Acquisitions in aesthetics space continue with $1.65B proposed buy of Cynosure

February 15, 2017 – 8:35 AM | By Andrea Gonzalez | No comments yet

By Omar Ford, Staff Writer

Diagnostics specialist Hologic Inc. is slated to become the newest player in the aesthetics market with its proposed acquisition of Westford, Mass.-based Cynosure Inc. for $1.65 billion. Shares of Cynosure (NASDAQ:CYNO) jumped about 28 percent in trading to $65.95, on Tuesday. Bedford, Mass.-based Hologic executives said the all-cash deal could close in either late March or April.

This marks the second acquisition in the aesthetics space this week. On Monday, Dublin-based Allergan plc revealed its plan to acquire body contouring specialist Zeltiq Aesthetics Inc. for $2.48 billion. (See Medical Device Daily, Feb. 14, 2017.)

Hologic executives estimated the deal will provide a high-single-digit return on invested capital by year five, exceeding the company’s cost of capital. During a Tuesday conference call, Hologic’s chairman, president and CEO Steve MacMillan, said the deal continues Hologic’s transformation into a higher growth company.

“[Cynosure] provides access to a large and rapidly growing market segment,” MacMillan said. “It adds a completely new growth platform to our business.”

He added that Cynosure isn’t subject to reimbursement issues since its technologies operate in the cash-pay arena.

Suraj Kalia, an analyst with North Capital Markets said, “in this era of a ‘potential’ [Affordable Care Act] repeal, we still strongly believe that larger strategics would look to ‘hedge’ their profit and loss with cash-pay technologies, which is where the likes of Cynosure and Zeltiq come in.”

Worldwide sales of medical aesthetics products exceeded $2 billion in 2016, and the space is expected to grow in the low double digits in the next several years.

Cynosure competes in this market with Sculpsure, a laser treatment for noninvasive body contouring, which gained FDA clearance in 2015. (See Medical Device Daily, May 20, 2015.) The company also markets Monalisa Touch, a Co2 laser for women’s health. Cynosure reported revenues of $433.5 million in 2016 and has posted 28 consecutive quarters of year-over-year top-line growth.

In fiscal year 2016, Hologic reported profits of $330.8 million on sales of $2.83 billion. Hologic primarily sells diagnostic and surgical products and medical imaging systems involved in women’s health.

Sean Lavin, an analyst with BTIG approached the deal with some skepticism. He noted that it wasn’t remotely clear how Hologics would be able to leverage these new products into its OB/GYN market.

“We see the deal as mixed,” Lavin said. “Cynosure will accelerate Hologics’ growth profile and open the attractive aesthetics market, but we do have some concerns. It is not clear to us how leverage-able obstetrics and gynecology will be into this market. If Hologics can sell these new products into its existing relationships, this deal could do very well.”

Shares of Hologic (NASDAQ:HOLX) were down 2.47 percent closing at $39.03 on Tuesday.

Incidentally, shares of Cynosure’s competitor Syneron Medical Ltd. (NASDAQ:ELOS), which also offers products for body contouring, hair and tattoo removal as well as facial treatments, were up 7.25 percent trading at $10.35 on Tuesday.


During the Tuesday call, Hologic executives addressed Allergan’s proposed acquisition of Cynosure’s top rival in the market – Zeltiq. The Pleasanton, Calif.-based company develops the Coolsculpting system, an FDA-approved technology that uses a cooling mechanism to reduce the appearance of stubborn fat without disturbing surrounding tissue.

“Even if there are two players in the space, there is a lot of growth, and these markets are so underpenetrated,” MacMillan said.

The company noted that while Allergan was a “formidable opponent,” Hologic consistently competes against large players in the diagnostics, mammography and surgical space.

Hologic reached a turning point when it announced a plan to sell its profitable blood screening business late last year. (See Medical Device Daily, Dec. 16, 2016.) The business accounted for almost 20 percent of its revenues in fiscal 2016 and was sold to Barcelona-based Grifols SA for $1.85 billion. Grifols had been Hologic’s long-time partner in the blood screening business. The divestiture was completed late last month.

Revenues from the blood screening business dropped below Hologic’s liking, declining 12 percent to $223.3 million in fiscal year 2016.

The sale of the blood screening business gave Hologic the capital it needed to acquire Cynosure, which MacMillan said it was interested in since November 2016.

“Within a few months, we have exited a declining business and used the proceeds to effectively self-fund the acquisition of the best-in-class player in a large adjacent market segment that is growing at a low double-digit rate,” MacMillan said.

“The divestiture to Grifols cost the company over 30 cents in earnings per share and [the Cynosure] purchase will add about 14 cents, though at a faster growth rate,” said Sean Lavin, an analyst with BTIG.

Cynosure had received an unsolicited bid from another company, which also prompted the timing of the acquisition.

“Could this ‘other’ party have been Allergan? Don’t know,” Kalia, said.

The deal is not yet finalized and Cynosure could receive other offers.

“The key question right now is [could] competing offers arise, from the likes of Galderma or Fosun Pharma,” Kalia said. “But we continue to believe that Cynosure, at three time’s forward sales, is still a steal considering that it has barely launched its Sculpsure noninvasive fat reduction device in the U.S. The OUS market is barely on the radar screen yet.”


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