Evolus(EOLS) - 2021 Q4 - Annual Report

Part I Business Evolus is a performance beauty company whose primary product, Jeuveau®, competes in the self-pay aesthetic market for treating frown lines - Evolus operates as a performance beauty company with its first commercial product, Jeuveau®, a 900 kDa purified botulinum toxin type A, targeting the self-pay aesthetic market for the treatment of glabellar lines (frown lines)[29][30] - The company is pursuing international expansion, having received regulatory approval in Canada and Europe, with plans to launch in select European countries in Q3 2022 and Australia in 2023[32] - Evolus's growth strategy includes an aesthetic-only focus, leveraging KOL relationships, international expansion, a digital customer engagement platform, and portfolio diversification[43][44][45] - The company's TRANSPARENCY clinical program, involving over 2,100 patients, provided robust data for regulatory approvals, demonstrating non-inferiority to BOTOX®[40][48][51] - Evolus initiated a Phase II clinical trial in November 2021 to investigate a higher strength, 40-unit dose of Jeuveau® for glabellar lines[56] - The company relies exclusively on Daewoong Pharmaceuticals Co Ltd for the manufacturing and supply of Jeuveau® under a license and supply agreement[57][59] - As of December 31, 2021, the company had 167 full-time employees, with 69% being women[89][90] Fiscal Year 2021 Revenue | Region/Segment | Revenue (USD) | | :--- | :--- | | U.S. Net Product Revenue | $99.0 million | | Canada Net Service Revenue | $0.7 million | Risk Factors The company's viability is threatened by its dependence on a single product, a history of losses, and significant legal and competitive risks - The company's business is entirely dependent on the successful commercialization of its only product, Jeuveau®[99] - Evolus has a limited operating history and has incurred significant losses, with a net loss of $46.8 million in 2021 and an accumulated deficit of $422.9 million[100][102] - Failure to comply with settlement agreements with Medytox and Allergan could lead to litigation or loss of marketing rights, while royalty payments reduce profitability[104][107] - The business faces significant competition from large, experienced companies with greater financial resources and brand recognition, such as AbbVie Inc (marketer of BOTOX®)[114] - Evolus relies solely on Daewoong to manufacture Jeuveau®, making it vulnerable to production problems or termination of the supply agreement[158] - The company is reliant on its digital technology, and system failures or cybersecurity breaches could disrupt operations and harm the business[121][124] - Significant stock ownership is concentrated among Medytox (13.4%), Alphaeon 1, LLC (10.9%), and Daewoong (5.6%), allowing them to exert significant control[225] - The company is subject to securities class action and shareholder derivative lawsuits, which could result in substantial costs and divert management's attention[227][228] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[266] Properties Evolus leases its corporate headquarters in Newport Beach, California, under a lease expiring in January 2025 - The company's corporate headquarters is located at 520 Newport Center Drive, Suite 1200, Newport Beach, CA 92660[267] - The facility is leased, covers approximately 17,758 square feet, and the lease expires on January 31, 2025[267] Legal Proceedings The company is defending against securities class action and shareholder derivative lawsuits related to its rights to sell Jeuveau® - A securities class action lawsuit was filed against the company and certain officers, alleging violations of the Securities Exchange Act of 1934 related to statements about Jeuveau® and the ITC Action[268] - A shareholder derivative lawsuit was filed against certain officers and directors with substantially similar allegations as the class action, asserting claims for breach of fiduciary duty and waste of corporate assets[269] - The company received a demand from a putative stockholder to inspect its books and records under Section 220 of the Delaware General Corporations Law[271] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[275] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "EOLS," and it does not anticipate paying cash dividends in the foreseeable future - The company's common stock has been listed on the Nasdaq under the symbol "EOLS" since February 12, 2018[278] - As of February 28, 2022, there were approximately 30 holders of record of the common stock[279] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[280] [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Net revenues grew 76.3% to $99.7 million in 2021, though profitability remains impacted by settlement costs, with liquidity bolstered by new financing Results of Operations Net revenues rose 76.3% to $99.7 million in 2021, while net loss significantly narrowed to $46.8 million from $163.1 million in 2020 - Net revenues from Jeuveau® sales increased by $43.1 million (76.3%) in 2021 compared to 2020, driven by higher sales volume and a higher net average selling price in the U.S[300] - Gross profit margin was 79.0% in 2021, up from 62.4% in 2020; however, adjusted gross profit margin decreased to 56.3% from 67.6% due to new royalty payments[306] - Selling, general and administrative expenses increased by $13.9 million (14.1%) in 2021, primarily due to increased commercial activities, including direct-to-consumer marketing[307] Comparison of Results of Operations (Years Ended Dec 31) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total net revenues | $99.7 | $56.5 | | Product cost of sales | $43.5 | $18.3 | | Settlement payment from Daewoong | ($25.5) | $— | | Selling, general and administrative | $112.1 | $98.2 | | Litigation settlement expenses | $— | $83.4 | | Loss from operations | ($44.4) | ($153.1) | | Net loss | ($46.8) | ($163.1) | Liquidity and Capital Resources The company improved its financial position with $146.3 million in cash, supported by a public offering, an ATM program, and a new term loan - In April 2021, the company completed a follow-on public offering, selling 10,350,000 shares of common stock for net proceeds of approximately $92.4 million[317] - In December 2021, the company entered into a new loan agreement with Pharmakon for up to $125.0 million, with the first tranche of $75.0 million funded on December 29, 2021[320] - The company fully repaid its outstanding obligations of $76.4 million under its previous credit facility with Oxford Finance, LLC in January 2021[325] - The $40.0 million Daewoong Convertible Note, along with accrued interest, was converted into 3,136,869 shares of common stock in March 2021[293][329] Financial Position as of December 31, 2021 | Metric | Amount (USD millions) | | :--- | :--- | | Cash and cash equivalents | $146.3 | | Working capital | $121.1 | | Stockholders' equity | $81.9 | | Accumulated deficit | $422.9 | Critical Accounting Policies and Estimates Key accounting policies involve significant judgment, particularly in revenue recognition, contingent royalty valuation, and intangible asset amortization - Revenue is recognized when control of goods transfers to the customer, with product revenues recorded net of sales-related adjustments for rebates and loyalty programs[351][353] - The fair value of the contingent royalty obligation to the Evolus Founders is determined using a discounted cash flow method, which relies on significant unobservable (Level 3) inputs[355] - Goodwill is reviewed for impairment annually in the fourth quarter, and no impairment has been recorded[356][429] - Intangible assets consist mainly of the definite-lived distribution right for Jeuveau®, which is amortized on a straight-line basis over an estimated useful life of 20 years[358][430] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable[363] Financial Statements and Supplementary Data This section contains the company's audited financial statements, which show a net loss of $46.8 million and total assets of $257.5 million for 2021 Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $146,256 | $102,562 | | Total current assets | $178,799 | $127,612 | | Total assets | $257,483 | $209,068 | | Total current liabilities | $57,663 | $180,248 | | Total liabilities | $175,607 | $282,026 | | Total stockholders' equity (deficit) | $81,876 | ($72,958) | Statement of Operations Highlights (Year Ended Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total net revenues | $99,673 | $56,540 | | Loss from operations | ($44,405) | ($153,068) | | Net loss | ($46,810) | ($163,013) | | Net loss per share, basic and diluted | ($0.94) | ($4.83) | Statement of Cash Flows Highlights (Year Ended Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($33,388) | ($57,871) | | Net cash provided by investing activities | $4,030 | $12,194 | | Net cash provided by financing activities | $73,052 | $38,347 | | Change in cash and cash equivalents | $43,694 | ($7,330) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - None[603] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[605] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[606] - No changes in internal control over financial reporting occurred during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, these controls[607] Other Information The company reports no other information for this item - None[610] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[612] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - The required information for this item is incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders[614][616] - The company has a Code of Conduct available on its website, and any amendments or waivers for officers or directors will be posted there[617] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement - The required information for this item is incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders[619] Security Ownership of Certain of Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the company's 2022 Proxy Statement - The required information for this item is incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders[621] Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2022 Proxy Statement - The required information for this item is incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders[623] Principal Accounting Fees and Services Information regarding accounting fees and services is incorporated by reference from the company's 2022 Proxy Statement - The required information for this item is incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders[624] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and all exhibits filed as part of the annual report - This item lists the financial statements, notes that financial statement schedules have been omitted as not applicable, and provides an index of all exhibits filed with the 10-K[627] Form 10-K Summary The company has not provided a summary for this item - None[641]