Evolus, Inc. — Q2 2018 Form 10-Q Summary
Business context and reporting period
For the quarter and six months ended June 30, 2018. Evolus is a pre-revenue medical aesthetics company whose sole product candidate is DWP-450 (prabotulinumtoxinA), an injectable botulinum toxin for aesthetic indications. It had not begun commercial operations or generated product revenue.
Key financial metrics
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 |
|---|---|---|---|
| Revenue | None | None | None |
| Research and development | $1.6 million | $3.3 million | $1.4 million / $4.0 million |
| General and administrative | $6.2 million | $9.7 million | $0.8 million / $2.0 million |
| Contingent royalty revaluation expense | $8.2 million | $9.1 million | None |
| Net loss | $16.4 million | $22.6 million | $2.3 million / $6.3 million |
| Basic and diluted loss per share | $0.69 | $1.03 | $0.14 / $0.38 |
| Cash used in operating activities | Not separately provided | $7.9 million | $8.8 million |
At June 30, cash was $43.6 million, working capital $40.9 million, total assets $121.9 million, total liabilities $84.0 million, and stockholders’ equity $37.9 million. Accumulated deficit was $98.8 million. There was no revenue base from which to assess operating margins.
Balance-sheet obligations included a $48.8 million contingent royalty liability to the Evolus Founders and a $16.5 million carrying value for the contingent promissory note (face amount $20.0 million). The company reported no current note obligation at quarter-end. Six-month financing cash flow was $51.5 million, mainly reflecting $56.3 million of net IPO proceeds, partly offset by payments and offering costs. Investing cash flow was negative $9,000.
Material changes versus the prior comparable period
- Q2 net loss increased to $16.4 million from $2.3 million; six-month loss increased to $22.6 million from $6.3 million.
- G&A rose substantially, driven by new personnel and public-company, professional-service, office and stock-compensation costs, including charges related to the former CEO’s separation.
- Six-month R&D expense decreased by $0.7 million as clinical trial costs fell following completion of trials in 2017.
- The new $8.2 million Q2 contingent-royalty revaluation charge was noncash and reflected updated assumptions about cash-flow timing and the discount rate.
- The February 2018 IPO generated $56.3 million net proceeds. In July, after quarter-end, Evolus raised a further $56.4 million net in a follow-on offering, selling 3.0 million shares at $20 per share.
Outlook, commentary and risks
- The FDA issued a complete response letter on May 15, 2018, identifying deficiencies in chemistry, manufacturing and controls; the company said no clinical or nonclinical deficiencies were cited. Evolus resubmitted the BLA on August 2 and expected U.S. approval in Spring 2019.
- Management expected an EMA committee opinion by Q1 2019, with EU approval potentially in the first half of 2019, and anticipated a Canadian launch in the first half of 2019. Failure to obtain Canadian approval before October 31, 2018 could trigger $1.0 million in liquidated damages.
- Management expected R&D expense for 2018 to remain consistent with 2017 and G&A to increase as the company approached commercialization. A U.S. launch, if approved, would require building a specialty sales force expected to exceed 100 representatives. Operating losses and cash use were expected to increase.
- Management stated that June cash plus the July follow-on proceeds was expected to fund operations for at least 12 months from the financial-statement issuance date. Additional capital may still be needed; no credit facility or committed funding sources were in place.
- The Medytox litigation alleges misappropriation of a botulinum strain and trade secrets by Daewoong, Evolus’s sole supplier, among other claims. Evolus said it could not estimate the likelihood or amount of any loss. Medytox also filed an FDA citizen petition seeking to delay approval. The company’s California case was stayed pending South Korean proceedings.
- Other key exposures include dependence on Daewoong for manufacturing and licensed rights, regulatory approval and commercialization uncertainty, competition from established brands, and ALPHAEON’s control of approximately 66% of shares as of August 2018. The filing reported disclosure controls effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether FDA review of the August 2 BLA resubmission met the company’s Spring 2019 approval expectation, and whether any further CMC requirements arose.
- Actual regulatory outcomes and launch timing in the EU and Canada, including whether the potential $1.0 million Clarion payment became due.
- Cash burn, commercialization spending and funding runway after the July offering, compared with management’s stated expectation of at least 12 months of funding.
- Changes in the fair-value estimates for the founder royalty and note obligations, which depend on approval timing, projected sales and discount rates.
- Developments in the Medytox proceedings and citizen petition, and any impact on Evolus’s license, supply access or potential liabilities.