have to learn our way through. There's areas where we know glabellar lines is a good place. There are places that we're going to be nervous about like in the forehead where already we underdose relative to the label to avoid adverse events. And there's going to be areas where we're just going to have the -- we're on our way to off-label such as the corner the mouth. So our product now from clinical practice is a very precise drug. So I think it's well suited for this. But until we kind of get into the broader market, have more real-world experiences, we're just going to be very conservative on the performance of that.

Great. And maybe getting to the broader [indiscernible] market. We had spoken to quite a few aestheticians somewhere around Q3, Q4 last year, who started calling out that there [indiscernible] time for decline [indiscernible] people, those who are flushed with cash, various sources for it. The markets or [indiscernible] checks, that they're not getting it anymore and that they are seeing declining visits to the clinics. And your numbers clearly underlying that. Your numbers have been fantastic. And then you came out with a $500 million of guide aspirational goal in 2028 at 20% plus-plus goal. Not too many companies can really stay in there after launch and say we'll still grow 20% plus-plus for the next few years. How do we kind of correlate these 2 data points to the broader market.

Sure. And maybe we can talk a little bit about what we saw in 2022, and how that's informing our thoughts on 2023 and beyond. And I think it would be useful to also unpack that $500 million, just so you can get a sense of why we're so confident in delivering that number out in 2028. So I think in Q3 of 2022, I think we all know 2021 was not the most typical year. It's phenomenal due to COVID, and the rebound and the recovery from COVID. And we did, like others, see some softening in the third quarter. However, I think what we learned as we process through the third quarter and into Q4 was this was really going to return to typical seasonal purchasing behavior than what might have originally appeared with the recent softness in the market. So we did still have a very strong fourth quarter and have full year and Q4 results with significant growth over Q3 and then significant growth at 49% on the full year. And then contemplated in our 2023 guidance is also that same return to, say, typical seasonality, but Q3 does tend to be a slightly softer quarter with higher vacation, things like that. But we continue to see evidence of strong demand in the market, continued entrance of new patients, right? That was aided for us by our Switch Your Tox program where we were incenting consumers to try the product by offering higher consumer loyalty rewards at $80 a visit for 2 visits. And we saw a large influx of patients and a large share gain for us associated with that particular program. And we just continue to see that momentum building coming into 2024. So all the signs that we are seeing are strong market, continued opportunity in the market. As we said, it's a vastly underpenetrated space. And so for 2023, we're contemplating high single, low double-digit growth in the market. And we do think that over the long term, that will persist out into 2028. So although we may see some ups and downs in that time frame, our overall long-term guide is contemplated on a similar level of growth and strength in the market over the 5-year horizon.

have it. Great. So clearly, there's a 10 to 12 percentage point differential in growth that you are still expecting Evolus to have over the next 5 years?

Yes. So let me talk you through how we get there.

Please.

So with a $500 million guide, I think people are, "Wow, that's ambitious." Like that feels really good. And actually, as much as we're very proud to put up that number, it doesn't feel super ambitious to us. It's still feels really rational. So as you know, we entered a Great Britain the back half of last year. We've launched in Germany just this last weekend. And so by 2028, we expect roughly 15% to 20% of our revenue to come from OUS. So when you think about outpacing the market, when you take that out, we're actually not outpacing the market at quite the same rate that you might think when you look at the top down. So that gives you, let's say, roughly $100 million of that $500 million is your international market. The remaining $400 million, we'd say that we exit 2023 in that $180 million, $190 million range. So the $200 million gap comes from 2 areas, one being just that growth in the market we've been talking about. So that high single-digit, low double-digit growth. We'll enjoy and share in that benefit, about $100 million of your growth coming into that and the remaining comes from share gains. The majority of those share gains we actually have contemplated in our 2023 guidance that $180 million, $190 million number. So now you're thinking about relatively modest share gains from '23 to '28 on a strong market, and it's still very achievable.

Okay. Great. And maybe it's now been 4 years since the launch. Any recent learnings from your accounts, from large programs, both the physician and the consumer and maybe starting with the [indiscernible] in terms of what you're seeing and that you could boost to double your campaigns for 2023 and 2024?

Sure. I mean I think 2022 not only was a great year for us from a revenue performance standpoint, but it was also a great opportunity to learn how our programs work, to learn how our practices responded to the different offerings we put into market. The 2 things that for us has shown to be the most effective, and we think they're pretty differentiated in the market, are our consumer loyalty program and our co-branded media program. So co-branded media allows the practice as they opt in to higher levels of what we call our Evolus tiers, which practice loyalty. They get access to these co-branded media campaigns in the form of billboards, digital campaigns as well as through ads. That's something unique to Evolus. That something is the cash pay-only business that we can do that others cannot. And we do find that practices that are opting in to these programs, that are purchasing at the levels, will allow them access to these programs and [indiscernible] roughly 3x a day than practices that are not, right? So that allows us to really [indiscernible] efforts on how do we help move the clients of those tiers? How do we get them engaging for branded media? How do we make sure that they're putting up consumer loyalty for their patients? Our patients get $40 off every [indiscernible] during our loyalty program, which is one of the richer programs available in the market, and that actually drives higher volume to practice and higher returns to practice. So we're really partnering with the process to drive long-term value and focusing on those segments that are going to help this space.

Great. A couple of questions on the -- on your preferred customer segment on the millennials. I think one, how do they react to longer-duration toxins? And [indiscernible] is this something that is [indiscernible] for this particular demographic segment? And two, probably not a question for now that you're thinking, but as its age group evolves and grows further, do you kind of see them transitioning out of Jeuveau? Or do you expect them to use pretty all the brand [indiscernible]?

Sure. I'll go on the first one. The duration point is an interesting one, because it's not a linear relationship. When we look at the dosing and the amount you get, if you look at duration for 20 units and you look at duration for 40 units, it -- you get more duration, but it's not linear. So in some ways, if you model it out, millennials are going to be cost conscious, for instance, it's -- you're almost better off doing 20 units than 40 units, if you do it mathematically that way. In terms of having the product from a long-term perspective and in the context of millennials, one of the important things to look at is antibodies. And not just neutralizing antibodies, that's only part of the story. General antibodies because that's how, and I know you're an MD, that's how you run into trouble with hypersensitivity reactions and everything else. So when we looked at our antibody profile, we had 0 antibodies in the vacuum drive. Now as predicted, the freeze-dried had general antibodies. Now neither of those products had neutralizing antibodies. But I think from a long-term exposure with repeat exposures, not having any antibodies at all will be an interesting thing. And then thirdly, in particular, when we think about the millennials, that's why that publication was so important. Funny enough, we were not able to find a publication that looked at millennials and those other lines. So we did a really large -- we moved to Phase III studies together. We're able to show a few things. We were able to show that if you look at the glabellar line scale, which is a validated scale, non-millennials do really well, of course, we do. Millennials do even better. Now physiologically, there's good reason for that. The big surprise for us was when you ask a relatively critical millennial to the success on the aesthetic or in subject satisfaction, millennials do really well. Non-millennials did even better with 100% scores. So I think that really bodes well for this product in the context of the millennials and having some data to support that from a longer-term perspective dose. There's only the studies they did [indiscernible]. The patient-appraised scores are going to be lower than the investigator scores.

That's the big ask, right, that we were looking for?

Yes.

Okay. Great. And maybe I want to spend a few minutes on the international opportunity that you've called out, of course, $100 million, which is probably achievable, considering [indiscernible] you're present in. So give us a sense of how we expect this ramp to happen? What kind of expenditures do you expect to incur over the course of the next few years as you expand in these markets.

So we're currently in Canada through a distributor. We launched in Great Britain in the fourth quarter of last year. And just recently, as early as a week or 2 ago, we've launched in Germany and Austria. We also received approval in Australia in the first quarter, a full quarter earlier than we actually anticipated that approval to come. In Europe, we did get blanket approval so we do have approval to operate in all the jurisdictions that we have rights in Europe. So really, as we think about our expansion, we're focusing on the markets that are of the highest value and highest potential opportunity for us, hence, why we launched first in Great Britain as well as Germany and Austria. We're planning actively to think about how we launch in Australia, which is also the larger markets outside from the U.S. for neurotoxin. We've built up the infrastructure to support these launches largely in 2022. So you can expect sort of future investments to be modest and align to the past with which we expect to grow revenue. We're going to enter markets in a way that ensures the highest degree of success in each market, right? So we're not trying to do this big bang launch in all of Europe. We're trying to do a much more thoughtful, rational rollout as we test and learn as we enter into each one of these markets to build our opportunity there with Nuceiva.

Great. And between these 2, so then you're really looking at around 20% revenue exposure from here? And then how does it also impact your capital allocation strategy as you think about these growth markets and then add in additional layers of assets to the existing pipeline?

So in terms of capital allocation, just to support the expansion, it's really business as usual for us, right? So it's contemplated in our normal operating cost structure, it's considered in our guide to profitability as well as sort of our long-term guide on how we intend to fund the business with profitability. Certainly, as we look at business development and other uses of capital to expand assets, we consider not just the U.S. market, but the footprint we have in international so that we're getting the highest value on those opportunities.

I do want to spend a couple of minutes on the competitive landscape, especially as we hear about [indiscernible] potentially looking at coming with their [indiscernible]. And then you also have [indiscernible] as well working on [indiscernible] with the liquid toxin. How do these figure into your -- around the market? You are either still looking to gain share every year. But with these competitors coming in, how does it fell the dynamics?

I'll let you speak to the products first, Rui, and then I can talk to [indiscernible].

Sure. On the future of product, we'll have to see. I think North America is a little bit trickier because the ITC case, and we'll have to see how they play out. It will be interesting to see how it plays out in Europe. The early read on the product in Europe is it seems to have a performance profile kind of along the lines of [indiscernible] line up. That's early read, and I just came back from Germany this weekend. Now it's early days. It's unfair to pass any judgment, but that's the feedback. The liquid toxin, again, it will be interesting to see how that plays out. One of the challenges that they may run into is it's certainly convenient because it is reconstituted, if you will. Now we know that clinicians do like to exercise their own judgment in terms of being concentrated. And so we'll have to see how that plays out, that flexibility is taken out of their material. And then there are a couple of other questions that we still need to see. Stability has been a bit of an issue in Europe so far. We know that the product we've seen only have 1-year stability as opposed to 3 years. And then the third one that we keep hearing really consistently is pain. So one of the pieces of feedback that I think everyone's heard pretty consistently when you get a liquid toxin, it seems to be a lot more painful. So all lessons we have to learn. Let's see what happens in their license.

Great. That's very helpful.

You can think about these in the context of our guide, right? As I mentioned to you, 2023 is our biggest year of share gain. And then we sort of have modest share gain thereafter. Our entire long-term models were built off of the analytics that we developed in 2022 and the expansion opportunity we see in the market with new accounts and new consumers. So we feel essentially there's plenty of share to go around for new entrants to come in. We obviously never underestimate the importance of new entrants in the market but feel comfortable that our guide has contemplated how we'll build that share and others will share effectively in the remainder of the market, and that there's not a concern for us around our long-term guide as it relates to new entrants.

Have it. And in terms of the outlook, I think clearly, most of the investors speak to understand the narrative with Evolus very well now, fairly straightforward narrative. You had a couple of headwinds with ITC with Medytox and which you have navigated well. So as you think over the next couple of years, what are the biggest challenge for you now, your goals, returning -- generating returns for investors?

Look, I see opportunities, right? So I kind of look at where we've guided for this year, it's obviously going to be a pivotal year for us, right? We've guided to non-GAAP operating income profitability by Q4, that our cash position will drive us there. We've developed and executed the plan that we've proven over the course of 2022 and very focused on executing and continuing that success in 2023. So certainly, we've have a playbook and a clear set of measures now from all the learnings that we've had over the last few years, and it's going to be about execution and about focus and ensuring that we deliver on the commitments we've made to the market. But I see great prospects for us and we're excited about it. As you mentioned, we're obviously still looking at opportunities to leverage the infrastructure we built, right? We have this great sales force. We've have a very unique and differentiated business model. We think it's very logical that we would put another asset into the bag. The timing around that, though, is not something that's entirely consistent, right? But we remain active. We're looking for the right assets, but we'll do that when the timing is right and the opportunity is right, when we find something that is at the right level of quality and caliber to partner with and develop.

Great. And it's all the reason we expect that valuation, there's been a significant reset in valuations as you look at these assets?

I think we've looked at a very broad range of assets. How can I say it, but Rui has done these, the thankless work of hundreds of different options and opportunities. So we're looking at the right -- is it a commercial stage, development stage, different partnerships, what are those valuation conditions? Again, all of those factors when we think about what's going to make sense for us.

Okay. Great. we're out of time. So Sandra and Rui, thanks so much for your time, and pleased speaking to you. I do wish you a very productive conference and the rest of the day.

Thanks very much for having us.

Thanks you for having us here.