Chit Chat Stocks - Evolus (EOLS) | Deep Dive

Episode Date: June 27, 2021

Evolus is a performance beauty company. Evolus provides medical aesthetic products for physicians and patients across the United States. The company's sole product, Jeuveau, provides temporary improvement to aging marks. Listen closely as Brad, Brett, and Ryan dive into what the company does and where they could grow from here. As always enjoy the show! Subscribe to Potential Multibaggers: https://seekingalpha.com/checkout?service_id=mp_1308 Follow Brad and check out his work on Twitter: https://twitter.com/StockMarketNerd?s=20 Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (2:54) Industry | (8:54) Management & Ownership | (9:56) Valuation | (12:13) Earnings | (13:21) Balance Sheet | (15:04) Our Analysis | (17:05) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. This is the Sunday Deep Dive episode. I have Ryan and Brad on. Ryan is out of town as well today, so we have three remote locations, and Brad is in an undisclosed vacation location.

Brad, how are you doing? Sorry, go ahead. I'm in my secret lair. So, yeah, I'm in a pretty remote place, part of the lower peninsula of Michigan. So the Internet's a little spotty, but I'm using a hotspot. So I think it should be good to go. And I also forgot my microphone. So two things I messed up on. So if the sound is a little off, I apologize, but it should be pretty good.

Yeah, so don't turn off the show if the sound isn't that good. Yeah, and I am using headphones, so not the typical mic setup. So we apologize in advance if we step on each other's toes here. Yeah. And we're going to be talking Evalus today. It is, I don't know exactly how to pronounce the name, but it's E-V-O-L-U-S. Have you guys heard of this company before, or are we all getting introduced to it? First time we're here.

First time. And we're going to talk about them, but first we have to talk about our presenting sponsor for the Sunday show, Potential Multibaggers. Ryan, do you want to talk about them? Sure. I don't have the notes here in front of me, but, uh, we've been talking with Chris. We had, uh, apparently someone said because of our sales pitch that they signed up and they have not, they said they never thought they would enjoy a service like that.

So let him be the story. Let him be the sales pitch, copy his, uh, his habits, uh, and sign up. It's you get your, he's looking for 10 X and 10 years. I'm getting that right. Yep. And, uh, yeah, it's a comprehensive service. he's giving you updates um you can sign up using our link in the show or you can look up uh potential multi-baggers on google i'm sure you'll find it yep and it's either on seeking alpha as

well find them on twitter at from value i mean great track record of success tons of high growth names if you like to play in that part of the market i mean it's a great research part of your our addition to your research process and he does such thorough research that you're never going to feel like you're not understanding the companies you're investing in. All right, Ryan, do you want to introduce Evalus? Yeah. So, Evalus is a performance beauty company. So, they develop neurotoxins to help people look better and remove frown lines. Basically, they have one product, one commercial product, and it's called Juvo. You guys know how we'll say juvo juvo i think okay one of those two it was fda cleared in the u.s in early 2019

basically it's an injectable liquid used to temporarily reduce frown lines between the eyebrows now i know this sounds weird to probably most of our uh listeners but it's a big market it's basically a botox alternative um and juvo uh is actually manufactured and supplied by day womb which we'll get into some of the complications there and their primary customers is or are the self-pay aesthetics market so it's physicians or other customers who then administer the injection or recommend them to the end customer and these payments are not reimbursed by a third party so it's not covered by insurance this is basically people who want to look better they're headquartered in i think it's either new it's newport beach which is i imagine a perfect spot for botox

headquarters um but i'll get into the history of the company so they were founded and this is there's a complicated history and there's a lot of legal uh problems so if i miss anything brett feel free to interrupt me but evalus was founded in 2012 by scott canazaro he is unassociated with the company now um and i'm not exactly sure why it sounds like they maybe had a falling out and then juvo's development uh seemed to have a few rejections early on but it was first approved in the u.s in february of 2019 and was commercially launched in may of 2019 uh and evalus actually went public in may of 2018 so they were public for about a year before they had a commercial product Obviously, now they have one.

And they hired David Modazzetti in 2018 as the CEO. And prior to that, he served as the senior vice president of Allergan or Allergen, which is one of their largest competitors. He was there for 13 years. It sounds like the whole founding team actually came over from Allergen. And Allergen is the owner of Botox. And January 30th in 2019, Allergen filed a complaint against Evolus and Daewoong, which I mentioned is the manufacturer and supplier, saying that they misappropriated trade secrets. They settled on it, and Brett can get into kind of the fallout and who's going to have to pay who. But it sounds like the people that came over from Allergen to start this stole whatever the Botox formula was and has since settled.

Brett, do you want to get into the actual settlement? Yeah, so it's the same neurotoxin stuff, but they changed it slightly. And that's how they got approval to make it slightly different. But obviously, Allergan sued. And the outcome here, it kind of makes it seem like Juvo was going to lose this lawsuit unless they paid up. So this is what happened. Evalus has to pay $35 million to Allergan and Meditox, which is a partner of Allergan.

and Allergan is a part of Advi now. So it's a bit confusing, but either Meditox, which is a tough name to pronounce again, is either a partner with them or owned by Advi. So they have to pay $35 million to them. And then Evalus pays a dollar per vial royalty to Allergan through September 2022. They pay Meditox a low double digit royalty for sales outside of the US through 2022. So some steep royalties through 2022. And then the big one that's going to go on for a long time is a mid single-digit royalty on net sales of Juvo from 2022 through 2032. And then on top of it, they had to issue 6.76 million shares of stock to Meditox. So really gutted them, but hopefully that stuff's all behind them now. And then on March 23rd,

2021, they entered into a settlement agreement with Daewang Pharma, who is their manufacturing. And apparently this worked in favor for Evalus. So Daewang pays them $25.5 million plus legal fees. So they made about on the hook, they may have made a mistake, you know, since they were the manufacturer or something like that. So they're, they're, you know, Daewang kind of is going to help out Evalus here and their partners. So they're going to work together. And then Day Wong had a convertible note that was owned, but then it got converted to common stock. So all these companies that are in relation with Evalus basically own stock in them now. So you kind of think the incentives are aligned here, but it's a bit confusing. Yeah. So even though

it sounds like even though they, whatever, stole the trade secrets, and I guess you'd think that should have killed their business. The settlement makes it sound like almost a vote of confidence that Allergen is like, hey, we'll take your shares. We think you can sell this or we like the formula or whatever. Obviously, there's going to be points of margin hit because of that royalty, but it's almost a vote of confidence. Yep. Yep. It's almost like saying, yeah, the product is better. And then one thing to note, when we go over some of the sales here, there was a huge postponement and suspension of the product. Or that might have been intentional on Avalos. I think there was some huge fine they

would have had to pay in the winter here. So some of their revenue and financials are depressed. So when we look at the numbers, the valuation is going to be high, but we'll get into that later. Brad, anything else on that? All covered there? Yeah, all covered. All right. I'll hit industry landscape. Pretty easy. Global facial injectables market is what I guess is the technical term. That market is valued at about $13.4 billion in 2020 and expecting to grow at an 8.8% rate over the next decade. Majority of the market is expected to be in the neurotoxin stuff that Evalus plays in. And then competitors are Botox, Dysport, Geomin, which is spelled with an X, but Botox is the market leader. And then apparently there's

other companies like Revance Therapeutics that have stuff coming in the pipeline too, but they have to get approved by the FDA. So it might be a few years or it might never get approved at all. And then right now, Juvo is only on forehead injections. So they're in a currently small niche of this market. And they estimate that to be a $1.3 billion market opportunity, but growing quickly and expected to hit, according to Evalus, about $2.1 billion in like 2023. So growing quickly uh brad do you want to hit management and ownership yeah we went into it a little bit so i'll be i'll be quick on the management team but the ceo not a founder as we as we mentioned is dave motazetti so great last name for for a public company ceo um former svp

at allergen he led the u.s medical aesthetics division former manager at novartis and then we just talked a little bit about revance therapeutics and how it's maybe has a competing product hitting markets eventually if they can get FDA approval. The CFO, Lauren Silvernail, is the former CFO at Revance. There is very relevant experience on the team and an impressive experience. In terms of ownership, institutions own about 27% of the float. BlackRock, Vanguard, the Russell indexes, all of the institutions you'd expect to be there are there. Insiders own about 17% of the float. And Dave Motazetti himself owns about 1% of the company with some fun options packages if he can perform. Over the last 12 months, there's been a lot of accumulation of

the stock and virtually zero selling. So always good to see that. Yeah. And what does accumulation mean? That just means there's a lot of demand for it or I don't know. So institution or institutional ownership has been rising over the last 12 months. So the vanguards and the black rocks are buying more than they're selling is what i mean there okay that makes sense that's an interesting dynamic it's also kind of interesting that uh a lot of that management team comes from competitors and it's like even though they even though they're like competing with these guys it's it's like everyone thinks they have the best product because they're not only uh that even though the fine they got the settlement where they actually still own shares and then they have

senior VPs coming over from Allergen to Evalus. It, all of it is like a, it's a weird vote of confidence. Yeah. There's been some studies, only small ones that people think this product is better and that's qualitative where they would do like side-by-side where they use, someone uses Botox, someone uses Juvo, and then qualitatively they think that the Juvo product works better for looks. So that could be a vote of confidence as well. I'll hit valuation quick. It's very simple with them since they're not profitable. So market cap, from what I looked, is about $735 million, ticker is EOLS. Stock moves around quite a bit, so it's very volatile, so make sure to look up the valuation

when you're listening. Enterprise value is very close to market cap, so no need to do any conversions there. EV to sales is about 12.6, and I would note that this is inflated because of the litigation this winter. The company believes it's going to do pretty easily $100 million in sales. in 2021 or hit $100 million run rate sometime soon so that EBITDA sales will come down rather quickly. EBITDA gross profit of 18.7, not profitable, so we can't get any cash flow or earnings metrics. And then they have about 5.5 million in options and RSUs outstanding

versus I believe the stock count is like in the 50 or 60 million range. So there's some dilution coming. Expect the shares to continually get diluted over time. Yeah. It's 54.1 million shares outstanding as of the end of last quarter, I believe. And I'll go through some of the Q1 numbers. Although, remember, there was that sort of holdback on sales. So take it with a grain of salt. But they had 12.2 million in revenue in the first quarter. That was growing 16% year over year. So still strong demand. Non-GAAP gross margin is about 60%. If you're looking at their GAAP gross margin, they had a $25 million litigation boost from day one, which makes it look like 250% gross margins, not sustainable. Yeah, very sustainable, I was going to say. But they had $8 million in operating income for the quarter, although that included the $25 million settlement. If you excluded that, it was negative 100% gross margins, or even worse. Um, but it's hard to, it's hard to kind of decipher how much of that was litigation expenses,

how much they were kind of peeling back because they had a lot of cash on hand. So they obviously knew what their liquidity position was like, and they also were in kind of a tough time because sales were depressed almost intentionally. So I, I guess pay a lot of attention to management commentary and guidance. They guided saying that they're going to reach a $100 million revenue run rate in Q2. So they think it's going to accelerate now that the settlement's behind them. And they also had an all-time high reorder rate of 73%. That's grown every single quarter since Juvo was announced or commercialized.

So pretty impressive there. It sounds like there's a lot of people that are happy with the product. yep agreed brad do you want to hit balance sheet yeah the company has about 22 million in cash on hand versus 102 million year over year so litigation and that kind of drama is certainly um showing up as well as the cash burn from their operations they did raise another 85.5 million from a secondary in in april to fund juval growth i'm sorry if i'm mispronouncing that so we may be we may all be mispronouncing it someone is laughing at us right now we we talked about that $25 million in supplier receivables. They did pay off a $74 million term loan last

year. So they have zero interest expense, which is nice. But they have that $38 million in contingent royalties to be paid to founders. Pretty complicated balance sheet, to be honest. But they did burn through $8 million in cash from operations last quarter. So there's not a ton of wiggle room and there's not a ton of time for them to get through this drama and get through this noise before they are going to have to raise some more cash, even with that $85 million secondary. Yeah, we're going to need to see them hit that operating inflection and get the positive cash flow from operations, even if that is like X, you know, stock comp or whatever it is. And if they don't, they're going to have to raise some more money. So that's something that investors should

probably look after. Anything else, guys, before we add that, right? Yeah, I'd add that. I mean, that 38 this is why i say that there was obviously a fallout between uh i'm blanking on the founder's name and evalus because he was gone in 2018 and now they've got a 38 million dollar potential contingent royalty to be paid back to him um i'm not sure who the other founders were but they've been sort of they've kind of kept it close to the vest about their founding story i can't i mean i had trouble brad was saying it was like a treasure hunt so yeah uh they were it felt like keeping information uh undisclosed yeah something definitely happened all right let's pause we'll take a quick ad break and get back to more stuff on evils

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Restrictions apply. Okay, welcome back. Next up, we're going to hit any anecdotal evidence, customer stories. I don't think we have customer stories here. um no judging but i don't think we do uh ryan or sorry brad you want to go first too not nothing for me uh hopefully i i will not have a lot of experience with these products in the future but i guess we'll see um never say never yeah ryan well i didn't even know i thought

botox was uh like a type of procedure i didn't know that it was an actual product um which i guess is good because it's almost like the uh the kleenex dilemma like kleenex people don't know that it's an actual product like an actual brand uh and so they don't really care what kind of kleenex you give them so they're probably going and they're like oh i'd like to get some sort of facial injection whatever you recommend they might think it's botox and it's actually juvo yeah i think anecdotally the projections of the for the growth of the industry definitely bring true. You know, a lot of times when we bring in that research and that's kind of my job. So I'm really looking at this stuff. A lot of it is just projections. And some

of the times, basically every industry people can project is going to grow at 5%. And that's obviously not going to be true because of, you know, on average, it's going to be around GDP, but I think it rings true here. And then there's some reviews online. There's someone on Twitter. His name is Eddie Torrenti. He covers Evalus a lot. And he said, just had a meeting with an owner of a very prominent skin institute where people fly to from all over the u.s so like a high profile place he said business is absolutely booming and this is on june 8th and the person used the term aba and which means anyone but allergen so i think that's a good sign for juvo uh and taking market share yeah that's interesting i didn't know there was so much resentment towards

Botox? I think they really gouge people or they have on pricing. So the doctors aren't getting much of the margin. And with Juvo, the unit economics change for the doctor. So that could be an advantage. All right, let's move into future growth opportunities. Brad, what are your thoughts here? Yeah. So they have five to 10 years. I couldn't find the exact date of when this patent is going to expire and when we can start to see generics hitting the market. If it is, but like we're hearing from these anecdotes better than other products, then that could be an issue. So future growth opportunities would have to be developing new products. This isn't really a pressing concern, but it will be at some point. And right now they're spending virtually

nothing on R&D. So that will have to change, obviously, if they're going to put something else in the pipeline and get something else through FDA approvals. And in five to 10 years, that will probably be necessary for this company to continue succeeding. Yeah, it's a good point. They can maybe juice margins now. And it seems like the way they operate where they're basically just the middleman from the manufacturer to the doctors. And what's interesting is that Daewon actually has a fixed price they're forced to sell to

Juvo at. And if Juvo hits volume, they have an exclusive license with them until 2023. And that goes another three years. So they really have a fixed price if they hit their quotas, and that can give them some pricing power. But for long-term sustainability of the business, they're going to have to hit that R&D. You're definitely right. Ryan, what are your thoughts on future growth opportunities? Approval abroad. So particularly in Europe and Canada, they talk about this in their 10K. And so they just had their phase three testing on safety and efficacy in both these areas. uh so something i'm not quite sure how many different phases of testing there are or what sort of uh stage they're at but they said that they're going to use a distribution partner in canada which i think is probably the right strategy for international sales even if it

means sacrificing a few points of margin uh in the process i think having success there volume wise is more important than maximizing profits. Yeah, I think they have to. I read in the 10K, one of the things, one of the filings that they only have 119 employees. So it's really a light operation and they're going to outsource a lot of that stuff. I'll have my future growth opportunity.

I really just have the tail end of the industry. So, you know, this might seem kind of, I don't know, dark or whatever, but from an investment perspective, you kind of have to look at how the world's moving And like the proliferation of, you know, digital filters and stuff like that, it's really causing a lot of people, whether for right or wrong, to have irrational expectations of what their skin should look like. And that's, I think that can increase demand for products like this. So I think that could be a huge growth opportunity over the next decade.

We're really seeing these filters from Snapchat, TikTok, Instagram kind of going to basically everybody uses them now. So I think that could help. I think that could help with the bull case. I mean, yeah, wanting to look good on social media is a very real driving trend for this business, I imagine. Yeah, especially when people look good on social media and then want to replicate that in real life. You know, that can be a bull case as well. all right let's move into highlights and low lights brad what do you got here for highlights so it looks like they do have a decent product that that's selling um pretty well at the moment

i mean we have those those stories about it being maybe a little more effective than substitutes that brad was going over and and also some some information on reimbursements maybe being a little more favorable um so so maybe they are building some some value there in a in an industry where there are maybe some similar products. But for low light, if you couldn't tell already, this is pretty far outside my circle of competence. I don't generally invest in biotech. So that, in its own right, makes me hesitant. And then also pairing that with zero dollars spent on R&D, which I mentioned a little earlier, that's worrying. I know they have years until they're going to need other products to support growth, but it takes years for products to get pushed

through FDA approval processes and, and they're not spending anything right now. So that was a little concerning and maybe that's just because I don't know a lot about the industry and that's totally normal and totally fine. But to me, that was a little, little off. Yeah. We should note here that when you're listening to these shows and really should be thinking about this in general, these aren't shows, like we're not given any sort of recommendations here. We're really just turning over the rocks ourselves, trying to identify it. We might say, all right, we don't know anything. And please, like anything we say good about this company, please do not take that as a recommendation. We do not know this industry that well. Ryan, do you want to hit your highlights

on the lights? Yeah, I think the industry tailwinds are probably the most exciting or most compelling part. The fact that the settlement's kind of behind them. I think the industry itself is probably what's driving the majority of the bull thesis. There's also no reimbursement risk thanks to the cash pay model, as opposed to waiting for third-party providers like insurance companies. And then reorder rates have grown every quarter since approval. So that's validation of the product a bit. Lowlights for me, there's obviously approval risk abroad. It's been approved here by the FDA. And it sounds like they're making headway internationally. So I think they'll be all right. There's also the susceptibility to physician preferences. So if

there's some sort of, it's hard to know what the relationships are like between some physicians and maybe allergen, there might be some backdoor agreements or something like that. I don't totally understand those relationships. Or not even backdoor exclusive, could be exclusive. Yeah. So there's that risk as well. And then just, I mean, there's obviously huge risk having it be a single product company obviously that kind of builds more upside as well but you have to understand that one product if something goes wrong that that's the whole business yeah those are good points i'll hit my highlights i think industry as well huge tailwind here the unit economics are great especially once most of the kickbacks end by 2022 and they have 68

percent gross margin or at least they're guiding for that to get back to about 65 to 70 which they just hit that single digit royalty and there's not much operating expenses needed outside of the r d spend that might increase like brad was mentioning so you could look at really strong cash generation here and i do like the recurring nature of and again i'm saying this from an an investment perspective. Once someone starts, they can't really stop. And that leads to really consistent customer growth. And then they also have this loyalty program, which seems very smart, already at 160,000 clients, giving people rewards, trying to get them to switch, stuff like that. Ryan? Yeah. And if you're looking at the general and administrative expenses from the past year,

that's pretty much, I think, all their operating expenses. Some of that might've been lawyers. um and so it might not be exactly what you're going to see every year forthcoming production costs are pretty much offloaded to day one so it's all offloaded to day one yeah yeah it's a high margin business uh single digit royalty cost isn't too crazy yeah and i remember too that they have fixed car sorry they buy from day one at a fixed price so basically they decide what their margins are that is that can be extremely lucrative now there might be pricing pressure because they don't want to their whole thing is their lower cost than botox so there's definitely a ceiling there but it just shows that they're not going to be hamstrung by day one

from that contract um i'll hit low lights though we mentioned that they basically copied botox i was trying to look at you know in the 10k they had the definition of what it was and i was like this is the same definition they list for botox just has maybe some different molecules or different number of molecules and it's like is it really that different uh but maybe it is and that is above my pay grade so it could be actually different so the reason that's a low light for me is that i management does that make them a bit shady maybe you know that makes me lose a little bit of confidence in the management and then one thing is there's been some stuff talked on conference calls people asking about them the analysts and there could be some competitors

coming down the line. And that's something you can't really predict. So if the marketplace gets crowded, it might make it a tougher industry to operate in. So that's kind of the two concerns I had. But let's move on to hypothetical bull and bear cases. Brad, what are you thinking for your bull case? What needs to go right here for the stock to do well? Yeah. So my bull case is Juval is a blockbuster drug. They overcome all these legal issues and it's more so noise than structural or systemic. And it starts really generating cash. And then they can use this cash to transform into a product company that we were kind of mentioning before into more of a portfolio company without having to raise crazy amounts of debt or equity in the process. So

Bold case, this does really well, and that success allows them to create optionality for shareholders and drive value. All right, Ryan? Yeah, like Brad said, the drug is a hit, or the injectable liquid is a hit. Physicians prefer it, customers prefer it, and there's double-digit growth of the facial injectables market at large annually. that would be there is a reason to believe that this could be a huge cash cow for them and then potentially diversify into other types of injectables um yeah there's there's a real scenario where juvo it becomes a hugely large cash generative business on its own or product on its own uh and give shareholders good returns yeah yeah i'm in the same boat i mean with the

litigation behind them now and it's pretty rock solid that it's going to be behind them because all these companies own stakes in Avalos now, all the ones that would be angry at them, the green light there is for rapid adoption. And you'd have to expect with the market cap that this leads to hundreds of millions in revenue from this product, which is a huge growth from here. But they are expecting to get 100 million in annual revenue fairly soon. And if you look at that, so say you have 300 million in revenue, you could see 20%, 25% profit margins, free cash flow margins, that's what, 60, 70 million in cash generation. I mean, if you look at that versus the current market cap, that's pretty solid. And if you look at the recurring nature of it,

you could see that being very consistent, but it's not there yet. So that leads us into the bear cases. Brad, what do you think could go wrong here? Or why would the stock not perform well? so if if they get allergined i guess to use a verb um and there's somebody who kind of comes along and before this patent expiration date um approaches can tweak molecules or number of molecules or change something um a change of fine detail and be able to release commercially a competing product that has better efficacy and cost less money or i mean that's the worst case scenario. And if that happens, yeah, it will not be fun times for this company. I mean, I'm not saying that's going to happen because again, I am not a biotech expert, but that is

the bare case I see. Yeah. It seems like the likelihood of that is low, but with these, you know, it might be five years from now, something like that, there is that risk of disruption from someone just inventing something. And that's the difficult thing about this industries, that's really, really difficult to predict. But Ryan, what are your thoughts? What could go wrong here? What's your hypothetical bear case? I mean, there's definitely a low bear case. I would not say this is a high margin of safety investment, especially considering that there's so much single product risk. And that's not even like if something happens to their product specifically, but if a competitor like Brad's Head comes along and is able to do what

they do or you know be the juvo to their juvo uh that's that's detrimental to their entire business um so i think product diversification down the road would probably be helpful uh and provide a little more margin of safety but right now yeah they are hinging on that one product to be a success yeah and this bear case you know we mentioned a few times the likelihood of it happening at least in the near term seems extremely low but it's still there there's always a chance for it feels like the whole industry is betting on juvo at this point since they bought shares since uh management has come over from allergen people are looking for an alternative to botox um so it seems like the writing's on the wall for it to be successful

but yeah obviously always risk with single product yeah yeah and i'll say my i mean you know marketplace can become more crowded it's not you know that i mentioned that before i mean that's just something that could happen and you know the brand isn't there it's not like this is all just riding on someone's brand being better and that can just make it tough where someone gives a better deal to doctors stuff like that and then there also is this expectation that the industry is primed for growth and i do believe that is correct but if it isn't then there's a lower ceiling here and i don't know there could be something where huge backlash it could be like vaping where it turns into kind of a sin stock and people are like no no we don't want our country

doing this or whatever for whatever reason you know people hate it and there's you know there's a huge backlash that is a risk here with us kind of i don't know if this is a sin stock it's maybe like a like a half and half but i'd say we're going more the other way right now oh for sure I don't think that's a high likelihood of happening as well, but it's just something to consider. Yeah. I mean, the changes that have made seems very, very low, but I don't know. All right. More or less interested, Brad, we'll kick it off with you. So less interested for me and, and I have to give context to that. I mean,

if this was Moderna or some incredible groundbreaking disruptive company that was selling at a gigantic discount, I still would not be interested in the company because I just don't have a lot of comfort and a lot of knowledge on the industry and the space. And as I say, less interested, there's a lot to like about this company and reasons to be excited about it. I think the biggest reason is that all of these competing products now have skin in the game for JuVal succeeding, like Ryan and Brett were talking about. But for me, less interested, I just need to stay focused on what I know best, and this is not that. All right, Ryan. i'm gonna go less interested um i mean on any investment thesis competitive landscape is huge

and i don't quite understand this one that well i don't know what the risks could be necessarily i also have like a bad feeling in my stomach about management um maybe it's because they'll fall out with the founding team maybe it's because people are coming over from competitors whatever it is uh and then just the litigation and stuff feels like it was ripped off and like chance to catch lightning in a bottle almost it gives me a bit of a queasy feeling um i'm gonna go more interested you know you guys said that it's hard to understand yeah you know i get it's a health care thing but within the health care industry i think this is something that's fairly easy to understand there's only a few products out there yeah there could be some you know events happening

from fda approval but i'm definitely more interested on that point the only thing keeping me at this point in time is like what ryan said the management is tough to get around i worry about their integrity and that's important so that would probably keep me out for now but i do think this is very promising industry tailwind high margins regulatory capture there's a lot to like here um all right that's gonna do it for this episode but we have stock for next week ryan what do you got for us i'm going roku i know brett might not be excited might be a little basic but i want to revisit it uh it's been a while since i've looked at the company i used to be a shareholder. I think Brett, you and I both did. Brad, you might be one. But love the CEO. So

going to take another look at it. Yeah, Brad, you own it, right? Or no? I do not. I own Trade Desk. I love Trade Desk very much. But I mean, perfect timing. Google just came out with that announcement today, delaying their cookie ban or their third party cookie ban by two years. So great timing on Roku. That'll be exciting to dig into. Yeah, they're definitely, you know, I think we probably covered them like last spring or something like that. But they're a fast moving company and it's a fun industry to look at. They're trying to kind of disrupt the cable bundle. So should be fun. All right. That's going to do it for this episode. Make sure, as always, check out Potential Multibaggers. Great

service. We love Chris over there doing great work. Remember, we are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan and I are general partners at Arch Capital. Arch Capital clients may hold securities discussed in this podcast. Thank you all for listening. We'll see you next time. From the underworld of Guy Ritchie Do you want to step up the ladder? I want Carmack dead Starring Tom Hardy, Pierce Brosnan and Helen Mirren

Do I have to do everything myself? You want more? I'll give you more! Mobland, new season hits September 18th on Paramount Plus