Palomar's Chance To Take Away from BOTOX (PMTI, JNJ, AGN)

Palomar Medical Technologies Inc. (NASDAQ: PMTI) is seeing shares surge to new heights not seen in 18-months.  The company is the first to receive FDA approval for over-the-counter clearance for a new, patented home use laser device that for the treatment of periorbital wrinkles (for eyes, like crows feet). The beauty of this, no pun intended, is that it is part of a Johnson & Johnson (NYSE: JNJ) partnership and that may lead to much greater use.  This one will not exactly kill the entire Botox market for Allergan, Inc. (NYSE: AGN), but even for one such possible replacement the idea of a home-use laser has to be a bit more enticing than getting stuck with a needle full of Botulinum toxins.

OTC clearance allows the device to be marketed and sold directly to consumers without a prescription, and this could ultimately be a market in the billions of dollars if other OTC uses follow this one.   Doctors have been using these for years.

Allergan recently gave a forecast in early 2009 that its expected sales from BOTOX were expected to be $1.15 billion to $1.19 billion for all of 2009.  That is out of total product sales expectations of $4.1 to $4.3 billion for all of the company’s products.  On the surface, BOTOX is the biggest product that Allergan has, and it has some economic sensitivity to it as sales have softened.  Some investors have thought of Allergan as a potential takeover candidate itself, but what would the value be if yet another BOTOX alternative treatment is available to attack its franchise?

Palomar stock is up a sharp 40% at $15.39 and briefly hit a new high above its $5.83 to $15.99 trading range of the last 52-weeks.  The company’s total annual sales were only $87.581 million in 2008, $123.819 million in 2007, and $126.544 million in 2006.  The expectations from analysts are for another drop in 2009 to $61.33 million, so there is some significant upside for the company.

Allergan shares are up almost 1% at $45.68 today.  Again, this can’t be a category killer that will cripple all BOTOX sales.  But ask yourself if the use of a laser at home for eye wrinkles than getting botulinum toxins injected under your skin.

Jon C. Ogg
June 5, 2009