FDA Approves! Investors Shrug.


When a company receives Food and Drug Administration approval and only goes up 3%, while still trading well below its 52-week high, one of two things happened: Either the approval was widely expected or investors just don't care about the product the company is about to launch.

For MELA Sciences (NAS: MELA) , maybe it's both. The company got an approvable letter in September detailing a few minor things it needed to do before gaining FDA approval for its melanoma detection device, MelaFind. An approval certainly seemed fairly likely despite all the problems that the company had had up to that point.

But there's more to it than that, because MELA is valued at under $150 million. Clearly investors aren't all that excited about the near-term prospects for the device. Part of the reason is that the FDA is restricting the use of the device to dermatologists, who have been trained to spot melanoma. Primary care doctors might be more inclined to use it, but MELA faces an uphill battle persuading dermatologists to defer to a machine.

I think investors are right to take a wait-and-see attitude. Every startup medical-device maker wants to be the next Intuitive Surgical (NAS: ISRG) , which has caught lightning in a bottle, growing earnings by 32% annually over the last five years. Unfortunately, there are plenty of other companies -- MAKO Surgical (NAS: MAKO) and Hansen Medical (NAS: HNSN) , for example -- that have yet to make a consistent profit.

MELA is planning on targeting high-volume dermatology centers in the Northeast when it starts the launch next year, and is also rolling out sales in Germany, where it recently gained approval. Watch the first couple of quarters next year carefully, as they'll say a lot about how high of a hurdle MELA will have to jump to get dermatologists to adopt the new technology.

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At the time thisarticle was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical and MAKO Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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