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Obagi Medical shares down as buyout chances recede
August 3, 2012 / 3:50 PM / in 5 years

Obagi Medical shares down as buyout chances recede

(Reuters) - Obagi Medical Products Inc’s OMPI.O shares plunged 29 percent after the company said it had not hired any financial advisers for a strategic evaluation, reducing chances of a buyout deal.

Cantor Fitzgerald analyst Irina Rivkind said the Obagi stock has been driven primarily by deal speculation over the last few months and discouraged retail investors could pull out of the story. “Deal seems unlikely for some time.”

The stock gained 30 percent since February 10 until Thursday’s close, after Obagi’s shareholder Voce Capital Management urged the company to evaluate strategic alternatives.

In response, the company adopted a poison pill, which was later voted down by its shareholders.

The company on Thursday posted quarterly results above analysts’ estimates.

However, analysts were not enthused and said there was a lack of clarity on an on-going inquiry into the company’s sale of hydroquinone products in California, and progress on its e-pharmacy initiative.

The company is facing an inquiry into the methods by which it sells hydroquinone products.

Obagi’s key product line -- the Nu-Derm System -- offers treatments for anti-aging and contains 4 percent hydroquinone as its key ingredient.

The Nu-derm product brought in half of its second-quarter revenue of $30.5 million.

The company had faced a regulatory issue with hydroquinone products in Texas last year, after which it had ceased marketing these products in the state.

After an investigation the complaint was withdrawn, and Obagi reintroduced its products with hydroquinone into the Texas market after a gap of a little over a year.

Cantor analyst Rivkind said the company is still suffering from the marketing disruption in Texas.

The brokerage cut its rating on the company’s stock to “hold” from “buy”.

Canaccord Genuity cut its price target on the shares to $19 from $21.

“Given this uncertainty in California, the recent re-entry into the Texas market and spending initiatives, we believe 2012 will be a transitional year and expect investors to remain cautious,” Canaccord analyst William Plovanic said.

Plovanic said Obagi’s investments into its e-commerce initiative will depress near-term earnings.

Obagi’s shares were down 22 percent at $11.64 in late-morning trading. The stock, which touched a six-month low of $10.70, was one of the top losers on the Nasdaq.

Reporting by Shailesh Kuber in Bangalore; Editing by Maju Samuel

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