Seeking Alpha: Valeant Adds Solta Medical To Its Dermatology Franchise

While it's better to be right, experienced investors know better than to throw away a lucky break. My Alpha-Rich call to buy Solta Medical (SLTM) around $2.30 is not going to go down as one of my favorite picks. While I discussed at some length the risks that ongoing execution issues would keep Solta from reaching its potential, I thought management was close to turning the corner. As it turns out, management found still more corners and this was an exceedingly "meh" pick (down about 8%).

Then along came Valeant (VRX) to save the day.

Valeant and Solta Medical announced on Monday that they had reached an agreement whereby Valeant will acquire the company for $2.92 a share in cash, or a total deal value of $250 million. With this deal, Valeant adds dermatology and aesthetics assets that I believe are better than they appear, while Solta's board gives shareholders an exit strategy with some modicum of grace. Assuming investors who bought around $2.30 sell out at the stated price, they'll get an absolute return of almost 27% and an annualized return of close to 59% - not so bad for a story that was not really developing as I'd hoped.

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Valeant Adds Solta Medical To Its Dermatology Franchise.

Seeking Alpha: Solta Has The Chance To Rejuvenate Itself

Solta Medical (SLTM) is either going to make its investors a pretty respectable amount of money, or it's going to drive them most of the way to the asylum. For all of the things that should be so right about this business - a great high-margin disposables business, leverage to the best growth markets in aesthetics, solid IP - dicey execution, shareholder dilution, and turbulent end markets have made for a very rocky road so far.

Over the next three to five years, I expect the company's increased exposure to the body contouring/liposuction markets, as well as follow-on improvements to existing platforms, to build on improving end-markets to drive above-average revenue growth. I likewise look for a growing user base of the company's disposables/consumables and expanded direct sales efforts overseas to improve margins, such that the stock could rise 50% to 70% as the Street buys into the story again.

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Solta Has The Chance To Rejuvenate Itself

Seeking Alpha: Patience With Palomar Could Pay

Few sectors of healthcare have been gutted to the same extent as aesthetics. Although large players with more of a pharmaceutical focus like Allergan (AGN) and Medicis (MRX) have held up reasonably well, that is in large part because a larger part of their business falls under the header of "medically necessary" and is eligible for insurance reimbursement.

For the device companies, particularly the energy-based device (colloquially called "lasers") companies, though, it has been a hard road indeed. While procedure volume has not yet picked up significantly, investors looking for to get in early may want to consider Palomar Medical Technologies (PMTI). If a recovery in aesthetics procedures really is a "sooner or later" event, the low valuation and strong IP could make this an interesting stock again.

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Patience With Palomar Could Pay