Is Establishment Labs Stock A Buy?

Establishment Labs Holdings Inc (NASDAQ:ESTA) is a medical technology company focused on breast aesthetics and reconstruction. Its portfolio of silicone gel-filled breast implants (branded as Motiva) have an investigational device exemption while in clinical trials with the Food and Drug Administration.

The potential for the company’s products is high and that has analysts and investors alike musing the same thing: is Establishment Labs stock a Buy?

The first thing you need to know is it’s not just operating in the U.S. The Costa Rican company has a presence in about 80 countries, but Brazil is its biggest market. Installing its implants is a mostly cosmetic procedure, and that puts it in a complicated regulatory environment.

Breast augmentation (mammaplasty) is a large market, with around 300,000 women undergoing the procedure every year. The American Society of Plastic Surgeons reports it is the most popular cosmetic procedure in this country.

Will Establishment Labs give investors a lift or need to be removed from portfolios down the road?

Establishment Labs 101

Establishment Labs is a medical technology manufacturer focused on breast implants. It does so through an advanced medical manufacturing procedure that builds safe and quality designs.

The company has been in business for over 30 years and creates products that replicate the look and feel of natural breasts.

Because it’s in the cosmetic surgery business, the company benefited from the rise in procedures through the 2000s. However, breast augmentations decreased over the past year, while breast implant removal surgeries increased by over a third.

Breast implants are known to be an experimental procedure. It’s rare that one surgery will last your entire lifetime. Often, women end up with complications like capsular contracture or implant rupture.

Some people believe the implants help breast cancer patients, while other believe they only trigger the cancer to get worse. Because silicone-gel implants are the most common, it’s under heavy scrutiny. However, competitors like Allergan and Mentor are taking the bulk of the heat from the FDA.

Is Establishment Labs Stock A Buy?

Establishment Labs had a market capitalization of over $1.1 billion at the start of 2021. Its share prices fell to a 52-week low of $7.56 during the stock market crash of 2020 before climbing back to higher trading levels.

By the start of 2021, shares traded at around $50.00 each based on fourth quarter revenue estimates of $27.0 million. This represents a 40 percent increase in sales, and much of this is based on the fall of Allergan.

The competition’s textured implants are associated with a rare form of breast cancer. Because they’re smooth, Establishment Labs isn’t worried about the comparison.

Establishment Labs doesn’t have permission to market in the U.S. yet, but it’s actively engaged in the clinical trial process.

It hopes to hit $100 million in revenues for the fiscal year while slowing its cash burn rate.

It has over $81.4 million cash and cash equivalents on hand. And it pulled $15.1 million in gross profit for the quarter. Still, bearish investors wonder if the company is worth the inherent risks.

Establishment Labs Stock Could Be Risky

Like any biotechnology company, Establishment Labs is entirely dependent on medical regulatory approval. It’s not cheap – analysts estimate the median cost is approximately $19 million to gain FDA approval alone, and the company only has conditional approval.

Unlike many vaccines, silicone breast implants aren’t necessary for normal life. It’s a personal choice made by individuals and mostly for aesthetic purposes.

Because of this, the regulatory environment is complicated. Plastic surgery is a stigmatizing topic and people can have strong opinions for and against. It’s a feminist issue that has different support in regions around the world.

Investors take the risk that the company either fails to receive FDA authorization or even worse is specifically banned. This would be a detrimental outcome for anyone hoping to profit from investing in the company.

Still, Establishment Labs is outperforming the competition.

Can Establishment Labs Competitors Win?

Establishment Labs is a prominent artificial breast manufacturer, but it has strong competition. Companies like AirXpanders, Tensive, Ideal Implant, and GC Aesthetics all have a horse in the race of the breast implant market.

Competitors mentioned above like Allergan used a different type of textured silicone that’s linked to possible breast cancer. This puts Establishment Labs in a great position to take over some patients from the competition.

Of course, that’s hard to do without marketing authorization from the FDA.

That means there’s two basic categories each of these rivals works in. They are either conditionally approved or wholly denied. This is a tough market to operate in, and these competitors are pushing on each other for bigger pieces of a smaller pie.

So long as it avoids any controversial actions or a ban from the FDA, Establishment Labs could gain some healthy profits for investors. Nothing is guaranteed though, and side effects are its biggest concern.

With something like a flu vaccine, efficacy is easier to measure. But with breast implants, they’re looking for adverse reactions. Hopefully Establishment Labs’ product line stays without those.

Is Establishment Labs Stock A Buy? The Bottom Line

Establishment Labs is a biotechnology company that specializes in silicone breast implants. This makes it a leading manufacturer in a controversial voluntary medical procedure. It’s meant for cosmetic purposes, and that means some people have strong opinions.

The company has a global presence in over 80 countries, and the United States is just one, albeit a massive target market. However, the FDA only gave conditional experimental approval, and the company still cannot spend money marketing its products, yet.

Still, it has investors buzzing because of the returns it provided during the pandemic. While implant procedures are down, the company is hoping it can still grow its segment of the market.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.