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Smooth Your Portfolio's Wrinkles (AGN, MRX, MNT)
We all like to look and feel good about ourselves. The older we get the more we tend to focus on our lost youth, and that bathroom scale number? It's more double top-secret than anything the CIA has. We're going top take a look at three companies that profit from our vanity (they also occasionally help people who truly need it). Perhaps they can make your wallet a little more fit in the process.
Research and Development Powerhouse
With a market capitalization of over $18 billion, Allergan (NYSE: AGN) is the 800 pound gorilla in this market. Allergan is the maker of the very popular Botox and derives about one-third of its $3.3 billion in sales from it. What sets Allergan apart from the rest of the pack is its commitment to research and development (R&D) - $470 million in 2006 alone. To put this into perspective, Allergan's R&D budget is five-times what Medicis and Mentor (discussed next) spend combined.
Allergan benefits from strong brand recognition and high market share. This is a good thing since Botox does not have patent protection anymore. The good news is this is market with extremely high barriers to entry. However, competition is coming from Medicis' Reloxin next year.
It is also seeing competitive threats from Mentor from its newly FDA-approved silicone breast implants. Over the next six years, AGN will lose patent protect on a number of its proprietary drugs. It is a fair assumption that its R&D people are very busy.
Allergan has the largest sales force in this business and, because of its excellent reputation, it can cross-sell products with genuine medical applications for under-treated markets. One example is Posurdex for macular edema and degeneration; it has a revolutionary delivery system that allows the medication to be injected continuously into the eye.
Battling Botox for Boomers
Medicis Pharmaceuticals (NYSE: MRX) is a smaller company with a market capitalization of about $1.7 billion. Its mainstay product is Restylane, a dermal filler that is similar to Botox. Restylane is actually more of a complimentary product to Botox than a competitor. Where Botox is best used around the eyes and forehead, Restylane is more effective around the mouth and lips. The market dynamics are intriguing; dermal fillers are most common in people 51 years to 64 years of age, and Botox is commonly used in 35-year-old to 50-year-old people. The end result is a 15 year to 20 year supply of customers.
Medicis is also known for its acne treatment drugs which account for roughly 45% of its $369 million in sales. The company is a solid franchise in this market segment and its two new treatments, Solodyn and Ziana, cover a gap in the market between over-the-counter medicines and more powerful ones such as Roche's (OTC: RHHBY) Accutane. Medicis is facing a fairly serious competitive threat from BioForm Medical's new dermal filler, which appears to require less follow up than Restylane. The worst scenario would be a price war between the two competing firms, as neither would end up winning.
Medicis currently trades at a P/E multiple of roughly 79-times, compared to Allergan's P/E multiple of about 43-times. MRX is more volatile and vulnerable, but clearly, the market also thinks the company shows promise.
A Firmer Market
Allergan and Mentor (NYSE: MNT) are the two major suppliers of breast implants in the United States. The big news is that, after the most extensive testing for anything pharmaceutical product ever, the FDA has approved the use silicone instead of saline after the leaking debacle of some years ago. This could prove to be a boon for this highly profitable niche market as silicone is known to offer a more realistic look and feel than saline.
Now that silicone has been approved this market could double in size. This could be a real boost for Mentor while still leaving good separation between it and its aesthetic, cosmetic niches. Mentor's challenge is to effectively price its silicone product and still not engage in price competition with Allergan. If both firms are realistic with pricing, profits could take a good bounce.
Mentor's cup runneth over (last pun... I promise). This cash could be used for any number of beneficial purposes such as dividends, share repurchases or acquisitions. Who knows where an opportunity will bust out next? MNT's $2.1 billion market capitalization amounts to a more modest price/earnings multiple of 33-times and sales of $270 million.
Vanity Pays
Over the past 10 years, Medicis has appreciated about 100%, Mentor has jumped over 175% and Allergan has risen roughly 650%. Clearly the demand for vanity products is growing. There are 78 million baby-boomers in the Unites States and 450 million world wide just now turning 60 years old. That is an incredible number of wrinkles to be smoothed.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
Research and Development Powerhouse
With a market capitalization of over $18 billion, Allergan (NYSE: AGN) is the 800 pound gorilla in this market. Allergan is the maker of the very popular Botox and derives about one-third of its $3.3 billion in sales from it. What sets Allergan apart from the rest of the pack is its commitment to research and development (R&D) - $470 million in 2006 alone. To put this into perspective, Allergan's R&D budget is five-times what Medicis and Mentor (discussed next) spend combined.
Allergan benefits from strong brand recognition and high market share. This is a good thing since Botox does not have patent protection anymore. The good news is this is market with extremely high barriers to entry. However, competition is coming from Medicis' Reloxin next year.
It is also seeing competitive threats from Mentor from its newly FDA-approved silicone breast implants. Over the next six years, AGN will lose patent protect on a number of its proprietary drugs. It is a fair assumption that its R&D people are very busy.
Allergan has the largest sales force in this business and, because of its excellent reputation, it can cross-sell products with genuine medical applications for under-treated markets. One example is Posurdex for macular edema and degeneration; it has a revolutionary delivery system that allows the medication to be injected continuously into the eye.
Battling Botox for Boomers
Medicis Pharmaceuticals (NYSE: MRX) is a smaller company with a market capitalization of about $1.7 billion. Its mainstay product is Restylane, a dermal filler that is similar to Botox. Restylane is actually more of a complimentary product to Botox than a competitor. Where Botox is best used around the eyes and forehead, Restylane is more effective around the mouth and lips. The market dynamics are intriguing; dermal fillers are most common in people 51 years to 64 years of age, and Botox is commonly used in 35-year-old to 50-year-old people. The end result is a 15 year to 20 year supply of customers.
Medicis currently trades at a P/E multiple of roughly 79-times, compared to Allergan's P/E multiple of about 43-times. MRX is more volatile and vulnerable, but clearly, the market also thinks the company shows promise.
A Firmer Market
Allergan and Mentor (NYSE: MNT) are the two major suppliers of breast implants in the United States. The big news is that, after the most extensive testing for anything pharmaceutical product ever, the FDA has approved the use silicone instead of saline after the leaking debacle of some years ago. This could prove to be a boon for this highly profitable niche market as silicone is known to offer a more realistic look and feel than saline.
Now that silicone has been approved this market could double in size. This could be a real boost for Mentor while still leaving good separation between it and its aesthetic, cosmetic niches. Mentor's challenge is to effectively price its silicone product and still not engage in price competition with Allergan. If both firms are realistic with pricing, profits could take a good bounce.
Mentor's cup runneth over (last pun... I promise). This cash could be used for any number of beneficial purposes such as dividends, share repurchases or acquisitions. Who knows where an opportunity will bust out next? MNT's $2.1 billion market capitalization amounts to a more modest price/earnings multiple of 33-times and sales of $270 million.
Vanity Pays
Over the past 10 years, Medicis has appreciated about 100%, Mentor has jumped over 175% and Allergan has risen roughly 650%. Clearly the demand for vanity products is growing. There are 78 million baby-boomers in the Unites States and 450 million world wide just now turning 60 years old. That is an incredible number of wrinkles to be smoothed.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
by
Dean Lundell
Dean Lundell is the former vice president of Merrill Lynch Capital Markets, a principal of a regional investment bank, an independent futures trader and a licensed commodity trading advisor. Lundell enjoys a contractual relationship with the consulting firm, Greenwich Associates, where he has written material on large corporate and investment banking, interest rate swaps, and foreign exchange and the fixed-ncome Markets. He has also written publications for McGraw-Hill, the Chicago Mercantile Exchange and several financial magazines. Prior to his career on Wall Street, he served with the 82nd Airborne Division in Vietnam.
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