The stock price of Californian breast implant manufacturer Sientra (NASDAQ:SIEN) has collapsed to $1 from a 52-week high of $9.

In my view, this medical aesthetics company has potential, given the high barriers to entry in the US breast implant market in the form of lengthy approval processes imposed by the Federal Drug Administration (FDA).

Analysts forecast the global breast implant market will grow 7.2% a year to 2025, driven by the selfie generation’s desire to achieve the perfect look.

There are only three companies authorised by the FDA to manufacture and distribute breast implants in the US – and although Sientra is the smallest player, with 13% of US market share, it is the only pure play available to investors, with rivals Mentor and Allergan owned by Johnson & Johnson and AbbVie, respectively.

Simply the breast

In 2012, Sientra’s implants were approved by the FDA, giving what had been a technologically stagnant duopoly – consisting of Mentor and Allergan – a shake-up.

Safety is a major concern for breast implant patients and their surgeons, and Sientra has a three-pronged sales pitch to win market share based on unique features of its products.

First, it offers “microtextured” implants. Texturing on the surface of implants is important to create “grip”, making dislocation less likely. Strictly speaking, this feature is not unique to Sientra’s products; however, the “texture” on some of its rivals’ products has been linked with a rare form of cancer called breast implant-associated anaplastic large-cell lymphoma (BIA-ALCL). Allergan was forced to recall its Biocell textured implants in July 2019 over such concerns. Reportedly, Sientra’s “microtexturing” solution has achieved a happy medium, preventing “slippage” without creating an unacceptably high risk of BIA-ALCL.

Second, Sientra claims its products are “high strength” and have the lowest rupture rate in the industry, based on 10 years of data.

Finally, Sientra only sells its implants to board-certified or board-eligible plastic surgeons. This prudent strategy makes it less likely its company name will be embroiled in future scandals, as only the safest, most highly trained medical professionals use its products.

Double D on the financials

Here, DD stands for due diligence – so how do Sientra’s financials look?

Sientra has not turned a profit in since its founding in 2007, and in the year ending December 31 2021 its net loss was equal to $62.5m. However, this has to be seen in the context of a company that is investing heavily in its future growth.

From 2019 to 2021, its operating expenses – consisting of marketing, R&D and administration – have gone from being 183% of net sales to 112%. This indicates the company is moving quickly towards an operating profit, with the resumption of elective surgeries post-Covid likely to further hasten that increase in net sales relative to operating expenses.  

Of course, growth stocks in unprofitable companies are not for the faint hearted – especially in the current climate. But given my risk tolerance, I would be happy to buy Sientra while it is trading at multiples below those seen in March 2020.

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