EOLS - Evolus: Capitalizing On The Growth Of Aesthetics Market

2023-04-19 06:28:30 ET

Summary

• The US neurotoxin market is rapidly growing, and Evolus has a strong position in the market, especially among younger, aesthetically-oriented consumers.
• The global market for non-invasive aesthetic treatments is expected to reach $150 billion by 2030, with a CAGR of 12.4%.
• Jeuveau's success is attributed to a unique marketing strategy that targets a younger demographic through digital platforms and partnerships with dermatologists and plastic surgeons.
• I keep a buy rating on EOLS stock with an end of year price target of $13.

Thesis

Evolus, Inc. ( EOLS ) is a pure-play aesthetics company experiencing rapid growth with the growing popularity of Jeuveau, its new neurotoxin product. Jeuveau, a neurotoxin product, has become a popular wrinkle treatment of its kind in the US market, thanks to its modern and youthful branding strategy that appeals to the fastest-growing segment of the market, younger consumers such as Millennials and Gen Z. I believe that EOLS is an emerging leader in the aesthetics industry, and that Jeuveau is well-positioned to capture an increasing share in the rapidly growing market for aesthetic products. I keep a buy rating on the stock with an end of year price target of $13, based on a forward EV/Sales assumption of 3x applied to the estimated consensus estimate of $248 million for 2024.

Millennial Key to Growth of Aesthetics Market

Millennials and older Gen Z members are increasingly interested in minimally invasive aesthetic treatments like neurotoxins and facial fillers, which serve as an entry point for more extensive cosmetic procedures. This group is reaching an age and career stage where they have more disposable income and a desire to enhance their appearance and well-being. This trend of younger consumers seeking aesthetic treatments is likely driven by social media and is expected to have a long-lasting impact on the industry's growth. Evolus has targeted its Jeuveau product toward the Millennial demographic, the largest group in the US population, with a higher acceptance of aesthetic treatments than other generations. The industry refers to the use of neurotoxins and fillers among younger patients as "prejuvenation," with the goal of preventing the formation of wrinkles and lines. According to the American Society of Aesthetic Plastic Surgery, the use of neurotoxins among people aged 19 to 34 increased by 87% between 2011 and 2016.

Aesthetic Market Positioned For Growth

The global market for non-invasive aesthetic treatments, such as injectables, skin rejuvenation, hair removal, and non-surgical fat removal procedures, is expected to grow significantly, from approximately $59 billion in 2022 to $150 billion by 2030, with a CAGR of 12.4%. This growth is driven by aging populations worldwide, increasing disposable incomes, and a rising awareness and acceptance of aesthetic treatments among younger demographics. These non-invasive treatments are designed to reverse signs of aging and maintain a youthful and healthy appearance, addressing common signs of aging like wrinkles around the eyes and lips, age spots, and sagging skin. While surgical options are available, non-surgical procedures are becoming increasingly popular due to their simplicity and affordability. Injectable products, including neurotoxins and facial fillers, are the most popular non-invasive treatments, providing quick results that can be repeated regularly. As per American Society of Plastic Surgeons, there has been a decrease in the number of invasive cosmetic procedures performed, with a reduction of approximately 6% from 2000 to 2016. On the other hand, non-invasive and minimally-invasive procedures have experienced a significant increase of approximately 180% during the same period. As a result, it is anticipated that the non-invasive aesthetic treatment market will experience rapid growth in the upcoming years due to various factors such as an aging population, rising levels of disposable income, and increasing acceptance of these treatments.

Jeuveau Offers a Direct Alternative to Botox

EOLS is a pure-play aesthetic-focused biopharma that commercializes Jeuveau (prabotulinumtoxinA-xvfs), a Botox-like neurotoxin product with a customer-centric approach focused on younger consumers (Millennials and Gen Z) which currently represent the largest growing segment of the cosmetic dermatology market.

Jeuveau is the first 900 kDa neurotoxin alternative to Botox, manufactured identically to Botox, and non-inferior on both efficacy and safety measures. The similarity to Botox makes Jeuveau an easy proposition for dermatologists who are already familiar with Botox and can integrate Jeuveau into their practices without additional training or new procedures. EOLS prices Jeuveau at a discount to Botox, providing cost-savings and improved economics to physicians and practices that can benefit consumers. Jeuveau received FDA approval in February 2019 and launched in mid-May 2019, gaining traction until the Covid pandemic closed most dermatology clinics. Jeuveau sales regained strong growth in mid-2021, reaching $148 million in sales for 2022. Jeuveau's turning point was the resolution of IP litigation with Medytox/Allergan in early 2021, which affirmed EOLS's rights to distribute and market Jeuveau for aesthetic indications in the U.S., Europe, Canada, Australia, Russia, and South Africa. Before the legal matters were resolved, the International Trade Commission issued a 10-year order to prevent the import, sale, and marketing of Jeuveau in the U.S., later reduced to 21 months. With the legal matters resolved, EOLS began investing in brand-building efforts, resulting in significant sales acceleration that continues today. EOLS's customer-centric approach, focus on younger consumers, similarity to Botox, and cost savings are key factors in its success.

Jeuveau's sales growth has benefited from the strong recovery and growth of the aesthetic market after the pandemic, particularly for non-invasive treatments like neurotoxins and facial fillers. EOLS's strategy of targeting younger consumers, specifically Millennials and Gen-Z, has contributed to this growth and is expected to be sustainable as more young patients seek out cosmetic treatments. Jeuveau's customer loyalty program has also played a role in driving repeat treatments and orders, while its expanded co-branded marketing campaign has increased physician adoption of the product.

Valuation

EOLS's valuation, in my view, is mostly, if not entirely, driven by Jeuveau's projected U.S. sales growth. I expect Jeuveau to reach peak sales of $400 million-$500 million by 2028 driven by expansion of the neurotoxin market. I expect EOLS' valuation and share price volatility for the next 12-months will revolve around Jeuveau's sales trajectory and the overall health of the U.S. neurotoxin market, which is expected to grow at a double-digit rate, but could be affected by high inflation and a recessionary environment.

Since many companies in the biopharma industry and beauty segment are still new and unprofitable, I prefer using the EV/sales methodology to value the stock. My end of year price target of $13 is based on a forward EV/Sales assumption of 3x applied to the estimated consensus estimate of $248 million for 2024.

Risks

The success of EOLS and Jeuveau depends on the growth of the neurotoxin market, which is expected to increase due to younger generations' interest in aesthetic treatments. However, it's unclear how a high inflation environment could affect product demand and a reduction in discretionary spending would affect the performance of the company. EOLS faces intense competition in the aesthetics market, which is currently dominated by Botox, and a few new product entrants are expected in 2023. EOLS must continue to differentiate itself to be successful. The extra-strength Jeuveau program has just begun clinical development and must demonstrate extended duration and acceptable tolerability profile. Regulatory agencies must recognize and include the longer duration in the product label to differentiate it from other neurotoxin offerings. These factors pose market/economic, commercialization, and development/regulatory risks to EOLS and Jeuveau's success.

Final Thoughts

Evolus focuses solely on aesthetics in dermatology and has developed Jeuveau, a neurotoxin product for cosmetic purposes that was launched in 2019. Although Jeuveau was created to be similar to Botox, its success and potential for growth are due to its unique marketing strategy that targets a younger demographic through digital platforms and partnerships with dermatologists and plastic surgeons. I remain optimistic on Evolus' prospects in the rapidly growing U.S. neurotoxin market, particularly among younger, aesthetically-oriented consumers. I keep a buy rating on EOLS stock with an end of year price target of $13.

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