Evolus(US:EOLS)2021-03-24 16:00PART I Item 1. Business Evolus is a performance beauty company focused on the self-pay aesthetic market, primarily commercializing Jeuveau for glabellar lines - Evolus is a performance beauty company focused on the self-pay aesthetic market, with its primary product Jeuveau (prabotulinumtoxinA-xvfs) for moderate to severe glabellar lines2930 - Jeuveau was approved by the U.S. FDA in February 2019 and commercially launched in the U.S. in May 2019, with approvals in Canada (August 2018, launched October 2019) and the EU (September 2019, planned launch early 2022)30294 Aesthetic Neurotoxin Market Size | Market | 2020 Revenue (Estimated) | 2023 Revenue (Estimated) | | :----- | :----------------------- | :----------------------- | | Global | $2.5 billion | $3.8 billion | | U.S. | $1.3 billion | $2.1 billion | - The company's strategy includes an aesthetic-only approach for marketing and pricing flexibility, leveraging KOL relationships, international expansion, and a differentiated digital platform394041 - Effective February 18, 2021, Evolus settled with Medytox and Allergan, securing a license to commercialize Jeuveau in exchange for $35.0 million in cash payments over two years, royalties on sales (low-double digit until Sept 2022, mid-single digit thereafter until Sept 2032), and 6,762,652 shares of common stock to Medytox4243116 - On March 23, 2021, Evolus settled with Daewoong, receiving $25.5 million, cancellation of $10.5 million in milestone payments, and reimbursement for royalties, while the $40.0 million Daewoong Convertible Note was converted into 3,136,869 shares of Evolus common stock4647 - Evolus relies solely on Daewoong for Jeuveau's manufacturing and supply under an exclusive license for aesthetic indications in key territories and co-exclusive rights in Japan6466164 - The U.S. aesthetic neurotoxin market is highly competitive, with key players like Allergan (BOTOX), Galderma (Dysport), and Merz (Xeomin), while Jeuveau is the only U.S. neurotoxin without a therapeutic indication, providing marketing and pricing flexibility69125 - As of December 31, 2020, Evolus had 119 full-time employees, with 63% being women, and focuses on talent attraction and retention through competitive compensation and an inclusive culture9899 Item 1A. Risk Factors Evolus faces significant risks including going concern doubts, intense competition for its sole product Jeuveau, regulatory non-compliance, supply chain reliance, and stock price volatility - Evolus requires additional financing to fund future operations, with failure to obtain capital raising substantial doubt about its ability to continue as a going concern105106107 - The company's business depends entirely on the successful commercialization of its only product, Jeuveau, with insufficient adoption risking revenue generation111128 - Non-compliance with Medytox/Allergan settlement terms could result in litigation, loss of Jeuveau commercialization rights, and adverse financial impacts115116 - The COVID-19 pandemic has adversely affected sales and operations, particularly for elective procedures, leading to reduced operating expenses and a delayed European launch119120121 - Jeuveau faces significant competition from established neurotoxin products like BOTOX, Dysport, and Xeomin, with larger competitors possessing greater resources and market share124 - Reliance on Daewoong for Jeuveau manufacturing exposes Evolus to production problems, regulatory non-compliance, and potential supply agreement termination, severely impacting commercialization164165166 - Third-party intellectual property infringement claims, especially concerning Jeuveau's manufacturing process, could prevent or delay commercialization and incur substantial litigation costs168169 - Evolus is subject to extensive government regulation (FDA, EMA, etc.) for product approval and marketing, with non-compliance risking sanctions, fines, and approval withdrawal193197203 - Alphaeon 1, LLC's concentrated ownership (19.8% as of March 25, 2021) and contractual rights may exert significant influence over corporate decisions, potentially conflicting with other stockholders' interests217218220 - The trading price of Evolus common stock is volatile, influenced by clinical trial results, regulatory actions, competition, financial performance, and sales by significant stockholders, leading to potential substantial losses for investors231233235 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments applicable to its operations or disclosures Item 2. Properties Evolus's corporate headquarters in Newport Beach, California, occupies 17,758 square feet under a lease expiring January 31, 2025 - Evolus's corporate headquarters is a leased facility of approximately 17,758 square feet in Newport Beach, CA268 - The headquarters lease expires on January 31, 2025, with current facilities deemed sufficient and alternative space expected to be available268 Item 3. Legal Proceedings Evolus resolved significant trade secret litigation with Medytox and Allergan in February 2021, but remains a defendant in ongoing securities class action and shareholder derivative lawsuits - The Medytox Litigation, filed in June 2017, alleging Daewoong misappropriated trade secrets for Jeuveau, was dismissed on February 23, 2021, following settlements269542 - Allergan and Medytox filed an ITC Complaint in January 2019 alleging trade secret misappropriation regarding Jeuveau; ITC remedial orders in December 2020 were rescinded by February 2021 settlement agreements270272273543547 - Evolus and officers face a securities class action lawsuit (filed Oct 2020) alleging Securities Exchange Act violations due to false statements regarding Jeuveau acquisition rights and ITC risks, consolidated in November 2020274565 - Shareholder derivative lawsuits (filed Nov/Dec 2020) allege breach of fiduciary duty and waste of corporate assets against officers and directors, now consolidated and stayed pending the securities class action outcome275566 Item 4. Mine Safety Disclosures The company reports no mine safety disclosures applicable to its operations PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Evolus common stock trades on Nasdaq under "EOLS" since February 2018, with 36 record holders as of March 2021, and the company has never paid dividends - Evolus common stock has been listed and traded on the Nasdaq under the symbol "EOLS" since February 12, 2018283 - As of March 25, 2021, there were approximately 36 holders of record for the company's common stock284 - Evolus has never paid cash dividends and does not anticipate doing so in the foreseeable future, retaining funds for operations and growth285260 - No unregistered securities were issued from January 1, 2019, to December 31, 2020, except as previously disclosed in a Form 8-K286 - The company made no purchases of its equity securities during the fourth quarter of the year ended December 31, 2020287 Item 6. Selected Financial Data This section indicates that selected financial data is not applicable to the company Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Evolus's financial condition, highlighting Jeuveau's market performance, the impact of legal settlements, COVID-19, increased net loss, and ongoing going concern doubts requiring additional capital - Evolus is a performance beauty company focused on the self-pay aesthetic market, with Jeuveau as its first commercial product, launched in the U.S. in May 2019294 - The ITC's December 2020 determination, including a 21-month import ban on Jeuveau, was resolved by February 2021 settlements involving $35.0 million in cash payments over two years, royalties on sales, and 6,762,652 shares to Medytox295296297 - A March 2021 settlement with Daewoong included a $25.5 million payment to Evolus, cancellation of $10.5 million in milestone payments, and conversion of a $40.0 million convertible note into 3,136,869 shares of common stock298 - The COVID-19 pandemic negatively impacted sales in early 2020, prompting cost-cutting measures and delaying Jeuveau's European launch to early 2022307309 Results of Operations (Years Ended December 31) | Metric | 2020 ($ millions) | 2019 ($ millions) | Change ($ millions) | | :------------------------------------------------------------------ | :---------------- | :---------------- | :------------------ | | Total Net Revenues | 56.5 | 34.9 | 21.6 | | Product Cost of Sales (excludes amortization of intangible assets) | 18.3 | 8.0 | 10.3 | | Selling, General and Administrative | 98.2 | 113.6 | (15.4) | | Research and Development | 1.7 | 4.0 | (2.3) | | Revaluation of contingent royalty obligation to Evolus Founders | (2.0) | 4.2 | (6.2) | | Depreciation and Amortization | 7.0 | 4.1 | 2.9 | | Litigation Settlement Expenses | 83.4 | 0.0 | 83.4 | | Restructuring Costs | 3.0 | 0.0 | 3.0 | | Total Operating Expenses | 209.6 | 133.9 | 75.7 | | Loss from Operations | (153.1) | (99.0) | (54.1) | | Net Loss | (163.1) | (90.1) | (73.0) | - Net revenues increased by $21.6 million to $56.5 million in 2020, primarily due to higher U.S. sales volume, despite temporary nominal revenue from increased pricing during the ITC review314 - Cost of sales increased by $10.3 million to $18.3 million in 2020, driven by higher sales volume, depletion of launch-priced inventory, and new royalty payments to Allergan and Medytox315 - Gross profit margin decreased to 67.6% in 2020 from 77.1% in 2019, primarily due to marketing program changes, new royalty payments, and lower-cost inventory depletion318 - Selling, general and administrative expenses decreased by $15.4 million to $98.2 million in 2020, mainly due to COVID-19 cost-cutting measures and the conclusion of the J.E.T. program319 - Evolus recorded an $83.4 million charge for litigation settlement expenses in December 2020, comprising $35.0 million in cash payments and the non-cash portion from issuing 6,762,652 shares of common stock322 - Evolus's current capital resources are not sufficient to fund operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern and requiring additional capital327409 Cash Flows (Years Ended December 31) | Metric | 2020 ($ millions) | 2019 ($ millions) | Change ($ millions) | | :----------------------- | :---------------- | :---------------- | :------------------ | | Operating Activities | (57.9) | (93.4) | 35.5 | | Investing Activities | 12.2 | (23.4) | 35.6 | | Financing Activities | 38.3 | 133.5 | (95.2) | | Change in Cash | (7.3) | 16.7 | (24.0) | | Cash, End of Period | 102.6 | 109.9 | | - Cash used in operating activities decreased by $35.5 million to $57.9 million in 2020, primarily due to a decrease in net loss (adjusted for non-cash items) and working capital timing350351 Item 7A. Quantitative and Qualitative Disclosure About Market Risk This section indicates no quantitative or qualitative disclosures about market risk are applicable to the company Item 8. Financial Statements and Supplementary Data This section presents Evolus's audited financial statements for 2020 and 2019, with the auditor expressing substantial doubt about the company's going concern ability, alongside detailed notes on accounting policies and debt obligations - The independent auditor's report (Ernst & Young LLP) expresses substantial doubt about Evolus's ability to continue as a going concern due to recurring losses and a working capital deficiency383 Balance Sheet Highlights (in thousands) | Metric | December 31, 2020 | December 31, 2019 | | :----------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $102,562 | $109,892 | | Total current assets | $127,612 | $152,197 | | Total assets | $209,068 | $240,442 | | Total current liabilities | $180,248 | $24,439 | | Total liabilities | $282,026 | $160,985 | | Total stockholders' (deficit) equity | $(72,958) | $79,457 | | Accumulated deficit | $(376,072) | $(213,059) | Statements of Operations and Comprehensive Loss (in thousands) | Metric | 2020 | 2019 | | :------------------------------------------------------------------ | :---------- | :---------- | | Total Net Revenues | $56,540 | $34,925 | | Total Operating Expenses | $209,608 | $133,872 | | Loss from Operations | $(153,068) | $(98,947) | | Net Loss | $(163,013) | $(90,034) | | Net Loss Per Share, Basic and Diluted | $(4.83) | $(3.19) | Statements of Cash Flows (in thousands) | Metric | 2020 | 2019 | | :-------------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(57,871) | $(93,383) | | Net cash provided by investing activities | $12,194 | $(23,434) | | Net cash provided by financing activities | $38,347 | $133,547 | | Cash and cash equivalents, end of period | $102,562 | $109,892 | - As of December 31, 2020, Evolus had an accumulated deficit of $376.1 million and incurred net losses of $163.0 million and $90.0 million in 2020 and 2019, respectively107112409 - The company's significant estimates for financial statements include net revenues, allowance for doubtful accounts, fair value measurements, goodwill and long-lived asset valuations, income tax valuations, and stock-based compensation417 - Goodwill and intangible assets include a definite-lived distribution right for Jeuveau (amortized over 20 years) and capitalized internal-use software costs (amortized over 2 years), with no impairment of goodwill or long-lived assets recorded439440441442 - The Oxford Term Loan of $75.0 million (funded March 2019) was fully repaid on January 4, 2021, for $76.4 million, with Oxford waiving $4.3 million in fees330333520 - The $40.0 million Daewoong Convertible Note (issued July 2020) was converted into 3,136,869 shares of common stock on March 23, 2021, at a conversion price of $13.00 per share339528 - Evolus is obligated to make quarterly royalty payments (low single digit percentage) on net sales of Jeuveau and a $20.0 million promissory note payment in November 2021 to its founders304335 - As of December 31, 2020, Evolus had federal NOL carryforwards of $246.0 million and state NOL carryforwards of $149.1 million, offset by a full valuation allowance on net deferred income tax assets588593 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with accountants regarding accounting and financial disclosure Item 9A. Controls and Procedures Management concluded that Evolus's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes in Q4 2020 - Evolus's management concluded that disclosure controls and procedures were effective as of December 31, 2020615 - Management concluded that internal control over financial reporting was effective as of December 31, 2020, based on the COSO (2013 framework)616 - As an "emerging growth company," Evolus is exempt from the auditor attestation report on internal control over financial reporting617 - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2020617 Item 9B. Other Information This section indicates no other information is required to be reported PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the Code of Conduct, is incorporated by reference from the 2021 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement625 - Evolus maintains a Code of Conduct for all personnel, available on its website, with amendments and waivers for officers/directors also posted online626 Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement - Information on executive compensation is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement628 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and related stockholder matters is incorporated by reference from the 2021 Proxy Statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement630 Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement632 Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2021 Annual Meeting of Stockholders Proxy Statement633 PART IV Item 15. Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including financial statements and an exhibit index detailing corporate documents and agreements, with some exhibits subject to confidential treatment - Financial statements are filed as part of this Annual Report on Form 10-K under Item 8635 - Financial statement schedules have been omitted because they are not applicable636 - The exhibit index includes various corporate documents such as the Amended and Restated Certificate of Incorporation and Bylaws and the License and Supply Agreement with Daewoong637 - Certain exhibits have portions omitted and filed separately with the SEC due to confidential treatment requests646 Item 16. Form 10-K Summary This section indicates that no Form 10-K Summary is required to be reported