Cosmetic Laser Company Looks To Shine In The IPO Market

May.21.12 | About: Tria Beauty (TRIA)

The Offering

A California based company is bringing professional aesthetic treatments into customers homes at a fraction of the cost of the doctors office. Tria Beauty (TRIA) offers two lines of aesthetic light-based treatments, a Hair Removal Laser and Skin Perfecting Blue Light. The healthcare company is looking to raise $64 million in an initial public offering set to begin trading on May 24th. Tria Beauty is pricing 4.6 million shares at a range of $13.00 to $15.00 per share, giving the company a total market cap of about $270 million. The managers underwriting the deal are Morgan Stanley (NYSE:MS), Piper Jaffray (NYSE:PJC), and Well Fargo Securities (NYSE:WFC).

Tria's Business

Tria Beauty's best selling product is its Hair Removal Laser. The diode laser device is designed to reduce hair growth and provides results comparable to equipment used by physicians. The device was approved for over-the-counter sales in 2008 by the FDA. Its second product line is the Skin Perfecting Blue Light that is used to treat acne. The device emits a high-intensity blue light that inhibits the growth of acne causing bacteria. It was cleared by the FDA to sell over-the-counter in 2010 and approved to market over-the-counter in Europe in April of this year.

The company is currently producing a Skin Rejuvenating Laser, which is used to treat skin discoloration, wrinkles and rough skin. The laser is in late stage development and Tria has received approval to market the device in Canada and expects to begin selling it in Europe in the second half of 2012. The majority of Tria's revenue from sales is derived from its Hair Removal Laser, while its other two products are still in their early stages of commercialization.

Tria Beauty's Pending Litigation

The company is currently involved in an intellectual property dispute with Palomar Medical Technologies (NASDAQ:PMTI) regarding technology in Tria's primary product, the Hair Removal Laser. There has not been a trial date set and the public probably will not hear anything until December 2012 when the summary judgment briefing is completed. This is material to the company because an unfavorable judgment could make Tria responsible for damages from past sales and royalties for sales through 2015. It is also possible Tria will be blocked from selling the product in the U.S. until the expiration of patents in 2015.

Tria's Competitors

Obviously, one of Tria's main competitors is Palomar Medical Technologies, which holds patents related to hair removal lasers. Tria beauty identifies its competitors as belonging to one of three categories. First it competes with cosmetic over-the-counter skincare producers like Murad. Next, companies like Lumenis, which manufacture equipment for aesthetic procedures in doctor's offices. Finally, other companies providing at-home skincare devices, like HomeSkinovations. HomeSkinovations makes an OTC skincare laser called Silk'n, which is in direct competition with Tria's Hair Removal Laser. Tria believes because its product is genuine laser light, the results last longer than Silk'n, which is a low powered pulsed light.

Tria's Financials

Tria Beauty has been growing its business very rapidly. For 2011 the company had net sales of its Hair Removal Laser nearly double over the year prior. The two primary reasons for the increase were an increase in direct response television spots and a reduction in the price of the Hair Removal Laser from $595 to $395 in the U.S. market. Unfortunately for the company that also meant a significant increase in operating expense. For the three months ending March 31, 2012, net sales were $13.5 million, a 49% increase over the $9 million Tria had in the same period a year prior. Total operating expenses went from $10.9 million for the three months ending March 31, 2011, up to $17.3 million for the same period this year. That was a 58% or $6.3 million increase in expenses quarter over quarter.

How To Trade Tria Beauty

Both Tria Beauty and the at-home cosmetic laser market are still young and it's difficult to determine what type of growth to expect, how Tria will handle growth, and when that growth will slow. Another concern is the higher increase in operating expense compared to the increase in net sales. As of March 31, 2012, the company had working capital of $13.4 million. This and its accumulated deficit of $112.8 million make the success of this offering essential to the company's health.

In the short term, IPO investors have been reluctant to buy on growth possibilities alone, and in the long term, I would like to wait and find out how the pending litigation works out before investing in Tria Beauty.

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