Tria Beauty IPO Preview: Can OTC Medical Devices Help Investors Cash In?

May.21.12 | About: Tria Beauty (TRIA)

Tria Beauty (TRIA) is set to go public by offering 4.6 million shares at a price point of $13 to $15. The initial price offering is being underwritten by Morgan Stanley (NYSE:MS), Piper Jaffray, and Wells Fargo (NYSE:WFC). With a total share count of 19.2 million (19,294,722), the company's market capitalization would be $270.1 million (based on mid range of $14 a share). After the offering, directors of Tria Beauty and owners of more than 5% would own 58.4% of the company.

Tria Beauty is a leading over the counter medical device maker in the beauty segment. The company offers, "easy to use, FDA-cleared medical devices to consumers that deliver results comparable to professional aesthetic treatments at a fraction of the cost." The company's main advantages are cost, effectiveness, and convenience. The question for investors is whether Americans are going to splurge on $400 devices to treat themselves at home, rather than going to a doctor.

The company's products are:

  • Hair Removal Laser - The device was approved by the FDA in 2005 by prescription use only. Later in 2008, the device was approved to be offered over the counter.

  • Skin Perfecting Blue Light - In 2006, the device was approved by the FDA for prescription use. In 2010, the device was approved by the FDA for American over the counter approval. The device was recently approved (April 2012) in Europe for over the counter sales.

  • Skin Rejuvenating Laser - This non-approved device is in late stage testing. The device is a part of the growing anti-aging skincare market. The device was recently approved in Canada back in April. Europe is expected to decide on the device's approval in the second half of 2012. Also expected in 2012 is a decision from the FDA on the device's treatment of crow's feet, perioral wrinkles, dyschromia, and textural irregularities.

Tria Beauty says its main goals are to:

  • Grow [its] brand

  • Penetrate [its] existing channels and markets

  • Expand into new geographies

  • Drive product innovation

Through the end of 2011, the majority of Tria Beauty's sales have come from the Hair Removal Laser, its initial product. The Skin Perfecting Blue Light is in the early stages of marketing and commercialization.

The company generated $45.0 million in net sales for fiscal year 2011 (year end 12/31/11), which was a 66% gain from the prior year. The most recent quarter, ending 03/31/12, saw Tria Beauty capture net sales of $13.5 million, for an increase of 49% over the prior year's first quarter. The company reported a net loss of $34.8 million for 2011. The most recent quarter saw a net loss of $11.1 million. Both of these figures are increases from net losses in prior years. Net sales have increased from the $19.4 reported in 2009. Earnings per share for 2011 would have been -$2.84 based on the new share count. The company's loss in the first quarter would have been $0.75.

Through 2011, North America represents 65% of the company's sales. One of the priorities after the IPO is to expand internationally through sales networking and increase internet presence. Other countries that offer Tria Beauty's products are:

  • Japan

  • South Korea

  • Canada

  • United Kingdom

  • Germany

  • Spain

The United States and Japan are the company's two largest markets in terms of 2011 net sales.

Tria Beauty's products are sold through doctor's offices, the company's website, (NASDAQ:AMZN), and Bloomingdale's across the United States. Tria Beauty also utilizes one of the nation's top home shopping networks in QVC. The following states have physical addresses where you can buy the products:

  • California - 16

  • Colorado - 1

  • Florida - 6

  • Georgia - 1

  • Illinois - 3

  • Maryland - 1

  • Massachusetts - 1

  • Nebraska - 1

  • New Jersey - 5

  • New York - 9

  • Pennsylvania - 1

  • Virginia - 1

  • Washington - 1

Amazon sells three Tria Beauty products on its website:

  • Hair Removal Laser - $395

  • Skin Perfecting Blue Light - $245

  • Skin Perfecting Serum - $50

The prices are the same through Tria Beauty's website. The company also offers an "easy pay" option, which allows a down payment of $195, plus five payments of $49.95, representing a total purchase price of $444.75 (example is for the company's Hair Removal Laser). An encouraging sign for investors and consumers is the device's prices have come down. In 2008, the company's first Hair Removal Laser was offered for $995.

The company's initial price offering is likely to help the company get its name and brand out to the public even further. The company's products have been featured on Rachel Ray's talk show. Former "Saved by the Bell" star Tiffani Thiessen is a current spokesperson for Tria Beauty's products.

One of the risk factors to watch with Tria Beauty is pending legislation over the Hair Removal Laser. Tria Beauty has been taken to court over a patent infringement on the device. If a ruling is made in favor of the plaintiff, Tria Beauty would have to pay back royalties and future royalties through the patent's expiration in 2015. Another risk factor is the company's growing deficit, which currently sits at $112.8 million. I could see the potential for an additional share offering down the road as the company attempts to raise money to expand internationally and launch new products. Flextronics (NASDAQ:FLEX) remains the key manufacturer for many of Tria Beauty's products and parts and the company relies on them to maintain their agreement.

I believe Tria Beauty is a company to watch in the future with growing popularity and a new anti-aging product. However, with pending legislation and a lack of profitability, I recommend sitting on the sidelines of this IPO. I think shares will eventually fall to $10 over the next year, which could offer a great entry point.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.