Large healthcare companies are facing revenue declines due to expiring patents. These cash rich giants are increasingly investing in small biotechnology companies with promising candidates. Solta Medical Inc (NASDAQ:SLTM)
and Keryx Biopharmaceuticals (NASDAQ:KERX)
are good targets for Big Pharma players looking to diversify or expand patent portfolios.
Solta Medical Inc (NASDAQ:SLTM)’s board is resisting an acquisition but it seems highly likely that activist shareholders will succeed. The shareholders have already rejected the Board’s attempts to double outstanding shares and reduce chances of acquisition. Keryx is getting ready to submit its first NDA next month and there is a high probability that it will get FDA approval for Zerenex.
Solta Medical Inc (NASDAQ:SLTM) is involved in design, development and commercialization of energy-based medical appliance and equipment. Its target market expands to Middle East, North America, Europe and Asia Pacific. Solta Medical Inc (NASDAQ:SLTM) brands include Fraxel, Thermage, Liposonix, Isolaz and CLARO. Over the years it has developed its own distribution network but also utilizes independent distributors and retail networks. Solta Medical Inc (NASDAQ:SLTM)’s customers include gynecologists, dermatologists, plastics surgeons and ophthalmologists.
The valuations of Solta Medical Inc (NASDAQ:SLTM) have been pretty stagnant in the last few years. During the last few quarters shares have fluctuated between $2 and $3. While the valuations have remained stagnant, Solta has shown a significant revenue growth. The company revenues have increased from $110 million (2010) to $144 million (2012), growing by nearly 31%. Despite the revenue growth, gross margins have remained stable at around 62%. However, this growth has not been reflected in the bottom-line due to an approximately 100% increase in SG&A expenses to $104 million.
In the recent past Solta has become an attractive acquisition target. The stagnant price and lack of dividends indicate that a profitable acquisition should be the right option. However, the board of Solta has been resisting any such attempts. According to Voce Capital, the company has been actively trying to thwart acquisition attempts by interested parties. In its last week’s letter
to the board, Voce has demanded that the board should formulate a special committee to evaluate M&A. The firm has also criticized the board for shareholder dissatisfaction and intentionally refusing good bids for Solta. The board is already low on investor confidence as the shareholders have rejected the Board’s proposal to double the shares outstanding to 200 million.
There are a number of parties interested in Solta Medical. There have been rumors
that Valeant Pharmaceuticals Intl Inc (NYSE:VRX)
is interested in acquiring Solta. The company has already acquired a number of companies in the last year.