The facial injections industry is estimated at $ 13.4 billion and is expected to grow at a compound annual growth rate of 8.8% through 2028. The leader in facial injections is the famous product Botox, which was invented by Allergan, a company now owned by the biotech giant AbbVie (NYSE: ABBV). The product earns over $ 1 billion in sales per year in cosmetics alone (non-medical injections). However, a product of the successful beauty company Evolved (NASDAQ: EOLS) called Jeuveau seeks to shake up the facial injections market. Does Evolus have what it takes?
What is Jeuveau?
Jeuveau is an injectable serum containing the botulinum toxin type A compound, the same active ingredient as Botox and other facial injection products. In 2019, the United States Food and Drug Administration (FDA) approved the use of Jeuveau for glabellar lines (lines between the eyebrows). Evolus is seeking approval for other areas of the body in the future.
What makes Jeuveau attractive to doctors is that it is already as cheap as Botox, but has performed better in customer satisfaction surveys. In a recent survey comparing Jeuveau to Botox, participants believed the Evolus product to be better at reducing wrinkles in blinded trials. Investors should take these results with caution as this is only a study of a few hundred people and it is not clear why people prefer Jeuveau to Botox at this point, but it is a good sign nonetheless. for Evolus.
The lawsuits are behind
After obtaining FDA approval in 2019, Allergan immediately filed a complaint with the government, stating that Evolus had violated trade secrets while producing Jeuveau. With several former Allergan employees working at Evolus and the same active ingredients in both products, you can see why Allergan was upset. The government sided with Allergan, banning the import and sale of Jeuveau in December 2020. This brought Evolus’ activities to a complete halt.
As you might expect, Evolus’ stock price has cracked on the news, at one point down 85% from its IPO price in 2018. After two months of zero activity , Evolus ended up settling with Allergan (i.e. AbbVie) and Medytox (another facial injection company) and was able to revive Jeuveau sales. However, the settlement did not come without consequences. Evolus was to pay $ 35 million to Allergan and Medytox, issue shares to Medytox and pay various royalties on the sales of Jeuveau to Medytox and Allergan until 2032.
Clearly, Evolus was on the way to losing this business, and had to give up a lot to put Jeuveau back on the market. This could scare off investors and the royalties will hurt Evolus’ profit margins. But now that the lawsuits are in the rearview mirror, she can focus solely on growing Jeuveau’s sales. The composition of Jeaveau will remain exactly the same for the customers. The only big change after the lawsuit is in the royalties that Evolus will pay out of every dollar of income.
Lots of growth to come
In the first quarter, revenue increased 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 achieve second quarter annual revenue of $ 100 million (which translates to $ 25 million in sales for the quarter). In addition to this growth, Jeuveau should launch in Europe in early 2022, opening Evolus to more markets than the United States.
Why is Jeuveau experiencing so much growth? Because it targets 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 last year. Evolus Rewards is offering customers $ 40 off treatments with Evolus products and will be a great way to retain repeat customers. This was manifested in Evolus’ replenishment rates, which reached 73% in the first quarter and have increased every year since Jeuveau launched.
Evolus is engaged in smart advertising campaigns to help attract customers and increase demand for its physician partners. Every time it opens up with a new doctor, Evolus floods the area around the practice with in-person ads, research, and targeted social media ads. This not only attracts more clients for Jeuveau, but also helps its physician partners to increase their business, keeping all of its stakeholders happy.
Is the action a buy?
The growth of Evolus looks promising. And with a market cap of just $ 700 million, there’s a lot of return potential here. However, investors should be aware that this security is not without risks. Jeuveau appears to have gotten out of the woods with regulators, but royalty payments will affect margins for years to come. There’s also a chance that its millennial marketing strategy will attack a smaller market than investors or the company assume, and legacy products like Botox will hold back a lot of customers.
This is a stock that will require strong sales growth in order to provide strong returns to investors over the long term. With the high risk, high return nature of Evolus, the smart decision for anyone considering investing in this company is to make the stock a small percentage of your portfolio. It’s fine to invest in something with higher risk, but you don’t have to bet everything on something that isn’t a sure thing.
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