Evolus, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Unless noted otherwise, dollar amounts below are in millions. Evolus is a self-pay aesthetics company whose revenue comes principally from Jeuveau, its botulinum toxin product approved for glabellar lines.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $33.9 | $12.2 |
| Operating loss (income) | $(15.4) | $8.0 |
| Net loss (income) | $(17.5) | $6.4 |
| Net loss (income) per diluted share | $(0.31) | $0.16 |
| Cash used in operating activities | $(38.2) | $(8.3) |
- Revenue grew 177.9%, primarily on higher U.S. sales volume and a slightly higher average selling price. Q1 2021 sales were affected by pricing changes during the presidential review period related to the ITC dispute. Q1 2022 also included $0.7 million of Canadian service revenue.
- Product cost of sales was $13.2 million, up from $4.9 million, mainly due to higher sales volume. GAAP gross margin was 58.9%; the prior-year 262.3% margin was unusually elevated by a $25.5 million Daewoong settlement receipt recorded against cost of sales. Management’s non-GAAP adjusted gross margin was 61.0%, versus 59.9%.
- SG&A rose to $33.4 million from $20.7 million, reflecting higher personnel costs and commercial activity, including direct-to-consumer marketing. R&D declined to $0.5 million from $0.8 million.
- Cash and cash equivalents were $106.7 million at quarter-end, down from $146.3 million at December 31, 2021. Working capital was $102.2 million; accumulated deficit was $440.4 million.
- Term-loan principal outstanding was $75.0 million ($71.4 million net of discount and issuance costs). The Pharmakon loan bears interest at three-month U.S. dollar LIBOR, subject to a 1% floor, plus 8.5%; its effective rate was approximately 10.89%. A further $50.0 million tranche was available subject to conditions and had not been drawn. Debt is secured by substantially all company assets.
Material changes and unusual items
- The prior-year comparison includes the one-time $25.5 million Daewoong settlement receipt; it should not be treated as recurring revenue or operating performance.
- Q1 2022 operating cash use included the $15.0 million cash settlement payment to Medytox and Allergan. The remaining $5.0 million settlement payment is due in 2023.
- The company recorded $1.3 million of expense from revaluing its contingent royalty obligation to Evolus founders, whose fair value was $45.0 million at March 31, 2022.
- Interest expense increased to $2.0 million from $0.6 million, primarily due to the Pharmakon term loan. The prior-year period also included debt-extinguishment items.
Outlook, risks and contingencies
- Management expects operating losses and negative operating cash flows to continue for at least the next 12 months, but believes available resources are sufficient to fund operations for at least that period. It cautions that actual cash needs may exceed estimates and additional financing may be needed.
- Management expects gross margins to remain adversely affected by settlement royalties through September 2022, partly offset by Daewoong reimbursements. From September 17, 2022, Allergan royalties end and Medytox royalties shift to a mid-single-digit percentage of net sales through September 2032; management expects margins to improve, but remain affected.
- Planned milestones include a European launch in Q3 2022, subject to execution; anticipated Australian approval and launch in 2023; and completion of the Phase II higher-strength Jeuveau study anticipated in the first half of 2023. The company enrolled its first patient in Q1 2022. These are forward-looking expectations, not guarantees.
- Key risks include dependence on a single commercial product and sole supplier Daewoong; competition and discretionary consumer demand; settlement royalty costs and compliance obligations; potential loss of Daewoong exclusivity if requirements are not met; financing needs; supply-chain, inflation, COVID-19 and geopolitical disruptions; and regulatory, product-liability and intellectual-property risks.
- A securities class action was pending, with defendants’ motions to dismiss scheduled to be fully briefed by June 16, 2022; related derivative litigation was stayed pending the class-action motion. The company said it intended to defend the matters, but could not reasonably estimate a loss and had accrued no liability.
Important facts for investors to verify
- Whether revenue growth continues and translates into improved cash generation, given the $38.2 million quarterly operating cash outflow.
- Cash runway under actual spending, including commercialization costs, the 2023 settlement payment, royalty obligations and whether the optional $50.0 million loan tranche is drawn.
- Actual gross-margin performance after the September 2022 settlement royalty changes, including the timing and collectability of Daewoong reimbursements.
- Execution and regulatory status of the European and Australian launches and the higher-strength clinical program.
- Developments in the securities and derivative litigation, Daewoong supply and exclusivity, and the company’s compliance with settlement and debt terms.