What happened

In response to receiving a Complete Response Letter (CRL) from the FDA, shares of Evolus (NASDAQ:EOLS), a newly public clinical-stage biotech company focused on aesthetics, sank 31% as of 11:05 a.m. EDT on Wednesday.

So what

Evolus announced today that its lead compound, DWP-450, received a CRL from the FDA, which is a nice way of saying that it was rejected. DWP-450 is a hopeful treatment for frown lines in adult patients and would be a direct competitor to the Allergan's (NYSE:AGN) blockbuster drug botox should it eventually win approval. Shares of Allergan were up slightly based on today's news.

Man with head against wall in conference room

Image source: Getty Images.

The reason for the rejection was related to deficiencies in the "Chemistry, Manufacturing, and Controls" (CMC) processes. Importantly, the company stated there were no deficiencies related to the drug's clinical results.

Managment was also eager to point out in the press release that the company's manufacturing facility in South Korea that will produce DWP-450 was issued a favorable Establishment Inspection Report (EIR) by the FDA. This will enable the company to quickly ramp up production if DWP-450 ultimately wins approval.

Here are the comments that brand-new CEO David Moatazedi (who was a former executive at Allergan) had to share with investors related to the rejection:

We are pleased with the progress we continue to make with the FDA, and this CRL confirms our confidence in our clinical submission. Deficiencies cited within the CRL are isolated to CMC matters and we expect to respond comprehensively within 90 days. Overall, we view these updates as positive, which together give us the line of sight necessary to build our commercial infrastructure. We look forward to working closely with the FDA and remain committed to bringing DWP-450 to market by spring 2019.

Given the news, it isn't hard to figure out why shares are being mauled today.

Now what

While a CRL is never good news, the fact that it does not require the company to perform any additional clinical tests is certainly a positive. That suggests that this rejection should be viewed as a delay in the drug's approval date and not a reason for investors to abandon hope.

Today's drop might represent a buying opportunity for investors who still believe in DWP-450's long-term potential and are willing to wait while the story plays itself out. However, since Evolus remains a high-risk company, I'm personally content to monitor its progress from the sidelines. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.