Evolus(US:EOLS)2019-05-01 13:15PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited Q1 2019 financials show significant asset and liability growth from new debt and investments, increasing net loss due to higher operating expenses Condensed Balance Sheets Total assets increased to $220.9 million by March 31, 2019, driven by new short-term investments and long-term debt, while cash decreased and liabilities rose Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $54,367 | $93,162 | | Short-term investments | $79,313 | $— | | Total current assets | $139,084 | $94,339 | | Intangible assets, net | $58,782 | $56,076 | | Total assets | $220,929 | $171,844 | | Liabilities & Equity | | | | Total current liabilities | $9,400 | $5,276 | | Long-term debt, net | $72,557 | $— | | Total liabilities | $145,572 | $87,460 | | Total stockholders' equity | $75,357 | $84,384 | Condensed Statements of Operations and Comprehensive Loss Net loss increased to $11.0 million in Q1 2019, primarily due to a sharp rise in operating expenses for commercial launch preparation, partially offset by an income tax benefit Condensed Statement of Operations Highlights (in thousands) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Research and development | $2,353 | $1,678 | | General and administrative | $17,519 | $3,467 | | Revaluation of contingent royalty obligation | $4,913 | $900 | | Total operating expenses | $25,269 | $6,045 | | Loss from operations | ($25,269) | ($6,045) | | Income tax (benefit) expense | ($14,523) | $10 | | Net loss | ($10,975) | ($6,162) | | Net loss per share, basic and diluted | ($0.40) | ($0.30) | Condensed Statements of Cash Flows Net cash used in operating activities increased to $19.2 million in Q1 2019, with significant cash used in investing activities offset by financing proceeds, leading to a net decrease in cash Condensed Statement of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($19,200) | ($2,201) | | Net cash used in investing activities | ($80,025) | $— | | Net cash provided by financing activities | $60,430 | $51,771 | | Change in cash and cash equivalents | ($38,795) | $49,570 | | Cash and cash equivalents, end of period | $54,367 | $49,570 | Notes to Condensed Financial Statements Notes detail Jeuveau™ FDA approval, capital sufficiency, new lease standard adoption, a $100 million credit facility, and ongoing trade secret litigation - The company's first product, Jeuveau™, received U.S. FDA approval on February 1, 2019, for glabellar lines37 - Current capital resources, including $54.4 million cash and $79.3 million short-term investments, are deemed sufficient for at least the next twelve months of operations3941 - In March 2019, the company secured a $100.0 million credit facility with Oxford Finance, drawing an initial $75.0 million tranche130 - The company is defending against lawsuits and an ITC complaint from Medytox and Allergan alleging trade secret misappropriation related to Jeuveau™ manufacturing, with potential import and sales bans157159 - Upon FDA approval, a $2.0 million milestone was paid to Daewoong, and the $56.1 million IPR&D asset was reclassified to a definite-lived distribution right with a 20-year useful life12864 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the transition to commercial stage with Jeuveau™ launch, significant increase in operating expenses, securing a $100 million credit facility, and ongoing capital and legal risks - The company is launching its first product, Jeuveau™, in the U.S. in spring 2019 following FDA approval on February 1, 2019177 Results of Operations Comparison (in thousands) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | General and administrative | $17,519 | $3,467 | $14,052 | | Total operating expenses | $25,269 | $6,045 | $19,224 | | Net loss | ($10,975) | ($6,162) | ($4,813) | - General and administrative expenses increased by $14.0 million year-over-year, driven by higher personnel costs (headcount grew from 17 to 92) and pre-commercialization expenses195 - The company secured a loan agreement for up to $100.0 million with Oxford Finance, with an initial $75.0 million tranche funded in March 2019207 - Management believes current capital resources are sufficient to fund operations for at least the next twelve months from the report's issuance date212 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports that quantitative and qualitative disclosures about market risk are not applicable for this period - The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period232 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019234 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2019236 PART II - OTHER INFORMATION Item 1. Legal Proceedings No material developments in legal proceedings have occurred since the 2018 Annual Report, with key ongoing matters detailed elsewhere in the report - There have been no material developments in legal proceedings since the company's 2018 Annual Report on Form 10-K239 Item 1A. Risk Factors The company faces significant risks including single product and manufacturer dependence, substantial legal challenges, limited operating history, intense competition, and reliance on its controlling stockholder - Business & Strategy Risks: The company depends entirely on the successful commercialization of its single product, Jeuveau™, and has a limited operating history with significant losses242244 - Supplier & Manufacturing Risks: The company relies solely on Daewoong in South Korea for Jeuveau™ manufacturing, with any disruption or agreement termination posing material harm249254318 - Legal & IP Risks: Significant legal threats, including an ITC complaint from Allergan and Medytox, could result in an exclusion order barring U.S. imports and sales of Jeuveau™259270 - Financial & Capital Risks: Additional financing may be required, and the $100 million credit facility contains restrictive covenants and default clauses tied to business performance and legal outcomes272282 - Competition & Market Risks: Significant competition from large, experienced companies like Allergan with dominant market share, greater resources, and broader product portfolios305306 - Controlling Stockholder Risks: ALPHAEON owns 56.0% of the company's stock, making Evolus a "controlled company" exempt from certain corporate governance requirements and allowing control over business decisions453454462 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities in the quarter516 Item 3. Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities - The company reports that there were no defaults upon senior securities518 Item 4. Mine Safety Disclosures The company reports that mine safety disclosures are not applicable - The company reports that mine safety disclosures are not applicable520 Item 5. Other Information There is no other information to report under this item - There is no information to report under this item522 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Loan and Security Agreement with Oxford Finance and officer certifications - Key exhibits filed include the Loan and Security Agreement with Oxford Finance, LLC, and certifications by the Principal Executive Officer and Principal Financial Officer525526