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

Investopedia: Can Body Sculpting Bulk Up Solta Medical?

Most investors are probably aware that the healthcare industry slowed significantly during the recession and has been very slow in coming back. Hospitals have pulled back on capital spending and procedure counts have dropped as would-be patients worry about inadequate insurance coverage, higher co-pays and/or the opportunity to take time off for recuperation.

There's another segment of the healthcare industry, though; one built around elective procedures that is generally not covered by health insurance. Aesthetics is a big part of this segment, and the market for skin tightening, rejuvenation and so on nearly collapsed in the recession. Procedure counts are starting to come back, though, and Solta Medical (Nasdaq:SLTM) is a risky name worth checking out by virtue of its differentiated business model and new LipoSonix body-sculpting line.

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http://stocks.investopedia.com/stock-analysis/2012/Can-Body-Sculpting-Bulk-Up-Solta-Medical-SLTM-ZLTQ-MRX-ELOS-PMTI0629.aspx

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

Investopedia: Medicis May Not Stay Independent

There are a lot of interesting talking points to take from Medicis Pharmaceutical's (NYSE:MRX) latest earnings report. The company certainly does deserve praise for how it has managed potential generic threats to Solodyn, as well as arguably maximizing what it could from its LipoSonix business. Looking ahead, there is certainly the possibility that Medicis can become a more formidable competitor to Allergan (NYSE:AGN), but shareholders may want to consider the likelihood that Medicis will be folded into a larger pharmaceutical company in the not-so-distant future.

So-So Results for the Third Quarter  
Although there was no glaring problem area for Medicis, this quarter, it was still not all that strong. Revenue rose about 4%, and came in basically at the bottom end of the range. Growth in the core acne business was light (below 1%), while non-acne revenue rose 12% on strong unit sales of Restylane and Dysport.

Read more here:
http://stocks.investopedia.com/stock-analysis/2011/Medicis-May-Not-Stay-Independent-MRX-VRX-AGN-JNJ-WCRX-TEVA-SLTM-IPXL-MYL1110.aspx

Late, But Not Too Late, For Healthcare

There's nothing quite as annoying as being basically right about something and making no money from it. I was pounding the drum for most of 2010 that healthcare was too cheap and that it was a good time to buy some undervalued companies.

Sure enough, stocks like Hologic (Nasdaq: HOLX), Varian (NYSE: VAR), Accuray (Nasdaq: ARAY), Bruker (Nasdaq: BRKR), Cepheid (Nasdaq: CPHD), and Volcano (Nasdaq: VOLC) have all done quite well. And how many of these did I buy? Oh yeah, that's right … none. I kept my shares in Johnson & Johnson (NYSE: JNJ) and added some Alnylam (Nasdaq: ALNY), but didn't add any of the other names I said I liked.

Lucky for me, though, it may not be too late. Looking around the sector, I'm still seeing some interesting valuations on names I like. There are not as many 30%+ undervalued stocks as six months ago, but still a decent collection of ideas.

Here are some of the names I've been looking at lately and seriously considering:

BioMimetic Therapeutics (Nasdaq: BMTI) – I absolutely love this company's product for treating non-union fractures, and I think the overall technology platform as a lot of promise in orthopedics and sports medicine. Moreover, orthobiologics has been a Holy Grail for years and only Medtronic (NYSE: MDT) has really gotten anywhere with it. If approved, BMTI could have a great market opportunity in front of it – though it would more likely get a buyout bid from a larger company like JNJ or Stryker (NYSE: SYK) that needs the growth and the product niche.

Unfortunately, BMTI is offering new technology and I'm scared to death of what the FDA is going to do with this. There is a tiny risk of cancer with these growth-stimulating products and even though BMTI appears to be safer than already-approved products, does anybody want to bet on the FDA taking an enlightened view of this? After all, it seems like the FDA has the attitude that any risk outweighs virtually any benefit. Still, with a panel meeting on May 12 the picture will clear up considerably. I'd like to own this one, but there's a better than fair chance the FDA will torpedo this product.

Covidien (NYSE: COV) – Nobody is more surprised that I like this stock than me. Covidien has long been a boring, not especially well-run company. But it seems like there's a new day at Covidien, and a host of deals done in 2010 should start paying real benefits and giving the company a shot at some decent growth. Covidien is what JNJ might be if management at JNJ wakes the hell up (and I never thought I'd be suggesting that JNJ needs to emulate Covidien). If Covidien can grow the top line at 5% and produce free cash flow margins in line with the industry norms, this is a $60 stock.

Palomar (Nasdaq: PMTI) and Solta (Nasdaq: SLTM) – Aesthetics will come back. These are the companies to own when it does. But judging by Allergan's (NYSE: AGN) recent guidance, the aesthetics market has not come roaring back yet.

Stryker – I've beaten this drum a lot. But I think this stock might actually be worth upwards of $80. Management seems hell-bent on finding ways to grow, and now has clearly opened the door to expanding into markets beyond orthopedics and surgical equipment. I don't know what's next for this company, but it's one I still want to own.

TomoTherapy (Nasdaq: TOMO) – Risky, but really interesting. I need to do a separate write-up on this one to really do it justice.

Abbott Labs (NYSE: ABT), Roche (Nasdaq: RHHBY), and ISTA Pharmaceuticals (Nasdaq: ISTA) – This post is probably getting unbearably long already, but these are three pharmaceutical (mostly) names where I still see some real value. Abbott has suffered as investors worry about competition for Humira. It's a valid worry, but one I think the company can navigate. Roche … well, Roche continues to underwhelm, but I think there's promise in the pipeline, value in the diagnostics business, and a left-for-dead valuation in the shares. ISTA is one of the only pure-plays left in eye care and looks like a winner whether it gets a bid or stays independent.

So that's a quick rundown on what I'm seeing in the med-tech space, but I didn't even touch biotechnology or life sciences. That will have to wait for another day. In the meantime, I'm seriously considering adding one or more of these names to my own portfolio. It's still easier to hold names in materials and industrials, but good healthcare stocks can still outperform and eventually the markets will wake up to these names.

Disclosure: I own shares of Johnson & Johnson and Alnylam

Waiting For A Rebound In Vanity

I have seen it written that you cannot put a price on beauty. The performance of stocks in the aesthetics sector would seem to suggest otherwise. As the housing bubble exploded, the economy fell into recession, credit suddenly became tight, and people stopped finding the money to pay for all manner of personal exterior renovations. (For related reading, take a look at Lipstick And The Stock Market: Connection?)  

If it is true that whatever goes up must come down, can it also be true that a sector laid low by a punishing reduction in disposable income and easy credit could rebound again? Since people do not really change all that quickly, it seems reasonable to assume that the demand for cosmetic procedures is still out there and that when disposable income rebounds, so too will this sector. 


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http://stocks.investopedia.com/stock-analysis/2010/Waiting-For-A-Rebound-In-Vanity-AGN-MRX-PMTI-ELOS-SLTM0903.aspx