Recently, we upgraded Hologic (HOLX) to Neutral with a target price of $22.00.
Hologic’s four segments − Breast Health, Diagnostics, GYN (Gynecology) Surgical, and Skeletal Health − contributed 45%, 32%, 18% and 5%, respectively to the total revenue during the quarter. Barring Diagnostics revenue which declined 0.9% to $139.1 million during the quarter, the other three segments recorded a robust growth of 9.1% ($195.4 million), 5.9% ($75.7 million) and 4.3% ($22.4 million), respectively.
In a major breakthrough, Hologic received approval from the US Food and Drug Administration (FDA) for its Selenia Dimensions 3D mammography system in February 2011. The 3-D images are superior compared to the 2-D images and help doctors to more accurately detect and diagnose breast cancer in addition to lowering the recall rates. Following its approval, the product was immediately launched in the US.
Approval of the product will be of great help to the huge patient population. It is estimated that more than 40,000 women in America died from breast cancer in 2009. The stage at which the cancer is detected is significant as it influences the likelihood of a woman’s survival. We expect the Breast Health segment to record higher revenues going forward based on the approval of the 3-D product.
The company is quite optimistic regarding its recent acquisition of Interlace Medical which manufactures MyoSure hysteroscopic tissue removal system. There is strong potential in this field as approximately 5 million women in the US suffer from symptomatic fibroids or polyps that can be treated with the MyoSure procedure.
The addressable annual market for MyoSure is likely to approach $300−$400 million and the company is confident of being able to garner a majority share of that market over the next five years.
Hologic has been expanding its infrastructure and management resources to the international markets, particularly in China and Latin America. Moreover, the company plans to continue investing in its European operations.
The company is also ready for acquisitions to have a strong global presence. It is encouraging to note that Hologic has experienced a rebound in volume in Europe, especially after a tough situation in 2009.
Hologic faces competition from players such as Abbott Laboratories (ABT), Qiagen (QGEN) among others. With respect to the company’s Adiana system, Conceptus’ (CPTS) Essure is the primary competitor.
The Diagnostics segment has been suffering for the past few quarters due to economic uncertainty that had led to lower doctor visits, but situations are gradually stabilizing. Moreover, it is encouraging to note that Hologic is looking at improving its top line based on introduction of new products and technologies, international growth and suitable acquisitions.
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