Palomar Dumped by J&J (PMTI, JNJ)

Palomar Medical Technologies Inc. (NASDAQ: PMTI) is getting hit very hard.  The company issued a press release saying “Palomar to Commercialize FDA Cleared Over-The-Counter Home Use Wrinkle Treatment Laser Device Without Johnson & Johnson.”  It turns out that Johnson & Johnson (NYSE: JNJ) dumped Palomar, just like a bride not showing up to an engagement party.

Palomar announced the termination of its agreement with Johnson & Johnson Consumer Companies to develop, clinically test and commercialize home-use, light-based devices.  These are the devices to reduce or reshaping body fat including cellulite, reducing skin aging appearance, and the prevention of acne.

Palomar said that it met all of its deliverables under the agreement, but J&J terminated the agreement because of “the current unfavorable economic conditions.”  The company further said that this helps J&J to avoid having to make a large commercialization payment to Palomar, and J&J avoids having to commit to the significant level of funding required to successfully launch a new product into the mass market.

Upon termination of the agreement,  all technology and intellectual property rights related to light-based devices developed under the agreement were assigned to Palomar.  In effect, all the patents, trademarks, and everything else goes back to be entirely under Palmor.  J&J is also precluded from further development or commercialization of the light-based devices developed under the agreement.

Palomar, as of June, was the first company to receive a over-the-counter marketing approval from the FDA over the home-use laser device for the treatment of periorbital wrinkles without a prescription.  Palomar stock is now down 13% at $13.26 and its 52-week trading range is $5.83 to $18.94. Frankly, this could end up being a far worse event than the initial drop is signaling.

This is a thinly followed company in the emerging medical devices sector, and unfortunately this is likely to make analysts change the way they value Palomar shares.  As a result of this disclosure, that means that the J&J marketing won’t be an addition, it means that Palomar has to foot the whole bill in promoting it (unless another partner is secured), and it means that it won’t get any payments from J&J for development.

JON C. OGG
OCTOBER 16, 2009