Mergers and acquisitions ("M&A") have picked up over the past couple years, as the global economy continues to recover from the U.S. housing market crash and European sovereign debt crisis. While some of this M&A is driven by cheaper access to credit, some industries are facing dramatic changes that require consolidation to remain viable. In this article, we'll take a look at two industries set for consolidation and one stock that is well positioned to benefit.
Two Industries Set for Consolidation
Pharmaceutical companies are widely known for their M&A activity, as successful clinical trials among small firms tend to result in acquisitions by larger industry giants. But recently, many large pharmaceutical companies are facing a so-called "patent cliff" that could significant hurt revenues. Sales of blockbuster drugs coming off of their patents tend to fall by around 70%, judging by past events, like Sanofi Aventis SA's (NYSE: SNY) Plavix expiration.
Ultra-competitive industries also tend to attract M&A deals, such as the cosmetics industry where there is little product differentiation. For instance, Valeant Pharmaceuticals Inc. (NYSE: VRX) acquired Ambi Skincare Products from Johnson & Johnson (NYSE: JNJ) and Obagi for $360 million during 2013 alone. These deals are driven by a U.S. cosmetics market that Demeter Group expects to rebound from its $58.3 billion 2011 levels to new highs by 2014.
The global pharmaceutical and cosmetics industry represent a combined multi-billion dollar opportunity. While acquiring small-cap players in these markets represents one way to capitalize on M&A potential, as demonstrated by the significant outperformance of the biotech sector versus the S&P 500 in Figure 1 below, investors may also want to consider technologies that could both improve efficacies and extend patent life through reformulation.
Greyson International Could Benefit
Greyson International Inc. (OTC Pink: GYSN), developer of an innovative, patented topical delivery technology targeting the multi-billion dollar cosmetics and OTC pharmaceutical industries, could be set to benefit from these consolidation trends. With its patented Trilexon® technology, the company can help increase the effectiveness of OTC pharmaceutical products and improve the durability and efficiency of cosmetics products.
The company's Trilexon® delivery system enables the finest ingredients to be released topically over an extended period of time, while maintaining the skin's natural intracellular barrier to promote natural moisture and lipid levels, providing a comfortable and durable experience that's unlike anything else on the market. From Johnson & Johnson's (NYSE: JNJ) Rogaine to cosmetic foundations, there are numerous market opportunities for the patented technology.
"Greyson's management team has been diligently working to launch our new Greyson Biomedical subsidiary and commercialize Trilexon® Delivery System in potentially enormous medical end markets," said Greyson International Inc. CEO Harvey Tauman in an April 2013 update. "After demonstrating efficacy in topical applications in OTC products, our goal is to license our patented technology to companies interested in improving efficacy."
"With more durable and stable delivery of active ingredients, we see potential in prescription products that promote healing, restore damaged cells, and relieve topical pain, as well as topical OTC products like pain relievers, eczema treatment, anti-etch creams, burn relief products, or sunscreens etc. Our team is working diligently to prove these claims and launching the new subsidiary in the near future in order to generate significant long-term value," he added.
Potential Investment Opportunity
Greyson International Inc. (OTC Pink: GYSN) represents an attractive investment opportunity for numerous reasons. With a market capitalization of just $8.4 million, the company trades at a fraction of its potential given its Trilexon® technology. The firm also holds a passive investment in Blake Oil & Gas Limited that has helped fund the development and commercialization of its Trilexon® technology and represents additional potential value for shareholders.
In June 2013, the company announced that it sold $1 million of its Blake Oil & Gas stake to aggressively pursue retail distribution deals for its Trilexon® powered products and market Greyson Biomedical's technology to potential licensees in the pharmaceutical industry. And in late-July, the company announced that talks with patent law firm Lerner Greenberg Stemer LLP resulted in across the board agreement with its plans to license this delivery technology.
With the capital committed to product development and validation by industry experts, investors may want to take a second look at this unique micro-cap stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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