Here we go.
Good day, ladies and gentlemen, and welcome to the Evolus conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question answer session, and our instructions will be given at that time. If during your conference today you require operator assistance, press star then zero, and an operator will be happy to assist. As a reminder, today's conference is being recorded. I would now like to introduce you to the host for today's conference call, Mr. Ashwin Agarwal, Vice President of Finance, Investor Relations, and Treasury. Sir, please go ahead.
Thank you, operator. Welcome to everyone participating in today's call. This call is also being broadcast live over the internet at www.evolus.com, and a replay of the call will be available on the company's website for 30 days. With me on today's call are David Moatazedi, President and Chief Executive Officer, Lauren Silvernail, Chief Financial Officer and EVP Corporate Development, Rui Avelar, Chief Medical Officer and Head of R&D, and Mike Jafar, Chief Marketing Officer. In our remarks today, we will include statements that are considered forward-looking statements within the meaning of U.S. security laws. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business, strategy, operations, or financial performance.
A detailed discussion of the risks and uncertainties that the company faces is contained in its quarterly report on Form 10-K for the year ended December 31st, 2018, filed with the SEC on March 20th, 2019. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate, projection, or forward-looking statement. Additionally, the discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and may also be found on our investor relations website at investors.evolus.com. Now let me hand the call over to David Moatazedi.
Good afternoon and thank you all for joining our first quarter 2019 update call. During the first quarter of 2019, we executed against all of our critical milestones to enable the launch of the company and Jeuveau. On today's call, I will briefly cover these accomplishments and discuss key upcoming milestones before Lauren covers our first quarter financial performance. This quarter, we announced the publication of the largest aesthetic head-to-head pivotal trial, which compared Jeuveau and BOTOX in the "Aesthetic Surgery Journal." The publication of the study is critical to our launch success. We are the first new neurotoxin in the U.S. to have head-to-head data at launch, and we believe the results speak for themselves. The medical community's feedback on these results has been outstanding, specifically the secondary endpoints and 30 new published exploratory data points. The head-to-head data was also critical to support our European filing.
Last Friday, we announced a positive opinion from the CHMP for Nuceiva in the European Union. We anticipate approval within 90 days and continue to evaluate commercial partnership opportunities in Europe. During the quarter, we also announced the publication of our phase III U.S. pivotal trial in Dermatologic Surgery , which further validated the safety and efficacy of Jeuveau versus placebo. We have now fully hired our U.S. sales force. We screened over 6,000 candidates, and following an extensive interview process, we deployed a 140-person sales force. We are pleased with the composition of our sales team. 80% have aesthetic experience. It is clear we have one of the most experienced, and now following our national sales meeting, one of the most energized sales teams in the field. With our singularity and focus, the sales team is now fully prepared to execute our launch in the coming days.
We are within days of introducing the first 900 kilodalton neurotoxin in the U.S. in nearly 30 years. The path to achieving our goal of the number 2 market share position within 24 months of launch is clear. We will provide more specifics around our go-to-market strategy for Jeuveau at our investor and analyst day on May 8th. With that, I'd now like to turn the call over to Lauren, who will provide a review of our Q1 2019 financial highlights.
Thank you, David, and good afternoon, everyone. At the end of the first quarter, we had $133.7 million in cash equivalents, and short-term investments, compared to $93.2 million as of December 31st, 2018. During the first quarter of 2019, the company received proceeds of $71.7 million net of discounts and issuance costs after drawing down upon the first $75 million tranche of the senior debt facility with Oxford Finance. During the quarter, we used $31.2 million of cash, including $18.4 million for operating activities, less capitalized software, and $12.8 million of milestone payments paid under various arrangements upon receiving the FDA approval of Jeuveau. As it relates to the accounting treatment for these $12.8 million in milestones, $1.6 million impacted the R&D expense line of our P&L. The remaining $11.2 million of milestone payments were recorded to the balance sheet, impacting contingent royalty obligation and intangible assets.
As a reminder, an additional $1 million is due to our partner Daewoong following anticipated EU approval. Net loss for the first quarter ended March 31, 2019, was $11 million, compared with a net loss of $6.2 million for the first quarter of 2018. Net loss in the first quarter 2019 includes an income tax benefit of $14.5 million. This income tax benefit resulted from a partial release of the valuation allowance for deferred tax assets, as Jeuveau was approved by the FDA in the first quarter of this year. Our non-GAAP operating expenses for Q1 were $17.9 million. As a reminder, we are providing a non-GAAP metric to make it easier to track our operating expenses, including three non-cash items: stock-based compensation of $2 million, revaluation of the contingent royalty obligation expense of $4.9 million, and depreciation and amortization of $0.5 million.
As I stated on our 2018 year-end earnings call, we've decided not to provide revenue or expense guidance during this launch year. However, there are a few items we would like to highlight to help you with your financial models. Based upon our Q4 2018 non-GAAP operating expense, the annualized run rate for G&A, R&D, and pre-launch expenses is approximately $50 million. We've hired our 140-person sales team, which increases our non-GAAP annualized selling expenses to between $40 million-$50 million. Please note, selling expenses in the first quarter were lower and primarily consisted of our sales leadership team. Please note the numbers just provided do not include any GAAP to non-GAAP adjustments as previously described. Most importantly, we expect revenue to be back-loaded towards the fourth quarter of 2019 as we build trial and experience with our customers. With that, I'll turn the call back over to David.
Thank you, Lauren. Before turning the call over for Q&A, I'd like to take a moment to thank our entire team for their hard work leading up to this pivotal moment as we prepare to launch Jeuveau. Over the last 90 days, the team has successfully gained U.S. FDA approval, a positive CHMP opinion, and published our U.S. and EU trial data from our transparency clinical program. On the commercial side, we built out a 140-person sales team and prepared the U.S. market for the launch of Jeuveau in the coming days. We look forward to unveiling our go-to-market commercial strategy at our Investor and Analyst Day on May 8th. We plan to attend a number of investor meetings, including SunTrust and Bank of America in May, and Jefferies, JMP, and BMO in June.
We plan to have a significant presence at the American Society for Aesthetic Plastic Surgery Meeting beginning May 17th. We hope to see you at one of these meetings. With that, I'll turn the call over for Q&A. Operator?
Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. We ask everybody who is participating in today's Q&A session, kindly limit yourself to one question and a follow-up. If your questions have been answered or you wish to remove yourself from the queue, simply press the pound key. Our first question will come from Louise Chen with Cantor Fitzgerald. Your line is now open.
Hi. Thanks for taking my questions. I had the two that you specified. In the early days of the launch, as you go through the trial phase with customers, what are the best metrics for us to look at to track and measure your launch performance? The second question I had was, do you have any early feedback from physicians who've seen the full head-to-head data for Jeuveau versus its competitors? Thank you.
Great. Thanks for sitting on the call, Louise. I'll start by addressing just the early feedback, because we have quite a bit of feedback now that the data's been published and it's out in the public domain. What we've heard back from doctors when they look at the data set, specifically around the 30 exploratory endpoints, is that the feedback we hear, there's a consistency in how Jeuveau performs over time. Having that view relative to the market leader is helpful and it credentials the brand and the company to have such a comprehensive data set. It further also validates the importance of releasing this data closer to commercialization because it enabled not only for the doctors to be able to experience the data right before the launch, but also enabled our sales representatives to be present and able to answer any questions that doctors have.
As it relates to measures in the early days, I'll save the answer to that for our upcoming Analyst Day. You'll get a lot more color around our go-to-market strategy and some of the key leading indicators of success surrounding that. Of course, those are going to be important to look for, and we'll provide more color on that day.
Thank you.
Thank you. Our next question will come from the line of Greg Gilbert with SunTrust. Your line is now open.
Thanks. Good afternoon. I have a bunch of strategy questions, I think I'll punt on those for now. Maybe in terms of market background, you could share with us, from a cosmetic toxin procedure standpoint, how many of those in the U.S. in a given year are sort of existing toxin patients versus new starts? Because I'm pretty sure your ability to penetrate might be easier in one bucket than another. Then secondly, longer term, David and team, how important is it to eventually have a bundle of your own? I know your simple one-product approach and your singular focus on that is an advantage short term, but longer term, I'm sure you've given a lot of thought to how the company will evolve. Maybe you can give us some broad strokes on that, recognizing that your focus is what it is for now. Thanks.
Great. Thanks for the questions, Greg Gilbert. First up, on the market side, there's just over 2 million patients that get a neurotoxin treatment in the U.S. There's a couple sources you can reference. The ASDS survey as well as the ASAPS survey are just a few of them, but we've done our own market sizing and they further validate that it's north of about 2 million. In conversations with customers and based on what we hear, it appears that in the market there's an influx of new patients, especially with this emerging millennial population. We hear quite a bit about market growth accelerating. As you know, this market, we believe, is growing high single, low double digits. That alone gets you about 10% growth and we know there's some turnover within the category.
What we estimate is anywhere from 20%-30% of patients on an annual basis are new to the category and the remainder are existing patients coming back. I think when you compare that to other categories, what you'd find is that this is a very sticky space that consumers when they get treated continue in some habit. Obviously for all manufacturers not with the frequency we'd like to see. I think everyone would like to see patients coming back three times a year. On average, this category performs very well because of the high patient satisfaction with the procedures.
As it relates to your second question, with regards to our focus, one of the key things that stood out at our national meeting with our sales force is that as we stand up a new company and a new product, there's a tremendous amount of energy around Evolus and how we're doing things differently. We think our singularity and focus enables us to really create a great deal of excitement and focus both for the customer and our sales force around that idea. Now, as you point out, once we get past the first couple years of launch and establish ourselves as we've committed to the number two player in the first 24 months, at that point, there's a lot of value we could create with additional products, quote unquote, in the bag. That is an area that we're actively considering and we're assessing the category.
Of course, as we have more information, we'll share that with you.
Thank you. Our next question will come from the line of Irina Koffler with Mizuho. Your line is now open.
Hi, thanks for taking my question. We're seeing on social media that some sites have already started to stock your product, some physician offices. Just wondering if you have any information as to what they're pulling from or what they're using less of in order to start stocking and maybe when you first stock a site, is that just free sample? Are they actually buying? Maybe you can comment a little bit on the quantity.
Great. Thanks, Irina. You're right. We're seeing the same thing, in terms of social media posts that accounts are either gearing up for Jeuveau, but we have heard rumblings of something they have access to the product. I'd start with we have not shipped product, so nobody in the U.S. has access to Jeuveau. That being said, as you noticed, this market is very competitive and there's increasing levels of interest in Jeuveau and accounts are starting to get in front of that demand. You're seeing that in their social media posts, and we're also seeing that in accounts advertising to their patients in addition to sending out mailers to their existing patient base.
I think that all reflects positively towards the steady buildup that we've had starting with last year where we focused heavily initially on advisory boards to refine our messaging around the science and the clinical data and then the build-out of our commercialization plans. There's been a significant amount of customer engagement as we've helped formulate the vision and how we plan to launch Jeuveau here in the coming days. Those doctors that were involved in some of those meetings along with their peers that they speak to on a regular basis have started to really increase the chatter around our launch. Then of course we had our national meeting just several weeks ago and now that we have 140 man deployment in the field, the noise levels really hit an all time high for us.
This is the right time for us as we prepare to enter the market.
Okay. Thank you.
Thank you. Our next question will come from the line of Annabel Samimy with Stifel. Your line is now open.
Hi, thanks for taking my question. We've talked a lot about counter detailing that you might expect from Allergan and the strategies that they use to lock in maybe some of their best customers like long-term contracts. What we haven't really talked about is what you're seeing from Galderma and Merz. This quarter for its part seems to have had a pretty good quarter with 10% growth. Do you have any specific intel with whether that's market growth or is there some serious step up on their part to penetrate ahead of you as a new entrant? Part of your strategy clearly is to get to number two position and it's going to have to come at their expense to a certain degree. Then, just if you can give us any other incremental qualitative response to the head-to-head data.
You mentioned that the physicians are struck by the 30 other exploratory endpoints. One of the pushbacks that we heard was why there was no measure on the patients who maintained zero to one across all the time points. Just various things like why is 50 days missing? Any commentary around that would be very helpful. Thank you.
Okay, great. I'll start out with counter-detailing. We really haven't seen anything different over the last 30 days than we were hearing prior. The counter-messaging has been relatively light, and there isn't a consistent theme that we're hearing from any one of the competition. As you know, we purposefully stayed strategically quiet around both the data and our go-to-market strategy, leaving ourselves in a position where we could control the dialogue in the market. We feel that largely, we're fortunate enough to be in that position where our reps are the first ones to deliver the data to these customers if they hadn't participated in a meeting with us prior. That, in addition to the fact that what the data does from a qualitative standpoint, more than anything else, it brings simplicity to the conversation.
As you can imagine, without this data, doctors would be drawing their own conclusions of how this compares, and they may even be drawing some conclusions based on prior toxin launches, and likely that would form skepticism around this product. What we're finding is that the competitive data accomplishes its objective. It delivers high confidence in the quality of the product, and in the end, they leave saying, "I want to try this brand." That is why we remain optimistic in getting this product out and getting it in their hands. Now, as it relates to the specific data points, I've got Rui sitting across from me. I'll turn it over to Rui to address those.
Sure. I'll take the second counterpoint first. Why is there no day 60? Well, one of the things that we really wanted to make sure was that there was high compliance at the sites. The more visits you add, the more compromised you are potentially from a compliance. If we look at, I believe, our phase III studies, we modeled in about 10% dropout, and I think we had 97%-98% completion. That kind of speaks to the strategy of having a good, strong, robust data set with high compliance. At day 60, traditionally, toxins don't seem to drop out very much. That's why we thought day 90, 120, 150 would be more meaningful, and that's why we have that there. With regards to 0 or 1, that's always an interesting question, and we understand we're being counter-detailed on that.
I would suggest that 0 and 1 has really been manipulated in an inappropriate way. What I mean by that is, when you talk about 0 or 1 as a metric, you have to look very carefully at the baseline demographics of a study. What I mean by that is, how many severe patients did you have, and how many moderate patients did you have? Because to be a responder using that definition, if most of your patients are easy, moderate, you only need a one-point improvement to become a responder using that definition. If most of your subjects are severe, then you need a two-point improvement to be a responder. One cannot compare against another data set unless you understand specifically what the baseline demographics are.
Otherwise, it's like saying, "How fast do you run?" "Well, here's my time for 100 meters, and your time's for 200 meters," and you're trying to compare that. It's completely inappropriate. Most of our studies were severe. If you look at our 002 study, it's like mid-80% of the patients were severe. When you look at our data set and you look at a 01, it's like comparing a two-point improvement as compared to if you want to compare a study where most of their patients are only moderate. In other words, they only had to improve one point; we had to improve two points. That's basically an explanation that says, when you want to use 0 or 1 as a comparison, you must also put out the baseline demographics so you can understand that, number one.
Number two, if you want to make a comparison, it should be a head-to-head study, because there's lots of things that are different within a study, you can't compare across studies. With that, people have asked, are we planning to release the 0 or 1 from a head-to-head? The answer is yes. Importantly, our primary endpoint in our head-to-head study was a 0 or a 1. Now, if you're wondering what it looks like throughout the rest of the study, day 2, day 14, day 30, day 120, day 150, 190, we also plan to release that. That's probably coming out at ASAPS. There's no hiding. It's all coming out.
Okay. Great. Thank you.
Thank you. As a reminder, ladies and gentlemen, to ask a question over the phone, that is star then one. Our next question will come from Doug Tsao with H.C. Wainwright. Your line is now open.
Hi. Good afternoon. Thanks for taking the questions. On the fourth quarter earnings call, you sort of announced your pricing strategy. I was curious, Dave, if you could provide some feedback from the channel in terms of what you discussed. My second question is obviously, we're imminently going to get the European approval. How long or sort of your urgency to potentially find a commercial partner to monetize that? Also, do you have enough manufacturing or enough supply to serve both markets? Thank you.
Great. Thank you, Doug, for the questions. I'll start with feedback on the pricing strategy. I know that as a leadership team, we've been on the road quite a bit, hosting dinners with doctors in local markets. As an example, I was in Houston last week. I know Mike, who's sitting across the table from me, was in a couple cities in Denver. The feedback's consistent, which is, they're very pleased with the fact that we've introduced a premium brand to the category. The last thing doctors want to see in this market is commoditization. Pricing ourselves at a list price premium to the market leader establishes the quality of product that we have. Same time, they had questions around how we plan to execute our pricing program back to the doctors. We, of course, haven't disclosed specifics around the different pricing tiers for our customers.
You'll hear more about that at our investor day. In the end, as we've communicated in the past, you can model out a 20%-25% discount relative to the market leader. Naturally, as you assume 20%-25%, that does improve the profitability profile of this procedure. Customers have been very receptive to that message, and they also can relate to the history of price increases that have taken their price from a vial of the market leader from $400 all the way up to $600, then on the resulting side, the margin erosion that's occurred on the other end of it. In the end, those are the two dimensions that we focused on. Then we lastly, we talk about what will come in the back half of the year, which is we want to invest in her.
In the end, this category, it's not just about the list price or the discounts back to the customer. All manufacturers have those. It's about growing the space. We plan to invest in her to increase the affordability of this treatment through our loyalty program that we'll introduce in the back half of the year. There's a tremendous amount of interest in what that looks like. Like everything else, we'll stage that out shortly after launch. We'll plan to provide a little bit more color around that piece. As it relates to your second question for potential partners in Europe, that is an area that we've been very diligent around. As we've provided input before, we've assessed the European market in terms of capabilities and different manufacturers that have a footprint that cover Europe.
Of course, we're looking for a partner that can reflect the quality of company that Evolus is in the United States and one that our partner is with Clarion in Canada. We have a high bar for what we're looking for, and that is something that we'll update you on. Likely as we get closer to the approval stage around mid-year, we'll provide more color around where we are in those discussions. The last question, I'll turn it over to Lauren. Yeah.
One comment on modeling as well. Doug, this is Lauren Silvernail. As you're looking at modeling, it's important to understand that our arrangements when we partner in Europe involve us and Daewoong and a partner. From a modeling standpoint, we ask everyone to make sure you're very modest on including OUS or outside the U.S. because it is a three-way split. The impact on our P&L at this point of international arrangements outside of Canada is pretty modest. Would you remind us of your third question?
Just in terms of your ability to supply both markets over the next few years.
I think when we look at our ability to supply, we're not constrained at all. Our partner, Daewoong, constructed a custom plant for this product, which obviously was approved and had plenty of capacity to supply U.S., Europe, and Canada.
Okay, great. Thank you.
Thank you. Our next question will come from the line of David Maris with Wells Fargo. Your line is now open.
Good afternoon. A couple of questions. Do you think the gender or age differences in the EVB-003 phase III trial had any impact on the efficacy data? That's one of the things that a couple of clients and one of your competitors have brought up, and just want to see what your response is to that. Thank you.
Sure. This is Rui. Please feel free to elaborate so that I interpret your question right. The majority of the patients were female. Of course, we know that males have a lower responder rate, and we know that the majority of patients were under 65. In other words, patients over 65 tend to have a lower responder rate. Specifically, the number of patients who were over 65 was balanced between the two arms, between the onabotulinumtoxinA in our product. I think there was one patient different off the top of my head. In the males, it was pretty similar, also pretty small numbers. If you look at how small those numbers are to the overall weighting, it probably doesn't change things. The thing that was most significant was the Jeuveau arm actually had more severes than the BOTOX arm.
If we look from an end perspective and if we were to point to something that may have affected the results, that's probably the one that I point to, just because there's more of them. Of course, that's to our disadvantage to have more severes compared to BOTOX.
Yeah. You addressed the part that I was getting at, which is that having more males may skew that a little bit because they may be slightly harder to treat. You're right, it's very few patients. The average age was a little bit older, I think about a year older. It sounds as though what you've said answers the question, which is you don't think it had any impact, or if it did, it's marginal.
Exactly. Especially if you look at the over age 65, which is where things start to tilt. Over the age 65, we were actually asked to do a sensitivity analysis, and the ends between those two are pretty similar. We actually still showed statistical superiority to placebo. The competitive arm did not.
Great. Thank you very much.
Thank you. This concludes our question and answer session for today. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.