Evolus, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The filing was signed May 1, 2019.
Business context
Evolus is a commercial-stage aesthetic company whose sole product is Jeuveau (prabotulinumtoxinA-xvfs), a botulinum toxin treatment for moderate-to-severe glabellar lines. The FDA approved Jeuveau on February 1, 2019. The company reported no product sales in Q1 and planned a U.S. launch in spring 2019. Health Canada had approved the product; in April 2019, the European Medicines Agency’s CHMP issued a positive opinion, subject to European Commission review.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Product revenue | None | None |
| Operating expenses | $25.3 million | $6.0 million |
| Operating loss | $25.3 million | $6.0 million |
| Net loss | $11.0 million | $6.2 million |
| Net loss per share, basic and diluted | $0.40 | $0.30 |
| Cash used in operating activities | $19.2 million | $2.2 million |
Gross margin was not applicable because the company had no product sales. Q1 2019 net loss included a $14.5 million income tax benefit from releasing part of the deferred-tax-asset valuation allowance after FDA approval made the distribution-right asset amortizable for tax purposes.
At March 31, 2019, cash and cash equivalents were $54.4 million, short-term U.S. Treasury investments were $79.3 million, and working capital was $129.7 million. Total assets were $220.9 million; stockholders’ equity was $75.4 million; accumulated deficit was $134.0 million. Management said available capital was expected to fund operations for at least 12 months from issuance of the statements.
Investing activities used $80.0 million, primarily for purchases of short-term investments; financing activities provided $60.4 million. Cash and cash equivalents declined by $38.8 million during the quarter. The company reported $75.0 million principal borrowed under its Oxford Finance facility, with a $72.6 million carrying value net of discounts and issuance costs. The facility bears interest at the greater of 9.5% or 30-day LIBOR plus 7.0%; its effective rate was approximately 11.6%. It is secured by substantially all company assets. A further $25.0 million tranche is conditional on sales milestones and other requirements.
Changes versus the prior comparable period
- Operating expenses increased $19.2 million, principally reflecting commercialization build-out, higher personnel and public-company costs, legal expenses, and pre-launch spending.
- General and administrative expense rose to $17.5 million from $3.5 million; the company reported 92 G&A employees at quarter-end versus 17 a year earlier.
- Research and development expense increased to $2.4 million from $1.7 million, including $1.6 million of one-time FDA-approval bonuses; lower clinical-trial and personnel costs partly offset the increase.
- A $4.9 million charge reflected remeasurement of the founders’ contingent royalty obligation. Depreciation and amortization of $0.5 million began after FDA approval and reclassification of the distribution right.
- Net loss increased by $4.8 million, despite the $14.5 million tax benefit. Cash used in operations rose by $17.0 million.
Outlook, risks and unusual items
- Management expected operating losses and cash use to increase as Jeuveau was commercialized. It anticipated a U.S. launch in spring 2019 and planned to begin Canadian marketing in the second half of 2019. No numerical revenue or earnings guidance was provided.
- The company paid Daewoong a $2.0 million FDA-approval milestone and paid approximately $9.2 million to the Evolus Founders during Q1. Up to approximately $11.5 million in additional Daewoong milestones remained contingent; the founders’ arrangement also includes low-single-digit royalties on net sales and a $20.0 million promissory note.
- Purchase commitments totaled approximately $20.5 million. The company relies on Daewoong as its sole Jeuveau manufacturer and supplier.
- Medytox’s trade-secret claims remained unresolved, and Allergan and Medytox had brought a related ITC case seeking, among other relief, an order that could bar U.S. imports and sales. The company said it could not estimate the possible loss. The FDA had dismissed Medytox’s citizen petition in connection with Jeuveau’s approval.
- Key risks include successful launch and physician and consumer adoption, competition, supply continuity, regulatory requirements, and the Medytox litigation. An adverse ITC or litigation outcome could disrupt commercialization and could also trigger Oxford facility default provisions.
- ALPHAEON owned 56.0% of the company’s common stock and controlled voting outcomes. The company reported compliance with Oxford covenants at March 31, 2019; the facility includes restrictive covenants and default remedies. Management noted that additional funding may be needed if business needs or commercialization costs exceed expectations.
Important facts for investors to verify
- Whether Jeuveau’s U.S. launch achieved expected sales, adoption, pricing and repeat-use levels, and whether commercialization costs and cash burn matched management’s expectations.
- European Commission approval timing and the progress of planned Canadian commercialization.
- Developments in the Medytox litigation and ITC investigation, including any rulings that could affect product imports, sales or Oxford covenant compliance.
- Daewoong’s manufacturing performance, supply capacity, exclusivity requirements and remaining milestone obligations.
- Oxford debt terms, covenant compliance, cash runway, and whether the conditional $25.0 million tranche became available.
- Changes in the founders’ contingent royalty valuation and the assumptions underlying the Q1 tax valuation-allowance release.