Skin in the Game: This Dermatology Market Stock Is a Good M&A Bet

Dermatology is a health care market sub-sector with positive demographic tailwinds including an aging population that is living longer, more people moving to the sun belt, an increasing desire to look younger and pay for it, and even a climate change aspect because of the thinning ozone layer. 

A number of new dermatology-oriented stocks have surfaced in the past several years and have fared better than other health care sectors, with an average stock decline this year of just 6%, compared with a 25% drop in the overall biotechnology group and a 37% loss for Allergan, one of the leaders in dermatology product sales.  

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Yet, one company's shares are trading below book value and even below cash value, despite a slew of new products launched over the past 12 to 18 months, solid revenue growth both in the U.S. and internationally, a new revenue stream from royalties and a bolstered balance sheet.

That company is Oculus Innovative Sciences (OCLS) , which this week signed a $19-plus million cash upfront deal with the holding company of former partner Laboratorio Sanfer for the sale of its dermatology and wound care products in Mexico and other Latin American markets.

In addition to the cash payment, Oculus Innovative Sciences was able to keep its Brazilian territory and will get a 3% royalty on sales in Latin America outside Mexico, with a guaranteed annual minimum for 10 years. 

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