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Item 7. Management’s Discussion and Analysis

2021-03-25 compared with 2020-02-25 · 232 added, 157 removed, 156 unchanged (71% of the section changed)

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Food and Drug Administration, or FDA.

In May 2019, we commercially launched Jeuveau ® in the United States and through a distribution partner in Canada in October 2019.

In May 2019, we commercially launched Jeuveau ® in the United States.

Jeuveau ® is a proprietary 900 kDa purified botulinum toxin type A formulation indicated for the temporary improvement in the appearance of moderate to severe glabellar lines, also known as “frown lines,” in adults.

Our primary market is the self-pay aesthetic market, which includes medical products purchased by physician and other customers that are then sold to consumers or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance.

Our primary market is the self-pay aesthetic market, which includes medical products purchased by physicians and other customers that are then sold to consumers or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance.

We believe we offer customers and consumers a compelling value proposition with Jeuveau ® .

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We believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kDa neurotoxin complex and are accustomed to injecting this formulation.

In May 2019, as part of our commercial launch, we introduced the Jeuveau ® Experience Treatment, or J.E.T., an exclusive program for aesthetic providers and consumers to be the first to experience Jeuveau ® .

offered aesthetic providers the opportunity to receive multiple shipments of Jeuveau ® and ended in August 2019.

The program was made available through our technology platform, “Evolus Practice,” which allows providers to open a new account, order Jeuveau ® , pay invoices and engage with our customer experience team and medical affairs representatives.

We did not recognize net revenues from shipments made through the J.E.T.

We have generated revenue from aesthetic practices that purchased products directly from us after completion or outside of the J.E.T.

As a result of our J.E.T.

program and customer and consumer marketing initiatives throughout 2019, we have established a broad base of over 3,500 customer accounts ordering Jeuveau ® through December 31, 2019 .

Customer accounts that participated in J.E.T.

drove greater than 80% of our U.S.

Jeuveau ® net revenue for the year ended December 31, 2019 .

In August 2018, we received approval from Health Canada for the temporary improvement in the appearance of moderate to severe glabellar lines in adult patients under 65 years of age.

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In September 2019, we also received approval from the European Commission, to market the product in all 28 EU member states, Iceland, Norway and Liechtenstein.

We plan to launch Jeuveau ® in Europe in 2020.

We have a limited history of generating revenue from Jeuveau ® and have never been profitable.

As of December 31, 2019 , we had an accumulated deficit of $213.1 million .

We incurred net losses of $90.0 million and $46.9 million in the years ended December 31, 2019 and 2018 , respectively.

We expect to continue to incur significant expenses for the foreseeable future as we increase marketing efforts for Jeuveau ® and maintain our regulatory approvals.

In January 2021, we received a positive decision from the European Commission to add the 50 unit product to the existing approval obtained in September 2019.

We plan to launch Jeuveau ® in Europe in early 2022.

Impact on Our Business of Final Ruling by the U.S.

International Trade Commission and the Subsequent Settlements

On January 30, 2019, Allergan and Medytox filed a complaint against us and Daewoong Pharmaceuticals Co., Ltd., or Daewoong in the ITC alleging that Jeuveau ® is manufactured based on misappropriated trade secrets of Medytox and therefore the importation of Jeuveau ® is an unfair act.

The ITC matter, which we refer to herein as the ITC Action, is entitled In the Matter of Certain Botulinum Toxin Products.

The ITC instituted an investigation as ITC Inv.

On December 16, 2020, the ITC issued a final determination in the ITC Action and issued (1) a limited exclusion order prohibiting the importation of Jeuveau ® into the United States for a period of 21 months and (2) a cease and desist order preventing the Company from, among other things, selling, marketing, or promoting such imported Jeuveau ® in the United States for a period of 21 months.

We refer to the limited exclusion order and the cease and desist order collectively as the remedial orders.

The Final Determination was subject to a 60-day presidential review period before taking effect.

During the presidential review period, we were permitted to continue importation and sales of Jeuveau ® subject to payment of a bond of $441 per vial.

During the Presidential Review period, we increased customer pricing significantly due to the bond amount required to keep Jeuveau ® on the market.

As a result, we generated nominal revenue from mid-December 2020 through mid-February 2021.

Effective February 18, 2021, we entered into a Settlement and License Agreement with Medytox and Allergan, which we refer to as the U.S.

Settlement Agreement and another Settlement and License Agreement with Medytox which we refer to as the ROW Settlement Agreement.

We refer to the U.S.

Settlement Agreement and the ROW Settlement Agreement collectively as the Medytox/Allergan Settlement Agreements.

Under the Medytox/Allergan Settlement Agreements, we obtained (i) a license to commercialize, manufacture and to have manufactured for us certain products identified in the Medytox/Allergan Settlement Agreements, including Jeuveau ® (the “Licensed Products”), in the United States and other territories where we license Jeuveau ® , (ii) the dismissal of outstanding

litigation against us, including the ITC Action, a rescission of the related remedial orders, and the dismissal of a civil case in the Superior Court of California against us, which we refer to together with any claims (including claims brought in Korean courts) with a common nexus of fact as the Medytox/Allergan Actions, and (iii) releases of claims against us for the Medytox/Allergan Actions.

In exchange, we agreed to (i) make cash payments of $35.0 million in multiple payments over two years to Allergan and Medytox, (ii) pay to Allergan and Medytox certain royalties on the sale of Jeuveau ® , based on a certain dollar amount per vial sold of Licensed Product by or on behalf of the Company in the United States, from December 16, 2020 to September 16, 2022, (iii) from December 16, 2020 to September 16, 2022, pay to Medytox a low-double digit royalty on net sales of Jeuveau ® sold by us or on our behalf in territories we have licensed outside the United States;

(iv) from September 16, 2022 to September 16, 2032, pay to Medytox a mid-single digit royalty percentage on net sales of Jeuveau ® in the United States and all territories we have licensed outside the United States, (v) issue to Medytox of 6,762,652 shares of our common stock, par value $0.00001 per share, which we issued on February 18, 2021, and (vi) entered into a Registration Rights Agreement pursuant to which we granted certain registration rights to Medytox with respect to such shares of common stock beginning as of March 31, 2022.

In addition, under the Medytox/Allergan Settlement Agreements, we made certain representations and warranties and agreed to positive and negative covenants.

On March 23, 2021, we entered into a Confidential Settlement and Release Agreement with Daewoong Pharmaceuticals Co.

Ltd., or Daewoong, which we refer to as the Daewoong Settlement Agreement, a Convertible Promissory Note Conversion Agreement, which we refer to as the Conversion Agreement and the Third Amendment to the Supply Agreement (which amends the Daewoong Agreement), which we refer to as the Daewoong Agreement Amendment.

We refer the Daewoong Settlement Agreement, the Conversion Agreement and the Daewoong Agreement Amendment collectively as the 2021 Daewoong Arrangement.

Under the 2021 Daewoong Arrangement, (i) Daewoong agreed to (a) pay us an amount equal to $25.5 million, (b) pay certain reasonable legal fees incurred by our litigation counsel in connection with its defense of the ITC Action (including any appeal of the resulting remedial orders), (c) cancel all remaining milestone payments up to $10.5 million in aggregate under our Daewoong Agreement, and (d) reimburse us certain amounts (calculated on a dollar amount per vials sold basis in the United States) for sales of certain products with respect to which we are required to pay Medytox and Allergan royalties pursuant to the U.S.

Settlement Agreement;

and (ii) we agreed to (y) release certain claims we may have against Daewoong or certain of its affiliates and representatives related to the allegations made in or the subject matter of the Medytox/Allergan Actions, or any orders, remedies and losses resulting from the Medytox/Allergan Actions, and (z) coordinate with Daewoong on certain matters related to the Medytox/Allergan Actions.

In the Conversion Agreement, among other things, the parties agreed that (i) the principal balance of the $40.0 million aggregate principal amount convertible promissory note we issued to Daewoong on July 30, 2020, which we refer to as the Daewoong Convertible Note, and accrued and unpaid interest thereon shall be automatically converted, at the conversion price of $13.00 per share, into 3,136,869 shares of our common stock;

and (ii) the Daewoong Convertible Note shall be deemed cancelled and satisfied in full in connection with such conversion.

Under the Daewoong Agreement Amendment, the Daewoong Agreement was amended to:

(i) expand the territory within which we may distribute Jeuveau ® to certain countries in Europe;

(ii) reduce the period of time with respect to which we are required to deliver binding forecasts to Daewoong;

(iii) introduce certain limitations on Daewoong’s ability to convert our exclusive license for certain territories to a non-exclusive license in the event we fail to meet certain minimum purchase requirements for such territory;

(iv) adjust the minimum purchase requirements and reduce the transfer price per vial of Jeuveau ® applicable to various territories;

(v) require that any Jeuveau ® supplied by Daewoong match certain shelf-life thresholds;

and (vi) prohibit us from sharing certain confidential information regarding Daewoong with Medytox or its affiliates or representatives.

As a result of the royalty payments that we are required to pay under the Medytox/Allergan Settlement Agreements, after giving effect to the offset by a certain portion thereof that will be reimbursed to us under the 2021 Daewoong Arrangement, we expect that our cost of sales and gross margin will be materially negatively impacted through September 2022 and negatively impacted to a lesser extent from September 2022 to September 2032.

Daewoong License and Supply Agreement

In 2013, we and Daewoong Pharmaceuticals Co.

Ltd., or Daewoong, entered into the Daewoong Agreement pursuant to which we have an exclusive distribution license to Jeuveau ® from Daewoong for aesthetic indications in the United States, EU, Great Britain, Canada, Australia, Russia, C.I.S., and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan.

In 2013, we and Daewoong entered into the Daewoong Agreement pursuant to which we have an exclusive distribution license to Jeuveau ® from Daewoong for aesthetic indications in the United States, EU, Great Britain, Canada, Australia, Russia, C.I.S., and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan.

Under the Daewoong Agreement, we are required to make certain minimum annual purchases in order to maintain the exclusivity of the license.

These minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions.

In connection with

our entry into the Daewoong Agreement, we made an upfront payment to Daewoong of $2.5 million.

In connection with our entry into the Daewoong Agreement,

we made an upfront payment to Daewoong of $2.5 million.

We further agreed to make milestone payments upon achievement of certain confidential development and commercial milestones, including a confidential payment to Daewoong upon each of the U.S.

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Upon FDA approval in February 2019 and EMA approval in September 2019, the Company paid $2.0 million and $1.0 million milestone payments, respectively.

As of December 31, 2019 , Daewoong is eligible to receive remaining contingent milestone payments of up to $10.5 million .

As of December 31, 2020, Daewoong was eligible to receive remaining contingent milestone payments of up to $10.5 million, all of which were cancelled under the 2021 Daewoong Arrangement in March 2021.

Under the Daewoong Agreement, Daewoong is responsible for all costs related to the manufacturing of Jeuveau ® , including costs related to the operation and upkeep of its manufacturing facility, and we are responsible for all costs related to obtaining regulatory approval, including clinical expenses, and commercialization of Jeuveau ® .

We had the option to expand the permitted use of the product beyond aesthetic indications and into therapeutic indications.

This option was assigned to ALPHAEON Corporation, or Alphaeon who exercised the option by remitting payment directly to Daewoong in November 2018.

For additional information about the Daewoong Agreement, see Item 1 “Business—Daewoong License and Supply Agreement.”

Daewoong Convertible Note

On July 6, 2020, pursuant to a Convertible Promissory Note Purchase Agreement with Daewoong, we issued to Daewoong a Convertible Promissory Note for the principal amount of $40.0 million, which we refer to as the Daewoong Convertible Note, which was funded on July 30, 2020.

On March 23, 2021, the outstanding principal balance, together with all accrued and unpaid interest thereon, in the amount of $40.8 million was converted, at the conversion price of $13.00 per share, into the right to receive 3,136,869 shares of our common stock under the Conversion Agreement.

See “—Liquidity and Capital Resources—Daewoong Convertible Note” for further information.

Royalties and Notes Payable to Evolus Founders

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The fair value of the obligations set forth in items (i) and (ii) are valued quarterly and are referred to in our financial statements as the “contingent royalty obligation.”

Our Relationship with Alphaeon

For periods prior to the completion of our initial public offering on February 12, 2018, we funded our operations primarily through contributions and related party borrowings from Alphaeon.

Accordingly, we derived our financial statements by allocating expenses associated with our operations from Alphaeon’s consolidated financial statements in accordance with applicable accounting standards and SEC regulations.

In January 2018, we entered into a services agreement with Alphaeon, or the services agreement, which became effective in connection with our initial public offering.

The services agreement sets forth certain terms between Alphaeon and us that govern the respective responsibilities and obligations between Alphaeon and us, as it relates to the services to be performed between us.

The services agreement has a one-year term and thereafter renews for successive one-year terms unless terminated by either party.

We or Alphaeon may terminate the services agreement upon sixty days’ notice to the other party.

In accordance with the services agreement, we paid Alphaeon $5.0 million to settle our historical related party borrowings from Alphaeon upon our initial public offering.

There were no significant services provided under the services agreement since our initial public offering.

As of December 31, 2019 , Alphaeon owned approximately 25.8% of our outstanding shares of common stock and had changed its name to AEON Biopharma, Inc.

We continue to refer to the renamed AEON Biopharma, Inc.

Subsequent to December 31, 2019 , Alphaeon contributed all of the shares it held in us to Alphaeon 1, LLC.

Impact of COVID-19 Outbreak on Our Business

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization.

The COVID-19 outbreak has caused economic and social disruption on an unprecedented scale.

This disruption has resulted in business closures across the United States and significant job loss due to quarantines, government-mandated actions, stay-at-home orders and other restrictions.

While it is not possible to know the full extent of these impacts as of the date this filing, we are disclosing potentially material items of which we are aware.

Health and Safety

In response to the COVID-19 outbreak, we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of COVID-19 to our employees, including requiring our employees and sales professionals, to work remotely if required by their local government and maintaining social distancing during any in-person work-related meetings.

We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, business partners and third-party service providers.

Financial position and results of operations

The COVID-19 outbreak and restrictions intended to slow the spread of COVID-19 have resulted in temporary business closures for many of our customers and, starting in mid-March 2020, negatively affected our sales.

Jeuveau ® is utilized in elective procedures, the costs of which are borne by the consumer and not third-party payors.

As a result of the COVID-19 outbreak and restrictions intended to slow its spread, these elective procedures declined dramatically in March 2020 due to the temporary business closures or deferment of the elective procedures.

While the impact of the COVID-19 outbreak on the U.S.

aesthetic neurotoxin market was significant during the first half of 2020, we experienced an increase in sales starting in June 2020 that continued throughout the rest of 2020 as many states started easing restrictions on elective procedures and many of our customers re-opened their businesses.

However, due to the uncertainty of the recovery and the increase in COVID-19 infections at the end of the 2020 and early in the first quarter of 2021, new variants of COVID-19 that have emerged and the possibility of further resurgences, and the availability, distribution and efficacy of vaccines and therapeutics

for COVID-19, we cannot reasonably estimate the immediate and full impact of the COVID-19 outbreak on our ongoing business, results of operations and overall financial performance.

Furthermore, even after the current COVID-19 outbreak has subsided, we may continue to experience negative impacts to our business and financial results if customers continue to defer or avoid altogether elective procedures to administer Jeuveau ® due to the continued perceived risk of infection or concern of a resurgence of the COVID-19 outbreak as well as COVID-19’s global economic impact, including decreases in consumer discretionary spending and any economic slowdown or recession that has occurred or may occur in the future.

In light of the negative impacts of the COVID-19 outbreak, we took the following measures in April 2020 to reduce our operating expenses to conserve our cash resources:

• delaying non-essential projects and suspending discretionary spending;

• reducing our headcount by over 100 employees;

• temporarily reducing executive salaries and Board of Directors fees;

• reducing the size of our Board by two members;

• delaying the European launch of Jeuveau ® , which is now expected in early 2022.

Asset and liability valuation

As of December 31, 2020, we did not have any impairment with respect to our goodwill or long-lived assets, including intangible assets.

Because the full extent of the impact of the COVID-19 outbreak and restrictions intended to slow the spread of COVID-19 are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash impairment charge being recorded in future periods.

Any continued adverse impact of the COVID-19 outbreak and restrictions intended to slow its spread could also cause us to make further adjustments in the future to the fair value of our contingent royalty obligation payable to Evolus Founders, which is based on Level 3 inputs using a discounted cash flows method, and these adjustments could be significant.

Such Level 3 inputs that might be further impacted by uncertainties due to the COVID-19 outbreak include projected and timing of net revenues during the payment period, which terminates in the quarter following the 10-year anniversary of the first commercial sale of Jeuveau ® in the United States, the discount rate and the timing of payments.

Other estimates used in the preparation of financial statements

Additionally, any continued adverse impact of the COVID-19 outbreak and restrictions intended to slow its spread might also impact other estimates and assumptions utilized to prepare our financial statement in conformity with GAAP.

Such significant estimates relate to net revenues, allowance for doubtful accounts, fair value measurements, inventory valuations, income tax valuations, and stock-based compensation, among others.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our operating plan.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the full impact of COVID-19 on our financial condition, results of operations or cash flows in the future.

In addition, see Part I.

Item 1A, “Risk Factors,” included herein for updates to our risk factors regarding risks associated with the COVID-19 outbreak.

Results of Operations

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Year Ended December 31,

(in millions)

(in millions) 2020 2019 Change

Product revenue, net

$ 55.8 $ 34.2 $ 21.6

Service revenue 0.7 0.7 —

Total net revenues

Product cost of sales (excludes amortization of intangible assets)

As a percentage of net revenues

56.5 34.9 21.6

Operating expenses:

Product cost of sales (excludes amortization of intangible assets) 18.3 8.0 10.3

Selling, general and administrative

98.2 113.6 (15.4)

Research and development 1.7 4.0 (2.3)

Revaluation of contingent royalty obligation to Evolus Founders

(2.0) 4.2 (6.2)

Depreciation and amortization

Litigation settlement expenses 83.4 0.0 83.4

Restructuring costs 3.0 0.0 3.0

Total operating expenses

209.6 133.9 75.7

Loss from operations (153.1) (99.0) (54.1)

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Loss before income taxes (163.0) (105.1) (57.9)

Income tax (benefit) expense

We currently operate in one reportable segment and all of our net revenues are derived from sales of Jeuveau ® .

Net revenues consist of revenues, net of customer rebates and coupons.

Revenues are recognized when the control of the promised goods is transferred to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.

During the year ended December 31, 2019 , we recorded net revenues of $34.9 million consisting of product revenue of $34.2 million from the sale of Jeuveau ® in the United States and service revenue of $0.7 million from sale of Jeuveau ® through a distribution partner in Canada.

Income tax expense (benefit) 0.1 (15.0) 15.1

Net loss $ (163.1) $ (90.1) $ (73.0)

We commercially launched Jeuveau ® and began shipping to customers in the United States in May 2019 and launched through a distribution partner in Canada in October 2019.

We recorded the sale of Jeuveau ® in Canada as service revenue on a net basis.

We did not record any net revenue during the year ended December 31, 2018 .

We record the sale of Jeuveau ® in Canada as service revenue on a net basis.

We currently operate in one reportable segment and all of our net revenues are derived from sales of Jeuveau ® .

Net revenues consist of revenues, net of adjustments primarily for customer rebates, coupon program, rewards related to the consumer loyalty program.

Revenues are recognized when the control of the promised goods is transferred to the customer in an amount that reflects the consideration allocated to the related performance obligations and to which we expect to be entitled in exchange for those products or services.

Net revenues of Jeuveau ® sales increased by $21.6 million to $56.5 million for the year ended December 31, 2020 from $34.9 million for the year ended December 31, 2019, primarily due to higher sales volume in the United States as partially offset by lower net aver age selling price.

In addition, during the Presidential Review period from mid-December 2020 to mid-February 2021 of the ITC final determination, we generated nominal revenue as a result of significantly increased customer pricing due to the bond amount of $441 per 100U vial of Jeuveau ® required to keep Jeuveau ® on the market.

As a result, we generated nominal revenue from mid-December 2020 through mid-February 2021.

We anticipate that our net revenues will continue to fluctuate as we implement new marketing programs or make changes to existing programs.

Cost of Sales

Our cost of sales was $8.0 million for the year ended December 31, 2019 , which primarily consisted of the cost of inventory that was purchased from Daewoong for product sales in the United States.

We did not record any cost of sales during the year ended December 31, 2018 .

Our gross profit as a percentage of net revenues was 77.1% for the year ended December 31, 2019 and benefited from one-time reduced, launch pricing from our manufacturing partner.

Our gross profit may fluctuate in the future as we deplete inventory purchased at the one-time launch pricing and implement various marketing programs that may affect the average selling price of Jeuveau ® .

We anticipate that our cost of sales will increase as Jeuveau ® sales increase.

Our cost of sales, primarily consist of the cost of inventory purchased from Daewoong, increased by $10.3 million to $18.3 million for the year ended December 31, 2020 from $8.0 million from the year ended December 31, 2019 primarily due to higher sales volume in 2020 as well as the depletion of inventory purchased at the one-time launch pricing in 2019.

As a result of the Medytox/Allergan Settlement Agreements, cost of sales for the year ended December 31, 2020 also included royalties payable to Allergan and Medytox on the sale of Jeuveau ® commencing December 16, 2020.

We anticipate that our

cost of sales will increase materially as we pay royalty payments to Allergan and Medytox pursuant to the Medytox/Allergan Settlement Agreements during the initial royalty period through September 2022 and will fluctuate as our revenues fluctuate, although a portion of these royalty payments will be reimbursed to us by Daewoong pursuant to the Daewoong Settlement Agreement.

Our gross profit, calculated as total net revenues less product cost of sales, as a percentage of net revenues decreased to 67.6% for the year ended December 31, 2020 from 77.1% for the year ended December 31, 2019, primarily due to changes in marketing programs in 2020, royalties under the Medytox/Allergan Settlement Agreements for the sales starting December 16, 2020 and the depletion of inventory purchased at the one-time launch pricing in 2019.

We anticipate that our gross profit as a percentage of net revenues will decrease materially in the future as we pay royalty payments to Al lergan and Medytox pursuant to the Medytox/Allergan Settlement Agreements during the initial royalty period through September 2022 and will flu ctuate as we implement various marketing programs that may affect the average selling price of Jeuveau ® .

A portion of these royalty payments to Allergan and Medytox will be reimbursed to us by Daewoong pursuant to the Daewoong Settlement Agreement.

Selling, General and Administrative

Selling, general and administrative expenses increased by $84.5 million to $113.6 million for the year ended December 31, 2019 from $29.1 million for the year ended December 31, 2018 .

The increase was primarily attributable to the U.S.

launch of Jeuveau ® .

This included higher personnel-related expenses as a result of hiring a U.S.

sales force, building out our corporate and commercial infrastructure and incurring marketing expenses including the J.E.T.

Shipments under the J.E.T.

program ended in August 2019.

Personnel-related expenses, including stock-based compensation, increased by $39.4

million and marketing and selling expenses, including expenses related to the J.E.T.

program, increased by $26.0 million from the year ended December 31, 2018 .

Selling, general and administrative expenses may fluctuate in the future primarily due to potential changes in marketing strategies, and performance-based personnel-related expenses, such as commissions and bonuses.

Selling, general and administrative expenses decreased by $15.4 million to $98.2 million for the year ended December 31, 2020 from $113.6 million for the year ended December 31, 2019, primarily resulting from delaying non-essential projects and suspending discretionary spending to minimize the impact of COVID-19 on our business.

During the year ended December 31, 2019, we also incurred expenses under the Jeuveau ® Experience Treatment, or J.E.T., program that ended in August 2019.

Selling, general and administrative expenses may fluctuate in the future primarily due to potential changes in sales and marketing strategies and future launches internationally.

Research and Development

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The decrease was primarily attributable to the completion of the U.S.

clinical trial activities related to Jeuveau ® in 2018, partially offset by one-time bonuses of $1.6 million to certain current and former employees upon FDA approval of Jeuveau ® in February 2019.

We expect our overall research and development expense to increase if and when we seek to develop further product candidates and pursue regulatory approvals in other jurisdictions.

clinical trial activities related to Jeuveau ® and delaying non-essential projects and suspending discretionary spending to minimize the impact of COVID-19 on our business.

We expect that our overall research and development expense will increase if and when we seek to develop further product candidates and as we pursue regulatory approvals in other jurisdictions.

Revaluation of Contingent Royalty Obligation Payable to Evolus Founders

During the year ended December 31, 2019 and 2018 , the revaluation charges of $4.2 million and $10.5 million , respectively, were primarily driven by changes in management assumptions related to revenue forecasts based on management’s assessment of current and future markets of Jeuveau ® and marketing and distribution strategies, discount rate and timing of cash flows.

The change in the fair value of the contingent royalty obligation payable to Evolus Founders is recorded in operating expenses in each reporting period.

During the year ended December 31, 2020 and 2019, the revaluation gain of $2.0 million and charge of $4.2 million, respectively, were primarily driven by changes in management assumptions related to revenue forecasts including the impact of the COVID-19 outbreak, discount rate reflecting changes in our cost of capital, develop ments in the ITC litigation and t iming of cash flows.

Depreciation and Amortization

Depreciation and amortization increased to $4.1 million for the year ended December 31, 2019 from a de minimis amount for the year ended December 31, 2018 .

Depreciation and amortization increased to $7.0 million for the year ended December 31, 2020 from $4.1 million for the year ended December 31, 2019.

This was primarily attributable to amortization of the distribution right asset related to Jeuveau ® over 20 years as well as amortization of the internal-use software costs over two years.

Litigation Settlement Expenses

Pursuant to settlement agreements we entered into with Allergan and Medytox in connection with the settlement of claims relating to certain intellectual property disputes related to Jeuveau ® on February 18, 2021, we recorded a charge in operating expenses and related liability of $83.4 million in December 2020, of which $35.0 million will be paid in cash over the next two years and $48.4 million was settled with the issuance of 6,762,652 of shares of our common stock on February 18, 2021.

Restructuring Costs

Restructuring costs primarily included $3.0 million of termination benefits for employees we separated in April 2020 to minimize the impact of COVID-19 on our business.

Non-Operating Expense, Net

Non-operating expenses, net, increased by $5.4 million to $6.1 million for the year ended December 31, 2019 from $0.7 million for the year ended December 31, 2018 .

Interest income increased by $1.6 million to $1.8 million for the year ended December 31, 2019 from $0.2 million for the year ended December 31, 2018 , which was primarily attributable to interest earned from short-term investments.

Interest expense increased by $7.1 million to $8.0 million for the year ended December 31, 2019 from $0.9 million for the year ended December 31, 2018 , which was primarily attributable to interest incurred on our long-term debt to Oxford Finance, LLC and the contingent promissory note payable to the Evolus Founders.

Non-operating expenses, net, increased by $3.8 million to $9.9 million for the year ended December 31, 2020 from $6.1 million for the year ended December 31, 2019, primarily due to higher interest expense on the long-term debt from Oxford Finance, LLC borrowed in March 2019 and lower interest income on our short-term investments.

On January 4, 2021, we entered into a letter agreement with Oxford Finance, LLC, and paid Oxford Finance, LLC $76.4 million to discharge in full all outstanding obligations, included accrued interest.

Income Taxes (Benefit) Expense

Income tax benefit was $15.0 million for the year ended December 31, 2019 as compared to a de minimis provision for the year ended December 31, 2018 .

This was primarily attributable to a partial release of the deferred tax assets valuation allowance.

Upon the reclassification of the indefinite-lived IPR&D intangible asset to a definite-lived distribution right intangible asset in the first quarter of 2019 upon FDA approval of Jeuveau ® , the related deferred tax liability became a source of future taxable income in the assessment of the realization of deferred tax assets, and as a result, a portion of the previously existing valuation allowance was released.

Income tax expense was $0.1 million for the year ended December 31, 2020 compared to a benefit of $15.0 million for the year ended December 31, 2019.

Upon the reclassification of the indefinite-lived IPR&D intangible asset to a definite-lived distribution right intangible asset in the first quarter of 2019 upon FDA approval of Jeuveau ® , the related deferred tax liability became a source of future taxable income in the assessment of the realization of deferred tax assets, and as a result, $15.0 million of the previously existing valuation allowance was released in the year ended December 31, 2019.

Liquidity and Capital Resources

As of December 31, 2019 , we had cash and cash equivalents of $109.9 million , short-term investments of $19.9 million , and stockholders’ equity of $79.5 million .

We have a limited history of generating revenues and only began shipping Jeuveau ® in May 2019.

As of December 31, 2019 , we had an accumulated deficit of $213.1 million and working capital of $127.8 million .

We had net losses of $90.0 million and $46.9 million for the years ended December 31, 2019 and 2018 , respectively, and we used net cash in operating activities of $93.4 million and $25.7 million for the years ended December 31, 2019 and 2018 , respectively.

Management expects operating losses and negative cash flows to continue for at least the next 12 months.

Initial Public Offering

In February 2018, we closed our initial public offering and sold 5,047,514 shares of our common stock at a price of $12.00 per share, inclusive of 47,514 shares of our common stock issued upon the exercise by the underwriters of their option to

purchase additional shares.

The net proceeds were approximately $56.3 million , after deducting underwriting discounts and commissions, excluding other offering expenses.

Follow-On Public Offerings

In July 2018, we closed a follow-on public offering and sold 3,600,000 shares of our common stock at a price of $20.00 per share, inclusive of 600,000 shares of common stock issued upon the exercise by the underwriters of their option to purchase additional shares.

The net proceeds were approximately $67.7 million , after deducting underwriting discounts and commissions, excluding other offering expenses.

As described elsewhere in this Annual Report, we believe that our current capital resources are not sufficient to meet our obligations and fund operations through at least the next 12 months.

We will be required to raise additional capital to meet our operating, debt and settlement obligations coming due.

We cannot be certain that additional funding will be available on acceptable terms, or at all.

To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution.

Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business.

If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly scale back or discontinue the commercialization of Jeuveau ® , or relinquish or otherwise dispose of rights to Jeuveau ® on unfavorable terms.

Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have a limited history of generating revenue from Jeuveau ® and have never been profitable.

As of December 31, 2020, we had an accumulated deficit of $376.1 million.

We incurred net losses of $163.0 million and $90.0 million in the years ended December 31, 2020 and 2019, respectively.

We expect to continue to incur significant expenses for the foreseeable future as we increase marketing efforts for Jeuveau ® and maintain our regulatory approvals.

As of December 31, 2020, we had cash and cash equivalents of $102.6 million and short-term investments of $5.0 million.

On January 4, 2021, we entered into an agreement with Oxford Finance LLC, or Oxford, pursuant to which the Company paid Oxford $76.4 million to pay off the Oxford Term Loan.

On February 18, 2021, we entered into settlement agreements with Medytox, Inc., or Medytox, Allergan, Inc.

and Allergan Limited, or collectively as Allergan, in connection with the ITC Action, for which we agreed to pay $15.0 million in 2021, $15.0 million in 2022 and $5.0 million in 2023 with additional terms as described below.

Additionally, we are obligated to pay the Evolus Founders the promissory note of $20.0 million in November 2021.

Our financial statements as of December 31, 2020 have been prepared under the assumption that we will continue as a going concern for the next 12 months, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Our independent registered public accounting firm has issued a report that includes an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.

Follow-On Public Offering

In November 2019, we closed a follow-on public offering and sold 5,999,550 shares of our common stock at a price of $13.00 per share, inclusive of 782,550 shares of common stock issued upon the exercise by the underwriters of their option to purchase additional shares.

The net proceeds were approximately $73.3 million after deducting underwriting discounts and commissions, excluding other offering expenses.

Loan and Security Agreement

On March 15, 2019, or the closing date, we entered into a loan and security agreement, or the credit facility, with Oxford Finance, LLC, as collateral agent, or Oxford, pursuant to which the lender made term loans available to us of up to $100.0 million , or the credit facility.

The credit facility provides that the term loans will be funded in two advances.

The first tranche of $75.0 million was funded on the closing date, and the second tranche of $25.0 million may be drawn, at our request, no later than September 30, 2020, upon achieving specified minimum net sales milestones and no event of default is occurring.

As of December 31, 2019 , the Company had not yet met the net sales milestone to draw the second tranche.

The credit facility bears an annual interest rate equal to the greater of 9.5%, or the 30-day U.S.

The Oxford Loan and Security Agreement

On March 15, 2019, we entered into a Loan and Security Agreement, or the credit facility, with Oxford Finance, LLC, as collateral agent, or Oxford, and the lenders party thereto from time to time, pursuant to which the lender would make term loans available to us of up to $100.0 million, or the credit facility.

The credit facility provided that the term loans would be funded in two advances.

The first tranche of $75.0 million was funded on the closing date, and the second tranche of $25.0

million was not borrowed.

The credit facility bore an annual interest rate equal to the greater of 9.5%, or the 30-day U.S.

Dollar LIBOR rate plus 7.0%.

We have agreed to pay interest only on each tranche funded pursuant to the credit facility for the first 36 months until May 2022, which will be followed by a 23-month amortization period.

Notwithstanding the foregoing, if we maintain compliance with the specified minimum net sales covenant and meet other conditions during the initial interest-only period, upon our request, the interest only period may be extended by an additional 12 months to a total of 48 months followed by an 11-month amortization period.

Upon the earliest to occur of the maturity date, the acceleration of the term loans, or the prepayment of the term loans, we will be required to pay to Oxford a final payment of 5.5% of the full principal amount of the term loans funded, or the final payment.

We may elect to prepay all amounts owed prior to the maturity date, provided that a prepayment fee is also paid, which shall be equal to 3.0% of the amount prepaid if the prepayment occurs on or prior to March 15, 2020, 2.0% of the amount prepaid if the prepayment occurs after March 15, 2020 and on or prior to March 15, 2021, or 1.0% of the amount prepaid if the prepayment occurs thereafter, or the Prepayment Fee.

If the term loans are accelerated following the occurrence of an event of default, we will be required to immediately pay to Oxford an amount equal to the sum of all outstanding principal of the term loans plus accrued and unpaid interest thereon through the prepayment date, the final payment, the Prepayment Fee, and all other obligations that are due and payable, including payment of Oxford’s expenses and interest at the default rate with respect to any past due amounts.

The credit facility is secured by substantially all of our assets.

The credit facility includes affirmative and negative covenants applicable to us, our current subsidiary and any subsidiaries we may create in the future.

The affirmative covenants include, among others, covenants requiring us to maintain our legal corporate existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts.

The negative covenants include, among others, restrictions on us transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and suffering a change in control, in each case subject to certain exceptions.

The credit facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at a default interest rate equal to the applicable rate plus 5.0% and Oxford, as collateral agent, with the right to exercise remedies against us and the collateral securing the credit facility, including foreclosure against the property securing the credit facility, including our cash.

These events of default include, among other things, any failure by us to pay principal or interest due under the credit facility, a breach of certain covenants under the credit facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness and one or more judgments against us, the institution of certain temporary or permanent relief in connection with pending litigation, or the breach, termination or other adverse events under the Daewoong Agreement.

The credit facility also provides us with the ability, under certain conditions, to obtain up to a $25.0 million revolving line of credit secured by our inventory, accounts receivable and cash proceeds of both.

Oxford has the right of first refusal, but not the obligation, to provide such a revolving line of credit.

There is no guarantee that such a line would be available to us on terms favorable to us or at all.

As of December 31, 2019 , the Company had met the conditions to enter into a $25.0 million revolving line of credit.

On January 4, 2021, we entered into a letter agreement, or Payoff Letter, with Oxford, pursuant to which (i) on January 4, 2021, we paid Oxford $76.4 million, or the Payoff Amount, to discharge in full all outstanding obligations, included accrued interest, under the Loan and Security agreement, and (ii) effective upon such repayment, the Loan and Security Agreement, and all unfunded commitments thereunder, guarantees and other security interests granted to Oxford, and all other obligations of and restrictions on us under the Loan and Security Agreement, terminated.

As a condition to entering into the Payoff Letter, Oxford agreed to waive a total of approximately $4.3 million of fees comprised of (i) approximately $2.8 million of the Final Payment (as defined under the Loan and Security Agreement) and (ii) the prepayment fee of $1.5 million otherwise payable pursuant to the terms of the Loan and Security Agreement.

Contingent Promissory Note Payable to Evolus Founders

We were acquired by Strathspey Crown Holdings Group, LLC, or SCH, in 2013 and subsequently by its subsidiary, Alphaeon Corporation, or Alphaeon, by means of a stock purchase agreement, or Stock Purchase Agreement, pursuant to which Alphaeon assumed certain payment obligations related to the acquisition.

On December 14, 2017, the Stock Purchase Agreement was amended, or Amended Stock Purchase Agreement, and, as a result, effective upon the closing of the our initial public offering in 2018, the Company assumed all of Alphaeon’s payment obligations under the Amended Stock Purchase Agreement.

Among the payment obligations under the Amended Stock Purchase Agreement is a $20.0 million promissory note that matures in November 2021.

Contingent Royalty Obligation Payable to the Evolus Founders

On February 12, 2018, related to the acquisition of Evolus in 2013 by SCH and Alphaeon, the Company recognized a contingent royalty obligation payable to the Evolus Founders.

As of December 31, 2020 and 2019, we recorded an aggregate balance of $41.5 million and $44.7 million, respectively, on our balance sheet for the payment obligation.

The Daewoong Convertible Note

On July 6, 2020, we entered into a Convertible Promissory Note Purchase Agreement with Daewoong for the purchase and sale of a Convertible Promissory Note for the principal amount of $40.0 million, which we refer to as the Daewoong Convertible Note, which was funded on July 30, 2020.

Additionally, on July 6, 2020, we, Daewoong, and Oxford Finance, LLC entered into a Subordination Agreement pursuant to which the Convertible Note will be subordinated to our obligations under that certain Loan and Security Agreement, dated as of March 15, 2019, by and between Oxford and us.

The Daewoong Convertible Note bore interest at a rate of 3.0% payable semi-annually in arrears on June 30th and December 31st of each year and matures on July 30, 2025, subject to earlier conversion as provided below.

As described in “—Overview—Impact on Our Business of Final Ruling by the U.S.

International Trade Commission and the Subsequent Settlements,” under the Conversion Agreement, the outstanding principal balance, together with all accrued and unpaid interest thereon, in the amount of $40.8 million was converted, at the conversion price of $13.00 per share, into 3,136,869 shares of our common stock on March 23, 2021.

Litigation Settlement

On February 18, 2021, upon entering into certain agreements in connection with the settlement of claims relating to certain intellectual property disputes related to Jeuveau ® , we agreed to pay to Allergan and Medytox $35.0 million in multiple payments over two years and also issued 6,762,652 shares its common stock to Medytox.

In addition, during period from December 16, 2020 to September 16, 2022, we agreed to pay to Allergan and Medytox royalties on the sale of Jeuveau ® , based on a certain dollar amount per vial sold in the United States, and a low-double digit royalty on net sales of Jeuveau ® sold in other Evolus territories.

During the period from September 17, 2022 to September 16, 2032, we agreed to pay to Medytox a mid-single digit royalty percentage on all net sales of Jeuveau ® .

The royalty payments will be made quarterly.

Operating Leases

We lease office facilities under various operating lease agreements.

Our corporate headquarters is located in Newport Beach, California, in a facility that we subleased until January 2020 under a non-cancelable operating lease for a fixed amount each month.

On May 15, 2019, we entered into a non-cancelable operating lease for the same office facility with the original lessor.

This non-cancelable operating lease commenced on February 1, 2020 and expires on January 31, 2025 with an option to extend the term for an additional 60 months.

This non-cancelable operating lease commenced on February 1,

2020 and expires on January 31, 2025 with an option to extend the term for an additional 60 months.

Lease payments increase based on an annual rent escalation clause that occurs on each February 1 anniversary.

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We have an option to extend the term of the lease for an additional 60 months.

License and Supply Agreement

In connection with the Daewoong Agreement, we are obligated to make future milestone payments to Daewoong for certain confidential development and commercial milestones associated with Jeuveau ® .

As of December 31, 2020, Daewoong was eligible to receive contingent milestone payments of up to $10.5 million, all of which were cancelled under the Daewoong Agreement Amendment in March 2021.

The Daewoong Agreement also includes certain minimum annual purchases we are required to make in order to maintain the exclusivity of the license.

We may, however, meet these minimum purchase obligations by achieving certain market share in its covered territories.

These potential minimum purchase obligations were contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions.

Current and Future Capital Requirements

We believe that our current capital resources, which consist of cash, cash equivalents and short-term investments, will be sufficient to fund operations through at least the next twelve months based on our expected cash burn rate from the date of the issuance of this Annual Report on Form 10-K.

Until such time, if ever, as we can generate substantial product revenue to cover our costs of operations, we expect to finance our cash needs through additional draws against the Oxford term loan and revolving line of credit, entering into licensing or collaboration agreements with partners, other debt or equity financings, or other sources of financing.

We have determined that our current financial condition raises substantial doubt about our ability to continue as a going concern and, as described above, we believe that our current capital resources are not sufficient to meet our obligations and fund operations through at least the next 12 months.

Until such time, if ever, as we can generate substantial product revenue to cover our costs of operations, we expect to finance our cash needs through entering into licensing or collaboration agreements with partners, other debt or equity financings or other sources of financing.

Sufficient funds may not be available to us at all or on attractive terms when needed from these sources.

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Our future funding requirements will depend on many factors, including, but not limited to:

• the timing and amounts of the royalty and other payments in connection with the settlement agreements with Medytox and Allergan;

• the timing and amounts of the royalty and other payments to Evolus Founders;

• the number and characteristics of any future product candidates we develop or acquire;

the timing of any cash milestone payments to Daewoong if we successfully achieve certain predetermined milestones;

• our ability to forecast demand for our products, scale our supply to meet that demand and manage working capital effectively;

the cost of manufacturing our product or any future product candidates and any products we successfully commercialize, including costs associated with building our supply chain;

• the cost of manufacturing our product or any future product candidates and any products we successfully commercialize, including costs associated with our supply chain;

• the cost of commercialization activities for Jeuveau ® or any future product candidates are approved or cleared for sale, including marketing, sales and distribution costs;

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• the costs associated with being a public company;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including ongoing litigation costs related to Jeuveau ® and the outcome of this and any other future patent litigation we may be involved in;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents and any other future patent litigation we may be involved in;

• the timing, receipt and amount of sales of any future approved or cleared products, if any.

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Year Ended December 31,

2020 2019 Change

(in millions)

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Operating activities

$ (57.9) $ (93.4) $ 35.5

Investing activities

12.2 (23.4) 35.6

Financing activities

38.3 133.5 (95.2)

Change in cash and cash equivalents

(7.3) 16.7 $ (24.0)

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

$ 102.6 $ 109.9

Operating Activities

Cash used in operating activities increased by $67.7 million to $93.4 million for the year ended December 31, 2019 from $25.7 million for the year ended December 31, 2018 .

The increase in cash used in operating activities was primarily attributable to an increase in net loss of $43.2 million , as adjusted for certain non-cash items.

In 2019, there was an increase in non-cash income tax benefit of $15.1 million resulting from partial release of the deferred tax assets valuation allowance.

There were also increases in non-cash stock-based compensation expense of $2.5 million , provisions related to the rebate and coupon programs of $12.3 million , and depreciation and amortization of $4.1 million , which were partially offset by a $6.3 million decrease in revaluation of our contingent royalty obligation.

Cash used in working capital increased by $23.6 million which was primarily driven by inventory purchases, timing of accounts receivable collections, timing of vendor billing and invoice payments, and increased expenditures associated with the hiring of our sales force and expansion of our commercialization infrastructure in connection with launching Jeuveau ® .

Cash used in operating activities decreased by $35.5 million to $57.9 million for the year ended December 31, 2020 from $93.4 million for the year ended December 31, 2019.

The decrease in net cash used in operating activities reflects the decrease in net loss as adjusted for non-cash items as well as timing of receipts from customers and payments to vendors in the ordinary course of business.

For the year ended year ended December 31, 2020, operating activities used $57.9 million of cash, which primarily resulted from our net loss of $163.1 million as adjusted for certain non-cash charges including $10.6 million of stock-based compensation expense, $2.1 million of provision of allowance for doubtful accounts, $2.7 million of amortization of debt discount and issuance costs, $7.0 million of depreciation and amortization and $48.4 million of non-cash portion of accrued settlement expenses, partially offset by a gain of $2.0 million in revaluation of our contingent royalty obligation.

In addition, net operating assets and liabilities changed by $35.6 million primarily driven by $35.0 million of accrued settlement expenses and various timing of inventory purchases and payments, collections from customers and payments to vendors.

For the year ended year ended December 31, 2019, operating activities used $93.4 million of cash, which primarily resulted from our net loss of $90.1 million as adjusted for certain non-cash charges including $9.5 million of stock-based compensation expense, a charge of $4.2 million in revaluation of our contingent royalty obligation, $2.2 million of amortization of debt discount and issuance costs and $4.1 million of depreciation and amortization, partially offset by a gain of $15.1 million of deferred income tax provision.

Net operating assets and liabilities changed by $8.5 million primarily driven by the timing of inventory purchases and payments, collections from customers and payments to vendors.

Investing Activities

Cash used in investing activities increased to $23.4 million for the year ended December 31, 2019 from a de minimis amount for the year ended December 31, 2018 .

The increase in cash used in investing activities was primarily attributable to purchases of short-term investments net of maturities of $18.9 million and additions to capitalized software of $4.2 million .

Cash provided by investing activities was $12.2 million for the year ended December 31, 2020 compared to $23.4 million of cash used for the year ended December 31, 2019.

The change in cash provided or used in investing activities was attributable to a decrease in purchases of short-term investments and their maturities in 2020.

Financing Activities

Cash provided by financing activities increased by $14.7 million to $133.5 million for the year ended December 31, 2019 from $118.8 million for the year ended December 31, 2018 .

We received proceeds of $71.7 million in March 2019 from the credit facility net of discounts and issuance costs and $73.3 million in November 2019 from the public offering of common stock after deducting underwriting discounts and commissions, and $2.5 million from issuance of common stock related to the incentive equity plan.

This was offset by $9.7 million of milestone and contingent royalty payments to the Evolus Founders and $3.0 million in payments to Daewoong ($2.0 million in February 2019 and $1.0 million in December 2019 subsequent to the FDA’s approval and EMA’s approval, respectively, of Jeuveau ® ) during 2019.

We received proceeds of $56.3 million and $67.7 million in the initial public offering in February 2018 and the follow-on public offering in July 2018, respectively.

Currently, we have no indebtedness to Alphaeon.

For periods prior to the completion of our initial public offering on February 12, 2018 , Alphaeon provided us certain services that were not covered under a services agreement, including, without limitation, general and administrative support services and research and development support services.

Alphaeon had allocated a certain percentage of personnel to perform the services that it provided to us based on its good faith estimate of the required services.

These allocated costs have historically increased related-party borrowings.

The costs reflect Alphaeon full-time equivalent, or FTE, rate for the applicable personnel, plus out-of-pocket expenses such as occupancy costs associated with the FTEs allocated to providing us these services.

We historically have not recorded a mark-up on the external or internal expenses Alphaeon allocates to us.

All Alphaeon-provided operating expenses shown in our financial statements were treated as related party borrowings from Alphaeon to us for the period between January 1, 2018 and February 11, 2018.

Since the initial public offering, we have not relied on Alphaeon for funding and in connection with the closing of our initial public offering the related party borrowings were settled in full.

As of the completion of our initial public offering on February 12, 2018, we assumed from Alphaeon the revised payment obligations under the Amended Purchase Agreement of $55.7 million (comprised of $39.7 million related to the contingent royalty obligation and $16.0 million related to the contingent promissory note).

Upon our initial public offering on February 12, 2018, we were released of the $140.7 million note obligation for all guaranty and security obligations, and the related party receivable from Alphaeon of $73.7 million was settled, resulting in a capital contribution of $67.0 million.

Alphaeon’s security interest in Evolus’ assets also was terminated.

See Note 11 , Related Party Transactions for more information.

Payment Obligations Related to the Acquisition by Alphaeon

Under the Amended Purchase Agreement, the revised payment obligations consist of (i) an approximately $9.2 million up-front payment upon obtaining FDA approval for Jeuveau ® for the treatment of glabellar lines, which was paid in full in 2018, (ii) quarterly royalty payments of a low single digit percentage of net sales of Jeuveau ® within the United States, (iii) quarterly royalty payments of a low single digit percentage of net sales of Jeuveau ® outside of the United States, and (iv) a $20.0 million promissory note that matures in November 2021.

The revised payment obligations set forth in (ii) and (iii) above will terminate in the quarter following the 10 -year anniversary of the first commercial sale of Jeuveau ® in the United States in the second quarter of 2029.

Neither Evolus nor Alphaeon has the right to terminate any future payments for a one-time lump sum payment.

As of December 31, 2019 and 2018 , we recorded an aggregate balance of $59.1 million and $67.1 million , respectively, on our balance sheet for the revised payment obligations and the promissory note owed to the Evolus Founders (comprised of $41.2 million and $50.2 million , respectively, for the contingent royalty obligation and $17.9 million and $16.9 million , respectively, for the contingent promissory note).

We paid the Evolus Founders $9.2 million in February 2019 subsequent to the FDA’s approval of Jeuveau ® .

Under the Amended Purchase Agreement, in February 2019, Evolus paid one-time bonuses of $1.6 million to certain former and current employees upon FDA approval of Jeuveau ® .

License and Supply Agreement with Daewoong

Pursuant to the Daewoong Agreement, $13.5 million in additional cash consideration was due to Daewoong based upon the Company’s successful completion of certain technical and sales milestones.

We paid Daewoong $2.0 million in February 2019 and $1.0 million in December 2019 subsequent to the FDA’s approval and EMA’s approval, respectively, of Jeuveau ® .

As of December 31, 2019 , Daewoong is eligible to receive remaining contingent milestone payments of up to $10.5 million .

Cash provided by financing activities decreased by $95.2 million to $38.3 million for the year ended December 31, 2020 from $133.5 million for the year ended December 31, 2019.

For the year ended December 31, 2020, financing activities consisted of the proceeds of $40.0 million received from the Convertible Note in July 2020 as partially offset by royalty payments to Evolus Founders and debt obligations.

For the year ended year ended December 31, 2019, financing activities consisted of the proceeds of $71.7 million received from our Oxford credit facility net of discounts and issuance costs and $73.1 million from a follow-on equity offering, partially offset by a $9.7 million in royalty and milestone payments to Evolus Founders and a $3.0 million payment to Daewoong upon FDA approval of Jeuveau ® in February 2019.

See “ —Liquidity and Capital Resources ” for a description of our credit facility with Oxford and convertible note with Daewoong.

Off-Balance Sheet Arrangements

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We generate product revenue from the sale of Jeuveau ® in the United States and service revenue from the sale of Jeuveau ® through a distribution partner in Canada.

For product revenue, w e recognize revenue when control of Jeuveau ® is transferred to a customer upon receipt.

For product revenue, we recognize revenue when control of Jeuveau ® is transferred to a

customer upon receipt.

We do not accept product returns except under limited circumstances such as damages in transit or ineffective product.

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We provide customers with trade and volume discounts and prompt pay discounts that are directly reflected in the invoice price.

Revenues are recorded net of sales-related adjustments, wherever applicable, for the volume rebates and coupon programs.

Revenues are recorded net of sales-related adjustments, wherever applicable, for the volume rebates, coupon programs and consumer loyalty program.

Volume rebates are contractually offered to certain customers.

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The coupons are accounted for as variable consideration.

The Company estimates the coupon redemption rates based on historical data and expectations of future redemptions prior to the coupon expiration date.

We estimate the coupon redemption rates based on historical data and expectations of future redemptions prior to the coupon expiration date.

The coupons are accrued based on estimated redemption rates and the volume of products purchased and recorded as a reduction to revenues on product delivery.

The consumer loyalty program allows participating customers to earn rewards for qualifying treatments to their patients (i.e.

consumers) using Jeuveau ® and redeem the rewards for Jeuveau ® in the future at no additional cost.

The loyalty program represents a customer option that provides a material right and, accordingly, is a performance obligation.

At the time Jeuveau ® product is sold to customers, the invoice price is allocated between the product sold and the estimated material right reward, or Reward, that the customer might redeem in the future.

The standalone selling price of the Reward is measured based on historical sales data, average selling price of Jeuveau ® at the time of redemption, expected customer and consumer participation rates in the loyalty program, and estimated number of qualifying treatments to be performed by customers.

The portion of invoice price allocated to the Reward is initially recorded as deferred revenue.

Subsequently, when customers redeem the Reward and the related product is delivered, the deferred revenue is reversed and included in net revenue.

Accounts receivable are recorded at the invoiced amount and do not bear interest.

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On a recurring basis, we estimate the amounts of receivables considered uncollectible to reflect an allowance for doubtful accounts.

Litigation Settlement

On February 18, 2021, we entered into certain agreements in connection with the settlement of claims relating to certain intellectual property disputes relating to Jeuveau ® .

Pursuant the settlement agreements, we agreed to pay to Allergan and Medytox cash payments over two years and issued our common stock to Medytox.

In addition, for the period from December 16, 2020 to September 16, 2022, we agreed to pay to Allergan and Medytox a royalty on the sale of Jeuveau ® , based on a certain dollar amount per vial sold in the United States and a low-double digit royalty on net sales of Jeuveau ® sold in other territories.

For the period from September 17, 2022 to September 16, 2032, we agreed to pay to Medytox a mid-single digit royalty percentage on net sales of Jeuveau ® in the United States and other territories.

The royalty payments will be made quarterly.

Financial Statements and Supplementary Data - Note 9 Commitments and Contingencies for additional details on the settlement agreements.

We recorded the costs associated with the cash payments and the issuance of our common stock in litigation settlement expenses in the statements of operations and comprehensive loss for the year ended December 31, 2020 and related liabilities in accrued litigation settlement expenses on the balance sheet as of December 31, 2020.

A portion of the liabilities was settled with the issuance of our common stock subsequently in February 2021.

The royalty payments are recorded as cost of sales in the statements of operations and comprehensive loss at the time the corresponding sales are recognized starting on December 16, 2020.

Contingent Royalty Obligation and Promissory Note Payable to Evolus Founders

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Changes in the fair value of this contingent royalty obligation are determined each period end and recorded in operating expenses in the statements of operations and comprehensive loss and in the current and non-current liabilities in the balance sheets.

The significant

unobservable input assumptions that can significantly change the fair value includes (i) projected net revenues during the payment period, (ii) the discount rate and (iii) the timing of payments.

The significant unobservable input assumptions that can significantly change the fair value includes (i) projected net revenues during the payment period, (ii) the discount rate and (iii) the timing of payments.

We also determined the fair value of the contingent promissory note payable at present value using a discount rate for similar rated debt securities and is based on an estimated date that we believe the contingent promissory note will mature.

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Intangible Assets

Upon FDA approval of Jeuveau ® in February 2019, in process research and development (“IPR&D”) related to Jeuveau ® was evaluated as completed and reclassified to a definite-lived distribution right intangible asset, which is amortized over the period the asset is expected to contribute to the future cash flows of the Company.

The Company determined the pattern of this intangible asset’s future cash flows could not be readily determined with a high level of precision.

We determined the pattern of this intangible asset’s future cash flows could not be readily determined with a high level of precision.

As a result, the distribution right intangible asset is being amortized on a straight-line basis over the estimated useful life of 20 years.

The Company capitalizes certain internal-use software costs associated with the development of its mobile and web-based customer platforms.

We capitalize certain internal-use software costs associated with the development of its mobile and web-based customer platforms.

These costs include personnel expenses and external costs that are directly associated with the software projects.

1 unchanged sentence

The capitalized internal-use software costs are amortized on a straight-line basis over the estimated useful life of two years upon being placed in service.

The Company reviews long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

We review long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment analysis is performed.

An impairment loss is measured as the amount by which the carrying amount of the asset or asset groups exceeds the fair value for assets to be held and used or fair value less cost to sell for assets to be disposed of.

The Company also reviews the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life.

We also review the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life.

Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized.

1 unchanged sentence

Recently Issued and Adopted Accounting Pronouncements

We describe the recently issued accounting pronouncements that apply to us in Note 2 , Summary of Significant Accounting Policies -Recent Accounting Pronouncements.

We describe the recently issued accounting pronouncements that apply to us in Item 8.

Financial Statements and Supplementary Data - Note 2 , Basis of Presentation and Summary of Significant Accounting Policies-Recent Accounting Pronouncements.

Quantitative and Qualitative Disclosure About Market Risk.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis