The major areas for the companies in the group include breast implants (silicone approval driving new product cycle), lasers for excess hair, wrinkles, skin discolorations etc., injectables (botulinum toxins and dermal fillers) and other skin-related treatments. The following chart describes the companies that compete in these areas:
click to enlarge
A few observations: First, the only “big” player is Allergan (AGN), about which I have written before. While it has some leading businesses, it is important to remember that its eye care franchise, at about ½ of sales, significantly dilutes the exposure to the theme. Second, most of these companies are rather small, with only Mentor (MNT) and Medicis Pharmaceutical (MRX) in the “Mid-Cap” arena. Third, the performance of these stocks has varied considerably. Finally, there sure are a bunch of “laser” manufacturers!
I have followed AGN, MRX and MNT most closely over the past several years. AGN had a nice entry point subsequent to my article here in February and looks like a reasonable long-term investment here. I am really warming up to MRX, as it tends to do well on product launches (Botox alternative coming). While some of its drugs have had competitive issues (generics), two recent launches (one for acne, the other a topical steroid) have exceeded expectations. The stock bounced just below 30 and may be bottoming. MNT’s non-breast pipeline is a bit more speculative at this point, though I await further news on its injectables under development.
As I mentioned, the big decline in CUTR over the past few days following a pre-announcement last week has attracted my attention. While I am not sure if it is a good long-term investment, I have established a “trading” position. I am concerned about the large number of suppliers of light-based treatments. In the short-term, though, the company, which tends to have “lumpy” quarters, seems to have missed due to a transitory event. Analysts aren’t really cutting 2008 estimates too much, and the stock has very big long-term support at 25. The valuation is well below the mean of the group. I plan to study this one more while I retain a position.
Disclosure: Author is long CUTR