Evolus, Inc. — Q1 2021 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2021. Evolus is a performance beauty company whose revenue comes entirely from Jeuveau, its botulinum toxin product for glabellar lines. The company relies on Daewoong as its sole manufacturer and supplier.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net product revenue | $12.2 million | $10.5 million |
| Net income (loss) | $6.4 million | ($19.7 million) |
| Operating income (loss) | $8.0 million | ($17.4 million) |
| Operating cash flow | ($8.3 million) | ($27.9 million) |
| Cash and cash equivalents at period-end | $22.2 million | $34.7 million |
| Stockholders’ equity (deficit) | $23.3 million | ($73.0 million) at Dec. 31, 2020 |
Revenue increased 16.2% year over year, which management attributed mainly to higher average selling prices, partly offset by lower volumes during the ITC presidential review period. GAAP gross margin was 262.3%, versus 52.8% a year earlier, because the company recorded a one-time $25.5 million Daewoong settlement payment as a reduction of cost of sales. Excluding that payment and intangible amortization, adjusted gross margin was 59.9%, compared with 59.8%.
SG&A declined to $20.7 million from $31.3 million, reflecting reduced spending, including cost reductions during the pandemic and the period of uncertainty around the ITC orders. R&D increased to $0.8 million from $0.5 million. Net income is not evidence of recurring profitability: management said it did not expect to be profitable in 2021.
Financial position and material changes
- Cash fell by $80.4 million during the quarter, principally reflecting the $76.4 million payoff of Oxford Finance debt. The term loan was fully extinguished; the company also reported a $1.9 million extinguishment loss, partly offset by a $1.0 million gain on conversion of Daewoong’s note.
- Daewoong converted $40.8 million of principal and accrued interest into 3.14 million common shares. Evolus issued 6.76 million shares to Medytox under its litigation settlement. Shares outstanding were 43.74 million at March 31, versus 33.75 million at year-end.
- Current liabilities were $87.6 million against current assets of $77.7 million, or negative working capital of approximately $9.9 million. The balance sheet included $19.4 million payable on a founders’ promissory note and $30.0 million of current litigation-settlement liabilities.
- In April 2021, after quarter-end, Evolus received $25.5 million from Daewoong and completed a public offering of 10.35 million shares at $9.50 per share, generating approximately $92.4 million in net proceeds before other offering expenses. These proceeds are not included in March 31 cash.
- Accumulated deficit remained substantial at $369.7 million. The company used $8.3 million of cash in operations despite reporting quarterly net income.
Settlements, outlook, and risks
The February 2021 Medytox/Allergan agreements resolved the California litigation and ITC dispute and rescinded the ITC remedial orders, allowing Jeuveau sales to continue. In exchange, Evolus agreed to pay $35 million over two years, issued Medytox 6.76 million shares, and accepted royalties on Jeuveau sales. The company expects these royalties to materially pressure gross margin through September 2022, with a smaller impact through September 2032. Daewoong agreed to reimburse specified royalty costs, pay $25.5 million, cover certain legal fees, and cancel up to $10.5 million of potential milestones.
Management said current capital resources were sufficient to fund operations for at least 12 months, based on expected cash burn; it also warned that operating losses and negative operating cash flows were expected to continue for at least the next 12 months and that additional financing may be needed. Near-term obligations include settlement payments—management cited $15 million estimated for Q3 2021 and $15 million for Q1 2022—and a $20 million founders’ note due in November 2021. Management planned a European launch in early 2022. No specific revenue or earnings guidance was provided.
- Commercial and operating risks: Jeuveau is the sole commercial product, is self-pay and discretionary, faces established competitors, and depends on Daewoong for supply. COVID-19, consumer demand, pricing and minimum-purchase requirements may affect sales and license exclusivity.
- Legal and contractual risks: The settlements carry material payment, royalty, covenant and compliance obligations; breach could threaten the licenses or revive litigation. Securities class-action and derivative matters remained unresolved, and management said it could not estimate a loss range.
- Other risks: The company has a limited commercial history, substantial accumulated losses, possible future financing needs, regulatory and intellectual-property exposure, and potential dilution from equity issuance.
Most important facts for investors to verify
- Whether Jeuveau revenue growth and customer volumes persist after the temporary ITC-related disruption, and whether pricing supports demand.
- The cash impact and timing of settlement installments, royalty payments and Daewoong reimbursements, including whether reimbursements are received as expected.
- Whether the April offering proceeds and other resources are sufficient given ongoing operating cash use and the founders’ note maturity.
- Actual product gross margin after settlement royalties and the extent to which margins recover after September 2022.
- Supply continuity, compliance with Daewoong license requirements, the planned European launch, and developments in the pending shareholder litigation.