Sometimes the best buying opportunities are when a company is between post-FDA approval and when sales roll in. Usually this is not the case as it takes time for sales to ramp up. Its risky for sure; sales growth from any company is never guaranteed no matter how sound the bull thesis is. When it plays out though, it can be very financially rewarding. A company I have came across recently that has such a value proposition is Evolus (EOLS). EOLS is different from any other company we have covered before in that they are an aesthetics only company. In February of this year the FDA approved their first product Jeuveau (prabotulinumtoxinA-xvfs), a neurotoxin indicated to improve moderate to severe glabellar lines (i.e. frown lines between the eyebrows). Botox which is owned by Allergan dominates 70-80% of the $1.1 billion aesthetic neurotoxin space in the U.S while Dysport (marketed by Galderma S.A.) and Xeomin (marketed by Merz Pharma) split the remaining market share. Per EOLS’s Chief Marketing Officers own words at EOLS’s Investor and Analysts Day last month, “Evolus was built to grow overnight” and plans to become the number two player in the neurotoxin market within two years.
Evolus was founded six-years ago as a performance beauty company focused on the self-pay aesthetics market with a customer-centric mindset. Representative of the demographic it targets, Evolus is headquartered in Newport Beach California. “Evolving with the market” was the founding concept behind the name “Evolus” which was born from the slogan “evolve with us”. Until recently ALPHAEON Corporation had controlling stake of 56% of the company. However, subsequent to the sale of 4 million shares by ALPHAEON on May 15th, EOLS was no longer a controlled company and now trades as an emerging growth company on the NASDAQ.
EOLS has a single product Jeuveau that is manufactured and supplied to Evolus by their partner is Asia Daewoong Pharmaceuticals. To date Jeuveau is commercially approved in the U.S and Canada. In April 2019 the Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion on the company’s marketing authorization application for Nuceiva (same product as Jeuveau intended for the European market) and is being evaluated by the European Medicines Agency (EMA). An update on June 10th informed us that the European Commission requested supplemental information. Consequently, a decision may not be handed down until after the 90-day mark like Evolus originally stated. However, Evolus Chief Medical Officer reaffirmed their confidence in a positive decision.
EOLS closed today (June 25th, 2019) at $14.26 with a market cap of $389.77 million. In the past 52-weeks EOLS had a range of $10.22 to $31.51. The peak of which was reached following FDA approval of Jeuveau on February 1st 2019. In March there was a fleeting dip after ground-floor investors sold 15.7 million shares around $25.70. The share price was successfully taken down soon after to the current price level in May 2019 when ALPHAEON sold 4 million shares, as discussed above. As of May 31st, the short interest was relatively high at 29% of the float. It seems shorts are betting against leaderships ability to execute on their ambitious market entrance strategy. Some other statistics worth mentioning is there are only 27 million shares outstanding (16 million float), 56.5% insider ownership, and 20% institutional ownership with the biggest holders being Blackrock (3.24%) and the Vanguard Group (1.78%).
Different By Design
In preparation for the launch of Jeuveau EOLS hired an innovative team from places like Google and Microsoft tasked with creating a premium brand and marketing strategy just for “her”. A #NEWTOX movement was started to generate hype and awareness around Jeuveau. EOLS even designed an app for customers to place orders and receive customer service.
Additionally, EOLS hired 140 experienced sales representatives with existing relationships with the medical aesthetic practices. For reference, Allergen’s Botox sales force has roughly 340 sales reps. The logo you see now, and even the color choices were careful selected to elicit the desired response from consumers. EOLS invested a lot to figure out what problems practitioners and their patients faced and then solved them one by one. The end result being what EOLS calls a “friction-less” user experience. Collectively, there are three steps in the launch strategy. The first is the JET (Jeuveau Experience Treatment) program. In the JET program medical practices are given free samples of Jeuveau. They then can get up to three more units if they supply customer feedback from the preceding samples. This phase went so well that EOLS announced on June 5th it was accelerating the next step which involves converting the customers in the JET program into paying customers. In phase 2 customers (i.e. doctors will be given coupons they can hand down to their patients as a tactic for undercutting Botox’s pricing. The third phase is called the customer loyalty program. As the name implies it aims to lock down relationships forged in the JET program as repeat customers. As of the BMO Investor Conference today (June 25th) EOLS has confirmed publicly receiving feedback from well over 10K patients. Most of which were very satisfied. In part 2 I will elaborate on the what differentiates EOLS from the competition as well as delve into risk factors.
I am/we are long EOLS
Sultan Beardsley is the Chief Operating Officer at MS Money Moves, an informational and educational service that delivers biotech equity analysis and daily trade ideas. Look into premium membership to learn about all our service offers.