3 Companies Revolutionizing the Cosmetics Industry
Dec 21st 2013 2:35PM
Updated Dec 21st 2013 2:36PM
Between 2000 and 2012, the total number of cosmetic procedures performed in the U.S. soared 98%. Between 2011 and 2012, that number jumped 5% to 14.6 million cosmetic procedures -- with breast augmentations, rhinoplasties, eyelid surgeries, liposuction, and facelifts being the top five most commonly performed cosmetic procedures.
There are several factors fueling this spike in cosmetic surgeries over the past decade -- such as an aging, affluent population, shifting standards of beauty, and an increasingly sedentary lifestyle for many Americans.
In this article, let's discuss Allergan , Valeant Pharmaceuticals , and Zeltiq Aesthetics -- three companies which are revolutionizing the cosmetic procedure industry.
Meet the maker of Botox: Allergan
When many people think of cosmetic procedures, they think of Allergan's Botox, the first muscle relaxant to ever be approved for smoothing out wrinkles and laugh lines. Botox is also approved for a variety of other indications, including an overactive bladder, migraines, involuntary muscle movements, vocal disorders, and even underarm perspiration.
Last quarter, sales of Botox rose 12.5% year-over-year to $485.7 million, accounting for 32% of Allergan's net product revenue. Although Botox is currently the top brand in facial muscle relaxants, it faces aggressive competition from Merz Pharmaceuticals' Xeomin and Valeant's Dysport.
To reduce Botox's overall weight in its drug portfolio, Allergan recently gained FDA approval for Juvéderm Voluma XC, a treatment which fills out the cheeks for a more youthful appearance. Vistabel, its other new treatment for crow's feet and laugh lines, has been approved in the U.K., and recently received its first positive European opinion in October.
Allergan also sells breast and facial aesthetic products to plastic surgeons, which together accounted for 13% of its net product sales.
Allergan's major problem, however, is its dry eye treatment Restasis, which reported 20.7% year-over-year growth last quarter. Allergan expects sales of Restasis to account for approximately 15% of the company's fiscal 2013 revenue at the end of the fourth quarter. However, Restasis will lose patent protection in May 2014, inevitably taking a bite out of Allergan's top line when it expires. To make matters worse, the FDA stated in June that upcoming generic versions would not have to go through human clinical trials as long as they were similar enough to Restasis.
The inorganically growing giant: Valeant
Meanwhile, diversified medical giant Valeant has made it clear that it is targeting Allergan's core competencies.
Last December, Valeant acquired Medicis Pharmaceutical for $2.6 billion to add Dysport, a Botox competitor, to its portfolio. In August, Valeant acquired eye care giant Bausch & Lomb for $8.7 billion to compete against Allergan's eye care division.
Valeant then agreed to acquire Solta Medical for $250 million on December 16, paying a 40% premium to add Solta's ultrasound fat reduction system Liposonix and two laser skin treatments -- Fraxel and Clear + Brilliant -- to its portfolio.
LipoSonix is a particularly interesting product, since it uses high intensity ultrasound waves to permanently eliminate fat cells and reduce waist size, representing a drastic improvement over traditional liposuction.
The disrupted fat cells are then eliminated by the body's own immune response. This kind of non-invasive fat reduction therapy can reduce a patient's waist size by 1.5 to 2 inches after an 8 to 12 week period following the initial one hour treatment.
Despite its promising technology, Solta's revenue fell 4% year-over-year to $33.5 million last quarter, which the company attributed to market pressures and lower overseas pricing.
Although adding $33.5 million in quarterly revenues doesn't matter very much to Valeant, which reported $1.54 billion in the third quarter, Valeant has the marketing muscle to help quickly spread Solta's products to new markets over the next few years.
The creator of "CoolSculpting": Zeltiq
Last but not least, Zeltiq, which has rallied more than 270% since the beginning of the year, offers an equally impressive approach to fat reduction.
Zeltiq's Cryolipolysis technology, branded as "CoolSculpting", uses targeted cooling to freeze and kill fat cells under the skin. Zeltiq claims that CoolSculpting is safer than other methods, since it doesn't affect non-fat cells -- which can sometimes be destroyed by surgery, lasers, or ultrasounds. After being frozen, the dead fat cells are naturally eliminated by the body.
Similar to Solta's LipoSonix, CoolSculpting also requires about 8 to 12 weeks for the body to dispose of the eliminated fat cells.
Although Zeltiq is still unprofitable, its losses have significantly narrowed over the past year, with a loss of $0.08 in the third quarter compared to a loss of $0.15 a year earlier. Its revenue, however, surged 64% year-over-year to $29.5 million. That impressive top line growth suggests that it is quickly gaining ground on LipoSonix and other competing procedures.
The Foolish takeaway
Allergan, Valeant, and Zeltiq all represent very different ways to invest in the booming cosmetic procedure industry.
Although Allergan's Botox is still a market-leading product, the company will face some major problems if generic Restasis arrives next year. On the other hand, Valeant is growing very impressively through acquisitions, although it may take some time for its bold moves into eye care and cosmetic procedures to pay off.
Meanwhile, Zeltiq is the smallest and fastest growing company of the three, and with a relatively small market cap of $640 million and no debt, it could make an ideal takeover target for either Allergan or Valeant.
In closing, as the number of cosmetic procedures continues rising, shrewd investors should keep a close eye on these companies and their peers, which are quietly revolutionizing the cosmetics industry.
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The article 3 Companies Revolutionizing the Cosmetics Industry originally appeared on Fool.com.Fool contributor Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.