Evolus(EOLS) - 2024 Q2 - Quarterly Report

FORM 10-Q Registrant Information This chapter provides essential registrant information for Evolus, Inc., covering company details, registration, and filer status - Evolus, Inc. is a Delaware corporation with its principal executive offices located in Newport Beach, California[1] Company Basic Information | Metric | Information | | :--- | :--- | | Company Name | EVOLUS, INC. | | Jurisdiction of Incorporation | Delaware | | Ticker Symbol | EOLS | | Registered Exchange | The Nasdaq Stock Market LLC (Nasdaq Global Market) | | Filer Status | Accelerated filer | | Common Stock Outstanding (as of July 26, 2024) | 63,094,482 shares | Table of Contents Special Note Regarding Forward-Looking Statements This chapter warns investors about forward-looking statements, highlighting potential material differences between actual results and expectations due to risks and uncertainties - Forward-looking statements in the report cover future events, business, financial condition, operating results, and prospects, including regulatory approvals and the industry and regulatory environment[6] - These statements are based on current expectations, assumptions, estimates, and projections, but are subject to risks and uncertainties that are difficult to predict and beyond the company's control, potentially causing actual results to differ materially from expectations[6][7] - The company undertakes no obligation to revise forward-looking statements to reflect future events or unexpected occurrences and advises readers not to place undue reliance on these statements[8] Summary of Risk Factors This chapter summarizes key investment risks, including product reliance, limited operating history, regulatory dependencies, financing needs, and settlement impacts - The company currently relies entirely on the successful marketing and sale of its sole commercial product, Jeuveau[9] - The company has a limited operating history, has incurred continuous losses since inception, and anticipates continued losses in the future[9] - The company depends on Symatese to obtain regulatory approvals for the Evolysse™ dermal filler product line in the U.S. and Europe[10] - Terms of the Medytox settlement agreement will continue to reduce the company's profitability until royalty payment obligations expire[11] - Jeuveau faces intense competition, and failure to compete effectively may hinder the company's ability to maintain market share and expand[12] PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This chapter presents the company's unaudited condensed consolidated financial statements as of June 30, 2024, with detailed notes on key financial aspects and accounting policies Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of June 30, 2024 and December 31, 2023, in thousands of US dollars) | Metric | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $93,671 | $62,838 | | Accounts receivable, net | $43,149 | $30,529 | | Inventory | $13,381 | $10,998 | | Total current assets | $158,134 | $112,421 | | Property and equipment, net | $2,284 | $2,087 | | Operating lease right-of-use assets | $5,462 | $5,763 | | Intangible assets, net | $46,275 | $47,110 | | Goodwill | $21,208 | $21,208 | | Total assets | $233,772 | $188,998 | | Liabilities and Stockholders' Equity (Deficit) | | | | Accounts payable | $10,281 | $4,271 | | Accrued expenses | $32,790 | $33,813 | | Operating lease liabilities (current) | $1,041 | $1,377 | | Contingent royalty payable to Evolus founders (current) | $10,006 | $8,830 | | Total current liabilities | $54,118 | $48,291 | | Operating lease liabilities (non-current) | $4,793 | $4,810 | | Contingent royalty payable to Evolus founders (non-current) | $34,600 | $36,200 | | Term loans, net | $120,918 | $120,359 | | Deferred tax liability | $29 | $27 | | Total liabilities | $214,458 | $209,687 | | Stockholders' Equity (Deficit) | | | | Common stock | $1 | $1 | | Additional paid-in capital | $603,352 | $538,716 | | Accumulated other comprehensive loss | $(601) | $(427) | | Accumulated deficit | $(583,438) | $(558,979) | | Total stockholders' equity (deficit) | $19,314 | $(20,689) | | Total liabilities and stockholders' equity (deficit) | $233,772 | $188,998 | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss (for the periods ended June 30, 2024, in thousands of US dollars) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | | | | | | Net product revenue | $66,222 | $48,680 | $125,186 | $89,727 | | Service revenue | $687 | $666 | $1,056 | $1,340 | | Total net revenue | $66,909 | $49,346 | $126,242 | $91,067 | | Operating expenses | | | | | | Cost of product sales (exclusive of intangible asset amortization) | $19,077 | $14,712 | $37,144 | $26,858 | | Selling, general and administrative expenses | $50,152 | $41,174 | $95,275 | $78,558 | | Research and development expenses | $2,350 | $1,208 | $4,428 | $2,589 | | In-process research and development expenses | — | $4,441 | — | $4,441 | | Evolus founders contingent royalty revaluation | $1,605 | $1,682 | $3,183 | $3,330 | | Depreciation and amortization | $1,427 | $1,247 | $2,836 | $2,449 | | Total operating expenses | $74,611 | $64,464 | $142,866 | $118,225 | | Operating loss | $(7,702) | $(15,118) | $(16,624) | $(27,158) | | Other income (expense) | | | | | | Interest income | $1,029 | $164 | $1,546 | $263 | | Interest expense | $(4,696) | $(3,182) | $(9,398) | $(5,971) | | Other income (expense), net | $62 | $19 | $107 | $(19) | | Loss before income taxes | $(11,307) | $(18,117) | $(24,369) | $(32,885) | | Income tax expense | $43 | $23 | $90 | $46 | | Net loss | $(11,350) | $(18,140) | $(24,459) | $(32,931) | | Other comprehensive loss | | | | | | Unrealized loss, net of tax | $(44) | $(52) | $(174) | $(131) | | Comprehensive loss | $(11,394) | $(18,192) | $(24,633) | $(33,062) | | Net loss per share, basic and diluted | $(0.18) | $(0.32) | $(0.40) | $(0.58) | | Weighted-average shares outstanding used in computing basic and diluted net loss per share | 62,724,604 | 56,920,260 | 60,760,958 | 56,699,145 | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Condensed Consolidated Statements of Stockholders' Equity (Deficit) (as of June 30, 2024 and June 30, 2023, in thousands of US dollars) | Metric | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Stockholders' Equity (Deficit) | | | | Common stock | $1 | $1 | | Additional paid-in capital | $603,352 | $523,729 | | Accumulated other comprehensive loss | $(601) | $(468) | | Accumulated deficit | $(583,438) | $(530,225) | | Total stockholders' equity (deficit) | $19,314 | $(6,963) | - As of June 30, 2024, the company's total stockholders' equity was $19,314 thousand, a significant improvement from $(20,689) thousand as of December 31, 2023, primarily due to increased additional paid-in capital from subsequent stock offerings[19][24] - In the first six months of 2024, the company received $51,211 thousand in net proceeds from subsequent stock offerings and $2,787 thousand from common stock issued under incentive equity plans[24][196] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (for the periods ended June 30, 2024 and June 30, 2023, in thousands of US dollars) | Cash Flow Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,085) | $(33,897) | | Net cash used in investing activities | $(2,051) | $(727) | | Net cash provided by financing activities | $50,143 | $22,538 | | Effect of exchange rate changes | $(174) | $(131) | | Change in cash and cash equivalents | $30,833 | $(12,217) | | Cash and cash equivalents at beginning of period | $62,838 | $53,922 | | Cash and cash equivalents at end of period | $93,671 | $41,705 | - Net cash used in operating activities decreased to $17,085 thousand in the first six months of 2024, a significant improvement from $33,897 thousand in the same period of 2023, primarily due to reduced net loss and changes in working capital[27][193][194] - Net cash provided by financing activities significantly increased to $50,143 thousand in the first six months of 2024, mainly from $51,211 thousand in net proceeds from subsequent stock offerings[27][196] Notes to Condensed Consolidated Financial Statements Note 1. Description of Business This note describes Evolus, Inc.'s global aesthetics business, Jeuveau commercialization, Evolysse™ development, and the company's liquidity, including ongoing losses and recent financing - Evolus, Inc. is a global company focused on the cash-pay aesthetics market, with its first product, Jeuveau, approved and marketed in the U.S., Canada, Europe, Australia, and Switzerland[31] - The company entered into agreements in 2023 to be the exclusive distributor of the Evolysse™ dermal filler product line (currently in late-stage development) in the U.S. and Europe, with the nasolabial folds product already approved in Europe[31] - The company has generated net operating losses and negative operating cash flows since inception, expects this to continue for the next 12 months, and had an accumulated deficit of $583,438 thousand as of June 30, 2024[33] - In March 2024, the company completed a follow-on offering, generating $46,794 thousand in net proceeds, and an additional $4,169 thousand in April from underwriters exercising their over-allotment option, to enhance capital resources[34] Note 2. Basis of Presentation and Summary of Significant Accounting Policies This note details the basis of financial statement presentation, significant accounting policies, and the use of estimates, covering various financial instruments, assets, liabilities, and revenue recognition - The company's financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and SEC interim reporting requirements, including normal recurring adjustments deemed necessary by management[38] - The company relies on its agreement with Daewoong for exclusive distribution of Jeuveau and on Daewoong as the sole supplier for its production; any termination or loss of significant rights would materially adversely affect the company's ability to commercialize Jeuveau[42] - The company derives all net revenue from Jeuveau sales and manages and reviews financial information as a single operating and reportable segment[44][63] - Revenue recognition follows a five-step approach, with revenue recognized when control of promised goods or services is transferred to customers; product revenue is recognized upon customer receipt, and service revenue is recognized over the period services are performed for the amount of consideration expected to be received[62][63][64] - Research and development expenses are expensed as incurred, including personnel costs, clinical development activity costs, prototype product costs, internal and external costs related to regulatory compliance and quality assurance functions, and overhead expenses[74] - The company's contingent royalty obligation to Evolus founders is paid quarterly until termination in the second quarter of 2029, with its fair value determined using a discounted cash flow method (Level 3 inputs) at each reporting period end[59] - The company calculates income tax using an estimated annual effective tax rate and provides a valuation allowance against deferred tax assets to reflect amounts that may not be realized[85][86] Note 3. Fair Value Measurements This note discloses fair value measurements for financial instruments, specifically the contingent royalty obligation to Evolus founders, valued using Level 3 inputs and reconciled over periods Fair Value of Contingent Royalty Obligation (as of June 30, 2024 and December 31, 2023, in thousands of US dollars) | Liability | Fair Value as of June 30, 2024 | Fair Value as of December 31, 2023 | | :--- | :--- | :--- | | Contingent royalty payable to Evolus founders | $44,606 | $45,030 | - The company uses Level 3 inputs (discounted cash flow method) to determine the fair value of the contingent royalty payable to Evolus founders, with key unobservable assumptions including net revenue projections, discount rate, and timing of payments[93] Reconciliation of Fair Value of Contingent Royalty Obligation (in thousands of US dollars) | Period | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Beginning fair value | $44,779 | $46,650 | $45,030 | $46,310 | | Payments | $(1,778) | $(1,251) | $(3,607) | $(2,559) | | Fair value changes recorded in operating expenses | $1,605 | $1,682 | $3,183 | $3,330 | | Ending fair value | $44,606 | $47,081 | $44,606 | $47,081 | Note 4. Goodwill and Intangible Assets This note provides a detailed classification of goodwill and intangible assets, including their net book value, weighted-average lives, and projected future amortization expenses Intangible Asset Classification and Net Book Value (as of June 30, 2024 and December 31, 2023, in thousands of US dollars) | Asset Class | Weighted-Average Life (Years) | Original Cost | Accumulated Amortization | Net Book Value | | :--- | :--- | :--- | :--- | :--- | | As of June 30, 2024 | | | | | | Distribution rights | 20 | $60,552 | $(16,027) | $44,525 | | Capitalized software | 2 | $11,282 | $(9,532) | $1,750 | | Intangible assets, net | | $71,834 | $(25,559) | $46,275 | | Goodwill | * | $21,208 | — | $21,208 | | Total | | $93,042 | $(25,559) | $67,483 | | As of December 31, 2023 | | | | | | Distribution rights | 20 | $60,552 | $(14,500) | $46,052 | | Capitalized software | 2 | $9,804 | $(8,746) | $1,058 | | Intangible assets, net | | $70,356 | $(23,246) | $47,110 | | Goodwill | * | $21,208 | — | $21,208 | | Total | | $91,564 | $(23,246) | $68,318 | Projected Future Amortization Expense for Intangible Assets (as of June 30, 2024, in thousands of US dollars) | Fiscal Year | Amortization Expense | | :--- | :--- | | Remainder of 2024 | $1,914 | | 2025 | $3,940 | | 2026 | $3,530 | | 2027 | $3,054 | | 2028 | $3,054 | | Thereafter | $30,783 | | Total | $46,275 | - The company capitalized $1,477 thousand in internal-use computer software costs and recorded $2,312 thousand in intangible asset amortization expense in the statements of operations and comprehensive loss during the first six months of 2024[98][99] Note 5. Accrued Expenses This note details the composition of accrued expenses, including revenue contract liabilities, salaries, Medytox settlement royalties, and other accrued items Composition of Accrued Expenses (in thousands of US dollars) | Item | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Accrued revenue contract liabilities | $11,789 | $11,033 | | Accrued salaries and related benefits | $8,351 | $13,433 | | Accrued royalties under Medytox settlement agreement | $4,011 | $3,657 | | Other accrued expenses | $8,639 | $5,690 | | Total | $32,790 | $33,813 | Note 6. Term Loans This note details the Pharmakon term loan agreement, covering loan amounts, interest, repayment terms, collateral, covenants, and long-term debt maturities - The company entered into a $125,000 thousand term loan agreement with Pharmakon, disbursed in two tranches: the first $75,000 thousand in December 2021, and the second $50,000 thousand in two installments in May and December 2023[101][102][180] - The loan bears interest at 3-month SOFR (subject to a 1.0% SOFR floor) plus an annual rate of 8.5%, and includes prepayment fees and acceleration upon default clauses[102][103][180] - The loan is secured by substantially all of the company's assets and contains customary affirmative and negative covenants; as of June 30, 2024, the company was in compliance with all debt covenants[104][105] Principal Amounts of Long-Term Debt Maturities (as of June 30, 2024, in thousands of US dollars) | Fiscal Year | Principal Amount | | :--- | :--- | | 2026 | $41,667 | | 2027 | $83,333 | | Total Principal Payments | $125,000 | | Less: Unamortized debt discount and issuance costs | $(4,082) | | Term loans, net | $120,918 | Note 7. Operating Leases This note describes the corporate headquarters operating lease, including a 2023 amendment, and discloses lease costs, remaining term, discount rate, and future minimum payments - The company amended its corporate headquarters lease agreement in July 2023, extending the term to January 31, 2030, and increasing office space, recognizing $4,550 thousand in additional right-of-use assets and lease liabilities[108] Operating Lease Costs (in thousands of US dollars) | Cost Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Fixed operating lease costs | $340 | $273 | $669 | $547 | | Variable operating lease costs | $35 | $28 | $69 | $62 | | Total | $375 | $301 | $738 | $609 | Weighted-Average Remaining Lease Term and Discount Rate | Metric | As of June 30, 2024 | As of June 30, 2023 | | :--- | :--- | :--- | | Weighted-average remaining lease term (years) | 5.6 | 1.6 | | Weighted-average discount rate | 11.0% | 9.4% | Future Minimum Operating Lease Payments (as of June 30, 2024, in thousands of US dollars) | Fiscal Year | Payment Amount | | :--- | :--- | | Remainder of 2024 | $669 | | 2025 | $1,049 | | 2026 | $1,451 | | 2027 | $1,502 | | 2028 | $1,555 | | Thereafter | $1,744 | | Total Operating Lease Payments | $7,970 | | Less: Estimated interest | $(2,136) | | Present Value of Operating Lease Liabilities | $5,834 | Note 8. Commitments and Contingencies This note discloses purchase commitments, minimum obligations under key agreements, and ongoing legal proceedings, highlighting their potential uncertainties and impacts - As of June 30, 2024, the company had approximately $5,159 thousand in service and product purchase commitments[112] - The Daewoong Agreement, Symatese U.S. Agreement, and Symatese Europe Agreement all contain minimum annual purchase requirements, and failure to meet them could result in a reduction or termination of the company's exclusive license rights[112][114] - The company faces securities class action and shareholder derivative lawsuits alleging false and misleading statements regarding Jeuveau rights acquisition and ITC litigation disclosures; the outcomes are uncertain, and management cannot reasonably estimate the range of loss[115][116][117] - The company also received letters from shareholders demanding inspection of books and records, similar to the allegations in the aforementioned lawsuits, with equally uncertain outcomes[117] Note 9. Stockholders' Equity This note details stockholders' equity composition and changes, including stock authorizations, 2024 offering proceeds, and equity compensation under various incentive plans - As of June 30, 2024, the company had 10,000,000 authorized shares of preferred stock and 100,000,000 authorized shares of common stock, with 63,052,598 shares of common stock issued and outstanding[121][122] - In March 2024, the company completed a follow-on offering of 3,554,000 shares of common stock, generating $46,794 thousand in net proceeds; in April, underwriters exercised their over-allotment option for an additional 318,100 shares, generating $4,169 thousand in net proceeds[122] - The company approved the 2024 Employee Stock Purchase Plan (ESPP, initially reserving 579,648 shares of common stock, with annual automatic increase provisions[123] - The company maintains the 2017 Omnibus Incentive Plan and the 2023 Inducement Incentive Plan for granting equity awards to employees, directors, and consultants; as of June 30, 2024, 1,221,491 and 334,691 shares of common stock, respectively, were available for future issuance[126][127] Equity Compensation Expense (in thousands of US dollars) | Expense Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Selling, general and administrative expenses | $5,552 | $3,983 | $10,415 | $7,150 | | Research and development expenses | $232 | $188 | $448 | $315 | | Total | $5,784 | $4,171 | $10,863 | $7,465 | Note 10. Medytox/Allergan Settlement Agreements This note details the U.S. and ROW settlement agreements with Allergan and Medytox, outlining settlement payments, royalty obligations, and stock issuance terms - The company entered into a U.S. settlement agreement with Allergan and Medytox and a ROW settlement agreement with Medytox in February 2021 to resolve litigation related to Jeuveau[139][141] - Under the U.S. settlement agreement, the company paid $35,000 thousand to Allergan and Medytox, with the final $5,000 thousand payment made in the first quarter of 2023[140] - Under the ROW settlement agreement, the company obtained licenses for Jeuveau in ROW territories and the U.S., agreeing to pay Medytox a mid-single-digit percentage royalty on net sales from September 17, 2022, to September 16, 2032[141] - As part of the ROW settlement agreement, the company issued 6,762,652 shares of common stock to Medytox, subject to transfer restrictions until September 16, 2025[141][142] - As of June 30, 2024, the company's accrued royalties under the Medytox/Allergan settlement agreement were $4,011 thousand, up from $3,657 thousand as of December 31, 2023[143] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter provides management's discussion and analysis of financial condition and operating results, covering company overview, recent developments, economic trends, comparative performance, and liquidity Overview This chapter outlines Evolus's global aesthetics business model, Jeuveau commercialization, Evolysse™ development, and strategic focus on the cash-pay market - Evolus is a global aesthetics company focused on the cash-pay aesthetics market, with its first product, Jeuveau, sold in the U.S., Canada, and select European countries[146] - The company is actively pursuing regulatory approvals for its Evolysse™ hyaluronic acid dermal filler product line, with the nasolabial folds product already approved in Europe, and the remaining products expected to be approved in Europe by late 2024 and in the U.S. starting in 2025[146] - In June 2024, the company submitted Pre-Market Approval (PMA) applications to the U.S. FDA for Evolysse™ Lift and Evolysse™ Smooth dermal filler products for nasolabial folds[146] - The company's strategy focuses on pure aesthetic, non-reimbursable products, avoiding the regulatory burden of reimbursable products, to offer a unique value proposition and drive customer adoption through consumer loyalty programs, co-branded marketing, and pricing strategies[146] Recent Developments This chapter describes the company's recent follow-on stock offering, which raised capital through common stock issuance to support operations - In March 2024, the company completed a follow-on offering of 3,554,000 shares of common stock at $14.07 per share, generating $46.8 million in net proceeds after underwriting discounts, commissions, and other offering expenses[147] - Underwriters exercised their option to purchase an additional 318,100 shares of common stock in April 2024, providing the company with $4.2 million in net proceeds[147] Economic Trends and Uncertainties This chapter discusses the potential impact of global economic volatility, inflation, and rising interest rates on the company's business and consumer spending - The global economy has recently experienced volatility and disruptions, including rising inflation rates, increasing interest rates, significant declines in liquidity and credit availability, and decreased consumer confidence[148] - The company anticipates continued high-cost inflation, which may impact consumer discretionary spending on aesthetic medical procedures[148] - The company cannot reasonably estimate the financial impact of increased inflation on its future financial condition, results of operations, or cash flows[148] Results of Operations Comparison of the Three Months Ended June 30, 2024 and 2023 This chapter compares Q2 2024 and 2023 operating results, showing revenue growth, narrower operating loss, improved gross margin, and increased expenses Summary of Operating Results (for the three months ended June 30, 2024 and June 30, 2023, in millions of US dollars) | Metric | 2024 | 2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $66.9 | $49.3 | $17.6 | 35.7% | | Cost of product sales (exclusive of intangible asset amortization) | $19.1 | $14.7 | $4.4 | 29.9% | | Selling, general and administrative expenses | $50.2 | $41.2 | $9.0 | 21.8% | | Research and development expenses | $2.4 | $1.2 | $1.2 | 100.0% | | Operating loss | $(7.7) | $(15.1) | $7.4 | -49.0% | | Net loss | $(11.4) | $(18.1) | $6.7 | -37.0% | | Gross margin | 70.3% | 68.7% | 1.6% | - | - Jeuveau net product revenue increased by 35.7% to $66.9 million, primarily driven by increased sales volume[154] - Gross margin improved from 68.7% in 2023 to 70.3% in 2024, but remains negatively impacted by royalties related to the Medytox settlement agreement[156] - Selling, general and administrative expenses increased by 21.8% to $50.2 million, mainly due to higher personnel costs associated with commercial activities[156] - Research and development expenses increased by $1.2 million to $2.4 million, primarily attributable to increased clinical operations and research[157] Comparison of the Six Months Ended June 30, 2024 and 2023 This chapter compares H1 2024 and 2023 operating results, showing revenue growth, significantly narrower losses, improved gross margin, and increased expenses from expansion Summary of Operating Results (for the six months ended June 30, 2024 and June 30, 2023, in millions of US dollars) | Metric | 2024 | 2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $126.2 | $91.1 | $35.1 | 38.5% | | Cost of product sales (exclusive of intangible asset amortization) | $37.1 | $26.9 | $10.2 | 37.9% | | Selling, general and administrative expenses | $95.3 | $78.6 | $16.7 | 21.2% | | Research and development expenses | $4.4 | $2.6 | $1.8 | 69.2% | | Operating loss | $(16.6) | $(27.2) | $10.6 | -39.0% | | Net loss | $(24.5) | $(32.9) | $8.4 | -25.5% | | Gross margin | 69.4% | 68.9% | 0.5% | - | - Jeuveau net product revenue increased by 38.6% to $126.2 million, primarily driven by increased sales volume[166] - Operating loss narrowed from $27.2 million in 2023 to $16.6 million in 2024, and net loss narrowed from $32.9 million to $24.5 million[163][176] - Selling, general and administrative expenses increased by 21.2% to $95.3 million, mainly due to higher personnel costs associated with commercial expansion[168] - Research and development expenses increased by $1.8 million to $4.4 million, with further increases expected to support new product development and regulatory approvals[169] Liquidity and Capital Resources This chapter assesses liquidity and capital resources, including cash, working capital, and equity, detailing ongoing losses, financing, and significant cash requirements from loans, royalties, and purchase obligations - As of June 30, 2024, the company had $93.7 million in cash and cash equivalents, $104.0 million in positive working capital, and $19.3 million in stockholders' equity[175] - The company has generated net operating losses since inception, with an accumulated deficit of $583.4 million as of June 30, 2024, and expects to incur substantial expenses in the future to support Jeuveau marketing and Evolysse™ product line commercialization[176] - Operating activities used $17.1 million in cash during the first six months of 2024, an improvement compared to $33.9 million in the same period of 2023[176][193] - The follow-on offering completed in March 2024 generated $46.8 million in net proceeds, with an additional $4.2 million from the exercise of the over-allotment option in April, significantly strengthening the company's cash position[178][179] - The company has a $125.0 million term loan with Pharmakon; as of June 30, 2024, total future interest payments are approximately $51.6 million, with $17.7 million due within the next 12 months[180][198] - The company is required to pay Evolus founders a low-single-digit percentage royalty on Jeuveau net sales, with this obligation terminating at the end of the second quarter of 2029; as of June 30, 2024, total future royalty obligations were $44.6 million[181] - The company is required to pay Medytox a mid-single-digit percentage royalty on Jeuveau net sales, with this obligation spanning from September 17, 2022, to September 16, 2032[182][198] - Agreements with Daewoong and Symatese include minimum annual purchase obligations, and failure to meet them could result in a reduction or termination of exclusive license rights[183][185] Summary of Cash Flows (for the six months ended June 30, 2024 and June 30, 2023, in millions of US dollars) | Cash Flow Category | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17.1) | $(33.9) | | Net cash used in investing activities | $(2.1) | $(0.7) | | Net cash provided by financing activities | $50.1 | $22.5 | | Effect of exchange rate changes | $(0.2) | $(0.1) | | Change in cash and cash equivalents | $30.8 | $(12.2) | | Cash and cash equivalents at beginning of period | $62.8 | $53.9 | | Cash and cash equivalents at end of period | $93.7 | $41.7 | Critical Accounting Policies and Estimates This chapter confirms the company's reliance on estimates and assumptions in financial statements and notes no significant changes to critical accounting policies since December 31, 2023 - The company's preparation of consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities, as well as revenues and expenses[199] - There have been no significant changes to the company's critical accounting policies and estimates since the annual report as of December 31, 2023[200] Recently Issued and Adopted Accounting Pronouncements This chapter refers to Note 2 for detailed information on recently issued and adopted accounting pronouncements - For detailed information regarding recently issued and adopted accounting pronouncements, refer to Note 2, 'Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements,' in Part I of this quarterly report[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk This chapter discloses market risks, primarily interest rate and foreign currency fluctuations, confirming no significant changes since the December 31, 2023 annual report - The company's market risks primarily stem from fluctuations in interest rates and foreign currency exchange rates[202] - As of the date of this report, the company's financial market risks have not materially changed compared to those disclosed in the annual report as of December 31, 2023[202] Item 4. Controls and Procedures This chapter reports management's assessment of disclosure controls and procedures, confirming their effectiveness and no significant changes in internal control over financial reporting - As of June 30, 2024, the company's management assessed its disclosure controls and procedures as effective at a reasonable assurance level[204] - Disclosure controls and procedures are designed to ensure that required information is timely recorded, processed, summarized, and reported, and communicated to management for timely decisions[204] - No significant changes in internal control over financial reporting occurred during the three months ended June 30, 2024[206] PART II - OTHER INFORMATION Item 1. Legal Proceedings This chapter refers to Note 8, 'Commitments and Contingencies,' for detailed information on legal proceedings - For information regarding legal proceedings, refer to Note 8, 'Commitments and Contingencies'[208] Item 1A. Risk Factors This chapter updates and supersedes prior risk factors, detailing high investment risks and uncertainties that could materially adversely affect the company's business and financial prospects Risks Related to Our Business and Strategy This chapter details business and strategy risks, including product reliance, operating history, regulatory dependencies, financing, competition, market acceptance, marketing, technology, biosimilars, promotion, product liability, new product acquisition, growth management, geopolitics, international operations, exchange rates, personnel, and market focus - The company currently relies entirely on the successful marketing and sale of its sole commercial product, Jeuveau; failure to succeed may prevent it from generating sufficient revenue to sustain operations[9][212] - The company has a limited operating history, has incurred continuous losses since inception, with an accumulated deficit of $583.4 million as of June 30, 2024, and may continue to incur losses in the future[9][214] - The company depends on Symatese to obtain regulatory approvals for the Evolysse™ product line in the U.S. and Europe; failure to obtain timely approvals will negatively impact product sales capabilities[10][214][216] - The company may require additional financing to support future operations or corporate development activities, which could dilute existing stockholders' equity; failure to obtain required capital may force delays, limitations, reductions, or termination of operations[10][217][219] - Jeuveau faces intense competition, and failure to compete effectively may hinder the company's ability to achieve significant market penetration and expansion[12][228][229] - Jeuveau or the Evolysse™ product line may not achieve sustained widespread adoption and demand from aesthetic practitioners and consumers, affecting commercial success[12][235] - The company's marketing of Jeuveau is limited to treating glabellar lines; expanding indications requires additional regulatory approvals, which would be costly and potentially unobtainable[12][236] - The company relies on digital technology and applications; information system failures or cybersecurity incidents could adversely affect business and operations[13][237][238][239] - Jeuveau or any other product candidate for which the company seeks biologic approval may face competition sooner than anticipated[240][242] - If the company is found to improperly promote off-label uses or if customers misuse products, it could face sales or marketing bans, substantial fines, penalties, or product liability claims[242][243] - Products may cause serious or undesirable side effects or have other unexpected characteristics, potentially delaying or preventing regulatory approval, limiting the commercial scope of approved labels, leading to post-approval regulatory actions, or product liability lawsuits[244][245] - Failure to successfully license, acquire, develop, and market other product candidates or approved products will harm the company's ability to grow its business[11][246][247] - The company may need to expand its organization, including sales and marketing capabilities, to further market and sell Jeuveau and any approved product candidates, and may encounter difficulties managing this growth[13][248][249][250] - Geopolitical tensions, including the Russia-Ukraine conflict and Middle East conflicts, and their impact on the global economy and capital markets, could materially adversely affect the company's business[250][251][252] - The company's international operations face risks, and failure to manage these risks could adversely affect operating results and financial condition[253][255] - Foreign currency exchange rate fluctuations, particularly of the British Pound and Euro against the U.S. dollar, could negatively impact the company's financial condition and operating results[256] - Failure to attract and retain senior management and key personnel may prevent the company from successfully marketing and selling Jeuveau or any future developed products[257] - The company's strategy of focusing on the cash-pay healthcare market may limit its ability to increase sales or achieve profitability[258][259] - The company's business involves the use of hazardous materials, and the company and its third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be costly and restrict business operations[259][260] - The company may utilize third-party collaborators to help develop, validate, or commercialize any new products; if these collaborations are unsuccessful, product commercialization could be harmed or delayed[260][261][262][263][264] - The use of the company's net operating loss carryforwards and certain other tax attributes may be limited, particularly under Section 382 of the Internal Revenue Code[265] - Rising interest rates will increase the company's debt servicing costs, potentially reducing profitability and limiting cash available to fund growth strategies[266][267] Risks Related to Our Relationship with Our Licensors This chapter details risks related to licensor relationships, including reliance on agreements, loss of exclusive rights, single manufacturer dependence, and inaccurate demand forecasts - The company's ability to exclusively commercialize Jeuveau and Evolysse™ relies entirely on agreements with Daewoong, the Symatese U.S. Agreement, and the Symatese Europe Agreement; any termination or loss of significant rights would materially adversely affect the company's business[268][269] - The company currently relies entirely on Daewoong to manufacture Jeuveau and on Symatese to manufacture Evolysse™; any production or other issues could adversely affect the company, including difficulties and high costs in finding alternative suppliers[13][270] - Reliance on licensors also presents risks related to regulatory compliance, breach of agreements, termination or non-renewal of agreements, and the financial health of licensors[270] - Damage, destruction, or inability to operate licensor manufacturing facilities could jeopardize product manufacturing capabilities, leading to harm to business, prospects, financial performance, and reputation[273] - Inaccurate forecasts of commercial product demand could lead to delayed shipments, increased inventory costs or levels, and reduced cash flow[274][275] Risks Related to Intellectual Property This chapter details intellectual property risks, including infringement claims, protection failures, litigation costs, global challenges, trade secret confidentiality, and improper disclosure claims - Third-party intellectual property infringement claims could prevent or delay the company's commercialization efforts and disrupt product supply[12][276][277][278] - If the company or its current or future licensors (including Daewoong and Symatese) fail to maintain, obtain, or protect intellectual property related to products, the company may be unable to compete effectively in the market[13][279][280][281][282] - The company may become involved in litigation to protect or enforce its or its licensors' intellectual property, which would be costly and time-consuming[283][284][285][286][287] - The company may be unable to protect its intellectual property globally, especially in countries with inadequate intellectual property protection laws[288][289] - If the company cannot protect the confidentiality of its trade secrets, its business and competitive position will be harmed[290][291] - The company may face claims from employees, consultants, or independent contractors for improper use or disclosure of third-party confidential information[292][293] - The company may need to license intellectual property from third parties, but such licenses may not be available or obtainable on commercially reasonable terms[294] - If the company's trademarks and trade names are not adequately protected, it may be unable to establish brand recognition in target markets, adversely affecting its business[294][295][296][297] Risks Related to Government Regulation This chapter details extensive government regulatory risks, including strict product and business regulation, approval delays, ongoing compliance costs, foreign approval failures, adverse event reporting, and healthcare fraud law violations - The company's business and products are subject to extensive, complex, costly, and evolving regulation by U.S. federal and state government agencies, the European Union, Canada, and other countries[15][298] - Failure by the company or its products to comply with applicable regulatory requirements could result in penalties such as operational restrictions, criminal prosecution, fines, product recalls, or withdrawal of approvals[298][300][301] - Delays or failures in obtaining product candidate approvals could harm the company's commercial prospects and materially impact its ability to generate revenue[299][302][303] - The company faces ongoing regulatory obligations and scrutiny, which could lead to significant additional expenses, limit or delay regulatory approvals, and result in penalties for non-compliance with applicable regulatory requirements[304][305] - Failure to obtain regulatory approvals for Jeuveau or any future product candidates in foreign jurisdictions would prevent the company from selling its products outside the U.S.[306] - Jeuveau or any future product may cause or contribute to adverse medical events, which the company is obligated to report to regulatory authorities; failure to do so could result in sanctions[307] - The company may be subject to various U.S. federal and state healthcare fraud and abuse laws in the future, including anti-kickback, self-referral, false claims, and fraud laws; any violations could lead to fines or other penalties[308][309][310][311][312][313] - Legislative or regulatory healthcare reforms in the U.S. and other countries could make it more difficult and expensive for the company to obtain regulatory approvals for future product candidates and to manufacture, market, and distribute products[313][314][315] Risks Related to Our Common Stock This chapter details common stock risks, including litigation costs, price volatility, future sales pressure, anti-takeover provisions, and exclusive forum designation limitations - The company and some of its officers and directors have been named in securities class action and derivative lawsuits, which could result in substantial costs and distract management[316][317] - The trading price of the company's common stock has been highly volatile, and investors may suffer significant losses, influenced by factors including financial expectations, market reactions, regulatory actions, and competing products[318][319][320] - Future sales of a substantial number of common shares by the company or others, or market expectations of such sales, could depress the market price of the company's common stock[320][321][322][323] - Anti-takeover provisions in the company's certificate of incorporation, bylaws, and Delaware law may deter hostile takeovers and make it more difficult for investors to acquire a substantial amount of common stock[323][324] - The company's certificate of incorporation designates the Delaware Court of Chancery as the exclusive forum for certain types of litigation, which may limit stockholders' ability to choose a favorable jurisdiction[326][327][328] - Indemnification obligations for directors and officers may reduce funds available to the company to satisfy third-party claims and decrease available company funds[329][330] General Risk Factors This chapter covers general risk factors, including activist shareholder impact, stock price decline from unfavorable research, non-dividend policy, and public company resource pressures - Actions by activist shareholders could negatively impact the company's business and potentially affect the trading value of its securities[331][332] - If securities or industry analysts publish unfavorable research reports or cease coverage of the company, its stock price and trading volume could decline[333] - The company has not paid dividends in the past and does not anticipate paying dividends in the future; any return on investment may be limited to stock value appreciation[334] - Requirements of being a public company may consume company resources, distract management, and affect the ability to attract and retain executive officers and qualified board members[335][336] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This chapter states no unregistered sales of equity securities have been made - The company has not made any unregistered sales of equity securities[338] Item 3. Defaults Upon Senior Securities This item is not applicable - This item is not applicable[338] Item 4. Mine Safety Disclosures This item is not applicable - This item is not applicable[338] Item 5. Other Information This chapter discloses Rule 10b5-1 trading arrangements by executives for selling common stock to cover tax obligations related to restricted stock unit vesting - On June 4, 2024, company executives, including David Moatazedi, Sandra Beaver, Rui Avelar, and Tomoko Yamagishi-Dressler, adopted Rule 10b5-1 trading arrangements[339] - These trading arrangements are designed to sell common stock to satisfy minimum federal, state, local, and foreign income and/or employment tax obligations related to the vesting of restricted stock units, including performance-based restricted stock units[339] - The total number of shares to be sold under these trading arrangements depends on the number of restricted stock units granted to each executive and their associated taxes, and thus cannot be determined at this time[339] Item 6. Exhibits This chapter lists exhibits filed with the Form 10-Q, including corporate governance documents and executive certifications - The exhibit list includes the company's certificate of incorporation, bylaws, 2024 Employee Stock Purchase Plan, and executive certification documents[343] - The certification information in Exhibit 32.1 should not be deemed 'filed' for purposes of Section 18 of the Securities Exchange Act of 1934, nor is it subject to the liabilities of that section[343] Signatures This chapter contains the report signed by authorized company representatives, including the CEO and CFO, as required by the Securities Exchange Act of 1934 - The report was signed by David Moatazedi, President and Chief Executive Officer, and Sandra Beaver, Chief Financial Officer, on July 31, 2024[346]