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Establishment Labs Poised to Capitalize on Allergan Breast Implant Issues

Allergan (AGN)'s troubles appear to have created an opportunity for a new player in the large market for breast implants.

Establishment Labs' (ESTA) surface technology, called Motiva, appears to cause fewer complications than others on the market, specifically Allergan's. The company is recalling its Biocell textured breast implants after the product was implicated in an increased risk of a rare form of T-cell lymphoma.


Establishment recently received good news from the United States Patent and Trademark Office in the form of a Notice of Allowance for a patent covering its technology. The document is sent to a patent applicant after an examiner has decided to issue the requested patent. The company is still generating data needed to gain premarket approval of its Motivia implant and has already filed for clearance of a tissue expander that uses the same surface technology as the implant.

Analysts at Cowen said in a note to investors that the Establishment product is a welcome addition to a market dominated by "antique" technology, Medtechdrive reported on Sept. 17. "With a patent now in hand for their SmoothSilk surface, Establishment will be able to protect their novel IP (intellectual property) that will serve as the foundation for the company to gain traction in the coming months and years," Cowen said.

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It's anticipated that the Establishment implant will become the favorite among plastic surgeons looking to use the safest product available. That's if everything goes according to plan. Establishment would be harmed if approval of Motiva is pushed beyond 2022 due to safety or other issues. Analysts think the tissue expander will have a significant effect on the company's sales beginning in 2022.

The opportunity is huge. Acumen Research and Consulting reported that the global breast implant market is expected to grow at a CGR of 10.5%, reaching $4.6 billion by 2026. In addition to advances in technology, the market is being driven by an aging population and the growing incidence of breast cancer and its consequential increase in mastectomy, as well as other factors.

Credit: Maria Rachal | Data from American Society of Plastic Surgeons

Other public companies in the breast implant market are Johnson & Johnson (JNJ) (through its Mentor unit) and Sientra (SIEN).

Establishment began operating in 2004, and in 2018 it became the first Costa Rican company to be listed on an American stock exchange.

In the 14 months since it went public, the company's stock has declined some 30%, and it traded Wednesday just under $21. In the latest ratings, two analysts called it a Strong Buy and one a Buy, with an average target price of more than $37.

In the second quarter, Establishment's sales were more than $27 million, up nearly 60% from the same period a year earlier.

Its net loss was $9 million compared to $5.4 million in the second quarter of 2018. The increase was attributed to investments to support an anticipated rise in market demand.

Disclosure: The author has a position in Johnson & Johnson.

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This article first appeared on GuruFocus.