In case you didn't hear it on Friday, Palomar Medical Technology's (PMTI) over-the-counter wrinkle-removing device was approved for at-home use by the FDA late last week. The stock went hog wild on the news (of course). With the euphoria wearing off, however, it's time for a little perspective... some data the market didn't care to find out during Friday's buying frenzy.
The device, co-developed by Johnson & Johnson (JNJ), is intended to treat wrinkling around the eyes using lasers. No prescription is required to purchase one, and users can perform the procedure at home themselves.
There's no word yet on what the cost will be, though some analysts think sales of the device could add anywhere from $12 million to $40 million worth of revenues to the company's top line in fiscal 2010 (which is also calendar 2010).
Considering the company was only likely to do about $61 million in sales this year, and was expected to do roughly $68 million, that's not a bad little bump.
What we don't like, however, is that the market cap is now over $300 million, and the company's not been profitable over the prior nine months.... in any of those three quarters. Apparently, skin care - even the clinical level, hard-hitting kind that Palomar specializes in - takes a back seat during a recession.
We think the drag of the recession is over, but in terms of a price/sales ratio or a potential price/earnings ratio (even next year), PMTI shares remain on the expensive side.
That's not to say they can't or won go higher. If you're trying to justify a purchase based on future or present fundamentals, you likely won't be able to. This is more of a momentum stock akin to tech stocks in the late 90's, which managed to dole out big gains to those who knew when to get off the train.
In the very near-term (as in later today), play it by ear... guessing where it will close today is a coin toss. We think it's over-extended, but the market doesn't always care.
As for the other side of the equation, the introduction of an at-home, wrinkle-removing device is expected to take a bite out of Allergen's (AGN) Botox business. Don't worry too much yet - Allergan was expecting to pull in $1.1 billion to $1.2 billion worth of Botox revenue this year. So, clearly the device won't destroy Allergan anytime soon. If it's well accepted though, it could gradually eat into those sales.
The key to the future, ironically, probably isn't successful domination of the eye wrinkle market. Both Allergan and Palomar are both already looking for other uses for their respective products.
See, the FDA's 'approved use' is very limited in terms of which parts of the body can be safely treated by Botox, and now lasers. By finding more uses for each treatment, the potential market grows considerably for each. Allergan seems to have the lead on that front, but the race is definitely on.
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