What happened

After updating investors on the progress it's making toward commercializing its first drug, Evolus (NASDAQ:EOLS) saw its shares rally 12% higher by 1:15 p.m. EDT on Tuesday.

So what

Evolus began attracting more widespread investor attention earlier this year after the Food and Drug Administration approved Jeuveau, a treatment for frown lines, in February. The approval paves the way for Jeuveau to challenge Allergan (NYSE:AGN) and its blockbuster drug Botox, possibly resulting in hundreds of millions of dollars in annual sales someday.

A man in a suit riding a toy rocket.

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During Evolus' fourth-quarter conference call, it detailed its strategy to compete against Botox. It has submitted for publication results from a phase 3 head-to-head trial versus Botox, and the publication of those results could coincide with its plans to start selling Jeuveau in the U.S. and Canada next quarter. Management has also filed for E.U. approval, and a decision from regulators there is expected soon.

The company says it's almost done hiring 140 specialized sales people to market Jeuveau to doctors and centers that perform cosmetic procedures. And it's created a plan it hopes will allow it to become the second-largest treatment for frown lines within 24 months. 

As part of its strategy, it plans to sell Jeuveau at a list price of $610 per 100-unit vial, a slight premium to Botox. After factoring in volume discounts, however, Jeuveau should cost providers less than Botox. The company also plans a marketing campaign to drive interest in Jeuveau. It expects to report little revenue in the second or third quarters as customers take advantage of promotions to use and get comfortable with it. It's aiming for revenue to become more needle-moving in Q4 2019.

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Now what

Treating frown lines is a $1.2 billion market, of which Botox commands about a 70% share. If Evolus successfully positions Jeuveau so that it can secure even 20% to 30% of this market, Evolus stock could be undervalued because its market cap is only $650 million.

Of course, there's no guarantee management will be able to chip away at Botox's sales in this indication -- or that even if it does, it will translate into profits anytime soon. Evolus expects its operating expenses to clock in at about a $50 million to $55 million run rate in 2019, with its expenses increasing as the year progresses.

There are reasons for optimism, though. The company is run by ex-Allergan executives with deep ties to the industry. And if the head-to-head data is strong enough, a net pricing advantage could go a long way toward winning over consumers, most of whom pay for this procedure out of pocket.

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