Evolus(EOLS) - 2024 Q4 - Annual Report

Part I Business Evolus is a global performance beauty company focused on cash-pay aesthetics, offering Jeuveau® and launching Evolysse™ fillers Products and Product Candidates Evolus's portfolio includes commercial neurotoxin Jeuveau® and upcoming Evolysse™ HA fillers Evolus Product Pipeline Overview | Product Line | Status | Description | Treatment | Approvals | Estimated 2028 Market Size | | :--- | :--- | :--- | :--- | :--- | :--- | | Jeuveau® | Commercial | Injectable botulinum toxin type A | Temporary improvement of frown lines | U.S. (2019), Canada (2018), EU/UK (2019), Australia (2023), Switzerland (2023) | U.S.: $4.3B, Europe: $1.0B | | Evolysse™ | Launching in 2025 | Portfolio of injectable hyaluronic acids | Improvement of nasolabial folds, mid-face volume, lip fullness, etc. | EU (2024 - 4 products), U.S. (2025 - 2 products) | U.S.: $1.8B, Europe: $1.0B | - The company anticipates launching Evolysse™ Form and Smooth in the U.S. in the second quarter of 2025 and all four approved products in Europe in the second half of 2025[23] - Premarket approval (PMA) is being sought from the FDA for Evolysse™ Sculpt and Lips, with expected U.S. launches in 2026 and 2027, respectively[23] Market Opportunity and Strategy Facial injectables market projected to reach $14.5 billion by 2028, aligning with Evolus's aesthetic-only strategy - The facial injectables market, consisting of neurotoxins and hyaluronic acid gels, is estimated to be $10.9 billion in 2024 and is expected to grow to $14.5 billion in 2028[26] - The company strategically focuses its marketing efforts on the millennial segment, which it believes views aesthetic treatments as integral to personal health and self-care[27] - A key strategic pillar is pursuing an aesthetic-only strategy, as Jeuveau® is currently the only U.S. commercialized neurotoxin without a therapeutic indication, which the company believes enhances marketing and pricing flexibility[29] Manufacturing and Supply Agreements Evolus relies on third-party manufacturers Daewoong for Jeuveau® and Symatese for Evolysse™ under exclusive agreements - Daewoong manufactures Jeuveau® under a license and supply agreement that requires Evolus to make minimum annual purchases to maintain exclusivity[31][33] - Symatese manufactures Evolysse™ under two separate agreements for the U.S. and Europe, both with 15-year initial terms and minimum purchase requirements to maintain exclusivity[32][35][38] Competition Evolus faces intense competition in neurotoxin and dermal filler markets from larger, well-resourced companies - The U.S. aesthetic neurotoxin market has six approved products, including Jeuveau®, with primary competitors being BOTOX®, Dysport®, Xeomin®, Daxxify®, and Letybo®[40][42] - The U.S. dermal filler market, where Evolysse™ will compete, includes major product lines like Juvéderm®, Restylane®, Belotero®, and RHA®[41][43] Government Regulation Evolus operates under strict global regulations, with Jeuveau® as a biologic and Evolysse™ as a Class III medical device - In the U.S., biologic products like Jeuveau® require a Biologics License Application (BLA) from the FDA, while medical devices like Evolysse™ require premarket review, typically a Premarket Approval (PMA) for Class III devices[47][49][55] - In the European Union, medical devices must obtain a CE mark to be marketed. The EU Medical Device Regulation (EU MDR), which has replaced the previous directive, imposes stricter requirements and requires all products to undergo review and approval under the new regulations[67] - The company is subject to data privacy and security laws, including HIPAA in the U.S. and the General Data Protection Regulation (GDPR) in the EU, which govern the handling of personal and health information[72] Human Capital Evolus employs 332 full-time individuals, with 57% women, focusing on competitive compensation and an inclusive culture - As of December 31, 2024, the company had 332 full-time employees, with 57% being women[75] - The company's total rewards strategy includes competitive base pay, bonus/commission, long-term equity incentives (Stock Options and RSUs), and a robust benefits package[77] - Evolus promotes an inclusive culture through an employee-led Culture & Belonging Council and provides diversity, equity, and inclusion training[79] Risk Factors Evolus faces risks including financial losses, intense competition, supply dependence, IP litigation, funding needs, and regulatory compliance Business and Strategic Risks Business risks include financial losses, intense competition, market adoption uncertainty, economic downturns, cybersecurity, and capital needs - The company has a history of significant losses, recording a net loss of $50.4 million for the year ended December 31, 2024, and an accumulated deficit of $609.4 million[84] - Jeuveau® and Evolysse™ face significant competition from large, experienced companies like AbbVie and Galderma, which have greater financial resources, brand recognition, and larger product portfolios[85] - The company may require additional financing to fund operations, and a failure to obtain capital on acceptable terms could force it to delay, limit, or reduce its commercialization and development efforts[96] - The business relies on digital technology, including the Evolus Practice App, and could suffer from system failures or cybersecurity incidents, which have become more sophisticated and frequent[107][109] Risks Related to Licensors and Suppliers Evolus is entirely dependent on sole-source licensors and suppliers, facing risks from agreement termination and manufacturing disruptions - The company's ability to commercialize Jeuveau® and Evolysse™ is completely dependent on its agreements with Daewoong and Symatese, respectively. A breach or termination of these agreements would be materially adverse[138][139] - Evolus relies solely on Daewoong to manufacture Jeuveau® and Symatese to manufacture Evolysse™. Any production problems or failure to comply with cGMP regulations by these partners could disrupt supply and lead to regulatory sanctions[140][141] - Inaccurate forecasting of product demand could lead to inventory issues, such as excess inventory that expires or inadequate supply to meet customer orders, negatively affecting financial performance[145] Intellectual Property Risks IP risks include infringement claims, reliance on licensors for core IP protection, and challenges in defending rights globally - Third-party claims of IP infringement could prevent or delay commercialization efforts. The medical aesthetic field has large patent portfolios, and litigation is common[146] - The company relies on its licensors (Daewoong and Symatese) to protect key intellectual property, as botulinum toxin itself is not patentable, only its manufacturing process. A failure to protect these trade secrets and patents would harm the business[150] - Protecting intellectual property rights globally is expensive and challenging, as the laws of some foreign countries offer less protection than in the United States[158] Regulatory and Legal Risks Regulatory and legal risks include complex global regulations, uncertain approvals, post-approval compliance, and shareholder litigation - The business and its products are subject to extensive and costly government regulation in the U.S. and abroad. Failure to comply can result in sanctions, fines, or product recalls[168][169] - Obtaining regulatory approval for new product candidates is not guaranteed and is an expensive, lengthy process. The FDA and other authorities have substantial discretion and can delay, limit, or deny approval for many reasons[170][175] - The company is subject to prohibitions on promoting products for off-label uses. If found to have done so, it could face significant fines, penalties, and damage to its reputation[115] - The company is a defendant in shareholder derivative lawsuits, which could result in substantial costs and divert management's attention, even if the claims are unsuccessful[191] Risks Related to Common Stock Common stock risks include price volatility, potential dilution from future sales, no dividend policy, and anti-takeover provisions - The trading price of the company's common stock has been volatile, ranging from a low of $9.99 to a high of $17.49 during the year ended December 31, 2024[192] - Future sales of common stock by the company, including through its ATM program, could depress the market price and dilute existing shareholders[196][198] - Anti-takeover provisions, such as a staggered board and prohibitions on stockholder action by written consent, may prevent or frustrate attempts by stockholders to change management or effect a takeover[199][200] - The company has never paid dividends and does not expect to in the foreseeable future, with earnings intended to be retained for business growth[207] Unresolved Staff Comments The company reports no unresolved written comments from the Securities and Exchange Commission staff - None[212] Cybersecurity Evolus maintains a cybersecurity risk management program with Board oversight, reporting no material incidents to date - The company's cybersecurity program is managed by the SVP of IT and Operations, with oversight from the Chief Financial Officer and the Board of Directors[216][217] - The program includes systems for infrastructure security, employee training, third-party risk management, and an incident response plan[213][214] - To date, the company does not believe its business has been materially affected by any identified cybersecurity threats or incidents[215] Properties Evolus leases its corporate headquarters in Newport Beach, CA, with the lease extended to January 2030 - The company leases its corporate headquarters in Newport Beach, CA. The lease was recently amended to add space and extend the term to January 31, 2030[218][219] Legal Proceedings A securities class action was dismissed in Evolus's favor, while a related derivative lawsuit remains stayed - The securities class action lawsuit against the company and certain officers was dismissed, with a final judgment entered in the company's favor in October 2024[220] - A shareholder derivative lawsuit, alleging similar facts, remains stayed. The company believes the complaint is without merit but cannot estimate a potential range of loss[221][222] - The company received a books and records demand from a putative stockholder related to similar allegations, the outcome of which is uncertain[223] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[225] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Evolus common stock trades on Nasdaq (EOLS); the company has never paid dividends and retains earnings for growth - The company's common stock trades on the Nasdaq Stock Market under the symbol "EOLS"[228] - As of February 28, 2025, there were approximately 24 holders of record of the common stock[229] - The company has never paid cash dividends and does not intend to in the foreseeable future, retaining earnings for business growth[230] [Reserved] This item is reserved and contains no information - [Reserved][236] Management's Discussion and Analysis of Financial Condition and Results of Operations Net revenues grew 32% to $266.3 million in 2024, with net loss improving to $50.4 million Results of Operations Net revenues increased 32% to $266.3 million in 2024, with gross profit margin stable at 68% and net loss improving Comparison of Operations (2024 vs. 2023) | (in millions) | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $266.3 | $202.1 | $64.2 | 32% | | Gross profit | $182.3 | $137.6 | $44.7 | 32% | | Gross profit margin | 68% | 68% | - | - | | Loss from operations | $(34.4) | $(49.2) | $14.8 | (30)% | | Net loss | $(50.4) | $(61.7) | $11.3 | (18)% | Comparison of Operations (2023 vs. 2022) | (in millions) | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $202.1 | $148.6 | $53.5 | 36% | | Gross profit | $137.6 | $89.8 | $47.8 | 53% | | Gross profit margin | 68% | 60% | - | - | | Loss from operations | $(49.2) | $(65.3) | $16.1 | (25)% | | Net loss | $(61.7) | $(74.4) | $12.7 | (17)% | - The increase in gross profit margin from 60% in 2022 to 68% in 2023 was primarily due to reduced royalty obligations to Medytox, which were lowered to a mid-single digit percentage of net revenue starting in September 2022[254][255] Liquidity and Capital Resources Evolus held $87.0 million in cash as of December 2024, supported by a $46.8 million equity offering and a $125 million term loan Cash and Liquidity Overview | (in millions) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $87.0 | $62.8 | | Working capital | $88.4 | $64.1 | | Stockholders' equity (deficit) | $5.5 | $(20.7) | - In March 2024, a follow-on offering raised net proceeds of $46.8 million, with an additional $4.2 million raised from the exercise of underwriter options in April 2024[266] - The company has a term loan agreement with Pharmakon, with $125 million drawn in total as of December 2023. The loan bears a variable interest rate of SOFR + 8.5% and matures in December 2027[268][269][435] Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for revenue recognition and the valuation of the contingent royalty obligation - Revenue recognition requires significant estimates for sales-related adjustments, including volume-based rebates and the consumer loyalty program, which is treated as a separate performance obligation (material right)[295][296][382] - The fair value of the contingent royalty obligation payable to the Evolus Founders is a critical estimate determined using a discounted cash flow method (Level 3 inputs), based on projected net revenues, a discount rate, and timing of cash flows[297][373] Quantitative and Qualitative Disclosures About Market Risk Evolus faces market risks from interest rate fluctuations on its variable-rate loan and foreign currency exchange rates - The company is exposed to interest rate risk on its $121.5 million outstanding variable-rate term loan as of December 31, 2024[301] - Foreign exchange risk is primarily from exposure to the British pound and the EU euro, but has not been significant to date[302] Financial Statements and Supplementary Data Audited financial statements for 2022-2024 received an unqualified opinion, with contingent royalty valuation as a critical audit matter - The report contains the audited Consolidated Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Stockholders' Equity (Deficit), and Statements of Cash Flows[305] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[308][309] - The auditor identified the valuation of the contingent royalty obligation as a critical audit matter due to the challenging and subjective judgments involved in evaluating the projected net revenues of Jeuveau®[312][314] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None[506] Controls and Procedures Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 2024 - Management concluded that disclosure controls and procedures were effective as of December 31, 2024[508] - Management concluded that internal control over financial reporting was effective as of December 31, 2024, based on the COSO 2013 framework[509] - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting[510][515] Other Information The company reports no other information under this item - None[523] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[524] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[526] Executive Compensation Executive compensation information is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[528] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and related stockholder matters are incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[529] Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[530] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Stockholders[531] Part IV Exhibits, Financial Statement Schedules This section provides an index of exhibits and financial statement schedules filed with the Form 10-K - This section contains an index of all exhibits filed as part of the Form 10-K, including material contracts, certificates of incorporation, and officer certifications[534] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[541]