Problems at The Beauty Health Co (SKIN)
The Beauty Health Co (NASDAQ: SKIN — $1.76 billion) is an aesthetics company that revolves around Hydrafacial, a non-invasive medical device that can “cleanse, peel, exfoliate, extract, infuse, and hydrate” skin. Hydrafacial now faces intense competition from DiamondGlow, a similar product with advantageous distribution backed by Allergan. Lackluster leadership, high executive turnover, internal accounting issues, and a dubious customer base add to the pressure on the company. Trading for ~5x revenue today, The Bear Cave believes Hydrafacial is about to faceplant.
The Beauty Health Co, herein Hydrafacial, went public in a May 2021 merger with Vesper Healthcare Acquisition Corp, a SPAC led by former Allergan CEO Brent Saunders. Prior to the SPAC merger, Hydrafacial was backed by private equity firms Linden Capital Partners and DW Healthcare Partners, which had acquired Hydrafacial’s predecessor company, “Edge Systems,” in December 2016 for an undisclosed amount. After years of market dominance, Hydrafacial now faces growing competition from a nearly identical product, DiamondGlow backed by Allergan. Both products are pictured below.
Hydrafacial and DiamondGlow are often used interchangeably in marketing and some consumers can’t tell the difference. The Botox Lady, a popular medical spa in Fort Lauderdale that also blogs on aesthetics, wrote a June 2022 article comparing Hydrafacial and DiamondGlow. It reads, in part,
“After treating candidates for years at The Botox Lady, we have observed how, over time, the HydraFacial cannot compete with its Allergan equivalent, the DiamondGlow facial, in various respects. As a result, we have decided to switch from using the former to using the latter altogether…
The DiamondGlow facial is similar to the HydraFacial. It is intended to thoroughly cleanse the skin, eliminate impurities, and infuse beneficial ingredients; however, it goes one step further due to a diamond tip… Does this suggest that the HydraFacial is no longer the most effective treatment? Absolutely not. The HydraFacial simply penetrates the skin's surface, but DiamondGlow can resurface your skin and infuse it with fast-acting serums simultaneously…”
While the products may be similar, their distribution is not.
Allergan dominates the beauty space with brands like BOTOX, CoolTone, SkinMedica, and products for breast implants, facelifts, hair transplants, micro-needling, and more. Those procedures are connected through Allergan’s loyalty program, Allē, where consumers earn points for basic cosmetic procedures that can be used for future discounts. For example, a BOTOX injection earns 200 points, which can be used for a ~$20 discount on a DiamondGlow facial. Likewise, on the esthetician side, providers can also get tiered discounts from buying more of their equipment from Allergan.
Whether Hydrafacial can stand firm against Allergan’s dominant distribution comes down to its leadership and execution. We’ll take the under.