The facial injections industry is estimated to be valued at $13.4 billion and is expected to grow at an 8.8% compound annual growth rate until 2028. The leader in facial injections is the well-known Botox product, which was invented by Allergan, a company now owned by biotechnology giant AbbVie (ABBV 3.46%). The product wins over $1 billion in sales a year just in cosmetics (non-medical injections). However, a product from performance beauty company Evolus (EOLS 2.04%) called Jeuveau is looking to shake up the facial injections market. Does Evolus have what it takes?
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What is Jeuveau?
Jeuveau is an injectable serum containing the botulinum toxin type A compound, the same active ingredient that's in Botox and other facial injection products. In 2019, the U.S. Food and Drug Administration (FDA) approved the use of Jeuveau for glabellar lines (wrinkles in between the eyebrows). Evolus is looking to get approval for other areas of the body in the future.
What makes Jeuveau compelling for doctors is that it is already as cheap as Botox, but has earned better results in customer satisfaction surveys. In a recent survey comparing Jeuveau to Botox, participants thought that Evolus's product was better at reducing wrinkles in blind trials. Investors should take these results with a grain of salt, as it is only one study with a few hundred people and it is unclear why people like Jeuveau over Botox at this point, but it is a good sign for Evolus nonetheless.
Lawsuits are behind it
After earning FDA approval in 2019, Allergan immediately filed a complaint with the government, stating that Evolus violated trade secrets by producing Jeuveau. With multiple ex-Allergan employees working at Evolus and the same active ingredients in the two products, you can see why Allergan was upset. The government sided with Allergan, prohibiting the importation and sale of Jeuveau in December 2020. This brought Evolus' business to a complete halt.
As you might expect, Evolus' stock price cratered on the news, at one point down as much as 85% from its IPO price in 2018. After two months of zero business, Evolus ended up settling with Allergan (i.e. AbbVie) and Medytox (another facial injections company), and was able to restart sales of Jeuveau. However, the settlement didn't come without consequences. Evolus was required to pay $35 million to both Allergan and Medytox, issue stock to Medytox, and pay various royalties on sales of Jeuveau to both Medytox and Allergan through 2032.
Clearly, Evolus was on track to lose this case, and had to give up a lot in order to get Jeuveau back on the market. This might scare away investors, and the royalties will hurt Evolus's profit margins. But now that lawsuits are in the rearview mirror, and it can focus solely on growing sales of Jeuveau. The make-up of Jeaveau will remain exactly the same for customers. The only big change after the lawsuit is the royalties that Evolus will pay out on every dollar of revenue.
Plenty of growth ahead
In the first quarter, revenue was up 16% year over year to $12.2 million, even though the product was banned for half of the quarter. Management says it is on track to hit an annual revenue run-rate of $100 million in the second quarter (which means $25 million in sales for the quarter). On top of this growth, Jeuveau is expected to launch in Europe in early 2022, opening up Evolus to more markets than just the U.S.
Why is Jeuveau seeing so much growth? Because it is targeting millennials, who are younger than the typical Botox customer, with smart advertising and loyalty programs. It now has 160,000 Evolus Rewards members, up from 10,000 in June of last year. Evolus Rewards gives customers $40 off treatments with Evolus products and will be a great way to lock in recurring customers. This has shown up in Evolus's reorder rates, which were up to 73% in Q1 and have grown every year since Jeuveau launched.
Evolus is engaged in smart advertising campaigns to help attract customers and increase demand for its doctor partners. Whenever it opens with a new doctor, Evolus floods the area around the practice with in-person, search, and targeted social media advertising. This not only attracts more customers for Jeuveau, but helps its doctor partners increase their business, keeping all of its stakeholders happy.
Is the stock a buy?
The growth of Evolus looks promising. And with a market capitalization of only $700 million, there is a lot of potential for returns here. However, investors should know this stock doesn't come without risks. Jeuveau looks to be out of the woods with regulators, but the royalty payments will affect margins for years to come. There's also a chance its millennial marketing strategy is going after a smaller market than investors or the company assume, and that legacy products like Botox will retain a lot of customers.
This is a stock that will require lots of sales growth in order to provide strong returns for investors over the long haul. With the high-risk and high-reward nature of Evolus, the smart move for anyone thinking of investing in this company is to make the stock a small percentage of your portfolio. It is OK to invest in something with higher risk, but there's no need to bet it all on something that isn't a sure thing.
