I’ll admit right up front that there’s something appealing about this company’s service, at least for your friendly neighborhood Gumshoe … who is a bit more roly-poly than he might like.
It’s Hilary Kramer pitching to us again, teasing us that she’s recommending a company that can “freeze the fat away” and that should be a long-term winner … but also a short term play with an expected “quick profit” of 40%.
And apparently this isn’t just a teaser campaign pick, but it’s also a current selection of the newsletter — the ad, which I got yesterday, says that it’s a new recommendation in “today’s issue.”
But I’ll let her words entice you …
“an exciting new stock that will deliver explosive growth as it revolutionizes the battle of the bulge.
“When you look at the lists of New Year’s Resolutions, year after year, losing weight always makes it to the top!
“But while we like to look good, we don’t always like to put in the hard work and sacrifice it takes to make it happen (which is probably why it stays on the list year after year!).
“It’s no wonder that liposuction and tummy tucks are both in the top five aesthetic surgeries….
“Today’s GameChanger hits the sweet spot of this huge and growing market with an excellent alternative to surgeries like liposuction and tummy tucks.”
Sounds impressive, right? I’m sure it’s wonderful to cure cancer or diabetes or to treat and counsel families suffering from debilitating problems, but aesthetics is a nice, cleaner business without as much stress — I imagine many doctors are just as happy blasting away a little fat or some wrinkles as they would be treating disease … your patients like it, they’re generally wealthier than average and pay their bills, and there are fewer insurance headaches.
And better yet, we’re told, this is a “non-invasive procedure” — which sounds impressive. Even the vain and the frustrated don’t necessarily take kindly to the idea of possibly risky surgeries or scars to get rid of their “love handles.” If I’m not even willing to stop eating candy bars to lose a few pounds, I’m definitely not willing to undergo surgery.
Here’s what they do, in Kramer’s description:
“This game-changing new procedure, approved by FDA a little over a year ago, literally freezes the fat away. This proprietary system freezes fat cells, causing them to die off over a few-month period.
“Your body just naturally disposes of the dead cells. There are no incisions needed, and no anesthesia is required. It’s an outpatient procedure with minimal discomfort. In fact, many people return to work after having it done.
“The business is very much a ‘razor and blades’ model, which is typical of medical device companies. The ‘razors’ are the systems doctors need to perform the procedure; the ‘blades’ are fees and supplies associated with each procedure, including disposable supplies that allow physicians to use the equipment for a fixed number of procedures before they have to buy more.”
I know we’ve heard it many times, but I looooove the “razors and blades” model — it doesn’t work every time, of course, but if you can find a company that’s implementing it well and pricing it right the long-term rewards can be remarkable. Just look at Intuitive Surgical (ISRG), a company that has been teased many times over the years, and which I regret selling years ago — revenue growth ramps up in the early stages, albeit in a “lumpy” fashion, as the expensive machine is sold to doctors, then more machines begets more procedures, and each procedure requires a disposable set of supplies, so as the installed base grows the demand for the supplies grows.
If you can sell the “razors” or the base equipment at a profit eventually, so much the better — but often the first phase of growth in the installed base comes at a substantial cost, which is worn down over time by the high-margin supplies business that continues to grow on a larger and larger base of machines. And of course, you have all of these doctors who spent a lot of money to invest in a fancy new machine, so they’re motivated to market their services and increase their usage.
Of course, for big-ticket medical devices this only works over the long term if the machine is really unique (and therefore marketable, with a differentiated service or outcome), and it really works well, and doctors and patients both like it and seek it out — preferably by brand name.
So which one is this?
Well, you may already be able to guess it — it’s a recent IPO, and it’s a pretty unique and marketed concept — but it hasn’t gotten all that much press in the investor community that I’ve seen. Just to make sure, let’s gather a couple more details from the teaser ad:
“The company received FDA approval for its system in September of 2010, and early acceptance has been impressive, resulting in rapid revenue growth. In the first four months after approval, revenues jumped to $25.4 million from $1.5 million in 2009. Growth exploded through the first nine months of 2011 with revenues of $49.3 million. Revenues from sales of the system increased 219%, and procedure fees increased 597%.”
And we’re told that the stock “soared” from the IPO by about 40%, but pulled back and is now under the initial offering price. Kramer doesn’t specifically say from whence she pulled that “quick 40% profit” that she’s looking for, but says that it’s a “great time” to buy because “sales are really kicking into high gear.”
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So who is it?
Thinkolator sez: Zeltiq Aesthetics (ZLTQ)
Which really is a new company with a new fat-killing technology — their product is called “coolsculpting”, and it basically takes advantage of the fact that fat cells are sensitive to temperature in a way that’s slightly different from skin cells. Their machine consists of a device that vacuums your skin (flabby sections, like a belly bulge or a “love handle”) into a cooling machine and drops it to a set temperature for an hour. This temperature, which is above freezing, apparently does no lasting damage to the skin cells but kills a portion of the fat cells — and kills them in a pleasant and natural way (the process is called apoptosis) that allows them to just be slowly disposed of by the body (no traumatic desctruction that causes stress or scarring, apparently).
It’s meant for “stubborn” problems like the guy who has lost 25 pounds and looks good, but still ha